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MARTIN MARIETTA MATERIALS INC - Quarter Report: 2016 June (Form 10-Q)

 

 

 

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, 2016

OR

o

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

For the transition period from                      to                     

Commission File Number 1-12744

 

MARTIN MARIETTA MATERIALS, INC.

(Exact name of registrant as specified in its charter)

 

 North Carolina

 

56-1848578

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

2710 Wycliff Road, Raleigh, NC

 

27607-3033

(Address of principal executive offices)

 

(Zip Code)

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

Former name: None

Former name, former address and former fiscal year, if changes since last report.

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

Yes  þ    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þ    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer

 

þ

  

Accelerated filer

 

o

 

 

 

 

Non-accelerated filer

 

o  

  

Smaller reporting company

 

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o    No   þ

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

 

Class

 

Outstanding as of August 2, 2016

Common Stock, $0.01 par value

 

63,437,540

 

 

 

 

 

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

 

 

Page

Part I. Financial Information:

 

 

Item 1. Financial Statements.

 

 

 

Consolidated Balance Sheets – June 30, 2016, December 31, 2015 and June 30, 2015

 

 

3

Consolidated Statements of Earnings and Comprehensive Earnings – Three and Six Months Ended June 30, 2016 and 2015

 

 

 

4

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2016 and 2015

 

 

5

Consolidated Statement of Total Equity - Six Months Ended June 30, 2016

 

 

6

Notes to Consolidated Financial Statements

 

 

7

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

 

 

24

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

 

56

Item 4. Controls and Procedures.

 

 

57

Part II. Other Information:

 

 

 

Item 1. Legal Proceedings.

 

 

58

Item 1A. Risk Factors.

 

 

58

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

 

 

58

Item 4. Mine Safety Disclosures.

 

 

58

Item 6. Exhibits.

 

 

59

Signatures

 

 

60

Exhibit Index

 

 

61

 

 

 

Page 2 of 61


 

PART I. FINANCIAL INFOMRATION

Item 1. Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2015

 

 

 

(Dollars in Thousands, Except Per Share Data)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,596

 

 

$

168,409

 

 

$

44,169

 

Accounts receivable, net

 

 

534,459

 

 

 

410,921

 

 

 

497,468

 

Inventories, net

 

 

504,877

 

 

 

469,141

 

 

 

479,856

 

Assets held for sale

 

 

 

 

 

 

 

 

426,495

 

Other current assets

 

 

53,997

 

 

 

33,164

 

 

 

82,134

 

Total Current Assets

 

 

1,121,929

 

 

 

1,081,635

 

 

 

1,530,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

5,896,512

 

 

 

5,613,198

 

 

 

5,421,449

 

Allowances for depreciation, depletion and amortization

 

 

(2,574,307

)

 

 

(2,457,198

)

 

 

(2,371,926

)

Net property, plant and equipment

 

 

3,322,205

 

 

 

3,156,000

 

 

 

3,049,523

 

Goodwill

 

 

2,136,783

 

 

 

2,068,235

 

 

 

2,065,882

 

Operating permits, net

 

 

442,349

 

 

 

444,725

 

 

 

447,702

 

Other intangibles, net

 

 

64,327

 

 

 

65,827

 

 

 

67,242

 

Other noncurrent assets

 

 

145,712

 

 

 

141,189

 

 

 

99,926

 

Total Assets

 

$

7,233,305

 

 

$

6,957,611

 

 

$

7,260,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Bank overdraft

 

$

7,143

 

 

$

10,235

 

 

$

 

Accounts payable

 

 

197,733

 

 

 

164,718

 

 

 

201,235

 

Accrued salaries, benefits and payroll taxes

 

 

24,864

 

 

 

30,939

 

 

 

27,590

 

Pension and postretirement benefits

 

 

9,120

 

 

 

8,168

 

 

 

8,133

 

Accrued insurance and other taxes

 

 

62,525

 

 

 

62,781

 

 

 

57,078

 

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

 

 

238,155

 

 

 

18,713

 

 

 

15,433

 

Accrued interest

 

 

16,573

 

 

 

16,156

 

 

 

16,165

 

Other current liabilities

 

 

45,491

 

 

 

54,948

 

 

 

37,667

 

Total Current Liabilities

 

 

601,604

 

 

 

366,658

 

 

 

363,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,541,062

 

 

 

1,550,061

 

 

 

1,637,905

 

Pension, postretirement and postemployment benefits

 

 

236,562

 

 

 

224,538

 

 

 

272,461

 

Deferred income taxes, net

 

 

639,776

 

 

 

583,459

 

 

 

521,932

 

Other noncurrent liabilities

 

 

197,801

 

 

 

172,718

 

 

 

154,365

 

Total Liabilities

 

 

3,216,805

 

 

 

2,897,434

 

 

 

2,949,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share

 

 

633

 

 

 

643

 

 

 

668

 

Preferred stock, par value $0.01 per share

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

3,318,859

 

 

 

3,287,827

 

 

 

3,274,098

 

Accumulated other comprehensive loss

 

 

(106,068

)

 

 

(105,622

)

 

 

(112,814

)

Retained earnings

 

 

800,028

 

 

 

874,436

 

 

 

1,146,821

 

Total Shareholders' Equity

 

 

4,013,452

 

 

 

4,057,284

 

 

 

4,308,773

 

Noncontrolling interests

 

 

3,048

 

 

 

2,893

 

 

 

1,660

 

Total Equity

 

 

4,016,500

 

 

 

4,060,177

 

 

 

4,310,433

 

Total Liabilities and Equity

 

$

7,233,305

 

 

$

6,957,611

 

 

$

7,260,397

 

See accompanying notes to the consolidated financial statements.  

 

Page 3 of 61


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In Thousands, Except Per Share Data)

 

 

(In Thousands, Except Per Share Data)

 

Net Sales

 

$

915,436

 

 

$

850,249

 

 

$

1,649,396

 

 

$

1,482,124

 

Freight and delivery revenues

 

 

61,862

 

 

 

71,170

 

 

 

116,636

 

 

 

130,641

 

Total revenues

 

 

977,298

 

 

 

921,419

 

 

 

1,766,032

 

 

 

1,612,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

668,735

 

 

 

650,096

 

 

 

1,258,061

 

 

 

1,207,710

 

Freight and delivery costs

 

 

61,862

 

 

 

71,170

 

 

 

116,636

 

 

 

130,641

 

Total cost of revenues

 

 

730,597

 

 

 

721,266

 

 

 

1,374,697

 

 

 

1,338,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

246,701

 

 

 

200,153

 

 

 

391,335

 

 

 

274,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general & administrative expenses

 

 

61,509

 

 

 

56,783

 

 

 

121,370

 

 

 

106,233

 

Acquisition-related expenses, net

 

 

896

 

 

 

2,092

 

 

 

1,322

 

 

 

3,696

 

Other operating (income) and expenses, net

 

 

(3,446

)

 

 

4,294

 

 

 

(2,869

)

 

 

1,930

 

Earnings from Operations

 

 

187,742

 

 

 

136,984

 

 

 

271,512

 

 

 

162,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

20,294

 

 

 

19,087

 

 

 

40,328

 

 

 

38,418

 

Other nonoperating (income) and expenses, net

 

 

(8,100

)

 

 

(3,011

)

 

 

(9,130

)

 

 

(2,118

)

Earnings before taxes on income

 

 

175,548

 

 

 

120,908

 

 

 

240,314

 

 

 

126,255

 

Taxes on income

 

 

53,435

 

 

 

38,929

 

 

 

73,145

 

 

 

38,117

 

Consolidated net earnings

 

 

122,113

 

 

 

81,979

 

 

 

167,169

 

 

 

88,138

 

Less: Net earnings attributable to noncontrolling interests

 

 

61

 

 

 

41

 

 

 

122

 

 

 

73

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

$

122,052

 

 

$

81,938

 

 

$

167,047

 

 

$

88,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Comprehensive Earnings:  (See Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings attributable to Martin Marietta Materials, Inc.

 

$

119,817

 

 

$

75,847

 

 

$

166,601

 

 

$

81,410

 

Earnings attributable to noncontrolling interests

 

 

63

 

 

 

43

 

 

 

155

 

 

 

78

 

 

 

$

119,880

 

 

$

75,890

 

 

$

166,756

 

 

$

81,488

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic attributable to common shareholders

 

$

1.91

 

 

$

1.23

 

 

$

2.61

 

 

$

1.30

 

Diluted attributable to common shareholders

 

$

1.90

 

 

$

1.22

 

 

$

2.60

 

 

$

1.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

63,532

 

 

 

67,373

 

 

 

63,845

 

 

 

67,392

 

Diluted

 

 

63,802

 

 

 

67,633

 

 

 

64,091

 

 

 

67,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Per Common Share

 

$

0.40

 

 

$

0.40

 

 

$

0.80

 

 

$

0.80

 

 

 

See accompanying notes to the consolidated financial statements.  

 

Page 4 of 61


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

167,169

 

 

$

88,138

 

Adjustments to reconcile consolidated net earnings to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

139,617

 

 

 

134,958

 

Stock-based compensation expense

 

 

12,801

 

 

 

7,524

 

Gain on divestitures and sales of assets

 

 

(261

)

 

 

(853

)

Deferred income taxes

 

 

34,389

 

 

 

33,906

 

Excess tax benefits from stock-based compensation transactions

 

 

(3,948

)

 

 

(55

)

Other items, net

 

 

(5,767

)

 

 

(341

)

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

   and divestitures:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(117,524

)

 

 

(76,061

)

Inventories, net

 

 

(33,131

)

 

 

(27,661

)

Accounts payable

 

 

32,521

 

 

 

(3,416

)

Other assets and liabilities, net

 

 

(22,495

)

 

 

(29,070

)

Net Cash Provided by Operating Activities

 

 

203,371

 

 

 

127,069

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(210,559

)

 

 

(127,990

)

Acquisitions, net

 

 

(123,000

)

 

 

(10,713

)

Cash received in acquisition

 

 

3,446

 

 

 

 

Proceeds from divestitures and sales of assets

 

 

4,474

 

 

 

1,972

 

Repayments from affiliate

 

 

 

 

 

1,808

 

Payment of railcar construction advances

 

 

 

 

 

(25,234

)

Reimbursement of railcar construction advances

 

 

 

 

 

25,234

 

Net Cash Used for Investing Activities

 

 

(325,639

)

 

 

(134,923

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Borrowings of debt

 

 

280,000

 

 

 

80,000

 

Repayments of debt

 

 

(70,420

)

 

 

(8,144

)

Payments on capital lease obligations

 

 

(1,563

)

 

 

(1,831

)

Change in bank overdraft

 

 

(3,092

)

 

 

(183

)

Dividends paid

 

 

(51,467

)

 

 

(54,285

)

Issuances of common stock

 

 

15,049

 

 

 

27,760

 

Repurchases of common stock

 

 

(190,000

)

 

 

(100,000

)

Excess tax benefits from stock-based compensation transactions

 

 

3,948

 

 

 

55

 

Net Cash Used for Financing Activities

 

 

(17,545

)

 

 

(56,628

)

Net Decrease in Cash and Cash Equivalents

 

 

(139,813

)

 

 

(64,482

)

Cash and Cash Equivalents, beginning of period

 

 

168,409

 

 

 

108,651

 

Cash and Cash Equivalents, end of period

 

$

28,596

 

 

$

44,169

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

36,630

 

 

$

35,447

 

Cash paid for income taxes

 

$

47,159

 

 

$

24,334

 

 

 

See accompanying notes to the consolidated financial statements.  

 

Page 5 of 61


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARES

(UNAUDITED) CONSOLIDATED STATEMENT OF TOTAL EQUITY

 

(in thousands)

 

Shares of Common Stock

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Other Comprehensive Loss

 

 

Retained Earnings

 

 

Total Shareholders' Equity

 

 

Noncontrolling Interests

 

 

Total Equity

 

Balance at December 31, 2015

 

 

64,479

 

 

$

643

 

 

$

3,287,827

 

 

$

(105,622

)

 

$

874,436

 

 

$

4,057,284

 

 

$

2,893

 

 

$

4,060,177

 

Consolidated net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

167,047

 

 

 

167,047

 

 

 

122

 

 

 

167,169

 

Other comprehensive earnings,

     net of tax

 

 

 

 

 

 

 

 

 

 

 

(446

)

 

 

 

 

 

(446

)

 

 

33

 

 

 

(413

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(51,467

)

 

 

(51,467

)

 

 

 

 

 

(51,467

)

Issuances of common stock for stock

     award plans

 

 

197

 

 

 

2

 

 

 

18,231

 

 

 

 

 

 

 

 

 

18,233

 

 

 

 

 

 

18,233

 

Repurchases of common stock

 

 

(1,244

)

 

 

(12

)

 

 

 

 

 

 

 

 

(189,988

)

 

 

(190,000

)

 

 

 

 

 

(190,000

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

12,801

 

 

 

 

 

 

 

 

 

12,801

 

 

 

 

 

 

12,801

 

Balance at June 30, 2016

 

 

63,432

 

 

$

633

 

 

$

3,318,859

 

 

$

(106,068

)

 

$

800,028

 

 

$

4,013,452

 

 

$

3,048

 

 

$

4,016,500

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.  

 

Page 6 of 61


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.

Significant Accounting Policies

Organization

Martin Marietta Materials, Inc. (the “Corporation” or “Martin Marietta”) is engaged principally in the construction aggregates business. The aggregates product line accounted for 56% of consolidated net sales for the six months ended June 30, 2016 (55% of full-year 2015 consolidated 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 aggregates-related downstream product lines, which accounted for 29% of consolidated net sales for the six months ended June 30, 2016 (27% of full-year 2015 consolidated net sales) and include asphalt products, ready mixed concrete and road paving construction services, are sold and shipped from a network of more than 400 quarries, distribution facilities and plants in 26 states, Nova Scotia and the Bahamas. The aggregates and aggregates-related downstream product lines are reported collectively as the “Aggregates business”.

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

 

AGGREGATES BUSINESS

Reportable Segments

  

Mid-America Group

  

Southeast Group

  

West Group

Operating Locations

  

Indiana, Iowa,

northern Kansas, Kentucky, Maryland, Minnesota, Missouri,

eastern Nebraska, North Carolina, Ohio,

South Carolina,

Virginia, Washington and

West Virginia

  

Alabama, Florida, Georgia, Tennessee,
Nova Scotia and the Bahamas

  

Arkansas, Colorado, southern Kansas,

Louisiana, western Nebraska, Nevada, Oklahoma, Texas, Utah

and Wyoming

The Corporation has a Cement segment, which accounted for 8% of consolidated net sales for the six months ended June 30, 2016 (11% of full-year 2015 consolidated net sales).  The Cement segment has production facilities located in Midlothian, Texas, south of Dallas-Fort Worth and Hunter, Texas, north of San Antonio.  The Cement business produces Portland and specialty cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. The high calcium limestone reserves, used as a raw material, are owned by the Cement business and are adjacent to each of the plants.

The Corporation has a Magnesia Specialties segment with manufacturing facilities in Manistee, Michigan, and Woodville, Ohio. The Magnesia Specialties segment, which accounted for 7% of consolidated net sales for the six months ended June 30, 2016 (7% of full-year 2015 consolidated net sales), produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.  

 

 

Page 7 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued) 

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Corporation have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and in Article 10 of Regulation S-X. The Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of management, the interim consolidated financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods. The consolidated results of operations for the six months ended June 30, 2016 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date but does not include all disclosures required by accounting principles generally accepted in the United States. 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, 2015.

Debt Issuance Costs

The Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which amends the presentation of debt issuance costs in the financial statements.  The ASU requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts, and does not impact the recognition and measurement guidance for debt issuance costs. The Corporation adopted ASU 2015-03 on January 1, 2016 and has retrospectively adjusted the prior periods presented, resulting in a reclassification of $3,588,000 and $4,130,000 from Other noncurrent assets to Long-term debt as of December 31, 2015 and June 30, 2015, respectively, and $533,000 from Other current assets to Current maturities of long-term debt and short-term maturities as of December 31, 2015 and June 30, 2015.  

Revenue Recognition Standard

The FASB issued an accounting standard update that amends the accounting guidance on revenue recognition. The new standard intends to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The new standard is effective January 1, 2018 and can be applied on a full retrospective or modified retrospective approach. The Corporation will not early adopt this standard.  The Corporation is currently evaluating the impact the provisions of the new standard will have on its financial statements and expects to complete its evaluation by the end of 2016.

 

Page 8 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued) 

Lease Standard

In February 2016, the FASB issued a new accounting standard, Accounting Standards Update 2016-2 – Leases, intending to improve financial reporting of leases and to provide more transparency into off-balance sheet leasing obligations.  The guidance requires virtually all leases, excluding mineral interest leases, to be recorded on the balance sheet and provides guidance on the recognition of lease expense and income.  The new standard is effective January 1, 2019 and must be applied on a modified retrospective approach.  The Corporation is currently evaluating the impact the new standard will have on its financial statements.

Share-based Payment Standard

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies certain aspects of accounting guidance and requirements for share-based transactions.  The ASU is effective for reporting periods beginning January 1, 2017.  The Corporation is evaluating the impact of the ASU on its financial statements.  

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss

Consolidated comprehensive earnings/loss for the Corporation consist of consolidated net earnings or loss; adjustments for the funded status of pension and postretirement benefit plans; foreign currency translation adjustments; and the amortization of the value of terminated forward starting interest rate swap agreements into interest expense, and are presented in the Corporation’s consolidated statements of earnings and comprehensive earnings.

Comprehensive earnings attributable to Martin Marietta is as follows:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net earnings attributable to Martin Marietta

    Materials, Inc.

 

$

122,052

 

 

$

81,938

 

 

$

167,047

 

 

$

88,065

 

Other comprehensive loss, net of tax

 

 

(2,235

)

 

 

(6,091

)

 

 

(446

)

 

 

(6,655

)

Comprehensive earnings attributable to Martin Marietta

     Materials, Inc.

 

$

119,817

 

 

$

75,847

 

 

$

166,601

 

 

$

81,410

 

 

 

Page 9 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued) 

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

Comprehensive earnings attributable to noncontrolling interests, consisting of net earnings and adjustments for the funded status of pension and postretirement benefit plans, is as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net earnings attributable to noncontrolling interests

 

$

61

 

 

$

41

 

 

$

122

 

 

$

73

 

Other comprehensive earnings, net of tax

 

 

2

 

 

 

2

 

 

 

33

 

 

 

5

 

Comprehensive earnings attributable to noncontrolling

     interests

 

$

63

 

 

$

43

 

 

$

155

 

 

$

78

 

 

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) earnings, net of tax, are as follows:  

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Unamortized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminated

 

 

Accumulated

 

 

 

Pension and

 

 

 

 

 

 

Forward Starting

 

 

Other

 

 

 

Postretirement

 

 

Foreign

 

 

Interest Rate

 

 

Comprehensive

 

 

 

Benefit Plans

 

 

Currency

 

 

Swap

 

 

Loss

 

 

 

Three Months Ended June 30, 2016

 

Balance at beginning of period

 

$

(101,907

)

 

$

(149

)

 

$

(1,777

)

 

$

(103,833

)

Other comprehensive loss before

     reclassifications, net of tax

 

 

(3,736

)

 

 

(232

)

 

 

 

 

 

(3,968

)

Amounts reclassified from accumulated other

     comprehensive earnings, net of tax

 

 

1,529

 

 

 

 

 

 

204

 

 

 

1,733

 

Other comprehensive (loss) earnings, net of tax

 

 

(2,207

)

 

 

(232

)

 

 

204

 

 

 

(2,235

)

Balance at end of period

 

$

(104,114

)

 

$

(381

)

 

$

(1,573

)

 

$

(106,068

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2015

 

Balance at beginning of period

 

$

(105,151

)

 

$

990

 

 

$

(2,562

)

 

$

(106,723

)

Other comprehensive (loss) earnings before

     reclassifications, net of tax

 

 

(10,670

)

 

 

229

 

 

 

 

 

 

(10,441

)

Amounts reclassified from accumulated other

     comprehensive earnings, net of tax

 

 

4,158

 

 

 

 

 

 

192

 

 

 

4,350

 

Other comprehensive (loss) earnings, net of tax

 

 

(6,512

)

 

 

229

 

 

 

192

 

 

 

(6,091

)

Balance at end of period

 

$

(111,663

)

 

$

1,219

 

 

$

(2,370

)

 

$

(112,814

)

 

Page 10 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued) 

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

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $2,346,000 and $6,793,000 for the three months ended June 30, 2016 and 2015, respectively.

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Unamortized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminated

 

 

Accumulated

 

 

 

Pension and

 

 

 

 

 

 

Forward Starting

 

 

Other

 

 

 

Postretirement

 

 

Foreign

 

 

Interest Rate

 

 

Comprehensive

 

 

 

Benefit Plans

 

 

Currency

 

 

Swap

 

 

Loss

 

 

 

Six Months Ended June 30, 2016

 

Balance at beginning of period

 

$

(103,380

)

 

$

(264

)

 

$

(1,978

)

 

$

(105,622

)

Other comprehensive loss before

     reclassifications, net of tax

 

 

(3,830

)

 

 

(117

)

 

 

 

 

 

(3,947

)

Amounts reclassified from accumulated

     other comprehensive earnings, net of tax

 

 

3,096

 

 

 

 

 

 

405

 

 

 

3,501

 

Other comprehensive (loss) earnings, net of tax

 

 

(734

)

 

 

(117

)

 

 

405

 

 

 

(446

)

Balance at end of period

 

$

(104,114

)

 

$

(381

)

 

$

(1,573

)

 

$

(106,068

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2015

 

Balance at beginning of period

 

$

(106,688

)

 

$

3,278

 

 

$

(2,749

)

 

$

(106,159

)

Other comprehensive loss before

     reclassifications, net of tax

 

 

(10,845

)

 

 

(2,059

)

 

 

 

 

 

(12,904

)

Amounts reclassified from accumulated

     other comprehensive earnings, net of tax

 

 

5,870

 

 

 

 

 

 

379

 

 

 

6,249

 

Other comprehensive (loss) earnings, net of tax

 

 

(4,975

)

 

 

(2,059

)

 

 

379

 

 

 

(6,655

)

Balance at end of period

 

$

(111,663

)

 

$

1,219

 

 

$

(2,370

)

 

$

(112,814

)

 

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $2,405,000 and $6,904,000 for the six months ended June 30, 2016 and 2015, respectively.

 

 

Page 11 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

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, 2016

 

Balance at beginning of period

 

$

65,523

 

 

$

1,159

 

 

$

66,682

 

Tax effect of other comprehensive earnings

 

 

1,408

 

 

 

(136

)

 

 

1,272

 

Balance at end of period

 

$

66,931

 

 

$

1,023

 

 

$

67,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2015

 

Balance at beginning of period

 

$

67,552

 

 

$

1,679

 

 

$

69,231

 

Tax effect of other comprehensive earnings

 

 

4,073

 

 

 

(125

)

 

 

3,948

 

Balance at end of period

 

$

71,625

 

 

$

1,554

 

 

$

73,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

Balance at beginning of period

 

$

66,467

 

 

$

1,290

 

 

$

67,757

 

Tax effect of other comprehensive earnings

 

 

464

 

 

 

(267

)

 

 

197

 

Balance at end of period

 

$

66,931

 

 

$

1,023

 

 

$

67,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2015

 

Balance at beginning of period

 

$

68,568

 

 

$

1,799

 

 

$

70,367

 

Tax effect of other comprehensive earnings

 

 

3,057

 

 

 

(245

)

 

 

2,812

 

Balance at end of period

 

$

71,625

 

 

$

1,554

 

 

$

73,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 12 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

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

 

 

Six Months Ended

 

Affected line items in the consolidated

 

 

June 30,

 

 

June 30,

 

statements of earnings and

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

comprehensive earnings

 

 

(Dollars in Thousands)

 

 

Pension and postretirement

     benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement charge

 

$

 

 

$

 

 

$

59

 

 

$

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit

 

 

(518

)

 

 

(469

)

 

$

(806

)

 

$

(939

)

 

Actuarial loss

 

 

3,007

 

 

 

7,274

 

 

 

5,787

 

 

 

10,546

 

 

 

 

 

2,489

 

 

 

6,805

 

 

 

5,040

 

 

 

9,607

 

Cost of sales; Selling, general

     and administrative expenses

Tax benefit

 

 

(960

)

 

 

(2,647

)

 

 

(1,944

)

 

 

(3,737

)

Taxes on income

 

 

$

1,529

 

 

$

4,158

 

 

$

3,096

 

 

$

5,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized value of terminated

     forward starting interest

     rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional interest expense

 

$

340

 

 

$

317

 

 

$

672

 

 

$

624

 

Interest expense

Tax benefit

 

 

(136

)

 

 

(125

)

 

 

(267

)

 

 

(245

)

Taxes on income

 

 

$

204

 

 

$

192

 

 

$

405

 

 

$

379

 

 

 

 

Page 13 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued) 

Earnings per Common Share

The numerator for basic and diluted earnings per common share is net earnings attributable to Martin Marietta Materials, Inc. reduced by dividends and undistributed earnings attributable to certain of the Corporation’s stock-based compensation. 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, 2016 and 2015, 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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In Thousands)

 

Net earnings from continuing operations attributable to

      Martin Marietta Materials, Inc.

 

$

122,052

 

 

$

81,938

 

 

$

167,047

 

 

$

88,065

 

Less: Distributed and undistributed earnings attributable to

     unvested awards

 

 

519

 

 

 

(876

)

 

 

730

 

 

 

403

 

Basic and diluted net earnings available to common

     shareholders attributable to Martin Marietta Materials, Inc.

 

$

121,533

 

 

$

82,814

 

 

$

166,317

 

 

$

87,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

63,532

 

 

 

67,373

 

 

 

63,845

 

 

 

67,392

 

Effect of dilutive employee and director awards

 

 

270

 

 

 

260

 

 

 

246

 

 

 

262

 

Diluted weighted-average common shares outstanding

 

 

63,802

 

 

 

67,633

 

 

 

64,091

 

 

 

67,654

 

 

2.

Inventories, Net

 

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2015

 

 

 

(Dollars in Thousands)

 

Finished products

 

$

463,807

 

 

$

433,649

 

 

$

425,732

 

Products in process and raw materials

 

 

60,324

 

 

 

55,194

 

 

 

62,059

 

Supplies and expendable parts

 

 

113,110

 

 

 

110,882

 

 

 

112,592

 

 

 

 

637,241

 

 

 

599,725

 

 

 

600,383

 

Less: Allowances

 

 

(132,364

)

 

 

(130,584

)

 

 

(120,527

)

Total

 

$

504,877

 

 

$

469,141

 

 

$

479,856

 

 

 

Page 14 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

3.

Long-Term Debt  

 

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2015

 

 

 

(Dollars in Thousands)

 

6.6% Senior Notes, due 2018

 

$

299,294

 

 

$

299,113

 

 

$

298,931

 

7% Debentures, due 2025

 

 

124,046

 

 

 

124,002

 

 

 

123,960

 

6.25% Senior Notes, due 2037

 

 

227,947

 

 

 

227,917

 

 

 

227,898

 

4.25 % Senior Notes, due 2024

 

 

394,977

 

 

 

394,690

 

 

 

394,441

 

Floating Rate Notes, due 2017, interest rate of 1.73%,

     1.71% and 1.38% at June 30, 2016, December 31, 2015

     and June 30, 2015, respectively

 

 

298,793

 

 

 

298,868

 

 

 

298,514

 

Term Loan Facility, due 2018, interest rate of 1.96%, 1.86% and 1.69%

     at June 30, 2016, December 31, 2015 and June 30, 2015,

     respectively

 

 

213,571

 

 

 

222,521

 

 

 

228,346

 

Trade Receivable Facility, interest rate of 1.16% and 0.88% at

     June 30, 2016 and June 30, 2015, respectively

 

 

220,000

 

 

 

 

 

 

80,000

 

Other notes

 

 

589

 

 

 

1,663

 

 

 

1,248

 

Total debt

 

 

1,779,217

 

 

 

1,568,774

 

 

 

1,653,338

 

Less: Current maturities

 

 

(238,155

)

 

 

(18,713

)

 

 

(15,433

)

Long-term debt

 

$

1,541,062

 

 

$

1,550,061

 

 

$

1,637,905

 

 

The Corporation, through a wholly-owned special-purpose subsidiary, has a $250,000,000 trade receivable securitization facility (the “Trade Receivable Facility”), which matures on September 30, 2016.  Management intends to renew the Trade Receivable Facility beyond September 30, 2016.  The Trade Receivable Facility, with SunTrust Bank, Regions Bank, PNC Bank, N.A. and certain other lenders that may become a party to the facility from time to time, is backed by eligible trade receivables, as defined, and is limited to the lesser of the facility limit or the borrowing base, as defined, of $391,600,000, $282,258,000 and $450,791,000 at June 30, 2016, December 31, 2015 and June 30, 2015, respectively.  These receivables are originated by the Corporation and then sold to the wholly-owned special-purpose subsidiary by the Corporation.  The Corporation continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned special-purpose subsidiary.  Borrowings under the Trade Receivable Facility bear interest at a rate equal to one-month LIBOR plus 0.7%.  The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements.

 

Page 15 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

3.

Long-Term Debt (continued) 

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 by the Credit Agreement, 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.

In accordance with the amended Credit Agreement, the Corporation adjusted consolidated EBITDA to add back 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. The Corporation was in compliance with this Ratio at June 30, 2016.

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, 2016, December 31, 2015 and June 30, 2015, the Corporation had $2,507,000 of outstanding letters of credit issued under the Revolving Facility.

Current debt maturities consist of borrowings under the Trade Receivable Facility as well as the current portions of the Term Loan Facility and other notes.  The increase in current debt maturities as of June 30, 2016 is attributable to the balance drawn on the Trade Receivable Facility.  The Floating Rate Notes have been classified as a noncurrent liability as the Corporation has the intent and ability to refinance on a long-term basis before or at its maturity of June 30, 2017.

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, 2016, the Corporation recognized $340,000 and $672,000, respectively, as additional interest expense. For the three and six months ended June 30, 2015, the Corporation recognized $317,000 and $624,000, 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 $1,400,000 until the maturity of the 6.6% Senior Notes in 2018.

4.

Financial Instruments

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

Cash equivalents are placed primarily in money market funds, money market demand deposit accounts and Eurodollar time deposits. The Corporation’s cash equivalents have original 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 16 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4.

Financial Instruments (continued) 

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

Notes receivable are classified in the line items Other current assets and Other noncurrent assets on the consolidated balance sheets and are not publicly traded. Management estimates that the fair value of notes receivable approximates the carrying amount due to the variable interest rates of the receivables.

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 due to the short-term nature of the overdraft.

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

The carrying values and fair values of the Corporation’s long-term debt were $1,779,217,000 and $1,890,319,000, respectively, at June 30, 2016; $1,568,774,000 and $1,625,193,000, respectively, at December 31, 2015; and $1,653,338,000 and $1,729,511,000, respectively, at June 30, 2015. The estimated fair value of the publicly-registered long-term notes was estimated based on Level 1 of the fair value hierarchy using quoted market prices. The estimated fair value of other borrowings, which primarily represents variable-rate debt, was based on Level 2 of the fair value hierarchy using quoted market prices for similar debt instruments, and approximates their carrying amounts as the interest rates reset periodically.  

5.

Income Taxes

The Corporation’s effective income tax rates for the six months ended June 30, 2016 and 2015 were 30.4% and 30.2%, respectively.  The estimated effective income tax rates reflect 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 and the domestic production deduction.

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

 

Page 17 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6.

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

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Service cost

 

$

5,776

 

 

$

5,513

 

 

$

24

 

 

$

34

 

Interest cost

 

 

9,331

 

 

 

8,213

 

 

 

259

 

 

 

229

 

Expected return on assets

 

 

(9,822

)

 

 

(8,887

)

 

 

 

 

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (credit)

 

 

91

 

 

 

101

 

 

 

(609

)

 

 

(570

)

Actuarial loss (gain)

 

 

3,146

 

 

 

7,351

 

 

 

(139

)

 

 

(77

)

Special termination benefit

 

 

638

 

 

 

1,206

 

 

 

(8

)

 

 

 

Net periodic benefit cost (credit)

 

$

9,160

 

 

$

13,497

 

 

$

(473

)

 

$

(384

)

 

 

 

Six Months Ended June 30,

 

 

 

Pension

 

 

Postretirement Benefits

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Service cost

 

$

11,082

 

 

$

11,505

 

 

$

43

 

 

$

68

 

Interest cost

 

 

17,938

 

 

 

16,575

 

 

 

432

 

 

 

464

 

Expected return on assets

 

 

(18,848

)

 

 

(18,190

)

 

 

 

 

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (credit)

 

 

175

 

 

 

211

 

 

 

(981

)

 

 

(1,150

)

Actuarial loss (gain)

 

 

6,036

 

 

 

10,700

 

 

 

(249

)

 

 

(154

)

Settlement charge

 

 

59

 

 

 

 

 

 

 

 

 

 

Special termination benefit

 

 

764

 

 

 

1,462

 

 

 

(8

)

 

 

 

Net periodic benefit cost (credit)

 

$

17,206

 

 

$

22,263

 

 

$

(763

)

 

$

(772

)

 

The Corporation currently estimates that it will contribute $38,752,000 to its pension and SERP plans in 2016.

 

 

Page 18 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

7.

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.

Borrowing Arrangements with Affiliate

The Corporation is a co-borrower with an unconsolidated affiliate for a $25,000,000 revolving line of credit agreement with BB&T Bank. The affiliate has agreed to reimburse and indemnify the Corporation for any payments and expenses the Corporation may incur from this agreement. The Corporation holds a lien on the affiliate’s membership interest in a joint venture as collateral for payment under the revolving line of credit.

In addition, the Corporation has a $6,000,000 outstanding loan due from this unconsolidated affiliate as of June 30, 2016, December 31, 2015 and June 30, 2015.

Employees

Approximately 10% of the Corporation’s employees are represented by a labor union.  All such employees are hourly employees.  The Corporation maintains collective bargaining agreements relating to the union employees with the Aggregates business and Magnesia Specialties segments.  For the Magnesia Specialties segment located in Manistee, Michigan and Woodville, Ohio, 100% of its hourly employees are represented by labor unions. The Manistee collective bargaining agreement expires in August 2019, and the Woodville collective bargaining agreement expires in May 2018.

8.

Business Segments

The Aggregates business contains three reportable business segments: Mid-America Group, Southeast Group and West Group. The Corporation also has Cement and Magnesia Specialties segments. Corporate loss from operations primarily includes depreciation on capitalized interest, expenses for certain corporate administrative functions, business development and integration expenses, unallocated corporate expenses and other nonrecurring and/or non-operational adjustments. Intersegment sales represent net sales from one segment to another segment.

 

Page 19 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8.

Business Segments (continued) 

The following tables display selected financial data for continuing operations for the Corporation’s reportable business segments. Total revenues and net sales in the table below, as well as the consolidated statements of earnings and comprehensive earnings, exclude intersegment sales, which are eliminated.  

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

278,676

 

 

$

257,649

 

 

$

465,023

 

 

$

398,482

 

Southeast Group

 

 

87,600

 

 

 

81,518

 

 

 

159,271

 

 

 

146,195

 

West Group

 

 

484,918

 

 

 

411,235

 

 

 

877,913

 

 

 

731,807

 

Total Aggregates Business

 

 

851,194

 

 

 

750,402

 

 

 

1,502,207

 

 

 

1,276,484

 

Cement

 

 

62,468

 

 

 

105,899

 

 

 

136,019

 

 

 

207,999

 

Magnesia Specialties

 

 

63,636

 

 

 

65,118

 

 

 

127,806

 

 

 

128,282

 

Total

 

$

977,298

 

 

$

921,419

 

 

$

1,766,032

 

 

$

1,612,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

258,988

 

 

$

237,415

 

 

$

432,360

 

 

$

367,120

 

Southeast Group

 

 

82,676

 

 

 

76,483

 

 

 

149,961

 

 

 

136,253

 

West Group

 

 

455,115

 

 

 

375,489

 

 

 

819,040

 

 

 

662,570

 

Total Aggregates Business

 

 

796,779

 

 

 

689,387

 

 

 

1,401,361

 

 

 

1,165,943

 

Cement

 

 

59,791

 

 

 

100,405

 

 

 

129,664

 

 

 

196,970

 

Magnesia Specialties

 

 

58,866

 

 

 

60,457

 

 

 

118,371

 

 

 

119,211

 

Total

 

$

915,436

 

 

$

850,249

 

 

$

1,649,396

 

 

$

1,482,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

80,552

 

 

$

66,894

 

 

$

94,976

 

 

$

62,691

 

Southeast Group

 

 

11,548

 

 

 

4,818

 

 

 

18,519

 

 

 

3,269

 

West Group

 

 

77,404

 

 

 

49,177

 

 

 

116,201

 

 

 

63,676

 

Total Aggregates Business

 

 

169,504

 

 

 

120,889

 

 

 

229,696

 

 

 

129,636

 

Cement

 

 

21,309

 

 

 

22,468

 

 

 

47,626

 

 

 

34,697

 

Magnesia Specialties

 

 

19,227

 

 

 

18,751

 

 

 

39,791

 

 

 

36,541

 

Corporate

 

 

(22,298

)

 

 

(25,124

)

 

 

(45,601

)

 

 

(38,319

)

Total

 

$

187,742

 

 

$

136,984

 

 

$

271,512

 

 

$

162,555

 

 

 

Page 20 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8.

Business Segments (continued) 

The decline in the Cement business’s total and net sales is primarily attributable to the California cement operations, included in the three and six months ended June 30, 2015 and divested as of September 30, 2015.  For the three months ended June 30, 2015, total revenues, net sales and loss from operations for the California cement operations were $35,318,000, $34,160,000 and $485,000, respectively.  For the six months ended June 30, 2015, total revenues, net sales and loss from operations for the California cement operations were $69,674,000, $67,267,000 and $7,906,000, respectively.

Cement intersegment sales, which are to the aggregates and ready mixed concrete product lines in the West Group, were $27,649,000 and $54,637,000 for the three and six months ended June 30, 2016, respectively, and $20,854,000 and $38,955,000 for the three and six months ended June 30, 2015, respectively.

The Aggregates business includes the aggregates product line and aggregates-related downstream product lines, which include asphalt, ready mixed concrete and road paving products. All aggregates-related downstream product lines reside in the West Group. The following tables, which are reconciled to consolidated amounts, provide net sales and gross profit by line of business: Aggregates (further divided by product line), Cement and Magnesia Specialties.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

516,283

 

 

$

481,616

 

 

$

922,721

 

 

$

813,830

 

Asphalt and Paving

 

 

65,609

 

 

 

58,021

 

 

 

76,967

 

 

 

74,790

 

Ready Mixed Concrete

 

 

214,887

 

 

 

149,750

 

 

 

401,673

 

 

 

277,323

 

Total Aggregates Business

 

 

796,779

 

 

 

689,387

 

 

 

1,401,361

 

 

 

1,165,943

 

Cement

 

 

59,791

 

 

 

100,405

 

 

 

129,664

 

 

 

196,970

 

Magnesia Specialties

 

 

58,866

 

 

 

60,457

 

 

 

118,371

 

 

 

119,211

 

Total

 

$

915,436

 

 

$

850,249

 

 

$

1,649,396

 

 

$

1,482,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

164,353

 

 

$

137,272

 

 

$

245,431

 

 

$

178,690

 

Asphalt and Paving

 

 

12,876

 

 

 

7,891

 

 

 

6,714

 

 

 

3,116

 

Ready Mixed Concrete

 

 

25,293

 

 

 

9,341

 

 

 

43,380

 

 

 

11,424

 

Total Aggregates Business

 

 

202,522

 

 

 

154,504

 

 

 

295,525

 

 

 

193,230

 

Cement

 

 

24,002

 

 

 

30,414

 

 

 

56,559

 

 

 

49,400

 

Magnesia Specialties

 

 

21,692

 

 

 

21,224

 

 

 

44,662

 

 

 

41,402

 

Corporate

 

 

(1,515

)

 

 

(5,989

)

 

 

(5,411

)

 

 

(9,618

)

Total

 

$

246,701

 

 

$

200,153

 

 

$

391,335

 

 

$

274,414

 

For the three months ended June 30, 2015, gross profit for the California cement operations was $3,424,000. For the six months ended June 30, 2015, the operation’s gross loss was $647,000.

 

Page 21 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9.

Supplemental Cash Flow Information  

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Other current and noncurrent assets

 

$

(9,691

)

 

$

(5,501

)

Accrued salaries, benefits and payroll taxes

 

 

(7,808

)

 

 

(13,794

)

Accrued insurance and other taxes

 

 

(256

)

 

 

(1,278

)

Accrued income taxes

 

 

(8,495

)

 

 

(19,902

)

Accrued pension, postretirement and postemployment benefits

 

 

11,757

 

 

 

16,283

 

Other current and noncurrent liabilities

 

 

(8,002

)

 

 

(4,878

)

 

 

$

(22,495

)

 

$

(29,070

)

The change in accrued salaries, benefits and payroll taxes in 2016 compared to 2015 was primarily attributable to TXI-related severance payments made in 2015.  The change in accrued income taxes was attributable to higher taxable income in 2016 compared to 2015.

Noncash investing and financing activities are as follows:

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Acquisition of assets through capital lease

 

$

 

 

$

1,331

 

Acquisition of assets through asset exchange

 

 

 

 

 

5,000

 

 

10.Business Combination

During the first quarter 2016, the Corporation acquired the outstanding stock of Rocky Mountain Materials and Asphalt, Inc., and Rocky Mountain Premix Inc.  The acquisition provides more than 500 million tons of mineral reserves and expands the Corporation’s presence along the Front Range of the Rocky Mountains, home to 80% of Colorado’s population.  The acquired operations are reported through the West Group.  The Corporation has recorded preliminary fair values of the assets acquired and liabilities assumed; however, certain amounts are subject to change as additional reviews are performed, including asset and liability verification and review of seller’s final tax return.  Specific accounts subject to ongoing purchase accounting include property, plant and equipment; goodwill; accrued expenses and deferred income taxes.  The acquisition was not financially material; therefore, pro forma information is not required.  

 

Page 22 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11. Stock-Based Compensation

During the quarter ended March 31, 2016, the Corporation awarded its annual grant of stock-based compensation, which included 75,421 of performance stock units and 68,720 of restricted stock units.  The grant-date fair value of each award is $142.02 for the performance stock units and $124.41 for the restricted stock units.  No stock options are expected to be awarded in 2016.  In past years, annual stock-based compensation awards were primarily made in the second quarter of the year.  The change in the composition of the awards and the timing of the annual grant resulted in higher expense recorded in the first half of the year compared with prior years.  For the six months ended June 30, 2016 and 2015, stock-based compensation expense was $12,801,000 and $7,524,000, respectively.

 

 

Page 23 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

 

 

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

OVERVIEW

Martin Marietta Materials, Inc. (the “Corporation” or “Martin Marietta”) is a leading supplier of aggregates products (crushed stone, sand and gravel) and heavy building materials for the construction industry, including infrastructure, nonresidential, residential, railroad ballast, agricultural and chemical grade stone used in environmental applications. The Corporation’s annual consolidated net sales and operating earnings are predominately derived from its Aggregates business, which mines, processes and sells granite, limestone, sand, gravel and other aggregates-related downstream products, including ready mixed concrete, asphalt and road paving construction services for use in all sectors of the public infrastructure, environmental industries, nonresidential and residential construction industries, as well as agriculture, railroad ballast, chemical, utility and other uses. The Aggregates business shipped and delivered aggregates, ready mixed concrete and asphalt products from a network of more than 400 quarries, underground mines, distribution facilities and plants in 26 states, Nova Scotia and the Bahamas. The Aggregates business’ products are used primarily by commercial customers principally in domestic construction of highways and other infrastructure projects and for nonresidential and residential building development. Aggregates products are also used in the railroad, agricultural, utility and environmental industries.

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

AGGREGATES BUSINESS

Reportable Segments

 

Mid-America Group

 

Southeast Group

 

West Group

Operating Locations

  

Indiana, Iowa, northern Kansas, Kentucky, Maryland, Minnesota, Missouri, eastern Nebraska, North Carolina, Ohio, South Carolina, Virginia, Washington and West Virginia

  

Alabama, Florida, Georgia, Tennessee, Nova Scotia and the Bahamas

  

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

 

 

 

 

Product Lines

  

Aggregates (crushed stone, sand and gravel)

  

Aggregates (crushed stone, sand and gravel)

  

Aggregates (crushed stone, sand and gravel), ready mixed concrete, asphalt and road paving

 

 

 

 

Types of Aggregates Locations

  

Quarries and Distribution Facilities

  

Quarries and Distribution Facilities

  

Quarries, Plants and

Distribution Facilities

 

 

 

 

Modes of Transportation for Aggregates Product Line

  

Truck and Rail

  

Truck, Rail and Water

  

Truck and Rail

 

 

Page 24 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

The Cement business produces Portland and specialty cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. The production facilities are located in Midlothian, Texas, south of Dallas-Fort Worth and Hunter, Texas, north of San Antonio. Limestone reserves used as a raw material are owned by the Corporation and located on property adjacent to each of the plants. In addition to the manufacturing facilities, the Corporation operates cement distribution terminals.

The Corporation also has a Magnesia Specialties segment that produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.

CRITICAL ACCOUNTING POLICIES

The Corporation outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2015. There were no changes to the Corporation’s critical accounting policies during the six months ended June 30, 2016.

RESULTS OF OPERATIONS

Except as indicated, the comparative analysis in this Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, 2016 and 2015 in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales.

Consolidated Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

246,701

 

 

$

200,153

 

 

$

391,335

 

 

$

274,414

 

Total revenues

 

$

977,298

 

 

$

921,419

 

 

$

1,766,032

 

 

$

1,612,765

 

Gross margin

 

 

25.2

%

 

 

21.7

%

 

 

22.2

%

 

 

17.0

%

 

 

Page 25 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Consolidated Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

246,701

 

 

$

200,153

 

 

$

391,335

 

 

$

274,414

 

Total revenues

 

$

977,298

 

 

$

921,419

 

 

$

1,766,032

 

 

$

1,612,765

 

Less: Freight and delivery revenues

 

 

(61,862

)

 

 

(71,170

)

 

 

(116,636

)

 

 

(130,641

)

Net sales

 

$

915,436

 

 

$

850,249

 

 

$

1,649,396

 

 

$

1,482,124

 

Gross margin excluding freight and delivery revenues

 

 

26.9

%

 

 

23.5

%

 

 

23.7

%

 

 

18.5

%

 

Consolidated Operating Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Earnings from operations

 

$

187,742

 

 

$

136,984

 

 

$

271,512

 

 

$

162,555

 

Total revenues

 

$

977,298

 

 

$

921,419

 

 

$

1,766,032

 

 

$

1,612,765

 

Operating margin

 

 

19.2

%

 

 

14.9

%

 

 

15.4

%

 

 

10.1

%

 

Consolidated Operating Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Earnings from operations

 

$

187,742

 

 

$

136,984

 

 

$

271,512

 

 

$

162,555

 

Total revenues

 

$

977,298

 

 

$

921,419

 

 

$

1,766,032

 

 

$

1,612,765

 

Less: Freight and delivery revenues

 

 

(61,862

)

 

 

(71,170

)

 

 

(116,636

)

 

 

(130,641

)

Net sales

 

$

915,436

 

 

$

850,249

 

 

$

1,649,396

 

 

$

1,482,124

 

Operating margin excluding freight and delivery revenues

 

 

20.5

%

 

 

16.1

%

 

 

16.5

%

 

 

11.0

%

 

 

Page 26 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Aggregates Business Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

202,522

 

 

$

154,504

 

 

$

295,525

 

 

$

193,230

 

Total revenues

 

$

851,194

 

 

$

750,402

 

 

$

1,502,206

 

 

$

1,276,484

 

Gross margin

 

 

23.8

%

 

 

20.6

%

 

 

19.7

%

 

 

15.1

%

 

Aggregates Business Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

202,522

 

 

$

154,504

 

 

$

295,525

 

 

$

193,230

 

Total revenues

 

$

851,194

 

 

$

750,402

 

 

$

1,502,206

 

 

$

1,276,484

 

Less: Freight and delivery revenues

 

 

(54,415

)

 

 

(61,015

)

 

 

(100,845

)

 

 

(110,541

)

Net sales

 

$

796,779

 

 

$

689,387

 

 

$

1,401,361

 

 

$

1,165,943

 

Gross margin excluding freight and delivery revenues

 

 

25.4

%

 

 

22.4

%

 

 

21.1

%

 

 

16.6

%

 

Aggregates Product Line Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

164,353

 

 

$

137,272

 

 

$

245,431

 

 

$

178,690

 

Total revenues

 

$

565,774

 

 

$

536,845

 

 

$

1,013,859

 

 

$

914,802

 

Gross margin

 

 

29.0

%

 

 

25.6

%

 

 

24.2

%

 

 

19.5

%

 

 

Page 27 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Aggregates Product Line Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

164,353

 

 

$

137,272

 

 

$

245,431

 

 

$

178,690

 

Total revenues

 

$

565,774

 

 

$

536,845

 

 

$

1,013,859

 

 

$

914,802

 

Less: Freight and delivery revenues

 

 

(49,491

)

 

 

(55,229

)

 

 

(91,138

)

 

 

(100,972

)

Net sales

 

$

516,283

 

 

$

481,616

 

 

$

922,721

 

 

$

813,830

 

Gross margin excluding freight and delivery revenues

 

 

31.8

%

 

 

28.5

%

 

 

26.6

%

 

 

22.0

%

 

Ready Mixed Concrete Product Line Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

25,293

 

 

$

9,341

 

 

$

43,380

 

 

$

11,424

 

Total revenues

 

$

215,248

 

 

$

150,052

 

 

$

402,331

 

 

$

277,855

 

Gross margin

 

 

11.8

%

 

 

6.2

%

 

 

10.8

%

 

 

4.1

%

 

Ready Mixed Concrete Product Line Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

25,293

 

 

$

9,341

 

 

$

43,380

 

 

$

11,424

 

Total revenues

 

$

215,248

 

 

$

150,052

 

 

$

402,331

 

 

$

277,855

 

Less: Freight and delivery revenues

 

 

(361

)

 

 

(302

)

 

 

(658

)

 

 

(532

)

Net sales

 

$

214,887

 

 

$

149,750

 

 

$

401,673

 

 

$

277,323

 

Gross margin excluding freight and delivery revenues

 

 

11.8

%

 

 

6.2

%

 

 

10.8

%

 

 

4.1

%

 

 

Page 28 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Aggregates-Related Downstream Operations Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

38,169

 

 

$

17,232

 

 

$

50,094

 

 

$

14,540

 

Total revenues

 

$

285,420

 

 

$

213,557

 

 

$

488,348

 

 

$

361,682

 

Gross margin

 

 

13.4

%

 

 

8.1

%

 

 

10.3

%

 

 

4.0

%

 

Aggregates-Related Downstream Operations Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

38,169

 

 

$

17,232

 

 

$

50,094

 

 

$

14,540

 

Total revenues

 

$

285,420

 

 

$

213,557

 

 

$

488,348

 

 

$

361,682

 

Less: Freight and delivery revenues

 

 

(4,924

)

 

 

(5,786

)

 

 

(9,708

)

 

 

(9,569

)

Net sales

 

$

280,496

 

 

$

207,771

 

 

$

478,640

 

 

$

352,113

 

Gross margin excluding freight and delivery revenues

 

 

13.6

%

 

 

8.3

%

 

 

10.5

%

 

 

4.1

%

 

Cement Business Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

24,002

 

 

$

30,414

 

 

$

56,559

 

 

$

49,400

 

Total revenues

 

$

62,468

 

 

$

105,899

 

 

$

136,019

 

 

$

207,999

 

Gross margin

 

 

38.4

%

 

 

28.7

%

 

 

41.6

%

 

 

23.8

%

 

 

Page 29 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Cement Business Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

24,002

 

 

$

30,414

 

 

$

56,559

 

 

$

49,400

 

Total revenues

 

$

62,468

 

 

$

105,899

 

 

$

136,019

 

 

$

207,999

 

Less: Freight and delivery revenues

 

 

(2,677

)

 

 

(5,494

)

 

 

(6,355

)

 

 

(11,029

)

Net sales

 

$

59,791

 

 

$

100,405

 

 

$

129,664

 

 

$

196,970

 

Gross margin excluding freight and delivery revenues

 

 

40.1

%

 

 

30.3

%

 

 

43.6

%

 

 

25.1

%

 

Cement Business, Excluding California Cement Operations, Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

24,002

 

 

$

26,990

 

 

$

56,559

 

 

$

50,047

 

Total revenues

 

$

62,468

 

 

$

70,580

 

 

$

136,019

 

 

$

138,325

 

Gross margin

 

 

38.4

%

 

 

38.2

%

 

 

41.6

%

 

 

36.2

%

 

Cement Business, Excluding California Cement Operations, Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

24,002

 

 

$

26,990

 

 

$

56,559

 

 

$

50,047

 

Total revenues

 

$

62,468

 

 

$

70,580

 

 

$

136,019

 

 

$

138,325

 

Less: Freight and delivery revenues

 

 

(2,677

)

 

 

(4,335

)

 

 

(6,355

)

 

 

(8,622

)

Net sales

 

$

59,791

 

 

$

66,245

 

 

$

129,664

 

 

$

129,703

 

Gross margin excluding freight and delivery revenues

 

 

40.1

%

 

 

40.7

%

 

 

43.6

%

 

 

38.6

%

 

 

Page 30 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Magnesia Specialties Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

21,692

 

 

$

21,224

 

 

$

44,662

 

 

$

41,402

 

Total revenues

 

$

63,636

 

 

$

65,118

 

 

$

127,806

 

 

$

128,282

 

Gross margin

 

 

34.1

%

 

 

32.6

%

 

 

34.9

%

 

 

32.3

%

 

Magnesia Specialties Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

21,692

 

 

$

21,224

 

 

$

44,662

 

 

$

41,402

 

Total revenues

 

$

63,636

 

 

$

65,118

 

 

$

127,806

 

 

$

128,282

 

Less: Freight and delivery revenues

 

 

(4,770

)

 

 

(4,661

)

 

 

(9,435

)

 

 

(9,071

)

Net sales

 

$

58,866

 

 

$

60,457

 

 

$

118,371

 

 

$

119,211

 

Gross margin excluding freight and delivery revenues

 

 

36.8

%

 

 

35.1

%

 

 

37.7

%

 

 

34.7

%

 

Earnings before interest, income taxes, depreciation, depletion and amortization (“EBITDA”) is a widely accepted financial indicator of a company’s ability to service and/or incur indebtedness.  EBITDA is not defined by generally accepted accounting principles and, as such, should not be construed as an alternative to net earnings or operating cash flow.  EBITDA is as follows:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(dollars in thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Consolidated Earnings Before Interest, Income Taxes, Depreciation,
     Depletion and Amortization

 

$

266,480

 

 

$

206,903

 

 

$

419,102

 

 

$

298,109

 

 

 

Page 31 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

A reconciliation of Net Earnings Attributable to Martin Marietta Materials, Inc. to Consolidated EBITDA is as follows:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in thousands)

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

$

122,052

 

 

$

81,938

 

 

$

167,047

 

 

$

88,065

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Interest expense

 

 

20,294

 

 

 

19,087

 

 

 

40,328

 

 

 

38,418

 

     Income tax expense for controlling interests

 

 

53,406

 

 

 

38,914

 

 

 

73,073

 

 

 

38,088

 

     Depreciation, depletion and amortization expense

 

 

70,728

 

 

 

66,964

 

 

 

138,654

 

 

 

133,538

 

Consolidated EBITDA

 

$

266,480

 

 

$

206,903

 

 

$

419,102

 

 

$

298,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

915,436

 

 

$

850,249

 

 

$

1,649,396

 

 

$

1,482,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA Margin as a Percentage of Net Sales

 

 

29.1

%

 

 

24.3

%

 

 

25.4

%

 

 

20.1

%

 

Incremental consolidated gross margin (excluding freight and delivery revenues) is a non-GAAP measure.  The Corporation presents this metric to enhance analysts’ and investors’ understanding of the impact of increased net sales on profitability.  Due to the significant amount of fixed costs, gross margin (excluding freight and delivery revenues) typically increases at a disproportionate rate in periods of increased shipments.  The following shows the calculation of incremental consolidated gross margin (excluding freight and delivery revenues) for the period ended June 30:

 

 

 

Three Months

 

 

Six Months

 

 

 

Ended

 

 

Ended

 

 

 

(Dollars in thousands)

 

Consolidated net sales for the period ended June 30, 2016

 

$

915,436

 

 

$

1,649,396

 

Consolidated net sales for the period ended June 30, 2015

 

 

850,249

 

 

 

1,482,124

 

Incremental net sales

 

$

65,187

 

 

$

167,272

 

 

 

 

 

 

 

 

 

 

Consolidated gross profit for the period ended June 30, 2016

 

$

246,701

 

 

$

391,335

 

Consolidated gross profit for the period ended June 30, 2015

 

 

200,153

 

 

 

274,414

 

Incremental gross profit

 

$

46,548

 

 

$

116,921

 

 

 

 

 

 

 

 

 

 

Incremental consolidated gross margin (excluding freight and delivery

     revenues) for period ended June 30, 2016

 

 

71.4

%

 

 

69.9

%

 

 

Page 32 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

The Corporation presents the increase in cement business shipments, excluding shipments attributable to the California cement operations which were divested in September 2015, from the prior-year quarter.  Management presents this measure as it presents the growth in cement shipments on a comparable basis.  (shipments in thousands)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

Cement shipments

 

 

854

 

 

 

1,203

 

Less: Cement shipments attributable to the California cement operations

 

 

 

 

 

(367

)

Cement shipments excluding shipments attributable to the California cement operations

 

 

854

 

 

 

836

 

 

 

 

 

 

 

 

 

 

Increase in cement shipments, excluding shipments attributable to the California
     cement operations

 

 

2.2

%

 

 

 

 

 

Significant items for the quarter ended June 30, 2016 (unless noted, all comparisons are versus the prior-year quarter):

 

·

Record consolidated net sales of $915.4 million compared with $850.2 million, an increase of 7.7%

 

·

Aggregates product line price increase of 6.8%; aggregates product line volume increase of 1.3%

 

Aggregates product line volume increase in Mid-America and Southeast Groups of 4.9% and 1.9%, respectively

 

·

Cement business net sales of $59.8 million and gross profit of $24.0 million

 

·

Magnesia Specialties net sales of $58.9 million and gross profit of $21.7 million

 

·

Consolidated gross margin (excluding freight and delivery revenues) of 26.9%, an increase of 340 basis points

 

·

Consolidated selling, general and administrative expenses (“SG&A”) of $61.5 million, or 6.7% of net sales

 

·

Consolidated earnings from operations of $187.7 million compared with $137.0 million

 

·

Earnings per diluted share of $1.90 compared with $1.22

 

 

Page 33 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

The following table presents net sales, gross profit (loss), selling, general and administrative expenses and earnings (loss) from operations data for the Corporation and its reportable segments for the three months ended June 30, 2016 and 2015. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as the case may be.

 

 

 

 

Three Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

% of

Net Sales

 

 

Amount

 

 

% of

Net Sales

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

258,988

 

 

 

100.0

 

 

$

237,415

 

 

 

100.0

 

Southeast Group

 

 

82,676

 

 

 

100.0

 

 

 

76,483

 

 

 

100.0

 

West Group

 

 

443,387

 

 

 

100.0

 

 

 

375,489

 

 

 

100.0

 

Total Heritage Aggregates Business

 

 

785,051

 

 

 

100.0

 

 

 

689,387

 

 

 

100.0

 

Cement

 

 

59,791

 

 

 

100.0

 

 

 

100,405

 

 

 

100.0

 

Magnesia Specialties

 

 

58,866

 

 

 

100.0

 

 

 

60,457

 

 

 

100.0

 

Total Heritage Consolidated

 

 

903,708

 

 

 

100.0

 

 

 

850,249

 

 

 

100.0

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

11,728

 

 

 

100.0

 

 

 

 

 

 

 

 

Total

 

$

915,436

 

 

 

100.0

 

 

$

850,249

 

 

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

92,610

 

 

 

35.8

 

 

$

80,177

 

 

 

33.8

 

Southeast Group

 

 

15,547

 

 

 

18.8

 

 

 

9,493

 

 

 

12.4

 

West Group

 

 

94,473

 

 

 

21.3

 

 

 

64,834

 

 

 

17.3

 

Total Heritage Aggregates Business

 

 

202,630

 

 

 

25.8

 

 

 

154,504

 

 

 

22.4

 

Cement

 

 

24,002

 

 

 

40.1

 

 

 

30,414

 

 

 

30.3

 

Magnesia Specialties

 

 

21,692

 

 

 

36.8

 

 

 

21,224

 

 

 

35.1

 

Corporate

 

 

(1,515

)

 

 

 

 

 

 

(5,989

)

 

 

 

 

Total Heritage Consolidated

 

 

246,809

 

 

 

27.3

 

 

 

200,153

 

 

 

23.5

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

(108

)

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

246,701

 

 

 

26.9

 

 

$

200,153

 

 

 

23.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 34 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

 

 

Three Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

% of

Net Sales

 

 

Amount

 

 

% of

Net Sales

 

 

 

(Dollars in Thousands)

 

Selling, general & administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

13,416

 

 

 

5.2

 

 

$

13,304

 

 

 

5.6

 

Southeast Group

 

 

4,552

 

 

 

5.5

 

 

 

4,503

 

 

 

5.9

 

West Group

 

 

17,434

 

 

 

3.9

 

 

 

16,055

 

 

 

4.3

 

Total Heritage Aggregates Business

 

 

35,402

 

 

 

4.5

 

 

 

33,862

 

 

 

4.9

 

Cement

 

 

6,095

 

 

 

10.2

 

 

 

6,647

 

 

 

6.6

 

Magnesia Specialties

 

 

2,452

 

 

 

4.2

 

 

 

2,391

 

 

 

4.0

 

Corporate

 

 

17,388

 

 

 

 

 

 

 

13,883

 

 

 

 

 

Total Heritage Consolidated

 

 

61,337

 

 

 

6.8

 

 

 

56,783

 

 

 

6.7

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

172

 

 

 

1.5

 

 

 

 

 

 

 

 

Total

 

$

61,509

 

 

 

6.7

 

 

$

56,783

 

 

 

6.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

80,552

 

 

 

31.1

 

 

$

66,894

 

 

 

28.2

 

Southeast Group

 

 

11,548

 

 

 

14.0

 

 

 

4,818

 

 

 

6.3

 

West Group

 

 

77,688

 

 

 

17.5

 

 

 

49,177

 

 

 

13.1

 

Total Heritage Aggregates Business

 

 

169,788

 

 

 

21.6

 

 

 

120,889

 

 

 

17.5

 

Cement

 

 

21,309

 

 

 

35.6

 

 

 

22,468

 

 

 

22.4

 

Magnesia Specialties

 

 

19,227

 

 

 

32.7

 

 

 

18,751

 

 

 

31.0

 

Corporate

 

 

(22,298

)

 

 

 

 

 

 

(25,124

)

 

 

 

 

Total Heritage Consolidated

 

 

188,026

 

 

 

20.8

 

 

 

136,984

 

 

 

16.1

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

(284

)

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

187,742

 

 

 

20.5

 

 

$

136,984

 

 

 

16.1

 

For the three months ended June 30, 2015, net sales, gross profit, SG&A and loss from operations for the California cement operations were $34,160,000, $3,424,000, $2,491,000 and $485,000, respectively.

 

Page 35 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Aggregates Business

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

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Aggregates

 

$

511,623

 

 

$

481,616

 

Asphalt and Paving

 

 

64,951

 

 

 

58,021

 

Ready Mixed Concrete

 

 

208,477

 

 

 

149,750

 

Total Heritage

 

 

785,051

 

 

 

689,387

 

Acquisitions:

 

 

 

 

 

 

 

 

Aggregates

 

 

4,660

 

 

 

 

Asphalt and Paving

 

 

658

 

 

 

 

Ready Mixed Concrete

 

 

6,410

 

 

 

 

Total Acquisitions

 

 

11,728

 

 

 

 

Total Aggregates Business

 

$

796,779

 

 

$

689,387

 

 

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

 

 

 

Three Months Ended

 

 

 

June 30, 2016

 

 

 

Volume

 

 

Pricing

 

Volume/Pricing Variance (1)

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Mid-America Group

 

 

4.9

%

 

 

4.2

%

Southeast Group

 

 

1.9

%

 

 

6.2

%

West Group (3)

 

 

(5.0

)%

 

 

10.4

%

Heritage Aggregates Operations(2)

 

 

0.4

%

 

 

7.0

%

Aggregates Product Line (4)

 

 

1.3

%

 

 

6.8

%

 

Page 36 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Mid-America Group

 

 

20,088

 

 

 

19,144

 

Southeast Group

 

 

5,375

 

 

 

5,274

 

West Group(3)

 

 

16,700

 

 

 

17,585

 

Heritage Aggregates Operations(2)

 

 

42,163

 

 

 

42,003

 

Acquisitions

 

 

391

 

 

 

 

Aggregates Product Line (4)

 

 

42,554

 

 

 

42,003

 

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Tons to external customers

 

 

39,557

 

 

 

39,651

 

Internal tons used in other product lines

 

 

2,606

 

 

 

2,352

 

Total heritage aggregates tons

 

 

42,163

 

 

 

42,003

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

310

 

 

 

 

Internal tons used in other product lines

 

 

81

 

 

 

 

Total acquisition aggregates tons

 

 

391

 

 

 

 

(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 operations for a full year.

(3)

Including the recently acquired Colorado operations in the current-year quarter, the volume variance is (2.8)% and the pricing variance is 10.0% for the three months ended June 30, 2016.

(4)

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

Aggregates product line shipments to the infrastructure market comprised 43% of quarterly volumes and increased 1.3%.  Growth was led by the Southeast Group, which increased 8.9%. The Mid-America and West Groups were impacted by significant rainfall and project delays in April and May, which deferred shipments and led to flat public-sector volumes. Growth in the Southeast was primarily attributable to large projects in Georgia, a state that is benefitting from legislation passed in 2015 increasing near- and long-term state infrastructure spending. In a January 2016 study, SC Market Analytics, Inc. estimated the Fixing America’s Surface Transportation Act (“FAST Act”) could allow

 

Page 37 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

state departments of transportation to purchase and use an additional 114 million tons of aggregates over the 5-year tenor of the FAST Act.  The analysis further indicates certain areas of the United States – including the Southeast, West, Mountain and Northeastern regions – are expected to reap the benefits under the FAST Act.

The nonresidential market represented 33% of quarterly aggregates product line shipments and increased 2.8%.  The Mid-America Group achieved a 13.7% increase, followed by an increase of 1.6% in the Southeast Group.  Notably, a broader improving economy is driving business investment in office and retail development, which are experiencing a rebound in markets not seen in the past several years.  The West Group noted a decline in nonresidential activity, primarily related to weather deferrals and further reductions in shale energy demand.  

The residential market accounted for 17% of quarterly aggregates product line shipments. Volumes to this segment increased 10.8%, due to the continued and expanding housing recovery, notably in the southeastern region of the country.  While housing activity in the United States generally remains well below historic averages, strong growth in permits, starts and completions among the Corporation’s top states reflects steady momentum in housing construction and indicates additional future gains from increased residential investment.  In fact, Dallas and Atlanta, key Martin Marietta markets, are ranked first and second in the country, respectively, in permits growth. Further, during the second quarter, North Carolina, Iowa, Florida and South Carolina all reported double-digit growth in housing starts.  The ChemRock/Rail market accounted for the remaining 7% of aggregates product line volumes. The volume decline to this segment reflects reduced ballast driven by reduced coal demand, which impacts transportation and results in lower capital and maintenance activity by railroads.

Overall, aggregates product line shipments increased 1.3%.  Geographically, growth was led by the Mid-America Group, which increased 4.9%, while the Southeast Group achieved a 1.9% increase.  This growth offset the weather-impacted decline in the West Group.

The average per-ton selling price for the heritage aggregates product line was $12.78 and $11.94 for the three months ended June 30, 2016 and 2015, respectively.  The heritage aggregates product line pricing increase of 7.0% reflects growth in all reportable groups, led by the 10.4% increase in the West Group. The most significant improvement was achieved in the north Texas/Oklahoma region.  The Southeast Group and Mid-America Group reported increases of 6.2% and 4.2%, respectively. For the three months ended June 30, 2016 the average per-ton selling price for the acquired aggregates product line was $10.21.  The acquired locations, which are in the Colorado market, have a lower average selling price due to its inherent trucking market compared to the Corporation’s overall aggregates business.  

 

Page 38 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

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

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2016

 

2015

 

Heritage:

 

 

 

 

 

 

Asphalt

 

$37.20/ton

 

$42.20/ton

 

Ready Mixed Concrete

 

$105.16/yd3

 

$91.35/yd³

 

Acquisitions:

 

 

 

 

 

 

Asphalt

 

$44.13/ton

 

 

 

Ready Mixed Concrete

 

$112.86/yd³

 

 

 

The decline in asphalt pricing is primarily attributable to the divestiture of the San Antonio Asphalt operations sold in third quarter 2015, which had a higher average selling price.  Additionally, asphalt and paving contracts in the Rocky Mountain Division contain accelerator clauses to reflect cost fluctuations in the raw materials.  Liquid asphalt, a key raw material in the manufacturing process, declined during the quarter, resulting in a lower average selling price.

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

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

Asphalt Product Line (in thousands):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

250

 

 

 

356

 

Internal tons used in road paving business

 

 

469

 

 

 

456

 

Total heritage asphalt tons

 

 

719

 

 

 

812

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

13

 

 

 

 

Internal tons used in road paving business

 

 

115

 

 

 

 

Total acquisitions asphalt tons

 

 

128

 

 

 

 

 

 

 

 

 

 

 

 

 

Ready Mixed Concrete (in thousands of cubic yards):

 

 

 

 

 

 

 

 

Heritage

 

 

1,942

 

 

 

1,613

 

Acquisitions

 

 

55

 

 

 

 

Total cubic yards

 

 

1,997

 

 

 

1,613

 

The decline in asphalt product line shipments is primarily attributable to the divestiture of San Antonio Asphalt operations, sold in third quarter 2015, which contributed 158,000 tons during the three months ended June 30, 2015.  

 

Page 39 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

The heritage ready mixed concrete product line benefitted from strong demand and improved operating conditions, driving a reported 20% increase in shipments and a 15% increase in average selling price, resulting in a 39% increase in net sales and a 570-basis-point improvement in gross margin (excluding freight and delivery revenues).  

Cement Business

For the quarter, the Cement business generated $59.8 million of net sales and $24.0 million of gross profit. Cement shipments increased 2.2% while pricing was slightly down (excluding the impact of the California cement operations sold in 2015). The business’ reported quarterly gross margin (excluding freight and delivery revenues) of 40.1% was flat compared to prior year (excluding the impact of the California cement operations sold in 2015).

During the second quarter 2016, the business incurred $5.7 million in planned cement kiln maintenance costs, and expects to incur $2.0 million and $7.8 million in the third and fourth quarters, respectively.  Kiln maintenance costs in 2015 for the Texas plants were $3.5 million, $3.2 million and $9.3 million for the second, third and fourth quarters, respectively.

Cement shipments and adjusted average-selling price for the three months ended June 30, 2016 and 2015 were (tons in thousands):

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

Tons to external customers

 

 

578

 

 

 

994

 

Internal tons used in other product lines

 

 

276

 

 

 

209

 

Total cement tons

 

 

854

 

 

 

1,203

 

Less: California cement tons

 

 

 

 

 

367

 

Adjusted cement tons

 

 

854

 

 

 

836

 

 

 

 

 

 

 

 

 

 

Adjusted average-selling price per ton1

 

$

101.04

 

 

$

102.96

 

1 Excludes the impact of the California cement operations

 

The decline in 2016 shipments is attributable to the prior-year divestiture of the California operations, which accounted for 367,000 tons in the second-quarter of 2015.  

The Portland Cement Association, or PCA, forecasts continued favorable supply/demand imbalance in Texas over the next several years and growth each year through 2019.  

Magnesia Specialties Business

Magnesia Specialties continued to deliver strong performance and generated second-quarter net sales of $58.9 million. Gross margin (excluding freight and delivery revenues) of 36.8% in the quarter expanded 170 basis points. Second-quarter earnings from operations were $19.2 million compared with $18.8 million.  Expansion in gross margin is primarily due to lower energy and maintenance costs compared to the prior year.  

 

Page 40 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Gross Profit

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

 

Consolidated gross profit, quarter ended June 30, 2015

 

$

200,153

 

Heritage aggregates product line:

 

 

 

 

Volume

 

 

1,589

 

Pricing

 

 

35,467

 

Cost increases, net

 

 

(9,138

)

Change in heritage aggregates product line gross profit

 

 

27,918

 

Heritage aggregates-related downstream product lines

 

 

20,208

 

Acquired aggregates business operations

 

 

(108

)

Cement*

 

 

(6,412

)

Magnesia Specialties

 

 

468

 

Corporate

 

 

4,474

 

Change in consolidated gross profit

 

 

46,548

 

Consolidated gross profit, quarter ended June 30, 2016

 

$

246,701

 

*Includes impact of California cement operations

Gross profit (loss) by business is as follows:

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit (loss):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Aggregates

 

$

165,190

 

 

$

137,272

 

Asphalt and Paving

 

 

12,620

 

 

 

7,891

 

Ready Mixed Concrete

 

 

24,820

 

 

 

9,341

 

Total Aggregates Business

 

 

202,630

 

 

 

154,504

 

Cement

 

 

24,002

 

 

 

30,414

 

Magnesia Specialties

 

 

21,692

 

 

 

21,224

 

Corporate

 

 

(1,515

)

 

 

(5,989

)

Total Heritage

 

 

246,809

 

 

 

200,153

 

Acquisitions:

 

 

 

 

 

 

 

 

Aggregates

 

 

(837

)

 

 

 

Asphalt and Paving

 

 

256

 

 

 

 

Ready Mixed Concrete

 

 

473

 

 

 

 

Total Acquisitions

 

 

(108

)

 

 

 

Total

 

$

246,701

 

 

$

200,153

 

 

Page 41 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

The consolidated heritage gross margin (excluding freight and delivery revenues) for the quarter was 27.3%, a 380-basis-point improvement compared with the prior-year quarter.  The increase reflects pricing growth, management’s cost-disciplined approach and divesting the California cement operations in the third quarter of 2015.  

Consolidated Operating Results

Consolidated SG&A was 6.7% of net sales, flat compared with 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. For the second quarter, consolidated other operating income and expenses, net, was income of $3.4 million in 2016 and an expense of $4.3 million in 2015.  Operating income and expenses, net, for 2016 reflects a favorable settlement of commodity contracts assumed in a 2014 acquisition in the Cement business that were priced above market at that date.

Other nonoperating income and expenses, net, includes foreign currency transaction gains and losses, interest and other miscellaneous income and equity adjustments for nonconsolidated affiliates.  Consolidated other nonoperating income and expenses, net, was income of $8.1 million and $3.0 million for the quarter ended June 30, 2016 and 2015, respectively.  The increase in income in 2016 compared to 2015 is attributable to higher earnings by a nonconsolidated affiliate.

The estimated effective income tax rate for the quarter was 30.4%, in line with annual guidance.  For the year, the Corporation expects to fully utilize the remaining allowable net operating loss carryforwards of $33 million acquired with TXI.

Significant items for the six months ended June 30, 2016 (unless noted, all comparisons are versus the prior-year period):

 

·

Consolidated net sales of $1.6 billion compared with $1.5 billion, an increase of 11%

 

·

Aggregates product line volume increase of 6.2%; aggregates product line price increase of 7.4%

 

Heritage aggregates product line volume increase of 5.4%

 

·

Cement business net sales of $129.7 million and gross profit of $56.6 million

 

·

Magnesia Specialties net sales of $118.4 million and gross profit of $44.7 million

 

·

Consolidated gross margin (excluding freight and delivery revenues) of 23.7%, an increase of 520 basis points

 

·

Consolidated SG&A of $121.4 million, or 7.4% of net sales

 

·

Consolidated earnings from operations of $271.5 million compared with $162.6 million

 

·

Earnings per diluted share of $2.60 compared with $1.30

 

Page 42 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

The following table presents net sales, gross profit (loss), selling, general and administrative expenses and earnings (loss) from operations data for the Corporation and its reportable segments for the six months ended June 30, 2016 and 2015. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as the case may be.

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

% of

Net Sales

 

 

Amount

 

 

% of

Net Sales

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

432,360

 

 

 

100.0

 

 

$

367,120

 

 

 

100.0

 

Southeast Group

 

 

149,961

 

 

 

100.0

 

 

 

136,253

 

 

 

100.0

 

West Group

 

 

802,007

 

 

 

100.0

 

 

 

662,570

 

 

 

100.0

 

Total Heritage Aggregates Business

 

 

1,384,328

 

 

 

100.0

 

 

 

1,165,943

 

 

 

100.0

 

Cement

 

 

129,664

 

 

 

100.0

 

 

 

196,970

 

 

 

100.0

 

Magnesia Specialties

 

 

118,371

 

 

 

100.0

 

 

 

119,211

 

 

 

100.0

 

Total Heritage Consolidated

 

 

1,632,363

 

 

 

100.0

 

 

 

1,482,124

 

 

 

100.0

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

17,033

 

 

 

100.0

 

 

 

 

 

 

100.0

 

Total

 

$

1,649,396

 

 

 

100.0

 

 

$

1,482,124

 

 

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

120,034

 

 

 

27.8

 

 

$

87,321

 

 

 

23.8

 

Southeast Group

 

 

25,876

 

 

 

17.3

 

 

 

12,593

 

 

 

9.2

 

West Group

 

 

151,050

 

 

 

18.8

 

 

 

93,316

 

 

 

14.1

 

Total Heritage Aggregates Business

 

 

296,960

 

 

 

21.5

 

 

 

193,230

 

 

 

16.6

 

Cement

 

 

56,559

 

 

 

43.6

 

 

 

49,400

 

 

 

25.1

 

Magnesia Specialties

 

 

44,662

 

 

 

37.7

 

 

 

41,402

 

 

 

34.7

 

Corporate

 

 

(5,411

)

 

 

 

 

 

 

(9,618

)

 

 

 

 

Total Heritage Consolidated

 

 

392,770

 

 

 

24.1

 

 

 

274,414

 

 

 

18.5

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

(1,435

)

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

391,335

 

 

 

23.7

 

 

$

274,414

 

 

 

18.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 43 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

% of

Net Sales

 

 

Amount

 

 

% of

Net Sales

 

 

 

(Dollars in Thousands)

 

Selling, general & administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

26,550

 

 

 

6.1

 

 

$

26,249

 

 

 

7.1

 

Southeast Group

 

 

8,431

 

 

 

5.6

 

 

 

8,792

 

 

 

6.5

 

West Group

 

 

34,251

 

 

 

4.3

 

 

 

31,764

 

 

 

4.8

 

Total Heritage Aggregates Business

 

 

69,232

 

 

 

5.0

 

 

 

66,805

 

 

 

5.7

 

Cement

 

 

12,351

 

 

 

9.5

 

 

 

13,322

 

 

 

6.8

 

Magnesia Specialties

 

 

4,797

 

 

 

4.1

 

 

 

4,757

 

 

 

4.0

 

Corporate

 

 

34,715

 

 

 

 

 

 

 

21,349

 

 

 

 

 

Total Heritage Consolidated

 

 

121,095

 

 

 

7.4

 

 

 

106,233

 

 

 

7.2

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

275

 

 

 

1.6

 

 

 

 

 

 

 

 

Total

 

$

121,370

 

 

 

7.4

 

 

$

106,233

 

 

 

7.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

94,976

 

 

 

22.0

 

 

$

62,691

 

 

 

17.1

 

Southeast Group

 

 

18,519

 

 

 

12.3

 

 

 

3,269

 

 

 

2.4

 

West Group(1)

 

 

117,916

 

 

 

14.7

 

 

 

63,676

 

 

 

9.6

 

Total Heritage Aggregates Business

 

 

231,411

 

 

 

16.7

 

 

 

129,636

 

 

 

11.1

 

Cement(2)

 

 

47,626

 

 

 

36.7

 

 

 

34,697

 

 

 

17.6

 

Magnesia Specialties

 

 

39,791

 

 

 

33.6

 

 

 

36,541

 

 

 

30.7

 

Corporate

 

 

(45,601

)

 

 

 

 

 

 

(38,319

)

 

 

 

 

Total Heritage Consolidated

 

 

273,227

 

 

 

16.7

 

 

 

162,555

 

 

 

11.0

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

(1,715

)

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

271,512

 

 

 

16.5

 

 

$

162,555

 

 

 

11.0

 

 

Page 44 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

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

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Aggregates

 

$

915,673

 

 

$

813,830

 

Asphalt and Paving

 

 

76,090

 

 

 

74,790

 

Ready Mixed Concrete

 

 

392,565

 

 

 

277,323

 

Total Heritage

 

 

1,384,328

 

 

 

1,165,943

 

Acquisitions:

 

 

 

 

 

 

 

 

Aggregates

 

 

7,048

 

 

 

 

 

Asphalt and Paving

 

 

877

 

 

 

 

Ready Mixed Concrete

 

 

9,108

 

 

 

 

Total Acquisitions

 

 

17,033

 

 

 

 

Total Aggregates Business

 

$

1,401,361

 

 

$

1,165,943

 

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

 

 

Six Months Ended

 

 

 

June 30, 2016

 

 

 

Volume

 

 

Pricing

 

Volume/Pricing Variance (1)

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Mid-America Group

 

 

12.8

%

 

 

4.4

%

Southeast Group

 

 

3.5

%

 

 

6.7

%

West Group (3)

 

 

(0.8

)%

 

 

10.8

%

Heritage Aggregates Operations(2)

 

 

5.4

%

 

 

7.5

%

Aggregates Product Line (4)

 

 

6.2

%

 

 

7.4

%

 

Page 45 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Mid-America Group

 

 

33,010

 

 

 

29,255

 

Southeast Group

 

 

9,693

 

 

 

9,364

 

West Group(3)

 

 

31,978

 

 

 

32,220

 

Heritage Aggregates Operations(2)

 

 

74,681

 

 

 

70,839

 

Acquisitions

 

 

537

 

 

 

 

Aggregates Product Line (4)

 

 

75,218

 

 

 

70,839

 

(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 operations for a full year.

(3)

Including the recently acquired Colorado operations in the current-year period, the volume variance is 0.9% and the pricing variance is 10.7% for the six months ended June 30, 2016.

(4)

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

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Tons to external customers

 

 

70,160

 

 

 

66,783

 

Internal tons used in other product lines

 

 

4,521

 

 

 

4,056

 

Total heritage aggregates tons

 

 

74,681

 

 

 

70,839

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

451

 

 

 

 

Internal tons used in other product lines

 

 

86

 

 

 

 

Total acquisition aggregates tons

 

 

537

 

 

 

 

The per-ton average selling price for the aggregates product line was $12.89 and $11.99 for the six months ended June 30, 2016 and 2015, respectively.  

 

Page 46 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

2015

 

Heritage:

 

 

 

 

 

 

Asphalt

 

$38.09/ton

 

$42.56/ton

 

Ready Mixed Concrete

 

$103.79/yd³

 

$91.52/yd³

 

Acquisitions:

 

 

 

 

 

 

Asphalt

 

$43.79/ton

 

 

 

Ready Mixed Concrete

 

$113.74/yd³

 

 

 

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

Asphalt Product Line (in thousands):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

319

 

 

 

569

 

Internal tons used in road paving business

 

 

534

 

 

 

513

 

Total heritage asphalt tons

 

 

853

 

 

 

1,082

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

24

 

 

 

 

Internal tons used in road paving business

 

 

115

 

 

 

 

Total acquisitions asphalt tons

 

 

139

 

 

 

 

 

 

 

 

 

 

 

 

 

Ready Mixed Concrete (in thousands of cubic yards):

 

 

 

 

 

 

 

 

Heritage

 

 

3,705

 

 

 

2,977

 

Acquisitions

 

 

78

 

 

 

 

Total cubic yards

 

 

3,783

 

 

 

2,977

 

 

Page 47 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Cement shipments and adjusted average-selling price per ton for the six months ended June 30, 2016 and 2015 were (tons in thousands):

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

Tons to external customers

 

 

1,263

 

 

 

2,019

 

Internal tons used in other product lines

 

 

548

 

 

 

401

 

Total cement tons

 

 

1,811

 

 

 

2,420

 

Less: California cement tons

 

 

 

 

 

743

 

Adjusted cement tons

 

 

1,811

 

 

 

1,677

 

 

 

 

 

 

 

 

 

 

Adjusted average-selling price per ton1

 

$

100.51

 

 

$

99.78

 

1 Excludes the impact of the divested California cement operations

For 2016, Magnesia Specialties reported net sales of $118.4 million, relatively flat compared with the prior-year period.  Earnings from operations were $39.8 million compared with $36.5 million.  The increase in earnings from operations was primarily attributable to lower production costs, specifically related to energy and maintenance expenses.

Consolidated gross margin (excluding freight and delivery revenues) was 23.7% for 2016 versus 18.5% for 2015.  The following presents a rollforward of the Corporation’s gross profit (dollars in thousands):

Consolidated gross profit, six months ended June 30, 2015

 

$

274,414

 

Heritage aggregates product line:

 

 

 

 

Volume

 

 

45,326

 

Pricing

 

 

67,545

 

Cost increases, net

 

 

(44,111

)

Change in heritage aggregates product line gross profit

 

 

68,760

 

Heritage aggregates-related downstream product lines

 

 

34,970

 

Acquired aggregates business operations

 

 

(1,435

)

Cement*

 

 

7,159

 

Magnesia Specialties

 

 

3,260

 

Corporate

 

 

4,207

 

Change in consolidated gross profit

 

 

116,921

 

Consolidated gross profit, six months ended June 30, 2016

 

$

391,335

 

*Includes impact of California cement operations

 

Page 48 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

Gross profit (loss) by business is as follows:

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit (loss):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Aggregates

 

$

247,450

 

 

$

178,690

 

Asphalt and Paving

 

 

6,689

 

 

 

3,116

 

Ready Mixed Concrete

 

 

42,821

 

 

 

11,424

 

Total Aggregates Business

 

 

296,960

 

 

 

193,230

 

Cement

 

 

56,559

 

 

 

49,400

 

Magnesia Specialties

 

 

44,662

 

 

 

41,402

 

Corporate

 

 

(5,411

)

 

 

(9,618

)

Total Heritage

 

 

392,770

 

 

 

274,414

 

Acquisitions:

 

 

 

 

 

 

 

 

Aggregates

 

 

(2,019

)

 

 

 

Asphalt and Paving

 

 

25

 

 

 

 

Ready Mixed Concrete

 

 

559

 

 

 

 

Total Acquisitions

 

 

(1,435

)

 

 

 

Total

 

$

391,335

 

 

$

274,414

 

Consolidated SG&A expenses were 7.4% of net sales, up 20 basis points compared with the prior-year period, driven by higher incentive compensation, including share based compensation.

For the first six months, consolidated other operating income and expenses, net, was income of $2.9 million in 2016 compared with expense of $1.9 million in 2015, predominantly due to a favorable settlement of commodity contracts assumed in a 2014 acquisition in the Cement business that were priced above market at that date.  Additionally, in 2015, the Corporation reserved two large accounts and wrote-off a customer account who declared bankruptcy.  

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, 2016 was income of $9.1 million compared with income of $2.1 million in 2015, primarily driven by increased income from nonconsolidated affiliates in 2016.

 

Page 49 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the six months ended June 30, 2016 was $203.4 million compared with $127.1 million for the same period in 2015. The increase was primarily attributable to higher earnings before depreciation, depletion and amortization expense. Operating cash flow is primarily derived from consolidated net earnings before deducting depreciation, depletion and amortization, and the impact of changes in working capital. Depreciation, depletion and amortization were as follows:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Depreciation

 

$

124,627

 

 

$

119,807

 

Depletion

 

 

7,293

 

 

 

6,452

 

Amortization

 

 

7,697

 

 

 

8,699

 

 

 

$

139,617

 

 

$

134,958

 

 

The seasonal nature of the construction aggregates business impacts quarterly operating cash flow when compared with the full year. Full-year 2015 net cash provided by operating activities was $573.2 million compared with $127.1 million for the first six months of 2015.

During the first six months ended June 30, 2016, the Corporation invested $210.6 million of capital into its business. Full-year capital spending is expected to approximate $350 million.

In the first quarter of 2016, the Corporation acquired the outstanding stock of Rocky Mountain Materials and Asphalt, Inc., and Rocky Mountain Premix Inc.  The acquisition included four aggregates plants, two asphalt plants and two ready mixed concrete operations, and provides more than 500 million tons of mineral reserves and expands the Corporation’s presence along the Front Range of the Rocky Mountains, home to 80% of Colorado’s population. 

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. During the first six months, the Corporation repurchased 1,244,000 shares of common stock for $190 million.  At June 30, 2016, 15,471,000 shares of common stock were remaining under the Corporation’s repurchase authorization.  

The Credit Agreement (which consists of a $250 million Term Loan Facility and a $350 million Revolving Facility) requires the Corporation’s ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (“EBITDA”), as defined, for the trailing-twelve month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its ratings on long-term unsecured debt fall below BBB by Standard & Poor’s or Baa2 by Moody’s and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if there are no amounts outstanding under the Revolving Facility, consolidated debt, including debt for which the Corporation is a co-borrower, will be reduced for

 

Page 50 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

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 by the Credit Agreement, 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.

In accordance with the amended Credit Agreement, the Corporation adjusted consolidated EBITDA to add back 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.

At June 30, 2016, the Corporation’s ratio of consolidated debt to consolidated EBITDA, as defined, for the trailing-twelve months EBITDA was 1.98 times and was calculated as follows:

 

 

 

July 1, 2015 to

 

 

 

June 30, 2016

 

 

 

(Dollars in thousands)

 

Earnings from continuing operations attributable to Martin Marietta

 

$

367,774

 

Add back:

 

 

 

 

Interest expense

 

 

78,197

 

Income tax expense

 

 

159,778

 

Depreciation, depletion and amortization expense

 

 

266,567

 

Stock-based compensation expense

 

 

18,867

 

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

 

 

19,119

 

Deduct:

 

 

 

 

Interest income

 

 

(527

)

Consolidated EBITDA, as defined

 

$

909,775

 

Consolidated debt, including debt for which the Corporation is a co-borrower,

    at June 30, 2016

 

$

1,801,954

 

Consolidated debt to consolidated EBITDA, as defined, at June 30, 2016

   for the trailing-twelve months EBITDA

 

1.98x

 

 

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. Outstanding amounts on the Trade Receivable Facility have been classified as a current liability on the Corporation’s consolidated balance sheet. Management intends to renew the Trade Receivable Facility beyond September 30, 2016.

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

 

Page 51 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

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, allow for payment of dividends for the foreseeable future and enable the buyback of shares through the share repurchase program. At June 30, 2016, the Corporation had $377 million of unused borrowing capacity under its Revolving Facility and Trade Receivable Facility, subject to complying with the related leverage covenant. The Revolving Facility expires on November 29, 2018 and the Trade Receivable Facility expires on September 30, 2016.

The Floating Rate Notes have been classified as a noncurrent liability as the Corporation has the intent and ability to refinance on a long-term basis before or at its maturity of June 30, 2017.

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 Term Loan Facility and Trade Receivable Facility at June 30, 2016. 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 Aggregates business, both production and demand, and the demand in the Cement business are significantly affected by erratic weather patterns, seasonal changes and other weather-related conditions. Production and shipment levels for aggregates, asphalt, ready mixed concrete and road paving materials correlate with general construction activity levels, most of which occurs in the spring, summer and fall. Thus, production and shipment levels vary by quarter. Operations concentrated in the northern and midwestern United States generally experience more severe winter weather conditions than operations in the southeast and southwest. Excessive rainfall, and conversely excessive drought, can also jeopardize shipments, production and profitability in all markets served by the Corporation. Because of the potentially significant impact of weather on the Corporation’s operations, current-period and year-to-date results are not indicative of expected performance for other interim periods or the full year.

The Corporation outlined the risks associated with its business in its Annual Report on Form 10-K for the year ended December 31, 2015. Management continues to evaluate its exposure to all operating risks on an ongoing basis.

OUTLOOK

The Corporation is encouraged by positive trends in the markets it serves and its ability to execute its strategic business plans.  Notably:

 

·

For the public sector, continued modest growth is expected in 2016 as new monies begin to flow into the system, particularly in the second half of the year.  Additionally, state initiatives to finance infrastructure projects, including support from the Transportation Infrastructure Finance and Innovation Act (“TIFIA”), are expected to grow and continue to play an expanded role in public-sector activity.

 

·

Nonresidential construction is expected to increase in both the heavy industrial and commercial sectors.  The Dodge Momentum Index is near its highest level since 2009 and signals continued growth.  Additionally,

 

Page 52 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

 

energy-related economic activity, including follow-on public and private construction activities in its primary markets, will be mixed with overall strength in large downstream construction projects, providing a counterbalance to declines in shale exploration-related volumes.  

 

·

Residential construction is expected to continue to experience good growth metrics, driven by positive employment gains, historically low levels of construction activity over the previous several years, low mortgage rates, significant lot absorption, and higher multi-family rental rates.  

RISKS TO OUTLOOK

The 2016 outlook includes management’s assessment of the likelihood of certain risks and uncertainties that will affect performance, including but not limited to: both price and volume, and 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; the volatility in the commencement of 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 further decline in energy-related construction activity resulting from a sustained period of low global oil prices or changes in oil production patterns in response to this decline and certain regulatory or other economic factors; a slowdown in the 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 a sustained reduction in capital investment by the railroads; an increase in the cost of compliance with governmental laws, rules and regulations; and unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to its cement production facilities.  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.  Cement is subject to cyclical supply and demand and price fluctuations.  The Magnesia Specialties 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, 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 Cement business is also energy intensive and fluctuation in the price of coal affects costs.  The Magnesia Specialties business is sensitive to changes in domestic steel capacity utilization as well as the absolute price and fluctuation in the cost of natural gas.

Transportation in the Corporation’s long-haul network, particularly the supply of rail cars and locomotive power and condition of rail infrastructure to move trains, affects the Corporation’s efficient transportation of aggregate into certain markets, most notably Texas, Colorado, Florida and the Gulf Coast.  In addition, availability of rail cars and locomotives affects the Corporation’s movement of essential dolomitic lime for magnesia chemicals, to both the Corporation’s plant

 

Page 53 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

in Manistee, Michigan, and customers.  The availability of trucks, drivers and railcars to transport the Corporation’s product, particularly in markets experiencing high growth and increased demand, is also a risk and pressures the associated costs.  

All of the Corporation’s businesses are 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 also include shipment declines resulting from 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.

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 management’s 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 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 history of both cement and ready mixed concrete being subject to significant changes in supply, demand and price; the termination, capping and/or reduction or suspension 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 Texas, North Carolina, 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 further slowdown in energy-related construction activity, particularly in Texas; a slowdown in residential construction recovery; a reduction in construction activity and related 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

 

Page 54 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2016

(Continued)

 

conveyor belts, and with respect to the Magnesia Specialties business, natural gas; continued increases in the cost of other repair and supply parts; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to cement production facilities; increasing governmental regulation, including environmental laws; 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 of trucks and licensed drivers for transport of the Corporation’s materials, particularly in areas with significant energy-related activity, such as Texas and Colorado; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the Corporation’s dolomitic lime products; proper functioning of information technology and automated operating systems to manage or support operations; 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.

INVESTOR ACCESS TO COMPANY FILINGS

Shareholders may obtain, without charge, a copy of Martin Marietta’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2015, by writing to:

Martin Marietta

Attn: Corporate Secretary

2710 Wycliff Road

Raleigh, North Carolina 27607-3033

Additionally, Martin Marietta’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) 510-4776

Website address: www.martinmarietta.com

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

 

 

Page 55 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

 

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 and cement products, particularly in the infrastructure construction market, is affected by federal and state budget and deficit issues. Further, delays or cancellations of 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 have maintained the federal funds rate near zero percent during the six months ended June 30, 2016, unchanged since 2008. The residential construction market accounted for 17% of the Corporation’s aggregates product line shipments in 2015.

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, 2016, 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 $433 million, which was the collective outstanding balance at June 30, 2016, 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, 2015.

Energy Costs. Energy costs, including diesel fuel, natural gas, coal and liquid asphalt, represent significant production costs of the Corporation. The Corporation entered into a fixed price arrangement, which expires December 31, 2016, for approximately 40% of its diesel fuel to reduce its diesel fuel price risk. The Magnesia Specialties business has fixed price agreements covering half of its 2016 coal requirements and the cement business has fixed pricing agreements on 100% of its 2016 coal requirements. A hypothetical 10% change in the Corporation’s energy prices in 2016 as compared with 2015, assuming constant volumes, would change 2016 energy expense by $25.7 million. However, the impact would be partially offset by the change in the amount capitalized into inventory standards.

 

 

Page 56 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

(Continued)

 

Commodity risk. Cement is a commodity and competition is based principally on price, which is highly sensitive to changes in supply and demand. Prices are often subject to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions and other market conditions beyond the Corporation’s control. Increases in the production capacity of industry participants or increases in cement imports tend to create an oversupply of such products leading to an imbalance between supply and demand, which can have a negative impact on product prices. There can be no assurance that prices for products sold will not decline in the future or that such declines will not have a material adverse effect on the Corporation’s business, financial condition and results of operations.  Based on forecasted net sales for the Cement business for full-year 2016 of $300 million to $320 million, a hypothetical 10% change in sales price would impact net sales by $30 million to $32 million.

Item 4. Controls and Procedures

As of June 30, 2016, 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, 2016. 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.

 

 

 

Page 57 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings.

Reference is made to Part I. Item 3. Legal Proceedings of the Martin Marietta Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

Item 1A. Risk Factors.

Reference is made to Part I. Item 1A. Risk Factors and Forward-Looking Statements of the Martin Marietta Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

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

ISSUER PURCHASES OF EQUITY SECURITIES

 

 

 

 

 

 

 

 

 

 

 

Total Number of Shares

 

 

Maximum Number of

 

 

 

 

 

 

 

 

 

 

 

Purchased as Part of

 

 

Shares that May Yet

 

 

 

Total Number of

 

 

Average Price

 

 

Publicly Announced

 

 

be Purchased Under

 

Period

 

Shares Purchased

 

 

Paid per Share

 

 

Plans or Programs

 

 

the Plans or Programs

 

April 1, 2016 -  April 30, 2016

 

 

 

 

$

 

 

 

 

 

 

15,686,143

 

May 1, 2016 - May 31, 2016

 

 

 

 

$

 

 

 

 

 

 

15,686,143

 

June 1, 2016 - June 30, 2016

 

 

215,184

 

 

$

185.89

 

 

 

215,184

 

 

 

15,470,959

 

Total for the period ended

    June 30, 2016

 

 

215,184

 

 

$

185.89

 

 

 

215,184

 

 

 

 

 

 

Reference is made to the press release dated February 10, 2015 for the December 31, 2014 fourth-quarter and full-year results and announcement of the share repurchase program. The Corporation’s Board of Directors authorized a maximum of 20 million shares to be repurchased under the program.  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.

 

 

Page 58 of 61


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

 

PART II – OTHER INFORMATION

(Continued)

 

Item 6. Exhibits.

 

Exhibit No.

  

Document

 

 

10.01

Martin Marietta Amended and Restated Stock Based Award Plan (File No. 1-12744)*

 

 

10.02

Martin Marietta Executive cash Incentive Plan (File No. 1-12744)*

 

 

31.01

  

Certification dated August 4, 2016 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, 2016 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, 2016 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, 2016 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

 

 

 

 

 

 

 

Page 59 of 61


 

 

 

 

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, 2016

By:

 

/s/ Anne H. Lloyd

 

 

 

Anne H. Lloyd

 

 

 

Executive Vice President and

 

 

 

   Chief Financial Officer

 

 

 

 

Page 60 of 61


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2016

EXHIBIT INDEX

 

Exhibit No.

  

Document

 

 

10.01

Martin Marietta Amended and Restated Stock Based Award Plan (File No. 1-12744)*

 

 

10.02

Martin Marietta Executive cash Incentive Plan (File No. 1-12744)*

 

 

31.01

  

Certification dated August 4, 2016 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, 2016 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, 2016 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, 2016 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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