Form 10-Q
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

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

For the quarterly period ended March 31, 2014

OR

 

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

For the transition period from             to

Commission File Number 1-12744

            MARTIN MARIETTA MATERIALS, INC.            

(Exact name of registrant as specified in its charter)

 

North Carolina       56-1848578

(State or other jurisdiction of

incorporation or organization)

      (I.R.S. Employer Identification Number)

2710 Wycliff Road, Raleigh, NC

      27607-3033
(Address of principal executive offices)       (Zip Code)

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

 

Former name:

   None                                                 
  

Former name, former address and former fiscal year,

if changes since last report.

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

                                                                      Yes  þ            No  ¨

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

Yes  þ                                         No  ¨

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

 

  Large accelerated filer  þ    Accelerated filer  ¨   
  Non-accelerated filer  ¨    Smaller reporting company  ¨   

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

                                     Yes  ¨            No  þ

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

 

Class

  

Outstanding as of April 24, 2014

Common Stock, $0.01 par value

  

46,358,357


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

 

     Page  

Part I. Financial Information:

  

Item 1. Financial Statements.

  

Consolidated Balance Sheets – March 31, 2014, December 31, 2013 and March 31, 2013

     3   

Consolidated Statements of Earnings and Comprehensive Earnings - Three Months Ended March  31, 2014 and 2013

     4   

Consolidated Statements of Cash Flows - Three Months Ended March 31, 2014 and 2013

     5   

Consolidated Statement of Total Equity - Three Months Ended March 31, 2014

     6   

Notes to Consolidated Financial Statements

     7   

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

     25   

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     45   

Item 4. Controls and Procedures.

     46   

Part II. Other Information:

  

Item 1. Legal Proceedings.

     47   

Item 1A. Risk Factors.

     47   

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

     47   

Item 4. Mine Safety Disclosures.

     47   

Item 6. Exhibits.

     48   

Signatures

     49   

Exhibit Index

     50   

 

Page 2 of 50


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

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

ASSETS

        

Current Assets:

        

Cash and cash equivalents

   $ 35,801        $ 42,437       $ 37,260   

Accounts receivable, net

     242,587          245,421         202,150   

Inventories, net

     354,718          347,307         347,641   

Current deferred income tax benefits

     73,320          74,821         79,485   

Other current assets

     51,788          45,380         49,197   
  

 

 

    

 

 

    

 

 

 

Total Current Assets

     758,214          755,366         715,733   
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment

     4,001,505          3,976,884         3,824,638   

Allowances for depreciation, depletion and amortization

     (2,207,969)         (2,177,643)         (2,092,551)   
  

 

 

    

 

 

    

 

 

 

Net property, plant and equipment

     1,793,536          1,799,241         1,732,087   

Goodwill

     616,621          616,621         616,350   

Other intangibles, net

     47,743          48,591         49,548   

Other noncurrent assets

     39,143          40,007         41,057   
  

 

 

    

 

 

    

 

 

 

Total Assets

   $ 3,255,257        $ 3,259,826       $ 3,154,775   
  

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

        

Current Liabilities:

        

Bank overdraft

   $       $ 2,556        $   

Accounts payable

     98,775          103,600          77,080    

Accrued salaries, benefits and payroll taxes

     12,904          18,114          12,387    

Pension and postretirement benefits

     2,356          2,026          4,091    

Accrued insurance and other taxes

     27,265          29,103          27,470    

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

     12,403          12,403          5,677    

Accrued interest

     18,077          7,349          18,479    

Other current liabilities

     21,978          35,398          23,506    
  

 

 

    

 

 

    

 

 

 

Total Current Liabilities

     193,758          210,549          168,690    

Long-term debt

     1,055,541          1,018,518          1,072,850    

Pension, postretirement and postemployment benefits

     80,457          78,489          184,287    

Noncurrent deferred income taxes

     272,346          279,999          230,109    

Other noncurrent liabilities

     108,862          97,352          88,782    
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     1,710,964          1,684,907          1,744,718    
  

 

 

    

 

 

    

 

 

 

Equity:

        

Common stock, par value $0.01 per share

     462         461          459    

Preferred stock, par value $0.01 per share

                       

Additional paid-in capital

     442,551          432,792          421,024    

Accumulated other comprehensive loss

     (42,744)         (44,114)         (104,948)   

Retained earnings

     1,108,516          1,148,738          1,055,256    
  

 

 

    

 

 

    

 

 

 

Total Shareholders’ Equity

     1,508,785          1,537,877          1,371,791    

Noncontrolling interests

     35,508          37,042          38,266    
  

 

 

    

 

 

    

 

 

 

Total Equity

     1,544,293          1,574,919          1,410,057    
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

   $ 3,255,257        $ 3,259,826        $ 3,154,775    
  

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 3 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

 

     Three Months Ended
March 31,
 
     2014      2013  
     (In Thousands, Except Per Share Data)  
     (Unaudited)  

Net Sales

   $ 379,678        $ 344,059    

Freight and delivery revenues

     48,951          39,850    
  

 

 

    

 

 

 

Total revenues

     428,629          383,909    
  

 

 

    

 

 

 

Cost of sales

     353,843          331,238    

Freight and delivery costs

     48,951          39,850    
  

 

 

    

 

 

 

Total cost of revenues

     402,794          371,088    
  

 

 

    

 

 

 

Gross Profit

     25,835          12,821    

Selling, general & administrative expenses

     34,247          37,648    

Business development expenses

     9,512          307    

Other operating (income), net

     (2,026)         (1,814)   
  

 

 

    

 

 

 

Loss from Operations

     (15,898)         (23,320)   

Interest expense

     12,201          13,496    

Other nonoperating expenses, net

     3,463          623    
  

 

 

    

 

 

 

Loss from continuing operations before taxes on income

     (31,562)         (37,439)   

Income tax benefit

     (8,424)         (8,398)   
  

 

 

    

 

 

 

Loss from Continuing Operations

     (23,138)         (29,041)   

Loss on discontinued operations, net of related tax benefit of $1 and $76, respectively

     (15)         (288)   
  

 

 

    

 

 

 

Consolidated net loss

     (23,153)         (29,329)   

Less: Net loss attributable to noncontrolling interests

     (1,535)         (1,490)   
  

 

 

    

 

 

 

Net Loss Attributable to Martin Marietta Materials, Inc.

   $ (21,618)       $ (27,839)   
  

 

 

    

 

 

 

Net Loss Attributable to Martin Marietta Materials, Inc.:

     

Loss from continuing operations

   $ (21,603)       $ (27,551)   

Loss from discontinued operations

     (15)         (288)   
  

 

 

    

 

 

 
   $ (21,618)       $ (27,839)   
  

 

 

    

 

 

 

Consolidated Comprehensive Loss: (See Note 1)

     

Loss attributable to Martin Marietta Materials, Inc.

   $ (20,248)       $ (26,618)   

Loss attributable to noncontrolling interests

     (1,534)         (1,488)   
  

 

 

    

 

 

 
   $ (21,782)       $ (28,106)   
  

 

 

    

 

 

 

Net Loss Attributable to Martin Marietta Materials, Inc.

     

Per Common Share:

     

Basic from continuing operations attributable to common shareholders

   $ (0.47)       $ (0.60)   

Discontinued operations attributable to common shareholders

             (0.01)   
  

 

 

    

 

 

 
   $ (0.47)       $ (0.61)   
  

 

 

    

 

 

 

Diluted from continuing operations attributable to common shareholders

   $ (0.47)       $ (0.60)   

Discontinued operations attributable to common shareholders

             (0.01)   
  

 

 

    

 

 

 
   $ (0.47)       $ (0.61)   
  

 

 

    

 

 

 

Weighted-Average Common Shares Outstanding:

     

Basic and Diluted

     46,315          46,028    
  

 

 

    

 

 

 

Cash Dividends Per Common Share

   $ 0.40        $ 0.40    
  

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 4 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  
     (Unaudited)  

Cash Flows from Operating Activities:

     

Consolidated net loss

   $ (23,153)       $ (29,329)   

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

     

Depreciation, depletion and amortization

     42,466          43,043    

Stock-based compensation expense

     1,409          1,245    

Gains on divestitures and sales of assets

     (1,106)          (662)   

Deferred income taxes

     (5,063)          3,393   

Excess tax benefits from stock-based compensation transactions

     (636)          (629)   

Other items, net

     1,223          719    

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

     

Accounts receivable, net

     2,834          20,273    

Inventories, net

     (7,411)         (14,606)   

Accounts payable

     (4,825)         (6,457)   

Other assets and liabilities, net

     874          1,585    
  

 

 

    

 

 

 

Net Cash Provided by Operating Activities

     6,612          18,575    
  

 

 

    

 

 

 

Cash Flows from Investing Activities:

     

Additions to property, plant and equipment

     (36,913)         (21,880)   

Acquisitions, net

     (50)         (2,629)   

Proceeds from divestitures and sales of assets

     1,401          1,580    
  

 

 

    

 

 

 

Net Cash Used for Investing Activities

     (35,562)         (22,929)   
  

 

 

    

 

 

 

Cash Flows from Financing Activities:

     

Borrowings of long-term debt

     60,000          60,000    

Repayments of long-term debt

     (23,125)         (29,400)   

Payments on capital lease obligations

     (525)           

Change in bank overdraft

     (2,556)           

Dividends paid

     (18,604)         (18,503)   

Issuances of common stock

     6,488          3,494    

Excess tax benefits from stock-based compensation transactions

     636          629    
  

 

 

    

 

 

 

Net Cash Provided by Financing Activities

     22,314          16,220    
  

 

 

    

 

 

 

Net (Decrease) Increase in Cash and Cash Equivalents

     (6,636)         11,866    

Cash and Cash Equivalents, beginning of period

     42,437          25,394    
  

 

 

    

 

 

 

Cash and Cash Equivalents, end of period

   $ 35,801        $ 37,260    
  

 

 

    

 

 

 

Supplemental Disclosures of Cash Flow Information:

     

Cash paid for interest

  

 

$

 

1,633 

 

  

   $ 1,906    

Cash paid (refunds) for income taxes

   $ 53        $ (7,055)   

See accompanying notes to consolidated financial statements.

 

Page 5 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENT OF TOTAL EQUITY

(Unaudited)

 

(in thousands)

  Shares of
Common

Stock
    Common
Stock
    Additional
Paid-in Capital
    Accumulated Other
Comprehensive Loss
    Retained
Earnings
    Total
Shareholders’
Equity
    Noncontrolling
Interests
    Total
Equity
 

Balance at December 31, 2013

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

Consolidated net loss

    -            -            -            -            (21,618)        (21,618)        (1,535)        (23,153)   

Other comprehensive earnings

    -            -            -            1,370        -            1,370                1,371    

Dividends declared

    -            -            -            -            (18,604)        (18,604)        -            (18,604)   

Issuances of common stock for stock award plans

    92                8,350        -            -            8,351         -            8,351    

Stock-based compensation expense

    -            -            1,409         -            -            1,409         -            1,409    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2014

            46,353       $     462       $ 442,551       $     (42,744)      $     1,108,516         $     1,508,785         $     35,508         $     1,544,293    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 6 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.   Significant Accounting Policies

Organization

Martin Marietta Materials, Inc., (the “Corporation”) is engaged principally in the construction aggregates business. The Corporation’s aggregates product line accounted for 69% of consolidated 2013 net sales and includes crushed stone, sand and gravel, and is used for construction of highways and other infrastructure projects, and in the nonresidential and residential construction industries. Aggregates products are also used in the railroad, agricultural, utility and environmental industries. These aggregates products, along with the Corporation’s vertically-integrated operations, i.e., asphalt products, ready mixed concrete and road paving construction services (which accounted for 19% of consolidated 2013 net sales), are sold and shipped from a network of nearly 300 quarries, distribution facilities and plants to customers in 30 states, Canada, the Bahamas and the Caribbean Islands. The aggregates and vertically-integrated operations are reported collectively as the Corporation’s “Aggregates business”.

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

 

AGGREGATES BUSINESS

Reportable Segments

   Mid-America Group    Southeast Group    West Group

Operating Locations

  

Indiana, Iowa,

northern Kansas,
Kentucky,

Maryland,

Minnesota,

eastern Nebraska,

North Carolina,

North Dakota,

Ohio,

South Carolina,

Virginia,
Washington and

West Virginia

  

Alabama, Florida, Georgia,

Mississippi,

Tennessee, Nova Scotia and the Bahamas

  

Arkansas,

Colorado, southern Kansas, Louisiana,

Missouri,

western Nebraska, Nevada,

Oklahoma, Texas,

Utah and

Wyoming

 

Page 7 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

In addition to the Aggregates business, the Corporation has a Specialty Products segment, which accounted for 12% of consolidated 2013 net sales, that produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Corporation have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and in Article 10 of Regulation S-X. The Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of management, the interim consolidated financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods. The consolidated results of operations for the three months ended March 31, 2014 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013.

Early Adoption of New Accounting Standard

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

Reclassifications

Prior-year segment information for the Aggregates business presented in Note 9 has been reclassified to conform to the presentation of the Corporation’s current reportable segments.

 

Page 8 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss

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

Comprehensive loss attributable to Martin Marietta Materials, Inc. is as follows:

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)   

Net loss attributable to Martin Marietta Materials, Inc.

   $   (21,618)       $   (27,839)   

Other comprehensive earnings, net of tax

     1,370          1,221    
  

 

 

    

 

 

 

Comprehensive loss attributable to Martin Marietta Materials, Inc.

   $   (20,248)       $   (26,618)   
  

 

 

    

 

 

 

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

 

     Three Months Ended
March  31,
 
     2014      2013  
     (Dollars in Thousands)   

Net loss attributable to noncontrolling interests

   $ (1,535)       $ (1,490)   

Other comprehensive earnings, net of tax

               
  

 

 

    

 

 

 

Comprehensive loss attributable to noncontrolling interests

   $ (1,534)       $ (1,488)   
  

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

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

 

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

 

     (Dollars in Thousands)  
     Pension and
  Postretirement  
Benefit Plans
     Foreign Currency      Unamortized
Value of
Terminated
Forward Starting
Interest Rate
Swap
     Accumulated
Other
Comprehensive
Loss
 
  

 

 

 
     Three Months Ended March 31, 2014   

Balance at beginning of period

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

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings before reclassifications, net of tax

     --          914          --          914    

Amounts reclassified from accumulated other comprehensive loss, net of tax

     282          --          174         456    
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings, net of tax

     282          914          174         1,370    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

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

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended March 31, 2013  

Balance at beginning of period

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

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive loss before reclassifications, net of tax

     --          (834)         --          (834)   

Amounts reclassified from accumulated other comprehensive loss, net of tax

     1,893          --          162          2,055    
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings, net of tax

     1,893          (834)         162          1,221    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

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

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 10 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

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

 

Changes in net noncurrent deferred tax assets recorded in accumulated other comprehensive loss are as follows:

 

     (Dollars in Thousands)  
     Pension and
  Postretirement  
Benefit Plans
    Unamortized
Value of
Terminated
Forward Starting
Interest Rate
Swap
    Net
Noncurrent
Deferred
Tax Assets
 
  

 

 

 
     Three Months Ended March 31, 2014  

Balance at beginning of period

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

Tax effect of other comprehensive earnings

     (182     (114     (296
  

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

 
     Three Months Ended March 31, 2013  

Balance at beginning of period

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

Tax effect of other comprehensive earnings

     (1,240     (107     (1,347
  

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

 

Reclassifications out of accumulated other comprehensive loss are as follows:

 

     Three Months Ended
March  31,
   

Affected line items in the
consolidated statements of earnings

and comprehensive earnings

     2014     2013    
     (Dollars in Thousands)     

Pension and postretirement benefit plans Amortization of:

      

Prior service credit

   $ (703   $ (702  

Actuarial loss

     1,167        3,835     
  

 

 

   

 

 

   
     464        3,133     

Cost of sales;

Selling, general and administrative expenses

Tax benefit

     (182     (1,240   Income tax benefit
  

 

 

   

 

 

   
   $ 282      $ 1,893     
  

 

 

   

 

 

   

Unamortized value of terminated forward starting interest rate swap

      

Additional interest expense

   $ 288      $ 269      Interest expense

Tax benefit

     (114     (107   Income tax benefit
  

 

 

   

 

 

   
   $ 174      $ 162     
  

 

 

   

 

 

   

 

Page 11 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

Earnings per Common Share

The numerator for basic and diluted earnings per common share is net earnings/loss attributable to Martin Marietta Materials, Inc., reduced by dividends and undistributed earnings attributable to the Corporation’s unvested restricted stock awards and incentive stock awards. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating securities. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards to be issued to employees and nonemployee members of the Corporation’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive. For the three months ended March 31, 2014 and 2013, all such awards were antidilutive given the net loss attributable to Martin Marietta Materials Inc.

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

 

     Three Months Ended
March 31,
 
     2014      2013  
     (In Thousands)   

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

   $   (21,603)         $   (27,551)     

Less: Distributed and undistributed earnings attributable to unvested awards

     67            93      
  

 

 

    

 

 

 

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

     (21,670)           (27,644)     

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

     (15)           (288)     
  

 

 

    

 

 

 

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

   $   (21,685)         $   (27,932)     
  

 

 

    

 

 

 

Basic and diluted weighted-average common shares outstanding

     46,315            46,028      
  

 

 

    

 

 

 

 

Page 12 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2.   Discontinued Operations

Operations that are disposed of or permanently shut down represent discontinued operations, and, therefore, the results of their operations through the dates of disposal and any gain or loss on disposals are included in discontinued operations in the consolidated statements of earnings and comprehensive earnings. The results of operations for divestitures do not include Corporate overhead that was allocated during the periods the Corporation owned these operations.

 

3.   Inventories, Net

 

     March 31,
2014
     December 31,
2013
     March 31,
2013
 
     (Dollars in Thousands)   

Finished products

   $     372,567       $     368,334       $     363,610   

Products in process and raw materials

     16,478         16,077         20,908   

Supplies and expendable parts

     64,093         61,922         59,362   
  

 

 

    

 

 

    

 

 

 
     453,138         446,333         443,880   

Less: Allowances

     98,420         99,026         96,239   
  

 

 

    

 

 

    

 

 

 

Total

   $ 354,718       $ 347,307       $ 347,641   
  

 

 

    

 

 

    

 

 

 

 

Page 13 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4.   Long-Term Debt

 

     March 31,      December 31,      March 31,  
     2014      2013      2013  
     (Dollars in Thousands)   

6.6% Senior Notes, due 2018

       $   298,949              $     298,893              $     298,730      

7% Debentures, due 2025

     124,478            124,471            124,450      

6.25% Senior Notes, due 2037

     228,157            228,148            228,122      

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

     245,395            248,441            240,000      

Revolving Facility, interest rate of 3.50% at March 31, 2014 and 1.90% at March 31, 2013

     20,000            --           110,000      

Trade Receivable Facility, interest rate of 0.75% at March 31, 2014 and 0.77% at December 31, 2013

     150,000            130,000            --     

AR Credit Facility, interest rate of 1.00% at March 31, 2013

     --            --            75,600      

Other notes

     965            968            1,625      
  

 

 

    

 

 

    

 

 

 

Total debt

     1,067,944            1,030,921            1,078,527      

Less: Current maturities

     12,403            12,403            5,677      
  

 

 

    

 

 

    

 

 

 

Long-term debt

       $   1,055,541              $     1,018,518              $     1,072,850      
  

 

 

    

 

 

    

 

 

 

The Corporation, through a wholly-owned consolidated special purpose subsidiary, has a $150,000,000 trade receivable securitization facility with SunTrust Bank and certain other lenders that may become a party to the facility from time to time (the “Trade Receivable Facility”). The Trade Receivable Facility is backed by eligible, as defined, trade receivables of $232,566,000 and $234,101,000 at March 31, 2014 and December 31, 2013, respectively, which are originated by the Corporation and then sold to the wholly-owned consolidated 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 consolidated special purpose subsidiary. At March 31, 2014 and December 31, 2013, outstanding borrowings under the Trade Receivable Facility were classified as long-term on the consolidated balance sheet as the Corporation has the intent and ability to refinance amounts outstanding using other long-term credit facilities. The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements. On April 18, 2014, the Corporation extended the maturity of the Trade Receivable Facility to September 30, 2014.

 

Page 14 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4. 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, for the trailing twelve months (the “Ratio”) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its rating on long-term unsecured debt fall below BBB by Standard & Poor’s or Baa2 by Moody’s and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if no amounts are outstanding under both the Revolving Facility and the Trade Receivable Facility, consolidated debt, including debt for which the Corporation is a co-borrower, may be reduced by the Corporation’s unrestricted cash and cash equivalents in excess of $50,000,000, such reduction not to exceed $200,000,000, for purposes of the covenant calculation. The Corporation was in compliance with this Ratio at March 31, 2014.

Available borrowings under the Revolving Facility are reduced by any outstanding letters of credit issued by the Corporation under the Revolving Facility. At March 31, 2014, December 31, 2013 and March 31, 2013, the Corporation had $2,507,000 of outstanding letters of credit issued under the Revolving Facility.

Accumulated other comprehensive loss includes the unamortized value of terminated forward starting interest rate swap agreements. For the three months ended March 31, 2014 and 2013, the Corporation recognized $288,000 and $269,000, respectively, as additional interest expense. The ongoing amortization of the terminated value of the forward starting interest rate swap agreements will increase annual interest expense by approximately $1,200,000 until the maturity of the 6.6% Senior Notes in 2018.

 

Page 15 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

5.   Financial Instruments

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

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

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

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

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

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

The carrying values and fair values of the Corporation’s long-term debt were $1,067,944,000 and $1,127,149,000, respectively, at March 31, 2014; $1,030,921,000 and $1,068,324,000, respectively, at December 31, 2013; and $1,078,527,000 and $1,155,051,000, respectively, at March 31, 2013. The estimated fair value of the Corporation’s publicly-registered long-term notes was estimated based on Level 1 of the fair value hierarchy using quoted market prices. The estimated fair value of other borrowings, which primarily represents variable-rate debt, approximates its carrying amount as the interest rates reset periodically.

 

Page 16 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6.   Income Taxes

 

     Three Months Ended March 31,  
     2014      2013  

Estimated effective income tax rate:

     

Continuing operations

     26.7%         22.4%   
  

 

 

    

 

 

 

Discontinued operations

     6.3%         20.9%   
  

 

 

    

 

 

 

Consolidated overall

     26.7%         22.4%   
  

 

 

    

 

 

 

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

On September 13, 2013, the U.S. Treasury Department and Internal Revenue Service issued final regulations addressing costs incurred in acquiring, producing or improving tangible property (the “tangible property regulations”). The tangible property regulations required the Corporation to make additional tax accounting method changes as of January 1, 2014. As of December 31, 2013, the Corporation estimated the tax impact of the regulatory change and recorded an increase in noncurrent deferred tax liabilities in the amount of $1,334,000, with a corresponding reduction in current taxes payable.

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

 

     Three Months Ended
March 31, 2014
 
     (Dollars in Thousands)  

Unrecognized tax benefits at beginning of period

         $         11,826               

Gross increases – tax positions in prior years

     1,898               

Gross decreases – tax positions in prior years

     (173)               

Gross increases – tax positions in current year

     480               
  

 

 

 

Unrecognized tax benefits at end of period

         $           14,031               
  

 

 

 

 

Page 17 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6. Income Taxes (continued)

 

The Corporation anticipates that it is reasonably possible that unrecognized tax benefits may decrease up to $7,365,000, excluding indirect benefits, during the twelve months ending March 31, 2015 as a result of expected settlements with taxing authorities and the expiration of the foreign and domestic statute of limitations for the 2009 and 2010 tax years, respectively.

At March 31, 2014, unrecognized tax benefits of $7,449,000 related to interest accruals and permanent income tax differences, net of federal tax benefits, would have favorably affected the Corporation’s effective income tax rate if recognized.

 

7.   Pension and Postretirement Benefits

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

 

     Three Months Ended March 31,  
     Pension     Postretirement Benefits  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Service cost

   $ 3,730      $ 4,064      $ 55      $ 65   

Interest cost

     6,590        5,749        290        248   

Expected return on assets

     (7,698     (6,663     --          --     

Amortization of:

        

Prior service cost (credit)

     111        112        (814     (814

Actuarial loss (gain)

     1,202        3,835        (35     --     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

   $ 3,935      $ 7,097      $ (504   $ (501
  

 

 

   

 

 

   

 

 

   

 

 

 

 

8.   Commitments and Contingencies

Legal and Administrative Proceedings

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

 

Page 18 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8. Commitments and Contingencies (continued)

 

Litigation Related to the Merger

Following the announcement of the merger, a purported stockholder of Texas Industries, Inc. (“TXI”) filed a putative class action lawsuit against TXI and members of the TXI board, and against the Corporation and one of its affiliates, in the United States District Court for the Northern District of Texas, captioned Maxine Phillips, Individually and on Behalf of All Others Similarly Situated v. Texas Industries, Inc., et al., Case 3:14-cv-00740-B (referred to as the “Phillips Action”). The plaintiff in the Phillips Action alleges in an amended complaint, among other things, (i) that members of the TXI board breached their fiduciary duties to TXI’s stockholders by failing to fully disclose material information regarding the proposed transaction and by adopting the merger agreement for inadequate consideration and pursuant to an inadequate process, (ii) that the Corporation and one of the Corporation’s affiliates aided and abetted the TXI board in their alleged breaches of fiduciary duty and (iii) that the registration statement of which this joint proxy statement/prospectus forms a part contains certain material misstatements and omissions in violation of Section 14(a) and 20(a) of the Exchange Act. The plaintiff in the Phillips Action seeks, among other things, injunctive relief enjoining TXI and the Corporation from proceeding with the merger, rescission in the event the merger is consummated, damages, and an award of attorneys’ and other fees and costs. The Corporation believes the lawsuit is without merit.

Environmental and Governmental Regulations

The United States Environmental Protection Agency (“EPA”) includes the lime industry as a national enforcement priority under the federal Clean Air Act (“CAA”). As part of the industry wide effort, the EPA issued Notices of Violation/Findings of Violation (“NOVs”) to the Corporation in 2010 and 2011 regarding the Corporation’s compliance with the CAA New Source Review (“NSR”) program at its Specialty Products dolomitic lime manufacturing plant in Woodville, Ohio. The Corporation has been providing information to the EPA in response to these NOVs and has had several meetings with the EPA. The Corporation believes it is in substantial compliance with the NSR program. At this time, the Corporation cannot reasonably estimate what likely penalties or upgrades to equipment might ultimately be required. The Corporation believes that any costs related to any upgrades to capital equipment will be spread over time and will not have a material adverse effect on the Corporation’s results of operations or its financial condition, but can give no assurance that the ultimate resolution of this matter will not have a material adverse effect on the financial condition or results of operations of the Specialty Products segment of the business.

 

Page 19 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8. Commitments and Contingencies (continued)

 

Borrowing Arrangements with Affiliate

The Corporation is a co-borrower with an unconsolidated affiliate for a $24,000,000 revolving line of credit agreement with Fifth Third Bank. The line of credit expires in August 2015. The affiliate has agreed to reimburse and indemnify the Corporation for any payments and expenses the Corporation may incur from this agreement. The Corporation holds a lien on the affiliate’s membership interest in a joint venture as collateral for payment under the revolving line of credit.

In September 2013, the Corporation loaned $3,402,000 to this unconsolidated affiliate to repay in full the outstanding balance of the affiliate’s loan with Bank of America, N.A. and entered into a loan agreement with the affiliate for monthly repayment of principal and interest of that loan amount through May 2016. The Corporation holds a lien on the affiliate’s property as collateral for payment under the loan and security agreement. As of March 31, 2014 and December 31, 2013, the amount due from the affiliate related to this loan was $2,773,000 and $2,984,000, respectively.

In addition, the Corporation has a $6,000,000 outstanding loan due from this unconsolidated affiliate as of March 31, 2014.

Employees

Approximately 15% 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 within the Aggregates business and Specialty Products segment. Of the Specialty Products segment, located in Manistee, Michigan and Woodville, Ohio, 100% of its hourly employees are represented by labor unions. The Woodville collective bargaining agreement expires in June 2014. Management does not anticipate any difficulties in renewing the Woodville labor contract.

 

Page 20 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9.   Business Segments

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

The following tables display selected financial data for continuing operations for the Corporation’s reportable business segments. Corporate loss from operations primarily includes depreciation on capitalized interest, expenses for corporate administrative functions, business development expenses, unallocated corporate expenses and other nonrecurring and/or non-operational adjustments.

 

     Three Months Ended  
     March 31,  
     2014      2013  
     (Dollars in Thousands)  

Total revenues:

  

Mid-America Group

       $     115,708              $     119,541      

Southeast Group

     59,820            55,742      

West Group

     190,787            148,396      
  

 

 

    

 

 

 

Total Aggregates Business

     366,315            323,679      

Specialty Products

     62,314            60,230      
  

 

 

    

 

 

 

Total

       $     428,629              $     383,909      
  

 

 

    

 

 

 

Net sales:

     

Mid-America Group

       $     106,533              $     110,188      

Southeast Group

     55,381            51,323      

West Group

     160,416            127,379      
  

 

 

    

 

 

 

Total Aggregates Business

     322,330            288,890      

Specialty Products

     57,348            55,169      
  

 

 

    

 

 

 

Total

       $     379,678              $     344,059      
  

 

 

    

 

 

 

(Loss) Earnings from operations:

     

Mid-America Group

       $     (11,766)              $     (13,963)      

Southeast Group

     (6,111)            (8,386)      

West Group

     2,081            (8,126)      
  

 

 

    

 

 

 

Total Aggregates Business

     (15,796)            (30,475)      

Specialty Products

     16,285            17,078      

Corporate

     (16,387)            (9,923)      
  

 

 

    

 

 

 

Total

       $     (15,898)              $     (23,320)      
  

 

 

    

 

 

 

 

Page 21 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9.   Business Segments (continued)

 

     March 31,      December 31,      March 31,  
     2014      2013      2013  
     (Dollars in Thousands)  

Assets employed:

        

Mid-America Group

       $ 1,257,753              $ 1,242,394              $ 1,137,903      

Southeast Group

     607,219            611,906            588,408      

West Group

     1,024,038            1,030,599            1,039,404      
  

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     2,889,010            2,884,899            2,765,715      

Specialty Products

     153,070            154,024            154,688      

Corporate

     213,177            220,903            234,372      
  

 

 

    

 

 

    

 

 

 

Total

       $ 3,255,257              $ 3,259,826              $ 3,154,775      
  

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended March 31,  
     2014      2013  
     (Dollars in Thousands)  

Net sales:

     

Aggregates

       $     263,885              $     247,791      

Asphalt

     10,498            9,633      

Ready Mixed Concrete

     38,009            26,277      

Road Paving

     9,938            5,189      
  

 

 

    

 

 

 

Total Aggregates Business

     322,330            288,890      

Specialty Products

     57,348            55,169      
  

 

 

    

 

 

 

Total

       $ 379,678          $ 344,059      
  

 

 

    

 

 

 

Gross profit (loss):

     

Aggregates

       $ 10,051          $ 2,061      

Asphalt

     (1,426)           (2,455)     

Ready Mixed Concrete

     2,944            (81)     

Road Paving

     (3,982)           (4,287)     
  

 

 

    

 

 

 

Total Aggregates Business

     7,587            (4,762)     

Specialty Products

     18,755            19,582      

Corporate

     (507)           (1,999)     
  

 

 

    

 

 

 

Total

       $ 25,835          $ 12,821      
  

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

10.   Supplemental Cash Flow Information

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

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Other current and noncurrent assets

       $ (783)             $ 549     

Accrued salaries, benefits and payroll taxes

         (3,984)               (6,075)     

Accrued insurance and other taxes

     (1,838)           (1,213)     

Accrued income taxes

     (4,595)           (8,261)     

Accrued pension, postretirement and post employment benefits

     2,763            1,538      

Other current and noncurrent liabilities

     9,311            15,047      
  

 

 

    

 

 

 
       $ 874              $ 1,585      
  

 

 

    

 

 

 

The change in accrued income taxes for the three months ended March 31, 2014 relates to a decrease in current estimated taxable income and the difference in net tax payments for the period. The change in other current and noncurrent liabilities for the three months ended March 31, 2014 primarily relates to a decrease in estimated settlements with taxing authorities.

Noncash investing and financing activities are as follows:

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Noncash investing and financing activities:

     

Acquisition of assets through capital lease

   $ 5,930       $ --       

 

Page 23 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11.   Business Developments

On January 28, 2014, the Corporation and TXI announced that the Boards of Directors of both companies unanimously approved a definitive merger agreement pursuant to which, subject to the terms and conditions of the merger agreement, the Corporation will acquire all of the outstanding shares of TXI common stock in a tax-free, stock-for-stock transaction (the “proposed business combination with TXI”). Under the terms of the merger agreement, TXI stakeholders will receive 0.700 shares of the Corporation’s common stock for each share of TXI common stock owned at closing. Pursuant to the terms of the proposed business combination with TXI, the Corporation’s dividends will be limited to regular quarterly dividends of $0.40 per share until the earlier of the closing of the proposed business combination with TXI or the termination of the merger agreement, with declaration, record and payment dates consistent with past practice. Additionally, repurchases of the Corporation’s common stock will be prohibited until the earlier of the closing of the proposed business combination with TXI or the termination of the merger agreement. The proposed business combination is currently under review for regulatory approvals and is expected to close in the summer. For the three months ended March 31, 2014, the Corporation incurred $9,458,000 of business development expenses related to the acquisition.

 

12.   Subsequent Events

On April 2, 2014, the Corporation paid $19,529,000 million for the remaining 50% interest in a joint venture.

 

Page 24 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

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

OVERVIEW    Martin Marietta Materials, Inc., (the “Corporation”) is the nation’s second largest producer of construction aggregates. The Corporation’s annual consolidated net sales and operating earnings are predominately derived from its Aggregates business, which processes and sells granite, limestone, and other aggregates products, including asphalt, ready mixed concrete and road paving construction services, from a network of nearly 300 quarries, distribution facilities and plants to customers in 30 states, Canada, the Bahamas and the Caribbean Islands. The Aggregates business’ products are used primarily by commercial customers principally in domestic construction of highways and other infrastructure projects and for nonresidential and residential building development. Aggregates products are also used in the railroad, agricultural, utility and environmental industries.

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

 

AGGREGATES BUSINESS
Reportable Segments    Mid-America Group    Southeast Group    West Group
Operating Locations    Indiana, Iowa, northern
Kansas, Kentucky,
Maryland, Minnesota,
eastern Nebraska,
North Carolina, North
Dakota, Ohio, South
Carolina, Virginia,
Washington and West
Virginia
   Alabama, Florida,
Georgia, Mississippi,
Tennessee, Nova
Scotia and the
Bahamas
   Arkansas, Colorado,
southern Kansas,
Louisiana, Missouri,
western Nebraska,
Nevada, Oklahoma,
Texas, Utah and
Wyoming
Primary Product Lines    Aggregates (crushed
stone, sand and
gravel)
   Aggregates (crushed
stone, sand and
gravel)
   Aggregates (crushed
stone, sand and gravel),
asphalt, ready mixed
concrete and road
paving
Primary Types of
Aggregates Locations
   Quarries and
Distribution Yards
   Quarries and
Distribution Yards
   Quarries and
Distribution Yards
Primary Modes of
Transportation for
Aggregates Product Line
   Truck and Rail    Truck, Rail and
Water
   Truck and Rail

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

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

CRITICAL ACCOUNTING POLICIES    The Corporation outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2013. There were no changes to the Corporation’s critical accounting policies during the three months ended March 31, 2014.

STRATEGIC INITIATIVES

On January 28, 2014, the Corporation and Texas Industries, Inc. (“TXI”) announced that the Boards of Directors of both companies unanimously approved a definitive merger agreement pursuant to which, subject to the terms and conditions of the merger agreement, the Corporation will acquire all of the outstanding shares of TXI common stock in a tax-free, stock-for-stock transaction (the “proposed business combination with TXI”). The business combination is expected to close in the summer.

RESULTS OF OPERATIONS

Except as indicated, the comparative analysis in this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects results from continuing operations and is based on net sales and cost of sales. However, gross margin as a percentage of net sales and operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales, as it is consistent with the basis by which management reviews the Corporation’s operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporation’s operating results given that freight and delivery revenues and costs represent pass-throughs and have no profit mark-up. Gross margin and operating margin calculated as percentages of total revenues represent the most directly comparable financial measures calculated in accordance with generally accepted accounting principles (GAAP). The following tables present the calculations of gross margin and operating margin for the three months ended March 31, 2014 and 2013 in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales:

Gross Margin in Accordance with GAAP

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Gross profit

       $ 25,835               $ 12,821       
  

 

 

    

 

 

 

Total revenues

       $   428,629               $   383,909       
  

 

 

    

 

 

 

Gross margin

     6.0%             3.3%       
  

 

 

    

 

 

 

 

Page 26 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

Gross Margin Excluding Freight and Delivery Revenues

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Gross profit

       $ 25,835                $ 12,821        
  

 

 

    

 

 

 

Total revenues

       $   428,629                $ 383,909        

Less: Freight and delivery revenues

     (48,951)             (39,850)       
  

 

 

    

 

 

 

Net sales

       $ 379,678                $   344,059        
  

 

 

    

 

 

 

Gross margin excluding freight and delivery revenues

     6.8%             3.7%       
  

 

 

    

 

 

 

Operating Margin in Accordance with GAAP

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Loss from operations

       $   (15,898)               $   (23,320)       
  

 

 

    

 

 

 

Total revenues

       $ 428,629                $ 383,909        
  

 

 

    

 

 

 

Operating margin

     (3.7%)             (6.1%)       
  

 

 

    

 

 

 

Operating Margin Excluding Freight and Delivery Revenues

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Loss from operations

       $   (15,898)               $ (23,320)       
  

 

 

    

 

 

 

Total revenues

       $ 428,629                $ 383,909        

Less: Freight and delivery revenues

     (48,951)               (39,850)       
  

 

 

    

 

 

 

Net sales

       $   379,678                $ 344,059        
  

 

 

    

 

 

 

Operating margin excluding

freight and delivery revenues

     (4.2%)             (6.8%)       
  

 

 

    

 

 

 

 

Page 27 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

Impact of Business Development Expenses

Adjusted consolidated loss from operations and adjusted loss per diluted share for the quarter ended March 31, 2014, exclude the impact of business development expenses related to the proposed business combination with TXI, and represent non-GAAP financial measures. Management presents these measures for investors and analysts to evaluate and forecast the Corporation’s financial results, as these business development expenses are nonrecurring costs (in thousands, except per share data).

The following shows the calculation of the impact of business development expenses related to the proposed business combination with TXI on the loss per diluted share for the quarter ended March 31, 2014:

 

  Business development expenses related to the proposed business combination with TXI

       $ 9,458        

  Income tax benefit

     (3,725)       
  

 

 

 

  After-tax impact of business development expenses related to the proposed business combination with TXI

       $ 5,733        
  

 

 

 

  Diluted average number of common shares outstanding

       46,315        
  

 

 

 

  Per diluted share impact of business development expenses related to the proposed business combination with TXI

       $ (0.12)       
  

 

 

 

The following reconciles the loss per diluted share in accordance with generally accepted accounting principles for the quarter ended March 31, 2014, to adjusted loss per diluted share, which excludes the impact of business development expenses related to the proposed business combination with TXI:

 

  Loss per diluted share in accordance with generally accepted accounting principles

       $     (0.47)       

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

     0.12        
  

 

 

 

  Adjusted loss per diluted share

       $ (0.35)       
  

 

 

 

 

Page 28 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

The following reconciles consolidated loss from operations in accordance with generally accepted accounting principles for the quarter ended March 31, 2014, to adjusted consolidated loss from operations, which excludes the impact of business development expenses related to the proposed business combination with TXI:

 

  Consolidated loss from operations in accordance with generally accepted accounting principles

       $   (15,898)       

  Add back: business development expenses related to the proposed business combination with TXI

     9,458        
  

 

 

 

  Adjusted consolidated loss from operations

       $ (6,440)       
  

 

 

 

Significant items for the quarter ended March 31, 2014 (unless noted, all comparisons are versus the prior-year first quarter):

 

   

Loss per diluted share of $0.47 (includes a $0.12 per diluted share charge for business development expenses related to the proposed business combination with TXI); adjusted loss per diluted share of $0.35 compared with loss per diluted share of $0.61

   

Consolidated net sales of $379.7 million compared with $344.1 million

   

Aggregates product line volume increase of 8.1%; aggregates product line pricing decline of 1.3%, due to geographic and product mix

   

Specialty Products record first-quarter net sales of $57.4 million; earnings from operations of $16.3 million

   

Consolidated gross margin (excluding freight and delivery revenues) of 6.8%, up 310 basis points

   

Consolidated selling, general and administrative expenses (SG&A) decreased 190 basis points as a percentage of net sales

   

Consolidated loss from operations of $15.9 million (includes $9.5 million of business development expenses related to the proposed business combination with TXI); adjusted consolidated loss from operations of $6.4 million compared with consolidated loss from operations of $23.3 million

The following table presents net sales, gross profit (loss), selling, general and administrative expenses and earnings (loss) from operations data for the Corporation and its reportable segments for the three months ended March 31, 2014 and 2013. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as the case may be.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

     Three Months Ended March 31,  
     2014      2013  
     Amount      % of
Net Sales
     Amount      % of
Net Sales
 
     (Dollars in Thousands)  

Net sales:

           

Mid-America Group

       $   106,533                 $   110,188         

Southeast Group

     55,381               51,323         

West Group

     160,416               127,379         
  

 

 

       

 

 

    

Total Aggregates Business

     322,330            100.0            288,890            100.0      

Specialty Products

     57,348            100.0            55,169            100.0      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $   379,678            100.0              $ 344,059            100.0      
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit (loss):

           

Mid-America Group

       $   (1,547)           (1.5)             $ (2,075)           (1.9)     

Southeast Group

     (2,867)           (5.2)           (4,905)           (9.6)     

West Group

     12,001            7.5            2,218            1.7      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     7,587            2.4            (4,762)           (1.6)     

Specialty Products

     18,755            32.7            19,582            35.5      

Corporate

     (507)           --              (1,999)           --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $   25,835            6.8              $ 12,821            3.7      
  

 

 

    

 

 

    

 

 

    

 

 

 

Selling, general & administrative expenses:

           

Mid-America Group

       $ 12,934                 $ 13,153         

Southeast Group

     4,209               4,479         

West Group

     10,933               10,828         
  

 

 

       

 

 

    

Total Aggregates Business

     28,076            8.7            28,460            9.9      

Specialty Products

     2,447            4.3            2,490            4.5      

Corporate

     3,724            --              6,698            --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 34,247            9.0              $ 37,648            10.9      
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) Earnings from operations:

           

Mid-America Group

       $ (11,766)                $ (13,963)        

Southeast Group

     (6,111)              (8,386)        

West Group

     2,081               (8,126)        
  

 

 

       

 

 

    

Total Aggregates Business

     (15,796)           (4.9)           (30,475)           (10.5)     

Specialty Products

     16,285            28.4            17,078            31.0      

Corporate

     (16,387)           --              (9,923)           --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ (15,898)           (4.2)             $   (23,320)               (6.8)     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

Aggregates product line shipments reflect double-digit growth in three of the four end-use markets. Volumes to the nonresidential market represented 34% of quarterly shipments and increased 13%, reflecting growth in the commercial and energy sectors. The residential end-use market accounted for 15% of quarterly shipments, and volumes to this market increased 16%, with notable growth in the Southeast and West Groups. The ChemRock/Rail market accounted for 12% of volumes, with higher ballast and agricultural lime shipments driving this market’s 14% growth.

Shipments to the infrastructure market were flat and comprised the remaining 39% of the aggregates product line. Strength in infrastructure spending was apparent in the West Group, particularly in states with strong department of transportation programs and where alternative financing options, including special-purpose taxes, have been approved. That said, uncertainty remains regarding a successor federal highway bill beyond the September 30 expiration of the Moving Ahead for Progress in the 21st Century Act, or MAP-21. It is generally recognized that additional revenue sources are needed to maintain the Highway Trust Fund’s solvency. Amid this environment, several states, including Colorado, Georgia and Iowa have stated their intentions to take a cautious approach with committing to major projects if federal highway funding is not stabilized by the expiration of MAP-21. While there is executive and legislative support for a successor bill, key provisions are still being deliberated, including duration of the bill, annual funding levels and revenue sources.

Geographically, the West Group reported a 21.5% increase in aggregates product line shipments while the Mid-America and Southeast Groups reported declines of 5.3% and 2.5%, respectively. In addition to the impact of weather, these variances continue to reveal that many western states are operating in the growth mode of the construction cycle, while many eastern states are still transitioning from recovery to growth. Aggregates product line pricing declined 1.3%, due to geographic and product mix. The West Group, in particular the Colorado operations, has lower average selling prices compared with the Mid-America and Southeast Groups. Shipments in the West Group comprised a larger percentage of quarterly shipments in 2014. Additionally, shipments of clean stone, which have a higher average selling price compared with other products, represented a lower percentage of quarterly volumes in 2014. If geographic and product mix had been the same as the prior-year quarter, aggregates product line pricing would have increased approximately 1%.

The vertically-integrated product lines each reported growth in net sales and gross profit. The ready mixed concrete product line achieved a 45% increase in net sales, which reflected volume and pricing improvement of 24% and 9%, respectively. The asphalt product line reported a 9% increase in net sales, due to increased shipments.

Aggregates product line production volumes decreased 2.4% due to weather constraints. As expected, this led to an underabsorption of fixed costs and a higher cost per ton. Although adversely affected by weather, higher net sales more than offset cost challenges and led to a 400-basis-point expansion of the business’ gross margin (excluding freight and delivery revenues).

 

Page 31 of 50


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

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

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Net sales1:

     

Aggregates

       $   263,885             $ 247,791     

Asphalt

     10,498           9,633     

Ready Mixed Concrete

     38,009           26,277     

Road Paving

     9,938           5,189     
  

 

 

    

 

 

 

Total Aggregates Business

       $ 322,330             $   288,890     
  

 

 

    

 

 

 

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

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

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

 

     Three Months Ended
March 31, 2014
 
Volume/Pricing Variance (1)    Volume      Pricing  

Heritage Aggregates Product Line (2):

     

Mid-America Group

     (5.3%)            2.0%       

Southeast Group

         (2.5%)            3.5%       

West Group

     21.5%                 (2.6%)      

Heritage Aggregates Operations(2)

     6.9%             (1.5%)      

Aggregates Product Line (3)

     8.1%             (1.3%)      

 

     Three Months Ended
March 31,
 
     2014      2013  
     (tons in thousands)  

Shipments

     

Heritage Aggregates Product Line (2):

     

Mid-America Group

         8,550               9,028     

Southeast Group

         3,724               3,820     

West Group

         12,068               9,931     
  

 

 

    

 

 

 

Heritage Aggregates Operations(2)

         24,342               22,779     

Acquisitions

         277           --     

Divestitures (4)

     --           --     
  

 

 

    

 

 

 

Aggregates Product Line (3)

         24,619               22,779     
  

 

 

    

 

 

 

 

     Three Months Ended
March 31,
 
     2014      2013  
     (tons in thousands)  

Shipments

     

Aggregates Product Line (3):

  

Tons to external customers

         23,719               22,121     

Internal tons used in other product lines

     900           658     
  

 

 

    

 

 

 

Total aggregates tons

         24,619               22,779     
  

 

 

    

 

 

 

 

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

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

The average per-ton selling price for the aggregates product line was $10.82 and $10.97 for the three months ended March 31, 2014 and 2013, respectively.

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

 

     Three Months Ended
March 31,
 
     2014      2013  

Asphalt

   $ 42.26/ton        $ 42.38/ton    

Ready Mixed Concrete

   $ 89.27/yd3       $ 81.71/yd3   

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

 

     Three Months Ended
March 31,
 
     2014      2013  
     (in thousands)  

Asphalt Product Line:

     

Tons to external customers

     248           226     

Internal tons used in road paving business

     78           35     
  

 

 

    

 

 

 

Total asphalt tons

     326           261     
  

 

 

    

 

 

 

Ready Mixed Concrete – cubic yards

             407                   329     
  

 

 

    

 

 

 

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

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

The Specialty Products business continued its strong performance and generated record first-quarter net sales of $57.4 million, an increase of 3.9%, over the prior-year quarter. Growth was attributable to the chemicals product line. The business’ gross margin (excluding freight and delivery revenues) of 32.7% declined 280 basis points, primarily due to higher natural gas costs – a direct result of a colder-than-usual winter and the resultant impact on natural gas demand. First-quarter earnings from operations were $16.3 million compared with $17.1 million in the prior-year quarter.

Each of the Aggregates business’ three reportable segments achieved gross margin (excluding freight and delivery revenues) improvement, with the Southeast and West Groups leveraging net sales increases and reporting a 440-and 580-basis-point expansion, respectively. Specialty Products’ gross margin (excluding freight and delivery revenues) was negatively affected by higher natural gas costs and declined 280 basis points.

Consolidated gross margin (excluding freight and delivery revenues) was 6.8% for 2014 compared to 3.7% for 2013. The following presents a rollforward of consolidated gross profit (dollars in thousands):

 

  Consolidated gross profit, quarter ended March 31, 2013

       $ 12,821        
  

 

 

 

  Aggregates product line:

  

Volume strength

     19,374        

Pricing weakness

     (3,280)       

Cost increases, net

     (8,104)       
  

 

 

 

  Increase in aggregates product line gross profit

     7,990        

  Vertically-integrated operations

     4,359        

  Specialty Products

     (827)       

  Corporate

     1,492        
  

 

 

 

  Increase in consolidated gross profit

     13,014        
  

 

 

 

  Consolidated gross profit, quarter ended March 31, 2014

       $ 25,835        
  

 

 

 

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

Gross profit (loss) by business is as follows:

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Gross profit (loss):

     

Aggregates

       $     10,051                $ 2,061        

Asphalt

     (1,426)             (2,455)       

Ready Mixed Concrete

     2,944              (81)       

Road Paving

     (3,982)             (4,287)       
  

 

 

    

 

 

 

Total Aggregates Business

     7,587              (4,762)       

Specialty Products

     18,755              19,582        

Corporate

     (507)             (1,999)       
  

 

 

    

 

 

 

Total

       $ 25,835                $     12,821        
  

 

 

    

 

 

 

Consistent with expectations, consolidated SG&A declined $3.4 million, or 190 basis points as a percentage of net sales. Lower pension expense and the absence of information systems upgrade costs incurred in 2013 primarily account for the reduction. The Company incurred $9.5 million of business development expenses related to the pending combination with TXI. Excluding these business development expenses, the adjusted consolidated loss from operations was $6.4 million. This compares with a consolidated loss from operations of $23.3 million in the prior-year quarter and reflects more than 70% improvement from 2013.

Among other items, other operating income and expenses, net, includes gains and losses on the sale of assets; recoveries and writeoffs related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations; and research and development costs. For the first quarter, consolidated other operating income and expenses, net, was income of $2.0 million in 2014 compared with income of $1.8 million in 2013. First quarter 2014 included higher gains on the sale of assets compared with 2013. Due to the proposed business combination with TXI, business development expenses increased in 2014 compared to 2013 by $9.5 million.

Other nonoperating income and expenses, net, includes foreign currency translation gains and losses, interest income and equity adjustments for nonconsolidated affiliates. The $2.8 million increase in other nonoperating expenses, net, is due primarily to a $2.3 million increase in the foreign currency translation loss for 2014.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the three months ended March 31, 2014 was $6.6 million compared with $18.6 million for the same period in 2013. The decline was attributable to the impact of higher net sales on working capital. Operating cash flow is primarily derived from consolidated net earnings (loss), before deducting depreciation, depletion and amortization, and offset by working capital requirements. Depreciation, depletion and amortization were as follows:

 

     Three Months Ended
March 31,
 
     2014      2013  
     (Dollars in Thousands)  

Depreciation

       $   40,107             $   40,818     

Depletion

     1,068           959     

Amortization

     1,291           1,266     
  

 

 

    

 

 

 
       $   42,466             $   43,043     
  

 

 

    

 

 

 

The seasonal nature of the construction aggregates business impacts quarterly operating cash flow when compared with the full year. Full-year 2013 net cash provided by operating activities was $309.0 million compared with $18.6 million for the first three months of 2013.

During the three months ended March 31, 2014, the Corporation invested $36.9 million of capital into its business. Full-year capital spending, exclusive of acquisitions, if any, is expected to be approximately $155.0 million in 2014. Comparable full-year capital expenditures were $155.2 million in 2013.

The Corporation, through a wholly-owned consolidated special purpose subsidiary, has a $150 million trade receivable securitization facility with SunTrust Bank and certain other lenders that may become a party to the facility from time to time (the “Trade Receivable Facility”). The Trade Receivable Facility is backed by eligible, as defined, trade receivables, which are originated by the Corporation and then sold to the wholly owned consolidated special purpose subsidiary by the Corporation. The Corporation has the option to request an increase in the commitment amount by up to an additional $100 million in increments of no less than $25 million, subject to receipt of lender commitments for the increased amount. The Corporation has the intent and ability to refinance amounts outstanding using other long-term credit facilities. On April 18, 2014, the Corporation extended the maturity of the Trade Receivable Facility to September 30, 2014.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

The Corporation can repurchase its common stock through open-market purchases pursuant to authority granted by its Board of Directors or through private transactions at such prices and upon such terms as the Chief Executive Officer deems appropriate. The Corporation did not repurchase any shares of common stock during the three months ended March 31, 2014 and 2013. At March 31, 2014, 5,042,000 shares of common stock were remaining under the Corporation’s repurchase authorization. Under the merger agreement with TXI, repurchases of the Corporation’s common stock will be prohibited until the earlier of the closing of the proposed business combination with TXI or the termination of the merger agreement.

On April 2, 2014, the Corporation paid $19.5 million for the remaining 50% interest in a joint venture.

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 purposes of the covenant calculation by the Corporation’s unrestricted cash and cash equivalents in excess of $50 million, such reduction not to exceed $200 million.

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

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

At March 31, 2014, the Corporation’s ratio of consolidated debt to consolidated EBITDA, as defined, for the trailing twelve months EBITDA was 2.74 times and was calculated as follows:

 

    Twelve Month Period
April 1, 2013 to
March 31, 2014
 
    (Dollars in thousands)  

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

              $ 128,034      

Add back:

 

Interest expense

    52,172      

Income tax expense

    43,954      

Depreciation, depletion and amortization expense

    168,060      

Stock-based compensation expense

    7,171      

Deduct:

 

Interest income

    (444)     
 

 

 

 

Consolidated EBITDA, as defined

              $ 398,948      
 

 

 

 

Consolidated debt, including debt for which the Corporation is a co-borrower, at March 31, 2014

              $ 1,091,301      
 

 

 

 

Consolidated debt to consolidated EBITDA, as defined, at March 31, 2014 for the trailing twelve months EBITDA

    2.74X      
 

 

 

 

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

Cash on hand, along with the Corporation’s projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise and allow for payment of dividends for the foreseeable future. At March 31, 2014, the Corporation had $327 million of unused borrowing capacity under its Revolving Facility, subject to complying with the related leverage covenant. The Revolving Facility expires on November 29, 2018.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

The Corporation may be required to obtain financing to fund certain strategic acquisitions, if any such opportunities arise, or to refinance outstanding debt. Any strategic acquisition of size for cash would likely require an appropriate balance of newly-issued equity with debt in order to maintain a composite investment-grade credit rating. Furthermore, the Corporation is exposed to the credit markets, through the interest cost related to its variable-rate debt, which included borrowings under its Revolving Facility, Term Loan Facility and Trade Receivable Facility at March 31, 2014. The Corporation is currently rated by three credit rating agencies; two of those agencies’ credit ratings are investment-grade level and the third agency’s credit rating is one level below investment grade. The Corporation’s composite credit rating remains at investment-grade level, which facilitates obtaining financing at lower rates than noninvestment-grade ratings. As a result of the Corporation’s proposed business combination with TXI, two of its credit rating agencies placed the Corporation’s credit ratings under review for possible downgrade. While management believes its composite credit ratings will remain at an investment-grade level, no assurance can be given that these ratings will remain at current levels, particularly if any opportunities arise to consummate strategic acquisitions.

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

OUTLOOK

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

 

   

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

   

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

   

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

   

Residential construction should continue to grow, driven by historically low mortgage rates, higher multi-family rental rates, rising housing prices; total annual housing starts are expected to exceed one million units for the first time since 2007.

   

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

   

Additionally, state initiatives to finance infrastructure projects are expected to grow continuing to play a more expanded role in public-sector activity.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

Based on these trends and expectations, the Company anticipates:

 

   

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

   

Aggregates product line shipments to increase by 4% to 5% compared with 2013 levels.

   

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

   

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

   

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

   

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

   

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

   

Interest expense to remain relatively flat compared with 2013.

   

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

   

Capital expenditures to approximate $155 million.

Looking ahead, management is encouraged by numerous macro-economic indicators, including employment growth, which suggests increased construction activity. Management expects private-sector construction to benefit from significant shale energy projects, improvements in general nonresidential construction and further recovery in the housing market. Additionally, following years of underinvestment at the federal level, management expects growth in state-level infrastructure funding initiatives to stimulate public-sector activity. Management believes they are well positioned to capture these opportunities across their markets and build on their momentum to continue creating value for shareholders. Management remains focused on further improving their balance sheet, increasing financial flexibility and enhancing their access to capital, all of which should fuel their long-term growth as they experience rapidly improving market conditions.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

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 our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate only to historical or current facts. They may use words such as “anticipate,” “expect,” “should be,” “believe,” “will”, and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of our forward-looking statements here and in other publications may turn out to be wrong.

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

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

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

In connection with the proposed business combination with TXI, the Corporation has filed with the SEC a Registration Statement on Form S-4 and Amendment 1 on May 1, 2014, which included a joint proxy statement of the Corporation and TXI and that constitute a prospectus of the Corporation relating to the proposed transaction (which Registration Statement has not yet been declared effective). The Corporation encourages investors and security holders to read the joint proxy statement/prospectus and any other relevant documents filed or to be filed with the SEC by the Corporation or TXI, including the definitive proxy statement/prospectus when they become available, as they contain or will contain important information about the Corporation, TXI and the proposed business combination with TXI. The joint proxy statement/prospectus and other documents relating to the proposed business combination with TXI can be obtained free of charge from the SEC’s website at www.sec.gov. These documents can also be obtained free of charge from the Corporation upon written request to the Corporate Secretary at Martin Marietta Materials, Inc., 2710 Wycliff Road, Raleigh, NC 27607, telephone number (919) 783-4540 or from the Corporation’s website, http://ir.martinmarietta.com or from TXI upon written request to TXI at Investor Relations, Texas Industries, Inc., 1503 LBJ Freeway, Suite 400, Dallas, Texas 75234, telephone number (972) 647-6700 or from TXI’s website, http://investorrelations.txi.com.

This communication is not a solicitation of a proxy from any investor or securityholder. However, the Corporation, TXI and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in connection with the proposed business combination with TXI under the rules of the SEC. Information regarding the Corporation’s directors and executive officers may be found in its Annual Report for the year ended December 31, 2013 on Form 10-K filed with the SEC on February 24, 2014 and the definitive proxy statement relating to the Corporation’s 2014 Annual Meeting of Shareholders filed with the SEC on April 17, 2014. Information regarding TXI’s directors and executive officers may be found in its Annual Report for the year ended May 31, 2013 on Form 10-K filed with the SEC on July 22, 2013 and the definitive proxy statement relating to its 2013 Annual Meeting of Stockholders filed with the SEC on August 23, 2013. These documents can be obtained free of charge from the sources indicated above. Additional information regarding the interests of these participants and a description of their direct or indirect interests, by security holdings or otherwise, will also be included in the joint proxy statement/prospectus that will be filed by the Corporation and TXI with the SEC when it becomes available.

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

First Quarter Ended March 31, 2014

(Continued)

 

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

Martin Marietta Materials, Inc.

Attn: Corporate Secretary

2710 Wycliff Road

Raleigh, North Carolina 27607-3033

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

Telephone: (919) 783-4540

Website address: www.martinmarietta.com

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

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Management has considered the current economic environment and its potential impact to the Corporation’s business. Demand for aggregates products, particularly in the infrastructure construction market, has already been negatively affected by federal and state budget and deficit issues and the uncertainty over future highway funding levels beyond the September 2014 expiration of MAP-21. Further, delays or cancellations to capital projects in the nonresidential and residential construction markets could occur if companies and consumers are unable to obtain financing for construction projects or if consumer confidence continues to be eroded by economic uncertainty.

Demand in the residential construction market is affected by interest rates. The Federal Reserve kept the federal funds rate near zero percent during the three months ended March 31, 2014, unchanged since 2008. The residential construction market accounted for 14% of the Corporation’s aggregates product line shipments in 2013.

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

Variable-Rate Borrowing Facilities.    At March 31, 2014, the Corporation had a $600 million Credit Agreement, comprised of a $350 million Revolving Facility and $250 million Term Loan Facility, and a $150 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 $415.4 million, which was the collective outstanding balance at March 31, 2014, would increase interest expense by $4.2 million on an annual basis. The reduction of short-term borrowings may increase interest expense based on currently favorable short-term interest rates.

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

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

 

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

Item 4.  Controls and Procedures

As of March 31, 2014, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, 2014. There were no changes in the Corporation’s internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

 

PART II-OTHER INFORMATION

Item 1.  Legal Proceedings.

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

See also “Note 8: Commitments and Contingencies – Litigation Related to the Merger” of the “Notes to Consolidated Financial Statements” of this Form 10-Q.

Item 1A.  Risk Factors.

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

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

ISSUER PURCHASES OF EQUITY SECURITIES

 

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

January 1, 2014 –

January 31, 2014

     --         $ --               --         5,041,871

February 1, 2014 –

February 28, 2014

     --         $ --               --         5,041,871

March 1, 2014 –

March 31, 2014

     --         $ --               --         5,041,871
  

 

 

       

 

 

    

Total

                     --         $ --                               --         5,041,871

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

Item 4.  Mine Safety Disclosures.

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

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

PART II-OTHER INFORMATION

(Continued)

 

Item 6.  Exhibits.

 

Exhibit
  No.

  

Document

31.01    Certification dated May 5, 2014 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02    Certification dated May 5, 2014 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01    Written Statement dated May 5, 2014 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02    Written Statement dated May 5, 2014 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
95    Mine Safety Disclosures
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase

 

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SIGNATURES

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

 

      MARTIN MARIETTA MATERIALS, INC.
      (Registrant)
Date: May 5, 2014     By:     /s/ Anne H. Lloyd                    
      Anne H. Lloyd
      Executive Vice President and
                  Chief Financial Officer

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2014

 

EXHIBIT INDEX

 

Exhibit
  No.

  

Document

31.01    Certification dated May 5, 2014 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02    Certification dated May 5, 2014 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01    Written Statement dated May 5, 2014 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02    Written Statement dated May 5, 2014 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
95    Mine Safety Disclosures
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase

 

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