mlm-10q_20160930.htm

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2016

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      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      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

 

  

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  

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

 

Class

 

Outstanding as of October 28, 2016

Common Stock, $0.01 par value

 

63,466,170

 

 

 

 

 

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

 

 

Page

Part I. Financial Information:

 

 

Item 1. Financial Statements.

 

 

 

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

 

 

3

Consolidated Statements of Earnings and Comprehensive Earnings – Three and Nine Months Ended September 30, 2016 and 2015

 

 

 

4

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2016 and 2015

 

 

5

Consolidated Statement of Total Equity - Nine Months Ended September 30, 2016

 

 

6

Notes to Consolidated Financial Statements

 

 

7

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

 

 

24

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

 

55

Item 4. Controls and Procedures.

 

 

56

Part II. Other Information:

 

 

 

Item 1. Legal Proceedings.

 

 

57

Item 1A. Risk Factors.

 

 

57

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

 

 

57

Item 4. Mine Safety Disclosures.

 

 

57

Item 6. Exhibits.

 

 

58

Signatures

 

 

59

Exhibit Index

 

 

60

 

 

 

Page 2 of 60


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2015

 

 

 

(Dollars in Thousands, Except Per Share Data)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,684

 

 

$

168,409

 

 

$

436,429

 

Accounts receivable, net

 

 

566,425

 

 

 

410,921

 

 

 

577,424

 

Inventories, net

 

 

508,199

 

 

 

469,141

 

 

 

464,525

 

Other current assets

 

 

56,217

 

 

 

33,164

 

 

 

37,427

 

Total Current Assets

 

 

1,191,525

 

 

 

1,081,635

 

 

 

1,515,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

6,013,084

 

 

 

5,613,198

 

 

 

5,488,744

 

Allowances for depreciation, depletion and amortization

 

 

(2,633,471

)

 

 

(2,457,198

)

 

 

(2,415,210

)

Net property, plant and equipment

 

 

3,379,613

 

 

 

3,156,000

 

 

 

3,073,534

 

Goodwill

 

 

2,160,605

 

 

 

2,068,235

 

 

 

2,065,644

 

Operating permits, net

 

 

444,123

 

 

 

444,725

 

 

 

445,855

 

Other intangibles, net

 

 

70,927

 

 

 

65,827

 

 

 

65,556

 

Other noncurrent assets

 

 

126,408

 

 

 

141,189

 

 

 

142,040

 

Total Assets

 

$

7,373,201

 

 

$

6,957,611

 

 

$

7,308,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Bank overdraft

 

$

 

 

$

10,235

 

 

$

 

Accounts payable

 

 

192,738

 

 

 

164,718

 

 

 

226,837

 

Accrued salaries, benefits and payroll taxes

 

 

33,463

 

 

 

30,939

 

 

 

30,529

 

Pension and postretirement benefits

 

 

9,658

 

 

 

8,168

 

 

 

8,359

 

Accrued insurance and other taxes

 

 

67,822

 

 

 

62,781

 

 

 

70,509

 

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

 

 

228,025

 

 

 

18,713

 

 

 

147,003

 

Accrued interest

 

 

23,060

 

 

 

16,156

 

 

 

22,414

 

Other current liabilities

 

 

50,143

 

 

 

54,948

 

 

 

69,208

 

Total Current Liabilities

 

 

604,909

 

 

 

366,658

 

 

 

574,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,536,810

 

 

 

1,550,061

 

 

 

1,553,768

 

Pension, postretirement and postemployment benefits

 

 

200,152

 

 

 

224,538

 

 

 

229,042

 

Deferred income taxes, net

 

 

676,144

 

 

 

583,459

 

 

 

540,079

 

Other noncurrent liabilities

 

 

196,788

 

 

 

172,718

 

 

 

158,106

 

Total Liabilities

 

 

3,214,803

 

 

 

2,897,434

 

 

 

3,055,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share

 

 

633

 

 

 

643

 

 

 

660

 

Preferred stock, par value $0.01 per share

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

3,326,531

 

 

 

3,287,827

 

 

 

3,283,200

 

Accumulated other comprehensive loss

 

 

(104,511

)

 

 

(105,622

)

 

 

(112,742

)

Retained earnings

 

 

932,679

 

 

 

874,436

 

 

 

1,079,764

 

Total Shareholders' Equity

 

 

4,155,332

 

 

 

4,057,284

 

 

 

4,250,882

 

Noncontrolling interests

 

 

3,066

 

 

 

2,893

 

 

 

1,698

 

Total Equity

 

 

4,158,398

 

 

 

4,060,177

 

 

 

4,252,580

 

Total Liabilities and Equity

 

$

7,373,201

 

 

$

6,957,611

 

 

$

7,308,434

 

See accompanying notes to the consolidated financial statements (unaudited).

 

Page 3 of 60


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In Thousands, Except Per Share Data)

 

 

(In Thousands, Except Per Share Data)

 

Net Sales

 

$

1,038,344

 

 

$

1,005,218

 

 

$

2,687,740

 

 

$

2,487,342

 

Freight and delivery revenues

 

 

65,557

 

 

 

77,031

 

 

 

182,194

 

 

 

207,672

 

Total revenues

 

 

1,103,901

 

 

 

1,082,249

 

 

 

2,869,934

 

 

 

2,695,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

745,776

 

 

 

742,713

 

 

 

2,003,837

 

 

 

1,950,424

 

Freight and delivery costs

 

 

65,557

 

 

 

77,031

 

 

 

182,194

 

 

 

207,672

 

Total cost of revenues

 

 

811,333

 

 

 

819,744

 

 

 

2,186,031

 

 

 

2,158,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

292,568

 

 

 

262,505

 

 

 

683,903

 

 

 

536,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general & administrative expenses

 

 

56,348

 

 

 

54,887

 

 

 

177,718

 

 

 

161,120

 

Acquisition-related expenses, net

 

 

306

 

 

 

2,087

 

 

 

1,627

 

 

 

5,783

 

Other operating (income) and expenses, net

 

 

(4,441

)

 

 

26,033

 

 

 

(7,309

)

 

 

27,963

 

Earnings from Operations

 

 

240,355

 

 

 

179,498

 

 

 

511,867

 

 

 

342,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

20,568

 

 

 

18,926

 

 

 

60,896

 

 

 

57,344

 

Other nonoperating income, net

 

 

(10,560

)

 

 

(4,489

)

 

 

(19,690

)

 

 

(6,607

)

Earnings before taxes on income

 

 

230,347

 

 

 

165,061

 

 

 

470,661

 

 

 

291,315

 

Taxes on income

 

 

70,869

 

 

 

47,483

 

 

 

144,014

 

 

 

85,600

 

Consolidated net earnings

 

 

159,478

 

 

 

117,578

 

 

 

326,647

 

 

 

205,715

 

Less: Net (loss) earnings attributable to noncontrolling interests

 

 

(1

)

 

 

34

 

 

 

121

 

 

 

108

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

$

159,479

 

 

$

117,544

 

 

$

326,526

 

 

$

205,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Comprehensive Earnings:  (See Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings attributable to Martin Marietta Materials, Inc.

 

$

161,036

 

 

$

117,616

 

 

$

327,637

 

 

$

199,024

 

Earnings attributable to noncontrolling interests

 

 

19

 

 

 

37

 

 

 

173

 

 

 

116

 

 

 

$

161,055

 

 

$

117,653

 

 

$

327,810

 

 

$

199,140

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic attributable to common shareholders

 

$

2.50

 

 

$

1.75

 

 

$

5.10

 

 

$

3.05

 

Diluted attributable to common shareholders

 

$

2.49

 

 

$

1.74

 

 

$

5.08

 

 

$

3.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

63,452

 

 

 

66,830

 

 

 

63,713

 

 

 

67,203

 

Diluted

 

 

63,723

 

 

 

67,108

 

 

 

63,967

 

 

 

67,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Per Common Share

 

$

0.42

 

 

$

0.40

 

 

$

1.22

 

 

$

1.20

 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

Page 4 of 60


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

326,647

 

 

$

205,715

 

Adjustments to reconcile consolidated net earnings to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

211,997

 

 

 

199,935

 

Stock-based compensation expense

 

 

17,167

 

 

 

10,722

 

Loss on divestitures and sales of assets

 

 

158

 

 

 

27,568

 

Deferred income taxes

 

 

59,834

 

 

 

43,286

 

Excess tax benefits from stock-based compensation transactions

 

 

(5,010

)

 

 

 

Other items, net

 

 

(17,797

)

 

 

(6,554

)

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

   and divestitures:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(133,848

)

 

 

(155,054

)

Inventories, net

 

 

(33,956

)

 

 

(17,650

)

Accounts payable

 

 

12,422

 

 

 

22,186

 

Other assets and liabilities, net

 

 

(23,546

)

 

 

(10,575

)

Net Cash Provided by Operating Activities

 

 

414,068

 

 

 

319,579

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(285,481

)

 

 

(212,447

)

Acquisitions, net

 

 

(178,689

)

 

 

(10,748

)

Cash received in acquisition

 

 

4,246

 

 

 

 

Proceeds from divestitures and sales of assets

 

 

5,216

 

 

 

422,045

 

Repayments from affiliate

 

 

 

 

 

1,808

 

Payment of railcar construction advances

 

 

(37,370

)

 

 

(25,341

)

Reimbursement of railcar construction advances

 

 

37,370

 

 

 

25,234

 

Net Cash (Used for) Provided by Investing Activities

 

 

(454,708

)

 

 

200,551

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Borrowings of debt

 

 

360,000

 

 

 

230,000

 

Repayments of debt

 

 

(168,267

)

 

 

(111,384

)

Payments on capital lease obligations

 

 

(2,463

)

 

 

(5,784

)

Debt issuance costs

 

 

(213

)

 

 

 

Change in bank overdraft

 

 

(10,235

)

 

 

(183

)

Dividends paid

 

 

(78,295

)

 

 

(81,219

)

Issuances of common stock

 

 

17,378

 

 

 

33,892

 

Repurchases of common stock

 

 

(190,000

)

 

 

(257,674

)

Excess tax benefits from stock-based compensation transactions

 

 

5,010

 

 

 

 

Net Cash Used for Financing Activities

 

 

(67,085

)

 

 

(192,352

)

Net (Decrease) Increase in Cash and Cash Equivalents

 

 

(107,725

)

 

 

327,778

 

Cash and Cash Equivalents, beginning of period

 

 

168,409

 

 

 

108,651

 

Cash and Cash Equivalents, end of period

 

$

60,684

 

 

$

436,429

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

48,813

 

 

$

47,069

 

Cash paid for income taxes

 

$

81,589

 

 

$

30,896

 

 

 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

Page 5 of 60


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENT OF TOTAL EQUITY

 

(in thousands)

 

Shares of Common Stock

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Other Comprehensive Loss

 

 

Retained Earnings

 

 

Total Shareholders' Equity

 

 

Noncontrolling Interests

 

 

Total Equity

 

Balance at December 31, 2015

 

 

64,479

 

 

$

643

 

 

$

3,287,827

 

 

$

(105,622

)

 

$

874,436

 

 

$

4,057,284

 

 

$

2,893

 

 

$

4,060,177

 

Consolidated net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

326,526

 

 

 

326,526

 

 

 

121

 

 

 

326,647

 

Other comprehensive earnings,

     net of tax

 

 

 

 

 

 

 

 

 

 

 

1,111

 

 

 

 

 

 

1,111

 

 

 

52

 

 

 

1,163

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(78,295

)

 

 

(78,295

)

 

 

 

 

 

(78,295

)

Issuances of common stock for stock

     award plans

 

 

231

 

 

 

2

 

 

 

21,537

 

 

 

 

 

 

 

 

 

21,539

 

 

 

 

 

 

21,539

 

Repurchases of common stock

 

 

(1,244

)

 

 

(12

)

 

 

 

 

 

 

 

 

(189,988

)

 

 

(190,000

)

 

 

 

 

 

(190,000

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

17,167

 

 

 

 

 

 

 

 

 

17,167

 

 

 

 

 

 

17,167

 

Balance at September 30, 2016

 

 

63,466

 

 

$

633

 

 

$

3,326,531

 

 

$

(104,511

)

 

$

932,679

 

 

$

4,155,332

 

 

$

3,066

 

 

$

4,158,398

 

 

 

 

See accompanying notes to the consolidated financial statements (unaudited).

 

Page 6 of 60


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.

Significant Accounting Policies

Organization

Martin Marietta Materials, Inc. (the “Corporation” or “Martin Marietta”) is engaged principally in the construction aggregates business. The aggregates product line accounted for 54% of consolidated net sales for the nine months ended September 30, 2016 (55% of full-year 2015 consolidated net sales) and includes crushed stone, sand and gravel, and is used for construction of highways and other infrastructure projects, and in the nonresidential and residential construction industries. Aggregates products are also used in the railroad, agricultural, utility and environmental industries. The Corporation’s aggregates-related downstream product lines, which accounted for 32% of consolidated net sales for the nine months ended September 30, 2016 (27% of full-year 2015 consolidated net sales) include asphalt products, ready mixed concrete and road paving construction services.  Aggregates and aggregates-related downstream product lines are sold and shipped from a network of more than 400 quarries, distribution facilities and plants in 26 states, Nova Scotia and the Bahamas. The aggregates and aggregates-related downstream product lines are reported collectively as the “Aggregates business”.

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

 

AGGREGATES BUSINESS

Reportable Segments

  

Mid-America Group

  

Southeast Group

  

West Group

Operating Locations

  

Indiana, Iowa,

northern Kansas, Kentucky, Maryland, Minnesota, Missouri,

eastern Nebraska, North Carolina, Ohio,

South Carolina,

Virginia, Washington and

West Virginia

  

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

  

Arkansas, Colorado, southern Kansas,

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

and Wyoming

The Corporation has a Cement segment, which accounted for 7% of consolidated net sales for the nine months ended September 30, 2016 (11% of full-year 2015 consolidated net sales which included the operations of a California-based cement plant sold in September 2015).  The Cement segment has production facilities located in Midlothian, Texas, south of Dallas-Fort Worth and Hunter, Texas, north of San Antonio, which produce Portland and specialty cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. The high calcium limestone reserves, used as a raw material, are owned by the Cement business and are adjacent to each of the plants.

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

 

Page 7 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

 

1.

Significant Accounting Policies (continued)

Basis of Presentation

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

Debt Issuance Costs

The Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which amends the presentation of debt issuance costs in the financial statements.  The ASU requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts, and does not impact the recognition and measurement guidance for debt issuance costs. The Corporation adopted ASU 2015-03 on January 1, 2016 and has retrospectively adjusted the prior periods presented, resulting in a reclassification of $3,567,000 and $3,848,000 from Other noncurrent assets to Long-term debt as of December 31, 2015 and September 30, 2015, respectively, and $533,000 from Other current assets to Current maturities of long-term debt and short-term maturities as of December 31, 2015 and September 30, 2015.  

Revenue Recognition Standard

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

 

Page 8 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

Lease Standard

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

Share-based Payment Standard

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

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss

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

Comprehensive earnings attributable to Martin Marietta is as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net earnings attributable to Martin Marietta

    Materials, Inc.

 

$

159,479

 

 

$

117,544

 

 

$

326,526

 

 

$

205,607

 

Other comprehensive earnings (loss), net of tax

 

 

1,557

 

 

 

72

 

 

 

1,111

 

 

 

(6,583

)

Comprehensive earnings attributable to Martin Marietta

     Materials, Inc.

 

$

161,036

 

 

$

117,616

 

 

$

327,637

 

 

$

199,024

 

 

 

Page 9 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

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

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net (loss) earnings attributable to noncontrolling

     interests

 

$

(1

)

 

$

34

 

 

$

121

 

 

$

108

 

Other comprehensive earnings, net of tax

 

 

20

 

 

 

3

 

 

 

52

 

 

 

8

 

Comprehensive earnings attributable to noncontrolling

     interests

 

$

19

 

 

$

37

 

 

$

173

 

 

$

116

 

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

Changes in accumulated other comprehensive (loss) earnings, net of tax, are as follows:  

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Unamortized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminated

 

 

Accumulated

 

 

 

Pension and

 

 

 

 

 

 

Forward Starting

 

 

Other

 

 

 

Postretirement

 

 

Foreign

 

 

Interest Rate

 

 

Comprehensive

 

 

 

Benefit Plans

 

 

Currency

 

 

Swap

 

 

Loss

 

 

 

Three Months Ended September 30, 2016

 

Balance at beginning of period

 

$

(104,114

)

 

$

(381

)

 

$

(1,573

)

 

$

(106,068

)

Other comprehensive earnings (loss) before

     reclassifications, net of tax

 

 

 

 

 

(198

)

 

 

 

 

 

(198

)

Amounts reclassified from accumulated other

     comprehensive earnings, net of tax

 

 

1,547

 

 

 

 

 

 

208

 

 

 

1,755

 

Other comprehensive earnings (loss), net of tax

 

 

1,547

 

 

 

(198

)

 

 

208

 

 

 

1,557

 

Balance at end of period

 

$

(102,567

)

 

$

(579

)

 

$

(1,365

)

 

$

(104,511

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2015

 

Balance at beginning of period

 

$

(111,663

)

 

$

1,219

 

 

$

(2,370

)

 

$

(112,814

)

Other comprehensive loss before reclassifications,

     net of tax

 

 

 

 

 

(1,757

)

 

 

 

 

 

(1,757

)

Amounts reclassified from accumulated other

     comprehensive earnings, net of tax

 

 

1,636

 

 

 

 

 

 

193

 

 

 

1,829

 

Other comprehensive earnings (loss), net of tax

 

 

1,636

 

 

 

(1,757

)

 

 

193

 

 

 

72

 

Balance at end of period

 

$

(110,027

)

 

$

(538

)

 

$

(2,177

)

 

$

(112,742

)

 

Page 10 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

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

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Unamortized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminated

 

 

Accumulated

 

 

 

Pension and

 

 

 

 

 

 

Forward Starting

 

 

Other

 

 

 

Postretirement

 

 

Foreign

 

 

Interest Rate

 

 

Comprehensive

 

 

 

Benefit Plans

 

 

Currency

 

 

Swap

 

 

Loss

 

 

 

Nine Months Ended September 30, 2016

 

Balance at beginning of period

 

$

(103,380

)

 

$

(264

)

 

$

(1,978

)

 

$

(105,622

)

Other comprehensive loss before

     reclassifications, net of tax

 

 

(3,830

)

 

 

(315

)

 

 

 

 

 

(4,145

)

Amounts reclassified from accumulated

     other comprehensive earnings, net of tax

 

 

4,643

 

 

 

 

 

 

613

 

 

 

5,256

 

Other comprehensive earnings (loss), net of tax

 

 

813

 

 

 

(315

)

 

 

613

 

 

 

1,111

 

Balance at end of period

 

$

(102,567

)

 

$

(579

)

 

$

(1,365

)

 

$

(104,511

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

Balance at beginning of period

 

$

(106,688

)

 

$

3,278

 

 

$

(2,749

)

 

$

(106,159

)

Other comprehensive loss before

     reclassifications, net of tax

 

 

(10,845

)

 

 

(3,816

)

 

 

 

 

 

(14,661

)

Amounts reclassified from accumulated

     other comprehensive earnings, net of tax

 

 

7,506

 

 

 

 

 

 

572

 

 

 

8,078

 

Other comprehensive (loss) earnings, net of tax

 

 

(3,339

)

 

 

(3,816

)

 

 

572

 

 

 

(6,583

)

Balance at end of period

 

$

(110,027

)

 

$

(538

)

 

$

(2,177

)

 

$

(112,742

)

 

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $2,405,000 and $6,793,000 for the nine months ended September 30, 2016 and 2015, respectively.

 

 

Page 11 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

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

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

 

 

(Dollars in Thousands)

 

 

 

Pension and Postretirement

Benefit Plans

 

 

Unamortized Value of Terminated Forward Starting Interest Rate Swap

 

 

Net Noncurrent Deferred Tax Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2016

 

Balance at beginning of period

 

$

66,931

 

 

$

1,023

 

 

$

67,954

 

Tax effect of other comprehensive earnings

 

 

(986

)

 

 

(136

)

 

 

(1,122

)

Balance at end of period

 

$

65,945

 

 

$

887

 

 

$

66,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2015

 

Balance at beginning of period

 

$

71,625

 

 

$

1,554

 

 

$

73,179

 

Tax effect of other comprehensive earnings

 

 

(1,042

)

 

 

(125

)

 

 

(1,167

)

Balance at end of period

 

$

70,583

 

 

$

1,429

 

 

$

72,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

Balance at beginning of period

 

$

66,467

 

 

$

1,290

 

 

$

67,757

 

Tax effect of other comprehensive earnings

 

 

(522

)

 

 

(403

)

 

 

(925

)

Balance at end of period

 

$

65,945

 

 

$

887

 

 

$

66,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

Balance at beginning of period

 

$

68,568

 

 

$

1,799

 

 

$

70,367

 

Tax effect of other comprehensive earnings

 

 

2,015

 

 

 

(370

)

 

 

1,645

 

Balance at end of period

 

$

70,583

 

 

$

1,429

 

 

$

72,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 12 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

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

Reclassifications out of accumulated other comprehensive loss are as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

Affected line items in the consolidated

 

 

September 30,

 

 

September 30,

 

statements of earnings and

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

comprehensive earnings

 

 

(Dollars in Thousands)

 

 

Pension and postretirement

     benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement charge

 

$

 

 

$

 

 

$

59

 

 

$

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit

 

 

(404

)

 

 

(468

)

 

$

(1,209

)

 

$

(1,407

)

 

Actuarial loss

 

 

2,893

 

 

 

3,146

 

 

 

8,681

 

 

 

13,691

 

 

 

 

 

2,489

 

 

 

2,678

 

 

 

7,531

 

 

 

12,284

 

Cost of sales; Selling, general

     and administrative expenses

Tax benefit

 

 

(942

)

 

 

(1,042

)

 

 

(2,888

)

 

 

(4,778

)

Taxes on income

 

 

$

1,547

 

 

$

1,636

 

 

$

4,643

 

 

$

7,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized value of

     terminated forward starting

     interest rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional interest expense

 

$

344

 

 

$

318

 

 

$

1,016

 

 

$

942

 

Interest expense

Tax benefit

 

 

(136

)

 

 

(125

)

 

 

(403

)

 

 

(370

)

Taxes on income

 

 

$

208

 

 

$

193

 

 

$

613

 

 

$

572

 

 

 

 

Page 13 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

Earnings per Common Share

The numerator for basic and diluted earnings per common share is net earnings attributable to Martin Marietta Materials, Inc. reduced by dividends and undistributed earnings attributable to certain of the Corporation’s stock-based compensation. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating securities. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards to be issued to employees and nonemployee members of the Corporation’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive. For the three and nine months ended September 30, 2016 and 2015, the diluted per-share computations reflect a change in the number of common shares outstanding to include the number of additional shares that would have been outstanding if the potentially dilutive common shares had been issued.

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In Thousands)

 

Net earnings attributable to Martin Marietta Materials, Inc.

 

$

159,479

 

 

$

117,544

 

 

$

326,526

 

 

$

205,607

 

Less: Distributed and undistributed earnings attributable to

     unvested awards

 

 

637

 

 

 

479

 

 

 

1,388

 

 

 

897

 

Basic and diluted net earnings available to common

     shareholders attributable to Martin Marietta Materials, Inc.

 

$

158,842

 

 

$

117,065

 

 

$

325,138

 

 

$

204,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

63,452

 

 

 

66,830

 

 

 

63,713

 

 

 

67,203

 

Effect of dilutive employee and director awards

 

 

271

 

 

 

278

 

 

 

254

 

 

 

267

 

Diluted weighted-average common shares outstanding

 

 

63,723

 

 

 

67,108

 

 

 

63,967

 

 

 

67,470

 

 

2.

Goodwill

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

 

(Dollars in Thousands)

 

 

Mid-America

 

Southeast

 

West

 

 

 

 

 

 

 

 

Group

 

Group

 

Group

 

Cement

 

Total

 

 

Nine Months Ended September 30, 2016

 

Balance at January 1, 2016

$

281,403

 

$

50,346

 

$

871,220

 

$

865,266

 

$

2,068,235

 

Acquisitions

 

 

 

 

 

92,442

 

 

 

 

92,442

 

Disposal

 

 

 

 

 

(72

)

 

 

 

(72

)

Balance at September 30, 2016

$

281,403

 

$

50,346

 

$

963,590

 

$

865,266

 

$

2,160,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 14 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

 

3.

Inventories, Net

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2015

 

 

 

(Dollars in Thousands)

 

Finished products

 

$

462,698

 

 

$

433,649

 

 

$

420,027

 

Products in process and raw materials

 

 

61,137

 

 

 

55,194

 

 

 

59,005

 

Supplies and expendable parts

 

 

114,872

 

 

 

110,882

 

 

 

108,759

 

 

 

 

638,707

 

 

 

599,725

 

 

 

587,791

 

Less: Allowances

 

 

(130,508

)

 

 

(130,584

)

 

 

(123,266

)

Total

 

$

508,199

 

 

$

469,141

 

 

$

464,525

 

 

4.

Long-Term Debt

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2015

 

 

 

(Dollars in Thousands)

 

6.6% Senior Notes, due 2018

 

$

299,388

 

 

$

299,113

 

 

$

299,020

 

7% Debentures, due 2025

 

 

124,068

 

 

 

124,002

 

 

 

123,981

 

6.25% Senior Notes, due 2037

 

 

227,961

 

 

 

227,917

 

 

 

227,907

 

4.25 % Senior Notes, due 2024

 

 

395,115

 

 

 

394,690

 

 

 

394,575

 

Floating Rate Notes, due 2017, interest rate of 1.94%,

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

     and September 30, 2015, respectively

 

 

298,750

 

 

 

298,868

 

 

 

298,731

 

Term Loan Facility, due 2018, interest rate of 1.90%, 1.86% and 1.72%

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

     2015, respectively

 

 

209,096

 

 

 

222,521

 

 

 

225,433

 

Trade Receivable Facility, interest rate of 1.22% and 0.90% at

     September 30, 2016 and September 30, 2015, respectively

 

 

210,000

 

 

 

 

 

 

130,000

 

Other notes

 

 

457

 

 

 

1,663

 

 

 

1,124

 

Total debt

 

 

1,764,835

 

 

 

1,568,774

 

 

 

1,700,771

 

Less: Current maturities

 

 

(228,025

)

 

 

(18,713

)

 

 

(147,003

)

Long-term debt

 

$

1,536,810

 

 

$

1,550,061

 

 

$

1,553,768

 

 

 

Page 15 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4.

Long-Term Debt (continued)

On September 28, 2016, the Corporation, through a wholly-owned special-purpose subsidiary, amended its trade receivable securitization facility (the “Trade Receivable Facility”) to increase the borrowing capacity from $250,000,000 to $300,000,000 and extend the maturity to September 27, 2017.  The Trade Receivable Facility, with SunTrust Bank, Regions Bank, PNC Bank, N.A., The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, and certain other lenders that may become a party to the facility from time to time, is backed by eligible trade receivables, as defined.  Borrowings are limited to the lesser of the facility limit or the borrowing base, as defined, of $420,044,000, $282,258,000 and $425,733,000 at September 30, 2016, December 31, 2015 and September 30, 2015, respectively.  These receivables are originated by the Corporation and then sold or contributed to the wholly-owned special-purpose subsidiary by the Corporation.  The Corporation continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned special-purpose subsidiary.  Borrowings under the Trade Receivable Facility bear interest at a rate equal to one-month LIBOR plus 0.725%, subject to change in the event that this rate no longer reflects the lender’s cost of lending.  The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements.

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

In accordance with the amended Credit Agreement, the Corporation adjusted consolidated EBITDA to add back any integration or similar costs or expenses related to the TXI business combination incurred in any period prior to the second anniversary of the closing of the TXI business combination, not to exceed $70,000,000. The Corporation was in compliance with the Ratio at September 30, 2016.

Available borrowings under the Revolving Facility are reduced by any outstanding letters of credit issued by the Corporation under the Revolving Facility. At September 30, 2016, December 31, 2015 and September 30, 2015, the Corporation had $2,507,000 of outstanding letters of credit issued under the Revolving Facility.

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

Accumulated other comprehensive loss includes the unamortized value of terminated forward starting interest rate swap agreements. For the three and nine months ended September 30, 2016, the Corporation recognized $344,000 and $1,016,000, respectively, as additional interest expense. For the three and nine months ended September 30, 2015, the Corporation recognized $318,000 and $942,000, respectively, as additional interest expense. The ongoing amortization of the terminated value of the forward starting interest rate swap agreements will increase annual interest expense by approximately $1,400,000 until the maturity of the 6.6% Senior Notes in 2018.

 

Page 16 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

5.

Financial Instruments

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

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

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

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

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

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

The carrying values and fair values of the Corporation’s long-term debt were $1,764,835,000 and $1,876,802,000, respectively, at September 30, 2016; $1,568,774,000 and $1,625,193,000, respectively, at December 31, 2015; and $1,700,771,000 and $1,781,152,000, respectively, at September 30, 2015. The estimated fair value of the publicly-registered long-term notes was estimated based on Level 1 of the fair value hierarchy using quoted market prices. The estimated fair value of other borrowings, which primarily represents variable-rate debt, was based on Level 2 of the fair value hierarchy using quoted market prices for similar debt instruments, and approximates their carrying amounts as the interest rates reset periodically.  

6.

Income Taxes

The Corporation’s effective income tax rates for the nine months ended September 30, 2016 and 2015 were 30.6% and 29.4%, respectively.  The estimated effective income tax rates reflect the effect of federal and state income taxes and the impact of differences in book and tax accounting arising from the net permanent benefits associated with the statutory depletion deduction for mineral reserves and the domestic production deduction.  

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

 

Page 17 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

7.

Pension and Postretirement Benefits

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

 

 

 

Three Months Ended September 30,

 

 

 

Pension

 

 

Postretirement Benefits

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Service cost

 

$

5,542

 

 

$

5,752

 

 

$

22

 

 

$

34

 

Interest cost

 

 

8,970

 

 

 

8,287

 

 

 

216

 

 

 

232

 

Expected return on assets

 

 

(9,425

)

 

 

(9,095

)

 

 

 

 

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (credit)

 

 

87

 

 

 

106

 

 

 

(491

)

 

 

(574

)

Actuarial loss (gain)

 

 

3,018

 

 

 

3,223

 

 

 

(125

)

 

 

(77

)

Special termination benefit

 

 

 

 

 

382

 

 

 

 

 

 

 

Net periodic benefit cost (credit)

 

$

8,192

 

 

$

8,655

 

 

$

(378

)

 

$

(385

)

 

 

 

Nine Months Ended September 30,

 

 

 

Pension

 

 

Postretirement Benefits

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Service cost

 

$

16,624

 

 

$

17,257

 

 

$

65

 

 

$

103

 

Interest cost

 

 

26,908

 

 

 

24,863

 

 

 

648

 

 

 

696

 

Expected return on assets

 

 

(28,272

)

 

 

(27,285

)

 

 

 

 

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (credit)

 

 

262

 

 

 

317

 

 

 

(1,471

)

 

 

(1,724

)

Actuarial loss (gain)

 

 

9,055

 

 

 

13,923

 

 

 

(374

)

 

 

(232

)

Settlement charge

 

 

59

 

 

 

 

 

 

 

 

 

 

Special termination benefit

 

 

764

 

 

 

1,844

 

 

 

(8

)

 

 

 

Net periodic benefit cost (credit)

 

$

25,400

 

 

$

30,919

 

 

$

(1,140

)

 

$

(1,157

)

 

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

 

 

Page 18 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8.

Commitments and Contingencies

Legal and Administrative Proceedings

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

Borrowing Arrangements with Affiliate

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

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

Employees

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

9.

Business Segments

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

 

Page 19 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9.

Business Segments (continued)

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

297,275

 

 

$

289,735

 

 

$

762,297

 

 

$

688,217

 

Southeast Group

 

 

83,814

 

 

 

82,949

 

 

 

243,086

 

 

 

229,144

 

West Group

 

 

595,030

 

 

 

531,256

 

 

 

1,472,943

 

 

 

1,263,063

 

Total Aggregates Business

 

 

976,119

 

 

 

903,940

 

 

 

2,478,326

 

 

 

2,180,424

 

Cement

 

 

62,633

 

 

 

116,135

 

 

 

198,653

 

 

 

324,134

 

Magnesia Specialties

 

 

65,149

 

 

 

62,174

 

 

 

192,955

 

 

 

190,456

 

Total

 

$

1,103,901

 

 

$

1,082,249

 

 

$

2,869,934

 

 

$

2,695,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

275,791

 

 

$

265,653

 

 

$

708,151

 

 

$

632,772

 

Southeast Group

 

 

80,044

 

 

 

78,283

 

 

 

230,005

 

 

 

214,536

 

West Group

 

 

562,175

 

 

 

493,505

 

 

 

1,381,215

 

 

 

1,156,075

 

Total Aggregates Business

 

 

918,010

 

 

 

837,441

 

 

 

2,319,371

 

 

 

2,003,383

 

Cement

 

 

60,090

 

 

 

110,519

 

 

 

189,754

 

 

 

307,489

 

Magnesia Specialties

 

 

60,244

 

 

 

57,258

 

 

 

178,615

 

 

 

176,470

 

Total

 

$

1,038,344

 

 

$

1,005,218

 

 

$

2,687,740

 

 

$

2,487,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

91,861

 

 

$

85,693

 

 

$

186,836

 

 

$

148,385

 

Southeast Group

 

 

11,870

 

 

 

7,576

 

 

 

30,389

 

 

 

10,845

 

West Group

 

 

110,854

 

 

 

87,525

 

 

 

227,056

 

 

 

151,201

 

Total Aggregates Business

 

 

214,585

 

 

 

180,794

 

 

 

444,281

 

 

 

310,431

 

Cement

 

 

22,959

 

 

 

2,758

 

 

 

70,584

 

 

 

37,455

 

Magnesia Specialties

 

 

20,378

 

 

 

16,996

 

 

 

60,170

 

 

 

53,537

 

Corporate

 

 

(17,567

)

 

 

(21,050

)

 

 

(63,168

)

 

 

(59,371

)

Total

 

$

240,355

 

 

$

179,498

 

 

$

511,867

 

 

$

342,052

 

 

 

Page 20 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9.

Business Segments (continued)

The decline in the Cement business’s total and net sales is primarily attributable to the California cement operations, included in the three and nine months ended September 30, 2015 and divested as of September 30, 2015.  For the three months ended September 30, 2015, total revenues, net sales and loss from operations for the California cement operations were $31,866,000, $30,781,000 and $28,947,000, respectively.  For the nine months ended September 30, 2015, total revenues, net sales and loss from operations for the California cement operations were $101,541,000, $98,048,000 and $36,853,000, respectively.  The California cement operations’ loss from operations for the three and nine months ended September 30, 2015 includes the loss on the divestiture of $28,709,000 and $29,888,000, respectively.

Cement intersegment sales, which are to the aggregates and ready mixed concrete product lines in the West Group, were $34,654,000 and $89,291,000 for the three and nine months ended September 30, 2016, respectively, and $25,349,000 and $64,304,000 for the three and nine months ended September 30, 2015, respectively.  

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

542,764

 

 

$

529,993

 

 

$

1,465,486

 

 

$

1,343,821

 

Asphalt and Paving

 

 

111,566

 

 

 

97,840

 

 

 

188,532

 

 

 

172,631

 

Ready Mixed Concrete

 

 

263,680

 

 

 

209,608

 

 

 

665,353

 

 

 

486,931

 

Total Aggregates Business

 

 

918,010

 

 

 

837,441

 

 

 

2,319,371

 

 

 

2,003,383

 

Cement

 

 

60,090

 

 

 

110,519

 

 

 

189,754

 

 

 

307,489

 

Magnesia Specialties

 

 

60,244

 

 

 

57,258

 

 

 

178,615

 

 

 

176,470

 

Total

 

$

1,038,344

 

 

$

1,005,218

 

 

$

2,687,740

 

 

$

2,487,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

172,994

 

 

$

166,166

 

 

$

418,428

 

 

$

344,857

 

Asphalt and Paving

 

 

30,400

 

 

 

22,057

 

 

 

37,114

 

 

 

25,173

 

Ready Mixed Concrete

 

 

39,832

 

 

 

23,557

 

 

 

83,210

 

 

 

34,981

 

Total Aggregates Business

 

 

243,226

 

 

 

211,780

 

 

 

538,752

 

 

 

405,011

 

Cement

 

 

29,725

 

 

 

38,244

 

 

 

86,283

 

 

 

87,642

 

Magnesia Specialties

 

 

22,810

 

 

 

19,391

 

 

 

67,472

 

 

 

60,793

 

Corporate

 

 

(3,193

)

 

 

(6,910

)

 

 

(8,604

)

 

 

(16,528

)

Total

 

$

292,568

 

 

$

262,505

 

 

$

683,903

 

 

$

536,918

 

For the three months ended September 30, 2015, gross profit for the California cement operations was $3,332,000.  For the nine months ended September 30, 2015, the operations’ gross profit was $2,685,000.

 

Page 21 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

10.

Supplemental Cash Flow Information

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Other current and noncurrent assets

 

$

(3,997

)

 

$

(4,579

)

Accrued salaries, benefits and payroll taxes

 

 

413

 

 

 

(11,829

)

Accrued insurance and other taxes

 

 

5,041

 

 

 

12,152

 

Accrued income taxes

 

 

693

 

 

 

13,143

 

Accrued pension, postretirement and postemployment benefits

 

 

(21,624

)

 

 

(24,232

)

Other current and noncurrent liabilities

 

 

(4,072

)

 

 

4,770

 

 

 

$

(23,546

)

 

$

(10,575

)

The change in accrued salaries, benefit and payroll taxes is primarily attributable to a decrease in severance payments.  The change in accrued income taxes is attributable to tax payments made in excess of the estimated tax liability in the current year.

Noncash investing and financing activities are as follows:

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued liabilities for purchases of property,

     plant and equipment

 

$

24,453

 

 

$

23,353

 

Acquisition of assets through capital lease

 

 

998

 

 

 

1,445

 

Acquisition of assets through asset exchange

 

 

 

 

 

5,000

 

 

 

Page 22 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11.Business Combinations

In the first quarter 2016, the Corporation acquired the outstanding stock of Rocky Mountain Materials and Asphalt, Inc., and Rocky Mountain Premix Inc.  The acquisition provides more than 500 million tons of mineral reserves and expands the Corporation’s presence along the Front Range of the Rocky Mountains, home to 80% of Colorado’s population.  The acquired operations are reported through the West Group.  The Corporation has recorded preliminary fair values of the assets acquired and liabilities assumed; however, certain amounts are subject to change as additional reviews are performed, including asset and liability verification and review of seller’s final tax return.  Specific accounts subject to ongoing purchase accounting include property, plant and equipment; goodwill; accrued expenses and deferred income taxes.    

During the third quarter 2016, the Corporation acquired the remaining interest in Ratliff Ready-Mix, L.P. (“Ratliff”), which operates ready mixed concrete plants in central Texas.  Prior to the acquisition, the Corporation owned a 40% interest in Ratliff which was accounted for under the equity method.  The Corporation was required to re-measure the existing 40% interest to fair value upon closing of the transaction, resulting in a gain of $5,863,000, which is recorded in other nonoperating income.  These operations are reported in the West Group.  The Corporation has recorded preliminary fair values of the assets acquired and the liabilities assumed; however, certain amounts are subject to change as further reviews are performed, including review of the seller’s final tax return.  Specific accounts subject to ongoing purchase accounting include accounts receivable; property, plant and equipment; intangible assets, including goodwill; accounts payable; accrued expenses; and deferred income taxes.  

The impact of these acquisitions on the operating results was not considered material; therefore, pro forma financial information is not included.

12. Stock-Based Compensation

During the quarter ended March 31, 2016, the Corporation awarded its annual grant of stock-based compensation, which included 75,421 of performance stock units and 68,720 of restricted stock units.  The grant-date fair value of each award is $142.02 for the performance stock units and $124.41 for the restricted stock units.  No stock options are expected to be awarded in 2016.  In past years, annual stock-based compensation awards were primarily made in the second quarter of the year.  The change in the composition of the awards and the timing of the annual grant resulted in higher expense recorded in the first nine months of the year compared with prior years.  For the nine months ended September 30, 2016 and 2015, stock-based compensation expense was $17,167,000 and $10,722,000, respectively.

 

 

 

 

Page 23 of 60


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

 

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

OVERVIEW

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

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

AGGREGATES BUSINESS

Reportable Segments

 

Mid-America Group

 

Southeast Group

 

West Group

Operating Locations

  

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

  

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

  

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

 

 

 

 

Product Lines

  

Aggregates (crushed stone, sand and gravel)

  

Aggregates (crushed stone, sand and gravel)

  

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

 

 

 

 

Types of Aggregates Locations

  

Quarries and Distribution Facilities

  

Quarries and Distribution Facilities

  

Quarries, Plants and

Distribution Facilities

 

 

 

 

Modes of Transportation for Aggregates Product Line

  

Truck and Rail

  

Truck, Rail and Water

  

Truck and Rail

 

Page 24 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

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

CRITICAL ACCOUNTING POLICIES

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

RESULTS OF OPERATIONS

Except as indicated, the comparative analysis in this Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on net sales and cost of sales. Gross margin and operating margin calculated as percentages of total revenues represent the most directly comparable financial measures calculated in accordance with generally accepted accounting principles (“GAAP”). However, gross margin as a percentage of net sales and operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales, as it is consistent with the basis by which management reviews the Corporation’s operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporation’s operating results given that freight and delivery revenues and costs represent pass-throughs and have no profit mark-up. The following tables present the calculations of gross margin and operating margin for the three and nine months ended September 30, 2016 and 2015 in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales.

Consolidated Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

292,568

 

 

$

262,505

 

 

$

683,903

 

 

$

536,918

 

Total revenues

 

$

1,103,901

 

 

$

1,082,249

 

 

$

2,869,934

 

 

$

2,695,014

 

Gross margin

 

 

26.5

%

 

 

24.3

%

 

 

23.8

%

 

 

19.9

%

 

Page 25 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

Consolidated Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

292,568

 

 

$

262,505

 

 

$

683,903

 

 

$

536,918

 

Total revenues

 

$

1,103,901

 

 

$

1,082,249

 

 

$

2,869,934

 

 

$

2,695,014

 

Less: Freight and delivery revenues

 

 

(65,557

)

 

 

(77,031

)

 

 

(182,194

)

 

 

(207,672

)

Net sales

 

$

1,038,344

 

 

$

1,005,218

 

 

$

2,687,740

 

 

$

2,487,342

 

Gross margin excluding freight and delivery revenues

 

 

28.2

%

 

 

26.1

%

 

 

25.4

%

 

 

21.6

%

 

Consolidated Operating Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Earnings from operations

 

$

240,355

 

 

$

179,498

 

 

$

511,867

 

 

$

342,052

 

Total revenues

 

$

1,103,901

 

 

$

1,082,249

 

 

$

2,869,934

 

 

$

2,695,014

 

Operating margin

 

 

21.8

%

 

 

16.6

%

 

 

17.8

%

 

 

12.7

%

 

Consolidated Operating Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Earnings from operations

 

$

240,355

 

 

$

179,498

 

 

$

511,867

 

 

$

342,052

 

Total revenues

 

$

1,103,901

 

 

$

1,082,249

 

 

$

2,869,934

 

 

$

2,695,014

 

Less: Freight and delivery revenues

 

 

(65,557

)

 

 

(77,031

)

 

 

(182,194

)

 

 

(207,672

)

Net sales

 

$

1,038,344

 

 

$

1,005,218

 

 

$

2,687,740

 

 

$

2,487,342

 

Operating margin excluding freight and delivery revenues

 

 

23.1

%

 

 

17.9

%

 

 

19.0

%

 

 

13.8

%

Page 26 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

Ready Mixed Concrete Product Line Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

39,832

 

 

$

23,557

 

 

$

83,210

 

 

$

34,981

 

Total revenues

 

$

263,983

 

 

$

210,058

 

 

$

666,313

 

 

$

487,914

 

Gross margin

 

 

15.1

%

 

 

11.2

%

 

 

12.5

%

 

 

7.2

%

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

39,832

 

 

$

23,557

 

 

$

83,210

 

 

$

34,981

 

Total revenues

 

$

263,983

 

 

$

210,058

 

 

$

666,313

 

 

$

487,914

 

Less: Freight and delivery revenues

 

 

(303

)

 

 

(450

)

 

 

(960

)

 

 

(983

)

Net sales

 

$

263,680

 

 

$

209,608

 

 

$

665,353

 

 

$

486,931

 

Gross margin excluding freight and delivery revenues

 

 

15.1

%

 

 

11.2

%

 

 

12.5

%

 

 

7.2

%

 

Cement Business Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

29,725

 

 

$

38,244

 

 

$

86,283

 

 

$

87,642

 

Total revenues

 

$

62,633

 

 

$

116,135

 

 

$

198,653

 

 

$

324,134

 

Gross margin

 

 

47.5

%

 

 

32.9

%

 

 

43.4

%

 

 

27.0

%

 

Page 27 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

Cement Business Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

29,725

 

 

$

38,244

 

 

$

86,283

 

 

$

87,642

 

Total revenues

 

$

62,633

 

 

$

116,135

 

 

$

198,653

 

 

$

324,134

 

Less: Freight and delivery revenues

 

 

(2,543

)

 

 

(5,616

)

 

 

(8,899

)

 

 

(16,645

)

Net sales

 

$

60,090

 

 

$

110,519

 

 

$

189,754

 

 

$

307,489

 

Gross margin excluding freight and delivery revenues

 

 

49.5

%

 

 

34.6

%

 

 

45.5

%

 

 

28.5

%

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

29,725

 

 

$

34,912

 

 

$

86,283

 

 

$

84,957

 

Total revenues

 

$

62,633

 

 

$

84,268

 

 

$

198,653

 

 

$

222,593

 

Gross margin

 

 

47.5

%

 

 

41.4

%

 

 

43.4

%

 

 

38.2

%

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

29,725

 

 

$

34,912

 

 

$

86,283

 

 

$

84,957

 

Total revenues

 

$

62,633

 

 

$

84,268

 

 

$

198,653

 

 

$

222,593

 

Less: Freight and delivery revenues

 

 

(2,543

)

 

 

(4,530

)

 

 

(8,899

)

 

 

(13,152

)

Net sales

 

$

60,090

 

 

$

79,738

 

 

$

189,754

 

 

$

209,441

 

Gross margin excluding freight and delivery revenues

 

 

49.5

%

 

 

43.8

%

 

 

45.5

%

 

 

40.6

%

 

Page 28 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

Magnesia Specialties Gross Margin in Accordance with GAAP

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

22,810

 

 

$

19,391

 

 

$

67,472

 

 

$

60,793

 

Total revenues

 

$

65,149

 

 

$

62,174

 

 

$

192,955

 

 

$

190,456

 

Gross margin

 

 

35.0

%

 

 

31.2

%

 

 

35.0

%

 

 

31.9

%

 

Magnesia Specialties Gross Margin Excluding Freight and Delivery Revenues

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit

 

$

22,810

 

 

$

19,391

 

 

$

67,472

 

 

$

60,793

 

Total revenues

 

$

65,149

 

 

$

62,174

 

 

$

192,955

 

 

$

190,456

 

Less: Freight and delivery revenues

 

 

(4,905

)

 

 

(4,916

)

 

 

(14,340

)

 

 

(13,986

)

Net sales

 

$

60,244

 

 

$

57,258

 

 

$

178,615

 

 

$

176,470

 

Gross margin excluding freight and delivery revenues

 

 

37.9

%

 

 

33.9

%

 

 

37.8

%

 

 

34.4

%

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(dollars in thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

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

 

$

322,796

 

 

$

248,187

 

 

$

741,898

 

 

$

546,294

 

 

Page 29 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Dollars in thousands)

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

$

159,479

 

 

$

117,544

 

 

$

326,526

 

 

$

205,607

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Interest expense

 

 

20,568

 

 

 

18,926

 

 

 

60,896

 

 

 

57,344

 

     Income tax expense for controlling interests

 

 

70,850

 

 

 

47,468

 

 

 

143,923

 

 

 

85,556

 

     Depreciation, depletion and amortization expense

 

 

71,899

 

 

 

64,249

 

 

 

210,553

 

 

 

197,787

 

Consolidated EBITDA

 

$

322,796

 

 

$

248,187

 

 

$

741,898

 

 

$

546,294

 

 

The Corporation presents the earnings per diluted share impact and operating earnings impact of the loss on the sale of the California cement operations, including related expenses.  This non-GAAP measure is presented for investors and analysts to evaluate and forecast the Corporation’s ongoing financial results, as the loss on the divestiture and related expenses are nonrecurring.

 

The following shows the calculation of the impact of the loss on the sale of the California cement operations and other related expenses on earnings per diluted share for the three and nine months ended September 30, 2015 (in thousands except per share data):

 

 

Three Months

 

 

Nine Months

 

 

 

Ended

 

 

Ended

 

Loss on the sale of the California cement operations and other related expenses

 

$

28,709

 

 

$

29,888

 

Income tax benefit

 

 

(11,856

)

 

 

(12,227

)

After-tax impact of the loss on the sale of the California cement operations and other

     related expenses

 

$

16,853

 

 

$

17,661

 

Diluted average number of common shares outstanding

 

 

67,108

 

 

 

67,470

 

Per diluted share impact of the loss on the sale of the California cement operations

     and other related expenses

 

$

(0.25

)

 

$

(0.26

)

Per diluted share impact of recording a valuation allowance for certain net operating

     loss carry forwards as a result of the sale of the California cement operations

 

 

(0.05

)

 

 

(0.05

)

Total per diluted share impact of the loss on the sale of the California cement

     operations and related expenses

 

$

(0.30

)

 

$

(0.31

)

Page 30 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

The following shows the calculation of the impact of the loss on the sale of the California cement operations and related expenses on operation earnings for the three and nine months ended September 30, 2015 (dollars in thousands):

 

 

 

Three Months

 

 

Nine Months

 

 

 

Ended

 

 

Ended

 

Earnings from operations, as reported

 

$

179,498

 

 

$

342,052

 

Loss on the sale of the California cement operations and other related expenses

 

 

28,709

 

 

 

29,888

 

Adjusted earnings from operations

 

$

208,207

 

 

$

371,940

 

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

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Cement shipments

 

 

905

 

 

 

1,337

 

Less: Cement shipments attributable to the California cement operations

 

 

 

 

 

(328

)

Cement shipments excluding shipments attributable to the California cement

     operations

 

 

905

 

 

 

1,009

 

 

 

 

 

 

 

 

 

 

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

 

 

(10.3

)%

 

 

 

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016

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

 

Consolidated net sales of $1.04 billion compared with $1.01 billion, an increase of 3.3%

 

Aggregates product line price increase of 8.5%; aggregates product line volume decline of 4.7%

 

Cement business net sales of $60.1 million and gross profit of $29.7 million

 

Magnesia Specialties net sales of $60.2 million and gross profit of $22.8 million

 

Consolidated gross margin (excluding freight and delivery revenues) of 28.2%, an increase of 210 basis points

 

Consolidated selling, general and administrative expenses (“SG&A”) of $56.3 million, or 5.4% of net sales

 

Consolidated earnings from operations of $240.4 million compared with adjusted consolidated earnings from operations of $208.2 million (which excludes the loss on the sale of the California cement operations and additional related expenses), an increase of 15.5%

 

Earnings per diluted share of $2.49 compared with adjusted earnings per diluted share of $2.04 (which excludes the $0.30 per diluted share impact of the sale of the California cement operations and related expenses)

Page 31 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

 

 

 

Three Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

% of

Net Sales

 

 

Amount

 

 

% of

Net Sales

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

275,791

 

 

 

100.0

 

 

$

265,653

 

 

 

100.0

 

Southeast Group

 

 

80,044

 

 

 

100.0

 

 

 

78,283

 

 

 

100.0

 

West Group

 

 

526,585

 

 

 

100.0

 

 

 

493,505

 

 

 

100.0

 

Total Heritage Aggregates Business

 

 

882,420

 

 

 

100.0

 

 

 

837,441

 

 

 

100.0

 

Cement

 

 

60,090

 

 

 

100.0

 

 

 

110,519

 

 

 

100.0

 

Magnesia Specialties

 

 

60,244

 

 

 

100.0

 

 

 

57,258

 

 

 

100.0

 

Total Heritage Consolidated

 

 

1,002,754

 

 

 

100.0

 

 

 

1,005,218

 

 

 

100.0

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

35,590

 

 

 

100.0

 

 

 

 

 

 

 

 

Total

 

$

1,038,344

 

 

 

100.0

 

 

$

1,005,218

 

 

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

103,596

 

 

 

37.6

 

 

$

97,387

 

 

 

36.7

 

Southeast Group

 

 

15,902

 

 

 

19.9

 

 

 

11,468

 

 

 

14.6

 

West Group

 

 

119,896

 

 

 

22.8

 

 

 

102,925

 

 

 

20.9

 

Total Heritage Aggregates Business

 

 

239,394

 

 

 

27.1

 

 

 

211,780

 

 

 

25.3

 

Cement

 

 

29,725

 

 

 

49.5

 

 

 

38,244

 

 

 

34.6

 

Magnesia Specialties

 

 

22,810

 

 

 

37.9

 

 

 

19,391

 

 

 

33.9

 

Corporate

 

 

(3,193

)

 

 

 

 

 

 

(6,910

)

 

 

 

 

Total Heritage Consolidated

 

 

288,736

 

 

 

28.8

 

 

 

262,505

 

 

 

26.1

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – Mid-America Group

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

3,857

 

 

 

10.8

 

 

 

 

 

 

 

 

Total Acquisitions

 

 

3,832

 

 

 

 

 

 

 

 

 

 

 

 

Total Consolidated

 

$

292,568

 

 

 

28.2

 

 

$

262,505

 

 

 

26.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 32 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

% of

Net Sales

 

 

Amount

 

 

% of

Net Sales

 

 

 

(Dollars in Thousands)

 

Selling, general & administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

12,896

 

 

 

4.7

 

 

$

12,937

 

 

 

4.9

 

Southeast Group

 

 

4,294

 

 

 

5.4

 

 

 

4,515

 

 

 

5.8

 

West Group

 

 

15,717

 

 

 

3.0

 

 

 

16,593

 

 

 

3.4

 

Total Heritage Aggregates Business

 

 

32,907

 

 

 

3.7

 

 

 

34,045

 

 

 

4.1

 

Cement

 

 

6,121

 

 

 

10.2

 

 

 

6,809

 

 

 

6.2

 

Magnesia Specialties

 

 

2,406

 

 

 

4.0

 

 

 

2,351

 

 

 

4.1

 

Corporate

 

 

14,115

 

 

 

 

 

 

 

11,682

 

 

 

 

 

Total Heritage Consolidated

 

 

55,549

 

 

 

5.5

 

 

 

54,887

 

 

 

5.5

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

799

 

 

 

2.2

 

 

 

 

 

 

 

 

Total

 

$

56,348

 

 

 

5.4

 

 

$

54,887

 

 

 

5.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

91,886

 

 

 

33.3

 

 

$

85,693

 

 

 

32.3

 

Southeast Group

 

 

11,870

 

 

 

14.8

 

 

 

7,576

 

 

 

9.7

 

West Group

 

 

107,766

 

 

 

20.5

 

 

 

87,525

 

 

 

17.7

 

Total Heritage Aggregates Business

 

 

211,522

 

 

 

24.0

 

 

 

180,794

 

 

 

21.6

 

Cement

 

 

22,959

 

 

 

38.2

 

 

 

2,758

 

 

 

2.5

 

Magnesia Specialties

 

 

20,378

 

 

 

33.8

 

 

 

16,996

 

 

 

29.7

 

Corporate

 

 

(17,567

)

 

 

 

 

 

 

(21,050

)

 

 

 

 

Total Heritage Consolidated

 

 

237,292

 

 

 

23.7

 

 

 

179,498

 

 

 

17.9

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – Mid-America Group

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

3,088

 

 

 

8.7

 

 

 

 

 

 

 

 

Total Acquisitions

 

 

3,063

 

 

 

 

 

 

 

 

 

 

 

 

Total Consolidated

 

$

240,355

 

 

 

23.1

 

 

$

179,498

 

 

 

17.9

 

For the three months ended September 30, 2015, net sales, gross profit, SG&A and loss from operations for the California cement operations were $30,781,000, $3,332,000, $2,433,000 and $28,947,000, respectively.  The loss from operations for the three months ended September 30, 2015 includes a loss on the divestiture of the California cement operations of $28,709,000.

Page 33 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

Aggregates Business

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

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Aggregates

 

$

538,028

 

 

$

529,993

 

Asphalt and Paving

 

 

110,025

 

 

 

97,840

 

Ready Mixed Concrete

 

 

234,367

 

 

 

209,608

 

Total Heritage

 

 

882,420

 

 

 

837,441

 

Acquisitions:

 

 

 

 

 

 

 

 

Aggregates

 

 

4,736

 

 

 

 

Asphalt and Paving

 

 

1,541

 

 

 

 

Ready Mixed Concrete

 

 

29,313

 

 

 

 

Total Acquisitions

 

 

35,590

 

 

 

 

Total Aggregates Business

 

$

918,010

 

 

$

837,441

 

 

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

 

 

 

Three Months Ended

 

 

 

September 30, 2016

 

 

 

Volume

 

 

Pricing

 

Volume/Pricing Variance (1)

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Mid-America Group

 

 

(0.7

)%

 

 

4.7

%

Southeast Group

 

 

(5.5

)%

 

 

7.4

%

West Group

 

 

(10.9

)%

 

 

13.7

%

Heritage Aggregates Operations(2)

 

 

(5.6

)%

 

 

8.6

%

Aggregates Product Line (3)

 

 

(4.7

)%

 

 

8.5

%

Page 34 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Mid-America Group

 

 

21,799

 

 

 

21,958

 

Southeast Group

 

 

5,109

 

 

 

5,405

 

West Group

 

 

17,901

 

 

 

20,096

 

Heritage Aggregates Operations(2)

 

 

44,809

 

 

 

47,459

 

Acquisitions

 

 

430

 

 

 

 

Aggregates Product Line (3)

 

 

45,239

 

 

 

47,459

 

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Tons to external customers

 

 

41,588

 

 

 

44,422

 

Internal tons used in other product lines

 

 

3,221

 

 

 

3,037

 

Total heritage aggregates tons

 

 

44,809

 

 

 

47,459

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

340

 

 

 

 

Internal tons used in other product lines

 

 

90

 

 

 

 

Total acquisition aggregates tons

 

 

430

 

 

 

 

(1)

Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.

(2)

Heritage Aggregates Product Line and Heritage Aggregates Operations exclude volume and pricing data for acquisitions that have not been included in operations for a full year.

(3)

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

Aggregates product line shipments to the infrastructure market comprised 42% of quarterly volumes and decreased 7.2%.  Infrastructure shipments in the third quarter were impacted by significant rainfall and project start-up delays, primarily in Texas, which deferred shipments and led to reduced public-sector volumes.

The nonresidential market represented 31% of quarterly aggregates product line shipments and declined 4.3%.  The Mid-America Group achieved a 5.0% increase, driven by growth in office, retail and industrial development in North Carolina and South Carolina.  The Southeast Group and West Group each experienced a decline in nonresidential activity, primarily related to weather deferrals and further reductions in energy demand.  

Page 35 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

The residential market accounted for 18% of quarterly aggregates product line shipments. Volumes to this segment increased 3.0%, due to the continued housing recovery.  While the pace of housing permit growth has slowed, Dallas, Atlanta and Denver all continue to rank in the top ten in the country.  In fact, the increase in housing permits in Dallas for the trailing-twelve months led the nation.  ChemRock/Rail market accounted for the remaining 9% of aggregates product line volumes. The volume decline in this segment principally reflects reduced ballast shipments driven by reduced energy demand, which impacts transportation and results in lower capital and maintenance activity by railroads.  

Overall, aggregates product line shipments decreased 4.7%, reflecting various department of transportation delays, weather-driven impacts in addition to reduced energy-related shipments and lower ballast demand.  

The average per-ton selling price for the heritage aggregates product line was $12.77 and $11.76 for the three months ended September 30, 2016 and 2015, respectively.  The heritage aggregates product line pricing increase of 8.6% reflects growth in all reportable groups, led by the 13.7% increase in the West Group. The most significant improvement was achieved in the central Texas region.  The Southeast Group and Mid-America Group reported increases of 7.4% and 4.7%, respectively.  For the three months ended September 30, 2016 the average per-ton selling price for the acquired aggregates product line was $10.86.  The acquired locations, which are in the Colorado market, have a lower average selling price due to its inherent trucking market compared with the Corporation’s overall aggregates business, which includes markets that have transportation components in the average selling price.  

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

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2016

 

2015

 

Heritage:

 

 

 

 

 

 

Asphalt

 

$39.18/ton

 

$43.00/ton

 

Ready Mixed Concrete

 

$105.04/yd3

 

$98.15/yd³

 

Acquisitions:

 

 

 

 

 

 

Asphalt

 

$44.18/ton

 

 

 

Ready Mixed Concrete

 

$97.67/yd³

 

 

 

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

Page 36 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Asphalt Product Line (in thousands):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

378

 

 

 

473

 

Internal tons used in road paving business

 

 

755

 

 

 

783

 

Total heritage asphalt tons

 

 

1,133

 

 

 

1,256

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

34

 

 

 

 

Internal tons used in road paving business

 

 

193

 

 

 

 

Total acquisitions asphalt tons

 

 

227

 

 

 

 

 

 

 

 

 

 

 

 

 

Ready Mixed Concrete (in thousands of cubic yards):

 

 

 

 

 

 

 

 

Heritage

 

 

2,188

 

 

 

2,111

 

Acquisitions

 

 

298

 

 

 

 

Total cubic yards

 

 

2,486

 

 

 

2,111

 

The decline in asphalt product line shipments is primarily attributable to the divestiture of San Antonio Asphalt operations, sold in fourth quarter 2015, which contributed 209,000 tons during the three months ended September 30, 2015.  

The ready mixed concrete product line continued to benefit from strong demand and better pricing.  Inclusive of operations acquired during the quarter, these factors drove a 17.8% increase in shipments and a 6.1% increase in average selling price. Increased sales led to a 380-basis-point improvement in gross margin (excluding freight and delivery revenues).  Excluding the results of businesses acquired in 2016, ready mixed concrete volumes and average selling price increased 3.6% and 7.0%, respectively, driving gross margin expansion (excluding freight and delivery revenues) of 415 basis points.

Cement Business

For the quarter, the Cement business generated $60.1 million of net sales and $29.7 million of gross profit. Cement shipments declined while pricing improved by 0.3% (excluding the impact of the California cement operations sold in 2015). The business’ reported quarterly gross margin (excluding freight and delivery revenues) of 49.5%, an expansion of 570-basis-points compared to prior year (excluding the impact of the California cement operations sold in 2015).  The increase in gross margin is primarily attributable to disciplined cost control, including lower kiln maintenance costs.

During the third quarter 2016, the business incurred $1.8 million in planned cement kiln maintenance costs, and expects to incur $9.7 million in the fourth quarter.  Kiln maintenance costs in 2015 for the Texas plants were $3.4 million, $3.5 million, $3.2 million and $9.3 million for the first, second, third and fourth quarters, respectively.

Page 37 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

 

  

 

Three Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Tons to external customers

 

 

574

 

 

 

1,081

 

Internal tons used in other product lines

 

 

331

 

 

 

256

 

Total cement tons

 

 

905

 

 

 

1,337

 

Less: California cement tons

 

 

 

 

 

328

 

Adjusted cement tons

 

 

905

 

 

 

1,009

 

 

 

 

 

 

 

 

 

 

Adjusted average-selling price per ton1

 

$

103.08

 

 

$

102.78

 

1 Excludes the impact of the California cement operations

 

The decline in 2016 shipments is primarily attributable to the prior-year divestiture of the California operations, which accounted for 328,000 tons in the third-quarter of 2015 coupled with a decline in energy sector demand in southern Texas.  

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

Magnesia Specialties Business

Magnesia Specialties delivered record performance and generated a 5.2% increase in third-quarter net sales of $60.2 million as a result of higher chemical product line sales partially offset by lower shipments of dolomitic lime and periclase.  Gross margin (excluding freight and delivery revenues) of 37.9% in the quarter expanded 400 basis points, driven by lower energy and kiln outage costs compared with the prior year.  Third-quarter earnings from operations were $20.4 million compared with $17.0 million.  

Page 38 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

Gross Profit

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

 

Consolidated gross profit, quarter ended September 30, 2015

 

$

262,505

 

Heritage aggregates product line:

 

 

 

 

Volume

 

 

(32,443

)

Pricing

 

 

45,399

 

Cost increases, net

 

 

(5,833

)

Change in heritage aggregates product line gross profit

 

 

7,123

 

Change in gross profit:

 

 

 

 

Heritage aggregates-related downstream product lines

 

 

20,491

 

Acquired aggregates business operations

 

 

3,832

 

Cement1

 

 

(8,519

)

Magnesia Specialties

 

 

3,419

 

Corporate

 

 

3,717

 

Change in consolidated gross profit

 

 

30,063

 

Consolidated gross profit, quarter ended September 30, 2016

 

$

292,568

 

1Includes impact of California cement operations.  Excluding California cement operations, gross profit would have decreased by $5,187,000.

Page 39 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

Gross profit (loss) by business is as follows:

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit (loss):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Aggregates

 

$

173,289

 

 

$

166,166

 

Asphalt and Paving

 

 

30,038

 

 

 

22,057

 

Ready Mixed Concrete

 

 

36,067

 

 

 

23,557

 

Total Aggregates Business

 

 

239,394

 

 

 

211,780

 

Cement

 

 

29,725

 

 

 

38,244

 

Magnesia Specialties

 

 

22,810

 

 

 

19,391

 

Corporate

 

 

(3,193

)

 

 

(6,910

)

Total Heritage

 

 

288,736

 

 

 

262,505

 

Acquisitions:

 

 

 

 

 

 

 

 

Aggregates

 

 

(295

)

 

 

 

Asphalt and Paving

 

 

362

 

 

 

 

Ready Mixed Concrete

 

 

3,765

 

 

 

 

Total Acquisitions

 

 

3,832

 

 

 

 

Total

 

$

292,568

 

 

$

262,505

 

The consolidated gross margin (excluding freight and delivery revenues) for the quarter was 28.2%, a 210-basis-point improvement compared with the prior-year quarter.  The increase reflects pricing growth, management’s cost-disciplined approach and divesting the lower-margin California cement operations at the end of the third quarter of 2015.  

Consolidated Operating Results

Consolidated SG&A was 5.4% of net sales, flat compared with the prior-year quarter.

Among other items, other operating income and expenses, net, includes gains and losses on the sale of assets; recoveries and writeoffs related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations. For the third quarter, consolidated other operating income and expenses, net, was income of $4.6 million in 2016 and an expense of $26.0 million in 2015.  Operating income and expenses, net, for 2015 reflects the net loss recognized on the disposal of the California cement operations.

Other nonoperating income and expenses, net, includes foreign currency transaction gains and losses, interest and other miscellaneous income and equity adjustments for nonconsolidated affiliates.  Consolidated other nonoperating income and expenses, net, was income of $10.6 million and $4.5 million for the quarter ended September 30, 2016 and 2015,

Page 40 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

respectively.  The increase in income in 2016 compared to 2015 is primarily attributable to a net gain recognized on the purchase of the remaining interest in a joint venture.

The estimated effective income tax rate for the quarter was 30.6%.  For the year, the Corporation expects to fully utilize the remaining allowable net operating loss carryforwards of $33 million acquired with TXI.

 

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

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

 

Consolidated net sales of $2.7 billion compared with $2.5 billion, an increase of 8.1%

 

Aggregates product line volume increase of 1.8%; aggregates product line price increase of 7.9%

 

Cement business net sales of $189.8 million and gross profit of $86.3 million

 

Magnesia Specialties net sales of $178.6 million and gross profit of $67.5 million

 

Consolidated gross margin (excluding freight and delivery revenues) of 25.4%, an increase of 380 basis points

 

Consolidated SG&A of $177.7 million, or 6.6% of net sales

 

Consolidated earnings from operations of $511.9 million compared with $371.9 million (which excludes the loss on the sale of the California cement operations and additional related expenses)

 

Earnings per diluted share of $5.08 compared with $3.34 (which excludes the $0.31 per diluted share impact of the sale of the California cement operations and related expenses)

Page 41 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

% of

Net Sales

 

 

Amount

 

 

% of

Net Sales

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

708,151

 

 

 

100.0

 

 

$

632,772

 

 

 

100.0

 

Southeast Group

 

 

230,005

 

 

 

100.0

 

 

 

214,536

 

 

 

100.0

 

West Group

 

 

1,328,592

 

 

 

100.0

 

 

 

1,156,075

 

 

 

100.0

 

Total Heritage Aggregates Business

 

 

2,266,748

 

 

 

100.0

 

 

 

2,003,383

 

 

 

100.0

 

Cement

 

 

189,754

 

 

 

100.0

 

 

 

307,489

 

 

 

100.0

 

Magnesia Specialties

 

 

178,615

 

 

 

100.0

 

 

 

176,470

 

 

 

100.0

 

Total Heritage Consolidated

 

 

2,635,117

 

 

 

100.0

 

 

 

2,487,342

 

 

 

100.0

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

52,623

 

 

 

100.0

 

 

 

 

 

 

100.0

 

Total

 

$

2,687,740

 

 

 

100.0

 

 

$

2,487,342

 

 

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

223,630

 

 

 

31.6

 

 

$

184,708

 

 

 

29.2

 

Southeast Group

 

 

41,779

 

 

 

18.2

 

 

 

24,060

 

 

 

11.2

 

West Group

 

 

270,947

 

 

 

20.4

 

 

 

196,243

 

 

 

17.0

 

Total Heritage Aggregates Business

 

 

536,356

 

 

 

23.7

 

 

 

405,011

 

 

 

20.2

 

Cement

 

 

86,283

 

 

 

45.5

 

 

 

87,642

 

 

 

28.5

 

Magnesia Specialties

 

 

67,472

 

 

 

37.8

 

 

 

60,793

 

 

 

34.4

 

Corporate

 

 

(8,604

)

 

 

 

 

 

 

(16,528

)

 

 

 

 

Total Heritage Consolidated

 

 

681,507

 

 

 

25.9

 

 

 

536,918

 

 

 

21.6

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – Mid-America Group

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

2,421

 

 

 

4.6

 

 

 

 

 

 

 

 

Total Acquisitions

 

 

2,396

 

 

 

 

 

 

 

 

 

 

 

 

Total Consolidated

 

$

683,903

 

 

 

25.4

 

 

$

536,918

 

 

 

21.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 42 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

% of

Net Sales

 

 

Amount

 

 

% of

Net Sales

 

 

 

(Dollars in Thousands)

 

Selling, general & administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

39,447

 

 

 

5.6

 

 

$

39,187

 

 

 

6.2

 

Southeast Group

 

 

12,724

 

 

 

5.5

 

 

 

13,307

 

 

 

6.2

 

West Group

 

 

49,968

 

 

 

3.8

 

 

 

48,357

 

 

 

4.2

 

Total Heritage Aggregates Business

 

 

102,139

 

 

 

4.5

 

 

 

100,851

 

 

 

5.0

 

Cement

 

 

18,471

 

 

 

9.7

 

 

 

20,131

 

 

 

6.5

 

Magnesia Specialties

 

 

7,203

 

 

 

4.0

 

 

 

7,109

 

 

 

4.0

 

Corporate

 

 

48,831

 

 

 

 

 

 

 

33,029

 

 

 

 

 

Total Heritage Consolidated

 

 

176,644

 

 

 

6.7

 

 

 

161,120

 

 

 

6.5

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

1,074

 

 

 

2.0

 

 

 

 

 

 

 

 

Total

 

$

177,718

 

 

 

6.6

 

 

$

161,120

 

 

 

6.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

186,861

 

 

 

26.4

 

 

$

148,385

 

 

 

23.4

 

Southeast Group

 

 

30,389

 

 

 

13.2

 

 

 

10,845

 

 

 

5.1

 

West Group(1)

 

 

225,683

 

 

 

17.0

 

 

 

151,201

 

 

 

13.1

 

Total Heritage Aggregates Business

 

 

442,933

 

 

 

19.5

 

 

 

310,431

 

 

 

15.5

 

Cement(2)

 

 

70,584

 

 

 

37.2

 

 

 

37,455

 

 

 

12.2

 

Magnesia Specialties

 

 

60,170

 

 

 

33.7

 

 

 

53,537

 

 

 

30.3

 

Corporate

 

 

(63,168

)

 

 

 

 

 

 

(59,371

)

 

 

 

 

Total Heritage Consolidated

 

 

510,519

 

 

 

19.4

 

 

 

342,052

 

 

 

13.8

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – Mid-America Group

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

Aggregates Business – West Group

 

 

1,373

 

 

 

2.6

 

 

 

 

 

 

 

 

Total Acquisitions

 

 

1,348

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

511,867

 

 

 

19.0

 

 

$

342,052

 

 

 

13.8

 

Page 43 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Net sales:

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Aggregates

 

$

1,453,702

 

 

$

1,343,821

 

Asphalt and Paving

 

 

186,114

 

 

 

172,631

 

Ready Mixed Concrete

 

 

626,932

 

 

 

486,931

 

Total Heritage

 

 

2,266,748

 

 

 

2,003,383

 

Acquisitions:

 

 

 

 

 

 

 

 

Aggregates

 

 

11,784

 

 

 

 

Asphalt and Paving

 

 

2,418

 

 

 

 

Ready Mixed Concrete

 

 

38,421

 

 

 

 

Total Acquisitions

 

 

52,623

 

 

 

 

Total Aggregates Business

 

$

2,319,371

 

 

$

2,003,383

 

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

 

 

Nine Months Ended

 

 

 

September 30, 2016

 

 

 

Volume

 

 

Pricing

 

Volume/Pricing Variance (1)

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Mid-America Group

 

 

7.0

%

 

 

4.6

%

Southeast Group

 

 

0.2

%

 

 

7.0

%

West Group

 

 

(4.7

)%

 

 

11.9

%

Heritage Aggregates Operations(2)

 

 

1.0

%

 

 

8.0

%

Aggregates Product Line (3)

 

 

1.8

%

 

 

7.9

%

Page 44 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Mid-America Group

 

 

54,809

 

 

 

51,212

 

Southeast Group

 

 

14,802

 

 

 

14,769

 

West Group

 

 

49,878

 

 

 

52,316

 

Heritage Aggregates Operations(2)

 

 

119,489

 

 

 

118,297

 

Acquisitions

 

 

967

 

 

 

 

Aggregates Product Line (3)

 

 

120,456

 

 

 

118,297

 

(1)

Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.

(2)

Heritage Aggregates Product Line and Heritage Aggregates Operations exclude volume and pricing data for acquisitions that have not been included in operations for a full year.

(3)

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Aggregates Product Line (2):

 

 

 

 

 

 

 

 

Tons to external customers

 

 

111,748

 

 

 

111,204

 

Internal tons used in other product lines

 

 

7,741

 

 

 

7,093

 

Total heritage aggregates tons

 

 

119,489

 

 

 

118,297

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

791

 

 

 

 

Internal tons used in other product lines

 

 

176

 

 

 

 

Total acquisition aggregates tons

 

 

967

 

 

 

 

The per-ton average selling price for the heritage aggregates product line was $12.85 and $11.90 for the nine months ended September 30, 2016 and 2015, respectively.  

Page 45 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

2015

 

Heritage:

 

 

 

 

 

 

Asphalt

 

$38.71/ton

 

$42.80/ton

 

Ready Mixed Concrete

 

$104.25/yd³

 

$94.27/yd³

 

Acquisitions:

 

 

 

 

 

 

Asphalt

 

$44.03/ton

 

 

 

Ready Mixed Concrete

 

$101.01/yd³

 

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Asphalt Product Line (in thousands):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

697

 

 

 

1,042

 

Internal tons used in road paving business

 

 

1,289

 

 

 

1,296

 

Total heritage asphalt tons

 

 

1,986

 

 

 

2,338

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

58

 

 

 

 

Internal tons used in road paving business

 

 

308

 

 

 

 

Total acquisitions asphalt tons

 

 

366

 

 

 

 

 

 

 

 

 

 

 

 

 

Ready Mixed Concrete (in thousands of cubic yards):

 

 

 

 

 

 

 

 

Heritage

 

 

5,893

 

 

 

5,088

 

Acquisitions

 

 

376

 

 

 

 

Total cubic yards

 

 

6,269

 

 

 

5,088

 

Page 46 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Tons to external customers

 

 

1,837

 

 

 

3,100

 

Internal tons used in other product lines

 

 

879

 

 

 

657

 

Total cement tons

 

 

2,716

 

 

 

3,757

 

Less: California cement tons

 

 

 

 

 

1,072

 

Adjusted cement tons

 

 

2,716

 

 

 

2,685

 

 

 

 

 

 

 

 

 

 

Adjusted average-selling price per ton1

 

$

101.37

 

 

$

100.94

 

1 Excludes the impact of the divested California cement operations

For 2016, Magnesia Specialties reported net sales of $178.6 million compared with $176.5 million.  Earnings from operations were $60.2 million compared with $53.5 million, an increase of 340 basis points.  The increase in earnings from operations was primarily attributable to lower production costs, specifically related to energy and maintenance expenses.

Consolidated gross margin (excluding freight and delivery revenues) was 25.4% for 2016 versus 21.6% for 2015.  The following presents a rollforward of the Corporation’s gross profit (dollars in thousands):

Consolidated gross profit, nine months ended September 30, 2015

 

$

536,918

 

Heritage aggregates product line:

 

 

 

 

Volume

 

 

11,067

 

Pricing

 

 

113,669

 

Cost increases, net

 

 

(48,851

)

Change in heritage aggregates product line gross profit

 

 

75,885

 

Change in gross profit:

 

 

 

 

Heritage aggregates-related downstream product lines

 

 

55,460

 

Acquired aggregates business operations

 

 

2,396

 

Cement1

 

 

(1,359

)

Magnesia Specialties

 

 

6,679

 

Corporate

 

 

7,924

 

Change in consolidated gross profit

 

 

146,985

 

Consolidated gross profit, nine months ended September 30, 2016

 

$

683,903

 

1Includes impact of California cement operations. Excluding California cement operations, gross profit would have increased by $1,326,000.

Page 47 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

Gross profit (loss) by business is as follows:

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Gross profit (loss):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Aggregates

 

$

420,742

 

 

$

344,857

 

Asphalt and Paving

 

 

36,728

 

 

 

25,173

 

Ready Mixed Concrete

 

 

78,886

 

 

 

34,981

 

Total Aggregates Business

 

 

536,356

 

 

 

405,011

 

Cement

 

 

86,283

 

 

 

87,642

 

Magnesia Specialties

 

 

67,472

 

 

 

60,793

 

Corporate

 

 

(8,604

)

 

 

(16,528

)

Total Heritage

 

 

681,507

 

 

 

536,918

 

Acquisitions:

 

 

 

 

 

 

 

 

Aggregates

 

 

(2,314

)

 

 

 

Asphalt and Paving

 

 

386

 

 

 

 

Ready Mixed Concrete

 

 

4,324

 

 

 

 

Total Acquisitions

 

 

2,396

 

 

 

 

Total

 

$

683,903

 

 

$

536,918

 

Consolidated SG&A expenses were 6.6% of net sales, up 10 basis points compared with the prior-year period, driven by higher incentive compensation, including share based compensation.

For the first nine months, consolidated other operating income and expenses, net, was income of $7.9 million in 2016 compared with expense of $28.0 million in 2015.  Income in 2016 reflects a favorable settlement of commodity contracts assumed in a 2014 acquisition in the Cement business that were priced above market at that date.  In 2015, the Corporation recognized a net loss on the disposal of the California cement operations.  

In addition to other offsetting amounts, other nonoperating income and expenses, net, are comprised generally of interest income and net equity earnings from nonconsolidated investments.  Consolidated other nonoperating income and expenses, net, for the nine months ended September 30, 2016 was income of $19.7 million compared with income of $6.6 million in 2015, primarily driven by a net gain recognized on the purchase of the remaining interest in a joint venture and higher earnings from nonconsolidated equity investees.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the nine months ended September 30, 2016 was $414.1 million compared with $319.6 million for the same period in 2015.  The increase was primarily attributable to higher earnings before depreciation, depletion and amortization expense.  Operating cash flow is primarily derived from consolidated net

Page 48 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

earnings before deducting depreciation, depletion and amortization, and the impact of changes in working capital.  Depreciation, depletion and amortization were as follows:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Dollars in Thousands)

 

Depreciation

 

$

188,603

 

 

$

176,634

 

Depletion

 

 

11,666

 

 

 

10,529

 

Amortization

 

 

11,728

 

 

 

12,772

 

 

 

$

211,997

 

 

$

199,935

 

 

The seasonal nature of the construction aggregates business impacts quarterly operating cash flow when compared with the full year. Full-year 2015 net cash provided by operating activities was $573.2 million compared with $319.6 million for the first nine months of 2015.

During the first nine months ended September 30, 2016, the Corporation invested $285.5 million of capital into its business. Full-year capital spending is expected to approximate $350 million.

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

During the third quarter 2016, the Corporation acquired the remaining interest in Ratliff Ready-Mix, L.P. (“Ratliff”), which operates ready mixed concrete plants in central Texas.  Prior to the acquisition, the Corporation owned a 40% interest in Ratliff which was accounted for under the equity method.  The Corporation was required to re-measure the existing 40% interest to fair value upon closing of the transaction, resulting in a gain of $5,863,000, which is recorded in other nonoperating income.  These operations are reported in the West Group.    

The Corporation can repurchase its common stock through open-market purchases pursuant to authority granted by its Board of Directors or through private transactions at such prices and upon such terms as the Chief Executive Officer deems appropriate. During the first nine months, the Corporation repurchased 1,244,000 shares of common stock for $190 million.  At September 30, 2016, 15,471,000 shares of common stock were remaining under the Corporation’s repurchase authorization.  

The Credit Agreement (which consists of a $250 million (original amount) 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,

Page 49 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

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 by the Credit Agreement, for the trailing-twelve months. Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation, depletion and amortization expense for continuing operations. Additionally, stock-based compensation expense is added back and interest income is deducted in the calculation of consolidated EBITDA. Certain other nonrecurring noncash items, if they occur, can affect the calculation of consolidated EBITDA.

In accordance with the amended Credit Agreement, the Corporation adjusted consolidated EBITDA to add back any integration or similar costs or expenses related to the TXI business combination incurred in any period prior to the second anniversary of the closing of the TXI business combination, not to exceed $70,000,000.

At September 30, 2016, the Corporation’s ratio of consolidated debt to consolidated EBITDA, as defined, for the trailing-twelve months EBITDA was 1.89 times and was calculated as follows:

 

 

 

October 1, 2015 to

 

 

 

September 30, 2016

 

 

 

(Dollars in thousands)

 

Earnings from continuing operations attributable to Martin Marietta

 

$

409,711

 

Add back:

 

 

 

 

Interest expense

 

 

79,839

 

Income tax expense

 

 

183,160

 

Depreciation, depletion and amortization expense

 

 

274,672

 

Stock-based compensation expense

 

 

20,034

 

Deduct:

 

 

 

 

Interest income

 

 

(525

)

Nonrecurring gains, net, on divestitures and acquisition-related expenses, net

 

 

(18,296

)

Consolidated EBITDA, as defined

 

$

948,595

 

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

   at September 30, 2016

 

$

1,788,702

 

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

   for the trailing-twelve months EBITDA

 

1.89X

 

 

The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements. In the event of a default on the Ratio, the lenders can terminate the Credit Agreement and Trade Receivable Facility and declare any outstanding balances as immediately due.  Outstanding amounts on the Trade Receivable Facility have been classified as a current liability on the Corporation’s consolidated balance sheet.  On September 28, 2016, the Corporation increased the borrowing capacity from $250,000,000 to $300,000,000 and extended the maturity to September 27, 2017.

Cash on hand, along with the Corporation’s projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital

Page 50 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

resources necessary to support anticipated operating needs, cover debt service requirements, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise, allow for payment of dividends for the foreseeable future and enable the buyback of shares through the share repurchase program.  At September 30, 2016, the Corporation had $438 million of unused borrowing capacity under its Revolving Facility and Trade Receivable Facility, subject to complying with the related leverage covenant. The Revolving Facility expires on November 29, 2018 and the Trade Receivable Facility expires on September 27, 2017.

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

The Corporation may be required to obtain financing to fund certain strategic acquisitions, if any such opportunities arise, or to refinance outstanding debt. Any strategic acquisition of size for cash would likely require an appropriate balance of newly-issued equity with debt in order to maintain a composite investment-grade credit rating. Furthermore, the Corporation is exposed to the credit markets, through the interest cost related to its variable-rate debt, which included borrowings under its Term Loan Facility and Trade Receivable Facility at September 30, 2016. The Corporation is currently rated by three credit rating agencies; two of those agencies’ credit ratings are investment-grade level and the third agency’s credit rating is one level below investment grade. The Corporation’s composite credit rating remains at investment-grade level, which facilitates obtaining financing at lower rates than noninvestment-grade ratings.

TRENDS AND RISKS

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

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

OUTLOOK

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

 

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

 

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

Page 51 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

 

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

 

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

RISKS TO OUTLOOK

The 2016 outlook includes management’s assessment of the likelihood of certain risks and uncertainties that will affect performance, including but not limited to: both price and volume, and a recurrence of widespread decline in aggregates volume negatively affecting aggregates price; the termination, capping and/or reduction of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; a significant change in the funding patterns for traditional federal, state and/or local infrastructure projects; the United States Congress’ inability to reach agreement on the federal budget and this impact on federal highway spending; the volatility in the commencement of infrastructure projects; a reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in nonresidential construction; a further decline in energy-related construction activity resulting from a sustained period of low global oil prices or changes in oil production patterns in response to this decline and certain regulatory or other economic factors; a slowdown in the residential construction recovery, or some combination thereof; a reduction in economic activity in the Corporation’s Midwest states resulting from reduced funding levels provided by the Agricultural Act of 2014 and a sustained reduction in capital investment by the railroads; an increase in the cost of compliance with governmental laws, rules and regulations; and unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to its cement production facilities.  Further, increased highway construction funding pressures resulting from either federal or state issues can affect profitability.  If these negatively affect transportation budgets more than in the past, construction spending could be reduced.  Cement is subject to cyclical supply and demand and price fluctuations.  The Magnesia Specialties business essentially runs at capacity; therefore any unplanned changes in costs or realignment of customers introduce volatility to the earnings of this segment.

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

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

Page 52 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

affects the Corporation’s movement of essential dolomitic lime for magnesia chemicals, to both the Corporation’s plant in Manistee, Michigan, and customers.  The availability of trucks, drivers and railcars to transport the Corporation’s product, particularly in markets experiencing high growth and increased demand, is also a risk and pressures the associated costs.  

All of the Corporation’s businesses are also subject to weather-related risks that can significantly affect production schedules and profitability.  The first and fourth quarters are most adversely affected by winter weather.  Hurricane activity in the Atlantic Ocean and Gulf Coast generally is most active during the third and fourth quarters.  In fact, in early October 2016, Hurricane Matthew generated winds and significant amounts of rainfall disrupting operations from the Bahamas, Florida, Georgia and the Carolinas.  Management expects operations, particularly in eastern North Carolina to be affected throughout the fourth quarter.  However, after hurricane-related flood waters recede, management expects an increase in construction activity as roads, homes and businesses are repaired.

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

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

OTHER MATTERS

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

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

Factors that the Corporation currently believes could cause actual results to differ materially from the forward-looking statements in this Form 10-Q include the performance of the United States economy and the resolution and impact of the debt ceiling and sequestration issues; widespread decline in aggregates pricing; the history of both cement and ready mixed concrete being subject to significant changes in supply, demand and price; the termination, capping and/or reduction or suspension of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; the level and timing of federal and state transportation funding, most particularly in Texas, North Carolina, Iowa, Colorado and Georgia; the ability of states and/or other entities to finance approved projects either with tax revenues or alternative financing structures; levels of construction spending in the markets the Corporation serves; a reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in the commercial component of the nonresidential construction market, notably office and retail space; a further

Page 53 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2016

(Continued)

 

slowdown in energy-related construction activity, particularly in Texas; a slowdown in residential construction recovery; a reduction in construction activity and related shipments due to a decline in funding under the domestic farm bill; unfavorable weather conditions, particularly Atlantic Ocean hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or excessive rainfall in the markets served by the Corporation; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Magnesia Specialties business, natural gas; continued increases in the cost of other repair and supply parts; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to cement production facilities; increasing governmental regulation, including environmental laws; transportation availability, notably the availability of railcars and locomotive power to move trains to supply the Corporation’s Texas, Florida and Gulf Coast markets; increased transportation costs, including increases from higher passed-through energy and other costs to comply with tightening regulations as well as higher volumes of rail and water shipments; availability of trucks and licensed drivers for transport of the Corporation’s materials, particularly in areas with significant energy-related activity, such as Texas and Colorado; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the Corporation’s dolomitic lime products; proper functioning of information technology and automated operating systems to manage or support operations; inflation and its effect on both production and interest costs; ability to successfully integrate acquisitions quickly and in a cost-effective manner and achieve anticipated profitability to maintain compliance with the Corporation’s leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Corporation’s tax rate; violation of the Corporation’s debt covenant if price and/or volumes return to previous levels of instability; downward pressure on the Corporation’s common stock price and its impact on goodwill impairment evaluations; reduction of the Corporation’s credit rating to non-investment grade resulting from strategic acquisitions; and other risk factors listed from time to time found in the Corporation’s filings with the SEC.  Other factors besides those listed here may also adversely affect the Corporation, and may be material to the Corporation.  The Corporation assumes no obligation to update any such forward-looking statements.

INVESTOR ACCESS TO COMPANY FILINGS

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

Martin Marietta

Attn: Corporate Secretary

2710 Wycliff Road

Raleigh, North Carolina 27607-3033

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

Telephone: (919) 510-4776

Website address: www.martinmarietta.com

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

 

Page 54 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Management has considered the current economic environment and its potential impact to the Corporation’s business. Demand for aggregates and cement products, particularly in the infrastructure construction market, is affected by federal and state budget and deficit issues. Further, delays of large-scale infrastructure projects could occur if Departments of Transportation take longer than expected to move projects from the letting to the commencement stage.  Additionally, delays or cancellations of capital projects in the nonresidential and residential construction markets could occur if companies and consumers are unable to obtain financing for construction projects or if consumer confidence continues to be eroded by economic uncertainty.

Demand in the residential construction market is affected by interest rates. The Federal Reserve have maintained the federal funds rate near zero percent during the nine months ended September 30, 2016, unchanged since 2008. The residential construction market accounted for 17% of the Corporation’s aggregates product line shipments in 2015.

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

Variable-Rate Borrowing Facilities. At September 30, 2016, the Corporation had a $600 million Credit Agreement, comprised of a $350 million Revolving Facility and $250 million (original amount) Term Loan Facility, and a $300 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 $419 million, which was the collective outstanding balance at September 30, 2016, would increase interest expense by $4.2 million on an annual basis.

Pension Expense. The Corporation’s results of operations are affected by its pension expense. Assumptions that affect pension expense include the discount rate and, for the qualified pension plans only, the expected long-term rate of return on assets. Therefore, the Corporation has interest rate risk associated with these factors. The impact of hypothetical changes in these assumptions on the Corporation’s annual pension expense is discussed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015.

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

 

Page 55 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

(Continued)

 

Commodity risk. Cement is a commodity and competition is based principally on price, which is highly sensitive to changes in supply and demand. Prices are often subject to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions and other market conditions beyond the Corporation’s control. Increases in the production capacity of industry participants or increases in cement imports tend to create an oversupply of such products leading to an imbalance between supply and demand, which can have a negative impact on product prices. There can be no assurance that prices for products sold will not decline in the future or that such declines will not have a material adverse effect on the Corporation’s business, financial condition and results of operations.  Based on forecasted net sales for the Cement business for full-year 2016 of $250 million to $260 million, a hypothetical 10% change in sales price would impact net sales by $25 million to $26 million.

Item 4. Controls and Procedures

As of September 30, 2016, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2016. There were no changes in the Corporation’s internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.  As permitted by the Securities and Exchange Commission, in making this assessment of changes in internal control over financial reporting as of September 30, 2016, management has excluded the internal controls of its newly-acquired Ratliff ready mixed concrete operations, which are included in the consolidated financial statements for the period ending September 30, 2016.  The excluded assets constituted less than 1% of consolidated total assets as of September 30, 2016 and less than 1% of net revenues for the nine months ended September 30, 2016.

 

 

Page 56 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings.

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

 

 

Item 1A. Risk Factors.

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

 

 

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

ISSUER PURCHASES OF EQUITY SECURITIES

 

 

 

 

 

 

 

 

 

 

 

Total Number of Shares

 

 

Maximum Number of

 

 

 

 

 

 

 

 

 

 

 

Purchased as Part of

 

 

Shares that May Yet

 

 

 

Total Number of

 

 

Average Price

 

 

Publicly Announced

 

 

be Purchased Under

 

Period

 

Shares Purchased

 

 

Paid per Share

 

 

Plans or Programs

 

 

the Plans or Programs

 

July 1, 2016 - July 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

15,470,959

 

August 1, 2016 - August 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

15,470,959

 

September 1, 2016 - September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

15,470,959

 

Total for the period ended

    September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference is made to the press release dated February 10, 2015 for the December 31, 2014 fourth-quarter and full-year results and announcement of the share repurchase program. The Corporation’s Board of Directors authorized a maximum of 20 million shares to be repurchased under the program.  The program does not have an expiration date.

 

 

Item 4. Mine Safety Disclosures.

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

 

Page 57 of 60

 


MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

 

PART II – OTHER INFORMATION

(Continued)

 

Item 6. Exhibits.

 

Exhibit No.

  

Document

 

 

31.01

  

Certification dated November 2, 2016 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

31.02

  

Certification dated November 2, 2016 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

32.01

  

Written Statement dated November 2, 2016 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

32.02

  

Written Statement dated November 2, 2016 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

95

  

Mine Safety Disclosures

 

 

101.INS

  

XBRL Instance Document

 

 

101.SCH

  

XBRL Taxonomy Extension Schema Document

 

 

101.CAL

  

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.LAB

  

XBRL Taxonomy Extension Label Linkbase Document

 

 

101.PRE

  

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

101.DEF

  

XBRL Taxonomy Extension Definition Linkbase

 

 

 

 

 

 

Page 58 of 60

 


 

 

 

 

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: November 2, 2016

By:

 

/s/ Anne H. Lloyd

 

 

 

Anne H. Lloyd

 

 

 

Executive Vice President and

 

 

 

   Chief Financial Officer

 

 

Page 59 of 60


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2016

EXHIBIT INDEX

 

Exhibit No.

  

Document

 

 

31.01

  

Certification dated November 2, 2016 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

31.02

  

Certification dated November 2, 2016 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

32.01

  

Written Statement dated November 2, 2016 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

32.02

  

Written Statement dated November 2, 2016 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

95

  

Mine Safety Disclosures

 

 

101.INS

  

XBRL Instance Document

 

 

101.SCH

  

XBRL Taxonomy Extension Schema Document

 

 

101.CAL

  

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.LAB

  

XBRL Taxonomy Extension Label Linkbase Document

 

 

101.PRE

  

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

101.DEF

  

XBRL Taxonomy Extension Definition Linkbase

 

 

Page 60 of 60