Edgar Filing: MARTIN MARIETTA MATERIALS INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

mlm-10q_20190331.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 March 31, 2019

☐	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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ☐

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 April 25, 2019
Common Stock, $0.01 par value		62,594,087

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2019

	Page
Part I. Financial Information:

Item 1. Financial Statements

Consolidated Balance Sheets – March 31, 2019 and December 31, 2018		3

Consolidated Statements of Earnings and Comprehensive Earnings – Three Months Ended March 31, 2019 and 2018		4

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2019 and 2018		5

Consolidated Statement of Total Equity – Three Months Ended March 31, 2019 and 2018		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3. Quantitative and Qualitative Disclosures About Market Risk		40

Item 4. Controls and Procedures		41

Part II. Other Information:

Item 1. Legal Proceedings		42

Item 1A. Risk Factors		42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		42

Item 4. Mine Safety Disclosures		42

Item 6. Exhibits		43

Signatures		44

Page 2 of 44

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2019			2018
	(Dollars in Thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	37,357		$	44,892
Accounts receivable, net		550,607			523,276
Inventories, net		646,176			663,035
Other current assets		135,971			134,613
Total Current Assets		1,370,111			1,365,816

Property, plant and equipment		8,339,050			8,294,962
Allowances for depreciation, depletion and amortization		(3,192,368	)		(3,137,733	)
Net property, plant and equipment		5,146,682			5,157,229
Goodwill		2,397,483			2,399,118
Other intangibles, net		498,195			501,282
Operating lease right-of-use assets		498,233			—
Other noncurrent assets		137,703			127,974
Total Assets	$	10,048,407		$	9,551,419

LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	184,844		$	210,808
Accrued salaries, benefits and payroll taxes		27,313			51,434
Pension and postretirement benefits		9,923			9,942
Accrued insurance and other taxes		52,895			63,543
Current maturities of long-term debt and short-term facilities		360,056			390,042
Accrued interest		31,844			17,176
Operating lease liabilities		50,776			—
Other current liabilities		39,986			43,805
Total Current Liabilities		757,637			786,750

Long-term debt		2,801,228			2,730,439
Pension, postretirement and postemployment benefits		138,049			134,469
Deferred income taxes, net		695,771			705,564
Noncurrent operating lease liabilities		446,128			—
Other noncurrent liabilities		234,098			244,785
Total Liabilities		5,072,911			4,602,007

Equity:
Common stock, par value $0.01 per share		625			624
Preferred stock, par value $0.01 per share		—			—
Additional paid-in capital		3,406,456			3,396,059
Accumulated other comprehensive loss		(140,324	)		(143,579	)
Retained earnings		1,705,717			1,693,259
Total Shareholders' Equity		4,972,474			4,946,363
Noncontrolling interests		3,022			3,049
Total Equity		4,975,496			4,949,412
Total Liabilities and Equity	$	10,048,407		$	9,551,419

See accompanying notes to the consolidated financial statements.

Page 3 of 44

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

	Three Months Ended
	March 31,
	2019			2018
	(In Thousands, Except Per Share Data)

Products and services revenues	$	878,305		$	753,305
Freight revenues		60,650			48,699
Total Revenues		938,955			802,004

Cost of revenues - products and services		734,168			641,620
Cost of revenues - freight		61,880			49,992
Total Cost of Revenues		796,048			691,612

Gross Profit		142,907			110,392

Selling, general & administrative expenses		78,292			70,121
Acquisition-related expenses, net		144			711
Other operating (income) expenses, net		(4,750	)		479
Earnings from Operations		69,221			39,081

Interest expense		32,948			35,087
Other nonoperating income, net		(1,562	)		(8,503	)
Earnings before income tax expense		37,835			12,497
Income tax (benefit) expense		(4,991	)		2,457
Consolidated net earnings		42,826			10,040
Less: Net (loss) earnings attributable to noncontrolling interests		(27	)		17
Net Earnings Attributable to Martin Marietta Materials, Inc.	$	42,853		$	10,023

Consolidated Comprehensive Earnings:
Earnings attributable to Martin Marietta Materials, Inc.	$	46,108		$	11,642
(Loss) Earnings attributable to noncontrolling interests		(27	)		17
	$	46,081		$	11,659
Net Earnings Attributable to Martin Marietta Materials, Inc.
Per Common Share:
Basic attributable to common shareholders	$	0.68		$	0.16
Diluted attributable to common shareholders	$	0.68		$	0.16

Weighted-Average Common Shares Outstanding:
Basic		62,584			62,957
Diluted		62,777			63,222

See accompanying notes to the consolidated financial statements.

Page 4 of 44

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS


	March 31,
	2019			2018
	(Dollars in Thousands)

Cash Flows from Operating Activities:
Consolidated net earnings	$	42,826		$	10,040
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities:
Depreciation, depletion and amortization		89,211			76,821
Stock-based compensation expense		13,552			9,760
Gain on divestitures and sales of assets		(2,413	)		(951	)
Deferred income taxes		4,781			2,029
Other items, net		495			(2,269	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable, net		(26,059	)		20,951
Inventories, net		16,416			(8,873	)
Accounts payable		20,393			7,925
Other assets and liabilities, net		(41,338	)		(10,421	)
Net Cash Provided by Operating Activities		117,864			105,012

Cash Flows from Investing Activities:
Additions to property, plant and equipment		(130,056	)		(96,259	)
Proceeds from divestitures and sales of assets		2,927			2,528
Payment of railcar construction advances		—			(8,430	)
Reimbursement of railcar construction advances		—			8,430
Investments in life insurance contracts, net		193			99
Other investing activities, net		(600	)		—
Net Cash Used for Investing Activities		(127,536	)		(93,632	)

Cash Flows from Financing Activities:
Borrowings of debt		125,000			—
Repayments of debt		(85,000	)		(13	)
Payments on finance leases		(951	)		—
Payments on capital lease		—			(829	)
Debt issuance costs		—			(3,194	)
Contributions by owners of noncontrolling interest		—			129
Dividends paid		(30,395	)		(27,885	)
Proceeds from exercise of stock options		611			2,801
Shares withheld for employees' income tax obligations		(7,128	)		(6,380	)
Net Cash Provided by (Used for) Financing Activities		2,137			(35,371	)
Net Decrease in Cash and Cash Equivalents		(7,535	)		(23,991	)
Cash and Cash Equivalents, beginning of period		44,892			1,446,364
Cash and Cash Equivalents, end of period	$	37,357		$	1,422,373

See accompanying notes to the consolidated financial statements.

Page 5 of 44

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENTS 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, 2017		62,873	$	628	$	3,368,007		$	(129,104	)	$	1,440,069		$	4,679,600		$	2,877		$	4,682,477
Consolidated net earnings		—		—		—			—			10,023			10,023			17			10,040
Other comprehensive earnings, net of tax		—		—		—			1,619			—			1,619			—			1,619
Dividends declared ($0.44 per share)		—		—		—			—			(27,885	)		(27,885	)		—			(27,885	)
Issuances of common stock for stock award plans		75		—		9,893			—			—			9,893			—			9,893
Shares withheld for employees' income tax obligations		—		—		(6,380	)		—			—			(6,380	)		—			(6,380	)
Stock-based compensation expense		—		—		9,760			—			—			9,760			—			9,760
Contributions from owners of noncontrolling interest		—		—		—			—			—			—			306			306
Balance at March 31, 2018		62,948	$	628	$	3,381,280		$	(127,485	)	$	1,422,207		$	4,676,630		$	3,200		$	4,679,830

Balance at December 31, 2018		62,515	$	624	$	3,396,059		$	(143,579	)	$	1,693,259		$	4,946,363		$	3,049		$	4,949,412
Consolidated net earnings		—		—		—			—			42,853			42,853			(27	)		42,826
Other comprehensive earnings, net of tax		—		—		—			3,255			—			3,255			—			3,255
Dividends declared ($0.48 per share)		—		—		—			—			(30,395	)		(30,395	)		—			(30,395	)
Issuances of common stock for stock award plans		78		1		3,973			—			—			3,974			—			3,974
Shares withheld for employees' income tax obligations		—		—		(7,128	)		—			—			(7,128	)		—			(7,128	)
Stock-based compensation expense		—		—		13,552			—			—			13,552			—			13,552
Balance at March 31, 2019		62,593		625		3,406,456			(140,324	)		1,705,717			4,972,474			3,022		$	4,975,496

See accompanying notes to the consolidated financial statements.

Page 6 of 44

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2019

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Significant Accounting Policies

Organization

Martin Marietta Materials, Inc. (the Company or Martin Marietta) is a natural resource-based building materials company. The Company supplies aggregates (crushed stone, sand and gravel) through its network of more than 300 quarries, mines and distribution yards to its customers in 31 states, Canada, the Bahamas and the Caribbean Islands. In the western United States, Martin Marietta also provides cement and downstream products, namely, ready mixed concrete, asphalt and paving services, in vertically-integrated structured markets where the Company has a leading aggregates position. The Company’s heavy-side building materials are used in infrastructure, nonresidential and residential construction projects. Aggregates are also used in agricultural, utility and environmental applications and as railroad ballast. The aggregates, cement, ready mixed concrete and asphalt and paving product lines are reported collectively as the “Building Materials” business.

The Company’s Building Materials business includes three reportable segments: the Mid-America Group, the Southeast Group and the West Group.

BUILDING MATERIALS 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, Pennsylvania, 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	Aggregates	Aggregates, Cement, Ready Mixed Concrete, Asphalt and Paving

The Company has a Magnesia Specialties business with manufacturing facilities in Manistee, Michigan, and Woodville, Ohio. The Magnesia Specialties business produces magnesia-based chemicals products used in industrial, agricultural and environmental applications, and dolomitic lime sold primarily to customers in the steel and mining industries.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and in Article 10 of Regulation S-X. Other than the required adoption of Accounting Standards Codification 842 – Leases (ASC 842), the Company has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. 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 three months ended March 31, 2019 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at

Page 7 of 44

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2019

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

New Accounting Pronouncement

Leases

Effective January 1, 2019, the Company adopted ASC 842, which requires virtually all leases, excluding mineral interest leases, to be recorded as right-of-use (ROU) assets and lease liabilities on the balance sheet and provides guidance on the recognition of lease expense and income. ASC 842 requires the modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application. It further states that an entity may use either 1) its effective date or 2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company used the effective date as the date of initial application. As such, financial information and disclosures required under ASC 842 will not be provided for dates and periods prior to January 1, 2019.

The new standard provides a number of practical expedients for transition and policy elections for ongoing accounting. The Company elected the “package of practical expedients”, which permits the Company to not reassess its prior conclusions about lease identification, lease classification and initial direct costs. The Company elected the practical expedients pertaining to the use of hindsight and to land easements. Applying the hindsight practical expedient resulted in longer lease terms for many leases. The standard provides policy election options for recognition exemption for short-term leases and separation of lease and non-lease components. The Company elected the short-term lease recognition exemption and elected not to separate lease and non-lease components for all underlying asset classes with the exceptions of railcars and fleet vehicle leases. The Company determines lease and non-lease components based on observable information, including rates provided by the lessor.

The adoption of ASC 842 resulted in the recognition of ROU assets and lease liabilities of $502.5 million and $501.6 million, respectively, for operating leases and $10.9 million and $12.1 million, respectively, for finance leases. The adoption did not have a material impact on the Company’s consolidated statement of earnings or consolidated statement of cash flows.

Subsequent to the date of adoption, the Company determines if a contract is or contains a lease at inception of the agreement. Operating and finance leases are recognized as ROU assets and the related obligations are recognized as current or noncurrent liabilities on the Company’s consolidated balance sheets. Leases with an initial lease term of one year or less are not recorded on the balance sheet.

ROU assets, which represent the Company’s right to use an underlying asset, and lease liabilities, which represent the Company’s obligation to make lease payments arising from the lease, are recognized based on the present value of the future lease payments over the lease term at commencement date. The ROU asset also includes any lease payments made at or before commencement date and any initial direct costs incurred and excludes lease incentives. Certain of the Company’s leases contain renewal and/or termination options. The Company recognizes renewal or termination options as part of its ROU assets and lease liabilities when the Company has the unilateral right to renew or terminate and it is reasonably certain these options will be exercised. The Company determines the present value of lease payments based on the implicit rate, which may be explicitly stated in the lease if available or the Company’s estimated collateralized incremental borrowing rate based on the term of the lease. For operating leases, lease expense is recognized on a straight-line basis over the lease term.

Page 8 of 44

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2019

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Some leases require the Company pay non-lease components, which may include taxes, maintenance, insurance and certain other expenses applicable to the leased property, and are primarily considered variable costs. The Company generally accounts for lease and non-lease components as a single amount. However, for railcars and fleet vehicle leases, the Company separately accounts for the lease and non-lease components.

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss

Consolidated comprehensive earnings/loss and accumulated other comprehensive loss 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 Company’s consolidated statements of earnings and comprehensive earnings.

Comprehensive earnings attributable to Martin Marietta is as follows:

	Three Months Ended
	March 31,
	2019		2018
	(Dollars in Thousands)
Net earnings attributable to Martin Marietta Materials, Inc.	$	42,853	$	10,023
Other comprehensive earnings, net of tax		3,255		1,619
Comprehensive earnings attributable to Martin Marietta Materials, Inc.	$	46,108	$	11,642

Comprehensive earnings attributable to noncontrolling interests consist of net earnings and adjustments for the funded status of pension and postretirement benefit plans. For the three months ended March 31, 2019 and 2018, there were no other comprehensive earnings attributable to noncontrolling interests.

Page 9 of 44

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended March 31, 2019

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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

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

	Three Months Ended March 31, 2019
Balance at beginning of period	$	(141,505	)	$	(2,074	)	$	—	$	(143,579	)
Other comprehensive earnings before reclassifications, net of tax		—			497			—		497
Amounts reclassified from accumulated other comprehensive loss, net of tax		2,758			—			—		2,758