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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, 2018

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 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.

 Large accelerated filer

 

☑

  

Accelerated filer

 

☐

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

☐

 

 

 

 

 

 

 

Emerging growth company

 

☐

 

 

 

 

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 November 1, 2018

Common Stock, $0.01 par value

 

62,712,073

 

 

 

 

 

 

 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

 

 

Page

Part I. Financial Information:

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Consolidated Balance Sheets – September 30, 2018, December 31, 2017 and September 30, 2017

 

3

 

 

 

Consolidated Statements of Earnings and Comprehensive Earnings – Three- and Nine-Months Ended September 30, 2018 and 2017

 

4

 

 

 

Consolidated Statements of Cash Flows – Nine-Months Ended September 30, 2018 and 2017

 

5

 

 

 

Consolidated Statement of Total Equity – Nine-Months Ended September 30, 2018 and 2017

 

6

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

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

 

31

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

51

 

 

 

Item 4. Controls and Procedures

 

52

 

 

 

Part II. Other Information:

 

 

 

 

 

Item 1. Legal Proceedings

 

53

 

 

 

Item 1A. Risk Factors

 

53

 

 

 

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

 

53

 

 

 

Item 4. Mine Safety Disclosures

 

53

 

 

 

Item 6. Exhibits

 

54

 

 

 

Signatures

 

55

 

 

 

 

 

 

Page 2 of 55

 

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,

 

 

 

2018

 

 

2017

 

 

2017

 

 

 

(Dollars in Thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,961

 

 

$

1,446,364

 

 

$

35,219

 

Accounts receivable, net

 

 

644,835

 

 

 

487,240

 

 

 

582,532

 

Inventories, net

 

 

651,295

 

 

 

600,591

 

 

 

576,429

 

Other current assets

 

 

104,717

 

 

 

96,965

 

 

 

83,809

 

Total Current Assets

 

 

1,454,808

 

 

 

2,631,160

 

 

 

1,277,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

8,183,412

 

 

 

6,498,067

 

 

 

6,375,813

 

Allowances for depreciation, depletion and amortization

 

 

(3,080,017

)

 

 

(2,905,254

)

 

 

(2,854,236

)

Net property, plant and equipment

 

 

5,103,395

 

 

 

3,592,813

 

 

 

3,521,577

 

Goodwill

 

 

2,399,434

 

 

 

2,160,290

 

 

 

2,160,060

 

Operating permits, net

 

 

434,177

 

 

 

439,116

 

 

 

440,846

 

Other intangibles, net

 

 

74,799

 

 

 

67,233

 

 

 

63,740

 

Other noncurrent assets

 

 

121,558

 

 

 

101,899

 

 

 

102,573

 

Total Assets

 

$

9,588,171

 

 

$

8,992,511

 

 

$

7,566,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Bank overdraft

 

$

—

 

 

$

—

 

 

$

1,047

 

Accounts payable

 

 

191,381

 

 

 

183,638

 

 

 

163,597

 

Accrued salaries, benefits and payroll taxes

 

 

45,234

 

 

 

44,255

 

 

 

37,885

 

Pension and postretirement benefits

 

 

9,292

 

 

 

13,652

 

 

 

12,073

 

Accrued insurance and other taxes

 

 

69,513

 

 

 

64,958

 

 

 

70,323

 

Current maturities of long-term debt and short-term

   facilities

 

 

380,041

 

 

 

299,909

 

 

 

80,038

 

Accrued interest

 

 

31,708

 

 

 

19,825

 

 

 

28,082

 

Other current liabilities

 

 

45,517

 

 

 

67,979

 

 

 

75,458

 

Total Current Liabilities

 

 

772,686

 

 

 

694,216

 

 

 

468,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

2,829,657

 

 

 

2,727,294

 

 

 

1,642,502

 

Pension, postretirement and postemployment benefits

 

 

108,454

 

 

 

244,043

 

 

 

230,212

 

Deferred income taxes, net

 

 

692,881

 

 

 

410,723

 

 

 

662,982

 

Other noncurrent liabilities

 

 

242,165

 

 

 

233,758

 

 

 

228,604

 

Total Liabilities

 

 

4,645,843

 

 

 

4,310,034

 

 

 

3,232,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share

 

 

626

 

 

 

628

 

 

 

627

 

Preferred stock, par value $0.01 per share

 

 

—

 

 

 

—

 

 

 

—

 

Additional paid-in capital

 

 

3,391,133

 

 

 

3,368,007

 

 

 

3,362,744

 

Accumulated other comprehensive loss

 

 

(121,491

)

 

 

(129,104

)

 

 

(122,928

)

Retained earnings

 

 

1,669,126

 

 

 

1,440,069

 

 

 

1,090,778

 

Total Shareholders' Equity

 

 

4,939,394

 

 

 

4,679,600

 

 

 

4,331,221

 

Noncontrolling interests

 

 

2,934

 

 

 

2,877

 

 

 

2,761

 

Total Equity

 

 

4,942,328

 

 

 

4,682,477

 

 

 

4,333,982

 

Total Liabilities and Equity

 

$

9,588,171

 

 

$

8,992,511

 

 

$

7,566,785

 

 

See accompanying notes to the consolidated financial statements.

 

Page 3 of 55

 

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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

 

 

Products and services revenues

 

$

1,142,218

 

 

$

1,022,487

 

 

$

3,024,300

 

 

$

2,811,646

 

Freight revenues

 

 

77,422

 

 

 

65,245

 

 

 

199,747

 

 

 

183,470

 

Total Revenues

 

 

1,219,640

 

 

 

1,087,732

 

 

 

3,224,047

 

 

 

2,995,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues - products and services

 

 

828,110

 

 

 

730,459

 

 

 

2,282,159

 

 

 

2,097,272

 

Cost of revenues - freight

 

 

78,546

 

 

 

65,595

 

 

 

202,595

 

 

 

185,006

 

Total Cost of Revenues

 

 

906,656

 

 

 

796,054

 

 

 

2,484,754

 

 

 

2,282,278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

312,984

 

 

 

291,678

 

 

 

739,293

 

 

 

712,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general & administrative expenses

 

 

68,441

 

 

 

57,219

 

 

 

209,632

 

 

 

195,127

 

Acquisition-related expenses, net

 

 

89

 

 

 

1,314

 

 

 

12,925

 

 

 

3,319

 

Other operating expenses (income), net

 

 

3,792

 

 

 

6,181

 

 

 

(26,960

)

 

 

(2,575

)

Earnings from Operations

 

 

240,662

 

 

 

226,964

 

 

 

543,696

 

 

 

516,967

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

35,468

 

 

 

23,141

 

 

 

103,526

 

 

 

68,037

 

Other nonoperating income, net

 

 

(4,248

)

 

 

(479

)

 

 

(19,873

)

 

 

(6,434

)

Earnings before income tax expense

 

 

209,442

 

 

 

204,302

 

 

 

460,043

 

 

 

455,364

 

Income tax expense

 

 

29,089

 

 

 

52,763

 

 

 

84,147

 

 

 

119,277

 

Consolidated net earnings

 

 

180,353

 

 

 

151,539

 

 

 

375,896

 

 

 

336,087

 

Less: Net earnings (loss) attributable to noncontrolling

   interests

 

 

132

 

 

 

(7

)

 

 

275

 

 

 

(72

)

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

$

180,221

 

 

$

151,546

 

 

$

375,621

 

 

$

336,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Comprehensive Earnings:  (See Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings attributable to Martin Marietta Materials, Inc.

 

$

184,613

 

 

$

154,524

 

 

$

383,234

 

 

$

343,918

 

Earnings (Loss) attributable to noncontrolling interests

 

 

132

 

 

 

1

 

 

 

276

 

 

 

(62

)

 

 

$

184,745

 

 

$

154,525

 

 

$

383,510

 

 

$

343,856

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic attributable to common shareholders

 

$

2.86

 

 

$

2.40

 

 

$

5.95

 

 

$

5.33

 

Diluted attributable to common shareholders

 

$

2.85

 

 

$

2.39

 

 

$

5.93

 

 

$

5.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

62,932

 

 

 

62,896

 

 

 

62,970

 

 

 

62,940

 

Diluted

 

 

63,167

 

 

 

63,158

 

 

 

63,224

 

 

 

63,218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Per Common Share

 

$

0.48

 

 

$

0.44

 

 

$

1.36

 

 

$

1.28

 

 

 

See accompanying notes to the consolidated financial statements.

 

Page 4 of 55

 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

(UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

375,896

 

 

$

336,087

 

Adjustments to reconcile consolidated net earnings to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

253,200

 

 

 

221,418

 

Stock-based compensation expense

 

 

23,084

 

 

 

23,698

 

Gain on divestitures and sales of assets

 

 

(35,167

)

 

 

(17,970

)

Deferred income taxes

 

 

68,833

 

 

 

6,543

 

Other items, net

 

 

(2,107

)

 

 

(9,894

)

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

   and divestitures:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(132,176

)

 

 

(124,622

)

Inventories, net

 

 

(8,015

)

 

 

(54,804

)

Accounts payable

 

 

42,995

 

 

 

3,182

 

Other assets and liabilities, net

 

 

(145,005

)

 

 

34,484

 

Net Cash Provided by Operating Activities

 

 

441,538

 

 

 

418,122

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(262,155

)

 

 

(308,745

)

Acquisitions, net

 

 

(1,640,698

)

 

 

(7,200

)

Proceeds from divestitures and sales of assets

 

 

63,460

 

 

 

33,138

 

Payment of railcar construction advances

 

 

(56,033

)

 

 

(42,954

)

Reimbursement of railcar construction advances

 

 

56,033

 

 

 

40,930

 

Investments in life insurance contracts, net

 

 

771

 

 

 

276

 

Net Cash Used for Investing Activities

 

 

(1,838,622

)

 

 

(284,555

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Borrowings of debt

 

 

875,000

 

 

 

1,011,244

 

Repayments of debt

 

 

(695,039

)

 

 

(975,035

)

Payments of deferred acquisition consideration

 

 

(6,707

)

 

 

-

 

Payments on capital lease obligations

 

 

(2,589

)

 

 

(2,708

)

Debt issuance costs

 

 

(3,194

)

 

 

(1,989

)

Change in bank overdraft

 

 

—

 

 

 

1,047

 

Contributions by owners of noncontrolling interest

 

 

—

 

 

 

211

 

Dividends paid

 

 

(86,190

)

 

 

(80,961

)

Proceeds from exercise of stock options

 

 

6,993

 

 

 

10,017

 

Shares withheld for employees' income tax obligations

 

 

(10,416

)

 

 

(10,213

)

Purchase of remaining interest in existing joint venture

 

 

(12,800

)

 

 

—

 

Repurchases of common stock

 

 

(60,377

)

 

 

(99,999

)

Net Cash Provided by (Used for) Financing Activities

 

 

4,681

 

 

 

(148,386

)

Net Decrease in Cash and Cash Equivalents

 

 

(1,392,403

)

 

 

(14,819

)

Cash and Cash Equivalents, beginning of period

 

 

1,446,364

 

 

 

50,038

 

Cash and Cash Equivalents, end of period

 

$

53,961

 

 

$

35,219

 

 

 

 

See accompanying notes to the consolidated financial statements.

 

Page 5 of 55

 

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, 2016

 

 

63,176

 

 

$

630

 

 

$

3,334,461

 

 

$

(130,687

)

 

$

935,574

 

 

$

4,139,978

 

 

$

2,612

 

 

$

4,142,590

 

Consolidated net earnings

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

336,159

 

 

 

336,159

 

 

 

(72

)

 

 

336,087

 

Other comprehensive earnings,

   net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,759

 

 

 

—

 

 

 

7,759

 

 

 

10

 

 

 

7,769

 

Dividends declared

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(80,961

)

 

 

(80,961

)

 

 

—

 

 

 

(80,961

)

Issuances of common stock for stock

   award plans

 

 

141

 

 

 

2

 

 

 

14,798

 

 

 

—

 

 

 

—

 

 

 

14,800

 

 

 

—

 

 

 

14,800

 

Shares withheld for employees' income

   tax obligations

 

 

—

 

 

 

—

 

 

 

(10,213

)

 

 

—

 

 

 

—

 

 

 

(10,213

)

 

 

—

 

 

 

(10,213

)

Repurchases of common stock

 

 

(458

)

 

 

(5

)

 

 

—

 

 

 

—

 

 

 

(99,994

)

 

 

(99,999

)

 

 

—

 

 

 

(99,999

)

Stock-based compensation expense

 

 

—

 

 

 

—

 

 

 

23,698

 

 

 

—

 

 

 

—

 

 

 

23,698

 

 

 

—

 

 

 

23,698

 

Contributions by owners of

   noncontrolling interest

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

211

 

 

 

211

 

Balance at September 30, 2017

 

 

62,859

 

 

$

627

 

 

$

3,362,744

 

 

$

(122,928

)

 

$

1,090,778

 

 

$

4,331,221

 

 

$

2,761

 

 

$

4,333,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

375,621

 

 

 

375,621

 

 

 

275

 

 

 

375,896

 

Other comprehensive earnings,

   net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,613

 

 

 

—

 

 

 

7,613

 

 

 

1

 

 

 

7,614

 

Dividends declared

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(86,190

)

 

 

(86,190

)

 

 

—

 

 

 

(86,190

)

Issuances of common stock for stock

   award plans

 

 

144

 

 

 

1

 

 

 

14,038

 

 

 

—

 

 

 

—

 

 

 

14,039

 

 

 

—

 

 

 

14,039

 

Shares withheld for employees' income

   tax obligations

 

 

—

 

 

 

—

 

 

 

(10,416

)

 

 

—

 

 

 

—

 

 

 

(10,416

)

 

 

—

 

 

 

(10,416

)

Repurchases of common stock

 

 

(305

)

 

 

(3

)

 

 

—

 

 

 

—

 

 

 

(60,374

)

 

 

(60,377

)

 

 

—

 

 

 

(60,377

)

Stock-based compensation expense

 

 

—

 

 

 

—

 

 

 

23,084

 

 

 

—

 

 

 

—

 

 

 

23,084

 

 

 

—

 

 

 

23,084

 

Noncontrolling interest acquired in

   business combination

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

9,001

 

 

 

9,001

 

Purchase of remaining interest in existing

   joint venture

 

 

—

 

 

 

—

 

 

 

(3,580

)

 

 

—

 

 

 

—

 

 

 

(3,580

)

 

 

(9,220

)

 

 

(12,800

)

Balance at September 30, 2018

 

 

62,712

 

 

 

626

 

 

 

3,391,133

 

 

 

(121,491

)

 

 

1,669,126

 

 

 

4,939,394

 

 

 

2,934

 

 

$

4,942,328

 

 

 

 

See accompanying notes to the consolidated financial statements.

 

Page 6 of 55

 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(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 30 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.

 

Page 7 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

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 two new accounting pronouncements described below, 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, 2017. 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- and nine-months ended September 30, 2018 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2017 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, 2017.

New Accounting Pronouncements

Revenue from Contracts with Customers

Effective January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which changes the evaluation and accounting for revenue recognition under contracts with customers and enhances financial statement disclosures.  The Company implemented ASU 2014-09 using the modified retrospective approach.  The adoption had an immaterial impact on the Company’s financial position and results of operations but required new disclosures (see Note 2).  

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

Effective January 1, 2018, the Company adopted ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which provides clarification or additional guidance on certain transactions and its classification on the statement of cash flows on a retrospective basis.  The adoption had an immaterial impact on the Company’s statement of cash flows. 

Page 8 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

Pending Accounting Pronouncement

Lease Standard

In February 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard, Accounting Standards Codification 842 – Leases (ASC 842), 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 as right-to-use assets and lease liabilities on the balance sheet and provides guidance on the recognition of lease expense and income.  Effective January 1, 2019, with early adoption permitted, ASC 842 requires the modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application.  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 will adopt the new standard effective January 1, 2019 and will use the effective date as the date of initial application. As such, financial information will not be updated 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 expects to elect 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 plans to elect the practical expedients pertaining to the use of hindsight and to land easements.  The standard provides policy election options for recognition exemption for short-term leases and separation of lease and non-lease components. The Company will elect the short-term lease recognition exemption and expects to elect not to separate lease and non-lease components for all underlying asset classes with the exceptions of railcars and fleet leases.

Although the Company has not determined the full impact of ASC 842, the Company expects the adoption of ASC 842 to have a material impact on its financial statements, specifically right-to-use assets and lease liabilities on the balance sheet and note disclosures pertaining to leasing activities.  

 

Page 9 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

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

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Net earnings attributable to Martin Marietta Materials, Inc.

 

$

180,221

 

 

$

151,546

 

 

$

375,621

 

 

$

336,159

 

Other comprehensive earnings, net of tax

 

 

4,392

 

 

 

2,978

 

 

 

7,613

 

 

 

7,759

 

Comprehensive earnings attributable to Martin Marietta

   Materials, Inc.

 

$

184,613

 

 

$

154,524

 

 

$

383,234

 

 

$

343,918

 

 

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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Net earnings (loss) attributable to noncontrolling interests

 

$

132

 

 

$

(7

)

 

$

275

 

 

$

(72

)

Other comprehensive earnings, net of tax

 

 

—

 

 

 

8

 

 

 

1

 

 

 

10

 

Comprehensive earnings (loss) attributable to

   noncontrolling interests

 

$

132

 

 

$

1

 

 

$

276

 

 

$

(62

)

Page 10 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

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

Changes in accumulated other comprehensive 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, 2018

 

Balance at beginning of period

 

$

(124,798

)

 

$

(1,085

)

 

$

—

 

 

$

(125,883

)

Other comprehensive earnings before

   reclassifications, net of tax

 

 

—

 

 

 

365

 

 

 

—

 

 

 

365

 

Amounts reclassified from accumulated

   other comprehensive loss, net of tax

 

 

4,027

 

 

 

—

 

 

 

—

 

 

 

4,027

 

Other comprehensive earnings, net of tax

 

 

4,027

 

 

 

365

 

 

 

—

 

 

 

4,392

 

Balance at end of period

 

$

(120,771

)

 

$

(720

)

 

$

—

 

 

$

(121,491

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended September 30, 2017

 

Balance at beginning of period

 

$

(124,553

)

 

$

(636

)

 

$

(717

)

 

$

(125,906

)

Other comprehensive earnings before

   reclassifications, net of tax

 

 

—

 

 

 

838

 

 

 

—

 

 

 

838

 

Amounts reclassified from accumulated

   other comprehensive loss, net of tax

 

 

1,918

 

 

 

—

 

 

 

222

 

 

 

2,140

 

Other comprehensive earnings, net of tax

 

 

1,918

 

 

 

838

 

 

 

222

 

 

 

2,978

 

Balance at end of period

 

$

(122,635

)

 

$

202

 

 

$

(495

)

 

$

(122,928

)

 

Page 11 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(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, 2018

 

Balance at beginning of period

 

$

(128,802

)

 

$

(22

)

 

$

(280

)

 

$

(129,104

)

Other comprehensive loss before

   reclassifications, net of tax

 

 

—

 

 

 

(698

)

 

 

—

 

 

 

(698

)

Amounts reclassified from accumulated

   other comprehensive loss, net of tax

 

 

8,031

 

 

 

—

 

 

 

280

 

 

 

8,311

 

Other comprehensive earnings (loss), net of tax

 

 

8,031

 

 

 

(698

)

 

 

280

 

 

 

7,613

 

Balance at end of period

 

$

(120,771

)

 

$

(720

)

 

$

—

 

 

$

(121,491

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine-Months Ended September 30, 2017

 

Balance at beginning of period

 

$

(128,373

)

 

$

(1,162

)

 

$

(1,152

)

 

$

(130,687

)

Other comprehensive earnings before

   reclassifications, net of tax

 

 

—

 

 

 

1,364

 

 

 

—

 

 

 

1,364

 

Amounts reclassified from accumulated

   other comprehensive loss, net of tax

 

 

5,738

 

 

 

—

 

 

 

657

 

 

 

6,395

 

Other comprehensive earnings, net of tax

 

 

5,738

 

 

 

1,364

 

 

 

657

 

 

 

7,759

 

Balance at end of period

 

$

(122,635

)

 

$

202

 

 

$

(495

)

 

$

(122,928

)

 

Page 12 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(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, 2018

 

Balance at beginning of period

 

$

78,619

 

 

$

—

 

 

$

78,619

 

Tax effect of other comprehensive earnings

 

 

(1,326

)

 

 

—

 

 

 

(1,326

)

Balance at end of period

 

$

77,293

 

 

$

—

 

 

$

77,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended September 30, 2017

 

Balance at beginning of period

 

$

79,675

 

 

$

464

 

 

$

80,139

 

Tax effect of other comprehensive earnings

 

 

(1,193

)

 

 

(147

)

 

 

(1,340

)

Balance at end of period

 

$

78,482

 

 

$

317

 

 

$

78,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine-Months Ended September 30, 2018

 

Balance at beginning of period

 

$

79,938

 

 

$

178

 

 

$

80,116

 

Tax effect of other comprehensive earnings

 

 

(2,645

)

 

 

(178

)

 

 

(2,823

)

Balance at end of period

 

$

77,293

 

 

$

—

 

 

$

77,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine-Months Ended September 30, 2017

 

Balance at beginning of period

 

$

82,044

 

 

$

749

 

 

$

82,793

 

Tax effect of other comprehensive earnings

 

 

(3,562

)

 

 

(432

)

 

 

(3,994

)

Balance at end of period

 

$

78,482

 

 

$

317

 

 

$

78,799

 

Page 13 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(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

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

comprehensive earnings

 

 

(Dollars in Thousands)

 

 

 

Pension and postretirement benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement expense

 

$

2,692

 

 

$

—

 

 

$

2,692

 

 

$

—

 

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit

 

 

(492

)

 

 

(402

)

 

 

(1,479

)

 

 

(1,070

)

 

 

Actuarial loss

 

 

3,153

 

 

 

3,513

 

 

 

9,463

 

 

 

10,370

 

 

 

 

 

 

5,353

 

 

 

3,111

 

 

 

10,676

 

 

 

9,300

 

 

Other nonoperating income, net

Tax benefit

 

 

(1,326

)

 

 

(1,193

)

 

 

(2,645

)

 

 

(3,562

)

 

Income tax expense

 

 

$

4,027

 

 

$

1,918

 

 

$

8,031

 

 

$

5,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized value of terminated

   forward starting interest rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional interest expense

 

$

—

 

 

$

369

 

 

$

458

 

 

$

1,089

 

 

Interest expense

Tax benefit

 

 

—

 

 

 

(147

)

 

 

(178

)

 

 

(432

)

 

Income tax expense

 

 

$

—

 

 

$

222

 

 

$

280

 

 

$

657

 

 

 

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 Company’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 Company’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive. For the three- and nine-months ended September 30, 2018 and 2017, the diluted per-share computations reflect 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.

 

Page 14 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1.

Significant Accounting Policies (continued)

Earnings per Common Share

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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In Thousands)

 

Net earnings attributable to Martin Marietta

   Materials, Inc.

 

$

180,221

 

 

$

151,546

 

 

$

375,621

 

 

$

336,159

 

Less: Distributed and undistributed earnings

   attributable to unvested awards

 

 

271

 

 

 

399

 

 

 

672

 

 

 

1,000

 

Basic and diluted net earnings available to common

   shareholders attributable to Martin Marietta

   Materials, Inc.

 

$

179,950

 

 

$

151,147

 

 

$

374,949

 

 

$

335,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

62,932

 

 

 

62,896

 

 

 

62,970

 

 

 

62,940

 

Effect of dilutive employee and director awards

 

 

235

 

 

 

262

 

 

 

254

 

 

 

278

 

Diluted weighted-average common shares outstanding

 

 

63,167

 

 

 

63,158

 

 

 

63,224

 

 

 

63,218

 

 

2.

Revenue Recognition

Total revenues include sales of products and services to customers, net of any discounts or allowances, and freight revenues.  Product revenues are recognized when control of the promised good is transferred to the customer, typically when finished products are shipped. Intersegment and interproduct revenues are eliminated in consolidation. Service revenues are derived from the paving business and recognized using the percentage-of-completion method under the revenue-cost approach. Under the revenue-cost approach, recognized contract revenue is determined by multiplying the total estimated contract revenue by the estimated percentage of completion. Contract costs are recognized as incurred. The percentage of completion is determined on a contract-by-contract basis using project costs incurred to date as a percentage of total estimated project costs. The Company believes the revenue-cost approach is appropriate as the use of asphalt in a paving contract is relatively consistent with the performance of the paving service. Paving contracts, notably with governmental entities, may contain performance bonuses based on quality specifications. Given the uncertainty of meeting the criteria until the performance obligation is completed, performance bonuses are recognized as revenues when and if determined to be achieved. Performance bonuses are not material to the Company’s consolidated results of operations for the three- and nine-months ended September 30, 2018 and 2017.  Freight revenues reflect delivery arranged by the Company using a third party on behalf of the customer and are recognized consistent with the timing of the product revenues.  

Page 15 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2.

Revenue Recognition (continued)

Performance Obligations. Performance obligations are contractual promises to transfer or provide a distinct good or service for a stated price.  The Company’s product sales agreements are single-performance obligations that are satisfied at a point in time.  Performance obligations within paving service agreements are satisfied over time, primarily ranging from one day to 20 months. For product revenues and freight revenues, customer payment terms are generally 30 days from invoice date. Customer payments for the paving operations are based on a contractual billing schedule and are due 30 days from invoice date.

Future revenues from unsatisfied performance obligations at September 30, 2018 and 2017 were $111,721,000 and $107,953,000, respectively, where the remaining periods to complete these obligations ranged from one month to 27 months and one month to 21 months, respectively.  

Sales Taxes. The Company is deemed to be an agent when collecting sales taxes from customers.  Sales taxes collected are initially recorded as liabilities until remitted to taxing authorities and are not reflected in the consolidated statements of earnings as revenues and expenses.

Revenue by Category. The following table presents the Company’s total revenues by category for each reportable segment:

 

 

 

Three-Months Ended

 

 

 

September 30, 2018

 

(Dollars in Thousands)

 

Products and Services

 

Freight

 

Total

 

Mid-America Group

 

$

348,429

 

$

28,576

 

$

377,005

 

Southeast Group

 

 

121,661

 

 

3,886

 

 

125,547

 

West Group

 

 

603,763

 

 

39,802

 

 

643,565

 

Total Building Materials Business

 

 

1,073,853

 

 

72,264

 

 

1,146,117

 

Magnesia Specialties

 

 

68,365

 

 

5,158

 

 

73,523

 

Total

 

$

1,142,218

 

$

77,422

 

$

1,219,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended

 

 

 

September 30, 2017

 

(Dollars in Thousands)

 

Products and Services

 

Freight

 

Total

 

Mid-America Group

 

$

287,085

 

$

21,387

 

$

308,472

 

Southeast Group

 

 

91,427

 

 

3,416

 

 

94,843

 

West Group

 

 

584,086

 

 

36,426

 

 

620,512

 

Total Building Materials Business

 

 

962,598

 

 

61,229

 

 

1,023,827

 

Magnesia Specialties

 

 

59,889

 

 

4,016

 

 

63,905

 

Total

 

$

1,022,487

 

$

65,245

 

$

1,087,732

 

 

Service revenues, which include paving operations located in Colorado, were $82,232,000 and $94,503,000 for the three-months ended September 30, 2018 and 2017, respectively.

Page 16 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2.

Revenue Recognition (continued)

 

 

 

Nine-Months Ended

 

 

 

September 30, 2018

 

(Dollars in Thousands)

 

Products and Services

 

Freight

 

Total

 

Mid-America Group

 

$

841,897

 

$

64,480

 

$

906,377

 

Southeast Group

 

 

308,306

 

 

10,443

 

 

318,749

 

West Group

 

 

1,672,707

 

 

110,467

 

 

1,783,174

 

Total Building Materials Business

 

 

2,822,910

 

 

185,390

 

 

3,008,300

 

Magnesia Specialties

 

 

201,390

 

 

14,357

 

 

215,747

 

Total

 

$

3,024,300

 

$

199,747

 

$

3,224,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine-Months Ended

 

 

 

September 30, 2017

 

(Dollars in Thousands)

 

Products and Services

 

Freight

 

Total

 

Mid-America Group

 

$

734,406

 

$

53,984

 

$

788,390

 

Southeast Group

 

 

266,690

 

 

10,784

 

 

277,474

 

West Group

 

 

1,620,632

 

 

106,110

 

 

1,726,742

 

Total Building Materials Business

 

 

2,621,728

 

 

170,878

 

 

2,792,606

 

Magnesia Specialties

 

 

189,918

 

 

12,592

 

 

202,510

 

Total

 

$

2,811,646

 

$

183,470

 

$

2,995,116

 

 

Services revenues, which include paving operations located in Colorado, were $162,944,000 and $179,553,000 for the nine-months ended September 30, 2018 and 2017, respectively.

Contract Balances. Costs in excess of billings relate to the conditional right to consideration for completed contractual performance and are contract assets on the consolidated balance sheets. Costs in excess of billings are reclassified to accounts receivable when the right to consideration becomes unconditional. Billings in excess of costs relate to customers invoiced in advance of contractual performance and are contract liabilities on the consolidated balance sheets. The following table presents information about the Company’s contract balances:

(Dollars in Thousands)

 

September 30, 2018

 

December 31, 2017

 

September 30, 2017

 

Costs in excess of billings

 

$

5,581

 

$

1,310

 

$

8,727

 

Billings in excess of costs

 

$

9,111

 

$

7,204

 

$

5,981

 

 

Page 17 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2.

Revenue Recognition (continued)

Revenues recognized from the beginning balance of contract liabilities for the three-months ended September 30, 2018 and 2017 were $6,203,000 and $4,439,000, respectively, and for the nine-months ended September 30, 2018 and 2017 were $6,816,000 and $8,231,000, respectively.

Retainage, which primarily relates to the paving services, represents amounts that have been billed to customers but payment withheld until final acceptance of the performance obligation by the customer.  Included on the Company’s consolidated balance sheets, retainage was $8,733,000, $9,029,000 and $7,680,000 at September 30, 2018, December 31, 2017 and September 30, 2017, respectively.

Warranties. The Company’s construction contracts generally contain warranty provisions typically for a period of nine months to one year after project completion and cover materials, design or workmanship defects. Historically, the Company has not experienced material costs for warranties. The ready mixed concrete product line carries longer warranty periods, for which the Company has accrued an estimate of warranty cost based on experience with the type of work and any known risks relative to the project. In total, warranty costs were not material to the Company’s consolidated results of operations for the three- and nine-months ended September 30, 2018 and 2017.

Policy Elections. When the Company arranges third party freight to deliver products to customers, the Company has elected the delivery to be a fulfillment activity rather than a separate performance obligation.  Further, the Company acts as a principal in the delivery arrangements and, as required by the accounting standard, the related revenues and costs are presented gross and are included in the consolidated statements of earnings.

3.

Business Combination

On April 27, 2018, the Company successfully completed its acquisition of Bluegrass Materials Company (Bluegrass), the largest privately-held, pure-play aggregates company in the United States.  The final purchase price was $1,617,357,000, inclusive of the working capital true up. Bluegrass’ operations include 23 active sites with more than 125 years of reserves, collectively, in Georgia, South Carolina, Tennessee, Maryland, Kentucky and Pennsylvania.  These operations complement the Company’s existing southeastern footprint in its Mid-America and Southeast Groups and provide new growth platforms within Maryland and Kentucky.  The Company reached an agreement with the U.S. Department of Justice (DOJ), approved by the federal district court for the District of Columbia, which resolved all competition issues with respect to the acquisition.  Under the terms of the agreement with the DOJ, Martin Marietta divested its heritage Forsyth aggregates quarry north of Atlanta, Georgia, and the legacy Bluegrass Beaver Creek aggregates quarry in western Maryland.  In connection with the sale of its Forsyth quarry, the Company recognized a pretax gain of $14,785,000, which is included in acquisition-related expenses, net, in the consolidated statements of earnings and comprehensive earnings. There was no gain or loss on the Beaver Creek divestiture.

The Bluegrass acquisition was a stock transaction wherein the Company acquired 100% of the voting interest of the owners.  The Company acquired accounts receivable; inventories; property, plant and equipment, which primarily consists of mineral reserves; intangible assets; prepaid and other assets; and assumed accounts payable; accrued liabilities and deferred tax liabilities, net.  The Company did not assume any of Bluegrass’ outstanding debt.  

Page 18 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

3.

Business Combination (continued)

The Company has determined preliminary fair values of the assets acquired and liabilities assumed.  Although initial accounting for the business combination has been recorded, these amounts are subject to change during the measurement period which extends no longer than one year from consummation date based on additional reviews, such as asset verification and completion of deferred tax estimates based on the determination of the historic tax basis in assets acquired. Specific accounts subject to ongoing purchase accounting adjustments include, but are not limited to, property, plant and equipment; goodwill; and deferred income tax liabilities.  Therefore, the measurement period remains open as of September 30, 2018.  The following is a summary of the estimated fair values of the assets acquired and the liabilities assumed (dollars in thousands).  

 

Assets:

 

 

 

Cash

$

1,159

 

Receivables

 

25,479

 

Inventory

 

46,156

 

Other current assets

 

1,029

 

Property, plant and equipment

 

1,522,386

 

Intangible assets, other than goodwill

 

19,125

 

Goodwill

 

239,360

 

Total assets

 

1,854,694

 

 

 

 

 

Liabilities:

 

 

 

Accounts payable and accrued expenses

 

17,893

 

Deferred income tax liabilities, net

 

210,443

 

Noncontrolling interest

 

9,001

 

Total liabilities

 

237,337

 

 

 

 

 

Total consideration

$

1,617,357

 

 

Goodwill represents the excess purchase price over the fair values of assets acquired and liabilities assumed and reflects projected operating synergies from the transaction, including expected overhead savings.  It has not yet been determined if any of the goodwill generated by the transaction will be deductible for income tax purposes.

Total revenues and earnings from operations attributable to acquired operations included in the consolidated earnings statements for the three-months ended September 30, 2018 were $68,656,000 and $11,531,000, respectively, and for the nine-months ended September 30, 2018 were $115,007,000 and $18,276,000, respectively.

Acquisition-related expenses were $89,000 and $27,710,000 for the three- and nine-months ended September 30, 2018, respectively.  

Page 19 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

3.

Business Combination (continued)

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Bluegrass as though the companies were combined as of January 1, 2017.  Financial information for periods prior to the April 27, 2018 acquisition date included in the pro forma earnings does not reflect any cost savings or associated costs to achieve such savings from operating efficiencies or synergies that result from the combination.  Consistent with the assumed acquisition date of January 1, 2017, the pro forma financial results for the nine-months ended September 30, 2017 include acquisition-related expenses of $27,710,000, the $14,785,000 gain on the required divestiture of assets and the one-time $19,893,000 increase in cost of sales for the sale of acquired inventory.  

The pro forma financial statements do not purport to project the future financial position or operating results of the combined company.  The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2017.

 

 

Three-Months Ended

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

(Dollars in Thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

1,219,640

 

 

$

1,148,787

 

 

$

3,279,455

 

 

$

3,154,563

 

Net earnings attributable to Martin Marietta

 

$

185,051

 

 

$

151,986

 

 

$

399,113

 

 

$

300,458

 

Diluted EPS

 

$

2.93

 

 

$

2.41

 

 

$

6.31

 

 

$

4.75

 

 

On August 31, 2018, the Company purchased the remaining noncontrolling interest in a consolidated joint venture where the initial controlling interest was acquired as part of the Bluegrass acquisition.

4.

Goodwill and Other Intangibles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America

 

 

Southeast

 

 

West

 

 

 

 

 

 

 

Group

 

 

Group

 

 

Group

 

 

Total

 

 

 

(Dollars in Thousands)

 

Balance at January 1, 2018

 

$

281,403

 

 

$

50,346

 

 

$

1,828,541

 

 

$

2,160,290

 

Acquisitions

 

 

147,333

 

 

 

92,738

 

 

 

—

 

 

 

240,071

 

Divestitures

 

 

—

 

 

 

(927

)

 

 

—

 

 

 

(927

)

Balance at September 30, 2018

 

$

428,736

 

 

$

142,157

 

 

$

1,828,541

 

 

$

2,399,434

 

 

Page 20 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4.

Goodwill and Other Intangibles (continued)

Intangible assets subject to amortization consist of the following:

 

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net

Balance

 

(Dollars in Thousands)

 

September 30, 2018

 

Noncompetition agreements

 

$

12,024

 

 

$

(11,105

)

 

$

919

 

Customer relationships

 

 

56,530

 

 

 

(18,325

)

 

 

38,205

 

Operating permits

 

 

458,952

 

 

 

(31,375

)

 

 

427,577

 

Use rights and other

 

 

19,564

 

 

 

(10,789

)

 

 

8,775

 

Trade names

 

 

12,800

 

 

 

(9,387

)

 

 

3,413

 

Total

 

$

559,870

 

 

$

(80,981

)

 

$

478,889

 

 

Intangible assets deemed to have an indefinite life and not being amortized consist of the following:

 

 

 

Building Materials Business

 

 

Magnesia Specialties

 

 

Total

 

(Dollars in Thousands)

 

September 30, 2018

 

Operating permits

 

$

6,600

 

 

$

—

 

 

$

6,600

 

Use rights

 

 

20,642

 

 

 

—

 

 

 

20,642

 

Trade names

 

 

280

 

 

 

2,565

 

 

 

2,845

 

Total

 

$

27,522

 

 

$

2,565

 

 

$

30,087

 

 

Intangibles acquired during the year are as follows:

 

(Dollars in Thousands)

 

Amount

 

 

Weighted-average

amortization period

Subject to amortization:

 

 

 

 

 

 

Customer relationships

 

$

20,620

 

 

12 years

 

 

 

 

 

 

 

Not subject to amortization:

 

 

 

 

 

 

Water rights

 

 

1,100

 

 

N/A

Total

 

$

21,720

 

 

 

 

Page 21 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4.

Goodwill and Other Intangibles (continued)

Total amortization expense for intangible assets for the nine-months ended September 30, 2018 and 2017 was $10,549,000 and $10,710,000, respectively.

The estimated amortization expense for intangible assets for the last three months of 2018 and for each of the next four years and thereafter is as follows:

 

(Dollars in Thousands)

 

 

 

 

October - December 2018

 

$

3,398

 

2019

 

 

13,429

 

2020

 

 

13,393

 

2021

 

 

12,703

 

2022

 

 

11,232

 

Thereafter

 

 

424,734

 

Total

 

$

478,889

 

 

5.

Inventories, Net

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2017

 

 

 

(Dollars in Thousands)

 

Finished products

 

$

610,663

 

 

$

552,999

 

 

$

526,404

 

Products in process and raw materials

 

 

61,891

 

 

 

62,761

 

 

 

62,449

 

Supplies and expendable parts

 

 

139,409

 

 

 

128,792

 

 

 

126,918

 

 

 

 

811,963

 

 

 

744,552

 

 

 

715,771

 

Less: Allowances

 

 

(160,668

)

 

 

(143,961

)

 

 

(139,342

)

Total

 

$

651,295

 

 

$

600,591

 

 

$

576,429

 

 

Page 22 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6.

Long-Term Debt

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2017

 

 

 

(Dollars in Thousands)

 

6.60% Senior Notes, due 2018

 

$

—

 

 

$

299,871

 

 

$

299,774

 

7% Debentures, due 2025

 

 

124,249

 

 

 

124,180

 

 

 

124,157

 

6.25% Senior Notes, due 2037

 

 

228,079

 

 

 

228,033

 

 

 

228,018

 

4.25% Senior Notes, due 2024

 

 

396,251

 

 

 

395,814

 

 

 

395,673

 

4.250% Senior Notes, due 2047

 

 

591,499

 

 

 

591,688

 

 

 

—

 

3.500% Senior Notes, due 2027

 

 

494,643

 

 

 

494,352

 

 

 

—

 

3.450% Senior Notes, due 2027

 

 

296,861

 

 

 

296,628

 

 

 

296,551

 

Floating Rate Senior Notes, due 2019, interest rate of 2.84%

   and 2.13% at September 30, 2018 and December 31, 2017,

   respectively

 

 

299,074

 

 

 

298,102

 

 

 

—

 

Floating Rate Notes, due 2020, interest rate of 2.96%, 2.10% and

   1.96% at September 30, 2018, December 31, 2017 and September

   30, 2017, respectively

 

 

298,773

 

 

 

298,227

 

 

 

298,046

 

Revolving Facility, due 2022, interest rate of 3.29% at

   September 30, 2018

 

 

100,000

 

 

 

—

 

 

 

—

 

Trade Receivable Facility, interest rate of 2.83% and 1.96% at

   September 30, 2018 and 2017, respectively

 

 

380,000

 

 

 

—

 

 

 

80,000

 

Other notes

 

 

269

 

 

 

308

 

 

 

321

 

Total debt

 

 

3,209,698

 

 

 

3,027,203

 

 

 

1,722,540

 

Less: Current maturities of long-term debt and short-term

   facilities

 

 

(380,041

)

 

 

(299,909

)

 

 

(80,038

)

Long-term debt

 

$

2,829,657

 

 

$

2,727,294

 

 

$

1,642,502

 

 

On April 17, 2018, the Company, through a wholly-owned special-purpose subsidiary, increased its trade receivable securitization facility (the Trade Receivable Facility) to $400,000,000.  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, and is limited to the lesser of the facility limit or the borrowing base, as defined, of $465,217,000, $338,784,000 and $402,754,000 at September 30, 2018, December 31, 2017 and September 30, 2017, respectively.  These receivables are originated by the Company and then sold to the wholly-owned special-purpose subsidiary by the Company.  The Company 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 London Inter-bank Offered Rate, or LIBOR, plus 0.725%, subject to change in the event that this rate no longer reflects the lender’s cost of lending.  On September 25, 2018, the Company extended the maturity date of Trade Receivable Facility, which contains a cross-default provision to the Company’s other debt agreements, to September 25, 2019.

On April 16, 2018, the maturity date, the Company repaid the $300,000,000 of the 6.6% Senior Notes with cash on hand.

Page 23 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6.

Long-Term Debt (continued)

The Company has a $700,000,000 five-year senior unsecured revolving facility (the Revolving Facility) with JPMorgan Chase Bank, N.A., as Administrative Agent, Branch Banking and Trust Company (BB&T), Deutsche Bank Securities, Inc., SunTrust Bank and Wells Fargo Bank, N.A., as Co-Syndication Agents, and the lenders party thereto.  The Revolving Facility requires the Company’s ratio of consolidated debt-to-consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), as defined by the Revolving Facility, for the trailing-twelve months (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Company may exclude from the Ratio debt incurred in connection with certain acquisitions during such quarter or the three preceding quarters so long as 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 Company is a co-borrower, may be reduced by the Company’s unrestricted cash and cash equivalents in excess of $50,000,000, such reduction not to exceed $200,000,000, for purposes of the covenant calculation.  The Company was in compliance with this Ratio at September 30, 2018.

Available borrowings under the Revolving Facility are reduced by any outstanding letters of credit issued by the Company under the Revolving Facility.  The Company had $2,301,000 of outstanding letters of credit issued under the Revolving Facility at September 30, 2018 and December 31, 2017 and $1,963,000 at September 30, 2017.

Accumulated other comprehensive loss includes the unamortized value of terminated forward starting interest rate swap agreements. The amortization of the terminated value of the forward starting interest rate swap agreements was complete with the maturity of the related debt in April 2018.  For the nine-months ended September 30, 2018, the Company recognized $458,000 as additional interest expense. For the three- and nine-months ended September 30, 2017, the Company recognized $369,000 and $1,089,000, respectively, as additional interest expense.  

7.

Financial Instruments

The Company’s financial instruments include cash equivalents, accounts receivable, notes receivable, bank overdrafts, 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 Company’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 not publicly traded. Management estimates that the fair value of notes receivable approximates the carrying amount due to the short-term nature of the receivables.

Bank overdrafts, when applicable, represent amounts to be funded to financial institutions for checks that have cleared the bank. The estimated fair value of bank overdrafts 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.

Page 24 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

7.

Financial Instruments (continued)

The carrying values and fair values of the Company’s long-term debt were $3,209,698,000 and $3,144,615,000, respectively, at September 30, 2018; $3,027,203,000 and $3,144,902,000, respectively, at December 31, 2017; and $1,722,540,000 and $1,830,750,000, respectively, at September 30, 2017. 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.  

8.

Income Taxes

The Company’s effective income tax rate for the nine-months ended September 30, 2018 was 18.3%.  The effective income tax rate reflects the effect of federal and state income taxes on earnings and the impact of differences in book and tax accounting arising from the net permanent tax benefits associated with the statutory depletion deduction for mineral reserves.  For the nine-months ended September 30, 2018, the effective income tax rate also reflects a permanent net income tax benefit of $15,454,000 resulting primarily from (i) the Company making additional contributions of $125,000,000 for a total of $150,000,000 discretionary contributions to its qualified pension plan during the quarter ended September 30, 2018, which is deductible on the Company’s 2017 income tax return; and (ii) changes in the Company’s method of accounting for income tax purposes to accelerate the deduction of various expenses.  Prior to the quarter ended September 30, 2018, the Company had included an estimate of $25,000,000 of discretionary pension plan contributions in its 2017 tax provision.  The tax benefit resulted from the difference in the federal tax rate at which the deductions were claimed versus the tax rate at which the deferred tax assets were recorded at year end as a result of the Tax Reform Act (2017 Tax Act), net of the correlative effects of reduced deductions for domestic production deduction and percentage depletion.  The enactment of the 2017 Tax Act reduced the federal statutory corporate income tax rate from 35% to 21% beginning in 2018.  Therefore, the effective income tax rate of 26.2% for the nine-months ended September 30, 2017 is not comparable.

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118) to address situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act.  As such, due to the timing of the enactment date and the Company’s reporting periods, the Company recognized provisional amounts for the remeasurement of deferred tax assets and liabilities, including the tax benefit mentioned above, and transition tax on undistributed foreign earnings as of September 30, 2018.  In accordance with SAB 118, the Company may record additional provisional amounts during the measurement period not to extend beyond one year of the enactment date. The Company will complete its analysis after the filing of its federal and state corporate income tax returns in the fourth quarter.

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

Page 25 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9.

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

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Service cost

 

$

7,911

 

 

$

7,457

 

 

$

19

 

 

$

20

 

Interest cost

 

 

8,307

 

 

 

9,729

 

 

 

130

 

 

 

182

 

Expected return on assets

 

 

(11,516

)

 

 

(10,691

)

 

 

—

 

 

 

—

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (credit)

 

 

27

 

 

 

34

 

 

 

(519

)

 

 

(436

)

Actuarial loss (gain)

 

 

3,206

 

 

 

3,604

 

 

 

(53

)

 

 

(91

)

Settlement charge

 

 

2,692

 

 

 

—

 

 

 

—

 

 

 

—

 

Net periodic benefit cost (credit)

 

$

10,627

 

 

$

10,133

 

 

$

(423

)

 

$

(325

)

 

 

 

Nine-Months Ended September 30,

 

 

 

Pension

 

 

Postretirement Benefits

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Service cost

 

$

23,732

 

 

$

20,060

 

 

$

58

 

 

$

60

 

Interest cost

 

 

24,921

 

 

 

27,074

 

 

 

389

 

 

 

547

 

Expected return on assets

 

 

(34,549

)

 

 

(29,818

)

 

 

—

 

 

 

—

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (credit)

 

 

77

 

 

 

237

 

 

 

(1,556

)

 

 

(1,307

)

Actuarial loss (gain)

 

 

9,621

 

 

 

10,643

 

 

 

(158

)

 

 

(273

)

Settlement charge

 

 

2,692

 

 

 

—

 

 

 

—

 

 

 

—

 

Net periodic benefit cost (credit)

 

$

26,494

 

 

$

28,196

 

 

$

(1,267

)

 

$

(973

)

 

The service cost component of net periodic benefit cost (credit) is included in cost of revenues – products and services and selling, general and administrative expenses while all other components are included in other nonoperating income, net, in the consolidated statements of earnings and comprehensive earnings.

In the quarter ended September 30, 2018, the Company made $150,000,000 of discretionary contributions to its qualified pension plan.  No additional contributions to the qualified pension plan are expected to be made for the remainder of 2018. The Company currently estimates that it will contribute a total of $12,400,000 for the year ending December 31, 2018 to satisfy required payments under the unfunded nonqualified pension plans.

Page 26 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

10.

Commitments and Contingencies

Legal and Administrative Proceedings

The Company 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 Company and its subsidiaries, will have a material adverse effect on the overall results of the Company’s operations, its cash flows or its financial position.

Borrowing Arrangements with Affiliate

The Company is a co-borrower with an unconsolidated affiliate for a $15,500,000 revolving line of credit agreement with BB&T with a maturity date of March 2020. The affiliate has agreed to reimburse and indemnify the Company for any payments and expenses the Company may incur from this agreement. The Company 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 Company has a $6,000,000 interest-only loan, due December 31, 2019, outstanding from this unconsolidated affiliate as of September 30, 2018, December 31, 2017 and September 30, 2017.  The interest rate is one-month LIBOR plus 1.75%.

Employees

The Company maintains collective bargaining agreements relating to the union employees within the Building Materials business and Magnesia Specialties segment.  Of the Magnesia Specialties segment, 100% of its hourly employees are represented by labor unions.  The Manistee collective bargaining agreement expires in August 2019; the Woodville collective bargaining agreement expires June 2022.

11.

Business Segments

The Building Materials business contains three reportable business segments: Mid-America Group, Southeast Group and West Group. The Company also has a Magnesia Specialties segment.  The Company’s evaluation of performance and allocation of resources are based primarily on earnings from operations. Consolidated earnings from operations include total revenues less cost of revenues; selling, general and administrative expenses; acquisition-related expenses, net; other operating income and expenses, net; and exclude interest expense; other nonoperating income and expenses, net; and taxes on income. Corporate loss from operations primarily includes depreciation on capitalized interest; unallocated expenses for corporate administrative functions; acquisition-related expenses, net; and other nonrecurring income and expenses excluded from the Company’s evaluation of business segment performance and resource allocation. All debt and related interest expense is held at Corporate.

The following table displays selected financial data for the Company’s reportable business segments. The acquired Bluegrass operations are located in the Mid-America Group and Southeast Group.  Total revenues, as well as the consolidated statements of earnings and comprehensive earnings, exclude intersegment revenues which represent sales from one segment to another segment, which are eliminated. Prior-year information has been reclassified to conform to current year revenue presentation.  

 

Page 27 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11.

Business Segments (continued)

 

 

 

Three-Months Ended

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

377,005

 

 

$

308,472

 

 

$

906,377

 

 

$

788,390

 

Southeast Group

 

 

125,547

 

 

 

94,843

 

 

 

318,749

 

 

 

277,474

 

West Group

 

 

643,565

 

 

 

620,512

 

 

 

1,783,174

 

 

 

1,726,742

 

Total Building Materials Business

 

 

1,146,117

 

 

 

1,023,827

 

 

 

3,008,300

 

 

 

2,792,606

 

Magnesia Specialties

 

 

73,523

 

 

 

63,905

 

 

 

215,747

 

 

 

202,510

 

Total

 

$

1,219,640

 

 

$

1,087,732

 

 

$

3,224,047

 

 

$

2,995,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

348,429

 

 

$

287,085

 

 

$

841,897

 

 

$

734,406

 

Southeast Group

 

 

121,661

 

 

 

91,427

 

 

 

308,306

 

 

 

266,690

 

West Group

 

 

603,763

 

 

 

584,086

 

 

 

1,672,707

 

 

 

1,620,632

 

Total Building Materials Business

 

 

1,073,853

 

 

 

962,598

 

 

 

2,822,910

 

 

 

2,621,728

 

Magnesia Specialties

 

 

68,365

 

 

 

59,889

 

 

 

201,390

 

 

 

189,918

 

Total

 

$

1,142,218

 

 

$

1,022,487

 

 

$

3,024,300

 

 

$

2,811,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

120,344

 

 

$

106,235

 

 

$

235,221

 

 

$

204,939

 

Southeast Group

 

 

26,372

 

 

 

17,882

 

 

 

60,464

 

 

 

42,331

 

West Group

 

 

92,090

 

 

 

96,522

 

 

 

249,885

 

 

 

270,246

 

Total Building Materials Business

 

 

238,806

 

 

 

220,639

 

 

 

545,570

 

 

 

517,516

 

Magnesia Specialties

 

 

23,301

 

 

 

17,590

 

 

 

65,867

 

 

 

58,589

 

Corporate

 

 

(21,445

)

 

 

(11,265

)

 

 

(67,741

)

 

 

(59,138

)

Total

 

$

240,662

 

 

$

226,964

 

 

$

543,696

 

 

$

516,967

 

 

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2017

 

Assets employed:

 

(Dollars in thousands)

 

Mid-America Group

 

$

2,802,054

 

 

$

1,532,867

 

 

$

1,538,594

 

Southeast Group

 

 

1,300,090

 

 

 

616,344

 

 

 

604,144

 

West Group

 

 

5,032,662

 

 

 

5,014,231

 

 

 

5,032,103

 

Total Building Materials Business

 

 

9,134,806

 

 

 

7,163,442

 

 

 

7,174,841

 

Magnesia Specialties

 

 

141,998

 

 

 

152,257

 

 

 

148,581

 

Corporate

 

 

311,367

 

 

 

1,676,812

 

 

 

243,363

 

Total

 

$

9,588,171

 

 

$

8,992,511

 

 

$

7,566,785

 

 

As of September 30, 2018, the increase in assets employed compared with September 30, 2017 primarily reflect the assets acquired from the Bluegrass acquisition completed in second quarter 2018.

Page 28 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

12.

Revenues and Gross Profit

The Building Materials business includes the aggregates, cement, ready mixed concrete and asphalt and paving product lines. All cement, ready mixed concrete and asphalt and paving product lines reside in the West Group. The following table, which is reconciled to consolidated amounts, provides total revenues and gross profit by product line.  

 

 

 

Three-Months Ended

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

687,800

 

 

$

590,312

 

 

$

1,778,124

 

 

$

1,619,282

 

Cement

 

 

98,223

 

 

 

88,470

 

 

 

300,554

 

 

 

280,961

 

Ready mixed concrete

 

 

254,686

 

 

 

240,222

 

 

 

750,424

 

 

 

704,471

 

Asphalt and paving services

 

 

99,983

 

 

 

110,973

 

 

 

199,489

 

 

 

215,652

 

Less: interproduct revenues

 

 

(66,839

)

 

 

(67,379

)

 

 

(205,681

)

 

 

(198,638

)

Products and services

 

 

1,073,853

 

 

 

962,598

 

 

 

2,822,910

 

 

 

2,621,728

 

Freight

 

 

72,264

 

 

 

61,229

 

 

 

185,390

 

 

 

170,878

 

Total Building Materials Business

 

 

1,146,117

 

 

 

1,023,827

 

 

 

3,008,300

 

 

 

2,792,606

 

Magnesia Specialties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

 

68,365

 

 

 

59,889

 

 

 

201,390

 

 

 

189,918

 

Freight

 

 

5,158

 

 

 

4,016

 

 

 

14,357

 

 

 

12,592

 

Total Magnesia Specialties

 

 

73,523

 

 

 

63,905

 

 

 

215,747

 

 

 

202,510

 

Total

 

$

1,219,640

 

 

$

1,087,732

 

 

$

3,224,047

 

 

$

2,995,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

209,082

 

 

$

187,065

 

 

$

460,624

 

 

$

439,032

 

Cement

 

 

32,543

 

 

 

27,459

 

 

 

97,582

 

 

 

87,608

 

Ready mixed concrete

 

 

20,632

 

 

 

23,913

 

 

 

66,226

 

 

 

70,542

 

Asphalt and paving services

 

 

25,606

 

 

 

28,873

 

 

 

36,479

 

 

 

44,446

 

Products and services

 

 

287,863

 

 

 

267,310

 

 

 

660,911

 

 

 

641,628

 

Freight

 

 

(47

)

 

 

1,012

 

 

 

432

 

 

 

2,040

 

Total Building Materials Business

 

 

287,816

 

 

 

268,322

 

 

 

661,343

 

 

 

643,668

 

Magnesia Specialties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

 

26,823

 

 

 

21,272

 

 

 

76,756

 

 

 

69,425

 

Freight

 

 

(1,076

)

 

 

(1,362

)

 

 

(3,280

)

 

 

(3,576

)

Total Magnesia Specialties

 

 

25,747

 

 

 

19,910

 

 

 

73,476

 

 

 

65,849

 

Corporate

 

 

(579

)

 

 

3,446

 

 

 

4,474

 

 

 

3,321

 

Total

 

$

312,984

 

 

$

291,678

 

 

$

739,293

 

 

$

712,838

 

 

Page 29 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

13.

Supplemental Cash Flow Information

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

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Other current and noncurrent assets

 

$

(32,572

)

 

$

(29,342

)

Accrued salaries, benefits and payroll taxes

 

 

5,986

 

 

 

(6,234

)

Accrued insurance and other taxes

 

 

4,555

 

 

 

10,230

 

Accrued income taxes

 

 

6,220

 

 

 

16,393

 

Accrued pension, postretirement and postemployment benefits

 

 

(131,963

)

 

 

(5,807

)

Other current and noncurrent liabilities

 

 

2,769

 

 

 

49,244

 

 

 

$

(145,005

)

 

$

34,484

 

 

Noncash investing and financing activities are as follows:

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued liabilities for purchases of property, plant and equipment

 

$

24,930

 

 

$

20,339

 

Acquisition of assets through capital lease

 

$

449

 

 

$

196

 

Settlement of royalty obligation via asset sale

 

$

—

 

 

$

900

 

 

Supplemental disclosures of cash flow information are as follows:

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Cash paid for interest

 

$

84,522

 

 

$

49,564

 

Cash paid for income taxes

 

$

7,253

 

 

$

96,643

 

 

14.

Other operating expenses and income, net

Other operating expenses and income, net, for the quarter ended September 30, 2018, include a $7,113,000 restructuring charge, which primarily consists of asset impairment charges and severance costs in the Company’s Southwest ready mixed concrete operations.  These operations are reported in the West Group reportable segment.  For the nine-months ended September 30, 2018, in addition to the restructuring charge, other operating expenses and income, net, includes a net gain on legal settlements of $7,677,000 and a gain on the sale of surplus land of $16,938,000.  Other operating expenses, net, for the quarter ended September 30, 2017 include $12,425,000 of repair costs related to leased railcars.

 

Page 30 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

 

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

OVERVIEW

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 30 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 conducts its Building Materials business through three reportable business segments: Mid-America Group, Southeast Group and 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

 

 

 

 

Plant Types

  

Quarries, Mines and Distribution Facilities

  

Quarries, Mines and Distribution Facilities

  

Quarries, Mines, Plants and

Distribution Facilities

 

 

 

 

Modes of Transportation

  

Truck and Rail

  

Truck, Rail and Water

  

Truck and Rail

 

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

CRITICAL ACCOUNTING POLICIES

The Company outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2017. There were no changes to the Company’s critical accounting policies during the nine-months ended September 30, 2018, other than the adoption of new accounting pronouncements as described in Note 1 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Page 31 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

RESULTS OF OPERATIONS

The Building Materials business is significantly affected by weather patterns and seasonal changes.  Production and shipment levels for aggregates, cement, ready mixed concrete and asphalt and paving materials correlate with general construction activity levels, most of which occur 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 production, shipments and profitability in all markets served by the Company.  Due to the potentially significant impact of weather on the Company’s operations, current period and year-to-date results are not indicative of expected performance for other interim periods or the full year.  

Earnings before interest, income taxes, depreciation 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, operating earnings or operating cash flow.  However, the Company’s management believes that EBITDA may provide additional information with respect to the Company’s performance or ability to meet its future debt service, capital expenditures or working capital requirements.  Because EBITDA excludes some, but not all, items that affect net earnings and may vary among companies, EBITDA as presented by the Company may not be comparable to similarly titled measures of other companies.

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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in thousands)

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

 

$

180,221

 

 

$

151,546

 

 

$

375,621

 

 

$

336,159

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

35,468

 

 

 

23,141

 

 

 

103,526

 

 

 

68,037

 

Income tax expense for controlling interests

 

 

29,051

 

 

 

52,744

 

 

 

84,070

 

 

 

119,247

 

Depreciation, depletion and amortization expense

 

 

88,693

 

 

 

74,531

 

 

 

250,144

 

 

 

218,531

 

Consolidated EBITDA

 

$

333,433

 

 

$

301,962

 

 

$

813,361

 

 

$

741,974

 

Significant items for the quarter ended September 30, 2018 (unless noted, all comparisons are versus the prior-year quarter):

 

♦

Consolidated total revenues of $1.22 billion compared with $1.09 billion

 

♦

Building Materials business products and services revenues of $1.07 billion compared with $962.6 million and Magnesia Specialties products revenue of $68.4 million compared with $59.9 million

 

♦

Consolidated gross profit of $313.0 million compared with $291.7 million

 

♦

Consolidated earnings from operations of $240.7 million compared with $227.0 million

 

♦

Net earnings attributable to Martin Marietta of $180.2 million compared with $151.5 million

 

♦

EBITDA of $333.4 million compared with $302.0 million

 

♦

Earnings per diluted share of $2.85 compared with $2.39

Page 32 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

The following table presents total revenues, gross profit (loss), selling, general and administrative (SG&A) expenses and earnings (loss) from operations data for the Company and its reportable segments by product line for the three-months ended September 30, 2018 and 2017. In each case, the data is stated as a percentage of total products and services revenues of the Company or the relevant segment or product line, as the case may be. Prior-year information has been reclassified to conform to current-year presentation.

 

 

 

Three-Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

 

 

(Dollars in Thousands)

 

Total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

348,429

 

 

 

100.0

 

 

$

287,085

 

 

 

100.0

 

Southeast Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

 

121,661

 

 

 

100.0

 

 

 

91,427

 

 

 

100.0

 

West Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

 

217,710

 

 

 

100.0

 

 

 

211,800

 

 

 

100.0

 

Cement

 

 

98,223

 

 

 

100.0

 

 

 

88,470

 

 

 

100.0

 

Ready mixed concrete

 

 

254,686

 

 

 

100.0

 

 

 

240,222

 

 

 

100.0

 

Asphalt and paving

 

 

99,983

 

 

 

100.0

 

 

 

110,973

 

 

 

100.0

 

Less: Interproduct revenues

 

 

(66,839

)

 

 

 

 

 

 

(67,379

)

 

 

 

 

Products and services

 

 

1,073,853

 

 

 

100.0

 

 

 

962,598

 

 

 

100.0

 

Freight

 

 

72,264

 

 

 

 

 

 

 

61,229

 

 

 

 

 

Total Building Materials Business

 

 

1,146,117

 

 

 

100.0

 

 

 

1,023,827

 

 

 

100.0

 

Magnesia Specialties Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

68,365

 

 

 

100.0

 

 

 

59,889

 

 

 

100.0

 

Freight

 

 

5,158

 

 

 

 

 

 

 

4,016

 

 

 

 

 

Total Magnesia Specialties Business

 

 

73,523

 

 

 

100.0

 

 

 

63,905

 

 

 

100.0

 

Total

 

$

1,219,640

 

 

 

100.0

 

 

$

1,087,732

 

 

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 33 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

 

 

Three-Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

 

 

(Dollars in Thousands)

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

131,072

 

 

 

37.6

 

 

$

117,965

 

 

 

41.1

 

Southeast Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

 

30,899

 

 

 

25.4

 

 

 

18,391

 

 

 

20.1

 

West Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

 

47,111

 

 

 

21.6

 

 

 

50,709

 

 

 

23.9

 

Cement

 

 

32,543

 

 

 

33.1

 

 

 

27,459

 

 

 

31.0

 

Ready mixed concrete

 

 

20,632

 

 

 

8.1

 

 

 

23,913

 

 

 

10.0

 

Asphalt and paving

 

 

25,606

 

 

 

25.6

 

 

 

28,873

 

 

 

26.0

 

Products and services

 

 

287,863

 

 

 

26.8

 

 

 

267,310

 

 

 

27.8

 

Freight

 

 

(47

)

 

 

 

 

 

 

1,012

 

 

 

 

 

Total Building Materials Business

 

 

287,816

 

 

 

25.1

 

 

 

268,322

 

 

 

26.2

 

Magnesia Specialties Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

26,823

 

 

 

39.2

 

 

 

21,272

 

 

 

35.5

 

Freight

 

 

(1,076

)

 

 

 

 

 

 

(1,362

)

 

 

 

 

Total Magnesia Specialties Business

 

 

25,747

 

 

 

35.0

 

 

 

19,910

 

 

 

31.2

 

Corporate

 

 

(579

)

 

 

 

 

 

 

3,446

 

 

 

 

 

Total

 

$

312,984

 

 

 

25.7

 

 

$

291,678

 

 

 

26.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general & administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

14,113

 

 

 

 

 

 

$

12,671

 

 

 

 

 

Southeast Group

 

 

4,440

 

 

 

 

 

 

 

4,097

 

 

 

 

 

West Group

 

 

26,600

 

 

 

 

 

 

 

24,716

 

 

 

 

 

Total Building Materials Business

 

 

45,153

 

 

 

 

 

 

 

41,484

 

 

 

 

 

Magnesia Specialties

 

 

2,404

 

 

 

 

 

 

 

2,329

 

 

 

 

 

Corporate

 

 

20,884

 

 

 

 

 

 

 

13,406

 

 

 

 

 

Total

 

$

68,441

 

 

 

5.6

 

 

$

57,219

 

 

 

5.3

 

Page 34 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

 

 

Three-Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

 

 

(Dollars in Thousands)

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

120,344

 

 

 

 

 

 

$

106,235

 

 

 

 

 

Southeast Group

 

 

26,372

 

 

 

 

 

 

 

17,882

 

 

 

 

 

West Group

 

 

92,090

 

 

 

 

 

 

 

96,522

 

 

 

 

 

Total Building Materials Business

 

 

238,806

 

 

 

 

 

 

 

220,639

 

 

 

 

 

Magnesia Specialties

 

 

23,301

 

 

 

 

 

 

 

17,590

 

 

 

 

 

Corporate

 

 

(21,445

)

 

 

 

 

 

 

(11,265

)

 

 

 

 

Total

 

$

240,662

 

 

 

19.7

 

 

$

226,964

 

 

 

20.9

 

 

Building Materials Business

The following tables present aggregates products volume and pricing variance data and shipments data by segment:

 

 

 

Three-Months Ended

 

 

 

September 30, 2018

 

 

 

Volume

 

 

Pricing

 

Volume/Pricing variance (1)

 

 

 

 

 

 

 

 

Heritage Operations:(2)

 

 

 

 

 

 

 

 

Mid-America Group

 

 

5.4

%

 

 

2.8

%

Southeast Group

 

 

6.2

%

 

 

1.7

%

West Group

 

 

(0.6

)%

 

 

3.1

%

Total Heritage Aggregates Operations

 

 

3.2

%

 

 

2.9

%

Total Aggregates Operations(3)

 

 

14.9

%

 

 

1.5

%

 

Page 35 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

 

 

Three-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Operations:(2)

 

 

 

 

 

 

 

 

Mid-America Group

 

 

22,533

 

 

 

21,371

 

Southeast Group (4)

 

 

5,682

 

 

 

5,349

 

West Group

 

 

16,979

 

 

 

17,085

 

Heritage Aggregates Operations

 

 

45,194

 

 

 

43,805

 

Acquisitions

 

 

5,130

 

 

 

—

 

Total Aggregates Operations(3)

 

 

50,324

 

 

 

43,805

 

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

(2) Heritage aggregates operations exclude acquisitions that have not been included in prior-year operations for the comparable period.

(3) Total aggregates operations include acquisitions from the date of acquisition and divestitures through the date of disposal.

(4) 2017 shipments include the Forsyth, Georgia operation, which was divested in April 2018.

The following table presents aggregates shipment data and volume variance excluding the Forsyth, Georgia operation for the three-months ended September 30, 2017 to provide a more comparable analysis of aggregates volume variance.  

 

 

Three-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Tons in Thousands)

 

Southeast Group:

 

 

 

 

 

 

 

 

Reported heritage aggregates shipments

 

 

5,682

 

 

 

5,349

 

Less:  Aggregates shipments for the Forsyth, Georgia quarry

   during periods of Martin Marietta ownership

 

 

—

 

 

 

(272

)

Adjusted heritage aggregates shipments

 

 

5,682

 

 

 

5,077

 

 

 

 

 

 

 

 

 

 

Heritage aggregates volume variance excluding shipments

   for the Forsyth, Georgia quarry

 

 

11.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Heritage Business:

 

 

 

 

 

 

 

 

Reported heritage aggregates shipments

 

 

45,194

 

 

 

43,805

 

Less:  Aggregates shipments for the Forsyth, Georgia quarry

   during periods of Martin Marietta ownership

 

 

—

 

 

 

(272

)

Adjusted heritage aggregates shipments

 

 

45,194

 

 

 

43,533

 

 

 

 

 

 

 

 

 

 

Heritage aggregates volume variance excluding shipments

   for the Forsyth, Georgia quarry

 

 

3.8

%

 

 

 

 

Page 36 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

 

Volume growth accelerated during the quarter’s first two months, reflecting strong underlying product demand, most notably in Texas, North Carolina, Georgia and Iowa. Despite clear market strength, extreme weather temporarily hindered construction activity. Record precipitation in Texas, compounded by disruptions from Hurricane Florence in the Carolinas, adversely impacted September’s aggregates shipment, production and overall efficiency levels.

Heritage aggregates volume and pricing improved 3.8% and 2.9%, respectively, excluding the third-quarter 2017 shipments from the Company’s Forsyth, Georgia, quarry that was divested in April 2018.

Aggregates shipments to the infrastructure market were flat as large public projects in North Carolina and Texas were weather delayed. The Company remains encouraged by the recent acceleration of state lettings and contract awards. As state Departments of Transportation (DOTs) and contractors continue to address labor constraints, and the broader industry benefits from further regulatory reform, management remains confident that infrastructure demand will continue to improve driven by funding provided by the Fixing America’s Surface Transportation Act (FAST Act) and numerous state and local transportation initiatives. While some contractors are reporting longer lag times between contract awards and project commencement, public construction projects, once awarded, are seen through to completion.  Thus, delays from weather or other factors typically serve to extend the duration of the construction cycle for the Company’s single largest end-use market. Aggregates shipments to the infrastructure market comprised 41% of third-quarter aggregates volumes. On a year-to-date basis, the infrastructure market represented 39% of aggregates shipments, remaining below the Company’s most recent five-year average of 43%.

Aggregates shipments to the nonresidential market increased 5%, driven by both commercial and heavy industrial construction activity. Looking ahead, ongoing energy-sector project approvals, supported by higher oil prices, underpin management’s expectation that the next wave of these large projects, particularly along the Gulf Coast, will contribute to increased aggregates demand for the next several years. The nonresidential market represented 33% of third-quarter aggregates shipments.  

Aggregates shipments to the residential market increased 7%. Florida, Texas, Colorado, North Carolina, South Carolina and Georgia, six of the Company’s key states, ranked in the top ten nationally for growth in single-family housing unit starts for the trailing twelve months ended August 2018. The residential construction outlook across the Company’s geographic footprint remains positive for both single- and multi-family housing, driven by favorable demographics, job growth, land availability and efficient permitting. The residential market accounted for 20% of third-quarter aggregates shipments.

The ChemRock/Rail market accounted for the remaining 6% of third-quarter aggregates shipments. Shipments to this sector increased 6%, reflecting improved ballast shipments from the Midwest and Rocky Mountain Divisions.

The average selling price by product line for the Building Materials business is as follows:

 

 

Three-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

% Change

 

Aggregates - heritage (per ton)

 

$

13.79

 

 

$

13.40

 

 

 

2.9

%

Aggregates - acquisition (per ton)

 

$

11.86

 

 

$

—

 

 

 

 

 

Cement (per ton)

 

$

110.63

 

 

$

107.11

 

 

 

3.3

%

Ready Mixed Concrete (per cubic yard)

 

$

112.14

 

 

$

109.22

 

 

 

2.7

%

Asphalt (per ton)

 

$

44.40

 

 

$

44.73

 

 

 

(0.7

)%

Page 37 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

 

The following table presents shipments data for the Building Materials business by product line.

 

 

 

Three-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

Shipments

 

 

 

 

 

 

 

 

Aggregates (in thousands):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

42,312

 

 

 

40,787

 

Internal tons used in other product lines

 

 

2,882

 

 

 

3,018

 

Total heritage aggregates tons

 

 

45,194

 

 

 

43,805

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

5,130

 

 

 

—

 

Internal tons used in other product lines

 

 

—

 

 

 

—

 

Total acquisition aggregates tons

 

 

5,130

 

 

 

—

 

 

 

 

 

 

 

 

 

 

Cement (in thousands):

 

 

 

 

 

 

 

 

Tons to external customers

 

 

587

 

 

 

523

 

Internal tons used in ready mixed concrete

 

 

292

 

 

 

294

 

Total cement tons

 

 

879

 

 

 

817

 

 

 

 

 

 

 

 

 

 

Ready Mixed Concrete (in thousands of cubic yards)

 

 

2,232

 

 

 

2,160

 

 

 

 

 

 

 

 

 

 

Asphalt (in thousands):

 

 

 

 

 

 

 

 

Tons to external customers

 

 

394

 

 

 

385

 

Internal tons used in paving business

 

 

709

 

 

 

829

 

Total asphalt tons

 

 

1,103

 

 

 

1,214

 

 

Third-quarter cement product revenues increased 11.0%.  Shipments and pricing improved 7.6% and 3.3%, respectively, reflecting strong demand in North and South Texas and contributed to gross margin improvement of 210 basis points to 33.1%.  

Ready mixed concrete shipments increased 3.3%, with solid gains throughout the Rocky Mountain and Southwest Divisions, despite September’s record rainfall in Texas. Ready mixed concrete selling prices increased 2.7%. Ongoing project delays and permitting issues contributed to the 9.1% decrease in hot mixed asphalt shipments. Asphalt pricing was essentially flat.

Page 38 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

Magnesia Specialties Business

Magnesia Specialties reported third-quarter total products revenue increase of 14.2% to $68.4 million, compared with $59.9 million.  Products gross profit was $26.8 million compared with $21.3 million and earnings from operations were $23.3 million compared with $17.6 million.  Operating efficiencies, together with lower unit energy costs, contributed to a 370-basis-point increase in third-quarter product gross margin to 39.2%.

Gross Profit

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

 

Consolidated gross profit, quarter ended September 30, 2017

 

$

291,678

 

Aggregates products:

 

 

 

 

Volume

 

 

79,452

 

Pricing

 

 

18,036

 

Cost increases, net

 

 

(75,471

)

Change in aggregates products gross profit

 

 

22,017

 

Cement products and downstream products and services

 

 

(1,464

)

Magnesia Specialties products

 

 

5,551

 

Corporate

 

 

(4,025

)

Freight

 

 

(773

)

Change in consolidated gross profit

 

 

21,306

 

Consolidated gross profit, quarter ended September 30, 2018

 

$

312,984

 

 

Cost increases, net, includes the $8.3 million negative impact of selling acquired inventory after its markup to fair value as a part of acquisition accounting.

Cement outage costs, which reflect planned and unplanned plant shutdowns, were $4.2 million for the quarter compared with $2.0 million for the prior-year quarter.  

Consolidated Operating Results

Consolidated SG&A was 5.6% of total revenues compared with 5.3% in the prior-year quarter.  Earnings from operations for the quarter were $240.7 million in 2018 compared with $227.0 million in 2017.  

Among other items, other operating income, 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 expense, net, was $3.8 million in 2018 and $6.2 million in 2017.  The 2018 amount reflects $7.1 million in restructuring expenses related to the Company’s Southwest ready mixed concrete operations.  The 2017 amount includes a $12.4 million expense for repair costs related to certain of the Company’s leased railcars.

Other nonoperating income, net, includes interest income; pension and postretirement benefit cost, excluding service cost; foreign currency transaction gains and losses; equity in earnings or losses of nonconsolidated affiliates and other miscellaneous income.  For the third quarter, other nonoperating income, net, was $4.2 million and $0.5 million in 2018 and 2017, respectively.  The increase in 2018 compared with 2017 primarily reflects higher earnings from nonconsolidated equity investments.

Page 39 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

Significant items for the nine-months ended September 30, 2018 (unless noted, all comparisons are versus the prior-year period):

 

♦

Consolidated total revenues of $3.22 billion increased 7.6% compared with $3.00 billion

 

♦

Building Materials business products and services revenues of $2.82 billion compared with $2.62 billion and Magnesia Specialties products revenue of $201.4 million compared with $189.9 million

 

♦

Consolidated gross profit of $739.3 million compared with $712.8 million

 

♦

Consolidated earnings from operations of $543.7 million compared with $517.0 million

 

♦

Net earnings attributable to Martin Marietta of $375.6 million compared with $336.2 million

 

♦

EBITDA of $813.4 million compared with $742.0 million

 

♦

Earnings per diluted share of $5.93 compared with $5.30

The following table presents total revenues, gross profit (loss), selling, general and administrative expenses and earnings (loss) from operations data for the Company and its reportable segments by product line for the nine-months ended September 30, 2018 and 2017.  In each case, the data is stated as a percentage of total products and services revenues of the Company or the relevant segment or product line, as the case may be. Prior-year information has been reclassified to conform to current-year presentation.

 

 

Nine-Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

 

 

(Dollars in Thousands)

 

Total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

841,897

 

 

 

100.0

 

 

$

734,407

 

 

 

100.0

 

Southeast Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

 

308,306

 

 

 

100.0

 

 

 

266,690

 

 

 

100.0

 

West Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

 

627,921

 

 

 

100.0

 

 

 

618,185

 

 

 

100.0

 

Cement

 

 

300,554

 

 

 

100.0

 

 

 

280,961

 

 

 

100.0

 

Ready mixed concrete

 

 

750,424

 

 

 

100.0

 

 

 

704,471

 

 

 

100.0

 

Asphalt and paving

 

 

199,489

 

 

 

100.0

 

 

 

215,652

 

 

 

100.0

 

Less: Interproduct revenues

 

 

(205,681

)

 

 

 

 

 

 

(198,638

)

 

 

 

 

Products and services

 

 

2,822,910

 

 

 

100.0

 

 

 

2,621,728

 

 

 

100.0

 

Freight

 

 

185,390

 

 

 

 

 

 

 

170,878

 

 

 

 

 

Total Building Materials Business

 

 

3,008,300

 

 

 

100.0

 

 

 

2,792,606

 

 

 

100.0

 

Magnesia Specialties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

201,390

 

 

 

100.0

 

 

 

189,918

 

 

 

100.0

 

Freight

 

 

14,357

 

 

 

 

 

 

 

12,592

 

 

 

 

 

Total Magnesia Specialties Business

 

 

215,747

 

 

 

100.0

 

 

 

202,510

 

 

 

100.0

 

Total

 

$

3,224,047

 

 

 

100.0

 

 

$

2,995,116

 

 

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 40 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

 

 

Nine-Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

 

 

(Dollars in Thousands)

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

$

270,270

 

 

 

32.1

 

 

$

242,926

 

 

 

33.1

 

Southeast Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

 

57,543

 

 

 

18.7

 

 

 

51,758

 

 

 

19.4

 

West Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregates

 

 

132,811

 

 

 

21.2

 

 

 

144,348

 

 

 

23.4

 

Cement

 

 

97,582

 

 

 

32.5

 

 

 

87,608

 

 

 

31.2

 

Ready mixed concrete

 

 

66,226

 

 

 

8.8

 

 

 

70,542

 

 

 

10.0

 

Asphalt and paving

 

 

36,479

 

 

 

18.3

 

 

 

44,446

 

 

 

20.6

 

Products and services

 

 

660,911

 

 

 

23.4

 

 

 

641,628

 

 

 

24.5

 

Freight

 

 

432

 

 

 

 

 

 

 

2,040

 

 

 

 

 

Total Building Materials Business

 

 

661,343

 

 

 

22.0

 

 

 

643,668

 

 

 

23.0

 

Magnesia Specialties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

76,756

 

 

 

38.1

 

 

 

69,425

 

 

 

36.6

 

Freight

 

 

(3,280

)

 

 

 

 

 

 

(3,576

)

 

 

 

 

Total Magnesia Specialties Business

 

 

73,476

 

 

 

34.1

 

 

 

65,849

 

 

 

32.5

 

Corporate

 

 

4,474

 

 

 

 

 

 

 

3,321

 

 

 

 

 

Total

 

$

739,293

 

 

 

22.9

 

 

$

712,838

 

 

 

23.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general & administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

41,260

 

 

 

 

 

 

$

39,934

 

 

 

 

 

Southeast Group

 

 

13,689

 

 

 

 

 

 

 

12,896

 

 

 

 

 

West Group

 

 

79,892

 

 

 

 

 

 

 

75,665

 

 

 

 

 

Total Building Materials Business

 

 

134,841

 

 

 

 

 

 

 

128,495

 

 

 

 

 

Magnesia Specialties

 

 

7,512

 

 

 

 

 

 

 

7,146

 

 

 

 

 

Corporate

 

 

67,279

 

 

 

 

 

 

 

59,486

 

 

 

 

 

Total

 

$

209,632

 

 

 

6.5

 

 

$

195,127

 

 

 

6.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 41 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

 

 

Nine-Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

 

 

(Dollars in Thousands)

 

Earnings (Loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Materials Business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-America Group

 

$

235,221

 

 

 

 

 

 

$

204,939

 

 

 

 

 

Southeast Group

 

 

60,464

 

 

 

 

 

 

 

42,331

 

 

 

 

 

West Group

 

 

249,885

 

 

 

 

 

 

 

270,246

 

 

 

 

 

Total Building Materials Business

 

 

545,570

 

 

 

 

 

 

 

517,516

 

 

 

 

 

Magnesia Specialties

 

 

65,867

 

 

 

 

 

 

 

58,589

 

 

 

 

 

Corporate

 

 

(67,741

)

 

 

 

 

 

 

(59,138

)

 

 

 

 

Total

 

$

543,696

 

 

 

16.9

 

 

$

516,967

 

 

 

17.3

 

Building Materials Business

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

 

 

 

Nine-Months Ended

 

 

 

September 30, 2018

 

 

 

Volume

 

 

Pricing

 

Volume/Pricing Variance (1)

 

 

 

 

 

 

 

 

Heritage Operations:(2)

 

 

 

 

 

 

 

 

Mid-America Group

 

 

1.5

%

 

 

4.5

%

Southeast Group

 

 

(0.7

)%

 

 

1.7

%

West Group

 

 

(0.9

)%

 

 

2.4

%

Total Heritage Aggregates Operations

 

 

0.2

%

 

 

3.3

%

Total Aggregates Operations(3)

 

 

7.4

%

 

 

2.3

%

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Tons in Thousands)

 

Shipments

 

 

 

 

 

 

 

 

Heritage Operations:(2)

 

 

 

 

 

 

 

 

Mid-America Group

 

 

55,453

 

 

 

54,624

 

Southeast Group (4)

 

 

15,465

 

 

 

15,579

 

West Group

 

 

49,186

 

 

 

49,637

 

Heritage Aggregates Operations

 

 

120,104

 

 

 

119,840

 

Acquisitions

 

 

8,558

 

 

 

—

 

Total Aggregates Operations(3)

 

 

128,662

 

 

 

119,840

 

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

(2) Heritage aggregates operations exclude acquisitions that have not been included in prior-year operations for the comparable period.

(3) Total aggregates operations includes acquisitions from the date of acquisition and divestitures through the date of disposal.

(4) 2018 and 2017 shipments include the Forsyth, Georgia operation, which was divested in April 2018.

 

Page 42 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

 

The following table presents aggregates shipment data and volume variance excluding the Forsyth, Georgia operation for the nine-months ended September 30, 2018 and 2017 to provide a more comparable analysis of aggregates volume variance.  

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Tons in Thousands)

 

Southeast Group:

 

 

 

 

 

 

 

 

Reported heritage aggregates shipments

 

 

15,465

 

 

 

15,579

 

Less:  Aggregates shipments for the Forsyth, Georgia quarry

   during periods of Martin Marietta ownership

 

 

(229

)

 

 

(680

)

Adjusted heritage aggregates shipments

 

 

15,236

 

 

 

14,899

 

 

 

 

 

 

 

 

 

 

Heritage aggregates volume variance excluding shipments

   for the Forsyth, Georgia quarry

 

 

2.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Heritage Business:

 

 

 

 

 

 

 

 

Reported heritage aggregates shipments

 

 

120,104

 

 

 

119,840

 

Less:  Aggregates shipments for the Forsyth, Georgia quarry

   during periods of Martin Marietta ownership

 

 

(229

)

 

 

(680

)

Adjusted heritage aggregates shipments

 

 

119,875

 

 

 

119,160

 

 

 

 

 

 

 

 

 

 

Heritage aggregates volume variance excluding shipments

   for the Forsyth, Georgia quarry

 

 

0.6

%

 

 

 

 

Page 43 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

Unit shipments by product line for the Company is as follows:

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

Shipments

 

 

 

 

 

 

 

 

Aggregates (in thousands):

 

 

 

 

 

 

 

 

Heritage:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

111,951

 

 

 

111,617

 

Internal tons used in other product lines

 

 

8,153

 

 

 

8,223

 

Total heritage aggregates tons

 

 

120,104

 

 

 

119,840

 

Acquisitions:

 

 

 

 

 

 

 

 

Tons to external customers

 

 

8,558

 

 

 

—

 

Internal tons used in other product lines

 

 

—

 

 

 

—

 

Total acquisition aggregates tons

 

 

8,558

 

 

 

—

 

 

 

 

 

 

 

 

-

 

Cement (in thousands):

 

 

 

 

 

 

 

 

Tons to external customers

 

 

1,767

 

 

 

1,749

 

Internal tons used in ready mixed concrete

 

 

966

 

 

 

895

 

Total cement tons

 

 

2,733

 

 

 

2,644

 

 

 

 

 

 

 

 

 

 

Ready Mixed Concrete (in thousands of cubic yards)

 

 

6,799

 

 

 

6,442

 

 

 

 

 

 

 

 

 

 

Asphalt (in thousands):

 

 

 

 

 

 

 

 

Tons to external customers

 

 

803

 

 

 

863

 

Internal tons used in paving business

 

 

1,420

 

 

 

1,615

 

Total asphalt tons

 

 

2,223

 

 

 

2,478

 

 

Average selling prices by product line for the Company were as follows:

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

% Change

 

Aggregates - heritage (per ton)

 

$

13.87

 

 

$

13.43

 

 

 

3.3

%

Aggregates - acquisition (per ton)

 

$

11.95

 

 

$

—

 

 

 

 

 

Cement (per ton)

 

$

108.92

 

 

$

105.26

 

 

 

3.5

%

Ready Mixed Concrete (per cubic yard)

 

$

108.36

 

 

$

107.34

 

 

 

1.0

%

Asphalt (per ton)

 

$

44.39

 

 

$

43.08

 

 

 

3.0

%

Page 44 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

Magnesia Specialties

For the first nine months of 2018, Magnesia Specialties reported total products revenue of $201.4 million, a 6.0% increase compared with the prior-year period.  Earnings from operations were $65.9 million compared with $58.6 million, a 12.4% increase.  

Gross Profit

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

 

Consolidated gross profit, nine-months ended September 30, 2017

 

$

712,838

 

Aggregates products:

 

 

 

 

Volume

 

 

105,813

 

Pricing

 

 

53,029

 

Cost increases, net

 

 

(137,250

)

Change in aggregates products gross profit

 

 

21,592

 

Cement products and downstream products and services

 

 

(2,309

)

Magnesia Specialties products

 

 

7,331

 

Corporate

 

 

1,153

 

Freight

 

 

(1,312

)

Change in consolidated gross profit

 

 

26,455

 

Consolidated gross profit, nine-months ended September 30, 2018

 

$

739,293

 

 

Cost increases, net, includes the $18.5 million negative impact of selling acquired inventory after its markup to fair value as a part of acquisition accounting.

Consolidated Operating Results

For the nine-months ended September 30, 2018 and 2017, consolidated SG&A was 6.5% of total revenues.  Earnings from operations for the first nine months were $543.7 million in 2018 compared with $517.0 million in 2017.  

For the nine-months ended September 30, consolidated other operating income, net, was $27.0 million in 2018 and $2.6 million in 2017.  The increase in other operating income, net, is primarily driven by a $16.9 million gain on the sale of surplus land and a $7.7 million net gain on litigation and related settlements of in 2018 partially offset by $7.1 million in restructuring expenses related to the Company’s Southwest ready mixed concrete operations.  The 2017 amount includes a $13.5 million gain on the sale of real estate offset by a $12.4 million expense for repair costs related to certain of the Company’s lease railcars and $6.1 million of expense, including both cash and stock-based compensation components, related to the retirement of a senior executive officer.

For the nine-months ended September 30, 2018, other nonoperating income, net, was $19.9 million, a $13.4 million increase compared with prior year, reflecting higher interest income and lower pension expense.

 

Page 45 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the nine-months ended September 30 was $441.5 million in 2018 compared with $418.1 million in 2017.  Operating cash flow is primarily derived from consolidated net earnings before deducting depreciation, depletion and amortization, and the impact of changes in working capital.  Depreciation, depletion and amortization were as follows:

 

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in Thousands)

 

Depreciation

 

$

219,019

 

 

$

195,009

 

Depletion

 

 

20,576

 

 

 

12,812

 

Amortization

 

 

13,605

 

 

 

13,597

 

 

 

$

253,200

 

 

$

221,418

 

 

The seasonal nature of construction activity impacts the Company’s quarterly operating cash flow when compared with the full year. Full-year 2017 net cash provided by operating activities was $657.6 million, reflective of the reclassification of net proceeds and payments of corporate-owned life insurance of $0.3 million from operating activities to investing activities, compared with $418.1 million for the first nine months of 2017.

During the nine-months ended September 30, 2018, the Company paid $262.2 million for capital investments. Full-year capital spending is expected to approximate $375 million.

The Company can repurchase its common stock through open-market purchases pursuant to authority granted by its Board of Directors or through private transactions at such prices and upon such terms as the Chief Executive Officer deems appropriate. The Company repurchased 305,000 shares of common stock during the first nine months of the year for an aggregate purchase price of $60.4 million.  At September 30, 2018, 14,364,000 shares of common stock were remaining under the Company’s repurchase authorization.  

The $700 million Revolving Facility requires the Company’s ratio of consolidated debt-to-consolidated 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 Company may exclude from the Ratio debt incurred in connection with certain acquisitions during the quarter or the three preceding quarters so long as the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if there are no amounts outstanding under the Revolving Facility and the $400 million Trade Receivable Facility, consolidated debt, including debt for which the Company is a co-borrower, may be reduced by the Company’s unrestricted cash and cash equivalents in excess of $50 million, such reduction not to exceed $200 million, for purposes of the covenant calculation.

The Ratio is calculated as debt, including debt for which the Company is a co-borrower, divided by consolidated EBITDA, as defined by the Company’s Revolving Facility, for the trailing-twelve months.  Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation 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.  During periods that include an acquisition, pre-acquisition adjusted EBITDA of the

Page 46 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

acquired company is added to consolidated EBITDA as if the acquisition occurred on the first day of the calculation period.  Certain other nonrecurring items, if they occur, can affect the calculation of consolidated EBITDA.

At September 30, 2018, the Company’s ratio of consolidated debt-to-consolidated EBITDA, as defined by the Company’s Revolving Facility, for the trailing-twelve months was 2.72 times and was calculated as follows:

 

 

 

October 1, 2017 to

 

 

 

September 30, 2018

 

 

 

(Dollars in thousands)

 

Earnings from continuing operations attributable to Martin Marietta

 

$

752,804

 

Add back:

 

 

 

 

Interest expense

 

 

126,976

 

Depreciation, depletion and amortization expense

 

 

325,410

 

Stock-based compensation expense

 

 

29,846

 

Acquisition-related expenses, net

 

 

51,441

 

Noncash portion of restructuring expenses

 

 

5,245

 

Bluegrass EBITDA - Pre-acquisition adjusted (October 2017 to April 2018)

 

 

43,417

 

Deduct:

 

 

 

 

Interest income

 

 

(7,149

)

Income tax benefit

 

 

(129,691

)

Gain on divestiture

 

 

(14,785

)

Consolidated EBITDA, as defined by the Company’s Revolving Facility

 

$

1,183,514

 

Consolidated net debt, as defined and including debt for which the

     Company is a co-borrower, at September 30, 2018

 

$

3,224,046

 

Consolidated debt-to-consolidated EBITDA, as defined by the Company’s

     Revolving Facility, at September 30, 2018 for the trailing-twelve

     months EBITDA

 

2.72x

 

 

The Trade Receivable Facility contains a cross-default provision to the Company’s other debt agreements. In the event of a default on the Ratio, the lenders can terminate the Revolving Facility 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 Company’s consolidated balance sheet.

Cash on hand, along with the Company’s projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements, address near-term debt maturities, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise, allow the repurchase of shares of the Company’s common stock and allow for payment of dividends for the foreseeable future.  On April 27, 2018, the Company successfully completed its acquisition of Bluegrass Materials Company (Bluegrass), the largest privately-held, pure-play aggregates company in the United States, for $1.617 billion in cash.  The Company financed the Bluegrass acquisition using proceeds from issuances of senior notes in December 2017 and borrowings under credit facilities.  Any future significant strategic acquisition for cash would likely require an appropriate balance of newly-issued equity with debt in order to maintain a composite investment-grade credit rating.

Page 47 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

At September 30, 2018, the Company had $617.7 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 December 5, 2021.  On April 17, 2018, the Company and its wholly-owned subsidiary amended its Trade Receivable Facility to increase the facility limit to $400 million.  On September 25, 2018, the Company extended the maturity of the Trade Receivable Facility to September 25, 2019.  

The Company repaid the $300 million of 6.60% Senior Notes with cash on hand on April 16, 2018, the maturity date.

On May 22, 2017, the Company issued $300 million aggregate principal amount of Floating Rate Senior Notes due in 2020 and $300 million aggregate principal amount of 3.450% Senior Notes due in 2027.  On December 20, 2017, the Company issued $300 million aggregate principal amount of Floating Rate Senior Notes due 2019, $500 million aggregate principal amount of 3.500% Senior Notes due 2027 and $600 million aggregate principal amount of 4.250% Senior Notes due 2047.  The Company repaid $300 million aggregate principal amount of Floating Rate Senior at its maturity in June 2017.

The Company is exposed to the credit markets, through the interest cost related to its variable-rate debt, which included borrowings under its Revolving Facility and Trade Receivable Facility and the obligations in respect of the Floating Rate Notes.  The Company is currently rated at an investment-grade level by all three credit rating agencies.

TRENDS AND RISKS

The Company outlined the risks associated with its business in its Annual Report on Form 10-K for the year ended December 31, 2017.  Management continues to evaluate its exposure to all operating risks on an ongoing basis.

OUTLOOK

Management has updated its full-year 2018 guidance to reflect current trends and expectations, including the impact of extraordinary weather-related events encountered during the third quarter.  

Specifically:

 

♦

Heritage aggregates average selling price is expected to increase in a range of 3% to 4%.

 

♦

Heritage aggregates volume is expected to be flat to up to 1% and expected shipments by end-use market, both compared with 2017 levels and excluding 2017 shipments of the Company’s Forsyth, Georgia, quarry that was divested in April 2018, are as follows:

 

•

Infrastructure shipments to be relatively flat.

 

•

Nonresidential shipments to increase in the low- to mid-single digits.

 

•

Residential shipments to increase in the high-single digits.

 

•

ChemRock/Rail shipments to decrease.

OTHER MATTERS

If you are interested in Martin Marietta stock, management recommends that, at a minimum, you read the Company’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 Company’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 Company’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 Company’s Corporate Secretary, who will provide copies of such reports.

Page 48 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

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 Company believes in good faith are reasonable but which may be materially different from actual results.  These statements, which are forward-looking statements under the Private Securities Litigation Reform Act of 1995, give the investor the Company’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.

The Company’s outlook is subject to various risks and uncertainties, and is based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results. Factors that the Company currently believes could cause actual results to differ materially from the forward-looking statements in this Form 10-Q (including the outlook) include, but are not limited to: the performance of the United States economy; shipment declines resulting from economic events beyond the Company’s control; widespread decline in aggregates pricing, including a decline in aggregates volume negatively affecting aggregates price; the history of both cement and ready mixed concrete being subject to significant changes in supply, demand and price fluctuations; 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, state or local transportation or infrastructure projects funding, most particularly in Texas, North Carolina, Iowa, Colorado, Georgia and Maryland; the United States Congress’ inability to reach agreement among themselves or with the current Administration on policy issues that impact the federal budget; 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 Company 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 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, particularly in Texas; a slowdown in residential construction recovery; continuing unfavorable weather conditions, particularly Atlantic Ocean and Gulf Coast hurricane activity, excessive rainfall in the markets served by the Company and the early onset of winter, any of which can significantly affect production schedules, volumes and profitability; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost, or the availability generally, of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Company’s Magnesia Specialties business, natural gas; continued increases in the cost of other repair and supply parts; continuing construction labor shortages and/or supply‐chain challenges; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to production facilities; increasing governmental regulation, including environmental laws; transportation availability or a sustained reduction in capital investment by the railroads, notably the availability of railcars, and locomotive power and the condition of rail infrastructure to move trains to supply the Company’s Texas, Colorado, Florida, North Carolina and the Gulf Coast markets, including the movement of essential dolomitic lime for magnesia chemicals to the Company’s plant in Manistee, Michigan and its customers; increased transportation costs, including increases from higher or fluctuating passed-through energy costs or fuel surcharges, 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 Company’s materials; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the Company’s dolomitic lime products; a trade dispute with one or more nations impacting the U.S. economy, including the impact of tariffs on the steel industry; unplanned changes in costs or realignment of customers that introduce volatility to earnings, including that of the Magnesia Specialties business that is running at capacity; proper functioning

Page 49 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter September 30, 2018

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2018

(Continued)

 

of information technology and automated operating systems to manage or support operations; inflation and its effect on both production and interest costs; the concentration of customers in construction markets and the increased risk of potential losses on customer receivables; the impact of the level of demand in the Company’s end-use markets, production levels and management of production costs on the operating leverage and therefore profitability of the Company;  the possibility that the expected synergies from acquisitions (including the acquisition of Bluegrass) will not be realized or will not be realized within the expected time period, including achieving anticipated profitability to maintain compliance with the Company’s leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Company’s tax rate; violation of the Company’s debt covenant if price and/or volumes return to previous levels of instability; continued downward pressure on the Company’s common stock price and its impact on goodwill impairment evaluations; reduction of the Company’s credit rating to non-investment grade resulting from strategic acquisitions; and other risk factors listed from time to time found in the Company’s filings with the SEC.  

You should consider these forward-looking statements in light of risk factors discussed in our Annual Report on
Form 10-K for the year ended December 31, 2017, the Current Report on Form 8-K filed on March 16, 2018 and other periodic filings made with the SEC.  All of the Company’s forward-looking statements should be considered in light of these factors.  In addition, other risks and uncertainties not presently known to the Company or that the Company considers immaterial could affect the accuracy of the Company’s forward-looking statements, or adversely affect or be material to the Company.  The Company 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, 2017, 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 Company’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 Company’s website is not incorporated into, or otherwise create a part of, this report.

 

Page 50 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company’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 Company’s business. Demand for aggregates products, particularly in the infrastructure construction market, is affected by federal and state budget and deficit issues. Further, delays or cancellations of capital projects in the nonresidential and residential construction markets could occur if companies and consumers are unable to obtain financing for construction projects or if consumer confidence continues to be eroded by economic uncertainty.

Demand in the residential construction market is affected by interest rates. The Federal Reserve has raised rates three times during 2018, increasing the federal funds rate to 2.2%. The residential construction market accounted for 21% of the Company’s aggregates product line shipments in 2017.

Aside from these inherent risks from within its operations, the Company’s earnings are also affected by changes in short-term interest rates. However, rising interest rates are not necessarily predictive of weaker operating results. Historically, the Company’s profitability increased during periods of rising interest rates.  In essence, the Company’s underlying business generally serves as a natural hedge to rising interest rates.

Variable-Rate Borrowing Facilities. At September 30, 2018, the Company had a $700 million Revolving Facility and a $400 million Trade Receivable Facility. The Company also has $600 million variable-rate senior notes.  Borrowings under these facilities bear interest at a variable interest rate. A hypothetical 100-basis-point increase in interest rates on borrowings of $1.08 billion, which was the collective outstanding balance at September 30, 2018, would increase interest expense by $10.8 million on an annual basis.

Pension Expense. The Company’s results of operations are affected by its pension expense. Assumptions that affect pension expense include the discount rate and, for the qualified defined benefit pension plan only, the expected long-term rate of return on assets. Therefore, the Company has interest rate risk associated with these factors. The impact of hypothetical changes in these assumptions on the Company’s annual pension expense is discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Energy Costs. Energy costs, including diesel fuel, natural gas, coal and liquid asphalt, represent significant production costs of the Company.  The cement operations and Magnesia Specialties business have fixed price agreements covering 100% of its 2018 coal requirements.  Energy costs for the nine-months ended September 30, 2018 increased approximately 13% over the prior-year period.  A hypothetical 15% change in the Company’s energy prices for the full year 2018 as compared with 2017, assuming constant volumes, would change full year 2018 energy expense by $37.4 million.  

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 Company’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 Company’s business, financial condition and results of operations.  Assuming total revenues for cement for full-year 2018 of $415 million to $445 million, a hypothetical 10% change in sales price would impact net sales by $41.5 million to $44.5 million.

 

Page 51 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

(Continued)

 

Item 4. Controls and Procedures

As of September 30, 2018, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2018. There were no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.  

 

 

Page 52 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

PART II- OTHER INFORMATION

 

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, 2017.

 

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, 2017 and the Current Report on Form 8-K of Marin Marietta Materials, Inc. filed on March 16, 2018.

 

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, 2018 - July 31, 2018

 

 

—

 

 

$

—

 

 

 

—

 

 

 

14,668,891

 

August 1, 2018 - August 31, 2018

 

 

175,000

 

 

$

202.49

 

 

 

175,000

 

 

 

14,493,891

 

September 1, 2018 - September 30, 2018

 

 

129,568

 

 

$

192.49

 

 

 

129,568

 

 

 

14,364,323

 

 

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 Company’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 53 of 55

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2018

PART II- OTHER INFORMATION

(Continued)

 

Item 6. Exhibits.

 

Exhibit No.

  

Document

 

 

10.1

 

Tenth Amendment to Credit and Security Agreement, dated as of September 25, 2018, among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on September 25, 2018 (Commission File No. 1-12744))

 

 

 

31.01

  

Certification dated November 7, 2018 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 7, 2018 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 7, 2018 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 7, 2018 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 – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 54 of 55

 

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 7, 2018

By:

 

/s/ James A. J. Nickolas

 

 

 

James A. J. Nickolas

 

 

 

Sr. Vice President and

 

 

 

   Chief Financial Officer

 

 

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