MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
OVERVIEW Martin Marietta Materials, Inc. (the Corporation), is the
nations second largest producer of construction aggregates. The Corporations annual net sales and earnings are predominately derived from its Aggregates business, which processes and sells granite, limestone, and other aggregates
products, including asphalt, ready mixed concrete and road paving construction services, from a network of 301 quarries, distribution facilities and plants to customers in 33 states, Canada, the Bahamas and the Caribbean Islands. The Aggregates
business products are used primarily by commercial customers principally in domestic construction of highways and other infrastructure projects and for nonresidential and residential building development. Aggregates products are also used in
the railroad, environmental, utility and agricultural industries.
Effective January 1, 2013, the Corporation reorganized
the groups within its Aggregates business. The Corporation currently conducts its aggregates and vertically-integrated operations through three reportable business segments: Mid-America Group, Southeast Group and West Group. The Mid-America Group
continues to include operations formerly reported in the Mideast Group, along with operations in Iowa, Minnesota, eastern Nebraska, North Dakota, and Washington (which were formerly reported in the West Group). The Southeast Group remains unchanged.
With the exception of operations now reported in the Mid-America Group, there were no other changes to the West Group.
|
|
|
|
|
|
|
AGGREGATES BUSINESS
|
Reportable Segments
|
|
Mid-America Group
|
|
Southeast Group
|
|
West Group
|
Operating Locations
|
|
Indiana, Iowa, Kentucky,
Maryland, Minnesota,
eastern Nebraska, North
Dakota, North Carolina,
Ohio, South
Carolina,
Virginia, Washington
and West Virginia
|
|
Alabama, Florida,
Georgia, Mississippi,
Tennessee, Nova
Scotia and the
Bahamas
|
|
Arkansas, Colorado,
Kansas, Louisiana,
Missouri, western
Nebraska, Nevada,
Oklahoma, Texas,
Utah and
Wyoming
|
Primary Product Lines
|
|
Aggregates (stone,
sand and gravel)
|
|
Aggregates (stone,
sand and gravel)
|
|
Aggregates (stone, sand
and gravel), asphalt,
ready mixed concrete
and road paving
|
Primary Types of
Aggregates Locations
|
|
Quarries
|
|
Quarries and
Distribution Yards
|
|
Quarries and
Distribution Yards
|
Primary Modes of
Transportation for
Aggregates Product Line
|
|
Truck, Limited Rail and
Water
|
|
Truck, Rail and
Water
|
|
Truck and Rail
|
Page 25 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Corporation also has a Specialty Products segment that produces magnesia-based
chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.
CRITICAL ACCOUNTING POLICIES The Corporation outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2012, filed with the
Securities and Exchange Commission (SEC) on February 22, 2013. There were no changes to the Corporations critical accounting policies during the six months ended June 30, 2013.
RESULTS OF OPERATIONS
Except
as indicated, the following comparative analysis in the Results of Operations section of this Managements Discussion and Analysis of Financial Condition and Results of Operations reflects results from continuing operations and is based on net
sales and cost of sales. However, gross margin as a percentage of net sales and operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales, as it is consistent with
the basis by which management reviews the Corporations operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporations operating results given that freight and delivery revenues
and costs represent pass-throughs and have no profit mark-up. Gross margin and operating margin calculated as percentages of total revenues represent the most directly comparable financial measures calculated in accordance with generally accepted
accounting principles (GAAP). The following tables present the calculations of gross margin and operating margin for the three and six months ended June 30, 2013 and 2012 in accordance with GAAP and reconciliations of the ratios as percentages
of total revenues to percentages of net sales:
Gross Margin in Accordance with GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June
30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
Gross profit
|
|
$
|
106,776
|
|
|
$
|
102,066
|
|
|
$
|
119,363
|
|
|
$
|
125,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
562,682
|
|
|
$
|
545,688
|
|
|
$
|
947,681
|
|
|
$
|
939,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
19.0%
|
|
|
|
18.7%
|
|
|
|
12.6%
|
|
|
|
13.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 26 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Gross Margin Excluding Freight and Delivery Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June
30,
|
|
|
Six Months Ended
June
30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
Gross profit
|
|
$
|
106,776
|
|
|
$
|
102,066
|
|
|
$
|
119,363
|
|
|
$
|
125,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
562,682
|
|
|
$
|
545,688
|
|
|
$
|
947,681
|
|
|
$
|
939,661
|
|
Less: Freight and delivery revenues
|
|
|
(53,994)
|
|
|
|
(54,497)
|
|
|
|
(93,844)
|
|
|
|
(97,938)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
508,688
|
|
|
$
|
491,191
|
|
|
$
|
853,837
|
|
|
$
|
841,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin excluding freight and delivery revenues
|
|
|
21.0%
|
|
|
|
20.8%
|
|
|
|
14.0%
|
|
|
|
15.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin in Accordance with GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
69,414
|
|
|
$
|
59,241
|
|
|
$
|
45,856
|
|
|
$
|
23,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
562,682
|
|
|
$
|
545,688
|
|
|
$
|
947,681
|
|
|
$
|
939,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
12.3%
|
|
|
|
10.9%
|
|
|
|
4.8%
|
|
|
|
2.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 27 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Operating Margin Excluding Freight and Delivery Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
69,414
|
|
|
$
|
59,241
|
|
|
$
|
45,856
|
|
|
$
|
23,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
562,682
|
|
|
$
|
545,688
|
|
|
$
|
947,681
|
|
|
$
|
939,661
|
|
Less: Freight and delivery revenues
|
|
|
(53,994)
|
|
|
|
(54,497)
|
|
|
|
(93,844)
|
|
|
|
(97,938)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
508,688
|
|
|
$
|
491,191
|
|
|
$
|
853,837
|
|
|
$
|
841,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin excluding freight and delivery revenues
|
|
|
13.6%
|
|
|
|
12.1%
|
|
|
|
5.4%
|
|
|
|
2.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30
Significant items for the quarter ended June 30, 2013 (unless noted, all comparisons are versus the prior-year quarter):
|
|
|
Earnings per diluted share of $0.89 compared with $0.80 (prior-year quarter includes $0.12 per diluted share charge for business development costs)
|
|
|
|
Consolidated net sales of $508.7 million, up 3.6%, compared with $491.2 million
|
|
|
|
Aggregates product line pricing up 1.7%; aggregates product line volume down 1.6%
|
|
|
|
Consolidated gross margin (excluding freight and delivery revenues) of $106.8 million, up $4.7 million
|
|
|
|
Record Specialty Products net sales of $56.6 million
|
|
|
|
Consolidated selling, general and administrative expenses (SG&A) up 20 basis points as a percentage of net sales
|
|
|
|
Consolidated earnings from operations of $69.4 million compared with $59.2 million (prior-year quarter includes $9.2 million of business development
costs)
|
The following table presents net sales, gross profit, selling, general and administrative expenses
and earnings from operations data for the Corporation and its reportable segments for the three months ended June 30, 2013 and 2012. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as
the case may be.
Page 28 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Amount
|
|
|
% of
Net Sales
|
|
|
Amount
|
|
|
% of
Net Sales
|
|
|
|
(Dollars in Thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
186,405
|
|
|
|
|
|
|
$
|
184,712
|
|
|
|
|
|
Southeast Group
|
|
|
55,261
|
|
|
|
|
|
|
|
58,848
|
|
|
|
|
|
West Group
|
|
|
210,390
|
|
|
|
|
|
|
|
197,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
452,056
|
|
|
|
100.0
|
|
|
|
440,729
|
|
|
|
100.0
|
|
Specialty Products
|
|
|
56,632
|
|
|
|
100.0
|
|
|
|
50,462
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
508,688
|
|
|
|
100.0
|
|
|
$
|
491,191
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
59,607
|
|
|
|
32.0
|
|
|
$
|
56,255
|
|
|
|
30.5
|
|
Southeast Group
|
|
|
(551)
|
|
|
|
(1.0)
|
|
|
|
(896)
|
|
|
|
(1.5)
|
|
West Group
|
|
|
26,154
|
|
|
|
12.4
|
|
|
|
26,476
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
85,210
|
|
|
|
18.8
|
|
|
|
81,835
|
|
|
|
18.6
|
|
Specialty Products
|
|
|
21,284
|
|
|
|
37.6
|
|
|
|
19,923
|
|
|
|
39.5
|
|
Corporate
|
|
|
282
|
|
|
|
--
|
|
|
|
308
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
106,776
|
|
|
|
21.0
|
|
|
$
|
102,066
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
12,705
|
|
|
|
|
|
|
$
|
13,810
|
|
|
|
|
|
Southeast Group
|
|
|
4,491
|
|
|
|
|
|
|
|
4,520
|
|
|
|
|
|
West Group
|
|
|
11,186
|
|
|
|
|
|
|
|
10,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
28,382
|
|
|
|
6.3
|
|
|
|
29,318
|
|
|
|
6.7
|
|
Specialty Products
|
|
|
2,529
|
|
|
|
4.5
|
|
|
|
2,196
|
|
|
|
4.4
|
|
Corporate
|
|
|
6,932
|
|
|
|
--
|
|
|
|
3,761
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,843
|
|
|
|
7.4
|
|
|
$
|
35,275
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
46,951
|
|
|
|
|
|
|
$
|
43,827
|
|
|
|
|
|
Southeast Group
|
|
|
(5,176)
|
|
|
|
|
|
|
|
(5,623)
|
|
|
|
|
|
West Group
|
|
|
16,940
|
|
|
|
|
|
|
|
17,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
58,715
|
|
|
|
13.0
|
|
|
|
55,550
|
|
|
|
12.6
|
|
Specialty Products
|
|
|
18,726
|
|
|
|
33.1
|
|
|
|
17,451
|
|
|
|
34.6
|
|
Corporate
|
|
|
(8,027)
|
|
|
|
--
|
|
|
|
(13,760)
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
69,414
|
|
|
|
13.6
|
|
|
$
|
59,241
|
|
|
|
12.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 29 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Corporation reported higher second-quarter net sales and gross margin (excluding
freight and delivery revenues) compared with the prior-year quarter, which was particularly noteworthy in light of excessive rainfall in most of the Corporations key markets. Consolidated net sales increased 3.6%, driven by pricing growth in
all Aggregates business product lines and a new quarterly net sales record achieved by the Specialty Products business. Net earnings increased 12.4% despite being constrained by the impact of wet weather, particularly in the midwestern and
southeastern United States. For example, the state of Iowa had the wettest second quarter in over a century, and, many Georgia markets had rainfall during the quarter more than double the average levels, including Augusta which reported its wettest
month in weather history in June. While difficult to isolate all of the quarters weather impact, the Corporation knows its effect was at least three-fold. First, with respect to potential lost sales, the Corporation estimates that
precipitation reduced shipment volumes between 1.5 million and 1.7 million tons. Second, though more difficult to estimate than the sales component, throughput challenges created by wet weather significantly reduced operational productivity.
Finally, lower production volumes led to an underabsorption of fixed costs. Despite these challenging conditions, the Corporation continues to see positive indicators of construction activity, including double-digit growth on a year-to-date basis in
the private-sector construction market. Historically, increases in private construction have led to growth in public-sector construction. Management anticipates this trend continuing and the Corporation remains well-positioned to serve these
opportunities.
During the quarter, pricing momentum in the aggregates product line continued with each of the Aggregates
business reportable groups achieving increases. The West Group reported a 2.8% improvement, reflecting price increases implemented over the past year. The Mid-America and Southeast Groups reported average selling price increases of 1.9% and
0.4%, respectively, in the aggregates product line. Recently implemented mid-year pricing increases provide further support for continued pricing momentum. The Corporations vertically-integrated businesses also achieved pricing growth, with
the ready mixed concrete and asphalt product lines reporting increases of 8.3% and 4.3%, respectively.
Through the first half
of the year, growth in construction activity has been concentrated in the private sector which, on a year-to-date basis through May, reported a 12% increase in construction put-in-place. Consistent with this trend, the Corporations
private-sector markets reported volume growth over the prior-year quarter. The nonresidential market, which represented approximately 30% of second-quarter aggregates shipments, increased 7%. This growth was attributable to commercial construction,
namely office and retail, and was partially offset by a decline in shipments to the energy sector due to a modest slowdown in shale oil field activity. The residential construction market continues to recover; housing starts are up more than 10%
over the prior year and housing completions are up over 20%. Shipments to the residential market increased 4% and accounted for 13% of second-quarter aggregates shipments, representing a more normalized and balanced percentage of overall product
sales. Management expects further increases in residential volumes as the housing market continues to move toward a more sustainable equilibrium. Finally, the ChemRock/Rail end-use market, approximately 10% of second-quarter aggregates shipments,
increased 2%.
Page 30 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The infrastructure market comprised the remaining 47% of second-quarter aggregates
shipments. Lower government spending and wet weather contributed to an 8% decline in quarterly volumes to this end-use market and a 1.6% overall shipment decline for the Aggregates business. However, given the ongoing recovery of the U.S. economy,
reflected by employment growth, management remains optimistic for increased future public-sector construction activity. Similar to the pattern experienced in Texas over the last few years, growth in the residential sector within the
Corporations geographic areas is expected to stimulate growth in the nonresidential and infrastructure markets to serve an expanding economy and increased population. The Corporation sees early signs of this cycle developing in both Colorado
and Georgia.
Management is also encouraged by states recent initiatives to address long-neglected infrastructure needs.
For example, the South Carolina Department of Transportation recently increased its budget by $500 million for repairs of existing roads and the Indiana Department of Transportation approved up to an additional $415 million annually for construction
of new roads and expansion of major highways. Additionally, Texas is expected to initiate work on several large highway projects in the second half of the year in connection with its increased state Department of Transportation budget. Texas is also
one of the most proactive states in applications for funding under the
Transportation Infrastructure Finance and Innovation Act
, or TIFIA, a program with the ability to leverage up to $50 billion in financing for transportation projects of
either national or regional significance. A number of TIFIA awards are currently expected to be announced later this year. Consistent with managements previous viewpoint, given the timing of the initial awards, any meaningful impact of TIFIA
is not expected prior to 2014.
Net sales by product line for the Aggregates business are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Net
sales
1
:
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
357,240
|
|
|
$
|
356,820
|
|
Asphalt
|
|
|
18,811
|
|
|
|
20,235
|
|
Ready Mixed Concrete
|
|
|
36,662
|
|
|
|
29,246
|
|
Road Paving
|
|
|
39,343
|
|
|
|
34,428
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
$
|
452,056
|
|
|
$
|
440,729
|
|
|
|
|
|
|
|
|
|
|
1
Net
|
sales by product line reflect the elimination of inter-product line sales.
|
Page 31 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The following tables present volume and pricing data and shipments data for the
aggregates product line.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2013
|
|
Volume/Pricing Variance
(1)
|
|
Volume
|
|
|
Pricing
|
|
Heritage Aggregates Product Line
(2)
:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
|
(1.2%)
|
|
|
|
1.9%
|
|
Southeast Group
|
|
|
(6.7%)
|
|
|
|
0.4%
|
|
West Group
|
|
|
(0.5%)
|
|
|
|
2.8%
|
|
Heritage Aggregates Operations
(2)
|
|
|
(1.6%)
|
|
|
|
1.8%
|
|
Aggregates Product Line
(3)
|
|
|
(1.6%)
|
|
|
|
1.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(tons in thousands)
|
|
Shipments
|
|
|
|
|
|
|
|
|
Heritage Aggregates Product Line
(2)
:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
|
16,573
|
|
|
|
16,774
|
|
Southeast Group
|
|
|
4,273
|
|
|
|
4,579
|
|
West Group
|
|
|
13,703
|
|
|
|
13,767
|
|
|
|
|
|
|
|
|
|
|
Heritage Aggregates Operations
(2)
|
|
|
34,549
|
|
|
|
35,120
|
|
Acquisitions
|
|
|
24
|
|
|
|
--
|
|
Divestitures
(4)
|
|
|
1
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Aggregates Product Line
(3)
|
|
|
34,574
|
|
|
|
35,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(tons in thousands)
|
|
Shipments
|
|
|
|
|
|
|
|
|
Aggregates Product Line
(3)
:
|
|
|
|
|
|
|
|
|
Tons to external customers
|
|
|
33,286
|
|
|
|
33,906
|
|
Internal tons used in other product lines
|
|
|
1,288
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
Total aggregates tons
|
|
|
34,574
|
|
|
|
35,130
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
|
(2)
|
Heritage Aggregates Product Line and Heritage Aggregates Operations exclude volume and pricing data for acquisitions that have not been included
in prior-year operations for the comparable period and exclude divestitures.
|
(3)
|
Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal.
|
(4)
|
Divestitures include the tons related to divested aggregates product line operations up to the date of divestiture.
|
Page 32 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The per-ton average selling price for the aggregates product line was $10.48 and $10.31
for the three months ended June 30, 2013 and 2012, respectively.
The Corporations vertically-integrated operations
include asphalt, ready mixed concrete and road paving businesses in Arkansas, Colorado and Texas. Average selling prices by product line for the Corporations vertically-integrated operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Asphalt
|
|
$
|
42.55/ton
|
|
|
$
|
40.80/ton
|
|
Ready Mixed Concrete
|
|
$
|
82.29/yd
3
|
|
|
$
|
76.01/yd
3
|
|
Unit shipments by product line for the Corporations vertically-integrated operations are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Asphalt Product Line:
|
|
|
|
|
|
|
|
|
Tons to external customers
|
|
|
382
|
|
|
|
468
|
|
Internal tons used in road paving business
|
|
|
461
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
Total asphalt tons
|
|
|
843
|
|
|
|
867
|
|
|
|
|
|
|
|
|
|
|
Ready Mixed Concrete cubic yards
|
|
|
436
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
The Aggregates business is significantly affected by erratic weather patterns, seasonal changes and other
weather-related conditions. Aggregates production and shipment levels correlate with general construction activity levels, most of which occurs in the spring, summer and fall. Thus, production and shipment levels vary by quarter. Operations
concentrated in the northern and midwestern United States generally experience more severe winter weather conditions than operations in the Southeast and Southwest. Excessive rainfall, and conversely excessive drought, can also jeopardize shipments,
production and profitability in all markets served by the Corporation. Because of the significant impact of weather on the Corporations operations, second-quarter results are not indicative of expected performance for other interim periods or
the full year.
Page 33 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Specialty Products business continued its strong performance and generated
second-quarter net sales of $56.6 million, reflecting growth in both the dolomitic lime and chemicals product lines. Sales of dolomitic lime include the contribution from the Woodville kiln that became operational during the fourth quarter of 2012,
partially offset by the impact of a 4% decrease in steel production compared with the prior-year quarter. Earnings from operations of $18.7 million were up 7% over the prior-year quarter, but were negatively affected by higher natural gas costs
which reduced earnings from operations by $0.8 million.
Operations personnel continued their focus on cost control, as
evidenced by a 20-basis-point expansion of consolidated gross margin (excluding freight and delivery revenues), despite weather constraints that resulted in shipment and production reductions. The Mid-America Group, led by the performance of the
Mid-Atlantic Division, which includes Virginia, North Carolina, and South Carolina, achieved a 150-basis-point improvement in gross margin (excluding freight and delivery revenues). The Mid-Atlantic Division leveraged a 10% increase in aggregates
product line shipments into an incremental gross margin (excluding freight and delivery revenues) exceeding the Corporations publicly-stated expectations.
Quarterly gross profit for the Southeast Group in 2013 was negatively impacted by $1.1 million in unplanned repairs for a shiploader/reclaimer.
The following presents a rollforward of the Corporations gross profit (dollars in thousands):
|
|
|
|
|
Consolidated gross profit, quarter ended June 30, 2012
|
|
$
|
102,066
|
|
|
|
|
|
|
Aggregates product line:
|
|
|
|
|
Pricing strength
|
|
|
6,305
|
|
Volume weakness
|
|
|
(5,885)
|
|
Cost decreases, net
|
|
|
1,594
|
|
|
|
|
|
|
Increase in aggregates product line gross profit
|
|
|
2,014
|
|
Vertically-integrated operations
|
|
|
1,361
|
|
Specialty Products
|
|
|
1,361
|
|
Corporate
|
|
|
(26)
|
|
|
|
|
|
|
Increase in consolidated gross profit
|
|
|
4,710
|
|
|
|
|
|
|
Consolidated gross profit, quarter ended June 30, 2013
|
|
$
|
106,776
|
|
|
|
|
|
|
Page 34 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Gross profit (loss) by business is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
78,942
|
|
|
$
|
76,928
|
|
Asphalt
|
|
|
4,903
|
|
|
|
3,441
|
|
Ready Mixed Concrete
|
|
|
1,649
|
|
|
|
679
|
|
Road Paving
|
|
|
(284)
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
85,210
|
|
|
|
81,835
|
|
Specialty Products
|
|
|
21,284
|
|
|
|
19,923
|
|
Corporate
|
|
|
282
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
106,776
|
|
|
$
|
102,066
|
|
|
|
|
|
|
|
|
|
|
Consolidated SG&A expenses were 7.4% of net sales, up 20 basis points compared with the prior-year
quarter. On an absolute basis, SG&A increased $2.6 million, largely related to incremental costs for an information systems upgrade expected to be completed by the fall of 2013.
During the second quarter of 2012, the Corporation incurred $9.2 million of business development costs related to a proposed significant
business combination that was not consummated.
Among other items, other operating income and expenses, net, includes gains
and losses on the sale of assets; gains and losses related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations; and research and
development costs. For the second quarter, consolidated other operating income and expenses, net, was income of $0.8 million in 2013 compared with income of $1.7 million in 2012, primarily as a result of higher gains on the sale of assets in 2012.
Page 35 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Six Months Ended June 30
Significant items for the six months ended June 30, 2013 (unless noted, all comparisons are versus the prior-year period):
|
|
|
Earnings per diluted share of $0.29 compared with breakeven earnings per diluted share (prior-year period includes $0.46 per diluted share charge
for business development costs)
|
|
|
|
Consolidated net sales of $853.8 million, up 1.4%, compared with $841.7 million
|
|
|
|
Aggregates product line pricing up 3.3%; aggregates product line volume down 4.6%; production cost per ton up 2.9%
|
|
|
|
Specialty Products net sales of $111.8 million and earnings from operations of $35.8 million
|
|
|
|
Consolidated SG&A up 70 basis points as a percentage of net sales
|
|
|
|
Consolidated earnings from operations of $45.9 million compared with $23.9 million (prior-year period includes $35.1 million of business development
costs)
|
Page 36 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The following table presents net sales, gross profit, selling, general and
administrative expenses and earnings from operations data for the Corporation and its reportable segments for the six months ended June 30, 2013 and 2012. In each case, the data is stated as a percentage of net sales of the Corporation or the
relevant segment, as the case may be.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Amount
|
|
|
% of
Net Sales
|
|
|
Amount
|
|
|
% of
Net Sales
|
|
|
|
(Dollars in Thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
292,637
|
|
|
|
|
|
|
$
|
299,326
|
|
|
|
|
|
Southeast Group
|
|
|
106,584
|
|
|
|
|
|
|
|
114,006
|
|
|
|
|
|
West Group
|
|
|
342,815
|
|
|
|
|
|
|
|
326,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
742,036
|
|
|
|
100.0
|
|
|
|
739,545
|
|
|
|
100.0
|
|
Specialty Products
|
|
|
111,801
|
|
|
|
100.0
|
|
|
|
102,178
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
853,837
|
|
|
|
100.0
|
|
|
$
|
841,723
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
59,514
|
|
|
|
20.3
|
|
|
$
|
63,222
|
|
|
|
21.1
|
|
Southeast Group
|
|
|
(5,456)
|
|
|
|
(5.1)
|
|
|
|
(721)
|
|
|
|
(0.6)
|
|
West Group
|
|
|
26,156
|
|
|
|
7.6
|
|
|
|
25,930
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
80,214
|
|
|
|
10.8
|
|
|
|
88,431
|
|
|
|
12.0
|
|
Specialty Products
|
|
|
40,866
|
|
|
|
36.6
|
|
|
|
39,313
|
|
|
|
38.5
|
|
Corporate
|
|
|
(1,717)
|
|
|
|
--
|
|
|
|
(1,852)
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,363
|
|
|
|
14.0
|
|
|
$
|
125,892
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
24,944
|
|
|
|
|
|
|
$
|
27,021
|
|
|
|
|
|
Southeast Group
|
|
|
8,970
|
|
|
|
|
|
|
|
9,411
|
|
|
|
|
|
West Group
|
|
|
22,928
|
|
|
|
|
|
|
|
22,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
56,842
|
|
|
|
7.7
|
|
|
|
58,639
|
|
|
|
7.9
|
|
Specialty Products
|
|
|
5,020
|
|
|
|
4.5
|
|
|
|
4,725
|
|
|
|
4.6
|
|
Corporate
|
|
|
13,630
|
|
|
|
--
|
|
|
|
4,939
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,492
|
|
|
|
8.8
|
|
|
$
|
68,303
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
35,923
|
|
|
|
|
|
|
$
|
38,603
|
|
|
|
|
|
Southeast Group
|
|
|
(13,563)
|
|
|
|
|
|
|
|
(11,528)
|
|
|
|
|
|
West Group
|
|
|
5,642
|
|
|
|
|
|
|
|
5,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
28,002
|
|
|
|
3.8
|
|
|
|
32,094
|
|
|
|
4.3
|
|
Specialty Products
|
|
|
35,804
|
|
|
|
32.0
|
|
|
|
35,672
|
|
|
|
34.9
|
|
Corporate
|
|
|
(17,950)
|
|
|
|
--
|
|
|
|
(43,852)
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,856
|
|
|
|
5.4
|
|
|
$
|
23,914
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 37 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
For the first six months of 2013, consolidated net sales increased 1.4%, driven by
pricing and volume improvements for the ready mixed concrete product line and record net sales achieved by the Specialty Products business.
Pricing momentum in the aggregates product line continued with each of our reportable groups achieving pricing growth. The West Group reported a 5.3% improvement, primarily due to price increases
implemented over the past year. The Mid-America and Southeast Groups reported average selling price increases of 2.5% and 3.0%, respectively, in the aggregates product line. The Corporations vertically-integrated businesses also achieved
pricing growth, with the ready mixed concrete and asphalt product lines reporting increases of 8.5% and 4.8%, respectively.
Excessive rainfall and lower government spending contributed to a 4.6% decline in aggregates product line shipments during the six months
ended June 30, 2013.
Net sales by product line for the Aggregates business are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Net
sales
1
:
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
605,031
|
|
|
$
|
614,165
|
|
Asphalt
|
|
|
28,444
|
|
|
|
32,774
|
|
Ready Mixed Concrete
|
|
|
64,030
|
|
|
|
49,501
|
|
Road Paving
|
|
|
44,531
|
|
|
|
43,105
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
$
|
742,036
|
|
|
$
|
739,545
|
|
|
|
|
|
|
|
|
|
|
1
|
Net sales by product line reflect the elimination of inter-product line sales.
|
The following tables present volume and pricing data and shipments data for the aggregates
product line.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2013
|
|
Volume/Pricing Variance
(1)
|
|
Volume
|
|
|
Pricing
|
|
Heritage Aggregates Product Line
(2)
:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
|
(4.8%)
|
|
|
|
2.5%
|
|
Southeast Group
|
|
|
(9.4%)
|
|
|
|
3.0%
|
|
West Group
|
|
|
(2.6%)
|
|
|
|
5.3%
|
|
Heritage Aggregates Operations
(2)
|
|
|
(4.6%)
|
|
|
|
3.2%
|
|
Aggregates Product Line
(3)
|
|
|
(4.6%)
|
|
|
|
3.3%
|
|
Page 38 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(tons in thousands)
|
|
Shipments
|
|
|
|
|
|
|
|
|
Heritage Aggregates Product Line
(2)
:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
|
25,215
|
|
|
|
26,474
|
|
Southeast Group
|
|
|
8,093
|
|
|
|
8,935
|
|
West Group
|
|
|
24,020
|
|
|
|
24,654
|
|
|
|
|
|
|
|
|
|
|
Heritage Aggregates Operations
(2)
|
|
|
57,328
|
|
|
|
60,063
|
|
Acquisitions
|
|
|
24
|
|
|
|
--
|
|
Divestitures
(4)
|
|
|
2
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
Aggregates Product Line
(3)
|
|
|
57,354
|
|
|
|
60,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(tons in thousands)
|
|
Shipments
|
|
|
|
|
|
|
|
|
Aggregates Product Line
(3)
:
|
|
|
|
|
|
|
|
|
Tons to external customers
|
|
|
55,407
|
|
|
|
58,125
|
|
Internal tons used in other product lines
|
|
|
1,947
|
|
|
|
1,971
|
|
|
|
|
|
|
|
|
|
|
Total aggregates tons
|
|
|
57,354
|
|
|
|
60,096
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Volume/pricing variances reflect the percentage increase / (decrease) from the comparable period in the prior year.
|
(2)
|
Heritage Aggregates Product Line and Heritage Aggregates Operations exclude volume and pricing data for acquisitions that have not been included
in prior-year operations for the comparable period and exclude divestitures.
|
(3)
|
Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal.
|
(4)
|
Divestitures include the tons related to divested aggregates product line operations up to the date of divestiture.
|
The per-ton average selling price for the aggregates product line was $10.67 and $10.34 for the six
months ended June 30, 2013 and 2012, respectively.
Average selling prices by product line for the Corporations
vertically-integrated operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2013
|
|
2012
|
Asphalt
|
|
|
$
|
42.51/ton
|
|
|
|
$
|
40.58/ton
|
|
Ready Mixed Concrete
|
|
|
$
|
82.04/yd
|
3
|
|
|
$
|
75.62/yd
|
3
|
Page 39 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Unit shipments by product line for the Corporations vertically-integrated
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Asphalt Product Line:
|
|
|
|
|
|
|
|
|
Tons to external customers
|
|
|
608
|
|
|
|
791
|
|
Internal tons used in road paving business
|
|
|
496
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
Total asphalt tons
|
|
|
1,104
|
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
|
Ready Mixed Concrete cubic yards
|
|
|
765
|
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
For 2013, Specialty Products net sales of $111.8 million increased $9.6 million, or 9.4%, over the
prior-year period. Sales growth for the dolomitic lime product line reflects shipments from the new lime kiln which became operational in November 2012, partially offset by the loss of higher-margin sales from a customer that filed for bankruptcy.
Earnings from operations were $35.8 million compared with $35.7 million.
Consolidated gross margin (excluding freight and
delivery revenues) was 14.0% for 2013 versus 15.0% for 2012. The reduction reflects lower aggregates product line shipments, which reduced the operating leverage of the Aggregates business. Furthermore, gross profit for the Southeast Group in 2013
was negatively impacted by $1.7 million in unplanned repairs for a shiploader/reclaimer.
The following presents a rollforward
of the Corporations gross profit (dollars in thousands):
|
|
|
|
|
Consolidated gross profit, six months ended June 30, 2012
|
|
$
|
125,892
|
|
|
|
|
|
|
Aggregates product line:
|
|
|
|
|
Pricing strength
|
|
|
19,149
|
|
Volume weakness
|
|
|
(28,283)
|
|
Cost decreases, net
|
|
|
1,794
|
|
|
|
|
|
|
Decrease in aggregates product line gross profit
|
|
|
(7,340)
|
|
Vertically-integrated operations
|
|
|
(877)
|
|
Specialty Products
|
|
|
1,553
|
|
Corporate
|
|
|
135
|
|
|
|
|
|
|
Decrease in consolidated gross profit
|
|
|
(6,529)
|
|
|
|
|
|
|
Consolidated gross profit, six months ended June 30, 2013
|
|
$
|
119,363
|
|
|
|
|
|
|
Page 40 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Gross profit (loss) by business is as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
81,003
|
|
|
$
|
88,343
|
|
Asphalt
|
|
|
2,448
|
|
|
|
2,706
|
|
Ready Mixed Concrete
|
|
|
1,334
|
|
|
|
(550)
|
|
Road Paving
|
|
|
(4,571)
|
|
|
|
(2,068)
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
80,214
|
|
|
|
88,431
|
|
Specialty Products
|
|
|
40,866
|
|
|
|
39,313
|
|
Corporate
|
|
|
(1,717)
|
|
|
|
(1,852)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,363
|
|
|
$
|
125,892
|
|
|
|
|
|
|
|
|
|
|
Consolidated SG&A expenses were 8.8% of net sales, up 70 basis points compared with the prior-year
period. On an absolute basis, SG&A increased $7.2 million, largely related to incremental costs for an information systems upgrade.
During the six months ended June 30, 2012, the Corporation incurred $35.1 million of business development costs related to a proposed significant business combination that was not consummated.
For the first six months, consolidated other operating income and expenses, net, was income of $2.6 million in 2013 compared
with income of $1.5 million in 2012, due in part to higher gains on the sale of assets in 2013.
In addition to other
offsetting amounts, other nonoperating income and expenses, net, are comprised generally of interest income and net equity earnings from nonconsolidated investments. Consolidated other nonoperating income and expenses, net, for the six months ended
June 30 was an expense of $0.1 million in 2013 compared with income of $1.9 million in 2012, with the change resulting from a gain on debt repurchased at a discount in 2012 and a gain on foreign currency transactions in 2012.
Page 41 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the six months ended June 30, 2013 was $48.5 million compared with $27.7 million for the
same period in 2012. The improvement is attributable to the absence of significant business development costs incurred in 2012. Operating cash flow is primarily derived from consolidated net earnings or loss, before deducting depreciation, depletion
and amortization, and offset by working capital requirements. Depreciation, depletion and amortization were as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Depreciation
|
|
$
|
81,096
|
|
|
$
|
84,056
|
|
Depletion
|
|
|
2,284
|
|
|
|
1,903
|
|
Amortization
|
|
|
2,612
|
|
|
|
2,776
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
85,992
|
|
|
$
|
88,735
|
|
|
|
|
|
|
|
|
|
|
The seasonal nature of the construction aggregates business impacts quarterly operating cash flow when
compared with the full year. Full-year 2012 net cash provided by operating activities was $222.7 million compared with $27.7 million for the first six months of 2012.
During the six months ended June 30, 2013, the Corporation invested $50.0 million of capital into its business. Full-year capital spending, exclusive of acquisitions, if any, is expected to be
approximately $155.0 million in 2013. Comparable full-year capital expenditures were $151.0 million in 2012.
On
April 19, 2013, the Corporation, through a wholly-owned consolidated special purpose subsidiary, established a $150 million trade receivable securitization facility with SunTrust Bank and certain other lenders that may become a party to the
facility from time to time (the Trade Receivable Facility). Borrowings under the Trade Receivable Facility are limited based on the balance of the Corporations accounts receivable and bear interest at a rate equal to the one-month
LIBOR plus 0.6%. The Corporation has the option to request an increase in the commitment amount by up to an additional $100 million in increments of no less than $25 million, subject to receipt of lender commitments for the increased amount. The
Trade Receivable Facility matures on April 19, 2014.
On July 1, 2013, the Corporation acquired three aggregates
quarries in Atlanta, Georgia, for $62.0 million.
Page 42 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Corporation can repurchase its common stock through open-market purchases pursuant
to authority granted by its Board of Directors. The Corporation did not repurchase any shares of common stock during the six months ended June 30, 2013 and 2012. Management currently has no intent to repurchase any shares of the
Corporations common stock. At June 30, 2013, 5,042,000 shares of common stock were remaining under the Corporations repurchase authorization.
The Credit Agreement (which consists of a $250 million Term Loan Facility and a $350 million Revolving Facility) requires the Corporations ratio of consolidated debt to consolidated earnings before
interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the
Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its ratings on long-term unsecured debt fall below BBB by
Standard & Poors or Baa2 by Moodys and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if there are no amounts outstanding under the Revolving Facility, consolidated debt, including debt
guaranteed by the Corporation, will be reduced for purposes of the covenant calculation by the Corporations unrestricted cash and cash equivalents in excess of $50 million, such reduction not to exceed $200 million.
The Corporation amended the Credit Agreement Ratio in 2012. The amendment temporarily increased the maximum Ratio to 3.75x at
June 30, 2013. The Ratio returns to the pre-amendment maximum of 3.50x for the September 30, 2013 calculation date.
The Ratio is calculated as debt, including debt guaranteed by the Corporation, divided by consolidated EBITDA, as defined, for the
trailing twelve months. Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation, depletion and amortization expense for continuing operations. Additionally, stock-based compensation expense
is added back and interest income is deducted in the calculation of consolidated EBITDA. Certain other nonrecurring noncash items, if they occur, can affect the calculation of consolidated EBITDA.
Page 43 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
At June 30, 2013, the Corporations ratio of consolidated debt to consolidated
EBITDA, as defined, for the trailing twelve months EBITDA was 3.17 times and was calculated as follows:
|
|
|
|
|
|
|
Twelve Month Period
July 1, 2012
to
June 30, 2013
|
|
|
|
(Dollars in thousands)
|
|
Earnings from continuing operations attributable to Martin Marietta Materials, Inc.
|
|
$
|
97,949
|
|
Add back:
|
|
|
|
|
Interest expense
|
|
|
53,711
|
|
Income tax expense
|
|
|
24,656
|
|
Depreciation, depletion and amortization expense
|
|
|
169,965
|
|
Stock-based compensation expense
|
|
|
7,185
|
|
Deduct:
|
|
|
|
|
Interest income
|
|
|
(294)
|
|
|
|
|
|
|
Consolidated EBITDA, as defined
|
|
$
|
353,172
|
|
|
|
|
|
|
Consolidated debt, including debt guaranteed by the Corporation, at June 30, 2013
|
|
$
|
1,117,807
|
|
Deduct:
|
|
|
|
|
Unrestricted cash and cash equivalents in excess of $50,000 at June 30, 2013
|
|
|
--
|
|
|
|
|
|
|
Consolidated net debt, as defined, at June 30, 2013
|
|
$
|
1,117,807
|
|
|
|
|
|
|
Consolidated debt to consolidated EBITDA, as defined, at June 30, 2013 for the trailing twelve months EBITDA
|
|
|
3.17X
|
|
|
|
|
|
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The Trade Receivable Facility contains a cross-default provision to the Corporations other debt
agreements. In the event of a default on the Ratio, the lenders can terminate the Credit Agreement and Trade Receivable Facility and declare any outstanding balances as immediately due.
Cash on hand, along with the Corporations projected internal cash flows and availability of financing resources, including its
access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements, meet capital expenditures and discretionary
investment needs, fund certain acquisition opportunities that may arise and allow for payment of dividends for the foreseeable future. At June 30, 2013, the Corporation had $297 million of unused borrowing capacity under its Revolving Facility,
subject to complying with the related leverage covenant. The Trade Receivable Facility expires on April 19, 2014 and the Credit Agreement expires on March 31, 2015.
Page 44 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Corporation may be required to obtain financing to fund certain strategic
acquisitions, if any such opportunities arise, or to refinance outstanding debt. Any strategic acquisition of size for cash would likely require an appropriate balance of newly-issued equity with debt in order to maintain a composite
investment-grade credit rating. Furthermore, the Corporation is exposed to the credit markets, through the interest cost related to its variable-rate debt, which includes borrowings under its Revolving Facility, Term Loan Facility and Trade
Receivable Facility at June 30, 2013. The Corporation is currently rated by three credit rating agencies; two of those agencies credit ratings are investment-grade level and the third agencys credit rating is one level below
investment grade. The Corporations composite credit rating remains at investment-grade level, which facilitates obtaining financing at lower rates than noninvestment-grade ratings. While management believes its composite credit ratings will
remain at an investment-grade level, no assurance can be given that these ratings will remain at current levels, particularly if any opportunities arise to consummate strategic acquisitions.
TRENDS AND RISKS The Corporation outlined the risks associated with its business in its Annual Report on Form
10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on February 22, 2013. Management continues to evaluate its exposure to all operating risks on an ongoing basis.
OUTLOOK
Management is encouraged by various positive trends in the Corporations business and markets especially in private-sector
employment and construction. Management anticipates volumes to the nonresidential end-use market to increase in the mid-single digits given that the Architecture Billings Index, or ABI, a leading economic indicator for nonresidential construction
spending activity, remains at a strong level. Residential construction is experiencing a level of growth not seen since late 2005 with seasonally-adjusted starts ahead of any period since 2008. Management believes this trend in housing starts will
continue and the residential end-use market will experience double-digit volume growth. By contrast, the weather-related slowdown in aggregates shipments experienced in the first half of the year, coupled with a delay in large infrastructure
projects moving through the public letting cycle, leads management to expect aggregates shipments to the infrastructure end-use market to be down in the mid-single digits for the full year. The ChemRock/Rail end-use market is expected to be flat
compared with 2012. Cumulatively, management anticipates aggregates product line shipments will increase 1% to 3%.
Management currently expects aggregates product line pricing will increase 2% to 4% for the full year. A variety of factors beyond
the Corporations direct control may continue to exert pressure on volumes, and the forecasted pricing increase is not expected to be uniform across the company.
Page 45 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Management expects the Corporations vertically-integrated businesses to generate
between $350 million and $375 million of net sales and $20 million to $22 million of gross profit.
Aggregates product line
direct production costs per ton should be flat compared with 2012. SG&A expenses, excluding costs in 2013 and 2012 related to the information systems upgrade, as a percentage of net sales are expected to decline slightly.
Net sales for the Specialty Products segment are expected to be between $220 million and $230 million, generating $81 million to $85
million of gross profit. Steel utilization and natural gas prices are two key factors for this segment.
Interest expense is
expected to remain relatively flat. The Corporations effective tax rate is expected to approximate 26%, excluding discrete events. Capital expenditures are forecast at $155 million.
The 2013 outlook includes managements assessment of the likelihood of certain risk factors that will affect performance. The most
significant risk to 2013 performance will be the United States economy and its impact on construction activity. While both the
Moving Ahead for Progress in the 21
st
Century Act
and TIFIA credit assistance are excluded
from federal budget sequester and the U.S. debt ceiling limit, the ultimate resolution of these issues may have a significant impact on the economy and, consequently, construction activity. The Federal sequester that went into effect in March did
not appear to have a significant impact on the broader economy in the first half of the year. While transportation investment is mostly exempt from spending cuts, the impact of sequester may become more apparent during the second half of the year.
Other risks related to the Corporations future performance include, but are not limited to, both price and volume and include a recurrence of widespread decline in aggregates volume negatively affecting aggregates price; the termination,
capping and/or reduction of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; a significant change in the funding patterns for traditional federal, state and/or local infrastructure projects; a
reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in nonresidential construction, a decline in energy-related drilling activity resulting from certain regulatory or economic
factors, a slowdown in the residential construction recovery, or some combination thereof; and a reduction in ChemRock/Rail shipments resulting from declining coal traffic on the railroads. Further, increased highway construction funding
pressures resulting from either federal or state issues can affect profitability. If these negatively affect transportation budgets more than in the past, construction spending could be reduced. North Carolina, a state that disproportionately
affects the Corporations revenue and profitability, is among the states experiencing these fiscal pressures, although recent statistics indicate that transportation and tax revenues are increasing. The Specialty Products business essentially
runs at capacity; therefore any unplanned changes in costs or realignment of customers introduce volatility to the earnings of this segment.
Page 46 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Corporations principal business serves customers in aggregates-related
construction markets. This concentration could increase the risk of potential losses on customer receivables; however, payment bonds normally posted on public projects, together with lien rights on private projects, help to mitigate the risk of
uncollectible receivables. The level of aggregates demand in the Corporations end-use markets, production levels and the management of production costs will affect the operating leverage of the Aggregates business and, therefore,
profitability. Production costs in the Aggregates business are also sensitive to energy and raw materials prices, both directly and indirectly. Diesel fuel and other consumables change production costs directly through consumption or indirectly by
increased energy-related input costs, such as, steel, explosives, tires and conveyor belts. Fluctuating diesel fuel pricing also affects transportation costs, primarily through fuel surcharges in the Corporations long-haul distribution
network. The Specialty Products business is sensitive to changes in domestic steel capacity utilization and the absolute price and fluctuations in the cost of natural gas.
Transportation in the Corporations long-haul network, particularly rail cars and locomotive power to move trains, affects its ability to efficiently transport material into certain markets, most
notably Texas, Florida and the Gulf Coast. The availability of trucks and drivers to transport the Corporations product, particularly in markets experiencing increased demand due to energy sector activity, is also a risk. The Aggregates
business is also subject to weather-related risks that can significantly affect production schedules and profitability. The first and fourth quarters are most adversely affected by winter weather. Hurricane activity in the Atlantic Ocean and Gulf
Coast generally is most active during the third and fourth quarters.
Risks to the full-year outlook include shipment declines
as a result of economic events beyond the Corporations control. In addition to the impact on nonresidential and residential construction, the Corporation is exposed to risk in its estimated outlook from credit markets and the availability of
and interest cost related to its debt.
The Corporations future performance is also exposed to risk from tax reform at
the federal and state levels.
Page 47 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
OTHER MATTERS If you are interested in Martin Marietta
Materials, Inc. stock, management recommends that, at a minimum, you read the Corporations current Annual Report and Forms 10-K, 10-Q and 8-K reports to the SEC over the past year. The Corporations 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 Corporations website at www.martinmarietta.com and are also available at the SECs website
at www.sec.gov. You may also write or call the Corporations Corporate Secretary, who will provide copies of such reports.
Investors are cautioned that all statements in this Quarterly Report that relate to the future involve risks and uncertainties, and are
based on assumptions that the Corporation believes in good faith are reasonable but which may be materially different from actual results. Forward-looking statements give the investor the Corporations 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, estimate, expect, project, intend,
plan, believe, and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of the Corporations forward-looking statements here and in other publications
may turn out to be wrong.
Factors that the Corporation currently believes could cause actual results to differ materially
from the forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the performance of the United States economy and the resolution and impact of the debt ceiling and sequestration issues; widespread decline in
aggregates pricing; the termination, capping and/or reduction of the federal and/or state gasoline taxes or other revenue related to infrastructure construction; the level and timing of federal and state transportation funding, including federal
stimulus projects and most particularly in North Carolina and Texas, two of the Corporations largest and most profitable states, and Iowa, Colorado and Georgia, which when coupled with North Carolina and Texas, represented 57% of 2012 net
sales of the Aggregates business; the ability of states and/or other entities to finance approved projects either with tax revenues or alternative financing structures; levels of construction spending in the markets the Corporation serves; a decline
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 continued slowdown in
energy-related drilling activity; a slowdown in residential construction recovery; unfavorable weather conditions, particularly Atlantic Ocean hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or
excessive rainfall in the markets served by the Corporation; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost of other consumables, namely steel, explosives, tires, conveyor belts, and with respect to the Specialty
Products segment, natural gas; continued increases in the cost of other repair and supply parts; transportation availability, notably the availability of railcars and locomotive power to move trains to supply the Corporations Texas, Florida
and Gulf Coast markets; increased transportation costs, including increases from higher passed-through energy and other costs to comply with tightening regulations as well as higher volumes of rail and water shipments; availability and cost of
Page 48 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
construction equipment in the United States; weakening in the steel industry markets served by the Corporations dolomitic lime products; inflation and its effect on both production and
interest costs; reduction of the Corporations credit rating to noninvestment-grade resulting from strategic acquisitions; ability to successfully integrate acquisitions quickly and in a cost-effective manner and achieve anticipated
profitability to maintain compliance with the Corporations leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Corporations tax rate; violation of the
Corporations debt covenant if price and/or volumes returns to previous levels of instability; downward pressure on the Corporations common stock price and its impact on goodwill impairment evaluations; and other risk factors listed from
time to time found in the Corporations filings with the SEC.
Other factors besides those listed here may also adversely
affect the Corporation, and may be material to the Corporation. The Corporation assumes no obligation to update any such forward-looking statements.
INVESTOR ACCESS TO COMPANY FILINGS Shareholders may obtain, without charge, a copy of Martin Marietta Materials, Inc.s Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission for the fiscal year ended December 31, 2012, by writing to:
Martin
Marietta Materials, Inc.
Attn: Corporate Secretary
2710 Wycliff Road
Raleigh, North Carolina 27607-3033
Additionally, Martin Marietta Materials,
Inc.s Annual Report, press releases and filings with the Securities and Exchange Commission, including Forms 10-K, 10-Q, 8-K and 11-K, can generally be accessed via the Corporations 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) 788-4367
Website address: www.martinmarietta.com
Information included on the Corporations website is not incorporated into, or otherwise create a part of, this report.
Page 49 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended June 30, 2013