MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 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 303 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 and
Distribution Yards
|
|
Quarries and
Distribution Yards
|
|
Quarries and
Distribution Yards
|
Primary Modes of
Transportation for
Aggregates Product Line
|
|
Truck, Rail and
Water
|
|
Truck, Rail and
Water
|
|
Truck and Rail
|
Page 26 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 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 nine months ended
September 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 nine months ended September 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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
Gross profit
|
|
$
|
143,108
|
|
|
$
|
124,022
|
|
|
$
|
262,925
|
|
|
$
|
250,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
665,320
|
|
|
$
|
592,268
|
|
|
$
|
1,610,555
|
|
|
$
|
1,529,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
21.5%
|
|
|
|
20.9%
|
|
|
|
16.3%
|
|
|
|
16.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 27 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
Gross Margin Excluding Freight and Delivery Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
Gross profit
|
|
$
|
143,108
|
|
|
$
|
124,022
|
|
|
$
|
262,925
|
|
|
$
|
250,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
665,320
|
|
|
$
|
592,268
|
|
|
$
|
1,610,555
|
|
|
$
|
1,529,643
|
|
Less: Freight and delivery revenues
|
|
|
(64,863)
|
|
|
|
(54,761)
|
|
|
|
(158,707)
|
|
|
|
(152,699)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
600,457
|
|
|
$
|
537,507
|
|
|
$
|
1,451,848
|
|
|
$
|
1,376,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin excluding freight and delivery revenues
|
|
|
23.8%
|
|
|
|
23.1%
|
|
|
|
18.1%
|
|
|
|
18.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin in Accordance with GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
108,843
|
|
|
$
|
91,533
|
|
|
$
|
155,157
|
|
|
$
|
115,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
665,320
|
|
|
$
|
592,268
|
|
|
$
|
1,610,555
|
|
|
$
|
1,529,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
16.4%
|
|
|
|
15.5%
|
|
|
|
9.6%
|
|
|
|
7.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin Excluding Freight and Delivery Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
108,843
|
|
|
$
|
91,533
|
|
|
$
|
155,157
|
|
|
$
|
115,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
665,320
|
|
|
$
|
592,268
|
|
|
$
|
1,610,555
|
|
|
$
|
1,529,643
|
|
Less: Freight and delivery revenues
|
|
|
(64,863)
|
|
|
|
(54,761)
|
|
|
|
(158,707)
|
|
|
|
(152,699)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
600,457
|
|
|
$
|
537,507
|
|
|
$
|
1,451,848
|
|
|
$
|
1,376,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin excluding freight and delivery revenues
|
|
|
18.1%
|
|
|
|
17.0%
|
|
|
|
10.7%
|
|
|
|
8.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 28 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
Quarter Ended September 30
Significant items for the quarter ended September 30, 2013 (unless noted, all comparisons are versus the prior-year third quarter):
|
|
|
Earnings per diluted share of $1.54 compared with $1.36
|
|
|
|
Record consolidated net sales of $600.5 million, up 11.7%, compared with $537.5 million
|
|
|
|
Aggregates product line
|
Volume up 8.1%
Pricing up 2.3%
Production cost per ton up 2.6%
|
|
|
Consolidated gross profit of $143.1 million
|
Gross margin (excluding freight and delivery revenues) expansion of 70 basis points
|
|
|
Specialty Products record third-quarter
|
Net sales of $55.8 million
Earnings from operations of $17.3
million
|
|
|
Consolidated selling, general and administrative expenses (SG&A) of 6.2%, up 20 basis points as a percentage of net sales
|
|
|
|
Consolidated earnings from operations of $108.8 million compared with $91.5 million
|
|
|
|
Acquisition and successful integration of three aggregates quarries in the Atlanta, Georgia area
|
The following table presents net sales, gross profit (loss), selling, general and administrative expenses and earnings (loss) from operations data for
the Corporation and its reportable segments for the three months ended September 30, 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 29 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Amount
|
|
|
% of
Net Sales
|
|
|
Amount
|
|
|
% of
Net Sales
|
|
|
|
(Dollars in Thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
216,361
|
|
|
|
|
|
|
$
|
194,128
|
|
|
|
|
|
Southeast Group
|
|
|
64,871
|
|
|
|
|
|
|
|
57,021
|
|
|
|
|
|
West Group
|
|
|
263,431
|
|
|
|
|
|
|
|
236,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
544,663
|
|
|
|
100.0
|
|
|
|
488,060
|
|
|
|
100.0
|
|
Specialty Products
|
|
|
55,794
|
|
|
|
100.0
|
|
|
|
49,447
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
600,457
|
|
|
|
100.0
|
|
|
$
|
537,507
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
77,030
|
|
|
|
35.6
|
|
|
$
|
68,460
|
|
|
|
35.3
|
|
Southeast Group
|
|
|
2,545
|
|
|
|
3.9
|
|
|
|
1,070
|
|
|
|
1.9
|
|
West Group
|
|
|
43,323
|
|
|
|
16.4
|
|
|
|
34,118
|
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
122,898
|
|
|
|
22.6
|
|
|
|
103,648
|
|
|
|
21.2
|
|
Specialty Products
|
|
|
19,919
|
|
|
|
35.7
|
|
|
|
19,744
|
|
|
|
39.9
|
|
Corporate
|
|
|
291
|
|
|
|
--
|
|
|
|
630
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
143,108
|
|
|
|
23.8
|
|
|
$
|
124,022
|
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
12,488
|
|
|
|
|
|
|
$
|
12,906
|
|
|
|
|
|
Southeast Group
|
|
|
4,406
|
|
|
|
|
|
|
|
4,279
|
|
|
|
|
|
West Group
|
|
|
11,553
|
|
|
|
|
|
|
|
11,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
28,447
|
|
|
|
5.2
|
|
|
|
28,442
|
|
|
|
5.8
|
|
Specialty Products
|
|
|
2,582
|
|
|
|
4.6
|
|
|
|
2,175
|
|
|
|
4.4
|
|
Corporate
|
|
|
6,111
|
|
|
|
--
|
|
|
|
1,478
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,140
|
|
|
|
6.2
|
|
|
$
|
32,095
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
66,419
|
|
|
|
|
|
|
$
|
56,357
|
|
|
|
|
|
Southeast Group
|
|
|
(1,386)
|
|
|
|
|
|
|
|
(3,452)
|
|
|
|
|
|
West Group
|
|
|
32,302
|
|
|
|
|
|
|
|
23,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
97,335
|
|
|
|
17.9
|
|
|
|
76,571
|
|
|
|
15.7
|
|
Specialty Products
|
|
|
17,267
|
|
|
|
30.9
|
|
|
|
17,034
|
|
|
|
34.4
|
|
Corporate
|
|
|
(5,759)
|
|
|
|
--
|
|
|
|
(2,072)
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
108,843
|
|
|
|
18.1
|
|
|
$
|
91,533
|
|
|
|
17.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 30 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
The Corporation reported double-digit increases in both revenues and earnings in the third quarter of
2013. The Corporations performance was driven largely by the ongoing recovery in private sector construction activity, as well as diligent cost management. The combination of a 12% increase in consolidated net sales over the prior-year quarter
and ongoing focus on controlling costs resulted in a 13% increase in earnings per diluted share. These results reflect both new third-quarter records for net sales and earnings from operations in the Specialty Products business, as well as volume
and pricing growth in the aggregates product line.
Each of the reportable segments in the Aggregates business posted aggregates product line
volume growth, led by an 8.1% increase in the Mid-America Group. Consistent with trends noted earlier in the year, private-sector construction generated this growth. The nonresidential market, which comprised 30% of third-quarter aggregates
shipments, increased 19% and growth was notable in both commercial construction and the energy sector. The residential market achieved volume growth of 15% and accounted for 13% of quarterly shipments. Housing permits and starts, key indicators for
residential construction activity, continued to have strong year-over-year improvement, which should help sustain the recovery in this market. The ChemRock/Rail market, 11% of aggregates volumes, reported higher ballast shipments and increased 13%
over the prior-year quarter.
Management is encouraged by significant improvements in the Aggregates business markets and believes, as
do most third-party forecasters, that significant upside potential remains in both the residential and nonresidential construction segments. Additionally, the Corporations Aggregates business will benefit from the current boom in shale gas
production as well as planned follow-on development. Management is confident that these trends bode especially well for the business.
Shipments to the infrastructure end-use market, which represented the remaining 46% of the aggregates product line business, were essentially flat with
the prior-year quarter. Federal budget and deficit disputes and the uncertainty over future highway funding levels beyond the September 2014 expiration of the
Moving Ahead for Progress in the 21
st
Century Act
, or MAP-21, have contributed to the reluctance of many states and municipalities to commit to large scale projects. Additionally, while awards under the
Transportation Infrastructure Finance and Innovation Act
(TIFIA) component of MAP-21 have the ability to leverage up to $50 billion in financing for transportation projects of either national or regional significance, they continue to move at
a slower pace versus earlier expectations with only two projects being awarded. While management still expects TIFIA to benefit several of the Aggregates business major markets - namely Texas, North Carolina and Florida - it does not expect
any meaningful impact before the second half of 2014, and more notably in 2015.
Page 31 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
Despite federal-level funding delays and concerns, management is encouraged by states recognition
of the importance of sustained infrastructure investment. The Aggregates business has seen year-over-year growth in highway contract awards and construction employment in several of its key states, including Texas, Georgia, Colorado and Virginia. In
Georgia, three regions in the southern part of the state began collecting a special-purpose local option sales tax on January 1, 2013. These monies are earmarked for transportation improvements, and management expects the pace of projects
funded by this tax to accelerate as it moves into 2014. Additionally, management anticipates a significant reconstruction effort in Colorado as a result of the recent flooding. The Aggregates business is well-positioned to work with the local
Colorado communities to repair and/or replace hundreds of miles of washed-out roads and the significant number of destroyed homes, businesses and bridges.
Pricing momentum in the Aggregates business continued with each of its product lines reporting growth. Importantly, for the third quarter in a row, each reportable segment achieved pricing improvement in
the aggregates product line, resulting in an overall increase of 2.3%. The Corporations vertically-integrated businesses also achieved pricing growth, with the ready mixed concrete and asphalt product lines reporting increases of 7.0% and
1.6%, respectively.
Net sales by product line for the Aggregates business are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Net
sales
1
:
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
411,206
|
|
|
$
|
371,398
|
|
Asphalt
|
|
|
23,787
|
|
|
|
28,881
|
|
Ready Mixed Concrete
|
|
|
41,765
|
|
|
|
31,531
|
|
Road Paving
|
|
|
67,905
|
|
|
|
56,250
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
$
|
544,663
|
|
|
$
|
488,060
|
|
|
|
|
|
|
|
|
|
|
1
Net
|
sales by product line reflect the elimination of inter-product line sales.
|
Page 32 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
The following tables present volume and pricing data and shipments data for the aggregates product line.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September
30, 2013
|
|
Volume/Pricing Variance
(1)
|
|
Volume
|
|
|
Pricing
|
|
Heritage Aggregates Product Line
(2)
:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
|
8.1%
|
|
|
|
2.8%
|
|
Southeast Group
|
|
|
4.8%
|
|
|
|
1.3%
|
|
West Group
|
|
|
6.5%
|
|
|
|
1.7%
|
|
Heritage Aggregates Operations
(2)
|
|
|
7.0%
|
|
|
|
2.2%
|
|
Aggregates Product Line
(3)
|
|
|
8.1%
|
|
|
|
2.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(tons in thousands)
|
|
Shipments
|
|
|
|
|
|
|
|
|
Heritage Aggregates Product Line
(2)
:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
|
19,172
|
|
|
|
17,742
|
|
Southeast Group
|
|
|
4,612
|
|
|
|
4,399
|
|
West Group
|
|
|
15,468
|
|
|
|
14,528
|
|
|
|
|
|
|
|
|
|
|
Heritage Aggregates Operations
(2)
|
|
|
39,252
|
|
|
|
36,669
|
|
Acquisitions
|
|
|
379
|
|
|
|
--
|
|
Divestitures
(4)
|
|
|
--
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Aggregates Product Line
(3)
|
|
|
39,631
|
|
|
|
36,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(tons in thousands)
|
|
Shipments
|
|
|
|
|
|
|
|
|
Aggregates Product Line
(3)
:
|
|
|
|
|
|
|
|
|
Tons to external customers
|
|
|
38,109
|
|
|
|
35,254
|
|
Internal tons used in other product lines
|
|
|
1,522
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
Total aggregates tons
|
|
|
39,631
|
|
|
|
36,674
|
|
|
|
|
|
|
|
|
|
|
(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 33 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
The average per-ton selling price for the aggregates product line was $10.55 and $10.32 for the three
months ended September 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
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
Asphalt
|
|
$
|
41.76/ton
|
|
|
$
|
41.11/ton
|
|
Ready Mixed Concrete
|
|
$
|
83.44/yd
3
|
|
|
$
|
77.99/yd
3
|
|
Unit shipments by product line for the Corporations vertically-integrated operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Asphalt Product Line:
|
|
|
|
|
|
|
|
|
Tons to external customers
|
|
|
464
|
|
|
|
538
|
|
Internal tons used in road paving business
|
|
|
761
|
|
|
|
717
|
|
|
|
|
|
|
|
|
|
|
Total asphalt tons
|
|
|
1,225
|
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
Ready Mixed Concrete cubic yards
|
|
|
496
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
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 potentially significant impact of weather on the Corporations operations, third-quarter results are not indicative of expected performance for other interim periods or the
full year.
Page 34 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
The Specialty Products business continued its strong performance, setting third-quarter records for both
net sales and earnings from operations. Net sales of $55.8 million increased 12.8%, from growth in the dolomitic lime product line, including the contribution from the Woodville kiln that became operational during the fourth quarter of 2012. While
margins (excluding freight and delivery revenues) were negatively affected by higher coal costs and a planned kiln outage for maintenance, the business generated third-quarter record earnings from operations of $17.3 million.
The Corporation leveraged its sales growth into a 70-basis-point expansion of consolidated gross margin (excluding freight and delivery revenues). In
fact, each of the Aggregates business three reportable segments achieved gross margin improvement, with the Southeast and West Groups each reporting a 200-basis-point expansion. Growth in the Mid-America Group was led by the Mid-Atlantic
Division, which once again leveraged an increase in aggregates shipments into an incremental gross margin (excluding freight and delivery revenues) exceeding managements publicly-stated expectations.
The following presents a reconciliation of consolidated gross profit (dollars in thousands):
|
|
|
|
|
Consolidated gross profit, quarter ended September 30, 2012
|
|
$
|
124,022
|
|
|
|
|
|
|
Aggregates product line:
|
|
|
|
|
Volume strength
|
|
|
26,645
|
|
Pricing strength
|
|
|
13,163
|
|
Cost increases, net
|
|
|
(26,183)
|
|
|
|
|
|
|
Increase in aggregates product line gross profit
|
|
|
13,625
|
|
Vertically-integrated operations
|
|
|
5,625
|
|
Specialty Products
|
|
|
175
|
|
Corporate
|
|
|
(339)
|
|
|
|
|
|
|
Increase in consolidated gross profit
|
|
|
19,086
|
|
|
|
|
|
|
Consolidated gross profit, quarter ended September 30, 2013
|
|
$
|
143,108
|
|
|
|
|
|
|
Cost increases, net, for the aggregates product line reflect incremental production costs for the recently-acquired
quarries in Georgia, higher repair costs, increased workers compensation costs for claims incurred during the quarter, costs related to the September flooding in Denver, Colorado, as well as increased production volume.
Page 35 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
Gross profit by business is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
108,166
|
|
|
$
|
94,541
|
|
Asphalt
|
|
|
7,322
|
|
|
|
6,359
|
|
Ready Mixed Concrete
|
|
|
3,124
|
|
|
|
472
|
|
Road Paving
|
|
|
4,286
|
|
|
|
2,276
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
122,898
|
|
|
|
103,648
|
|
Specialty Products
|
|
|
19,919
|
|
|
|
19,744
|
|
Corporate
|
|
|
291
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
143,108
|
|
|
$
|
124,022
|
|
|
|
|
|
|
|
|
|
|
Consolidated SG&A expenses were 6.2% of net sales, up 20 basis points compared with the prior-year quarter. On an
absolute basis, SG&A increased $5.0 million, resulting from higher pension expense, incentive compensation and costs for professional services. The Corporations information systems upgrade was successfully completed in October 2013.
Among other items, other operating income and expenses, net, includes gains and losses on the sale of assets; recoveries and writeoffs
related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations; and research and development costs. For the third quarter,
consolidated other operating income and expenses, net, was income of $3.0 million in 2013 compared with expense of $0.4 million in 2012. Third quarter 2013 included higher gains on the sale of assets and bad debt recoveries compared with 2012 and a
$1.8 million gain for the revision of cost estimates for asset retirement obligations.
Page 36 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
Nine Months Ended September 30
Significant items for the nine months ended September 30, 2013 (unless noted, all comparisons are versus the prior-year nine-month period):
|
|
|
Earnings per diluted share of $1.84 compared with $1.36 (prior-year period includes $0.46 per diluted share charge for business development costs)
|
|
|
|
Consolidated net sales of $1.452 billion, up 5.4%, compared with $1.377 million
|
|
|
|
Aggregates product line
|
Pricing up 2.9%;
Volume up 0.2%
Production cost per ton up 2.6%
|
|
|
Specialty Products net sales of $167.6 million and earnings from operations of $53.1 million
|
|
|
|
Consolidated SG&A up 50 basis points as a percentage of net sales
|
|
|
|
Consolidated earnings from operations of $155.2 million compared with $115.9 million (prior-year period includes $35.1 million of business development
costs)
|
|
|
|
Successful integration of three aggregates quarries acquired in the Atlanta, Georgia area
|
The following table presents net sales, gross profit (loss), selling, general and administrative expenses and earnings (loss) from operations data for
the Corporation and its reportable segments for the nine months ended September 30, 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 37 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Amount
|
|
|
% of
Net Sales
|
|
|
Amount
|
|
|
% of
Net Sales
|
|
|
|
(Dollars in Thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
508,999
|
|
|
|
|
|
|
$
|
493,453
|
|
|
|
|
|
Southeast Group
|
|
|
171,456
|
|
|
|
|
|
|
|
171,027
|
|
|
|
|
|
West Group
|
|
|
603,798
|
|
|
|
|
|
|
|
560,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
1,284,253
|
|
|
|
100.0
|
|
|
|
1,225,318
|
|
|
|
100.0
|
|
Specialty Products
|
|
|
167,595
|
|
|
|
100.0
|
|
|
|
151,626
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,451,848
|
|
|
|
100.0
|
|
|
$
|
1,376,944
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
136,544
|
|
|
|
26.8
|
|
|
$
|
131,682
|
|
|
|
26.7
|
|
Southeast Group
|
|
|
(2,911)
|
|
|
|
(1.7)
|
|
|
|
348
|
|
|
|
0.2
|
|
West Group
|
|
|
69,934
|
|
|
|
11.6
|
|
|
|
60,547
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
203,567
|
|
|
|
15.9
|
|
|
|
192,577
|
|
|
|
15.7
|
|
Specialty Products
|
|
|
60,784
|
|
|
|
36.3
|
|
|
|
59,057
|
|
|
|
38.9
|
|
Corporate
|
|
|
(1,426)
|
|
|
|
--
|
|
|
|
(1,222)
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
262,925
|
|
|
|
18.1
|
|
|
$
|
250,412
|
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
37,433
|
|
|
|
|
|
|
$
|
39,927
|
|
|
|
|
|
Southeast Group
|
|
|
13,375
|
|
|
|
|
|
|
|
13,690
|
|
|
|
|
|
West Group
|
|
|
34,481
|
|
|
|
|
|
|
|
33,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
85,289
|
|
|
|
6.6
|
|
|
|
87,081
|
|
|
|
7.1
|
|
Specialty Products
|
|
|
7,602
|
|
|
|
4.5
|
|
|
|
6,900
|
|
|
|
4.6
|
|
Corporate
|
|
|
19,741
|
|
|
|
--
|
|
|
|
6,417
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,632
|
|
|
|
7.8
|
|
|
$
|
100,398
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
102,342
|
|
|
|
|
|
|
$
|
94,959
|
|
|
|
|
|
Southeast Group
|
|
|
(14,949)
|
|
|
|
|
|
|
|
(14,980)
|
|
|
|
|
|
West Group
|
|
|
38,402
|
|
|
|
|
|
|
|
29,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
125,795
|
|
|
|
9.8
|
|
|
|
109,162
|
|
|
|
8.9
|
|
Specialty Products
|
|
|
53,071
|
|
|
|
31.7
|
|
|
|
52,706
|
|
|
|
34.8
|
|
Corporate
|
|
|
(23,709)
|
|
|
|
--
|
|
|
|
(45,924)
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
155,157
|
|
|
|
10.7
|
|
|
$
|
115,944
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 38 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
Consolidated net sales increased 5.4% over the comparable 2012 period, driven primarily by pricing
improvements for all reportable groups and product lines of the Aggregates business, as well as record net sales achieved by the Specialty Products business.
Pricing momentum in the aggregates product line continued with each reportable group achieving pricing growth. The West Group reported a 3.9% improvement, primarily due to price increases implemented over
the past year. The Mid-America and Southeast Groups reported average selling price increases of 2.6% and 2.4%, respectively, for 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 7.9% and 3.1%, respectively.
The aggregates product line
experienced year-to-date volume growth of 0.2% driven by positive trends in private-sector construction and related employment. Aggregates shipments to all of the Corporations end-use markets increased, with the exception of infrastructure.
Infrastructure shipments declined 6.0% resulting from the effects of weather-delayed shipments in the first half of 2013 and lackluster public-sector demand.
Net sales by product line for the Aggregates business are as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Net
sales
1
:
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
1,016,238
|
|
|
$
|
985,563
|
|
Asphalt
|
|
|
52,231
|
|
|
|
61,655
|
|
Ready Mixed Concrete
|
|
|
103,347
|
|
|
|
78,746
|
|
Road Paving
|
|
|
112,437
|
|
|
|
99,354
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
$
|
1,284,253
|
|
|
$
|
1,225,318
|
|
|
|
|
|
|
|
|
|
|
1
|
Net sales by product line reflect the elimination of inter-product line sales.
|
Page 39 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
The following tables present volume and pricing data and shipments data for the aggregates product line.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2013
|
|
Volume/Pricing Variance
(1)
|
|
Volume
|
|
|
Pricing
|
|
Heritage Aggregates Product Line
(2)
:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
|
0.4%
|
|
|
|
2.6%
|
|
Southeast Group
|
|
|
(4.7%)
|
|
|
|
2.4%
|
|
West Group
|
|
|
0.8%
|
|
|
|
3.9%
|
|
Heritage Aggregates Operations
(2)
|
|
|
(0.2%)
|
|
|
|
2.8%
|
|
Aggregates Product Line
(3)
|
|
|
0.2%
|
|
|
|
2.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(tons in thousands)
|
|
Shipments
|
|
|
|
|
|
|
|
|
Heritage Aggregates Product Line
(2)
:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
|
44,387
|
|
|
|
44,216
|
|
Southeast Group
|
|
|
12,705
|
|
|
|
13,334
|
|
West Group
|
|
|
39,489
|
|
|
|
39,183
|
|
|
|
|
|
|
|
|
|
|
Heritage Aggregates Operations
(2)
|
|
|
96,581
|
|
|
|
96,733
|
|
Acquisitions
|
|
|
402
|
|
|
|
--
|
|
Divestitures
(4)
|
|
|
3
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Aggregates Product Line
(3)
|
|
|
96,986
|
|
|
|
96,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(tons in thousands)
|
|
Shipments
|
|
|
|
|
|
|
|
|
Aggregates Product Line
(3)
:
|
|
|
|
|
Tons to external customers
|
|
|
93,516
|
|
|
|
93,380
|
|
Internal tons used in other product lines
|
|
|
3,470
|
|
|
|
3,389
|
|
|
|
|
|
|
|
|
|
|
Total aggregates tons
|
|
|
96,986
|
|
|
|
96,769
|
|
|
|
|
|
|
|
|
|
|
(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 40 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
The per-ton average selling price for the aggregates product line was $10.62 and $10.33 for the nine
months ended September 30, 2013 and 2012, respectively.
Average selling prices by product line for the Corporations
vertically-integrated operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
Asphalt
|
|
$
|
42.11/ton
|
|
|
$
|
40.84/ton
|
|
Ready Mixed Concrete
|
|
$
|
82.59/yd
|
3
|
|
$
|
76.55/yd
|
3
|
Unit shipments by product line for the Corporations vertically-integrated operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Asphalt Product Line:
|
|
|
|
|
|
|
|
|
Tons to external customers
|
|
|
1,072
|
|
|
|
1,329
|
|
Internal tons used in road paving business
|
|
|
1,257
|
|
|
|
1,203
|
|
|
|
|
|
|
|
|
|
|
Total asphalt tons
|
|
|
2,329
|
|
|
|
2,532
|
|
|
|
|
|
|
|
|
|
|
Ready Mixed Concrete cubic yards
|
|
|
1,261
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
For 2013, Specialty Products net sales of $167.6 million increased $16.0 million, or 10.5%, over the prior-year
period. Sales growth reflects dolomitic lime 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. While margins (excluding freight
and delivery revenues) were negatively affected by higher coal costs and a planned kiln outage for maintenance, the business generated earnings from operations of $53.1 million in 2013. Earnings from operations of $52.7 million in 2012 included a
$1.2 million favorable litigation settlement.
Consolidated gross margin (excluding freight and delivery revenues) was 18.1% for 2013 versus
18.2% for 2012 and was negatively impacted by higher repair costs, including $1.7 million in costs associated with unplanned repairs for a shiploader/reclaimer for the Southeast Group, incremental production costs for the recently-acquired quarries
in Georgia, increased workers compensation costs for incurred claims and costs related to the September flooding in Denver, Colorado.
Page 41 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
The following presents a reconciliation of consolidated gross profit (dollars in thousands):
|
|
|
|
|
Consolidated gross profit, nine months ended September 30, 2012
|
|
$
|
250,412
|
|
|
|
|
|
|
Aggregates product line:
|
|
|
|
|
Pricing strength
|
|
|
28,370
|
|
Volume strength
|
|
|
2,305
|
|
Cost increases, net
|
|
|
(24,387)
|
|
|
|
|
|
|
Increase in aggregates product line gross profit
|
|
|
6,288
|
|
Vertically-integrated operations
|
|
|
4,702
|
|
Specialty Products
|
|
|
1,727
|
|
Corporate
|
|
|
(204)
|
|
|
|
|
|
|
Increase in consolidated gross profit
|
|
|
12,513
|
|
|
|
|
|
|
Consolidated gross profit, nine months ended September 30, 2013
|
|
$
|
262,925
|
|
|
|
|
|
|
Gross profit (loss) by business is as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
189,171
|
|
|
$
|
182,883
|
|
Asphalt
|
|
|
9,770
|
|
|
|
9,065
|
|
Ready Mixed Concrete
|
|
|
4,911
|
|
|
|
421
|
|
Road Paving
|
|
|
(285)
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
203,567
|
|
|
|
192,577
|
|
Specialty Products
|
|
|
60,784
|
|
|
|
59,057
|
|
Corporate
|
|
|
(1,426)
|
|
|
|
(1,222)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
262,925
|
|
|
$
|
250,412
|
|
|
|
|
|
|
|
|
|
|
Consolidated SG&A expenses were 7.8% of net sales, up 50 basis points compared with the prior-year period. On an
absolute basis, SG&A increased $12.2 million, due to incremental costs for the Corporations information systems upgrade that was successfully completed in October 2013 and increased professional services.
During the nine months ended September 30, 2012, the Corporation incurred $35.1 million of business development costs related to a proposed
significant business combination that was not consummated.
Page 42 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
For the first nine months, consolidated other operating income and expenses, net, was income of $5.5
million in 2013 compared with income of $1.1 million in 2012, due in part to higher bad debt recoveries in 2013 and a $1.8 million gain for the revision of cost estimates for asset retirement obligations 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 nine months ended September 30 was an expense of $0.2 million in 2013 compared with income of $1.3 million in 2012. Nonoperating income for 2012
included a gain on debt repurchased at a discount and a gain on foreign currency transactions (compared with a loss in 2013), which were partially offset by lower earnings on nonconsolidated equity investments.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided
by operating activities for the nine months ended September 30, 2013 was $165.6 million compared with $122.0 million for the same period in 2012. The improvement is attributable to the absence of significant business development costs incurred
in 2012 and a larger increase in payables. Operating cash flow is primarily derived from consolidated net earnings, before deducting depreciation, depletion and amortization, and offset by working capital requirements. Depreciation, depletion and
amortization were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
Depreciation
|
|
$
|
122,129
|
|
|
$
|
125,534
|
|
Depletion
|
|
|
3,920
|
|
|
|
3,446
|
|
Amortization
|
|
|
4,048
|
|
|
|
4,005
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,097
|
|
|
$
|
132,985
|
|
|
|
|
|
|
|
|
|
|
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 $122.0 million for the first nine months of 2012.
During the nine months ended September 30, 2013, the Corporation invested $102.3 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.
During the third quarter of
2013, the Corporation acquired three aggregates quarries in Atlanta, Georgia.
Page 43 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
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 Corporation has the intent and ability to refinance amounts outstanding when the Trade Receivable
Facility matures on April 19, 2014.
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 nine months ended September 30, 2013 and 2012. Management currently has no intent to repurchase any shares of the Corporations
common stock. At September 30, 2013, 5,042,000 shares of common stock were remaining under the Corporations repurchase authorization.
The Credit Agreement (which consisted of a $250 million Term Loan Facility and a $350 million Revolving Facility at September 30, 2013) 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 210 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 for which the Corporation is a co-borrower, 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 Ratio is calculated as debt, including debt for which the Corporation is a co-borrower, divided by consolidated EBITDA, as defined, for
the trailing twelve months. Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation, depletion and amortization expense for continuing operations. Additionally, stock-based compensation
expense is added back and interest income is deducted in the calculation of consolidated EBITDA. Certain other nonrecurring noncash items, if they occur, can affect the calculation of consolidated EBITDA.
Page 44 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
At September 30, 2013, the Corporations ratio of consolidated debt to consolidated EBITDA, as
defined, for the trailing twelve months EBITDA was 3.06 times and was calculated as follows:
|
|
|
|
|
|
|
Twelve Month Period
October 1, 2012 to
September 30, 2013
|
|
|
|
(Dollars in thousands)
|
|
Earnings from continuing operations attributable to Martin Marietta Materials, Inc.
|
|
$
|
106,761
|
|
Add back:
|
|
|
|
|
Interest expense
|
|
|
54,005
|
|
Income tax expense
|
|
|
33,949
|
|
Depreciation, depletion and amortization expense
|
|
|
169,579
|
|
Stock-based compensation expense
|
|
|
7,242
|
|
Deduct:
|
|
|
|
|
Interest income
|
|
|
(301)
|
|
|
|
|
|
|
Consolidated EBITDA, as defined
|
|
$
|
371,235
|
|
|
|
|
|
|
Consolidated debt, including debt for which the Corporation is a co-borrower, at September 30, 2013
|
|
$
|
1,135,327
|
|
Deduct:
|
|
|
|
|
Unrestricted cash and cash equivalents in excess of $50,000 at September 30, 2013
|
|
|
--
|
|
|
|
|
|
|
Consolidated net debt, as defined, at September 30, 2013
|
|
$
|
1,135,327
|
|
|
|
|
|
|
Consolidated debt to consolidated EBITDA, as defined, at September 30, 2013 for the trailing twelve months
EBITDA
|
|
|
3.06X
|
|
|
|
|
|
|
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 September 30, 2013, the Corporation had $277 million of unused borrowing capacity under its Revolving Facility, subject to complying with the related leverage covenant.
Page 45 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 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 included borrowings under its Revolving Facility, Term Loan Facility and Trade Receivable Facility at
September 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
As noted above, management is encouraged by various positive trends in the
Corporations business and markets especially in private-sector employment and construction. Management anticipates volumes in 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 and has shown consistent growth over the last year. 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 high single-digit volume growth. By contrast, the
weather-related slowdown in aggregates shipments experienced in the first half of the year, coupled with the hesitancy created by the uncertainty of future federal highway funding levels, 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, dependent on fourth-quarter weather, management anticipates full-year aggregates product line shipments will be flat to slightly up as compared with 2012 levels. Management currently expects
aggregates product line pricing to 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 forecasted pricing increase will not be uniform across the
company.
Page 46 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
Management expects the vertically-integrated businesses to generate between $335 million and $355
million of net sales and $18 million to $20 million of gross profit.
Aggregates product line direct production costs per ton should be up
slightly 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 remain relatively flat.
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
compared with 2012. The Corporations effective tax rate is expected to approximate 26%, excluding discrete events. Capital expenditures are forecast at $155 million.
Management has started framing a preliminary 2014 outlook for the Aggregates business end-use markets and, while the current environment in Washington, DC reduces clarity, it has formed an initial
view based on internal observations in conjunction with McGraw Hill Constructions recent economic forecast. Management currently expects shipments to the infrastructure end-use market to increase slightly. Management anticipates the
nonresidential end-use market to increase in the mid-to-high single digits, led by strength in the commercial component and energy sector. Management believes the recent positive trend in housing starts will continue and the residential end-use
market will experience double-digit volume growth. Finally, management expects the ChemRock/Rail end-use market to be up low single digits compared with 2013.
The full-year 2013 and preliminary 2014 outlook include managements assessment of the likelihood of certain risk factors that will affect performance. The most significant risk to the
Corporations performance will be the United States economy and its impact on construction activity. While transportation investment is mostly exempt from spending cuts, the impact of sequester may may increase in future periods. While both
MAP-21 and TIFIA credit assistance are excluded from the 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. In
addition, the recent government shutdown may further erode consumer confidence, which may negatively impact investment in construction projects. 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
Page 47 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
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 the uncertainty as to the timing and funding of the domestic farm bill and 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 customers introduce volatility to the earnings of this segment.
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 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 48 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 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 tax(es) 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 slowdown in energy-related drilling activity; a slowdown in residential construction recovery; a reduction in shipments due to decline in funding under the domestic farm bill;
unfavorable weather conditions, particularly Atlantic Ocean hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or excessive rainfall in the markets served by the Corporation; the volatility of fuel
costs, particularly diesel fuel, and the impact on the cost of other consumables, namely steel, explosives, tires, 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
Page 49 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
regulations as well as higher volumes of rail and water shipments; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the
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 50 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended September 30, 2013