NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
|
Significant Accounting Policies
|
Organization
Martin Marietta Materials, Inc., (the Corporation) is engaged principally in the construction aggregates business. The Corporations aggregates product line accounted for 69% of
consolidated 2013 net sales and includes crushed stone, sand and gravel, and is used for construction of highways and other infrastructure projects, and in the nonresidential and residential construction industries. Aggregates products are also used
in the railroad, agricultural, utility and environmental industries. These aggregates products, along with the Corporations vertically-integrated operations, i.e., asphalt products, ready mixed concrete and road paving construction services
(which accounted for 19% of consolidated 2013 net sales), are sold and shipped from a network of nearly 300 quarries, distribution facilities and plants to customers in 30 states, Canada, the Bahamas and the Caribbean Islands. The aggregates and
vertically-integrated operations are reported collectively as the Corporations Aggregates business.
Effective January 1, 2014, the Corporation made minor changes to the operations and management reporting structure of its Aggregates
business, resulting in an immaterial change to its reportable segments. The Corporation currently conducts its Aggregates business through three reportable segments as follows:
|
|
|
|
|
|
|
AGGREGATES BUSINESS
|
Reportable Segments
|
|
Mid-America Group
|
|
Southeast Group
|
|
West Group
|
Operating Locations
|
|
Indiana, Iowa,
northern Kansas,
Kentucky,
Maryland,
Minnesota,
eastern Nebraska,
North Carolina,
North Dakota,
Ohio,
South
Carolina,
Virginia,
Washington and
West Virginia
|
|
Alabama, Florida, Georgia,
Mississippi,
Tennessee, Nova Scotia and the Bahamas
|
|
Arkansas,
Colorado, southern Kansas, Louisiana,
Missouri,
western Nebraska, Nevada,
Oklahoma, Texas,
Utah and
Wyoming
|
Page 7 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.
|
Significant Accounting Policies (continued)
|
In addition to the Aggregates business, the Corporation has a Specialty Products
segment, which accounted for 12% of consolidated 2013 net sales, that produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Corporation have been prepared in accordance with generally accepted accounting principles for interim financial information and with
the instructions to the Quarterly Report on Form 10-Q and in Article 10 of Regulation S-X. The Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included
in the Corporations Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of management, the interim consolidated financial information provided herein reflects all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods. The consolidated results of operations for the three months ended March 31, 2014 are not indicative of the
results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date but does not include all of the information and
notes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the
Corporations Annual Report on Form 10-K for the year ended December 31, 2013.
Early Adoption of New Accounting
Standard
Effective January 1, 2014, the Corporation early adopted the Financial Accounting Standard Boards
final guidance on reporting discontinued operations. The guidance is to be applied prospectively and redefines discontinued operations to be either 1) a component of an entity or group of components that has been disposed of or is classified as
held for sale that represents a strategic shift that has or will have a major effect on an entitys operations and financial results or 2) a business that, upon acquisition, meets the criteria to be classified as held for sale. The
adoption of the accounting standard did not have any effect on the Corporations financial position or results of operations.
Reclassifications
Prior-year segment information for the Aggregates
business presented in Note 9 has been reclassified to conform to the presentation of the Corporations current reportable segments.
Page 8 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.
|
Significant Accounting Policies (continued)
|
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss
Consolidated comprehensive earnings/loss for the Corporation consist of consolidated net earnings or loss; adjustments for
the funded status of pension and postretirement benefit plans; foreign currency translation adjustments; and the amortization of the value of terminated forward starting interest rate swap agreements into interest expense, and are presented in the
Corporations consolidated statements of earnings and comprehensive earnings.
Comprehensive loss attributable to Martin
Marietta Materials, Inc. is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(Dollars in Thousands)
|
|
Net loss attributable to Martin Marietta Materials, Inc.
|
|
$
|
(21,618)
|
|
|
$
|
(27,839)
|
|
Other comprehensive earnings, net of tax
|
|
|
1,370
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Martin Marietta Materials, Inc.
|
|
$
|
(20,248)
|
|
|
$
|
(26,618)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to noncontrolling interests, consisting of net earnings or loss and
adjustments for the funded status of pension and postretirement benefit plans, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March
31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(Dollars in Thousands)
|
|
Net loss attributable to noncontrolling interests
|
|
$
|
(1,535)
|
|
|
$
|
(1,490)
|
|
Other comprehensive earnings, net of tax
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to noncontrolling interests
|
|
$
|
(1,534)
|
|
|
$
|
(1,488)
|
|
|
|
|
|
|
|
|
|
|
Page 9 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.
|
Significant Accounting Policies (continued)
|
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)
Accumulated other comprehensive loss consists of unrealized gains and losses related to
the funded status of pension and postretirement benefit plans; foreign currency translation; and the unamortized value of terminated forward starting interest rate swap agreements, and is presented on the Corporations consolidated balance
sheets. Changes in accumulated other comprehensive loss, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Pension and
Postretirement
Benefit Plans
|
|
|
Foreign Currency
|
|
|
Unamortized
Value of
Terminated
Forward Starting
Interest Rate
Swap
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2014
|
|
Balance at beginning of period
|
|
$
|
(44,549)
|
|
|
$
|
3,902
|
|
|
$
|
(3,467)
|
|
|
$
|
(44,114)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings before reclassifications, net of tax
|
|
|
--
|
|
|
|
914
|
|
|
|
--
|
|
|
|
914
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
282
|
|
|
|
--
|
|
|
|
174
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings, net of tax
|
|
|
282
|
|
|
|
914
|
|
|
|
174
|
|
|
|
1,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(44,267)
|
|
|
$
|
4,816
|
|
|
$
|
(3,293)
|
|
|
$
|
(42,744)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2013
|
|
Balance at beginning of period
|
|
$
|
(108,189)
|
|
|
$
|
6,157
|
|
|
$
|
(4,137)
|
|
|
$
|
(106,169)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications, net of tax
|
|
|
--
|
|
|
|
(834)
|
|
|
|
--
|
|
|
|
(834)
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
1,893
|
|
|
|
--
|
|
|
|
162
|
|
|
|
2,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings, net of tax
|
|
|
1,893
|
|
|
|
(834)
|
|
|
|
162
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(106,296)
|
|
|
$
|
5,323
|
|
|
$
|
(3,975)
|
|
|
$
|
(104,948)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 10 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.
|
Significant Accounting Policies (continued)
|
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)
Changes in net noncurrent deferred tax assets recorded in accumulated other
comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Pension and
Postretirement
Benefit Plans
|
|
|
Unamortized
Value of
Terminated
Forward Starting
Interest Rate
Swap
|
|
|
Net
Noncurrent
Deferred
Tax Assets
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2014
|
|
Balance at beginning of period
|
|
$
|
29,198
|
|
|
$
|
2,269
|
|
|
$
|
31,467
|
|
Tax effect of other comprehensive earnings
|
|
|
(182
|
)
|
|
|
(114
|
)
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
29,016
|
|
|
$
|
2,155
|
|
|
$
|
31,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2013
|
|
Balance at beginning of period
|
|
$
|
70,881
|
|
|
$
|
2,707
|
|
|
$
|
73,588
|
|
Tax effect of other comprehensive earnings
|
|
|
(1,240
|
)
|
|
|
(107
|
)
|
|
|
(1,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
69,641
|
|
|
$
|
2,600
|
|
|
$
|
72,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications out of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March
31,
|
|
|
Affected line items in the
consolidated statements of earnings
and comprehensive earnings
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Pension and postretirement benefit plans Amortization of:
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
$
|
(703
|
)
|
|
$
|
(702
|
)
|
|
|
Actuarial loss
|
|
|
1,167
|
|
|
|
3,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
464
|
|
|
|
3,133
|
|
|
Cost of sales;
Selling,
general and administrative expenses
|
Tax benefit
|
|
|
(182
|
)
|
|
|
(1,240
|
)
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
282
|
|
|
$
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized value of terminated forward starting interest rate swap
|
|
|
|
|
|
|
|
|
|
|
Additional interest expense
|
|
$
|
288
|
|
|
$
|
269
|
|
|
Interest expense
|
Tax benefit
|
|
|
(114
|
)
|
|
|
(107
|
)
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 11 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.
|
Significant Accounting Policies (continued)
|
Earnings per Common Share
The numerator for basic and diluted earnings per common share is net earnings/loss attributable to Martin Marietta Materials, Inc.,
reduced by dividends and undistributed earnings attributable to the Corporations unvested restricted stock awards and incentive stock awards. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating
securities. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares
is increased by the conversion, using the treasury stock method, of awards to be issued to employees and nonemployee members of the Corporations Board of Directors under certain stock-based compensation arrangements if the conversion is
dilutive. For the three months ended March 31, 2014 and 2013, all such awards were antidilutive given the net loss attributable to Martin Marietta Materials Inc.
The following table reconciles the numerator and denominator for basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(In Thousands)
|
|
Net loss from continuing operations attributable to Martin Marietta Materials, Inc.
|
|
$
|
(21,603)
|
|
|
$
|
(27,551)
|
|
Less: Distributed and undistributed earnings attributable to unvested awards
|
|
|
67
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss available to common shareholders from continuing operations attributable to Martin Marietta Materials,
Inc.
|
|
|
(21,670)
|
|
|
|
(27,644)
|
|
Basic and diluted net loss available to common shareholders from discontinued operations
|
|
|
(15)
|
|
|
|
(288)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss available to common shareholders attributable to Martin Marietta Materials, Inc.
|
|
$
|
(21,685)
|
|
|
$
|
(27,932)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average common shares outstanding
|
|
|
46,315
|
|
|
|
46,028
|
|
|
|
|
|
|
|
|
|
|
Page 12 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
|
|
Discontinued Operations
|
Operations that are disposed of or permanently shut down represent discontinued operations, and, therefore, the
results of their operations through the dates of disposal and any gain or loss on disposals are included in discontinued operations in the consolidated statements of earnings and comprehensive earnings. The results of operations for divestitures do
not include Corporate overhead that was allocated during the periods the Corporation owned these operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
|
December 31,
2013
|
|
|
March 31,
2013
|
|
|
|
|
(
Dollars in Thousands
)
|
|
Finished products
|
|
$
|
372,567
|
|
|
$
|
368,334
|
|
|
$
|
363,610
|
|
Products in process and raw materials
|
|
|
16,478
|
|
|
|
16,077
|
|
|
|
20,908
|
|
Supplies and expendable parts
|
|
|
64,093
|
|
|
|
61,922
|
|
|
|
59,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
453,138
|
|
|
|
446,333
|
|
|
|
443,880
|
|
Less: Allowances
|
|
|
98,420
|
|
|
|
99,026
|
|
|
|
96,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
354,718
|
|
|
$
|
347,307
|
|
|
$
|
347,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 13 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
|
|
|
(
Dollars in Thousands
)
|
|
6.6% Senior Notes, due 2018
|
|
$
|
298,949
|
|
|
$
|
298,893
|
|
|
$
|
298,730
|
|
7% Debentures, due 2025
|
|
|
124,478
|
|
|
|
124,471
|
|
|
|
124,450
|
|
6.25% Senior Notes, due 2037
|
|
|
228,157
|
|
|
|
228,148
|
|
|
|
228,122
|
|
Term Loan Facility, due 2018, interest rate of 1.65% at March 31, 2014; 1.67% at December 31, 2013; and 2.20% at March 31,
2013
|
|
|
245,395
|
|
|
|
248,441
|
|
|
|
240,000
|
|
Revolving Facility, interest rate of 3.50% at March 31, 2014 and 1.90% at March 31, 2013
|
|
|
20,000
|
|
|
|
--
|
|
|
|
110,000
|
|
Trade Receivable Facility, interest rate of 0.75% at March 31, 2014 and 0.77% at December 31, 2013
|
|
|
150,000
|
|
|
|
130,000
|
|
|
|
--
|
|
AR Credit Facility, interest rate of 1.00% at March 31, 2013
|
|
|
--
|
|
|
|
--
|
|
|
|
75,600
|
|
Other notes
|
|
|
965
|
|
|
|
968
|
|
|
|
1,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,067,944
|
|
|
|
1,030,921
|
|
|
|
1,078,527
|
|
Less: Current maturities
|
|
|
12,403
|
|
|
|
12,403
|
|
|
|
5,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,055,541
|
|
|
$
|
1,018,518
|
|
|
$
|
1,072,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation, through a wholly-owned consolidated special purpose subsidiary, has a $150,000,000 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). The Trade Receivable Facility is backed by eligible, as defined,
trade receivables of $232,566,000 and $234,101,000 at March 31, 2014 and December 31, 2013, respectively, which are originated by the Corporation and then sold to the wholly-owned consolidated special purpose subsidiary by the Corporation.
The Corporation continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned consolidated special purpose subsidiary. At March 31, 2014 and December 31, 2013, outstanding borrowings under the
Trade Receivable Facility were classified as long-term on the consolidated balance sheet as the Corporation has the intent and ability to refinance amounts outstanding using other long-term credit facilities. The Trade Receivable Facility contains a
cross-default provision to the Corporations other debt agreements. On April 18, 2014, the Corporation extended the maturity of the Trade Receivable Facility to September 30, 2014.
Page 14 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
|
Long-Term Debt (continued)
|
The Corporations Credit Agreement, which provides a $250,000,000 senior unsecured
term loan (the Term Loan Facility) and a $350,000,000 five-year senior unsecured revolving facility (the 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 months (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio
debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its rating on long-term unsecured debt fall below BBB by Standard &
Poors or Baa2 by Moodys and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if no amounts are outstanding under both the Revolving Facility and the Trade Receivable Facility, consolidated debt, including
debt for which the Corporation is a co-borrower, may be reduced by the Corporations unrestricted cash and cash equivalents in excess of $50,000,000, such reduction not to exceed $200,000,000, for purposes of the covenant calculation. The
Corporation was in compliance with this Ratio at March 31, 2014.
Available borrowings under the Revolving Facility are
reduced by any outstanding letters of credit issued by the Corporation under the Revolving Facility. At March 31, 2014, December 31, 2013 and March 31, 2013, the Corporation had $2,507,000 of outstanding letters of credit issued
under the Revolving Facility.
Accumulated other comprehensive loss includes the unamortized value of terminated forward
starting interest rate swap agreements. For the three months ended March 31, 2014 and 2013, the Corporation recognized $288,000 and $269,000, respectively, as additional interest expense. The ongoing amortization of the terminated value of the
forward starting interest rate swap agreements will increase annual interest expense by approximately $1,200,000 until the maturity of the 6.6% Senior Notes in 2018.
Page 15 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Corporations financial instruments include temporary cash investments, accounts receivable, notes
receivable, bank overdraft, accounts payable, publicly-registered long-term notes, debentures and other long-term debt.
Temporary cash investments are placed primarily in money market funds, money market demand deposit accounts and Eurodollar time deposits
with the following financial institutions: Branch Banking and Trust Company, Comerica Bank, Fifth Third Bank, JPMorgan Chase Bank, N.A., Regions Bank and Wells Fargo Bank, N.A. The Corporations cash equivalents have maturities of less than
three months. Due to the short maturity of these investments, they are carried on the consolidated balance sheets at cost, which approximates fair value.
Customer receivables are due from a large number of customers, primarily in the construction industry, and are dispersed across wide geographic and economic regions. However, customer receivables are more
heavily concentrated in certain states (namely, Texas, North Carolina, Colorado, Iowa and Georgia). The estimated fair values of customer receivables approximate their carrying amounts due to the short-term nature of the receivables.
Notes receivable are primarily promissory notes with customers and are not publicly traded. Management estimates that the fair value of
notes receivable approximates the carrying amount.
The bank overdraft represents amounts to be funded to financial
institutions for checks that have cleared the bank. The estimated fair value of the bank overdraft approximates its carrying value.
Accounts payable represent amounts owed to suppliers and vendors. The estimated fair value of accounts payable approximates its carrying amounts due to the short-term nature of the payables.
The carrying values and fair values of the Corporations long-term debt were $1,067,944,000 and $1,127,149,000, respectively, at
March 31, 2014; $1,030,921,000 and $1,068,324,000, respectively, at December 31, 2013; and $1,078,527,000 and $1,155,051,000, respectively, at March 31, 2013. The estimated fair value of the Corporations publicly-registered
long-term notes was estimated based on Level 1 of the fair value hierarchy using quoted market prices. The estimated fair value of other borrowings, which primarily represents variable-rate debt, approximates its carrying amount as the interest
rates reset periodically.
Page 16 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Estimated effective income tax rate:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
26.7%
|
|
|
|
22.4%
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
6.3%
|
|
|
|
20.9%
|
|
|
|
|
|
|
|
|
|
|
Consolidated overall
|
|
|
26.7%
|
|
|
|
22.4%
|
|
|
|
|
|
|
|
|
|
|
The Corporations effective income tax rate reflects the effect of federal and state income taxes
and the impact of differences in book and tax accounting arising from the net permanent benefits associated with the statutory depletion deduction for mineral reserves, the impact of foreign losses for which no tax benefit was realized and the
domestic production deduction. The effective income tax rates for discontinued operations reflect the tax effects of individual operations transactions and are not indicative of the Corporations overall effective income tax rate.
On September 13, 2013, the U.S. Treasury Department and Internal Revenue Service issued final regulations addressing
costs incurred in acquiring, producing or improving tangible property (the tangible property regulations). The tangible property regulations required the Corporation to make additional tax accounting method changes as of January 1,
2014. As of December 31, 2013, the Corporation estimated the tax impact of the regulatory change and recorded an increase in noncurrent deferred tax liabilities in the amount of $1,334,000, with a corresponding reduction in current taxes
payable.
The Corporations unrecognized tax benefits, excluding interest, correlative effects and indirect benefits, are
as follows:
|
|
|
|
|
|
|
Three Months Ended
March 31,
2014
|
|
|
|
(Dollars in Thousands)
|
|
Unrecognized tax benefits at beginning of period
|
|
$
|
11,826
|
|
Gross increases tax positions in prior years
|
|
|
1,898
|
|
Gross decreases tax positions in prior years
|
|
|
(173)
|
|
Gross increases tax positions in current year
|
|
|
480
|
|
|
|
|
|
|
Unrecognized tax benefits at end of period
|
|
$
|
14,031
|
|
|
|
|
|
|
Page 17 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
|
Income Taxes (continued)
|
The Corporation anticipates that it is reasonably possible that unrecognized tax
benefits may decrease up to $7,365,000, excluding indirect benefits, during the twelve months ending March 31, 2015 as a result of expected settlements with taxing authorities and the expiration of the foreign and domestic statute of
limitations for the 2009 and 2010 tax years, respectively.
At March 31, 2014, unrecognized tax benefits of $7,449,000
related to interest accruals and permanent income tax differences, net of federal tax benefits, would have favorably affected the Corporations effective income tax rate if recognized.
7.
|
|
Pension and Postretirement Benefits
|
The estimated components of the recorded net periodic benefit cost (credit) for pension and postretirement benefits
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Pension
|
|
|
Postretirement Benefits
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(Dollars in Thousands)
|
|
Service cost
|
|
$
|
3,730
|
|
|
$
|
4,064
|
|
|
$
|
55
|
|
|
$
|
65
|
|
Interest cost
|
|
|
6,590
|
|
|
|
5,749
|
|
|
|
290
|
|
|
|
248
|
|
Expected return on assets
|
|
|
(7,698
|
)
|
|
|
(6,663
|
)
|
|
|
--
|
|
|
|
--
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
|
111
|
|
|
|
112
|
|
|
|
(814
|
)
|
|
|
(814
|
)
|
Actuarial loss (gain)
|
|
|
1,202
|
|
|
|
3,835
|
|
|
|
(35
|
)
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (credit)
|
|
$
|
3,935
|
|
|
$
|
7,097
|
|
|
$
|
(504
|
)
|
|
$
|
(501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
|
Commitments and Contingencies
|
Legal and Administrative Proceedings
The Corporation is engaged in certain legal and administrative proceedings incidental to its normal business activities. In the opinion of management and counsel, based upon currently-available facts, it
is remote that the ultimate outcome of any litigation and other proceedings, including those pertaining to environmental matters, relating to the Corporation and its subsidiaries, will have a material adverse effect on the overall results of the
Corporations operations, its cash flows or its financial position.
Page 18 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8.
|
Commitments and Contingencies (continued)
|
Litigation Related to the Merger
Following the announcement of the merger, a purported stockholder of Texas Industries, Inc. (TXI) filed a putative class
action lawsuit against TXI and members of the TXI board, and against the Corporation and one of its affiliates, in the United States District Court for the Northern District of Texas, captioned
Maxine Phillips, Individually and on Behalf of All
Others Similarly Situated v. Texas Industries, Inc., et al.
, Case 3:14-cv-00740-B (referred to as the
Phillips
Action). The plaintiff in the
Phillips
Action alleges in an amended complaint, among other things,
(i) that members of the TXI board breached their fiduciary duties to TXIs stockholders by failing to fully disclose material information regarding the proposed transaction and by adopting the merger agreement for inadequate consideration
and pursuant to an inadequate process, (ii) that the Corporation and one of the Corporations affiliates aided and abetted the TXI board in their alleged breaches of fiduciary duty and (iii) that the registration statement of which this
joint proxy statement/prospectus forms a part contains certain material misstatements and omissions in violation of Section 14(a) and 20(a) of the Exchange Act. The plaintiff in the
Phillips
Action seeks, among other things, injunctive
relief enjoining TXI and the Corporation from proceeding with the merger, rescission in the event the merger is consummated, damages, and an award of attorneys and other fees and costs. The Corporation believes the lawsuit is without merit.
Environmental and Governmental Regulations
The United States Environmental Protection Agency (EPA) includes the lime industry as a national enforcement priority under the federal Clean Air Act (CAA). As part of the
industry wide effort, the EPA issued Notices of Violation/Findings of Violation (NOVs) to the Corporation in 2010 and 2011 regarding the Corporations compliance with the CAA New Source Review (NSR) program at
its Specialty Products dolomitic lime manufacturing plant in Woodville, Ohio. The Corporation has been providing information to the EPA in response to these NOVs and has had several meetings with the EPA. The Corporation believes it is in
substantial compliance with the NSR program. At this time, the Corporation cannot reasonably estimate what likely penalties or upgrades to equipment might ultimately be required. The Corporation believes that any costs related to any upgrades to
capital equipment will be spread over time and will not have a material adverse effect on the Corporations results of operations or its financial condition, but can give no assurance that the ultimate resolution of this matter will not have a
material adverse effect on the financial condition or results of operations of the Specialty Products segment of the business.
Page 19 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8.
|
Commitments and Contingencies (continued)
|
Borrowing Arrangements with Affiliate
The Corporation is a co-borrower with an unconsolidated affiliate for a $24,000,000 revolving line of credit agreement with Fifth Third
Bank. The line of credit expires in August 2015. The affiliate has agreed to reimburse and indemnify the Corporation for any payments and expenses the Corporation may incur from this agreement. The Corporation holds a lien on the affiliates
membership interest in a joint venture as collateral for payment under the revolving line of credit.
In September 2013, the
Corporation loaned $3,402,000 to this unconsolidated affiliate to repay in full the outstanding balance of the affiliates loan with Bank of America, N.A. and entered into a loan agreement with the affiliate for monthly repayment of principal
and interest of that loan amount through May 2016. The Corporation holds a lien on the affiliates property as collateral for payment under the loan and security agreement. As of March 31, 2014 and December 31, 2013, the amount due
from the affiliate related to this loan was $2,773,000 and $2,984,000, respectively.
In addition, the Corporation has a
$6,000,000 outstanding loan due from this unconsolidated affiliate as of March 31, 2014.
Employees
Approximately 15% of the Corporations employees are represented by a labor union. All such employees are hourly employees. The
Corporation maintains collective bargaining agreements relating to the union employees within the Aggregates business and Specialty Products segment. Of the Specialty Products segment, located in Manistee, Michigan and Woodville, Ohio, 100% of its
hourly employees are represented by labor unions. The Woodville collective bargaining agreement expires in June 2014. Management does not anticipate any difficulties in renewing the Woodville labor contract.
Page 20 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Aggregates business contains three reportable business segments: Mid-America Group, Southeast Group and West
Group. The Corporation also has a Specialty Products segment.
The following tables display selected financial data for
continuing operations for the Corporations reportable business segments. Corporate loss from operations primarily includes depreciation on capitalized interest, expenses for corporate administrative functions, business development expenses,
unallocated corporate expenses and other nonrecurring and/or non-operational adjustments.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(
Dollars in Thousands
)
|
|
Total revenues:
|
|
|
|
|
Mid-America Group
|
|
$
|
115,708
|
|
|
$
|
119,541
|
|
Southeast Group
|
|
|
59,820
|
|
|
|
55,742
|
|
West Group
|
|
|
190,787
|
|
|
|
148,396
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
366,315
|
|
|
|
323,679
|
|
Specialty Products
|
|
|
62,314
|
|
|
|
60,230
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
428,629
|
|
|
$
|
383,909
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
106,533
|
|
|
$
|
110,188
|
|
Southeast Group
|
|
|
55,381
|
|
|
|
51,323
|
|
West Group
|
|
|
160,416
|
|
|
|
127,379
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
322,330
|
|
|
|
288,890
|
|
Specialty Products
|
|
|
57,348
|
|
|
|
55,169
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
379,678
|
|
|
$
|
344,059
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings from operations:
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
(11,766)
|
|
|
$
|
(13,963)
|
|
Southeast Group
|
|
|
(6,111)
|
|
|
|
(8,386)
|
|
West Group
|
|
|
2,081
|
|
|
|
(8,126)
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
(15,796)
|
|
|
|
(30,475)
|
|
Specialty Products
|
|
|
16,285
|
|
|
|
17,078
|
|
Corporate
|
|
|
(16,387)
|
|
|
|
(9,923)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(15,898)
|
|
|
$
|
(23,320)
|
|
|
|
|
|
|
|
|
|
|
Page 21 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9.
|
|
Business Segments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
|
|
(
Dollars in Thousands
)
|
|
Assets employed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group
|
|
$
|
1,257,753
|
|
|
$
|
1,242,394
|
|
|
$
|
1,137,903
|
|
Southeast Group
|
|
|
607,219
|
|
|
|
611,906
|
|
|
|
588,408
|
|
West Group
|
|
|
1,024,038
|
|
|
|
1,030,599
|
|
|
|
1,039,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
2,889,010
|
|
|
|
2,884,899
|
|
|
|
2,765,715
|
|
Specialty Products
|
|
|
153,070
|
|
|
|
154,024
|
|
|
|
154,688
|
|
Corporate
|
|
|
213,177
|
|
|
|
220,903
|
|
|
|
234,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,255,257
|
|
|
$
|
3,259,826
|
|
|
$
|
3,154,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Aggregates business includes the aggregates product line and vertically-integrated operations, which
include asphalt, ready mixed concrete and road paving product lines. All vertically-integrated operations reside in the West Group. The following tables provide net sales and gross profit by product line for the Aggregates business, which are
reconciled to consolidated amounts, as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Dollars in Thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
263,885
|
|
|
$
|
247,791
|
|
Asphalt
|
|
|
10,498
|
|
|
|
9,633
|
|
Ready Mixed Concrete
|
|
|
38,009
|
|
|
|
26,277
|
|
Road Paving
|
|
|
9,938
|
|
|
|
5,189
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
322,330
|
|
|
|
288,890
|
|
Specialty Products
|
|
|
57,348
|
|
|
|
55,169
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
379,678
|
|
|
$
|
344,059
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
Aggregates
|
|
$
|
10,051
|
|
|
$
|
2,061
|
|
Asphalt
|
|
|
(1,426)
|
|
|
|
(2,455)
|
|
Ready Mixed Concrete
|
|
|
2,944
|
|
|
|
(81)
|
|
Road Paving
|
|
|
(3,982)
|
|
|
|
(4,287)
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates Business
|
|
|
7,587
|
|
|
|
(4,762)
|
|
Specialty Products
|
|
|
18,755
|
|
|
|
19,582
|
|
Corporate
|
|
|
(507)
|
|
|
|
(1,999)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,835
|
|
|
$
|
12,821
|
|
|
|
|
|
|
|
|
|
|
Page 22 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10.
|
|
Supplemental Cash Flow Information
|
The components of the change in other assets and liabilities, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Dollars in Thousands)
|
|
Other current and noncurrent assets
|
|
$
|
(783)
|
|
|
$
|
549
|
|
Accrued salaries, benefits and payroll taxes
|
|
|
(3,984)
|
|
|
|
(6,075)
|
|
Accrued insurance and other taxes
|
|
|
(1,838)
|
|
|
|
(1,213)
|
|
Accrued income taxes
|
|
|
(4,595)
|
|
|
|
(8,261)
|
|
Accrued pension, postretirement and post employment benefits
|
|
|
2,763
|
|
|
|
1,538
|
|
Other current and noncurrent liabilities
|
|
|
9,311
|
|
|
|
15,047
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
874
|
|
|
$
|
1,585
|
|
|
|
|
|
|
|
|
|
|
The change in accrued income taxes for the three months ended March 31, 2014 relates to a decrease
in current estimated taxable income and the difference in net tax payments for the period. The change in other current and noncurrent liabilities for the three months ended March 31, 2014 primarily relates to a decrease in estimated settlements
with taxing authorities.
Noncash investing and financing activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Dollars in Thousands)
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition of assets through capital lease
|
|
$
|
5,930
|
|
|
$
|
--
|
|
Page 23 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
|
|
Business Developments
|
On January 28, 2014, the Corporation and TXI announced that the Boards of Directors of both companies unanimously
approved a definitive merger agreement pursuant to which, subject to the terms and conditions of the merger agreement, the Corporation will acquire all of the outstanding shares of TXI common stock in a tax-free, stock-for-stock transaction (the
proposed business combination with TXI). Under the terms of the merger agreement, TXI stakeholders will receive 0.700 shares of the Corporations common stock for each share of TXI common stock owned at closing. Pursuant to the
terms of the proposed business combination with TXI, the Corporations dividends will be limited to regular quarterly dividends of $0.40 per share until the earlier of the closing of the proposed business combination with TXI or the termination
of the merger agreement, with declaration, record and payment dates consistent with past practice. Additionally, repurchases of the Corporations common stock will be prohibited until the earlier of the closing of the proposed business
combination with TXI or the termination of the merger agreement. The proposed business combination is currently under review for regulatory approvals and is expected to close in the summer. For the three months ended March 31, 2014, the
Corporation incurred $9,458,000 of business development expenses related to the acquisition.
On April 2, 2014, the Corporation paid $19,529,000 million for the remaining 50% interest in a joint venture.
Page 24 of 50
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the
Quarter Ended March 31, 2014