STATEMENT OF FINANCIAL RESPONSIBILITY AND REPORT OF MANAGEMENT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Martin Marietta Materials, Inc. (Martin Marietta), is responsible for the consolidated financial statements, the related
financial information contained in this 2015 Annual Report and the establishment and maintenance of adequate internal control over financial reporting. The consolidated balance sheets for Martin Marietta, at December 31, 2015 and 2014, and the
related consolidated statements of earnings, comprehensive earnings, total equity and cash flows for each of the three years in the period ended December 31, 2015, include amounts based on estimates and judgments and have been prepared in accordance
with accounting principles generally accepted in the United States applied on a consistent basis.
A system of internal control over financial
reporting is designed to provide reasonable assurance, in a cost-effective manner, that assets are safeguarded, transactions are executed and recorded in accordance with managements authorization, accountability for assets is maintained and
financial statements are prepared and presented fairly in accordance with accounting principles generally accepted in the United States. Internal control systems over financial reporting have inherent limitations and may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The Corporation operates in an environment that establishes an appropriate system of internal control over financial reporting and ensures that the
system is maintained, assessed and monitored on a periodic basis. This internal control system includes examinations by internal audit staff and oversight by the Audit Committee of the Board of Directors.
The Corporations management recognizes its responsibility to foster a strong ethical climate. Management has issued written policy statements that
document the Corporations business code of ethics. The importance of ethical behavior is regularly communicated to all employees through the distribution of the Code of Ethical Business Conduct booklet and through ongoing education and
review programs designed to create a strong commitment to ethical business practices.
The Audit Committee of the Board of Directors, which consists
of four independent, nonemployee directors, meets periodically and separately with management, the independent auditors and the internal auditors to review the activities of each. The Audit Committee meets standards established by the Securities and
Exchange Commission and the New York Stock Exchange as they relate to the composition and practices of audit committees.
Management of Martin
Marietta, assessed the effectiveness of the Corporations internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on managements assessment under the framework in Internal Control Integrated Framework,
management concluded that the Corporations internal control over financial reporting was effective as of December 31, 2015.
The consolidated
financial statements and internal control over financial reporting have been audited by Ernst & Young LLP, an independent registered public accounting firm, whose reports appear on the following pages.
|
|
|
|
|
|
C. Howard Nye |
|
Anne H. Lloyd |
Chairman, President and Chief Executive Officer |
|
Executive Vice President and Chief Financial Officer |
February 23, 2016 |
|
|
Martin
Marietta | Page 9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Martin Marietta Materials, Inc.
We have audited Martin Marietta Materials, Inc.s internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Martin Marietta Materials, Inc.s management is responsible
for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Statement of Financial Responsibility and Report of Management
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporations internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, Martin Marietta Materials, Inc., maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance sheets of Martin Marietta Materials, Inc., as of December 31, 2015 and 2014, and the related consolidated statements of earnings, comprehensive earnings, total equity and
cash flows for each of the three years in the period ended December 31, 2015, of Martin Marietta Materials, Inc., and our report dated February 23, 2016 expressed an unqualified opinion thereon.
Raleigh, North Carolina
February 23, 2016
Martin
Marietta | Page 10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Martin Marietta Materials, Inc.
We have audited the accompanying consolidated balance sheets of Martin Marietta Materials, Inc. as of December 31, 2015 and 2014, and the
related consolidated statements of earnings, comprehensive earnings, total equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Corporations
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material respects, the consolidated financial position of Martin Marietta Materials, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Martin Marietta Materials, Inc.s internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2016 expressed an unqualified opinion thereon.
Raleigh, North Carolina
February 23, 2016
Martin
Marietta | Page 11
|
|
|
CONSOLIDATED STATEMENTS OF EARNINGS for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000, except per share) |
|
2015 |
|
|
|
|
2014 |
|
|
|
|
2013 |
|
Net Sales |
|
$ |
3,268,116 |
|
|
|
|
$ |
2,679,095 |
|
|
|
|
$ |
1,943,218 |
|
Freight and delivery revenues |
|
|
271,454 |
|
|
|
|
|
278,856 |
|
|
|
|
|
212,333 |
|
Total revenues |
|
|
3,539,570 |
|
|
|
|
|
2,957,951 |
|
|
|
|
|
2,155,551 |
|
Cost of sales |
|
|
2,546,349 |
|
|
|
|
|
2,156,735 |
|
|
|
|
|
1,579,261 |
|
Freight and delivery costs |
|
|
271,454 |
|
|
|
|
|
278,856 |
|
|
|
|
|
212,333 |
|
Total cost of revenues |
|
|
2,817,803 |
|
|
|
|
|
2,435,591 |
|
|
|
|
|
1,791,594 |
|
Gross Profit |
|
|
721,767 |
|
|
|
|
|
522,360 |
|
|
|
|
|
363,957 |
|
Selling, general and administrative expenses |
|
|
218,234 |
|
|
|
|
|
169,245 |
|
|
|
|
|
150,091 |
|
Acquisition-related expenses, net |
|
|
8,464 |
|
|
|
|
|
42,891 |
|
|
|
|
|
671 |
|
Other operating expenses and (income), net |
|
|
15,653 |
|
|
|
|
|
(4,649 |
) |
|
|
|
|
(4,793 |
) |
Earnings from Operations |
|
|
479,416 |
|
|
|
|
|
314,873 |
|
|
|
|
|
217,988 |
|
Interest expense |
|
|
76,287 |
|
|
|
|
|
66,057 |
|
|
|
|
|
53,467 |
|
Other nonoperating (income) and expenses, net |
|
|
(10,672 |
) |
|
|
|
|
(362 |
) |
|
|
|
|
295 |
|
Earnings from continuing operations before taxes on income |
|
|
413,801 |
|
|
|
|
|
249,178 |
|
|
|
|
|
164,226 |
|
Taxes on income |
|
|
124,863 |
|
|
|
|
|
94,847 |
|
|
|
|
|
44,045 |
|
Earnings from Continuing Operations |
|
|
288,938 |
|
|
|
|
|
154,331 |
|
|
|
|
|
120,181 |
|
Loss on discontinued operations, net of related tax benefit of $0, $40 and $417, respectively |
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
(749 |
) |
Consolidated net earnings |
|
|
288,938 |
|
|
|
|
|
154,294 |
|
|
|
|
|
119,432 |
|
Less: Net earnings (loss) attributable to noncontrolling interests |
|
|
146 |
|
|
|
|
|
(1,307 |
) |
|
|
|
|
(1,905 |
) |
Net Earnings Attributable to Martin Marietta |
|
$ |
288,792 |
|
|
|
|
$ |
155,601 |
|
|
|
|
$ |
121,337 |
|
|
|
|
|
|
|
Net Earnings (Loss) Attributable to Martin Marietta |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
288,792 |
|
|
|
|
$ |
155,638 |
|
|
|
|
$ |
122,086 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
(749 |
) |
|
|
$ |
288,792 |
|
|
|
|
$ |
155,601 |
|
|
|
|
$ |
121,337 |
|
|
|
|
|
|
|
Net Earnings (Loss) Attributable to Martin Marietta Per Common Share (see Note A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic from continuing operations attributable to common shareholders |
|
$ |
4.31 |
|
|
|
|
$ |
2.73 |
|
|
|
|
$ |
2.64 |
|
Discontinued operations attributable to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02 |
) |
|
|
$ |
4.31 |
|
|
|
|
$ |
2.73 |
|
|
|
|
$ |
2.62 |
|
Diluted from continuing operations attributable to common shareholders |
|
$ |
4.29 |
|
|
|
|
$ |
2.71 |
|
|
|
|
$ |
2.63 |
|
Discontinued operations attributable to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02 |
) |
|
|
$ |
4.29 |
|
|
|
|
$ |
2.71 |
|
|
|
|
$ |
2.61 |
|
|
|
|
|
|
|
Weighted-Average Common Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
66,770 |
|
|
|
|
|
56,854 |
|
|
|
|
|
46,164 |
|
Diluted |
|
|
67,020 |
|
|
|
|
|
57,088 |
|
|
|
|
|
46,285 |
|
The notes on pages 17 through 41 are an integral part of these financial statements.
Martin
Marietta | Page 12
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
|
|
2014 |
|
|
|
|
2013 |
|
Consolidated Net Earnings |
|
$ |
288,938 |
|
|
|
|
$ |
154,294 |
|
|
|
|
$ |
119,432 |
|
Other comprehensive earnings (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension and postretirement plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) gain arising during period, net of tax of $(4,530), $(39,752) and $36,294, respectively |
|
|
(7,101 |
) |
|
|
|
|
(62,767 |
) |
|
|
|
|
55,472 |
|
Amortization of prior service credit, net of tax of $(731), $(1,108) and $(1,111), respectively |
|
|
(1,149 |
) |
|
|
|
|
(1,702 |
) |
|
|
|
|
(1,696 |
) |
Amortization of actuarial loss, net of tax of $6,551, $1,490 and $6,211, respectively |
|
|
10,299 |
|
|
|
|
|
2,289 |
|
|
|
|
|
9,493 |
|
Amount recognized in net periodic pension cost due to settlement, net of tax of $289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440 |
|
Amount recognized in net periodic pension cost due to special plan termination benefits, net of tax of $811 |
|
|
1,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,323 |
|
|
|
|
|
(62,180 |
) |
|
|
|
|
63,709 |
|
|
|
|
|
|
|
Foreign currency translation loss |
|
|
(3,542 |
) |
|
|
|
|
(624 |
) |
|
|
|
|
(2,255 |
) |
|
|
|
|
|
|
Amortization of terminated value of forward starting interest rate swap agreements into interest expense, net of tax of $509, $470 and $438,
respectively |
|
|
771 |
|
|
|
|
|
718 |
|
|
|
|
|
670 |
|
|
|
|
552 |
|
|
|
|
|
(62,086 |
) |
|
|
|
|
62,124 |
|
Consolidated comprehensive earnings |
|
|
289,490 |
|
|
|
|
|
92,208 |
|
|
|
|
|
181,556 |
|
Less: Comprehensive earnings (loss) attributable to noncontrolling interests |
|
|
161 |
|
|
|
|
|
(1,348 |
) |
|
|
|
|
(1,836 |
) |
Comprehensive Earnings Attributable to Martin Marietta |
|
$ |
289,329 |
|
|
|
|
$ |
93,556 |
|
|
|
|
$ |
183,392 |
|
The notes on pages 17 through 41 are an integral part of
these financial statements.
Martin
Marietta | Page 13
|
|
|
CONSOLIDATED BALANCE SHEETS at December
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (add 000) |
|
2015 |
|
|
|
|
2014 |
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
168,409 |
|
|
|
|
$ |
108,651 |
|
Accounts receivable, net |
|
|
410,921 |
|
|
|
|
|
421,001 |
|
Inventories, net |
|
|
469,141 |
|
|
|
|
|
484,919 |
|
Other current assets |
|
|
33,697 |
|
|
|
|
|
29,607 |
|
Total Current Assets |
|
|
1,082,168 |
|
|
|
|
|
1,044,178 |
|
|
|
|
|
Property, plant and equipment, net |
|
|
3,156,000 |
|
|
|
|
|
3,402,770 |
|
Goodwill |
|
|
2,068,235 |
|
|
|
|
|
2,068,799 |
|
Operating permits, net |
|
|
444,725 |
|
|
|
|
|
499,487 |
|
Other intangibles, net |
|
|
65,827 |
|
|
|
|
|
95,718 |
|
Other noncurrent assets |
|
|
144,777 |
|
|
|
|
|
108,802 |
|
Total Assets |
|
$ |
6,961,732 |
|
|
|
|
$ |
7,219,754 |
|
|
|
|
|
Liabilities and Equity (add 000, except parenthetical share
data) |
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
Bank overdraft |
|
$ |
10,235 |
|
|
|
|
$ |
183 |
|
Accounts payable |
|
|
164,718 |
|
|
|
|
|
202,476 |
|
Accrued salaries, benefits and payroll taxes |
|
|
30,939 |
|
|
|
|
|
36,576 |
|
Pension and postretirement benefits |
|
|
8,168 |
|
|
|
|
|
6,953 |
|
Accrued insurance and other taxes |
|
|
62,781 |
|
|
|
|
|
58,356 |
|
Current maturities of long-term debt |
|
|
19,246 |
|
|
|
|
|
14,336 |
|
Other current liabilities |
|
|
71,104 |
|
|
|
|
|
77,768 |
|
Total Current Liabilities |
|
|
367,191 |
|
|
|
|
|
396,648 |
|
|
|
|
|
Long-term debt |
|
|
1,553,649 |
|
|
|
|
|
1,571,059 |
|
Pension, postretirement and postemployment benefits |
|
|
224,538 |
|
|
|
|
|
249,333 |
|
Deferred income taxes, net |
|
|
583,459 |
|
|
|
|
|
489,945 |
|
Other noncurrent liabilities |
|
|
172,718 |
|
|
|
|
|
160,021 |
|
Total Liabilities |
|
|
2,901,555 |
|
|
|
|
|
2,867,006 |
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
|
Common stock ($0.01 par value; 100,000,000 shares authorized; 64,479,000 and 67,293,000 shares outstanding at December 31, 2015 and 2014,
respectively) |
|
|
643 |
|
|
|
|
|
671 |
|
Preferred stock ($0.01 par value; 10,000,000 shares authorized; no shares outstanding) |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
3,287,827 |
|
|
|
|
|
3,243,619 |
|
Accumulated other comprehensive loss |
|
|
(105,622 |
) |
|
|
|
|
(106,159 |
) |
Retained earnings |
|
|
874,436 |
|
|
|
|
|
1,213,035 |
|
Total Shareholders Equity |
|
|
4,057,284 |
|
|
|
|
|
4,351,166 |
|
Noncontrolling interests |
|
|
2,893 |
|
|
|
|
|
1,582 |
|
Total Equity |
|
|
4,060,177 |
|
|
|
|
|
4,352,748 |
|
Total Liabilities and Equity |
|
$ |
6,961,732 |
|
|
|
|
$ |
7,219,754 |
|
The notes on pages 17 through 41 are an integral part of these financial statements.
Martin
Marietta | Page 14
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
|
|
2014 |
|
|
|
|
2013 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net earnings |
|
$ |
288,938 |
|
|
|
|
$ |
154,294 |
|
|
|
|
$ |
119,432 |
|
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
263,587 |
|
|
|
|
|
222,746 |
|
|
|
|
|
173,761 |
|
Stock-based compensation expense |
|
|
13,589 |
|
|
|
|
|
8,993 |
|
|
|
|
|
7,008 |
|
Loss (gains) on divestitures and sales of assets |
|
|
14,093 |
|
|
|
|
|
(52,297 |
) |
|
|
|
|
(2,265 |
) |
Deferred income taxes |
|
|
85,225 |
|
|
|
|
|
50,292 |
|
|
|
|
|
24,113 |
|
Excess tax benefits from stock-based compensation transactions |
|
|
|
|
|
|
|
|
(2,508 |
) |
|
|
|
|
(2,368 |
) |
Other items, net |
|
|
(5,972 |
) |
|
|
|
|
4,795 |
|
|
|
|
|
(429 |
) |
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
12,309 |
|
|
|
|
|
(16,650 |
) |
|
|
|
|
(22,523 |
) |
Inventories, net |
|
|
(21,525 |
) |
|
|
|
|
(12,020 |
) |
|
|
|
|
(11,639 |
) |
Accounts payable |
|
|
(40,053 |
) |
|
|
|
|
5,303 |
|
|
|
|
|
20,063 |
|
Other assets and liabilities, net |
|
|
(37,040 |
) |
|
|
|
|
18,710 |
|
|
|
|
|
3,798 |
|
Net Cash Provided by Operating Activities |
|
|
573,151 |
|
|
|
|
|
381,658 |
|
|
|
|
|
308,951 |
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(318,232 |
) |
|
|
|
|
(232,183 |
) |
|
|
|
|
(155,233 |
) |
Acquisitions, net |
|
|
(43,215 |
) |
|
|
|
|
(189 |
) |
|
|
|
|
(64,478 |
) |
Cash received in acquisition |
|
|
63 |
|
|
|
|
|
59,887 |
|
|
|
|
|
|
|
Proceeds from divestitures and sales of assets |
|
|
448,122 |
|
|
|
|
|
121,985 |
|
|
|
|
|
8,564 |
|
Payment of railcar construction advances |
|
|
(25,234 |
) |
|
|
|
|
(14,513 |
) |
|
|
|
|
|
|
Reimbursement of railcar construction advances |
|
|
25,234 |
|
|
|
|
|
14,513 |
|
|
|
|
|
|
|
Repayments from affiliate |
|
|
1,808 |
|
|
|
|
|
1,175 |
|
|
|
|
|
|
|
Loan to affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,402 |
) |
Net Cash Provided By (Used for) Investing Activities |
|
|
88,546 |
|
|
|
|
|
(49,325 |
) |
|
|
|
|
(214,549 |
) |
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt |
|
|
230,000 |
|
|
|
|
|
868,762 |
|
|
|
|
|
604,417 |
|
Repayments of long-term debt |
|
|
(244,704 |
) |
|
|
|
|
(1,057,289 |
) |
|
|
|
|
(621,142 |
) |
Debt issuance costs |
|
|
|
|
|
|
|
|
(2,782 |
) |
|
|
|
|
(2,148 |
) |
Change in bank overdraft |
|
|
10,052 |
|
|
|
|
|
(2,373 |
) |
|
|
|
|
2,556 |
|
Payments on capital lease obligations |
|
|
(6,616 |
) |
|
|
|
|
(3,075 |
) |
|
|
|
|
(28 |
) |
Dividends paid |
|
|
(107,462 |
) |
|
|
|
|
(91,304 |
) |
|
|
|
|
(74,197 |
) |
Distributions to owners of noncontrolling interests |
|
|
(325 |
) |
|
|
|
|
(800 |
) |
|
|
|
|
(876 |
) |
Repurchase of common stock |
|
|
(519,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of remaining interest in existing subsidiaries |
|
|
|
|
|
|
|
|
(19,480 |
) |
|
|
|
|
|
|
Issuances of common stock |
|
|
37,078 |
|
|
|
|
|
39,714 |
|
|
|
|
|
11,691 |
|
Excess tax benefits from stock-based compensation transactions |
|
|
|
|
|
|
|
|
2,508 |
|
|
|
|
|
2,368 |
|
Net Cash Used for Financing Activities |
|
|
(601,939 |
) |
|
|
|
|
(266,119 |
) |
|
|
|
|
(77,359 |
) |
Net Increase in Cash and Cash Equivalents |
|
|
59,758 |
|
|
|
|
|
66,214 |
|
|
|
|
|
17,043 |
|
Cash and Cash Equivalents, beginning of year |
|
|
108,651 |
|
|
|
|
|
42,437 |
|
|
|
|
|
25,394 |
|
|
|
|
|
|
|
Cash and Cash Equivalents, end of year |
|
$ |
168,409 |
|
|
|
|
$ |
108,651 |
|
|
|
|
$ |
42,437 |
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
71,011 |
|
|
|
|
$ |
81,304 |
|
|
|
|
$ |
52,034 |
|
Cash paid for income taxes |
|
$ |
46,774 |
|
|
|
|
$ |
15,955 |
|
|
|
|
$ |
23,491 |
|
The notes on pages 17 through 41 are an integral part of these financial statements.
Martin
Marietta | Page 15
|
|
|
CONSOLIDATED STATEMENTS OF TOTAL EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000, except per share data) |
|
Shares of Common Stock |
|
Common Stock |
|
Additional
Paid-In Capital |
|
Accumulated
Other Comprehensive
(Loss) Earnings |
|
Retained Earnings |
|
Total
Shareholders Equity |
|
Non-
controlling Interests |
|
Total
Equity |
Balance at December 31, 2012 |
|
|
|
46,002 |
|
|
|
$ |
459 |
|
|
|
$ |
414,657 |
|
|
|
$ |
(106,169 |
) |
|
|
$ |
1,101,598 |
|
|
|
$ |
1,410,545 |
|
|
|
$ |
39,754 |
|
|
|
$ |
1,450,299 |
|
|
|
|
|
|
|
|
|
|
Consolidated net earnings (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,337 |
|
|
|
|
121,337 |
|
|
|
|
(1,905 |
) |
|
|
|
119,432 |
|
Other comprehensive earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,055 |
|
|
|
|
|
|
|
|
|
62,055 |
|
|
|
|
69 |
|
|
|
|
62,124 |
|
Dividends declared ($1.60 per common share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,197 |
) |
|
|
|
(74,197 |
) |
|
|
|
|
|
|
|
|
(74,197 |
) |
Issuances of common stock for stock award plans |
|
|
|
259 |
|
|
|
|
2 |
|
|
|
|
11,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,129 |
|
|
|
|
|
|
|
|
|
11,129 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,008 |
|
|
|
|
|
|
|
|
|
7,008 |
|
Distributions to owners of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(876 |
) |
|
|
|
(876 |
) |
Balance at December 31, 2013 |
|
|
|
46,261 |
|
|
|
|
461 |
|
|
|
|
432,792 |
|
|
|
|
(44,114 |
) |
|
|
|
1,148,738 |
|
|
|
|
1,537,877 |
|
|
|
|
37,042 |
|
|
|
|
1,574,919 |
|
|
|
|
|
|
|
|
|
|
Consolidated net earnings (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,601 |
|
|
|
|
155,601 |
|
|
|
|
(1,307 |
) |
|
|
|
154,294 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,045 |
) |
|
|
|
|
|
|
|
|
(62,045 |
) |
|
|
|
(41 |
) |
|
|
|
(62,086 |
) |
Dividends declared ($1.60 per common share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,304 |
) |
|
|
|
(91,304 |
) |
|
|
|
|
|
|
|
|
(91,304 |
) |
Issuances of common stock, stock options and stock appreciation rights for TXI acquisition |
|
|
|
20,309 |
|
|
|
|
203 |
|
|
|
|
2,751,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,751,873 |
|
|
|
|
|
|
|
|
|
2,751,873 |
|
Issuances of common stock for stock award plans |
|
|
|
723 |
|
|
|
|
7 |
|
|
|
|
41,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,772 |
|
|
|
|
|
|
|
|
|
41,772 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,993 |
|
|
|
|
|
|
|
|
|
8,993 |
|
Distributions to owners of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(800 |
) |
|
|
|
(800 |
) |
Purchase of subsidiary shares from noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,399 |
|
|
|
|
(33,312 |
) |
|
|
|
(24,913 |
) |
Balance at December 31, 2014 |
|
|
|
67,293 |
|
|
|
$ |
671 |
|
|
|
$ |
3,243,619 |
|
|
|
$ |
(106,159 |
) |
|
|
$ |
1,213,035 |
|
|
|
$ |
4,351,166 |
|
|
|
$ |
1,582 |
|
|
|
$ |
4,352,748 |
|
|
|
|
|
|
|
|
|
|
Consolidated net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288,792 |
|
|
|
|
288,792 |
|
|
|
|
146 |
|
|
|
|
288,938 |
|
Other comprehensive earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
537 |
|
|
|
|
|
|
|
|
|
537 |
|
|
|
|
15 |
|
|
|
|
552 |
|
Dividends declared ($1.60 per common share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,462 |
) |
|
|
|
(107,462 |
) |
|
|
|
|
|
|
|
|
(107,462 |
) |
Issuances of common stock for stock award plans |
|
|
|
471 |
|
|
|
|
5 |
|
|
|
|
30,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,624 |
|
|
|
|
|
|
|
|
|
30,624 |
|
Repurchases of common stock |
|
|
|
(3,285 |
) |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(519,929 |
) |
|
|
|
(519,962 |
) |
|
|
|
|
|
|
|
|
(519,962 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
13,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,589 |
|
|
|
|
|
|
|
|
|
13,589 |
|
Minority interest acquired via business combination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,475 |
|
|
|
|
1,475 |
|
Distributions to owners of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(325 |
) |
|
|
|
(325 |
) |
Balance at December 31, 2015 |
|
|
|
64,479 |
|
|
|
$ |
643 |
|
|
|
$ |
3,287,827 |
|
|
|
$ |
(105,622 |
) |
|
|
$ |
874,436 |
|
|
|
$ |
4,057,284 |
|
|
|
$ |
2,893 |
|
|
|
$ |
4,060,177 |
|
The notes on pages 17 through 41 are an integral part of these financial statements.
Martin
Marietta | Page 16
NOTES TO FINANCIAL STATEMENTS
Note A: Accounting Policies
Organization. Martin Marietta
Materials, Inc., (the Corporation or Martin Marietta) is engaged principally in the construction aggregates business. The aggregates product line accounted for 55% of consolidated 2015 net sales and includes crushed stone,
sand and gravel, and is used for the construction of infrastructure, nonresidential and residential projects. Aggregates products are also used for railroad ballast, and in agricultural, utility and environmental applications. These aggregates
products, along with the Corporations aggregates-related downstream product lines, namely heavy building materials such as asphalt products, ready mixed concrete and road paving construction services (which accounted for 27% of consolidated
2015 net sales), are sold and shipped from a network of more than 400 quarries, distribution facilities and plants to customers in 36 states, Canada, the Bahamas and the Caribbean Islands. The aggregates and aggregates-related downstream product
lines are reported collectively as the Aggregates business. As of December 31, 2015, the Aggregates business contains the following reportable segments: Mid-America Group, Southeast Group and West Group. The Mid-America Group operates in
Indiana, Iowa, northern Kansas, Kentucky, Maryland, Minnesota, Missouri, eastern Nebraska, North Carolina, Ohio, South Carolina, Virginia, Washington and West Virginia. The Southeast Group has operations in Alabama, Florida, Georgia, Tennessee, Nova
Scotia and the Bahamas. The West Group operates in Arkansas, Colorado, southern Kansas, Louisiana, western Nebraska, Nevada, Oklahoma, Texas, Utah and Wyoming. The following states accounted for 70% of the Aggregates business 2015 net sales:
Texas, Colorado, North Carolina, Iowa and Georgia.
The Cement segment, accounting for 11% of consolidated 2015 net sales, produces Portland
and specialty cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. Texas and California accounted
for 72% and 25%, respectively, of the Cement business 2015 net sales. In September 2015, the Corporation divested of its California cement operations.
The Magnesia Specialties segment, accounting for 7% of consolidated 2015 net sales, produces magnesia-based chemicals products used in industrial,
agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.
Use of Estimates. The preparation of the Corporations consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions
about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include the
valuation of accounts receivable, inventories, goodwill, intangible assets and other long-lived assets and assumptions used in the calculation of taxes on income, retirement and other postemployment benefits, and the allocation of the purchase price
to the fair values of assets acquired and liabilities assumed as part of business combinations. These estimates and assumptions are based on managements best estimates and judgment. Management evaluates its estimates and assumptions on an
ongoing basis using historical experience and other factors, including the current economic environment, and adjusts such estimates and assumptions when facts and circumstances dictate. Changes in credit, equity and energy markets and changes in
construction activity increase the uncertainty inherent in certain of these estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in
estimates, including those resulting from continuing changes in the economic environment, are reflected in the consolidated financial statements for the period in which the change in estimate occurs.
Basis of Consolidation. The consolidated financial
statements include the accounts of the Corporation and its wholly-owned and majority-owned subsidiaries. Partially-owned affiliates are either consolidated or accounted for at cost or as equity investments, depending on the level of ownership
interest or the Corporations ability to exercise control over the affiliates operations. Intercompany balances and transactions have been eliminated in consolidation.
Early Adoption of New Accounting Standard.
Effective December 31, 2015, the Corporation early adopted the Financial Accounting Standard Boards (the FASB) final guidance on the balance sheet classification of deferred taxes. The guidance requires deferred tax assets and
liabilities to be classified as noncurrent rather than split between current and noncurrent; however, deferred tax assets and liabilities from different federal, state and foreign jurisdictions are not netted for financial statement presentation.
The adoption of Accounting
Martin
Marietta | Page 17
NOTES TO FINANCIAL STATEMENTS (continued)
Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes, had no
impact on the Corporations consolidated shareholders equity, results of operations or cash flows. Retrospective application is allowed and $244,638,000 of current deferred tax assets was reclassed into deferred income taxes, net, on the
consolidated balance sheet as of December 31, 2014 to conform with current year presentation.
Revenue Recognition. Total revenues include sales
of materials and services provided to customers, net of discounts or allowances, if any, and include freight and delivery costs billed to customers. Revenues for product sales are recognized when risks associated with ownership have passed to
unaffiliated customers. Typically, this occurs when finished products are shipped. Revenues derived from the road paving business are recognized using the percentage-of-completion method under the revenue-cost approach. Under the revenue-cost
approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion. Recognized costs equal the total estimated contract cost multiplied by the percentage of completion.
The FASB issued an accounting standard update that amends the accounting guidance on revenue recognition. The new standard intends to provide a more
robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The new standard is effective for interim and annual reporting periods beginning after December 31, 2017 and
can be applied on a full retrospective or modified retrospective approach. The Corporation is currently evaluating the impact of the provisions of the new standard, and at this time does not expect the impact to be material to its results of
operations.
Freight and Delivery Costs.
Freight and delivery costs represent pass-through transportation costs incurred and paid by the Corporation to third-party carriers to deliver products to customers. These costs are then billed to the Corporations customers.
Cash and Cash Equivalents. Cash equivalents are
comprised of highly-liquid instruments with original maturities of three months or less from the date of purchase. The Corporation manages its cash and cash equivalents to ensure that short-term operating cash needs are met and that excess funds are
managed efficiently. The Corporation subsidizes shortages in operating
cash through short-term borrowing facilities. The Corporation utilizes excess cash to either pay down
short-term borrowings or invest in money market funds, money market demand deposit accounts or Eurodollar time deposit accounts. Money market demand deposits and Eurodollar time deposit accounts are exposed to bank solvency risk. Money market demand
deposit accounts are FDIC insured up to $250,000. The Corporations deposits in bank funds generally exceed the $250,000 FDIC insurance limit. The Corporations cash management policy prohibits cash and cash equivalents over $100,000,000
to be maintained at any one bank.
Customer Receivables. Customer receivables are stated at cost. The Corporation does not charge interest on customer accounts receivables. The Corporation records an allowance for doubtful accounts, which includes a provision for probable losses
based on historical write offs and a specific reserve for accounts greater than $50,000 deemed at risk. The Corporation writes off customer receivables as bad debt expense when it becomes apparent based upon customer facts and circumstances that
such amounts will not be collected.
Inventories Valuation. Inventories are stated at the lower of cost or net realizable value. Costs for finished products and in process inventories are determined by the first-in, first-out method. The Corporation records an allowance for
finished product inventories in excess of sales for a twelve-month period, as measured by historical sales. The Corporation also establishes an allowance for expendable parts over five years old and supplies over one year old.
Post-production stripping costs, which represent costs of removing overburden and waste materials to access mineral deposits, are a component of
inventory production costs and recognized in cost of sales in the same period as the revenue from the sale of the inventory.
Properties and Depreciation. Property, plant and equipment are stated at cost.
The estimated service lives for property, plant and equipment are as follows:
|
|
|
Class of Assets |
|
Range of Service Lives |
Buildings |
|
5 to 20 years |
Machinery & Equipment |
|
2 to 20 years |
Land Improvements |
|
5 to 15 years |
Martin
Marietta | Page 18
NOTES TO FINANCIAL STATEMENTS (continued)
The Corporation begins capitalizing quarry development costs at a point when reserves are determined to
be proven or probable, economically mineable and when demand supports investment in the market. Capitalization of these costs ceases when production commences. Capitalized quarry development costs are classified as land improvements.
The Corporation reviews relevant facts and circumstances to determine whether to capitalize or expense pre-production stripping costs when additional
pits are developed at an existing quarry. If the additional pit operates in a separate and distinct area of the quarry, these costs are capitalized as quarry development costs and depreciated over the life of the uncovered reserves. Additionally, a
separate asset retirement obligation is created for additional pits when the liability is incurred. Once a pit enters the production phase, all post-production stripping costs are charged to inventory production costs as incurred.
Mineral reserves and mineral interests acquired in connection with a business combination are valued using an income approach over the life of the
reserves.
Depreciation is computed over estimated service lives, principally by the straight-line method. Depletion of mineral reserves is
calculated over proven and probable reserves by the units-of-production method on a quarry-by-quarry basis.
Property, plant and equipment are
reviewed for impairment whenever facts and circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized if expected future undiscounted cash flows over the estimated remaining service life of
the related asset are less than its carrying value.
Repair and Maintenance
Costs. Repair and maintenance costs that do not substantially extend the life of the Corporations plant and equipment are expensed as incurred.
Goodwill and Intangible Assets. Goodwill
represents the excess purchase price paid for acquired businesses over the estimated fair value of identifiable assets and liabilities. Other intangibles represent amounts assigned principally to contractual agreements and are amortized ratably over
periods based on related contractual terms.
The Corporations reporting units, which represent the level at which goodwill is tested
for impairment, are based on the geographic regions of the Aggregates business. Additionally,
the Cement business is a separate reporting unit. Goodwill is allocated to each reporting unit based on
the location of acquisitions and divestitures at the time of consummation.
The carrying values of goodwill and other indefinite-lived intangible
assets are reviewed annually, as of October 1, for impairment. An interim review is performed between annual tests if facts or circumstances indicate potential impairment. The carrying value of other amortizable intangibles is reviewed if facts and
circumstances indicate potential impairment. If a review indicates that the carrying value is impaired, a charge is recorded.
Retirement Plans and Postretirement Benefits. The Corporation sponsors defined benefit retirement plans and also provides other postretirement benefits.
The Corporation recognizes the funded status, defined as the difference between the fair value of plan assets and the benefit obligation, of its pension plans and other postretirement benefits as an asset or liability on the consolidated balance
sheets. Actuarial gains or losses that arise during the year are not recognized as net periodic benefit cost in the same year, but rather are recognized as a component of accumulated other comprehensive earnings or loss. Those amounts are amortized
over the participants average remaining service period and recognized as a component of net periodic benefit cost. The amount amortized is determined using a corridor approach based on the amount in excess of 10% of the greater of the
projected benefit obligation or pension plan assets.
Stock-Based
Compensation. The Corporation has stock-based compensation plans for employees and its Board of Directors. The Corporation recognizes all forms of stock-based payments to employees, including stock
options, as compensation expense. The compensation expense is the fair value of the awards at the measurement date and is recognized over the requisite service period.
The Corporation uses the accelerated expense recognition method for stock options. The accelerated recognition method requires stock options that vest
ratably to be divided into tranches. The expense for each tranche is allocated to its particular vesting period.
The Corporation expenses the fair
value of restricted stock awards, incentive compensation awards and Board of Directors fees paid in the form of common stock based on the closing price of the Corporations common stock on the awards respective grant dates.
Martin
Marietta | Page 19
NOTES TO FINANCIAL STATEMENTS (continued)
The Corporation uses the lattice valuation model to determine the fair value of stock option awards. The
lattice valuation model takes into account employees exercise patterns based on changes in the Corporations stock price and other variables. The period of time for which options are expected to be outstanding, or expected term of the
option, is a derived output of the lattice valuation model. The Corporation considers the following factors when estimating the expected term of options: vesting period of the award, expected volatility of the underlying stock, employees ages
and external data.
Key assumptions used in determining the fair value of the stock options awarded in 2015, 2014 and 2013 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Risk-free interest rate |
|
|
2.20% |
|
|
|
2.50% |
|
|
|
1.70% |
|
Dividend yield |
|
|
1.20% |
|
|
|
1.50% |
|
|
|
1.80% |
|
Volatility factor |
|
|
36.10% |
|
|
|
35.30% |
|
|
|
35.40% |
|
Expected term |
|
|
8.5 years |
|
|
|
8.5 years |
|
|
|
8.6 years |
|
Based on these assumptions, the weighted-average fair value of each stock option granted was $57.71, $43.42 and $36.48
for 2015, 2014 and 2013, respectively.
The risk-free interest rate reflects the interest rate on zero-coupon U.S. government bonds available at
the time each option was granted having a remaining life approximately equal to the options expected life. The dividend yield represents the dividend rate expected to be paid over the options expected life. The Corporations
volatility factor measures the amount by which its stock price is expected to fluctuate during the expected life of the option and is based on historical stock price changes. Forfeitures are required to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Corporation estimates forfeitures and will ultimately recognize compensation cost only for those stock-based awards that vest.
The Corporation recognizes income tax benefits resulting from the payment of dividend equivalents on unvested stock-based payments as an increase to
additional paid-in capital and includes them in the pool of excess tax benefits.
Environmental Matters. The Corporation records a
liability for an asset retirement obligation at fair value in the period in which it is incurred. The asset retirement obligation is recorded at the acquisition date of a long-lived tangible asset if the fair value can be reasonably estimated. A
corresponding amount is capitalized as part of the assets
carrying amount. The estimate of fair value is affected by managements assumptions regarding the
scope of the work required, inflation rates and quarry closure dates.
Further, the Corporation records an accrual for other environmental
remediation liabilities in the period in which it is probable that a liability has been incurred and the appropriate amounts can be estimated reasonably. Such accruals are adjusted as further information develops or circumstances change. These costs
are not discounted to their present value or offset for potential insurance or other claims or potential gains from future alternative uses for a site.
Income Taxes. Deferred income taxes, net on the
consolidated balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, net of valuation allowances.
Uncertain Tax Positions. The
Corporation recognizes a tax benefit when it is more-likely-than-not, based on the technical merits, that a tax position would be sustained upon examination by a taxing authority. The amount to be recognized is measured as the largest amount of tax
benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. The Corporations unrecognized tax benefits are recorded in other liabilities, on
the consolidated balance sheets.
The Corporation records interest accrued in relation to unrecognized tax benefits as income tax expense.
Penalties, if incurred, are recorded as operating expenses in the consolidated statements of earnings.
Sales Taxes. Sales taxes collected from customers are recorded as liabilities until remitted to taxing authorities and therefore are not reflected in the
consolidated statements of earnings.
Research and Development Costs. Research and development costs are charged to operations as incurred.
Start-Up Costs. Noncapital start-up costs for new facilities and products are charged to operations as incurred.
Warranties. The Corporations construction
contracts contain warranty provisions covering defects in equipment,
Martin
Marietta | Page 20
NOTES TO FINANCIAL STATEMENTS (continued)
materials, design or workmanship that generally run from nine months to one year after project
completion. Because of the nature of its projects, including contract owner inspections of the work both during construction and prior to acceptance, the Corporation has not experienced material warranty costs for these short-term warranties and
therefore does not believe an accrual for these costs is necessary. Certain construction contracts carry longer warranty periods, ranging from two to ten years, for which the Corporation has accrued an estimate of warranty cost based on experience
with the type of work and any known risks relative to the project. These costs were not material to the Corporations consolidated results of operations for the years ended December 31, 2015, 2014 and 2013.
Consolidated Comprehensive Earnings and Accumulated
Other Comprehensive Loss. Consolidated comprehensive earnings for the Corporation consist of consolidated net earnings, 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 comprehensive earnings.
Accumulated other comprehensive loss consists of unrealized gains and losses related to the funded status of the 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.
The components of the changes in
accumulated other comprehensive loss and related cumulative noncurrent deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Postretirement Benefit Plans |
|
|
Foreign Currency |
|
|
Unamortized Value of Terminated Forward Starting Interest Rate Swap |
|
|
Total |
|
years ended December 31
(add 000) |
|
|
|
2015 |
|
Accumulated other comprehensive (loss) earnings at beginning of period |
|
$ |
|
|
(106,688 |
) |
|
$ |
3,278 |
|
|
$ |
(2,749 |
) |
|
$ |
(106,159 |
) |
Other comprehensive loss before reclassifications, net of tax |
|
|
|
|
(7,116 |
) |
|
|
(3,542 |
) |
|
|
|
|
|
|
(10,658 |
) |
Amounts reclassified from accumulated other comprehensive loss, net of tax |
|
|
|
|
10,424 |
|
|
|
|
|
|
|
771 |
|
|
|
11,195 |
|
Other comprehensive earnings (loss), net of tax |
|
|
|
|
3,308 |
|
|
|
(3,542 |
) |
|
|
771 |
|
|
|
537 |
|
Accumulated other comprehensive loss at end of period |
|
$ |
|
|
(103,380 |
) |
|
$ |
(264 |
) |
|
$ |
(1,978 |
) |
|
$ |
(105,622 |
) |
|
|
|
|
|
|
Cumulative noncurrent deferred tax assets at end of period |
|
$ |
|
|
66,467 |
|
|
$ |
|
|
|
$ |
1,290 |
|
|
$ |
67,757 |
|
|
|
|
|
|
|
|
2014 |
|
Accumulated other comprehensive (loss) earnings at beginning of period |
|
$ |
|
|
(44,549 |
) |
|
$ |
3,902 |
|
|
$ |
(3,467 |
) |
|
$ |
(44,114 |
) |
Other comprehensive loss before reclassifications, net of tax |
|
|
|
|
(62,726 |
) |
|
|
(624 |
) |
|
|
|
|
|
|
(63,350 |
) |
Amounts reclassified from accumulated other comprehensive loss, net of tax |
|
|
|
|
587 |
|
|
|
|
|
|
|
718 |
|
|
|
1,305 |
|
Other comprehensive (loss) earnings, net of tax |
|
|
|
|
(62,139 |
) |
|
|
(624 |
) |
|
|
718 |
|
|
|
(62,045 |
) |
Accumulated other comprehensive (loss) earnings at end of period |
|
$ |
|
|
(106,688 |
) |
|
$ |
3,278 |
|
|
$ |
(2,749 |
) |
|
$ |
(106,159 |
) |
|
|
|
|
|
|
Cumulative noncurrent deferred tax assets at end of period |
|
$ |
|
|
68,568 |
|
|
$ |
|
|
|
$ |
1,799 |
|
|
$ |
70,367 |
|
|
|
|
|
|
|
|
2013 |
|
Accumulated other comprehensive (loss) earnings at beginning of period |
|
$ |
|
|
(108,189 |
) |
|
$ |
6,157 |
|
|
$ |
(4,137 |
) |
|
$ |
(106,169 |
) |
Other comprehensive earnings (loss) before reclassifications, net of tax |
|
|
|
|
55,403 |
|
|
|
(2,255 |
) |
|
|
|
|
|
|
53,148 |
|
Amounts reclassified from accumulated other comprehensive loss, net of tax |
|
|
|
|
8,237 |
|
|
|
|
|
|
|
670 |
|
|
|
8,907 |
|
Other comprehensive earnings (loss), net of tax |
|
|
|
|
63,640 |
|
|
|
(2,255 |
) |
|
|
670 |
|
|
|
62,055 |
|
Accumulated other comprehensive (loss) earnings at end of period |
|
$ |
|
|
(44,549 |
) |
|
$ |
3,902 |
|
|
$ |
(3,467 |
) |
|
$ |
(44,114 |
) |
|
|
|
|
|
|
Cumulative noncurrent deferred tax assets at end of period |
|
$ |
|
|
29,198 |
|
|
$ |
|
|
|
$ |
2,269 |
|
|
$ |
31,467 |
|
Martin
Marietta | Page 21
NOTES TO FINANCIAL STATEMENTS (continued)
Reclassifications out of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
Affected line items in the
consolidated statements of earnings |
Pension and postretirement benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special plan termination benefit |
|
$ |
2,085 |
|
|
$ |
|
|
|
$ |
|
|
|
|
Settlement charge |
|
|
|
|
|
|
|
|
|
|
729 |
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
|
(1,880 |
) |
|
|
(2,810 |
) |
|
|
(2,807 |
) |
|
Cost of sales; Selling, general & administrative expenses |
Actuarial loss |
|
|
16,850 |
|
|
|
3,779 |
|
|
|
15,704 |
|
|
Taxes on income |
|
|
|
17,055 |
|
|
|
969 |
|
|
|
13,626 |
|
|
|
Tax effect |
|
|
(6,631 |
) |
|
|
(382 |
) |
|
|
(5,389 |
) |
|
|
Total |
|
$ |
10,424 |
|
|
$ |
587 |
|
|
$ |
8,237 |
|
|
|
|
|
|
|
|
Unamortized value of terminated forward starting interest rate swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense Taxes on income |
Additional interest expense |
|
$ |
1,280 |
|
|
$ |
1,188 |
|
|
$ |
1,108 |
|
|
|
Tax effect |
|
|
(509 |
) |
|
|
(470 |
) |
|
|
(438 |
) |
|
|
Total |
|
$ |
771 |
|
|
$ |
718 |
|
|
$ |
670 |
|
|
|
Earnings Per Common Share. The Corporation computes earnings per share (EPS) pursuant to the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends or
dividend equivalents and their respective participation rights in undistributed earnings. The Corporation pays non-forfeitable dividend equivalents during the vesting period on its restricted stock awards and incentive stock awards, which results in
these being considered participating securities.
The numerator for basic and diluted earnings per common share is net earnings attributable
to Martin Marietta, reduced by dividends and undistributed earnings attributable to the Corporations unvested restricted stock awards and incentive stock awards. 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 issued to
employees and nonemployee members of the Corporations Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive.
The following table reconciles the numerator and denominator for basic and diluted earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Net earnings from continuing operations attributable to Martin Marietta |
|
$ |
288,792 |
|
|
$ |
155,638 |
|
|
$ |
122,086 |
|
Less: Distributed and undistributed earnings attributable to unvested awards |
|
|
1,252 |
|
|
|
647 |
|
|
|
513 |
|
Basic and diluted net earnings attributable to common shareholders from continuing operations attributable to Martin Marietta |
|
|
287,540 |
|
|
|
154,991 |
|
|
|
121,573 |
|
Basic and diluted net loss attributable to common shareholders from discontinued operations |
|
|
|
|
|
|
(37 |
) |
|
|
(749 |
) |
Basic and diluted net earnings attributable to common shareholders attributable to Martin
Marietta |
|
$ |
287,540 |
|
|
$ |
154,954 |
|
|
$ |
120,824 |
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
|
66,770 |
|
|
|
56,854 |
|
|
|
46,164 |
|
Effect of dilutive employee and director awards |
|
|
250 |
|
|
|
234 |
|
|
|
121 |
|
Diluted weighted-average common shares outstanding |
|
|
67,020 |
|
|
|
57,088 |
|
|
|
46,285 |
|
Martin
Marietta | Page 22
NOTES TO FINANCIAL STATEMENTS (continued)
Reclassifications. Effective January 1, 2014, the Corporation reorganized the operations and management reporting structure of the Aggregates business, resulting in a change to the reportable segments. Segment information for 2013 has been
reclassified to conform to the presentation of the current reportable segments.
Note B:
Goodwill and Intangible Assets
The following table shows the changes in goodwill by reportable
segment and in total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid- America |
|
|
Southeast |
|
|
West |
|
|
|
|
|
|
|
December 31 |
|
Group |
|
|
Group |
|
|
Group |
|
|
Cement |
|
|
Total |
|
(add 000) |
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
282,117 |
|
|
$ |
50,346 |
|
|
$ |
852,436 |
|
|
$ |
883,900 |
|
|
$ |
2,068,799 |
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
8,464 |
|
|
|
|
|
|
|
8,464 |
|
Adjustments to purchase price allocations |
|
|
|
|
|
|
|
|
|
|
15,538 |
|
|
|
(18,634 |
) |
|
|
(3,096 |
) |
Divestitures |
|
|
(714 |
) |
|
|
|
|
|
|
(5,218 |
) |
|
|
|
|
|
|
(5,932 |
) |
Balance at end of period |
|
$ |
281,403 |
|
|
$ |
50,346 |
|
|
$ |
871,220 |
|
|
$ |
865,266 |
|
|
$ |
2,068,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
263,967 |
|
|
$ |
50,346 |
|
|
$ |
302,308 |
|
|
$ |
|
|
|
$ |
616,621 |
|
Division reorganization |
|
|
18,150 |
|
|
|
|
|
|
|
(18,150 |
) |
|
|
|
|
|
|
|
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
600,372 |
|
|
|
883,900 |
|
|
|
1,484,272 |
|
Divestitures |
|
|
|
|
|
|
|
|
|
|
(32,094 |
) |
|
|
|
|
|
|
(32,094 |
) |
Balance at end of period |
|
$ |
282,117 |
|
|
$ |
50,346 |
|
|
$ |
852,436 |
|
|
$ |
883,900 |
|
|
$ |
2,068,799 |
|
Intangible assets subject to amortization consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
December 31 |
|
Amount |
|
|
Amortization |
|
|
Balance |
|
(add 000) |
|
|
|
|
2015 |
|
|
|
|
Noncompetition agreements |
|
$ |
6,274 |
|
|
$ |
(6,069 |
) |
|
$ |
205 |
|
Customer relationships |
|
|
35,805 |
|
|
|
(10,448 |
) |
|
|
25,357 |
|
Operating permits |
|
|
450,419 |
|
|
|
(12,294 |
) |
|
|
438,125 |
|
Use rights and other |
|
|
16,746 |
|
|
|
(8,030 |
) |
|
|
8,716 |
|
Trade names |
|
|
12,800 |
|
|
|
(3,408 |
) |
|
|
9,392 |
|
Total |
|
$ |
522,044 |
|
|
$ |
(40,249 |
) |
|
$ |
481,795 |
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
Noncompetition agreements |
|
$ |
6,274 |
|
|
$ |
(5,971 |
) |
|
$ |
303 |
|
Customer relationships |
|
|
36,610 |
|
|
|
(7,654 |
) |
|
|
28,956 |
|
Operating permits |
|
|
498,462 |
|
|
|
(5,575 |
) |
|
|
492,887 |
|
Use rights and other |
|
|
15,385 |
|
|
|
(6,940 |
) |
|
|
8,445 |
|
Trade names |
|
|
12,800 |
|
|
|
(1,143 |
) |
|
|
11,657 |
|
Total |
|
$ |
569,531 |
|
|
$ |
(27,283 |
) |
|
$ |
542,248 |
|
Intangible assets deemed to have an indefinite life and not being amortized consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
Aggregates Business |
|
|
Cement |
|
|
Magnesia Specialties |
|
|
Total |
|
(add 000) |
|
2015 |
|
Operating permits |
|
$ |
6,600 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,600 |
|
Use rights |
|
|
10,175 |
|
|
|
9,137 |
|
|
|
|
|
|
|
19,312 |
|
Trade names |
|
|
|
|
|
|
280 |
|
|
|
2,565 |
|
|
|
2,845 |
|
Total |
|
$ |
16,775 |
|
|
$ |
9,417 |
|
|
$ |
2,565 |
|
|
$ |
28,757 |
|
|
|
|
|
2014 |
|
Operating permits |
|
$ |
6,600 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,600 |
|
Use rights |
|
|
9,975 |
|
|
|
19,437 |
|
|
|
|
|
|
|
29,412 |
|
Trade names |
|
|
|
|
|
|
14,380 |
|
|
|
2,565 |
|
|
|
16,945 |
|
Total |
|
$ |
16,575 |
|
|
$ |
33,817 |
|
|
$ |
2,565 |
|
|
$ |
52,957 |
|
During 2015, the Corporation acquired $2,953,000 of intangibles, consisting of the following:
|
|
|
|
|
|
|
|
|
(add 000, except year data) |
|
Amount |
|
|
Weighted-average amortization period |
|
Subject to amortization: |
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
375 |
|
|
|
13.3 years |
|
Operating permits |
|
|
1,017 |
|
|
|
26.5 years |
|
Use rights and other |
|
|
1,361 |
|
|
|
22.1 years |
|
|
|
|
2,753 |
|
|
|
22.5 years |
|
Not subject to amortization: |
|
|
|
|
|
|
|
|
Use rights |
|
|
200 |
|
|
|
N/A |
|
Total |
|
$ |
2,953 |
|
|
|
|
|
Use rights include, but are not limited to, water rights, subleases and proprietary information.
Total amortization expense for intangible assets for the years ended December 31, 2015, 2014 and 2013 was $13,962,000, $9,311,000 and $3,587,000,
respectively.
The estimated amortization expense for intangible assets for each of the next five years and thereafter is as follows:
|
|
|
|
|
(add 000) |
|
|
|
2016 |
|
$ |
13,431 |
|
2017 |
|
|
13,345 |
|
2018 |
|
|
12,557 |
|
2019 |
|
|
11,665 |
|
2020 |
|
|
11,630 |
|
Thereafter |
|
|
419,167 |
|
Total |
|
$ |
481,795 |
|
Martin
Marietta | Page 23
NOTES TO FINANCIAL STATEMENTS (continued)
Note C: Business Combinations and Dispositions
Business Combinations. The Corporation acquired Texas
Industries, Inc. (TXI) on July 1, 2014. Total revenues and earnings from operations included in the consolidated statements of earnings attributable to TXI were $941,499,000 and $70,121,000, respectively, for the year ended December 31,
2015 and $539,061,000 and $42,239,000, respectively, for the period July 1, 2014 through December 31, 2014.
Acquisition and integration expenses
associated with TXI were $6,762,000 and $90,487,000 for the years ended December 31, 2015 and December 31, 2014, respectively.
Unaudited Pro Forma Financial Information. The pro forma financial information in the table below summarizes the combined consolidated results of
operations for the Corporation and TXI as though the companies were combined as of January 1, 2013. Transactions between Martin Marietta and TXI during the periods presented in the pro forma financial statements have been eliminated as if Martin
Marietta and TXI were consolidated affiliates during the periods.
The unaudited pro forma financial information for the year ended December
31, 2014 includes TXIs historical operating results for the six months ended May 31, 2014 (due to a difference in TXIs historical reporting periods) and the results of operations for the TXI locations from July 1, 2014, the acquisition
date, to December 31, 2014. The pro forma financial information presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place as of January 1,
2013.
|
|
|
|
|
year ended December 31
(add 000) |
|
2014 |
|
Net Sales |
|
$ |
3,088,642 |
|
Earnings from continuing operations attributable to controlling interests |
|
$ |
171,822 |
|
Disposition of Assets. On September 30, 2015, the Corporation divested its California cement operations, which were reported in the Cement segment. These operations were not in close proximity to other core assets of the Corporation and, unlike
other marketplace competitors, were not vertically integrated with ready mixed concrete production.
The divestiture primarily included a cement plant, two distribution terminals, mobile equipment,
intangible assets and inventory. In accordance with the asset purchase agreement, the liabilities assumed by the purchaser included asset retirement obligations. The Corporation received proceeds of $420,000,000 and recognized a loss of $24,214,000
on the sale, inclusive of transaction-related accruals. The Corporation also recognized other disposal-related expenses of $4,849,000. The loss and related expenses are included in other operating expenses, net, in the consolidated statement of
earnings.
Note D: Accounts Receivable, Net
|
|
|
|
|
|
|
|
|
December 31
(add 000) |
|
2015 |
|
|
2014 |
|
Customer receivables |
|
$ |
408,551 |
|
|
$ |
418,016 |
|
Other current receivables |
|
|
9,310 |
|
|
|
7,062 |
|
|
|
|
417,861 |
|
|
|
425,078 |
|
Less allowances |
|
|
(6,940 |
) |
|
|
(4,077 |
) |
Total |
|
$ |
410,921 |
|
|
$ |
421,001 |
|
Of the total accounts receivable, net, balances, $3,794,000 and $3,765,000 at December 31, 2015 and 2014, respectively,
were due from unconsolidated affiliates.
Note E: Inventories, Net
|
|
|
|
|
|
|
|
|
December 31 (add
000) |
|
2015 |
|
|
2014 |
|
Finished products |
|
$ |
433,649 |
|
|
$ |
413,766 |
|
Products in process and raw materials |
|
|
55,194 |
|
|
|
65,250 |
|
Supplies and expendable parts |
|
|
110,882 |
|
|
|
125,092 |
|
|
|
|
599,725 |
|
|
|
604,108 |
|
Less allowances |
|
|
(130,584 |
) |
|
|
(119,189 |
) |
Total |
|
$ |
469,141 |
|
|
$ |
484,919 |
|
Note F: Property, Plant and Equipment, Net
|
|
|
|
|
|
|
|
|
December 31
(add 000) |
|
2015 |
|
|
2014 |
|
Land and land improvements |
|
$ |
865,700 |
|
|
$ |
849,704 |
|
Mineral reserves and interests |
|
|
1,001,295 |
|
|
|
990,438 |
|
Buildings |
|
|
144,076 |
|
|
|
157,233 |
|
Machinery and equipment |
|
|
3,473,826 |
|
|
|
3,568,342 |
|
Construction in progress |
|
|
128,301 |
|
|
|
125,959 |
|
|
|
|
5,613,198 |
|
|
|
5,691,676 |
|
Less allowances for depreciation, depletion and amortization |
|
|
(2,457,198 |
) |
|
|
(2,288,906 |
) |
Total |
|
$ |
3,156,000 |
|
|
$ |
3,402,770 |
|
Martin
Marietta | Page 24
NOTES TO FINANCIAL STATEMENTS (continued)
The gross asset value and related allowance for amortization for machinery and equipment recorded under
capital leases at December 31 were as follows:
|
|
|
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Machinery and equipment under capital leases |
|
$ |
19,379 |
|
|
$ |
25,775 |
|
Less allowance for amortization |
|
|
(5,102 |
) |
|
|
(2,808 |
) |
Total |
|
$ |
14,277 |
|
|
$ |
22,967 |
|
Depreciation, depletion and amortization expense related to property, plant and equipment was $246,874,000,
$211,242,000 and $168,333,000 for the years ended December 31, 2015, 2014 and 2013, respectively. Depreciation, depletion and amortization expense for 2015 and 2014 includes amortization of machinery and equipment under capital leases.
Interest cost of $5,832,000, $8,033,000 and $1,792,000 was capitalized during 2015, 2014 and 2013, respectively.
At December 31, 2015 and 2014, $58,937,000 and $68,340,000, respectively, of the Aggregates business net property, plant and equipment were
located in foreign countries, namely the Bahamas and Canada.
Note G: Long-Term Debt
|
|
|
|
|
|
|
|
|
December 31 (add
000) |
|
2015 |
|
|
2014 |
|
6.6% Senior Notes, due 2018 |
|
$ |
299,368 |
|
|
$ |
299,123 |
|
7% Debentures, due 2025 |
|
|
124,532 |
|
|
|
124,500 |
|
6.25% Senior Notes, due 2037 |
|
|
228,223 |
|
|
|
228,184 |
|
4.25% Senior Notes, due 2024 |
|
|
395,717 |
|
|
|
395,309 |
|
Floating Rate Notes, due 2017, interest rate of 1.71% and 1.33% at December 31, 2015 and 2014, respectively |
|
|
299,318 |
|
|
|
298,869 |
|
Term Loan Facility, due 2018, interest rate of 1.86% and 1.67% at December 31, 2015 and 2014, respectively |
|
|
224,075 |
|
|
|
236,258 |
|
Other notes |
|
|
1,662 |
|
|
|
3,152 |
|
Total |
|
|
1,572,895 |
|
|
|
1,585,395 |
|
Less current maturities |
|
|
(19,246 |
) |
|
|
(14,336 |
) |
Long-term debt |
|
$ |
1,553,649 |
|
|
$ |
1,571,059 |
|
The Corporations 6.6% Senior Notes due 2018, 7% Debentures due 2025, 6.25% Senior Notes due 2037, 4.25% Senior
Notes due 2024 and Floating Rate Notes due 2017 (collectively, the Senior Notes) are senior unsecured obligations of the Corporation, ranking equal in right of payment with the Corporations existing and future unsubordinated
indebtedness. Upon a change of control repurchase event and a resulting below-investment-grade credit rating, the Corporation
would be required to make an offer to repurchase all outstanding Senior Notes, with the exception of the
7% Debentures due 2025, at a price in cash equal to 101% of the principal amount of the Senior Notes, plus any accrued and unpaid interest to, but not including, the purchase date.
All Senior Notes and Debentures are carried net of original issue discount, which is being amortized by the effective interest method over the life of
the issue. Senior Notes are redeemable prior to their respective maturity dates. The principal amount, effective interest rate and maturity date for the Corporations Senior Notes and Debentures are as follows:
|
|
|
|
|
|
|
|
|
|
|
Principal Amount (add 000) |
|
|
Effective Interest Rate |
|
Maturity
Date |
6.6% Senior Notes |
|
$ |
300,000 |
|
|
6.81% |
|
April 15, 2018 |
7% Debentures |
|
$ |
125,000 |
|
|
7.12% |
|
December 1, 2025 |
6.25% Senior Notes |
|
$ |
230,000 |
|
|
6.45% |
|
May 1, 2037 |
4.25% Senior Notes |
|
$ |
400,000 |
|
|
4.25% |
|
July 2, 2024 |
Floating Rate Notes |
|
$ |
300,000 |
|
|
LIBOR+1.10% |
|
June 30, 2017 |
Borrowings under the Senior Unsecured Credit Facilities bear interest, at the Corporations option, at rates based
upon the London Interbank Offered Rate (LIBOR) or a base rate, plus, for each rate, a margin determined in accordance with a ratings-based pricing grid.
In connection with the issuance of its $300,000,000 Floating Rate Senior Notes due 2017 (the Floating Rate Notes) and its $400,000,000
4.25% Senior Notes due 2024 (the 4.25% Senior Notes and together with the Floating Rate Notes, the Notes), the Corporation entered into an indenture, between the Corporation and Regions Bank, as trustee, and a Registration
Rights Agreement, among the Corporation, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasers named in Schedule I to the purchase agreement. The Floating Rate Notes bear interest at a
rate equal to the three-month LIBOR plus 1.10% and may not be redeemed prior to maturity. The 4.25% Senior Notes may be redeemed in whole or in part prior to their maturity at a make-whole redemption price.
The Corporation has a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, N.A., Branch Banking and Trust
Company (BB&T) and SunTrust Bank, as Co-Syndication Agents, and the lenders party thereto (the Credit Agreement). The Credit Agreement provides a $250,000,000 senior unsecured term
Martin
Marietta | Page 25
NOTES TO FINANCIAL STATEMENTS (continued)
loan (the Term Loan Facility) and a $350,000,000 five-year senior unsecured revolving
facility (the Revolving Facility, and together with the Term Loan Facility, the Senior Unsecured Credit Facilities). The Senior Unsecured Credit Facilities are syndicated with the following banks:
|
|
|
|
|
|
|
|
|
|
|
Lender (add
000) |
|
Revolving Facility Commitment |
|
Term Loan Facility Commitment |
JPMorgan Chase Bank, N.A. |
|
|
$ |
46,667 |
|
|
|
$ |
33,333 |
|
Wells Fargo Bank, N.A. |
|
|
|
46,667 |
|
|
|
|
33,333 |
|
BB&T |
|
|
|
46,667 |
|
|
|
|
33,333 |
|
SunTrust Bank |
|
|
|
46,667 |
|
|
|
|
33,333 |
|
Deutsche Bank AG New York Branch |
|
|
|
46,667 |
|
|
|
|
33,333 |
|
PNC Bank, National Association |
|
|
|
29,167 |
|
|
|
|
20,833 |
|
Regions Bank |
|
|
|
29,167 |
|
|
|
|
20,833 |
|
The Northern Trust Company |
|
|
|
29,167 |
|
|
|
|
20,833 |
|
Comerica Bank |
|
|
|
14,582 |
|
|
|
|
10,418 |
|
The Bank of Tokyo-Mitsubishi UFJ, Ltd. |
|
|
|
14,582 |
|
|
|
|
10,418 |
|
Total |
|
|
$ |
350,000 |
|
|
|
$ |
250,000 |
|
The Corporations Credit Agreement 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 as a result of the acquisition, 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 (see Note N), 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 December 31, 2015.
In 2014, the
Corporation amended the Credit Agreement to ensure the impact of the business combination with TXI did not impair liquidity available under the Term Loan Facility and the Revolving Facility. The amendment adjusted consolidated EBITDA, as defined, to
add back fees, costs or expenses relating to the TXI business combination incurred on or prior to the closing
of the combination not to exceed $95,000,000; any integration or similar costs or expenses related to the
TXI business combination incurred in any period prior to the second anniversary of the closing of the TXI business combination not to exceed $70,000,000; and any make-whole fees incurred in connection with the redemption of TXIs 9.25% senior
notes due 2020.
Under the Term Loan Facility, the Corporation made required quarterly principal payments equal to 1.25% of the original principal
balance during 2015 and is required to make quarterly principal payments equal to 1.875% of the remaining principal balance during the remaining years, with the remaining outstanding principal, together with interest accrued thereon, due in full on
November 29, 2018.
The Revolving Facility expires on November 29, 2018, with any outstanding principal amounts, together with interest accrued
thereon, due in full on that date. Available borrowings under the Revolving Facility are reduced by any outstanding letters of credit issued by the Corporation under the Revolving Facility. At December 31, 2015 and 2014, the Corporation had
$2,507,000 of outstanding letters of credit issued under the Revolving Facility. The Corporation paid the bank group an upfront loan commitment fee that is being amortized over the life of the Revolving Facility. The Revolving Facility includes an
annual facility fee.
The Corporation, through a wholly-owned special-purpose subsidiary, has a $250,000,000 trade receivable securitization
facility (the Trade Receivable Facility), which matures on September 30, 2016. The Trade Receivable Facility, with SunTrust Bank, Regions Bank, PNC Bank, National Association and certain other lenders that may become a party to the
facility from time to time, is backed by eligible trade receivables, as defined, of $364,419,000 and $369,575,000 at December 31, 2015 and 2014, respectively. These receivables are originated by the Corporation and then sold to the special-purpose
subsidiary wholly-owned by the Corporation. Borrowings under the Trade Receivable Facility bear interest at a rate equal to one-month LIBOR plus 0.7% and are limited to the lesser of the facility limit or the borrowing base, as defined, of
$282,258,000 and $313,428,000 at December 31, 2015 and 2014, respectively. The Corporation continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned special-purpose subsidiary.
Martin
Marietta | Page 26
NOTES TO FINANCIAL STATEMENTS (continued)
The Corporations long-term debt maturities for the five years following December 31, 2015, and
thereafter are:
|
|
|
|
|
(add 000) |
|
|
|
2016 |
|
$ |
19,246 |
|
2017 |
|
|
318,028 |
|
2018 |
|
|
486,843 |
|
2019 |
|
|
90 |
|
2020 |
|
|
60 |
|
Thereafter |
|
|
748,628 |
|
Total |
|
$ |
1,572,895 |
|
The Corporation has a $5,000,000 short-term line of credit. No amounts were outstanding under this line of credit at
December 31, 2015 or 2014.
Accumulated other comprehensive loss includes the unamortized value of terminated forward starting interest rate swap
agreements. For the years ended December 31, 2015, 2014 and 2013, the Corporation recognized $1,280,000, $1,188,000 and $1,108,000, 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 $1,400,000 until the maturity of the 6.6% Senior Notes in 2018.
Note H: Financial Instruments
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 and money market demand deposit accounts with the following financial institutions: BB&T, Comerica Bank and Regions Bank. 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.
Accounts
receivable are due from a large number of customers, primarily in the construction industry, and are dispersed across wide geographic and economic regions. However, accounts receivable are more heavily concentrated in certain states, namely Texas,
Colorado, North Carolina, Iowa and Georgia. The estimated fair values of accounts receivable approximate their carrying amounts.
Notes receivable are primarily promissory notes with customers and are not publicly traded. Management
estimates that the fair value of notes receivable approximates its 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 amount due to
the short-term nature of the payables.
The carrying values and fair values of the Corporations long-term debt were $1,572,895,000 and
$1,625,193,000, respectively, at December 31, 2015 and $1,585,395,000 and $1,680,584,000, respectively, at December 31, 2014. The estimated fair value of the Corporations publicly-registered long-term debt was estimated based on Level 2 of the
fair value hierarchy using quoted market prices. The estimated fair values of other borrowings, which primarily represent variable-rate debt, approximate their carrying amounts as the interest rates reset periodically.
Note I: Income Taxes
The components of the Corporations tax expense (benefit) on income from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Federal income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
20,627 |
|
|
$ |
35,313 |
|
|
$ |
30,856 |
|
Deferred |
|
|
85,295 |
|
|
|
46,616 |
|
|
|
8,399 |
|
Total federal income taxes |
|
|
105,922 |
|
|
|
81,929 |
|
|
|
39,255 |
|
State income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
18,153 |
|
|
|
10,307 |
|
|
|
3,201 |
|
Deferred |
|
|
930 |
|
|
|
3,376 |
|
|
|
478 |
|
Total state income taxes |
|
|
19,083 |
|
|
|
13,683 |
|
|
|
3,679 |
|
Foreign income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
99 |
|
|
|
1,262 |
|
|
|
972 |
|
Deferred |
|
|
(241 |
) |
|
|
(2,027 |
) |
|
|
139 |
|
Total foreign income taxes |
|
|
(142 |
) |
|
|
(765 |
) |
|
|
1,111 |
|
Total taxes on income |
|
$ |
124,863 |
|
|
$ |
94,847 |
|
|
$ |
44,045 |
|
The increase in federal deferred tax expense in 2015 and 2014 is attributable to the utilization of net operating loss
(NOL) carryforwards acquired in the acquisition of TXI to the extent allowed. For the years ended December 31, 2015 and 2014, the benefit related to the utilization of federal NOL carryforwards, reflected in current tax expense, was
$156,554,000 and $16,940,000, respectively.
Martin
Marietta | Page 27
NOTES TO FINANCIAL STATEMENTS (continued)
For the year ended December 31, 2015, the realized tax benefit for stock-based compensation transactions
was $871,000 less than the amounts estimated during the vesting periods, resulting in a decrease in the pool of excess tax credits. For the years ended December 31, 2014 and 2013, excess tax benefits attributable to stock-based compensation
transactions that were recorded to shareholders equity amounted to $2,508,000 and $2,368,000, respectively.
For the years ended December 31,
2015, 2014 and 2013, foreign pretax loss was $1,175,000, $10,557,000 and $10,277,000, respectively. In 2014, current foreign tax expense primarily related to unrecognized tax benefits for tax positions taken in prior years and the deferred foreign
tax benefit primarily related to the true-up of deferred tax liabilities. In 2013, current foreign tax expense was primarily attributable to the settlement of the Canadian Advance Pricing Agreement (APA). The tax effect of currency
translations included in foreign taxes was immaterial.
The Corporations effective income tax rate on continuing operations varied from the
statutory United States income tax rate because of the following permanent tax differences:
|
|
|
|
|
|
|
years ended December 31 |
|
2015 |
|
2014 |
|
2013 |
Statutory tax rate |
|
35.0% |
|
35.0% |
|
35.0% |
(Reduction) increase resulting from: |
|
|
|
|
|
|
Effect of statutory depletion |
|
(7.8) |
|
(9.6) |
|
(12.0) |
State income taxes |
|
3.0 |
|
3.6 |
|
1.5 |
Domestic production deduction |
|
(0.1) |
|
(0.9) |
|
(2.1) |
Transfer pricing |
|
|
|
(0.2) |
|
0.9 |
Goodwill write off |
|
0.4 |
|
3.9 |
|
|
Foreign tax rate differential |
|
|
|
1.3 |
|
2.1 |
Disallowed compensation |
|
0.2 |
|
3.7 |
|
0.3 |
Purchase accounting transaction costs |
|
|
|
2.4 |
|
|
Other items |
|
(0.5) |
|
(1.1) |
|
1.1 |
Effective income tax rate |
|
30.2% |
|
38.1% |
|
26.8% |
For income tax purposes, the statutory depletion deduction is calculated as a percentage of sales, subject to certain
limitations. Due to these limitations, the impact of changes in the sales volumes and earnings may not proportionately affect the Corporations statutory depletion deduction and the corresponding impact on the effective income tax rate on
continuing operations.
The Corporation is entitled to receive a 9% tax deduction related to income from domestic (i.e., United States) production
activities. The deduction reduced income tax expense and increased consolidated net earnings by $222,000, or
less than $0.01 per diluted share, in 2015, $3,239,000, or $0.05 per diluted share, in 2014, and
$3,979,000, or $0.09 per diluted share, in 2013.
In 2015 and 2014, the Corporation wrote off goodwill not deductible for income tax purposes as
part of the sale of certain operations. In addition, the Corporation incurred certain compensation and transaction expenses in 2014 in connection with the TXI acquisition that are not deductible for income tax purposes, which increased the effective
income tax rate.
The principal components of the Corporations deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
December 31 |
|
Deferred Assets (Liabilities) |
|
(add 000) |
|
2015 |
|
|
2014 |
|
Deferred tax assets related to: |
|
|
|
|
|
|
|
|
Employee benefits |
|
$ |
56,302 |
|
|
$ |
74,288 |
|
Inventories |
|
|
75,907 |
|
|
|
64,484 |
|
Valuation and other reserves |
|
|
42,857 |
|
|
|
48,278 |
|
Net operating loss carryforwards |
|
|
11,448 |
|
|
|
171,781 |
|
Accumulated other comprehensive loss |
|
|
67,757 |
|
|
|
70,367 |
|
Alternative Minimum Tax credit carryforward |
|
|
48,197 |
|
|
|
28,809 |
|
Gross deferred tax assets |
|
|
302,468 |
|
|
|
458,007 |
|
Valuation allowance on deferred tax assets |
|
|
(8,967 |
) |
|
|
(6,133 |
) |
Total net deferred tax assets |
|
|
293,501 |
|
|
|
451,874 |
|
Deferred tax liabilities related to: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(593,767 |
) |
|
|
(638,730 |
) |
Goodwill and other intangibles |
|
|
(266,436 |
) |
|
|
(288,471 |
) |
Other items, net |
|
|
(16,757 |
) |
|
|
(14,618 |
) |
Total deferred tax liabilities |
|
|
(876,960 |
) |
|
|
(941,819 |
) |
Net deferred tax liability |
|
$ |
(583,459 |
) |
|
$ |
(489,945 |
) |
The increase in the net deferred tax liability is primarily a result of the utilization of deferred tax assets related
to net operating loss carryforwards, offset by the recognition of deferred tax liabilities resulting from the sale of the California cement operations.
Deferred tax assets for employee benefits result from the temporary differences between the deductions for pension and postretirement obligations and
stock-based compensation transactions. For financial reporting purposes, such amounts are expensed based on authoritative accounting guidance. For income tax purposes, amounts related to pension and postretirement obligations are deductible as
funded. Amounts related to stock-based compensation transactions are deductible for income tax purposes upon vesting or exercise of the under-
Martin
Marietta | Page 28
NOTES TO FINANCIAL STATEMENTS (continued)
lying award. Deferred tax assets are carried on stock options with exercise prices in excess of the
Corporations stock price at December 31, 2015. If these options expire without being exercised, the deferred tax assets are written off by reducing the pool of excess tax benefits to the extent available and expensing any excess.
The Corporation had domestic federal and state net operating loss carryforwards of $273,251,000 (federal $33,863,000; state $239,388,000) and
$710,163,000 (federal $465,467,000; state $244,696,000) at December 31, 2015 and 2014, respectively. These carryforwards have various expiration dates through 2035. At December 31, 2015 and 2014, deferred tax assets associated with these
carryforwards were $11,448,000 and $171,781,000, respectively, net of unrecognized tax benefits, for which valuation allowances of $8,690,000 and $5,084,000, respectively, were recorded. The Corporation recorded a $3,714,000 valuation reserve in
2015 for certain state net operating loss carryforwards, which was driven by the sale of the California cement operations. The Corporation also had domestic tax credit carryforwards of $3,179,000 and $3,682,000 at December 31, 2015 and 2014,
respectively, for which valuation allowances were recorded in the amount of $277,000 and $1,049,000 at December 31, 2015 and 2014, respectively. Federal tax credit carryforwards recorded at December 31, 2015 will begin to expire in 2025. State tax
credit carryforwards recorded at December 31, 2015 expire in 2018. At December 31, 2015, the Corporation also had Alternative Minimum Tax (AMT) credit carryforwards of $48,197,000, which do not expire.
Deferred tax liabilities for property, plant and equipment result from accelerated depreciation methods being used for income tax purposes as compared
with the straight-line method for financial reporting purposes.
Deferred tax liabilities related to goodwill and other intangibles reflect the
cessation of goodwill amortization for financial reporting purposes, while amortization continues for income tax purposes. No deferred tax liabilities were recorded on goodwill acquired in the TXI acquisition.
The Corporation provides deferred taxes, as required, on the undistributed net earnings of all non-U.S. subsidiaries for which the indefinite reversal
criterion has not been met. The Corporation expects to reinvest permanently the earnings from its wholly-owned Canadian subsidiary and accordingly, has not provided deferred taxes on the subsidiarys undistributed
net earnings. The Canadian subsidiarys undistributed net earnings are estimated to be $32,284,000
for the year ended December 31, 2015. The unrecognized deferred tax liability for temporary differences related to the investment in the wholly-owned Canadian subsidiary is estimated to be $1,815,000 for the year ended December 31, 2015.
The following table summarizes the Corporations unrecognized tax benefits, excluding interest and correlative effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Unrecognized tax benefits at beginning of year |
|
$ |
21,107 |
|
|
$ |
11,826 |
|
|
$ |
15,380 |
|
Gross increases tax positions in prior years |
|
|
3,079 |
|
|
|
2,075 |
|
|
|
9,845 |
|
Gross decreases tax positions in prior years |
|
|
(3,512 |
) |
|
|
(203 |
) |
|
|
(5,121 |
) |
Gross increases tax positions in current year |
|
|
4,978 |
|
|
|
3,369 |
|
|
|
2,540 |
|
Gross decreases tax positions in current year |
|
|
(594 |
) |
|
|
(51 |
) |
|
|
(529 |
) |
Settlements with taxing authorities |
|
|
|
|
|
|
|
|
|
|
(8,599 |
) |
Lapse of statute of limitations |
|
|
(6,331 |
) |
|
|
(1,872 |
) |
|
|
(1,690 |
) |
Unrecognized tax benefits assumed with acquisition |
|
|
|
|
|
|
5,963 |
|
|
|
|
|
Unrecognized tax benefits at end of year |
|
$ |
18,727 |
|
|
$ |
21,107 |
|
|
$ |
11,826 |
|
For the year ended December 31, 2014, the unrecognized tax benefits assumed with acquisition included positions
acquired in the acquisition of TXI. For the year ended December 31, 2013, settlements with taxing authorities related to the Canadian APA settlement.
At December 31, 2015, 2014 and 2013, unrecognized tax benefits of $7,975,000, $9,362,000 and $6,301,000, respectively, 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.
Unrecognized tax benefits are reversed as a discrete event if an examination of applicable tax returns is not begun by a federal or state tax authority
within the statute of limitations or upon effective settlement with federal or state tax authorities. Management believes its accrual for unrecognized tax benefits is sufficient to cover uncertain tax positions reviewed during audits by taxing
authorities. The Corporation anticipates that it is reasonably possible that its unrecognized tax benefits may decrease up to $1,455,000,
Martin
Marietta | Page 29
NOTES TO FINANCIAL STATEMENTS (continued)
excluding indirect benefits, during the twelve months ending December 31, 2016 due to the expiration of
the statute of limitations for the 2011 and 2012 tax years.
For the years ended December 31, 2015, 2014 and 2013, $2,364,000 or $0.04 per diluted
share, $687,000 or $0.01 per diluted share, and $1,368,000 or $0.03 per diluted share, respectively, were reversed into income upon the statute of limitations expiration for the 2009, 2010 and 2011 tax years.
The Corporations open tax years subject to federal, state or foreign examinations are 2011 through 2015.
Note J: Retirement Plans, Postretirement and Postemployment Benefits
The Corporation sponsors defined benefit retirement plans that cover substantially all employees. Additionally, the Corporation
provides other postretirement benefits for certain employees, including medical benefits for retirees and their spouses and retiree life insurance. The Corporation also provides certain benefits, such as disability benefits, to former or inactive
employees after employment but before retirement.
In connection with the TXI acquisition in 2014, the Corporation assumed three defined benefit
plans, including two pension plans and a postretirement health benefit plan. The assets and obligations associated with these plans are reflected in the assets and obligations as of December 31, 2015 and 2014, in the tables below.
The measurement date for the Corporations defined benefit plans, postretirement benefit plans and postemployment benefit plans is December 31.
Defined Benefit Retirement Plans. Retirement
plan assets invested in listed stocks, bonds, hedge funds, real estate and cash equivalents. Defined retirement benefits for salaried employees are based on each employees years of service and average compensation for a specified period of
time before retirement. Defined retirement benefits for hourly employees are generally stated amounts for specified periods of service.
The
Corporation sponsors a Supplemental Excess Retirement Plan (SERP) that generally provides for the payment of retirement benefits in excess of allowable Internal Revenue
Code limits. The SERP generally provides for a lump-sum payment of vested benefits. When these benefit payments exceed the sum of the service and interest costs for the SERP during a year, the
Corporation recognizes a pro-rata portion of the SERPs unrecognized actuarial loss as settlement expense.
The net periodic retirement
benefit cost of defined benefit plans includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
23,001 |
|
|
$ |
17,125 |
|
|
$ |
16,121 |
|
Interest cost |
|
|
33,151 |
|
|
|
28,935 |
|
|
|
23,016 |
|
Expected return on assets |
|
|
(36,385 |
) |
|
|
(32,661 |
) |
|
|
(26,660 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
422 |
|
|
|
445 |
|
|
|
449 |
|
Actuarial loss |
|
|
17,159 |
|
|
|
4,045 |
|
|
|
15,679 |
|
Transition asset |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Settlement charge |
|
|
|
|
|
|
|
|
|
|
729 |
|
Termination benefit charge |
|
|
2,085 |
|
|
|
13,652 |
|
|
|
|
|
Net periodic benefit cost |
|
$ |
39,432 |
|
|
$ |
31,540 |
|
|
$ |
29,333 |
|
The expected return on assets is based on the fair value of the plan assets. The termination benefit charge represents
the increased benefits payable to former TXI executives as part of their change-in-control agreements.
The Corporation recognized the following
amounts in consolidated comprehensive earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Actuarial loss (gain) |
|
$ |
9,916 |
|
|
$ |
105,546 |
|
|
$ |
(90,755 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
(422 |
) |
|
|
(445 |
) |
|
|
(449 |
) |
Actuarial loss |
|
|
(17,159 |
) |
|
|
(4,045 |
) |
|
|
(15,679 |
) |
Transition asset |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Special plan termination benefits |
|
|
(2,085 |
) |
|
|
|
|
|
|
|
|
Settlement charge |
|
|
|
|
|
|
|
|
|
|
(729 |
) |
Net prior service cost |
|
|
2,338 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(7,411 |
) |
|
$ |
101,057 |
|
|
$ |
(107,611 |
) |
Accumulated other comprehensive loss includes the following amounts that have not yet been recognized in net periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
2015 |
|
|
2014 |
|
(add 000) |
|
Gross |
|
|
Net of tax |
|
|
Gross |
|
|
Net of tax |
|
Prior service cost |
|
$ |
1,028 |
|
|
$ |
628 |
|
|
$ |
1,197 |
|
|
$ |
729 |
|
Actuarial loss |
|
|
178,770 |
|
|
|
108,874 |
|
|
|
186,013 |
|
|
|
113,288 |
|
Transition asset |
|
|
(8 |
) |
|
|
(5 |
) |
|
|
(9 |
) |
|
|
(5 |
) |
Total |
|
$ |
179,790 |
|
|
$ |
109,497 |
|
|
$ |
187,201 |
|
|
$ |
114,012 |
|
Martin
Marietta | Page 30
NOTES TO FINANCIAL STATEMENTS (continued)
The prior service cost, actuarial loss and transition asset expected to be recognized in net periodic
benefit cost during 2016 are $350,000 (net of deferred taxes of $136,000), $11,318,000 (net of deferred taxes of $4,403,000) and $1,000, respectively. These amounts are included in accumulated other comprehensive loss at December 31, 2015.
The defined benefit plans change in projected benefit obligation is as follows:
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
Net projected benefit obligation at beginning of year |
|
$ |
753,975 |
|
|
$ |
496,040 |
|
Service cost |
|
|
23,001 |
|
|
|
17,125 |
|
Interest cost |
|
|
33,151 |
|
|
|
28,935 |
|
Actuarial (gain) loss |
|
|
(27,119 |
) |
|
|
99,071 |
|
Gross benefits paid |
|
|
(30,803 |
) |
|
|
(23,489 |
) |
Acquisitions |
|
|
|
|
|
|
122,641 |
|
Nonrecurring termination benefit |
|
|
2,338 |
|
|
|
13,652 |
|
Net projected benefit obligation at end of year |
|
$ |
754,543 |
|
|
$ |
753,975 |
|
The Corporations change in plan assets, funded status and amounts recognized on the Corporations
consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
524,042 |
|
|
$ |
443,973 |
|
Actual return on plan assets, net |
|
|
(651 |
) |
|
|
26,186 |
|
Employer contributions |
|
|
53,924 |
|
|
|
25,654 |
|
Gross benefits paid |
|
|
(30,803 |
) |
|
|
(23,489 |
) |
Acquisitions |
|
|
|
|
|
|
51,718 |
|
Fair value of plan assets at end of year |
|
$ |
546,512 |
|
|
$ |
524,042 |
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Funded status of the plan at end of year |
|
$ |
(208,031 |
) |
|
$ |
(229,933 |
) |
Accrued benefit cost |
|
$ |
(208,031 |
) |
|
$ |
(229,933 |
) |
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Amounts recognized on consolidated balance sheets consist of: |
|
|
|
|
|
|
|
|
Current liability |
|
$ |
(6,048 |
) |
|
$ |
(4,183 |
) |
Noncurrent liability |
|
|
(201,983 |
) |
|
|
(225,750 |
) |
Net amount recognized at end of year |
|
$ |
(208,031 |
) |
|
$ |
(229,933 |
) |
The accumulated benefit obligation for all defined benefit pension plans was $688,017,000 and $684,647,000 at December
31, 2015 and 2014, respectively.
Benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets are as follows:
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Projected benefit obligation |
|
$ |
754,543 |
|
|
$ |
753,975 |
|
Accumulated benefit obligation |
|
$ |
688,017 |
|
|
$ |
684,647 |
|
Fair value of plan assets |
|
$ |
546,512 |
|
|
$ |
524,042 |
|
Weighted-average assumptions used to determine benefit obligations as of December 31 are:
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
Discount rate |
|
|
4.67 |
% |
|
|
4.25 |
% |
Rate of increase in future compensation levels |
|
|
4.50 |
% |
|
|
4.50 |
% |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Discount rate |
|
|
4.25 |
% |
|
|
5.17 |
% |
|
|
4.24 |
% |
Rate of increase in future compensation levels |
|
|
4.50 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Expected long-term rate of return on assets |
|
|
7.00 |
% |
|
|
7.00 |
% |
|
|
7.00 |
% |
The expected long-term rate of return on assets is based on a building-block approach, whereby the components are
weighted based on the allocation of pension plan assets.
For 2015 and 2014, the Corporation estimated the remaining lives of participants in the
pension plans using the RP-2014 Mortality Table. The no-collar table was used for salaried participants and the blue-collar table, reflecting the experience of the Corporations participants, was used for hourly participants.
The target allocation for 2015 and the actual pension plan asset allocation by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets |
|
|
|
2015 |
|
|
December 31 |
|
Asset Class |
|
Target Allocation |
|
|
2015 |
|
|
2014 |
|
Equity securities |
|
|
54 |
% |
|
|
55 |
% |
|
|
59 |
% |
Debt securities |
|
|
30 |
% |
|
|
31 |
% |
|
|
29 |
% |
Hedge funds |
|
|
8 |
% |
|
|
7 |
% |
|
|
4 |
% |
Real estate |
|
|
8 |
% |
|
|
7 |
% |
|
|
7 |
% |
Cash |
|
|
0 |
% |
|
|
0 |
% |
|
|
1 |
% |
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Martin
Marietta | Page 31
NOTES TO FINANCIAL STATEMENTS (continued)
The Corporations investment strategy is for approximately 50% of equity securities to be invested
in mid-sized to large capitalization U.S. funds with the remaining to be invested in small capitalization, emerging markets and international funds. Debt securities, or fixed income investments, are invested in funds benchmarked to the Barclays U.S.
Aggregate Bond Index.
The fair values of pension plan assets by asset class and fair value hierarchy level are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
(add 000) |
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Observable Inputs (Level 2) |
|
|
Significant
Unobservable Inputs (Level
3) |
|
|
Total
Fair Value |
|
|
2015 |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-sized to large cap |
|
$ |
|
|
|
$ |
156,008 |
|
|
$ |
|
|
|
$ |
156,008 |
|
Small cap,
international and emerging growth funds |
|
|
|
|
|
|
144,405 |
|
|
|
|
|
|
|
144,405 |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core fixed income |
|
|
|
|
|
|
167,545 |
|
|
|
|
|
|
|
167,545 |
|
High-yield bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
15,479 |
|
|
|
|
|
|
|
23,242 |
|
|
|
38,721 |
|
Hedge funds |
|
|
|
|
|
|
|
|
|
|
39,219 |
|
|
|
39,219 |
|
Cash |
|
|
614 |
|
|
|
|
|
|
|
|
|
|
|
614 |
|
Total |
|
$ |
16,093 |
|
|
$ |
467,958 |
|
|
$ |
62,461 |
|
|
$ |
546,512 |
|
|
|
|
|
2014 |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-sized to large cap |
|
$ |
|
|
|
$ |
219,092 |
|
|
$ |
|
|
|
$ |
219,092 |
|
Small cap,
international and emerging growth funds |
|
|
|
|
|
|
87,706 |
|
|
|
|
|
|
|
87,706 |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core fixed income |
|
|
|
|
|
|
154,997 |
|
|
|
|
|
|
|
154,997 |
|
High-yield bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
|
|
|
|
|
|
|
|
20,363 |
|
|
|
20,363 |
|
Hedge funds |
|
|
|
|
|
|
|
|
|
|
38,264 |
|
|
|
38,264 |
|
Cash |
|
|
3,620 |
|
|
|
|
|
|
|
|
|
|
|
3,620 |
|
Total |
|
$ |
3,620 |
|
|
$ |
461,795 |
|
|
$ |
58,627 |
|
|
$ |
524,042 |
|
Level 3 real estate investments are stated at estimated fair value, which is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of real estate investments generally do not reflect transaction costs which may be incurred upon disposition of
the real estate investments and do not necessarily represent the prices at which the real estate investments would be sold or repaid, since market prices of real estate investments can only be determined by negotiation between a willing buyer and
seller. An independent valuation consultant is employed to determine the fair value of the real estate investments. The value of hedge funds is based on the values of the sub-fund investments. In
determining the fair value of each sub-funds investment, the hedge funds Board of Trustees
uses the values provided by the sub-funds and any other considerations that may, in its judgment, increase or decrease such estimated value.
The
change in the fair value of pension plan assets valued using significant unobservable inputs (Level 3) is as follows:
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
Real Estate |
|
|
Hedge Funds |
|
(add 000) |
|
2015 |
|
Balance at beginning of year |
|
$ |
20,363 |
|
|
$ |
38,264 |
|
Purchases, sales, settlements, net |
|
|
|
|
|
|
|
|
Actual return on plan assets held at period end |
|
|
2,879 |
|
|
|
955 |
|
Balance at end of year |
|
$ |
23,242 |
|
|
$ |
39,219 |
|
|
|
|
|
2014 |
|
Balance at beginning of year |
|
$ |
19,357 |
|
|
$ |
21,764 |
|
Purchases, sales, settlements, net |
|
|
441 |
|
|
|
15,600 |
|
Actual return on plan assets held at period end |
|
|
565 |
|
|
|
900 |
|
Balance at end of year |
|
$ |
20,363 |
|
|
$ |
38,264 |
|
In 2015 and 2014, the Corporation made pension and SERP contributions of $53,924,000 and $25,654,000, respectively. The
Corporation currently estimates that it will contribute $29,927,000 to its pension and SERP plans in 2016.
The expected benefit payments to be
paid from plan assets for each of the next five years and the five-year period thereafter are as follows:
|
|
|
|
|
(add 000) |
|
|
|
2016 |
|
$ |
34,226 |
|
2017 |
|
$ |
36,301 |
|
2018 |
|
$ |
38,105 |
|
2019 |
|
$ |
40,327 |
|
2020 |
|
$ |
42,582 |
|
Years 2021 2025 |
|
$ |
238,610 |
|
Postretirement Benefits. The net periodic postretirement benefit (credit) cost of postretirement plans includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Components of net periodic benefit credit: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
137 |
|
|
$ |
206 |
|
|
$ |
227 |
|
Interest cost |
|
|
928 |
|
|
|
1,164 |
|
|
|
1,013 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
|
(2,302 |
) |
|
|
(3,255 |
) |
|
|
(3,255 |
) |
Actuarial (gain) loss |
|
|
(309 |
) |
|
|
(266 |
) |
|
|
25 |
|
Total net periodic benefit credit |
|
$ |
(1,546 |
) |
|
$ |
(2,151 |
) |
|
$ |
(1,990 |
) |
|
|
|
|
|
|
|
Martin Marietta | Page 32 |
|
|
NOTES TO FINANCIAL STATEMENTS (continued)
The Corporation recognized the following amounts in consolidated comprehensive earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Actuarial gain |
|
$ |
(626 |
) |
|
$ |
(3,026 |
) |
|
$ |
(1,011 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
|
2,302 |
|
|
|
3,255 |
|
|
|
3,255 |
|
Actuarial gain (loss) |
|
|
309 |
|
|
|
266 |
|
|
|
(25 |
) |
Total |
|
$ |
1,985 |
|
|
$ |
495 |
|
|
$ |
2,219 |
|
Accumulated other comprehensive loss includes the following amounts that have not yet been recognized in net periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
2015 |
|
|
2014 |
|
(add 000) |
|
Gross |
|
|
Net of tax |
|
|
Gross |
|
|
Net of tax |
|
Prior service credit |
|
$ |
(4,786 |
) |
|
$ |
(2,924 |
) |
|
$ |
(7,088 |
) |
|
$ |
(4,316 |
) |
Actuarial gain |
|
|
(5,050 |
) |
|
|
(3,086 |
) |
|
|
(4,733 |
) |
|
|
(2,883 |
) |
Total |
|
$ |
(9,836 |
) |
|
$ |
(6,010 |
) |
|
$ |
(11,821 |
) |
|
$ |
(7,199 |
) |
The prior service credit and actuarial gain expected to be recognized in net periodic benefit cost during 2016 is
$1,846,000 (net of a deferred tax liability of $718,000) and $382,000 (net of a deferred tax liability of $149,000), respectively, and are included in accumulated other comprehensive loss at December 31, 2015.
The postretirement health care plans change in benefit obligation is as follows:
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Net benefit obligation at beginning of year |
|
$ |
25,086 |
|
|
$ |
27,352 |
|
Service cost |
|
|
137 |
|
|
|
206 |
|
Interest cost |
|
|
928 |
|
|
|
1,164 |
|
Participants contributions |
|
|
1,777 |
|
|
|
2,100 |
|
Actuarial gain |
|
|
(627 |
) |
|
|
(3,026 |
) |
Gross benefits paid |
|
|
(3,893 |
) |
|
|
(4,856 |
) |
Acquisitions |
|
|
|
|
|
|
2,146 |
|
Net benefit obligation at end of year |
|
$ |
23,408 |
|
|
$ |
25,086 |
|
The Corporations change in plan assets, funded status and amounts recognized on the
Corporations consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
|
|
|
$ |
|
|
Employer contributions |
|
|
2,116 |
|
|
|
2,756 |
|
Participants contributions |
|
|
1,777 |
|
|
|
2,100 |
|
Gross benefits paid |
|
|
(3,893 |
) |
|
|
(4,856 |
) |
Fair value of plan assets at end of year |
|
$ |
|
|
|
$ |
|
|
|
|
|
December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Funded status of the plan at end of year |
|
$ |
(23,408 |
) |
|
$ |
(25,086 |
) |
Accrued benefit cost |
|
$ |
(23,408 |
) |
|
$ |
(25,086 |
) |
|
|
|
December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Amounts recognized on consolidated balance sheets consist of: |
|
|
|
|
|
|
|
|
Current liability |
|
$ |
(2,120 |
) |
|
$ |
(2,770 |
) |
Noncurrent liability |
|
|
(21,288 |
) |
|
|
(22,316 |
) |
Net amount recognized at end of year |
|
$ |
(23,408 |
) |
|
$ |
(25,086 |
) |
Weighted-average assumptions used to determine the postretirement benefit obligations as of December 31 are:
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
Discount rate |
|
|
4.25% |
|
|
|
3.83% |
|
Weighted-average assumptions used to determine the postretirement benefit cost for the years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Discount rate |
|
|
3.83% |
|
|
|
4.42% |
|
|
|
3.54% |
|
For 2015 and 2014, the Corporation estimated the remaining lives of participants in the postretirement plan using the
RP-2014 Mortality Table.
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
Health care cost trend rate assumed for next year |
|
|
7.0% |
|
|
|
7.0% |
|
Rate to which the cost trend rate gradually declines |
|
|
5.0% |
|
|
|
5.0% |
|
Year the rate reaches the ultimate rate |
|
|
2020 |
|
|
|
2019 |
|
Martin
Marietta | Page 33
NOTES TO FINANCIAL STATEMENTS (continued)
Assumed health care cost trend rates have a significant effect on the amounts reported for the health
care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point |
|
(add 000) |
|
Increase |
|
|
(Decrease) |
|
Total service and interest cost components |
|
|
$ 55 |
|
|
|
$ (51 |
) |
Postretirement benefit obligation |
|
|
$1,312 |
|
|
|
$(1,133 |
) |
The Corporation estimates that it will contribute $2,120,000 to its postretirement health care plans in 2016.
The total expected benefit payments to be paid by the Corporation, net of participant contributions, for each of the next five years and the five-year
period thereafter are as follows:
|
|
|
|
|
(add 000) |
|
|
|
2016 |
|
$ |
2,120 |
|
2017 |
|
$ |
2,344 |
|
2018 |
|
$ |
2,275 |
|
2019 |
|
$ |
2,159 |
|
2020 |
|
$ |
2,051 |
|
Years 2021 - 2025 |
|
$ |
9,170 |
|
Defined Contribution Plans. The Corporation maintains defined contribution plans that cover substantially all employees. These plans, qualified under Section 401(a) of the Internal Revenue Code, are retirement savings and investment plans for the
Corporations salaried and hourly employees. Under certain provisions of these plans, the Corporation, at established rates, matches employees eligible contributions. The Corporations matching obligations were $12,444,000 in 2015,
$8,602,000 in 2014 and $7,097,000 in 2013. The increase in matching contributions reflect the participation of the new employees effective July 1, 2014 in connection with the TXI acquisition.
Postemployment Benefits. The Corporation had
accrued postemployment benefits of $1,267,000 at December 31, 2015 and 2014.
Note K: Stock-Based Compensation
The shareholders approved, on May 23, 2006, the Martin Marietta Materials, Inc. Stock-Based Award Plan, as amended from time to time
(along with the Amended Omnibus Securities Award Plan, originally approved in 1994, the Plans). The Corporation has been authorized by the Board of Directors to repurchase shares of the Corporations common stock for issuance under
the Plans (see Note M).
Under the Plans, the Corporation grants options to employees to purchase its common stock at a price
equal to the closing market value at the date of grant. Options become exercisable in four annual installments beginning one year after date of grant. Options granted starting 2013 expire ten years after the grant date while outstanding options
granted prior to 2013 expire eight years after the grant date.
In connection with the TXI acquisition, the Corporation issued 821,282 Martin
Marietta stock options (Replacement Options) to holders of outstanding TXI stock options at the acquisition date. The Corporation issued 0.7 Replacement Options for each outstanding TXI stock option, and the Replacement Option prices
reflected the exchange ratio. The Replacement Options will expire on the original contractual dates when the TXI stock options were initially issued. Consistent with the terms of the Corporations other outstanding stock options, Replacement
Options expire 90 days after employment is terminated.
Prior to 2009, each nonemployee Board of Director member received 3,000 non-qualified stock
options annually. These options have an exercise price equal to the market value at the date of grant, vested immediately and expire ten years from the grant date.
The following table includes summary information for stock options as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options |
|
|
Weighted- Average Exercise Price |
|
|
Weighted-Average Remaining Contractual
Life (years) |
Outstanding at January 1, 2015 |
|
|
1,054,435 |
|
|
|
$ 96.53 |
|
|
|
Granted |
|
|
55,244 |
|
|
|
$154.58 |
|
|
|
Exercised |
|
|
(367,497 |
) |
|
|
$101.31 |
|
|
|
Terminated |
|
|
(56,170 |
) |
|
|
$135.85 |
|
|
|
Outstanding at December 31, 2015 |
|
|
686,012 |
|
|
|
$ 95.43 |
|
|
3.8 |
Exercisable at December 31, 2015 |
|
|
544,755 |
|
|
|
$ 87.75 |
|
|
2.7 |
The weighted-average grant-date exercise price of options granted during 2015, 2014 and 2013 was $154.58, $121.00 and
$108.24, respectively. The aggregate intrinsic values of options exercised during the years ended December 31, 2015, 2014 and 2013 were $7,318,000, $9,709,000 and $7,142,000, respectively, and were based on the closing prices of the
Corporations common stock on the dates of exercise. The aggregate intrinsic values for options outstanding and exercisable at December 31, 2015 were $29,536,000 and $26,925,000, respectively, and were based on the closing price of the
Corporations common stock at December 31, 2015, which was $136.58.
Martin
Marietta | Page 34
NOTES TO FINANCIAL STATEMENTS (continued)
Additionally, an incentive stock plan has been adopted under the Plans whereby certain participants may
elect to use up to 50% of their annual incentive compensation to acquire units representing shares of the Corporations common stock at a 20% discount to the market value on the date of the incentive compensation award. Certain executive
officers are required to participate in the incentive stock plan at certain minimum levels. Participants earn the right to receive unrestricted shares of common stock in an amount equal to their respective units generally at the end of a 34-month
period of additional employment from the date of award or at retirement beginning at age 62. All rights of ownership of the common stock convey to the participants upon the issuance of their respective shares at the end of the ownership-vesting
period, with the exception of dividend equivalents that are paid on the units during the vesting period.
The Corporation grants restricted stock
awards under the Plans to a group of executive officers, key personnel and non-employee Board of Directors. The vesting of certain restricted stock awards is based on specific performance criteria over a specified period of time. In addition,
certain awards are granted to individuals to encourage retention and motivate key employees. These awards generally vest if the employee is continuously employed over a specified period of time and require no payment from the employee. Awards
granted to nonemployee Board of Directors vest immediately.
The aggregate intrinsic values for incentive compensation awards and restricted stock awards at December
31, 2015 were $1,920,000 and $44,412,000, respectively, and were based on the closing price of the Corporations common stock at December 31, 2015, which was $136.58. The aggregate intrinsic values of incentive compensation awards distributed
during the years ended December 31, 2015, 2014 and 2013 were $983,000, $584,000 and $466,000, respectively. The aggregate intrinsic values of restricted stock awards distributed during the years ended December 31, 2015, 2014 and 2013 were
$11,387,000, $3,555,000 and $9,413,000, respectively. The aggregate intrinsic values for distributed awards were based on the closing prices of the Corporations common stock on the dates of distribution.
At December 31, 2015, there are approximately 2,099,000 awards available for grant under the Plans.
In 1996, the Corporation adopted the Shareholder Value Achievement Plan to award shares of the Corporations common stock to key senior employees
based on certain common stock performance criteria over a long-term period. Under the terms of this plan, 250,000 shares of common stock were reserved for issuance. Through December 31, 2015, 42,025 shares have been issued under this plan. No awards
have been granted under this plan after 2000.
The following table summarizes
information for incentive compensation awards and restricted stock awards as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Compensation |
|
|
Restrictive Stock - Service Based |
|
|
Restrictive Stock - Performance Based |
|
|
|
Number of Awards |
|
|
Weighted- Average Grant-Date Fair Value |
|
|
Number of Awards |
|
|
Weighted- Average Grant-Date Fair Value |
|
|
Number of Awards |
|
|
Weighted- Average Grant-Date Fair Value |
|
January 1, 2015 |
|
|
27,608 |
|
|
$ |
101.61 |
|
|
|
319,230 |
|
|
$ |
105.62 |
|
|
|
16,388 |
|
|
$ |
129.14 |
|
Awarded |
|
|
22,035 |
|
|
$ |
108.53 |
|
|
|
48,368 |
|
|
$ |
154.26 |
|
|
|
20,219 |
|
|
$ |
108.53 |
|
Distributed |
|
|
(11,751 |
) |
|
$ |
99.14 |
|
|
|
(75,411 |
) |
|
$ |
77.27 |
|
|
|
|
|
|
$ |
|
|
Forfeited |
|
|
(552 |
) |
|
$ |
102.99 |
|
|
|
(3,624 |
) |
|
$ |
127.06 |
|
|
|
|
|
|
$ |
|
|
December 31, 2015 |
|
|
37,340 |
|
|
$ |
106.45 |
|
|
|
288,563 |
|
|
$ |
120.92 |
|
|
|
36,607 |
|
|
$ |
117.76 |
|
The weighted-average grant-date fair value of incentive compensation awards granted during 2015, 2014 and
2013 was $108.53, $109.17 and $99.23, respectively. The weighted-average grant-date fair value of service based restricted stock awards granted during 2015, 2014 and 2013 was $154.26, $126.88 and $108.24, respectively. The weighted average
grant-date fair value of performance based restricted stock awards granted during 2015 and 2014 was $108.53 and $129.14, respectively.
The Corporation adopted and the shareholders approved the Common Stock Purchase Plan for Directors in
1996, which provides nonemployee Board of Directors the election to receive all or a portion of their total fees in the form of the Corporations common stock. Under the terms of this plan, 300,000 shares of common stock were reserved for
issuance. In 2015, members of the Board of Directors were required to defer at least 20% of their retainer in the form
Martin
Marietta | Page 35
NOTES TO FINANCIAL STATEMENTS (continued)
of the Corporations common stock at a 20% discount to market value. Nonemployee Board of Directors
elected to defer portions of their fees representing 4,035, 3,804 and 6,583 shares of the Corporations common stock under this plan during 2015, 2014 and 2013, respectively.
The following table summarizes stock-based compensation expense for the years ended December 31, 2015, 2014 and 2013, unrecognized compensation cost
for nonvested awards at December 31, 2015 and the weighted-average period over which unrecognized compensation cost is expected to be recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000,
except year data) |
|
Stock Options |
|
|
Restricted
Stock |
|
|
Incentive
Compen- sation |
|
|
Directors
Awards |
|
|
Total |
|
Stock-based compensation expense recognized for years ended December 31: |
|
2015 |
|
|
$2,679 |
|
|
|
$ 9,809 |
|
|
|
$376 |
|
|
|
$725 |
|
|
|
$13,589 |
|
2014 |
|
|
$2,020 |
|
|
|
$ 6,189 |
|
|
|
$257 |
|
|
|
$527 |
|
|
|
$ 8,993 |
|
2013 |
|
|
$1,734 |
|
|
|
$ 4,377 |
|
|
|
$229 |
|
|
|
$668 |
|
|
|
$ 7,008 |
|
Unrecognized compensation cost at December 31, 2015: |
|
|
|
|
$2,718 |
|
|
|
$18,985 |
|
|
|
$334 |
|
|
|
$ |
|
|
|
$22,037 |
|
Weighted-average period over which unrecognized compensation cost will be recognized: |
|
|
|
|
2.0 years |
|
|
|
2.8 years |
|
|
|
1.5 years |
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2015, 2014 and 2013, the Corporation recognized a deferred tax asset related to
stock-based compensation expense of $5,286,000, $3,542,000 and $2,772,000, respectively.
The following presents expected stock-based compensation
expense in future periods for outstanding awards as of December 31, 2015:
|
|
|
|
|
(add 000) |
|
|
|
2016 |
|
$ |
9,818 |
|
2017 |
|
|
6,578 |
|
2018 |
|
|
3,817 |
|
2019 |
|
|
1,824 |
|
2020 |
|
|
|
|
Total |
|
$ |
22,037 |
|
Stock-based compensation expense is included in selling, general and administrative expenses in the Corporations
consolidated statements of earnings.
Note L: Leases
Total lease expense for operating leases was $80,417,000, $59,590,000 and $45,093,000 for the years ended December 31, 2015, 2014 and
2013, respectively. The Corporations operating leases generally contain renewal and/or purchase options with varying terms. The Corporation has royalty agreements that generally require royalty payments based on tons produced or total sales
dollars and also contain minimum payments. Total royalties, principally for leased properties, were $53,658,000, $50,535,000 and $41,604,000 for the years ended December 31, 2015, 2014 and 2013, respectively. The Corporation also has capital lease
obligations for machinery and equipment.
Future minimum lease and royalty commitments for all non-cancelable agreements and capital lease
obligations as of December 31, 2015 are as follows:
|
|
|
|
|
|
|
|
|
(add 000) |
|
Capital Leases |
|
|
Operating Leases and Royalty Commitments |
|
2016 |
|
|
$ 3,166 |
|
|
$ |
111,317 |
|
2017 |
|
|
2,922 |
|
|
|
73,106 |
|
2018 |
|
|
2,981 |
|
|
|
55,047 |
|
2019 |
|
|
2,691 |
|
|
|
45,940 |
|
2020 |
|
|
1,891 |
|
|
|
43,692 |
|
Thereafter |
|
|
3,997 |
|
|
|
272,066 |
|
Total |
|
|
17,648 |
|
|
$ |
601,168 |
|
Less: imputed interest |
|
|
(2,724 |
) |
|
|
|
|
Present value of minimum lease payments |
|
|
14,924 |
|
|
|
|
|
Less: current capital lease obligations |
|
|
(2,438 |
) |
|
|
|
|
Long-term capital lease obligations |
|
|
$12,486 |
|
|
|
|
|
Of the total future minimum commitments, $246,903,000 relates to the Corporations contracts of affreightment.
Note M: Shareholders Equity
The authorized capital structure of the Corporation includes 100,000,000 shares of common stock, with a par value of $0.01 a share.
At December 31, 2015, approximately 3,508,000 common shares were reserved for issuance under stock-based plans.
Pursuant to authority granted by
its Board of Directors, the Corporation can repurchase up to 20,000,000 shares of common stock through open-market purchases. The Corporation repurchased 3,285,380 shares of common stock during 2015 and did not repurchase any shares of common stock
during 2014 or 2013. At December 31, 2015, 16,714,620 shares of common stock were remaining under the Corporations repurchase authorization.
Martin
Marietta | Page 36
NOTES TO FINANCIAL STATEMENTS (continued)
In addition to common stock, the Corporations capital structure includes 10,000,000 shares of
preferred stock with a par value of $0.01 a share. On October 21, 2006, the Board of Directors adopted a Rights Agreement (the Rights Agreement) and reserved 200,000 shares of Junior Participating Class B Preferred Stock for issuance. In
accordance with the Rights Agreement, the Corporation issued a dividend of one right for each share of the Corporations common stock outstanding as of October 21, 2006, and one right continues to attach to each share of common stock issued
thereafter. The rights will become exercisable if any person or group acquires beneficial ownership of 15% or more of the Corporations common stock. Once exercisable and upon a person or group acquiring 15% or more of the Corporations
common stock, each right (other than rights owned by such person or group) entitles its holder to purchase, for an exercise price of $315 per share, a number of shares of the Corporations common stock (or in certain circumstances, cash,
property or other securities of the Corporation) having a market value of twice the exercise price, and under certain conditions, common stock of an acquiring company having a market value of twice the exercise price. If any person or group acquires
beneficial ownership of 15 or more of the Corporations common stock, the Corporation may, at its option, exchange the outstanding rights (other than rights owned by such acquiring person or group) for shares of the Corporations common
stock or Corporation equity securities deemed to have the same value as one share of common stock or a combination thereof, at an exchange ratio of one share of common stock per right. The rights are subject to adjustment if certain events occur,
and they will initially expire on October 21, 2016, if not terminated sooner. The Corporations Rights Agreement provides that the Corporations Board of Directors may, at its option, redeem all of the outstanding rights at a redemption
price of $0.001 per right.
Note N: 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 (see Note A), 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.
Asset Retirement Obligations. The Corporation incurs reclamation and teardown costs as part of its mining and production processes. Estimated future obligations are discounted to their present value and accreted to their projected future obligations
via charges to operating expenses. Additionally, the fixed assets recorded concurrently with the liabilities are depreciated over the period until retirement activities are expected to occur. Total accretion and depreciation expenses for 2015, 2014
and 2013 were $6,767,000, $4,584,000 and $3,793,000, respectively, and are included in other operating income and expenses, net, in the consolidated statements of earnings.
The following shows the changes in the asset retirement obligations:
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
Balance at beginning of year |
|
$ |
70,422 |
|
|
$ |
48,727 |
|
Accretion expense |
|
|
3,336 |
|
|
|
2,818 |
|
Liabilities incurred and assumed in business combinations |
|
|
14,735 |
|
|
|
20,984 |
|
Liabilities settled |
|
|
(4,490 |
) |
|
|
(2,061 |
) |
Revisions in estimated cash flows |
|
|
5,601 |
|
|
|
(46 |
) |
Balance at end of year |
|
$ |
89,604 |
|
|
$ |
70,422 |
|
Other Environmental Matters. The Corporations operations are subject to and affected by federal, state and local laws and regulations relating to the environment, health and safety and other regulatory matters. Certain of the Corporations
operations may, from time to time, involve the use of substances that are classified as toxic or hazardous within the meaning of these laws and regulations. Environmental operating permits are, or may be, required for certain of the
Corporations operations, and such permits are subject to modification, renewal and revocation. The Corporation regularly monitors and reviews its operations, procedures and policies for compliance with these laws and regulations. Despite these
compliance efforts, risk of environmental remediation liability is inherent in the operation of the Corporations businesses, as it is with other companies engaged in similar businesses. The Corporation has no material provisions for
environmental remediation liabilities and does not believe such liabilities will have a material adverse effect on the Corporation in the future.
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/
Martin
Marietta | Page 37
NOTES TO FINANCIAL STATEMENTS (continued)
Findings of Violation (NOVs) to the Corporation in 2010 and 2011 regarding its compliance
with the CAA New Source Review (NSR) program at its Magnesia Specialties 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 required 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 Magnesia Specialties segment.
Insurance Reserves. The Corporation has insurance
coverage with large deductibles for workers compensation, automobile liability, marine liability and general liability claims. The Corporation is also self-insured for health claims. At December 31, 2015 and 2014, reserves of $45,911,000 and
$42,552,000, respectively, were recorded for all such insurance claims. The Corporation carries various risk deductible workers compensation policies related to its workers compensation liabilities. The Corporation records the
workers compensation reserves based on an actuarial-determined analysis. This analysis calculates development factors, which are applied to total reserves within the workers compensation program. While the Corporation believes the
assumptions used to calculate these liabilities are appropriate, significant differences in actual experience and/or significant changes in these assumptions may materially affect workers compensation costs.
Letters of Credit. In the normal course of
business, the Corporation provides certain third parties with standby letter of credit agreements guaranteeing its payment for certain insurance claims, utilities and property improvements. At December 31, 2015, the Corporation was contingently
liable for $46,263,000 in letters of credit, of which $2,507,000 were issued under the Corporations Revolving Facility. Certain of these underlying obligations are accrued on the Corporations consolidated balance sheet.
Surety Bonds. In the normal course of business, at December 31, 2015, the Corporation was contingently liable for $326,516,000 in surety bonds required by certain states and municipalities and their related agencies. The bonds are
principally for certain insurance claims, construction contracts, reclamation obligations and mining permits guaranteeing the Corporations own performance. Certain of these underlying obligations, including those for asset retirement
requirements and insurance claims, are accrued on the Corporations consolidated balance sheet. Five of these bonds total $88,887,000, or 27% of all outstanding surety bonds. The Corporation has indemnified the underwriting insurance company,
Safeco Corporation, a subsidiary of Liberty Mutual Group, against any exposure under the surety bonds. In the Corporations past experience, no material claims have been made against these financial instruments.
Borrowing Arrangements with Affiliate. The
Corporation is a co-borrower with an unconsolidated affiliate for a $25,000,000 revolving line of credit agreement with BB&T. The line of credit expires in February 2018. 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 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. In 2015, the loan was repaid in full.
In 2014, the Corporation loaned the unconsolidated affiliate a total of $6,000,000 as an interest-only note due December 29, 2016.
Purchase Commitments. The Corporation had purchase
commitments for property, plant and equipment of $70,431,000 as of December 31, 2015. The Corporation also had other purchase obligations related to energy and service contracts of $95,389,000 as of December 31, 2015.
Martin
Marietta | Page 38
NOTES TO FINANCIAL STATEMENTS (continued)
The Corporations contractual purchase commitments as of December 31, 2015 are as follows:
|
|
|
|
|
(add 000) |
|
|
|
2016 |
|
$ |
155,525 |
|
2017 |
|
|
6,457 |
|
2018 |
|
|
1,361 |
|
2019 |
|
|
451 |
|
2020 |
|
|
451 |
|
Thereafter |
|
|
1,575 |
|
Total |
|
$ |
165,820 |
|
Capital expenditures in 2015, 2014 and 2013 that were purchase commitments as of the prior year end were $116,681,000,
$34,135,000 and $15,839,000, respectively.
Employees. Approximately 10% 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 Magnesia Specialties segment. Of the Magnesia Specialties segment, located in Manistee, Michigan and Woodville, Ohio, 100% of its hourly employees are represented by labor unions. The Manistee collective bargaining
agreement expires in August 2019. The Woodville collective bargaining agreement expires in May 2018.
Note O: Business Segments
The Aggregates business is comprised of divisions which represent operating segments. Disclosures for certain divisions are consolidated
as reportable segments for financial reporting purposes as they meet the aggregation criteria. The Aggregates business contains three reportable segments: Mid-America Group, Southeast Group and West Group. The Cement and Magnesia Specialties
businesses also represent individual operating and reportable segments. The accounting policies used for segment reporting are the same as those described in Note A.
The Corporations evaluation of performance and allocation of resources are based primarily on earnings from operations. Consolidated earnings
from operations include net sales less cost of sales, selling, general and administrative expenses, and acquisition-related expenses, net; other operating income and expenses; and exclude interest expense, other nonoperating income and expenses,
net, and taxes on income. Corporate consolidated earnings from operations primarily include depreciation on capitalized interest, expenses for corporate administrative functions, acquisition-related expenses, net, and other nonrecurring and/or
non-operational income and
expenses excluded from the Corporations evaluation of business segment performance and resource
allocation. All debt and related interest expense is held at Corporate.
Assets employed by segment include assets directly identified with those
operations. Corporate assets consist primarily of cash and cash equivalents, property, plant and equipment for corporate operations, investments and other assets not directly identifiable with a reportable business segment. The following tables
display selected financial data for the Corporations reportable business segments.
Selected Financial Data by Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000)
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2015 |
|
|
|
2014 |
|
|
|
2013 |
|
Mid-America Group |
|
$ |
926,251 |
|
|
$ |
848,855 |
|
|
$ |
789,806 |
|
Southeast Group |
|
|
304,472 |
|
|
|
274,352 |
|
|
|
245,340 |
|
West Group |
|
|
1,675,021 |
|
|
|
1,356,283 |
|
|
|
875,588 |
|
Total Aggregates Business |
|
|
2,905,744 |
|
|
|
2,479,490 |
|
|
|
1,910,734 |
|
Cement |
|
|
387,947 |
|
|
|
221,759 |
|
|
|
|
|
Magnesia Specialties |
|
|
245,879 |
|
|
|
256,702 |
|
|
|
244,817 |
|
Total |
|
$ |
3,539,570 |
|
|
$ |
2,957,951 |
|
|
$ |
2,155,551 |
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
$ |
851,854 |
|
|
$ |
770,568 |
|
|
$ |
720,007 |
|
Southeast Group |
|
|
285,302 |
|
|
|
254,986 |
|
|
|
226,437 |
|
West Group |
|
|
1,535,848 |
|
|
|
1,207,879 |
|
|
|
771,133 |
|
Total Aggregates Business |
|
2,673,004 |
|
|
2,233,433 |
|
|
1,717,577 |
|
Cement |
|
|
367,604 |
|
|
|
209,556 |
|
|
|
|
|
Magnesia Specialties |
|
227,508 |
|
|
236,106 |
|
|
225,641 |
|
Total |
|
$ |
3,268,116 |
|
|
$ |
2,679,095 |
|
|
$ |
1,943,218 |
|
|
|
|
Gross profit (loss) |
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
$ |
256,586 |
|
|
$ |
216,883 |
|
|
$ |
192,747 |
|
Southeast Group |
|
|
34,197 |
|
|
|
10,653 |
|
|
|
(3,515 |
) |
West Group |
|
254,946 |
|
|
155,678 |
|
|
92,513 |
|
Total Aggregates Business |
|
|
545,729 |
|
|
|
383,214 |
|
|
|
281,745 |
|
Cement |
|
|
103,473 |
|
|
|
52,469 |
|
|
|
|
|
Magnesia Specialties |
|
|
78,732 |
|
|
|
84,594 |
|
|
|
83,703 |
|
Corporate |
|
(6,167) |
|
|
2,083 |
|
|
(1,491) |
|
Total |
|
$ |
721,767 |
|
|
$ |
522,360 |
|
|
$ |
363,957 |
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
Mid-America Group |
|
$ |
52,606 |
|
|
$ |
52,217 |
|
|
$ |
53,683 |
|
Southeast Group |
|
|
18,467 |
|
|
|
17,788 |
|
|
|
18,081 |
|
West Group |
|
66,639 |
|
|
50,147 |
|
|
42,929 |
|
Total Aggregates Business |
|
|
137,712 |
|
|
|
120,152 |
|
|
|
114,693 |
|
Cement |
|
|
26,626 |
|
|
|
12,741 |
|
|
|
|
|
Magnesia Specialties |
|
|
9,499 |
|
|
|
9,776 |
|
|
|
10,165 |
|
Corporate |
|
44,397 |
|
|
26,576 |
|
|
25,233 |
|
Total |
|
$ |
218,234 |
|
|
$ |
169,245 |
|
|
$ |
150,091 |
|
Martin
Marietta | Page 39
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000) |
|
|
|
|
|
|
|
|
Earnings (Loss) from operations |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Mid-America Group |
|
$ |
206,820 |
|
|
$ |
172,208 |
|
|
$ |
144,269 |
|
Southeast Group |
|
|
16,435 |
|
|
|
(5,293 |
) |
|
|
(19,849 |
) |
West Group |
|
|
205,699 |
|
|
|
153,182 |
|
|
|
53,150 |
|
Total Aggregates Business |
|
|
428,954 |
|
|
|
320,097 |
|
|
|
177,570 |
|
Cement |
|
|
47,821 |
|
|
|
40,751 |
|
|
|
|
|
Magnesia Specialties |
|
|
68,886 |
|
|
|
74,805 |
|
|
|
73,506 |
|
Corporate |
|
|
(66,245 |
) |
|
|
(120,780 |
) |
|
|
(33,088 |
) |
Total |
|
$ |
479,416 |
|
|
$ |
314,873 |
|
|
$ |
217,988 |
|
Cement intersegment sales, which were to the ready mixed concrete product line in the West Group, were $87,782,000 for the year ended
December 31, 2015 and $43,356,000 for the six months ended December 31, 2014. The Cement business was acquired July 1, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000) |
|
|
|
|
|
|
|
|
Assets employed |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Mid-America Group |
|
$ |
1,304,574 |
|
|
$ |
1,290,833 |
|
|
$ |
1,242,395 |
|
Southeast Group |
|
|
583,369 |
|
|
|
604,044 |
|
|
|
611,906 |
|
West Group |
|
|
2,621,636 |
|
|
|
2,444,400 |
|
|
|
1,030,599 |
|
Total Aggregates Business |
|
|
4,509,579 |
|
|
|
4,339,277 |
|
|
|
2,884,900 |
|
Cement |
|
|
1,939,796 |
|
|
|
2,451,799 |
|
|
|
|
|
Magnesia Specialties |
|
|
147,795 |
|
|
|
150,359 |
|
|
|
154,024 |
|
Corporate |
|
|
364,562 |
|
|
|
278,319 |
|
|
|
146,081 |
|
Total |
|
$ |
6,961,732 |
|
|
$ |
7,219,754 |
|
|
$ |
3,185,005 |
|
|
|
Depreciation, depletion and amortization |
|
|
|
|
|
Mid-America Group |
|
$ |
61,693 |
|
|
$ |
63,294 |
|
|
$ |
66,381 |
|
Southeast Group |
|
|
31,644 |
|
|
|
31,955 |
|
|
|
32,556 |
|
West Group |
|
|
93,947 |
|
|
|
74,283 |
|
|
|
56,004 |
|
Total Aggregates Business |
|
|
187,284 |
|
|
|
169,532 |
|
|
|
154,941 |
|
Cement |
|
|
53,672 |
|
|
|
30,620 |
|
|
|
|
|
Magnesia Specialties |
|
|
13,769 |
|
|
|
10,394 |
|
|
|
10,564 |
|
Corporate |
|
|
8,862 |
|
|
|
12,200 |
|
|
|
8,256 |
|
Total |
|
$ |
263,587 |
|
|
$ |
222,746 |
|
|
$ |
173,761 |
|
|
|
Total property additions |
|
|
|
|
|
Mid-America Group |
|
$ |
77,640 |
|
|
$ |
76,753 |
|
|
$ |
82,667 |
|
Southeast Group |
|
|
12,155 |
|
|
|
23,326 |
|
|
|
72,907 |
|
West Group |
|
|
235,245 |
|
|
|
753,342 |
|
|
|
53,530 |
|
Total Aggregates Business |
|
|
325,040 |
|
|
|
853,421 |
|
|
|
209,104 |
|
Cement |
|
|
9,599 |
|
|
|
975,063 |
|
|
|
|
|
Magnesia Specialties |
|
|
8,916 |
|
|
|
2,588 |
|
|
|
4,700 |
|
Corporate |
|
|
20,561 |
|
|
|
15,349 |
|
|
|
6,477 |
|
Total |
|
$ |
364,116 |
|
|
$ |
1,846,421 |
|
|
$ |
220,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000) |
|
|
|
|
|
|
|
|
Property additions through acquisitions |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Mid-America Group |
|
$ |
4,385 |
|
|
$ |
|
|
|
$ |
244 |
|
Southeast Group |
|
|
|
|
|
|
|
|
|
|
54,463 |
|
West Group |
|
|
35,965 |
|
|
|
632,560 |
|
|
|
|
|
Total Aggregates Business |
|
|
40,350 |
|
|
|
632,560 |
|
|
|
54,707 |
|
Cement |
|
|
|
|
|
|
970,300 |
|
|
|
|
|
Magnesia Specialties |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
40,350 |
|
|
$ |
1,602,860 |
|
|
$ |
54,707 |
|
Total property additions in the West Group include machinery and equipment of $1,445,000, $7,788,000 and $10,341,000 in
2015, 2014 and 2013 respectively, acquired through capital leases. In 2015, total property additions in Corporate include a $4,088,000 noncash component related to a property addition. The Corporation also acquired $3,591,000 of land via noncash
transactions and asset exchanges in 2014. Total property additions through acquisitions in the Mid-America Group reflect $4,385,000 of property, plant and equipment acquired via an asset exchange in 2015.
The Aggregates business includes the aggregates product line and aggregates-related downstream product lines, which include the asphalt, ready mixed
concrete and road paving product lines. All aggregates-related downstream product lines reside in the West Group. The following tables, which are reconciled to consolidated amounts, provide total revenues, net sales and gross profit by line of
business: Aggregates (further divided by product line), Cement and Magnesia Specialties.
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000) |
|
|
|
|
|
|
|
|
Total revenues |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Aggregates |
|
$ |
2,017,761 |
|
|
$ |
1,805,824 |
|
|
$ |
1,527,986 |
|
Asphalt |
|
|
72,282 |
|
|
|
85,822 |
|
|
|
78,863 |
|
Ready Mixed Concrete |
|
|
657,088 |
|
|
|
431,229 |
|
|
|
146,085 |
|
Road Paving |
|
|
158,613 |
|
|
|
156,615 |
|
|
|
157,800 |
|
Total Aggregates Business |
|
|
2,905,744 |
|
|
|
2,479,490 |
|
|
|
1,910,734 |
|
Cement |
|
|
387,947 |
|
|
|
221,759 |
|
|
|
|
|
Magnesia Specialties |
|
|
245,879 |
|
|
|
256,702 |
|
|
|
244,817 |
|
Total |
|
$ |
3,539,570 |
|
|
$ |
2,957,951 |
|
|
$ |
2,155,551 |
|
Martin
Marietta | Page 40
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
(add 000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Aggregates |
|
$ |
1,793,660 |
|
|
$ |
1,570,022 |
|
|
$ |
1,347,486 |
|
Asphalt |
|
|
64,943 |
|
|
|
76,278 |
|
|
|
66,216 |
|
Ready Mixed Concrete |
|
|
655,788 |
|
|
|
430,519 |
|
|
|
146,079 |
|
Road Paving |
|
|
158,613 |
|
|
|
156,614 |
|
|
|
157,796 |
|
Total Aggregates Business |
|
|
2,673,004 |
|
|
|
2,233,433 |
|
|
|
1,717,577 |
|
Cement |
|
|
367,604 |
|
|
|
209,556 |
|
|
|
|
|
Magnesia Specialties |
|
|
227,508 |
|
|
|
236,106 |
|
|
|
225,641 |
|
Total |
|
$ |
3,268,116 |
|
|
$ |
2,679,095 |
|
|
$ |
1,943,218 |
|
Gross profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates |
|
$ |
467,053 |
|
|
$ |
324,093 |
|
|
$ |
259,054 |
|
Asphalt |
|
|
18,189 |
|
|
|
13,552 |
|
|
|
12,928 |
|
Ready Mixed Concrete |
|
|
42,942 |
|
|
|
39,129 |
|
|
|
8,337 |
|
Road Paving |
|
|
17,545 |
|
|
|
6,440 |
|
|
|
1,426 |
|
Total Aggregates Business |
|
|
545,729 |
|
|
|
383,214 |
|
|
|
281,745 |
|
Cement |
|
|
103,473 |
|
|
|
52,469 |
|
|
|
|
|
Magnesia Specialties |
|
|
78,732 |
|
|
|
84,594 |
|
|
|
83,703 |
|
Corporate |
|
|
(6,167 |
) |
|
|
2,083 |
|
|
|
(1,491 |
) |
Total |
|
$ |
721,767 |
|
|
$ |
522,360 |
|
|
$ |
363,957 |
|
Domestic and foreign total revenues are as
follows: |
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2013 |
|
Domestic |
|
$ |
3,493,462 |
|
|
$ |
2,912,115 |
|
|
$ |
2,113,068 |
|
Foreign |
|
|
46,108 |
|
|
|
45,836 |
|
|
|
42,483 |
|
Total |
|
$ |
3,539,570 |
|
|
$ |
2,957,951 |
|
|
$ |
2,155,551 |
|
Note P: Supplemental Cash Flow Information
The components of the change in other assets and liabilities, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2013 |
|
Other current and noncurrent assets |
|
$ |
(3,631 |
) |
|
$ |
8,066 |
|
|
$ |
1,186 |
|
Accrued salaries, benefits and payroll taxes |
|
|
(12,303 |
) |
|
|
10,136 |
|
|
|
(4,276 |
) |
Accrued insurance and other taxes |
|
|
4,425 |
|
|
|
(17,641) |
|
|
|
421 |
|
Accrued income taxes |
|
|
(4,364 |
) |
|
|
27,680 |
|
|
|
3,889 |
|
Accrued pension, postretirement and postemployment benefits |
|
|
(18,153 |
) |
|
|
1,150 |
|
|
|
(4,795 |
) |
Other current and noncurrent liabilities |
|
|
(3,014 |
) |
|
|
(10,681 |
) |
|
|
7,373 |
|
Change in other assets and liabilities |
|
$ |
(37,040 |
) |
|
$ |
18,710 |
|
|
$ |
3,798 |
|
The change in accrued salaries, benefits and payroll taxes in 2015 and 2014 was attributable to
TXI-related severance accrual of $11,444,000 during 2014 and payments of $9,682,000 in 2015. The change in accrued pension, postretirement, and postemployment benefits in 2015 was attributable to higher pension plan funding, which increased
$28,270,000. The change in accrued income taxes was primarily attributable to a reduction in the Corporations tax liability due to the utilization of net operating loss carryforwards, and the receipt of the federal tax refunds attributable to
the settlement of the U.S. Advanced Pricing Agreement.
Noncash investing and financing activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2013 |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of assets through asset exchange |
|
$ |
5,000 |
|
|
$ |
2,091 |
|
|
$ |
|
|
Acquisition of assets through capital lease |
|
$ |
1,445 |
|
|
$ |
7,788 |
|
|
$ |
10,341 |
|
Seller financing of land purchase |
|
$ |
|
|
|
$ |
1,500 |
|
|
$ |
|
|
Acquisition of TXI net assets through issuances of common stock and options |
|
$ |
|
|
|
$ |
2,691,986 |
|
|
$ |
|
|
Martin
Marietta | Page 41
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
INTRODUCTORY OVERVIEW
Martin Marietta Materials, Inc. (the Corporation or Martin Marietta) is a leading supplier of aggregates products (crushed
stone, sand and gravel) for the construction industry, used for the construction of infrastructure, nonresidential and residential projects. In addition, aggregates products are used for railroad ballast and in agricultural, utility and
environmental applications. The Corporations annual consolidated net sales and operating earnings are predominately derived from its Aggregates business, which mines and processes granite, limestone, sand and gravel. The Aggregates business
also includes aggregates-related downstream operations, namely heavy building materials such as asphalt, ready mixed concrete and road paving construction services.
At December 31, 2015, the Aggregates business included the following reportable segments, including underlying business characteristics:
|
|
|
|
|
|
|
Reportable Segments |
|
Mid-America
Group |
|
Southeast
Group |
|
West Group |
Operating Locations |
|
Indiana, Iowa, northern Kansas, Kentucky, Maryland, Minnesota, Missouri, eastern Nebraska, North Carolina, Ohio,
South Carolina, Virginia, Washington and West Virginia |
|
Alabama, Florida, Georgia, Mississippi, Tennessee, Nova Scotia and the Bahamas |
|
Arkansas, Colorado, southern Kansas, Louisiana, western Nebraska, Nevada, Oklahoma, Texas,
Utah and Wyoming |
Product Lines |
|
Aggregates (crushed stone, sand and gravel) |
|
Aggregates (crushed stone, sand and gravel) |
|
Aggregates (crushed stone, sand and gravel), asphalt, ready mixed concrete and road
paving |
Types of Aggregates
Locations |
|
Quarries and Distribution Facilities |
|
Quarries and Distribution Facilities |
|
Quarries and Distribution Facilities |
Modes of Transportation
for
Aggregates
Product Line |
|
Truck and Rail |
|
Truck, Rail and Water |
|
Truck and Rail |
The Cement business produces Portland and specialty cements. Similar to the Aggregates business, cement
is used in infrastructure projects, nonresidential and residential construction, and railroad, agricultural, utility and environmental industries. The production facilities are located in Midlothian, Texas, south of Dallas-Fort Worth, and Hunter,
Texas, north of San Antonio. The limestone reserves used as a raw material are owned by the Corporation and are adjacent to each of the plants. In addition to the manufacturing facilities, the Corporation operates cement distribution terminals in
Texas.
The Magnesia Specialties segment produces magnesia-based chemicals products used in industrial, agricultural and environmental applications
and dolomitic lime sold primarily to customers in the steel industry.
The Corporations overall areas of focus include the following:
|
|
Maximize long-term shareholder return by disciplined and rigorous pursuit of strategic growth and earnings objectives; |
|
|
Conduct business in compliance with applicable laws, rules, regulations and the highest ethical standards; |
|
|
Allocate capital by prioritizing acquisitions, organic capital investment and returning cash to shareholders via dividends and share repurchases; and
|
|
|
Support the Corporations sustainability through the following: |
|
- |
Protect the safety and well-being of all who come in contact with the Corporations business; |
|
- |
Reflect all aspects of good corporate citizenship by being responsible neighbors and supporting local communities; and |
|
- |
Protecting the Earths resources and minimizing the operations environmental impact. |
Since the construction business is conducted outdoors, erratic weather patterns, seasonal changes, precipitation and other weather-related conditions,
such as snowstorms, droughts, flooding or hurricanes, can significantly affect shipments, efficiencies and profitability of the Corporations Aggregates and Cement businesses. In addition, production of aggregates products is conducted
outdoors; therefore, erratic and predictable weather patterns will also affect production schedules and costs for that product line. Generally, the financial results for the first and fourth quarters are significantly lower than the financial
results of the other quarters due to winter weather. Weather-related hindrances were exacerbated in 2015 by record precipitation in many
Martin
Marietta | Page 42
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
of the Corporations key markets. The National Oceanic and Atmospheric Administration
(NOAA) has tracked precipitation for 121 years. According to NOAA, 2015 represented the wettest year on record for Texas and Oklahoma, while North Carolina, South Carolina, Colorado and Iowa each experienced a top-ten precipitation year.
Notwithstanding these headwinds, notable items regarding the Corporations 2015 operating results, cash flows and operations include:
Operating Results:
|
|
Earnings per diluted share of $4.29 compared with $2.71; adjusted earnings per diluted share of $4.50 (excluding the net loss on the sale of the California
cement operations and the net gain on the sale of the San Antonio asphalt operations) compared with $3.74 (excluding acquisition-related expenses, net, related to TXI and the impact of selling acquired inventory marked up to fair value);
|
|
|
Consolidated earnings before interest expense, income taxes, depreciation, depletion and amortization (EBITDA) of $750.7 million; adjusted
EBITDA of $766.6 million, which excludes the loss and other expenses related to the divestitures of the California cement operations and the gain resulting from the divestiture of the San Antonio asphalt operations; |
|
|
Return on shareholders equity of 6.9% in 2015; |
|
|
Aggregates product line volume growth of 7.1% and pricing increase of 8.0%; |
|
- |
Heritage aggregates product line volume growth of 2.1% and pricing increase of 7.3%; |
|
|
Magnesia Specialties segment financial results of net sales of $227.5 million and earnings from operations of $68.9 million; |
|
|
Effective management of controllable production costs, as evidenced by a 260-basis-point improvement of consolidated gross margin (excluding freight and
delivery revenues); and |
|
|
Selling, general and administrative expenses of 6.7% as a percentage of net sales, up 40 basis points. |
Cash Flows:
|
|
Operating cash flow of $573.2 million, up 50% over prior-year operating cash flow; |
|
|
Return of $627.4 million of cash to shareholders through share repurchases ($520.0 million) and dividends ($107.4 million); |
|
|
Ratio of consolidated debt-to-consolidated EBITDA of 1.9 times for the trailing-twelve months ended December 31, 2015, calculated as prescribed in the
Corporations bank |
|
credit agreements and in compliance with the covenant maximum of 3.5 times; and |
|
|
Capital expenditures of $318.2 million, including $78.0 million for the new Medina limestone facility; capital plan focused on optimizing operational
efficiencies while maintaining safe, environmentally-sound operations, along with a continuing investment in land with long-term mineral reserves to serve high-growth markets. |
Operations:
|
|
Successfully completed the remaining integration of Texas Industries, Inc. (TXI) and increased synergy guidance to $120 million per year; and
|
|
|
Issued the Corporations Initial Sustainability Report, highlighting the Corporations continuing commitment to sustainability as a core business
value: |
|
- |
Record safety performance for both total injury incident rate (TIIR) and lost-time incident rate (LTIR); |
|
- |
Continued to support the communities where the Corporation operates; and |
|
- |
Remained cognizant of being responsible environmental stewards. |
The Corporations continued disciplined business approach and commitment to fundamentals and strategic vision, coupled with tactical execution,
should enable management to prudently guide the business through the current uncertainty that exists regarding the general economy. Specifically to the construction cycle in its markets, the Corporation expects recovery in the majority of its
markets and, if there is hesitation in demand, it is not expected to be significant.
The Corporation views its strategic objectives through the
lens of building on the foundation of a world-class aggregates-led business. In the view of management, attractive aggregates markets exhibit population growth or population density, drivers of construction materials consumption and large-scale
infrastructure networks; business and employment diversity, a driver of greater economic stability; and superior state financial position, a driver of public infrastructure growth. In light of these objectives, management intends to emphasize, among
other things, the following strategic, financial and operational initiatives in 2016:
Martin
Marietta | Page 43
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Strategic:
|
|
Pursuing aggregates-led expansion through acquisitions that complement existing operations (i.e., bolt-on acquisitions) and acquisitions that provide
leadership entry into new markets or similar product lines (i.e., platform acquisitions); |
|
|
Leveraging a competitive advantage from the Corporations long-haul distribution network; |
|
|
Optimizing the Corporations current asset base to continue to enhance long-term shareholder value; and |
|
|
Realize incremental value from possible divestiture of identified non-strategic or surplus assets. |
Financial:
|
|
Maintaining the Corporations strong financial position while advancing strategic objectives; |
|
|
Increasing the incremental gross margin (excluding freight and delivery revenues) of the aggregates product line toward managements targeted goal of
an average of 60% over the course of recovery in the business cycle, including recovery in the southeastern U.S. markets; |
|
|
Maximizing return on invested capital consistent with the successful long-term operation of the Corporations business; and |
|
|
Returning cash to shareholders through sustainable dividends and share repurchases. |
Operational:
|
|
Continuing to focus on sustainability practices, including improved safety performance; |
|
|
Maintaining a focus on functional excellence leading to cost containment and operational efficiencies; |
|
- |
Achieve total annual TXI synergies of $120 million; |
|
|
Successfully integrating bolt-on acquisitions and platform acquisitions; |
|
|
Increasing the percentage of markets where the Corporation has a leading market position; |
|
|
Using best practices and information technology to drive improved cost performance; |
|
|
Effectively serving high-growth markets; and |
|
|
Sustaining the industry differentiating performance and operating results of the Magnesia Specialties segment. |
Management considers each of the following factors in evaluating the Corporations financial condition and operating results.
Aggregates Industry Economic Considerations
The construction aggregates industry is a mature, cyclical business dependent on activity within the construction marketplace.
In 2015, the Corporations heritage aggregates product line shipments increased 2.1% compared with
2014. The Corporations heritage aggregates product line shipments have increased each of the past four years, indicative of degrees of volume stability and modest growth, albeit at and from historically low levels, after an unprecedented
reduction. Prior to 2011, the economic recession resulted in United States aggregates consumption declining by almost 40% from peak volumes in 2006.
The principal end-use markets of the aggregates industry are public infrastructure (i.e., highways; streets; roads; bridges; and schools);
nonresidential construction (i.e., manufacturing and distribution facilities; industrial complexes; office buildings; large retailers and wholesalers; and malls); and residential construction (i.e., subdivision development; and single- and
multi-family housing). Aggregates products are also used in the railroad, agricultural, utility and environmental industries. Ballast is an aggregates product used to stabilize railroad track beds and, increasingly, concrete rail ties are being used
as a substitute for wooden ties. Agricultural lime, a high-calcium carbonate material, is used as a supplement in animal feed, a soil acidity neutralizer and agricultural growth enhancer. High-calcium limestone is used as filler in glass, plastic,
paint, rubber, adhesives, grease and paper. Chemical-grade high-calcium limestone is used as a desulfurization material in utility plants. Limestone can also be used to absorb moisture, particularly around building foundations. Stone is used as a
stabilizing material to control erosion caused by water runoff or at ocean beaches, inlets, rivers and streams.
As discussed further under the
section Aggregates and Cement Industries and Corporation Trends on pages 59 through 61, end-use markets respond to changing economic conditions in different ways. Public infrastructure construction has historically been more stable
than nonresidential and residential construction due to typically stable and predictable funding from federal, state and local governments, with approximately half from the federal government and half from state and local governments. After a decade
of 36 short-term funding provisions, a five-year, $305 billion highway bill, Fixing Americas Surface Transportation Act (FAST Act), was signed into law on December 4, 2015. FAST Act funding will primarily be secured
through gas tax collections. In an investigation performed by S-C Market Analytics, aggregates demand is projected to increase with the availability of federal funding and is expected to peak in 2018. However, in subsequent years, the projected
demand for aggregates is expected to decline with anticipated higher
Martin
Marietta | Page 44
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
2012 |
|
|
|
2013 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
5-Year Average |
|
Infrastructure |
|
|
48% |
|
|
|
47% |
|
|
|
48% |
|
|
|
44% |
|
|
|
42% |
|
|
|
44% |
|
Nonresidential |
|
|
27% |
|
|
|
29% |
|
|
|
29% |
|
|
|
32% |
|
|
|
31% |
|
|
|
31% |
|
Residential |
|
|
11% |
|
|
|
12% |
|
|
|
12% |
|
|
|
14% |
|
|
|
17% |
|
|
|
14% |
|
ChemRock /Rail |
|
|
14% |
|
|
|
12% |
|
|
|
11% |
|
|
|
10% |
|
|
|
10% |
|
|
|
11% |
|
Source: Corporation data
nation in nonresidential construction, demonstrating economic diversity and the ability to replace
energy-related shipments currently displaced by low oil prices with other nonresidential projects. Notwithstanding the challenging commodity price environment, the Corporation expects continued energy-related activity. On a national scale, Florida
and South Carolina each rank in the top 10 states and North Carolina and Colorado each rank in the top 20 states in growth (based on dollars invested) in nonresidential construction. Notably, recovery in the residential market typically leads to
nonresidential growth with a 12-to-18-month lag.
interest and inflation rates. Additionally, many states have recently shown a commitment to securing
alternative funding sources, including initiating special-purpose taxes and raising gas taxes. According to American Road and Transportation Builders Association (ARTBA), fifteen states have raised gas taxes and 30
legislative measures (which represented 68% of ballot initiatives) for transportation funding were approved by voters in 2015. Supported by state-spending programs, the Corporations heritage aggregates volumes to the infrastructure market in
the eastern United States increased in the mid-single digits compared with 2014. Overall, the infrastructure market accounted for 42% of the Corporations 2015 heritage aggregates product line shipments.
In 2015, construction growth was driven by private-sector activity. Nonresidential and residential construction levels are interest rate-sensitive and
typically move in direct correlation with economic cycles. The Dodge Momentum Index, a 12-month leading indicator of construction spending for non-residential building compiled by McGraw Hill Construction and where the year 2000 serves as an index
basis of 100, remained strong and was 125.2 in December 2015. According to Dodge Data & Analytics, the recent increasing trend of the index is an indication that construction growth will continue into 2016.
The Corporations heritage aggregates volumes to the non-residential construction market accounted for 31% of the Corporations 2015
aggregates product line shipments and increased 11.7% compared with 2014. Light nonresidential, which includes the commercial sector, increased 22.2% and was offset by a decline in heavy nonresidential, which includes the industrial and energy
sectors. Nonresidential investment varies significantly by state. To that effect, Texas continues to lead the
The residential construction market accounted for 17% of the Corporations 2015 heritage aggregates
product line shipments, in line with its historical average, and volumes to this market increased 15.1% over 2014. As reported by the United States Census Bureau, the total value of private residential construction put in place increased 13% in
2015. Housing starts, a key indicator for residential construction activity, continue to show year-over-year improvement. While 2015 represented the second year that starts exceeded one million since 2008, they still remain below the 50-year
historical annual average of 1.5 million units. Importantly, 2015 housing starts exceeded completions, a trend expected to continue in 2016. Geographically, housing strength varies considerably by state, and Texas leads the nation in residential
starts. Notably, Dallas-Fort Worth is the second ranked metro area in the United States for growth in housing permits. Additionally, Florida, South Carolina, Colorado and North Carolina each rank in the top ten states for residential starts.
Shipments of chemical rock (comprised primarily of high-calcium carbonate material used for agricultural lime and flue gas desulfurization) and ballast
products (collectively, referred to as ChemRock/Rail) accounted for 10% of the Corporations heritage aggregates product line shipments and increased 2.5%.
In 2015, the Corporation shipped 156.4 million tons of aggregates to customers from a network of aggregates quarries and distribution yards in 26
states, Canada and the Bahamas. The Corporation also shipped 2.9 million tons of asphalt and 6.7 million cubic yards of ready mixed concrete from 131 plants in Arkansas, Colorado, Louisiana, Texas and Wyoming. While the Aggregates business covers a
wide geographic area, financial results depend on the strength
Martin
Marietta | Page 45
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
of the applicable local economies because of the high cost of transportation relative to the price of the
product. The Aggregates business top five sales-generating states Texas, Colorado, North Carolina, Iowa and Georgia accounted for 70% of its 2015 net sales by state of destination, while the top ten sales-generating states
accounted for 85% of its 2015 net sales. Management closely monitors economic conditions and public infrastructure spending in the market areas in the states where the Corporations operations are located. Further, supply and demand conditions
in these states affect their respective profitability.
Shipments of aggregates-related downstream products typically follow construction
aggregates trends.
Aggregates Industry Considerations
While natural aggregates sources typically occur in relatively homogeneous deposits in certain areas of the United States, a significant challenge
facing aggregates producers is locating suitable deposits that can be economically mined at
locations that qualify for regulatory permits and are in close proximity to growing markets (or in close proximity to long-haul transportation corridors that economically serve growing markets).
This objective becomes more challenging as residential expansion and other real estate development encroach on attractive quarrying locations, often triggering enhanced regulatory constraints or otherwise making these locations impractical for
mining. The Corporations management continues to meet this challenge through strategic planning to identify site locations in advance of economic expansion; land acquisitions around existing quarry sites to increase mineral reserve capacity
and lengthen quarry life or add a site buffer; underground mine development; and enhancing its competitive advantage with its long-haul distribution network. The Corporations long-haul network moves aggregates materials from domestic and
offshore sources, via rail and water, to markets that generally exhibit above-average growth characteristics driven by long-term population growth and density but lack a long-term indigenous supply of coarse aggregates. The movement of aggregates
materials through long-haul networks introduces risks to operating results as
Martin
Marietta | Page 46
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
discussed more fully under the sections Analysis of Aggregates Business Gross Margin and
Transportation Exposure on pages 58 and 59 and pages 69 through 71, respectively.
During the construction industrys protracted recession
from 2008 through 2011, the Corporation was successful in executing against its strategic vision, completing several acquisitions, as well as asset swaps and divestitures from companies rationalizing non-core assets and repairing
financially-constrained balance sheets. In 2014, the Corporation completed the TXI acquisition, the largest in its history. With further economic recovery, management anticipates the number of acquisition opportunities should increase as sellers
view options for monetizing improving earnings. The Corporation pursues acquisitions that fit its strategic objectives as discussed more fully under the section Aggregates and Cement Industries and Corporation Trends on pages 59
through 61.
Aggregates Business Financial Considerations
The production of construction-related aggregates requires a significant capital investment resulting in high fixed and semi-fixed
costs, as discussed more fully under the section Cost Structure on pages 67 through 69. Further, operating results and financial performance are sensitive to shipment volumes and changes in selling prices.
Average selling price for the heritage aggregates product line increased 7.3% in 2015. As expected, this overall pricing increase was not uniform
throughout the Corporation. Pricing growth was led by the Corporations West Group, which reported an aggregates product line price increase of 10.8%, reflecting favorable supply and demand dynamics in these markets.
The production of construction-related aggregates also requires the use of various forms of energy, notably, diesel fuel. Therefore, fluctuations in
diesel fuel pricing can significantly affect the Corporations operating results. The Corporations average price per gallon of diesel fuel in 2015 was $2.05 on 42.5 million gallons compared with $3.02 in 2014 on 36.9 million gallons. The
Corporation has a fixed-price commitment for approximately 40% of its diesel fuel requirements at a rate of $2.20 per gallon through December 31, 2016.
Aggregates-related downstream operations, which represented 33% of the Aggregates business 2015 total net sales, have inherently lower gross
margins (excluding freight and delivery revenues) than the aggregates product line. Market dynamics
for these operations include a highly competitive environment and lower barriers to entry. Liquid asphalt
and cement are key raw materials in the production of hot mix asphalt and ready mixed concrete, respectively. Fluctuations in prices for purchased raw materials directly affect the Corporations operating results. Liquid asphalt prices in 2015
were lower than in 2014, but may not always follow other energy products (e.g., oil or diesel fuel) because of complexities in the refining process which converts a barrel of oil into other fuels and petrochemical products.
Management evaluates financial performance, particularly gross margin (excluding freight and delivery revenues), in a variety of ways. Management also
reviews incremental gross margin, changes in average selling prices, direct production costs per ton shipped, tons produced per worked man hour and return on invested capital, along with other key financial, nonfinancial and employee safety data.
Incremental gross margin (excluding freight and delivery revenues) is the incremental gross profit as a percentage of incremental net sales. This metric assists management in understanding the impact of increases in sales on profitability. Changes
in average selling prices demonstrate economic and competitive conditions, while incremental gross margin and changes in direct production costs per ton shipped and tons produced per worked man hour are indicative of operating leverage and
efficiency as well as economic conditions.
Cement Industry Considerations
Cement is the basic binding agent for concrete, a primary construction material. The principal raw material used in the production of
cement is calcium carbonate in the form of limestone. The Corporation owns more than 600 million tons of limestone reserves adjacent to its two cement production plants in Texas.
Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and in the railroad,
utility and environmental industries. Consequently, the cement industry is cyclical and dependent on the strength of the construction sector.
Energy, including electricity and fossil fuels, accounts for approximately one-third of the cement production cost profile. Therefore, profitability of
the Cement business is affected by changes in energy prices and the availability of the supply of these products. The Corporation currently has fixed-price supply contracts for coal and diesel fuel but also consumes natural gas, alternative fuel and
petroleum coke. Further, profitability of the Cement business is also subject to kiln maintenance. This
Martin
Marietta | Page 47
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
process typically requires a plant to be shut down periodically of as repairs are made. In 2015, the
Cement business incurred kiln maintenance shutdown related costs of $26.0 million.
The Texas plants operated an average of 70% utilization in
2015. The Portland Cement Association (PCA) forecasts a 2.5% increase in demand in Texas in 2016 over 2015. The Cement business leadership, in collaboration with the aggregates and ready mixed concrete teams, have developed
strategic plans regarding interplant efficiencies, as well as tactical plans addressing plant utilization and efficiency and a road map for significantly improved profitability for 2016 and beyond. In 2015, the Corporation shipped 4.6 million tons
of cement; 3.7 million tons to external customers in 13 states and Mexico and 0.9 million tons for internal use. Of this amount, 1.1 million tons (376,000 in the first quarter, 367,000 in the second quarter and 328,000 in the third quarter) were
shipped from the California cement plant prior to its divestiture on September 30, 2015.
Magnesia Specialties Considerations
The Corporation, through its Magnesia Specialties segment, produces and sells dolomitic lime and magnesia-based chemicals. In 2015,
this segment achieved net sales, gross profit and earnings from operations of $227.5 million, $78.7 million and $68.9 million, respectively. Net sales decreased 3.6%, reflecting declines in the chemicals and dolomitic lime product lines. The
dolomitic lime business, which represented 32% of Magnesia Specialties 2015 net sales, is dependent on the steel industry and operating results are affected by cyclical changes in that industry. The dolomitic lime business runs most profitably
at 70% or greater steel capacity utilization; domestic capacity utilization averaged 70% in 2015. The chemical products business focuses on higher-margin specialty chemicals that can be produced at volumes that support efficient operations.
A significant portion of costs related to the production of dolomitic lime and magnesia chemical products is of a fixed or semi-fixed nature. The
production of dolomitic lime and certain magnesia chemical products also requires the use of natural gas, coal and petroleum coke. Therefore, fluctuations in their pricing directly affect operating results. The Corporation has entered into
fixed-price supply contracts for natural gas, coal and petroleum coke to help mitigate this risk. During 2015, the Corporations average cost per MCF (thousand cubic feet) for natural gas decreased 28% from 2014.
Cash Flow Considerations
The Corporations cash flows are generated primarily from operations. Operating cash flows generally fund working capital needs,
capital expenditures, debt repayments, dividends, share repurchases and smaller acquisitions. The Corporation has a $600 million credit agreement (the Credit Agreement) with a syndicate of banks. The Credit Agreement provides a $350
million five-year senior unsecured revolving facility (the Revolving Facility) and a $250 million senior unsecured term loan (the Term Loan Facility). The Corporation also has a $250 million trade receivable securitization
facility (the Trade Receivable Facility).
During 2015, the Corporation made net repayments of long-term debt of $14.7 million.
Additionally, during 2015, the Corporation invested $318.2 million in capital expenditures, paid $107.5 million in dividends, repurchased $520.0 million of its common stock and made pension plan contributions of $54.0 million.
Cash and cash equivalents on hand of $168.4 million at December 31, 2015, along with the Corporations projected internal cash flows and its
available financing resources, including access to debt and equity markets, as needed, is expected to continue to be sufficient to provide the capital resources necessary to:
|
|
|
Support anticipated operating needs; |
|
|
|
Cover debt service requirements; |
|
|
|
Satisfy non-cancelable agreements; |
|
|
|
Meet capital expenditures and discretionary investment needs; |
|
|
|
Fund certain acquisition opportunities that may arise; and |
|
|
|
Allow for the payment of sustainable dividends and share repurchases. |
At December 31, 2015, the Corporation had unused borrowing capacity of $347.5 million under its Revolving Facility and $250.0 million under its Trade
Receivable Facility, subject to complying with its leverage covenant when applicable.
The Corporations ability to borrow funds or issue
securities is dependent upon, among other things, prevailing economic, financial and market conditions. As of December 31, 2015, the Corporation had principal indebtedness of $1.573 billion and future minimum lease and mineral and other royalty
commitments for all non-cancelable agreements of $389.1 million. The Corporations ability to generate sufficient cash flow depends on
Martin
Marietta | Page 48
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
future performance, which will be subject to general economic conditions, industry cycles and financial,
business and other factors affecting its consolidated operations, many of which are beyond the Corporations control. If the Corporation is unable to generate sufficient cash flow from operations in the future to satisfy its financial
obligations, it may be required, among other things, to seek additional financing in the debt or equity markets; to refinance or restructure all or a portion of its indebtedness; to further reduce or delay planned capital or operating expenditures;
and/or to suspend or reduce the amount of the cash dividend to shareholders and share repurchases.
An increase in leverage could lead to
deterioration in the Corporations credit ratings. A reduction in its credit ratings, regardless of the cause, could limit the Corporations ability to obtain additional financing and/or increase its cost of obtaining financing.
Highlights of 2015 Financial Performance
(all comparisons are versus 2014)
|
|
|
Adjusted earnings per diluted share of $4.50 compared with $3.74 |
|
|
|
Consolidated EBITDA of $750.7 million; adjusted EBITDA of $766.6 million |
|
|
|
Consolidated net sales of $3.27 billion compared with $2.68 billion, an increase of 22% |
|
|
|
Aggregates product line volume increase of 7.1%; aggregates product line pricing increase of 8.0% |
|
|
Heritage aggregates product line volume increase of 2.1%; heritage aggregates product line pricing increase of 7.3% |
|
|
|
Aggregates-related downstream businesses net sales of $879.3 million and gross profit of $78.7 million |
|
|
|
Cement business net sales of $367.6 million, gross profit of $103.5 million, EBITDA of $101.5 million and adjusted EBITDA of $130.5 million |
|
|
|
Magnesia Specialties net sales of $227.5 million and gross profit of $78.7 million |
|
|
|
Heritage consolidated gross margin (excluding freight and delivery revenues) of 24.5%, up 350 basis points |
|
|
|
Selling, general and administrative expenses (SG&A Expenses) 6.7% of net sales |
|
|
|
Consolidated earnings from operations of $479.4 million compared with $314.9 million, a 52% increase
|
Results of Operations
The discussion and analysis that follow reflect managements assessment of the financial condition and results of operations of
the Corporation and should be read in conjunction with the audited consolidated financial statements on pages 12 through 41. As discussed in more detail herein, the Corporations operating results are highly dependent upon activity within the
construction marketplace, economic cycles within the public and private business sectors and seasonal and other weather-related conditions. In 2015, Texas and Oklahoma each had its wettest year and the nation as a whole had its third wettest year in
NOAAs recorded history of 121 years. Net sales, production and cost structure were adversely affected by the significant precipitation. Accordingly, the financial results for any year, and notably 2015, or year-to-year comparisons of
reported results, may not be indicative of future operating results.
The Corporations Aggregates business generated 82% of consolidated net
sales and the majority of consolidated operating earnings during 2015. Furthermore, management presents certain key performance indicators for the Aggregates business. The following comparative analysis and discussion should be read within these
contexts. Further, sensitivity analysis and certain other data are provided to enhance the readers understanding of Managements Discussion and Analysis of Financial Condition and Results of Operations and are not intended to be
indicative of managements judgment of materiality.
Martin
Marietta | Page 49
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
The Corporations consolidated operating results and operating results as a percentage of net
sales are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000, except for % of net sales) |
|
2015 |
|
|
% of Net Sales |
|
|
|
|
2014 |
|
|
% of Net Sales |
|
|
|
|
2013 |
|
|
% of Net Sales |
|
Net sales |
|
$ |
3,268,116 |
|
|
|
100.0% |
|
|
|
|
$ |
2,679,095 |
|
|
|
100.0% |
|
|
|
|
$ |
1,943,218 |
|
|
|
100.0% |
|
Freight and delivery revenues |
|
|
271,454 |
|
|
|
|
|
|
|
|
|
278,856 |
|
|
|
|
|
|
|
|
|
212,333 |
|
|
|
|
|
Total revenues |
|
|
3,539,570 |
|
|
|
|
|
|
|
|
|
2,957,951 |
|
|
|
|
|
|
|
|
|
2,155,551 |
|
|
|
|
|
Cost of sales |
|
|
2,546,349 |
|
|
|
77.9 |
|
|
|
|
|
2,156,735 |
|
|
|
80.5 |
|
|
|
|
|
1,579,261 |
|
|
|
81.3 |
|
Freight and delivery costs |
|
|
271,454 |
|
|
|
|
|
|
|
|
|
278,856 |
|
|
|
|
|
|
|
|
|
212,333 |
|
|
|
|
|
Total cost of revenues |
|
|
2,817,803 |
|
|
|
|
|
|
|
|
|
2,435,591 |
|
|
|
|
|
|
|
|
|
1,791,594 |
|
|
|
|
|
Gross profit |
|
|
721,767 |
|
|
|
22.1 |
|
|
|
|
|
522,360 |
|
|
|
19.5 |
|
|
|
|
|
363,957 |
|
|
|
18.7 |
|
Selling, general and administrative expenses |
|
|
218,234 |
|
|
|
6.7 |
|
|
|
|
|
169,245 |
|
|
|
6.3 |
|
|
|
|
|
150,091 |
|
|
|
7.7 |
|
Acquisition related expenses, net |
|
|
8,464 |
|
|
|
0.3 |
|
|
|
|
|
42,891 |
|
|
|
1.6 |
|
|
|
|
|
671 |
|
|
|
|
|
Other operating expenses and (income), net |
|
|
15,653 |
|
|
|
0.5 |
|
|
|
|
|
(4,649) |
|
|
|
(0.2) |
|
|
|
|
|
(4,793) |
|
|
|
(0.2) |
|
Earnings from operations |
|
|
479,416 |
|
|
|
14.7 |
|
|
|
|
|
314,873 |
|
|
|
11.8 |
|
|
|
|
|
217,988 |
|
|
|
11.2 |
|
Interest expense |
|
|
76,287 |
|
|
|
2.3 |
|
|
|
|
|
66,057 |
|
|
|
2.5 |
|
|
|
|
|
53,467 |
|
|
|
2.8 |
|
Other nonoperating (income) and expenses, net |
|
|
(10,672) |
|
|
|
|
|
|
|
|
|
(362) |
|
|
|
|
|
|
|
|
|
295 |
|
|
|
|
|
Earnings from continuing operations before taxes on income |
|
|
413,801 |
|
|
|
12.7 |
|
|
|
|
|
249,178 |
|
|
|
9.3 |
|
|
|
|
|
164,226 |
|
|
|
8.5 |
|
Taxes on income |
|
|
124,863 |
|
|
|
3.8 |
|
|
|
|
|
94,847 |
|
|
|
3.5 |
|
|
|
|
|
44,045 |
|
|
|
2.3 |
|
Earnings from continuing operations |
|
|
288,938 |
|
|
|
8.8 |
|
|
|
|
|
154,331 |
|
|
|
5.8 |
|
|
|
|
|
120,181 |
|
|
|
6.2 |
|
Loss on discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
(37) |
|
|
|
|
|
|
|
|
|
(749) |
|
|
|
|
|
Consolidated net earnings |
|
|
288,938 |
|
|
|
8.8 |
|
|
|
|
|
154,294 |
|
|
|
5.8 |
|
|
|
|
|
119,432 |
|
|
|
6.1 |
|
Less: Net earnings (loss) attributable to noncontrolling interests |
|
|
146 |
|
|
|
|
|
|
|
|
|
(1,307) |
|
|
|
|
|
|
|
|
|
(1,905) |
|
|
|
(0.1) |
|
Net Earnings Attributable to Martin Marietta |
|
$ |
288,792 |
|
|
|
8.8% |
|
|
|
|
$ |
155,601 |
|
|
|
5.8% |
|
|
|
|
$ |
121,337 |
|
|
|
6.2% |
|
The comparative analysis in this Managements Discussion and Analysis of Financial Condition and
Results of Operations 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 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).
EBITDA is a widely accepted financial indicator of a companys ability to service and/or incur
indebtedness. EBITDA and adjusted EBITDA are not defined by GAAP and, as such, should not be construed as alternatives to net earnings or operating cash flow.
Adjusted consolidated earnings from operations, adjusted net earnings and adjusted earnings per diluted share (Adjusted EPS) are non-GAAP
measures which exclude the impact of TXI acquisition-related expenses, net; the impact of the markup of acquired inventory to fair value; and the gain or loss on business divestitures. The Corporation presents these measures to allow
investors to analyze and forecast the Corporations operating results given that these costs do not reflect the ongoing cost of its operations.
Martin
Marietta | Page 50
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
The following tables present (i) the calculations of gross margin and operating margin in accordance with
GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales; (ii) a reconciliation of net earnings attributable to Martin Marietta to consolidated EBITDA and adjusted consolidated EBITDA; (iii) a
reconciliation of the Cement business pretax earnings to EBITDA and adjusted EBITDA; and (iv) the reconciliations of adjusted consolidated earnings from operations, adjusted net earnings and adjusted EPS to the nearest measures in accordance with
GAAP:
Consolidated Gross Margin in Accordance with GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000, except
margin %) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
Gross profit |
|
$ |
721,767 |
|
|
$ |
522,360 |
|
|
$ |
363,957 |
|
|
|
|
|
|
Total revenues |
|
$ |
3,539,570 |
|
|
$ |
2,957,951 |
|
|
$ |
2,155,551 |
|
|
|
|
|
|
Gross margin |
|
|
20.4% |
|
|
|
17.7% |
|
|
|
16.9% |
|
|
|
|
|
|
Consolidated Gross Margin
(Excluding Freight and Delivery Revenues)
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000, except
margin %) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
Gross profit |
|
$ |
721,767 |
|
|
$ |
522,360 |
|
|
$ |
363,957 |
|
|
|
|
|
|
Total revenues |
|
$ |
3,539,570 |
|
|
$ |
2,957,951 |
|
|
$ |
2,155,551 |
|
Less: Freight and delivery revenues |
|
|
(271,454) |
|
|
|
(278,856) |
|
|
|
(212,333) |
|
|
|
|
|
|
Net sales |
|
$ |
3,268,116 |
|
|
$ |
2,679,095 |
|
|
$ |
1,943,218 |
|
|
|
|
|
|
Gross margin (excluding freight and delivery revenues) |
|
|
22.1% |
|
|
|
19.5% |
|
|
|
18.7% |
|
|
|
|
|
|
Consolidated Heritage Business Gross
Margin in Accordance with GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000, except
margin %) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
Gross profit |
|
$ |
568,064 |
|
|
$ |
454,626 |
|
|
$ |
363,957 |
|
|
|
|
|
|
Total revenues |
|
$ |
2,543,732 |
|
|
$ |
2,418,890 |
|
|
$ |
2,155,551 |
|
|
|
|
|
|
Gross margin |
|
|
22.3% |
|
|
|
18.8% |
|
|
|
16.9% |
|
|
|
|
|
|
Consolidated Heritage Business Gross Margin
(Excluding Freight and Delivery Revenues)
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000, except
margin %) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
Gross profit |
|
$ |
568,064 |
|
|
$ |
454,626 |
|
|
$ |
363,957 |
|
|
|
|
|
|
Total revenues |
|
$ |
2,543,732 |
|
|
$ |
2,418,890 |
|
|
$ |
2,155,551 |
|
Less: Freight and delivery revenues |
|
|
(225,705) |
|
|
|
(251,373) |
|
|
|
(212,333) |
|
|
|
|
|
|
Net sales |
|
$ |
2,318,027 |
|
|
$ |
2,167,517 |
|
|
$ |
1,943,218 |
|
|
|
|
|
|
Gross margin (excluding freight and delivery revenues) |
|
|
24.5% |
|
|
|
21.0% |
|
|
|
18.7% |
|
|
|
|
|
|
Consolidated Operating Margin in Accordance with GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000, except
margin %) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
Earnings from operations |
|
$ |
479,416 |
|
|
$ |
314,873 |
|
|
$ |
217,988 |
|
|
|
|
|
|
Total revenues |
|
$ |
3,539,570 |
|
|
$ |
2,957,951 |
|
|
$ |
2,155,551 |
|
|
|
|
|
|
Operating margin |
|
|
13.5% |
|
|
|
10.6% |
|
|
|
10.1% |
|
|
|
|
|
|
Consolidated Operating Margin
(Excluding Freight and Delivery Revenues)
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 (add 000, except
margin %) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
Earnings from operations |
|
$ |
479,416 |
|
|
$ |
314,873 |
|
|
|
217,988 |
|
|
|
|
|
|
Total revenues |
|
$ |
3,539,570 |
|
|
$ |
2,957,951 |
|
|
$ |
2,155,551 |
|
Less: Freight and delivery revenues |
|
|
(271,454) |
|
|
|
(278,856) |
|
|
|
(212,333) |
|
|
|
|
|
|
Net sales |
|
$ |
3,268,116 |
|
|
$ |
2,679,095 |
|
|
$ |
1,943,218 |
|
|
|
|
|
|
Operating margin (excluding freight and delivery revenues) |
|
|
14.7% |
|
|
|
11.8% |
|
|
|
11.2% |
|
|
|
|
|
|
Consolidated EBITDA and Adjusted Consolidated EBITDA
|
|
|
|
|
year ended December 31
(add 000) |
|
2015 |
|
Net earnings attributable to Martin Marietta |
|
$ |
288,792 |
|
Add back: |
|
|
|
|
Interest expense |
|
|
76,287 |
|
Income tax expense for controlling interests |
|
|
124,793 |
|
Depreciation, depletion and amortization expense |
|
|
260,836 |
|
Consolidated EBITDA |
|
$ |
750,708 |
|
Add back: |
|
|
|
|
Loss on sale of California cement operations |
|
|
29,063 |
|
Less: |
|
|
|
|
Gain on sale of San Antonio asphalt operations |
|
|
(13,123 |
) |
Adjusted consolidated EBITDA |
|
$ |
766,648 |
|
Cement EBITDA
and Adjusted Cement EBITDA
|
|
|
|
|
year ended December 31
(add 000) |
|
2015 |
|
Pretax earnings |
|
$ |
47,770 |
|
Add back: |
|
|
|
|
Interest expense |
|
|
97 |
|
Depreciation, depletion and amortization expense |
|
|
53,608 |
|
EBITDA |
|
$ |
101,475 |
|
Add back: |
|
|
|
|
Loss on sale of California cement operations |
|
|
29,063 |
|
Adjusted cement EBITDA |
|
$ |
130,538 |
|
Martin
Marietta | Page 51
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Adjusted Earnings from Operations
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
Earnings from operations in accordance with generally accepted accounting principles |
|
$ |
479,416 |
|
|
$ |
314,873 |
|
Add back: |
|
|
|
|
|
|
|
|
Loss on the sale of California cement operations |
|
|
29,063 |
|
|
|
|
|
Impact of selling acquired inventory due to markup to fair value |
|
|
|
|
|
|
11,124 |
|
TXI acquisition-related expenses, net |
|
|
|
|
|
|
42,689 |
|
Less: |
|
|
|
|
|
|
|
|
Gain on the sale of San Antonio asphalt operations |
|
|
(13,123 |
) |
|
|
|
|
Adjusted earnings from operations |
|
$ |
495,356 |
|
|
$ |
368,686 |
|
Adjusted Net Earnings
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
Net earnings in accordance with generally accepted accounting principles |
|
$ |
288,792 |
|
|
$ |
155,601 |
|
Add back: |
|
|
|
|
|
|
|
|
Loss on sale of California cement operations |
|
|
20,446 |
|
|
|
|
|
TXI acquisition-related expenses, net |
|
|
|
|
|
|
42,689 |
|
Impact of selling acquired inventory due to markup to fair value |
|
|
|
|
|
|
11,124 |
|
Income tax expense on acquisition-related expenses, net, and inventory markup |
|
|
|
|
|
|
4,977 |
|
Less: |
|
|
|
|
|
|
|
|
Gain on sale of San Antonio asphalt operations |
|
|
(6,668 |
) |
|
|
|
|
Adjusted net earnings |
|
$ |
302,570 |
|
|
$ |
214,391 |
|
Adjusted Earnings Per Diluted Share
|
|
years ended December 31 |
|
2015 |
|
|
2014 |
|
Earnings per diluted share in accordance with generally accepted accounting principles |
|
$ |
4.29 |
|
|
$ |
2.71 |
|
Add back: |
|
|
|
|
|
|
|
|
Loss on sale of California cement operations |
|
|
0.31 |
|
|
|
|
|
Per diluted share impact of TXI acquisition-related expenses, net |
|
|
|
|
|
|
0.91 |
|
Per diluted share impact of selling acquired inventory due to markup to fair value |
|
|
|
|
|
|
0.12 |
|
Less: |
|
|
|
|
|
|
|
|
Gain on sale of San Antonio asphalt operations |
|
|
(0.10 |
) |
|
|
|
|
Adjusted earnings per diluted share |
|
$ |
4.50 |
|
|
$ |
3.74 |
|
Net Sales
Net sales1 by reportable segment are as follows:
years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Heritage: |
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
$ |
849,215 |
|
|
$ |
770,568 |
|
|
$ |
720,007 |
|
Southeast Group |
|
|
285,302 |
|
|
|
254,986 |
|
|
|
226,437 |
|
West Group |
|
|
956,002 |
|
|
|
905,856 |
|
|
|
771,133 |
|
Total Heritage Aggregates Business |
|
|
2,090,519 |
|
|
|
1,931,410 |
|
|
|
1,717,577 |
|
Magnesia Specialties |
|
|
227,508 |
|
|
|
236,106 |
|
|
|
225,641 |
|
Total Heritage Consolidated |
|
|
2,318,027 |
|
|
|
2,167,516 |
|
|
|
1,943,218 |
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates Business: |
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
|
2,639 |
|
|
|
|
|
|
|
|
|
West Group |
|
|
579,846 |
|
|
|
302,023 |
|
|
|
|
|
Cement |
|
|
367,604 |
|
|
|
209,556 |
|
|
|
|
|
Total Acquisitions |
|
|
950,089 |
|
|
|
511,579 |
|
|
|
|
|
Total |
|
$ |
3,268,116 |
|
|
$ |
2,679,095 |
|
|
$ |
1,943,218 |
|
1 Reflect the elimination of intersegment sales.
Martin
Marietta | Page 52
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Net sales by product line for the Aggregates business are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Heritage: |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates |
|
$ |
1,642,842 |
|
|
$ |
1,502,476 |
|
|
$ |
1,347,486 |
|
Asphalt |
|
|
64,943 |
|
|
|
76,278 |
|
|
|
66,216 |
|
Ready Mixed Concrete |
|
|
224,121 |
|
|
|
196,042 |
|
|
|
146,079 |
|
Road Paving |
|
|
158,613 |
|
|
|
156,614 |
|
|
|
157,796 |
|
Total Heritage Aggregates Business |
|
|
2,090,519 |
|
|
|
1,931,410 |
|
|
|
1,717,577 |
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates |
|
|
150,818 |
|
|
|
67,546 |
|
|
|
|
|
Ready Mixed Concrete |
|
|
431,667 |
|
|
|
234,477 |
|
|
|
|
|
Total Acquisitions |
|
|
582,485 |
|
|
|
302,023 |
|
|
|
|
|
Total Aggregates Business1 |
|
$ |
2,673,004 |
|
|
$ |
2,233,433 |
|
|
$ |
1,717,577 |
|
1Net sales reflect the elimination of inter-product line sales.
The decline in the asphalt product line is due primarily to the sale of asphalt operations in Arkansas in 2014, which accounted for $7.8
million of net sales, and the sale of the San Antonio asphalt operations in the fourth quarter of 2015.
Aggregates Product Line. Heritage aggregates operations exclude acquisitions that were not included in prior-year operations for a full year. The legacy
TXI operations, which the Corporation acquired in July 2014, are reported in acquisitions.
Heritage and total aggregates product line
average selling price increases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Mid-America Group |
|
|
4.7% |
|
|
|
3.8% |
|
|
|
3.0% |
|
Southeast Group |
|
|
5.4% |
|
|
|
6.4% |
|
|
|
1.4% |
|
West Group |
|
|
10.8% |
|
|
|
5.1% |
|
|
|
4.0% |
|
Heritage Aggregates Operations |
|
|
7.3% |
|
|
|
4.1% |
|
|
|
3.0% |
|
Aggregates Product Line |
|
|
8.0% |
|
|
|
4.5% |
|
|
|
3.0% |
|
The following presents the average selling price per ton for the heritage aggregates product line and the acquired operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Heritage |
|
$ |
11.88 |
|
|
$ |
11.07 |
|
|
$ |
10.63 |
|
Acquisitions |
|
$ |
13.12 |
|
|
$ |
11.96 |
|
|
$ |
|
|
In 2015, the average selling price increase exceeded the Corporations average for the ten- and twenty-year
periods ended December 31, 2015 of 4.8% and 3.9%, respectively. The higher selling price increase reflects the supply
and demand dynamics in the Corporations markets. Direct comparisons between heritage and
acquisitions average selling price can be misleading. The average selling price for the acquired aggregates product line of $13.12 reflects a higher mix of products shipped via rail distribution yards, coupled with sand and gravel shipments, which
are higher priced products in those particular markets. Product mix for acquired locations is substantially different from the heritage aggregates product line mix. Average selling price increases in 2014 were in line with historical averages.
Pricing variances for the aggregates product line in 2013 reflected price increases, partially offset with the impact of product mix.
The
following presents heritage and total aggregates product line shipments for each reportable segment of the Aggregates business:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
Tons (add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Heritage Aggregates Product Line: |
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
|
68,324 |
|
|
|
64,959 |
|
|
|
62,982 |
|
Southeast Group |
|
|
19,479 |
|
|
|
18,289 |
|
|
|
17,250 |
|
West Group |
|
|
53,212 |
|
|
|
54,873 |
|
|
|
48,201 |
|
Heritage Aggregates Operations |
|
|
141,015 |
|
|
|
138,121 |
|
|
|
128,433 |
|
Acquisitions |
|
|
15,407 |
|
|
|
7,929 |
|
|
|
|
|
Aggregates Product Line |
|
|
156,422 |
|
|
|
146,050 |
|
|
|
128,433 |
|
For 2014, West Group shipments include 2,301,000 tons from operations divested in the third quarter 2014 in connection
with the TXI acquisition.
Aggregates product line includes shipments sold externally to customers and tons used in other product lines as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
Tons (add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Heritage Aggregates Product Line: |
|
|
|
|
|
|
|
|
|
|
|
|
Tons to external customers |
|
|
135,497 |
|
|
|
132,523 |
|
|
|
123,792 |
|
Internal tons used in other product lines |
|
|
5,518 |
|
|
|
5,598 |
|
|
|
4,641 |
|
Total heritage aggregates tons |
|
|
141,015 |
|
|
|
138,121 |
|
|
|
128,433 |
|
|
|
|
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Tons to external customers |
|
|
11,700 |
|
|
|
5,699 |
|
|
|
|
|
Internal tons used in other product lines |
|
|
3,707 |
|
|
|
2,230 |
|
|
|
|
|
Total acquisition aggregates tons |
|
|
15,407 |
|
|
|
7,929 |
|
|
|
|
|
Martin
Marietta | Page 53
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Heritage aggregates product line shipments increased 2.1% in 2015 compared with 2014, despite the impact
of historic levels of rainfall in many of the Corporations markets. Growth was achieved in the infrastructure, commercial component of nonresidential and residential markets, partially offset by a reduction in energy-sector shipments, notably
for shale exploration. Heritage aggregates product line shipments in 2014 increased 7.5% compared with 2013. Private construction led the growth with the residential market increasing 12.4% and the nonresidential market increasing 8.6%. Shipments to
the infrastructure market in 2014 increased 6.2%, with notable growth in Texas and Colorado.
Heritage and total aggregates product line volume
variance by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Mid-America Group |
|
|
5.2% |
|
|
|
3.1% |
|
|
|
0.3% |
|
Southeast Group |
|
|
6.5% |
|
|
|
6.0% |
|
|
|
(1.7% |
) |
West Group |
|
|
(3.0% |
) |
|
|
13.8% |
|
|
|
0.5% |
|
Heritage Aggregates Operations |
|
|
2.1% |
|
|
|
7.5% |
|
|
|
0.1% |
|
Total Aggregates Product Line |
|
|
7.1% |
|
|
|
13.7% |
|
|
|
0.1% |
|
Aggregates product line shipment variances in 2015 for the Mid-America and Southeast Groups reflect the ongoing
recovery in these markets, notably North Carolina, Georgia and Florida. The decline in the West Group is primarily due to the significant precipitation in Texas, Oklahoma and Colorado, which deferred certain shipments to future periods. As
previously discussed, the West Group decline in 2015 was also impacted by the divestiture of the North Troy quarry and two rail yards, which were sold in the third quarter of 2014.
Aggregates product line shipments in 2014 increased in each group as construction activity across most of the nation was recovering from the Great
Recession. The West Group experienced the highest rate of growth, as recovery in the western United States outpaced the eastern part of the country. Additionally, 2014 shipments in the West Group reflected the strength of the state Department of
Transportation budgets in Texas and Colorado. The Southeast Group was recovering from historically low shipment levels. Growth in 2014 was most significant in the nonresidential market and coincided with employment gains in Florida and Georgia.
Aggregates-Related Downstream
Operations. The Corporations aggregates-related downstream operations include asphalt, ready mixed concrete and road paving businesses in Arkansas, Colorado, Louisiana, Texas and Wyoming.
Average selling prices by product line for the Corporations aggregates-related downstream operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Heritage: |
|
|
|
|
|
|
|
|
|
|
|
|
Asphalt - tons |
|
$ |
42.57 |
|
|
$ |
41.26 |
|
|
$ |
42.09 |
|
Ready Mixed Concrete |
|
|
|
|
|
|
|
|
|
|
|
|
- cubic yards |
|
$ |
102.20 |
|
|
$ |
93.27 |
|
|
$ |
83.73 |
|
|
|
|
|
Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
Ready Mixed Concrete |
|
|
|
|
|
|
|
|
|
|
|
|
- cubic yards |
|
$ |
93.52 |
|
|
$ |
84.53 |
|
|
|
|
|
Unit shipments by product line for the Corporations aggregates-related downstream operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31
Tons (add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Asphalt Product Line: |
|
|
|
|
|
|
|
|
|
|
|
|
Tons to external customers |
|
|
1,220 |
|
|
|
1,508 |
|
|
|
1,361 |
|
Internal tons used in road paving business |
|
|
1,697 |
|
|
|
1,807 |
|
|
|
1,728 |
|
Total asphalt tons |
|
|
2,917 |
|
|
|
3,315 |
|
|
|
3,089 |
|
Heritage Ready Mixed Concrete |
|
|
|
|
|
|
|
|
|
|
|
|
cubic yards |
|
|
2,133 |
|
|
|
2,033 |
|
|
|
1,742 |
|
Acquisition Ready Mixed Concrete |
|
|
|
|
|
|
|
|
|
|
|
|
cubic yards |
|
|
4,574 |
|
|
|
2,746 |
|
|
|
|
|
Cement. The Cement
segment was acquired on July 1, 2014 and included two plants in Texas, one plant in Southern California and seven distribution terminals. On September 30, 2015, the Corporation divested its California cement operations, which included the plant and
two cement terminals and contributed $98.3 million of net sales for the nine month period then ended. The total Cement business shipped 3.7 million tons of cement to external customers in 2015 (the California operations accounted for 1.1 million
tons) and also used 0.9 million tons in the production of ready mixed concrete products. Net sales for the Cement business, which reflects the elimination of intersegment sales, benefitted from the strength of the Texas market and were $367.6
million in 2015. The business achieved a 10.2% increase in average selling price, which reflects the Corporations leading market position.
Martin
Marietta | Page 54
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Net sales for the second half of 2014 were $209.6 million, of which $68 million related to the California
cement operations.
Magnesia Specialties.
Magnesia Specialties 2015 net sales of $227.5 million declined 3.6% compared with 2014. The reduction reflects a decrease in both the chemicals and dolomitic lime product lines. Net sales were impacted by lower domestic steel production, which
was down 9% versus 2014.
2014 net sales grew 4.6%, attributable to an increase in the chemicals product line.
Freight and Delivery Revenues and Costs
Freight and delivery revenues and costs represent pass-through transportation costs incurred when the Corporation arranges for a third-party carrier to
deliver aggregates products to customers (see section Transportation Exposure on pages 69 through 71). These third-party freight costs are then billed to the customer.
Cost of Sales
Cost of sales
increased 18.1% in 2015, attributable to the 22.0% increase in net sales. Aggregates product line direct production cost per ton shipped increased 1.1% compared with 2014. Significant precipitation hindered production volumes and negatively affected
operating leverage and direct production cost per ton shipped. The Corporations production costs benefitted from low energy prices throughout the year. On average, the Corporation paid $2.05 per gallon of diesel fuel in 2015 compared with
$3.02 in 2014. The 2015 cost per gallon reflects a fixed-price commitment for approximately 40% of the Corporations diesel consumption that went into effect on July 1, 2015. The price fixed in that agreement was higher than the spot rate for
the remainder of the year.
Cost of sales increased 36.6%, on an absolute dollar basis, in 2014 compared with 2013 primarily due to increased
shipments in the heritage aggregates business and the acquisition of TXI. Notably, 2014 heritage aggregates product line direct production cost per ton shipped increased only 1.0% over 2013, reflecting increased leverage and effective cost
management.
Gross Profit
The Corporation increased its consolidated gross profit by $199.4 million in 2015 compared with 2014. The growth was driven by a full year of ownership
of legacy TXI operations and pricing strength.
Improved aggregates product line volume and pricing, strong performance by the Magnesia Specialties
business and the contribution from acquired businesses led to consolidated gross profit of $522.4 million, an improvement of $158.4 million, or 43.5%, in 2014 compared with 2013.
The following presents a rollforward of the Corporations consolidated gross profit:
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
|
2015 |
|
|
|
2014 |
|
Consolidated Gross Profit, prior year |
|
$ |
522,360 |
|
|
$ |
363,957 |
|
Heritage Aggregates Product Line: |
|
|
|
|
|
|
|
|
Pricing strength |
|
|
114,599 |
|
|
|
60,855 |
|
Volume strength |
|
|
32,011 |
|
|
|
102,871 |
|
Increase in production costs |
|
|
(53,624 |
) |
|
|
(70,092 |
) |
Decrease (increase) in internal freight costs |
|
|
3,756 |
|
|
|
(24,849 |
) |
Decrease (increase) in other costs |
|
|
9,303 |
|
|
|
(6,860 |
) |
Increase in Heritage Aggregates Product Line Gross Profit |
|
|
106,045 |
|
|
|
61,925 |
|
Heritage aggregates-related downstream business |
|
|
24,433 |
|
|
|
22,912 |
|
Acquired Aggregates business operations |
|
|
32,036 |
|
|
|
16,632 |
|
Cement |
|
|
51,004 |
|
|
|
52,469 |
|
Magnesia Specialties |
|
|
(5,862 |
) |
|
|
891 |
|
Corporate |
|
|
(8,249 |
) |
|
|
3,574 |
|
Increase in Consolidated Gross Profit |
|
|
199,407 |
|
|
|
158,403 |
|
Consolidated Gross Profit, current year |
|
$ |
721,767 |
|
|
$ |
522,360 |
|
Production costs for the heritage aggregates product line reflect the increase in production in response to higher
demand.
Internal freight costs represent freight expenses to transport materials from a producing quarry to a distribution yard. These costs in
2015 were favorably affected by lower energy prices. The increase in these costs in 2014 reflects an increase in shipments being transported via rail.
The increase in the gross profit in 2015 for acquired aggregates business operations and cement is due to a full year of ownership and the negative
impact on 2014 cost of sales from writing up acquired inventory to fair value at the TXI acquisition date.
Martin
Marietta | Page 55
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Gross profit (loss) by business is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2013 |
|
Heritage: |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates |
|
$ |
427,026 |
|
|
$ |
320,979 |
|
|
$ |
259,054 |
|
Asphalt |
|
|
18,189 |
|
|
|
13,552 |
|
|
|
12,928 |
|
Ready Mixed Concrete |
|
|
34,301 |
|
|
|
25,611 |
|
|
|
8,337 |
|
Road Paving |
|
|
17,545 |
|
|
|
6,440 |
|
|
|
1,426 |
|
Total Heritage Aggregates |
|
|
|
|
|
|
|
|
|
|
|
|
Business |
|
|
497,061 |
|
|
|
366,582 |
|
|
|
281,745 |
|
Magnesia Specialties |
|
|
78,732 |
|
|
|
84,594 |
|
|
|
83,703 |
|
Corporate |
|
|
(7,729 |
) |
|
|
3,449 |
|
|
|
(1,491 |
) |
Total Heritage Consolidated |
|
|
568,064 |
|
|
|
454,625 |
|
|
|
363,957 |
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates |
|
|
40,027 |
|
|
|
3,114 |
|
|
|
|
|
Ready Mixed Concrete |
|
|
8,641 |
|
|
|
13,518 |
|
|
|
|
|
Cement |
|
|
103,473 |
|
|
|
52,469 |
|
|
|
|
|
Corporate |
|
|
1,562 |
|
|
|
(1,366 |
) |
|
|
|
|
Total Acquisitions |
|
|
153,703 |
|
|
|
67,735 |
|
|
|
|
|
Total |
|
$ |
721,767 |
|
|
$ |
522,360 |
|
|
$ |
363,957 |
|
During 2015, gross margin for the acquired ready mix operations was negatively affected by weather. Accordingly, the
Corporation shipped fewer cubic yards of ready mixed concrete than was planned for 2015. By its nature, the ready mix business has inherently higher fixed costs, namely personnel, as compared to the Aggregates business, and was unable to reduce
fixed costs in response to weather-deferred shipments.
Corporate gross (loss) profit includes depreciation on capitalized interest and unallocated
operational expenses excluded from the Corporations evaluation of business segment performance. For 2015, the amount includes the variance between the contractual rate and the spot rate for diesel fuel under the fixed-price agreement. For
2014, the amount includes the settlement of a sales tax audit.
Consolidated gross margin (excluding freight and delivery revenues) was 22.1% for
2015, a 260-basis-point improvement over 2014. Notably, each of the reportable segments of the Aggregates business as well as the Cement business increased its gross margin, led by the 780-basis-point improvement in the Southeast Group. Consolidated
gross margin (excluding freight and delivery revenues) for 2014 expanded 80 basis points compared with 2013 (see sections Analysis of Aggregates Business Gross Margin on pages 58 and 59 and Transportation Exposure on pages 69 through
71).
Gross profit (loss) by reportable segment for the Aggregates business is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2013 |
|
Heritage Aggregates Business: |
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
$ |
256,179 |
|
|
$ |
216,883 |
|
|
$ |
192,747 |
|
Southeast Group |
|
|
34,197 |
|
|
|
10,653 |
|
|
|
(3,515 |
) |
West Group |
|
|
206,685 |
|
|
|
139,046 |
|
|
|
92,513 |
|
Total Heritage Aggregates
Business |
|
|
497,061 |
|
|
|
366,582 |
|
|
|
281,745 |
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
|
407 |
|
|
|
|
|
|
|
|
|
West Group |
|
|
48,261 |
|
|
|
16,632 |
|
|
|
|
|
Total Aggregates Business 1 |
|
$ |
545,729 |
|
|
$ |
383,214 |
|
|
$ |
281,745 |
|
1 Gross profit reflects the elimination of intersegment profit.
Gross margin (excluding freight and delivery revenues) by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
2015 |
|
|
|
2014 |
|
|
|
2013 |
|
Heritage: |
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
|
30.2% |
|
|
|
28.1% |
|
|
|
26.8% |
|
Southeast Group |
|
|
12.0% |
|
|
|
4.2% |
|
|
|
(1.6%) |
|
West Group |
|
|
21.6% |
|
|
|
15.3% |
|
|
|
12.0% |
|
Total Heritage Aggregates Business |
|
|
23.8% |
|
|
|
19.0% |
|
|
|
16.4% |
|
Magnesia Specialties |
|
|
34.6% |
|
|
|
35.8% |
|
|
|
37.1% |
|
Total Consolidated Heritage |
|
|
24.5% |
|
|
|
21.0% |
|
|
|
18.7% |
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Group |
|
|
15.3% |
|
|
|
|
|
|
|
|
|
West Group |
|
|
8.3% |
|
|
|
5.5% |
|
|
|
|
|
Cement |
|
|
28.1% |
|
|
|
25.0% |
|
|
|
|
|
Total Acquisitions |
|
|
16.2% |
|
|
|
13.2% |
|
|
|
|
|
Consolidated |
|
|
22.1% |
|
|
|
19.5% |
|
|
|
18.7% |
|
Gross margin (excluding freight and delivery revenues) improvement for the heritage aggregates business reflects volume
and pricing increases in the aggregates and ready mixed concrete product lines and the increased leverage provided by higher shipment levels.
Magnesia Specialties business 2015 gross margin (excluding freight and delivery revenues) was negatively affected by lower sales volumes which
reduced operating leverage. The business 2014 gross margin (excluding freight and delivery revenues) reflects higher natural gas costs.
The
2015 gross margin (excluding freight and delivery revenues) for acquired operations increased over 2014 due to integration benefits, pricing increases and the impact of the one-time $12.1 million markup of acquired inventory to fair value at the TXI
acquisition date in 2014.
Martin
Marietta | Page 56
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Selling, General and Administrative Expenses
SG&A expenses for 2015 were 6.7% of net sales, an increase of 40 basis points, which reflects higher pension expense and the impact of net sales
delayed by weather. 2014 SG&A expenses as a percentage of net sales decreased 140 basis points compared with 2013, driven by lower pension expense and the rate of growth in net sales outpacing the increase in SG&A expenses.
Acquisition-Related Expenses, Net
The Corporation incurred business development and acquisition integration costs (collectively acquisition-related expenses, net) as part of
its strategic growth plan. In 2015, these costs were principally TXI integration costs. In 2014, acquisition-related expenses, net, were related to the consummation of the TXI transaction and also included a nonrecurring $42.7 million gain on a
divestiture required by the Department of Justice as a result of the TXI acquisition.
Other Operating Expenses and (Income), Net
Among other items, other operating income and expenses, net, include gains and losses on the sale of assets; gains and losses related to
certain 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. These net amounts represented an
expense of $15.7 million in 2015 and income of $4.6 million and $4.8 million in 2014 and 2013, respectively. The net expense for 2015 reflects a $29.1 million loss on the sale of the California cement operations partially offset by a $13.1 million
gain on the sale of the San Antonio asphalt operations.
Earnings from Operations
Consolidated earnings from operations were $479.4 million in 2015 compared with $314.9 million in the prior year. Excluding the loss on the sale of the
California cement operations and the gain on the sale of the San Antonio asphalt operations, adjusted consolidated earnings from operations for 2015 were $495.4 million. This is a $126.7 million improvement over adjusted consolidated earnings from
operations for 2014 of $368.7 million, which excludes TXI acquisition-related expenses, net, and the one-time markup of acquired inventory. Consolidated earnings from operations were $218.0 million in 2013.
Interest Expense
Interest expense of $76.3 million in 2015 increased $10.2 million over 2014, attributable to the assumed and refinanced $700 million of TXI-related debt
being outstanding for a full year in 2015 versus only 6 months in 2014. Interest expense of $66.1 million in 2014 increased $12.6 million over 2013 due to the TXI-related debt.
Other Nonoperating (Income) and Expenses, Net
Other nonoperating income and expenses, net, are comprised generally of interest income, foreign currency transaction gains and losses, and net equity
earnings from nonconsolidated investments. Consolidated other nonoperating income and expenses, net, was income of $10.7 million and $0.4 million in 2015 and 2014, respectively, and an expense of $0.3 million in 2013. The higher income in 2015 was
primarily due to increased earnings from nonconsolidated investments.
Taxes on Income
Variances in the estimated effective income tax rates, when compared with the federal corporate tax rate of 35%, are due primarily to the statutory
depletion deduction for mineral reserves, the effect of state income taxes, the domestic production deduction, the tax effect of nondeductibility of goodwill related to divestitures of businesses and the impact of foreign income or losses for which
no tax benefit is recognized. Additionally, certain acquisition-related expenses have limited deductibility for income tax purposes.
The permanent
benefit associated with the statutory depletion deduction for mineral reserves is typically the significant driver of the estimated effective income tax rate. The statutory depletion deduction is calculated as a percentage of sales subject to
certain limitations. Due to these limitations, changes in sales volumes and pretax earnings may not proportionately affect the statutory depletion deduction and the corresponding impact on the effective income tax rate on continuing operations.
However, the impact of the depletion deduction on the estimated effective tax rate is inversely affected by increases or decreases in pretax earnings.
The estimated 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.
Martin
Marietta | Page 57
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
The Corporations estimated effective income tax rate for continuing operations and overall for the
years ended December 31 are as follows:
|
|
|
2015 |
|
30.2% |
2014 |
|
38.1% |
2013 |
|
26.8% |
For 2014, the effective income tax rate for full-year 2014 was 38.1%, which is higher than the Corporations
historical rate. The estimated effective income tax rate, excluding the TXI transaction effects, would have been 30%. The rate increase reflects the tax impact of the TXI transaction, including the limited deductibility of certain
acquisition-related expenses and the nondeductibility of goodwill written off as part of the required divestiture. These factors were partially offset by the income tax benefits resulting from the exercise of converted stock awards issued to former
TXI personnel.
In August 2013, the Corporation filed the required amended returns and paid the taxes due to settle the Advance Pricing Agreements
(APA) it has with Canada that increased the sales price charged for intercompany shipments from Canada to the United States during the years 2005 through 2011. The Corporation also filed amended returns in the United States for the years
2005 through 2011 to request the compensating refunds allowed pursuant to the corresponding APA with the United States. The effects of the APA increased the consolidated overall estimated effective income tax rate by 90 basis points for the year
ended December 31, 2013.
In its third quarter filing on Form 10-Q, dated November 5, 2015, the Corporation estimated that it would fully utilize
all of its federal net operating loss carryforwards in 2015. However, in December, the U.S. Congress extended bonus depreciation rules, allowing companies to accelerate tax depreciation deductions and thereby reduce taxable income. This reduced the
estimated utilization of the net operating loss carryforwards in 2015 and resulted in a federal net operating loss carryforward balance at year end.
Net Earnings Attributable to Martin Marietta and Earnings Per Diluted Share
Net earnings attributable to Martin
Marietta were $288.8 million, or $4.29 per diluted share. Excluding the loss on the sale of the California cement operations and the gain on the sale of the San Antonio asphalt operations, adjusted
earnings per diluted share were $4.50. For 2014, net earnings attributable to Martin Marietta were $155.6
million, or $2.71 per diluted share. Excluding the impact of acquisition-related expenses, net, and the increase in cost of sales for acquired inventory, adjusted earnings per diluted share were $3.74, an increase of 43.3% over 2013. Net earnings
attributable to Martin Marietta in 2013 were $121.3 million, or $2.61 per diluted share.
Analysis of Aggregates Business Gross Margin
|
Heritage Aggregates business 2015 gross margin (excluding freight and delivery revenues) reflects
a 480-basis point expansion from 2014; and
a 240-basis point negative impact from internal freight |
Gross margin (excluding freight and delivery revenues) for the heritage Aggregates business for the years ended
December 31 was as follows:
|
|
|
2015 |
|
23.8% |
2014 |
|
19.0% |
2013 |
|
16.4% |
The Aggregates business operating leverage for the aggregates product line is substantial given its significant
amount of fixed costs. The lean cost structure, coupled with continued aggregates volume recovery, particularly in the eastern United States, and pricing increases, provides a significant opportunity to increase margins for the aggregates product
line in the future. Management estimates that, subject to certain factors, including volume growth across the entire enterprise particularly in the southeastern United States, the aggregates product line can earn $0.60 of additional gross profit
with each incremental $1 of sales over an estimated additional 40 million tons of shipments.
Aggregates-related downstream operations, which are
included in the West Group, accounted for 33% of the Aggregates business net sales in 2015. Market dynamics for these operations are highly competitive. In cyclical trough periods, average selling prices for these product lines generally
decline. Furthermore, aggregates-related downstream operations consume significant amounts of high-cost raw materials, namely, liquid asphalt and cement, for the production of hot mix asphalt and ready mixed concrete, respectively.
Martin
Marietta | Page 58
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Gross margins (excluding freight and delivery revenues) for the Aggregates business asphalt and
ready mixed concrete product lines typically range from 10% to 15% as compared with the aggregates product line gross margin (excluding freight and delivery revenues), which generally ranges from 25% to 30%. The road paving product line typically
yields a gross margin (excluding freight and delivery revenues) ranging from 5% to 7%. The overall aggregates-related downstream operations gross margin (excluding freight and delivery revenues) was 8.9% for 2015 and 2014.
The long-haul distribution network, which includes water and rail distribution yards, continues to be a key component of the Corporations
strategic growth plan. Most of this activity is located in areas of the Southeast and West Groups that generally lack a long-term indigenous supply of coarse aggregates but exhibit above-average growth characteristics driven by long-term population
trends, including growth and density. Transportation freight costs from the production site to the distribution yards are included in the delivered price of aggregates products and reflected in the pricing structure at the distribution yards. Sales
from rail and water distribution yards generally yield lower gross margins (excluding freight and delivery revenues) as compared with sales directly from quarry operations. Nonetheless, management expects that the distribution network currently in
place will provide the Corporation solid growth opportunities, and gross margin (excluding freight and delivery revenues) should continue to improve, subject to the economic environment and other of the Corporations risk factors (see
Aggregates Industry and Corporation Risks on pages 61 through 76). In 2015, 24.3 million tons of aggregates were sold from distribution yards. Results from these distribution operations reduced the Aggregates business gross margin
(excluding freight and delivery revenues) by 240 basis points. In 2014 and 2013, the impact of internal freight on the Aggregates business gross margin (excluding freight and delivery revenues) was comparable.
The Aggregates business gross margin (excluding freight and delivery revenues) will continue to be adversely affected by lower gross margins for
aggregates-related downstream operations and the long-haul distribution network. However, the Corporation expects gross margin (excluding freight and delivery revenues) for the legacy TXI ready mixed concrete product line to improve, similar to the
pattern experienced at the Colorado operations acquired in 2011.
BUSINESS ENVIRONMENT
The sections on Business Environment on pages 59 through 76, and the disclosures therein, provide a synopsis of the business environment trends
and risks facing the Corporation. However, no single trend or risk stands alone. The relationship between trends and risks is dynamic, and the economic climate can exacerbate this relationship. This discussion should be read in this context.
Aggregates and Cement Industries and
Corporation Trends
|
According to the U.S. Geological Survey, for the third quarter 2015,
the latest available data, estimated construction aggregates consumption increased 4% and estimated cement consumption increased 3% compared with the third quarter 2014
Spending statistics, from 2014 to 2015, according to U.S. Census Bureau:
Total value of construction put in place increased 10.5%
Public-works construction spending increased 5.6%
Private nonresidential construction market spending increased 12.0%
Private residential construction market spending increased 12.6% |
The Corporations principal business, the Aggregates business, as well as the Cement business, serve customers in
construction aggregates-related markets. These businesses are strongly affected by activity within the construction marketplace, which is cyclical in nature. Consequently, the Corporations profitability is sensitive to national, regional and
local economic conditions and especially to cyclical swings in construction spending. The cyclical swings in construction spending are in turn affected by fluctuations in interest rates, access to capital markets, levels of public-sector
infrastructure funding, and demographic, geographic and population dynamics. Per the U.S. Census Bureau, total construction spending increased 10.5% in 2015.
The Aggregates and Cement businesses sell products principally to contractors in connection with highway and other public infrastructure projects as
well as nonresidential and residential development. While construction spending in the public and private market sectors is affected by economic cycles, the historic level of spending on public infrastructure projects has been comparatively more
stable as governmental appropriations and expenditures are typically less interest rate-sensitive
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than private-sector spending. Obligation of federal funds is a leading indicator of highway construction
activity in the United States. Before a state or local department of transportation can solicit bids on an eligible construction project, it enters into an agreement with the Federal Highway Administration to obligate the federal government to pay
its share of the project cost. Federal obligations are subject to annual funding appropriations by Congress. Although federal funding was relatively flat in 2015, the total value of public-works spending across the United States increased,
demonstrating the commitment of many states to address the underlying demand for infrastructure investment. Management believes public-works projects have historically accounted for approximately 50% of the total annual aggregates and cement
consumption in the United States. Management believes exposure to fluctuations in nonresidential and residential, or private-sector, construction spending is lessened by the business mix of public sector-related shipments. However, due to the
significant length of time without a multi-year federal highway bill (prior to the passage of FAST Act), private construction became a larger percentage of overall construction investment. Consistent with this trend, the infrastructure market
accounted for approximately 42% of the Corporations heritage aggregates product line shipments in 2015.
The nonresidential construction
market accounted for approximately 31% of the Corporations heritage aggregates product line shipments
in 2015. According to the U.S. Census Bureau, spending for the private nonresidential construction market
increased in 2015 compared with 2014. Historically, half of the Corporations nonresidential construction shipments have been used for office and retail projects, while the remainder has been used for heavy industrial and capacity-related
projects. Heavy industrial construction activity has been supported in recent years by expansion of the energy sector, namely development of shale-based natural gas fields. However, the decline in oil prices has suppressed exploration activity. In
2015, the Corporation shipped approximately 4 million tons to the energy sector compared to approximately 7 million tons in 2014.
The
Corporations exposure to residential construction is typically split evenly between aggregates used in the construction of subdivisions (including roads, sidewalks, and storm and sewage drainage) and aggregates used in new home construction.
Therefore, the timing of new subdivision starts, as well as new home starts, equally affects residential volumes. Private residential construction spending increased 13% in 2015 compared with 2014, according to the U.S. Census Bureau.
Gross margin on shipments transported by rail and water is lower as a result of the impact of internal freight. However, as demand increases in
supply-constrained areas, additional pricing opportunities, along with improved distribution costs, may improve profitability and gross margin on transported material. Further, the long-haul transportation network can diversify market risk for
locations that engage in long-haul transportation of their aggregates products. Many locations serve both a local market and transport products via rail and/ or water to be sold in other markets. The risk of a downturn in one market may be somewhat
mitigated by other markets served by the location.
Pricing on construction projects is generally based on terms committing to the availability of
specified products at a specified price during a specified period. While
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residential and nonresidential construction jobs usually are completed within one year, infrastructure
contracts can require several years to complete. Therefore, changes in prices can have a lag time before taking effect while the Corporation sells aggregates products under existing price agreements. Pricing escalators included in multi-year
infrastructure contracts somewhat mitigate this effect. However, during periods of sharp or rapid increases in production costs, multi-year infrastructure contract pricing may provide only nominal pricing growth. The Corporation also implements
mid-year price increases where appropriate. These mid-year price increases are typically realized over eighteen months, such that 25% of the total increase is realized in the year of announcement with the balance realized in the subsequent year.
In 2015, the average selling price for the heritage aggregates product line increased 7.3%, in line with managements expectations.
Opportunities to increase pricing will occur on a market-by-market basis. Management believes pricing will continue to strengthen in 2016, and exceed the Corporations 20-year annual average, 3.9%, and correlate, after consideration of a
6-to-12-month lag factor, with changes in demand. Pricing is determined locally and is affected by supply and demand characteristics of the local market.
The Aggregates and Cement businesses are subject to potential losses on customer accounts receivable in response to economic cycles. While a
recessionary construction economy increases those risks, both lien rights and payment bonds help mitigate the risk of uncollectible receivables; however, the Corporation can experience delayed payments from certain of its customers, negatively
affecting operating cash flows. Historically, the Corporations bad debt write offs have not been significant to its operating results. Further, management considers the allowance for doubtful accounts adequate as of December 31, 2015.
Management expects the overall long-term trend of consolidation of the aggregates industry to continue. The Corporations Board of Directors and
management continue to review and monitor strategic plans. These plans include assessing business combinations and arrangements with other companies engaged in similar or complementary businesses, increasing market share in the Corporations
strategic businesses and pursuing new opportunities related to markets that the Corporation views as attractive (see section Internal Expansion and Integration of Acquisitions on pages 71 through 72).
Aggregates Industry and Corporation Risks
General Economic Conditions
According to the Bureau of Economic Analysis, the estimated real gross domestic product (GDP) for the third quarter, the latest available
data, increased 2.1%. Growth was primarily attributable to increases in consumer and federal government spending as well as residential and nonresidential fixed investment. The moderate increase validates the overall United States economy is
sustaining the pace of its mild recovery. Employment growth in the United States, a stimulus for construction activity, is at its highest rate since 2006 which coincides with national unemployment declining from 5.6% in December 2014 to 5.0% in
December 2015. Notably, according to the Bureau of Labor Statistics, the construction industry added approximately 263,000 jobs during 2015.
Public-sector construction projects are funded through a combination of federal, state and local sources (see section
Federal and State Highway Transportation Funding on pages 64 through 66). The level of state public-works spending is varied across the nation and dependent upon individual state economies. In addition to federal appropriations, each state
funds its infrastructure spending from specifically allocated amounts collected from various user taxes, typically gasoline taxes and vehicle fees. Based on national averages, user taxes represent the largest component of highway revenues,
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averaging 38% in fiscal year 2013, the latest available statistic. The use of general funds as a percentage of each states highway revenues varies, with a national average of 5% in fiscal
year 2013, the latest available statistic. Therefore, state budget spending cuts typically only affect a small percentage of a states highway spending.
Over the past decade, states have taken on a larger role in funding infrastructure investment. Even with the passage of FAST Act, management
anticipates further growth in sustained state-level funding initiatives, such as bond issues, toll roads and special-purpose taxes, as states continue to address infrastructure needs.
The impact of any economic improvement will vary by local market. Profitability of the Aggregates business by state is not proportional to net sales by
state because certain of the Corporations intrastate markets are more profitable than others. Further, while the Corporations aggregates operations cover a wide geographic area, financial results depend on the strength of local
economies, which may differ from the economic conditions of the state or region. This is particularly relevant given the high cost of transportation as it relates to the price of the product. The impact of local economic conditions is felt less by
large fixed plant operations that serve multiple end-use markets through the Corporations long-haul distribution network.
Reported by Moodys Economy.com Inc. (Moodys) in December 2015, all but
seven state economies were recovering or expanding; four are at risk while three, including Alaska, are in recession.
The Aggregates
business top five sales-generating states, namely Texas, Colorado, North Carolina, Iowa and Georgia, together accounted for 70% of its 2015 net sales by state of destination. The top ten sales-generating states, which also include South
Carolina, Florida, Indiana, Louisiana and Oklahoma, together accounted for 85% of the Aggregates business 2015 net sales by state of destination.
Texas is one of the Corporations strongest aggregates markets driven by a healthy state Department of Transportation program and growing
residential and nonresidential activity. According to the Census Bureau, Texas population grew 8.8% from 2010 to 2015, adding 2.2 million residents. Notably, Texas is the third-ranked state for job growth, while nationally Dallas-Fort Worth is
the third-ranked metro area in the country, fundamentals that should further enhance construction investment. The Texas Department of Transportation continues to operate with a robust budget and let $7.4 billion of projects in fiscal 2015 and
estimates letting $10 billion in fiscal 2016. Funding for highway construction comes from dedicated sources as opposed to the use of general funds. Additionally, in November 2015, voters passed Proposition 7, a constitutional amendment that will
provide an additional $2.5 billion of annual funding for non-toll roads beginning in fiscal 2017 (September 1, 2016 to August 31, 2017). Further, Texas has been proactive in applying for TIFIA funding and,
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
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in 2014, received approval for the Grand Parkway project in Houston. Major project activity also includes
the expansion of I-35 in the Dallas-Fort Worth region. Given this states investment pattern, infrastructure drives approximately 50% of Texas end use. Further, Texas leads the nation in residential construction investment, driven by
growth in single-family housing units. Texas also leads the nation in nonresidential construction investment. Although lower oil prices have negatively affected shale exploration activity, growth in other sectors has more than offset the decline in
shale-related aggregates shipments. Management continues to believe growth in the Texas economy is sustainable, supported by a favorable business climate, diversity of economic drivers, state construction activity, recent commitments to major,
multi-year projects and weather-deferred construction demand in 2015.
The Colorado economy has a diverse base and remains strong, with job growth
ranking in the top twenty nationally. The unemployment rate has declined to 3.6%, its lowest level since 2007. In the Census Bureaus population estimate report, Colorado grew 8.1%, or added 0.4 million residents, from 2010 to 2015. The
Colorado Department of Transportation budget is expected to exceed $700 million in 2016, reflecting $300 million of annual funding from the Responsible Acceleration of Maintenance and Partnerships, or RAMP, program through fiscal 2018.
Additionally, reconstruction efforts from the 2013 historic flooding will continue in 2016. Furthermore, Colorado recently submitted TIFIA applications for two projects, I-470 and I-70, with a combined cost of $1.7 billion. The residential market
continues to expand as developers struggle to keep pace with increased demand. In fact, the state and the Denver metro area each rank in the top ten nationally for growth in residential starts. The nonresidential market remains positive, leading to
Colorado being ranked in the top fifteen states in the country. Strong ballast demand combined with a robust Colorado Front Range economy has positively affected the Corporations Rocky Mountain operations.
The North Carolina economy enters 2016 with a positive outlook. The state ranks sixth nationally in job growth and the Charlotte metro area ranks in
the top twenty. Continued economic growth in Charlotte is expected to remain solid, driven by expansions of existing businesses and relocations
from outside the region, in addition to recovery in the financial sector. The infrastructure market has
shown solid growth in awards, driven in part by the TIFIA-backed I-77 high-occupancy toll (HOT) lanes project in Charlotte. The 26-mile expansion of I-77 is a $655 million, multi-year project that is expected to be complete in the latter
part of 2018. In 2015, the North Carolina state legislature provided increased funding for transportation programs. First, the state gas tax, which was linked to the per gallon price of gasoline, was modified to decouple from that price, ultimately
establishing a floor of $0.34 per gallon by midyear 2016. Prospectively, the gas tax will be adjusted based on the national Consumer Price Index and state population. Additionally, the state legislature provided an incremental $700 million of annual
spending for transportation through increased various motor vehicle, registration, titling and license fees. Further, a $2.9 billion bond referendum, to help fund infrastructure repairs and expansions across the state, will be on the ballot for
voters in March 2016. The states residential market ranks in the top-ten states, driven by growth in single-family housing units. The nonresidential market ranks in the top twenty nationally.
The economy of Iowa, one of the Corporations most stable markets over the past five years, is highly dependent on agriculture and related
manufacturing industries and continues to show signs of steady expansion. Iowa is the largest corn and pork-producing state in the nation, and the Corporations agricultural lime volumes are dependent on, among other things, weather, demand for
agricultural commodities, including corn and soybeans, commodity prices, farm and land values as well as funding from the Agricultural Act of 2014, the five-year domestic farm bill signed into law on February 7, 2014. The state is also
attractive for companies to expand operations in Iowa due to enticing tax incentives offered by the state. To that effect, Google, Microsoft and Facebook have each announced plans to expand facilities in Iowa. Consistent with these events, the
states seasonally-adjusted unemployment rate of 3.4% remains one of the lowest in the country. The state Department of Transportation budget is financed with federal funds and dedicated highway-user tax revenues; no state general fund revenue
is used. State funding will benefit from a $0.10 increase in the gas tax, approved in 2015, and is expected to provide $215 million annually. Notable impact is expected beginning in 2016. The Iowa Transportation Commissions Five-Year Highway
Program forecasts $3.2 billion to be
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available for highway right-of-way and construction investments for the period 2016 through 2020. Of
this, more than $1.3 billion is targeted for modernizing Iowas existing highway system and enhancing highway safety. The nonresidential construction market is expected to benefit as MidAmerican Energy, Iowas largest energy company, plans
to construct approximately 250 additional wind turbines in 2016.
Georgias economy was more severely affected by the Great Recession compared
with the nation as a whole. However, recovery has continued in 2015 as evidenced by Georgia ranking in the top-five states and Atlanta ranking as the fourth metro area for job growth. The infrastructure construction market is expanding and will
significantly benefit from the passage of a gas tax increase and other funding mechanisms that will add approximately $1 billion to the states annual construction budget, essentially doubling the budget. State highway funding sources include
motor fuel taxes, special fuel taxes, state bonds and state gas taxes. Additionally, the Transportation Special-Purpose Local-Option Sales Tax (T-SPLOST) program is starting to provide benefit in the southern part of the state. In
January 2016, Governor Nathan Deal announced a comprehensive infrastructure maintenance plan, which includes a $2.2 billion 18-month project list, and a longer term 10-year plan, representing more than $10 billion in investment. Some elements of the
Governors plan include the addition of toll lanes along the I-285 loop in Atlanta, interchange upgrades for I-20 and I-285 and additional capacity of metro sections of I-75, I-85 and GA 400. Driven in part by economic recovery, the
states port activity reported record cargo volumes in 2015, and the capital budget for the states ports is $142 million in 2016. NCR Corporation recently announced its plans to construct a 22-story global headquarters, which will
complement the presence of American Telephone & Telegraph, Southern Company and The Home Depot. In addition, Georgia Tech announced its intent to build a $300 million High Performance Computing Center. Other corporations expanding into Georgia
include CareerBuilder, Amazon and Salesforce. Georgia ranks in the top ten in residential construction investment, with notable strength in the Atlanta market.
|
|
|
|
|
Top 10
Revenue- Generating States of
Aggregates Business |
|
Percent
Change in Population
2011 to 2015 |
|
Population
Rank
July 1, 2015 |
Texas |
|
7.1% |
|
2 |
Colorado |
|
6.6% |
|
22 |
North
Carolina |
|
4.1% |
|
9 |
Iowa |
|
1.9% |
|
30 |
Georgia |
|
4.1% |
|
8 |
South Carolina |
|
4.8% |
|
23 |
Florida |
|
6.1% |
|
3 |
Indiana |
|
1.6% |
|
16 |
Louisiana |
|
2.1% |
|
25 |
Oklahoma |
|
3.3% |
|
28 |
Source: U.S. Census Bureau, Population Estimates Division
Federal and State Highway
Transportation Funding
|
Passage of Fixing Americas Surface Transportation Act (FAST Act), a five-year, $305
billion federal highway bill Incremental funding dollars supported by TIFIA exceed $30 billion
over the next few years |
The federal highway bill provides annual funding for public-sector highway construction projects. Following 36
shorter-term extensions since Moving Ahead for Progress in the 21st Century (MAP-21) expired, a new five-year federal highway bill, FAST Act, was signed into law in December 2015. FAST Act will reauthorize federal highway and
public transportation programs and stabilize the Highway Trust Fund. $207.4 billion of the funding will be apportioned to the states by formula, with a 5.1% increase over actual fiscal year 2015 apportionments in 2016 and then inflationary increases
in subsequent years. Meaningful impact from FAST Act is not expected before the second half of 2016.
FAST Act retains the programs supported under
MAP-21, but with some changes. Specifically, TIFIA, a U.S. Department of Transportation alternative funding mechanism, which under
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MAP-21 provided three types of federal credit assistance for nationally or regionally significant surface
transportation projects, will now allow more diversification of projects. TIFIA is designed to fill market gaps and leverage substantial private co-investment by providing projects with supplemental or subordinate debt which is not subject to
national debt ceiling challenges or sequestration. Since 2012, TIFIA has provided credit assistance to over 30 projects representing over $49 billion in infrastructure investment. Under FAST Act, TIFIA annual funding will range from $275 million to
$300 million, and will no longer require the 20% matching funds from state departments of transportation. Consequently, states can advance construction projects immediately with potentially zero upfront outlay of local state department of
transportation dollars. TIFIA requires projects to have a revenue source to pay back the credit assistance within a 30-to-40 year period. Moreover, TIFIA funds may represent up to 49% of total eligible project costs for a TIFIA-secured loan and 33%
for a TIFIA standby line of credit. Therefore, the TIFIA program has the ability to significantly leverage construction dollars. Each dollar of federal funds can provide up to $10 in TIFIA credit assistance and support up to $30 in transportation
infrastructure investment. Private investment in transportation projects funded through the TIFIA program is particularly attractive, in part due to the subordination of public investment to private. Management believes TIFIA could provide a
substantial boost for state department of transportation construction programs well above what is currently budgeted. As of January 2016, TIFIA funded projects for the Corporations key states exceeded $12 billion.
The federal highway bill provides spending authorizations, which represent the maximum financial obligation that will result from the immediate or
future outlays of federal funds for highway and transit programs. The federal governments surface transportation programs are financed mostly through the receipts of highway user taxes placed in the Highway Trust Fund, which is divided into
the Highway Account and the Mass Transit Account. Revenues credited to the Highway Trust Fund are primarily derived from a federal gas tax, a federal tax on certain other motor fuels and interest on the accounts accumulated balances. MAP-21
extended federal motor fuel taxes through September 30, 2016 and truck excise taxes through September 30, 2017. Of the currently imposed federal gas tax of $0.184 per gallon, which has been static since 1993, $0.15 is allocated to the Highway
Account of the Highway Trust Fund.
Transportation investments generally boost the national economy by enhancing mobility and access and by
creating jobs, which is a priority of many of the governments economic plans. According to the Federal Highway Administration, every $1 billion in federal highway investment creates approximately 28,000 jobs. The number of jobs created is
dependent on the nature and aggregates intensity of the projects. Approximately half of the Aggregates business net sales to the infrastructure market come from federal funding authorizations, including matching funds from the states. For each
dollar spent on road, highway and bridge improvements, the Federal Highway Administration estimates an average benefit of $5.20 is recognized in the form of reduced vehicle maintenance costs, reduced delays, reduced fuel consumption, improved
safety, reduced road and bridge maintenance costs and reduced emissions as a result of improved traffic flow.
Federal highway laws require
Congress to annually appropriate funding levels for highways and other programs. Once the annual appropriation is passed, federal funds are distributed to each state based on formulas (apportionments) or other procedures (allocations). Apportioned
and allocated funds generally must be spent on specific programs as outlined in the federal legislation. Most federal funds are available for four years. Once the federal government approves a state project, funds are committed and considered spent
regardless of when the cash is actually spent by the state and reimbursed by the federal government. According to the Federal Highway Administration, funds are generally spent by the state over a period of years, with 27% in the year of funding
authorization, 41% in the succeeding year, 16% in the third year and the remaining 16% is spent in the fourth year and beyond.
With the exception
of TIFIA projects, in order to receive federal funds for highways, states are required to match funds at a predetermined rate. Matching levels vary depending on the type of project. If a state is unable to match its allocated federal funds, funding
is forfeited. Any forfeitures are reallocated to states providing the appropriate matching funds. While states rarely forfeit federal highway funds, the possibility of forfeiture increases when states struggle to balance budgets and face declining
tax revenues.
Given that most states are required to balance their budgets, reductions in revenues generally require a reduction in states
expenditures. However, the impact of state
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revenue reductions on highway spending will vary depending on whether the spending comes from dedicated
revenue sources, such as highway user fees, or whether portions are funded with general funds. Further, while state highway construction programs are primarily financed from highway user fees, significant increases in federal infrastructure funding
typically require state governments to increase highway user fees to match federal spending.
States continue to play an expanding role in
infrastructure funding. Management believes that innovative financing at the state level, such as bond issuances, toll roads and tax initiatives, will grow at a faster rate than federal funding. State spending on infrastructure generally leads to
increased growth opportunities for the Corporation. The degree to which the Corporation could be affected by a reduction or slowdown in infrastructure spending varies by state. The state economies of the Aggregates business five largest
revenue-generating states may disproportionately affect the Corporations financial performance.
The need for surface transportation
improvements significantly outpaces the amount of funding available. A significant number of roads, highways and bridges, built following the establishment of the Interstate Highway System in 1956, are now in need of significant repair or
reconstruction. According to The Road Information Program (TRIP), a national transportation research group, vehicle travel on United States highways increased 38% from 1990 to 2012, while new lane road mileage increased only 4% over the
same period. TRIP also reports that 14% of the nations major roads are in poor condition and 25% of the nations bridges are structurally deficient or functionally obsolete. Currently, the Federal Highway Administration estimates that
$170 billion is needed in annual capital investment through 2028 to significantly improve the current conditions and performance of the nations highways. During fiscal 2013, the latest data available from the Office of Highway Policy
Information, $160.1 billion was spent for surface transportation projects by state governments.
Other Public-Sector Construction
Exposure
In addition to highways and bridges, transportation infrastructure includes aviation, mass transit, and ports and
waterways. Public-sector construction related to these forms of transportation infrastructure can be aggregates intensive.
The Federal Aviation Administration Modernization and Reform Act of 2012 (FAA
Act) is a four-year bill that provided federal funding for airport improvements throughout the United States at $3.35 billion per year. Initially set to expire September 2015, the provisions were extended through March 2016. According to
ARTBA, total spending for airport runways and terminals was $12.9 billion during 2015 and is forecasted to increase to $14.3 billion in 2016.
Construction spending for mass transit projects, which include subways, light rail and railroads, was $21.3 billion in 2015, according to ARTBA, and is
expected to remain relatively flat in 2016. Railroad construction continues to benefit from economic growth and energy-sector shipments, which generate needs for additional maintenance and improvements. According to ARTBA, subway and light rail work
is expected to decline slightly in 2016 with growth resuming in 2017 as the economy continues to grow and federal investments become more stable. Heavy rail investment, largely driven by Class I railroads, is forecasted to be flat in 2016 compared
to 2015, principally resulting from declining coal shipments. One of the Corporations top-ten customers in 2015 was a Class I railroad.
Port
and waterway construction spending was $2.3 billion in 2015 and is forecasted to be flat in 2016.
Geographic Exposure and Seasonality
Erratic weather patterns, seasonal changes and other weather-related conditions significantly affect the construction aggregates
industry. Production and shipment levels for aggregates, asphalt, ready mixed concrete and road paving materials correlate with general construction activity, 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 production, shipments and profitability in all markets served by the
Corporation. 2015 was a year of extreme temperature and precipitation. Every states average temperature for the year was above its historical average, which would typically aid construction activity during seasonally colder months;
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however, excessive rainfall precluded shipments and production. According to NOAA, May 2015 was the
wettest month on record for the contiguous United States. Texas, the Corporations largest revenue-generating state, and Oklahoma each experienced a record year for precipitation in 2015 and became drought free for the first time since 2010.
South Carolina experienced a significant amount of rain which flooded the Corporations North Columbia quarry. Further, Colorado, Iowa, North Carolina and Georgia, each experienced near-record levels of rainfall during the year. These weather
events reduced the Corporations overall profitability in 2015, creating a backlog of construction activity expected to be completed in 2016.
The Corporations operations in coastal areas are at risk for hurricane activity, most notably in August,
September and October.
Cost Structure
|
Top 7 cost categories represent 90% of the Aggregates business direct production costs
Top 4 cost categories for the Cement business represent 69% of direct production costs
Underabsorption of fixed costs due to operating below capacity
Health and welfare costs increased 3% per year over past ten years compared with national average of 7%
over same period; Corporations costs expected to increase 9% to 10% in 2016 Pension expense
increased from $17.9 million in 2014 to $37.3 million in 2015; pension costs expected to approximate $31.4 million in 2016 (2014 and 2015 amounts exclude nonrecurring termination benefits related to the acquisition of TXI)
|
Direct production costs for the Aggregates business are components of cost of sales incurred at the quarries,
distribution yards, and asphalt and ready mixed concrete plants. These costs exclude resale materials, freight expenses to transport materials from a producing quarry to a distribution yard and production overhead.
Generally, the top seven categories of direct production costs for the Aggregates business are (1) labor
and related benefits; (2) energy; (3) raw materials; (4) depreciation, depletion and amortization; (5) repairs and maintenance; (6) supplies; and (7) contract services. In 2015, these categories represented 90% of the Aggregates business
direct production costs.
Fixed costs are expenses that do not vary based on production or sales volume. Management estimates that, under normal
operating capacity, 40% of the Aggregates business cost of sales is fixed, another 30% is semi-fixed and 30% is variable in nature. Accordingly, the Corporations operating leverage can be substantial. Variable costs are expenses that
fluctuate with the level of production volume. Production is the key driver in determining the levels of variable costs, as it affects the number of hourly employees and related labor hours. Further, diesel, supplies, repairs and freight costs also
increase in connection with higher production volumes.
Generally, when the Corporation invests capital to replace facilities and equipment,
increased capacity and productivity, along with reduced repair costs, can offset increased fixed depreciation costs. However, when aggregates demand weakens, increased productivity and related efficiencies may not be fully realized, resulting in
underabsorption of fixed costs. Further, the Aggregates business continues to operate at a level significantly below capacity, thereby, restricting the Corporations ability to capitalize $75.1 million and $76.2 million of costs at December 31,
2015 and 2014, respectively, which could have been inventoried if operating at capacity.
Diesel fuel, which averaged $2.05 per gallon in 2015 and
$3.02 per gallon in 2014, represents the single largest component of energy costs for the Aggregates business. Beginning the third quarter of 2015, the Corporation entered into a fixed-price fuel agreement for approximately 40% of its diesel
fuel requirements. The agreement continues into December 2016 with a fixed rate of $2.20 per gallon. Changes in energy
|
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
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costs also affect the prices that the Corporation pays for supplies, including explosives, conveyor belting and
tires. Further, the Corporations contracts of affreightment for shipping aggregates on its rail and waterborne distribution network typically include provisions for escalations or reductions in the amounts paid by the Corporation if the price
of fuel moves outside a contractual range.
Similar to the Magnesia Specialties business, the Corporations Cement business is a
capital-intensive operation with high fixed costs to run plants that operate all day, every day, with the exception of maintenance shut downs. The top cost in cement manufacturing is energy, which represented 26% of direct production costs in 2015.
Depreciation and labor followed with 17% and 15% of 2015 direct production costs, respectively.
The Corporation also consumes natural gas, coal and petroleum coke in the Magnesia Specialties
manufacturing processes. During 2015, the Corporations average cost per MCF (thousand cubic feet) for natural gas decreased 28% from 2014. The Corporation has fixed price agreements for 100% of its 2016 coal needs.
The Corporations aggregates-related downstream business requires the intersegment use of both internally produced and purchased products as raw
materials. Liquid asphalt and cement are key raw materials in the production of hot mix asphalt and ready mixed concrete, respectively. Fluctuations in prices for purchased raw materials directly affect the Corporations operating results.
Wage inflation and increases in labor costs may be somewhat mitigated by enhanced productivity in an expanding economy. Further, workforce reductions
resulting from plant automation and mobile fleet right-sizing have helped the Corporation control rising labor costs. During economic downturns, the Corporation reviews its operations and, where practical, temporarily idles certain quarries. The
Corporation is able to serve these markets with other open quarries that are in close proximity. Further, in certain markets, management can create production super crews that work at various locations within a district. For example, a
crew may work three days per week at one quarry and the other two workdays at another quarry within that market. This has allowed the Corporation to reduce headcount in periods of lower demand, as the number of full-time employees has been reduced
or eliminated at locations that are not operating at full capacity.
Rising health care costs have affected total labor costs in recent years and
are expected to continue to increase. Over the past ten years, national health care costs have increased 7% on average. The Corporation has experienced health care cost increases averaging 3% per year over the same period, driven in large part by
favorable claims experience and design changes made to its health care plans, such as employee surcharges. In 2015, the Corporations health and welfare costs per employee increased 17%, driven primarily by adverse claims experience, largely
due to increases in high-cost claimants and specialty pharmacy usage. For 2016, health and welfare costs are expected to increase 9% to 10%, slightly above general marketplace trends.
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A higher discount rate is expected to decrease the Corporations pension expense from $37.3 million
in 2015 to an estimated $31.4 million in 2016, excluding termination benefits related to the acquisition of TXI (see section Critical Accounting Policies and Estimates Pension Expense Selection of
Assumptions on pages 81 through 83).
The impact of current inflation on the Corporations businesses has been less
significant due to moderate inflation rates. Historically, the Corporation has achieved pricing growth in periods of inflation based on its ability to increase its selling prices in a normal economic environment.
Consolidated SG&A costs increased $50.0 million in 2015 compared with 2014. The increase reflects a full year of ownership of TXI operations and
increased pension expenses and incentive compensation expense, which is directly tied to individual and company performance during the year. As a percentage of net sales, SG&A expenses increased 40 basis points to 6.7%.
Shortfalls in federal, state and local revenues may result in increases in income taxes and other taxes. Federal and
state governments may also increase tax rates or eliminate deductions in response to the federal deficit. The Corporation derives a significant tax benefit from the federal depletion deduction (see section Critical Accounting Policies and
Estimates Estimated Effective Income Tax Rate on pages 83 and 84).
Transportation Exposure
The U.S. Department of the Interiors geological map of the United States shows the possible sources of indigenous surface rock and illustrates its
limited supply in the coastal areas of the United States from Virginia to Texas.
With population migration into the southeastern and southwestern United States, local crushed stone
supplies must be supplemented, or in most cases wholly supplied, from inland and offshore quarries. Further, certain interior United States markets may experience limited resources of construction material resulting from increasingly restrictive
zoning and permitting laws and regulations. The Corporations strategic focus includes expanding inland and offshore capacity and acquiring distribution yards and port locations to offload transported material. Accordingly, aggregates shipments
are moved by rail or water through the Corporations long-haul distribution network. In 1994, the Corporation had seven distribution yards. At December 31, 2015, the Corporation had 70 distribution yards. The Corporations rail network
serves its Texas, Florida and Gulf Coast markets. The Corporations Bahamas and Nova Scotia locations transport materials via oceangoing ships. The Corporation is currently focusing a portion of its capital spending program on key distribution
yards in the southeastern United States.
|
Martin Marietta | Page 69 |
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
As the Corporation moves aggregates by rail and water, internal freight costs reduce profit margins when
compared with aggregates moved by truck. The Corporation administers freight costs principally in three ways:
|
|
|
Option 1: |
|
The customer supplies transportation. |
Option 2: |
|
The Corporation directly ships aggregates products from a production location to a customer by arranging for a third-party carrier to deliver aggregates and then
charging the freight costs to the customer. These freight and delivery revenues and costs are separately presented in the consolidated statements of earnings. Such revenues and costs for the Aggregates business were $232.7 million, $245.6 million
and $192.8 million in 2015, 2014 and 2013, respectively, and account for a substantial majority of all such costs. |
Option 3: |
|
The Corporation transports aggregates, either by rail or water, from a production location to a distribution yard at which the selling price includes the associated
internal freight cost. These freight costs are included in the Aggregates business cost of sales and were $208.9 million, $185.2 million and $136.8 million for 2015, 2014 and 2013, respectively. Transportation costs from the distribution yard
to the customer are accounted for as described above in options 1 or 2, as applicable. |
For analytical purposes, the Corporation eliminates the effect of freight on margins with the second option. When the
third option is used, margins as a percentage of net sales are negatively affected because the customer does not typically pay the Corporation a profit associated with the transportation component of the selling price. For example, a customer in a
local market picks up aggregates by truck at the quarry and pays $10.00 per ton. Assuming a $2.50 gross profit per ton, the Corporation would recognize a 25% gross margin. However, if a customer purchased a ton of aggregates transported to a
distribution yard by the Corporation via rail or water, the selling price may be $16.00 per ton, assuming a $6.00 cost of freight. With the same $2.50 gross profit per ton and no profit associated with the transportation component, the gross margin
would be reduced to 15% as a result of the internal freight cost.
In 1994, 93% of the Corporations aggregates shipments were moved by truck and the remainder by
rail. In contrast, the originating mode of transportation for the Corporations aggregates product line shipments in 2015 was 75% by truck, 21% by rail and 4% by water. The 2015 allocation for cement shipments was 97% by truck and 3% by rail
(see section Analysis of Aggregates Business Gross Margin on pages 58 and 59).
The Corporations increased dependence on rail shipments has made it more vulnerable to railroad performance
issues, including track congestion, crew and locomotive power availability, the effects of adverse weather conditions and the ability to renegotiate favorable railroad shipping contracts. Further, in response to these issues, rail transportation
providers have focused on increasing the number of cars per unit train under transportation contracts and are generally requiring customers, through the freight rate structure, to accommodate larger unit train movements. A unit train is a freight
train moving large tonnages of a single bulk product between two points without intermediate yarding and switching. Rail availability is seasonal and can impact aggregates shipments depending on other competing movements.
Generally, the Corporation does not buy railcars, or ships, but instead supports its long-haul distribution network with leases and contracts of
affreightment. However, the limited availability of water and rail transportation providers, coupled with limited distribution sites, can adversely affect lease rates for such services.
Martin
Marietta | Page 70
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
The waterborne distribution network increases the Corporations exposure to certain risks,
including, among other items, meeting minimum tonnage requirements of shipping contracts, demurrage costs, fuel costs, ship availability and weather disruptions. The Corporations waterborne transportation is predominately via oceangoing
vessels. The Corporations average shipping distances from its Bahamas and Nova Scotia locations are 600 miles and 1,200 miles, respectively. Due to the majority of the shipments going to Florida, the weighted-average shipping distances are
approximately 30% less than these averages. The Corporation has long-term agreements providing dedicated shipping capacity from its Bahamas and Nova Scotia operations to its coastal ports. These contracts of affreightment are take-or-pay contracts
with minimum and maximum shipping requirements. If the Corporation fails to ship the annual minimum tonnages under the agreement, it must still pay the shipping company the contractually-stated minimum amount for that year. The Corporation did not
incur any such charges in 2015; however, a charge is possible in 2016 if shipment volumes do not meet the contractually-stated minimums. The Corporations contracts of affreightment have varying expiration dates ranging from 2016 to 2027 and
generally contain renewal options. However, there can be no assurance that such contracts can be renewed upon expiration or that terms will continue without significant increases.
Management expects the multiple transportation modes that have been developed with various rail carriers and deep-water ships will provide the
Corporation with the flexibility to effectively serve customers in the Southwest and Southeast coastal markets.
Internal Expansion and Integration of Acquisitions
The Corporations capital expansion, acquisition and greensite programs are designed to take advantage of construction market growth through
investment in both permanent and portable facilities at the Corporations quarry operations. Over an economic cycle, the Corporation will typically invest, on average, organic capital at an annual level that approximates depreciation expense.
At mid-cycle and through cyclical peaks, organic capital investment typically exceeds depreciation expense, as the Corporation supports current capacity needs and invests for future capacity growth. Conversely, at a cyclical trough, the Corporation
can reduce levels of capital investment. Regardless of cycle, the Corporation sets a priority of investing capital to ensure safe, efficient and environmentally-sound operations, provide the highest quality of customer service and establish a
foundation for future growth.
The Corporations Medina Rock and Rail (Medina) capital project, with a total cost of $160 million,
is the largest capital expansion project in its history. The project, located near San Antonio, consists of a rail-connected limestone aggregates processing facility which will begin shipping approximately six million tons in 2016 and have the
future capability of producing in excess of 10 million tons per year. Land acquisition was completed over several years as part of ongoing capital expenditures and construction began in 2013. The rail-connected quarry became operational in January
2016.
The Corporation also acquires contiguous property around existing quarry locations. This property can serve as buffer property or additional
mineral reserve capacity, assuming the underlying geology supports economical aggregates mining. In either instance, the acquisition of additional property around an existing quarry allows the expansion of the quarry footprint and extension of
quarry life. Some locations having limited reserves may be unable to expand.
Martin
Marietta | Page 71
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
A long-term capital focus for the Corporation, primarily in the midwestern United States due to the
nature of its indigenous aggregates supply, is underground limestone aggregates mines, which provide a more neighbor-friendly alternative to surface quarries. The Corporation operates 14 active underground mines, located primarily in the Mid-America
Group, and is the largest operator of underground aggregates mines in the United States. Production costs are generally higher at underground mines than surface quarries since the depth of the aggregates deposits and access to the reserves result in
higher development, explosives and depreciation costs. However, these locations often possess transportation advantages that can lead to value-added, higher average selling prices than more distant surface quarries.
On average, the Corporations aggregates reserves exceed 60 years based on normalized production levels and 100 years at current production rates.
During 2009 through 2013, and in response to the Great Recession, the Corporation set a priority of preserving capital while maintaining safe,
environmentally-sound operations. Capital investment in excess of depreciation expense in previous years allowed the Corporation to reduce capital spending during the trough period of the construction cycle without compromising the
Corporations commitment to safety, the environment, customer service and future growth. The Corporation has continued to opportunistically acquire land with long-term mineral reserves to expand its aggregates reserve base through the cyclical
trough.
The Corporation has a successful history of business combinations and integration of these businesses into its heritage operations. The
Corporation completed the integration of TXI operations, acquired on July 1, 2014, as of June 30, 2015. In addition, during 2015, the Corporation completed three smaller acquisitions, which included three aggregates operations and related assets.
Environmental Regulation and Litigation
The expansion and growth of the aggregates industry is subject to increasing challenges from environmental and political advocates hoping to control the
pace and direction of future development. Certain environmental groups have published lists of targeted municipal areas, including areas within the Corporations marketplace, for environmental
and suburban growth control. The effect of these initiatives on the Corporations growth is
typically localized. Further challenges are expected as the momentum of these initiatives ebb and flow across the United States. Rail and other transportation alternatives are being heralded by these special-interest groups as solutions to mitigate
road traffic congestion and overcrowding.
As is the case with other companies in the cement industry, the Corporations cement operations
produce varying quantities of cement kiln dust (CKD). This production by-product consists of fine-grained, solid, highly alkaline material removed from cement kiln exhaust gas by air pollution control devices. Because much of the CKD is
actually unreacted raw materials, it is generally permissible to recycle the CKD back into the production process, and large amounts are often treated in such manner. CKD that is not returned to the production process is disposed in landfills. CKD
is currently exempt from federal hazardous waste regulations under Subtitle C of the Resource Conservation and Recovery Act (RCRA).
The Clean Air Act, originally passed in 1963 and periodically updated by amendments, is the United States national air pollution control program
that granted the Environmental Protection Agency (EPA) authority to set limits on the level of various air pollutants. To be in compliance with National Ambient Air Quality Standards (NAAQS), a defined geographic area must be
below established limits for six pollutants. Environmental groups have been successful in lawsuits against the federal and certain state departments of transportation, delaying highway construction in municipal areas not in compliance with the Clean
Air Act. The EPA designates geographic areas as nonattainment areas when the level of air pollutants exceeds the national standard. Nonattainment areas receive deadlines to reduce air pollutants by instituting various control strategies or otherwise
face fines or control by the EPA. Included as nonattainment areas are several major metropolitan areas in the Corporations markets, such as Houston/Brazoria/Galveston, Texas; Dallas-Fort Worth, Texas; Charlotte/Gastonia, North Carolina;
Denver, Colorado; Boulder, Colorado; Fort Collins/Greeley/Loveland, Colorado; Council Bluffs, Iowa; Atlanta, Georgia; Macon, Georgia; Rock Hill, South Carolina; Indianapolis, Indiana; and Crittenden County, Arkansas. Federal transportation funding
has been directly tied to compliance with the Clean Air Act.
Martin
Marietta | Page 72
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
The EPA includes the lime industry as a national enforcement priority under the Clean Air Act. 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 its compliance with the Clean Air Acts New Source Review (NSR) program at its
Magnesia Specialties 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 required 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 Magnesia Specialties segment.
The Corporations operations
are subject to and affected by federal, state and local laws and regulations relating to the environment, health and safety and other regulatory matters. Certain of the Corporations operations may occasionally use substances classified as
toxic or hazardous. The Corporation regularly monitors and reviews its operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, risk of environmental liability is inherent in the operation
of the Corporations businesses, as it is with other companies engaged in similar businesses.
Environmental operating permits are, or may be,
required for certain of the Corporations operations; such permits are subject to modification, renewal and revocation. New permits are generally required for opening new sites or for expansion at existing operations and can take several years
to obtain. In the area of land use, rezoning and special-purpose permits are increasingly difficult to obtain. Once a permit is issued, the location is required to generally operate in accordance with the approved site plan.
Large emitters (facilities that emit 25,000 metric tons or more per year) of greenhouse gases (GHG) must report GHG generation to comply
with the EPAs Mandatory Greenhouse Gases Reporting Rule (GHG Rule). The Corporations Magnesia
Specialties facilities in Woodville, Ohio and Manistee, Michigan emit certain of the GHG, including
carbon dioxide, methane and nitrous oxide, and are filing annual reports in accordance with the GHG Rule. Should Congress pass legislation on GHG, these operations will likely be subject to the new program. The Corporation believes that the EPA may
impose additional regulatory restrictions on emissions of GHG. However, the Corporation also anticipates that any increased operating costs or taxes related to GHG emission limitations at its Woodville operation would be passed on to its customers.
The Manistee facility may have to absorb extra costs due to the regulation of GHG emissions in order to maintain competitive pricing in its markets. The Corporation cannot reasonably predict how much those increased costs may be.
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, the likelihood is remote that the ultimate outcome of any litigation or 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, cash flows or financial position.
Cement
Segment
The Corporations Cement segment includes a leading position in the Texas cement markets (two plants). These plants
produce Portland and specialty cements with a combined annual capacity of 4.5 million tons, as well as a current permit that provides an 800,000-ton-expansion opportunity at the Midlothian plant, near Dallas-Fort Worth. The Cement segment generated
net sales of $367.6 million and gross profit of $103.5 million. Of 4.6 million tons shipped during 2015, inclusive of 1.1 million tons shipped from the California cement operations prior to its divestiture, 0.9 million tons were used in the
Corporations ready mixed concrete product line. The average selling price per ton of cement in 2015 was $98.35, an 8.2% increase over prior year. This pricing strength is a result of price increases and the expiration of legacy TXI contracts,
priced well below the current market.
The Cement segment is benefitting from continued strength in the Texas markets, where current demand exceeds
local supply, a trend that is expected to continue for the near
Martin
Marietta | Page 73
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
future. The Texas plants are collectively operating on average around 70% utilization. The PCA is
forecasting 2016 cement consumption in Texas to expand by 2.5% over 2015, and projects that consumption will continue to grow annually between 5% and 6% in 2017 through 2019.
The cement plants are subject to periodic maintenance which requires shutting the plant down. Shutdown costs due to these outages may accumulate to
significant costs. For 2016, planned shutdown costs are estimated to total $23 million, where spending is estimated to be $6 million, $4 million, $2 million and $11 million for the first, second, third and fourth quarters, respectively. For
comparative purposes, shutdown costs at the Texas cement plants were $3 million, $4 million, $3 million and $9 million for the first, second, third and fourth quarters, respectively.
Magnesia Specialties Segment
Through its Magnesia Specialties segment, the Corporation manufactures and markets magnesia-based chemicals products for industrial, agricultural and
environmental applications and dolomitic lime for use primarily in the steel industry. In 2015, 67% of Magnesia Specialties net sales were attributable to chemicals products, 32% were attributable to lime and 1% was attributable to stone.
In 2015, 80% of the lime produced was sold to third-party customers, while the remaining 20% was used internally as
a raw material for the business manufacturing of chemicals products. Dolomitic lime products sold to external customers
are primarily used by the steel industry, and overall, 42% of Magnesia Specialties 2015 net sales
related to products used in the steel industry. Accordingly, a portion of the segments revenues and profits is affected by production and inventory trends within the steel industry. These trends are guided by the rate of consumer consumption,
the flow of offshore imports and other economic factors. The dolomitic lime business runs most profitably at 70% or greater steel capacity utilization; domestic capacity utilization averaged 70% in 2015, according to the American Iron and Steel
Institute. Average steel production in 2015 declined 9% versus 2014 and the 2016 forecast is an increase of 2% over 2015.
Of Magnesia
Specialties 2015 net sales, 14% came from foreign jurisdictions, including Canada, Mexico, Europe, South America and the Pacific Rim. As a result of foreign market sales, financial results could be affected by foreign currency exchange rates,
increasing transportation costs or weak economic conditions in the foreign markets. To mitigate the short-term effect of currency exchange rates, the United States dollar is used as the functional currency in foreign transactions. However, the
current strength of the United States dollar in foreign markets is affecting the overall price of Magnesia Specialties products when compared to foreign-domiciled competitors.
Given high fixed costs, low capacity utilization can negatively affect the segments results of operations. Further, the production of certain
magnesia chemical products and lime products requires natural gas, coal and petroleum coke to fuel kilns. Price fluctuations of these fuels affect the segments profitability.
The Magnesia Specialties business is highly dependent on rail transportation, particularly for movement of dolomitic lime from Woodville to Manistee
and direct customer shipments of dolomitic lime and magnesia chemicals products from both Woodville and Manistee. The segment can be affected by the risks outlined in Transportation Exposure on pages 69 through 71. All of Magnesia
Specialties hourly workforce belongs to a labor union. Union contracts cover hourly employees at the Manistee, Michigan magnesia-based chemicals plant and the Woodville, Ohio lime plant. The labor contract for the Woodville and Manistee
locations expire in May 2018 and August 2019, respectively.
Martin
Marietta | Page 74
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Management expects future organic growth to result from increased pricing, rationalization of the current
product portfolio and/or further cost reductions. In the current operating environment where steel utilization is at levels close to or below 70% and the strength of the United States dollar pressures product competitiveness in international
markets, any unplanned change in costs or customers introduces volatility to the earnings of the Magnesia Specialties segment.
Current
Market Environment and Related Risks
Management has considered the current economic environment and its potential impact to the
Corporations business. With the extensions of MAP-21 and the temporary solvency of the Highway Trust Fund coupled with state initiatives to secure alternative funding sources, demand for aggregates products in the infrastructure construction
market showed improvement in 2015. With the passage of FAST Act in December 2015, the infrastructure market should have increased activity in 2016 and beyond. With most states in recovery or expansion, the sustained decline in energy costs may be
the catalyst in certain markets to boost construction. Conversely, markets heavily dependent on the energy sector, namely Oklahoma and West Virginia, may move into a depression-like economic cycle with the decrease in oil production.
As aforementioned, declining steel utilization and United States dollar strength could adversely affect Magnesia Specialties operating results.
While a recessionary construction economy can increase collectability risks related to receivables, lien rights and payment bonds posted by some of the Corporations customers help mitigate the risk of uncollectible accounts. The Corporation
can experience a delay in payments from certain of its customers during the construction downturn, negatively affecting operating cash flows. Further, market performance and its impact on pension asset values may require increased cash contributions
to the Corporations plans in subsequent years. A higher discount rate is expected to decrease the Corporations pension expense in 2016.
There is a risk of long-lived asset impairment at temporarily-idled locations. The timing of increased demand will determine when these locations are
reopened. During the time that locations are temporarily idled, the locations plant and equipment continue to be depreciated. When
appropriate, mobile equipment is transferred to and used at an open location. As the Corporation continues to have long-term access to the supply of aggregates reserves and useful lives of
equipment are extended, these locations are not considered to be impaired while temporarily idled. When temporarily-idled locations are reopened, it is not uncommon for repair costs to temporarily increase.
Increases in the Corporations estimated effective income tax rate may negatively affect the Corporations results of operations. A number of
factors could increase the estimated effective income tax rate, including government authorities increasing taxes to fund deficits; the jurisdictions in which earnings are taxed; the resolution of issues arising from tax audits with various tax
authorities; changes in the valuation of deferred tax balances; adjustments to estimated taxes based upon the filing of the consolidated federal and individual state income tax returns; changes in available tax credits; changes in stock-based
compensation; other changes in tax laws; and the interpretation of tax laws and/ or administrative practices.
Internal Control and
Accounting and Reporting Risk
Management concluded that the Corporations internal control over financial reporting was
effective as of December 31, 2015. Furthermore, the Corporations independent registered public accounting firm issued an unqualified opinion on the effectiveness of the Corporations internal controls as of December 31, 2015. A system of
internal control over financial reporting is designed to provide reasonable assurance, in a cost-effective manner, on the reliability of a companys financial reporting and the process for preparing and fairly presenting financial statements in
accordance with GAAP. Further, a system of internal control over financial reporting, by its nature, should be dynamic and responsive to the changing risks of the underlying business. Changes in the system of internal control over financial
reporting could increase the risk of occurrence of a significant deficiency or material weakness. The Sarbanes-Oxley Act of 2002, and other related rules and regulations, have increased the scope, complexity and cost of corporate governance. As
reports from the Public Company Accounting Oversight Boards (PCAOB) inspections of public accounting firms continue to outline findings and recommendations, the Corporations efforts and costs to respond may continue to
increase.
Martin
Marietta | Page 75
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Accounting rulemaking, which may come in the form of updates to the Accounting Standards Codification and
speeches by various rule-making bodies, has become increasingly complex and generally requires significant estimates and assumptions in its interpretation and application. Further, accounting principles generally accepted in the United States
continue to be reviewed, updated and subject to change by various rule-making bodies, including the Financial Accounting Standards Board (the FASB) and SEC (section Critical Accounting Policies and Estimates on
pages 78 through 86).
The FASB and the International Accounting Standards Board continue to work on several joint projects designed to
improve both accounting standards under United States generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS), and ultimately make these standards comparable. Through these
projects, the boards intend to improve financial reporting information for investors while also aligning U.S. and international accounting standards. Proposed accounting changes are being issued one topic at a time and include lease accounting. The
impact of potential changes could be material to the Corporations consolidated financial statements.
The SEC has yet to make a decision
whether to incorporate IFRS into the United States financial reporting system. To date, the SEC has received strong support for retaining U.S. GAAP as the statutory basis for U.S. financial reporting and for a gradual transition incorporating
international accounting standards into U.S. GAAP.
For additional discussion on risks, see the Risk Factors section in the Corporations
Annual Report on Form 10-K for the year ended December 31, 2015.
FULL-YEAR 2016 OUTLOOK
Based on current forecasts and indications of activity, the Corporation has a positive outlook for its businesses in 2016. Aggregates product line
pricing is expected to increase from 6% to 8%. Volume growth is expected to continue with an increase of 5% to 7%. These gains in aggregates coupled with pricing improvements across the downstream and cement businesses, together with effective cost
management and strategic growth initiatives, are expected to drive increased earnings for the year. The Corporation also expects positive trends in its business and markets, notably:
|
|
|
Nonresidential construction is expected to increase in both the heavy industrial and commercial sectors. The Dodge Momentum Index is near its highest level
since 2009 and signals continued growth. |
|
|
|
Energy-related economic activity, including follow-on public and private construction activities in primary markets, will be mixed with overall strength in
downstream activity more than offsetting the decline in shale-related volumes. |
|
|
|
Residential construction is expected to continue to grow, driven by positive employment gains, historically low levels of construction activity over the
previous several years, low mortgage rates, significant lot absorption and higher multi-family rental rates. |
|
|
|
For the public sector, modest growth is expected in 2016 as new monies begin to flow into the system, particularly in the second half of the year.
Additionally, state initiatives to finance infrastructure projects, including support from TIFIA, are expected to grow and continue to play an expanded role in public-sector activity. |
Based on these trends and expectations, the Corporation anticipates the following for full-year 2016:
|
|
|
Aggregates end-use markets compared to 2015 levels are as follows: |
|
- |
Infrastructure market to increase mid-single digits. |
|
- |
Nonresidential market to increase in the high-single digits. |
|
- |
Residential market to experience a double-digit increase. |
|
- |
ChemRock/Rail market to remain relatively flat to down modestly.
|
Martin
Marietta | Page 76
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
2016 GUIDANCE
(dollars and tons in millions, except per ton)
|
|
|
|
|
|
|
|
|
|
|
Low |
|
|
High |
|
Consolidated Results |
|
Consolidated net sales |
|
$ |
3,500 |
|
|
$ |
3,700 |
|
Consolidated gross profit |
|
$ |
875 |
|
|
$ |
925 |
|
|
|
|
SG&A |
|
$ |
220 |
|
|
$ |
220 |
|
Interest expense |
|
$ |
80 |
|
|
$ |
80 |
|
Estimated tax rate (excluding discrete events) |
|
|
30% |
|
|
|
30% |
|
Capital Expenditures |
|
$ |
350 |
|
|
$ |
350 |
|
|
|
|
EBITDA |
|
$ |
930 |
|
|
$ |
980 |
|
|
Aggregates Product Line |
|
Volume (total tons)1 |
|
|
164.0 |
|
|
|
167.0 |
|
% growth1 |
|
|
5% |
|
|
|
7% |
|
|
|
|
Volume (external tons) |
|
|
154.5 |
|
|
|
157.5 |
|
% growth |
|
|
5% |
|
|
|
7% |
|
Average selling price per ton |
|
$ |
12.75 |
|
|
$ |
13.00 |
|
% growth |
|
|
6% |
|
|
|
8% |
|
Net sales |
|
$ |
1,950 |
|
|
$ |
2,050 |
|
Gross profit |
|
$ |
570 |
|
|
$ |
600 |
|
Direct production cost per ton shipped |
|
$ |
7.35 |
|
|
$ |
7.50 |
|
|
Aggregates-related downstream operations |
|
Net sales |
|
$ |
1,000 |
|
|
$ |
1,100 |
|
Gross profit |
|
$ |
100 |
|
|
$ |
105 |
|
|
Cement |
|
Volume (external tons) |
|
|
2.8 |
|
|
|
2.9 |
|
% growth2 |
|
|
8% |
|
|
|
11% |
|
Average selling price per ton |
|
$ |
110.00 |
|
|
$ |
112.00 |
|
% growth2 |
|
|
5% |
|
|
|
7% |
|
|
|
|
Net sales |
|
$ |
310 |
|
|
$ |
325 |
|
Gross profit |
|
$ |
125 |
|
|
$ |
135 |
|
|
Magnesia Specialties |
|
Net sales |
|
$ |
235 |
|
|
$ |
240 |
|
Gross profit |
|
$ |
80 |
|
|
$ |
85 |
|
1 Represents 2016 total aggregates volumes,
which includes approximately 9.5 million internal tons. Volume growth ranges are in comparison to total volumes of 156.4 million tons as reported for the full year 2015, which includes 9.2 million internal tons.
2 2016 cement volume and price growth ranges are provided for Texas cement.
The 2015 comparable excludes the sales of $98 million and volumes of 1.1 million tons related to the California cement operations which were sold in the third quarter of 2015.
Risks To Outlook
The 2016 outlook includes managements assessment of the likelihood of certain risks and uncertainties that will affect performance, including but
not limited to: both price and volume, and 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 further decline in energy-related drilling activity resulting from a sustained period of low global oil prices or changes in oil production patterns in response to this decline and certain
regulatory or other economic factors; a slowdown in the residential construction recovery, or some combination thereof; a reduction in economic activity in the Corporations Midwest states resulting from reduced funding levels provided by the
Agricultural Act of 2014 and a reduction in capital investment by the railroads; an increase in the cost of compliance with governmental laws and regulations; unexpected equipment failures, unscheduled maintenance, industrial accident or
other prolonged and/ or significant disruption to cement production facilities; and the possibility that certain expected synergies and operating efficiencies in connection with the TXI acquisition are not realized within the expected time-frames or
at all. 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. Cement is subject to cyclical supply and demand and price fluctuations. Any unplanned changes in costs or realignment of customers in the Magnesia Specialties business introduce volatility to the earnings of this segment.
Further, Magnesia Specialties earnings can be negatively impacted by declining steel utilization and the United States dollars strength in the segments international markets.
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,
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
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 material 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 Cement business is also energy intensive and fluctuations in the price
of coal and natural gas affects costs. The Magnesia Specialties 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 the supply of rail cars and locomotive power and condition of rail
infrastructure to move trains, affects the Corporations ability to efficiently transport aggregates into certain markets, most notably Texas, Florida and the Gulf Coast. In addition, availability of rail cars and locomotives affects the
Corporations ability to move dolomitic lime, a key raw material for magnesia chemicals, to both the Corporations plant in Manistee, Michigan, and customers. The availability of trucks, drivers and railcars to transport the
Corporations products, particularly in markets experiencing high growth and increased demand, is also a risk and pressures the associated costs.
All of the Corporations businesses are 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 also 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 risks from tax changes at the federal and
state levels.
For a discussion of additional risks, see Forward-Looking Statements Safe Harbor Provisions on pages 92 and 93.
OTHER FINANCIAL INFORMATION
Critical Accounting Policies and Estimates
The Corporations audited consolidated financial statements include
certain critical estimates regarding the effect of matters that are inherently uncertain. These estimates require managements subjective and complex judgments. Amounts reported in the Corporations consolidated financial statements could
differ materially if management used different assumptions in making these estimates, resulting in actual results differing from those estimates. Methodologies used and assumptions selected by management in making these estimates, as well as the
related disclosures, have been reviewed by and discussed with the Corporations Audit Committee. Managements determination of the critical nature of accounting estimates and judgments may change from time to time depending on facts and
circumstances that management cannot currently predict.
Business Combinations Allocation of Purchase Price
The Corporations Board of Directors and management regularly review strategic long-term plans, including potential investments in value-added
acquisitions of related or similar businesses, which would increase the Corporations market share and/or are related to the Corporations existing markets. When an acquisition is completed, the Corporations consolidated statements
of earnings include the operating results of the acquired business starting from the date of acquisition, which is the date that control is obtained. The purchase price is determined based on the fair value of assets and equity interests given to
the seller and any future obligations to the seller as of the date of acquisition. Additionally, conversion of the sellers equity awards into equity awards of the Corporation can affect the purchase price. The Corporation allocates the
purchase price to the fair values of the tangible and intangible assets acquired and liabilities assumed as valued at the date of acquisition. Goodwill is recorded for the excess of the purchase price over the net of the fair value of the
identifiable assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation is a critical accounting policy
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
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because the estimation of fair values of acquired assets and assumed liabilities is judgmental and
requires various assumptions. Further, the amounts and useful lives assigned to depreciable and amortizable assets versus amounts assigned to goodwill and indefinite-lived intangible assets, which are not amortized, can significantly affect the
results of operations in the period of and in periods subsequent to a business combination.
Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction, and, therefore, represents an exit price. A fair-value measurement assumes the highest and best use of the asset by market participants, considering the use of the asset that is
physically possible, legally permissible, and financially feasible at the measurement date. The Corporation assigns the highest level of fair value available to assets acquired and liabilities assumed based on the following options:
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Level 1 Quoted prices in active markets for identical assets and liabilities |
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Level 2 Observable inputs, other than quoted prices, for similar assets or liabilities in active markets |
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Level 3 Unobservable inputs are used to value the asset or liability which includes the use of valuation models |
Level 1 fair values are used to value investments in publicly-traded entities and assumed obligations for publicly-traded long-term debt.
Level 2 fair values are typically used to value acquired receivables, inventories, machinery and equipment, land, buildings, deferred income tax
assets and liabilities, and accruals for payables, asset retirement obligations, environmental remediation and compliance obligations, and contingencies. Additionally, Level 2 fair values are typically used to value assumed contracts that are not at
market rates.
Level 3 fair values are used to value acquired mineral reserves and mineral interests produced and sold as final products,
and separately-identifiable intangible assets. The fair values of mineral reserves and mineral interests produced and sold as final products are determined using an excess earnings approach, which requires management to estimate future cash flows,
net of capital investments in the specific operation and contributory asset charges. The estimate of
future cash flows is based on available historical information and on future expectations and assumptions
determined by management, but is inherently uncertain. Key assumptions in estimating future cash flows include sales price, shipment volumes, production costs and capital needs. The present value of the projected net cash flows represents the fair
value assigned to mineral reserves and mineral interests. The discount rate is a significant assumption used in the valuation model and is based on the required rate of return that a hypothetical market participant would require if purchasing the
acquired business, with an adjustment for the risk of these assets generating the projected cash flows.
The Corporation values
separately-identifiable acquired intangible assets which may include, but are not limited to, permits, customer relationships, water rights and noncompetition agreements. The fair values of these assets are typically determined by an excess earnings
method, a replacement cost method or, in the case of water rights, a market approach.
The useful lives of amortizable intangible assets and the
remaining useful lives for acquired machinery and equipment have a significant impact on earnings. The selected lives are based on the periods that the assets provide value to the Corporation subsequent to the business combination.
The Corporation may adjust the amounts recognized for a business combination during a measurement period after the acquisition date. Any such
adjustments are based on the Corporation obtaining additional information that existed at the acquisition date regarding the assets acquired or the liabilities assumed. Measurement-period adjustments are generally recorded as increases or decreases
to the goodwill recognized in the transaction. The measurement period ends once the Corporation has obtained all necessary information that existed as of the acquisition date, but does not extend beyond one year from the date of acquisition. Any
adjustments to assets acquired or liabilities assumed beyond the measurement period are recorded through earnings.
Impairment Review
of Goodwill
Goodwill is required to be tested at least annually for impairment. The impairment evaluation of goodwill is a critical
accounting estimate because goodwill represents 30% of the Corporations total assets at December 31, 2015, primarily driven by the July 2014 acquisition of TXI. The evaluation requires
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
management to apply judgment and make assumptions and an impairment charge could be material to the
Corporations financial condition and results of operations. The Corporation performs its impairment evaluation as of October 1, which represents the ongoing annual evaluation date.
The Corporations reporting units, which represent the level at which goodwill is tested for impairment, are based on the geographic regions of
the Aggregates business. As of October 1, 2015, the reporting units for the Aggregates business were as follows:
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Mid-Atlantic Division, which includes North Carolina, South Carolina, Maryland and Virginia; |
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Mideast Division, which includes Indiana, Kentucky, Ohio and West Virginia; |
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Midwest Division, which includes Iowa, northern Kansas, Minnesota, Missouri, eastern Nebraska and Washington; |
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Southeast Division, which includes Alabama, Florida, Georgia, Tennessee and offshore operations in the Bahamas and Nova Scotia;
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Rocky Mountain Division, which includes Colorado, western Nebraska, Nevada, Utah and Wyoming; and |
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Southwest Division, which includes Arkansas, southern Kansas, Louisiana, Oklahoma and Texas. |
Additionally, the Cement and Magnesia Specialties businesses are separate reporting units. There is no goodwill related to the Magnesia Specialties
business.
Any impact on reporting units resulting from organizational changes made by management is reflected in the succeeding evaluation.
Disclosures for certain of the aforementioned reporting units within the Aggregates business meet the aggregation criteria and are consolidated as reportable segments for financial reporting purposes.
Goodwill is assigned to the respective reporting unit(s) based on the location of acquisitions at the time of consummation. Goodwill is tested for
impairment by comparing the reporting units fair value to its carrying value, which represents Step 1 of a two-step approach. However, prior to Step 1, the Corporation may perform an optional qualitative assessment. As part of the qualitative
assessment, the Corporation considers, among other things, the following events and circumstances: macroeconomic conditions, industry
and market conditions, cost factors, overall financial performance and other business- or reporting
unit-specific events. If the Corporation concludes that it is more likely than not (i.e., a likelihood of more than 50%) that a reporting units fair value is higher than its carrying value, the Corporation does not perform any further goodwill
impairment testing for that reporting unit. Otherwise, it proceeds to Step 1 of its goodwill impairment analysis. The Corporation may bypass the qualitative assessment for any reporting unit in any period and proceed directly with the quantitative
calculation in Step 1. When the Corporation validates its conclusion by measuring fair value, it may resume performing a qualitative assessment for a reporting unit in any subsequent period. If the reporting units fair value exceeds its
carrying value, no further calculation is necessary. A reporting unit with a carrying value in excess of its fair value constitutes a Step 1 failure and leads to a Step 2 evaluation to determine the goodwill write off. If a Step 1 failure occurs,
the excess of the carrying value over the fair value does not equal the amount of the goodwill write off. Step 2 requires the calculation of the implied fair value of goodwill by allocating the fair value of the reporting unit to its tangible and
intangible assets, other than goodwill, similar to the purchase price allocation performed for an acquisition of a business. The remaining unallocated fair value represents the implied fair value of the goodwill. If the implied fair value of
goodwill exceeds its carrying amount, there is no impairment. If the carrying value of goodwill exceeds its implied fair value, an impairment charge is recorded for the difference. When performing Step 2 and allocating a reporting units fair
value, assets having a higher fair value compared with book value increase any possible write off of impaired goodwill.
For the 2015 annual
impairment evaluation, the Corporation performed qualitative assessments for the Aggregates business reporting units. Based on the totality of drivers of fair value and relevant facts and circumstances, the Corporation determined that it is more
likely than not that the fair values of each of these reporting units exceed their respective carrying amounts.
The Corporation performed a Step 1
analysis for the Cement business reporting unit in 2015. The fair value was calculated using a discounted cash flow model. Key assumptions included managements estimates of future profitability, capital requirements, discount rate of 10.0%,
and terminal growth rate of 3.5%. The fair value of the Cement business reporting unit exceeded its carrying value by 8%, or $130
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
million. For sensitivity purposes, a 100-basis-point increase in the discount rate would result in the
Cement business reporting unit failing the Step 1 analysis. The Cement business reporting unit had $865 million of goodwill at December 31, 2015.
Price, cost and volume changes, profitability, efficiency improvements, the discount rate and the terminal growth rate are significant assumptions in
performing a Step 1 analysis. These assumptions are interdependent and have a significant impact on the results of the test.
Future profitability
and capital requirements are, by their nature, estimates. Price, cost and volume assumptions were based on current forecasts, including the use of external sources, and market conditions. Capital requirements included maintenance-level needs,
efficiency projects, and known capacity-increasing initiatives.
A discount rate is calculated for each reporting unit that requires a Step 1
analysis and represents its weighted average cost of capital. The calculation of the discount rate includes the following components, which are primarily based on published sources: equity risk premium, historical beta, risk-free interest rate,
small-stock premium, company-specific premium, and borrowing rate.
The terminal growth rate was based on the projected annual increase in Gross
Domestic Product.
Management believes that all assumptions used were reasonable based on historical operating results and expected future trends.
However, if future operating results are unfavorable as compared with forecasts, the results of future goodwill impairment evaluations could be negatively affected. Further, mineral reserves, which represent underlying assets producing the reporting
units cash flows for the Aggregates and Cement businesses, are depleting assets by their nature. The potential write off of goodwill from future evaluations represents a risk to the Corporation.
Pension Expense-Selection of Assumptions
The Corporation sponsors noncontributory defined benefit pension plans that cover substantially all employees and a Supplemental Excess Retirement Plan
(SERP) for certain retirees (see Note J to the audited consolidated financial statements on pages 30 through 34). Annual pension expense (inclusive of SERP expense) consists of several components:
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Service Cost, which represents the present value of benefits attributed to services rendered in the current year, measured by expected future salary
levels. |
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Interest Cost, which represents one years additional interest on the outstanding liability. |
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Expected Return on Assets, which represents the expected investment return on pension fund assets. |
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Amortization of Prior Service Cost and Actuarial Gains and Losses, which represents components that are recognized over time rather than immediately.
Prior service cost represents credit given to employees for years of service prior to plan inception. Actuarial gains and losses arise from changes in assumptions regarding future events or when actual returns on assets differ from expected returns.
At December 31, 2015, unrecognized actuarial loss and unrecognized prior service cost were $178.8 million and $1.0 million, respectively. Pension accounting rules currently allow companies to amortize the portion of the unrecognized actuarial loss
that represents more than 10% of the greater of the projected benefit obligation or pension plan assets, using the average remaining service life for the amortization period. Therefore, the $178.8 million unrecognized actuarial loss consists of
$103.3 million that is currently subject to amortization in 2016 and $75.5 million that is not subject to amortization in 2016. $11.3 million of amortization of the actuarial loss will be a component of 2016 annual pension expense.
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These components are calculated annually to determine the pension expense that is reflected in the Corporations results of
operations.
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Management believes the selection of assumptions related to the annual pension expense is a critical
accounting estimate due to the high degree of volatility in the expense dependent on selected assumptions. The key assumptions are as follows:
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The discount rate is the rate used to present value the pension obligation and represents the current rate at which the pension obligations could be
effectively settled. |
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The expected long-term rate of return on pension fund assets is used to estimate future asset returns and should reflect the average rate of
long-term earnings on assets already invested or to be invested to provide for the benefits included in the projected benefit obligation. |
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The mortality table represents published statistics on the expected lives of people. |
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The rate of increase in future compensation levels is also a key assumption that projects the pay-related pension benefit formula and should estimate
actual future compensation levels. |
Managements selection of the discount rate is based on an analysis that estimates the
current rate of return for high-quality, fixed-income investments with maturities matching the payment of pension benefits that could be purchased to settle the obligations. The Corporation selected a hypothetical portfolio of Moodys Aa bonds
with maturities that mirror the benefit obligations to determine the discount rate. At December 31, 2015, the Corporation selected a discount rate assumption of 4.67%, a 42-basis-point increase over the prior-year assumption. Of the four key
assumptions, the discount rate is generally the most volatile and sensitive estimate. Accordingly, a change in this assumption has the most significant impact on the annual pension expense.
Managements selection of the rate of increase in future compensation levels is generally based on the Corporations historical salary
increases, including cost of living adjustments and merit and promotion increases, giving consideration to any known future trends. A higher rate of increase results in higher pension expense. The actual rate of increase in compensation levels in
2015 was lower than the assumed long-term rate of increase of 4.5%.
Managements selection of the expected long-term rate of return on pension fund assets is based on a
building-block approach, whereby the components are weighted based on the allocation of pension plan assets. Given that these returns are long-term, there are generally not significant fluctuations in the expected rate of return from year to year.
Based on the currently projected returns on these assets, the Corporation selected an expected return on assets of 7.0%, consistent with the prior-year rate. The following table presents the expected return on pension assets as compared with the
actual return on pension assets:
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Expected Return |
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Actual Return |
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(add 000) |
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on Pension Assets |
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on Pension Assets |
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2015 |
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$36,385 |
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$ (651) |
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2014 |
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$32,661 |
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$ 26,186 |
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2013 |
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$26,660 |
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$ 59,882 |
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The difference between expected return on pension assets and the actual return on pension assets is not immediately
recognized in the consolidated statements of earnings. Rather, pension accounting rules require the difference to be included in actuarial gains and losses, which are amortized into annual pension expense as previously described.
The Corporation estimates the remaining lives of participants in the pension plans using a table issued by the Society of Actuaries. For 2015, the
Corporation estimated the remaining lives of participants in the pension plans using the RP-2014 Mortality Table. The no-collar table was used for salaried participants and the blue-collar table, reflecting the experience of the Corporations
participants, was used for hourly participants.
Assumptions are selected on December 31 to calculate the succeeding years expense. For the
2015 pension expense, assumptions selected at December 31, 2014 were as follows:
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Discount rate |
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4.25% |
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Rate of increase in future compensation levels |
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4.50% |
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Expected long-term rate of return on assets |
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7.00% |
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Average remaining service period for participants |
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10 years |
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RP 2014 Mortality Table |
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Using these assumptions, 2015 pension expense was $39.4 million. A change in the assumptions would have
had the following impact on 2015 expense:
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A change of 25 basis points in the discount rate would have changed 2015 expense by approximately $2.6 million. |
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A change of 25 basis points in the expected long-term rate of return on assets would have changed the 2015 expense by approximately $1.2 million.
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For 2016 pension expense, assumptions selected at December 31, 2015 were as follows:
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Discount rate |
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4.67% |
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Rate of increase in future compensation levels |
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4.50% |
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Expected long-term rate of return on assets |
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7.00% |
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Average remaining service period for participants |
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10 years |
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RP-2014 Mortality Table |
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Using these assumptions, 2016 pension expense is expected to be approximately $31.4 million, excluding termination
benefits related to TXI, based on current demographics and structure of the plans. Changes in the underlying assumptions would have the following estimated impact on the 2016 expected expense:
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A change of 25 basis points in the discount rate would change the 2016 expected expense by approximately $2.8 million. |
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A change of 25 basis points in the expected long-term rate of return on assets would change the 2016 expected expense by approximately $1.3 million.
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The Corporation made pension plan contributions of $53.9 million in 2015 and $172.2 million for the five-year period ended
December 31, 2015. Despite these contributions, the Corporations pension plans are underfunded (projected benefit obligation exceeds the fair value of plan assets) by $208.0 million at December 31, 2015. The Corporations projected
benefit obligation was $754.5 million at December 31, 2015, relatively constant compared with December 31, 2014. The Corporation expects to make pension plan and SERP contributions of $29.9 million in 2016.
Estimated Effective Income Tax Rate
The Corporation uses the liability method to determine its provision for income taxes. Accordingly, the annual provision
for income taxes reflects estimates of the current liability for income taxes, estimates of the tax
effect of financial reporting versus tax basis differences using statutory income tax rates and managements judgment with respect to any valuation allowances on deferred tax assets. The result is managements estimate of the annual
effective tax rate (the ETR).
Income for tax purposes is determined through the application of the rules and regulations under the
United States Internal Revenue Code and the statutes of various foreign, state and local tax jurisdictions in which the Corporation conducts business. Changes in the statutory tax rates and/or tax laws in these jurisdictions can have a material
effect on the ETR. The effect of these changes, if any, is recognized when the change is enacted.
As prescribed by these tax regulations, as well
as generally accepted accounting principles, the manner in which revenues and expenses are recognized for financial reporting and income tax purposes is not always the same. Therefore, these differences between the Corporations pretax income
for financial reporting purposes and the amount of taxable income for income tax purposes are treated as either temporary or permanent, depending on their nature.
Temporary differences reflect revenues or expenses that are recognized in financial reporting in one period and taxable income in a different period.
An example of a temporary difference is the use of the straight-line method of depreciation of machinery and equipment for financial reporting purposes and the use of an accelerated method for income tax purposes. Temporary differences result from
differences between the financial reporting basis and tax basis of assets or liabilities and give rise to deferred tax assets or liabilities (i.e., future tax deductions or future taxable income). Therefore, when temporary differences occur, they
are offset by a corresponding change in a deferred tax account. As such, total income tax expense as reported in the Corporations consolidated statements of earnings is not changed by temporary differences.
The Corporation has deferred tax liabilities, primarily for property, plant and equipment and goodwill. The deferred tax liabilities attributable to
property, plant and equipment relate to accelerated depreciation and depletion methods used for
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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
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income tax purposes as compared with the straight-line and units of production methods used for financial
reporting purposes. These temporary differences will reverse over the remaining useful lives of the related assets. The deferred tax liabilities attributable to goodwill arise as a result of amortizing goodwill for income tax purposes but not for
financial reporting purposes. This temporary difference reverses when goodwill is written off for financial reporting purposes, either through divestitures or an impairment charge. The timing of such events cannot be estimated.
The Corporation has deferred tax assets, primarily for unvested stock-based compensation awards, employee pension and postretirement benefits,
valuation reserves, inventories, net operating loss carryforwards and tax credit carryforwards. The deferred tax assets attributable to unvested stock-based compensation awards relate to differences in the timing of deductibility for financial
reporting purposes versus income tax purposes. For financial reporting purposes, the fair value of the awards is deducted ratably over the requisite service period. For income tax purposes, no deduction is allowed until the award is vested or no
longer subject to substantial risk of forfeiture. Deferred tax assets are carried on stock options that have exercise prices in excess of the closing price of the Corporations common stock at December 31, 2015. If these options expire without
being exercised, the deferred tax assets are written off by reducing the pool of excess tax benefits to the extent available and expensing any excess. The deferred tax assets attributable to employee pension and postretirement benefits relate to
deductions as plans are funded for income tax purposes as compared with deductions for financial reporting purposes that are based on accounting standards. The reversal of these differences depends on the timing of the Corporations
contributions to the related benefit plans as compared to the annual expense for financial reporting purposes. The deferred tax assets attributable to valuation reserves and inventories relate to the deduction of estimated cost reserves and various
period expenses for financial reporting purposes that are deductible in a later period for income tax purposes. The reversal of these differences depends on facts and circumstances, including the timing of deduction for income tax purposes for
reserves previously established and the establishment of additional reserves for financial reporting purposes. At December 31, 2015, the Corporation had federal and state net operating loss carryforwards of $33.9 million and $273.3 million,
respectively, with varying expiration dates through 2035 and related
state deferred tax assets of $11.4 million. The Corporation established a reserve of $8.7 million for
these deferred tax assets based on the uncertainty of generating future taxable income in the respective jurisdictions during the limited period that the net operating loss carryforwards can be utilized under state statutes. The Corporation utilized
total federal net operating loss carryforwards of $476.0 million in 2015. Additionally, the Corporation had domestic tax credit carryforwards of $3.2 million, for which a valuation allowance of $0.3 million was recorded at December 31, 2015, and
alternative minimum tax credit carryforwards of $48.2 million.
Property, Plant and Equipment
Net property, plant and equipment represent 45% of total assets at December 31, 2015. Accordingly, accounting for these assets represents a critical
accounting policy. Useful lives of the assets can vary depending on factors, including production levels, geographic location, portability and maintenance practices. Additionally, climate and inclement weather can reduce the useful life of an asset.
Historically, the Corporation has not recognized significant losses on the disposal or retirement of fixed assets.
The Corporation evaluates
aggregates reserves, including aggregates reserves used in the cement manufacturing process, in several ways, depending on the geology at a particular location and whether the location is a potential new site (greensite), an acquisition or an
existing operation. Greensites require an extensive drilling program before any significant investment is made in terms of time, site development or efforts to obtain appropriate zoning and permitting (see section Environmental Regulation and
Litigation on pages 72 and 73). The depth of overburden and the quality and quantity of the aggregates reserves are significant factors in determining whether to pursue opening the site. Further, the estimated average selling price for products
in a market is also a significant factor in concluding that reserves are economically mineable. If the Corporations analysis based on these factors is satisfactory, the total aggregates reserves available are calculated and a determination is
made whether to open the location. Reserve evaluation at existing locations is typically performed to evaluate purchasing adjoining properties, for quality control, calculating overburden volumes and for mine planning. Reserve evaluation of
acquisitions may require a higher degree of sampling to locate any problem areas that may exist and to verify the total reserves.
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Well-ordered subsurface sampling of the underlying deposit is basic to determining reserves at any
location. This subsurface sampling usually involves one or more types of drilling, determined by the nature of the material to be sampled and the particular objective of the sampling. The Corporations objectives are to ensure that the
underlying deposit meets aggregates specifications and the total reserves on site are sufficient for mining and economically recoverable. Locations underlain with hard rock deposits, such as granite and limestone, are drilled using the diamond core
method, which provides the most useful and accurate samples of the deposit. Selected core samples are tested for soundness, abrasion resistance and other physical properties relevant to the aggregates industry and depending on its use. The number
and depth of the holes are determined by the size of the site and the complexity of the site-specific geology. Some geological factors that may affect the number and depth of holes include faults, folds, chemical irregularities, clay pockets,
thickness of formations and weathering. A typical spacing of core holes on the area to be tested is one hole for every four acres, but wider spacing may be justified if the deposit is homogeneous.
Despite previous drilling and sampling, once accessed, the quality of reserves within a deposit can vary. Construction contracts, for the
infrastructure market in particular, include specifications related to the aggregates material. If a flaw in the deposit is discovered, the aggregates material may not meet the required specifications. This can have an adverse effect on the
Corporations ability to serve certain customers or on the Corporations profitability. In addition, other issues can arise that limit the Corporations ability to access reserves in a particular quarry, including geological
occurrences, blasting practices and zoning issues.
Locations underlain with sand and gravel are typically drilled using the auger method, whereby
a 6-inch corkscrew brings up material from below the ground which is then sampled. Deposits in these locations are typically limited in thickness, and the quality and sand-to-gravel ratio of the deposit can vary both horizontally and vertically.
Hole spacing at these locations is approximately one hole for every acre to ensure a representative sampling.
The geologist conducting the reserve
evaluation makes the decision as to the number of holes and the spacing in accordance with standards and procedures established by the Corporation. Further, the anticipated heterogeneity of
the deposit, based on U.S. geological maps, also dictates the number of holes used.
The generally accepted reserve categories for the aggregates industry and the designations the Corporation uses for reserve categories are summarized
as follows:
Proven Reserves These reserves are designated using closely spaced drill data as described above
and a determination by a professional geologist that the deposit is relatively homogeneous based on the drilling results and exploration data provided in U.S. geologic maps, the U.S. Department of Agriculture soil maps, aerial photographs and/or
electromagnetic, seismic or other surveys conducted by independent geotechnical engineering firms. The proven reserves that are recorded reflect reductions incurred as a result of quarrying that result from leaving ramps, safety benches, pillars
(underground), and the fines (small particles) that will be generated during processing. Proven reserves are further reduced by reserves that are under the plant and stockpile areas, as well as setbacks from neighboring property lines. The
Corporation typically assumes a loss factor of 25%. However, the assumed loss factor at coastal operations is approximately 40% due to the nature of the material. The assumed loss factor for underground operations is 35% due to pillars.
Probable Reserves These reserves are inferred utilizing fewer drill holes and/or assumptions about the
economically recoverable reserves based on local geology or drill results from adjacent properties.
The Corporations proven and probable
reserves reflect reasonable economic and operating constraints as to maximum depth of overburden and stone excavation, and also include reserves at the Corporations inactive and undeveloped sites, including some sites where permitting and
zoning applications will not be filed until warranted by expected future growth. The Corporation has historically been successful in obtaining and maintaining appropriate zoning and permitting (see section Environmental Regulation and
Litigation on pages 72 and 73).
Mineral reserves and mineral interests, when acquired in connection with a business combination, are valued
using an excess earnings approach for the life of the proven and probable reserves.
Martin
Marietta | Page 85
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
The Corporation uses proven and probable reserves as the denominator in its units-of-production
calculation to record depletion expense for its mineral reserves and mineral interests. During 2015, depletion expense was $14.3 million.
The
Corporation begins capitalizing quarry development costs at a point when reserves are determined to be proven or probable, economically mineable and when demand supports investment in the market. Capitalization of these costs ceases when production
commences. Quarry development costs are classified as land improvements.
New mining areas may be developed at existing quarries in order to access
additional reserves. When this occurs, management reviews the facts and circumstances of each situation in making a determination as to the appropriateness of capitalizing or expensing the related pre-production development costs. If the additional
mining location operates in a separate and distinct area of a quarry, the costs are capitalized as quarry development costs and depreciated over the life of the uncovered reserves. Further, a separate asset retirement obligation is created for
additional mining areas when the liability is incurred. Once a new mining area enters the production phase, all post-production stripping costs are expensed as incurred as periodic inventory production costs.
Inventory Standards
The Corporation values its finished goods inventories under the first-in, first-out methodology using standard costs. For quarries, standards are
developed using production costs for a twelve-month period, in addition to complying with the principle of lower of cost or net realizable value, and adjusting, if necessary, for normal capacity levels and abnormal costs. In addition to production
costs, standards for distribution yards include a freight component for the cost of transporting the inventory from a quarry to the distribution yard and materials handling costs. Preoperating start-up costs are expensed as incurred and not
capitalized as part of inventory costs. In periods in which production costs, in particular energy costs, and/or production volumes have changed significantly from the prior period, the revision of standards can have a significant impact on the
Corporations operating results (see section Cost Structure on pages 67 through 69).
Standard costs for the Aggregates business are
updated on a quarterly basis to match finished goods inventory values with changes in production costs and production volumes.
Liquidity and Cash Flows
Operating Activities
The Corporations primary source of liquidity during the past three years has been cash generated from its operating activities. Operating cash
flow is substantially derived from consolidated net earnings, before deducting depreciation, depletion and amortization, and offset by working capital requirements. Cash provided by operations was $573.2 million in 2015, $381.7 million in 2014, and
$309.0 million in 2013. The increases in 2015 and 2014 were primarily attributable to higher earnings before depreciation, depletion and amortization expense. The 2014 increase was partially offset by $70.4 million of payments for TXI
acquisition-related expenses.
Depreciation, depletion and amortization were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Depreciation |
|
$ |
232,527 |
|
|
$ |
200,242 |
|
|
$ |
162,638 |
|
Depletion |
|
|
14,347 |
|
|
|
11,000 |
|
|
|
5,695 |
|
Amortization |
|
|
16,713 |
|
|
|
11,504 |
|
|
|
5,428 |
|
Total |
|
$ |
263,587 |
|
|
$ |
222,746 |
|
|
$ |
173,761 |
|
The increase in depreciation, depletion and amortization expense in 2015 and 2014 is primarily attributable to the TXI
acquisition on July 1, 2014.
Investing Activities
Net cash provided by investing activities was $88.5 million in 2015 and cash used for investing activities was $49.3 million in 2014 and $214.5 million
in 2013.
Martin
Marietta | Page 86
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Capital spending by reportable segment, excluding acquisitions, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
Mid-America Group |
|
$ |
73,255 |
|
|
$ |
75,253 |
|
|
$ |
81,232 |
|
Southeast Group |
|
|
12,155 |
|
|
|
22,135 |
|
|
|
18,444 |
|
West Group |
|
|
198,570 |
|
|
|
112,994 |
|
|
|
44,380 |
|
Total Aggregates Business |
|
|
283,980 |
|
|
|
210,382 |
|
|
|
144,056 |
|
Cement |
|
|
9,599 |
|
|
|
3,864 |
|
|
|
|
|
Magnesia Specialties |
|
|
8,916 |
|
|
|
2,588 |
|
|
|
4,700 |
|
Corporate |
|
|
15,737 |
|
|
|
15,349 |
|
|
|
6,477 |
|
Total |
|
$ |
318,232 |
|
|
$ |
232,183 |
|
|
$ |
155,233 |
|
Increased capital spending in 2015 and 2014 for the West Group is attributable to investments in the legacy TXI
locations and the construction of the new Medina limestone quarry near San Antonio, the largest internal capital project in the Corporations history.
The Corporation paid cash of $43.2 million, $0.2 million and $64.5 million for acquisitions in 2015, 2014 and 2013, respectively.
Proceeds from divestitures and sales of assets include cash from the sales of surplus land and equipment and the divestitures of several Aggregates
business operations and, in 2015, the divestiture of the California cement operations. These transactions provided pretax cash of $448.1 million in 2015, $122.0 million in 2014 and $8.6 million in 2013. Proceeds in 2014 primarily relate to the
required sale of an aggregates quarry in Oklahoma and two rail yards in Texas as a result of an agreement between the Corporation and the U.S. Department of Justice as part of its review of the TXI business combination.
In 2013, the Corporation loaned $3.4 million to an unconsolidated affiliate. The loan was repaid in full in 2015.
Financing Activities
The Corporation used $601.9 million, $266.1 million and $77.4 million of cash for financing activities during 2015, 2014 and 2013, respectively.
Net repayments of long-term debt were $14.7 million, $188.5 million and $16.7 million in 2015, 2014 and 2013, respectively. As discussed in Note G of
the audited consolidated financial statements, in December 2014, the Corporation completed a private offering, subsequently exchanged for public notes,
of $700 million of senior unsecured notes. Net proceeds from the offering, along with cash on hand and
incremental drawings on the trade facility, were used to redeem $650 million of assumed 9.25% notes from TXI plus a make-whole premium and accrued unpaid interest.
During 2015, the Corporation repurchased 3.3 million shares for a total cost of $520.0 million, or $158.25 per share.
For each of the years ended December 31, 2015, 2014 and 2013, the Board of Directors approved total cash dividends on the Corporations common
stock of $1.60 per share. Total cash dividends were $107.5 million in 2015, $91.3 million in 2014 and $74.2 million in 2013.
Cash provided by
issuances of common stock, which represents the exercises of stock options, was $37.1 million, $39.7 million, $11.7 million in 2015, 2014 and 2013, respectively.
Excess tax benefits from stock-based compensation transactions were $2.5 million and $2.4 million in 2014 and 2013, respectively.
During 2014, the Corporation acquired the remaining interests in two joint ventures in separate transactions for $19.5 million.
Capital Structure and Resources
Long-term debt, including current maturities, was $1.573 billion at the end of 2015. The Corporations debt was principally in the form of
publicly-issued long-term notes and debentures and $224.1 million of borrowings under variable-rate credit facilities at December 31, 2015.
In
connection with the TXI acquisition in 2014, the Corporation refinanced debt assumed from TXI by issuing $700 million of senior unsecured notes, which included $300 million of three-year variable-rate senior notes and $400 million of 4.25% ten-year
senior notes.
The Corporation, through a wholly-owned special-purpose subsidiary, has a trade receivable securitization facility (the Trade
Receivable Facility) with borrowing capacity of $250 million and a maturity date of September 30, 2016. The Trade Receivable Facility is backed by eligible trade receivables, as defined, of $363.2 million at December 31, 2015. These
receivables are originated by the Corporation and then sold to the wholly-owned special-purpose subsidiary by
Martin
Marietta | Page 87
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
the Corporation. The Corporation continues to be responsible for the servicing and administration of the
receivables purchased by the wholly-owned special-purpose subsidiary. The Trade Receivable Facility contains a cross-default provision to the Corporations other debt agreements.
The Credit Agreement (which consists of a $250 million Term Loan Facility and a $350 million Revolving Facility) requires the Corporations ratio
of consolidated debt to consolidated EBITDA, as defined by the Credit Agreement, for the trailing-twelve month period (the Ratio) to not exceed 3.5x as of the end of any fiscal quarter, provided that the Corporation may exclude from the
Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its ratings on long-term unsecured debt fall below BBB by Standard &
Poors or Baa2 by Moodys as a result of the acquisition and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, under the Credit Agreement, 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.
At December 31, 2015, the Corporations ratio of consolidated net debt to consolidated EBITDA, as defined, for the
trailing-twelve month EBITDA was 1.88 times and was calculated as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Twelve-Month Period
January 1, 2015 to December 31,
2015 |
|
Net earnings from continuing operations attributable to Martin Marietta Materials Inc. |
|
$ |
288,792 |
|
Add back: |
|
|
|
|
|
|
Interest expense |
|
|
|
|
76,287 |
|
Income tax expense |
|
|
|
|
124,793 |
|
Depreciation, depletion and amortization expense |
|
|
260,836 |
|
Stock-based compensation expense |
|
|
13,589 |
|
Nonrecurring transactions (acquisition-related expenses and net loss on divestitures) |
|
|
21,941 |
|
Deduct: |
|
|
|
|
|
|
Interest income |
|
|
|
|
(352 |
) |
|
|
|
|
|
|
|
Consolidated EBITDA, as defined
|
|
|
|
$ |
785,886 |
|
|
|
|
|
|
|
|
|
|
Consolidated net debt, as defined and including debt for which the Corporation is a co-borrower, at December 31, 2015 |
|
$ |
1,480,068 |
|
|
|
|
|
|
|
|
|
|
Consolidated net debt to consolidated EBITDA, as defined, at December 31, 2015 for trailing-twelve month EBITDA |
|
|
1.88x |
|
|
|
|
|
|
|
|
Total equity was $4.06 billion at December 31, 2015. At that date, the Corporation had an accumulated
other comprehensive loss of $105.6 million, resulting from unrecognized actuarial losses and prior service costs related to pension and postretirement benefits, foreign currency translation loss and the unamortized loss on terminated forward
starting interest rate swap agreements.
The Corporation may repurchase shares of its common stock through open-market purchases pursuant to
authority granted by its Board of Directors or through private transactions at such prices and upon such terms as the Chief Executive Officer deems appropriate. During 2015, the Board of Directors granted authority for the Corporation to repurchase
an additional 15.0 million shares of common stock for a total repurchase authorization of 20.0 million shares. Under that authorization, the Corporation repurchased 3,285,000 shares of its common stock for an aggregate purchase price of $520.0
million. In 2016, the Corporation expects to allocate capital for additional share repurchases based on available excess free cash flow, defined as operating cash flow less capital expenditures and dividends, subject to a leverage target of 2.0
times debt-to-EBITDA and consideration of other capital needs. Future repurchases are expected to be carried out through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated
share purchase transactions, or any combination of such methods. The Corporation expects to complete the repurchase program over the next several years, though the actual timing of completion will be based on an ongoing assessment of the capital
needs of the business, the market price of its common stock and general market conditions. Share repurchases will be executed based on then-current business and market factors so the actual return of capital in any single quarter may vary. The
repurchase program may be modified, suspended or discontinued by the Board of Directors at any time without prior notice.
At December 31, 2015,
the Corporation had $168.4 million in cash and short-term investments that are considered cash equivalents. The Corporation manages its cash and cash equivalents to ensure short-term operating cash needs are met and excess funds are managed
efficiently. The Corporation subsidizes shortages in operating cash through short-term
Martin
Marietta | Page 88
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
borrowing facilities. The Corporation utilizes excess cash to either pay-down short-term borrowings or
invest in money market funds, money market demand deposit accounts or Eurodollar time deposit accounts. Money market demand deposits and Eurodollar time deposit accounts are exposed to bank solvency risk. Money market demand deposit accounts are
FDIC insured up to $250,000. The Corporations investments in bank funds generally exceed the $250,000 FDIC insurance limit. The Corporations cash management policy prohibits cash and cash equivalents over $100 million to be maintained at
any one bank.
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 including maturities in 2017 and 2018, meet
capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise and allow for payment of dividends for the foreseeable future. Borrowings under the Credit Agreement are unsecured and may be used for
general corporate purposes. The Corporations ability to borrow or issue securities is dependent upon, among other things, prevailing economic, financial and market conditions (see section Current Market Environment and Related Risks on
pages 75). At December 31, 2015, the Corporation had $347.5 million of unused borrowing capacity under its Revolving Facility and $250.0 million of available borrowings under its Trade Receivable Facility. The Revolving Facility expires on November
29, 2018 and the Trade Receivable Facility matures on September 30, 2016.
The Corporation may be required to obtain financing in order to fund
certain strategic acquisitions, if any such opportunities arise, or to refinance outstanding debt. Any strategic acquisition of size 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 credit markets through the interest cost related to its variable-rate debt, which includes $300 million of Notes due 2017 and borrowings under its Revolving Facility, Term
Loan Facility and Trade Receivable Facility. 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.
Contractual and Off Balance Sheet Obligations
Postretirement medical benefits will be paid from the Corporations assets. The obligation, if any, for retiree medical payments is subject to the
terms of the plan. At December 31, 2015, the Corporations recorded benefit obligation related to these benefits totaled $23.4 million.
The
Corporation has other retirement benefits related to pension plans. At December 31, 2015, the qualified pension plans were underfunded by $118.8 million. Inclusive of required amounts, the Corporation estimates that it will make contributions of
$23.0 million to qualified pension plans in 2016. Any contributions beyond 2016 are currently undeterminable and will depend on the investment return on the related pension assets. However, managements practice is to fund at least the normal
service cost annually. At December 31, 2015, the Corporation had a total obligation of $89.2 million related to unfunded non-qualified pension plans and expects to make contributions of $6.9 million in 2016.
At December 31, 2015, the Corporation had $18.7 million accrued for uncertain tax positions. Such liabilities may become payable if the tax positions
are not sustained upon examination by a taxing authority.
In connection with normal, ongoing operations, the Corporation enters into market-rate
leases for property, plant and equipment and royalty commitments principally associated with leased land. Additionally, the Corporation enters into equipment rentals to meet shorter-term, non-recurring and intermittent needs. At December 31, 2015,
the Corporation had $14.9 million in capital lease obligations. Amounts due for operating leases and royalty agreements are expensed in the period incurred. Management anticipates that, in the ordinary course of business, the Corporation will enter
into additional royalty agreements for land and mineral reserves during 2016.
The Corporation has purchase commitments for property, plant and
equipment of $70.4 million as of December 31, 2015. The Corporation also has other purchase obligations related to energy and service contracts which totaled $95.4 million as of December 31, 2015.
Martin
Marietta | Page 89
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
The Corporations contractual commitments as of December 31, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
Total |
|
|
< 1 Year |
|
|
1 to 3 Years |
|
|
3 to 5 Years |
|
|
> 5 Years |
|
ON BALANCE SHEET: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
1,572,895 |
|
|
$ |
19,246 |
|
|
$ |
804,871 |
|
|
$ |
151 |
|
|
$ |
748,627 |
|
Postretirement benefits |
|
|
23,408 |
|
|
|
2,120 |
|
|
|
4,619 |
|
|
|
4,210 |
|
|
|
12,459 |
|
Qualified pension plan contributions 1 |
|
|
23,032 |
|
|
|
23,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded pension plan contributions |
|
|
89,222 |
|
|
|
6,895 |
|
|
|
15,503 |
|
|
|
16,512 |
|
|
|
50,312 |
|
Uncertain tax positions |
|
|
18,727 |
|
|
|
1,455 |
|
|
|
17,272 |
|
|
|
|
|
|
|
|
|
Capital leases - principal portion |
|
|
14,924 |
|
|
|
2,438 |
|
|
|
4,798 |
|
|
|
3,970 |
|
|
|
3,718 |
|
Other commitments |
|
|
566 |
|
|
|
64 |
|
|
|
128 |
|
|
|
128 |
|
|
|
246 |
|
OFF BALANCE SHEET: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on publicly-traded long-term debt and capital lease obligations |
|
|
595,286 |
|
|
|
65,784 |
|
|
|
110,320 |
|
|
|
80,861 |
|
|
|
338,321 |
|
Operating leases 2 |
|
|
529,106 |
|
|
|
100,239 |
|
|
|
110,944 |
|
|
|
77,291 |
|
|
|
240,632 |
|
Royalty agreements 2 |
|
|
72,062 |
|
|
|
11,078 |
|
|
|
17,210 |
|
|
|
12,341 |
|
|
|
31,433 |
|
Purchase commitments - capital |
|
|
70,431 |
|
|
|
70,386 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
Other commitments - energy and services |
|
|
95,389 |
|
|
|
85,139 |
|
|
|
7,773 |
|
|
|
902 |
|
|
|
1,575 |
|
Total |
|
$ |
3,105,048 |
|
|
$ |
387,876 |
|
|
$ |
1,093,483 |
|
|
$ |
196,336 |
|
|
$ |
1,427,323 |
|
1 |
Qualified pension plan contributions beyond 2016 are not determinable at this
time |
2 |
Represents future minimum payments |
Notes A, G, I, J, L and N to the audited consolidated financial statements on pages 17 through 23; 25
through 27; 27 through 30; 30 through 34; 36 and 37 through 39, respectively, contain additional information regarding these commitments and should be read in conjunction with the above table.
Contingent Liabilities and Commitments
The Corporation has a $5 million short-term line of credit. No amounts were outstanding under this line of credit at December 31, 2015.
The Corporation has entered into standby letter of credit agreements relating to certain insurance claims, utilities and property improvements. At
December 31, 2015, the Corporation had contingent liabilities guaranteeing its own performance under these outstanding letters of credit of $46.3 million, of which $2.5 million were issued under the Corporations Revolving Facility. Certain of
these underlying obligations are accrued on the Corporations balance sheet.
In the normal course of business at December 31, 2015, the
Corporation was contingently liable for $326.5 million in surety bonds underwritten by Safeco Corporation, a subsidiary of Liberty Mutual Group, which guarantee its own performance and are required by certain states and municipalities and their
related agencies. Certain of the bonds guaranteeing performance of obligations, including those for asset
retirement requirements and insurance claims, are accrued on the Corporations balance sheet. Five
of these bonds are for certain insurance claims, construction contracts and reclamation obligations and total $88.9 million, or 27% of all outstanding surety bonds. The Corporation has indemnified the underwriting insurance companies against any
exposure under the surety bonds. In the Corporations past experience, no material claims have been made against these financial instruments.
The Corporation is a co-borrower with an unconsolidated affiliate for a $25.0 million revolving line of credit agreement with Branch Banking &
Trust. The line of credit expires in February 2018. 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.
Quantitative and Qualitative
Disclosures
about Market Risk
As discussed earlier, the Corporations operations are highly dependent upon the interest
rate-sensitive construction and steelmaking industries. Consequently, these marketplaces could experience lower levels of economic activity in an environment of rising interest rates or escalating costs (see section Business Environment on
pages 59 through 76).
Martin
Marietta | Page 90
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
Management has considered the current economic environment and its potential impact to the
Corporations business. Demand for aggregates products, particularly in the infrastructure construction market, is affected by federal and state budget and deficit issues. Further, delays or cancellations of capital projects in the
nonresidential and residential construction markets could occur if companies and consumers are unable to obtain financing for construction projects or if consumer confidence continues to be eroded by economic uncertainty.
Demand in the residential construction market is affected by interest rates. The Federal Reserve kept the federal funds rate near zero percent for the
majority of the year ended December 31, 2015. The increase in the rate to 0.25% represented the first increase since 2008. The residential construction market accounted for 17% of the Corporations aggregates product line shipments in 2015.
Aside from these inherent risks from within its operations, the Corporations earnings are also affected by changes in short-term interest
rates. However, rising interest rates are not necessarily predictive of weaker operating results. In fact, since 2007, the Corporations profitability increased when interest rates rose, based on the last twelve months quarterly historical net
income regression versus a 10-year U.S. government bond. In essence, the Corporations underlying business generally serves as a natural hedge to rising interest rates.
Variable-Rate Borrowing Facilities
At December 31, 2015, the Corporation had a $600 million Credit Agreement, comprised of a $350 million Revolving Facility and $250 million Term Loan
Facility, and a $250 million Trade Receivable Facility. The Corporation also has $300 million variable-rate senior notes. Borrowings under these facilities bear interest at a variable interest rate. A hypothetical 100-basis-point increase in
interest rates on borrowings of $525.0 million, which was the collective outstanding balance at December 31, 2015, would increase interest expense by $5.3 million on an annual basis.
Pension Expense
The Corporations results of operations are affected by its pension expense. Assumptions that affect pension expense include the discount rate and,
for the defined benefit pension plans only, the expected long-term rate of return on assets. Therefore, the Corporation has interest rate risk associated with these factors. The impact of hypothetical changes in these assumptions on the
Corporations annual pension expense is discussed in the section Critical Accounting Policies and Estimates Pension Expense Selection of Assumptions on pages 81 through 83.
Energy Costs
Energy
costs, including diesel fuel, natural gas, coal and liquid asphalt, represent significant production costs of the Corporation. The Corporation has a fixed-price commitment for approximately 40% of its diesel requirements at a rate of $2.20 per
gallon through December 31, 2016. The Magnesia Specialties and Cement businesses each have fixed price agreements covering 100% of their 2016 coal requirements. A hypothetical 10% change in the Corporations energy prices in 2016 as compared
with 2015, assuming constant volumes, would change 2016 energy expense by $25.7 million.
Commodity Risk
Cement is a commodity and competition is based principally on price, which is highly sensitive to changes in supply and demand. Prices are often subject
to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions and other market conditions beyond the Corporations control. Increases in the production capacity of industry participants or
increases in cement imports tend to create an oversupply of such products leading to an imbalance between supply and demand, which can have a negative impact on product prices. There can be no assurance that prices for products sold will not decline
in the future or that such declines will not have a material adverse effect on the Corporations business, financial condition and results of operations. A hypothetical 10% change in sales price of the Texas Cement business would impact net
sales by $26.9 million. Cement is a key raw material in the production of ready mixed concrete. A hypothetical 10% change in cement costs in 2016 as compared with 2015, assuming constant volumes, would change ready mixed concrete cost of sales by
$17.1 million.
Martin
Marietta | Page 91
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
|
|
|
|
|
Forward-Looking Statements Safe Harbor Provisions
|
|
|
|
|
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 Securities and Exchange Commission (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 Annual 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. These statements can be identified by the fact that they do not relate only to historical or current facts. They may use words such as
anticipate, expect, should be, believe, will, and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of 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 Annual Report 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 history of both cement and
ready mixed concrete, to be subject to significant changes in supply, demand and price; 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, most particularly in Texas, Colorado, North Carolina, Iowa and Georgia; 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 reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in the commercial component of the
nonresidential construction market, notably office and retail space; a further slowdown in energy-related drilling activity, particularly in Texas; a slowdown in residential construction recovery; a reduction in construction activity and related
shipments due to a 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 and conveyor belts, and with respect to the Cement and
Magnesia Specialties businesses, natural gas; continued increases in the cost of other repair and supply parts; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to cement
production facilities; increasing governmental regulation, including environmental laws; transportation availability, notably the availability of railcars and locomotive power to move trains to supply the Corporations Texas, Florida and Gulf
Coast markets; increased transportation costs, including increases from higher passed-through energy and other costs to comply with tightening regulations as well as higher volumes of rail and water shipments; availability of trucks and licensed
drivers for transport |
|
|
Martin
Marietta | Page 92
MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS (continued)
of the Corporations materials, particularly in areas with significant energy-related activity,
such as Texas and Colorado; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the Corporations dolomitic lime products; proper functioning of information technology and
automated operating systems to manage or support operations; inflation and its effect on both production and interest costs; 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 return to previous levels of instability; downward pressure on the Corporations common stock price and its impact on goodwill impairment evaluations; reduction of the Corporations
credit rating to non-investment grade resulting from strategic acquisitions; 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.
For a discussion identifying some important factors that could cause actual results to vary
materially from those anticipated in the forward-looking statements, see the Corporations SEC filings including, but not limited to, the discussion of Competition in the Corporations Annual Report on Form 10-K,
Managements Discussion and Analysis of Financial Condition and Results of Operations on pages 42 through 93 of the 2015 Annual Report and Note A: Accounting Policies and Note N: Commitments and Contingencies
of the Notes to Financial Statements on pages 17 through 23 and 37 through 39, respectively, of the audited consolidated financial statements included in the 2015 Annual Report.
Martin
Marietta | Page 93
|
|
|
QUARTERLY PERFORMANCE
(unaudited)
|
|
|
(add 000, except per share and stock prices)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net |
|
|
Attributable to |
|
|
|
Total Revenues |
|
|
Net Sales |
|
|
Gross Profit |
|
|
Earnings (Loss) |
|
|
Martin Marietta |
|
Quarter |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
20142 |
|
|
20153,4 |
|
|
20142,5 |
|
|
20153,4 |
|
|
20142,5 |
|
First |
|
$ |
691,347 |
|
|
$ |
428,630 |
|
|
$ |
631,876 |
|
|
$ |
379,678 |
|
|
$ |
74,261 |
|
|
$ |
25,835 |
|
|
$ |
6,159 |
|
|
$ |
(23,153 |
) |
|
$ |
6,126 |
|
|
$ |
(21,618 |
) |
Second |
|
|
921,419 |
|
|
|
669,225 |
|
|
|
850,249 |
|
|
|
601,937 |
|
|
|
200,153 |
|
|
|
135,602 |
|
|
|
81,979 |
|
|
|
59,624 |
|
|
|
81,938 |
|
|
|
59,521 |
|
Third |
|
|
1,082,249 |
|
|
|
1,003,723 |
|
|
|
1,005,218 |
|
|
|
917,942 |
|
|
|
262,504 |
|
|
|
195,593 |
|
|
|
117,578 |
|
|
|
53,834 |
|
|
|
117,544 |
|
|
|
53,743 |
|
Fourth |
|
|
844,555 |
|
|
|
856,373 |
|
|
|
780,773 |
|
|
|
779,538 |
|
|
|
184,849 |
|
|
|
165,330 |
|
|
|
83,222 |
|
|
|
63,989 |
|
|
|
83,184 |
|
|
|
63,955 |
|
Totals |
|
$ |
3,539,570 |
|
|
$ |
2,957,951 |
|
|
$ |
3,268,116 |
|
|
$ |
2,679,095 |
|
|
$ |
721,767 |
|
|
$ |
522,360 |
|
|
$ |
288,938 |
|
|
$ |
154,294 |
|
|
$ |
288,792 |
|
|
$ |
155,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Prices |
|
|
|
Basic Earnings (Loss)1 |
|
|
Diluted Earnings (Loss)1
|
|
|
Dividends Paid |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
Quarter |
|
|
20153,4 |
|
|
|
20142,5 |
|
|
|
20153,4 |
|
|
|
20142,5 |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
2014 |
|
First |
|
$ |
0.07 |
|
|
$ |
(0.47) |
|
|
$ |
0.07 |
|
|
$ |
(0.47) |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
$ |
146.21 |
|
|
$ |
104.15 |
|
|
$ |
128.95 |
|
|
$ |
98.63 |
|
Second |
|
|
1.23 |
|
|
|
1.28 |
|
|
|
1.22 |
|
|
|
1.27 |
|
|
|
0.40 |
|
|
|
0.40 |
|
|
$ |
155.98 |
|
|
$ |
134.10 |
|
|
$ |
136.36 |
|
|
$ |
115.49 |
|
Third |
|
|
1.75 |
|
|
|
0.80 |
|
|
|
1.74 |
|
|
|
0.79 |
|
|
|
0.40 |
|
|
|
0.40 |
|
|
$ |
178.67 |
|
|
$ |
141.54 |
|
|
$ |
134.64 |
|
|
$ |
123.64 |
|
Fourth |
|
|
1.27 |
|
|
|
0.95 |
|
|
|
1.26 |
|
|
|
0.94 |
|
|
|
0.40 |
|
|
|
0.40 |
|
|
$ |
166.23 |
|
|
$ |
136.20 |
|
|
$ |
131.71 |
|
|
$ |
103.09 |
|
YTD |
|
$ |
4.31 |
|
|
$ |
2.73 |
|
|
$ |
4.26 |
|
|
$ |
2.71 |
|
|
$ |
1.60 |
|
|
$ |
1.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The sum of per-share earnings by quarter may not equal earnings per share for the year due to changes in average share calculations. This is in accordance
with prescribed reporting requirements. |
2 |
Gross profit in the third quarter of 2014 decreased by $10.9 million for a nonrecurring increase in the cost of sales for acquired inventory. This
adjustment reduced net earnings by $6.9 million, or $0.13 per diluted share. |
3 |
Consolidated net earnings, net earnings attributable to Martin Marietta and basic and diluted earnings per common share in the third quarter of 2015 decreased
by $16.9 million, or $0.30 per basic and diluted share, inclusive of the impact of a valuation allowance for certain net operating loss carry forwards due to the loss on the sale of the California cement business and related expenses.
|
4 |
Consolidated net earnings, net earnings attributable to Martin Marietta and basic and diluted earnings per common share in the fourth quarter of 2015 were
increased by $6.7 million, or $0.10 per basic and diluted share, as a result of the gain on the sale of the San Antonio asphalt operations. |
5 |
Consolidated net earnings, net earnings attributable to Martin Marietta and basic and diluted earnings per common share in 2014 decreased by the following
acquisition-related expenses, net, related to TXI: Q1 - $5.7 million, or $0.12 per basic and diluted share, Q2 - $3.2 million, or $0.07 per basic and diluted share, Q3 - $37.6 million, or $0.56 per basic and diluted share, Q4 - $3.2 million or $0.05
per basic and diluted share. |
At February 15, 2016, there were 1,054 shareholders of record.
There were no discontinued operations in 2015. The following presents total revenues, net sales, net (loss) earnings and loss per diluted share
attributable to discontinued operations in 2014:
(add 000, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
Revenues |
|
|
Net Sales |
|
|
Net (Loss) Earnings |
|
|
Loss per Diluted Share |
|
First |
|
$ |
9 |
|
|
$ |
9 |
|
|
$ |
(8 |
) |
|
$ |
0.00 |
|
Second |
|
|
37 |
|
|
|
37 |
|
|
|
(38 |
) |
|
|
0.00 |
|
Third |
|
|
30 |
|
|
|
30 |
|
|
|
(47 |
) |
|
|
0.00 |
|
Fourth |
|
|
87 |
|
|
|
87 |
|
|
|
56 |
|
|
|
0.00 |
|
Totals |
|
$ |
163 |
|
|
$ |
163 |
|
|
$ |
(37 |
) |
|
$ |
0.00 |
|
Martin
Marietta | Page 94
|
|
|
FIVE YEAR SELECTED FINANCIAL DATA
(add 000, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
2014 |
|
|
|
|
|
2013 |
|
|
|
|
|
2012 |
|
|
|
|
|
2011 |
|
Consolidated Operating Results1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
3,268,116 |
|
|
|
|
$ |
2,679,095 |
|
|
|
|
$ |
1,943,218 |
|
|
|
|
$ |
1,832,957 |
|
|
|
|
$ |
1,519,754 |
|
Freight and delivery revenues |
|
|
271,454 |
|
|
|
|
|
278,856 |
|
|
|
|
|
212,333 |
|
|
|
|
|
198,944 |
|
|
|
|
|
193,862 |
|
Total revenues |
|
|
3,539,570 |
|
|
|
|
|
2,957,951 |
|
|
|
|
|
2,155,551 |
|
|
|
|
|
2,031,901 |
|
|
|
|
|
1,713,616 |
|
Cost of sales |
|
|
2,546,349 |
|
|
|
|
|
2,156,735 |
|
|
|
|
|
1,579,261 |
|
|
|
|
|
1,505,823 |
|
|
|
|
|
1,217,752 |
|
Freight and delivery costs |
|
|
271,454 |
|
|
|
|
|
278,856 |
|
|
|
|
|
212,333 |
|
|
|
|
|
198,944 |
|
|
|
|
|
193,862 |
|
Total cost of revenues |
|
|
2,817,803 |
|
|
|
|
|
2,435,591 |
|
|
|
|
|
1,791,594 |
|
|
|
|
|
1,704,767 |
|
|
|
|
|
1,411,614 |
|
Gross Profit |
|
|
721,767 |
|
|
|
|
|
522,360 |
|
|
|
|
|
363,957 |
|
|
|
|
|
327,134 |
|
|
|
|
|
302,002 |
|
Selling, general and administrative expenses |
|
|
218,234 |
|
|
|
|
|
169,245 |
|
|
|
|
|
150,091 |
|
|
|
|
|
138,398 |
|
|
|
|
|
124,138 |
|
Acquisition-related expenses, net |
|
|
8,464 |
|
|
|
|
|
42,891 |
|
|
|
|
|
671 |
|
|
|
|
|
35,140 |
|
|
|
|
|
18,575 |
|
Other operating expenses and (income), net |
|
|
15,653 |
|
|
|
|
|
(4,649 |
) |
|
|
|
|
(4,793 |
) |
|
|
|
|
(2,574 |
) |
|
|
|
|
(1,720 |
) |
Earnings from Operations |
|
|
479,416 |
|
|
|
|
|
314,873 |
|
|
|
|
|
217,988 |
|
|
|
|
|
156,170 |
|
|
|
|
|
161,009 |
|
Interest expense |
|
|
76,287 |
|
|
|
|
|
66,057 |
|
|
|
|
|
53,467 |
|
|
|
|
|
53,339 |
|
|
|
|
|
58,586 |
|
Other nonoperating (income) and expenses, net |
|
|
(10,672 |
) |
|
|
|
|
(362 |
) |
|
|
|
|
295 |
|
|
|
|
|
(1,299 |
) |
|
|
|
|
1,834 |
|
Earnings from continuing operations before taxes on income |
|
|
413,801 |
|
|
|
|
|
249,178 |
|
|
|
|
|
164,226 |
|
|
|
|
|
104,130 |
|
|
|
|
|
100,589 |
|
Taxes on income |
|
|
124,863 |
|
|
|
|
|
94,847 |
|
|
|
|
|
44,045 |
|
|
|
|
|
17,431 |
|
|
|
|
|
21,003 |
|
Earnings from Continuing Operations |
|
|
288,938 |
|
|
|
|
|
154,331 |
|
|
|
|
|
120,181 |
|
|
|
|
|
86,699 |
|
|
|
|
|
79,586 |
|
Discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
(749 |
) |
|
|
|
|
(1,172 |
) |
|
|
|
|
3,987 |
|
Consolidated net earnings |
|
|
288,938 |
|
|
|
|
|
154,294 |
|
|
|
|
|
119,432 |
|
|
|
|
|
85,527 |
|
|
|
|
|
83,573 |
|
Less: Net earnings (loss) attributable to noncontrolling interests |
|
|
146 |
|
|
|
|
|
(1,307 |
) |
|
|
|
|
(1,905 |
) |
|
|
|
|
1,053 |
|
|
|
|
|
1,194 |
|
Net Earnings Attributable to Martin Marietta |
|
$ |
288,792 |
|
|
|
|
$ |
155,601 |
|
|
|
|
$ |
121,337 |
|
|
|
|
$ |
84,474 |
|
|
|
|
$ |
82,379 |
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Attributable to Martin Marietta Per Common Share (see Note A): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations attributable to common shareholders1 |
|
$ |
4.31 |
|
|
|
|
$ |
2.73 |
|
|
|
|
$ |
2.64 |
|
|
|
|
$ |
1.86 |
|
|
|
|
$ |
1.70 |
|
Discontinued operations attributable to common
shareholders1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
(0.03 |
) |
|
|
|
|
0.09 |
|
Basic Earnings Per Common Share |
|
$ |
4.31 |
|
|
|
|
$ |
2.73 |
|
|
|
|
$ |
2.62 |
|
|
|
|
$ |
1.83 |
|
|
|
|
$ |
1.79 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Attributable to Martin Marietta Per Common Share (see Note A): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations attributable to common shareholders1 |
|
$ |
4.29 |
|
|
|
|
$ |
2.71 |
|
|
|
|
$ |
2.63 |
|
|
|
|
$ |
1.86 |
|
|
|
|
$ |
1.69 |
|
Discontinued operations attributable to common
shareholders1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
(0.03 |
) |
|
|
|
|
0.09 |
|
Diluted Earnings Per Common Share |
|
$ |
4.29 |
|
|
|
|
$ |
2.71 |
|
|
|
|
$ |
2.61 |
|
|
|
|
$ |
1.83 |
|
|
|
|
$ |
1.78 |
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends Per Common Share |
|
$ |
1.60 |
|
|
|
|
$ |
1.60 |
|
|
|
|
$ |
1.60 |
|
|
|
|
$ |
1.60 |
|
|
|
|
$ |
1.60 |
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
$ |
1,082,168 |
|
|
|
|
|
1,044,178 |
|
|
|
|
|
680,545 |
|
|
|
|
|
622,685 |
|
|
|
|
$ |
577,176 |
|
Property, plant and equipment, net |
|
|
3,156,000 |
|
|
|
|
|
3,402,770 |
|
|
|
|
|
1,799,241 |
|
|
|
|
|
1,753,241 |
|
|
|
|
|
1,774,291 |
|
Goodwill |
|
|
2,068,235 |
|
|
|
|
|
2,068,799 |
|
|
|
|
|
616,621 |
|
|
|
|
|
616,204 |
|
|
|
|
|
616,671 |
|
Other intangibles, net |
|
|
510,552 |
|
|
|
|
|
595,205 |
|
|
|
|
|
48,591 |
|
|
|
|
|
50,433 |
|
|
|
|
|
54,133 |
|
Other noncurrent assets2 |
|
|
144,777 |
|
|
|
|
|
108,802 |
|
|
|
|
|
40,007 |
|
|
|
|
|
40,647 |
|
|
|
|
|
44,877 |
|
Total Assets |
|
$ |
6,961,732 |
|
|
|
|
$ |
7,219,754 |
|
|
|
|
$ |
3,185,005 |
|
|
|
|
$ |
3,083,210 |
|
|
|
|
$ |
3,067,148 |
|
Current liabilities other |
|
$ |
347,945 |
|
|
|
|
$ |
382,312 |
|
|
|
|
$ |
198,146 |
|
|
|
|
$ |
167,659 |
|
|
|
|
$ |
166,530 |
|
Current maturities of long-term debt |
|
|
19,246 |
|
|
|
|
|
14,336 |
|
|
|
|
|
12,403 |
|
|
|
|
|
5,676 |
|
|
|
|
|
7,182 |
|
Long-term debt |
|
|
1,553,649 |
|
|
|
|
|
1,571,059 |
|
|
|
|
|
1,018,518 |
|
|
|
|
|
1,042,183 |
|
|
|
|
|
1,052,902 |
|
Pension, postretirement and postemployment benefits, noncurrent |
|
|
224,539 |
|
|
|
|
|
249,333 |
|
|
|
|
|
78,489 |
|
|
|
|
|
183,122 |
|
|
|
|
|
158,101 |
|
Deferred income taxes, net2 |
|
|
583,459 |
|
|
|
|
|
489,945 |
|
|
|
|
|
205,178 |
|
|
|
|
|
147,876 |
|
|
|
|
|
141,390 |
|
Other noncurrent liabilities |
|
|
172,717 |
|
|
|
|
|
160,021 |
|
|
|
|
|
97,352 |
|
|
|
|
|
86,395 |
|
|
|
|
|
92,179 |
|
Shareholders equity |
|
|
4,057,284 |
|
|
|
|
|
4,351,166 |
|
|
|
|
|
1,537,877 |
|
|
|
|
|
1,410,545 |
|
|
|
|
|
1,409,321 |
|
Noncontrolling interests |
|
|
2,893 |
|
|
|
|
|
1,582 |
|
|
|
|
|
37,042 |
|
|
|
|
|
39,754 |
|
|
|
|
|
39,543 |
|
Total Liabilities and Equity |
|
$ |
6,961,732 |
|
|
|
|
$ |
7,219,754 |
|
|
|
|
$ |
3,185,005 |
|
|
|
|
$ |
3,083,210 |
|
|
|
|
$ |
3,067,148 |
|
1 |
Amounts may not equal amounts reported in the Corporations prior years Forms 10-K, as amounts have been recast to reflect discontinued operations.
|
2 |
Balance sheets reflect the adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes (see Note A to consolidated
financial statements). |
Martin
Marietta | Page 95
COMMON STOCK PERFORMANCE GRAPH
The following graph compares the performance of the Corporations common stock to that of the Standard and Poors (S&P) 500
Index and the S&P 500 Materials Index.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
Martin
Marietta |
|
$ |
100.00 |
|
|
$ |
83.49 |
|
|
$ |
106.15 |
|
|
$ |
114.33 |
|
|
$ |
128.03 |
|
|
$ |
160.91 |
|
S&P 500 Index |
|
$ |
100.00 |
|
|
$ |
102.09 |
|
|
$ |
118.30 |
|
|
$ |
156.21 |
|
|
$ |
177.32 |
|
|
$ |
180.25 |
|
S&P 500 Materials
Index |
|
$ |
100.00 |
|
|
$ |
90.36 |
|
|
$ |
103.74 |
|
|
$ |
129.93 |
|
|
$ |
138.86 |
|
|
$ |
127.39 |
|
1 |
Assumes that the investment in the Corporations common stock and each index was $100, with
quarterly reinvestment of dividends. |
Martin
Marietta | Page 96