MARTIN MARIETTA MATERIALS, INC.
RESULTS OF OPERATIONS
First Quarter Ended March 31, 2020 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEWMartin Marietta Materials, Inc. (the Company or Martin Marietta) is a natural resource-based building materials company. The Company supplies aggregates (crushed stone, sand and gravel) through its network of approximately 300 quarries, mines and distribution yards in 27 states,Canada and theBahamas . In the southwestern and westernUnited States , Martin Marietta also provides cement and downstream products, namely, ready mixed concrete, asphalt and paving services, in vertically-integrated structured markets where the Company has a leading aggregates position. The Company's heavy-side building materials are used in infrastructure, nonresidential and residential construction projects. Aggregates are also used in agricultural, utility and environmental applications and as railroad ballast. The aggregates, cement, ready mixed concrete and asphalt and paving product lines are reported collectively as the "Building Materials" business. EffectiveJanuary 1, 2020 , the Company moved the management of its one quarry in the state ofWashington from theMid-America Group to theWest Group , resulting in an immaterial change to its reportable segments. The Company conducts itsBuilding Materials business through three reportable business segments:Mid-America Group ,Southeast Group andWest Group . BUILDING MATERIALS BUSINESS Mid-America Southeast Reportable Segments Group Group West Group Operating Locations Indiana, Iowa, Alabama, Arkansas, northern Florida, Colorado, Kansas, Georgia, southern Kansas, Kentucky, southwestern Louisiana, Maryland, South western Nebraska, Minnesota, Carolina, Nevada, Oklahoma, Missouri, Tennessee, Texas, Utah, eastern Nova Scotia Wyoming and Nebraska, North and The Washington Carolina, Ohio, Bahamas Pennsylvania, South Carolina, Virginia and West Virginia Product Lines Aggregates Aggregates Aggregates, Cement, Ready Mixed Concrete, Asphalt and Paving Plant Types Quarries, Mines Quarries, Quarries, Mines, and Mines and Plants and Distribution Distribution Distribution Facilities Facilities Facilities Modes of Transportation Truck and Truck, Truck and Railcar Railcar Railcar and Ship
The Company also has a Magnesia Specialties business that produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel and mining industries.
CRITICAL ACCOUNTING POLICIES The Company outlined its critical accounting policies in its Annual Report on Form 10-K for the year endedDecember 31, 2019 . There were no changes to the Company's critical accounting policies during the three months endedMarch 31, 2020 . Page 20 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued) RESULTS OF OPERATIONS TheBuilding Materials business is significantly affected by weather patterns and seasonal changes. Production and shipment levels for aggregates, cement, ready mixed concrete and asphalt and paving materials correlate with general construction activity levels, most of which occur in the spring, summer and fall. Thus, production and shipment levels vary by quarter. Operations concentrated in the northern and midwesternUnited States generally experience more severe winter weather conditions than operations in the southeast and southwest. Excessive rainfall, and conversely excessive drought, can also jeopardize production, shipments and profitability in all markets served by the Company. Due to the potentially significant impact on the Company's operations of weather and the coronavirus (COVID-19) pandemic, including governmental responses to prevent further outbreak of COVID-19 and other matters, current period results are not indicative of expected performance for other interim periods or the full year. Earnings before interest; income taxes; depreciation, depletion and amortization; and the earnings/loss from nonconsolidated equity affiliates (Adjusted EBITDA) is an indicator used by the Company and investors to evaluate the Company's operating performance from period to period. Adjusted EBITDA is not defined by accounting principles generally accepted inthe United States and, as such, should not be construed as an alternative to net earnings, operating earnings or operating cash flow. However, the Company's management believes that Adjusted EBITDA may provide additional information with respect to the Company's performance and is a measure used by management to evaluate the Company's performance. Because Adjusted EBITDA excludes some, but not all, items that affect net earnings and may vary among companies, Adjusted EBITDA as presented by the Company may not be comparable with similarly titled measures of other companies.
A reconciliation of net earnings attributable to
Three Months Ended
March 31,
2020 2019(1)
(Dollars in Millions)Net Earnings Attributable to Martin Marietta
Materials, Inc. $ 25.9 $
42.9
Add back (deduct): Interest expense, net of interest income 29.6
32.8
Income tax expense (benefit) for controlling interests 0.1 (5.0 ) Depreciation, depletion and amortization and earnings/loss from nonconsolidated equity affiliates 93.4
87.5
Consolidated Adjusted EBITDA $ 149.0 $
158.2
(1) 2019 EBITDA, when compared with the amount presented in the first quarter 2019 earnings release, has been restated to conform to the 2020 calculation methodology.
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued)
Financial highlights for the quarter ended
? Consolidated total revenues of
an increase of 2%
?
compared with
? Consolidated gross profit of
? Consolidated earnings from operations of
million
? Net earnings attributable to Martin Marietta of
? Consolidated Adjusted EBITDA of
? Earnings per diluted share of
The following tables present total revenues, gross profit (loss), selling, general and administrative (SG&A) expenses and earnings (loss) from operations data for the Company and its reportable segments by product line for the three months endedMarch 31, 2020 and 2019. In each case, the data is stated as a percentage of revenues of the Company or the relevant segment or product line, as the case may be. The Company's two cold mix asphalt plants have been reclassified from the asphalt and paving product line to the aggregates product line. These operations did not represent a material amount of product revenues and gross profit. Prior-year information has been reclassified to conform to the presentation of the Company's current reportable product lines. Additionally, prior-year segment information has been reclassified to conform to the operations and management reporting structure change effectiveJanuary 1, 2020 (see Note 1 to financial statements). Page 22 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter March 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter Ended March 31, 2020 (Continued) Three Months Ended March 31, 2020 2019 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Total revenues: Building Materials Business: Products and services Mid-America Group Aggregates$ 241.0 $ 229.6 Southeast Group Aggregates 116.9 115.3 West Group Aggregates 212.4 200.0 Cement 106.6 99.0 Ready mixed concrete 189.7 211.2 Asphalt and paving 18.1 12.4 Less: Interproduct revenues (53.6 ) (58.4 ) West Group Total 473.2 464.2 Products and services 831.1 809.1 Freight 61.4 55.8 Total Building Materials Business 892.5
864.9
Magnesia Specialties Business: Products 59.9
69.2
Freight 5.8
4.9
Total Magnesia Specialties Business 65.7 74.1 Total$ 958.2 $ 939.0 Page 23 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter March 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter Ended March 31, 2020 (Continued) Three Months Ended March 31, 2020 2019 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Gross profit (loss): Building Materials Business: Products and services Mid-America Group Aggregates$ 38.0 15.8$ 45.0 19.6 Southeast Group Aggregates 21.9 18.7 26.5 23.0 West Group Aggregates 33.5 15.8 26.5 13.3 Cement 27.3 25.6 13.8 13.9 Ready mixed concrete 5.9 3.1 14.5 6.9 Asphalt and paving (8.1 ) (8.3 ) West Group Total 58.6 12.4 46.5 10.0 Products and services 118.5 14.3 118.0 14.6 Freight (0.3 ) (0.2 ) Total Building Materials Business 118.2 13.2 117.8 13.6 Magnesia Specialties Business: Products 26.1 43.5 26.5 38.5 Freight (0.9 ) (1.0 ) Total Magnesia Specialties Business 25.2 38.4 25.5 34.5 Corporate (1.0 ) (0.4 ) Total$ 142.4 14.9$ 142.9 15.2
Aggregates Products Gross Profit Rollforward
The following presents a rollforward of aggregates products gross profit (dollars in millions):
Aggregates products gross profit, quarter ended
2.6
Pricing 14.8
Operational performance (1) (22.0 )
Change in aggregates products gross profit (4.6 )
Aggregates products gross profit, quarter ended
(1) Inclusive of cost increases/decreases, product and geographic mix and other
operating impacts
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter March 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter Ended March 31, 2020 (Continued) Three Months Ended March 31, 2020 2019 % of % of Amount Revenues Amount Revenues (Dollars in Millions) Selling, general & administrative expenses: Building Materials Business: Mid-America Group$ 17.8 $ 15.6 Southeast Group 6.9 5.3 West Group 33.4 29.3 Total Building Materials Business 58.1 50.2 Magnesia Specialties 3.5 2.9 Corporate 17.1 25.2 Total$ 78.7 8.2$ 78.3 8.3 Earnings (Loss) from operations: Building Materials Business: Mid-America Group$ 20.8 $ 30.6 Southeast Group 14.0 21.1 West Group 22.7 20.3 Total Building Materials Business 57.5 72.0 Magnesia Specialties 21.7 22.6 Corporate (21.4 ) (25.4 ) Total$ 57.8 6.0$ 69.2 7.4 Page 25 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued)Building Materials Business
The following tables present aggregates products volume and pricing variance data and shipments data by segment:
Three Months Ended
March 31, 2020
Volume Pricing
Volume/Pricing variance (1)
Mid-America Group 4.3 % 1.4 %
Southeast Group (3.2 )% 4.7 %
West Group 2.5 % 3.7 %
Total Aggregates Operations(2) 2.3 % 2.7 %
Three Months Ended
March 31,
2020 2019
(Tons in Millions)
Shipments
Mid-America Group 16.5 15.8
Southeast Group 6.2 6.4
West Group 15.6 15.2Total Aggregates Operations(2) 38.3 37.4
(1) Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
(2) Total aggregates operations include acquisitions from the date of acquisition and divestitures through the date of disposal.
Shipments for theMid-America Group increased 4.3%. Robust warehouse and data center construction activity inIowa andIndiana more than offset the anticipated lower infrastructure shipments inNorth Carolina . Geographic mix limited pricing growth to 1.4%. Shipments for theSoutheast Group decreased 3.2% as significant rainfall hindered otherwise robust construction activity. Pricing growth of 4.7% reflected the underlying strength of theNorth Georgia andFlorida markets.West Group shipments increased 2.5%, with double-digit growth inColorado partially offset by weather-impacted construction delays inTexas . Pricing improved 3.7%. Page 26 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter March 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter Ended March 31, 2020 (Continued) The following table presents shipments data for theBuilding Materials business by product line. Three Months Ended March 31, 2020 2019 Shipments Aggregates (in millions): Tons to external customers 36.0 35.4 Internal tons used in other product lines 2.3 2.0 Total aggregates tons 38.3 37.4 Cement (in millions): Tons to external customers 0.7 0.6 Internal tons used in ready mixed concrete 0.2 0.3 Total cement tons 0.9 0.9 Ready Mixed Concrete (in millions of cubic yards) 1.7 1.9 Asphalt (in millions): Tons to external customers 0.1 - Internal tons used in paving business 0.1 0.1 Total asphalt tons 0.2 0.1 The average selling price by product line for theBuilding Materials business is as follows: Three Months Ended March 31, 2020 2019 % Change Aggregates (per ton)$ 14.80 $ 14.42 2.7 % Cement (per ton)$ 113.77 $ 110.93 2.6 % Ready Mixed Concrete (per cubic yard)$ 114.35 $ 109.28 4.6 % Asphalt (per ton)$ 45.43 $ 45.92 (1.1 )% Aggregates End-Use Markets
Aggregates shipments to the infrastructure market increased, driven by large
projects in
Aggregates shipments to the nonresidential market increased modestly following double-digit growth in commercial and heavy industrial construction activity in the prior-year quarter. The Company continued to benefit from distribution center, warehouse and data center projects in key geographies, includingTexas ,Colorado ,Georgia ,Florida andIowa , as well as the early phases of several large energy-sector projects along theGulf Coast . The nonresidential market represented 36% of first-quarter aggregates shipments. Page 27 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued) Aggregates shipments to the residential market declined slightly when compared with the robust growth in homebuilding activity in the prior-year quarter. Ongoing homebuilding activity inTexas andGeorgia was hindered by significant rainfall during first-quarter 2020. The residential market accounted for 25% of first-quarter aggregates shipments.
The
Building Materials Business Product Lines
First-quarter aggregates shipments and pricing increased 2.3% and 2.7%, respectively, compared with the prior-year period. Aggregates product gross margin declined 160 basis points to 16.4%, despite improved operating leverage, largely driven by a$15.2 million , or 260 basis points, year-over-year impact of lower unit production costs on aggregates inventory standards. First-quarter cement shipments increased 5.2% and pricing improved 2.6% compared with the prior-year period. Pricing gains and production efficiencies from increased shipment and production levels, coupled with lower maintenance costs, contributed to the 1,170-basis-point expansion in cement product gross margin to 25.6%. Ready mixed concrete pricing improved 4.6% while shipments declined 14.1% in the first quarter as compared with the prior-year period, primarily attributable to weather-impacted project delays inTexas that more than offset double-digit growth inColorado . Asphalt volume increased 80.6% attributable to favorable weather compared with the prior-year period. Asphalt pricing decreased 1.1% due to unfavorable product mix. Magnesia Specialties Business Magnesia Specialties product revenues decreased 13.4% to$59.9 million , consistent with expectations and driven by continued declines in chemicals products as international customers rationalize inventory levels. Lime shipments to the steel industry were flat. Product gross profit was$26.1 million compared with$26.6 million . Product gross margin improved 500 basis points to 43.5% due to lower energy costs and effective cost control measures. Earnings from operations were$21.7 million compared with$22.6 million .
Consolidated Operating Results
Consolidated SG&A was 8.2% of total revenues compared with 8.3% in the
prior-year quarter. Earnings from operations for the quarter were
Among other items, other operating income and expenses, net, includes gains and losses on the sale of assets; recoveries and write-offs related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations. For the first quarter, consolidated other operating expenses and income, net, was an expense of$5.6 million in 2020 and income of$4.7 million in 2019. The expense in 2020 included higher bad debt expense and lower gains on sales of assets compared with the prior year. The income in 2019 reflected the reversal of$4.2 million of accruals for unclaimed property contingencies. Page 28 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued) Other nonoperating income and expenses, net, includes interest income; pension and postretirement benefit cost, excluding service cost; foreign currency transaction gains and losses; equity in earnings or losses of nonconsolidated affiliates and other miscellaneous income and expenses. For the first quarter, other nonoperating expenses and income, net, was expense of$2.0 million and income of$1.6 million in 2020 and 2019, respectively. The 2020 expense included$5.6 million to finance third-party railroad maintenance.
Income Tax Expense (Benefit)
For the three months endedMarch 31, 2020 , the effective income tax rate included a$6.9 million discrete benefit from financing third-party railroad maintenance. In exchange, the Company received a federal income tax credit and deduction. For the three months endedMarch 31, 2019 , the effective income tax rate included a$13.2 million discrete benefit from a change in the tax status of a subsidiary from a partnership to a corporation, contributing to an overall income tax benefit of$5.0 million .
LIQUIDITY AND CAPITAL RESOURCES
For the three months endedMarch 31 , cash provided by operating activities was$106.7 million in 2020 compared with$117.9 million in 2019. Operating cash flow is primarily derived from consolidated net earnings before deducting depreciation, depletion and amortization, and the impact of changes in working capital. Depreciation, depletion and amortization were as follows: Three Months Ended March 31, 2020 2019 (Dollars in Millions) Depreciation$ 83.1 $ 78.1 Depletion 7.0 5.9 Amortization 4.9 5.2 Total$ 95.0 $ 89.2 The seasonal nature of construction activity impacts the Company's quarterly operating cash flow when compared with the full year. Full-year 2019 net cash provided by operating activities was$966.1 million .
During the three months ended
The Company can repurchase its common stock through open-market purchases pursuant to authority granted by its Board of Directors or through private transactions at such prices and upon such terms as the Chief Executive Officer deems appropriate. The Company repurchased 210,616 shares of common stock during the first three months of 2020, at an aggregate cost of$50.0 million . AtMarch 31, 2020 , 13,520,952 shares of common stock were remaining under the Company's repurchase authorization. Future share repurchases are at the discretion of management and have been temporarily suspended as ofMarch 2020 in light of the COVID-19 pandemic subject to management's determination to resume repurchases. Page 29 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued) OnMarch 5, 2020 , the Company issued$500 million aggregate principal amount of 2.500% Senior Notes due 2030 (the 2.500% Senior Notes). The 2.500% Senior Notes are carried net of original issue discount, which is being amortized by the effective interest method over the life of the issue. The 2.500% Senior Notes are redeemable prior toDecember 15, 2029 at their make-whole redemption price at a discount rate of theU.S. Treasury Rate plus 30 basis points, or on or afterDecember 15, 2029 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to the date of redemption. The Company intends to use the net proceeds for general corporate purposes, including the repayment at maturity of$300 million of existing floating rate notes dueMay 2020 . The Company has a$700 million five-year senior unsecured revolving facility (the Revolving Facility), which expires onDecember 5, 2024 . The Revolving Facility requires the Company's ratio of consolidated debt-to-consolidated EBITDA, as defined, for the trailing-twelve-month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Company may exclude from the Ratio debt incurred in connection with certain acquisitions during the quarter or the three preceding quarters so long as the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if there are no amounts outstanding under the Revolving Facility and the$400 million trade receivable securitization facility (the Trade Receivable Facility) held by the Company's wholly-owned special-purpose subsidiary, consolidated debt, including debt for which the Company is a co-borrower, may be reduced by the Company's unrestricted cash and cash equivalents in excess of$50 million , such reduction not to exceed$200 million , for purposes of the covenant calculation. The Ratio is calculated as debt, including debt for which the Company is a co-borrower, divided by consolidated EBITDA, as defined by the Company's Revolving Facility, for the trailing-twelve months. Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation and amortization expense. Additionally, stock-based compensation expense is added back and interest income is deducted in the calculation of consolidated EBITDA. During periods that include an acquisition, pre-acquisition adjusted EBITDA of the acquired company is added to consolidated EBITDA as if the acquisition occurred on the first day of the calculation period. Certain other nonrecurring items, if they occur, can affect the calculation of consolidated EBITDA. Page 30 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued)
At
April 1, 2019 to
March 31, 2020
(Dollars in Millions)
Earnings from continuing operations attributable to Martin
Marietta $ 595.0
Add back:
Income tax expense 141.4
Interest expense 126.2Depreciation, depletion and amortization expense and noncash
nonconsolidated equity affiliate adjustment
389.2
Stock-based compensation expense 33.1 Deduct: Interest income
(0.5 ) Consolidated EBITDA, as defined by the Company's Revolving Facility
$ 1,284.4
Consolidated net debt, as defined and including debt for which the Company
is a co-borrower, atMarch 31, 2020 $
3,283.0
Consolidated debt-to-consolidated EBITDA, as defined by the Company's Revolving
Facility, atMarch 31, 2020 for the trailing-twelve months EBITDA 2.56 times The Trade Receivable Facility contains a cross-default provision to the Company's other debt agreements. In the event of a default on the Ratio, the lenders can terminate the Revolving Facility and Trade Receivable Facility and declare any outstanding balances as immediately due. Outstanding amounts on the Trade Receivable Facility have been classified as a current liability on the Company's consolidated balance sheet. Cash on hand, along with the Company's projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements, address near-term debt maturities, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise, allow the repurchase of shares of the Company's common stock when the repurchase program is resumed and allow for payment of dividends for the foreseeable future. Any future significant strategic acquisition for cash would likely require an appropriate balance of newly-issued equity with debt in order to maintain a composite investment-grade credit rating. AtMarch 31, 2020 , the Company had$757.7 million of unused borrowing capacity under its Revolving Facility and Trade Receivable Facility, subject to complying with the related leverage covenant. The Revolving Facility matures onDecember 5, 2024 and the Trade Receivable Facility expiresSeptember 23, 2020 . The Company has$300 million of floating rate senior notes due inMay 2020 . Historically, the Company has successfully extended the maturity dates of these credit facilities. Further, other than the$300 million Floating Rate Senior Notes that mature inMay 2020 , for which the Company issued new 10-year notes inMarch 2020 to fund their repayment, the Company does not have any publicly-traded debt that matures prior to 2024. While the future impact of the COVID-19 pandemic is not currently quantifiable, management believes the Company's liquidity is sufficient to meet its cash flow needs through the foreseeable future. Page 31 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued) The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law inMarch 2020 and provides liquidity support for businesses. The CARES Act allows the Company to defer the payment of the 6.2% employer share ofSocial Security taxes for the period fromMarch 27, 2020 throughDecember 31, 2020 . Half of the deferred obligation will be dueDecember 31, 2021 and the remaining half will be dueDecember 31, 2022 . There will be no interest assessed on amounts deferred. The Company estimates it will defer payment of approximately$25 million under this provision. The CARES Act also provides a quarterly refundable employee retention credit if companies suspend operations due to government restrictions or experience a 50% or more decline in quarterly revenues compared with the prior-year quarter. The credit is equal to 50% of qualified wages, up to$10,000 per employee who is not performing services to the Company. While the Company has had minimal short-term shutdowns related to the COVID-19 pandemic such that the Company has not utilized this aid, if future shutdowns are mandated and more extensive, the Company would be eligible to claim this credit. The CARES Act also includes other provisions, including increasing the interest expense deduction limitation to 50% of adjusted taxable income and providing a credit facility for investment-grade companies. The Company does not currently expect the interest expense deduction provision to result in a change in its ability to take a full income tax deduction. The Company also believes it has adequate liquidity and does not currently expect to utilize the credit facility. Additionally, the Internal Revenue Service and many of the state revenue departments have issued guidance allowing companies to defer tax payments normally due on or afterApril 1, 2020 but beforeJuly 15, 2020 toJuly 15, 2020 . As such, the Company has elected to defer the majority of its 2020 estimated income tax payments that were dueApril 15, 2020 untilJuly 15, 2020 , and plans to defer its second quarter 2020 estimated tax payments fromJune 15, 2020 toJuly 15, 2020 . TRENDS AND RISKS The Company outlined the risks associated with its business in its Annual Report on Form 10-K for the year endedDecember 31, 2019 . Management continues to evaluate its exposure to all operating risks on an ongoing basis. A discussion of risks and uncertainties related to the COVID-19 pandemic are included in
Part II, Item 1A Risk Factors of this report.
OUTLOOK
Of the Company's three primary end uses, the outlook for infrastructure construction, particularly for aggregates-intensive highways and streets, is expected to be the most near-term resilient. While the majority ofthe United States has currently been ordered to shelter in place, most state Departments of Transportation (DOTs) are currently operational and continue to advance current and planned transportation projects, capitalizing on the reduction of vehicles on the road and related traffic congestion.Florida , for example, recently announced plans to accelerate$2.1 billion of critical transportation projects. That said, state DOTs are experiencing lower tax revenue collections and states may have other short-term funding needs relating to the COVID-19 impact that may impact decrease the scale and/or postpone the timing of future construction. Page 32 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued) OTHER MATTERS If you are interested in Martin Marietta stock, management recommends that, at a minimum, you read the Company's current annual report and Forms 10-K, 10-Q and 8-K reports to theSecurities and Exchange Commission (SEC) over the past year. The Company's recent proxy statement for the annual meeting of shareholders also contains important information. These and other materials that have been filed with theSEC are accessible through the Company's website at www.martinmarietta.com and are also available at theSEC's website at www.sec.gov. You may also write or call the Company's Corporate Secretary, who will provide copies of such reports. Investors are cautioned that all statements in this Form 10-Q that relate to the future involve risks and uncertainties, and are based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results. These statements, which are forward-looking statements under the Private Securities Litigation Reform Act of 1995, give the investor the Company's expectations or forecasts of future events. You can identify these statements by the fact that they do not relate only to historical or current facts. They may use words such as "anticipate," "expect," "should be," "believe," "will," and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of management's forward-looking statements here and in other publications may turn out to be wrong. The Company's outlook is subject to various risks and uncertainties, and is based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results. Factors that the Company currently believes could cause actual results to differ materially from the forward-looking statements in this Form 10-Q (including the outlook) include, but are not limited to: the ability of the Company to face challenges, including those posed by the COVID-19 pandemic and implementation of any such related response plans; the resiliency and potential declines of the Company's various construction end-use markets; the potential negative impact of the COVID-19 pandemic on the Company's ability to continue supplying heavy-side building materials and related services at normal levels or at all in the Company's key regions; the duration, impact and severity of the impact of the COVID-19 pandemic on the Company, including the markets in which the Company does business, its suppliers, customers or other business partners as well as the Company's employees; the economic impact of government responses to the pandemic; the performance ofthe United States economy, including the impact on the economy of the COVID-19 pandemic and governmental orders restricting activities imposed to prevent further outbreak of COVID-19; shipment declines resulting from economic events beyond the Company's control; a widespread decline in aggregates pricing, including a decline in aggregates shipment volume negatively affecting aggregates price; the history of both cement and ready mixed concrete being subject to significant changes in supply, demand and price fluctuations; the termination, capping and/or reduction or suspension of the federal and/or state gasoline tax(es) or other revenue related to public construction; the level and timing of federal, state or local transportation or infrastructure or public projects funding, most particularly inTexas ,Colorado ,North Carolina ,Georgia ,Iowa andMaryland ; the impact of governmental orders restricting activities imposed to prevent further outbreak of COVID-19 on travel, potentially reducing state fuel tax revenues used to fund highway projects; theUnited States Congress' inability to reach agreement among themselves or with the Administration on policy issues that impact the federal budget; the ability of states and/or other entities to finance approved projects either with tax revenues or alternative financing structures; levels of construction spending in the markets the Company serves; a reduction in defense spending and the subsequent impact on construction activity on or near military bases; a decline in the commercial component of the nonresidential construction market, notably office and retail space, including a decline resulting from economic distress related to the COVID-19 pandemic; a decline in energy-related construction activity resulting from a sustained period of low global oil prices or changes in oil production patterns or capital spending in response to this decline, particularly inTexas ; increasing residential mortgage rates and other factors Page 33 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued) that could result in a slowdown in residential construction; unfavorable weather conditions, particularlyAtlantic Ocean andGulf of Mexico 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 Company, any of which can significantly affect production schedules, volumes, product and/or geographic mix and profitability; whether the Company's operations will continue to be treated as "essential" operations under applicable government orders restricting business activities imposed to prevent further outbreak of COVID-19 or, even if so treated, whether site-specific health and safety concerns might otherwise require certain of the Company's operations to be halted for some period of time; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost, or the availability generally, of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Company's Magnesia Specialties business, natural gas; continued increases in the cost of other repair and supply parts; construction labor shortages and/or supplychain challenges; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to production facilities; increasing governmental regulation, including environmental laws; the failure of relevant government agencies to implement expected regulatory reductions; transportation availability or a sustained reduction in capital investment by the railroads, notably the availability of railcars, locomotive power and the condition of rail infrastructure to move trains to supply the Company'sTexas ,Colorado ,Florida , Carolinas and theGulf Coast markets, including the movement of essential dolomitic lime for magnesia chemicals to the Company's plant inManistee, Michigan and its customers; increased transportation costs, including increases from higher or fluctuating passed-through energy costs or fuel surcharges, and other costs to comply with tightening regulations, as well as higher volumes of rail and water shipments; availability of trucks and licensed drivers for transport of the Company's materials; availability and cost of construction equipment inthe United States ; weakening in the steel industry markets served by the Company's dolomitic lime products; trade disputes with one or more nations impacting theU.S. economy, including the impact of tariffs on the steel industry; unplanned changes in costs or realignment of customers that introduce volatility to earnings, including that of the Magnesia Specialties business that is running at capacity; proper functioning of information technology and automated operating systems to manage or support operations; inflation and its effect on both production and interest costs; the concentration of customers in construction markets and the increased risk of potential losses on customer receivables; the impact of the level of demand in the Company's end-use markets, production levels and management of production costs on the operating leverage and therefore profitability of the Company; the possibility that the expected synergies from acquisitions will not be realized or will not be realized within the expected time period, including achieving anticipated profitability to maintain compliance with the Company's leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Company's tax rate; violation of the Company's debt covenant if price and/or volumes return to previous levels of instability; downward pressure on the Company's common stock price and its impact on goodwill impairment evaluations; the possibility of a reduction of the Company's credit rating to non-investment grade; and other risk factors listed from time to time found in the Company's filings with theSEC . You should consider these forward-looking statements in light of risk factors discussed in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 and other periodic filings made with theSEC . All of the Company's forward-looking statements should be considered in light of these factors. In addition, other risks and uncertainties not presently known to the Company or that the Company considers immaterial could affect the accuracy of its forward-looking statements, or adversely affect or be material to the Company. The Company assumes no obligation to update any such forward-looking statements. Page 34 of 41
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterMarch 31, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter EndedMarch 31, 2020 (Continued)
INVESTOR ACCESS TO COMPANY FILINGS
Shareholders may obtain, without charge, a copy of Martin Marietta's Annual
Report on Form 10-K, as filed with the
Martin Marietta Attn: Corporate Secretary2710 Wycliff Road
Additionally, Martin Marietta's Annual Report, press releases and filings with
the
Telephone: (919) 510-4776
Website address: www.martinmarietta.com
Information included on the Company's website is not incorporated into, or otherwise create a part of, this report.
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter EndedMarch 31, 2020
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