MARTIN MARIETTA MATERIALS, INC. RESULTS OF OPERATIONS
Third Quarter Ended September 30, 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 290 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 and services, namely, ready mixed concrete, asphalt and paving, 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. EffectiveJuly 1, 2020 , the Company made organizational changes, including consolidating its operational management and operating divisions, in connection with the retirement of two senior executives as of the end of the second quarter. Notably, the Mid-Atlantic Division and Southeast Division have been combined into the newly formed East Division. Additionally, the Southwest Aggregates Division and the Cement and Southwest Ready Mix Division have been combined into the newly formed Southwest Division. Subsequent to these changes, theBuilding Materials business consists of four divisions, which also includes theCentral and West Divisions. Each division, as well as the Magnesia Specialties business, represents an operating segment. The Company'sBuilding Materials business includes two reportable segments: the East Group and theWest Group . The East Group, whose operations were previously reported in the Mid-America and Southeast Groups, consists of the East and Central Divisions. Prior-period reportable segment information for the Mid-America and Southeast Groups have been combined into the East Group.The West Group , which reflects no changes in operations included in this reportable segment, is comprised of the Southwest and West Divisions. There were no changes to the Magnesia Specialties reportable segment. EffectiveJanuary 1, 2020 , the Company moved the management of its one quarry in the state ofWashington from the East Group to theWest Group , resulting in an immaterial change to its reportable segments. Page 24 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) BUILDING MATERIALS BUSINESS Reportable Segments East Group West Group Operating Locations Alabama, Florida, Georgia, Arkansas, Colorado, Louisiana, Indiana, Iowa, Kansas, Kentucky, western Nebraska, Nevada, Maryland, Minnesota, Missouri, Oklahoma, Texas, Utah, Washington eastern Nebraska, and Wyoming North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, Nova Scotia and The Bahamas Product Lines Aggregates
Aggregates, Cement, Ready
Mixed Concrete, Asphalt and
Paving
Plant Types Quarries, Mines and Distribution Quarries, Mines, Plants and
Facilities Distribution Facilities
Modes of Transportation Truck, Railcar and Ship Truck and Railcar
The Company's Magnesia Specialties business 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 nine months endedSeptember 30, 2020 .
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 necessarily indicative of expected performance for other interim periods or the full year. Additionally, the Company recognized$69.9 million of gains on the sales of investment land and divestitures of assets in the quarter endedSeptember 30, 2020 , which are nonrecurring in nature. Page 25 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued) 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, earnings from operations or cash provided by operating activities. 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 Martin Marietta to consolidated Adjusted EBITDA is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(Dollars in Millions)
Net Earnings Attributable to Martin
Marietta $ 294.4 $ 248.6 $ 538.0 $ 480.9
Add back:
Interest expense, net of interest
income 28.6 32.3 89.3 98.4
Income tax expense for controlling
interests 81.5 66.2 143.0 111.0
Depreciation, depletion and
amortization and
earnings/loss from nonconsolidated
equity
affiliates 97.2 92.0 287.5 285.5
Consolidated Adjusted EBITDA $ 501.7 $ 439.1 $ 1,057.8 $ 975.8
Page 26 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) Mix-adjusted average selling price (mix-adjusted ASP) excludes the impacts of product, geographic and other mix from the current-period average selling price and is a non-GAAP measure. Mix-adjusted ASP is calculated by assuming current-period shipments reflect the same product, geographic and other mix as the comparable prior period. Management uses this metric to evaluate the effectiveness of the Company's pricing increases and believes this information is useful to investors as it provides same-on-same pricing trends. The following reconciles reported average selling price to mix-adjusted ASP and corresponding variances. Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019West Group - Aggregates Product Line: Reported average selling price$ 13.95 $ 14.04 $ 13.82 $ 13.47 Adjustment for unfavorable impact of product, geographic and other mix 0.64 0.20 Mix-adjusted ASP$ 14.59 $ 14.02 Reported average selling price variance (0.6 )% 2.6 % Mix-adjusted ASP variance 3.9 % 4.1 % Aggregates Product Line: Reported average selling price$ 14.75 $ 14.37 $ 14.73 $ 14.31 Adjustment for unfavorable impact of product, geographic and other mix 0.19 0.14 Mix-adjusted ASP$ 14.94 $ 14.87 Reported average selling price variance 2.7 % 2.9 % Mix-adjusted ASP variance 4.0 % 3.9 % Cement Product Line: Reported average selling price$ 113.41 $ 112.36 $ 113.83 $ 112.53 Adjustment for unfavorable impact of product, geographic and other mix 2.82 2.41 Mix-adjusted ASP$ 116.23 $ 116.24 Reported average selling price variance 0.9 % 1.2 % Mix-adjusted ASP variance 3.4 % 3.3 % Page 27 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) The following table presents ready mixed concrete shipment data and volume variances excluding four ready mixed concrete operations acquired in the third quarter of 2020 and excluding theArkansas ,Louisiana and easternTexas ready mix business (ArkLaTex business) that was divested inJanuary 2020 during the period of Martin Marietta's ownership to provide a more comparable analysis of ready mixed concrete volume variance: Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Shipments (Cubic Yards in Millions) Reported ready mixed concrete shipments 2.2 2.4 6.1 6.5 Less: ready mixed concrete shipments of acquired operations (0.1 ) - (0.1 ) - Less: ready mixed concrete shipments for the ArkLaTex business during the period of Martin Marietta ownership - (0.1 ) - (0.4 ) Adjusted ready mixed concrete shipments 2.1 2.3 6.0 6.1 Reported ready mixed concrete volume variance (8.3 )%
(7.2 )%
Adjusted ready mixed concrete volume variance (4.0 )% (1.5 )%
Financial highlights for the quarter ended
? Consolidated total revenues of
million
?
million compared with
? Magnesia Specialties products revenues of
million
? Consolidated gross profit of
? Consolidated earnings from operations of$400.6 million (1) compared with$345.3 million
? Net earnings attributable to Martin Marietta of
with
? Consolidated Adjusted EBITDA of
million
? Earnings per diluted share of $4.71 (2) compared with $3.96 (1) Includes nonrecurring gains on sales of investment land and divested assets
of
(2) Includes nonrecurring gains on sales of investment land and divested assets,
net of tax, of
Page 28 of 53--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) The following tables present total revenues, gross profit (loss), selling, general and administrative (SG&A) expenses and earnings (loss) from operations data for the Company and its reportable segments by product line for the three months endedSeptember 30, 2020 and 2019. In each case, the data is stated as a percentage of revenues of the Company or the relevant segment or product line, as the case may be. Prior-year segment information has been reclassified to conform to changes to the reportable segments effectiveJanuary 1, 2020 andJuly 1, 2020 (see Note 1 to financial statements). Three Months Ended September 30, 2020 2019 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Total revenues: Building Materials Business: Products and services East Group Aggregates$ 514.1 $ 539.8 West Group Aggregates 252.8 278.9 Cement 115.6 119.6 Ready mixed concrete 254.6 271.8 Asphalt and paving 129.8 131.1 Less: Interproduct revenues (81.4 ) (77.3 ) West Group Total 671.4 724.1 Products and services 1,185.5 1,263.9 Freight 75.0 91.5 Total Building Materials Business 1,260.5
1,355.4
Magnesia Specialties Business: Products 55.2
59.3
Freight 5.7 5.5 Total Magnesia Specialties Business 60.9 64.8 Total$ 1,321.4 $ 1,420.2 Page 29 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) Three Months Ended September 30, 2020 2019 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Gross profit (loss): Building Materials Business: Products and services East Group Aggregates$ 206.1 40.1$ 211.0 39.1 West Group Aggregates 73.0 28.9 76.1 27.3 Cement 46.5 40.2 48.5 40.6 Ready mixed concrete 24.7 9.7 29.0 10.6 Asphalt and paving 32.6 25.1 31.1 23.7 West Group Total 176.8 26.3 184.7 25.5 Products and services 382.9 32.3 395.7 31.3 Freight 0.9 0.2 Total Building Materials Business 383.8 30.4 395.9 29.2 Magnesia Specialties Business: Products 21.0 38.0 24.0 40.4 Freight (1.0 ) (1.0 ) Total Magnesia Specialties Business 20.0 32.9 23.0 35.5 Corporate 0.7 1.7 Total$ 404.5 30.6$ 420.6 29.6
Aggregates Products Gross Profit Rollforward
The following presents a rollforward of aggregates products gross profit (dollars in millions):
Aggregates products gross profit, quarter endedSeptember 30, 2019 $ 287.1 Volume (38.7 ) Pricing 19.9 Operational performance (1) 10.8 Change in aggregates products gross profit
(8.0 )
Aggregates products gross profit, quarter ended
(1) Inclusive of cost increases/decreases, product and geographic mix and other
operating impacts
Page 30 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) Three Months Ended September 30, 2020 2019 % of % of Amount Revenues Amount Revenues (Dollars in
Millions)
Selling, general & administrative expenses: Building Materials Business: East Group$ 24.9 $ 21.3 West Group 34.2 29.3 Total Building Materials Business 59.1 50.6 Magnesia Specialties 3.6 2.8 Corporate 8.4 24.8 Total$ 71.1 5.4$ 78.2 5.5 Earnings (Loss) from operations: Building Materials Business: East Group$ 181.4 $ 190.8 West Group(1) 212.3 156.8 Total Building Materials Business 393.7 347.6 Magnesia Specialties 16.4 20.1 Corporate (9.5 ) (22.4 ) Total$ 400.6 30.3$ 345.3 24.3
(1) 2020 amounts include nonrecurring gains on sales of investment land and
divested assets of
Page 31 of 53--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued)Building Materials Business
The following tables present aggregates products volume and pricing variance data and shipments data by segment:
Three Months Ended
September 30, 2020
Volume Pricing
Volume/Pricing variance(1)
East Group (8.8 )% 4.4 %
West Group (8.4 )% (0.6 )%
Total Aggregates Operations(2) (8.7 )% 2.7 %
Three Months Ended
September 30,
2020 2019
(Tons in Millions)
Shipments
East Group 33.7 37.0
West Group 18.1 19.7Total Aggregates Operations(2) 51.8 56.7
(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.
Third-quarter aggregates shipments declined 8.7% compared with the robust prior-year quarter. Aggregates shipments to the infrastructure and nonresidential end-use markets declined, while shipments to the residential market increased slightly. Aggregates pricing improved 2.7%, or 4.0% on a mix-adjusted basis. East Group shipments decreased 8.8%, reflecting weather-delayed projects in the Mid-Atlantic and Southeast, anticipated lower infrastructure shipments in portions ofNorth Carolina and reduced wind energy construction activity in the Midwest.West Group shipments decreased 8.4%, primarily due to reduced energy-sector shipments. East Group pricing increased 4.4% with solid improvements in both the East and Central Divisions. Pricing decreased 0.6% in theWest Group , as a lower percentage of higher-priced commercial rail-shipped volumes inHouston offset price increases in the Company's otherTexas markets andColorado . On a mix-adjusted basis,West Group pricing increased 3.9%. Page 32 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) The following table presents shipments data for theBuilding Materials business by product line: Three Months Ended September 30, 2020 2019 Shipments Aggregates (in millions): Tons to external customers 48.1 53.6 Internal tons used in other product lines 3.7 3.1 Total aggregates tons 51.8 56.7 Cement (in millions): Tons to external customers 0.7 0.8 Internal tons used in ready mixed concrete 0.3 0.3 Total cement tons 1.0 1.1 Ready Mixed Concrete (in millions of cubic yards) 2.2 2.4 Asphalt (in millions): Tons to external customers 0.3 0.4 Internal tons used in paving business 1.0 0.9 Total asphalt tons 1.3 1.3 The average selling price by product line for theBuilding Materials business is as follows: Three Months Ended September 30, 2020 2019 % Change Aggregates (per ton)$ 14.75 $ 14.37 2.7 % Cement (per ton)$ 113.41 $ 112.36 0.9 % Ready Mixed Concrete (per cubic yard)$ 114.15 $ 111.72 2.2 % Asphalt (per ton)$ 49.56 $ 46.67 6.2 % Aggregates End-Use Markets
Aggregates shipments to the Company's primary end use markets are broadly consistent with macro trends and COVID impacts.
Aggregates shipments to the infrastructure market declined, primarily driven by project delays and anticipated lower shipments in portions ofNorth Carolina . The infrastructure market accounted for 38% of third-quarter aggregates shipments, below the Company's most recent ten-year annual average of 45%. Following double-digit growth in commercial and heavy industrial construction activity in the prior-year quarter, aggregates shipments to the nonresidential market declined, driven by reduced energy-sector activity from low oil prices, as well the completion of certain windfarm and liquefied natural gas projects. Notably, the Company continued Page 33 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued)
to benefit from warehouse and data center projects. The nonresidential market represented 33% of third-quarter aggregates shipments.
Aggregates shipments to the residential market increased slightly. Housing construction has returned to pre-COVID levels in several of the Company's key geographies, reflective of pent-up demand, low available inventories and favorable interest rates. The residential market accounted for 24% of third-quarter aggregates shipments.
The
Building Materials Business Product Lines
Third-quarter aggregates shipments declined 8.7% compared with prior-year quarter, reflecting the broad economic impact from COVID-19 and a comparison against a strong prior-year quarter. Pricing improved 2.7% compared with the prior-year quarter. Aggregates product gross margin increased 130 basis points to 36.4%, driven by increased pricing coupled with lower diesel fuel, contract services, supplies and repair costs. While underlyingTexas demand remains resilient, third-quarter cement shipments decreased 3.9%, driven primarily by the decline in energy-sector activity resulting from low oil prices. Cement pricing improved 0.9% compared with prior-year quarter, with strength inNorth Texas ,Houston and portions ofCentral Texas offset by lower sales of higher-priced oil-well specialty cement products intoWest Texas . On a mix-adjusted basis, cement pricing increased 3.4%. Cement product gross margin decreased 40 basis points versus the prior-year quarter to 40.2%, driven by lower shipments of higher priced oil-well specialty products and higher maintenance costs. Ready mixed concrete pricing improved 2.2% and volume decreased 4.0% in the third quarter, excluding shipments from ready mixed concrete operations acquired in the third quarter of 2020 and excluding third-quarter 2019 shipments from the Southwest Division's concrete business in theArkansas ,Louisiana andEastern Texas areas, generally known as ArkLaTex, that was divested inJanuary 2020 . Product gross margin declined 90 basis points to 9.7%, driven primarily by higher raw material costs. Asphalt pricing increased 6.2% due to favorable product mix. Asphalt shipments decreased 2.8% versus prior-year quarter.
Magnesia Specialties Business
Magnesia Specialties product revenues decreased 7% to$55.2 million , reflecting lower demand for chemicals and lime products reflecting the broad economic impact associated with the COVID-19 pandemic. Product gross profit was$21.0 million compared with$24.0 million . Product gross margin was 38.0% compared with 40.4%. Third-quarter earnings from operations were$16.4 million in 2020 compared with$20.1 million in 2019.
Consolidated Operating Results
Consolidated SG&A for third quarter 2020 was 5.4% of total revenues compared with 5.5% in the prior-year quarter. During third-quarter 2020, the Company incurred$1.3 million in COVID-19 related expenses for enhanced cleaning and sanitizing protocols across the Company's operations, which are recorded in SG&A. Earnings from operations for the quarter were$400.6 million in 2020 compared with$345.3 million in 2019. Among other items, other operating income, 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 third quarter, consolidated other operating Page 34 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued) income, net, was$67.6 million in 2020 and$2.9 million in 2019. The income in 2020 includes$69.9 million of nonrecurring gains on the sales of investment land and divested assets inAustin, Texas ;Riverside, California ; andAugusta, Kansas , which collectively provided pretax cash proceeds of$122.4 million . These gains are recorded in theWest Group . Other nonoperating (income) and expenses, net, includes interest income; pension and postretirement benefit cost excluding service cost; foreign currency transaction gains and losses; equity earnings or losses from nonconsolidated affiliates and other miscellaneous income and expenses. For the third quarter, other nonoperating (income) and expenses, net, was income of$4.0 million and$1.9 million in 2020 and 2019, respectively. Page 35 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued)
Financial highlights for the nine months ended
? Consolidated total revenues of
million
?
million compared with $3,198.7 million
? Magnesia Specialties products revenues of $164.0 million compared with
$198.9 million ? Consolidated gross profit of
? Consolidated earnings from operations of$764.8 million (1) compared with$700.4 million
? Net earnings attributable to Martin Marietta of
with
? Consolidated Adjusted EBITDA of
million
? Earnings per diluted share of $8.61 (2) compared with $7.65 (1) Includes nonrecurring gains on sales of investment land and divested assets
of
(2) Includes nonrecurring gains on sales of investment land and divested assets,
net of taxes, of
The following tables present total revenues, gross profit (loss), SG&A expenses and earnings (loss) from operations data for the Company and its reportable segments by product line for the nine months endedSeptember 30, 2020 and 2019. In each case, the data is stated as a percentage of revenues of the Company or the relevant segment or product line, as the case may be. Prior-year segment information has been reclassified to conform to changes to the reportable segments effectiveJanuary 1, 2020 andJuly 1, 2020 (see Note 1 to financial statements). Nine Months Ended September 30, 2020 2019 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Total revenues: Building Materials Business: Products and services East Group Aggregates$ 1,371.8 $ 1,398.6 West Group Aggregates 720.3 722.8 Cement 331.7 331.0 Ready mixed concrete 689.4 724.2 Asphalt and paving 254.9 225.7 Less: Interproduct revenues (210.9 ) (203.6 ) West Group Total 1,785.4 1,800.1 Products and services 3,157.2 3,198.7 Freight 212.9 224.8 Total Building Materials Business 3,370.1 3,423.5 Magnesia Specialties: Products 164.0 198.9 Freight 16.2 16.3 Total Magnesia Specialties Business 180.2 215.2 Total$ 3,550.3 $ 3,638.7 Page 36 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) Nine Months Ended September 30, 2020 2019 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Gross profit (loss): Building Materials Business: Products and services East Group Aggregates$ 460.0 33.5$ 475.7 34.0 West Group Aggregates 180.4 25.0 160.8 22.3 Cement 117.2 35.3 104.5 31.6 Ready mixed concrete 56.7 8.2 62.5 8.6 Asphalt and paving 46.4 18.2 38.5 17.1 West Group Total 400.7 22.4 366.3 20.4 Products and services 860.7 27.3 842.0 26.3 Freight 0.3 0.4 Total Building Materials Business 861.0 25.5 842.4 24.6 Magnesia Specialties: Products 65.3 39.8 79.8 40.1 Freight (3.2 ) (3.2 ) Total Magnesia Specialties Business 62.1 34.5 76.6 35.6 Corporate 4.3 1.4 Total$ 927.4 26.1$ 920.4 25.3
Aggregates Products Gross Profit Rollforward
The following presents a rollforward of aggregates products gross profit (dollars in millions):
Aggregates products gross profit, nine months endedSeptember 30, 2019 $ 636.5 Volume (46.5 ) Pricing 58.9 Operational performance (1) (8.5 ) Change in aggregates products gross profit
3.9
Aggregates products gross profit, nine months ended
(1) Inclusive of cost increases/decreases, product and geographic mix and other operating impacts
Page 37 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) Nine Months Ended September 30, 2020 2019 % of Total % of Total Amount Revenues Amount Revenues (Dollars in Millions) Selling, general & administrative expenses: Building Materials Business: East Group$ 74.0 $ 63.2 West Group 100.2 86.2 TotalBuilding Materials Business 174.2 149.4 Magnesia Specialties 10.4 8.5 Corporate 36.4 71.0 Total$ 221.0 6.2$ 228.9 6.3 Earnings (Loss) from operations: Building Materials Business: East Group$ 386.1 $ 416.5 West Group(1) 368.2 287.7 TotalBuilding Materials Business 754.3 704.2 Magnesia Specialties 51.2 68.0 Corporate (40.7 ) (71.8 ) Total$ 764.8 21.5$ 700.4 19.2
(1) 2020 amounts include nonrecurring gains on sales of investment land and
divested assets of
Page 38 of 53--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued)Building Materials Business
The following tables present aggregates products volume and pricing variance data and shipments data by segment:
Nine Months Ended
September 30, 2020
Volume Pricing
Volume/Pricing variance(1)
East Group (4.8 )% 3.2 %
West Group (2.7 )% 2.6 %
Total Aggregates Operations(2) (4.1 )% 2.9 %
Nine Months Ended
September 30,
2020 2019
(Tons in Millions)
Shipments
East Group 89.4 93.9
West Group 51.8 53.3Total Aggregates Operations(2) 141.2 147.2
(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.
The following table presents shipments data for theBuilding Materials business by product line: Nine Months Ended September 30, 2020 2019 Shipments Aggregates (in millions): Tons to external customers 131.9 139.4 Internal tons used in other product lines 9.3 7.8 Total aggregates tons 141.2 147.2 Cement (in millions): Tons to external customers 2.0 2.0 Internal tons used in ready mixed concrete 0.9 0.9 Total cement tons 2.9 2.9
Asphalt (in millions):
Tons to external customers 0.6 0.7
Internal tons used in paving business 2.0 1.6
Total asphalt tons 2.6 2.3
Page 39 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) The average selling price by product line for theBuilding Materials business is as follows: Nine Months Ended September 30, 2020 2019 % Change Aggregates (per ton)$ 14.73 $ 14.31 2.9 % Cement (per ton)$ 113.83 $ 112.53 1.2 % Ready Mixed Concrete (per cubic yard)$ 113.75 $ 110.89 2.6 % Asphalt (per ton)$ 47.99 $ 46.83 2.5 %
Aggregates Product Line End-Use Markets
For the nine months endedSeptember 30, 2020 , aggregates shipments to the infrastructure market accounted for 37% of aggregates volumes and declined 2% compared to the prior-year period, driven by lower anticipated infrastructure shipments in portions ofNorth Carolina . Aggregates shipments to the nonresidential market declined following double-digit growth in commercial and heavy industrial construction activity, notably inTexas andIowa , in the prior-year period. Additionally, energy-sector demand declined in 2020, driven by low oil prices. The nonresidential market represented 33% of year-to-date aggregates shipments. Following a slowdown in the residential market in the first quarter of 2020 due to COVID-19, aggregates shipments to the residential market increased, reflecting pent-up housing demand and emerging homebuying trends as prospective buyers look to move to small metro or suburban locations. The residential market accounted for 24% of year-to-date aggregates shipments.
The
Building Materials Business Product Lines
For the nine months endedSeptember 30, 2020 , aggregates shipments decreased 4.1%, reflecting the broad economic impact from COVID-19 and a comparison with prior-year volumes that benefited from carryover work from 2018. Pricing increased 2.9% compared with the prior-year period which, coupled with effective cost control and lower diesel fuel costs, led to a 60-basis-point improvement in aggregates product gross margin to 30.6%. On a mix-adjusted basis, pricing increased 3.9%. For the nine months endedSeptember 30, 2020 , cement shipments decreased 0.7% and pricing increased 1.2% compared with the prior-year period. On a mix-adjusted basis, pricing increased 3.3%. Production efficiencies and lower fuel costs contributed to the 370-basis-point expansion in cement product gross margin to 35.3%. Ready mixed concrete pricing improved 2.6% and shipments declined 1.5%, excluding shipments from ready mixed concrete operations acquired in the third quarter of 2020 and excluding shipments for the nine months endedSeptember 30, 2019 from the Southwest Division's ArkLaTex ready mix operations divested inJanuary 2020 . Asphalt volume increased 14.4% attributable to favorable weather compared with the prior-year period and strong customer demand. Asphalt pricing increased 2.5%. Page 40 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued) Magnesia Specialties Business For the nine months endedSeptember 30, 2020 , Magnesia Specialties reported product revenues of$164.0 million compared with$198.9 million for the prior-year period. Year-over-year revenue decline is primarily attributable to lower lime and periclase shipments to the steel industry in response to the COVID-19-induced shutdown of domestic auto manufacturers. Additionally, the business experienced a continued decline in chemicals products sales as both domestic and international customers experienced a downturn in economic activity related to COVID-19. Product gross profit was$65.3 million compared with$79.8 million . Product line gross margin for the nine months endedSeptember 30, 2020 , was 39.8%, with effective cost control limiting the decline to 30 basis points versus the prior-year period. Earnings from operations were$51.2 million compared with$68.0 million .
Consolidated Operating Results
For the nine months endedSeptember 30, 2020 , consolidated SG&A was 6.2% of total revenues compared with 6.3% in 2019. During the first nine months of 2020, the Company incurred$4.8 million in COVID-19 related expenses for enhanced cleaning and sanitizing protocols across the Company's operations, which are recorded in SG&A. Earnings from operations for the nine months endedSeptember 30 were$764.8 million in 2020 compared with$700.4 million in 2019. Among other items, other operating income, 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 nine months endedSeptember 30 , consolidated other operating income, net, was income of$59.6 million and$9.1 million in 2020 and 2019, respectively. The 2020 amount includes$69.9 million of nonrecurring gains on the sales of investment land and divested assets inAustin, Texas ;Riverside, California ; andAugusta, Kansas . These gains are recorded in theWest Group . The 2019 amount included the reversal of$6.9 million of accruals for sales tax and unclaimed property contingencies. 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. For the nine months endedSeptember 30 , other nonoperating (income) and expenses, net, was income of$5.9 million in 2020 and an expense of$9.7 million in 2019. The 2020 amount reflected lower pension expense of$8.9 million compared with the prior year and also included an expense of$5.6 million to finance third-party railroad track maintenance. The 2019 expense included a$15.7 million ($12.0 million net of tax) out-of-period correction of a Company-identified overstatement of the investment balance for a nonconsolidated equity affiliate.
Income Tax Expense
For the nine months endedSeptember 30, 2020 , the effective income tax rate reflected a$6.9 million discrete benefit from financing third-party railroad track maintenance. In exchange, the Company received a federal income tax credit and deduction. For the nine months endedSeptember 30, 2019 , the effective income tax rate reflected a$13.2 million discrete benefit from a change in the tax status of a subsidiary from a partnership to a corporation. Page 41 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued)
LIQUIDITY AND CAPITAL RESOURCES
For the nine months endedSeptember 30 , cash provided by operating activities was$684.0 million in 2020 compared with$649.8 million in 2019. Operating cash flow is primarily derived from consolidated net earnings before deducting depreciation, depletion and amortization, and the impact of changes in working capital. Depreciation, depletion and amortization were as follows: Nine Months Ended September 30, 2020 2019 (Dollars in Millions) Depreciation$ 251.1 $ 234.3 Depletion 26.2 27.4 Amortization 14.9 15.3 Total$ 292.2 $ 277.0 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 nine 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 nine months of 2020, at an aggregate cost of$50.0 million . Future share repurchases are at the discretion of management and were temporarily paused inMarch 2020 in light of the COVID-19 pandemic. Management may resume share repurchases as circumstances dictate. AtSeptember 30, 2020 , 13,520,952 shares of common stock were remaining under the Company's repurchase authorization. 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 used the net proceeds for general corporate purposes, including the repayment of$300 million of floating rate senior notes at maturity inMay 2020 .
The Company, through a wholly-owned special-purpose subsidiary, has a
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 Page 42 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter September 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 2020 (Continued) 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 Trade Receivable Facility, 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. AtSeptember 30, 2020 , the Company's ratio of consolidated debt-to-consolidated EBITDA, as defined by the Company's Revolving Facility, for the trailing-twelve months was 1.94 times and was calculated as follows: October 1, 2019 to September 30, 2020 (Dollars in Millions) Earnings from continuing operations attributable to Martin Marietta $ 669.0 Add back: Income tax expense 168.2 Interest expense 120.4 Depreciation, depletion and amortization expense
382.5
Stock-based compensation expense 28.1 Deduct: Interest income
(0.5 ) Consolidated EBITDA, as defined by the Company's Revolving Facility
$ 1,367.7
Consolidated debt, as defined and including debt for which the Company
is a co-borrower, atSeptember 30, 2020 $
2,652.9
Consolidated debt-to-consolidated EBITDA, as defined by the Company's Revolving
Facility, atSeptember 30, 2020 for the trailing-twelve months EBITDA 1.94 times 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. 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 Page 43 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued) an appropriate balance of newly-issued equity with debt in order to maintain a composite investment-grade credit rating. AtSeptember 30, 2020 , the Company had$1,097.7 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 . Historically, the Company has successfully extended the maturity dates of these credit facilities. Further, as ofSeptember 30, 2020 , 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. As ofSeptember 30, 2020 , the Company had restricted cash of$77.1 million for the purchase of like-kind exchange replacement assets under Section 1031 of the Internal Revenue Code (Section 1031) untilJanuary 27, 2021 . InOctober 2020 , the Company transferred an additional$45.1 million from asset sales completed in the third-quarter 2020 into a restricted Section 1031 account and has untilMarch 2021 , to reinvest the funds in qualifying assets. 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 for 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 under the CARES Act. 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.
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 Page 44 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued)
at www.martinmarietta.com and are also available at the
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, provide the investor with 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 recent dramatic increases in COVID-19 cases inthe United States and the extent that geography of outbreak primarily matches the regions in which the Company'sBuilding Materials business principally operates; 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 andWest Virginia ; increasing residential mortgage rates and other factors 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 Page 45 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 2020 (Continued) 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 (leading to reduced profit margins when compared with aggregates moved by truck); 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 46 of 53
--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterSeptember 30, 2020 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter EndedSeptember 30, 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) 783-4691
Website address: www.martinmarietta.com
Information included on the Company's website is not incorporated into, or otherwise create a part of, this report.
Page 47 of 53--------------------------------------------------------------------------------
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter EndedSeptember 30, 2020
© Edgar Online, source
