þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
North Carolina | 56-1848578 | |
(State or other jurisdiction of | (I.R.S. Employer Identification Number) | |
incorporation or organization) |
2710 Wycliff Road, Raleigh, NC | 27607-3033 | |
(Address of principal executive offices) | (Zip Code) |
Former name: | None |
Class | Outstanding as of October 27, 2006 | |
Common Stock, $0.01 par value | 45,144,572 |
Page 1 of 47
Page 2 of 47
September 30, | December 31, | September 30, | ||||||||||
2006 | 2005 | 2005 | ||||||||||
(Unaudited) | (Audited) | (Unaudited) | ||||||||||
(Dollars in Thousands, Except Per Share Data) | ||||||||||||
ASSETS |
||||||||||||
Current Assets: |
||||||||||||
Cash and cash equivalents |
$ | 22,829 | $ | 76,745 | $ | 111,583 | ||||||
Investments |
| 25,000 | 25,000 | |||||||||
Accounts receivable, net |
293,702 | 225,012 | 288,422 | |||||||||
Inventories, net |
244,537 | 222,728 | 209,451 | |||||||||
Current portion of notes receivable |
2,299 | 5,081 | 3,787 | |||||||||
Current deferred income tax benefits |
16,022 | 14,989 | 6,088 | |||||||||
Other current assets |
28,900 | 32,486 | 21,842 | |||||||||
Total Current Assets |
608,289 | 602,041 | 666,173 | |||||||||
Property, plant and equipment |
2,695,560 | 2,501,774 | 2,452,704 | |||||||||
Allowances for depreciation and depletion |
(1,416,194 | ) | (1,335,423 | ) | (1,310,939 | ) | ||||||
Net property, plant and equipment |
1,279,366 | 1,166,351 | 1,141,765 | |||||||||
Goodwill |
570,336 | 569,263 | 569,284 | |||||||||
Other intangibles, net |
12,624 | 18,744 | 19,541 | |||||||||
Noncurrent notes receivable |
10,713 | 27,883 | 24,565 | |||||||||
Other noncurrent assets |
51,368 | 49,034 | 53,755 | |||||||||
Total Assets |
$ | 2,532,696 | $ | 2,433,316 | $ | 2,475,083 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||
Current Liabilities: |
||||||||||||
Bank overdraft |
$ | 9,720 | $ | 7,290 | $ | 13,724 | ||||||
Accounts payable |
89,650 | 93,445 | 94,754 | |||||||||
Accrued salaries, benefits and payroll taxes |
24,675 | 24,199 | 24,246 | |||||||||
Pension and postretirement benefits |
6,260 | 4,200 | 4,471 | |||||||||
Accrued insurance and other taxes |
46,436 | 39,582 | 45,092 | |||||||||
Income taxes |
10,253 | 1,336 | 18,611 | |||||||||
Current maturities of long-term debt and commercial paper |
137,606 | 863 | 880 | |||||||||
Other current liabilities |
35,095 | 29,207 | 33,540 | |||||||||
Total Current Liabilities |
359,695 | 200,122 | 235,318 | |||||||||
Long-term debt |
579,824 | 709,159 | 709,780 | |||||||||
Pension, postretirement and postemployment benefits |
97,222 | 98,714 | 88,273 | |||||||||
Noncurrent deferred income taxes |
144,540 | 149,972 | 135,117 | |||||||||
Other noncurrent liabilities |
89,345 | 101,664 | 105,046 | |||||||||
Total Liabilities |
1,270,626 | 1,259,631 | 1,273,534 | |||||||||
Shareholders Equity: |
||||||||||||
Common stock, par value $0.01 per share |
450 | 457 | 463 | |||||||||
Preferred stock, par value $0.01 per share |
| | | |||||||||
Additional paid-in capital |
186,611 | 240,541 | 299,193 | |||||||||
Accumulated other comprehensive loss |
(17,187 | ) | (15,325 | ) | (8,970 | ) | ||||||
Retained earnings |
1,092,196 | 948,012 | 910,863 | |||||||||
Total Shareholders Equity |
1,262,070 | 1,173,685 | 1,201,549 | |||||||||
Total Liabilities and Shareholders Equity |
$ | 2,532,696 | $ | 2,433,316 | $ | 2,475,083 | ||||||
Page 3 of 47
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(In Thousands, Except Per Share Data) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Net Sales |
$ | 529,643 | $ | 496,992 | $ | 1,472,270 | $ | 1,311,271 | ||||||||
Freight and delivery revenues |
74,464 | 66,922 | 204,387 | 184,916 | ||||||||||||
Total revenues |
604,107 | 563,914 | 1,676,657 | 1,496,187 | ||||||||||||
Cost of sales |
381,630 | 362,103 | 1,087,013 | 997,097 | ||||||||||||
Freight and delivery costs |
74,464 | 66,922 | 204,387 | 184,916 | ||||||||||||
Total cost of revenues |
456,094 | 429,025 | 1,291,400 | 1,182,013 | ||||||||||||
Gross Profit |
148,013 | 134,889 | 385,257 | 314,174 | ||||||||||||
Selling, general & administrative expenses |
35,254 | 33,526 | 108,563 | 97,155 | ||||||||||||
Research and development |
175 | 189 | 479 | 530 | ||||||||||||
Other operating (income) and expenses, net |
(2,131 | ) | (6,644 | ) | (9,421 | ) | (10,627 | ) | ||||||||
Earnings from Operations |
114,715 | 107,818 | 285,636 | 227,116 | ||||||||||||
Interest expense |
10,070 | 10,772 | 29,754 | 32,224 | ||||||||||||
Other nonoperating (income) and expenses, net |
239 | 189 | (2,161 | ) | (1,082 | ) | ||||||||||
Earnings from continuing operations before
income tax expense |
104,406 | 96,857 | 258,043 | 195,974 | ||||||||||||
Income tax expense |
28,699 | 20,810 | 76,665 | 48,543 | ||||||||||||
Earnings from continuing operations |
75,707 | 76,047 | 181,378 | 147,431 | ||||||||||||
Gain (Loss) on discontinued operations, net of related tax expense
(benefit) of $344, $582, $1,024 and $(670) respectively |
453 | 313 | 1,578 | (2,522 | ) | |||||||||||
Net Earnings |
$ | 76,160 | $ | 76,360 | $ | 182,956 | $ | 144,909 | ||||||||
Net Earnings (Loss) Per Common Share: |
||||||||||||||||
Basic from continuing operations |
$ | 1.67 | $ | 1.64 | $ | 3.98 | $ | 3.16 | ||||||||
Discontinued operations |
0.01 | 0.01 | 0.04 | (0.05 | ) | |||||||||||
$ | 1.68 | $ | 1.65 | $ | 4.02 | $ | 3.11 | |||||||||
Diluted from continuing operations |
$ | 1.64 | $ | 1.61 | $ | 3.90 | $ | 3.11 | ||||||||
Discontinued operations |
0.01 | 0.01 | 0.03 | (0.05 | ) | |||||||||||
$ | 1.65 | $ | 1.62 | $ | 3.93 | $ | 3.06 | |||||||||
Cash Dividends Per Common Share |
$ | 0.275 | $ | 0.23 | $ | 0.735 | $ | 0.63 | ||||||||
Reconciliation of denominators for basic and diluted earnings
per share computations: |
||||||||||||||||
Basic weighted average number of common shares |
45,275 | 46,349 | 45,561 | 46,658 | ||||||||||||
Effect of dilutive employee and director awards |
846 | 824 | 947 | 701 | ||||||||||||
Diluted weighted average number of common shares and
assumed conversions |
46,121 | 47,173 | 46,508 | 47,359 | ||||||||||||
Page 4 of 47
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
(Dollars in Thousands) | ||||||||
(Unaudited) | ||||||||
Net earnings |
$ | 182,956 | $ | 144,909 | ||||
Adjustments to reconcile net earnings to cash provided by
operating activities: |
||||||||
Depreciation, depletion and amortization |
102,694 | 103,390 | ||||||
Stock-based compensation expense |
9,679 | 2,488 | ||||||
Gains on divestitures and sales of assets |
(6,805 | ) | (6,234 | ) | ||||
Deferred income taxes |
(3,248 | ) | (4,400 | ) | ||||
Excess tax benefits from stock-based compensation transactions |
(11,343 | ) | 8,084 | |||||
Other items, net |
(3,347 | ) | (3,567 | ) | ||||
Changes in operating assets and liabilities,
net of effects of acquisitions and divestitures: |
||||||||
Accounts receivable, net |
(68,663 | ) | (68,834 | ) | ||||
Inventories, net |
(21,931 | ) | 2,035 | |||||
Accounts payable |
(3,796 | ) | 4,930 | |||||
Other assets and liabilities, net |
33,526 | 25,227 | ||||||
Net cash provided by operating activities |
209,722 | 208,028 | ||||||
Investing activities: |
||||||||
Additions to property, plant and equipment |
(212,587 | ) | (156,110 | ) | ||||
Acquisitions, net |
(2,992 | ) | (4,277 | ) | ||||
Proceeds from divestitures and sales of assets |
26,916 | 32,818 | ||||||
Purchases of investments |
| (25,000 | ) | |||||
Proceeds from sale of investments |
25,000 | | ||||||
Railcar construction advances |
(32,077 | ) | | |||||
Repayments of railcar construction advances |
32,077 | | ||||||
Other investing activities, net |
| (400 | ) | |||||
Net cash used for investing activities |
(163,663 | ) | (152,969 | ) | ||||
Financing activities: |
||||||||
Repayments of long-term debt |
(440 | ) | (498 | ) | ||||
Termination of interest rate swaps |
| (467 | ) | |||||
Borrowings on line of credit and commercial paper |
12,190 | | ||||||
Change in bank overdraft |
2,430 | 4,197 | ||||||
Payments on capital lease obligations |
(112 | ) | (59 | ) | ||||
Dividends paid |
(33,843 | ) | (29,345 | ) | ||||
Repurchases of common stock |
(112,594 | ) | (102,069 | ) | ||||
Issuances of common stock |
21,051 | 23,145 | ||||||
Excess tax benefits from stock-based compensation transactions |
11,343 | | ||||||
Net cash used for financing activities |
(99,975 | ) | (105,096 | ) | ||||
Net decrease in cash and cash equivalents |
(53,916 | ) | (50,037 | ) | ||||
Cash and cash equivalents, beginning of period |
76,745 | 161,620 | ||||||
Cash and cash equivalents, end of period |
$ | 22,829 | $ | 111,583 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest |
$ | 28,015 | $ | 27,755 | ||||
Cash payments for income taxes |
$ | 50,238 | $ | 36,169 |
Page 5 of 47
Shares of | Total | |||||||||||||||||||||||
Common | Common | Additional | Accumulated Other | Retained | Shareholders | |||||||||||||||||||
(in thousands) | Stock | Stock | Paid-in-Capital | Comprehensive Loss | Earnings | Equity | ||||||||||||||||||
Balance at December 31, 2005 |
45,727 | $ | 457 | $ | 240,541 | $ | (15,325 | ) | $ | 948,012 | $ | 1,173,685 | ||||||||||||
Writeoff of capitalized stripping costs, net |
| | | | (4,929 | ) | (4,929 | ) | ||||||||||||||||
Reclassification of stock-based compensation
liabilities
to shareholders equity for FAS 123(R) adoption |
| | 12,339 | | | 12,339 | ||||||||||||||||||
Net earnings |
| | | | 182,956 | 182,956 | ||||||||||||||||||
Change in fair value of forward starting interest rate
swap agreements |
| | | (1,862 | ) | | (1,862 | ) | ||||||||||||||||
Comprehensive earnings |
181,094 | |||||||||||||||||||||||
Dividends declared |
| | | | (33,843 | ) | (33,843 | ) | ||||||||||||||||
Issuances of common stock for stock award plans |
658 | 6 | 36,633 | | | 36,639 | ||||||||||||||||||
Repurchases of common stock |
(1,274 | ) | (13 | ) | (112,581 | ) | | | (112,594 | ) | ||||||||||||||
Stock-based compensation expense |
| | 9,679 | | | 9,679 | ||||||||||||||||||
Balance at September 30, 2006 |
45,111 | $ | 450 | $ | 186,611 | $ | (17,187 | ) | $ | 1,092,196 | $ | 1,262,070 | ||||||||||||
Page 6 of 47
1. | Significant Accounting Policies | |
Basis of Presentation | ||
The accompanying unaudited consolidated financial statements of Martin Marietta Materials, Inc. (the Corporation) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and to Article 10 of Regulation S-X. The Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Corporations Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission on February 27, 2006. In the opinion of management, the interim financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the interim periods. The results of operations for the nine months ended September 30, 2006 are not indicative of the results to be expected for the full year. | ||
Reclassifications | ||
Certain 2005 amounts have been reclassified to conform to the 2006 presentation. The reclassifications had no impact on previously reported net earnings or financial position. | ||
Sales Taxes | ||
Sales taxes collected from customers are recorded as liabilities until remitted to taxing authorities and therefore are not reflected in the consolidated statements of earnings. | ||
Stripping Costs | ||
Effective January 1, 2006, the Corporation adopted Emerging Issues Task Force Issue 04-06, Accounting for Stripping Costs in the Mining Industry (EITF 04-06). EITF 04-06 clarifies that post-production stripping costs, which represent costs of removing overburden and waste materials to access mineral deposits, should be considered costs of the extracted minerals under a full absorption costing system and recorded as a component of inventory to be recognized in costs of sales in the same period as the revenue from the sale of the inventory. Prior to the adoption of EITF 04-06, the Corporation capitalized certain post-production stripping costs and amortized these costs over the lesser of half of the life of the uncovered reserves or 5 years. | ||
In connection with the adoption of EITF 04-06, the Corporation wrote off $8,148,000 of capitalized post-production stripping costs previously reported as other noncurrent assets and a related deferred tax liability of $3,219,000, thereby reducing retained earnings by $4,929,000 at January 1, 2006. |
Page 7 of 47
1. | Significant Accounting Policies (continued) | |
Stock-Based Compensation | ||
The Corporation has stock-based compensation plans for employees and directors as more fully described in Note 9. Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123 (R)) to account for these plans. FAS 123 (R) requires all forms of share-based payments to employees, including stock options, to be recognized as compensation expense. The compensation expense is the fair value of the awards at the measurement date. Further, FAS 123 (R) requires compensation cost to be recognized over the requisite service period for all awards granted subsequent to adoption. As required by FAS 123 (R), the Corporation will continue to recognize compensation cost over the explicit vesting period for all unvested awards as of January 1, 2006, with acceleration for any remaining unrecognized compensation cost if an employee retires prior to the end of the vesting period. | ||
The Corporation adopted the provisions of FAS 123(R) using the modified prospective transition method, which recognizes stock option awards as compensation expense for unvested awards as of January 1, 2006 and awards granted or modified subsequent to that date. In accordance with the modified prospective transition method, the Corporations consolidated statements of earnings for the three and nine months ended September 30, 2005 and its consolidated statement of cash flows for the nine months ended September 30, 2005 have not been restated and do not include the impact of FAS 123(R). | ||
Under FAS 123(R), an entity may elect either the accelerated expense recognition method or a straight-line recognition method for awards subject to graded vesting based on a service condition. The Corporation elected to use the accelerated expense recognition method for stock options issued to employees. The accelerated recognition method requires stock options that vest ratably to be divided into tranches. The expense for each tranche is allocated to its particular vesting period. | ||
The adoption of FAS 123(R) did not change the Corporations accounting for stock-based compensation related to restricted stock awards, incentive compensation awards and nonemployee directors awards. The Corporation continues to expense the fair value of these awards based on the closing price of the Corporations common stock on the awards respective measurement dates. |
Page 8 of 47
1. | Significant Accounting Policies (continued) | |
Stock-Based Compensation (continued) | ||
The adoption of FAS 123(R) resulted in the recognition of compensation expense for stock options granted by the Corporation during the year. No stock options were granted during the quarter ended September 30, 2006. During the nine months ended September 30, 2006, the Corporation recognized $2,249,000 of compensation expense for the May 2006 grant of 168,393 stock options (141,393 to employees and 27,000 to directors). Of this amount, $885,000 relates to directors options that were expensed at the grant date as the options vested immediately. The remaining options are being expensed over their requisite service periods. With the current forfeiture rate assumptions, total stock-based compensation expense to be recognized for the May 2006 option grant is $5,397,000, of which $3,148,000 has yet to be recognized as of September 30, 2006. | ||
The impact of expensing stock options granted in 2006 and the unvested portion of outstanding employee stock options at January 1, 2006 affected the Corporations results of operations as follows: |
Three Months Ended | Nine Months Ended | |||||||
September 30, 2006 | September 30, 2006 | |||||||
Decreased earnings from continuing operations
before income tax expense by: |
$ | 1,440,000 | $ | 4,629,000 | ||||
Decreased earnings from continuing operations
and net earnings by: |
$ | 871,000 | $ | 2,799,000 | ||||
Decreased basic earnings per share by: |
$ | 0.02 | $ | 0.06 | ||||
Decreased diluted earnings per share by: |
$ | 0.02 | $ | 0.06 |
Furthermore, FAS 123(R) requires tax benefits attributable to stock-based compensation transactions to be classified as financing cash flows. Prior to the adoption of FAS 123(R), the Corporation presented excess tax benefits from stock-based compensation transaction as an operating cash flow on its consolidated statements of cash flows. The $11,343,000 excess tax benefit classified as a financing cash flow for the nine months ended September 30, 2006 would have been classified as an operating cash inflow had the Corporation not adopted FAS 123(R). | ||
In connection with the adoption of FAS 123(R), the Corporation reclassified $12,339,000 of stock-based compensation liabilities to additional paid-in-capital, thereby increasing shareholders equity at January 1, 2006. |
Page 9 of 47
1. | Significant Accounting Policies (continued) | |
Stock-Based Compensation (continued) | ||
Prior to January 1, 2006, the Corporation accounted for its stock-based compensation plans under the intrinsic value method prescribed by APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations. As the Corporation granted stock options with an exercise price equal to the market value of the stock on the date of grant, no stock-based compensation cost for stock options granted was recognized in net earnings as reported in the consolidated statements of earnings prior to adopting FAS 123(R). The following table illustrates the effect on net earnings and earnings per share if the Corporation had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123) (dollars in thousands, except per share amounts): |
Three Months Ended | Nine Months Ended | |||||||
September 30, 2005 | September 30, 2005 | |||||||
Net earnings, as reported |
$ | 76,360 | $ | 144,909 | ||||
Add: Stock-based compensation expense
included in reported net earnings,
net of
related tax effects |
569 | 1,425 | ||||||
Deduct: Stock-based compensation expense
determined under fair value for
all awards,
net of related tax effects |
(1,347 | ) | (4,288 | ) | ||||
Pro forma net earnings |
$ | 75,582 | $ | 142,046 | ||||
Earnings per share: |
||||||||
Basic-as reported |
$ | 1.65 | $ | 3.11 | ||||
Basic-pro forma |
$ | 1.63 | $ | 3.04 | ||||
Diluted-as reported |
$ | 1.62 | $ | 3.06 | ||||
Diluted-pro forma |
$ | 1.60 | $ | 3.00 | ||||
Page 10 of 47
1. | Significant Accounting Policies (continued) | |
Stock-Based Compensation (continued) | ||
The Corporation used a lattice valuation model to determine the fair value of stock option awards granted in 2006 and 2005. The lattice valuation model takes into account employees exercise patterns based on changes in the Corporations stock price and other variables and is considered to result in a more accurate valuation of employee stock options than the Black-Scholes valuation model. The period of time for which options are expected to be outstanding, or expected term of the option, is a derived output of the lattice valuation model. The Corporation considers the following factors when estimating the expected term of options: vesting period of the award, expected volatility of the underlying stock, employees ages and external data. Other key assumptions used in determining the fair value of the stock options awarded in 2006 and 2005 were: |
2006 | 2005 | |||||||
Risk-free interest rate |
4.90 | % | 3.80 | % | ||||
Dividend yield |
1.10 | % | 1.60 | % | ||||
Volatility factor |
31.20 | % | 30.80 | % | ||||
Expected term |
6.9 years | 6.3 years |
Based on these assumptions, the weighted-average fair value of each stock option granted was $33.21 for 2006 and $18.72 for 2005. | ||
The risk-free interest rate reflects the interest rate on zero-coupon U.S. government bonds available at the time each option was granted having a remaining life approximately equal to the options expected life. The dividend yield represents the dividend rate expected to be paid over the options expected life and is based on the Corporations historical dividend payments and targeted dividend pattern. The Corporations volatility factor measures the amount by which its stock price is expected to fluctuate during the expected life of the option and is based on historical stock price changes and other factors. Additionally, FAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Corporation estimated forfeitures and will ultimately recognize compensation cost only for those stock-based awards that vest. | ||
Comprehensive Earnings | ||
Comprehensive earnings for the Corporation consist of net earnings and, for the three and nine months ended September 30, 2006, a $1,862,000 loss for the change in fair value of forward starting interest rate swaps. For the three and nine months ended September 30, 2006, comprehensive earnings were $74,298,000 and $181,094,000, respectively. |
Page 11 of 47
2. | Business Combinations and Divestitures | |
In 2006 and 2005, the Corporation disposed of certain underperforming operations in its Aggregates operating segment. These divestitures represent discontinued operations, and, therefore, the results of their operations through the dates of disposal and any gain or loss on disposals are included in discontinued operations on the consolidated statements of earnings. | ||
The discontinued operations included the following net sales, pretax gain or loss on operations, pretax gain or loss on disposals, income tax expense or benefit and overall net earnings or loss (dollars in thousands): |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net sales |
$ | 95 | $ | 2,494 | $ | 387 | $ | 9,936 | ||||||||
Pretax gain (loss) on
operations |
$ | 50 | $ | 895 | $ | (368 | ) | $ | (2,268 | ) | ||||||
Pretax gain (loss) on disposals |
747 | | 2,970 | (924 | ) | |||||||||||
Pretax gain (loss) |
797 | 895 | 2,602 | (3,192 | ) | |||||||||||
Income tax expense (benefit) |
344 | 582 | 1,024 | (670 | ) | |||||||||||
Net earnings (loss) |
$ | 453 | $ | 313 | $ | 1,578 | $ | (2,522 | ) | |||||||
3. | Inventories |
September 30, | December 31, | September 30, | ||||||||||
2006 | 2005 | 2005 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Finished products |
$ | 198,541 | $ | 185,681 | $ | 174,645 | ||||||
Products in process and raw
materials |
17,975 | 17,990 | 17,443 | |||||||||
Supplies and expendable parts |
40,202 | 31,158 | 28,430 | |||||||||
256,718 | 234,829 | 220,518 | ||||||||||
Less allowances |
(12,181 | ) | (12,101 | ) | (11,067 | ) | ||||||
Total |
$ | 244,537 | $ | 222,728 | $ | 209,451 | ||||||
Page 12 of 47
4. | Goodwill | |
The following table shows changes in goodwill, all of which relate to the Aggregates segment (dollars in thousands): |
Three Months Ended | Nine Months Ended | |||||||
September 30, 2006 | September 30, 2006 | |||||||
Balance at beginning of period |
$ | 570,336 | $ | 569,263 | ||||
Adjustments to purchase price
allocations |
| 1,998 | ||||||
Amounts allocated to divestitures |
| (925 | ) | |||||
Balance at end of period |
$ | 570,336 | $ | 570,336 | ||||
5. | Long-Term Debt |
September 30, | December 31, | September 30, | ||||||||||
2006 | 2005 | 2005 | ||||||||||
(Dollars in Thousands) | ||||||||||||
6.875% Notes, due 2011 |
$ | 249,821 | $ | 249,800 | $ | 249,793 | ||||||
5.875% Notes, due 2008 |
204,746 | 206,277 | 206,775 | |||||||||
6.9% Notes, due 2007 |
124,994 | 124,988 | 124,987 | |||||||||
7% Debentures, due 2025 |
124,308 | 124,295 | 124,291 | |||||||||
Commercial paper and line of credit,
interest
rates ranging from 4.40 % to 5.45% |
12,190 | | | |||||||||
Acquisition notes, interest rates
ranging from 2.11% to 8.00% |
731 | 3,657 | 3,773 | |||||||||
Other notes |
640 | 1,005 | 1,041 | |||||||||
717,430 | 710,022 | 710,660 | ||||||||||
Less current maturities |
(137,606 | ) | (863 | ) | (880 | ) | ||||||
Total |
$ | 579,824 | $ | 709,159 | $ | 709,780 | ||||||
The carrying values of the notes due in 2008 included $5,022,000, $6,640,000 and $7,167,000 at September 30, 2006, December 31, 2005 and September 30, 2005, respectively, for the unamortized value of terminated interest rate swaps. | ||
In June 2006, the Corporation extended the expiration date of its $250,000,000 five-year revolving credit agreement (the Credit Agreement) by one year to June 30, 2011. No borrowings were outstanding under the Credit Agreement at September 30, 2006, December 31, 2005 or September 30, 2005. However, the Credit Agreement supports a $250,000,000 commercial paper program, of which borrowings of $11,000,000 were outstanding at September 30, 2006. No borrowings were outstanding under the commercial paper program at December 31, 2005 or September 30, 2005. |
Page 13 of 47
5. | Long-Term Debt (continued) | |
In September 2006, the Corporation entered into two forward starting interest rate swap agreements (the Swap Agreements) with a total notional amount of $150,000,000. Each of the two Swap Agreements covers $75,000,000 of principal. The Swap Agreements locked in at 5.42% the interest rate relative to LIBOR related to $150,000,000 of the Corporations anticipated refinancing of its $200,000,000 5.875% Notes due in 2008. Each of the Swap Agreements provides for a single payment at its mandatory termination date, December 1, 2008. If the LIBOR swap rate increases above 5.42% on the mandatory termination date, the Corporation will receive a payment from each of the counterparties based on the notional amount of each agreement over an assumed 10-year period. If the LIBOR swap rate falls below 5.42% on the mandatory termination date, the Corporation will be obligated to make a payment to each of the counterparties on the same basis. In accordance with Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities (FAS 133), the fair values of the Swap Agreements are recorded as an asset or liability in the consolidated balance sheet. The change in fair value is recorded directly in shareholders equity as other comprehensive earnings/loss. At September 30, 2006, the fair value of the Swap Agreements was a liability of $1,862,000 and was included in other noncurrent liabilities in the Corporations consolidated balance sheet with a corresponding loss of $1,862,000 recorded in other comprehensive earnings/loss. | ||
At September 30, 2006, $1,190,000 was outstanding under a $10,000,000 line of credit. No borrowings were outstanding under the line of credit at December 31, 2005 or September 30, 2005. | ||
6. | Income Taxes |
Nine Months Ended September 30, | ||||||||
2006 | 2005 | |||||||
Estimated effective income tax
rate: |
||||||||
Continuing operations |
29.7 | % | 24.8 | % | ||||
Discontinued operations |
39.4 | % | 21.0 | % | ||||
Overall |
29.8 | % | 24.8 | % | ||||
The Corporations effective tax rate reflects the effect of state income taxes and the impact of differences in book and tax accounting arising from the net permanent benefits associated with the depletion allowances for mineral reserves, the domestic production deduction, foreign operating earnings and the tax effect of nondeductibility of goodwill related to asset sales. The effective income tax rates for discontinued operations reflect the tax effects of individual operations transactions and are not indicative of the Corporations overall effective tax rate. |
Page 14 of 47
6. | Income Taxes (continued) | |
The change in the year-to-date estimated effective income tax rate during the third quarter of 2006, when compared with the year-to-date effective tax rate as of June 30, 2006, increased net earnings for the quarter ended September 30, 2006 by $2,679,000, or $0.06 per diluted share. The change was due to discrete tax events primarily consisting of the reversal of tax contingencies related to the expiration of the statute of limitations for the 2002 tax year, providing reserves for tax contingencies and the evaluation of deferred taxes. | ||
The change in the year-to-date estimated effective income tax rate during the third quarter of 2005, as compared with the year-to-date effective tax rate as of June 30, 2005, increased net earnings for the nine months ended September 30, 2005 by $6,000,000. Included in this change is $6,700,000, or $0.14 per diluted share, of discrete tax events primarily consisting of the reversal of $5,900,000 of reserves for tax contingencies related to the expiration of the statute of limitations for the 2001 tax year. | ||
The overall effective income tax rate for the nine months ended September 30, 2005 reflects the benefit of a decrease in tax reserves related to certain international tax issues currently under examination that increased net earnings by $1,000,000, or $0.02 per diluted share. Additionally, the State of Ohio enacted tax reform legislation that reduced income tax expense and increased net earnings by $1,200,000, or $0.02 per diluted share, during the nine months ended September 30, 2005. | ||
7. | Pension and Postretirement Benefits | |
The following presents the estimated components of the recorded net periodic benefit cost for pension and postretirement benefits for the quarter ended September 30 (dollars in thousands): |
Pension | Postretirement Benefits | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Service cost |
$ | 3,050 | $ | 2,698 | $ | 138 | $ | 141 | ||||||||
Interest cost |
4,523 | 4,115 | 670 | 743 | ||||||||||||
Expected return on assets |
(4,901 | ) | (4,422 | ) | | | ||||||||||
Amortization of: |
||||||||||||||||
Prior service cost |
185 | 165 | (324 | ) | (323 | ) | ||||||||||
Actuarial loss (gain) |
714 | 524 | (60 | ) | (37 | ) | ||||||||||
Total net periodic benefit cost |
$ | 3,571 | $ | 3,080 | $ | 424 | $ | 524 | ||||||||
Page 15 of 47
7. | Pension and Postretirement Benefits (continued) | |
The following presents the estimated components of the recorded net periodic benefit cost for pension and postretirement benefits for the nine months ended September 30 (dollars in thousands): |
Pension | Postretirement Benefits | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Service cost |
$ | 9,154 | $ | 8,155 | $ | 414 | $ | 425 | ||||||||
Interest cost |
13,577 | 12,435 | 2,009 | 2,234 | ||||||||||||
Expected return on assets |
(14,711 | ) | (13,364 | ) | | | ||||||||||
Amortization of: |
||||||||||||||||
Prior service cost |
556 | 499 | (971 | ) | (971 | ) | ||||||||||
Actuarial loss (gain) |
2,144 | 1,583 | (179 | ) | (110 | ) | ||||||||||
Total net periodic benefit cost |
$ | 10,720 | $ | 9,308 | $ | 1,273 | $ | 1,578 | ||||||||
The Corporation made a $12,000,000 voluntary contribution to its pension plan in the third quarter of 2006. The contribution was deductible for tax purposes for the 2005 tax year. No additional contributions are expected during the remainder of the year. | ||
8. | Contingencies | |
In the opinion of management and counsel, it is unlikely that the outcome of litigation and other proceedings, including those pertaining to environmental matters, relating to the Corporation and its subsidiaries, will have a material adverse effect on the results of the Corporations operations or its financial position. | ||
9. | Stock-Based Compensation | |
The shareholders approved, on May 23, 2006, the Martin Marietta Materials, Inc. Stock-Based Award Plan, as amended from time to time (along with the Amended Omnibus Securities Award Plan, originally approved in 1994, the Plans). The Corporation has been authorized by the Board of Directors to repurchase shares of the Corporations common stock for issuance under the Plans. | ||
Under the Plans, the Corporation grants options to employees to purchase its common stock at a price equal to the market value at the date of grant. The Corporation granted 141,393 employee stock options during the nine months ended September 30, 2006. Options granted in 2006 and 2005 become exercisable in four annual installments beginning one year after date of grant and expire eight years from such date. Options granted in years prior to 2005 become exercisable in three equal annual installments beginning one year after date of grant and expire ten years from such date. |
Page 16 of 47
9. | Stock-Based Compensation (continued) | |
Pursuant to the Plans, each nonemployee director currently receives 3,000 non-qualified stock options annually. During the nine months ended September 30, 2006, the Corporation granted 27,000 options to nonemployee directors. These options have an exercise price equal to the market value at the date of grant, vest immediately and expire ten years from the grant date. | ||
The following table includes summary information for stock options for employees and nonemployee directors for the nine months ended September 30, 2006: |
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Number of | Average | Remaining | Aggregate | |||||||||||||
Options | Exercise Price | Life (years) | Intrinsic Value | |||||||||||||
Outstanding at
December 31, 2005 |
2,478,220 | $ | 43.97 | |||||||||||||
Granted |
168,393 | $ | 89.02 | |||||||||||||
Exercised |
(778,784 | ) | $ | 42.48 | $ | 39,583,000 | ||||||||||
Terminated |
(16,593 | ) | $ | 58.38 | ||||||||||||
Outstanding at
September 30, 2006 |
1,851,236 | $ | 48.57 | 5.7 | $ | 66,730,000 | ||||||||||
Exercisable at
September 30, 2006 |
1,463,460 | $ | 44.67 | 5.2 | $ | 58,470,000 | ||||||||||
For the nine months ended September 30, 2005, the intrinsic value of options exercised was $21,448,000. The intrinsic values of options exercised during the nine months ended September 30, 2006 and 2005 were based on the closing prices of the Corporations common stock on the dates of exercise. The aggregate intrinsic value for options outstanding and exercisable at September 30, 2006 was based on the closing price of the Corporations common stock at September 30, 2006, which was $84.62. | ||
Additionally, an incentive stock plan has been adopted under the Plans whereby certain participants may elect to use up to 50% of their annual incentive compensation to acquire units representing shares of the Corporations common stock at a 20% discount to the market value on the date of the incentive compensation award. Certain executive officers are required to participate in the incentive stock plan at certain minimum levels. Participants earn the right to receive their respective shares at the discounted value generally at the end of a 35-month period of additional employment from the date of award or at retirement beginning at age 62. All rights of ownership of the common stock convey to the participants upon the issuance of their respective shares at the end of the ownership-vesting period, with the exception of dividend equivalents that are paid on the units during the vesting period. |
Page 17 of 47
9. | Stock-Based Compensation (continued) | |
The Corporation grants restricted stock awards under the Plans to a group of executive officers and key personnel. Certain restricted stock awards are based on specific common stock performance criteria over a specified period of time. In addition, certain awards were granted to individuals to encourage retention and motivate key employees. These awards generally vest if the employee is continuously employed over a specified period of time and require no payment from the employee. | ||
The following table summarizes information for incentive compensation awards and restricted stock awards for the nine months ended September 30, 2006: |
Incentive Compensation | Restricted Stock | |||||||||||||||
Awards | Awards | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Number of | Grant-Date | Number of | Grant-Date | |||||||||||||
Awards | Fair Value | Awards | Fair Value | |||||||||||||
Balance at December 31, 2005 |
69,855 | 276,712 | ||||||||||||||
Awarded |
27,302 | $ | 91.05 | 119,306 | $ | 88.85 | ||||||||||
Distributed |
(2,611 | ) | (695 | ) | ||||||||||||
Forfeited |
(4,064 | ) | (9,736 | ) | ||||||||||||
Balance at September 30, 2006 |
90,482 | 385,587 | ||||||||||||||
Aggregate intrinsic value |
$ | 3,140,000 | $ | 32,628,000 | ||||||||||||
The weighted-average grant-date fair value for incentive compensation awards and restricted awards granted during the nine months ended September 30, 2005 was $55.15 and $60.63, respectively. | ||
The aggregate intrinsic values for incentive compensation awards and restricted stock awards at September 30, 2006 were based on the closing price of the Corporations common stock at September 30, 2006, which was $84.62. | ||
At September 30, 2006, approximately 1,294,000 shares were available for grant under the Plans. | ||
In 1996, the Corporation adopted the Shareholder Value Achievement Plan to award shares of the Corporations common stock to key senior employees based on certain common stock performance criteria over a long-term period. Under the terms of this plan, 250,000 shares of common stock were reserved for issuance. Through September 30, 2006, 42,025 shares have been issued under this plan. No awards have been granted under this plan after 2000. |
Page 18 of 47
9. | Stock-Based Compensation (continued) | |
Also, the Corporation adopted and the shareholders approved the Common Stock Purchase Plan for Directors in 1996, which provides nonemployee directors the election to receive all or a portion of their total fees in the form of the Corporations common stock. The Corporation has reserved 300,000 shares of common stock for issuance in connection with this plan. Currently, directors are required to defer at least 50% of their retainer in the form of the Corporations common stock at a 20% discount to market value. Directors elected to defer portions of their fees representing 6,858 shares of the Corporations common stock under this plan during the nine months ended September 30, 2006. | ||
The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2006 and 2005, unrecognized compensation cost for nonvested awards at September 30, 2006 and the weighted-average period over which unrecognized compensation cost is expected to be recognized: |
Incentive | ||||||||||||||||||||
Stock | Restricted | Compensation | Directors | |||||||||||||||||
Options | Stock Awards | Awards | Awards | Total | ||||||||||||||||
Stock-based
compensation
expense recognized
for three months
ended September 30: |
||||||||||||||||||||
2006 |
$ | 1,440,000 | $ | 1,919,000 | $ | 99,000 | $ | 156,000 | $ | 3,614,000 | ||||||||||
2005 |
$ | | $ | 733,000 | $ | 78,000 | $ | 150,000 | $ | 961,000 | ||||||||||
Stock-based
compensation
expense recognized
for nine months
ended September 30: |
||||||||||||||||||||
2006 |
$ | 4,629,000 | $ | 4,181,000 | $ | 354,000 | $ | 515,000 | $ | 9,679,000 | ||||||||||
2005 |
$ | | $ | 1,773,000 | $ | 235,000 | $ | 480,000 | $ | 2,488,000 | ||||||||||
Unrecognized
compensation cost
at September 30,
2006: |
$ | 4,607,000 | $ | 12,965,000 | $ | 444,000 | $ | 236,000 | $ | 18,252,000 | ||||||||||
Weighted-average period over which
unrecognized
compensation cost
to be recognized: |
1.8 years | 2.5 years | 1.3 years | 0.6 years | ||||||||||||||||
For the nine months ended September 30, 2006, the Corporation recognized a tax benefit related to stock-based compensation of $3,791,000. |
Page 19 of 47
9. | Stock-Based Compensation (continued) | |
The following presents expected stock-based compensation expense in future periods for outstanding awards as of September 30, 2006: |
Remainder of 2006 |
$ | 3,549,000 | ||
2007 |
7,273,000 | |||
2008 |
4,302,000 | |||
2009 |
2,328,000 | |||
2010 |
691,000 | |||
2011 |
109,000 | |||
Total |
$ | 18,252,000 | ||
Stock-based compensation expense is included in selling, general and administrative expenses on the Corporations consolidated statements of earnings. | ||
10. | Business Segments | |
The Corporation conducts its operations through two reportable business segments: Aggregates and Specialty Products. The following tables display selected financial data for the Corporations reportable business segments (dollars in thousands): |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Total
revenues: |
||||||||||||||||
Aggregates |
$ | 564,077 | $ | 528,917 | $ | 1,550,861 | $ | 1,392,956 | ||||||||
Specialty Products |
40,030 | 34,997 | 125,796 | 103,231 | ||||||||||||
Total |
$ | 604,107 | $ | 563,914 | $ | 1,676,657 | $ | 1,496,187 | ||||||||
Net sales: |
||||||||||||||||
Aggregates |
$ | 493,768 | $ | 465,796 | $ | 1,358,558 | $ | 1,218,860 | ||||||||
Specialty Products |
35,875 | 31,196 | 113,712 | 92,411 | ||||||||||||
Total |
$ | 529,643 | $ | 496,992 | $ | 1,472,270 | $ | 1,311,271 | ||||||||
Earnings
from operations: |
||||||||||||||||
Aggregates |
$ | 109,619 | $ | 105,332 | $ | 266,551 | $ | 220,422 | ||||||||
Specialty Products |
5,096 | 2,486 | 19,085 | 6,694 | ||||||||||||
Total |
$ | 114,715 | $ | 107,818 | $ | 285,636 | $ | 227,116 | ||||||||
Page 20 of 47
11. | Accounting Changes | |
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Benefits, an amendment of FAS 87, 88, 106 and 132(R) (FAS 158). FAS 158 requires an employer that sponsors one or more defined benefit pension or other postretirement plans to recognize an asset or liability for the overfunded or underfunded status of the plan. Additionally, employers would be required to record all unrecognized prior service costs and credits, unrecognized actuarial gains and losses and any unrecognized transition obligations or assets in accumulated other comprehensive income. Such amounts would be reclassified into earnings as components of net period benefit cost/income pursuant to the current recognition and amortization provisions of Statements of Financial Accounting Standards No. 87, Employers Accounting for Pensions (FAS 87) and No. 106, Employers Accounting for Postretirement Benefits Other than Pensions (FAS 106). Finally, FAS 158 requires an employer to measure plan assets and benefit obligations as of the date of the employers statement of financial position. Except for the measurement date requirement, FAS 158 is effective for fiscal years ending after December 15, 2006 and should be applied prospectively. The measurement date requirement would be effective for fiscal years ending after December 31, 2008. At December 31, 2005, the Corporations pension plans were underfunded by $59,700,000 and its postretirement plans, which provide medical benefits for retirees, were underfunded by $51,600,000. Further, the Corporation currently uses an annual measurement date of November 30. The adoption of FAS 158 will not affect the Corporations consolidated results of operations. | ||
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertain Tax Positions, an Interpretation of FAS 109 (FIN 48), which clarifies the criteria for recognition and measurement of benefits from uncertain tax positions. Under FIN 48, an entity should recognize a tax benefit when it is more-likely-than-not, based on the technical merits, that the position would be sustained upon examination by a taxing authority. The amount to be recognized should be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Furthermore, any change in the recognition, derecognition or measurement of a tax position should be recognized in the interim period in which the change occurs. FIN 48 is effective January 1, 2007 for the Corporation, and any change in net assets as a result of applying the Interpretation will be recognized as an adjustment to retained earnings at that date. Management is in the process of evaluating its uncertain tax positions in accordance with FIN 48. |
Page 21 of 47
Three Months Ended | Nine Months Ended | |||||||
September 30, 2006 | September 30, 2006 | |||||||
Decreased earnings from continuing operations
before income tax expense by: |
$ | 1,440,000 | $ | 4,629,000 | ||||
Decreased earnings from continuing operations
and net earnings by: |
$ | 871,000 | $ | 2,799,000 | ||||
Decreased basic earnings per share by: |
$ | 0.02 | $ | 0.06 | ||||
Decreased diluted earnings per share by: |
$ | 0.02 | $ | 0.06 |
Page 22 of 47
| Nonqualified stock options to certain employees and nonemployee directors | ||
| Restricted stock awards to certain employees (restricted stock awards) | ||
| Stock awards to certain employees related to incentive compensation (incentive compensation awards) | ||
| Common stock purchase plan for nonemployee directors related to their annual retainer and meeting fees (directors awards) |
Page 23 of 47
Incentive | ||||||||||||||||||||
Stock | Restricted | Compensation | Directors | |||||||||||||||||
Options | Stock Awards | Awards | Awards | Total | ||||||||||||||||
Stock-based
compensation
expense recognized
for three months
ended September 30: |
||||||||||||||||||||
2006 |
$ | 1,440,000 | $ | 1,919,000 | $ | 99,000 | $ | 156,000 | $ | 3,614,000 | ||||||||||
2005 |
$ | | $ | 733,000 | $ | 78,000 | $ | 150,000 | $ | 961,000 | ||||||||||
Stock-based
compensation
expense recognized
for nine months
ended September 30: |
||||||||||||||||||||
2006 |
$ | 4,629,000 | $ | 4,181,000 | $ | 354,000 | $ | 515,000 | $ | 9,679,000 | ||||||||||
2005 |
$ | | $ | 1,773,000 | $ | 235,000 | $ | 480,000 | $ | 2,488,000 | ||||||||||
Unrecognized
compensation cost
at September 30,
2006: |
$ | 4,607,000 | $ | 12,965,000 | $ | 444,000 | $ | 236,000 | $ | 18,252,000 | ||||||||||
Weighted-average period over which
unrecognized
compensation cost
to be recognized: |
1.8 years | 2.5 years | 1.3 years | 0.6 years | ||||||||||||||||
Remainder of 2006 |
$ | 3,549,000 | ||
2007 |
7,273,000 | |||
2008 |
4,302,000 | |||
2009 |
2,328,000 | |||
2010 |
691,000 | |||
2011 |
109,000 | |||
Total |
$ | 18,252,000 | ||
2006 | 2005 | |||||||
Risk-free interest rate |
4.90 | % | 3.80 | % | ||||
Dividend yield |
1.10 | % | 1.60 | % | ||||
Volatility factor |
31.20 | % | 30.80 | % | ||||
Expected term |
6.9 years | 6.3 years |
An increase to the: | Results in a fair value that is: | |||
Price of the underlying common stock |
Higher | |||
Exercise price of option |
Lower | |||
Expected term of option |
Higher | |||
Risk-free interest rate |
Higher | |||
Expected dividends on stock |
Lower | |||
Expected volatility of stock |
Higher |
Options granted in 2006 and 2005
|
4-year graded vesting | |
Options granted prior to 2005
|
3-year graded vesting | |
Restricted stock awards
|
35 to 93 months (award specific) | |
Incentive compensation awards
|
35 months |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Gross profit |
$ | 148,013 | $ | 134,889 | $ | 385,257 | $ | 314,174 | ||||||||
Total revenues |
$ | 604,107 | $ | 563,914 | $ | 1,676,657 | $ | 1,496,187 | ||||||||
Gross margin |
24.5 | % | 23.9 | % | 23.0 | % | 21.0 | % | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Gross profit |
$ | 148,013 | $ | 134,889 | $ | 385,257 | $ | 314,174 | ||||||||
Total revenues |
$ | 604,107 | $ | 563,914 | $ | 1,676,657 | $ | 1,496,187 | ||||||||
Less: Freight and delivery
revenues |
(74,464 | ) | (66,922 | ) | (204,387 | ) | (184,916 | ) | ||||||||
Net sales |
$ | 529,643 | $ | 496,992 | $ | 1,472,270 | $ | 1,311,271 | ||||||||
Gross margin excluding
freight and delivery
revenues |
27.9 | % | 27.1 | % | 26.2 | % | 24.0 | % | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Earnings from operations |
$ | 114,715 | $ | 107,818 | $ | 285,636 | $ | 227,116 | ||||||||
Total revenues |
$ | 604,107 | $ | 563,914 | $ | 1,676,657 | $ | 1,496,187 | ||||||||
Operating margin |
19.0 | % | 19.1 | % | 17.0 | % | 15.2 | % | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Earnings from operations |
$ | 114,715 | $ | 107,818 | $ | 285,636 | $ | 227,116 | ||||||||
Total revenues |
$ | 604,107 | $ | 563,914 | $ | 1,676,657 | $ | 1,496,187 | ||||||||
Less: Freight and delivery
revenues |
(74,464 | ) | (66,922 | ) | (204,387 | ) | (184,916 | ) | ||||||||
Net sales |
$ | 529,643 | $ | 496,992 | $ | 1,472,270 | $ | 1,311,271 | ||||||||
Operating margin excluding
freight and delivery
revenues |
21.7 | % | 21.7 | % | 19.4 | % | 17.3 | % | ||||||||
| Net sales of $529.6 million, up 6.6% compared with the prior-year quarter | ||
| Heritage aggregates pricing up 13.0%; heritage volume decreased 5.8% | ||
| Aggregates segment gross margin excluding freight and delivery up 70 basis points over prior-year quarter | ||
| Magnesia Specialties earnings from operations up 13.0% over prior-year quarter | ||
| Consolidated gross profit increased 9.7% over prior-year quarter | ||
| Repurchased 359,800 shares of common stock |
Three Months Ended September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Net Sales | Amount | Net Sales | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Aggregates |
$ | 493,768 | 100.0 | $ | 465,796 | 100.0 | ||||||||||
Specialty Products |
35,875 | 100.0 | 31,196 | 100.0 | ||||||||||||
Total |
$ | 529,643 | 100.0 | $ | 496,992 | 100.0 | ||||||||||
Gross profit: |
||||||||||||||||
Aggregates |
$ | 140,153 | 28.4 | $ | 129,251 | 27.7 | ||||||||||
Specialty Products |
7,860 | 21.9 | 5,638 | 18.1 | ||||||||||||
Total |
$ | 148,013 | 27.9 | $ | 134,889 | 27.1 | ||||||||||
Selling, general & administrative expenses: |
||||||||||||||||
Aggregates |
$ | 32,571 | 6.6 | $ | 30,662 | 6.6 | ||||||||||
Specialty Products |
2,683 | 7.5 | 2,864 | 9.2 | ||||||||||||
Total |
$ | 35,254 | 6.7 | $ | 33,526 | 6.7 | ||||||||||
Other operating (income) and expenses, net: |
||||||||||||||||
Aggregates |
$ | (2,037 | ) | (0.4 | ) | $ | (6,743 | ) | (1.4 | ) | ||||||
Specialty Products |
(94 | ) | (0.3 | ) | 99 | 0.3 | ||||||||||
Total |
$ | (2,131 | ) | (0.4 | ) | $ | (6,644 | ) | (1.3 | ) | ||||||
Earnings from operations: |
||||||||||||||||
Aggregates |
$ | 109,619 | 22.2 | $ | 105,332 | 22.6 | ||||||||||
Specialty Products |
5,096 | 14.2 | 2,486 | 8.0 | ||||||||||||
Total |
$ | 114,715 | 21.7 | $ | 107,818 | 21.7 | ||||||||||
Three Months Ended | ||||||||
September 30, 2006 | ||||||||
Volume/Pricing Variance (1) |
Volume | Pricing | ||||||
Heritage Aggregates Operations (2) |
(5.8 | %) | 13.0 | % | ||||
Aggregates Segment (3) |
(6.3 | %) | 13.1 | % |
Three Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Shipments (tons in thousands) |
||||||||
Heritage Aggregates Operations (2) |
54,190 | 57,542 | ||||||
Acquisitions |
| | ||||||
Divestitures(4) |
15 | 333 | ||||||
Aggregates Segment (3) |
54,205 | 57,875 | ||||||
(1) | Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year. | |
(2) | Heritage Aggregates operations exclude acquisitions that have not been included in prior-year operations for a full year and divestitures. | |
(3) | Aggregates segment includes all acquisitions from the date of acquisition and divestitures through the date of disposal. | |
(4) | Divestitures include the tons related to divested operations up to the date of divestiture. |
| Earnings per diluted share of $3.93, up 28.4% as compared with $3.06 in the prior year | ||
| Net sales of $1.5 billion, up 12.3% as compared with the prior year | ||
| Heritage aggregates pricing up 13.0%; heritage volume down 0.8% | ||
| Consolidated gross margin excluding freight and delivery revenues increased 180 basis points over prior year | ||
| Specialties Products earnings from operations increased $12.4 million over prior year primarily based on continued improvement in the Magnesia Specialties business | ||
| Consolidated earnings from operations increased 25.8% over prior year | ||
| Repurchased 1,274,200 shares of common stock for $112.6 million |
Nine Months Ended September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Net Sales | Amount | Net Sales | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Aggregates |
$ | 1,358,558 | 100.0 | $ | 1,218,860 | 100.0 | ||||||||||
Specialty Products |
113,712 | 100.0 | 92,411 | 100.0 | ||||||||||||
Total |
$ | 1,472,270 | 100.0 | $ | 1,311,271 | 100.0 | ||||||||||
Gross profit: |
||||||||||||||||
Aggregates |
$ | 357,970 | 26.3 | $ | 298,413 | 24.5 | ||||||||||
Specialty Products |
27,287 | 24.0 | 15,761 | 17.1 | ||||||||||||
Total |
$ | 385,257 | 26.2 | $ | 314,174 | 24.0 | ||||||||||
Selling, general & administrative expenses: |
||||||||||||||||
Aggregates |
$ | 100,435 | 7.4 | $ | 88,710 | 7.3 | ||||||||||
Specialty Products |
8,128 | 7.1 | 8,445 | 9.1 | ||||||||||||
Total |
$ | 108,563 | 7.4 | $ | 97,155 | 7.4 | ||||||||||
Other operating (income) and expenses, net: |
||||||||||||||||
Aggregates |
$ | (9,016 | ) | (0.7 | ) | $ | (10,719 | ) | (0.9 | ) | ||||||
Specialty Products |
(405 | ) | (0.4 | ) | 92 | 0.1 | ||||||||||
Total |
$ | (9,421 | ) | (0.6 | ) | $ | (10,627 | ) | (0.8 | ) | ||||||
Earnings from operations: |
||||||||||||||||
Aggregates |
$ | 266,551 | 19.6 | $ | 220,422 | 18.1 | ||||||||||
Specialty Products |
19,085 | 16.8 | 6,694 | 7.2 | ||||||||||||
Total |
$ | 285,636 | 19.4 | $ | 227,116 | 17.3 | ||||||||||
Nine Months Ended | ||||||||
September 30, 2006 | ||||||||
Volume | Pricing | |||||||
Volume/Pricing Variance (1) |
||||||||
Heritage Aggregates Operations (2) |
(0.8 | %) | 13.0 | % | ||||
Aggregates Segment (3) |
(1.4 | %) | 13.1 | % |
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Shipments (tons in thousands) |
||||||||
Heritage Aggregates Operations (2) |
151,736 | 152,944 | ||||||
Acquisitions |
| | ||||||
Divestitures(4) |
60 | 1,061 | ||||||
Aggregates Segment (3) |
151,796 | 154,005 | ||||||
(1) | Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year. | |
(2) | Heritage Aggregates operations exclude acquisitions that have not been included in prior-year operations for a full year and divestitures. | |
(3) | Aggregates segment includes all acquisitions from the date of acquisition and divestitures through the date of disposal. | |
(4) | Divestitures include the tons related to divested operations up to the date of divestiture. |
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Depreciation |
$ | 95.1 | $ | 96.0 | ||||
Depletion |
4.6 | 3.9 | ||||||
Amortization |
3.0 | 3.5 | ||||||
$ | 102.7 | $ | 103.4 | |||||
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Total Number of Shares | Maximum Number of | |||||||||||||||
Purchased as Part of | Shares that May Yet be | |||||||||||||||
Total Number of | Average Price Paid | Publicly Announced | Purchased Under the | |||||||||||||
Period | Shares Purchased | per Share | Plans or Programs | Plans or Programs | ||||||||||||
July 1, 2006 July 31, 2006 |
| $ | | | 5,190,798 | |||||||||||
August 1, 2006 August 31, 2006 |
180,000 | $ | 82.51 | 180,000 | 5,010,798 | |||||||||||
September 1, 2006 September 30, 2006 |
179,800 | $ | 80.99 | 179,800 | 4,830,998 | |||||||||||
Total |
359,800 | $ | 81.75 | 359,800 | 4,830,998 |
Page 44 of 47
Exhibit | ||
No. | Document | |
31.01
|
Exhibit Regulation FD Disclosure Written Statement dated October 31, 2006 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.02
|
Exhibit Regulation FD Disclosure Written Statement dated October 31, 2006 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.01
|
Additional Exhibit Regulation FD Disclosure Written Statement dated October 31, 2006 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.02
|
Additional Exhibit Regulation FD Disclosure Written Statement dated October 31, 2006 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Page 45 of 47
MARTIN MARIETTA MATERIALS, INC. (Registrant) |
||||
Date: October 31, 2006 | By: | /s/ ANNE H. LLOYD | ||
Anne H. Lloyd | ||||
Senior Vice President and Chief Financial Officer |
Page 46 of 47
Exhibit No. | Document | |
31.01
|
Exhibit Regulation FD Disclosure Written Statement dated October 31, 2006 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.02
|
Exhibit Regulation FD Disclosure Written Statement dated October 31, 2006 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.01
|
Exhibit Regulation FD Disclosure Written Statement dated October 31, 2006 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.02
|
Exhibit Regulation FD Disclosure Written Statement dated October 31, 2006 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Page 47 of 47