Martin Marietta Materials, Inc.
Table of Contents

 
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File Number 1-12744
MARTIN MARIETTA MATERIALS, INC.
 
(Exact name of registrant as specified in its charter)
     
North Carolina   56-1848578
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification Number)
     
2710 Wycliff Road, Raleigh, NC   27607-3033
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code 919-781-4550
     
Former name:
  None
 
 
 
  Former name, former address and former fiscal year,
 
  if changes since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ               No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ               Accelerated filer o               Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o               No þ
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
     
Class   Outstanding as of October 26, 2007
     
Common Stock, $0.01 par value   41,859,683
 
 

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
             
        Page  
Part I. Financial Information:        
 
           
Item 1. Financial Statements.
       
 
           
 
  Consolidated Balance Sheets —
       
 
      3  
 
           
 
  Consolidated Statements of Earnings —        
 
      4  
 
           
 
  Consolidated Statements of Cash Flows —
       
 
 
Nine Months Ended September 30, 2007 and 2006
    5  
 
           
 
  Consolidated Statement of Shareholders’ Equity     6  
 
           
 
  Condensed Notes to Consolidated Financial Statements     7  
 
           
    17  
 
           
    35  
 
           
    36  
 
           
Part II. Other Information:        
 
           
Item 1. Legal Proceedings.
    37  
 
           
Item 1A. Risk Factors.
    37  
 
           
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    37  
 
           
Item 6. Exhibits.
    38  
 
           
Signatures     39  
 
           
Exhibit Index     40  
 Exhibit 31.01
 Exhibit 31.02
 Exhibit 32.01
 Exhibit 32.02

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
Item 1. Financial Statements.
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                         
    September 30,     December 31,     September 30,  
    2007     2006     2006  
    (Unaudited)     (Audited)     (Unaudited)  
    (Dollars in Thousands, Except Per Share Data)  
ASSETS
                       
Current Assets:
                       
Cash and cash equivalents
  $ 26,417     $ 32,282     $ 22,829  
Accounts receivable, net
    312,265       242,399       293,702  
Inventories, net
    285,252       256,287       244,537  
Current portion of notes receivable, net
    1,912       2,521       2,299  
Current deferred income tax benefits
    42,118       25,317       16,022  
Other current assets
    22,896       33,548       28,900  
 
                 
Total Current Assets
    690,860       592,354       608,289  
 
                 
 
                       
Property, plant and equipment
    2,924,336       2,739,327       2,695,560  
Allowances for depreciation, depletion and amortization
    (1,518,620 )     (1,443,836 )     (1,416,194 )
 
                 
Net property, plant and equipment
    1,405,716       1,295,491       1,279,366  
 
                       
Goodwill
    574,667       570,538       570,336  
Other intangibles, net
    9,850       10,948       12,624  
Noncurrent notes receivable
    8,801       10,355       10,713  
Other noncurrent assets
    32,056       26,735       51,368  
 
                 
 
                       
Total Assets
  $ 2,721,950     $ 2,506,421     $ 2,532,696  
 
                 
 
                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Current Liabilities:
                       
Bank overdraft
  $ 120     $ 8,390     $ 9,720  
Accounts payable
    92,845       85,237       89,650  
Accrued salaries, benefits and payroll taxes
    22,853       25,010       24,675  
Pension and postretirement benefits
    9,285       6,100       6,260  
Accrued insurance and other taxes
    38,578       32,297       46,436  
Income taxes and current reserves for uncertain tax positions
    30,630             10,253  
Current maturities of long-term debt, commercial paper and line of credit
    78,069       125,956       137,606  
Other current liabilities
    44,251       32,082       35,095  
 
                 
Total Current Liabilities
    316,631       315,072       359,695  
 
                       
Long-term debt
    1,050,705       579,308       579,824  
Pension, postretirement and postemployment benefits
    95,287       106,413       97,222  
Noncurrent deferred income taxes and reserves for uncertain tax positions
    165,592       159,094       144,540  
Other noncurrent liabilities
    106,452       92,562       89,345  
 
                 
Total Liabilities
    1,734,667       1,252,449       1,270,626  
 
                 
 
                       
Shareholders’ Equity:
                       
Common stock, par value $0.01 per share
    418       448       450  
Preferred stock, par value $0.01 per share
                 
Additional paid-in capital
    53,314       147,491       186,611  
Accumulated other comprehensive loss
    (30,071 )     (36,051 )     (17,187 )
Retained earnings
    963,622       1,142,084       1,092,196  
 
                 
Total Shareholders’ Equity
    987,283       1,253,972       1,262,070  
 
                 
 
                       
Total Liabilities and Shareholders’ Equity
  $ 2,721,950     $ 2,506,421     $ 2,532,696  
 
                 
See accompanying condensed notes to consolidated financial statements.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2007     2006     2007     2006  
    (In Thousands, Except Per Share Data)  
    (Unaudited)  
 
                               
Net Sales
  $ 548,923     $ 527,381     $ 1,497,318     $ 1,466,649  
Freight and delivery revenues
    71,294       74,272       179,412       204,042  
 
                       
Total revenues
    620,217       601,653       1,676,730       1,670,691  
 
                       
 
                               
Cost of sales
    381,557       378,094       1,057,761       1,078,528  
Freight and delivery costs
    71,294       74,272       179,412       204,042  
 
                       
Total cost of revenues
    452,851       452,366       1,237,173       1,282,570  
 
                       
 
                               
Gross Profit
    167,366       149,287       439,557       388,121  
 
                               
Selling, general & administrative expenses
    36,439       35,254       119,021       108,563  
Research and development
    170       175       559       479  
Other operating (income) and expenses, net
    (6,191 )     (2,154 )     (11,520 )     (9,358 )
 
                       
Earnings from Operations
    136,948       116,012       331,497       288,437  
 
                               
Interest expense
    17,240       10,070       45,142       29,754  
Other nonoperating (income) and expenses, net
    (1,273 )     239       (5,114 )     (2,163 )
 
                       
Earnings from continuing operations before income tax expense
    120,981       105,703       291,469       260,846  
Income tax expense
    31,110       29,199       86,246       77,673  
 
                       
 
                               
Earnings from continuing operations
    89,871       76,504       205,223       183,173  
Gain (Loss) on discontinued operations, net of related tax expense (benefit) of $402, $(156), $867 and $16, respectively
    395       (344 )     985       (217 )
 
                       
Net Earnings
  $ 90,266     $ 76,160     $ 206,208     $ 182,956  
 
                       
 
                               
Net Earnings (Loss) Per Common Share:
                               
Basic from continuing operations
  $ 2.15     $ 1.69     $ 4.78     $ 4.02  
Discontinued operations
    0.01       (0.01 )     0.02        
 
                       
 
  $ 2.16     $ 1.68     $ 4.80     $ 4.02  
 
                       
 
                               
Diluted from continuing operations
  $ 2.11     $ 1.66     $ 4.71     $ 3.93  
Discontinued operations
    0.01       (0.01 )     0.02        
 
                       
 
  $ 2.12     $ 1.65     $ 4.73     $ 3.93  
 
                       
 
                               
Cash Dividends Per Common Share
  $ 0.345     $ 0.275     $ 0.895     $ 0.735  
 
                       
 
                               
Reconciliation of denominators for basic and diluted earnings per share computations:
                               
Basic weighted average number of common shares
    41,817       45,275       42,931       45,561  
Effect of dilutive employee and director awards
    662       846       704       947  
 
                       
Diluted weighted average number of common shares and assumed conversions
    42,479       46,121       43,635       46,508  
 
                       
See accompanying condensed notes to consolidated financial statements.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
    Nine Months Ended  
    September 30,  
    2007     2006  
    (Dollars in Thousands)  
    (Unaudited)  
 
               
Net earnings
  $ 206,208     $ 182,956  
Adjustments to reconcile net earnings to cash provided by operating activities:
               
Depreciation, depletion and amortization
    111,087       102,694  
Stock-based compensation expense
    16,363       9,679  
Gains on divestitures and sales of assets
    (9,192 )     (6,805 )
Deferred income taxes
    1,691       (3,248 )
Excess tax benefits from stock-based compensation transactions
    (20,153 )     (11,343 )
Other items, net
    (2,648 )     (3,347 )
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
               
Accounts receivable, net
    (70,292 )     (68,663 )
Inventories, net
    (29,842 )     (21,931 )
Accounts payable
    6,824       (3,796 )
Other assets and liabilities, net
    62,727       33,526  
 
           
 
               
Net cash provided by operating activities
    272,773       209,722  
 
           
 
               
Investing activities:
               
Additions to property, plant and equipment
    (196,939 )     (212,587 )
Acquisitions, net
    (12,195 )     (2,992 )
Proceeds from divestitures and sales of assets
    17,026       26,916  
Proceeds from sale of investments
          25,000  
Railcar construction advances
          (32,077 )
Repayments of railcar construction advances
          32,077  
 
           
 
               
Net cash used for investing activities
    (192,108 )     (163,663 )
 
           
 
               
Financing activities:
               
Net borrowings (repayments) of long-term debt and capital lease payments
    346,501       (552 )
Net borrowings on commercial paper and line of credit
    75,463       12,190  
Debt issuance costs
    (807 )      
Change in bank overdraft
    (8,270 )     2,430  
Dividends paid
    (38,972 )     (33,843 )
Repurchases of common stock
    (495,160 )     (112,594 )
Issuances of common stock
    14,562       21,051  
Excess tax benefits from stock-based compensation transactions
    20,153       11,343  
 
           
 
               
Net cash used for financing activities
    (86,530 )     (99,975 )
 
           
 
               
Net decrease in cash and cash equivalents
    (5,865 )     (53,916 )
Cash and cash equivalents, beginning of period
    32,282       76,745  
 
           
 
               
Cash and cash equivalents, end of period
  $ 26,417     $ 22,829  
 
           
 
               
Noncash investing and financing activities:
               
Issuance of notes payable for acquisition of land
  $ 2,897     $  
Revisions in estimated cash flows of asset retirement obligations
  $ 15,000     $ 1,154  
 
               
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ 33,677     $ 28,015  
Cash payments for income taxes
  $ 32,086     $ 50,238  
See accompanying condensed notes to consolidated financial statements.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
                                                 
    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, 2006
    44,851     $ 448     $ 147,491     $ (36,051 )   $ 1,142,084     $ 1,253,972  
Increase in reserves for uncertain tax positions for FIN 48 adoption
                            (1,407 )     (1,407 )
 
                                               
Net earnings
                            206,208       206,208  
Amortization of unrecognized actuarial losses, prior service costs and transition assets related to pension and postretirement benefits, net of tax
                      1,705             1,705  
Foreign currency translation gain, net of tax
                      3,704             3,704  
Change in fair value of forward starting interest rate swap agreements, net of tax
                      571             571  
 
                                             
Comprehensive earnings
                                            212,188  
 
                                               
Dividends declared
                            (38,972 )     (38,972 )
Issuances of common stock for stock award plans
    592       6       40,293                   40,299  
Repurchases of common stock (1)
    (3,585 )     (36 )     (150,833 )           (344,291 )     (495,160 )
Stock-based compensation expense
                16,363                   16,363  
     
Balance at September 30, 2007
    41,858     $ 418     $ 53,314     $ (30,071 )   $ 963,622     $ 987,283  
     
 
(1)   Repurchases of common stock in excess of the value of additional paid-in capital were recorded against retained earnings. Additional paid-in-capital at September 30, 2007 represents the pool of excess tax benefits and a portion of the expense related to stock options, restricted stock awards and incentive stock awards.
See accompanying condensed notes to consolidated financial statements.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007. 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, financial position and cash flows for the interim periods. The results of operations for the quarter and for the nine months ended September 30, 2007 are not indicative of the results expected for other interim periods or the full year.
 
    Retirement Plans and Postretirement Benefits
 
    On December 31, 2006, the Corporation adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FAS 87, 88, 106 and 132(R) (“FAS 158”) prospectively. In connection with the adoption, the Corporation increased accumulated other comprehensive loss by $20,418,000, net of tax, at December 31, 2006 for the net unrecognized actuarial losses, unrecognized prior service costs and unrecognized transition assets remaining from the initial adoption of FAS 87 and FAS 106. During the nine months ended September 30, 2007, $1,705,000, net of tax, of these unrecognized amounts was recognized as a component of net periodic benefit cost pursuant to the Corporation’s historical accounting policy for amortizing such amounts.
 
    Uncertain Tax Positions
 
    Effective January 1, 2007, the Corporation adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FAS 109 (“FIN 48”). FIN 48 requires the recognition of 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.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.   Significant Accounting Policies (continued)
 
    Uncertain Tax Positions (continued)
 
    In connection with the adoption of FIN 48, the Corporation increased its reserves for uncertain tax positions and reduced retained earnings at January 1, 2007 by $1,407,000, primarily as a result of providing interest accruals on uncertain temporary tax positions related to temporary or timing differences.
 
    The adoption of FIN 48 affected the Corporation’s results of operations as follows:
                 
    Three Months Ended   Nine Months Ended
    September 30, 2007   September 30, 2007
Decreased earnings from continuing operations and net earnings by:
  $ 554,000     $ 1,985,000  
Decreased basic and diluted earnings per share by:
  $ 0.01     $ 0.05  
    The following table summarizes the Corporation’s FIN 48 unrecognized tax benefits:
                 
    Adoption of FIN 48    
    January 1, 2007   September 30, 2007
Total amount of gross unrecognized tax benefits, excluding interest
  $ 29,248,000     $ 29,354,000  
Unrecognized tax benefits, net of federal tax benefits, related to interest accruals and permanent income tax differences that would favorably affect the effective tax rate if recognized
  $ 10,577,000     $ 7,026,000  
    During the quarter ended September 30, 2007, the Corporation reduced its unrecognized tax benefits by $8,655,000 when the federal statute of limitations for examination of the 2003 tax year expired. Additionally, the Corporation increased its unrecognized tax benefits by $8,761,000 for current year tax positions during the nine months ended September 30, 2007.
 
    The Corporation anticipates that it is reasonably possible that the total amounts of unrecognized tax benefits may significantly change within the succeeding twelve months as a result of settlement of the Internal Revenue Service audits for the 2004 and 2005 tax years. The Corporation estimates that these events could result in a reasonably possible change in unrecognized tax benefits ranging from $0 to $10,029,000.
 
    The Corporation records interest accrued in relation to unrecognized tax benefits as income tax expense and penalties, if incurred, are recorded as other nonoperating expenses in the consolidated statement of earnings. Accrued interest of $4,030,000 and $4,698,000 was recorded as a current FIN 48 liability in the Corporation’s consolidated balance sheet at September 30, 2007 and January 1, 2007, respectively.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.   Significant Accounting Policies (continued)
 
    Uncertain Tax Positions (continued)
 
    The Corporation’s open tax years subject to examination are 2004 through 2006. The Internal Revenue Service is currently auditing the Corporation’s consolidated federal income tax returns for the years ended December 31, 2005 and 2004.
 
    Comprehensive Earnings
 
    Comprehensive earnings for the three and nine months ended September 30, 2007 were $89,769,000 and $212,188,000, respectively, and consisted of net earnings, foreign currency translation adjustments, changes in the fair value of forward starting interest rate swap agreements and the amortization of unrecognized amounts related to pension and postretirement benefits. For the three and nine month periods ended September 30, 2006, comprehensive earnings were $74,298,000 and $181,094,000, respectively, and consisted of net earnings and changes in the fair value of forward starting interest rate swap agreements.
 
2.   Divestitures and Discontinued Operations
 
    In 2007, the Corporation disposed of or permanently shut down certain underperforming operations in the following markets:
     
Reportable Segment   Markets
Mideast Group
  West Virginia
West Group
  Iowa, Kansas and New Mexico
    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.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.   Divestitures and Discontinued Operations (continued)
 
    The discontinued operations included the following net sales, pretax loss on operations, pretax gain on disposals, income tax expense or benefit and overall net earnings or loss:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2007     2006     2007     2006  
    (Dollars in Thousands)  
 
                               
Net sales
  $ 85     $ 2,357     $ 1,027     $ 6,008  
 
                       
 
                               
Pretax loss on operations
  $ (138 )   $ (1,247 )   $ (674 )   $ (3,169 )
Pretax gain on disposals
    935       747       2,526       2,968  
 
                       
Pretax gain (loss)
    797       (500 )     1,852       (201 )
Income tax expense (benefit)
    402       (156 )     867       16  
 
                       
Net earnings (loss)
  $ 395     $ (344 )   $ 985     $ (217 )
 
                       
3.   Inventories
                         
    September 30,     December 31,     September 30,  
    2007     2006     2006  
    (Dollars in Thousands)  
 
                       
Finished products
  $ 239,879     $ 213,302     $ 198,541  
Products in process and raw materials
    18,559       19,271       17,975  
Supplies and expendable parts
    42,350       37,935       40,202  
 
                 
 
    300,788       270,508       256,718  
Less allowances
    (15,536 )     (14,221 )     (12,181 )
 
                 
Total
  $ 285,252     $ 256,287     $ 244,537  
 
                 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.   Goodwill
 
    The following table shows changes in goodwill, all of which relate to the Aggregates business, by reportable segment and in total (dollars in thousands):
                                 
    Three Months Ended September 30, 2007
    Mideast   Southeast   West    
    Group   Group   Group   Total
 
                               
Balance at beginning of period
  $ 106,757     $ 60,494     $ 407,416     $ 574,667  
Acquisitions
                       
Divestitures
                       
 
   
Balance at end of period
  $ 106,757     $ 60,494     $ 407,416     $ 574,667  
 
   
                                 
    Nine Months Ended September 30, 2007
    Mideast   Southeast   West    
    Group   Group   Group   Total
 
                               
Balance at beginning of period
  $ 106,757     $ 60,494     $ 403,287     $ 570,538  
Acquisitions
                5,132       5,132  
Divestitures
                (1,003 )     (1,003 )
 
   
Balance at end of period
  $ 106,757     $ 60,494     $ 407,416     $ 574,667  
 
   
5.   Long-Term Debt
                         
    September 30,     December 31,     September 30,  
    2007     2006     2006  
    (Dollars in Thousands)  
 
                       
6.875% Notes, due 2011
  $ 249,852     $ 249,829     $ 249,821  
5.875% Notes, due 2008
    202,614       204,224       204,746  
6.9% Notes, due 2007
          124,995       124,994  
7% Debentures, due 2025
    124,326       124,312       124,308  
6.25% Senior Notes, due 2037
    247,788              
Floating Rate Senior Notes, due 2010, interest rate of 5.51%
    224,322              
Commercial paper and line of credit, interest rates ranging from 4.40% to 5.83%
    76,000       537       12,190  
Acquisition notes, interest rates ranging from 2.11% to 8.00%
    668       702       731  
Other notes
    3,204       665       640  
 
                 
 
    1,128,774       705,264       717,430  
Less current maturities
    (78,069 )     (125,956 )     (137,606 )
 
                 
Total
  $ 1,050,705     $ 579,308     $ 579,824  
 
                 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.   Long-Term Debt (continued)
 
    On April 25, 2007, the Corporation issued $250,000,000 of 6.25% Senior Notes due in 2037 and $225,000,000 of Floating Rate Senior Notes due in 2010 (collectively, the “Senior Notes”). The 6.25% Senior Notes may be redeemed in whole or in part prior to their maturity at a “make whole” redemption price. The Floating Rate Senior Notes bear interest at a rate equal to the three-month LIBOR (5.36% at September 30, 2007) plus 0.15% and may not be redeemed prior to maturity. Upon a change of control repurchase event, the Corporation will be required to make an offer to repurchase all outstanding Senior Notes at a price in cash equal to 101% of the principal amount of the Senior Notes, plus any accrued and unpaid interest to, but not including, the purchase date.
 
    The Corporation refinanced its $125,000,000 6.9% Notes that matured in August 2007 with proceeds from its offering of public debt in April 2007 and issuances of commercial paper.
 
    The carrying values of the Notes due in 2008 included $2,766,000, $4,469,000 and $5,022,000 at September 30, 2007, December 31, 2006 and September 30, 2006, respectively, for the unamortized value of terminated interest rate swaps.
 
    The Corporation entered into two forward starting interest rate swap agreements in September 2006 related to $150,000,000 of the Corporation’s anticipated refinancing of its $200,000,000 5.875% Notes due in 2008 (the “Swap Agreements”). At September 30, 2007, the fair value of the Swap Agreements was a liability of $1,006,000 and was included in other noncurrent liabilities in the Corporation’s consolidated balance sheet. Other comprehensive earnings/loss for the three and nine months ended September 30, 2007 included a loss of $2,774,000 and a gain of $571,000, respectively, net of tax, for the change in fair value of the Swap Agreements. At December 31, 2006 and September 30, 2006, the fair value of the Swap Agreements was a liability of $1,951,000 and $1,862,000, respectively.
 
    Borrowings of $76,000,000 and $11,000,000 were outstanding under the commercial paper program at September 30, 2007 and 2006, respectively. No commercial paper borrowings were outstanding at December 31, 2006.
 
    At December 31, 2006 and September 30, 2006, borrowings of $537,000 and $1,190,000, respectively, were outstanding under a $10,000,000 line of credit. No such borrowings were outstanding at September 30, 2007.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.   Long-Term Debt (continued)
 
    On April 17, 2007, the Corporation entered into an amendment of its $250,000,000 five-year revolving credit agreement, which modified the leverage ratio covenant in the agreement. As modified, the covenant requires the Corporation’s ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve months (the “Ratio”) to not exceed 2.75 to 1.00 as of the end of any fiscal quarter. Furthermore, the covenant allows the Ratio to exclude debt incurred in connection with an acquisition for a period of 180 days, provided that the Ratio does not exceed 3.25 to 1.00. The Corporation was in compliance with the Ratio at September 30, 2007.
 
6.   Income Taxes
                 
    Nine Months Ended September 30,  
    2007   2006
Estimated effective income tax rate:
               
Continuing operations
    29.6 %     29.8 %
 
               
Discontinued operations
    46.8 %     (8.0 %)
 
               
Overall
    29.7 %     29.8 %
 
               
    The Corporation’s effective income 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 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 Corporation’s overall effective income tax rate.
 
    The change in the year-to-date estimated overall effective income tax rate during the third quarter of 2007, when compared with the year-to-date estimated overall effective income tax rate as of June 30, 2007, is primarily due to discrete tax events. During the quarter ended September 30, 2007, discrete tax events, primarily the reversal of 2003 tax reserves for which the statute of limitations expired and the true-up of the 2006 provision estimates to actual as a result of filing the related tax returns during the period, reduced income tax expense and increased net earnings by $5,120,000, or $0.12 per diluted share.
 
    The change in the year-to-date estimated overall effective income tax rate during the third quarter of 2006, when compared with the year-to-date estimated overall effective income tax rate as of June 30, 2006, resulted primarily from discrete tax events. During the quarter ended September 30, 2006, 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, increased net earnings for the quarter ended September 30, 2006 by $2,679,000, or $0.06 per diluted share.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 three months ended September 30 (dollars in thousands):
                                 
    Pension     Postretirement Benefits  
    2007     2006     2007     2006  
Service cost
  $ 3,085     $ 3,050     $ 160     $ 138  
Interest cost
    4,926       4,523       701       670  
Expected return on assets
    (5,608 )     (4,901 )            
Amortization of:
                               
Prior service cost (credit)
    169       185       (324 )     (324 )
Actuarial loss (gain)
    1,116        714       (24 )     (60 )
 
                       
Total net periodic benefit cost
  $ 3,688     $ 3,571     $ 513     $ 424  
 
                       
    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  
    2007     2006     2007     2006  
Service cost
  $ 9,266     $ 9,154     $ 479     $ 414  
Interest cost
    14,796       13,577       2,103       2,009  
Expected return on assets
    (16,845 )     (14,711 )            
Amortization of:
                               
Prior service cost (credit)
    509       556       (971 )     (971 )
Actuarial loss (gain)
    3,353       2,144       (72 )     (179 )
 
                       
Total net periodic benefit cost
  $ 11,079     $ 10,720     $ 1,539     $ 1,273  
 
                       
    The Corporation made a $12,000,000 voluntary contribution to its pension plan in the third quarter of 2007. The contribution was deductible for tax purposes for the 2006 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 Corporation’s operations or its financial position.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9.   Business Segments
 
    In the fourth quarter of 2006, the Corporation reorganized the operations and management of its Aggregates business, which resulted in a change to its reportable segments. Currently, the Corporation conducts its aggregates operations through three reportable business segments: Mideast Group, Southeast Group and West Group. The Corporation also has a Specialty Products segment that includes magnesia chemicals, dolomitic lime and targeted activity in structural composites.
 
    The following tables display selected financial data for the Corporation’s reportable business segments. Corporate loss from operations primarily includes depreciation on capitalized interest, expenses for corporate administrative functions, unallocated corporate expenses and other nonrecurring and/or non-operational adjustments. Prior year information has been reclassified to conform to the presentation of the Corporation’s current reportable segments.
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2007     2006     2007     2006  
            (Dollars in Thousands)          
Total revenues:
                               
Mideast Group
  $ 207,688     $ 199,590     $ 559,326     $ 536,742  
Southeast Group
    140,924       144,096       407,541       420,656  
West Group
    226,917       217,937       579,317       587,497  
 
                       
Total Aggregates Business
    575,529       561,623       1,546,184       1,544,895  
Specialty Products
    44,688       40,030       130,546       125,796  
 
                       
Total
  $ 620,217     $ 601,653     $ 1,676,730     $ 1,670,691  
 
                       
 
                               
Net sales:
                               
Mideast Group
  $ 193,300     $ 183,678     $ 524,665     $ 496,046  
Southeast Group
    119,068       119,714       352,427       348,723  
West Group
    197,319       188,114       502,734       508,168  
 
                       
Total Aggregates Business
    509,687       491,506       1,379,826       1,352,937  
Specialty Products
    39,236       35,875       117,492       113,712  
 
                       
Total
  $ 548,923     $ 527,381     $ 1,497,318     $ 1,466,649  
 
                       
 
                               
Earnings (Loss) from operations:
                               
Mideast Group
  $ 68,594     $ 67,190     $ 188,901     $ 165,260  
Southeast Group
    19,606       16,994       68,187       48,340  
West Group
    45,981       36,845       76,544       78,185  
 
                       
Total Aggregates Business
    134,181       121,029       333,632       291,785  
Specialty Products
    8,967       5,096       24,458       19,086  
Corporate
    (6,200 )     (10,113 )     (26,593 )     (22,434 )
 
                       
Total
  $ 136,948     $ 116,012     $ 331,497     $ 288,437  
 
                       

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9.   Business Segments (continued)
 
    The asphalt, ready mixed concrete, road paving and other product lines are considered internal customers of the core aggregates business. Net sales by product line are as follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2007     2006     2007     2006  
            (Dollars in Thousands)          
Aggregates
  $ 479,942     $ 459,584     $ 1,299,308     $ 1,268,241  
Asphalt
    14,183       14,325       35,129       36,948  
Ready Mixed Concrete
    10,654       9,233       30,771       27,756  
Road Paving
    4,267       6,450       10,700       14,587  
Other
    641       1,914       3,918       5,405  
 
                       
Total Aggregates Business
    509,687       491,506       1,379,826       1,352,937  
Specialty Products
    39,236       35,875       117,492       113,712  
 
                       
Total
  $ 548,923     $ 527,381     $ 1,497,318     $ 1,466,649  
 
                       
10.   Supplemental Cash Flow Information
 
    The following table presents the components of the change in other assets and liabilities, net:
                 
    Nine Months Ended  
    September 30,  
    2007     2006  
    (Dollars in Thousands)  
Other current and noncurrent assets
  $ (7,238 )   $ (12,338 )
Notes receivable
    323       5,738  
Accrued salaries, benefits and payroll taxes
    (2,157 )     617  
Accrued insurance and other taxes
    6,281       6,854  
Accrued income taxes
    54,401       31,067  
Accrued pension, postretirement and postemployment benefits
    (7,941 )     (3,039 )
Other current and noncurrent liabilities
    19,058       4,627  
 
           
 
  $ 62,727     $ 33,526  
 
           

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW Martin Marietta Materials, Inc. (the “Corporation”), conducts its operations through four reportable business segments: Mideast Group, Southeast Group, West Group (collectively, the “Aggregates business”) and Specialty Products. The Corporation’s net sales and earnings are predominately derived from its Aggregates business, which processes and sells granite, limestone, and other aggregates products from a network of 302 quarries, distribution facilities and plants to customers in 31 states, Canada, the Bahamas and the Caribbean Islands. The Aggregates business’ products are used primarily by commercial customers principally in domestic construction of highways and other infrastructure projects and for commercial and residential buildings. The Specialty Products segment produces magnesia-based chemicals products used in industrial, agricultural and environmental applications; dolomitic lime sold primarily to customers in the steel industry; and structural composite products.
CRITICAL ACCOUNTING POLICIES The Corporation outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007.
During the quarter ended September 30, 2007, the Corporation reviewed its inventory standards and recorded a $3.6 million increase in its finished goods inventory values for a year-to-date total of $12.6 million, inclusive of the $9.0 million increase recorded in the second quarter of 2007. The increase in the third quarter of 2007 continues the trend of the Corporation matching current inventory values with current cost of sales. Management will continue to update its inventory standards on a quarterly basis going forward. In prior years, the Corporation updated inventory standards once a year in the fourth quarter. During the fourth quarter of 2006, the Corporation recorded a $13.4 million increase to finished goods inventory values for the annual updating of inventory standards.
RESULTS OF OPERATIONS
Except as indicated, the following comparative analysis in the Results of Operations section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects results from continuing operations and is based on net sales and cost of sales.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
Gross margin as a percentage of net sales and operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales, as it is consistent with the basis by which management reviews the Corporation’s operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporation’s operating results given that freight and delivery revenues and costs represent pass-throughs and have no profit mark-up. Gross margin and operating margin calculated as percentages of total revenues represent the most directly comparable financial measures calculated in accordance with generally accepted accounting principles (“GAAP”). The following tables present the calculations of gross margin and operating margin for the three and nine months ended September 30, 2007 and 2006 in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales (dollars in thousands):
Gross Margin in Accordance with GAAP
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2007     2006     2007     2006  
Gross profit
  $ 167,366     $ 149,287     $ 439,557     $ 388,121  
 
                       
Total revenues
  $ 620,217     $ 601,653     $ 1,676,730     $ 1,670,691  
 
                       
Gross margin
    27.0 %     24.8 %     26.2 %     23.2 %
 
                       
Gross Margin Excluding Freight and Delivery Revenues
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2007     2006     2007     2006  
 
                               
Gross profit
  $ 167,366     $ 149,287     $ 439,557     $ 388,121  
 
                       
 
                               
Total revenues
  $ 620,217     $ 601,653     $ 1,676,730     $ 1,670,691  
Less: Freight and delivery revenues
    (71,294 )     (74,272 )     (179,412 )     (204,042 )
 
                       
Net sales
  $ 548,923     $ 527,381     $ 1,497,318     $ 1,466,649  
 
                       
 
                               
Gross margin excluding freight and delivery revenues
    30.5 %     28.3 %     29.4 %     26.5 %
 
                       

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
Operating Margin in Accordance with GAAP
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2007     2006     2007     2006  
 
                               
Earnings from operations
  $ 136,948     $ 116,012     $ 331,497     $ 288,437  
 
                       
 
                               
Total revenues
  $ 620,217     $ 601,653     $ 1,676,730     $ 1,670,691  
 
                       
 
                               
Operating margin
    22.1 %     19.3 %     19.8 %     17.3 %
 
                       
Operating Margin Excluding Freight and Delivery Revenues
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2007     2006     2007     2006  
 
                               
Earnings from operations
  $ 136,948     $ 116,012     $ 331,497     $ 288,437  
 
                       
 
                               
Total revenues
  $ 620,217     $ 601,653     $ 1,676,730     $ 1,670,691  
Less: Freight and delivery revenues
    (71,294 )     (74,272 )     (179,412 )     (204,042 )
 
                       
Net sales
  $ 548,923     $ 527,381     $ 1,497,318     $ 1,466,649  
 
                       
 
                               
Operating margin excluding freight and delivery revenues
    24.9 %     22.0 %     22.1 %     19.7 %
 
                       
Quarter Ended September 30
Notable items for the quarter ended September 30, 2007 included:
  Earnings per diluted share of $2.12, up 28% from the prior-year quarter
 
  Net sales of $548.9 million, up 4% compared with the prior-year quarter
 
  Consolidated operating margin excluding freight and delivery revenues of 24.9%, up 290 basis points over the prior-year quarter
 
  Heritage aggregates product line pricing up 8.6%, offsetting a 4.1% volume decline
 
  Specialty Products earnings from operations up 76% from the prior-year quarter

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
The following table presents net sales, gross profit, selling, general and administrative expenses and earnings (loss) from operations data for the Corporation and its reportable segments for the three months ended September 30, 2007 and 2006. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as the case may be.
Earnings from operations include research and development expense and other operating income and expenses, net. Research and development expense for the Corporation was $0.2 million for the quarters ended September 30, 2007 and 2006. Consolidated other operating income and expenses, net, was income of $6.2 million and $2.2 million for the quarters ended September 30, 2007 and 2006, respectively.
                                 
    Three Months Ended September 30,  
    2007     2006  
            % of             % of  
    Amount     Net Sales     Amount     Net Sales  
    (Dollars in Thousands)  
Net sales:
                               
Mideast Group
  $ 193,300             $ 183,678          
Southeast Group
    119,068               119,714          
West Group
    197,319               188,114          
 
                           
Total Aggregates Business
    509,687       100.0       491,506       100.0  
Specialty Products
    39,236       100.0       35,875       100.0  
 
                       
Total
  $ 548,923       100.0     $ 527,381       100.0  
 
                       
 
                               
Gross profit:
                               
Mideast Group
  $ 79,099             $ 76,351          
Southeast Group
    25,040               22,811          
West Group
    51,580               46,672          
 
                           
Total Aggregates Business
    155,719       30.6       145,834       29.7  
Specialty Products
    11,690       29.8       7,860       21.9  
Corporate
    (43 )           (4,407 )      
 
                       
Total
  $ 167,366       30.5     $ 149,287       28.3  
 
                       
 
                               
Selling, general & administrative expenses:
                               
Mideast Group
  $ 10,887             $ 10,371          
Southeast Group
    6,348               5,859          
West Group
    11,520               10,729          
 
                           
Total Aggregates Business
    28,755       5.6       26,959       5.5  
Specialty Products
    2,591       6.6       2,683       7.5  
Corporate
    5,093             5,612        
 
                       
Total
  $ 36,439       6.6     $ 35,254       6.7  
 
                       

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
                                 
    Three Months Ended September 30,  
    2007     2006  
            % of             % of  
    Amount     Net Sales     Amount     Net Sales  
    (Dollars in Thousands)  
Earnings (Loss) from operations:
                               
Mideast Group
  $ 68,594             $ 67,190          
Southeast Group
    19,606               16,994          
West Group
    45,981               36,845          
 
                           
Total Aggregates Business
    134,181       26.3       121,029       24.6  
Specialty Products
    8,967       22.9       5,096       14.2  
Corporate
    (6,200 )           (10,113 )      
 
                       
Total
  $ 136,948       24.9     $ 116,012       22.0  
 
                       
Net sales for the Aggregates business for the 2007 third quarter were $509.7 million, a 3.7% increase over 2006 third-quarter sales of $491.5 million. Heritage aggregates pricing increased 8.6%, contributing to a 200-basis-point increase in the aggregates product line gross margin excluding freight and delivery revenues and a 290-basis-point improvement in consolidated operating margin excluding freight and delivery revenues. These record results were achieved despite a greater than 4% decline in aggregates volume and an increase in production costs resulting from operating leverage and inventory control. Pricing improvements continued to hold in the Aggregates business. As expected, the rate of growth in aggregates pricing slowed during the quarter in response to the effect of more limited 2007 mid-year price increases, which reflects reduced demand over the past six quarters. However, even with weaker demand, the rate of pricing improvement continues to be well above historic norms for the Aggregates business, which reflects the intrinsic value of well-located, zoned and permitted aggregates reserves.
While weather continued to affect performance in the West Group during the quarter, the Group finished the quarter with volumes up over 2% and showed significant earnings improvement over the prior-year period. July 2007 was the wettest July in recorded weather history in Texas and the historic rainfall affected both shipments and operations. However, as dry, hot days began to outnumber wet days in mid-August and September, volume for commercial and infrastructure projects began to return to normal levels. The Raleigh-Durham and Greensboro, North Carolina areas, as well as Virginia, had positive volume growth for the quarter. Volumes declined in most other regions of the country, reflecting the continued diminishment of residential construction coupled with a slowing in the rate of growth of commercial construction, notably office and retail space.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
The following tables present volume and pricing data and shipments data for the aggregates product line. Heritage aggregates operations exclude volume and pricing data for acquisitions that were not included in prior-year operations for the comparable period and divestitures.
                 
    Three Months Ended
    September 30, 2007
    Volume   Pricing
Volume/Pricing Variance (1)
               
Heritage Aggregates Product Line (2):
               
Mideast Group
    (6.7 %)     12.9 %
Southeast Group
    (10.5 %)     11.7 %
West Group
    2.3 %     3.5 %
Heritage Aggregates Operations
    (4.1 %)     8.6 %
Aggregates Product Line (3)
    (4.3 %)     8.5 %
                 
    Three Months Ended  
    September 30,  
    2007     2006  
    (tons in thousands)  
Shipments
               
Heritage Aggregates Product Line (2):
               
Mideast Group
    19,254       20,633  
Southeast Group
    11,331       12,656  
West Group
    21,141       20,671  
 
           
Heritage Aggregates Operations
    51,726       53,960  
Acquisitions
     135        
Divestitures(4)
    17       245  
 
           
Aggregates Product Line (3)
    51,878       54,205  
 
           
 
(1)   Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
 
(2)   Heritage Aggregates product line excludes volume and pricing data for acquisitions that have not been included in prior-year operations for the comparable period and divestitures.
 
(3)   Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal.
 
(4)   Divestitures include the tons related to divested aggregates product line operations up to the date of divestiture.
The Aggregates business is significantly affected by seasonal changes and other weather-related conditions. Aggregates production and shipment levels coincide with general construction activity levels, most of which occurs in the spring, summer and fall. Thus, production and shipment levels vary by quarter. Operations concentrated in the northern United States generally experience more severe winter weather conditions than operations in the Southeast and Southwest. Furthermore, excessive rainfall can also jeopardize shipments, production and profitability. Because of the potentially significant impact of weather on the Corporation’s operations, third quarter and year-to-date results are not indicative of expected performance for other interim periods or the full year.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
Third-quarter results for the Specialty Products segment, which includes magnesia chemicals, dolomitic lime and targeted activity in structural composites, were positive. Specialty Products’ net sales were $39.2 million for the third quarter 2007 compared with $35.9 million for the prior-year period. Earnings from operations for the quarter were $9.0 million compared with $5.1 million in the year-earlier period. Management has established specific quarterly benchmarks for the remainder of 2007 to evaluate the viability of the remaining components of the structural composites product line.
Selling, general and administrative expenses for the quarter ended September 30, 2007 was $36.4 million versus $35.3 million in the 2006 period. Selling, general and administrative expenses, as a percentage of net sales, declined slightly to 6.6%.
Among other items, other operating income and expenses, net, includes gains and losses on the sale of assets; gains and losses related to certain accounts receivable; rental, royalty and services income; and the accretion and depreciation expenses related to Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations. For the third quarter, consolidated other operating income and expenses, net, was income of $6.2 million in 2007 compared with $2.2 million in 2006, primarily as a result of a $4.5 million gain on the sale of land in 2007 for the West Group.
During the quarter ended September 30, 2007, the Corporation reviewed its inventory standards and recorded a $3.6 million increase in its finished goods inventory values for a year-to-date total of $12.6 million, inclusive of the $9.0 million increase recorded in the second quarter of 2007. The increase in the third quarter of 2007 continues the trend of the Corporation matching current inventory values with current cost of sales. Management will continue to update its inventory standards on a quarterly basis going forward. In prior years, the Corporation updated inventory standards once a year in the fourth quarter. During the fourth quarter of 2006, the Corporation recorded a $13.4 million increase to finished goods inventory values for the annual updating of inventory standards.
Consolidated interest expense was $17.2 million for the third quarter 2007 as compared with $10.1 million for the prior-year quarter. The increase primarily resulted from interest for the 6.25% Senior Notes and Floating Rate Senior Notes issued in April 2007 and higher outstanding commercial paper borrowings during the third quarter 2007.
In addition to other offsetting amounts, other nonoperating income and expenses, net, are comprised generally of interest income, net equity earnings from nonconsolidated investments and eliminations of minority interests for consolidated non-wholly owned subsidiaries. Consolidated other nonoperating income and expenses, net, for the quarter ended September 30, was income of $1.3 million in 2007 compared with expense of $0.2 million in 2006, primarily as a result of higher earnings on nonconsolidated investments in 2007.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
Nine Months Ended September 30
Notable items for the nine months ended September 30, 2007 included:
  Earnings per diluted share of $4.73, up 20% from the prior-year period
 
  Net sales of $1.497 billion, up 2% when compared with the prior-year period
 
  Consolidated operating margin excluding freight and delivery revenues of 22.1%, up 240 basis points over prior-year period
 
  Heritage aggregates product line pricing up 12.1%; heritage volume decreased 8.8%
 
  Repurchased 3,585,000 shares of common stock, nearly 8% of shares outstanding at the beginning of the year, at an average price of $138.12 per share

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
The following table presents net sales, gross profit, selling, general and administrative expenses and earnings (loss) from operations data for the Corporation and its reportable segments for the nine months ended September 30, 2007 and 2006. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as the case may be.
Earnings from operations include research and development expense and other operating income and expenses, net. Research and development expense for the Corporation was $0.6 million and $0.5 million for the nine months ended September 30, 2007 and 2006, respectively. Consolidated other operating income and expenses, net, was income of $11.5 million and $9.4 million for the nine months ended September 30, 2007 and 2006, respectively.
                                 
    Nine Months Ended September 30,  
    2007     2006  
            % of             % of  
    Amount     Net Sales     Amount     Net Sales  
    (Dollars in Thousands)  
Net sales:
                               
Mideast Group
  $ 524,665             $ 496,046          
Southeast Group
    352,427               348,723          
West Group
    502,734               508,168          
 
                           
Total Aggregates Business
    1,379,826       100.0       1,352,937       100.0  
Specialty Products
    117,492       100.0       113,712       100.0  
 
                       
Total
  $ 1,497,318       100.0     $ 1,466,649       100.0  
 
                       
 
                               
Gross profit:
                               
Mideast Group
  $ 220,891             $ 191,167          
Southeast Group
    85,400               64,894          
West Group
    102,116               108,956          
 
                           
Total Aggregates Business
    408,407       29.6       365,017       27.0  
Specialty Products
    32,823       27.9       27,287       24.0  
Corporate
    (1,673 )           (4,183 )      
 
                       
Total
  $ 439,557       29.4     $ 388,121       26.5  
 
                       
 
                               
Selling, general & administrative expenses:
                               
Mideast Group
  $ 34,213             $ 32,362          
Southeast Group
    19,160               17,667          
West Group
    34,466               33,596          
 
                           
Total Aggregates Business
    87,839       6.4       83,625       6.2  
Specialty Products
    7,932       6.8       8,128       7.1  
Corporate
    23,250             16,810        
 
                       
Total
  $ 119,021       7.9     $ 108,563       7.4  
 
                       

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
                                 
    Nine Months Ended September 30,  
    2007     2006  
            % of             % of  
    Amount     Net Sales     Amount     Net Sales  
    (Dollars in Thousands)  
Earnings (Loss) from operations:
                               
Mideast Group
  $ 188,901             $ 165,260          
Southeast Group
    68,187               48,340          
West Group
    76,544               78,185          
 
                           
Total Aggregates Business
    333,632       24.2       291,785       21.6  
Specialty Products
    24,458       20.8       19,086       16.8  
Corporate
    (26,593 )           (22,434 )      
 
                       
Total
  $ 331,497       22.1     $ 288,437       19.7  
 
                       
Net sales for the Aggregates business for the nine months ended September 30 were $1.380 billion in 2007, a 2.0% increase over 2006 net sales of $1.353 billion. Aggregates pricing at heritage locations was up 12.1%, while volume decreased 8.8%. Including acquisitions and divestitures, aggregates pricing for the nine months ended September 30, 2007 increased 12.0% and aggregates product line volume decreased 9.0%. Shipment volumes reflect a significant decline in the residential construction market and inclement weather experienced by the West Group.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
The following tables present volume and pricing data and shipments data for the aggregates product line. Heritage aggregates operations exclude volume and pricing data for acquisitions that were not included in prior-year operations for the comparable period and divestitures.
                 
    Nine Months Ended
    September 30, 2007
Volume/Pricing Variance (1)   Volume   Pricing
Heritage Aggregates Product Line (2):
               
Mideast Group
    (8.4 %)     15.5 %
Southeast Group
    (12.4 %)     15.6 %
West Group
    (6.8 %)     6.1 %
Heritage Aggregates Operations
    (8.8 %)     12.1 %
Aggregates Product Line (3)
    (9.0 %)     12.0 %
                 
    Nine Months Ended
    September 30,
    2007   2006
    (tons in thousands)
Shipments
               
Heritage Aggregates Product Line(2):
               
Mideast Group
    51,279       55,982  
Southeast Group
    33,229       37,918  
West Group
    53,309       57,205  
 
               
Heritage Aggregates Operations
    137,817       151,105  
Acquisitions
    238        
Divestitures(4)
    144       690  
 
               
Aggregates Product Line (3)
    138,199       151,795  
 
               
 
(1)   Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
 
(2)   Heritage Aggregates product line excludes volume and pricing data for acquisitions that have not been included in prior-year operations for the comparable period and divestitures.
 
(3)   Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal.
 
(4)   Divestitures include the tons related to divested aggregates product line operations up to the date of divestiture.
Selling, general and administrative expenses for the nine months ended September 30, 2007 was $119.0 million versus $108.6 million in the 2006 period. This increase of $10.4 million was primarily related to a $6.7 million increase in performance-based incentive compensation. Excluding the effect of increased performance-based incentive compensation, selling, general and administrative expenses for the nine months ended September 30, 2007 increased $3.8 million, or 3.5%, in line with expected inflationary increases.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
For the nine months ended September 30, other operating income and expenses, net, was income of $11.5 million in 2007 compared with $9.4 million in 2006. The increase results primarily from higher gains on sales of assets, primarily excess land, and was partially offset by lower royalty and rental income.
Consolidated interest expense was $45.1 million for the nine months ended September 30, 2007 compared with $29.8 million for the prior-year period. The increase resulted from interest for the 6.25% Senior Notes issued in April 2007, Floating Rate Senior Notes issued in April 2007, increased outstanding commercial paper balances, and a lower amount of capitalized interest related to major plant expansion and efficiency projects in 2007 as compared with the prior-year period.
LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities during the nine months ended September 30, 2007 was $272.8 million compared with $209.7 million in the comparable period of 2006. Operating cash flow is generally from net earnings, before deducting depreciation, depletion and amortization, offset by working capital requirements. Net cash provided by operating activities for the first nine months of 2007 as compared with the year-earlier period reflects higher earnings before depreciation, depletion and amortization and higher accruals for income tax obligations, and was partially offset by a higher build up of inventories due to declining shipment volumes, increased cash paid for interest and increased tax benefits from stock option exercise activity.
Depreciation, depletion and amortization was as follows (dollars in millions):
                 
    Nine Months Ended  
    September 30,  
    2007     2006  
Depreciation
  $ 105.5     $ 95.1  
Depletion
    3.4       4.6  
Amortization
    2.2       3.0  
 
           
 
  $ 111.1     $ 102.7  
 
           
The increase in depreciation expense is primarily due to the completion of several large capital projects, including new plants at the Three Rivers operation in Kentucky and North Troy operation in Oklahoma.
The seasonal nature of the construction aggregates business impacts quarterly operating cash flow when compared with the year. Full year 2006 net cash provided by operating activities was $338.2 million, compared with $209.7 million for the first nine months of 2006.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
First nine months capital expenditures, exclusive of acquisitions, were $196.9 million in 2007 and $212.6 million in 2006. Capital expenditures during the first nine months of 2006 included work on several major plant expansion and efficiency projects. Comparable full-year capital expenditures were $266.0 million in 2006. Full-year capital spending is expected to approximate $260.0 million for 2007, including the Hunt Martin joint venture and exclusive of acquisitions, and is up from the previous estimate of $235 million due to the purchase of 50 new barges for $24 million which were originally expected to be financed through operating leases.
During the nine months of 2006, the Corporation received repayment of a $12.5 million note receivable related to the divestiture of its Houston asphalt operations. The Corporation continues to have a continuing financial interest in the Houston asphalt market via a supply agreement and therefore continues to include the divested locations in continuing operations.
During 2007, the Corporation continued its common stock repurchase plan through open-market purchases pursuant to authority granted by its Board of Directors. The Corporation did not repurchase any shares of common stock during the quarter ended September 30, 2007. During the nine months ended September 30, the Corporation repurchased 3,585,000 shares at an aggregate cost of $495.2 million in 2007 compared with 1,274,200 shares at an aggregate cost of $112.6 million in 2006. In August 2007, the Board of Directors authorized management to repurchase up to an additional 5.0 million shares of its common stock. At September 30, 2007, 5,646,000 shares of common stock were remaining under the Corporation’s repurchase authorization.
The Corporation refinanced its $125 million 6.9% Notes that matured in August 2007 with proceeds from the Corporation’s offering of public debt in April 2007 and issuances of commercial paper in the A-2/P-2 markets (see page 31 for a discussion of credit ratings). The tightening of the credit markets made placement of A-2/P-2 commercial paper more difficult during the August and September 2007 timeframe. The Corporation initially placed the commercial paper in the overnight markets and effectively termed the commercial paper to 30-day maturities over a period of one week. Since that time, placement has not been problematic.
In September 2006, the Corporation entered into two forward starting interest rate swap agreements (the “Swap Agreements”) related to $150 million of the Corporation’s anticipated refinancing of its $200 million 5.875% Notes due in 2008. The change in fair value of the Swap Agreements, net of income taxes, is recorded directly in shareholders’ equity as other comprehensive earnings/loss. At September 30, 2007, the fair value of the Swap Agreements was a liability of $1.0 million and was included in other noncurrent liabilities in the Corporation’s consolidated balance sheet. Other comprehensive earnings/loss for the nine months ended September 30, 2007 included a gain of $0.6 million, net of tax, for the change in fair value of the Swap Agreements.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
On April 17, 2007, the Corporation entered into an amendment of its $250 million five-year revolving credit agreement, which modified the leverage ratio covenant in the agreement. As modified, the covenant requires the Corporation’s ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve months (the “Ratio”) to not exceed 2.75 to 1.00 as of the end of any fiscal quarter. Furthermore, the covenant allows the Ratio to exclude debt incurred in connection with an acquisition for a period of 180 days, provided that the Ratio does not exceed 3.25 to 1.00. The Ratio is calculated as total long-term debt divided by consolidated EBITDA, as defined, for the trailing twelve months. Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation, depletion and amortization expense for continuing operations. Additionally, stock-based compensation expense is added back and interest income is deducted in the calculation of consolidated EBITDA. Certain other nonrecurring items and noncash items, if they occur, can affect the calculation of consolidated EBITDA. At September 30, 2007, the Corporation’s ratio of consolidated debt to consolidated EBITDA, as defined, for the trailing twelve month EBITDA was 1.86 and was calculated as follows:
         
    Twelve Month Period  
    October 1, 2006 to  
    September 30, 2007  
    (Dollars in thousands)  
 
Earnings from continuing operations
  $ 267,828  
Add back:
       
Interest expense
    55,747  
Income tax expense
    116,355  
Depreciation, depletion and amortization expense
    149,157  
Stock-based compensation expense
    20,122  
Deduct:
       
Interest income
    (2,544 )
 
     
Consolidated EBITDA, as defined
  $ 606,665  
 
     
Consolidated debt at September 30, 2007
  $ 1,128,774  
 
     
Consolidated debt to consolidated EBITDA, as defined, at September 30, 2007 for the trailing twelve month EBITDA
    1.86  
 
     
On April 25, 2007, the Corporation issued $250 million of 6.25% Senior Notes due in 2037 and $225 million of Floating Rate Senior Notes due in 2010 (collectively, the “Senior Notes”). The 6.25% Senior Notes may be redeemed in whole or in part prior to their maturity at a “make whole” redemption price. The Floating Rate Senior Notes bear interest at a rate equal to the three-month LIBOR plus 0.15% and may not be redeemed prior to maturity. Upon a change of control repurchase event, the Corporation will be required to make an offer to repurchase all outstanding Senior Notes at a price in cash equal to 101% of the principal amount of the Senior Notes, plus any accrued and unpaid interest to, but not including, the purchase date.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
The management team and Board of Directors have focused on establishing prudent leverage targets that provide for value creation through strong operational performance, continued investment in internal growth opportunities, financial flexibility to support opportunistic and strategic acquisitions and a return of cash to shareholders through sustainable dividends and share repurchase programs while maintaining a solid investment grade rating. Given these parameters, in the ordinary course of business and absent any future debt incurred in connection with an acquisition, the Corporation expects to manage its leverage within a range of 2.0 to 2.5 times consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined by the underlying credit agreement.
Based on prior performance and current expectations, the Corporation’s management believes that cash flows from internally generated funds and its access to capital markets are expected to continue to be sufficient to provide the capital resources necessary to fund the operating needs of its existing businesses, cover debt service requirements, and allow for payment of dividends. However, the Corporation is exposed to risk from tightening credit markets, through the interest cost related to its $225 million Floating Rate Senior Notes due in 2010 and the availability and interest cost related to its commercial paper program which is rated A-2 by Standard and Poor’s and P-2 by Moody’s. Commercial paper of $76 million was outstanding at September 30, 2007. Refer also to “Risk to Earnings Expectations” disclosed in the Corporation’s third-quarter results press release dated October 30, 2007.
The Corporation may be required to obtain additional levels of financing in order to fund certain strategic acquisitions, if any such opportunities arise. Currently, the Corporation’s senior unsecured debt is rated BBB+ by Standard & Poor’s and Baa1 by Moody’s. The Corporation’s commercial paper obligations are rated A-2 by Standard & Poor’s and P-2 by Moody’s. While management believes its credit ratings will remain at an investment-grade level, no assurance can be given that these ratings will remain at those levels.
Contractual Obligations
At September 30, 2007, the Corporation had gross unrecognized tax benefits, excluding interest, of $29.4 million. The Corporation anticipates settlement of $19.4 million with the taxing authorities in the upcoming twelve months and settlement of $10.0 million in one to three years.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
The Corporation’s contractual obligations related to its Senior Notes issued in April 2007 are included in the following table (dollars in thousands). Interest on the Floating Rate Senior Notes has been calculated assuming a three-month LIBOR rate equal to the September 30, 2007 rate of 5.355%.
                                         
    Total   < 1 yr   1-3 yrs.   3-5 yrs.   > 5yrs.
     
Long-term debt
  $ 475,000     $     $ 225,000     $     $ 250,000  
Interest (off balance sheet)
    502,813       35,824       68,551       46,875       351,563  
     
Total
  $ 977,813     $ 35,824     $ 293,551     $ 46,875     $ 601,563  
     
ACCOUNTING CHANGES As discussed in Note 1 to the Consolidated Financial Statements, effective January 1, 2007, the Corporation adopted FIN 48 and reduced retained earnings by $1.4 million.
TRENDS AND RISKS The Corporation outlined the risks associated with its business in its Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007. Management continues to evaluate its exposure to all operating risks on an ongoing basis.
In July 2007, the state of North Carolina approved the issuance of $300 million of Grant Anticipation Revenue vehicles, or GARVEE bonds, to fund various road projects statewide. The bonds will be repaid with federal money the state expects to receive for highway and interstate projects in future years. Management currently expects construction to begin on these projects in 2008.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
OUTLOOK 2007 Based upon the Corporation’s strong year-to-date performance, management continues to have a positive outlook for the remainder of the year. Aggregates product line pricing is expected to increase in the upper half of single digits for the fourth quarter and 10% to 11% for the year; however, aggregates shipments are becoming more difficult to estimate. Management currently expects aggregates volume to decrease 2% to 4% in the fourth quarter and decrease 6% to 8% for the year with the degree of decline predicated on continued correction in the residential construction market, in addition to slower growth in commercial construction. Management believes certain commercial construction, notably office and retail space, is exhibiting a cautionary pause in activity in some areas as developers digest the impact of the current credit markets on construction and development plans. Capacity-related, industrial and distribution-related construction remains in a solid growth pattern. Infrastructure spending is expected to remain positive, although rising construction and materials prices have made projects more costly.
The Specialty Products segment, which includes magnesia chemicals, dolomitic lime and focused activity in structural composites, is expected to contribute $31 million to $33 million in pretax earnings in 2007 compared with $22 million in 2006. Management expects the magnesia chemicals business to continue to grow and demand for dolomitic lime from the steel industry to be down slightly.
With this backdrop, management currently expects net earnings per diluted share for the fourth quarter to range from $1.37 to $1.72 and the range for the year is $6.10 to $6.45.
OTHER MATTERS If you are interested in Martin Marietta Materials, Inc. stock, management recommends that, at a minimum, you read the Corporation’s current Annual Report and Forms 10-K, 10-Q and 8-K reports to the SEC over the past year. The Corporation’s recent proxy statement for the annual meeting of shareholders also contains important information. These and other materials that have been filed with the SEC are accessible through the Corporation’s web site at www.martinmarietta.com and are also available at the SEC’s web site at www.sec.gov. You may also write or call the Corporation’s Corporate Secretary, who will provide copies of such reports.
Investors are cautioned that all statements in this Quarterly Report that relate to the future involve risks and uncertainties, and are based on assumptions that the Corporation believes in good faith are reasonable but which may be materially different from actual results. Forward-looking statements give the investor our 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,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of our forward-looking statements here and in other publications may turn out to be wrong.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
Factors that the Corporation currently believes could cause actual results to differ materially from the forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the level and timing of federal and state transportation funding, particularly in North Carolina, one of the Corporation’s largest and most profitable states, and Texas and South Carolina, which when coupled with North Carolina, represented 44% of 2006 net sales in the Aggregates business; levels of commercial construction spending in the markets the Corporation serves; the severity of a continued decline in the residential construction market and the slowing growth rate in commercial construction, notably office and retail space; unfavorable weather conditions, particularly Atlantic Ocean hurricane activity and the early onset of winter; the volatility of fuel costs; continued increases in the cost of repair and supply parts; transportation availability, notably barge availability on the Mississippi River system and the availability of railcars and locomotive power to move trains to supply the Corporation’s Texas and Gulf Coast markets; increased transportation costs, including increases from higher passed-through energy costs and higher volumes of rail and water shipments; continued strength in the steel industry markets served by the Corporation’s dolomitic lime products; successful development and implementation of the structural composite technological process, commercialization of strategic products for specific market segments, and the generation of earnings streams sufficient enough to support the recorded assets of the structural composites product line; and other risk factors listed from time to time found in the Corporation’s filings with the Securities and Exchange Commission. Other factors besides those listed here may also adversely affect the Corporation and may be material to the Corporation. The Corporation assumes no obligation to update any forward-looking statements.
INVESTOR ACCESS TO COMPANY FILINGS Shareholders may obtain, without charge, a copy of Martin Marietta Materials’ Annual Report on Form 10-K, as filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2006, by writing to:
Martin Marietta Materials, Inc.
Attn: Corporate Secretary
2710 Wycliff Road
Raleigh, North Carolina 27607-3033
Additionally, Martin Marietta Materials’ Annual Report, press releases and filings with the Securities and Exchange Commission, including Forms 10-K, 10-Q, 8-K and 11-K, can generally be accessed via the Corporation’s web site. Filings with the Securities and Exchange Commission accessed via the web site are available through a link with the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. Accordingly, access to such filings is available upon EDGAR placing the related document in its database. Investor relations contact information is as follows:
Telephone: (919) 783-4540
Web site address: www.martinmarietta.com

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Corporation’s operations are highly dependent upon the interest rate-sensitive construction and steelmaking industries. Consequently, these marketplaces could experience lower levels of economic activity in an environment of rising interest rates or escalating costs. Since June 30, 2004, the Federal Reserve Board has increased the federal funds rate from 1.00% to 4.75% at September 30, 2007. This increase has negatively affected the residential construction market, which accounted for approximately 17% of the Corporation’s aggregates product line shipments in 2006. Aside from these inherent risks from within its operations, the Corporation’s earnings are affected also by changes in short-term interest rates, as a result of its temporary cash investments, including money market funds and overnight investments in Eurodollars; any outstanding commercial paper obligations; Floating Rate Senior Notes; defined benefit pension plans; and energy costs. Additionally, the shareholders’ equity of the Corporation is affected by changes in the fair value of forward starting interest rate swap agreements.
Commercial Paper Obligations. The Corporation has a $250 million commercial paper program in which borrowings bear interest at a variable rate based on LIBOR. At September 30, 2007, commercial paper borrowings of $76 million were outstanding. As commercial paper borrowings bear interest at a variable rate, the Corporation has interest rate risk. The effect of a hypothetical 100 basis point increase in interest rates on commercial paper borrowings of $76 million would increase interest expense by $0.8 million on an annual basis.
Floating Rate Senior Notes. The Corporation has $225 million of Floating Rate Senior Notes that bear interest at a rate equal to the three-month LIBOR plus 0.15%. As the Floating Rate Senior Notes bear interest at a variable rate, the Corporation has interest rate risk. The effect of a hypothetical 100 basis point increase in interest rates on borrowings of $225 million would increase interest expense by $2.3 million on an annual basis.
Pension Expense. The Corporation’s results of operations are affected by its pension expense. Assumptions that affect this expense include the discount rate and the expected long-term rate of return on assets. Therefore, the Corporation has interest rate risk associated with these factors. The impact of hypothetical changes in these assumptions on the Corporation’s annual pension expense is discussed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007.
Energy Costs. Energy costs, including diesel fuel and natural gas, represent significant production costs for the Corporation. Increases in these costs generally are tied to energy sector inflation. In 2006, energy costs increased significantly, with fuel price increases lowering earnings per diluted share by $0.36. A hypothetical 10% change in the Corporation’s energy prices in 2007 as compared with 2006, assuming constant volumes, would impact 2007 pretax earnings by approximately $17.8 million.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
Aggregate Risk for Interest Rates and Energy Sector Inflation. The pension expense for 2007 is calculated based on assumptions selected at December 31, 2006. Therefore, interest rate risk in 2007 is limited to the potential effect related to outstanding commercial paper and the Corporation’s Floating Rate Senior Notes. Assuming outstanding commercial paper of $76 million and Floating Rate Senior Notes of $225 million, the impact of a hypothetical 100 basis point increase in interest rates would increase interest expense and decrease pretax earnings by $3.0 million. Additionally, a 10% change in energy costs would impact annual pretax earnings by $17.8 million.
Forward Starting Interest Rate Swap Agreements. In September 2006, the Corporation entered into forward starting interest rate swap agreements (the “Swap Agreements”) for the anticipated refinancing of $150.0 million of its $200.0 million 5.875% Notes due in 2008. 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, net of taxes, as other comprehensive earnings/loss. At September 30, 2007, the fair value of the Swap Agreements was a liability of $1.0 million and was included in other noncurrent liabilities in the Corporation’s consolidated balance sheet.
As a result of the Swap Agreements, the Corporation’s comprehensive earnings/loss will be affected by changes in the LIBOR rate. A hypothetical change in interest rates of 100 basis points would change other comprehensive earnings/loss by approximately $5.7 million, which is net of taxes of $3.7 million.
Item 4. Controls and Procedures
As of September 30, 2007, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2007. There have been no significant changes in the Corporation’s internal controls or in other factors that could significantly affect the internal controls subsequent to September 30, 2007.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Part I. Item 3. Legal Proceedings of the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the year ended December 31, 2006.
Item 1A. Risk Factors.
Reference is made to Part I. Item 1A. Risk Factors and Forward-Looking Statements of the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
ISSUER PURCHASES OF EQUITY SECURITIES
                                 
                    Total Number of   Maximum Number of
                    Shares Purchased as   Shares that May Yet
                    Part of Publicly   be Purchased Under
    Total Number of   Average Price Paid   Announced Plans or   the Plans or
Period   Shares Purchased   per Share   Programs   Programs
July 1, 2007 — July 31, 2007
       —     $             —       645,998  
August 1, 2007 — August 31, 2007
       —     $             —       5,645,998  
September 1, 2007 — September 30, 2007
       —     $             —       5,645,998  
 
                               
Total
       —     $             —       5,645,998  
During the quarter ended September 30, 2007, the Corporation did not repurchase any shares of its common stock. In August 2007, the Board of Directors authorized management to repurchase up to an additional 5.0 million shares of its common stock.
The Corporation’s initial stock repurchase program, which authorized the repurchase of 2.5 million shares of common stock, was announced in a press release dated May 6, 1994, and has been updated as appropriate. The program does not have an expiration date.

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
PART II-OTHER INFORMATION
(Continued)
Item 6. Exhibits.
     
Exhibit    
No.   Document
 
   
31.01
  Certification dated October 30, 2007 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
  Certification dated October 30, 2007 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
  Written Statement dated October 30, 2007 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
  Written Statement dated October 30, 2007 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  MARTIN MARIETTA MATERIALS, INC.
(Registrant)
 
 
Date: October 30, 2007  By:   /s/ Anne H. Lloyd   
    Anne H. Lloyd   
    Senior Vice President and Chief Financial Officer   

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
EXHIBIT INDEX
     
Exhibit No.   Document
 
   
31.01
  Certification dated October 30, 2007 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
  Certification dated October 30, 2007 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
  Written Statement dated October 30, 2007 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
  Written Statement dated October 30, 2007 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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