Martin Marietta Materials, Inc.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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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
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o |
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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)
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North Carolina
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56-1848578 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification Number) |
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2710 Wycliff Road, Raleigh, NC
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27607-3033 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code 919-781-4550
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Former name: |
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None |
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Former name, former address and former fiscal year, |
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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 issuers classes of Common Stock, as of
the latest practicable date.
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Class
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Outstanding as of October 26, 2007 |
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Common Stock, $0.01 par value
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41,859,683 |
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
Page 2 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
Item 1. Financial Statements.
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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September 30, |
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December 31, |
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September 30, |
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2007 |
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2006 |
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2006 |
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(Unaudited) |
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(Audited) |
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(Unaudited) |
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(Dollars in Thousands, Except Per Share Data) |
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ASSETS |
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Current Assets: |
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|
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|
|
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Cash and cash equivalents |
|
$ |
26,417 |
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$ |
32,282 |
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$ |
22,829 |
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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 |
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|
|
2,521 |
|
|
|
2,299 |
|
Current deferred income tax benefits |
|
|
42,118 |
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|
25,317 |
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|
16,022 |
|
Other current assets |
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22,896 |
|
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|
33,548 |
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|
|
28,900 |
|
|
|
|
|
|
|
|
|
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Total Current Assets |
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|
690,860 |
|
|
|
592,354 |
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608,289 |
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|
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Property, plant and equipment |
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2,924,336 |
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2,739,327 |
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2,695,560 |
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Allowances for depreciation, depletion and amortization |
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(1,518,620 |
) |
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(1,443,836 |
) |
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(1,416,194 |
) |
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|
|
|
|
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Net property, plant and equipment |
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1,405,716 |
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1,295,491 |
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|
1,279,366 |
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|
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Goodwill |
|
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574,667 |
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570,538 |
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|
570,336 |
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Other intangibles, net |
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9,850 |
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|
|
10,948 |
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|
12,624 |
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Noncurrent notes receivable |
|
|
8,801 |
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|
|
10,355 |
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|
10,713 |
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Other noncurrent assets |
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32,056 |
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26,735 |
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|
51,368 |
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|
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|
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|
|
|
|
|
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|
|
|
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Total Assets |
|
$ |
2,721,950 |
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|
$ |
2,506,421 |
|
|
$ |
2,532,696 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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|
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|
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Bank overdraft |
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$ |
120 |
|
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$ |
8,390 |
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$ |
9,720 |
|
Accounts payable |
|
|
92,845 |
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|
85,237 |
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89,650 |
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Accrued salaries, benefits and payroll taxes |
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|
22,853 |
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|
25,010 |
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|
24,675 |
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Pension and postretirement benefits |
|
|
9,285 |
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|
|
6,100 |
|
|
|
6,260 |
|
Accrued insurance and other taxes |
|
|
38,578 |
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|
32,297 |
|
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|
46,436 |
|
Income taxes and current reserves for uncertain tax positions |
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30,630 |
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10,253 |
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Current maturities of long-term debt, commercial paper and
line of credit |
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|
78,069 |
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|
125,956 |
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137,606 |
|
Other current liabilities |
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|
44,251 |
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32,082 |
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35,095 |
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|
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|
Total Current Liabilities |
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|
316,631 |
|
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315,072 |
|
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359,695 |
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Long-term debt |
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|
1,050,705 |
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|
579,308 |
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579,824 |
|
Pension, postretirement and postemployment benefits |
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|
95,287 |
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|
|
106,413 |
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|
97,222 |
|
Noncurrent deferred income taxes and reserves
for uncertain tax positions |
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165,592 |
|
|
|
159,094 |
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|
144,540 |
|
Other noncurrent liabilities |
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|
106,452 |
|
|
|
92,562 |
|
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|
89,345 |
|
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|
|
|
|
|
|
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Total Liabilities |
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|
1,734,667 |
|
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|
1,252,449 |
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1,270,626 |
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Shareholders Equity: |
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Common stock, par value $0.01 per share |
|
|
418 |
|
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|
448 |
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|
450 |
|
Preferred stock, par value $0.01 per share |
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|
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Additional paid-in capital |
|
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53,314 |
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|
147,491 |
|
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|
186,611 |
|
Accumulated other comprehensive loss |
|
|
(30,071 |
) |
|
|
(36,051 |
) |
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|
(17,187 |
) |
Retained earnings |
|
|
963,622 |
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|
|
1,142,084 |
|
|
|
1,092,196 |
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
987,283 |
|
|
|
1,253,972 |
|
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|
1,262,070 |
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|
|
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Total Liabilities and Shareholders Equity |
|
$ |
2,721,950 |
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|
$ |
2,506,421 |
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|
$ |
2,532,696 |
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|
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See accompanying condensed notes to consolidated financial statements.
Page 3 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
|
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2007 |
|
|
2006 |
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|
2007 |
|
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2006 |
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|
|
(In Thousands, Except Per Share Data) |
|
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(Unaudited) |
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|
|
|
|
|
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Net Sales |
|
$ |
548,923 |
|
|
$ |
527,381 |
|
|
$ |
1,497,318 |
|
|
$ |
1,466,649 |
|
Freight and delivery revenues |
|
|
71,294 |
|
|
|
74,272 |
|
|
|
179,412 |
|
|
|
204,042 |
|
|
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|
|
|
|
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Total revenues |
|
|
620,217 |
|
|
|
601,653 |
|
|
|
1,676,730 |
|
|
|
1,670,691 |
|
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|
|
|
|
|
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|
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|
|
|
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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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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 |
) |
|
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|
|
|
|
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|
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|
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 |
|
|
|
|
|
|
|
|
|
|
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|
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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.
Page 4 of 40
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.
Page 5 of 40
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.
Page 6 of 40
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 Corporations 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 Corporations 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. |
Page 7 of 40
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 Corporations 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 Corporations 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 Corporations consolidated balance sheet at
September 30, 2007 and January 1, 2007, respectively. |
Page 8 of 40
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 Corporations open tax years subject to examination are 2004 through 2006. The Internal
Revenue Service is currently auditing the Corporations 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. |
Page 9 of 40
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
Page 10 of 40
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
Page 11 of 40
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 Corporations 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 Corporations 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. |
Page 12 of 40
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 Corporations ratio of consolidated debt to consolidated
earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined,
for the trailing twelve months (the Ratio) to not exceed 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 Corporations 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 Corporations 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. |
Page 13 of 40
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
Corporations operations or its financial position. |
Page 14 of 40
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 Corporations 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 Corporations 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 15 of 40
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 |
|
|
|
|
|
|
|
|
Page 16 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
Item 2. Managements 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 Corporations 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 Managements 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.
Page 17 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 Corporations operating results.
Further, management believes it is consistent with the basis by which investors analyze the
Corporations operating results given that freight and delivery revenues and costs represent
pass-throughs and have no profit mark-up. Gross margin and operating margin calculated as
percentages of total revenues represent the most directly comparable financial measures calculated
in accordance with generally accepted accounting principles (GAAP). 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 18 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 |
Page 19 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 20 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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.
Page 21 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 Corporations
operations, third quarter and year-to-date results
are not indicative of expected performance for other interim periods
or the full year.
Page 22 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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.
Page 23 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 |
Page 24 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 25 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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.
Page 26 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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.
Page 27 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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.
Page 28 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 Corporations repurchase authorization.
The Corporation refinanced its $125 million 6.9% Notes that matured in August 2007 with proceeds
from the Corporations 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 Corporations 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 Corporations 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.
Page 29 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 Corporations ratio of consolidated debt to consolidated
earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for
the trailing twelve months (the Ratio) to not exceed 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 Corporations 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.
Page 30 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 Corporations 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 Poors and
P-2 by Moodys. Commercial paper of $76 million was outstanding at September 30, 2007. Refer also
to Risk to Earnings Expectations disclosed in the Corporations 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 Corporations senior
unsecured debt is rated BBB+ by Standard & Poors and Baa1 by Moodys. The Corporations
commercial paper obligations are rated A-2 by Standard & Poors and P-2 by Moodys. 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.
Page 31 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2007
(Continued)
The Corporations 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.
Page 32 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 Corporations 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 Corporations current Annual Report and Forms 10-K,
10-Q and 8-K reports to the SEC over the past year. The Corporations recent proxy statement for
the annual meeting of shareholders also contains important information. These and other materials
that have been filed with the SEC are accessible through the Corporations web site at
www.martinmarietta.com and are also available at the SECs web site at www.sec.gov.
You may also write or call the Corporations Corporate Secretary, who will provide copies of such
reports.
Investors are cautioned that all statements in this 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.
Page 33 of 40
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2007
MANAGEMENTS 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 Corporations 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 Corporations 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 Corporations 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 Corporations 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 Corporations 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
Page 34 of 40
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 Corporations operations are highly dependent upon the interest rate-sensitive construction and
steelmaking industries. Consequently, these marketplaces could experience lower levels of economic
activity in an environment of rising interest rates or escalating costs. 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 Corporations aggregates product line shipments in 2006. Aside from
these inherent risks from within its operations, the Corporations 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 Corporations 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 Corporations annual pension
expense is discussed in the Corporations 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 Corporations energy prices
in 2007 as compared with 2006, assuming constant volumes, would impact 2007 pretax earnings by
approximately $17.8 million.
Page 35 of 40
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
Corporations 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 Corporations consolidated balance sheet.
As a result of the Swap Agreements, the Corporations 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 Corporations management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and the operation of the Corporations
disclosure controls and procedures. Based on that evaluation, the Corporations management,
including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporations
disclosure controls and procedures were effective as of September 30, 2007. There have been no
significant changes in the Corporations internal controls or in other factors that could
significantly affect the internal controls subsequent to September 30, 2007.
Page 36 of 40
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 Corporations 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.
Page 37 of 40
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 |
Page 38 of 40
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 |
|
Page 39 of 40
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 |
Page 40 of 40