10-Q 1 g96532e10vq.htm MARTIN MARIETTA MATERIALS, INC. Martin Marietta Materials, Inc.
 

 
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
Commission File Number 1-12744
MARTIN MARIETTA MATERIALS, INC.
(Exact name of registrant as specified in its charter)
     
North Carolina   56-1848578
     
(State or other jurisdiction of   (I.R.S. Employer Identification Number)
incorporation or organization)    
     
2710 Wycliff Road, Raleigh, NC   27607-3033
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code 919-781-4550
Former name: None                                                                                                                                
Former name, former address and former fiscal year,
if changes since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
     
Class   Outstanding as of July 31, 2005
     
Common Stock, $0.01 par value   46,302,965
 
 
Page 1 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
         
    Page
Part I. Financial Information:
       
Item 1. Financial Statements.
       
Consolidated Balance Sheets – June 30, 2005 and December 31, 2004
    3  
Consolidated Statements of Earnings - Three and Six Months Ended June 30, 2005 and 2004
    4  
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2005 and 2004
    5  
Condensed Notes to Consolidated Financial Statements
    6  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
    14  
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    27  
Item 4. Controls and Procedures.
    29  
Part II.Other Information:
       
Item 1. Legal Proceedings.
    30  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    30  
Item 4. Submission of Matters to a Vote of Security Holders.
    30  
Item 5. Other Information.
    31  
Item 6. Exhibits.
    32  
Signatures
    33  
Exhibit Index
    34  

 


 

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                 
    June 30,   December 31,
    2005   2004
    (Unaudited)   (Audited)
    (Dollars in Thousands,
    except per share data)
ASSETS
               
Current Assets:
               
Cash and cash equivalents
  $ 81,410     $ 161,620  
Investments
    10,000        
Accounts receivable, net
    282,844       219,589  
Inventories, net
    217,003       209,309  
Current portion of notes receivable
    3,844       4,655  
Current deferred income tax benefits
    6,112       5,750  
Other current assets
    23,052       23,330  
 
               
Total Current Assets
    624,265       624,253  
 
               
Property, plant and equipment
    2,408,816       2,309,537  
Allowances for depreciation and depletion
    (1,285,309 )     (1,244,322 )
 
               
Net property, plant and equipment
    1,123,507       1,065,215  
 
               
Goodwill
    569,294       567,495  
Other intangibles, net
    20,369       18,642  
Noncurrent notes receivable
    24,917       26,501  
Other noncurrent assets
    43,915       53,746  
 
               
 
               
Total Assets
  $ 2,406,267     $ 2,355,852  
 
               
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Bank overdraft
  $ 5,200     $ 9,527  
Accounts payable
    103,566       89,949  
Accrued salaries, benefits and payroll taxes
    22,648       22,710  
Pension and postretirement benefits
    4,413       4,199  
Accrued insurance and other taxes
    43,351       35,904  
Income taxes
    23,785       10,697  
Current maturities of long-term debt
    915       970  
Other current liabilities
    25,578       29,857  
 
               
Total Current Liabilities
    229,456       203,813  
 
               
Long-term debt
    711,491       713,661  
Pension, postretirement and postemployment benefits
    87,924       88,241  
Noncurrent deferred income taxes
    138,469       139,179  
Other noncurrent liabilities
    100,447       57,531  
 
               
Total Liabilities
    1,267,787       1,202,425  
 
               
Shareholders’ Equity:
               
Common stock, par value $0.01 per share
    462       472  
Preferred stock, par value $0.01 per share
           
Additional paid-in capital
    301,836       366,626  
Accumulated other comprehensive loss
    (8,970 )     (8,970 )
Retained earnings
    845,152       795,299  
 
               
Total Shareholders’ Equity
    1,138,480       1,153,427  
 
               
 
               
Total Liabilities and Shareholders’ Equity
  $ 2,406,267     $ 2,355,852  
 
               
See accompanying condensed notes to consolidated financial statements.

Page 3 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
    (Dollars in Thousands, Except Per Share Amounts)
    (Unaudited)
Net Sales
  $ 479,095     $ 407,194     $ 819,143     $ 704,996  
Freight and delivery revenues
    67,276       55,074       119,231       97,418  
 
                               
Total revenues
    546,371       462,268       938,374       802,414  
 
                               
 
                               
Cost of sales
    351,197       301,237       642,102       563,170  
Freight and delivery costs
    67,276       55,074       119,231       97,418  
 
                               
Total cost of revenues
    418,473       356,311       761,333       660,588  
 
                               
 
                               
Gross Profit
    127,898       105,957       177,041       141,826  
 
                               
Selling, general & administrative expenses
    31,868       32,775       63,786       64,368  
Research and development
    193       181       341       335  
Other operating (income) and expenses, net
    (2,368 )     (1,429 )     (4,142 )     (1,629 )
 
                               
Earnings from Operations
    98,205       74,430       117,056       78,752  
 
                               
Interest expense
    10,662       10,743       21,452       21,031  
Other nonoperating (income) and expenses, net
    1,117       (278 )     (1,271 )     (686 )
 
                               
Earnings from continuing operations before income tax expense
    86,426       63,965       96,875       58,407  
Income tax expense
    24,819       18,982       26,969       17,318  
 
                               
Earnings from continuing operations
    61,607       44,983       69,906       41,089  
Loss on discontinued operations, net of related tax expense (benefit) of $33, $(72), $(488) and $(1,176), respectively
    (135 )     (268 )     (1,357 )     (2,919 )
 
                               
Net earnings
  $ 61,472     $ 44,715     $ 68,549     $ 38,170  
 
                               
 
                               
Net Earnings Per Common Share:
                               
Basic from continuing operations
  $ 1.32     $ 0.94     $ 1.49     $ 0.85  
Discontinued operations
          (0.01 )     (0.03 )     (0.06 )
 
                               
 
  $ 1.32     $ 0.93     $ 1.46     $ 0.79  
 
                               
 
                               
Diluted from continuing operations
  $ 1.30     $ 0.93     $ 1.47     $ 0.84  
Discontinued operations
          (0.01 )     (0.03 )     (0.06 )
 
                               
 
  $ 1.30     $ 0.92     $ 1.44     $ 0.78  
 
                               
 
                               
Dividends Per Share
  $ 0.20     $ 0.18     $ 0.40     $ 0.36  
 
                               
 
                               
Weighted Average Number of Common Shares
                               
Outstanding:
                               
Basic
    46,569,420       48,210,140       46,814,271       48,271,457  
 
                               
Diluted
    47,173,646       48,570,644       47,454,461       48,679,599  
 
                               
Sec accompanying condensed notes to consolidated financial statements.
Page 4 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
    Six Months Ended June 30,
    2005   2004
    (Dollars in Thousands)
    (Unaudited)
Net earnings
  $ 68,549     $ 38,170  
Adjustments to reconcile net earnings to cash provided by operating activities:
               
Depreciation, depletion and amortization
    67,730       66,802  
Gains on divestitures and sales of assets
    (483 )     (3,571 )
Deferred income taxes
    (1,072 )     7,887  
Other items, net
    (4 )     (911 )
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
               
Accounts receivable, net
    (63,255 )     (25,199 )
Inventories, net
    (5,517 )     (17,575 )
Accounts payable
    13,741       907  
Other assets and liabilities, net
    28,961       (14,614 )
 
               
 
               
Net cash provided by operating activities
    108,650       51,896  
 
               
 
Investing activities:
               
Additions to property, plant and equipment
    (101,284 )     (70,337 )
Acquisitions, net
    (4,138 )     (5,567 )
Proceeds from divestitures and sales of assets
    20,922       26,106  
Other investing activities, net
    (10,000 )      
 
               
 
               
Net cash used for investing activities
    (94,500 )     (49,798 )
 
               
 
               
Financing activities:
               
Repayments of long-term debt
    (438 )     (712 )
Change in bank overdraft
    (4,326 )     (253 )
Dividends paid
    (18,697 )     (17,335 )
Repurchases of common stock
    (81,130 )     (25,020 )
Issuances of common stock
    10,231       1,891  
 
               
 
               
Net cash used for financing activities
    (94,360 )     (41,429 )
 
               
 
               
Net decrease in cash and cash equivalents
    (80,210 )     (39,331 )
Cash and cash equivalents, beginning of period
    161,620       125,133  
 
               
 
               
Cash and cash equivalents, end of period
  $ 81,410     $ 85,802  
 
               
 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ 23,270     $ 22,228  
Cash paid for income taxes
  $ 11,093     $ 3,192  
Sea accompanying condensed notes to consolidated financial statements.
Page 5 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.   Basis of Presentation
 
    The accompanying unaudited consolidated financial statements of Martin Marietta Materials, Inc. (the “Corporation”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and to Article 10 of Regulation S-X. The Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on February 25, 2005. In the opinion of management, the interim financial information provided herein reflects all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods. The results of operations for the six months ended June 30, 2005 are not indicative of the results to be expected for the full year.
 
2.   Business Combinations and Divestitures
 
    Effective January 1, 2005, the Corporation formed a joint venture with Hunt Midwest Enterprises (“Hunt Midwest”) to operate substantially all of the aggregates facilities of both companies in Kansas City and surrounding areas. The joint venture company, Hunt Martin Materials LLC, is 50% owned by each party and is the leading aggregates producer in the area. The joint venture, valued at approximately $75 million, was formed by the parties contributing a total of 15 active quarry operations with production of approximately 7.5 million tons annually. The Corporation consolidated the financial statements of the joint venture effective January 1, 2005 and includes minority interest for the net assets attributable to Hunt Midwest in other noncurrent liabilities. In the Corporation’s consolidated financial statements, the assets contributed by Hunt Midwest were initially recorded at their fair value on the date of contribution to the joint venture, while assets contributed by the Corporation continued to be recorded at historical cost. The terms of the joint venture agreement provide that the Corporation will operate as the managing partner and receive a management fee based on tons sold. Additionally, the joint venture agreement includes the Corporation providing a $7 million revolving credit facility for working capital purposes and a term loan that provides up to $26 million for a capital project. Any outstanding borrowings under these agreements are eliminated in the Corporation’s consolidated financial statements. The joint venture has a term of fifty years with certain purchase rights provided to the Corporation and Hunt Midwest.

Page 6 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.   Business Combinations and Divestitures (continued)
 
    In 2005 and 2004, the Corporation divested of certain nonstrategic operations within its Aggregates operating segment. The results of all divested operations through the dates of disposal and any gain or loss on disposals are included in discontinued operations on the consolidated statements of earnings. The discontinued operations included the following net sales, pretax loss on operations, pretax gain or loss on disposals, income tax expense (benefit) and net loss (dollars in thousands):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Net sales
  $ 315     $ 8,579     $ 2,578     $ 19,673  
 
                               
 
                               
Pretax loss on operations
  $ (102 )   $ (957 )   $ (921 )   $ (5,764 )
Pretax gain (loss) on disposals
          617       (924 )     1,669  
 
                               
Pretax loss
    (102 )     (340 )     (1,845 )     (4,095 )
Income tax expense (benefit)
    33       (72 )     (488 )     (1,176 )
 
                               
Net loss
  $ (135 )   $ (268 )   $ (1,357 )   $ (2,919 )
 
                               
3.   Investments
 
    Investments are comprised of variable rate demand notes. These available-for-sale securities are carried at fair value. While the contractual maturities for each of the Corporation’s variable rate demand notes exceed ten years, these securities represent investments of cash available for current operations. Therefore, in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, these securities are classified as current assets in the consolidated balance sheet. The Corporation can redeem the investments at their par value prior to the contractual maturities by providing 7-day written notice to the remarketing agent.
 
4.   Inventories
                 
    June 30,   December 31,
    2005   2004
    (Dollars in Thousands)
Finished products
  $ 178,969     $ 173,013  
Product in process and raw materials
    17,610       17,412  
Supplies and expendable parts
    28,789       24,347  
 
               
 
    225,368       214,772  
Less allowances
    (8,365 )     (5,463 )
 
               
Total
  $ 217,003     $ 209,309  
 
               

Page 7 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.   Goodwill
 
    The following table shows changes in goodwill (dollars in thousands):
                 
    Quarter Ended   Six Months Ended
    June 30, 2005   June 30, 2005
Balance at beginning of period
  $ 568,961     $ 567,495  
Acquisitions
          2,685  
Adjustments to purchase price allocations
    333       339  
Amounts allocated to divestitures
          (1,225 )
 
               
Balance at end of period
  $ 569,294     $ 569,294  
 
               
6.   Long-Term Debt
                 
    June 30,   December 31,
    2005   2004
    (Dollars in Thousands)
6.875% Notes, due 2011
  $ 249,787     $ 249,773  
5.875% Notes, due 2008
    208,349       209,761  
6.9% Notes, due 2007
    124,985       124,982  
7% Debentures, due 2025
    124,287       124,279  
Acquisition notes, interest rates ranging from 2.11% to 8.02%
    3,898       4,725  
Other notes
    1,100       1,111  
 
               
 
    712,406       714,631  
Less current maturities
    (915 )     (970 )
 
               
Total
  $ 711,491     $ 713,661  
 
               
    The carrying values of the notes due in 2008 include $8,768,000 and $10,235,000 at June 30, 2005 and December 31, 2004, respectively, for the value of interest rate swaps.
 
    On June 30, 2005, the Corporation entered into a $250 million five-year revolving credit agreement (the “Credit Agreement”) that replaced a $275 million revolving credit facility that was scheduled to expire in August 2006. The Corporation also reduced the maximum amount of its commercial paper program, which is supported by the revolving credit agreement, from $275 million to $250 million. At June 30, 2005, the Corporation had no outstanding balance on the revolving credit agreement and no commercial paper outstanding.

Page 8 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.   Long-Term Debt (continued)
 
    The Credit Agreement is syndicated with a group of domestic and foreign commercial banks and expires in June 2010. Borrowings under the Credit Agreement are unsecured and bear interest, at the Corporation’s option, at rates based upon: (i) the Euro-Dollar rate (as defined on the basis of a LIBOR) plus basis points related to a pricing grid; (ii) a bank base rate (as defined on the basis of a published prime rate or the Federal Funds Rate plus 1/2 of 1%); or (iii) a competitively determined rate (as defined on the basis of a bidding process). The Credit Agreement contains restrictive covenants relating to the Corporation’s debt-to-total capitalization ratio, requirements for limitations on encumbrances and provisions that relate to certain changes in control. Available borrowings under the Credit Agreement are reduced by any outstanding letters of credit issued by the Corporation under the Credit Agreement. The Corporation pays an annual loan commitment fee to the bank group.
 
7.   Income Taxes
 
    The Corporation’s estimated effective income tax rate for continuing operations for the first six months was 27.8% in 2005 and 29.7% in 2004. The Corporation’s combined overall estimated effective tax rate for continuing and discontinued operations was 27.9% and 29.7% for the six months ended June 30, 2005 and 2004, respectively. The Corporation’s estimated effective combined federal and state tax rate reflects the impact of differences in book and tax accounting arising primarily from the net permanent benefits associated with depletion allowances for minerals and foreign operating earnings.
 
    The American Jobs Creation Act of 2004 (the “Act”) created a new tax deduction related to income from domestic (i.e., United States) production activities. This provision, when fully phased in, will permit a deduction equal to 9 percent of a company’s Qualified Production Activities Income (QPAI) or its taxable income, whichever is lower. Further, the deduction is limited to 50% of the W-2 wages paid by the Corporation during the year. QPAI includes, among other things, income from domestic manufacture, production, growth or extraction of tangible personal property. For 2005 and 2006, the deduction is equal to 3 percent of QPAI, increasing to 6 percent for 2007 through 2009, and reaching the full 9 percent deduction in 2010. The Corporation’s effective tax rate is estimated to be approximately 75 basis points lower in 2005 as a result of the domestic production deduction.

Page 9 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.   Income Taxes (continued)
 
    The State of Ohio recently enacted tax reform legislation (the “Bill”) that will reduce state taxes paid by the Corporation related to its Ohio operations. The Bill phases out the income/franchise tax over a five-year period commencing in 2005. Over this same period, the Bill phases in a new commercial activities tax levied on gross receipts. Other provisions of the Bill that impact the Corporation are the elimination of personal property tax for certain new manufacturing equipment purchased after 2004 and the phase-out of personal property tax on existing manufacturing equipment and inventory over a four-year period commencing in 2005. The signing of the Bill represents a change in tax law. In accordance with Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes, the effect of the law change should be reflected in earnings in the period that includes the date of enactment. Accordingly, the Corporation repriced its deferred tax liabilities to reflect the statutory changes. The estimated impact of the new legislation on the Corporation’s taxes is reflected as a discrete event for the quarter ended June 30, 2005, resulting in an increase to net earnings of $1.2 million, or $0.02 per diluted share.
 
    The effective income tax rate for the six months ended June 30, 2005 continues to reflect the benefit of a decrease in tax reserves recorded in the first quarter related to certain international tax issues currently under examination that increased net earnings by $1.0 million, or $0.02 per diluted share.
 
8.   Pension and Postretirement Benefits
 
    The following presents the estimated components of the recorded net periodic benefit cost for pension and postretirement benefits for the quarter ended June 30 (dollars in thousands):
                                 
    Pension   Postretirement Benefits
    2005   2004   2005   2004
Service cost
  $ 2,637     $ 2,321     $ 70     $ 161  
Interest cost
    4,022       3,453       370       861  
Expected return on assets
    (4,322 )     (3,543 )            
Amortization of:
                               
Prior service cost
    161       133       (161 )     (307 )
Actuarial loss
    512       290       (18 )     88  
 
                               
Total net periodic benefit cost
  $ 3,010     $ 2,654     $ 261     $ 803  
 
                               

Page 10 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8.   Pension and Postretirement Benefits (continued)
 
    The following presents the estimated components of the recorded net periodic benefit cost for pension and postretirement benefits for the six months ended June 30 (dollars in thousands):
                                 
    Pension   Postretirement Benefits
    2005   2004   2005   2004
Service cost
  $ 5,457     $ 5,211     $ 284     $ 339  
Interest cost
    8,320       7,752       1,490       1,815  
Expected return on assets
    (8,942 )     (7,956 )            
Amortization of:
                               
Prior service cost
    334       300       (647 )     (647 )
Actuarial loss
    1,059       652       (74 )     185  
 
                               
Total net periodic benefit cost
  $ 6,228     $ 5,959     $ 1,053     $ 1,692  
 
                               
9.   Contingencies
 
    In the opinion of management and counsel, it is unlikely that the outcome of litigation and other proceedings, including those pertaining to environmental matters, relating to the Corporation and its subsidiaries, will have a material adverse effect on the results of the Corporation’s operations or its financial position.
 
10.   Stock-Based Compensation
 
    The Corporation has stock-based compensation plans for employees and directors, which are accounted for under the intrinsic value method prescribed by APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations. In 2004, the Corporation changed the model used for valuing stock options for options granted under the Corporation’s stock-based compensation plans. The fair value of the 2005 and 2004 option awards was determined using a lattice valuation model as opposed to the Black-Scholes valuation model used in prior years.

Page 11 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10.   Stock-Based Compensation (continued)
 
    The following table illustrates the effect on net earnings and earnings per share if the Corporation had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”) (dollars in thousands, except per share amounts):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Net earnings, as reported
  $ 61,472     $ 44,715     $ 68,549     $ 38,170  
Add: Stock-based compensation expense included in reported net earnings, net of related tax effects
    428       308       856       616  
Deduct: Stock-based compensation expense determined under fair value for all awards, net of related tax effects
    (1,654 )     (1,298 )     (2,941 )     (2,599 )
 
                               
Pro forma net earnings
  $ 60,246     $ 43,725     $ 66,464     $ 36,187  
 
                               
 
                               
Earnings per share:
                               
Basic—as reported
  $ 1.32     $ 0.93     $ 1.46     $ 0.79  
 
                               
Basic—pro forma
  $ 1.29     $ 0.91     $ 1.42     $ 0.75  
 
                               
 
                               
Diluted—as reported
  $ 1.30     $ 0.92     $ 1.44     $ 0.78  
 
                               
Diluted—pro forma
  $ 1.28     $ 0.90     $ 1.40     $ 0.74  
 
                               
11.   Accounting Changes
 
    In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)”), which is a revision of FAS 123. FAS 123(R) supercedes APB No. 25 and amends FASB Statement No. 95, Statement of Cash Flows, and requires all forms of share-based payments to employees, including employee stock options, to be recognized as compensation expense. The compensation expense of the awards is measured at fair value at the grant date.

Page 12 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.   Accounting Changes (continued)
 
    FAS 123(R) is effective January 1, 2006 for the Corporation. The Corporation expects to adopt the provisions of the statement using the modified prospective transition method, which would recognize stock option awards as compensation expense for unvested awards as of January 1, 2006 and awards subsequent to that date. The 2006 impact of the adoption of FAS 123(R) on the Corporation’s results of operations will depend on the levels of share-based payments granted in 2006. Further, the potential impact will also depend on the pool of additional paid-in-capital (“APIC”) credits available to use for any write off of deferred tax assets established pursuant to FAS 123(R). Deferred tax assets will be written off when the Corporation’s tax deduction related to the exercise of stock options is less than the related compensation cost recognized for financial reporting purposes. If APIC credits are not available to offset the write off of the deferred tax assets, it is recorded in income tax expense for the current period. The Corporation has not yet determined its pool of APIC credits. If the Corporation had adopted FAS 123(R) in prior periods, net earnings and earnings per share for the quarter and six months ended June 30 would approximate the pro forma results of operations as presented in Note 10.
 
    In March 2005, the FASB ratified Emerging Issues Task Force Issue 04-06, Accounting for Stripping Costs in the Mining Industry (“EITF 04-06”). EITF 04-06 clarifies that post-production stripping costs, which represent costs of removing overburden and waste materials to access mineral deposits, should be considered costs of the extracted minerals under a full absorption costing system and recorded as a component of inventory to be recognized in costs of sales in the same period as the revenue from the sale of the inventory. EITF 04-06 is effective January 1, 2006 for the Corporation, and any capitalized post-production stripping costs will be recognized as an adjustment to retained earnings at that date. At June 30, 2005, the Corporation had $9.6 million of capitalized stripping costs.
 
    The FASB issued an exposure draft in July 2005 clarifying the criteria for recognition of tax benefits in accordance with FASB Statement No. 109, Accounting for Income Taxes. The Corporation outlined its critical accounting policies related to income taxes in its Annual Report on Form 10-K for the year ended December 31, 2004. Certain tax accounting and reporting guidelines may change as a result of new accounting guidance. Management’s accounting and reporting treatment will be determined at the time of issuance of a final standard.

Page 13 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW Martin Marietta Materials, Inc. (the “Corporation”), conducts its operations through two reportable business segments: aggregates and specialty products. The Corporation’s net sales and earnings are predominately derived from its Aggregates segment, which processes and sells granite, limestone, and other aggregates products from a network of 331 quarries, distribution facilities and plants in 28 states in the southeastern, southwestern, midwestern, mideastern and central regions of the United States and in the Bahamas and Canada. The division’s 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 used in a wide variety of industries.
CRITICAL ACCOUNTING POLICIES The Corporation outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on February 25, 2005.
RESULTS OF OPERATIONS
Quarter Ended June 30
Consolidated net sales for the quarter were $479.1 million compared with 2004 second quarter net sales of $407.2 million. Consolidated earnings from operations for the quarter were $98.2 million as compared with $74.4 million in the second quarter 2004. Interest expense remained relatively constant at $10.7 million for the second quarter 2005. Other nonoperating income and expenses, net, was a net expense of $1.1 million in 2005 compared with income of $0.3 million in the prior year. Consolidated after-tax earnings from continuing operations for the quarter were $61.6 million, or $1.30 per diluted share, compared with $45.0 million, or $0.93 per diluted share, in the second quarter 2004.

Page 14 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
In 2005 and 2004, the Corporation divested of certain nonstrategic operations within its Aggregates operating segment. The results of all divested operations through the dates of disposal and any gain or loss on disposals are included in discontinued operations on the consolidated statements of earnings. See Note 2 to the consolidated financial statements for the net sales, pretax loss on operations, pretax gain on disposals, income tax expense (benefit) and net loss included in discontinued operations.
Net earnings for the quarter ended June 30 were $61.5 million, or $1.30 per diluted share, in 2005 and $44.7 million, or $0.92 per diluted share, in 2004.
Except as indicated, the following comparative analysis in the Results of Operations section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on results from continuing operations.

Page 15 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
The following tables present net sales, gross profit, selling, general and administrative expenses, other operating (income) and expenses, net, and earnings from operations data for the Corporation and each of its segments for the three months ended June 30, 2005 and 2004. In each case, the data is also stated as a percentage of net sales, of the Corporation or the relevant division, as the case may be.
Earnings from operations include research and development expense. This expense for the Corporation was $0.2 million for the quarters ended June 30, 2005 and 2004, respectively.
                                 
    Three Months Ended
    June 30
    2005   2004
            % of           % of
    Amount   Net Sales   Amount   Net Sales
    (Dollars in Thousands)
Net sales:
                               
Aggregates
  $ 448,414       100.0     $ 378,589       100.0  
Specialty Products
    30,681       100.0       28,605       100.0  
 
                               
Total
  $ 479,095       100.0     $ 407,194       100.0  
 
                               
 
                               
Gross profit:
                               
Aggregates
  $ 123,157       27.5     $ 100,393       26.5  
Specialty Products
    4,741       15.5       5,564       19.5  
 
                               
Total
  $ 127,898       26.7     $ 105,957       26.0  
 
                               
 
                               
Selling, general & administrative expenses:
                               
Aggregates
  $ 29,123       6.5     $ 30,149       8.0  
Specialty Products
    2,745       8.9       2,626       9.2  
 
                               
Total
  $ 31,868       6.7     $ 32,775       8.0  
 
                               
 
                               
Other operating (income) and expenses, net:
                               
Aggregates
  $ (2,285 )     (0.5 )   $ (1,614 )     (0.4 )
Specialty Products
    (83 )     (0.3 )     185       0.6  
 
                               
Total
  $ (2,368 )     (0.5 )   $ (1,429 )     (0.4 )
 
                               
 
                               
Earnings from operations:
                               
Aggregates
  $ 96,318       21.5     $ 71,858       19.0  
Specialty Products
    1,887       6.2       2,572       9.0  
 
                               
Total
  $ 98,205       20.5     $ 74,430       18.3  
 
                               

Page 16 of 34


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
Net sales for the Aggregates division were $448.4 million for the second quarter 2005 compared with $378.6 million for the second quarter 2004 resulting from a 7.8 percent increase in volume and an 8.3 percent increase in pricing in the heritage aggregates business. Shipments were particularly strong across the Southwest and the Southeast, as demand increased from all end-use construction sectors. The increases in shipments and pricing, coupled with continued cost control, resulted in a 100-basis-point improvement in gross margin in the aggregates segment. The positive quarterly results were achieved in spite of increased pressures from rising diesel fuel prices, higher costs for repair and supply parts, higher wage and benefit costs, and a $1.4 million write down of assets associated with the closure of an Ohio-based aggregates plant.
The following tables present volume and pricing data and shipments data for heritage operations, acquisitions and discontinued operations:
                 
    Three Months Ended
    June 30, 2005
    Volume   Pricing
Volume/Pricing Variance (1)
               
Heritage Aggregates Operations (2)
    7.8 %     8.3 %
Aggregates Division (3)
    9.2 %     8.2 %
                 
    Three Months Ended
    June 30
    2005   2004
Shipments (tons in thousands)
               
Heritage Aggregates Operations (2)
    55,411       51,404  
Acquisitions
    1,206        
Divestitures(4)
    37       467  
 
               
Aggregates Division (3)
    56,654       51,871  
 
               
 
(1)   Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
 
(2)   Heritage aggregates operations exclude acquisitions that have not been included in prior-year operations for a full year and divestitures.
 
(3)   Aggregates division includes all acquisitions from the date of acquisition and divested operations through the dates of divestiture.
 
(4)   Divestitures include the tons related to divested operations up to the dates of divestiture.
Selling, general and administrative expenses as a percentage of net sales for the Aggregates division was 6.5 percent for the second quarter 2005 as compared with 8.0 percent in the prior year quarter. The decline resulted from reorganization changes made in 2004 that reduced headcount and other overhead expenses. This reduction was partially offset by increased performance-based incentive compensation costs during the quarter.
Page 17 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
The Aggregates division’s earnings from operations were $96.3 million in the second quarter of 2005 as compared with $71.9 million in the second quarter of 2004. Operating margin increased 250 basis points to 21.5 percent as compared with the prior-year quarter.
The Aggregates division’s business is significantly affected by seasonal changes and other weather-related conditions. Consequently, the Aggregates division’s production and shipment levels coincide with general construction activity levels, most of which occur in the division’s markets typically during the spring, summer, and fall seasons. Further because of the potentially significant impact of weather on the Corporation’s operations, first half results are not indicative of expected performance for the year.
Second quarter results for Specialty Products, which includes the Magnesia Specialties and Structural Composites businesses were mixed. Sales for the Magnesia Specialties’ business grew 10 percent over the prior-year quarter as a result of increased chemicals sales to a variety of end users, coupled with strong pricing improvement in both lime and chemical products. For the quarter, earnings from operations for the Magnesia Specialties business were $6.6 million compared with $4.9 million in the prior year quarter.
In the second quarter 2005, management for the Structural Composites business concluded that its present live floor and tipper trailer products were not economically viable for hauling municipal waste and that the identified issues would not be resolved in the near future. In connection with this decision, inventory used in the manufacturing of waste trailers was written down to its net realizable value, based on alternative uses and salvage values. The write down resulted in a pretax charge of $2.0 million for the quarter ended June 30, 2005. Inclusive of this write down, the Structural Composites business had a loss from operations of $4.7 million for the quarter as compared with $2.3 million in the prior year quarter.
In addition to other offsetting amounts, other nonoperating income and expenses, net, is comprised generally of interest income, net equity earnings from nonconsolidated investments and eliminations of minority interests for consolidated non-wholly owned subsidiaries. Other nonoperating income and expenses, net, for the quarter ended June 30, were $1.1 million in expense in 2005 compared with income of $0.3 million in 2004. The elimination of minority interest for consolidated subsidiaries increased other nonoperating expense by $1.8 million, partially offset by higher interest income.
Page 18 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
Six Months Ended June 30
Consolidated net sales for the first six months of 2005 were $819.1 million compared with $705.0 million for the year-earlier period. On a year-to-date basis, consolidated earnings from operations were $117.1 million in 2005 compared with $78.8 million in 2004. Other nonoperating income and expenses, net, was income of $1.3 million and $0.7 million in 2005 and 2004, respectively. Interest expense increased 2 percent to $21.5 million in 2005. Consolidated earnings from continuing operations for the six months ended June 30 were $69.9 million, or $1.47 per diluted share, in 2005 compared with $41.1 million, or $0.84 per diluted share, in 2004.
Page 19 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
The following tables present net sales, gross profit, selling, general and administrative expenses, other operating income and expenses, net, and earnings from operations data for the Corporation and each of its segments for the six months ended June 30, 2005 and 2004. In each case, the data is also stated as a percentage of net sales, of the Corporation or the relevant division, as the case may be.
Earnings from operations include research and development expense. This expense for the Corporation was $0.3 million for the six months ended June 30, 2005 and 2004, respectively.
                                 
    Six Months Ended
    June 30
    2005   2004
            % of           % of
    Amount   Net Sales   Amount   Net Sales
            (Dollars in Thousands)        
Net sales:
                               
Aggregates
  $ 757,928       100.0     $ 649,953       100.0  
Specialty Products
    61,215       100.0       55,043       100.0  
 
                               
Total
  $ 819,143       100.0     $ 704,996       100.0  
 
                               
 
                               
Gross profit:
                               
Aggregates
  $ 166,918       22.0     $ 132,051       20.3  
Specialty Products
    10,123       16.5       9,775       17.8  
 
                               
Total
  $ 177,041       21.6     $ 141,826       20.1  
 
                               
 
                               
Selling, general & administrative expenses:
                               
Aggregates
  $ 58,205       7.7     $ 59,224       9.1  
Specialty Products
    5,581       9.1       5,144       9.3  
 
                               
Total
  $ 63,786       7.8     $ 64,368       9.1  
 
                               
 
                               
Other operating (income) and expenses, net:
                               
Aggregates
  $ (4,135 )     (0.5 )   $ (2,172 )     (0.3 )
Specialty Products
    (7 )           543       1.0  
 
                               
Total
  $ (4,142 )     (0.5 )   $ (1,629 )     (0.2 )
 
                               
 
                               
Earnings from operations:
                               
Aggregates
  $ 112,848       14.9     $ 75,000       11.5  
Specialty Products
    4,208       6.9       3,752       6.8  
 
                               
Total
  $ 117,056       14.3     $ 78,752       11.2  
 
                               
Page 20 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
The following tables present volume and pricing data and shipments data for heritage operations, acquisitions and discontinued operations:
                 
    Six Months Ended
    June 30, 2005
    Volume   Pricing
Volume/Pricing Variance (1)
               
Heritage Aggregates Operations (2)
    7.6 %     7.2 %
Aggregates Division (3)
    8.3 %     7.3 %
                 
    Six Months Ended
    June 30
    2005   2004
Shipments (tons in thousands)
               
Heritage Aggregates Operations (2)
    94,197       87,571  
Acquisitions
    1,863        
Divestitures(4)
    70       1,180  
 
               
Aggregates Division (3)
    96,130       88,751  
 
               
 
(1)   Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
(2)   Heritage aggregates operations exclude acquisitions that have not been included in prior-year operations for a full year and divestitures.
(3)   Aggregates division includes all acquisitions from the date of acquisition and divested operations through the dates of divestiture.
 
(4)   Divestitures include the tons related to divested operations up to the dates of divestiture.
During the six months ended June 30, 2004, the Corporation recorded expenses of $1.5 million for a change in estimate primarily related to disputed charges in its Louisiana road paving business. These expenses, which are included in discontinued operations, decreased net earnings for the six months by $0.02 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities during the six months ended June 30, 2005 was $108.7 million compared with $51.9 million in the comparable period of 2004. Operating cash flow is generally from earnings, before deducting depreciation, depletion and amortization, offset by working capital requirements. The increase in cash provided by operating activities for the first six months of 2005 as compared with the year-earlier period was primarily due to the Corporation making a voluntary $32 million contribution to its pension plan in the six months ended June 30, 2004, which reduced operating cash flow. Additionally, earnings were $30.4 million higher for the first six months of 2005 as compared with the year-earlier period. These factors were partially offset by a higher accounts receivable balance resulting from increased sales, primarily in the last 45 days of the quarter. Depreciation, depletion and amortization were as follows (amounts in millions):
Page 21 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Depreciation
  $ 32.1     $ 30.3     $ 63.1     $ 61.2  
Depletion
    1.2       1.5       2.1       2.8  
Amortization
    1.1       1.4       2.5       2.8  
 
                               
 
  $ 34.4     $ 33.2     $ 67.7     $ 66.8  
 
                               
The seasonal nature of the construction aggregates business impacts quarterly operating cash flow when compared with the year. Full year 2004 net cash provided by operating activities was $266.8 million, compared with $51.9 million provided by operations in the first six months of 2004.
During the last six months of 2005, the Corporation expects to make estimated income tax payments of approximately $54 million, primarily due to higher earnings in 2005.
First six months capital expenditures, exclusive of acquisitions, were $101.3 million in 2005 and $70.3 million in 2004. Comparable full-year capital expenditures were $163.4 million in 2004. Full-year capital spending is expected to approximate $235 million for 2005, of which approximately $12 million will be spent by the Hunt Martin joint venture.
In 2005, the Corporation continued its common stock repurchase plan through open-market purchases pursuant to authority granted by its Board of Directors. For the quarter ended June 30, 2005, the Corporation repurchased 599,200 shares at an aggregate cost of $36.9 million.
On June 30, 2005, the Corporation entered into a $250 million five-year credit agreement (the “Credit Agreement”) with a group of domestic and foreign commercial banks. The Credit Agreement expires in June 2010. The Corporation also reduced the maximum amount of its commercial paper program, which is supported by the Credit Agreement, from $275 million to $250 million. Additionally, the Corporation terminated its $275 million five-year credit agreement that was scheduled to expire in August 2006.
Based on prior performance and current expectations, the Corporation’s management believes that cash flows from internally generated funds and its access to capital markets are expected to continue to be sufficient to provide the capital resources necessary to fund the operating needs of its existing businesses, cover debt service requirements, and allow for payment of dividends in 2005.
Page 22 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
The Corporation may be required to obtain additional levels of financing in order to fund certain strategic acquisitions, if any such opportunities arise. Currently, the Corporation’s senior unsecured debt is rated “BBB+” by Standard & Poor’s and “A3” by Moody’s. The Corporation’s commercial paper obligations are rated “A-2” by Standard & Poor’s and “P-2” by Moody’s. While management believes its credit ratings will remain at an investment-grade level, no assurance can be given that these ratings will remain at the above-mentioned levels.
Contractual Obligations
The Corporation has entered into a purchase agreement for the construction of 780 railcars to be used for transporting aggregates. Generally, the Corporation does not buy railcars, barges or ships, but rather supports its long-term distribution network with leases for these modes of transportation. The Corporation expects to assign the purchase order for the new railcars to a third party and enter into a master lease agreement that will have minimum lease payments totaling approximately $61.5 million over the life of the leases. Delivery of the railcars is expected to begin in the fourth quarter of 2005 and will continue into 2006.
ACCOUNTING CHANGES The accounting changes that currently impact the Corporation are included in Note 11 to the Consolidated Financial Statements.
TRENDS AND RISKS The Corporation outlined the trends and risks associated with its aggregates operations in its Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on February 25, 2005. Management continues to evaluate its exposure to all operating risks on an ongoing basis.
On July 29, 2005, the House of Representatives and the Senate approved a new 6-year, $286.5 billion federal highway bill. The Safe, Accountable, Flexible and Efficient Transportation Equity Act — A Legacy for Users (SAFETEA-LU) represents an approximately 35 percent increase over the funding under the previous bill. The provisions of the bill include each state’s minimum rate of return on their Highway Trust Fund contributions ramping up from the current rate of 90.5 percent to 92 percent by 2008. President Bush is expected to sign the bill.
Page 23 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
OUTLOOK 2005 The outlook for the Aggregates business for the remainder of 2005 appears to be positive. Management expects aggregates shipments volume to increase 4.0 percent to 6.0 percent and aggregates pricing to increase 5.5 percent to 7.0 percent. The Magnesia Specialties business is expected to generate between $19 million and $22 million in pretax earnings. The Structural Composites business is expected have a pretax loss of between $10 million and $12 million in 2005, inclusive of the $2 million write down recorded in the second quarter. Presently, management believes that the Structural Composites business would require revenue of approximately $25 million to $30 million to achieve breakeven operating results.
Management currently expects net earnings per diluted share for 2005 to range from $3.35 to $3.55. Third quarter 2005 earnings per diluted share are expected to range from $1.20 to $1.35. The significant factors that may affect the Corporation’s performance within the earnings range are the volatility of energy prices, control of rising costs of supply parts and wages and benefits, continued strength in residential spending and the weather. The third quarter typically has weather-related exposure due to the Atlantic hurricane season which, based on hurricane activity in July 2005, is expected to be robust. Further, second-half 2004 performance was strong making second-half 2005 comparison more difficult. The third quarter estimated earnings range excludes the impact of any nonrecurring tax benefits.
Page 24 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
OTHER MATTERS If you are interested in Martin Marietta Materials, Inc. stock, management recommends that, at a minimum, you read the Corporation’s current annual report and 10-K, 10-Q and 8-K reports to the SEC over the past year. The Corporation’s recent proxy statement for the annual meeting of shareholders also contains important information. These and other materials that have been filed with the SEC are accessible through the Corporation’s Web site at www.martinmarietta.com and are also available at the SEC’s Web site at www.sec.gov. You may also write or call the Corporation’s Corporate Secretary, who will provide copies of such reports.
Investors are cautioned that all statements in this Quarterly Report that relate to the future involve risks and uncertainties, and are based on assumptions that the Corporation believes in good faith are reasonable but which may be materially different from actual results. Forward-looking statements give the investor our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate only to historical or current facts. They may use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of our forward-looking statements here and in other publications may turn out to be wrong.
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; levels of construction spending in the markets the Corporation serves; unfavorable weather conditions, particularly Atlantic hurricane activity; fuel costs; wage inflation and increasing employee benefits’ impact on labor costs; continued increases in the cost of repair and supply parts; transportation availability and costs; continued strength in the steel industry markets served by the Corporation’s Magnesia Specialties business; successful development and implementation of the structural composite technological process and commercialization of strategic products for specific market segments; and other risk factors listed from time to time found in the Corporation’s filings with the Securities and Exchange Commission. Other factors besides those listed here may also adversely affect the Corporation and may be material to the Corporation. The Corporation assumes no obligation to update any forward-looking statements.
Page 25 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2005 and 2004
(Continued)
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, 2004, by writing to:
Martin Marietta Materials, Inc.
Attn: Corporate Secretary
2710 Wycliff Road
Raleigh, North Carolina 27607-3033
Additionally, Martin Marietta Materials’ Annual Report, press releases and filings with the Securities and Exchange Commission, including Forms 10-K, 10-Q, 8-K and 11-K, can generally be accessed via the Corporation’s Web site. Filings with the Securities and Exchange Commission accessed via the Web site are available through a link with the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. Accordingly, access to such filings is available upon EDGAR placing the related document in its database. Investor relations contact information is as follows:
Telephone: (919) 783-4658
Email: investors@martinmarietta.com
Web site address: www.martinmarietta.com
Page 26 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Corporation’s operations are highly dependent upon the interest rate-sensitive construction and steelmaking industries. Consequently, these marketplaces could experience lower levels of economic activity in an environment of rising interest rates or escalating costs. Aside from these inherent risks from within its operations, the Corporation’s earnings are affected also by changes in short-term interest rates, as a result of its temporary cash investments, including money market funds and overnight investments in Eurodollars; investments in variable rate demand notes; interest rate swaps; any outstanding commercial paper obligations; and defined benefit pension plans.
Interest Rate Swaps. In August 2003, the Corporation entered into interest rate swap agreements (the “Swaps”) for interest related to $100 million of the $200 million Notes due in 2008 to increase the percentage of its long-term debt that bears interest at a variable rate. The Swaps are fair value hedges designed to hedge against changes in the fair value of the Notes due to changes in LIBOR, the designated benchmark interest rate. The terms of the Swaps include the Corporation receiving a fixed annual interest rate of 5.875% and paying a variable annual interest rate based on six-month LIBOR plus 1.50%.
The Corporation is required to record the fair value of the Swaps and the change in the fair value of the related Notes in its consolidated balance sheet. In accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, no gain or loss is recorded for the changes in the fair value of the Swaps or the debt. At June 30, 2005, the fair value of the Swaps is $0.6 million.
As a result of the Swaps, the Corporation has increased interest rate risk associated with changes in the LIBOR rate. A hypothetical decrease in interest rates of 1% would decrease annual interest expense by $1 million and also increase the fair value of the debt covered by the Swaps by approximately $3 million. A hypothetical increase in interest rates of 1% would increase annual interest expense by $1 million and also decrease the fair value of the debt covered by the Swaps by approximately $3 million.
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 June 30, 2005, there were no outstanding commercial paper borrowings. Due to commercial paper borrowings bearing interest at a variable rate, the Corporation has interest rate risk when such debt is outstanding.
Page 27 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
Pension Expense. The Corporation sponsors noncontributory defined benefit pension plans that cover substantially all employees. Therefore, the Corporation’s results of operations are affected by its pension expense. Assumptions that affect this expense include the discount rate and the expected long-term rate of return on assets. The selection of the discount rate is based on the yields on high quality, fixed income investments. The selection of the expected long-term rate of return on assets is based on general market conditions and related returns on a portfolio of investments. Therefore, the Corporation has interest rate risk associated with these factors. The impact of hypothetical changes in these assumptions on the Corporation’s annual pension expense is discussed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on February 25, 2005.
Aggregate Interest Rate Risk. The pension expense for 2005 is calculated based on assumptions selected at December 31, 2004. Therefore, interest rate risk in 2005 is limited to the potential effect related to the interest rate swaps and outstanding commercial paper. Assuming no commercial paper is outstanding, which is consistent with the June 30, 2005 balance, the aggregate effect of a hypothetical 1% increase in interest rates would increase interest expense and decrease pretax earnings by $1 million.
Page 28 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
Item 4. Controls and Procedures
As of June 30, 2005, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 2005.
On April 1, 2005, the Corporation converted certain financial accounting systems of the businesses acquired in the 1998 acquisition of Redland Stone Products Company, which are currently a part of the Southwest Division, to the Corporation’s enterprise-wide information system solution. Management believes that the conversion of these financial accounting systems has provided a more centralized system of internal control over financial reporting for these businesses. In addition, the Corporation expects further conversion of its information systems to occur during the balance of the year.
There have been no significant changes in the Corporation’s internal controls or in other factors that could significantly affect the internal controls subsequent to June 30, 2005.
Page 29 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
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, 2004.
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
April 1, 2005 — April 30, 2005
    180,000     $ 56.68       180,000       2,843,200  
 
                               
May 1, 2005 — May 31, 2005
    180,000     $ 60.46       180,000       2,663,200  
 
                               
June 1, 2005 — June 30, 2005
    239,200     $ 65.94       239,200       2,424,000  
 
                               
Total
    599,200     $ 61.51       599,200       2,424,000  
The Corporation’s initial stock repurchase program, which authorized the repurchase of 2.5 million shares of common stock, was announced in a press release dated May 6, 1994, and has been updated as appropriate. The program does not have an expiration date.
Item 4. Submission of Matters to Vote of Security Holders.
At the Annual Meeting of Shareholders held on May 24, 2005, the shareholders of Martin Marietta Materials, Inc.:
(a)   Elected Sue W. Cole, William B. Sansom and Stephen P. Zelnak, Jr. to the Board of Directors of the Corporation to terms expiring at the Annual Meeting of Shareholders in the year 2008; and elected Laree E. Perez to the Board of Directors of the Corporation to a term expiring at the Annual Meeting of Shareholders in the year 2007. The following table sets forth the votes for each director.
                 
    Votes Cast For   Withheld
Sue W. Cole
    41,504,099       261,964  
Laree E. Perez
    41,509,992       256,071  
William B. Sansom
    40,909,260       856,803  
Stephen P. Zelnak, Jr.
    41,010,258       755,805  
Page 30 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
PART II — OTHER INFORMATION
(Continued)
Item 5. Other Information.
On April 13, 2005, the Corporation announced that it expected first quarter earnings in a range of $0.10 to $0.15 per diluted share. The Corporation also announced that it would release its financial results for the first quarter ended March 31, 2005 on May 2, 2005.
On May 2, 2005, the Corporation reported financial results for the first quarter ended March 31, 2005.
On May 24, 2005, the Corporation announced that the Board of Directors declared a quarterly cash dividend of $0.20 per common share payable on June 30, 2005 to shareholders of record at the close of business on June 1, 2005.
On May 26, 2005, the Corporation announced that the Board of Directors elected David G. Maffucci to serve as a director of the Corporation.
On May 31, 2005, the Corporation announced that Senior Vice President and Chief Financial Officer, Janice K. Henry, would retire in 2006. The Board of Directors elected Vice President and Controller, Anne H. Lloyd, to serve as the Corporation’s Chief Financial Officer effective June 1, 2005.
On July 20, 2005, the Corporation announced that it expected second quarter earnings in a range of $1.27 to $1.30 per diluted share. The Corporation also announced that it would release its financial results for the second quarter ended June 30, 2005 on August 1, 2005.
On August 1, 2005, the Corporation reported financial results for the second quarter ended June 30, 2005.
Page 31 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
PART II — OTHER INFORMATION
(Continued)
Item 6. Exhibits.
     
Exhibit    
No.   Document
 
   
10.01
  Form of Option Award Agreement Under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan
 
   
10.02
  Form of Restricted Stock Unit Agreement Under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan
 
   
11.01
  Martin Marietta Materials, Inc. and Consolidated Subsidiaries Computation of Earnings per Share for the Three and Six Months Ended June 30, 2005 and 2004
 
   
31.01
  Exhibit — Regulation FD Disclosure — Written Statement dated August 3, 2005 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
31.02
  Exhibit — Regulation FD Disclosure — Written Statement dated August 3, 2005 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
32.01
  Exhibit — Regulation FD Disclosure — Written Statement dated August 3, 2005 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.02
  Exhibit — Regulation FD Disclosure — Written Statement dated August 3, 2005 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 32 of 34

 


 

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: August 3, 2005  By:   /s/ ANNE H. LLOYD    
    Anne H. Lloyd   
            Vice President and Chief Financial Officer   
 
Page 33 of 34

 


 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2005
EXHIBIT INDEX
     
         Exhibit No.   Document
 
   
10.01
  Form of Option Award Agreement Under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan
 
   
10.02
  Form of Restricted Stock Unit Agreement Under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan
 
   
11.01
  Martin Marietta Materials, Inc. and Consolidated Subsidiaries Computation of Earnings per share for the Three and Six Months Ended June 30, 2005 and 2004
 
   
31.01
  Exhibit — Regulation FD Disclosure — Written Statement dated August 3, 2005 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
31.02
  Exhibit — Regulation FD Disclosure — Written Statement dated August 3, 2005 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
32.01
  Exhibit — Regulation FD Disclosure — Written Statement dated August 3, 2005 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.02
  Exhibit — Regulation FD Disclosure — Written Statement dated August 3, 2005 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 34 of 34