|
|
 | | | |
- close
- close
- close
- close
| |||||||||
Martin Marietta Materials 10-Q 2009 Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2009
OR
For the transition period from to
Commission File Number 1-12744
MARTIN MARIETTA MATERIALS, INC.
Registrant’s telephone number, including area code 919-781-4550
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 has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of
the latest practicable date.
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 Page 2 of 38
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying condensed notes to consolidated financial statements.
Page 3 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
See accompanying condensed notes to consolidated financial statements.
Page 4 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying condensed notes to consolidated financial statements.
Page 5 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF TOTAL EQUITY (Unaudited)
See accompanying condensed notes to consolidated financial statements.
Page 6 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 7 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 8 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 9 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 10 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 11 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 12 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 13 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 14 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 15 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Page 16 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW Martin Marietta Materials, Inc. (the “Corporation”), conducts its operations through four
reportable business segments: Mideast Group, Southeast Group, West Group (collectively, the
“Aggregates business”) and Specialty Products. The Corporation’s net sales and earnings are
predominately derived from its Aggregates business, which processes and sells granite, limestone,
and other aggregates products from a network of 288 quarries, distribution facilities and plants to
customers in 29 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 and dolomitic lime sold primarily to customers in the
steel industry.
CRITICAL ACCOUNTING POLICIES The Corporation outlined its critical accounting policies in its
Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and
Exchange Commission on February 17, 2009.
RESULTS OF OPERATIONS
Except as indicated, the following comparative analysis in the Results of Operations section of
this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects
results from continuing operations and is based on net sales and cost of sales.
Gross margin as a percentage of net sales and operating margin as a percentage of net sales
represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales,
as it is consistent with the basis by which management reviews the Corporation’s operating results.
Further, management believes it is consistent with the basis by which investors analyze the
Corporation’s operating results given that freight and delivery revenues and costs represent
pass-throughs and have no profit mark-up. Gross margin and operating margin calculated as
percentages of total revenues represent the most directly comparable financial measures calculated
in accordance with generally accepted accounting principles (“GAAP”). The following tables present
the calculations of gross margin and operating margin for the three months ended March 31, 2009 and
2008 in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to
percentages of net sales (dollars in thousands):
Page 17 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) Gross Margin in Accordance with GAAP
Gross Margin Excluding Freight and Delivery Revenues
Operating Margin in Accordance with GAAP
Page 18 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) Operating Margin Excluding Freight and Delivery Revenues
Operating
margin excluding freight and delivery revenues and excluding
nonrecurring gains on sales of assets for the quarter ended
March 31, 2008 is a non-GAAP measure. The following reconciles
operating margin excluding freight and delivery revenues and
excluding nonrecurring gains on sales of assets to operating margin
excluding freight and delivery revenues for the quarter ended March 31, 2008.
Page 19 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) Quarter Ended March 31
Notable items for the quarter ended March 31, 2009 included:
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 March 31, 2009 and 2008. 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 $0.1 million and $0.2
million for the quarters ended March 31, 2009 and 2008, respectively. Consolidated other operating
income and expenses, net, was expense of $0.3 million and income of $5.6 million for the quarters
ended March 31, 2009 and 2008, respectively.
Page 20 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued)
Historically,
due to the seasonality of the Aggregates business, the first quarter is the
Corporation’s weakest since aggregates shipments and profitability are lowest and most volatile
during this period. Further, the Corporation’s performance was affected this year by the
recession and unusually cold, wet weather throughout the southern United States. The Corporation
mitigated the impact of declining aggregates volumes by maintaining its focus on cost
management, thereby continuing to generate operating earnings.
Page 21 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) Mindful of the state of the economy,
the Corporation’s operating teams remained focused on efficiently
running the business while positioning the Corporation’s cost structure for the current environment
and eventual recovery. The results of their efforts included a 12% reduction in consolidated cost
of sales, despite expected increases in depreciation and pension costs. Productivity, as measured
by tons-per-worked man hours, improved over the first quarter of 2008, despite a 25% decline in
production volumes. The Corporation reduced its aggregates inventory tonnage by closely
controlling the operating schedules at each of its quarries. As expected, diesel fuel prices
continued to decline during the first quarter from the peak prices experienced in 2008. This
decrease, combined with a reduction in consumption, contributed to a $14 million decline in diesel
fuel expense compared with the prior-year period.
The Aggregates business continued to experience pricing increases in the aggregates product line
consistent with management’s expectations for the full year; however, weather affected pricing more
than management had anticipated. The unusually cold and wet weather in the Carolinas and Georgia,
particularly during March, skewed the geographic mix of business toward the Southeast and West
Groups. Management believes that heritage aggregates pricing in the first quarter of 2009 would
have increased an additional 100 basis points if the geographic distribution of business were the
same as in the first quarter 2008.
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.
Page 22 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued)
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. Excessive rainfall, and conversely excessive drought, can also jeopardize shipments,
production and profitability. Because of the potentially significant impact of weather on the
Corporation’s operations, first quarter results are not indicative of expected performance for
other interim periods or the full year.
Specialty Products’ net sales were $33.2 million for the first quarter 2009 compared with $42.9
million for the prior-year period. The decrease in net sales is due to reduced dolomitic lime
shipments to the steel industry and slowing magnesia chemicals sales. Price increases, coupled
with cost control, helped mitigate the decline in volumes. Earnings from operations for the
quarter of $6.3 million decreased $2.8 million compared with the prior-year quarter.
Page 23 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) The Corporation’s gross margin excluding freight and delivery revenues for the quarter ended March
31 decreased 430 basis points to 14.7% in 2009. The following presents a rollforward of the
Corporation’s gross profit (dollars in thousands):
Selling, general and administrative expenses declined $0.5 million during the quarter ended March
31, 2009, with other savings offsetting a $1.8 million increase in pension expense. The
Corporation’s objective continues to be to reduce selling, general and administrative spending
after absorbing pension expense increases.
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 first quarter,
consolidated other operating income and expenses, net, was an expense of $0.3 million in 2009
compared with income of $5.6 million in 2008. First quarter 2008 results included a $5.5 million
gain on the sale of land for the Mideast Group.
Consolidated operating margin excluding
freight and delivery revenues was 3.3% for the first quarter 2009 compared with 10.8% in the first quarter 2008. The 2009 decrease of 750 basis points as
compared with 2008 is due to the lower gross margin excluding freight and delivery revenues and
lower other operating income and expenses, net. Excluding the $5.5 million of nonrecurring
gains on asset sales during the three months ended March 31, 2008, operating margin excluding
freight and delivery revenues for first quarter 2008 would have been 9.4%.
Interest expense was $18.5 million for the first quarter 2009 as compared with $15.8 million for
the prior-year quarter. The increase primarily resulted from interest for the 6.6% Senior Notes
issued in April 2008, as well as outstanding borrowings on the Corporation’s $325 million five-year
revolving credit agreement (the “Credit Agreement”).
Page 24 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) In addition to other offsetting amounts, other nonoperating income and expenses, net, are comprised
generally of interest income and net equity earnings from nonconsolidated investments. Consolidated
other nonoperating income and expenses, net, for the quarter ended March 31, was expense of $1.0
million in 2009 compared with income of $0.1 million in 2008, primarily as a result of lower
earnings from nonconsolidated equity investments and a higher loss on foreign currency
transactions.
LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities during the three months
ended March 31, 2009 was $64.8 million compared with $76.7 million in the comparable period of
2008. Operating cash flow is generally from consolidated net earnings, before deducting
depreciation, depletion and amortization, offset by working capital requirements. Net cash
provided by operating activities for the first three months of 2009 as compared with the
year-earlier period reflects lower consolidated net earnings before depreciation, depletion and
amortization, partially offset by increased accounts payable due to the timing of payments.
Depreciation, depletion and amortization was as follows (dollars in thousands):
The seasonal nature of the construction aggregates business impacts quarterly operating cash flow
when compared with the year. Full year 2008 net cash provided by operating activities was $341.7
million, compared with $76.7 million for the first three months of 2008.
First quarter capital expenditures, exclusive of acquisitions, were $40.3 million in 2009 and $85.4
million in 2008. Capital expenditures during the first three months of 2008 included work on
several major plant expansion and efficiency projects. Comparable full-year capital expenditures
were $258.2 million in 2008. Full-year capital spending is
expected to approximate $185 million for 2009, excluding the Hunt Martin Materials joint venture and acquisitions.
However, 2009 capital spending could be reduced, if necessary, to a maintenance level, defined as
aggregates depreciation, depletion and amortization.
Page 25 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) On March 5, 2009, the Corporation entered into a distribution agreement with J.P. Morgan Securities
Inc. (“J.P. Morgan”). Under the distribution agreement, the Corporation could offer and sell up to
5,000,000 shares of its common stock having an aggregate offering price of up to $300 million from
time to time through J.P. Morgan, as distribution agent. From March 5, 2009 through March 31,
2009, the Corporation sold 3,051,365 shares of its common stock at an average price of $77.90 per
share, resulting in gross proceeds to the Corporation of $237.7 million. The aggregate net
proceeds from such sales were $232.9 million after deducting related expenses, including $4.8
million in gross sales commissions paid to J.P. Morgan. Of the aggregate net proceeds $37.6
million was received subsequent to March 31, 2009.
The Corporation can purchase its common stock 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 March 31, 2009. At March 31, 2009, 5,042,000 shares of common stock were
remaining under the Corporation’s repurchase authorization.
On October 24, 2008, the Corporation amended its Credit Agreement to provide for an increased
leverage ratio covenant. As amended, the covenant requires the Corporation’s ratio of consolidated
debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization
(EBITDA), as defined, for the trailing twelve months (the “Ratio”) to not exceed 3.25 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
3.50 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
March 31, 2009, the Corporation’s ratio of consolidated debt to consolidated EBITDA, as defined,
for the trailing twelve month EBITDA was 2.84 and was calculated as follows (dollars in
thousands):
Page 26 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued)
In the event of a default on the leverage ratio, the lenders can terminate the Credit Agreement and
declare any outstanding balance as immediately due.
On April 14, 2009, the Corporation repaid $180 million of borrowings outstanding under its Credit
Agreement.
On April 21, 2009, the Corporation entered into a $100 million three-year secured accounts
receivable credit facility (the “AR Credit Facility”) with Wells Fargo Bank, N.A. (“Wells Fargo”).
The AR Credit Facility provides for borrowings, on a revolving basis, of up to 90% of the
Corporation’s eligible accounts receivable less than 90 days old and bears interest at a rate equal
to the one-month LIBOR plus 2.75%, 3.19% at May 5, 2009. Under the AR Credit Facility, purchases and
settlements will be made bi-weekly between the Corporation and Wells Fargo. Upon the terms and
subject to the conditions in the AR Credit Facility, Wells Fargo may determine which receivables
are eligible receivables, may determine the amount it will advance on such receivables, and may
require the Corporation to repay advances made on receivables and thereby repay amounts outstanding
under the AR Credit Facility. Wells Fargo also has the right to require the Corporation to
repurchase receivables that remain outstanding 90 days past their invoice date. The Corporation
continues to be responsible for the servicing and administration of the receivables purchased. The
Corporation will carry the receivables and outstanding borrowings on its consolidated balance
sheet.
Page 27 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) On April 23, 2009, the Corporation entered into a $130 million unsecured term loan with a syndicate
of banks (the “Term Loan”). The Term Loan bears interest, at the Corporation’s option, at rates
based upon LIBOR or a base rate, plus, for each rate, basis points related to a pricing grid. The
base rate is defined as the highest of (i) the bank’s prime lending rate, (ii) the Federal Funds
rate plus 0.5% and (iii) one-month LIBOR plus 1%. The initial rates on the Term Loan were at
one-month LIBOR plus 300 basis points, or 3.44%. The Term Loan requires quarterly principal payments
of $1.6 million through March 31, 2011 and $3.3 million thereafter, with the remaining outstanding
principal due in full on June 6, 2012.
Both the AR Credit Facility and Term Loan require the Corporation’s ratio of consolidated debt to
consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) for
the trailing twelve months (the “Ratio”) to not exceed 3.25 to 1.00 as of the end of any fiscal
quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with
acquisitions for a period of 180 days so long as the Corporation maintains specified ratings on its
long-term unsecured debt and the Ratio calculated without such exclusion does not exceed 3.50 to 1.00.
Cash on hand, along with the Corporation’s projected internal cash flows and availability of
financing resources, including its access to debt and equity capital markets, are expected to
continue to be sufficient to provide the capital resources necessary to support anticipated
operating needs, cover debt service requirements, meet capital expenditures and discretionary
investment needs, fund certain acquisition opportunities that may arise, and allow for payment of
dividends for the foreseeable future. At March 31, 2009, the Corporation had $143 million of
unused borrowing capacity under its Credit Agreement, subject to complying with the related
leverage covenant. Consistent with the Corporation’s objective of obtaining sufficient committed
financing at least twelve months in advance of pending maturities, the AR Credit Facility and Term
Loan provide sufficient liquidity to refinance the maturity of the Corporation’s $225 million of
Senior Notes due in April, 2010. The proceeds from the new credit facilities and the equity
issuances were used to pay down outstanding amounts under the Corporation’s Credit Agreement and
will provide financing flexibility for, among other things, potential strategic activity.
The Corporation’s ability to borrow or issue securities is dependent upon, among other things,
prevailing economic, financial and market conditions. Based on discussions with the Corporation’s
bank group, the Corporation expects to have continued access to the public credit market, although
at a higher cost of debt when compared with its 5.2% weighted average interest rate at March 31, 2009.
Page 28 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) The Corporation may be required to obtain financing in order to fund certain strategic
acquisitions, if any such opportunities arise, or to refinance outstanding debt. Any strategic
acquisition of size would require an appropriate balance of newly issued equity with debt in order
to maintain an investment grade credit rating. Borrowings under the AR Credit Facility would be
limited based on the balance of the Corporation’s accounts receivable. Furthermore, 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 interest cost related to its
commercial paper program, to the extent that it is available to the Corporation. Currently, the
Corporation’s senior unsecured debt is rated BBB+ by Standard & Poor’s and Baa3 by Moody’s. The
Corporation’s commercial paper obligations are rated A-2 by Standard & Poor’s and P-3 by Moody’s.
While management believes its credit ratings will remain at an investment-grade level, no assurance
can be given that these ratings will remain at those levels.
ACCOUNTING CHANGES As discussed in Note 1 to the Consolidated Financial Statements, effective
January 1, 2009, the Corporation adopted FAS 141(R) and FAS 160.
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, 2008, filed with the Securities and Exchange
Commission on February 17, 2009. Management continues to evaluate its exposure to all operating
risks on an ongoing basis.
OUTLOOK 2009 The overriding drivers of the Corporation’s 2009 performance will likely be a number
of macroeconomic factors. Management’s current thinking envisions growth during the second half of
2009, primarily fueled by the economic stimulus plan. Management is encouraged by the increase in
the number of projects being bid in many of the states in which the Corporation operates.
Specifically, the Federal Highway Administration had approved 2,013 projects as of April 15,
indicating that road work represents the vast majority of approved
recovery efforts. As expected,
the mix of projects is currently weighted heavily towards resurfacing, as this type of work lends
itself to meeting the aggressive timetable under which states are expected to use much of the
stimulus money. The Corporation’s quarries are well positioned to serve many of the projects being
bid. The Corporation is also bidding on projects outside of the infrastructure sector that are
funded by the stimulus plan. That said, the Corporation has not seen enough activity in the first
quarter to apply more precision to its current estimates. Management continues to expect that
favorable energy prices, as experienced during the first quarter, will contribute a range of $35
million to $50 million to operating profitability in 2009.
Page 29 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) As previously stated, 2009 will be a challenging year given the continued uncertainty in the United
States economy. Management is carefully monitoring the states and how they prepare to invest the
stimulus funding. In addition, the Corporation is watching closely as many states explore
alternative means of funding their infrastructure over the longer term. Infrastructure demand will
continue to be pressured as states grapple with long-term resolutions for their budget deficits.
Commercial demand is weak, primarily in office and retail construction. Industrial-related
construction demand, which includes alternative energy projects, is being dampened by disruption in
the credit markets and decreasing energy prices. While residential construction has neared its
bottom in many of the Corporation’s markets, management does not expect growth in the homebuilding
sector to materialize in a significant way in 2009. In contrast, management expects steady growth
for chemical-grade aggregates used for flue gas desulfurization and in agriculture lime, as well as
ballast used in the railroad industry. In the Specialty Products
segment, demand for magnesia-based chemicals
products should track the general economy. However, with a greater emphasis on clean air,
clean water, and other green initiatives, there may be some incremental volume for projects funded
by the stimulus plan. Dolomitic lime is used in both chemicals products and as a fluxing agent in
steel production. Management does not expect volume growth in dolomitic lime in 2009 as steel
production is forecasted to decrease as the major automakers, significant consumers of steel, have
announced extended shutdowns over the summer. The Specialty Products segment has responded to the
changing economic dynamics of its business through reductions in maintenance activities and
contract services and through workforce reductions to match current demand.
Based upon the scenario described above, and taking into consideration the Corporation’s results
reported for the first quarter, the Corporation’s 2009 guidance of net earnings per diluted share,
excluding the effect of the economic stimulus plan, is in the range of $3.70 to $4.15. The
Corporation expects incremental aggregates volume of 8 million to 10 million tons and net earnings
per diluted share of $0.50 to $0.75 for 2009 from the economic stimulus plan. Management expects
to be able to update its guidance for the year as it gains further clarity about the impact of the
economic stimulus plan.
Specifically,
management expects aggregates volumes to range from down 9% to 12%, excluding the effect
of the economic stimulus plan. The rate of price increase for the aggregates product line is
expected to be in a range from 4% to 6%. The Specialty Products segment is expected to contribute
$30 million to $32 million in pretax earnings compared with $28 million in 2008.
OTHER MATTERS If you are interested in Martin Marietta Materials, Inc. stock, management
recommends that, at a minimum, you read the Corporation’s current Annual Report and Forms 10-K,
10-Q and 8-K reports to the SEC over the past year. The Corporation’s recent proxy statement for
the annual meeting of shareholders also contains important information. These and other materials
that have been filed with the SEC are accessible through the Corporation’s web site at
www.martinmarietta.com and are also available at the SEC’s web site at www.sec.gov. You may also
write or call the Corporation’s Corporate Secretary, who will provide copies of such reports.
Page 30 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) 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 performance of the United States economy and assumed stabilization in the second
half of 2009; the level and timing of federal and state transportation funding, particularly in
North Carolina, one of the Corporation’s largest and most profitable states, and Georgia, Texas and
South Carolina, which when coupled with North Carolina, represented 52% of 2008 net sales in the
Aggregates business; the ability of states and/or other entities to finance approved projects;
levels of 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, the late start to spring or the early onset of winter and the
impact of drought in the Southeastern United States; the volatility of fuel costs, particularly
diesel fuel, and the impact on the cost of other consumables, namely steel, explosives, tires and
conveyor belts; continued increases in the cost of other repair and supply parts; transportation
availability, notably barge availability on the Mississippi River system and the availability of
railcars and locomotive power to move trains to supply the Corporation’s Texas, Florida and Gulf
Coast markets; increased transportation costs, including increases from higher passed-through
energy costs and higher volumes of rail and water shipments; further weakening in the steel
industry markets served by the Corporation’s dolomitic lime products; increased interest cost
resulting from further tightening of the credit markets or the unavailability of credit; changes in
tax laws, the interpretation of such laws and/or administrative practices that would increase the
Corporation’s tax rate; violation of the debt covenant if volumes decline worse than expected;
downward pressure on the Corporation’s common stock price and its impact on goodwill impairment
evaluations; 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 31 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS First Quarter Ended March 31, 2009 (Continued) INVESTOR ACCESS TO COMPANY FILINGS Shareholders may obtain, without charge, a copy of Martin
Marietta Materials, Inc.’s Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 2008, by writing to:
Martin Marietta Materials, Inc.
Attn: Corporate Secretary 2710 Wycliff Road Raleigh, North Carolina 27607-3033 Additionally, Martin Marietta Materials, Inc.’s Annual Report, press releases and filings with the
Securities and Exchange Commission, including Forms 10-K, 10-Q, 8-K and 11-K, can generally be
accessed via the Corporation’s web site. Filings with the Securities and Exchange Commission
accessed via the web site are available through a link with the Electronic Data Gathering,
Analysis, and Retrieval (“EDGAR”) system. Accordingly, access to such filings is available upon
EDGAR placing the related document in its database. Investor relations contact information is as
follows:
Telephone: (919) 783-4540
Web site address: www.martinmarietta.com Page 32 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 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.
The current credit environment has negatively affected the economy and management has considered
the potential impact to the Corporation’s business. Demand for aggregates products, particularly
in the commercial and residential construction markets, could continue to decline if companies and
consumers are unable to obtain financing for construction projects or if the economic slowdown
causes delays or cancellations to capital projects. Additionally, access to the public debt
markets has been limited and, when available, has been at interest rates that are significantly
higher than the Corporation’s weighted-average interest rate on outstanding debt. The lack of
available credit has also lessened states’ abilities to issue bonds to finance construction
projects.
Demand in the residential construction market is affected by interest rates. The Federal Reserve
cut the federal funds rate by 425 basis points to zero percent in 2008. The residential
construction market accounted for approximately 9% of the Corporation’s aggregates product line
shipments in 2008.
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 any temporary cash investments,
including money market funds and overnight investments in Eurodollars; any outstanding short-term
facility borrowings; Floating Rate Senior Notes; and defined benefit pension plans. Additionally,
the Corporation’s earnings are affected by petroleum-based product costs. The Corporation has no
counterparty risk.
Short-Term Facility Borrowings. The Corporation has a $325 million credit agreement which supports
its commercial paper program. Borrowings under this facility bear interest at a variable interest
rate. The effect of a hypothetical 100-basis-point increase in interest rates on borrowings of
$180 million, the outstanding balance at March 31, 2009, would increase interest expense by $1.8
million on an annual basis. The Corporation has a $325 million commercial paper program in which
borrowings bear interest at a variable rate based on LIBOR. At March 31, 2009, there were no
outstanding commercial paper borrowings.
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.
Page 33 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 Pension Expense. The Corporation’s results of operations are affected by its pension expense.
Assumptions that affect this expense include the discount rate and the expected long-term rate of
return on assets. Therefore, the Corporation has interest rate risk associated with these factors.
The impact of hypothetical changes in these assumptions on the Corporation’s annual pension
expense is discussed in the Corporation’s Annual Report on Form 10-K for the year ended December
31, 2008, filed with the Securities and Exchange Commission on February 17, 2009.
Petroleum-Based Product Costs. Petroleum-based product costs, including diesel fuel, natural gas
and liquid asphalt, represent significant production costs for the Corporation. Increases in these
costs generally are tied to energy sector inflation. In 2008, increases in the prices of these
products lowered earnings per diluted share by $0.65. A hypothetical 10% change in the
Corporation’s petroleum-based product prices in 2009 as compared with 2008, assuming constant
volumes, would impact 2009 pretax earnings by approximately $20.7 million.
Aggregate Risk for Interest Rates and Energy Sector Inflation. Interest rate risk in 2009 is
limited to the potential effect related to the Corporation’s Floating Rate Senior Notes and
borrowings under short-term facilities. The effect of a hypothetical increase in interest rates of
1% on the $225 million Floating Rate Senior Notes and $180 million of borrowings under the credit
agreement would be an increase of $4.1 million in interest expense on an annual basis.
Additionally, a 10% change in petroleum-based product prices would impact annual pretax earnings by
$20.7 million.
Item 4. Controls and Procedures
As of March 31, 2009, 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 March 31, 2009. There were no changes in the Corporation’s
internal control over financial reporting during the most recently completed fiscal quarter that
materially affected, or are reasonably likely to materially affect, the Corporation’s internal
control over financial reporting.
Page 34 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 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, 2008.
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, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
ISSUER PURCHASES OF EQUITY SECURITIES
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.
Page 35 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 PART II-OTHER INFORMATION
(Continued) Item 6. Exhibits.
Page 36 of 38
Table of Contents
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.
Page 37 of 38
Table of Contents
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q For the Quarter Ended March 31, 2009 EXHIBIT INDEX
Page 38 of 38 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||
