1
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 September 30, 1998
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 X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding as of October 31, 1998
- ---------------------------------- ----------------------------------
Common Stock, $.01 par value 46,575,154
Page 1 of 23
Exhibit Index is on Page 22
2
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PAGE
----
Part I. Financial Information:
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Earnings Three Months and Nine Months
Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
Part II. Other Information:
Item 5. Other Information. 19
Item 6. Exhibits and Reports on Form 8-K. 20
Signatures 21
Exhibit Index 22
Page 2 of 23
3
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $12,195 $18,661
Accounts receivable, net 193,936 147,432
Inventories, net 145,947 132,583
Deferred income tax benefit 17,539 16,873
Other current assets 4,164 6,463
---------- ----------
Total Current Assets 373,781 322,012
---------- ----------
Property, plant and equipment 1,338,367 1,242,677
Allowances for depreciation, depletion and
amortization (704,126) (651,257)
---------- ----------
Net property, plant and equipment 634,241 591,420
Cost in excess of net assets acquired 182,197 148,481
Other intangibles 27,652 26,415
Other noncurrent assets 18,517 17,385
---------- ----------
Total Assets $1,236,388 $1,105,713
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $46,913 $49,599
Accrued salaries, benefits and payroll taxes 24,503 19,742
Accrued insurance and other taxes 23,706 16,440
Income taxes 14,748 4,691
Current maturities of long-term debt 1,650 1,431
Commercial paper 19,000 --
Other current liabilities 17,737 16,332
---------- ----------
Total Current Liabilities 148,257 108,235
Long-term debt 313,720 310,675
Pension, postretirement, and postemployment benefits 67,456 63,070
Noncurrent deferred income taxes 51,974 50,008
Other noncurrent liabilities 13,187 11,889
---------- ----------
Total Liabilities 594,594 543,877
---------- ----------
Shareholders' equity:
Common stock, par value $.01 per share 466 462
Additional paid-in capital 347,810 335,766
Retained earnings 293,518 225,608
---------- ----------
Total Shareholders' Equity 641,794 561,836
---------- ----------
Total Liabilities and
Shareholders' Equity $1,236,388 $1,105,713
========== ==========
See accompanying notes to condensed consolidated financial statements.
Page 3 of 23
4
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales $312,445 $271,717 $776,717 $662,070
Cost of sales 216,615 191,781 568,173 486,503
---------- ---------- ---------- ----------
Gross Profit 95,830 79,936 208,544 175,567
Selling, general & administrative expense 19,702 18,874 59,879 50,486
Research and development 873 1,042 2,492 2,323
---------- ---------- ---------- ----------
Earnings from Operations 75,255 60,020 146,173 122,758
Interest expense (5,823) (5,615) (17,085) (11,380)
Other income and expenses, net 422 1,583 75 5,230
---------- ---------- ---------- ----------
Earnings before Taxes on Income 69,854 55,988 129,163 116,608
Taxes on income 23,947 19,714 44,264 41,058
---------- ---------- ---------- ----------
Net earnings $45,907 $36,274 $84,899 $75,550
========== ========== ========== ==========
Net Earnings per share
Basic $0.99 $0.79 $1.83 $1.64
========== ========== ========== ==========
Diluted $0.98 $0.78 $1.82 $1.63
========== ========== ========== ==========
Average number of common shares outstanding
Basic 46,536,116 46,116,693 46,410,052 46,092,078
========== ========== ========== ==========
Diluted 46,841,671 46,270,345 46,695,694 46,189,742
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
Page 4 of 23
5
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
Operating activities:
Net earnings $84,899 $75,550
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation, depletion and amortization 70,553 56,520
Other items, net (651) (2,878)
Changes in operating assets and liabilities:
Accounts receivable (42,480) (46,498)
Inventories (8,580) 7,668
Accounts payable (5,437) 4,850
Other assets and liabilities, net 31,731 26,278
--------- ---------
Net cash provided by operating activities 130,035 121,490
--------- ---------
Investing activities:
Additions to property, plant and equipment (77,473) (60,312)
Acquisitions, net (65,291) (278,645)
Transactions with Lockheed Martin Corporation -- 23,768
Other investing activities, net 2,726 5,792
--------- ---------
Net cash used for investing activities (140,038) (309,397)
--------- ---------
Financing activities:
(Repayments) borrowings of long-term debt, net (8) 224,738
Dividends (17,177) (16,589)
Debt issue costs -- (937)
Commercial paper borrowings (repayments), net 19,000 --
Issuance of common stock 1,722 --
--------- ---------
Net cash provided by financing activities 3,537 207,212
Net (decrease) increase in cash and cash equivalents (6,466) 19,305
Cash balance (book overdraft), beginning of period 18,661 (4,260)
--------- ---------
Cash and cash equivalents, end of period $ 12,195 $ 15,045
========= =========
See accompanying notes to condensed consolidated financial statements.
Page 5 of 23
6
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed 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, 1997, filed with the Securities and Exchange Commission on March 30,
1998. In the opinion of management, the interim financial information
provided herein reflects all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results of operations
for the interim periods. The results of operations for the nine months
ended September 30, 1998, are not necessarily indicative of the results to
be expected for the full year.
2. Proposed Acquisition of Redland Stone Products Company
On October 5, 1998, the Corporation announced it had signed a contract with
an affiliate of LaFarge SA to acquire the common stock of Redland Stone
Products Company ("Redland Stone"). The purchase price of $272 million
plus certain assumed liabilities and transaction costs estimated to be $8
million, is subject to certain post-closing adjustments related to working
capital. The business combination, when consummated, will be accounted for
under the purchase method of accounting prescribed by Accounting Principles
Board Opinion No. 16, "Accounting for Business Combinations". Management
expects the transaction to close in the fourth quarter of 1998, subject to
completion of due diligence and satisfaction of other conditions typical
for such a transaction.
3. Investment in Meridian Aggregates Company
The Corporation consummated a transaction as of October 31, 1998 to
purchase an initial 14 percent interest in the business of Meridian
Aggregates Company ("Meridian"). The transaction provides a mechanism for
the Corporation to purchase the remaining interest at a predetermined
formula price within five years. The initial purchase has been accounted
for as an investment. The Corporation's exercise of its option to purchase
the remaining interest of Meridian is dependent, among other things, on the
financial and economic condition of both the Corporation and Meridian at
the first exercise date. The other investors in Meridian have the option to
require the Corporation to purchase their interests annually beginning
December 31, 2000, accelerated only by the death of an investor.
Page 6 of 23
7
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Inventories
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(DOLLARS IN THOUSANDS)
Finished products $120,014 $108,707
Product in process and raw materials 11,950 7,886
Supplies and expendable parts 22,958 23,161
-------- --------
154,922 139,754
Less allowances (8,975) (7,171)
-------- --------
Total $145,947 $132,583
======== ========
5. Long-Term Debt
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(DOLLARS IN THOUSANDS)
6.9% Notes, due 2007 $124,951 $124,948
7% Debentures, due 2025 124,202 124,195
Commercial Paper, interest rates
approximating 5.7% 60,000 60,000
Acquisition notes, interest rates
ranging from 5% to 10% 4,880 1,337
Other notes 1,337 1,626
-------- --------
315,370 312,106
Less current maturities (1,650) (1,431)
-------- --------
Total $313,720 $310,675
======== ========
No borrowings were outstanding under either of the Corporation's revolving
credit agreements at September 30, 1998. However, these agreements
support commercial paper borrowings of $79 million outstanding at
September 30, 1998, of which $60 million has been classified as long-term
debt in the Corporation's consolidated balance sheet based on management's
ability and intention to maintain this debt outstanding for at least one
year. At November 1, 1998, $45 million remained outstanding under the
Corporation's commercial borrowing obligations. See the "Liquidity and
Capital Resources" discussion contained in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" beginning
on page 14 of this Form 10-Q.
The Corporation's interest payments were approximately $16.9 million in
1998 and $8.8 million in 1997 for the nine months ended September 30.
Page 7 of 23
8
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Income Taxes
Deferred income tax assets and liabilities on the consolidated balance
sheet reflect the net of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
The Corporation's effective income tax rate for the first nine months was
34.3% in 1998 and 35.2% in 1997. The effective rate for three quarters
of 1998 was slightly lower than the current federal corporate income tax
rate of 35% due to the effect of several offsetting factors. The
Corporation's effective tax rate reflects the effect of state income
taxes and the impact of differences in book and tax accounting arising
from the permanent benefits associated with the depletion allowances for
mineral reserves, amortization of certain goodwill balances, foreign
operating earnings, and earnings from nonconsolidated investments.
The corporation's income tax payments were approximately $32.9 million in
1998 and $38.8 million in 1997, for the nine months ended September 30.
7. Contingencies
While it is not possible to determine the ultimate outcome, 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.
8. Other Matters
As of January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (the
"SFAS 130"). The SFAS 130 requires all non-owner changes in equity
that are excluded from net earnings under existing Financial Accounting
Standards Board standards be included as comprehensive income. The
Corporation presently does not have any transactions that directly
effect equity other than those transactions with owners in their
capacity as owners. Therefore, the provisions of the SFAS 130 are not
applicable.
The Corporation plans to adopt the provisions of the Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of
an Enterprise and Related Information" and the Statement of Financial
Accounting Standards No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits" in its annual reporting on Form 10-K for
the year ended December 31, 1998. The impact of the adoption of these
accounting standards on the Corporation's financial reporting and
related disclosures is not expected to be material.
Page 8 of 23
9
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Other Matters (continued)
In February 1994, the Corporation was authorized by its shareholders and
the Board of Directors to repurchase up to 2,000,000 shares of the
Corporation's Common Stock for issuance under the Corporation's Amended
Omnibus Securities Award Plan. This authorization was subsequently
decreased to allow the repurchase of approximately 1,000,000 shares which
represented the aggregate number of shares that were subject to grants
made through May 8, 1998. The shareholders of the Corporation approved on
May 8, 1998, the Martin Marietta Materials, Inc. Stock-Based Award Plan,
as amended from time to time (the "Plan"). In connection with the Plan,
the Corporation was authorized to repurchase up to 5,000,000 shares of the
Corporation's Common Stock for issuance under the Plan. On May 3, 1994,
the Board of Directors authorized the repurchase of an additional 500,000
shares for general corporate purposes. The Board of Directors rescinded
the general corporate purposes repurchase authorization on August 20,
1998. As of the date of this quarterly report, there have been 68,200
shares of Common Stock previously repurchased by the Corporation under
these authorizations.
Page 9 of 23
10
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
OVERVIEW Martin Marietta Materials, Inc., (the "Corporation") operates in two
principal business segments: aggregates products and magnesia-based products.
The Corporation's sales and earnings are predominately derived from its
aggregates segment which processes and sells granite, sandstone, limestone,
shell and other aggregates products from a network of more than 250 quarries
and distribution facilities in more than 20 states in the southeastern,
midwestern and central regions of the United States and in the Bahama islands
and Canada. The segment'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 magnesia-based
products segment produces refractory materials and dolomitic lime used in
domestic and foreign basic steel production and produces chemicals products
used in industrial, agricultural and environmental applications. The
magnesia-based products segment derives a major portion of its sales and
earnings from the products used in the steel industry.
PROPOSED BUSINESS COMBINATION WITH REDLAND STONE PRODUCTS COMPANY On October
5, 1998, the Corporation announced it had signed a contract with an affiliate of
LaFarge SA to acquire the common stock of Redland Stone Products Company
("Redland Stone"). The purchase price of $272 million plus certain assumed
liabilities and transaction costs estimated to be $8 million, is subject to
certain post-closing adjustments related to working capital. The business
combination, when consummated, will be accounted for under the purchase method
of accounting prescribed by Accounting Principles Board Opinion No. 16,
"Accounting for Business Combinations". Management expects the transaction to
close in the fourth quarter of 1998, subject to completion of due diligence and
satisfaction of other conditions typical for such a transaction. Management
believes the transaction will be neutral to earnings in 1999; however due to the
timing of the transaction, interest expense associated with acquisition related
financing may negatively impact 1998 fourth quarter earnings. Management
continues to expect that this transaction will offer an excellent opportunity to
grow sales and earnings of the Corporation in 2000 and beyond.
The information systems technology at Redland Stone is not Year 2000 compliant.
The Corporation is currently assessing the required remediation, and the
related costs to achieve Year 2000 compliance at Redland Stone. Management
believes, based on its assessment to date, that the information systems
technology at Redland Stone will be Year 2000 compliant on a timely basis.
INVESTMENT IN MERIDIAN AGGREGATES COMPANY The Corporation consummated a
transaction as of October 31, 1998 to purchase an initial 14 percent interest in
the business of Meridian Aggregates Company ("Meridian"). The transaction
provides a mechanism for the Corporation to purchase the remaining interest at a
predetermined formula price within five years. The initial purchase has been
accounted for as an investment. The Corporation's exercise of its option to
purchase is dependent, among other things, on the financial and economic
condition of both the Corporation and Meridian at the first exercise date. The
other investors in Meridian have the option to require the Corporation to
purchase their interests annually beginning December 31, 2000, accelerated only
by the death of an investor.
(Continued)
Page 10 of 23
11
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
RESULTS OF OPERATIONS Net sales for the quarter were $312.4 million, a 15%
increase over 1997 third quarter sales of $271.7 million. Earnings from
operations were up $15.2 million, or 25%, over the same period in 1997, to
$75.3 million for the third quarter of 1998. Consolidated net earnings for the
quarter increased 27% to $45.9 million, or $0.98 per diluted share, from 1997
third quarter net earnings of $36.3 million, or $0.78 per diluted share. Sales
and earnings increases continue to reflect strong performance from the
Aggregates division and the positive impact of acquisitions.
Net sales for the first nine months of 1998 increased 17% to $776.7
million, from $662.1 million for the year-earlier period. Earnings from
operations were $146.2 million for the nine-month period ended September 30,
1998, up 19% from the comparable prior-year period. For the nine-month period
ended September 30, 1998, net earnings increased to $84.9 million, or $1.82 per
diluted share, from net earnings for the comparable prior-year period of $75.6
million, or $1.63 per diluted share. Year-to-date 1998 earnings continue to
reflect the new seasonal earnings patterns resulting from 1997 acquisitions
made in the Midwest and North Central regions of the country, as well as the
increased interest expense associated with acquisition activity. Also, on a
year-to-date basis, other income and expenses, net, was $5.2 million
unfavorable to prior year.
Sales for the Aggregates division increased 18% to $278.0 million for the
third quarter, compared with the year-earlier period. The division's sales
increased 21% to $671.2 million for the first nine months of 1998, compared
with the first nine months of 1997. This increase in sales reflects record
year-to-date aggregates shipments (including acquisitions) of 109.0 million
tons and an increase in the division's average net selling price, when compared
to the same period in 1997. The division's third quarter operating profits
were $72.4 million, an increase of 28% over operating profits for the
year-earlier period of $56.6 million. The division's operating profits for the
first nine months of 1998 increased 21% to $136.0 million from $112.8 million
for the first nine months of 1997. The Corporation's aggregates business is
highly seasonal, due primarily to the effect of weather conditions on
construction activity levels, most of which occurs typically in the spring,
summer, and early fall.
The Magnesia Specialties division had third quarter 1998 sales of $34.4
million, a 3% decrease compared to the third quarter sales of 1997, and had
nine month 1998 sales of $105.5 million as compared with $105.3 million in the
prior-year period. Magnesia Specialties experienced softening in its
refractories and dolomitic lime products as a direct result of decreased steel
production from United States mills. While U.S. steel demand remains strong,
foreign imports, principally from Japan, Korea, Russia and Brazil, are
currently supplying a substantially increased percentage of U.S. demand. Also,
worldwide competition in the periclase and industrial chemicals products areas
continues to intensify. The Magnesia Specialties division's earnings from
operations for the third quarter were $2.9 million as compared to $3.4 million
in the year-earlier period. Earnings from operations for the first nine months
of 1998 increased to $10.2 million from $10.0 million in 1997.
Management expects these market trends to continue and expects Magnesia
Specialties product sales and earnings to decline further in the fourth quarter
of 1998 and for 1999. Fourth quarter 1998 earnings will also be negatively
impacted by the recognition of the costs related to the expected closure of a
manufacturing facility that mills and grinds shells into calcium carbonate
products. Management is currently evaluating the costs associated with the
closure of this facility which are not expected to be material to the
Corporation.
(Continued)
Page 11 of 23
12
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The following tables present net sales, gross profit, selling,
general and administrative expense, and earnings from operations data
for the Corporation and each of its divisions for the three and nine
months ended September 30, 1998 and 1997. In each case, the data is
stated as a percentage of net sales, of the Corporation or the relevant
division, as the case may be:
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------------------------------
(DOLLARS IN THOUSANDS)
1998 1997
-------------------------- -----------------------
% OF % OF
AMOUNT NET SALES AMOUNT NET SALES
-------- ----------- -------- ----------
Net sales:
Aggregates $278,009 100.0 $236,269 100.0
Magnesia Specialties 34,436 100.0 35,448 100.0
-------- ----- -------- -----
Total $312,445 100.0 $271,717 100.0
Gross profit:
Aggregates $88,165 31.7 $71,982 30.5
Magnesia Specialties 7,665 22.3 7,954 22.4
-------- ----- -------- -----
Total $95,830 30.7 $79,936 29.4
Selling, general & administrative
expense:
Aggregates $15,513 5.6 $14,915 6.3
Magnesia Specialties 4,189 12.2 3,959 11.2
-------- ----- -------- -----
Total $19,702 6.3 $18,874 7.0
Earnings from operations:
Aggregates $72,395 26.0 $56,615 24.0
Magnesia Specialties 2,860 8.3 3,405 9.6
-------- ----- -------- -----
Total $75,255 24.1 $60,020 22.1
(Continued)
Page 12 of 23
13
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------------
(DOLLARS IN THOUSANDS)
1998 1997
-------------------- ---------------------
% OF % OF
AMOUNT NET SALES AMOUNT NET SALES
-------- --------- -------- ---------
Net sales:
Aggregates $671,211 100.0 $556,746 100.0
Magnesia Specialties 105,506 100.0 105,324 100.0
-------- ----- -------- -----
Total $776,717 100.0 $662,070 100.0
Gross profit:
Aggregates $182,817 27.2 $151,610 27.2
Magnesia Specialties 25,727 24.4 23,957 22.8
-------- ----- -------- -----
Total $208,544 26.9 $175,567 26.5
Selling, general & administrative
expense:
Aggregates $46,123 6.9 $38,095 6.8
Magnesia Specialties 13,756 13.0 12,391 11.8
-------- ----- -------- -----
Total $59,879 7.7 $50,486 7.6
Earnings from operations:
Aggregates $135,957 20.3 $112,802 20.3
Magnesia Specialties 10,216 9.7 9,956 9.5
-------- ----- -------- -----
Total $146,173 18.8 $122,758 18.5
(Continued)
Page 13 of 23
14
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Interest expense was $5.7 million, or 50%, higher in the first nine months
of 1998 over 1997. The increase in 1998 resulted from the effect of the
additional long-term borrowings by the Corporation associated with its
acquisition of the American Aggregates business in May of 1997, including the
Corporation's public offer and sale of its $125 million, 6.9% Notes in August
1997. See Note 5 of the Notes to Condensed Consolidated Financial Statements.
The Corporation's estimated effective income tax rate for the first nine
months was 34.3% in 1998 and 35.2% in 1997. See Note 6 of the Notes to
Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES Net cash flow provided by operating activities
during the first nine months of 1998 was $130.0 million, compared with $121.5
million in the comparable period of 1997. The cash flow from operating
activities for both 1997 and 1998 was principally from earnings, before
deducting depreciation, depletion and amortization, offset by working capital
requirements. Working capital requirements for the nine months ended September
30, 1998 are primarily the result of increases in accounts receivable,
increasing inventory levels at the Magnesia Specialties division, a reflection
of declining sales, as well as decreases in trade accounts payable. Working
capital requirements during the comparable period in 1997 resulted from
increases in accounts receivable, decreased inventory levels, as well as
increases in trade accounts payable. The seasonal nature of the construction
aggregates business impacts quarterly net cash provided by operating activities
when compared with the year. Accordingly, full year 1997 net cash provided by
operating activities was $195.6 million, compared with the $121.5 million
provided by operations in the first nine months of 1997. For 1998, capital
expenditures, exclusive of acquisitions, are expected to be approximately
$130.0 million. Comparable capital expenditures were $86.4 million in 1997.
The Corporation continues to rely upon internally generated funds and
access to capital markets, including funds obtained under its two revolving
credit agreements and cash management facility to meet its liquidity
requirements, finance its operations, and fund its capital requirements. With
respect to the Corporation's ability to access the public market, currently the
Corporation has an effective shelf registration on file with the Securities and
Exchange Commission (the "Commission") for the offering of up to $50 million of
debt securities, which may be issued from time to time. Presently, management
has the authority to file another shelf registration statement with the
Commission. It should be noted, however, that the Corporation has not
determined the timing when, or the amount for which, it may file such shelf
registration. The Corporation's ability to borrow or issue debt securities is
dependent, among other things, upon prevailing economic, financial and market
conditions.
(Continued)
Page 14 of 23
15
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Corporation intends to finance the proposed $280 million acquisition of
Redland Stone initially through its existing commercial paper program. On
November 6, 1998, the commercial paper program was amended to increase the
available funds from $300 million to $450 million. The commercial paper program
is collateralized by a $150 million interim loan which expires, by its terms, on
December 29, 1998, and the existing $300 million available under two revolving
credit agreements. The terms of the interim loan are identical to the
Corporation's existing 364-day, $150 million revolving credit agreement.
Management intends to replace, before year-end, the interim loan and its $150
million, 364-day revolving credit agreement with a 364-day, up to $300 million
revolving credit agreement with a group of domestic and foreign banks under
terms substantially the same as its existing revolving credit agreements.
Further, management expects that the Corporation will access the public markets
to reduce the increased amount of commercial paper obligations as a result of
this transaction. However, there can be no assurance that the above financing
arrangements will ultimately be utilized to finance the transaction.
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 1998. The Corporation may be required to obtain additional levels of
financing in order to fund certain strategic acquisitions if any such
opportunities arise. The Corporation's senior unsecured debt has been
reaffirmed and rated "A" by Standard & Poor's and "A3" by Moody's. The
Corporation's $450 million commercial paper program has been rated "A-1" by
Standard & Poor's, "P-2" by Moody's and "F-1" by Fitch IBCA, Inc. 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.
The Corporation's debt to total capitalization is 31% at October 31, 1998
and is expected to increase to approximately 49% at December 31, 1998, after
consideration of the Meridian and Redland Stone transactions.
The Corporation is authorized to repurchase up to 6.0 million shares of
its common stock under authorizations from the Corporation's Board of Directors
for use in its option plans. As of November 1, 1998, there have been 68,200
shares repurchased under the Corporation's authorizations to repurchase shares.
On August 20, 1998, the general corporate purposes authorization was rescinded.
(Continued)
Page 15 of 23
16
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
YEAR 2000 ISSUE The "Year 2000 Issue" is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Corporation's computer programs or hardware that have date sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations or a temporary inability to
engage in normal business activities. In response to this issue, the Corporation
developed, in late 1997, a Year 2000 Task Force ("Task Force") whose project
scope included the assessment and ongoing monitoring of all information
technology computer hardware and software and non-information technology
equipment affected by the Year 2000 issue. The Task Force is granted the
authority and resources to address the Year 2000 issue and receives supervisory
support as needed from a Steering Committee made up of key executive management
personnel representing all areas of the Corporation. The Corporation's plan to
resolve the Year 2000 issue involves the following four phases: assessment,
remediation, testing and implementation. To date, the Task Force has completed
its assessment of all systems that could be significantly affected by the Year
2000 issue and have identified as the initial area of focus the processes that
are critical to ongoing operations.
The Corporation's information systems technology infrastructure consists
primarily of internally developed software, some unique to the Aggregates or
Magnesia Specialties divisions, running in a mainframe environment. The
Corporation also has a network of personal computers, through both a wide area
and local area network. A Year 2000 environment has been installed on the
Corporation's mainframe operating system for testing and the wide and local
area network of personal computers and related software are substantially Year
2000 compliant.
The Corporation's information systems mainframe software applications that
support its critical processes are in various stages of remediation and
testing. The current plan is that all critical applications will be Year 2000
compliant by March 31, 1999.
After completion of the Year 2000 compliance of critical processes, the
Corporation's focus will shift to remediation and testing of its legacy
accounting and reporting information systems software which is scheduled to be
Year 2000 compliant and implemented by June 30, 1999.
The Corporation has no significant single supplier, vendor or customer
("external agents") that is critical to its ongoing operations; however, it is
currently querying major external agents in regards to their Year 2000
compliance. The Corporation expects to complete this review by March 31, 1999.
To date, the Corporation is not aware of any external agent with a Year 2000
issue that would materially impact the Company's results of operations,
liquidity or capital resources. However, the Corporation has no means of
ensuring that external agents will be Year 2000 ready. The inability of
external agents, principally financial institutions, insurance companies, energy
suppliers and other third party employee benefit related providers, to complete
their Year 2000 resolution process in a timely manner could materially impact
the Corporation. The effect of non-compliance by external agents is not
determinable.
(Continued)
Page 16 of 23
17
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Corporation has and will continue to utilize both internal and external
resources to reprogram, test and implement the software and operating equipment
for Year 2000 modifications. The total external costs of the Year 2000 project
are estimated to be approximately $3.6 million. Through September 30, 1998, the
Corporation has expensed approximately $2.4 million related to all phases of the
Year 2000 project that have been funded through operating cash flows. The
remaining Year 2000 project costs will be incurred primarily in 1999. The
results of ongoing remediation and testing, however, could result in additional
costs to the Corporation.
Management of the Corporation believes it has an effective program in
place to resolve the impact of the Year 2000 issue in a timely manner and does
not expect the Year 2000 issue to materially adversely affect the Corporation.
But, as noted above, the Corporation has not yet completed the conversion of
all information systems identified in its Year 2000 program. In the event that
the Corporation does not complete any additional Year 2000 work, the
Corporation might be unable to take customer orders, manufacture and ship
products, invoice customers or collect payments using its current information
systems technology. In addition, disruptions in the economy generally
resulting from Year 2000 issues could materially adversely affect the
Corporation. The amount of the potential liability and lost revenue, if any,
resulting from these risks cannot be reasonably estimated at this time.
The Corporation currently has no formal contingency plans in place in the
event it does not complete all phases of the Year 2000 program. However, the
progress of the Year 2000 program is being closely monitored and additional
measures will be taken as risks are identified. The Corporation plans to
evaluate the status of completion in the first half of 1999 and determine
whether such a plan is necessary.
(Continued)
Page 17 of 23
18
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
ACCOUNTING CHANGES As of January 1, 1998, the Corporation adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(the "SFAS 130"). The SFAS 130 requires all non-owner changes in equity that
are excluded from net earnings under existing Financial Accounting Standards
Board standards be included as comprehensive income. The Corporation presently
does not have any transactions that directly effect equity other than those
transactions with owners in their capacity as owners. Therefore, the
provisions of the SFAS 130 are not applicable.
The Corporation plans to adopt the provisions of the Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" and the Statement of Financial Accounting
Standards No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" in its annual reporting on Form 10-K for the year
ended December 31, 1998. The impact of the adoption of these accounting
standards on the Corporation's financial reporting and related disclosures is
not expected to be material.
OTHER MATTERS Investors are cautioned that statements in this Quarterly
Report on Form 10-Q which relate to the future are, by their nature, uncertain
and dependent upon numerous contingencies - including political, economic,
regulatory, climatic, competitive, and technological - any of which could cause
actual results and events to differ materially from those indicated in such
forward-looking statements. Additional information regarding these and other
risk factors and uncertainties may be found in the Corporation's other filings
which are made from time to time with the Securities and Exchange Commission.
Page 18 of 23
19
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 26, 1998, the Corporation announced that the Board of Directors had
declared an increase in the Corporation's regular quarterly cash dividend on
the Corporation's Common Stock from $0.12 to $0.13 per share, payable September
30, 1998, to shareholders of record at the close of business on September 15,
1998.
On August 27, 1998, the Corporation announced it purchased an underground
limestone mine in Preston County, West Virginia from Greenbrier Aggregates,
Inc. The operation has annual production capacity of about 750,000 tons with
mineral reserves in excess of 40 million tons. The purchase was a cash
transaction for assets. The purchase price was not disclosed.
On August 27, 1998, the Corporation also announced the purchase of a ready-mixed
concrete operation in Little Rock, Arkansas from Tri-City Concrete. The
operation produces about 80,000 cubic yards per year. The transaction was a
purchase of assets for cash and the purchase price was undisclosed.
On September 1, 1998, the Corporation announced it purchased a limestone quarry
located in Ottawa, Kansas, from Fogle Quarry Company, Inc. The quarry, which
is the largest in the state, has annual production capacity exceeding 1.8
million tons. Mineral reserves exceed 25 years at the current shipment level.
The purchase was a cash transaction for assets. The purchase price was not
disclosed.
On October 5, 1998, the Corporation announced it had signed a contract with an
affiliate of LaFarge SA to acquire the common stock of Redland Stone Products
Company for $272 million subject to certain post-closing adjustments relating
to working capital. The transaction is scheduled for closing prior to year end
subject to satisfaction of conditions typical for such a transaction.
On October 21, 1998, the Corporation announced that it had signed a non-binding
letter of intent to invest in Meridian Aggregates Company. The transaction
gives the Corporation the option to purchase the remainder of Meridian in five
years based on a predetermined formula. Further, the other investors in
Meridian will have an annual option, beginning on December 31, 2000, to require
the Corporation to purchase their interests. No financial details of the
transaction were disclosed.
On November 4, 1998, the Corporation announced that it had consummated a
transaction to purchase an initial 14 percent interest in the business of
Meridian Aggregates Company. The transaction provides a mechanism for the
Corporation to purchase the remaining interest at a predetermined formula price
within five years. No financial details of the transaction were disclosed.
On November 13, 1998, Stephen P. Zelnak, Chairman and Chief Executive Officer
of the Corporation announced that the Board of Directors has declared a regular
quarterly cash dividend of $0.13 per share on the Corporation's common stock.
This dividend which represents a cash payout of $0.52 per share on an
annualized basis, is payable on December 31, 1998, to shareholders of record at
the close of business on December 31, 1998.
Also, on November 13, 1998, the Board of Directors of the Corporation announced
the election of Janice K. Henry as Senior Vice President of the Corporation.
Page 19 of 23
20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART II - OTHER INFORMATION
(Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NO. DOCUMENT
- ------- --------
11.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries
Computation of Earnings Per Share for the Quarter and Nine Months Ended
September 30, 1998 and 1997
27.01 Financial Data Schedule (for Securities and Exchange Commission use only)
Page 20 of 23
21
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
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: November 16, 1998 By: /s/ JANICE K. HENRY
-------------------------------
Janice K. Henry
Vice President, Chief Financial
Officer and Treasurer
Page 21 of 23
22
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT PAGE
- ----------- -------- ----
11.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries 25
Computation of Earnings Per Share for the Quarter
and Nine Months Ended September 30, 1998 and 1997
27.01 Financial Data Schedule (for Securities and Exchange
Commission use only)
Page 22 of 23
1
EXHIBIT 11.01
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net earnings $45,907 $36,274 $84,899 $75,550
========== ========== ========== ==========
Weighted average number of
shares outstanding:
Basic earnings per share 46,536,116 46,116,693 46,410,052 46,092,078
Effect of dilutive securities 305,555 153,652 285,642 97,664
---------- ---------- ---------- ----------
Diluted earnings per share 46,841,671 46,270,345 46,695,694 46,189,742
========== ========== ========== ==========
Net earnings per share - Basic $0.99 $0.79 $1.83 $1.64
========== ========== ========== ==========
- Diluted $0.98 $0.78 $1.82 $1.63
========== ========== ========== ==========
Page 23 of 23
5
1,000
9-MOS
DEC-31-1998
JAN-01-1998
SEP-30-1998
12,195
0
193,936
0
145,947
373,781
1,338,367
704,126
1,236,388
148,257
313,720
466
0
0
641,328
1,236,388
776,717
776,717
568,173
62,371
734
659
17,085
129,163
44,264
84,899
0
0
0
84,899
1.83
1.82
