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 June 30, 1999
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 July 31, 1999
- ---------------------------- -------------------------------
Common Stock, $.01 par value 46,698,682
Page 1 of 20
Exhibit Index is on Page 20
2
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
INDEX
Page
----
Part I. Financial Information:
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of
Earnings - Three-Months and Six-Months
Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
Six-Months Ended June 30, 1999 and 1998 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 1. Legal Proceedings. 17
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 5. Other Information. 17
Item 6. Exhibits and Reports on Form 8-K. 18
Signatures 19
Exhibit Index 20
Page 2 of 20
3
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998
----------- -----------
(Dollars in Thousands)
ASSETS
Current assets:
Cash & cash equivalents $ -- $ 14,586
Accounts receivable, net 224,780 171,511
Inventories, net 175,417 157,104
Other current assets 27,090 26,187
----------- -----------
Total Current Assets 427,287 369,388
----------- -----------
Property, plant and equipment 1,541,977 1,502,512
Allowances for depreciation, depletion and
amortization (762,104) (724,984)
----------- -----------
Net property, plant and equipment 779,873 777,528
Cost in excess of net assets acquired 345,308 348,026
Other noncurrent assets 116,494 93,647
----------- -----------
Total Assets $ 1,668,962 $ 1,588,589
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Current Liabilities $ 189,080 $ 152,233
Long-term debt and commercial paper 602,176 602,113
Other noncurrent liabilities 170,269 166,544
----------- -----------
Total Liabilities 961,525 920,890
----------- -----------
Shareholders' equity:
Common stock, par value $.01 per share 467 466
Additional paid-in capital 351,902 349,245
Retained earnings 355,068 317,988
----------- -----------
Total Shareholders' Equity 707,437 667,699
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,668,962 $ 1,588,589
=========== ===========
See accompanying notes to condensed consolidated financial statements.
Page 3 of 20
4
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three-Months Ended Six-Months Ended
June 30, June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Dollars in Thousands, Except Per Share Data)
Net sales $ 328,865 $ 277,737 $ 569,926 $ 464,272
Cost of sales 238,638 194,502 439,957 351,558
------------ ------------ ------------ ------------
Gross Profit 90,227 83,235 129,969 112,714
Selling, general & administrative expenses 24,919 20,876 47,665 40,177
Research and development 497 873 1,429 1,619
------------ ------------ ------------ ------------
Earnings from Operations 64,811 61,486 80,875 70,918
Interest expense (9,713) (5,952) (18,959) (11,262)
Other income and expenses, net 8,654 (265) 14,032 (347)
------------ ------------ ------------ ------------
Earnings before Taxes on Income 63,752 55,269 75,948 59,309
Taxes on income 22,479 18,913 26,735 20,317
------------ ------------ ------------ ------------
Net Earnings $ 41,273 $ 36,356 $ 49,213 $ 38,992
============ ============ ============ ============
Net earnings per share -Basic $ 0.88 $ 0.78 $ 1.05 $ 0.84
============ ============ ============ ============
-Diluted $ 0.88 $ 0.78 $ 1.05 $ 0.84
============ ============ ============ ============
Dividends per share $ 0.13 $ 0.12 $ 0.26 $ 0.24
============ ============ ============ ============
Average number of common shares outstanding
-Basic 46,684,229 46,475,007 46,659,901 46,345,940
============ ============ ============ ============
-Diluted 47,030,911 46,832,368 46,966,449 46,621,626
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
Page 4 of 20
5
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Ended
June 30,
-------------------------
1999 1998
-------- --------
(Dollars in Thousands)
Net cash provided by operating activities $ 56,089 $ 49,771
-------- --------
Investing activities:
Additions to property, plant and equipment (59,844) (46,155)
Acquisitions, net (2,867) (39,384)
Other investing activities, net (7,825) 4,169
-------- --------
Net cash used for investing activities (70,536) (81,370)
-------- --------
Financing activities:
Repayments of long-term debt, net 135 (331)
Dividends paid (12,134) (11,123)
Loans payable 9,000 40,000
Issuance of common stock 2,658 265
-------- --------
Net cash (used for) provided by financing activities (341) 28,811
-------- --------
Net decrease in cash and cash equivalents (14,788) (2,788)
Cash and cash equivalents, beginning of period 14,586 18,661
-------- --------
(Book overdraft) cash and cash equivalents,
end of period $ (202) $ 15,873
======== ========
See accompanying notes to condensed consolidated financial statements.
Page 5 of 20
6
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
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, 1998, filed with the Securities and
Exchange Commission on March 24, 1999. In the opinion of management,
the interim financial information provided herein reflects all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the results of operations for the interim periods.
The results of operations for the six months ended June 30, 1999, are
not necessarily indicative of the results to be expected for the full
year.
2. Acquisition of Redland Stone Products Company
As of December 4, 1998, the Corporation purchased all of the
outstanding common stock of Redland Stone Products Company ("Redland
Stone") from an affiliate of Lafarge SA. The operating results of the
acquired business have been included with those of the Corporation
since that date.
The purchase price consisted of approximately $272 million in cash plus
normal balance sheet liabilities, subject to certain post-closing
adjustments relating to working capital, and approximately $8 million
estimated for certain other assumed liabilities and transaction costs.
The acquisition has been accounted for under the purchase method of
accounting wherein the Corporation recognized approximately $165
million in costs in excess of net assets acquired after recording other
purchase adjustments necessary to allocate the purchase price to the
fair value of assets acquired and liabilities assumed. During July
1999, the post-closing adjustments relating to working capital were
finalized without a significant impact on the preliminary purchase
price allocation. Goodwill is being amortized over a 30-year period.
Management expects that the preliminary purchase price allocation will
be adjusted during the applicable period provided by Accounting
Principles Bulletin No. 16 Business Combinations.
For comparative purposes, the following unaudited pro forma summary
financial information presents the historical results of operations of
the Corporation and the Redland Stone business for the three-months and
six-months ended June 30, 1998. The financial information reflects pro
forma adjustments as if the acquisition had been consummated as of the
beginning of the periods presented. The pro forma financial information
is based upon certain estimates and assumptions that management of the
Corporation believes are reasonable in the circumstances. The unaudited
pro forma information presented below is not necessarily indicative of
what results of operations actually would have been if the acquisition
had occurred on the date indicated. Moreover, they are not necessarily
indicative of future results.
Page 6 of 20
7
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Acquisition of Redland Stone Products Company (continued)
Pro Forma Information (Unaudited)
Three-Months Ended Six-Months Ended
June 30, June 30,
1998 1998
------------------ ----------------
(Dollars in Thousands, Except Per Share Data)
Net sales $ 313,770 $ 528,897
Net earnings $ 36,974 $ 38,694
Net earnings per diluted share $ 0.80 $ 0.83
3. Inventories
June 30, December 31,
1999 1998
--------- ---------
(Dollars in Thousands)
Finished products $ 147,516 $ 127,904
Product in process and raw materials 11,541 12,342
Supplies and expendable parts 24,597 25,307
--------- ---------
183,654 165,553
Less allowances (8,237) (8,449)
--------- ---------
Total $ 175,417 $ 157,104
========= =========
4. Long-Term Debt
June 30, December 31,
1999 1998
--------- ---------
(Dollars in Thousands)
6.9% Notes, due 2007 $ 124,954 $ 124,952
7% Debentures, due 2025 124,209 124,204
5.875% Notes, due 2008 199,019 198,980
Commercial paper, interest rates
ranging from 4.99% to 5.90% 174,000 165,000
Acquisition notes, interest rates
ranging from 5.50% to 10.00% 3,527 3,299
Other notes 1,195 1,335
--------- ---------
626,904 617,770
Less current maturities (24,728) (15,657)
--------- ---------
Total $ 602,176 $ 602,113
========= =========
Page 7 of 20
8
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Long-Term Debt (continued)
No borrowings were outstanding under either of the Corporation's
revolving credit agreements at June 30, 1999. However, these agreements
support commercial paper borrowings of $174.0 million outstanding at
June 30, 1999, of which $150.0 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 August 1, 1999, $173.0 million was
outstanding under the Corporation's commercial paper borrowing
obligations. See the "Liquidity and Capital Resources" discussion
contained in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 14 of this Form 10-Q.
The Corporation's interest payments were approximately $18.2 million in
1999 and $11.4 million in 1998 for the six months ended June 30.
5. Income Taxes
The Corporation's effective income tax rate for the first six months
was 35.2% in 1999 and 34.3% in 1998. The effective tax rate for the
second quarter of 1999 was slightly higher than the current federal
corporate income tax rate of 35% due to the effect of several
offsetting factors and the impact of a higher tax rate on non-recurring
elements of non-operating income. 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 net permanent benefits
associated with the depletion allowances for mineral reserves,
amortization of certain goodwill balances, foreign operating earnings,
and earnings from non-consolidated investments.
The Corporation's income tax payments were approximately $11.2 million
in 1999 and $19.3 million in 1998, for the six months ended June 30.
6. Contingencies
In the opinion of management and counsel, it is unlikely that the
outcome of litigation and other proceedings, including those pertaining
to environmental matters, relating to the Corporation and its
subsidiaries, will have a material adverse effect on the results of the
Corporation's operations or its financial position.
Page 8 of 20
9
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Other Matters
In April 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires that all costs
related to start-up activities, including organizational costs, be
expensed as incurred effective January 1, 1999. The Corporation
currently expenses all appropriate start-up costs; therefore, SOP 98-5
will not impact the Corporation's net earnings or financial position.
In June 1998, the FASB issued the Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("FAS 133"), which was required to be adopted in years
beginning after June 15, 1999. The FASB amended FAS 133 to defer the
effective date of adoption until all fiscal quarters of all fiscal
years beginning after June 15, 2000. Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133,
was issued in June 1999. Because of the Corporation's minimal use of
derivatives, if any, management does not anticipate that the adoption
of FAS 133 will have a significant impact on net earnings or the
financial position of the Corporation.
Further, in March 1998, the AICPA issued Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use ("SOP 98-1"). The Corporation adopted the SOP on
January 1, 1999. SOP 98-1 requires the capitalization, after the date
of adoption, of certain costs incurred in connection with developing or
obtaining software for internal use. The Corporation expensed such
costs as incurred for the year ended December 31, 1998. The adoption of
SOP 98-1 has not materially impacted the Corporation.
Page 9 of 20
10
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 1999 and 1998
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, and
other aggregates products from a network of more than 275 quarries and
distribution facilities in more than 20 states in the southeastern,
southwestern, midwestern and central regions of the United States and in the
Bahamas and Canada. The division's products are used primarily by commercial
customers principally in domestic construction of highways and other
infrastructure projects and for commercial and residential buildings. The
Corporation vertically integrated in other construction materials businesses, in
Louisiana, Arkansas and Texas, as a result of 1998 and 1999 acquisitions of
asphalt production and ready mixed concrete operations and a small road
construction company. 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.
RESULTS OF OPERATIONS Consolidated net sales for the quarter were $328.9
million, an 18% increase over 1998 second quarter sales of $277.7 million.
Consolidated earnings from operations were $64.8 million for the quarter
compared with $61.5 million in the prior year's period. Consolidated net
earnings for the quarter were $41.3 million, or $0.88 per diluted share, an
increase of 14% from 1998 second quarter net earnings of $36.4 million, or $0.78
per diluted share. The Corporation's increases during the quarter were achieved
as a result of the Redland Stone acquisition, nine smaller 1998 acquisitions,
other income from a non-recurring antitrust claim settlement and gains from
planned property sales, and in spite of expected declines experienced in the
Magnesia Specialties division's sales and earnings.
Sales for the Aggregates division increased 23% to $296.0 million for
the second quarter of 1999, compared with the year-earlier period. The
division's earnings from operations were $64.0 million for the period compared
to the prior year's second quarter earnings from operations of $57.8 million.
The acquisition of Redland Stone accounted for greater than 70% of the
Aggregates division's sales increase. Operating margin for the division was
21.6% for the second quarter of 1999 as compared with 23.9% in the second
quarter of 1998. The Redland acquisition, with its lower margin asphalt and
concrete products, contributed to the operating margin decline. Further,
shipments volume at the Corporation's heritage aggregates operations was
relatively flat compared to the prior year's quarterly period, primarily due to
five weeks of wet weather in the Midwest and Southeast regions of the country.
Average selling prices increased over 3% at heritage operations when compared to
the prior year's comparable quarter. However, pricing gains were offset by
comparable weather-related operating cost increases at heritage operations
during the quarter.
The Aggregates division's business is significantly impacted by
seasonal changes and other weather-related conditions. Consequently, the
Aggregates division's production and shipment levels coincide with general
construction activity levels, most of which occur in the division's markets
typically during the spring, summer, and fall seasons. Management believes the
construction industry's overall aggregates annual consumption level and the
Corporation's annual production and shipments, excluding acquisitions, will
experience moderate overall growth for the full year 1999, compared with the
prior year.
(Continued)
Page 10 of 20
11
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 1999 and 1998
The Magnesia Specialties division had second quarter 1999 sales of
$32.9 million, a decrease of approximately 9% compared with the second quarter
of 1998. The division's second quarter earnings from operations decreased to
$0.8 million from $3.7 million in the second quarter of 1998. Results from
Magnesia Specialties were negatively impacted by continued declines in net sales
and/or operating earnings in the refractories, dolomitic lime and chemicals
products areas. Global uncertainties continue to plague the division which is
highly dependent on current business and economic trends within the steel
industry. As the steel industry continues to experience economic uncertainty,
the Magnesia Specialties division is exposed to receivable losses from
bankruptcies in the steel-related marketplace. Management, in its normal
operations, has provided what it believes to be a reasonable allowance for
uncollectible receivables. However, there is a possibility that receivables loss
exposure exists beyond the allowance provided. The refractories and dolomitic
lime products areas continue to be adversely affected by foreign steel imports.
Although sales volume is increasing in the industrial-chemicals products areas,
continued global competitive pricing pressures are driving declining operating
earnings. Further, as expected, the division's second quarter 1999 operating
earnings were negatively impacted as production rates slowed to meet declining
sales volume and reduce the level of finished products in inventory. Management
expects these market trends to continue throughout 1999 and expects the Magnesia
Specialties division's product sales and earnings to decline, as compared to
prior year. However, management believes that the division's second-half 1999
performance should be stronger than the first six months, as production rates
stabilize to better match declining sales volume. In August 1999, a new union
contract for the division's employees at one of its major operating facilities
in Manistee, Michigan, was ratified. The contract will expire in August 2003.
Management continues to look at various alternatives related to this business
which may present opportunities to create value for the Corporation. However,
there are no guarantees that value will be created from the alternatives being
explored at the Magnesia Specialties division.
(Continued)
Page 11 of 20
12
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter and Three-Months Ended June 30, 1999 and 1998
The following table presents net sales, gross profit, selling, general
and administrative expenses, and earnings from operations data for the
Corporation and each of its divisions for the three-months and six-months ended
June 30, 1999 and 1998. 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
June 30,
----------------------------------------------
(Dollars in Thousands)
1999 1998
--------------------- ---------------------
% of % of
Amount Net Sales Amount Net Sales
-------- ------- -------- -------
Net sales:
Aggregates $295,978 100.0 $241,480 100.0
Magnesia Specialties 32,887 100.0 36,257 100.0
-------- ------- -------- -------
Total 328,865 100.0 277,737 100.0
Gross profit:
Aggregates 84,616 28.6 74,258 30.8
Magnesia Specialties 5,611 17.1 8,977 24.8
-------- ------- -------- -------
Total 90,227 27.4 83,235 30.0
Selling, general & administrative
expenses:
Aggregates 20,638 7.0 16,194 6.7
Magnesia Specialties 4,281 13.0 4,682 12.9
-------- ------- -------- -------
Total 24,919 7.6 20,876 7.5
Earnings from operations:
Aggregates 64,033 21.6 57,774 23.9
Magnesia Specialties 778 2.4 3,712 10.2
-------- ------- -------- -------
Total $ 64,811 19.7 $ 61,486 22.1
(Continued)
Page 12 of 20
13
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter and Six-Months Ended June 30, 1999 and 1998
Six-Months Ended
June 30,
----------------------------------------------
(Dollars in Thousands)
1999 1998
--------------------- ---------------------
% of % of
Amount Net Sales Amount Net Sales
-------- ------- -------- -------
Net sales:
Aggregates $504,921 100.0 $393,202 100.0
Magnesia Specialties 65,005 100.0 71,070 100.0
-------- ------- -------- -------
Total 569,926 100.0 464,272 100.0
Gross profit:
Aggregates 118,951 23.6 94,652 24.0
Magnesia Specialties 11,018 16.9 18,062 25.4
-------- ------- -------- -------
Total 129,969 22.8 112,714 24.3
Selling, general & administrative
expenses:
Aggregates 39,057 7.7 30,610 7.8
Magnesia Specialties 8,608 13.2 9,567 13.5
-------- ------- -------- -------
Total 47,665 8.4 40,177 8.7
Earnings from operations:
Aggregates 79,631 15.8 63,562 16.2
Magnesia Specialties 1,244 1.9 7,356 10.4
-------- ------- -------- -------
Total $ 80,875 14.2 $ 70,918 15.3
(Continued)
Page 13 of 20
14
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter Ended June 30, 1999 and 1998
Other income and expenses, net, for the quarter ended June 30, were
$8.7 million in income in 1999 compared with $0.3 million in expense in 1998. In
addition to several offsetting amounts, other income and expenses, net, is
comprised generally of interest income, gains and losses associated with the
disposition of certain assets, gains and losses related to certain amounts
receivable, income from non-operating services, costs associated with the
commercialization of certain new technologies, and net equity earnings from
non-consolidated investments. Further, in 1999, other income and expenses, net,
includes non-recurring settlements from antitrust claims. Income from certain
non-operating services will be recorded as operating income beginning in the
third quarter of 1999, as the activities associated with these services have
become a recurrent feature of business operations. The prospective
classification between operating and non-operating income is not expected to
materially effect operating earnings.
Interest expense was $9.7 million in the second quarter, approximately
$3.8 million above the second quarter of 1998. The increased interest expense in
1999 resulted from the effect of additional indebtedness and borrowings incurred
by the Corporation associated primarily with its acquisition of the Redland
Stone business in December 1998.
The Corporation's estimated effective income tax rate for the
six-months was 35.2% in 1999 and 34.3% in 1998. See Note 5 of the Notes to
Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES Net cash flow provided by operating activities
during the first six months of 1999 was $56.1 million compared with $49.8
million in the comparable period of 1998. The cash flow for both 1999 and 1998
was principally from earnings, before deducting depreciation, depletion and
amortization, offset by working capital requirements. Depreciation, depletion
and amortization was $59.1 million and $46.3 million for the six months ended
June 30, 1999 and 1998, respectively. The seasonal nature of the construction
aggregates business impacts quarterly net cash provided by operating activities
when compared with the year. Full year 1998 net cash provided by operating
activities was $222.6 million, compared with $49.8 million provided by
operations in the six-months ended 1998.
Six-month capital expenditures, exclusive of acquisitions, were $59.8
million in 1999 and $46.2 million in 1998. Capital expenditures are expected to
be approximately $170 million for 1999, exclusive of acquisitions. Comparable
capital expenditures were $124.0 million in 1998.
The Corporation continues to rely upon internally generated funds and
access to capital markets, including funds obtained under its two revolving
credit agreements and a cash management facility, to meet its liquidity
requirements, finance its operations, and fund its capital requirements. The
Corporation has signed an amendment to its $300 million, Short Term Credit
Agreement, which extends the term of the Short Term Credit Agreement to August,
2000. 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 a universal shelf registration
statement with the Commission for up to $500 million in issuance of either debt
or equity securities. 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.
(Continued)
Page 14 of 20
15
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter Ended June 30, 1999 and 1998
The Corporation's ability to borrow or issue debt securities is
dependent, among other things, upon prevailing economic, financial and market
conditions.
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 1999. The Corporation may be required to obtain additional levels of
financing in order to fund certain strategic acquisitions if any such
opportunities arise. Currently, the Corporation's senior unsecured debt is rated
"A" by Standard & Poor's and "A3" by Moody's. The Corporation's commercial paper
obligations are 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.
YEAR 2000 ISSUE As more fully described in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998, the Corporation is
modifying its software and hardware to enable operations beyond December 31,
1999. The Corporation has continued to make progress in the remediation, testing
and implementation phases of its conversion to information technology that is
year 2000 compliant. As previously disclosed, the Corporation, with the
exception of Redland Stone, has completed its remediation, testing and
implementation of its information systems critical to ongoing operations. Both
the critical and non-critical information systems are currently running under a
live year 2000 production environment. The Corporation has no significant single
supplier, vendor or customer ("external agents") that is critical to ongoing
operations. Further, while the Corporation has no means of ensuring that its
external agents will be year 2000 ready, all significant external agents have
been queried and no major issues requiring additional follow-up by the
Corporation have been identified.
During the second quarter, the Corporation completed its remediation,
testing and implementation of its non-critical information systems including its
legacy accounting and reporting information systems software. These non-critical
information systems are also currently running under a live year 2000 production
environment.
The remaining focus for the Corporation is to complete the year 2000
conversion of Redland Stone. The mainframe and server operating systems are year
2000 compliant, as well as, the general ledger system software. The personal
computer systems and software are expected to be compliant during the third
quarter. During the second quarter, the Corporation completed the assessment of
year 2000 compliance for Redland Stone's plant operating systems and legacy
systems. Further, Redland Stone has made significant progress in confirming the
year 2000 compliance status of major non-information systems operating
equipment, noting no significant problems to date. Management continues to
expect that Redland Stone's information and non-information systems will be year
2000 compliant by the end of the year.
(Continued)
Page 15 of 20
16
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter Ended June 30, 1999 and 1998
The Corporation continues to estimate that the total costs of the Year
2000 Issue will approximate $4.1 million, including $500,000 for Redland Stone.
To date, the Corporation has spent $3.1 million, $.5 million in 1999 and $2.6
million in 1998, all funded from operating cash flows.
The Corporation currently has no formal contingency plan in place in
case it does not complete all phases of its Year 2000 Issue. The potential
operating disruption to the Corporation is somewhat mitigated by the winter
seasonality of its normal operations, the potential ability to build inventory
to supply winter and early spring demands, the ability to maintain adequate
repair and supply parts inventory, and the fact that the operations do not
require significant raw materials from external agents. However, the Corporation
will continue to assess the need for a formal contingency plan as its continues
its year 2000 conversion.
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 have a material adverse effect on the
Corporation. But, as noted above, the Corporation has not yet completed the year
2000 conversion of its Southwest Division information and non-information
technologies. If the Corporation does not complete any additional year 2000 work
at the Southwest Division, the Division may have to manually process scale
operations, and financial accounting and reporting information at its Southwest
Division. In addition, the ultimate effectiveness of the remediated information
technology throughout the Corporation will be unknown until January 1, 2000, and
there is no assurance that there will not be a material adverse effect.
Further, disruptions in the economy generally resulting from Year 2000
Issues could have a material adverse effect on the Corporation. The amount of
the potential liability and lost revenue, if any, resulting from these risks
cannot be reasonably estimated at this time.
ACCOUNTING CHANGES The accounting changes that currently impact the Corporation
are included in Note 7 to the Condensed Consolidated Financial Statements.
OTHER MATTERS Investors are cautioned that statements in this Quarterly Report
on Form 10-Q that 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.
(Continued)
Page 16 of 20
17
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
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, 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders held on May 19, 1999, the shareholders of
Martin Marietta Materials, Inc.:
(a) Elected James M. Reed, William B. Sansom and Stephen P. Zelnak, Jr. to
the Board of Directors of the Corporation to terms expiring at the
Annual Meeting of Shareholders in the year 2002. The following table
sets forth the votes for each director.
Votes Cast For Withheld
-------------- --------
James M. Reed 41,138,456 168,870
William B. Sansom 41,137,021 170,305
Stephen P. Zelnak, Jr. 40,103,844 203,482
(b) Ratified the selection of Ernst & Young LLP, as independent auditors
for the year ending December 31, 1999. The voting results for this
ratification were 41,256,844 -- For; 12,963 -- Against; and 37,519 --
Abstained.
Item 5. Other Information.
On May 20, 1999, the Corporation announced that the Board of Directors had
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 June 30, 1999, to
shareholders of record at the close of business on June 1, 1999.
On June 23, 1999, the Corporation announced it had acquired an asphalt plant and
a rail distribution yard for aggregates from CSB Materials, located in Houston,
Texas. The Corporation also announced that it had purchased 19 percent interest
in Industrial Microwave System (IMS), located in Research Triangle Park, North
Carolina. Both transactions were for cash and the amounts were not disclosed.
On July 27, 1999, the Corporation announced it had acquired a limestone quarry
and three rail distribution yards from Acme Limestone Co., Inc. in Lewisburg,
West Virginia. The quarry has annual production capacity of approximately 1.2
million tons with mineral reserves in excess of 70 million tons. The transaction
was a purchase of assets for cash with the purchase price not disclosed.
Page 17 of 20
18
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
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 ended June
30, 1999 and 1998
27.01 Financial Data Schedule (for Securities and Exchange
Commission use only)
(b) Reports on Form 8-K
The Corporation did not file any reports on Form 8-K during the three months
ended June 30, 1999.
Page 18 of 20
19
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARTIN MARIETTA MATERIALS, INC.
(Registrant)
Date: August 13, 1999 By: /s/ JANICE K. HENRY
--------------------------------------
Janice K. Henry
Senior Vice President, Chief
Financial Officer and Treasurer
Page 19 of 20
20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1999
EXHIBIT INDEX
Exhibit No. Document Page
- ----------- -------- ----
11.01 Martin Marietta Materials, Inc. and Consolidated
Subsidiaries Computation of Earnings per Share for
the Quarter ended June 30, 1999 and 1998
27.01 Financial Data Schedule (for Securities and Exchange
Commission use only)
Page 20 of 20
1
Exhibit 11.01
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the Three-Months and Six-Months Ended June 30, 1999 and 1998
(Dollars in Thousands, Except Per Share Data)
Three-Months Ended Six-Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net earnings $ 41,273 $ 36,356 $ 49,213 $ 38,992
=========== =========== =========== ===========
Weighted average number of
shares outstanding:
Basic earnings per share 46,684,229 46,475,007 46,659,901 46,345,940
Effect of dilutive securities 346,682 357,361 306,548 275,686
----------- ----------- ----------- -----------
Diluted earnings per share 47,030,911 46,832,368 46,966,449 46,621,626
=========== =========== =========== ===========
Net earnings per share - basic $ 0.88 $ 0.78 $ 1.05 $ 0.84
=========== =========== =========== ===========
- diluted $ 0.88 $ 0.78 $ 1.05 $ 0.84
=========== =========== =========== ===========
Page 21
5
1,000
6-MOS
DEC-31-1999
JAN-01-1999
JUN-30-1999
0
0
224,780
4,357
175,417
427,287
1,541,977
762,104
1,668,962
189,080
602,176
0
0
467
706,970
1,668,962
569,926
569,926
439,957
489,051
14,558
526
18,959
75,948
26,735
49,213
0
0
0
49,213
1.05
1.05
