Martin Marietta Materials, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12744
MARTIN MARIETTA MATERIALS, INC.
(Exact name of registrant as specified in its charter)
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North Carolina
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56-1848578 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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2710 Wycliff Road, Raleigh, North Carolina
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27607-3033 |
(Address of principal executive offices)
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(Zip Code) |
(919) 781-4550
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
Common Stock (par value $.01 per share) (including rights attached thereto)
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act.
Yes o No x
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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of June 29, 2007, the last business day of the registrants most recently completed second
fiscal quarter, the aggregate market value of the registrants common stock held by non-affiliates
of the registrant was $5,189,050,508 based on the closing sale price as reported on the New York
Stock Exchange.
Indicate the number of shares outstanding of each of the issuers classes of common stock on
the latest practicable date.
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Class |
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Outstanding at February 15, 2008 |
Common Stock, $.01 par value per share
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41,254,046 shares |
DOCUMENTS INCORPORATED BY REFERENCE
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Document |
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Parts Into Which Incorporated |
Excerpts from Annual Report to Shareholders
for the Fiscal Year Ended December 31, 2007
(Annual Report)
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Parts I, II, and IV |
Proxy Statement for the Annual Meeting of
Shareholders to be held May 28, 2008 (Proxy
Statement)
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Part III |
TABLE OF CONTENTS
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Page |
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3 |
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BUSINESS |
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3 |
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RISK FACTORS AND FORWARD-LOOKING STATEMENTS |
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UNRESOLVED STAFF COMMENTS |
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PROPERTIES |
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LEGAL PROCEEDINGS |
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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MARKET FOR REGISTRANTS COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
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SELECTED FINANCIAL DATA |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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30 |
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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30 |
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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CONTROLS AND PROCEDURES |
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OTHER INFORMATION |
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31 |
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
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EXECUTIVE COMPENSATION |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
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SIGNATURES |
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Exhibit 12.01 |
Exhibit 13.01 |
Exhibit 21.01 |
Exhibit 23.01 |
Exhibit 31.01 |
Exhibit 31.02 |
Exhibit 32.01 |
Exhibit 32.02 |
2
PART I
General
Martin Marietta Materials, Inc. (the Company) is a leading producer of aggregates for the
construction industry, including infrastructure, commercial, agricultural, and residential. The
Company also has a Specialty Products segment that manufactures and markets magnesia-based chemical
products used in industrial, agricultural, and environmental applications; dolomitic lime sold
primarily to the steel industry; and structural composite products. In 2007, the Companys
Aggregates business accounted for 92% of the Companys total net sales, and the Companys Specialty
Products segment accounted for 8% of the Companys total net sales.
The Company was formed in 1993 as a North Carolina corporation to serve as successor to the
operations of the materials group of the organization that is now Lockheed Martin Corporation. An
initial public offering of a portion of the Companys Common Stock was completed in 1994, followed
by a tax-free exchange transaction in 1996 that resulted in 100% of the Companys Common Stock
being publicly traded.
Initially, the Companys aggregates operations were predominantly in the Southeast, with
additional operations in the Midwest. In 1995, the Company started its geographic expansion with
the purchase of an aggregates business that included an extensive waterborne distribution system
along the East and Gulf Coasts and the Mississippi River. Smaller acquisitions that year,
including the acquisition of the Companys granite operations on the Strait of Canso in Nova
Scotia, complemented the Companys new coastal distribution network.
Subsequent acquisitions in 1997 and 1998 expanded the Companys Aggregates business in the
middle of the country and added a leading producer of aggregates products in Texas, which provided
the Company with access to an extensive rail network in Texas. These two transactions positioned
the Company for numerous additional expansion acquisitions in Ohio, Indiana, and the southwestern
regions of the United States, with the Company completing 29 smaller acquisitions between 1997 and
1999, which allowed the Company to enhance and expand its presence in the aggregates marketplace.
In 1998, the Company made an initial investment in an aggregates business that would later
serve as the Companys platform for further expansion in the southwestern and western United
States. In 2001, the Company completed the purchase of all of the remaining interests of this
business, which increased its ability to use rail as a mode of transportation.
Effective January 1, 2005, the Company formed a joint venture with Hunt Midwest Enterprises to
operate substantially all of the aggregates facilities of both companies in Kansas City and
surrounding areas. The joint venture was formed by the parties contributing a total of 15 active
quarry operations with production of approximately 7.5 million tons annually.
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Between 2001 and 2007, the Company disposed of or permanently shut down a number of
underperforming operations, including aggregates, asphalt, ready mixed concrete, trucking, and road
paving operations of its Aggregates business and the refractories business of its Magnesia
Specialties business. In some of its divestitures, the Company concurrently entered into supply
agreements to provide aggregates at market rates to certain of these divested businesses. The
Company will continue to evaluate opportunities to divest underperforming assets during 2008 in an
effort to redeploy capital for other opportunities.
Business Segment Information
The Company operates in four reportable business segments: the Mideast Group, Southeast
Group, and West Group, collectively the Aggregates business, and the Specialty Products segment.
The Specialty Products segment includes the magnesia-based chemicals and dolomitic lime businesses
and the structural composites product line. Information concerning the Companys total revenues,
net sales, earnings from operations, assets employed, and certain additional information
attributable to each reportable business segment for each year in the three-year period ended
December 31, 2007 is included in Note O: Business Segments of the Notes to Financial Statements
of the Companys 2007 consolidated financial statements (the 2007 Financial Statements), which
are included under Item 8 of this Form 10-K, and are part of the Companys 2007 Annual Report to
Shareholders (the 2007 Annual Report), which information is incorporated herein by reference.
Aggregates Business
The Aggregates business mines, processes and sells granite, limestone, sand, gravel, and other
aggregate products for use in all sectors of the public infrastructure, commercial and residential
construction industries as well as miscellaneous uses such as agriculture, railroad ballast and
chemical uses. The Aggregates business also includes the operation of other construction materials
businesses. These businesses, located primarily in the West Group, were acquired through continued
selective vertical integration by the Company, and include asphalt, ready mixed concrete, and road
paving operations.
The Company is a leading producer of aggregates for the construction industry in the United
States. In 2007, the Companys Aggregates business shipped 182.3 million tons of aggregates
primarily to customers in 31 states, Canada, the Bahamas, and the Caribbean Islands, generating net
sales and earnings from operations of $1.8 billion and $431.8 million, respectively.
The Aggregates business markets its products primarily to the construction industry, with
approximately 48% of its shipments made to contractors in connection with highway and other public
infrastructure projects and the balance of its shipments made primarily to contractors in
connection with commercial and residential construction projects. As a result of dependence upon
the construction industry, the profitability of aggregates producers is sensitive to national,
regional, and local economic conditions, and particularly to cyclical swings in construction
spending, which is affected by fluctuations in interest rates, demographic and population shifts,
and changes in the level of infrastructure spending funded by the public sector. The Companys
Aggregates business covers a wide geographic area, with aggregates, asphalt products, and ready
mixed concrete sold and shipped from a network of approximately 287 quarries, underground mines,
distribution facilities, and plants in 28 states, Canada, and the Bahamas. The Companys five
largest revenue-generating states (North
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Carolina, Texas, Georgia, Iowa, and South Carolina) account for approximately 61% of total 2007 net
sales for the Aggregates business by state of destination. The Companys Aggregates business is
accordingly affected by the economies in these regions and has been adversely affected in part by
recessions and weaknesses in these economies from time to time.
The Companys Aggregates business is also highly seasonal, due primarily to the effect of
weather conditions on construction activity within its markets. The operations of the Aggregates
business that are concentrated in the northern United States and Canada typically experience more
severe winter weather conditions than operations in the southeastern and southwestern regions of
the United States. Excessive rainfall can also jeopardize shipments, production, and
profitability. Due to these factors, the Companys second and third quarters are the strongest,
with the first quarter generally reflecting the weakest results. Results in any quarter are not
necessarily indicative of the Companys annual results. Similarly, the operations of the
Aggregates business in the southeastern and Gulf Coast regions of the United States and the Bahamas
are at risk for hurricane activity and have experienced weather-related losses in recent years.
The Company did not incur significant damage from hurricanes during 2007. However, during 2007,
the West Group, particularly Texas, southern Oklahoma and Kansas, experienced near historic levels
of rainfall and flooding, which affected both shipments and operations.
Natural aggregates sources can be found in relatively homogeneous deposits in certain areas of
the United States. As a general rule, truck shipments from an individual quarry are limited
because the cost of transporting processed aggregates to customers is high in relation to the price
of the product itself. As described below, the Companys distribution system mainly uses trucks,
but also has access to a river barge and ocean vessel network where the per mile unit cost of
transporting aggregates is much lower. In addition, acquisitions have enabled the Company to
extend its customer base through increased access to rail transportation. Proximity of quarry
facilities to customers or to long-haul transportation corridors is an important factor in
competition for aggregates business.
A growing percentage of the Companys aggregates shipments are being moved by rail or water
through a distribution yard network. In 1994, 93% of the Companys aggregates shipments were moved
by truck, the rest by rail. In contrast, in 2007, the originating mode of transportation for the
Companys aggregates shipments was 74% by truck, 17% by rail, and 9% by water. The majority of the
rail and water movements occur in the Southeast Group and the West Group. The Company has an
extensive network of aggregates quarries and distribution centers along the Mississippi River
system throughout the central and southern United States and in the Bahamas and Canada, as well as
distribution centers along the Gulf of Mexico and Atlantic coasts. In recent years, the Company
has brought additional capacity on line at its Bahamas and Nova Scotia locations to transport
materials via oceangoing ship. Further, in 2006, the Company completed the second largest capital
project in its history, a highly-automated plant and barge loadout system at its Three Rivers
facility in Kentucky. This new plant, a key site in the Companys long-haul distribution network,
is capable of producing more than 8 million tons per year for shipment to 14 states along the Ohio
and Mississippi River network. The Company is currently focusing a significant part of its capital
spending program on locations along the geological fall line in Georgia and South Carolina, which
are part of the rail transportation network.
In addition, the Companys acquisitions and capital projects have expanded its ability to ship
material by rail, as discussed in more detail below. The Company has added additional capacity in a
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number of locations that can now accommodate larger unit train movements. These expansion projects
have enhanced the Companys long-haul distribution network. The Companys process improvement
program has also improved operational effectiveness through plant automation, mobile fleet
modernization, right-sizing, and other cost control improvements. Accordingly, the Company has
enhanced its reach through its ability to provide cost-effective coverage of coastal markets on the
east and gulf coasts, as well as geographic areas that can be accessed economically by the
Companys expanded distribution system. This distribution network moves aggregates materials from
domestic and offshore sources, via rail and water, to markets where aggregates supply is limited.
As the Company continues to move more aggregates by rail and water, embedded freight costs
have consequently reduced gross margins. This typically occurs where the Company transports
aggregates from a production location to a distribution location by rail or water, and the customer
pays a selling price that includes a freight component. Margins are negatively affected because
the Company typically does not charge the customer a profit associated with the transportation
component of the selling price. Moreover, the Companys expansion of its rail-based distribution
network, coupled with the extensive use of rail service in the Southeast and West Groups, increase
the Companys dependence on and exposure to railroad performance, including track congestion, crew
availability, and power availability, and the ability to renegotiate favorable railroad shipping
contracts. The waterborne distribution network, primarily located within the Southeast Group, also
increases the Companys exposure to certain risks, including the ability to negotiate favorable
shipping contracts, demurrage costs, fuel costs, barge or ship availability, and weather
disruptions. The Company has entered into long-term agreements with shipping companies to provide
ships to transport the Companys aggregates to various coastal ports.
In 2005 and 2006, the Company experienced rail transportation shortages in Texas and parts of
the Southeast Group. These shortages were caused by the downsizing in personnel and equipment by
certain railroads during the economic downturn in the early part of this decade. Further, in
response to these issues, rail transportation providers focused on increasing the number of cars
per unit train under transportation contracts and are generally requiring customers, through the
freight rate structure, to accommodate larger unit train movements. A unit train is a freight
train moving large tonnages of a single bulk product between two points without intermediate
yarding and switching. In 2006, the Company brought a new plant online on a greensite at its North
Troy operation in Oklahoma, which is capable of producing 5 million tons per year and handling
multiple 90-car unit trains. Certain of the Companys sales yards in the southwestern region of
the United States have the system capabilities to meet the unit train requirements. Over the last
few years, the Company has made capital improvements to a number of its sales yards in this region
in order to better accommodate unit train unloadings. Further, in 2005, the Company addressed
certain of its railcar needs for future shipments by leasing 780 railcars under two master lease
agreements.
The Company experiences shortages of barges from time to time. Barge availability has become
an issue as the rate of barges being retired is exceeding the rate at which new barges are being
constructed. Shipyards that build barges are operating at capacity, and the lead time for new
barges is approximately 18 months. To help alleviate this problem, the Company purchased 50 new
barges in 2007.
The Companys management expects the multiple transportation modes that have been developed
with various rail carriers and via barges and deepwater ships should provide the Company
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with the flexibility to effectively serve customers in the southeastern and southwestern regions of
the United States.
The construction aggregates industry has been in a consolidating mode. The Companys
management expects this trend to continue but at a slower rate as the number of suitable small to
mid-sized acquisition targets in high growth markets decline. The Companys Board of Directors and
management continue to review and monitor the Companys strategic long-term plans, which include
assessing business combinations and arrangements with other companies engaged in similar
businesses, increasing market share in the Companys core businesses, and pursuing new
opportunities related to the Companys existing markets.
The Company became more vertically integrated with an acquisition in 1998 and subsequent
acquisitions, particularly in the West Group, pursuant to which the Company acquired asphalt, ready
mixed concrete, paving construction, trucking, and other businesses, which complement the Companys
aggregates business. These vertically integrated operations accounted for approximately 6% of
revenues of the Aggregates business in 2007. These operations have lower gross margins than
aggregates products, and are affected by volatile factors, including fuel costs, operating
efficiencies, and weather, to an even greater extent than the Companys aggregates operations. The
road paving and trucking businesses were acquired as supplemental operations that were part of
larger acquisitions. As such, they do not represent core businesses of the Company. The results
of these operations are currently insignificant to the Company as a whole. Over the last few years
the Company has disposed of some of these operations. The Company continues to review carefully
the acquired vertically integrated operations to determine if they represent opportunities to
divest underperforming assets in an effort to redeploy capital for other opportunities.
Environmental and zoning regulations have made it increasingly difficult for the aggregates
industry to expand existing quarries and to develop new quarry operations. Although it cannot be
predicted what policies will be adopted in the future by federal, state, and local governmental
bodies regarding these matters, the Company anticipates that future restrictions will likely make
zoning and permitting more difficult, thereby potentially enhancing the value of the Companys
existing mineral reserves.
Management believes the Aggregates business raw materials, or aggregates reserves, are
sufficient to permit production at present operational levels for the foreseeable future. The
Company does not anticipate any material difficulty in obtaining the raw materials that it uses for
current production in its Aggregates business. The Companys aggregates reserves on the average
exceed 50 years of production, based on current levels of activity. However, certain locations may
be subject to more limited reserves and may not be able to expand. Moreover, as noted above,
environmental and zoning regulations will likely make it harder for the Company to expand its
existing quarries or develop new quarry operations. The Company generally sells products in its
Aggregates business upon receipt of orders or requests from customers. Accordingly, there is no
significant order backlog. The Company generally maintains inventories of aggregate products in
sufficient quantities to meet the requirements of customers.
Less than 2% of the revenues from the Aggregates business are from foreign jurisdictions,
principally Canada and the Bahamas, with revenues from customers in foreign countries totaling
$22.3 million, $25.0 million, and $16.4 million during 2007, 2006, and 2005, respectively.
7
Specialty Products Business
The Company manufactures and markets, through its Specialty Products business, magnesia-based
chemical products for industrial, agricultural, and environmental applications, and dolomitic lime
for use primarily in the steel industry. These chemical products have varying uses, including
flame retardants, wastewater treatment, pulp and paper production, and other environmental
applications. In 2007, 66% of Specialty Products net sales were attributable to chemical
products, 29% to lime, and 2% to stone, with the remaining 3% attributable to the structural
composite products line described below.
Given the high fixed costs associated with operating this business, low capacity utilization
negatively affects its results of operations. A significant portion of the costs related to the
production of magnesia-based products and dolomitic lime is of a fixed or semi-fixed nature. In
addition, the production of certain magnesia chemical products and lime products requires natural
gas, coal, and petroleum coke to fuel kilns. Price fluctuations of these fuels affect the
profitability of this business.
In 2007, approximately 75% of the lime produced was sold to third-party customers, while the
remaining 25% was used internally as a raw material in making the business chemical products.
Dolomitic lime products sold to external customers are used primarily by the steel industry.
Accordingly, a portion of the profitability of the Specialty Products business is dependent on
steel production capacity utilization and the related marketplace. Products used in the steel
industry accounted for approximately 70% of the Specialty Products net sales in 2007, attributable
primarily to the sale of dolomitic lime products. During 2007, softness in housing-related steel
products and auto making curtailed demand for steel making. Further, steel production in 2007 was
reduced following a record year for steel imports in 2006. Import rates in 2007 adjusted to the
domestic market, but the continued downturn in steel-related industries will affect Specialty
Products revenues.
Management has shifted the strategic focus of this magnesia-based business to specialty
chemicals that can be produced at volume levels that support efficient operations. Accordingly,
that business is not as dependent on the steel industry as is the dolomitic lime portion of the
Specialty Products business.
The principal raw materials used in the Specialty Products business are dolomitic limestone
and alkali-rich brine. Management believes that its reserves of dolomitic limestone and brine are
sufficient to permit production at the current operational levels for the foreseeable future.
After the brine is used in the production process, the Specialty Products business must
dispose of the processed brine. In the past, the business did this by reinjecting the processed
brine back into its underground brine reserve network around its facility in Manistee, Michigan.
The business has also sold a portion of this processed brine to third parties. In 2003, Specialty
Products entered into a long-term processed brine supply agreement with The Dow Chemical Company
(Dow) pursuant to which Dow purchases processed brine from Specialty Products, at market rates,
for use in Dows production of calcium chloride products. Specialty Products also entered into a
venture with Dow to construct, own, and operate a processed brine supply pipeline between the
Specialty Products facility in Manistee, Michigan, and Dows facility in Ludington, Michigan.
Construction of the pipeline was
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completed in 2003, and Dow began purchasing processed brine from Specialty Products through the
pipeline.
Specialty Products generally delivers its products upon receipt of orders or requests from
customers. Accordingly, there is no significant order backlog. Inventory for products is
generally maintained in sufficient quantities to meet rapid delivery requirements of customers.
Approximately 12% of the revenues of the Specialty Products business are from foreign
jurisdictions, principally Canada, Mexico, Europe, South America, and the Pacific Rim, but no
single country accounts for 10% or more of the revenues of the business. Revenues from customers
in foreign countries totaled $20.2 million, $17.0 million, and $19.6 million in 2007, 2006, and
2005, respectively. As a result of these foreign market sales, the financial results of the
Specialty Products business could be affected by foreign currency exchange rates or weak economic
conditions in the foreign markets. To mitigate the short-term effects of currency exchange rates,
the Specialty Products business principally uses the U.S. dollar as the functional currency in
foreign transactions.
The Company also develops structural composite products, through its Specialty Products
business and its wholly-owned subsidiary, Martin Marietta Composites (MMC). Pursuant to various
agreements, MMC has rights to commercialize certain proprietary technologies including those
related to flat panel applications. These agreements give MMC the opportunity to pursue the use of
certain fiber-reinforced polymer composites technologies for products where corrosion resistance
and high strength-to-weight ratios are important factors. MMC continued its commercialization
during 2007 of these structural composites technologies and initiated other selected products in
related target markets.
In 2007, MMC narrowed the focus within several market sectors for its composite products:
military products, including ballistic and blast panels, transportation products, including rail
cars, and other structural panel products. MMC will continue to evaluate a variety of homeland
security and commercial uses for composite materials. There can be no assurance that these
technologies will become profitable.
Patents and Trademarks
As of February 15, 2008, the Company owns, has the right to use, or has pending applications
for approximately 129 patents pending or granted by the United States and various countries and
approximately 59 trademarks related to business. The Company believes that its rights under its
existing patents, patent applications, and trademarks are of value to its operations, but no one
patent or trademark or group of patents or trademarks is material to the conduct of the Companys
business as a whole.
Customers
No material part of the business of any segment of the Company is dependent upon a single
customer or upon a few customers, the loss of any one of which would have a material adverse effect
on the segment. The Companys products are sold principally to commercial customers in private
industry. Although large amounts of construction materials are used in public works projects,
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relatively insignificant sales are made directly to federal, state, county, or municipal
governments, or agencies thereof.
Competition
Because of the impact of transportation costs on the aggregates industry, competition in the
Aggregates business tends to be limited to producers in proximity to each of the Companys
production facilities. Although all of the Companys locations experience competition, the Company
believes that it is generally a leading producer in the areas it serves. Competition is based
primarily on quarry or distribution location and price, but quality of aggregates and level of
customer service are also factors.
There are over 3,800 companies in the United States that produce aggregates. The largest five
producers account for approximately 31% of the total market. The Company, in its Aggregates
business, competes with a number of other large and small producers. The Company believes that its
ability to transport materials by ocean vessels, river barges, and rail have enhanced the Companys
ability to compete in the aggregates business. Some of the Companys competitors in the aggregates
industry have greater financial resources than the Company.
The Companys Specialty Products segment competes with various companies in different
geographic and product areas principally on the basis of quality, price, technological advances,
and technical support for its products. The Specialty Products business also competes for sales to
customers located outside the United States, with revenues from foreign jurisdictions accounting
for approximately 12% of revenues for the Specialty Products business in 2007, principally in
Canada, Mexico, Europe, South America, and the Pacific Rim. Certain of the Companys competitors
in the Specialty Products business have greater financial resources than the Company.
Research and Development
The Company conducts research and development activities principally for its magnesia-based
chemicals business, at its plant in Manistee, Michigan, and for its structural composites product
line, at its headquarters in Raleigh, North Carolina, and its plant in Sparta, North Carolina. In
general, the Companys research and development efforts in 2007 were directed to applied
technological development for the use of its chemicals products and for its proprietary
technologies, including composite materials. The Company spent approximately $0.9 million in 2007,
$0.7 million in 2006, and $0.7 million in 2005 on research and development activities.
Environmental and Governmental Regulations
The Companys operations are subject to and affected by federal, state, and local laws and
regulations relating to the environment, health and safety, and other regulatory matters. Certain
of the Companys operations may from time to time involve the use of substances that are classified
as toxic or hazardous substances within the meaning of these laws and regulations. Environmental
operating permits are, or may be, required for certain of the Companys operations, and such
permits are subject to modification, renewal, and revocation.
10
The Company records an accrual for environmental remediation liabilities in the period in
which it is probable that a liability has been incurred and the amounts can be reasonably
estimated. Such accruals are adjusted as further information develops or circumstances change.
The accruals are not discounted to their present value or offset for potential insurance or other
claims or potential gains from future alternative uses for a site.
The Company regularly monitors and reviews its operations, procedures, and policies for
compliance with existing laws and regulations, changes in interpretations of existing laws and
enforcement policies, new laws that are adopted, and new laws that the Company anticipates will be
adopted that could affect its operations. The Company has a full time staff of environmental
engineers and managers that perform these responsibilities. The direct costs of ongoing
environmental compliance were approximately $9.1 million in 2007 and approximately $8.5 million in
2006 and are related to the Companys environmental staff and ongoing monitoring costs for various
matters (including those matters disclosed in this Annual Report on Form 10-K). Capitalized costs
related to environmental control facilities were approximately $4.1 million in 2007 and are
expected to be approximately $3 million in each of 2008 and 2009. The Companys capital
expenditures for environmental matters were not material to its results of operations or financial
condition in 2007 and 2006. However, our expenditures for environmental matters generally have
increased over time and are likely to increase in the future. Despite our compliance efforts, risk
of environmental liability is inherent in the operation of the Companys businesses, as it is with
other companies engaged in similar businesses, and there can be no assurance that environmental
liabilities will not have a material adverse effect on the Company in the future.
Many of the requirements of the environmental laws are satisfied by procedures that the
Company adopts as best business practices in the ordinary course of its operations. For example,
plant equipment that is used to crush aggregates products may, as an ordinary course of operations,
have an attached water spray bar that is used to clean the stone. The water spray bar also
suffices as a dust control mechanism that complies with applicable environmental laws. The Company
does not break out the portion of the cost, depreciation, and other financial information relating
to the water spray bar that is only attributable to environmental purposes, as it would be derived
from an arbitrary allocation methodology. The incremental portion of such operating costs that is
attributable to environmental compliance rather than best operating practices is impractical to
quantify. Accordingly, the Company expenses costs in that category when incurred as operating
expenses.
The environmental accruals recorded by the Company are based on internal studies of the
required remediation costs and estimates of potential costs that arise from time to time under
federal, state, and/or local environmental protection laws. Many of these laws and the regulations
promulgated under them are complex, and are subject to challenges and new interpretations by
regulators and the courts from time to time. In addition, new laws are adopted from time to time.
It is often difficult to accurately and fully quantify the costs to comply with new rules until it
is determined the type of operations to which they will apply and the manner in which they will be
implemented is more accurately defined. This process often takes years to finalize and changes
significantly from the time the rules are proposed to the time they are final. The Company
typically has several appropriate alternatives available to satisfy compliance requirements, which
could range from nominal costs to some alternatives that may be satisfied in conjunction with
equipment replacement or expansion that also benefits operating efficiencies or capacities and
carry significantly higher costs.
11
Management believes that its current accrual for environmental costs is reasonable, although
those amounts may increase or decrease depending on the impact of applicable rules as they are
finalized from time to time and changes in facts and circumstances. The Company believes that any
additional costs for ongoing environmental compliance would not have a material adverse effect on
the Companys obligations or financial condition.
With respect to reclamation costs effective January 1, 2003, the Company adopted Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (FAS 143).
See Note N: Commitments and Contingencies of the Notes to Financial Statements of the 2007
Financial Statements and the 2007 Annual Report. Under FAS 143, future reclamation costs are
estimated using statutory reclamation requirements and managements experience and knowledge in the
industry, and are discounted to their present value using a credit-adjusted, risk-free rate of
interest. The future reclamation costs are not offset by potential recoveries. The Company is
generally required by state or local laws or pursuant to the terms of an applicable lease to
reclaim quarry sites after use. The Company performs activities on an ongoing basis that may
reduce the ultimate reclamation obligation. These activities are performed as an integral part of
the normal quarrying process. For example, the perimeter and interior walls of an open pit quarry
are sloped and benched as they are developed to prevent erosion and provide stabilization. This
sloping and benching meets dual objectives safety regulations required by the Mine Safety and
Health Administration for ongoing operations and final reclamation requirements. Therefore, these
types of activities are included in normal operating costs and are not a part of the asset
retirement obligation. Historically, the Company has not incurred substantial reclamation costs in
connection with the closing of quarries. Reclaimed quarry sites owned by the Company are available
for sale, typically for commercial development or use as reservoirs.
The Company believes that its operations and facilities, both owned or leased, are in
substantial compliance with applicable laws and regulations and that any noncompliance is not
likely to have a material adverse effect on the Companys operations or financial condition. See
Legal Proceedings under Item 3 of this Form 10-K, Note N: Commitments and Contingencies of the
Notes to Financial Statements of the 2007 Financial Statements included under Item 8 of this Form
10-K and the 2007 Annual Report, and Managements Discussion and Analysis of Financial Condition
and Results of Operations Environmental Regulation and Litigation included under Item 7 of this
Form 10-K and the 2007 Annual Report. However, future events, such as changes in or modified
interpretations of existing laws and regulations or enforcement policies, or further investigation
or evaluation of the potential health hazards of certain products or business activities, may give
rise to additional compliance and other costs that could have a material adverse effect on the
Company.
In general, quarry and mining facilities must comply with air quality, water quality, and
noise regulations, zoning and special use permitting requirements, applicable mining regulations,
and federal health and safety requirements. As new quarry and mining sites are located and
acquired, the Company works closely with local authorities during the zoning and permitting
processes to design new quarries and mines in such a way as to minimize disturbances. The Company
frequently acquires large tracts of land so that quarry, mine, and production facilities can be
situated substantial distances from surrounding property owners. Also, in certain markets the
Companys ability to transport material by rail and ship allows it to locate its facilities further
away from residential areas. The Company has established policies designed to minimize
disturbances to surrounding property owners from its operations.
12
As is the case with other companies in the same industry, some of the Companys products
contain varying amounts of crystalline silica, a common mineral also known as quartz. Excessive,
prolonged inhalation of very small-sized particles of crystalline silica has been associated with
lung diseases, including silicosis, and several scientific organizations and some states, such as
California, have reported that crystalline silica can cause lung cancer. The Mine Safety and
Health Administration and the Occupational Safety and Health Administration have established
occupational thresholds for crystalline silica exposure as respirable dust. The Company monitors
occupational exposures at its facilities and implements dust control procedures and/or makes
available appropriate respiratory protective equipment to maintain the occupational exposures at or
below the appropriate levels. The Company, through safety information sheets and other means, also
communicates what it believes to be appropriate warnings and cautions its employees and customers
about the risks associated with excessive, prolonged inhalation of mineral dust in general and
crystalline silica in particular.
In February 1998, the Georgia Department of Natural Resources (GDNR) determined that both
the Company and the Georgia Department of Transportation (GDOT) are responsible parties for
investigation and remediation at the Companys Camak Quarry in Thomson, Georgia, due to the
discovery of trichloroethene (TCE) above its naturally occurring background concentration in a
drinking water well on site. The Company provided the GDNR with information indicating that the
source of the release was either from an asphalt plant and associated GDOT testing laboratory that
was on the site in the early 1970s or from a maintenance shop that was operated on the property in
the 1940s and 1950s before the Company purchased the property. The Company entered into a
Consent Order with GDNR to conduct an environmental assessment of the site and file a report of the
findings. The Company and GDOT signed an agreement to share evenly the costs of the assessment
work. The assessment report was completed and filed. Based upon the results of the assessment
report, GDOT withdrew from the cost sharing agreement and has indicated it will not share in any
future remediation costs. The Company submitted a corrective action plan to GDNR for approval on
December 9, 2002. GDNR requested additional information which was duly submitted. GDNR approved
the plan on June 28, 2005, and the Company completed the installation of the remediation system.
The Company funded the entire cost of the corrective plan and installation of the remediation
system. The groundwater monitoring and reporting, which is the last task required by the Consent
Order, will occur over fifteen years. Management believes the future costs to be incurred by the
Company associated with the groundwater monitoring will not have a material adverse effect on the
Companys operations or its financial condition.
In December 1998, the GDNR determined that the Company, the GDOT, and two former asphalt plant
operators are responsible parties for investigation and remediation of groundwater contamination at
the Companys Ruby Quarry in Macon, Georgia. The Company was designated by virtue of its ownership
of the property. GDOT was designated because it operated a testing laboratory at the site. The
two other parties were designated because both entities operated asphalt plants at the site. The
groundwater contamination was discovered when the Companys tenant vacated the premises and
environmental testing was conducted. The Company and GDOT signed an agreement to share the costs
of the assessment work. The report of the assessment work was filed with the GDNR. GDOT entered
into a Consent Order with GDNR agreeing to conduct additional testing and any necessary remediation
at the site. On May 21, 2001, GDNR issued separate Administrative Orders against the Company and
other responsible parties to require all parties to participate with GDOT to undertake additional
testing and any necessary remediation. The Company and GDOT submitted a corrective
13
action plan to GDNR for approval on May 20, 2002. GDNR requested additional information in
connection with its consideration of the submitted plan and subsequently approved the plan on July
19, 2004. GDOT filed an amendment to the plan, which was approved on June 28, 2005. GDOT
completed installation of the remediation system and has been proceeding with required groundwater
monitoring and reporting activities which will occur over fifteen to twenty years. Under Georgia
law, responsible parties are jointly and severally liable, and therefore, the Company is
potentially liable for the full cost of funding any necessary remediation. Management believes any
costs incurred by the Company associated with the future groundwater monitoring will not have a
material adverse effect on the Companys operations or its financial condition.
In the vicinity of and beneath the Specialty Products facility in Manistee, Michigan, there is
an underground plume of material originating from adjacent property which formerly was used by
Packaging Corporation of America (PCA) as a part of its operations. The Company believes the
plume consists of paper mill waste. On September 8, 1983, the PCA plume and property were listed
on the National Priorities List (NPL) under the authority of the Comprehensive Environmental
Response, Compensation and Liability Act (the Superfund statute). The PCA plume is subject to a
Record of Decision issued by the U.S. Environmental Protection Agency (EPA) on May 2, 1994,
pursuant to which PCAs successor, Pactiv Corporation (Pactiv), is required to conduct annual
monitoring. The EPA has not required remediation of the groundwater contamination. On January 10,
2002, the Michigan Department of Environmental Quality (MDEQ) issued Notice of Demand letters to
the Companys wholly-owned subsidiary, Martin Marietta Magnesia Specialties (Magnesia
Specialties), PCA and Pactiv indicating that it believes that Magnesia Specialties chloride
contamination is commingling with the PCA plume which originates upgradient from the Magnesia
Specialties property. The MDEQ is concerned about possible effects of these plumes, and designated
Magnesia Specialties, PCA and Pactiv as parties responsible for investigation and remediation under
Michigan state law. The MDEQ held separate meetings with Magnesia Specialties, PCA, and Pactiv to
discuss remediation and reimbursement for past investigation costs totaling approximately $700,000.
Magnesia Specialties entered into an Administrative Order with the MDEQ to pay for a portion of
MDEQs past investigation costs and thereby limit its liability for past costs in the amount of
$20,000. Michigan law provides that responsible parties are jointly and severally liable, and,
therefore, Magnesia Specialties is potentially liable for the full cost of funding future
investigative activities and any necessary remediation. Michigan law also provides a procedure
whereby liability may be apportioned among responsible parties if it is capable of division. The
Company believes that the liability most likely will be apportioned and that any such costs
attributed to Magnesia Specialties brine contamination will not have a material adverse effect on
the Companys operations or its financial condition, but can give no assurance that the liability
will be apportioned or that the compliance costs will not have a material adverse effect on the
financial condition or results of the operations of the Specialty Products business.
Employees
As of January 31, 2008, the Company has approximately 5,255 employees, of which 3,902 are
hourly employees and 1,353 are salaried employees. Included among these employees are 698 hourly
employees represented by labor unions (13.3% of the Companys employees). Of such amount, 12.5% of
the Companys Aggregates businesss hourly employees are members of a labor union, while 90% of the
Specialty Products segments hourly employees are represented by labor unions. The Companys
principal union contracts cover employees of the Specialty Products business at the
14
Manistee, Michigan, magnesia-based chemicals plant and the Woodville, Ohio, lime plant. The
Manistee collective bargaining agreement expires in August 2011. The Woodville collective
bargaining agreement expires in June 2010.
Available Information
The
Company maintains an Internet address at www.martinmarietta.com. The Company makes
available free of charge through its Internet web site its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, if any, filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports and any
amendments are accessed via the Companys web site through a link with the Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system maintained by the Securities and Exchange
Commission (the SEC) at www.sec.gov. Accordingly, the Companys referenced reports and any
amendments are made available as soon as reasonably practicable after the Company electronically
files such material with, or furnishes it to, the SEC, once EDGAR places such material in its
database.
The Company has adopted a Code of Ethics and Standards of Conduct that applies to all of its
directors, officers, and employees. The Companys code of ethics is available on the Companys web
site at www.martinmarietta.com. The Company intends to disclose on its Internet web site any
waivers of or amendments to its code of ethics as it applies to its directors and executive
officers.
The Company has adopted a set of Corporate Governance Guidelines to address issues of
fundamental importance relating to the corporate governance of the Company, including director
qualifications and responsibilities, responsibilities of key board committees, director
compensation, and similar issues. Each of the Audit Committee, the Management Development and
Compensation Committee, and the Nominating and Corporate Governance Committee of the Board of
Directors of the Company has adopted a written charter addressing various issues of importance
relating to each committee, including the committees purposes and responsibilities, an annual
performance evaluation of each committee, and similar issues. These Corporate Governance
Guidelines, and the charters of each of these committees, are available on the Companys web site
at www.martinmarietta.com.
The Company will make paper copies of its filings with the SEC, its Code of Ethics and
Standards of Conduct, its Corporate Governance Guidelines, and the charters of its key committees,
available to its shareholders free of charge upon request by writing to: Martin Marietta
Materials, Inc., Attn: Corporate Secretary, 2710 Wycliff Road, Raleigh, North Carolina 27607-3033.
The Companys Chief Executive Officer and Chief Financial Officer are required to file with
the SEC each quarter and each year certifications regarding the quality of the Companys public
disclosure of its financial condition. The annual certifications are included as Exhibits to this
Annual Report on Form 10-K. The Companys Chief Executive Officer is also required to certify to
the New York Stock Exchange each year that he is not aware of any violation by the Company of the
New York Stock Exchange corporate governance listing standards.
15
ITEM 1A. |
|
RISK FACTORS AND FORWARD-LOOKING STATEMENTS |
An investment in our common stock or debt securities involves risks and uncertainties. You
should consider the following factors carefully, in addition to the other information contained in
this Form 10-K, before deciding to purchase or otherwise trade our securities.
This Form 10-K and other written reports and oral statements made from time to time by the
Company contain statements which, to the extent they are not recitations of historical fact,
constitute forward-looking statements within the meaning of federal securities law. Investors are
cautioned that all forward-looking statements involve risks and uncertainties, and are based on
assumptions that the Company believes in good faith are reasonable, but which may be materially
different from actual results. Investors can identify these statements by the fact that they do
not relate only to historic or current facts. The words may, will, could, should,
anticipate, believe, estimate, expect, forecast, intend, outlook, plan, project,
scheduled, and similar expressions in connection with future events or future operating or
financial performance are intended to identify forward-looking statements. Any or all of the
Companys forward-looking statements in this Form 10-K and in other publications may turn out to be
wrong.
Statements and assumptions on future revenues, income and cash flows, performance, economic
trends, the outcome of litigation, regulatory compliance, and environmental remediation cost
estimates are examples of forward-looking statements. Numerous factors, including potentially the
risk factors described in this section, could affect our forward-looking statements and actual
performance.
Factors that the Company currently believes could cause its actual results to differ
materially from those in the forward-looking statements include, but are not limited to, those set
out below. In addition to the risk factors described below, we urge you to read our Managements
Discussion and Analysis of Financial Condition and Results of Operations.
Our aggregates business is cyclical and depends on activity within the construction industry.
We sell most of our aggregate products to the construction industry, so our results depend on
the strength of the construction industry. Since our business depends on construction spending,
which can be cyclical, our profits are sensitive to national, regional, and local economic
conditions. The overall economy has been hurt by mortgage security losses and the tightening
credit markets. Construction spending is affected by economic conditions, changes in interest
rates, demographic and population shifts, and changes in construction spending by federal, state,
and local governments. If economic conditions change, a recession in the construction industry may
occur and affect the demand for our aggregate products. Construction spending can also be
disrupted by terrorist activity and armed conflicts.
While our aggregate operations cover a wide geographic area, our earnings depend on the
strength of the local economies in which we operate because of the high cost to transport our
products relative to their price. If economic conditions and construction spending decline
significantly in one or more areas, particularly in our top five revenue-generating states of North
Carolina, Texas, Georgia, Iowa and South Carolina, our profitability will decrease.
16
Within the construction industry, we sell our aggregate products for use in both commercial
construction and residential construction. Commercial and residential construction levels generally
move with economic cycles; when the economy is strong, construction levels rise, and when the
economy is weak, construction levels fall. Commercial construction was mixed in 2007, with growth
slowing during the year. In some areas we saw declining commercial construction activity,
including office and retail space, as developers considered the impact of the current credit
markets on construction and development plans. Businesses facing tighter credit conditions often
find it difficult to obtain financing for capital investments. The residential construction market
declined sharply in 2007 in connection with the housing market downtown. Further, the outlook
reflects diminished demand, with recovery not expected prior to late 2009 or 2010. Approximately
12% of our aggregates shipments in 2007 were to the residential construction market.
Our aggregate products are used in public infrastructure projects, which include the
construction, maintenance, and improvement of highways, bridges, schools, prisons, and similar
projects. So our business is dependent on the level of federal, state, and local spending on these
projects. We cannot be assured of the existence, amount, and timing of appropriations for spending
on these projects. For example, while the current federal highway law passed in 2005 provides
funding of $286.4 billion for highway, transit, and highway safety programs through September 30,
2009, Congress must pass an appropriations bill each year to approve spending these funds. We
cannot be assured that Congress will pass an appropriations bill each year to approve funding at
the level authorized in the federal highway law. Similarly, each state funds its infrastructure
spending from specially allocated amounts collected from various taxes, typically gasoline taxes
and vehicle fees, along with voter-approved bond programs. Shortages in state tax revenues can
reduce the amounts spent on state infrastructure projects, even below amounts awarded under
legislative bills. Delays in state infrastructure spending can hurt our business. For example, we
expect delays in infrastructure spending in Florida, North Carolina, South Carolina, and Texas will
continue in 2008, which will limit our business growth in those states until the level and timing
of spending improves.
Our aggregates business is seasonal and subject to the weather .
Since the construction aggregates business is conducted outdoors, seasonal changes and
other weather conditions affect our business. Adverse weather conditions, including hurricanes and
tropical storms, cold weather, snow, and heavy or sustained rainfall, reduce construction activity
and the demand for our products. Adverse weather conditions also increase our costs and reduce our
production output as a result of power loss, needed plant and equipment repairs, time required to
remove water from flooded operations, and similar events. Severe drought conditions can restrict
available water supplies and restrict production. The construction aggregates business production
and shipment levels follow activity in the construction industry, which typically occur in the
spring, summer and fall. Because of the weathers effect on the construction industrys activity,
the aggregates business production and shipment levels vary by quarter. The second and third
quarters are generally the most profitable and the first quarter is generally the least profitable.
Our aggregates business depends on the availability of aggregate reserves or deposits and our
ability to mine them economically.
Our challenge is to find aggregate deposits that we can mine economically, with appropriate
permits, near either growing markets or long-haul transportation corridors that economically serve
17
growing markets. As communities have grown, they have taken up attractive quarrying locations and
have imposed restrictions on mining. We try to meet this challenge by identifying and permitting
sites prior to economic expansion, buying more land around our existing quarries to increase our
mineral reserves, developing underground mines, and developing a distribution network that
transports aggregates products by various transportation methods, including rail and water, that
allows us to transport our products longer distances than would normally be considered economical.
Our aggregates business is a capital-intensive business.
The property and machinery needed to produce our products are very expensive. Therefore, we
must have access to large amounts of cash to operate our businesses. We believe we have adequate
cash to run our businesses. Because significant portions of our operating costs are fixed in
nature, our financial results are sensitive to production volume changes.
Our businesses face many competitors.
Our businesses have many competitors, some of whom are bigger and have more resources than we
do. Some of our competitors also operate on a worldwide basis. Our results are affected by the
number of competitors in a market, the production capacity that a particular market can
accommodate, the pricing practices of other competitors, and the entry of new competitors in a
market. We also face competition for some of our products from alternative products. For example,
our magnesia specialties business may compete with other chemical products that could be used
instead of our magnesia-based products.
Our future growth may depend in part on acquiring other businesses in our industry.
We expect to continue to grow, in part, by buying other businesses. While the pace of
acquisitions has slowed considerably over the last few years, we will continue to look for
strategic businesses to acquire. In the past, we have made acquisitions to strengthen our existing
locations, expand our operations, and enter new geographic markets. We will continue to make
selective acquisitions, joint ventures, or other business arrangements we believe will help our
company. However, the continued success of our acquisition program will depend on our ability to
find and buy other attractive businesses at a reasonable price and our ability to integrate
acquired businesses into our existing operations. We cannot assume there will continue to be
attractive acquisition opportunities for sale at reasonable prices that we can successfully
integrate into our operations.
We may decide to pay all or part of the purchase price of any future acquisition with shares
of our common stock. We may also use our stock to make strategic investments in other companies to
complement and expand our operations. If we use our common stock in this way, the ownership
interests of our shareholders will be diluted and the price of our stock could fall. We operate
our businesses with the objective of maximizing the long-term shareholder return.
We acquired 62 companies from 1995 through 2002. Some of these acquisitions were more easily
integrated into our existing operations and have performed as well or better than we expected,
while others have not. We have sold underperforming and other non-strategic assets, particularly
lower margin businesses like our asphalt plants in Houston, Texas, and our road paving businesses
in Shreveport, Louisiana, and Texarkana, Arkansas.
18
Short supplies and high costs of fuel and energy affect our businesses.
Our businesses require a continued supply of diesel fuel, natural gas, coal, petroleum coke
and other energy. The financial results of these businesses have been affected at times by the
short supply or high costs of these fuels and energy. While we can contract for some fuels and
sources of energy, significant increases in costs or reduced availability of these items have and
may in the future reduce our financial results. For example, in 2007, increases in fuel prices
lowered net earnings for the aggregates business by $0.10 per diluted share when compared with 2006
fuel prices.
Changes in legal requirements and governmental policies concerning zoning, land use, the
environment, and other areas of the law, and litigation relating to these matters, affect our
businesses. Our operations expose us to the risk of material environmental liabilities.
Many federal, state, and local laws and regulations relating to zoning, land use, the
environment, health, safety, and other regulatory matters govern our operations. We take great
pride in our operations and try to remain in strict compliance at all times with all applicable
laws and regulations. Despite our extensive compliance efforts, risk of liabilities, particularly
environmental liabilities, is inherent in the operation of our businesses, as it is with our
competitors. We cannot assume that these liabilities will not negatively affect us in the future.
We are also subject to future events, including changes in existing laws or regulations or
enforcement policies, or further investigation or evaluation of the potential health hazards of
some of our products or business activities, which may result in additional compliance and other
costs. We could be forced to invest in preventive or remedial action, like pollution control
facilities, which could be substantial.
Our operations are subject to manufacturing, operating, and handling risks associated with the
products we produce and the products we use in our operations, including the related storage and
transportation of raw materials, products, hazardous substances, and wastes. We are exposed to
hazards including storage tank leaks, explosions, discharges or releases of hazardous substances,
exposure to dust, and the operation of mobile equipment and manufacturing machinery.
These risks can subject us to potentially significant liabilities relating to personal injury
or death, or property damage, and may result in civil or criminal penalties, which could hurt our
productivity or profitability. For example, from time to time we investigate and remediate
environmental contamination relating to our prior or current operations, as well as operations we
have acquired from others, and in some cases we have been or could be named as a defendant in
litigation brought by governmental agencies or private parties.
We are involved from time to time in litigation and claims arising from our operations. While
we do not believe the outcome of pending or threatened litigation will have a material adverse
effect on our operations or our financial condition, we cannot assume that an adverse outcome in a
pending or future legal action would not negatively affect us.
19
Labor disputes could disrupt operations of our businesses.
Labor unions represent 12.7% of the hourly employees of our aggregates business and 90% of the
hourly employees of our specialty products business. Our collective bargaining agreements for
employees of our magnesia specialties business at the Woodville, Ohio lime plant and the Manistee,
Michigan magnesia chemicals plant expire in June 2010 and August 2011, respectively.
Disputes with our trade unions, or the inability to renew our labor agreements, could lead to
strikes or other actions that could disrupt our businesses, raise costs, and reduce revenues and
earnings from the affected locations. We believe we have good relations with all of our employees,
including our unionized employees.
Delays or interruptions in shipping products of our businesses could affect our operations.
Transportation logistics play an important role in allowing us to supply products to our
customers, whether by truck, rail, barge, or ship. Any significant delays, disruptions, or the
non-availability of our transportation support system could negatively affect our operations. For
example, in 2005 and partially in 2006, we experienced rail transportation shortages in Texas and
parts of the southeastern region of the United States. In 2005 and 2006, following Hurricanes
Katrina and Rita, we experienced significant barge transportation problems along the Mississippi
River system.
Water levels can also affect our ability to transport our products. High water levels limit
the number of barges we can transport and can require that we use additional horsepower to tow
barges. Low water levels can reduce the amount of material we can transport in each barge. In
2007, dry weather caused low water levels and resulted in reduced tonnage that could be shipped on
a barge. Consequently, the per ton cost of transporting material was higher than normal.
The availability of rail cars and barges can also affect our ability to transport our
products. Rail cars and barges can be used to transport many different types of products. If
owners sell or lease rail cars and barges for use in other industries, we may not have enough rail
cars and barges to transport our products. Barges have become particularly scarce, since barges
are being retired faster than new barges are being built. Shipyards that build barges are
operating at capacity, so the lead time to buy or lease a new barge can extend many months. In
2005, we leased 780 additional rail cars. In 2006, we contracted to buy 50 new barges that were
delivered in 2007.
We have long-term agreements with shipping companies to provide ships to transport our
aggregate products from our Bahamas and Nova Scotia operations to various coastal ports. These
contracts have varying expiration dates ranging from 2008 to 2017 and generally contain renewal
options. Our inability to renew these agreements or enter into new ones with other shipping
companies could affect our ability to transport our products.
20
Our earnings are affected by the application of accounting standards and our critical accounting
policies, which involve subjective judgments and estimates by our management. Our estimates and
assumptions could be wrong.
The accounting standards we use in preparing our financial statements are often complex and
require that we make significant estimates and assumptions in interpreting and applying those
standards. We make critical estimates and assumptions involving accounting matters including our
stock-based compensation, our goodwill impairment testing, our expenses and cash requirements for
our pension plans, our estimated income taxes, and how we account for our property, plant and
equipment, and inventory. These estimates and assumptions involve matters that are inherently
uncertain and require our subjective and complex judgments. If we used different estimates and
assumptions or used different ways to determine these estimates, our financial results could
differ.
While we believe our estimates and assumptions are appropriate, we could be wrong.
Accordingly, our financial results could be different, either higher or lower. We urge you to read
about our critical accounting policies in our Managements Discussion and Analysis of Financial
Condition and Results of Operations.
The adoption of new accounting standards may affect our financial results.
The accounting standards we apply in preparing our financial statements are reviewed by
regulatory bodies and are changed from time to time. New or revised accounting standards could
change our financial results either positively or negatively. For example, beginning in 2006, we
were required under new accounting standards to expense the fair value of stock options we award
our management and key employees as part of their compensation. This resulted in a reduction of
our earnings and made comparisons between financial periods more difficult. We urge you to read
about our accounting policies and changes in our accounting policies in Note A of our 2007
financial statements.
We depend on the recruitment and retention of qualified personnel, and our failure to attract and
retain such personnel could affect our business.
Our success depends to a significant degree upon the continued services of our key personnel
and executive officers. Our prospects depend upon our ability to attract and retain qualified
personnel for our operations. Competition for personnel is intense, and we may not be successful
in attracting or retaining qualified personnel, which could negatively affect our business.
Disruptions in the credit markets could affect our business.
The current credit environment has negatively affected the economy, and we have considered how
it might affect our business. Demand for our products, particularly in the commercial and
residential construction markets, could decline if companies and consumers are unable to finance
construction projects or if the economic slowdown causes delays or cancellations to capital
projects. We may also have difficulty placing our commercial paper in that it may take longer than
we have recently experienced and/or may cost more. We experienced such problems in August and
September, 2007, but have not had placement problems since that time. We expect we will refinance
our $200
21
million Notes due December 2008. However, there is no guarantee we will be able to access the
capital markets at financially economical interest rates, which could negatively affect our
business.
Our specialty products business depends in part on the steel industry and the supply of reasonably
priced fuels.
Our specialty products business sells some of its products to companies in the steel
industry. While we have reduced this risk over the last few years, this business is still
dependent, in part, on the strength of the highly-cyclical steel industry. The specialty products
business also requires significant amounts of natural gas, coal, and petroleum coke, and financial
results are negatively affected by high fuel prices or shortages.
Our structural composites product line has not generated any profits since its inception.
Our structural composites product line faces many challenges before it becomes break-even or
generates a profit. We cannot ensure the future profitability of this product line.
Our articles of incorporation, bylaws, and shareholder rights plan and North Carolina law may
inhibit a change in control that you may favor.
Our articles of incorporation and bylaws, shareholder rights plan, and North Carolina law contain
provisions that may delay, deter or inhibit a future acquisition of us not approved by our board of
directors. This could occur even if our shareholders are offered an attractive value for their
shares or if many or even a majority of our shareholders believe the takeover is in their best
interest. These provisions are intended to encourage any person interested in acquiring us to
negotiate with and obtain the approval of our board of directors in connection with the
transaction. Provisions that could delay, deter, or inhibit a future acquisition include the
following:
|
|
|
a classified board of directors; |
|
|
|
|
the requirement that our shareholders may only remove directors for cause; |
|
|
|
|
specified requirements for calling special meetings of shareholders; and |
|
|
|
|
the ability of our board of directors to consider the interests of various
constituencies, including our employees, customers, and creditors and the local
community. |
In addition, we have in place a shareholder rights plan that will trigger a dilutive issuance of
common stock upon substantial purchases of our common stock by a third party that are not approved
by the board of directors.
* * * *
* * *
* * *
* * * *
Investors are also cautioned that it is not possible to predict or identify all such factors.
Consequently, the reader should not consider any such list to be a complete statement of all
potential risks or uncertainties. Other factors besides those listed may also adversely affect the
Company and may be material to the Company. The forward-looking statements in this document are
intended to be subject to the safe harbor protection provided by Sections 27A and 21E. These
forward-looking
22
statements are made as of the date hereof based on managements current expectations, and the
Company does not undertake an obligation to update such statements, whether as a result of new
information, future events, or otherwise.
For a discussion identifying some important factors that could cause actual results to vary
materially from those anticipated in the forward-looking statements, see the Companys Securities
and Exchange Commission filings, including, but not limited to, the discussion under the heading
Risk Factors and Forward-Looking Statements under Item 1A of this Form 10-K, the discussion of
Competition under Item 1 on Form 10-K, Managements Discussion and Analysis of Financial
Condition and Results of Operations under Item 7 of this Form 10-K and the 2007 Annual Report, and
Note A: Accounting Policies and Note N: Commitments and Contingencies of the Notes to
Financial Statements of the 2007 Financial Statements included under Item 8 of this Form 10-K and
the 2007 Annual Report.
ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS |
None.
Aggregates Business
As of December 31, 2007, the Company processed or shipped aggregates from 272 quarries,
underground mines, and distribution yards in 28 states and in Canada and the Bahamas, of which 98
are located on land owned by the Company free of major encumbrances, 57 are on land owned in part
and leased in part, 113 are on leased land, and 4 are on facilities neither owned nor leased, where
raw materials are removed under an agreement. The Companys aggregates reserves on the average
exceed 50 years of production, based on current levels of activity. However, certain locations may
be subject to more limited reserves and may not be able to expand. In addition, as of December 31,
2007, the Company processed and shipped ready mixed concrete and/or asphalt products from 15
properties in 3 states, of which 11 are located on land owned by the Company free of major
encumbrances and 4 are on leased land.
The Company uses various drilling methods, depending on the type of aggregate, to estimate
aggregates reserves that are economically mineable. The extent of drilling varies and depends on
whether the location is a potential new site (greensite), an existing location, or a potential
acquisition. More extensive drilling is performed for potential greensites and acquisitions, and
in rare cases the Company may rely on existing geological data or results of prior drilling by
third parties. Subsequent to drilling, selected core samples are tested for soundness, abrasion
resistance, and other physical properties relevant to the aggregates industry. If the reserves
meet the Companys standards and are economically mineable, then they are either leased or
purchased.
The Company estimates proven and probable reserves based on the results of drilling. Proven
reserves are reserves of deposits designated using closely spaced drill data, and based on that
data the reserves are believed to be relatively homogenous. Proven reserves have a certainty of
85% to 90%. Probable reserves are reserves that are inferred utilizing fewer drill holes and/or
assumptions about the economically mineable reserves based on local geology or drill results from
adjacent properties. The
23
degree of certainty for probable reserves is 70% to 75%. In determining the amount of reserves,
the Companys policy is to not include calculations that exceed certain depths, so for deposits,
such as granite, that typically continue to depths well below the ground, there may be additional
deposits that are not included in the reserve calculations. The Company also deducts reserves not
available due to property boundaries, set-backs, and plant configurations, as deemed appropriate
when estimating reserves. For additional information on the Companys assessment of reserves, see
Managements Discussion and Analysis of Financial Condition and Results of Operations Other
Financial Information Critical Accounting Policies and Estimates- Property, Plant and Equipment
under Item 7 of this Form 10-K and the 2007 Annual Report for discussion of reserves evaluation by
the Company.
Set forth in the tables below are the Companys estimates of reserves of recoverable
aggregates of suitable quality for economic extraction, shown on a state-by-state basis, and the
Companys total annual production for the last 3 years, along with the Companys estimate of years
of production available, shown on a segment-by-segment basis. The number of producing quarries
shown on the table include underground mines. The Companys reserve estimates for the last 2 years
are shown for comparison purposes on a state-by-state basis. The changes in reserve estimates at a
particular state level from year to year reflect the tonnages of reserves on locations that have
been opened or closed during the year, whether by acquisition, disposition, or otherwise;
production and sales in the normal course of business; additional reserve estimates or refinements
of the Companys existing reserve estimates; opening of additional reserves at existing locations;
the depletion of reserves at existing locations; and other factors. The Company evaluates its
reserve estimates primarily on a Company-wide, or segment-by-segment basis, and does not believe
comparisons of changes in reserve estimates on a state-by-state basis from year to year are
particularly meaningful.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
aggregate reserves |
|
|
|
|
|
|
|
|
|
|
Tonnage of Reserves |
|
Tonnage of Reserves |
|
|
|
|
|
|
|
|
|
located at an |
|
Percentage of |
|
|
|
|
|
|
|
|
for each general |
|
for each general |
|
|
|
|
|
|
|
|
|
existing quarry, |
|
aggregate reserves |
|
|
|
|
Number of |
|
type of aggregate |
|
type of aggregate |
|
Change in Tonnage |
|
and reserves not |
|
on land that has |
|
Percent of reserves |
|
|
Producing |
|
at 12/31/06 |
|
at 12/31/07 |
|
from 2006 |
|
located at an |
|
not been zoned |
|
owned and |
|
|
Quarries |
|
(Add 000) |
|
(Add 000) |
|
(Add 000) |
|
existing quarry. |
|
for quarrying. |
|
percent leased |
State |
|
2007 |
|
Hard Rock |
|
S & G |
|
Hard Rock |
|
S & G |
|
Hard Rock |
|
S & G |
|
At Quarry |
|
Not at Quarry |
|
|
|
|
|
Owned |
|
Leased |
|
Alabama |
|
|
7 |
|
|
|
46,778 |
|
|
|
12,113 |
|
|
|
87,505 |
|
|
|
11,049 |
|
|
|
40,727 |
|
|
|
(1,064 |
) |
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
42 |
% |
|
|
58 |
% |
Arkansas |
|
|
3 |
|
|
|
278,548 |
|
|
|
0 |
|
|
|
272,198 |
|
|
|
0 |
|
|
|
(6,350 |
) |
|
|
0 |
|
|
|
73 |
% |
|
|
27 |
% |
|
|
0 |
% |
|
|
25 |
% |
|
|
75 |
% |
California |
|
|
1 |
|
|
|
23,993 |
|
|
|
0 |
|
|
|
24,661 |
|
|
|
0 |
|
|
|
668 |
|
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
30 |
% |
|
|
70 |
% |
Florida |
|
|
2 |
|
|
|
122,769 |
|
|
|
0 |
|
|
|
92,013 |
|
|
|
0 |
|
|
|
(30,756 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
100 |
% |
Georgia |
|
|
9 |
|
|
|
690,960 |
|
|
|
0 |
|
|
|
686,925 |
|
|
|
0 |
|
|
|
(4,035 |
) |
|
|
0 |
|
|
|
84 |
% |
|
|
16 |
% |
|
|
0 |
% |
|
|
62 |
% |
|
|
38 |
% |
Illinois |
|
|
3 |
|
|
|
1,290,204 |
|
|
|
0 |
|
|
|
662,072 |
|
|
|
0 |
|
|
|
(628,132 |
) |
|
|
0 |
|
|
|
72 |
% |
|
|
28 |
% |
|
|
0 |
% |
|
|
9 |
% |
|
|
91 |
% |
Indiana |
|
|
11 |
|
|
|
514,724 |
|
|
|
48,566 |
|
|
|
487,149 |
|
|
|
36,625 |
|
|
|
(27,575 |
) |
|
|
(11,941 |
) |
|
|
90 |
% |
|
|
10 |
% |
|
|
15 |
% |
|
|
43 |
% |
|
|
57 |
% |
Iowa |
|
|
28 |
|
|
|
706,501 |
|
|
|
44,825 |
|
|
|
673,381 |
|
|
|
44,197 |
|
|
|
(33,120 |
) |
|
|
(628 |
) |
|
|
99 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
13 |
% |
|
|
87 |
% |
Kansas |
|
|
12 |
|
|
|
227,023 |
|
|
|
0 |
|
|
|
221,737 |
|
|
|
0 |
|
|
|
(5,286 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
35 |
% |
|
|
65 |
% |
Kentucky |
|
|
3 |
|
|
|
577,767 |
|
|
|
46,255 |
|
|
|
569,979 |
|
|
|
45,832 |
|
|
|
(7,788 |
) |
|
|
(423 |
) |
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
15 |
% |
|
|
85 |
% |
Louisiana |
|
|
1 |
|
|
|
0 |
|
|
|
1,536 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(1,536 |
) |
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
100 |
% |
Maryland |
|
|
2 |
|
|
|
98,862 |
|
|
|
0 |
|
|
|
97,460 |
|
|
|
0 |
|
|
|
(1,402 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
100 |
% |
|
|
0 |
% |
Minnesota |
|
|
2 |
|
|
|
365,195 |
|
|
|
0 |
|
|
|
348,306 |
|
|
|
0 |
|
|
|
(16,889 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
84 |
% |
|
|
16 |
% |
Mississippi |
|
|
2 |
|
|
|
0 |
|
|
|
31,492 |
|
|
|
0 |
|
|
|
92,238 |
|
|
|
0 |
|
|
|
60,746 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
100 |
% |
|
|
0 |
% |
Missouri |
|
|
9 |
|
|
|
581,551 |
|
|
|
0 |
|
|
|
526,246 |
|
|
|
0 |
|
|
|
(55,305 |
) |
|
|
0 |
|
|
|
78 |
% |
|
|
12 |
% |
|
|
0 |
% |
|
|
40 |
% |
|
|
60 |
% |
Montana |
|
|
1 |
|
|
|
50,000 |
|
|
|
0 |
|
|
|
50,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
|
|
|
|
100 |
% |
|
|
0 |
% |
Nebraska |
|
|
3 |
|
|
|
89,840 |
|
|
|
0 |
|
|
|
80,615 |
|
|
|
0 |
|
|
|
(9,225 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
24 |
% |
|
|
76 |
% |
Nevada |
|
|
3 |
|
|
|
167,624 |
|
|
|
0 |
|
|
|
161,546 |
|
|
|
0 |
|
|
|
(6,078 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
100 |
% |
North Carolina |
|
|
40 |
|
|
|
2,697,214 |
|
|
|
0 |
|
|
|
2,971,758 |
|
|
|
0 |
|
|
|
274,544 |
|
|
|
0 |
|
|
|
86 |
% |
|
|
14 |
% |
|
|
3 |
% |
|
|
68 |
% |
|
|
32 |
% |
Ohio |
|
|
14 |
|
|
|
128,396 |
|
|
|
209,171 |
|
|
|
192,315 |
|
|
|
200,111 |
|
|
|
63,919 |
|
|
|
(9,060 |
) |
|
|
72 |
% |
|
|
28 |
% |
|
|
3 |
% |
|
|
97 |
% |
|
|
3 |
% |
Oklahoma |
|
|
9 |
|
|
|
586,939 |
|
|
|
5,067 |
|
|
|
648,223 |
|
|
|
38,790 |
|
|
|
61,284 |
|
|
|
33,723 |
|
|
|
100 |
% |
|
|
|
|
|
|
0 |
% |
|
|
45 |
% |
|
|
55 |
% |
South Carolina |
|
|
5 |
|
|
|
405,452 |
|
|
|
0 |
|
|
|
411,231 |
|
|
|
0 |
|
|
|
5,779 |
|
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
19 |
% |
|
|
76 |
% |
|
|
24 |
% |
Tennessee |
|
|
1 |
|
|
|
0 |
|
|
|
14,284 |
|
|
|
0 |
|
|
|
13,769 |
|
|
|
0 |
|
|
|
(515 |
) |
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
100 |
% |
Texas |
|
|
13 |
|
|
|
1,036,996 |
|
|
|
107,802 |
|
|
|
1,128,696 |
|
|
|
113,616 |
|
|
|
91,700 |
|
|
|
5,814 |
|
|
|
63 |
% |
|
|
37 |
% |
|
|
33 |
% |
|
|
60 |
% |
|
|
40 |
% |
Virginia |
|
|
4 |
|
|
|
401,910 |
|
|
|
0 |
|
|
|
417,958 |
|
|
|
0 |
|
|
|
16,048 |
|
|
|
0 |
|
|
|
84 |
% |
|
|
16 |
% |
|
|
1 |
% |
|
|
69 |
% |
|
|
311 |
% |
Washington |
|
|
3 |
|
|
|
30,588 |
|
|
|
0 |
|
|
|
47,252 |
|
|
|
0 |
|
|
|
16,664 |
|
|
|
0 |
|
|
|
85 |
% |
|
|
15 |
% |
|
|
0 |
% |
|
|
7 |
% |
|
|
93 |
% |
West Virginia |
|
|
2 |
|
|
|
97,500 |
|
|
|
0 |
|
|
|
59,363 |
|
|
|
0 |
|
|
|
(38,137 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
20 |
% |
|
|
80 |
% |
Wisconsin |
|
|
1 |
|
|
|
3,678 |
|
|
|
0 |
|
|
|
3,147 |
|
|
|
0 |
|
|
|
(531 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
100 |
% |
Wyoming |
|
|
1 |
|
|
|
98,970 |
|
|
|
0 |
|
|
|
71,480 |
|
|
|
0 |
|
|
|
(27,490 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Total |
|
|
195 |
|
|
|
11,319,982 |
|
|
|
521,111 |
|
|
|
10,993,216 |
|
|
|
596,227 |
|
|
|
(326,766 |
) |
|
|
75,116 |
|
|
|
|
|
|
|
|
|
|
|
9 |
% |
|
|
48 |
% |
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U. S. |
|
|
2 |
|
|
|
933,568 |
|
|
|
0 |
|
|
|
923,170 |
|
|
|
0 |
|
|
|
(10,398 |
) |
|
|
0 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
97 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total |
|
|
197 |
|
|
|
12,253,550 |
|
|
|
521,111 |
|
|
|
11,916,386 |
|
|
|
596,227 |
|
|
|
(337,164 |
) |
|
|
75,116 |
|
|
|
80 |
% |
|
|
20 |
% |
|
|
8 |
% |
|
|
52 |
% |
|
|
48 |
% |
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
production |
|
|
|
Total Annual Production (in tons) |
|
|
available at |
|
|
|
(add 000) |
|
|
December 31, |
|
|
|
For year ended December 31, |
|
|
2007 |
|
Reportable Segment |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
Mideast Group |
|
|
63,420 |
|
|
|
70,939 |
|
|
|
73,210 |
|
|
|
76.9 |
|
Southeast Group |
|
|
44,710 |
|
|
|
47,729 |
|
|
|
48,194 |
|
|
|
71.2 |
|
West Group |
|
|
72,832 |
|
|
|
76,648 |
|
|
|
78,203 |
|
|
|
61.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregates
Business |
|
|
180,962 |
|
|
|
195,316 |
|
|
|
199,607 |
|
|
|
69.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Products Business
The Specialty Products business currently operates major manufacturing facilities in Manistee,
Michigan, and Woodville, Ohio. Both of these facilities are owned.
The Company leases a 185,000 square foot facility in Sparta, North Carolina, which serves as
the assembly and manufacturing hub for the structural composites product line of Martin Marietta
Composites.
Other Properties
The Companys principal corporate office, which it owns, is located in Raleigh, North
Carolina. The Company owns and leases various administrative offices for its four reportable
business segments.
The Companys principal properties, which are of varying ages and are of different
construction types, are believed to be generally in good condition, are generally well maintained,
and are generally suitable and adequate for the purposes for which they are used. During 2007, the
principal properties were believed to be utilized at average productive capacities of approximately
80% and were capable of supporting a higher level of market demand.
ITEM 3. |
|
LEGAL PROCEEDINGS |
From time to time claims of various types are asserted against the Company arising out of its
operations in the normal course of business, including claims relating to land use and permits,
safety, health, and environmental matters (such as noise abatement, blasting, vibrations, air
emissions, and water discharges). Such matters are subject to many uncertainties, and it is not
possible to determine the probable outcome of, or the amount of liability, if any, from, these
matters. In the opinion of management of the Company (which opinion is based in part upon
consideration of the opinion of counsel), it is unlikely that the outcome of these claims will have
a material adverse effect on the
26
Companys operations or its financial condition. However, there can be no assurance that an
adverse outcome in any of such litigation would not have a material adverse effect on the Company
or its operating segments.
The Company was not required to pay any penalties in 2007 for failure to disclose certain
reportable transactions under Section 6707A of the Internal Revenue Code.
See also Note N: Commitments and Contingencies of the Notes to Financial Statements of
the 2007 Financial Statements included under Item 8 of this Form 10-K and the 2007 Annual Report
and Managements Discussion and Analysis of Financial Condition and Results of Operations -
Environmental Regulation and Litigation under Item 7 of this Form 10-K and the 2007 Annual
Report.
ITEM 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to a vote of security holders during the fourth quarter of 2007.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers of Martin
Marietta Materials, Inc. as of February 15, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Assumed |
|
Other Positions and Other Business |
Name |
|
Age |
|
Present Position |
|
Present Position |
|
Experience Within the Last Five Years |
|
Stephen P. Zelnak, Jr.
|
|
|
63 |
|
|
Chairman of the
Board of Directors;
|
|
|
1997 |
|
|
President (1993-2006) |
|
|
|
|
|
|
Chief Executive Officer;
|
|
|
1993 |
|
|
|
|
|
|
|
|
|
President of Aggregates
Business;
|
|
|
1993 |
|
|
|
|
|
|
|
|
|
Chairman of Magnesia
Specialties Business
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. Howard Nye
|
|
|
45 |
|
|
President and Chief
Operating Officer
|
|
|
2006 |
|
|
Executive Vice President, Hanson
Aggregates North America (2003-2006);
President, Hanson Aggregates East
(2000-2003)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel G. Shephard
|
|
|
49 |
|
|
Executive Vice President;
Chief Executive Officer
of Magnesia Specialties
Business
|
|
2005
2005
|
|
Vice President-Business Development
and Capital Planning (2002-2005);
Senior Vice President (2004-2005);
Regional Vice President and General
Manager-MidAmerica Region (2003-2005);
President of Magnesia Specialties Business
(1999-2005);
Vice President-Marketing (2002-2004) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Philip J. Sipling
|
|
|
60 |
|
|
Executive Vice President;
Executive Vice President of
Aggregates Business
|
|
1997
1993
|
|
Chairman of Magnesia Specialties
Business (1997-2005) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce A. Vaio
|
|
|
47 |
|
|
President Martin Marietta
Materials West;
Executive Vice President
|
|
|
2006
2005 |
|
|
President Southwest Division
(1998-2006)
Senior Vice President (2002-2005) |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
Roselyn R. Bar
|
|
|
49 |
|
|
Senior Vice President;
General Counsel;
Corporate Secretary
|
|
2005
2001
1997
|
|
Vice President (2001-2005) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Anne H. Lloyd
|
|
|
46 |
|
|
Treasurer;
Senior Vice President and
Chief Financial Officer
|
|
2006
2005
|
|
Vice President and Controller
(1998-2005);
Chief Accounting Officer (1999-2006) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan T. Stewart
|
|
|
59 |
|
|
Senior Vice President,
Human Resources
|
|
|
2001 |
|
|
|
|
|
|
* |
|
Prior to his employment with the Company in 2006, Mr. Nye was Executive Vice President of Hanson
Aggregates North America, a producer of construction aggregates, since 2003. Prior to that, Mr.
Nye was President of Hanson Aggregates East from 2000 to 2003 with operating responsibility over
150 facilities in 12 states with annual revenues of more than $500 million. |
PART II
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market Information, Holders, and Dividends
The Companys Common Stock, $.01 par value, is traded on the New York Stock Exchange (NYSE)
(Symbol: MLM). Information concerning stock prices and dividends paid is included under the
caption Quarterly Performance (Unaudited) of the 2007 Annual Report, and that information is
incorporated herein by reference. There were approximately 859 holders of record of the Companys
Common Stock as of February 15, 2008. As required by Section 3.03A.12(a) of the NYSE listing
standards, the Company filed with the NYSE the certification of its Chief Executive Officer that he
is not aware of any violation by the Company of NYSE corporate governance listing standards.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required in response to this subsection of Item 5 is included in Part III,
under the heading Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters, of this Form 10-K.
28
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares that May Yet |
|
|
Total Number |
|
Average |
|
Part of Publicly |
|
be Purchased Under |
|
|
of Shares |
|
Price Paid |
|
Announced Plans or |
|
the Plans or |
Period |
|
Purchased |
|
per Share |
|
Programs(1) |
|
Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2007
October 31, 2007 |
|
|
0 |
|
|
$ |
|
|
|
|
0 |
|
|
|
5,645,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2007
November 30, 2007 |
|
|
0 |
|
|
$ |
|
|
|
|
0 |
|
|
|
5,645,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2007
December 31, 2007 |
|
|
604,127 |
|
|
$ |
132.43 |
|
|
|
604,127 |
|
|
|
5,041,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
604,127 |
|
|
$ |
132.43 |
|
|
|
604,127 |
|
|
|
5,041,871 |
|
|
|
|
(1) |
|
The Companys 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. The Company
announced in a press release dated February 22, 2006 that its Board of Directors had
authorized the repurchase of an additional 5 million shares of common stock. The Company
announced in a press release dated August 15, 2007 that its Board of Directors had authorized
the repurchase of an additional 5 million shares of common stock. |
ITEM 6. |
|
SELECTED FINANCIAL DATA |
The information required in response to this Item 6 is included under the caption Five Year
Summary of the 2007 Annual Report, and that information is incorporated herein by reference.
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following is managements discussion and analysis of certain significant factors that have
affected our consolidated financial condition and operating results during the periods included in
the accompanying consolidated financial statements and the related notes. You should read the
following discussion in conjunction with our audited consolidated financial statements and the
related notes, which are included under Item 8 of this Form 10-K.
The information required in response to this Item 7 is included under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations in the 2007
Annual Report, and that information is incorporated herein by reference, except that the
information contained under the caption Managements Discussion and Analysis of Financial
Condition and Results of OperationsOutlook 2008 in the 2007 Annual Report is not incorporated
herein by reference.
29
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information required in response to this Item 7A is included under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations-Quantitative
and Qualitative Disclosures About Market Risk of the 2007 Annual Report, and that information is
incorporated herein by reference.
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information required in response to this Item 8 is included under the caption
Consolidated Statements of Earnings, Consolidated Balance Sheets, Consolidated Statements of
Cash Flows, Consolidated Statements of Shareholders Equity, Notes to Financial Statements,
Managements Discussion and Analysis of Financial Condition and Results of Operations, and
Quarterly Performance (Unaudited) of the 2007 Annual Report, and that information is incorporated
herein by reference.
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
As of December 31, 2007, an evaluation was performed under the supervision and with the
participation of the Companys management, including the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of the design and operation of the Companys
disclosure controls and procedures and the Companys internal control over financial reporting.
Based on that evaluation, the Companys management, including the CEO and CFO, concluded that the
Companys disclosure controls and procedures were effective in ensuring that all material
information required to be disclosed is made known to them in a timely manner as of December 31,
2007 and further concluded that the Companys internal control over financial reporting was
effective in providing reasonable assurance regarding the reliability of financial reporting and
the preparation of the Companys financial statements for external purposes in accordance with
generally accepted accounting principles as of December 31, 2007.
The Companys management, including the CEO and CFO, does not expect that the Companys
control system will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented
30
by the individual acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.
The Companys management has issued its annual report on the Companys internal control over
financial reporting, which included managements assessment that the Companys internal control
over financial reporting was effective at December 31, 2007. The Companys independent registered
public accounting firm has issued an attestation report that the Companys internal control over
financial reporting was effective at December 31, 2007. Managements report on the Companys
internal controls and the attestation report of the Companys independent registered public
accounting firm are included in the 2007 Financial Statements, included under Item 8 of this Form
10-K and the 2007 Annual Report. See also Managements Discussion and Analysis of Financial
Condition and Results of Operations Internal Control and Accounting and Reporting Risk under
Item 7 of this Form 10-K and the 2007 Annual Report.
Included among the Exhibits to this Form 10-K are forms of Certifications of the Companys
CEO and CFO as required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the
Section 302 Certification). The Section 302 Certifications refer to this evaluation of the
Companys disclosure policies and procedures and internal control over financial reporting. The
information in this section should be read in conjunction with the Section 302 Certifications for a
more complete understanding of the topics presented.
ITEM 9B. |
|
OTHER INFORMATION |
None.
PART III
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information concerning directors of the Company, the Audit Committee of the Board of
Directors, and the Audit Committee financial expert serving on the Audit Committee, all as required
in response to this Item 10, is included under the captions Corporate Governance Matters and
Section 16(a) Beneficial Ownership Reporting Compliance in the Companys definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within
120 days after the close of the Companys fiscal year ended December 31, 2007 (the 2008 Proxy
Statement), and that information is hereby incorporated by reference in this Form 10-K.
Information concerning executive officers of the Company required in response to this Item 10 is
included in Part I, under the heading Executive Officers of the Registrant, of this Form 10-K.
The information concerning the Companys code of ethics required in response to this Item 10 is
included in Part I, under the heading Available Information, of this Form 10-K.
31
ITEM 11. |
|
EXECUTIVE COMPENSATION |
The information required in response to this Item 11 is included under the captions Executive
Compensation, Compensation Discussion and Analysis, Corporate Governance Matters, Management
Development and Compensation Committee Report, and Compensation Committee Interlocks and Insider
Participation in the Companys 2008 Proxy Statement, and that information, except for the
information required by Items 402(k) and (l) of Regulation S-K, is hereby incorporated by reference
in this Form 10-K.
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The information required in response to this Item 12 is included under the captions General
Information, Security Ownership of Certain Beneficial Owners and Management, and Securities
Authorized for Issuance Under Equity Compensation Plans in the Companys 2008 Proxy Statement, and
that information is hereby incorporated by reference in this Form 10-K.
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required in response to this Item 13 is included under the captions
Compensation Committee Interlocks and Insider Participation in Compensation Decisions and
Corporate Governance Matters in the Companys 2008 Proxy Statement, and that information is
hereby incorporated by reference in this Form 10-K.
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required in response to this Item 14 is included under the caption
Independent Auditors in the Companys 2008 Proxy Statement, and that information is hereby
incorporated by reference in this Form 10-K.
32
PART IV
ITEM 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a)(1) |
|
List of financial statements filed as part of this Form 10-K. |
|
|
|
The following consolidated financial statements of Martin Marietta Materials, Inc. and
consolidated subsidiaries, included in the 2007 Annual Report and incorporated by reference
under Item 8 of this Form 10-K: |
Consolidated Statements of Earnings
for years ended December 31, 2007, 2006, and 2005
Consolidated Balance Sheets
at December 31, 2007 and 2006
Consolidated Statements of Cash Flows
for years ended December 31, 2007, 2006, and 2005
Consolidated Statements of Shareholders Equity
Balance at December 31, 2007, 2006 and 2005
Notes to Financial Statements
(2) |
|
List of financial statement schedules filed as part of this Form 10-K |
|
|
|
The following financial statement schedule of Martin Marietta Materials, Inc. and
consolidated subsidiaries is included in Item 15(c) of this Form 10-K. |
|
|
|
Schedule II Valuation and Qualifying Accounts |
|
|
|
All other schedules have been omitted because they are not applicable, not required, or the
information has been otherwise supplied in the financial statements or notes to the
financial statements. |
|
|
|
The report of the Companys independent registered public accounting firm with respect to
the above-referenced financial statements is included in the 2007 Annual Report, and that
report is hereby incorporated by reference in this Form 10-K. The report on the financial
statement schedule and the consent of the Companys independent registered public accounting
firm are attached as Exhibit 23.01 to this Form 10-K. |
33
(3) |
|
Exhibits |
|
|
|
The list of Exhibits on the accompanying Index of Exhibits included in Item 15(b) of this
Form 10-K is hereby incorporated by reference. Each management contract or compensatory
plan or arrangement required to be filed as an exhibit is indicated by asterisks. |
|
(b) |
|
Index of Exhibits |
|
|
|
Exhibit |
|
|
No. |
|
|
|
|
|
3.01
|
|
Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibits 3.1 and 3.2 to
the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on October 25, 1996) (Commission File No.
1-12744) |
3.02
|
|
Articles of Amendment with Respect to the Junior Participating Class B Preferred Stock
of the Company, dated as of October 19, 2006 (incorporated by reference to Exhibit 3.1 to
the Martin Marietta Materials, Inc. Current Report on Form 8-K,
filed on October 19, 2006) (Commission File
No. 1-12744) |
3.03
|
|
Restated Bylaws of the Company (incorporated by reference to Exhibit 3.01 to the Martin Marietta
Materials, Inc. Current Report on Form 8-K, filed on November 8, 2007) (Commission File No. 1-12744) |
4.01
|
|
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.01 to the Martin
Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31,
2003) (Commission File No. 1-12744) |
4.02
|
|
Articles 2 and 8 of the Companys Restated Articles of
Incorporation, as amended (incorporated by reference to Exhibit 4.02
to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for
the fiscal year ended December 31, 1996) (Commission File No.
1-12744) |
4.03
|
|
Article I of the Companys Restated Bylaws (incorporated by reference to
Exhibit 3.01 to the Martin Marietta
Materials, Inc. Current Report on Form 8-K, filed on November 8, 2007) (Commission File No. 1-12744) |
4.04
|
|
Indenture dated as of December 1, 1995 between Martin Marietta Materials, Inc. and First
Union National Bank of North Carolina (incorporated by reference to Exhibit 4(a) to the Martin
Marietta Materials, Inc. registration statement on Form S-3 (SEC Registration No. 33-99082)) |
4.05
|
|
Form of Martin Marietta Materials, Inc. 7% Debenture due 2025 (incorporated by reference to
Exhibit 4(a)(i) to the Martin Marietta Materials, Inc. registration statement on Form S-3 (SEC
Registration No. 33-99082)) |
4.06
|
|
Form of Martin Marietta Materials, Inc. 6.9% Notes due 2007 (incorporated by reference to
Exhibit 4(a)(i) to the Martin Marietta Materials, Inc. registration statement on Form S-3 (SEC
Registration No. 33-99082)) |
4.08
|
|
Indenture dated as of December 7, 1998 between Martin Marietta Materials, Inc. and First
Union National Bank (incorporated by reference to Exhibit 4.08 to the Martin Marietta
Materials, Inc. registration statement on Form S-4 (SEC Registration No. 333-71793)) |
4.09
|
|
Form of Martin Marietta Materials, Inc. 5.875% Note due December 1, 2008 (incorporated by
reference to Exhibit 4.09 to the Martin Marietta Materials, Inc. registration statement on
Form S-4 (SEC Registration No. 333-71793)) |
4.10
|
|
Form of Martin Marietta Materials, Inc. 6.875% Note due April 1, 2011 (incorporated by
reference to Exhibit 4.12 to the Martin Marietta Materials, Inc. registration statement on
Form S-4 (SEC Registration No. 333-61454)) |
34
|
|
|
4.11
|
|
Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch
Banking and Trust Company, Inc., as trustee (incorporated by reference to Exhibit 4.1 to the
Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on April 30, 2007
(Commission File No. 1-12744) |
4.12
|
|
First Supplemental Indenture, dated as of April 30, 2007, between Martin Marietta
Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, to that certain
Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch
Banking and Trust Company, Inc., as trustee, pursuant to which were issued $225,000,000
aggregate principal amount of Floating Rate Senior Notes due 2010 of Martin Marietta
Materials, Inc. (incorporated by reference to Exhibit 4.2 to the Martin Marietta Materials,
Inc. Current Report on Form 8-K, filed on April 30, 2007 (Commission File No. 1-12744) |
4.13
|
|
Second Supplemental Indenture, dated as of April 30, 2007, between Martin Marietta
Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, to that certain
Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch
Banking and Trust Company, Inc., as trustee, pursuant to which were issued $250,000,000
aggregate principal amount of 6 1/4% Senior Notes due 2037 of Martin Marietta Materials, Inc.
(incorporated by reference to Exhibit 4.3 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, filed on April 30, 2007 (Commission File No. 1-12744) |
10.01
|
|
Rights Agreement, dated as of September 27, 2006, by and between Martin Marietta
Materials, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes
the Form of Articles of Amendment With Respect to the Junior Participating Class B Preferred
Stock of Martin Marietta Materials, Inc., as Exhibit A, and the Form of Rights Certificate, as
Exhibit B (incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form
8-K, filed on September 28, 2006) |
10.02
|
|
$250,000,000 Five-Year Credit Agreement dated as of June 30, 2005, among Martin Marietta
Materials, Inc., the banks parties thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc.
Current Report on Form 8-K, filed on June 30, 2005) (Commission File No. 1-12744) |
10.03
|
|
Extension Agreement to $250,000,000 Five-Year Credit Agreement dated as of June 2, 2006,
among Martin Marietta Materials, Inc., the banks parties thereto, and JPMorgan Chase Bank,
N.A., as Administrative Agent (incorporated by reference to Exhibit 10.03 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)
(Commission File No. 1-12744) |
10.04
|
|
Amendment to $250,000,000 Five-Year Credit Agreement dated as of April 17, 2007, among
Martin Marietta Materials, Inc., the banks parties thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.01 to the Martin Marietta
Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended March 33, 2007)
(Commission File No. 1-12744) |
10.05
|
|
Form of Martin Marietta Materials, Inc. Second Amended and Restated Employment Protection
Agreement (incorporated by reference to Exhibit 10.05 to the Martin Marietta Materials, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 2003) (Commission File No.
1-12744)** |
10.06
|
|
Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for
Directors (incorporated by reference to Exhibit 10.10 to the Martin Marietta Materials, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 1996) (Commission File No.
1-12744)** |
10.07
|
|
Amendment No. 1 to the Amended and Restated Martin Marietta Materials, Inc. Common Stock
Purchase Plan for Directors (incorporated by reference to Exhibit 10.01 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30,
2004) (Commission File No. 1-12744)** |
35
|
|
|
10.08
|
|
Martin Marietta Materials, Inc. Amended and Restated Executive Incentive Plan
(incorporated by reference to Exhibit 10.07 to the Martin Marietta Materials, Inc. Quarterly
Report on Form 10-Q for the quarter ended June 30, 2007 (Commission File No. 1-12744)** |
10.09
|
|
Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated by reference to
Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995) (Commission File No. 1-12744)** |
10.10
|
|
Amendment No. 1 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form
10-Q for the quarter ended September 30, 1997) (Commission File No. 1-12744)** |
10.11
|
|
Amendment No. 2 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.13 to the Martin Marietta Materials, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 1999) (Commission File No. 1-12744)** |
10.12
|
|
Amendment No. 3 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form
10-Q for the quarter ended June 30, 2000) (Commission File No. 1-12744)** |
10.13
|
|
Amendment No. 4 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.14 to the Martin Marietta Materials, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 2000) (Commission File No. 1-12744)** |
10.14
|
|
Amendment No. 5 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.03 to the Martin Marietta Materials, Inc. Quarterly Report on Form
10-Q for the quarter ended June 30, 2001) (Commission File No. 1-12744)** |
10.15
|
|
Amendment No. 6 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form
10-Q for the quarter ended September 30, 2003) (Commission File No. 1-12744)** |
10.16
|
|
Amendment No. 7 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.15 to the Martin Marietta Materials, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 2005) (Commission File No. 1-12744)** |
10.17
|
|
Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan dated April
3, 2006 (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc.
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006) (Commission File No.
1-12744)** |
10.18
|
|
Amended and Restated Consulting Agreement dated June 26, 2006, between Janice Henry and
Martin Marietta Materials, Inc. (incorporated by reference to Exhibit 10.02 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)
(Commission File No. 1-12744)** |
10.19
|
|
Martin Marietta Materials, Inc. Amended Omnibus Securities Award Plan (incorporated by
reference to Exhibit 10.16 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K
for the fiscal year ended December 31, 2000) (Commission File No. 1-12744)** |
10.20
|
|
Martin Marietta Materials, Inc. Supplemental Excess Retirement Plan (incorporated by
reference to Exhibit 10.16 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K
for the fiscal year ending December 31, 1999) (Commission File No. 1-12744)** |
10.21
|
|
First Amendment to Martin Marietta Materials, Inc. Supplemental Excess Retirement Plan
(incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006) (Commission File No. 1-12744)** |
10.22
|
|
Form of Option Award Agreement under the Martin Marietta Materials, Inc. Amended and
Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.01 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)
(Commission File No. 1-12744)** |
10.23
|
|
Form of Restricted Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended
and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.02 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2005) (Commission File No. 1-12744)** |
36
|
|
|
*12.01
|
|
Computation of ratio of earnings to fixed charges for the year ended December 31, 2007 |
*13.01
|
|
Excerpts from Martin Marietta Materials, Inc. 2007 Annual Report to Shareholders, portions of which are
incorporated by reference in this Form 10-K. Those portions of the 2007 Annual Report to Shareholders
that are not incorporated by reference shall not be deemed to be filed as part of this report. |
*21.01
|
|
List of subsidiaries of Martin Marietta Materials, Inc. |
*23.01
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm for Martin Marietta
Materials, Inc. and consolidated subsidiaries |
*24.01
|
|
Powers of Attorney (included in this Form 10-K immediately following Signatures) |
*31.01
|
|
Certification dated February 25, 2008 of Chief Executive Officer pursuant to Securities and Exchange Act
of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
*31.02
|
|
Certification dated February 25, 2008 of Chief Financial Officer pursuant to Securities and Exchange Act
of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
*32.01
|
|
Certification dated February 25, 2008 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
*32.02
|
|
Certification dated February 25, 2008 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Other material incorporated by reference:
|
|
Martin Marietta Materials, Inc.s 2008 Proxy Statement filed pursuant to Regulation 14A,
portions of which are incorporated by reference in this Form 10-K. Those portions of the
2008 Proxy Statement which are not incorporated by reference shall not be deemed to be
filed as part of this report. |
|
|
|
* |
|
Filed herewith |
|
** |
|
Management contract or compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K |
37
(c) |
|
Financial Statement Schedule |
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col A |
|
Col B |
|
|
Col C |
|
|
Col D |
|
|
Col E |
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
(2) |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
Charged to |
|
|
|
|
|
|
Balance at |
|
|
|
beginning |
|
|
costs and |
|
|
other accounts |
|
|
Deductions |
|
|
end of |
|
Description |
|
of period |
|
|
expenses |
|
|
describe |
|
|
describe |
|
|
period |
|
|
|
(Amounts in Thousands) |
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
4,905 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,244 |
(a) |
|
$ |
3,661 |
|
Allowance for uncollectible
notes receivable |
|
|
853 |
|
|
|
|
|
|
|
|
|
|
|
853 |
(a) |
|
|
|
|
Inventory valuation allowance |
|
|
14,221 |
|
|
|
4,915 |
|
|
|
|
|
|
|
|
|
|
|
19,136 |
|
Accumulated amortization of
intangible assets |
|
|
20,670 |
|
|
|
1,947 |
|
|
|
|
|
|
|
3,801 |
(b) |
|
|
18,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
5,545 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
640 |
(a) |
|
$ |
4,905 |
|
Allowance for uncollectible
notes receivable |
|
|
795 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
853 |
|
Inventory valuation allowance |
|
|
12,101 |
|
|
|
3,093 |
|
|
|
|
|
|
|
973 |
(d) |
|
|
14,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213 |
(c) |
|
|
|
|
Accumulated
amortization of intangible assets |
|
|
29,399 |
|
|
|
3,858 |
|
|
|
|
|
|
|
12,374 |
(b) |
|
|
20,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
6,505 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
960 |
(a) |
|
$ |
5,545 |
|
Allowance for uncollectible
notes receivable |
|
|
737 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
795 |
|
Inventory valuation allowance |
|
|
5,463 |
|
|
|
6,638 |
|
|
|
|
|
|
|
|
|
|
|
12,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,328 |
(c) |
|
|
|
|
Accumulated
amortization of intangible assets |
|
|
29,605 |
|
|
|
3,964 |
|
|
|
|
|
|
|
2,842 |
(b) |
|
|
29,399 |
|
|
|
|
(a) |
|
To adjust allowance for change in estimates. |
|
(b) |
|
Write off of fully amortized intangible assets. |
|
(c) |
|
Divestitures. |
|
(d) |
|
Write off of fully reserved inventory. |
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. |
|
|
|
|
|
|
|
By:
|
|
/s/ Roselyn R. Bar |
|
|
|
|
|
|
|
|
|
Roselyn R. Bar
Senior Vice President, General Counsel
and Corporate Secretary |
|
|
|
|
|
Dated: February 25, 2008 |
|
|
|
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below appoints
Roselyn R. Bar and M. Guy Brooks, III, jointly and severally, as his or her true and lawful
attorney-in-fact, each with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, jointly and severally, full power and authority to do and perform each in
connection therewith, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact, jointly and severally, or
their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
39
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the capacities and on the dates
indicated:
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Stephen P. Zelnak, Jr.
Stephen P. Zelnak, Jr. |
|
Chairman of the Board and
Chief Executive Officer
|
|
February 25, 2008 |
/s/ Anne H. Lloyd
Anne H. Lloyd |
|
Senior Vice President,
Chief Financial Officer and
Treasurer
|
|
February 25, 2008 |
/s/ Dana F. Guzzo
Dana F. Guzzo |
|
Vice President, Controller and
Chief Accounting Officer
|
|
February 25, 2008 |
/s/ Marcus C. Bennett
Marcus C. Bennett |
|
Director
|
|
February 25, 2008 |
/s/ Sue W. Cole
Sue W. Cole |
|
Director
|
|
February 25, 2008 |
/s/ David G. Maffucci
David G. Maffucci |
|
Director
|
|
February 25, 2008 |
/s/ William E. McDonald
William E. McDonald |
|
Director
|
|
February 25, 2008 |
/s/ Frank H. Menaker, Jr.
Frank H. Menaker, Jr. |
|
Director
|
|
February 25, 2008 |
/s/ Laree E. Perez
Laree E. Perez |
|
Director
|
|
February 25, 2008 |
40
|
|
|
|
|
Signature |
|
Title |
|
Date |
/s/ Michael J. Quillen
Michael J. Quillen |
|
Director
|
|
February 25, 2008 |
/s/ Dennis L. Rediker
Dennis L. Rediker |
|
Director
|
|
February 25, 2008 |
/s/ Richard A. Vinroot
Richard A. Vinroot |
|
Director
|
|
February 25, 2008 |
41
EXHIBITS
|
|
|
Exhibit |
|
|
No. |
|
|
3.01
|
|
Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibits 3.1 and
3.2 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on October 25, 1996) (Commission
File No. 1-12744) |
3.02
|
|
Articles of Amendment with Respect to the Junior Participating Class B Preferred Stock
of the Company, dated as of October 19, 2006 (incorporated by reference to Exhibit 3.1 to
the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on October 19, 2006) (Commission File No. 1-12744) |
3.03
|
|
Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.01 to the Martin Marietta
Materials, Inc. Current Report on Form 8-K, filed on November 8, 2007) (Commission File No. 1-12744) |
4.01
|
|
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.01 to the Martin
Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31,
2003) (Commission File No. 1-12744) |
4.02
|
|
Articles 2 and 8 of the Companys Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit
4.02 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996)
(Commission File No. 1-12744) |
4.03
|
|
Article I of the Companys Restated Bylaws, as amended
(incorporated by reference to Exhibit 4.03 to the Martin Marietta
Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996) (Commission File No. 1-12744) |
4.04
|
|
Indenture dated as of December 1, 1995 between Martin Marietta Materials, Inc. and First
Union National Bank of North Carolina (incorporated by reference to Exhibit 4(a) to the Martin
Marietta Materials, Inc. registration statement on Form S-3 (SEC Registration No. 33-99082)) |
4.05
|
|
Form of Martin Marietta Materials, Inc. 7% Debenture due 2025 (incorporated by reference to
Exhibit 4(a)(i) to the Martin Marietta Materials, Inc. registration statement on Form S-3 (SEC
Registration No. 33-99082)) |
4.06
|
|
Form of Martin Marietta Materials, Inc. 6.9% Notes due 2007 (incorporated by reference to
Exhibit 4(a)(i) to the Martin Marietta Materials, Inc. registration statement on Form S-3 (SEC
Registration No. 33-99082)) |
4.08
|
|
Indenture dated as of December 7, 1998 between Martin Marietta Materials, Inc. and First
Union National Bank (incorporated by reference to Exhibit 4.08 to the Martin Marietta
Materials, Inc. registration statement on Form S-4 (SEC Registration No. 333-71793)) |
4.09
|
|
Form of Martin Marietta Materials, Inc. 5.875% Note due December 1, 2008 (incorporated by
reference to Exhibit 4.09 to the Martin Marietta Materials, Inc. registration statement on
Form S-4 (SEC Registration No. 333-71793)) |
4.10
|
|
Form of Martin Marietta Materials, Inc. 6.875% Note due April 1, 2011 (incorporated by
reference to Exhibit 4.12 to the Martin Marietta Materials, Inc. registration statement on
Form S-4 (SEC Registration No. 333-61454)) |
4.11
|
|
Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch
Banking and Trust Company, Inc., as trustee (incorporated by reference to Exhibit 4.1 to the
Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on April 30, 2007
(Commission File No. 1-12744) |
|
|
|
4.12
|
|
First Supplemental Indenture, dated as of April 30, 2007, between Martin Marietta
Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, to that certain
Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch
Banking and Trust Company, Inc., as trustee, pursuant to which were issued $225,000,000
aggregate principal amount of Floating Rate Senior Notes due 2010 of Martin Marietta
Materials, Inc. (incorporated by reference to Exhibit 4.2 to the Martin Marietta Materials,
Inc. Current Report on Form 8-K, filed on April 30, 2007 (Commission File No. 1-12744) |
4.13
|
|
Second Supplemental Indenture, dated as of April 30, 2007, between Martin Marietta
Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, to that certain
Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch
Banking and Trust Company, Inc., as trustee, pursuant to which were issued $250,000,000
aggregate principal amount of 6 1/4% Senior Notes due 2037 of Martin Marietta Materials, Inc.
(incorporated by reference to Exhibit 4.3 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, filed on April 30, 2007 (Commission File No. 1-12744) |
10.01
|
|
Rights Agreement, dated as of September 27, 2006, by and between Martin Marietta
Materials, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes
the Form of Articles of Amendment With Respect to the Junior Participating Class B Preferred
Stock of Martin Marietta Materials, Inc., as Exhibit A, and the Form of Rights Certificate, as
Exhibit B (incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form
8-K, filed on September 28, 2006) |
10.02
|
|
$250,000,000 Five-Year Credit Agreement dated as of June 30, 2005, among Martin Marietta
Materials, Inc., the banks parties thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc.
Current Report on Form 8-K, filed on June 30, 2005) (Commission File No. 1-12744) |
10.03
|
|
Extension Agreement to $250,000,000 Five-Year Credit Agreement dated as of June 2, 2006,
among Martin Marietta Materials, Inc., the banks parties thereto, and JPMorgan Chase Bank,
N.A., as Administrative Agent (incorporated by reference to Exhibit 10.03 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)
(Commission File No. 1-12744) |
10.04
|
|
Amendment to $250,000,000 Five-Year Credit Agreement dated as of April 17, 2007, among
Martin Marietta Materials, Inc., the banks parties thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.01 to the Martin Marietta
Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended March 33, 2007)
(Commission File No. 1-12744) |
10.05
|
|
Form of Martin Marietta Materials, Inc. Second Amended and Restated Employment Protection
Agreement (incorporated by reference to Exhibit 10.05 to the Martin Marietta Materials, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 2003) (Commission File No.
1-12744)** |
10.06
|
|
Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for
Directors (incorporated by reference to Exhibit 10.10 to the Martin Marietta Materials, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 1996) (Commission File No.
1-12744)** |
10.07
|
|
Amendment No. 1 to the Amended and Restated Martin Marietta Materials, Inc. Common Stock
Purchase Plan for Directors (incorporated by reference to Exhibit 10.01 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30,
2004) (Commission File No. 1-12744)** |
10.08
|
|
Martin Marietta Materials, Inc. Amended and Restated Executive Incentive Plan
(incorporated by reference to Exhibit 10.07 to the Martin Marietta Materials, Inc. Quarterly
Report on Form 10-Q for the quarter ended June 30, 2007 (Commission File No. 1-12744)** |
|
|
|
10.09
|
|
Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated by reference to
Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995) (Commission File No. 1-12744)** |
10.10
|
|
Amendment No. 1 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form
10-Q for the quarter ended September 30, 1997) (Commission File No. 1-12744)** |
10.11
|
|
Amendment No. 2 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.13 to the Martin Marietta Materials, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 1999) (Commission File No. 1-12744)** |
10.12
|
|
Amendment No. 3 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form
10-Q for the quarter ended June 30, 2000) (Commission File No. 1-12744)** |
10.13
|
|
Amendment No. 4 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.14 to the Martin Marietta Materials, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 2000) (Commission File No. 1-12744)** |
10.14
|
|
Amendment No. 5 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.03 to the Martin Marietta Materials, Inc. Quarterly Report on Form
10-Q for the quarter ended June 30, 2001) (Commission File No. 1-12744)** |
10.15
|
|
Amendment No. 6 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form
10-Q for the quarter ended September 30, 2003) (Commission File No. 1-12744)** |
10.16
|
|
Amendment No. 7 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.15 to the Martin Marietta Materials, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 2005) (Commission File No. 1-12744)** |
10.17
|
|
Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan dated April
3, 2006 (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc.
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006) (Commission File No.
1-12744)** |
10.18
|
|
Amended and Restated Consulting Agreement dated June 26, 2006, between Janice Henry and
Martin Marietta Materials, Inc. (incorporated by reference to Exhibit 10.02 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)
(Commission File No. 1-12744)** |
10.19
|
|
Martin Marietta Materials, Inc. Amended Omnibus Securities Award Plan (incorporated by
reference to Exhibit 10.16 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K
for the fiscal year ended December 31, 2000) (Commission File No. 1-12744)** |
10.20
|
|
Martin Marietta Materials, Inc. Supplemental Excess Retirement Plan (incorporated by
reference to Exhibit 10.16 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K
for the fiscal year ending December 31, 1999) (Commission File No. 1-12744)** |
10.21
|
|
First Amendment to Martin Marietta Materials, Inc. Supplemental Excess Retirement Plan
(incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006) (Commission File No. 1-12744)** |
10.22
|
|
Form of Option Award Agreement under the Martin Marietta Materials, Inc. Amended and
Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.01 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)
(Commission File No. 1-12744)** |
10.23
|
|
Form of Restricted Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended
and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.02 to the Martin
Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)
(Commission File No. 1-12744)** |
|
|
|
*12.01
|
|
Computation of ratio of earnings to fixed charges for the year ended December 31, 2007 |
*13.01
|
|
Excerpts from Martin Marietta Materials, Inc. 2007 Annual Report to Shareholders, portions of which are incorporated
by reference in this Form 10-K. Those portions of the 2007 Annual Report to Shareholders that are not incorporated by
reference shall not be deemed to be filed as part of this report. |
*21.01
|
|
List of subsidiaries of Martin Marietta Materials, Inc. |
*23.01
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm for Martin Marietta Materials, Inc. and
consolidated subsidiaries |
*24.01
|
|
Powers of Attorney (included in this Form 10-K immediately following Signatures) |
*31.01
|
|
Certification dated February 25, 2008 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934, rule
13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
*31.02
|
|
Certification dated February 25, 2008 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934, rule
13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
*32.01
|
|
Certification dated February 25, 2008 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
*32.02
|
|
Certification dated February 25, 2008 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
Other material incorporated by reference:
|
|
Martin Marietta Materials, Inc.s 2008 Proxy Statement filed pursuant to Regulation 14A,
portions of which are incorporated by reference in this Form 10-K. Those portions of the
2008 Proxy Statement which are not incorporated by reference shall not be deemed to be
filed as part of this report. |
|
|
|
* |
|
Filed herewith |
|
** |
|
Management contract or compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K |
Exhibit 12.01
EXHIBIT 12.01
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Year Ended December 31, 2007
|
|
|
|
|
(add 000, except ratio) |
|
|
|
|
|
|
|
|
|
EARNINGS: |
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
$ |
378,580 |
|
(Earnings) of less than 50%-owned associated companies, net
|
|
|
(2,748 |
) |
Interest Expense*
|
|
|
60,893 |
|
Portion of rents representative of an interest factor
|
|
|
22,244 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings and Fixed Charges
|
|
$ |
458,969 |
|
|
|
|
|
|
FIXED CHARGES: |
|
|
|
|
|
|
|
|
|
Interest Expense*
|
|
$ |
60,893 |
|
Capitalized Interest
|
|
|
3,873 |
|
Portion of rents representative of an interest factor
|
|
|
22,244 |
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Charges
|
|
$ |
87,010 |
|
|
|
|
|
|
Ratio of Earnings to Fixed Charges
|
|
|
5.27 |
|
*Interest Expense excluded interest expense of $12 related to liabilities accrued under Financial
Accounting Standards Board Interpretation Number 48, Accounting for Uncertainty in Income Taxes, An
Interpretation of FAS 109.
Exhibit 13.01
S T A T E M E N T O F F I N A N
C I A L R E S P O N S I B I L I T Y
Shareholders
Martin Marietta Materials, Inc.
The management of Martin Marietta Materials, Inc., is responsible for the consolidated financial
statements, the related financial information contained in this 2007 Annual Report and the
establishment and maintenance of adequate internal control over financial reporting. The
consolidated balance sheets for Martin Marietta Materials, Inc., at December 31, 2007 and 2006, and
the related consolidated statements of earnings, shareholders equity and cash flows for each of
the three years in the period ended December 31, 2007, include amounts based on estimates and
judgments and have been prepared in accordance with accounting principles generally accepted in the
United States applied on a consistent basis.
A system of internal control over financial reporting is designed to provide reasonable assurance,
in a cost-effective manner, that assets are safeguarded, transactions are executed and recorded in
accordance with managements authorization, accountability for assets is maintained and financial
statements are prepared and presented fairly in accordance with accounting principles generally
accepted in the United States. Internal control systems over financial reporting have inherent
limitations and may not prevent or detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.
The Corporation operates in an environment that establishes an appropriate system of internal
control over financial reporting and ensures that the system is maintained, assessed and monitored
on a periodic basis. This internal control system includes examinations by internal audit staff and
oversight by the Audit Committee of the Board of Directors.
The Corporations management recognizes its responsibility to foster a strong ethical climate.
Management has issued written policy statements that document the Corporations business code of
ethics. The importance of ethical behavior is regularly communicated to all employees through the
distribution of the Code of Ethics and Standards of Conduct booklet and through ongoing education
and review programs designed to create a strong commitment to ethical business practices.
The Audit Committee of the Board of Directors, which consists of four independent, nonemployee
directors, meets periodically and separately with management, the independent auditors and the
internal auditors to review the activities of each. The Audit Committee meets standards established
by the Securities and Exchange Commission and the New York Stock Exchange as they relate to the
composition and practices of audit committees.
Management of Martin Marietta Materials, Inc., assessed the effectiveness of the Corporations
internal control over financial reporting as of December 31, 2007. In making this assessment,
management used the criteria set forth in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on managements
assessment under the framework in Internal Control Integrated Framework, management concluded
that the Corporations internal control over financial reporting was effective as of December 31,
2007.
The consolidated financial statements and internal control over financial reporting have been
audited by Ernst & Young LLP, an independent registered public accounting firm, whose reports
appear on the following pages.
|
|
|
|
|
![-s- Anne H. Lloyd](https://cdn.kscope.io/adca57f00a377caf7ecbbd1bc9a85004-g11819g1181902.gif) |
Stephen P. Zelnak, Jr.
|
|
Anne H. Lloyd |
Chairman, Board of Directors
|
|
Senior Vice President, |
and Chief Executive Officer
|
|
Chief Financial Officer and Treasurer |
|
|
|
February 12, 2008 |
|
|
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
six
R E P O R T
O F I N D E P E N D E N T R E G I S T E R E D
P U B L I C A C C O U N T I N G
F I R M
Board of Directors and Shareholders
Martin Marietta Materials, Inc.
We have audited Martin Marietta Materials, Inc.s internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Martin
Marietta Materials, Inc.s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Statement of Financial Responsibility. Our
responsibility is to express an opinion on the Corporations internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Martin Marietta Materials, Inc., maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Martin Marietta Materials, Inc., as of
December 31, 2007 and 2006, and the related consolidated statements of earnings, shareholders
equity and cash flows for each of the three years in the period ended December 31, 2007, of Martin
Marietta Materials, Inc., and our report dated February 12, 2008, expressed an unqualified opinion
thereon.
Raleigh, North Carolina
February 12, 2008
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
seven
R E P O R T
O F I N D E P E N D E N T R E G I S T E R E D
P U B L I C A C C O U N T I N G
F I R M
Board of Directors and Shareholders
Martin Marietta Materials, Inc.
We have audited the accompanying consolidated balance sheets of Martin Marietta Materials, Inc., as
of December 31, 2007 and 2006, and the related consolidated statements of earnings, shareholders
equity and cash flows for each of the three years in the period ended December 31, 2007. These
financial statements are the responsibility of the Corporations management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Martin Marietta Materials, Inc., at December 31,
2007 and 2006, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note A to the consolidated financial statements, in 2007,
the Corporation adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FAS 109. In 2006, the Corporation adopted
Statement of Financial Accounting Standards No. 123(R), Share-Based Payment; Statement of Financial
Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans; and Emerging Issues Task Force Issue 04-06, Accounting for Stripping Costs in
the Mining Industry.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Martin Marietta Materials, Inc.s internal control over financial reporting
as of December 31, 2007, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 12, 2008, expressed an unqualified opinion thereon.
Raleigh, North Carolina
February 12, 2008
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
eight
C O N S O L I D A T E D S T A T E M E N T S O F E A R N I N G S
for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000, except per share) |
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
Net Sales |
|
$ |
1,967,612 |
|
|
$ |
1,929,666 |
|
|
$ |
1,728,977 |
|
Freight and delivery revenues |
|
|
239,529 |
|
|
|
261,386 |
|
|
|
246,311 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,207,141 |
|
|
|
2,191,052 |
|
|
|
1,975,288 |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
1,396,649 |
|
|
|
1,404,373 |
|
|
|
1,300,042 |
|
Freight and delivery costs |
|
|
239,529 |
|
|
|
261,386 |
|
|
|
246,311 |
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
1,636,178 |
|
|
|
1,665,759 |
|
|
|
1,546,353 |
|
|
|
|
|
|
|
|
Gross Profit |
|
|
570,963 |
|
|
|
525,293 |
|
|
|
428,935 |
|
Selling, general and administrative expenses |
|
|
155,186 |
|
|
|
146,665 |
|
|
|
130,703 |
|
Research and development |
|
|
869 |
|
|
|
736 |
|
|
|
662 |
|
Other operating (income) and expenses, net |
|
|
(18,122 |
) |
|
|
(12,657 |
) |
|
|
(16,231 |
) |
|
|
|
|
|
|
|
Earnings from Operations |
|
|
433,030 |
|
|
|
390,549 |
|
|
|
313,801 |
|
Interest expense |
|
|
60,893 |
|
|
|
40,359 |
|
|
|
42,597 |
|
Other nonoperating (income) and expenses, net |
|
|
(6,443 |
) |
|
|
(2,819 |
) |
|
|
(1,483 |
) |
|
|
|
|
|
|
|
Earnings from continuing operations before taxes on income |
|
|
378,580 |
|
|
|
353,009 |
|
|
|
272,687 |
|
Taxes on income |
|
|
116,073 |
|
|
|
107,632 |
|
|
|
74,225 |
|
|
|
|
|
|
|
|
Earnings from Continuing Operations |
|
|
262,507 |
|
|
|
245,377 |
|
|
|
198,462 |
|
Gain (Loss) on discontinued operations, net of related tax
expense (benefit) of $537, $185 and $(3,073), respectively |
|
|
242 |
|
|
|
45 |
|
|
|
(5,796 |
) |
|
|
|
|
|
|
|
Net Earnings |
|
$ |
262,749 |
|
|
$ |
245,422 |
|
|
$ |
192,666 |
|
|
|
|
|
|
|
|
Net Earnings (Loss) Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic from continuing operations |
|
$ |
6.15 |
|
|
$ |
5.40 |
|
|
$ |
4.26 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
(0.12 |
) |
|
|
|
|
|
|
|
|
|
$ |
6.16 |
|
|
$ |
5.40 |
|
|
$ |
4.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted from continuing operations |
|
$ |
6.05 |
|
|
$ |
5.29 |
|
|
$ |
4.20 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
(0.12 |
) |
|
|
|
|
|
|
|
|
|
$ |
6.06 |
|
|
$ |
5.29 |
|
|
$ |
4.08 |
|
|
|
|
|
|
|
|
Reconciliation of Denominators for Basic and Diluted Earnings Per Share Computations |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
|
42,653 |
|
|
|
45,453 |
|
|
|
46,540 |
|
Effect of dilutive employee and director awards |
|
|
694 |
|
|
|
914 |
|
|
|
739 |
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding and assumed
conversions |
|
|
43,347 |
|
|
|
46,367 |
|
|
|
47,279 |
|
|
|
|
|
|
|
|
Cash Dividends Per Common Share |
|
$ |
1.24 |
|
|
$ |
1.01 |
|
|
$ |
0.86 |
|
|
|
|
|
|
|
|
The notes on pages 13 to 35
are an integral part of these financial statements.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page
nine
C O N S O L I D A T E D B A L A N C
E S H E E T S
at
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
(add 000) |
|
2007 |
|
2006 |
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20,038 |
|
|
$ |
32,282 |
|
Accounts receivable, net |
|
|
245,838 |
|
|
|
242,399 |
|
Inventories, net |
|
|
286,885 |
|
|
|
256,287 |
|
Current portion of notes receivable |
|
|
2,078 |
|
|
|
2,521 |
|
Current deferred income tax benefits |
|
|
44,285 |
|
|
|
25,317 |
|
Other current assets |
|
|
26,886 |
|
|
|
33,548 |
|
|
|
|
|
Total Current Assets |
|
|
626,010 |
|
|
|
592,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
1,433,553 |
|
|
|
1,295,491 |
|
Goodwill |
|
|
574,667 |
|
|
|
570,538 |
|
Other intangibles, net |
|
|
9,426 |
|
|
|
10,948 |
|
Noncurrent notes receivable |
|
|
8,457 |
|
|
|
10,355 |
|
Other noncurrent assets |
|
|
31,692 |
|
|
|
26,735 |
|
|
|
|
|
Total Assets |
|
$ |
2,683,805 |
|
|
$ |
2,506,421 |
|
|
|
|
|
Liabilities and
Shareholders Equity
(add 000, except parenthetical share data) |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Bank overdraft |
|
$ |
6,351 |
|
|
$ |
8,390 |
|
Accounts payable |
|
|
86,868 |
|
|
|
85,237 |
|
Accrued salaries, benefits and payroll taxes |
|
|
21,262 |
|
|
|
25,010 |
|
Pension and postretirement benefits |
|
|
9,120 |
|
|
|
6,100 |
|
Accrued insurance and other taxes |
|
|
25,123 |
|
|
|
32,297 |
|
Current maturities of long-term debt, commercial paper and line of credit |
|
|
276,136 |
|
|
|
125,956 |
|
Settlement for repurchases of common stock |
|
|
24,017 |
|
|
|
|
|
Other current liabilities |
|
|
57,739 |
|
|
|
32,082 |
|
|
|
|
|
Total Current Liabilities |
|
|
506,616 |
|
|
|
315,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
848,186 |
|
|
|
579,308 |
|
Pension, postretirement and postemployment benefits |
|
|
103,518 |
|
|
|
106,413 |
|
Noncurrent deferred income taxes |
|
|
160,902 |
|
|
|
159,094 |
|
Other noncurrent liabilities |
|
|
118,592 |
|
|
|
92,562 |
|
|
|
|
|
Total Liabilities |
|
|
1,737,814 |
|
|
|
1,252,449 |
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Common stock ($0.01 par value; 100,000,000 shares
authorized; 41,318,000 and 44,851,000 shares
outstanding at December 31, 2007 and 2006,
respectively) |
|
|
412 |
|
|
|
448 |
|
Preferred stock ($0.01 par value; 10,000,000
shares authorized; no shares outstanding) |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
50,955 |
|
|
|
147,491 |
|
Accumulated other comprehensive loss |
|
|
(37,032 |
) |
|
|
(36,051 |
) |
Retained earnings |
|
|
931,656 |
|
|
|
1,142,084 |
|
|
|
|
|
Total Shareholders
Equity |
|
|
945,991 |
|
|
|
1,253,972 |
|
|
|
|
|
Total Liabilities and Shareholders
Equity |
|
$ |
2,683,805 |
|
|
$ |
2,506,421 |
|
|
|
|
|
The notes on pages 13 to 35
are an integral part of these financial statements.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page ten
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
262,749 |
|
|
$ |
245,422 |
|
|
$ |
192,666 |
|
Adjustments to reconcile net earnings to cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
150,338 |
|
|
|
141,429 |
|
|
|
138,251 |
|
Stock-based compensation expense |
|
|
19,687 |
|
|
|
13,438 |
|
|
|
3,702 |
|
Gains on divestitures and sales of assets |
|
|
(11,259 |
) |
|
|
(7,960 |
) |
|
|
(10,670 |
) |
Deferred income taxes |
|
|
8,741 |
|
|
|
17,156 |
|
|
|
5,711 |
|
Excess tax benefits from stock-based compensation transactions |
|
|
(23,278 |
) |
|
|
(17,467 |
) |
|
|
15,337 |
|
Other items, net |
|
|
(7,723 |
) |
|
|
(4,872 |
) |
|
|
(3,768 |
) |
Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(3,315 |
) |
|
|
(17,387 |
) |
|
|
(5,424 |
) |
Inventories, net |
|
|
(31,514 |
) |
|
|
(33,681 |
) |
|
|
(10,952 |
) |
Accounts payable |
|
|
1,494 |
|
|
|
(8,208 |
) |
|
|
3,621 |
|
Other assets and liabilities, net |
|
|
29,648 |
|
|
|
10,322 |
|
|
|
(10,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
395,568 |
|
|
|
338,192 |
|
|
|
317,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(264,923 |
) |
|
|
(265,976 |
) |
|
|
(221,401 |
) |
Acquisitions, net |
|
|
(12,211 |
) |
|
|
(3,036 |
) |
|
|
(4,650 |
) |
Proceeds from divestitures and sales of assets |
|
|
21,107 |
|
|
|
30,589 |
|
|
|
37,582 |
|
Purchases of investments |
|
|
|
|
|
|
|
|
|
|
(25,000 |
) |
Proceeds from sales of investments |
|
|
|
|
|
|
25,000 |
|
|
|
|
|
Railcar construction advances |
|
|
|
|
|
|
(32,077 |
) |
|
|
|
|
Repayments of railcar construction advances |
|
|
|
|
|
|
32,077 |
|
|
|
|
|
Other investing activities, net |
|
|
|
|
|
|
|
|
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Investing Activities |
|
|
(256,027 |
) |
|
|
(213,423 |
) |
|
|
(213,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt |
|
|
471,990 |
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(125,342 |
) |
|
|
(415 |
) |
|
|
(532 |
) |
Borrowings on commercial paper and line of credit, net |
|
|
71,463 |
|
|
|
537 |
|
|
|
|
|
Debt issuance costs |
|
|
(807 |
) |
|
|
|
|
|
|
|
|
Change in bank overdraft |
|
|
(2,039 |
) |
|
|
1,100 |
|
|
|
(2,237 |
) |
Termination of interest rate swaps |
|
|
|
|
|
|
|
|
|
|
(467 |
) |
Payments on capital lease obligations |
|
|
(177 |
) |
|
|
(147 |
) |
|
|
(80 |
) |
Dividends paid |
|
|
(53,610 |
) |
|
|
(46,421 |
) |
|
|
(39,953 |
) |
Repurchases of common stock |
|
|
(551,164 |
) |
|
|
(172,888 |
) |
|
|
(178,787 |
) |
Issuances of common stock |
|
|
14,623 |
|
|
|
31,535 |
|
|
|
33,266 |
|
Excess tax benefits from stock-based compensation transactions |
|
|
23,278 |
|
|
|
17,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Financing Activities |
|
|
(151,785 |
) |
|
|
(169,232 |
) |
|
|
(188,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents |
|
|
(12,244 |
) |
|
|
(44,463 |
) |
|
|
(84,875 |
) |
Cash and Cash Equivalents, beginning of year |
|
|
32,282 |
|
|
|
76,745 |
|
|
|
161,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, end of year |
|
$ |
20,038 |
|
|
$ |
32,282 |
|
|
$ |
76,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
64,034 |
|
|
$ |
46,976 |
|
|
$ |
46,711 |
|
Cash paid for income taxes |
|
$ |
69,737 |
|
|
$ |
77,777 |
|
|
$ |
66,106 |
|
The notes on pages 13 to 35 are an integral part of these financial statements.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page eleven
|
|
|
C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S E Q U I T Y
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of |
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
Total |
|
|
|
Common |
|
|
Common |
|
|
Additional |
|
|
Comprehensive |
|
|
Retained |
|
|
Shareholders |
|
(add 000) |
|
Stock |
|
|
Stock |
|
|
Paid-In Capital(2) |
|
|
Earnings (Loss) |
|
|
Earnings |
|
|
Equity |
|
|
Balance at December 31, 2004 |
|
|
47,306 |
|
|
$ |
472 |
|
|
$ |
366,626 |
|
|
$ |
(8,970 |
) |
|
$ |
795,299 |
|
|
$ |
1,153,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192,666 |
|
|
|
192,666 |
|
Minimum pension liability, net of tax benefit of $4,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,355 |
) |
|
|
|
|
|
|
(6,355 |
) |
Comprehensive earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,953 |
) |
|
|
(39,953 |
) |
Issuances of common stock for stock award plans |
|
|
1,079 |
|
|
|
11 |
|
|
|
49,459 |
|
|
|
|
|
|
|
|
|
|
|
49,470 |
|
Repurchases of common stock |
|
|
(2,658 |
) |
|
|
(26 |
) |
|
|
(175,544 |
) |
|
|
|
|
|
|
|
|
|
|
(175,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
45,727 |
|
|
|
457 |
|
|
|
240,541 |
|
|
|
(15,325 |
) |
|
|
948,012 |
|
|
|
1,173,685 |
|
Write off of capitalized stripping costs, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,929 |
) |
|
|
(4,929 |
) |
Reclassification of stock-based
compensation liabilities to share-
holders equity for FAS 123(R) adoption |
|
|
|
|
|
|
|
|
|
|
12,339 |
|
|
|
|
|
|
|
|
|
|
|
12,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,422 |
|
|
|
245,422 |
|
Minimum pension liability, net of tax benefit of $1,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,548 |
) |
|
|
|
|
|
|
(1,548 |
) |
Foreign currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,419 |
|
|
|
|
|
|
|
2,419 |
|
Change in fair value of forward
starting interest rate swap
agreements, net of tax benefit of $772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,179 |
) |
|
|
|
|
|
|
(1,179 |
) |
Comprehensive earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications of unrecognized
actuarial losses, prior service costs
and transition assets for FAS 158
adoption, net of tax benefit of $13,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,418 |
) |
|
|
|
|
|
|
(20,418 |
) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,421 |
) |
|
|
(46,421 |
) |
Issuances of common stock
for stock award plans |
|
|
998 |
|
|
|
10 |
|
|
|
54,042 |
|
|
|
|
|
|
|
|
|
|
|
54,052 |
|
Repurchases of common stock |
|
|
(1,874 |
) |
|
|
(19 |
) |
|
|
(172,869 |
) |
|
|
|
|
|
|
|
|
|
|
(172,888 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
13,438 |
|
|
|
|
|
|
|
|
|
|
|
13,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
44,851 |
|
|
|
448 |
|
|
|
147,491 |
|
|
|
(36,051 |
) |
|
|
1,142,084 |
|
|
|
1,253,972 |
|
Increase in reserves for uncertain tax
positions for FIN 48 adoption |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,407 |
) |
|
|
(1,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262,749 |
|
|
|
262,749 |
|
Amortization of unrecognized actuarial
losses, prior service costs and transition
assets related to pension and post-
retirement benefits, net of tax benefit
of $1,085 and minority interest of $82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,592 |
) |
|
|
|
|
|
|
(1,592 |
) |
Foreign currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,831 |
|
|
|
|
|
|
|
3,831 |
|
Change in fair value of forward starting
interest rate swap agreements, net of
tax benefit of $2,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,220 |
) |
|
|
|
|
|
|
(3,220 |
) |
Comprehensive earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,610 |
) |
|
|
(53,610 |
) |
Issuances of common stock for stock award plans |
|
|
656 |
|
|
|
6 |
|
|
|
40,756 |
|
|
|
|
|
|
|
|
|
|
|
40,762 |
|
Repurchases of common stock(1) |
|
|
(4,189 |
) |
|
|
(42 |
) |
|
|
(156,979 |
) |
|
|
|
|
|
|
(418,160 |
) |
|
|
(575,181 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
19,687 |
|
|
|
|
|
|
|
|
|
|
|
19,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
41,318 |
|
|
$ |
412 |
|
|
$ |
50,955 |
|
|
$ |
(37,032 |
) |
|
$ |
931,656 |
|
|
$ |
945,991 |
|
|
|
|
|
(1) |
|
Repurchases of common stock in excess of the value of additional paid-in capital were
recorded against retained earnings. |
|
(2) |
|
Additional paid-in capital at December 31, 2007
represents the pool of excess tax benefits. |
The notes on pages 13 to 35 are an integral part of these financial statements.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page twelve
N O T E S T O F I N A N C I A L S T A T E M E N T S
Note A: Accounting Policies
Organization.
Martin Marietta Materials, Inc., (the
Corporation) is engaged principally in the
construction aggregates business. The Corporations
aggregates products, which include crushed stone, sand
and gravel, are used primarily for construction of
highways and other infrastructure projects, and in the
domestic commercial and residential construction
industries. Aggregates
products are also used in the railroad, environmental
and agricultural industries. These aggregates products,
along with asphalt products, ready mixed concrete and
road paving materials, are sold and shipped from a
network of 287 quarries, distribution facilities and
plants to customers in 31 states, Canada, the Bahamas
and the Caribbean Islands. The Aggregates Business
contains the following reportable segments: Mideast
Group, Southeast Group and West Group. The Mideast
Group operates primarily in Indiana, Maryland, North
Carolina, Ohio, South Carolina, Virginia and West
Virginia. The Southeast Group has operations in
Alabama, Florida, Georgia, Illinois, Kentucky,
Louisiana, Mississippi, Tennessee, Nova Scotia and the
Bahamas. The West Group operates in Arkansas,
California, Iowa, Kansas, Minnesota, Missouri,
Nebraska, Nevada, Oklahoma, Texas, Washington,
Wisconsin and Wyoming. The following states account for
approximately 61% of the Aggregates Business 2007 net
sales: North Carolina, Texas, Georgia, Iowa and South
Carolina.
In addition to the Aggregates Business, the Corporation
has a Specialty Products segment that produces
magnesia-based chemicals products used in industrial,
agricultural and environmental applications; dolomitic
lime sold primarily to customers in the steel industry;
and structural composite products.
Basis of Consolidation.
The consolidated financial
statements include the accounts of the Corporation and
its wholly owned and majority-owned subsidiaries.
Partially owned affiliates are either consolidated in
accordance with Financial Accounting Standards Board
Interpretation No. 46,
Consolidation of Variable Interest Entities, or
accounted for at cost or as equity investments
depending on the level of ownership interest or the
Corporations ability to exercise control over the
affiliates operations. Intercompany balances and
transactions have been eliminated in consolidation.
The Corporation is a minority member of a limited
liability company whereby the majority member is paid a
preferred annual return. The Corporation has the
ability to redeem the majority members interest after
the lapse of a specified number of years. The
Corporation consolidates the limited liability company
in its consolidated financial statements.
Use of Estimates.
The preparation of the Corporations
consolidated financial statements in conformity with
accounting principles generally accepted in the United
States requires management to make certain estimates
and assumptions. Such judgments affect the reported
amounts in the consolidated financial statements and
accompanying notes. Actual results could differ from
those estimates.
Revenue Recognition.
Revenues for product sales are
recognized when risks associated with ownership have
passed to unaffiliated customers. Typically, this
occurs when finished products are shipped. Revenues
derived
from the road paving business are recognized using the
percentage completion method. Total revenues include
sales of materials and services provided to customers,
net of discounts or allowances, if any, and include
freight and delivery charges billed to customers.
Cash and Cash Equivalents. Cash equivalents are
comprised of highly liquid instruments with original
maturities of three months or less from the date of
purchase. Additionally, at December 31, 2007, cash in
the amount of $1,132,000 was held in an unrestricted
escrow account on behalf of the Corporation and was
reported in other noncurrent assets. No cash was held
in an unrestricted escrow account at December 31, 2006.
Customer Receivables. Customer receivables are stated
at cost. The Corporation does not charge interest on
customer accounts receivable. The Corporation records
an allowance for doubtful accounts, which includes a
general reserve based on historical write offs and a
specific reserve for accounts greater than $50,000
deemed at risk. The Corporation writes off customer
receivables as bad debt expense when it becomes
apparent based upon customer facts and circumstances
that such amounts will not be collected.
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries |
|
page thirteen |
|
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
Inventories Valuation. Inventories are stated at the
lower of cost or market. Cost for finished products and
in process inventories is determined by the first-in,
first-out method.
Post-production stripping costs, which represent costs
of removing overburden and waste materials to access
mineral deposits, are recorded as a component of
inventory and recognized in cost of sales in the same
period as the revenue from the sale of the inventory.
Notes Receivable. Notes receivable are stated at cost.
The Corporation records an allowance for notes
receivable deemed uncollectible. At December 31, 2007,
there were no notes receivable deemed at risk. At
December 31, 2006, the allowance for uncollectible
notes receivable was $853,000.
Properties and Depreciation. Property, plant and
equipment are stated at cost. The estimated service
lives for property, plant and equipment are as follows:
|
|
|
Class
of Assets |
|
Range
of Service Lives |
Buildings
|
|
1 to 50 years |
Machinery & Equipment
|
|
1 to 35 years |
Land Improvements
|
|
1 to 30 years |
The Corporation begins capitalizing quarry development
costs at a point when reserves are determined to be
proven and probable, when economically mineable, as
determined by the Corporations geological and
operational staff, and when demand supports investment
in the market. Capitalization of these costs ceases
when production commences. Quarry development costs are
classified as mineral reserves.
Mineral reserves are valued at the present value of
royalty payments, using a prevailing market royalty
rate that would have been incurred if the Corporation
had leased the reserves as opposed to fee-ownership for
the life of the reserves, not to exceed twenty years.
Depreciation is computed over estimated service lives,
principally by the straight-line method. Depletion of
mineral deposits is calculated over proven and probable
reserves by the units-of-production method on a
quarry-by-quarry basis. Amortization of assets recorded
under capital leases is computed using the
straight-line method over the lesser of the life of the
lease or the assets useful lives.
Repair and Maintenance Costs. Repair and maintenance
costs that do not substantially extend the life of the
Corporations plant and equipment are expensed as
incurred.
Intangible Assets. Goodwill represents the excess
purchase price paid for acquired businesses over the
estimated fair value of identifiable assets and
liabilities. The carrying value of goodwill is
reviewed annually, as of October 1, for impairment in
accordance with the provisions of Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (FAS 142). An interim review
is performed between annual tests if facts or
circumstances indicate potential impairment. If an
impairment review indicates that the carrying value is
impaired, a charge is recorded.
The Corporations reporting units, which represent the
level at which goodwill is tested for impairment under
FAS 142, are based on its geographic regions. Goodwill
is allocated to the reporting units based on the
location of acquisitions and divestitures at the time
of consummation.
In accordance with FAS 142, leased mineral rights
acquired in a business combination that have a royalty
rate less than a prevailing market rate are recognized
as other intangible assets. The leased mineral rights
are valued at the present value of the difference
between the market royalty rate and the contractual
royalty rate over the lesser of the life of the lease,
not to exceed thirty years, or the amount of
economically mineable reserves.
Other intangibles represent amounts assigned
principally to contractual agreements and are amortized
ratably over periods based on related contractual
terms. The carrying value of other intangibles is
reviewed if facts and circumstances indicate potential
impairment. If this review
determines that the carrying value is impaired, a
charge is recorded.
Derivatives. The Corporation records derivative
instruments at fair value on its consolidated balance
sheet. At December 31, 2007 and 2006, the Corporations
derivatives were forward starting interest rate swaps,
which represent cash flow hedges. The Corporations
objective for holding these derivatives is to lock in
the interest rate related to
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|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
page fourteen |
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
a portion of the Corporations anticipated refinancing
of Notes due in 2008. In accordance with Statement of
Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (FAS
133), the fair values of these hedges are recorded as
other assets or liabilities in the consolidated balance
sheet and changes in the fair value are recorded, net
of tax, directly in shareholders equity as other
comprehensive earnings or loss. The changes in fair
value recorded as other comprehensive earnings or loss
will be charged or credited to earnings in the same
periods as interest expense is incurred on the
anticipated debt issuance.
Retirement Plans and Postretirement Benefits. The
Corporation sponsors defined benefit retirement plans
and also provides other postretirement benefits. The
Corporations defined benefit retirement plans comply
with the following principal standards: the Employee
Retirement Income Security Act of 1974, as amended
(ERISA), which, in conjunction with the Internal
Revenue Code, determines legal minimum and maximum
deductible funding requirements; and Statement of
Financial Accounting Standards No. 87, Employers
Accounting for Pensions (FAS 87), which specifies
that certain key actuarial assumptions be adjusted
annually to reflect current, rather than long-term,
trends in the economy. The Corporations other
postretirement benefits comply with Statement of
Financial Accounting Standards No. 106,
Employers Accounting for Postretirement Benefits Other
than Pensions (FAS 106), which requires the cost of
providing postretirement benefits to be recognized over
an employees service period. Further, the
Corporations defined benefit retirement plans and
other postretirement benefits comply with Statement of
Financial Accounting Standards No. 132(R), Employers
Disclosures About Pensions and Other Postretirement
Benefits (FAS 132(R)), as revised, which establishes
rules for financial reporting, and Statement of
Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FAS 87, 88, 106
and 132(R) (FAS 158).
In accordance with FAS 158, the Corporation recognizes
the funded status, defined as the difference between
the fair value of plan assets and the benefit
obligation, of its
pension plans and other postretirement benefits as an
asset or liability in the consolidated balance sheet,
with a corresponding adjustment to accumulated other
comprehensive earnings or loss, net of tax. The
adjustment to accumulated other comprehensive earnings
or loss upon adoption of FAS 158 represents the net
unrecognized actuarial gains or losses, any
unrecognized prior service costs and any unrecognized
transition obligations remaining from the initial
adoption of FAS 87 and FAS 106, all of which were
previously netted against a plans funded status in the
Corporations consolidated balance sheet pursuant to
the provisions of FAS 87 and FAS 106. These amounts
will subsequently be recognized as a component of net
periodic benefit cost pursuant to the Corporations
historical accounting policy for amortizing such
amounts. Further, actuarial gains or losses that arise
in subsequent periods are not recognized as net
periodic benefit cost in the same periods, but rather
will be recognized as a component of accumulated other
comprehensive earnings or loss. Those amounts will be
subsequently amortized and recognized as a component of
net periodic benefit cost. Finally, FAS 158 requires
an employer to measure plan assets and benefit
obligations as of the date of the employers balance
sheet. The measurement date requirement is effective
for the year ending December 31, 2008. The Corporation
currently uses an annual measurement date of November
30. Management is in the process of evaluating the
measurement date transition provisions prescribed by
FAS 158 and believes that the change to a December 31
measurement date will not have a material adverse
effect on the Corporations financial position, but
there can be no assurance.
Stock-Based Compensation. The Corporation has
stock-based compensation plans for employees and
directors. Effective January 1, 2006, the Corporation
adopted Statement of Financial Accounting Standards No.
123 (revised 2004), Share-Based Payment (FAS 123(R))
to account for these plans. FAS 123(R) requires all
forms of share-based payments to employees, including
stock options, to be recognized as compensation
expense. The compensation expense is the fair value of
the awards at the measurement date. Further, FAS 123(R)
requires compensation cost to be recognized over the
requisite service period for all awards granted
subsequent to adoption. As
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page fifteen
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
required by FAS 123(R), the Corporation continues to
recognize compensation cost over the explicit vesting
period for all unvested awards as of January 1, 2006,
with acceleration for any remaining unrecognized
compensation cost if an employee retires prior to the
end of the vesting period.
The Corporation adopted the provisions of FAS 123(R)
using the modified prospective transition method, which
recognizes stock option awards as compensation expense
for unvested awards as of January 1, 2006 and awards
granted or modified subsequent to that date. In
accordance with the modified prospective transition
method, the Corporations consolidated statements of
earnings and cash flows for the year ended December 31,
2005 have not been restated and do not include the
impact of FAS 123(R).
Under FAS 123(R), an entity may elect either the
accelerated expense recognition method or a
straight-line recognition method for awards subject to
graded vesting based on a service condition. The
Corporation elected to use the accelerated expense
recognition method for stock options issued to
employees. The accelerated recognition method requires
stock options that vest ratably to be divided into
tranches. The expense for each tranche is allocated to
its particular vesting period.
FAS 123(R) did not change the Corporations accounting
for stock-based compensation related to restricted
stock awards, incentive compensation awards and
directors fees paid in the form of common stock. The
Corporation continues to expense the fair value of
these awards based on the closing price of the
Corporations common stock on the awards respective
grant dates.
Furthermore, FAS 123(R) requires tax benefits
attributable to stock-based compensation transactions
to be classified as financing cash flows. Prior to the
adoption of FAS 123(R), the Corporation presented
excess tax benefits from stock-based compensation
transactions as an operating cash flow on its
consolidated statements of cash flows.
Prior to January 1, 2006, the Corporation accounted for
its stock-based compensation plans under the intrinsic
value method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees and Related
Interpretations.
As the Corporation granted stock options with an
exercise price equal to the market value of the stock
on the date of grant, no compensation cost for stock
options granted was recognized in net earnings as
reported in the consolidated statements of earnings
prior to adopting FAS 123(R). The following table
illustrates the effect on net earnings and earnings per
share if the Corporation had applied the fair value
recognition provisions of Statement of Financial
Accounting Standards No. 123, Accounting for
Stock-Based Compensation:
|
|
|
|
|
year ended December 31 |
|
|
|
(add 000, except per share) |
|
2005 |
|
|
Net earnings, as reported |
|
$ |
192,666 |
|
Add: Stock-based compensation expense included
in reported net earnings, net of related tax effects |
|
|
2,147 |
|
Deduct: Stock-based compensation expense
determined under fair value for all awards, net
of related tax effects |
|
|
(5,525 |
) |
|
Pro forma net earnings |
|
$ |
189,288 |
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
Basic-as reported |
|
$ |
4.14 |
|
|
Basic-pro forma |
|
$ |
4.07 |
|
|
|
|
|
|
|
Diluted-as reported |
|
$ |
4.08 |
|
|
Diluted-pro forma |
|
$ |
4.00 |
|
|
The Corporation uses the lattice valuation model to
determine the fair value of stock option awards granted
under the Corporations stock-based compensation plans.
The lattice valuation model takes into account
employees exercise patterns based on changes in the
Corporations stock price and other variables and is
considered to result in a more accurate valuation of
employee stock options. The period of time for which
options are expected to be outstanding, or expected
term of the option, is a derived output of the lattice
valuation model. The Corporation considers the
following factors when estimating the expected term of
options: vesting period of the award, expected
volatility of the underlying stock, employees ages and
external data. Other key assumptions used in
determining the fair value of the stock options awarded
in 2007, 2006 and 2005 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
Risk-free interest rate |
|
|
4.74 |
% |
|
|
4.92 |
% |
|
|
3.80 |
% |
Dividend yield |
|
|
1.10 |
% |
|
|
1.10 |
% |
|
|
1.60 |
% |
Volatility factor |
|
|
31.00 |
% |
|
|
31.20 |
% |
|
|
30.80 |
% |
Expected term |
|
6.9 years |
|
6.9 years |
|
6.3 years |
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page sixteen
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
Based on these assumptions, the weighted-average fair
value of each stock option granted was $55.94, $33.21
and $18.72 for 2007, 2006 and 2005, respectively.
The risk-free interest rate reflects the interest rate
on zero-coupon U.S. government bonds available at the
time each option was granted having a remaining life
approximately equal to the options expected life. The
dividend yield represents the dividend rate expected to
be paid over the options expected life and is based on
the Corporations
historical dividend payments and targeted dividend
pattern. The Corporations volatility factor measures
the amount by which its stock price is expected to
fluctuate during the expected life of the option and is
based on historical stock price changes. Additionally,
FAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those
estimates. The Corporation estimates forfeitures and
will ultimately recognize compensation cost only for
those stock-based awards that vest.
Environmental Matters. The Corporation accounts for
asset retirement obligations in accordance with
Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations (FAS 143)
and Related Interpretations. In accordance with FAS
143, a liability for an asset retirement obligation is
recorded at fair value in the period in which it is
incurred. The asset retirement obligation is recorded
at the acquisition date of a long-lived tangible asset
if the fair value can be reasonably estimated. A
corresponding amount is capitalized as part of the
assets carrying amount.
Further, the Corporation records an accrual for other
environmental remediation liabilities in the period in
which it is probable that a liability has been incurred
and the appropriate amounts can be estimated
reasonably. Such accruals are adjusted as further
information develops or circumstances change. These
costs are not discounted to their present value or
offset for potential insurance or other claims or
potential gains from future alternative uses for a
site.
Income Taxes. Deferred income tax assets and
liabilities on the consolidated balance sheets reflect
the net tax effects of temporary differences between
the carrying amounts of assets
and liabilities for financial reporting purposes and
the amounts used for income tax purposes, net of
valuation allowances.
Uncertain Tax Positions. Effective January 1, 2007,
the Corporation adopted Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an Interpretation of FAS 109 (FIN
48).
FIN 48 requires the recognition of a tax benefit when
it is more-likely-than-not, based on the technical
merits, that the position would be sustained upon
examination by a taxing authority. The amount to be
recognized should be measured as the largest amount of
tax benefit that is greater than 50 percent likely of
being realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant
information.
In connection with the adoption of FIN 48, the
Corporation increased its reserves for uncertain tax
positions and reduced retained earnings at January 1,
2007 by $1,407,000, primarily as a result of providing
interest accruals on uncertain temporary tax positions
related to temporary or timing differences.
The Corporation records interest accrued in relation to
unrecognized tax benefits as income tax expense.
Penalties, if incurred, are recorded as operating
expenses in the consolidated statement of earnings. At
December 31, 2007, accrued interest of $2,848,000, net
of tax benefits of $1,863,000, was recorded as a
current FIN 48 liability in the Corporations
consolidated balance sheet.
Sales Taxes. Sales taxes collected from customers are
recorded as liabilities until remitted to taxing
authorities and therefore are not reflected in the
consolidated statements of earnings.
Research and Development Costs. Research and
development costs are charged to operations as
incurred.
Start-Up Costs. Noncapital start-up costs for new
facilities and products are charged to operations as
incurred.
Comprehensive Earnings. Comprehensive earnings for the
Corporation consist of net earnings, foreign currency
translation adjustments, changes in the fair value of
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|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page seventeen
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
forward starting interest rate swap agreements, the
amortization of unrecognized amounts related to pension
and postretirement benefits and, for years prior to
2006, adjustments to the minimum pension liability.
The components of accumulated other comprehensive loss,
which is included in the Corporations consolidated
statements of shareholders equity, consist of the
following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Unrecognized amounts
related to pension and
postretirement benefits,
net of minority interest |
|
$ |
(38,883 |
) |
|
$ |
(37,291 |
) |
|
$ |
|
|
Foreign currency
translation gains |
|
|
6,250 |
|
|
|
2,419 |
|
|
|
|
|
Changes in fair value of
forward starting interest
rate swap agreements |
|
|
(4,399 |
) |
|
|
(1,179 |
) |
|
|
|
|
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
(15,325 |
) |
|
Accumulated other
comprehensive loss |
|
$ |
(37,032 |
) |
|
$ |
(36,051 |
) |
|
$ |
(15,325 |
) |
|
Unrecognized amounts related to pension and
postretirement benefits, net of minority interest, at
December 31, 2007 and 2006 are net of cumulative
noncurrent deferred tax assets of $25,484,000 and
$24,399,000, respectively. Changes in fair value of
forward starting interest rate swap agreements at
December 31, 2007 and 2006 are net of cumulative
noncurrent deferred tax assets of $2,878,000
and $772,000, respectively. The minimum pension
liability at December 31, 2005 is net of cumulative
deferred tax assets of $10,027,000.
Earnings Per Common Share. Basic earnings per common
share are based on the weighted-average number of
common shares outstanding during the year. Diluted
earnings per common share are computed assuming that
the weighted-average number of common shares is
increased by the conversion, using the treasury stock
method, of awards to be issued to employees and
nonemployee members of the Corporations Board of
Directors under certain stock-based compensation
arrangements. The diluted per-share computations
reflect a change in the number of common shares
outstanding (the denominator) to include the number
of additional shares that would have been outstanding
if the potentially dilutive common shares had been
issued. For each year presented
in the Corporations consolidated statements of
earnings, the net earnings available to common
shareholders (the numerator) is the same for both
basic and dilutive per-share computations.
Accounting Changes. In September 2006, the Financial
Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 157, Fair Value
Measurements (FAS 157). FAS 157 establishes a
framework for measuring fair value in generally
accepted accounting principles, clarifies the
definition of fair value within that framework and
expands disclosures about the use of fair value
measurements. FAS 157 applies to all accounting
pronouncements that require fair value measurements,
except for the measurement of share-based payments. FAS
157 is effective January 1, 2008 for the Corporation.
Additionally, in February 2008, the FASB issued a
statement of position delaying the effective date for
all nonfinancial assets and nonfinancial liabilities by
one year, or January 1, 2009.
In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 141 (revised 2007),
Business Combinations (FAS 141(R)), along with
Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB 51 (FAS 160). FAS
141(R) requires recognizing the full fair value of all
assets acquired, liabilities assumed and noncontrolling
minority interests in acquisitions of less than a 100%
controlling interest; expensing all acquisition-related
transaction and restructuring costs; capitalizing
in-process research and development assets acquired;
and recognizing contingent consideration obligations
and contingent gains acquired and contingent losses
assumed. FAS 160 requires the classification of
noncontrolling interests as a separate component of
shareholders equity and net earnings attributable to
noncontrolling interests as a separate line item on the
face of the income statement. FAS 141(R) and FAS 160
require prospective application for all business
combinations with acquisition dates on or after the
effective date, which is January 1, 2009 for the
Corporation. FAS 160 also requires retrospective
application of its disclosure and presentation
requirements for all periods presented. At December
31, 2007, the Corporation had minority interests of
$45,997,000.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page eighteen
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
Note
B: Intangible Assets
The following table shows the changes in goodwill, all of which relate to the Aggregates Business,
by reportable segment and in total for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mideast |
|
Southeast |
|
West |
|
|
|
|
Group |
|
Group |
|
Group |
|
Total |
(add 000) |
|
2007 |
|
Balance at
beginning of period |
|
$ |
106,757 |
|
|
$ |
60,494 |
|
|
$ |
403,287 |
|
|
$ |
570,538 |
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
5,132 |
|
|
|
5,132 |
|
Amounts
allocated to
divestitures |
|
|
|
|
|
|
|
|
|
|
(1,003 |
) |
|
|
(1,003 |
) |
Transfer of
South Carolina District |
|
|
9,229 |
|
|
|
(9,229 |
) |
|
|
|
|
|
|
|
|
|
Balance at
end of period |
|
$ |
115,986 |
|
|
$ |
51,265 |
|
|
$ |
407,416 |
|
|
$ |
574,667 |
|
|
|
(add 000) |
|
2006
|
|
Balance at
beginning of period |
|
$ |
106,757 |
|
|
$ |
60,494 |
|
|
$ |
402,012 |
|
|
$ |
569,263 |
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
202 |
|
|
|
202 |
|
Adjustments to purchase price
allocations |
|
|
|
|
|
|
|
|
|
|
1,998 |
|
|
|
1,998 |
|
Amounts
allocated to
divestitures |
|
|
|
|
|
|
|
|
|
|
(925 |
) |
|
|
(925 |
) |
|
Balance at
end of period |
|
$ |
106,757 |
|
|
$ |
60,494 |
|
|
$ |
403,287 |
|
|
$ |
570,538 |
|
|
Intangible assets subject to amortization consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Accumulated |
|
Net |
|
|
Amount |
|
Amortization |
|
Balance |
(add 000) |
|
2007 |
|
Noncompetition
agreements |
|
$ |
16,535 |
|
|
$ |
(13,174 |
) |
|
$ |
3,361 |
|
Trade names |
|
|
1,300 |
|
|
|
(1,192 |
) |
|
|
108 |
|
Use rights and other |
|
|
10,207 |
|
|
|
(4,450 |
) |
|
|
5,757 |
|
|
Total |
|
$ |
28,042 |
|
|
$ |
(18,816 |
) |
|
$ |
9,226 |
|
|
|
|
|
2006 |
|
Noncompetition
agreements |
|
$ |
16,110 |
|
|
$ |
(12,033 |
) |
|
$ |
4,077 |
|
Trade names |
|
|
1,300 |
|
|
|
(1,006 |
) |
|
|
294 |
|
Supply agreements |
|
|
900 |
|
|
|
(872 |
) |
|
|
28 |
|
Use rights and other |
|
|
13,108 |
|
|
|
(6,759 |
) |
|
|
6,349 |
|
|
Total |
|
$ |
31,418 |
|
|
$ |
(20,670 |
) |
|
$ |
10,748 |
|
|
During 2007, the Corporation acquired $425,000 of other intangibles, consisting of noncompete
agreements, which are subject to amortization. The weighted-average amortization period for these
agreements was 5 years. During 2006, the Corporation did not acquire any additional intangible
assets.
At December 31, 2007 and 2006, the Corporation had water use rights of $200,000 that are deemed to
have an indefinite life and are not being amortized.
During 2006, the Corporation wrote off a licensing agreement related to its structural composites
product line, as the asset had no future use to the Corporation. The write off, which was included
in cost of sales on the consolidated statement of earnings, reduced net earnings by approximately
$460,000, or $0.01 per diluted share.
Total amortization expense for intangible assets for the years ended December 31, 2007, 2006 and
2005 was $1,947,000, $3,858,000 and $3,964,000, respectively.
The estimated amortization expense for intangible assets for each of the next five years and
thereafter is as follows:
|
|
|
|
|
(add 000) |
|
|
|
|
|
2008 |
|
$ |
1,441 |
|
2009 |
|
|
1,119 |
|
2010 |
|
|
1,009 |
|
2011 |
|
|
1,009 |
|
2012 |
|
|
929 |
|
Thereafter |
|
|
3,719 |
|
|
Total |
|
$ |
9,226 |
|
|
Note C: Divestitures
In 2007, the Corporation disposed of or permanently shut down certain underperforming operations in
the following markets of the Aggregates business:
|
|
|
Reportable Segment |
|
Markets |
|
Mideast Group
|
|
Indiana and West Virginia |
Southeast Group
|
|
Alabama, Louisiana and Mississippi |
West Group
|
|
Iowa, Kansas and Oklahoma |
These divestitures represent discontinued operations, and, therefore, the results of their
operations through the dates of disposal and any gain or loss on disposals are included in
discontinued operations on the consolidated statements of earnings.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page nineteen
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
The discontinued operations included the following net sales, pretax loss on operations,
pretax gain or loss on disposals, income tax expense or benefit and overall net earnings or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Net sales |
|
$ |
6,256 |
|
|
$ |
17,427 |
|
|
$ |
32,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss on operations |
|
$ |
(1,966 |
) |
|
$ |
(2,825 |
) |
|
$ |
(8,423 |
) |
Pretax gain (loss) on disposals |
|
|
2,745 |
|
|
|
3,055 |
|
|
|
(446 |
) |
|
Pretax gain (loss) |
|
|
779 |
|
|
|
230 |
|
|
|
(8,869 |
) |
Income tax expense (benefit) |
|
|
537 |
|
|
|
185 |
|
|
|
(3,073 |
) |
|
Net earnings (loss) |
|
$ |
242 |
|
|
$ |
45 |
|
|
$ |
(5,796 |
) |
|
|
|
|
|
|
|
|
|
|
Note
D: Accounts Receivable, Net |
|
December 31 |
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
Customer receivables |
|
$ |
244,611 |
|
|
$ |
242,497 |
|
Other current receivables |
|
|
4,888 |
|
|
|
4,807 |
|
|
|
|
|
249,499 |
|
|
|
247,304 |
|
Less allowances |
|
|
(3,661 |
) |
|
|
(4,905 |
) |
|
Total |
|
$ |
245,838 |
|
|
$ |
242,399 |
|
|
|
|
|
|
|
|
|
|
|
Note E:
Inventories, Net |
|
|
|
|
|
|
December 31 |
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
Finished products |
|
$ |
244,568 |
|
|
$ |
213,302 |
|
Products in process and raw materials |
|
|
18,642 |
|
|
|
19,271 |
|
Supplies and expendable parts |
|
|
42,811 |
|
|
|
37,935 |
|
|
|
|
|
306,021 |
|
|
|
270,508 |
|
Less allowances |
|
|
(19,136 |
) |
|
|
(14,221 |
) |
|
Total |
|
$ |
286,885 |
|
|
$ |
256,287 |
|
|
During 2006 and 2005, the Corporation reserved certain inventories related to its structural
composites product line. The charges reduced net earnings by approximately $664,000, or $0.01 per
diluted share, for 2006, and approximately $2,877,000, or $0.06 per diluted share, for 2005.
|
|
|
|
|
|
|
|
|
Note F: Property, Plant and Equipment, Net |
|
December 31 |
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
Land and improvements |
|
$ |
430,697 |
|
|
$ |
379,925 |
|
Mineral reserves |
|
|
191,415 |
|
|
|
186,001 |
|
Buildings |
|
|
95,071 |
|
|
|
93,310 |
|
Machinery and equipment |
|
|
2,126,110 |
|
|
|
2,000,880 |
|
Construction in progress |
|
|
135,068 |
|
|
|
79,211 |
|
|
|
|
|
2,978,361 |
|
|
|
2,739,327 |
|
Less allowances for depreciation, depletion
and amortization |
|
|
(1,544,808 |
) |
|
|
(1,443,836 |
) |
|
Total |
|
$ |
1,433,553 |
|
|
$ |
1,295,491 |
|
|
At December 31, 2007 and 2006, the net carrying value of mineral reserves was $135,327,000 and
$131,249,000, respectively.
The gross asset values and related accumulated amortization for machinery and equipment recorded
under capital leases at December 31 were as follows:
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
Machinery and equipment under capital leases |
|
$ |
1,014 |
|
|
$ |
1,014 |
|
Less accumulated amortization |
|
|
(403 |
) |
|
|
(231 |
) |
|
Total |
|
$ |
611 |
|
|
$ |
783 |
|
|
Depreciation, depletion and amortization expense related to property, plant and equipment was
$147,427,000, $136,866,000 and $133,593,000 for the years ended December 31, 2007, 2006 and 2005,
respectively.
Interest cost of $3,873,000, $5,420,000 and $3,045,000 was capitalized during 2007, 2006 and 2005,
respectively.
At December 31, 2007 and 2006, $82,365,000 and $80,887,000, respectively, of the Corporations net
fixed assets were located in foreign countries, namely the Bahamas and Canada.
|
|
|
|
|
|
|
|
|
Note G:
Long-Term Debt |
|
|
|
|
|
|
December 31 |
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
6.875% Notes, due 2011 |
|
$ |
249,860 |
|
|
$ |
249,829 |
|
5.875% Notes, due 2008 |
|
|
202,066 |
|
|
|
204,224 |
|
6.9% Notes, due 2007 |
|
|
|
|
|
|
124,995 |
|
7% Debentures, due 2025 |
|
|
124,331 |
|
|
|
124,312 |
|
6.25% Senior Notes, due 2037 |
|
|
247,795 |
|
|
|
|
|
Floating rate Senior Notes, due 2010,
interest rate of 5.51% |
|
|
224,388 |
|
|
|
|
|
Commercial paper, weighted average
interest rate of 5.34% |
|
|
72,000 |
|
|
|
|
|
Line of credit, interest rate of 5.83% |
|
|
|
|
|
|
537 |
|
Acquisition notes, interest rates
ranging from 2.11% to 8.00% |
|
|
662 |
|
|
|
702 |
|
Other notes |
|
|
3,220 |
|
|
|
665 |
|
|
Total |
|
|
1,124,322 |
|
|
|
705,264 |
|
Less current maturities |
|
|
(276,136 |
) |
|
|
(125,956 |
) |
|
Long-term debt |
|
$ |
848,186 |
|
|
$ |
579,308 |
|
|
On April 25, 2007, the Corporation issued $250,000,000 of 6.25% Senior Notes due in 2037 and
$225,000,000 of Floating Rate Senior Notes due in 2010 (collectively, the Senior Notes). The
6.25% Senior Notes may be
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page
twenty
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
redeemed in whole or in part prior to their maturity at a make whole redemption price. The
Floating Rate Senior Notes bear interest at a rate equal to the three-month LIBOR (5.36% at
December 31, 2007) plus 0.15% and may not be redeemed prior to maturity. Upon a change of control
repurchase event or a downgrade in its credit ratings, the Corporation will be required to make an
offer to repurchase all outstanding Senior Notes at a price in cash equal to 101% of the principal
amount of the Senior Notes, plus any accrued and unpaid interest to, but not including, the
purchase date.
All Notes, Debentures and Senior Notes are carried net of original issue discount, which is being
amortized by the effective interest method over the life of the issue. Except for the Senior Notes,
none are redeemable prior to their respective maturity dates. The principal amount, effective
interest rate and maturity date for the Corporations Notes, Debentures and Senior Notes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Amount |
|
Effective |
|
Maturity |
|
|
(add 000) |
|
Interest Rate |
|
Date |
|
6.875% Notes |
|
$ |
249,975 |
|
|
|
6.98 |
% |
|
April 1,2011 |
5.875% Notes |
|
$ |
200,000 |
|
|
|
6.03 |
% |
|
December 1, 2008 |
7% Debentures |
|
$ |
125,000 |
|
|
|
7.12 |
% |
|
December 1, 2025 |
6.25% Senior Notes |
|
$ |
250,000 |
|
|
|
6.45 |
% |
|
April 30, 2037 |
Floating Rate
Senior Notes |
|
$ |
225,000 |
|
|
|
5.65 |
% |
|
April 30, 2010 |
The Corporation repaid its $125,000,000 6.9% Notes that matured in August 2007 with proceeds from
the April 2007 sale of the Senior Notes and issuances of commercial paper.
At December 31, 2007 and 2006, the unamortized value of terminated interest rate swaps was
$2,187,000 and $4,469,000, respectively, and was included in the carrying values of the Notes due
in 2008. The accretion of the unamortized value of terminated swaps will decrease 2008 interest
expense by $2,187,000, at which time the 5.875% Notes will mature.
In September 2006, the Corporation entered into two forward starting interest rate swap agreements
(the Swap Agreements) with a total notional amount of $150,000,000. Each of the two Swap
Agreements covers $75,000,000 of principal. The Swap Agreements locked in at 5.42% the interest
rate relative to LIBOR related to
$150,000,000 of the Corporations anticipated refinancing of its $200,000,000 5.875% Notes due in
2008. Each of the Swap Agreements provides for a single payment at its mandatory termination date,
December 1, 2008. If the LIBOR swap rate increases above 5.42% at the mandatory termination date,
the Corporation will receive a payment from each of the counterparties based on the notional amount
of each agreement over an assumed 10-year period. If the LIBOR swap rate falls below 5.42% at the
mandatory termination date, the Corporation will be obligated to make a payment to each of the
counterparties on the same basis. In accordance with FAS 133, the fair values of the Swap
Agreements are recorded as an asset or liability in the consolidated balance sheets. The change in
fair value is recorded, net of tax, directly in shareholders equity as other comprehensive
earnings/ loss. At December 31, 2007, the fair value of the Swap Agreements was a liability of
$7,277,000 and was included in other current liabilities in the Corporations consolidated balance
sheet. At December 31, 2006, the $1,951,000 fair value of the Swap Agreements was recorded in other
noncurrent liabilities. Other comprehensive earnings/ loss for the years ended December 31, 2007
and 2006 included a loss of $3,220,000 (net of a deferred tax asset of $2,106,000) and $1,179,000
(net of a deferred tax asset of $772,000), respectively, for the change in fair value of the Swap
Agreements.
The Corporation has a $250,000,000 five-year revolving credit agreement (the Credit Agreement),
which is syndicated with a group of domestic and foreign commercial banks and expires on June 30,
2011. Borrowings under the Credit Agreement are unsecured and bear interest, at the Corporations
option, at rates based upon: (1) the Eurodollar rate (as defined on the basis of LIBOR) plus basis
points related to a pricing grid; (ii) a bank base rate (as defined on the basis of a published
prime rate or the Federal Funds Rate plus 1/2 of 1%); or (iii) a competitively determined rate (as
defined on the basis of a bidding process). The Credit Agreement contains restrictive covenants
relating to the Corporations debt-to-capitalization ratio, requirements for limitations on
encumbrances and provisions that relate to certain changes in control.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page
twenty-one
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
On April 17, 2007, the Corporation entered into an amendment of the Credit Agreement, which
modified the leverage ratio covenant in the agreement. As modified, the covenant requires the
Corporations ratio of consolidated debt to consolidated earnings before interest, taxes,
depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve months (the
Ratio) to not exceed 2.75 to 1.00 as of the end of any fiscal quarter. Furthermore, the covenant
allows the Ratio to exclude debt incurred in connection with an acquisition for a period of 180
days, provided that the Ratio does not exceed 3.25 to 1.00. The Corporation was in compliance with
the Ratio at December 31, 2007.
Available borrowings under the Credit Agreement are reduced by any outstanding letters of credit
issued by the Corporation under the Credit Agreement. At December 31, 2007 and 2006, the
Corporation had $1,650,000 of outstanding letters of credit issued under the Credit Agreement. The
Corporation pays an annual loan commitment fee to the bank group. No borrowings were outstanding
under the Credit Agreement at December 31, 2007 and 2006.
The Credit Agreement supports a $250,000,000 commercial paper program, of which $72,000,000 was
outstanding at December 31, 2007. No borrowings were outstanding under the commercial paper
program at December 31, 2006.
At December 31, 2006, $537,000 was outstanding under a $10,000,000 short-term line of credit. No
amounts were outstanding under this line of credit at December 31, 2007.
Excluding the unamortized value of the terminated interest rate swaps, the Corporations long-term
debt maturities for the five years following December 31, 2007, and thereafter are:
|
|
|
|
|
(add 000) |
|
|
|
|
|
2008 |
|
$ |
273,949 |
|
2009 |
|
|
217 |
|
2010 |
|
|
224,606 |
|
2011 |
|
|
250,081 |
|
2012 |
|
|
224 |
|
Thereafter |
|
|
373,058 |
|
|
Total |
|
$ |
1,122,135 |
|
|
Note
H: Financial Instruments
In addition to publicly registered long-term notes and debentures and the Swap Agreements, the
Corporations financial instruments include temporary cash investments, accounts receivable, notes
receivable, bank overdraft and other long-term debt.
Temporary cash investments are placed with creditworthy financial institutions, primarily in money
market funds and Euro-time deposits. The Corporations cash equivalents have maturities of less
than three months. Due to the short maturity of these investments, they are carried on the
consolidated balance sheets at cost, which approximates fair value.
Customer receivables are due from a large number of customers, primarily in the construction
industry, and are dispersed across wide geographic and economic regions. However, customer
receivables are more heavily concentrated in certain states (see Note A). The estimated fair values
of customer receivables approximate their carrying amounts.
Notes receivable are primarily related to divestitures and are not publicly traded. However, using
current market interest rates, but excluding adjustments for credit worthiness, if any, management
estimates that the fair value of notes receivable approximates its carrying amount.
The bank overdraft represents the float of outstanding checks. The estimated fair value of the bank
overdraft approximates its carrying value.
The estimated fair value of the Corporations publicly registered long-term notes and debentures at
December 31, 2007 was approximately $1,050,141,000, compared with a carrying amount of
$1,046,253,000 on the consolidated balance sheet. The estimated fair value and carrying amount
exclude the impact of interest rate swaps. The fair value of this long-term debt was estimated
based on quoted market prices. The estimated fair value of other borrowings of $75,882,000 at
December 31, 2007 approximates its carrying amount.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page
twenty-two
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
The carrying values and fair values of the Corporations financial instruments at December
31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
(add 000) |
|
Carrying Value |
|
Fair Value |
|
Cash and cash equivalents |
|
$ |
20,038 |
|
|
$ |
20,038 |
|
Accounts receivable, net |
|
$ |
245,838 |
|
|
$ |
245,838 |
|
Notes receivable, net |
|
$ |
10,535 |
|
|
$ |
10,535 |
|
Bank overdraft |
|
$ |
6,351 |
|
|
$ |
6,351 |
|
Long-term debt, excluding
interest rate swaps |
|
$ |
1,122,135 |
|
|
$ |
1,126,023 |
|
Forward starting interest rate
swap agreement liabilities |
|
$ |
7,277 |
|
|
$ |
7,277 |
|
|
|
|
2006 |
|
|
|
(add 000) |
|
Carrying Value |
|
Fair Value |
|
Cash and cash equivalents |
|
$ |
32,282 |
|
|
$ |
32,282 |
|
Accounts receivable, net |
|
$ |
242,399 |
|
|
$ |
242,399 |
|
Notes receivable, net |
|
$ |
12,876 |
|
|
$ |
12,876 |
|
Bank overdraft |
|
$ |
8,390 |
|
|
$ |
8,390 |
|
Long-term debt, excluding
interest rate swaps |
|
$ |
700,795 |
|
|
$ |
724,123 |
|
Forward starting interest rate
swap agreement liabilities |
|
$ |
1,951 |
|
|
$ |
1,951 |
|
Note
I: Income Taxes
The components of the Corporations tax expense (benefit) on income from continuing operations are
as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Federal income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
96,509 |
|
|
$ |
80,520 |
|
|
$ |
55,505 |
|
Deferred |
|
|
4,416 |
|
|
|
12,767 |
|
|
|
7,610 |
|
|
Total federal income taxes |
|
|
100,925 |
|
|
|
93,287 |
|
|
|
63,115 |
|
|
State income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
14,144 |
|
|
|
9,627 |
|
|
|
12,175 |
|
Deferred |
|
|
796 |
|
|
|
3,996 |
|
|
|
(1,874 |
) |
|
Total state income taxes |
|
|
14,940 |
|
|
|
13,623 |
|
|
|
10,301 |
|
|
Foreign income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(14 |
) |
|
|
669 |
|
|
|
788 |
|
Deferred |
|
|
222 |
|
|
|
53 |
|
|
|
21 |
|
|
Total foreign income taxes |
|
|
208 |
|
|
|
722 |
|
|
|
809 |
|
|
Total provision |
|
$ |
116,073 |
|
|
$ |
107,632 |
|
|
$ |
74,225 |
|
|
For the years ended December 31, 2007, 2006 and 2005, income tax benefits attributable to
stock-based compensation transactions that were recorded to shareholders equity amounted to
$27,209,000, $24,112,000 and $15,337,000, respectively.
The Corporations effective income tax rate on continuing operations varied from the statutory
United States income tax rate because of the following permanent tax differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Statutory tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Increase (reduction) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of statutory depletion |
|
|
(6.3 |
) |
|
|
(6.4 |
) |
|
|
(8.3 |
) |
State income taxes |
|
|
2.0 |
|
|
|
1.9 |
|
|
|
2.1 |
|
Other items |
|
|
|
|
|
|
|
|
|
|
(1.6 |
) |
|
Effective tax rate |
|
|
30.7 |
% |
|
|
30.5 |
% |
|
|
27.2 |
% |
|
The principal components of the Corporations deferred tax assets and liabilities at December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Deferred Assets |
|
|
|
(Liabilities) |
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
Property, plant and equipment |
|
$ |
(192,404 |
) |
|
$ |
(187,913 |
) |
Goodwill and other intangibles |
|
|
(33,631 |
) |
|
|
(24,725 |
) |
Employee benefits |
|
|
43,918 |
|
|
|
37,426 |
|
Valuation and other reserves |
|
|
12,201 |
|
|
|
11,854 |
|
Inventories |
|
|
29,580 |
|
|
|
4,966 |
|
Net operating loss carryforwards |
|
|
7,866 |
|
|
|
7,194 |
|
Valuation allowance on deferred tax assets |
|
|
(7,405 |
) |
|
|
(6,821 |
) |
Other items, net |
|
|
(5,104 |
) |
|
|
(929 |
) |
|
Total |
|
$ |
(144,979 |
) |
|
$ |
(158,948 |
) |
|
Additionally, the Corporation had a net deferred tax asset of $28,362,000 and $25,171,000 for
certain items recorded in accumulated other comprehensive loss at December 31, 2007 and 2006,
respectively.
Deferred tax liabilities for property, plant and equipment result from accelerated depreciation
methods being used for income tax purposes as compared with the straight-line method for financial
reporting purposes.
Deferred tax liabilities related to goodwill and other intangibles reflect the cessation of
goodwill amortization for financial reporting purposes pursuant to FAS 142, while amortization
continues for income tax purposes.
Deferred tax assets for employee benefits result from the timing differences of the deductions for
pension and postretirement obligations and stock-based compensation transactions. For financial
reporting purposes, such amounts are expensed in accordance with FAS 87 and FAS 123(R),
respectively. For income tax purposes,
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page
twenty-three
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
amounts related to pension and postretirement obligations are deductible as funded. Amounts
related to stock-based compensation transactions are deductible for income tax purposes upon
vesting or exercise of the underlying award.
The Corporation had state net operating loss carryforwards of $117,832,000 and $112,720,000 at
December 31, 2007 and 2006, respectively. These losses have various expiration dates. At December
31, 2007 and 2006, respectively, the deferred tax assets associated with these losses were
$7,866,000 and $7,194,000, for which valuation allowances of $7,405,000 and $6,821,000 were
recorded.
Effective January 1, 2007, the Corporation adopted FIN 48. The following table summarizes the
Corporations FIN 48 unrecognized tax benefits, excluding interest and correlative effects, for
the year ended December 31, 2007:
|
|
|
|
|
(add 000) |
|
|
|
|
|
Unrecognized tax benefits at January 1, 2007 |
|
$ |
29,277 |
|
Gross increases tax positions in prior years |
|
|
9,954 |
|
Gross decreases tax positions in prior years |
|
|
(4,127 |
) |
Gross increases tax positions in current year |
|
|
5,246 |
|
Settlements with taxing authorities |
|
|
|
|
Lapse of statute of limitations |
|
|
(8,929 |
) |
|
Unrecognized tax benefits at December 31, 2007 |
|
$ |
31,421 |
|
|
In addition to these gross unrecognized tax benefits, the Corporations FIN 48 liability also
includes $447,000 of net federal tax benefits and other indirect benefits at December 31, 2007.
Unrecognized tax benefits of $8,074,000, net of federal tax benefits and related to interest
accruals and permanent income tax differences, would favorably affect the Corporations effective
tax rate if recognized.
The Corporations open tax years that are subject to examination are 2004 through 2007. The
Internal Revenue Service is currently auditing the Corporations consolidated federal income tax
returns for the years ended December 31, 2005 and 2004. The Corporation anticipates that it is
reasonably possible that unrecognized tax benefits may
significantly change within the next twelve months ended December 31, 2008
as a result of the settlement of the Internal Revenue Service audits for the 2004 and 2005 tax
years. The Corporation estimates that these events could result in a reasonably possible change in
unrecognized tax benefits ranging from $0 to $24,819,000.
Unrecognized tax benefits are reversed as a discrete event if an examination of applicable tax
returns is not begun by a federal or state tax authority within the statute of limitations or upon
effective settlement with federal or state tax authorities. Management believes these unrecognized
tax benefits are sufficient to cover any uncertain tax positions reviewed during any audit by
taxing authorities. For the year ended December 31, 2007, $4,781,000, or $0.11 per diluted share,
was reversed into income when the statute of limitations for federal examination of the 2003 tax
year expired. For the year ended December 31, 2006, $2,700,000, or $0.06 per diluted share, was
reversed into income when the statute of limitations for federal examination of the 2002 tax year
expired.
The American Jobs Creation Act of 2004 (the Act) created a new tax deduction related to income
from domestic (i.e., United States) production activities. This provision, when fully phased in,
will permit a deduction equal to 9 percent of a companys Qualified Production Activities Income
(QPAI) or its taxable income, whichever is lower. The deduction is further limited to the lower
of 50% of the W-2 wages attributable to domestic production activities paid by the Corporation
during the year. QPAI includes, among other things, income from domestic manufacture, production,
growth or extraction of tangible personal property. For 2005 and 2006, the deduction was equal to
3 percent of QPAI, increasing to 6 percent for 2007 through 2009, and reaching the full 9 percent
deduction in 2010. The production deduction benefit of the legislation reduced income tax expense
and increased net earnings by $4,644,000, or $0.11 per diluted share in 2007, $2,263,000, or $0.05
per diluted share, in 2006 and $2,300,000, or $0.05 per diluted share, in 2005.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page twenty-four
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
Note J: Retirement Plans, Postretirement and
Postemployment Benefits
The Corporation sponsors defined benefit retirement plans that cover substantially all employees.
Additionally, the Corporation provides other postretirement benefits for certain employees,
including medical benefits for retirees and their spouses, Medicare Part B reimbursement and
retiree life insurance. The Corporation also provides certain benefits to former or inactive
employees after employment but before retirement, such as workers compensation and disability
benefits.
The measurement date for the Corporations defined benefit plans, postretirement benefit plans and
postemployment benefit plans is November 30.
Defined
Benefit Retirement Plans. The assets of the Corporations retirement plans are held in the
Corporations Master Retirement Trust and are invested in listed stocks, bonds and cash
equivalents. Defined retirement benefits for salaried employees are based on each employees years
of service and average compensation for a specified period of time before retirement. Defined
retirement benefits for hourly employees are generally stated amounts for specified periods of
service.
The Corporation sponsors a Supplemental Excess Retirement Plan (SERP) that generally
provides for the payment of retirement benefits in excess of allowable Internal Revenue Code
limits. The SERP generally provides for a lump sum payment of vested benefits provided by the SERP.
When these benefits payments exceed the sum of the service and interest costs for the SERP during a
year, the Corporation recognizes a pro-rata portion of the SERPs unrecognized actuarial loss as
settlement expense.
The net periodic retirement benefit cost of defined benefit plans included the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Components of net periodic |
|
|
|
|
|
|
|
|
|
|
|
|
benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
12,363 |
|
|
$ |
12,225 |
|
|
$ |
10,878 |
|
Interest cost |
|
|
19,741 |
|
|
|
18,112 |
|
|
|
16,472 |
|
Expected return on assets |
|
|
(22,474 |
) |
|
|
(19,638 |
) |
|
|
(17,713 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
679 |
|
|
|
742 |
|
|
|
662 |
|
Actuarial loss |
|
|
4,473 |
|
|
|
2,860 |
|
|
|
2,100 |
|
Transition asset |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Settlement charge |
|
|
742 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
15,523 |
|
|
$ |
14,300 |
|
|
$ |
12,398 |
|
|
In addition to recognizing net periodic benefit cost of $15,523,000 for the year ended
December 31, 2007, the Corporation also recognized the following amounts in other
comprehensive earnings:
|
|
|
|
|
(add 000) |
|
|
|
|
|
Actuarial loss |
|
$ |
11,838 |
|
Amortization of: |
|
|
|
|
Prior service cost |
|
|
(679 |
) |
Actuarial loss |
|
|
(4,473 |
) |
Transition asset |
|
|
1 |
|
Settlement charge |
|
|
(742 |
) |
|
Total |
|
$ |
5,945 |
|
|
Accumulated other comprehensive loss included the following amounts that have not yet been
recognized in net periodic benefit cost at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
(add 000) |
|
Gross |
|
|
Net of tax |
|
|
Gross |
|
|
Net of tax |
|
|
Prior service cost |
|
$ |
4,859 |
|
|
$ |
2,938 |
|
|
$ |
5,606 |
|
|
$ |
3,389 |
|
Actuarial loss |
|
|
70,527 |
|
|
|
42,639 |
|
|
|
63,836 |
|
|
|
38,589 |
|
Transition asset |
|
|
(16 |
) |
|
|
(10 |
) |
|
|
(17 |
) |
|
|
(11 |
) |
|
Total |
|
$ |
75,370 |
|
|
$ |
45,567 |
|
|
$ |
69,425 |
|
|
$ |
41,967 |
|
|
The prior service cost, actuarial loss and transition asset expected to be recognized in net
periodic benefit cost during 2008 are $679,000 (net of a deferred tax asset of $269,000),
$4,006,000 (net of a deferred tax asset of $1,584,000) and $1,000, respectively, and are included
in accumulated other comprehensive loss at December 31, 2007.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
page twenty-five
N
O T E S T O F I N A N C I A L S T A
T E M E N T S ( C O N T I N U E D )
The defined benefit plans change in projected benefit obligation, change in plan
assets, funded status and amounts recognized in the Corporations consolidated balance sheets
are as follows:
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
Net projected benefit obligation at beginning of
year |
|
$ |
333,103 |
|
|
$ |
302,581 |
|
Service cost |
|
|
12,363 |
|
|
|
12,225 |
|
Interest cost |
|
|
19,741 |
|
|
|
18,112 |
|
Actuarial loss |
|
|
1,191 |
|
|
|
8,919 |
|
Plan amendments |
|
|
|
|
|
|
1,585 |
|
Gross benefits paid |
|
|
(14,395 |
) |
|
|
(10,319 |
) |
|
Net projected benefit obligation at end of year |
|
$ |
352,003 |
|
|
$ |
333,103 |
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of
year |
|
$ |
275,044 |
|
|
$ |
242,859 |
|
Actual return on plan assets, net |
|
|
11,839 |
|
|
|
30,329 |
|
Employer contributions |
|
|
15,275 |
|
|
|
12,175 |
|
Gross benefits paid |
|
|
(14,395 |
) |
|
|
(10,319 |
) |
|
Fair value of plan assets at end of year |
|
$ |
287,763 |
|
|
$ |
275,044 |
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
Funded status of the plan at end of year |
|
$ |
(64,240 |
) |
|
$ |
(58,059 |
) |
Employer contributions subsequent to
measurement date |
|
|
4 |
|
|
|
2 |
|
|
Net accrued benefit cost |
|
$ |
(64,236 |
) |
|
$ |
(58,057 |
) |
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
Amounts recognized in consolidated balance sheets consist of: |
|
|
|
|
|
|
|
|
Current liability |
|
$ |
(4,120 |
) |
|
$ |
(2,100 |
) |
Noncurrent liability |
|
|
(60,116 |
) |
|
|
(55,957 |
) |
|
Net amount recognized at end of year |
|
$ |
(64,236 |
) |
|
$ |
(58,057 |
) |
|
The accumulated benefit obligation for all defined benefit pension plans was $313,592,000 and
$296,817,000 at December 31, 2007 and 2006, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets
for pension plans with accumulated benefit obligations in excess of plan assets were
$351,339,000, $313,592,000 and $287,076,000, respectively, at December 31, 2007 and
$333,103,000, $296,817,000 and $274,429,000, respectively, at December 31, 2006.
Weighted-average assumptions used to determine benefit obligations as of December 31 are:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
Discount rate |
|
|
6.09 |
% |
|
|
5.70 |
% |
Rate of increase in future compensation levels |
|
|
5.00 |
% |
|
|
5.00 |
% |
Weighted-average assumptions used to determine net periodic retirement benefit cost for years ended
December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
Discount rate |
|
|
5.70 |
% |
|
|
5.83 |
% |
|
|
6.00 |
% |
Rate of increase in future
compensation levels |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Expected long-term rate of
return on assets |
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
8.25 |
% |
The Corporations expected long-term rate of return on assets is based on a building-block
approach, whereby the components are weighted based on the allocation of pension plan assets.
At December 31, 2007 and 2006, the Corporation used the RP 2000 Mortality Table to estimate the
remaining lives of participants in the pension plans.
The pension plan asset allocation at December 31, 2007 and 2006 and target allocation for 2008 by
asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets |
|
|
|
|
|
|
December 31 |
|
|
Target |
|
|
|
|
Asset Category |
|
Allocation |
|
2007 |
|
2006 |
|
Equity securities |
|
|
60 |
% |
|
|
59 |
% |
|
|
62 |
% |
Debt securities |
|
|
39 |
% |
|
|
39 |
% |
|
|
37 |
% |
Cash |
|
|
1 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
The Corporations investment strategy for pension plan assets is for approximately two-thirds of
the equity investments to be invested in large capitalization funds. The remaining third of the
equity investments is invested in small capitalization and international funds. Fixed income
investments are invested in funds with the objective of exceeding the return of the Lehman
Brothers Aggregate Bond Index.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page twenty-six
|
|
|
N
O T E S T O F I N A N C I A L S T A
T E M E N T S ( C O N T I N U E D )
In 2007, the Corporation made pension contributions of $15,275,000, of which $12,042,000 was
voluntary. The Corporations 2006 contribution of $12,175,000 was also voluntary. The
Corporations estimate of contributions to its pension and SERP plans in 2008 is approximately
$17,000,000, of which $12,000,000 is voluntary.
The expected benefit payments to be paid from plan assets for each of the next five years and the
five-year period thereafter are as follows:
|
|
|
|
|
(add 000) |
|
|
|
|
|
2008 |
|
$ |
16,739 |
|
2009 |
|
$ |
17,986 |
|
2010 |
|
$ |
19,513 |
|
2011 |
|
$ |
21,374 |
|
2012 |
|
$ |
23,141 |
|
Years 2013-2017 |
|
$ |
120,614 |
|
Postretirement
Benefits. The net periodic postretirement benefit cost of postretirement plans
included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
2005 |
|
Components of net periodic benefit
cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
639 |
|
|
$ |
551 |
|
|
$ |
567 |
|
Interest cost |
|
|
2,802 |
|
|
|
2,677 |
|
|
|
2,978 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
|
(1,294 |
) |
|
|
(1,294 |
) |
|
|
(1,294 |
) |
Actuarial gain |
|
|
(95 |
) |
|
|
(238 |
) |
|
|
(147 |
) |
|
Total net periodic benefit cost |
|
$ |
2,052 |
|
|
$ |
1,696 |
|
|
$ |
2,104 |
|
|
In addition to recognizing net periodic benefit cost of $2,052,000 for the year ended December 31,
2007, the Corporation also recognized the following amounts in other comprehensive earnings:
|
|
|
|
|
(add 000) |
|
Actuarial gain |
|
$ |
(2,994 |
) |
Prior service credit |
|
|
(1,581 |
) |
Amortization of: |
|
|
|
|
Prior
Service Credit |
|
|
1,294 |
|
Actuarial gain |
|
|
95 |
|
|
Total |
|
$ |
(3,186 |
) |
|
Accumulated other comprehensive loss included the following amounts that have not yet been
recognized in net periodic benefit cost at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
|
(add 000) |
|
Gross |
|
Net of tax |
|
Gross |
|
Net of tax |
|
Prior service credit |
|
$ |
(11,317 |
) |
|
$ |
(6,841 |
) |
|
$ |
(11,030 |
) |
|
$ |
(6,668 |
) |
Actuarial loss |
|
|
396 |
|
|
|
239 |
|
|
|
3,295 |
|
|
|
1,992 |
|
|
Total |
|
$ |
(10,921 |
) |
|
$ |
(6,602 |
) |
|
$ |
(7,735 |
) |
|
$ |
(4,676 |
) |
|
The prior service credit and actuarial gain expected to be recognized in net periodic benefit cost
during 2008 are $1,490,000 and $138,000, respectively, and are included in accumulated other
comprehensive loss. At December 31, 2007, the prior service credit and actuarial loss components
recorded in accumulated other comprehensive loss were net of deferred tax liabilities of $589,000
and $55,000, respectively.
The postretirement health care plans change in benefit obligation, change in plan assets, funded
status and amounts recognized in the Corporations consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Net benefit obligation at
beginning of year |
|
$ |
53,316 |
|
|
$ |
51,613 |
|
Service cost |
|
|
639 |
|
|
|
551 |
|
Interest cost |
|
|
2,802 |
|
|
|
2,677 |
|
Participants contributions |
|
|
1,350 |
|
|
|
767 |
|
Actuarial (gain) loss |
|
|
(4,345 |
) |
|
|
2,548 |
|
Plan amendments |
|
|
(1,581 |
) |
|
|
|
|
Gross benefits paid |
|
|
(5,317 |
) |
|
|
(5,480 |
) |
Federal subsidy on benefits paid |
|
|
395 |
|
|
|
640 |
|
|
Net benefit obligation at end of year |
|
$ |
47,259 |
|
|
$ |
53,316 |
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of year |
|
$ |
|
|
|
$ |
|
|
Employer contributions |
|
|
3,572 |
|
|
|
4,073 |
|
Participants contributions |
|
|
1,350 |
|
|
|
767 |
|
Gross benefits paid |
|
|
(5,317 |
) |
|
|
(5,480 |
) |
Federal subsidy on benefits paid |
|
|
395 |
|
|
|
640 |
|
|
Fair value of plan assets at
end of year |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
Funded status of the plan at end of year |
|
$ |
(47,259 |
) |
|
$ |
(53,316 |
) |
Employer contributions subsequent to measurement
date |
|
|
482 |
|
|
|
285 |
|
|
Accrued benefit cost |
|
$ |
(46,777 |
) |
|
$ |
(53,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page
twenty-seven
|
|
|
N
O T E S T O F I N A N C I A L S T A
T E M E N T S ( C O N T I N U E D )
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
Amounts recognized in consolidated balance
sheets consist of: |
|
|
|
|
|
|
|
|
Current liability |
|
$ |
(5,000 |
) |
|
$ |
(4,000 |
) |
Noncurrent liability |
|
|
(41,777 |
) |
|
|
(49,031 |
) |
|
Net amount recognized at end of year |
|
$ |
(46,777 |
) |
|
$ |
(53,031 |
) |
|
In accordance with the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the
Corporation began receiving a non-taxable subsidy from the federal government in 2006 as the
Corporation sponsors prescription drug benefits to retirees that are actuarially equivalent to
the Medicare benefit. The Corporations postretirement health care plans benefit obligation
reflects the effect of the federal subsidy.
Weighted-average assumptions used to determine the post-retirement benefit obligations as of
December 31 are:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
Discount rate |
|
|
5.96 |
% |
|
|
5.63 |
% |
Weighted-average assumptions used to determine net post-retirement benefit cost for the
years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
Discount rate |
|
|
5.63 |
% |
|
|
5.72 |
% |
|
|
6.00 |
% |
|
|
At December 31, 2007 and 2006, the Corporation used the RP 2000 Mortality Table to estimate the
remaining lives of participants in the postretirement plans. |
|
|
|
Assumed health care cost trend rates at December 31 are: |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
Health care cost trend rate
assumed for next year |
|
|
8.5 |
% |
|
|
9.1 |
% |
Rate to which the cost trend rate
gradually declines |
|
|
5.5 |
% |
|
|
5.5 |
% |
Year the rate reaches the ultimate rate |
|
|
2013 |
|
|
|
2013 |
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A one percentage-point change in assumed health care cost trend rates would have
the following effects:
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point |
(add 000) |
|
Increase |
|
(Decrease) |
|
Total service and interest cost
components |
|
$ |
104 |
|
|
$ |
(87 |
) |
Postretirement benefit obligation |
|
$ |
1,922 |
|
|
$ |
(1,619 |
) |
The Corporations estimate of its contributions to its post-retirement health care plans in 2008 is
$5,000,000.
The expected gross benefit payments and expected federal subsidy to be received for each of the
next five years and the five-year period thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
Gross Benefit |
|
Expected |
(add 000) |
|
Payments |
|
Federal Subsidy |
|
2008 |
|
$ |
5,000 |
|
|
$ |
535 |
|
2009 |
|
$ |
3,707 |
|
|
$ |
595 |
|
2010 |
|
$ |
3,932 |
|
|
$ |
661 |
|
2011 |
|
$ |
4,052 |
|
|
$ |
745 |
|
2012 |
|
$ |
4,106 |
|
|
$ |
834 |
|
Years 2013-2017 |
|
$ |
17,759 |
|
|
$ |
5,921 |
|
Defined Contribution Plans. The Corporation maintains two defined contribution plans that cover
substantially all employees. These plans, intended to be qualified under Section 401(a) of the
Internal Revenue Code, are retirement savings and investment plans for the Corporations salaried
and hourly employees. Under certain provisions of these plans, the Corporation, at established
rates, matches employees eligible contributions. The Corporations matching obligations were
$5,405,000 in 2007, $5,215,000 in 2006 and $4,969,000 in 2005.
Postemployment
Benefits. The Corporation has accrued postemployment benefits of $1,625,000 and
$1,425,000 at December 31, 2007 and 2006, respectively.
Note K: Stock-Based Compensation
The shareholders approved, on May 23, 2006, the Martin Marietta Materials, Inc. Stock-Based Award
Plan, as amended from time to time (along with the Amended Omnibus Securities Award Plan,
originally approved in 1994, the Plans). The Corporation has been authorized by the Board of
Directors to repurchase shares of the Corporations common stock for issuance under the Plans.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page
twenty-eight
|
|
|
N
O T E S T O F I N A N C I A L S T A
T E M E N T S ( C O N T I N U E D )
Under the Plans, the Corporation grants options to employees to purchase its common stock at a
price equal to the closing market value at the date of grant. The Corporation granted 154,695
employee stock options during 2007. Options granted in years subsequent to 2005 become exercisable
in four annual installments beginning one year after date of grant and expire eight years from such
date. Options granted prior to January 1, 2005 become exercisable in three equal annual
installments beginning one year after date of grant and expire ten years from such date.
The Plans provide that each nonemployee director receives 3,000 non-qualified stock options
annually. During 2007, the Corporation granted 24,000 options to nonemployee directors. These
options have an exercise price equal to the market value at the date of grant, vest immediately
and expire ten years from the grant date.
The following table includes summary information for stock options for employees and nonemployee
directors as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
Weighted- |
|
Average |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Remaining |
|
Intrinsic |
|
|
Number of |
|
Exercise |
|
Contractual |
|
Value |
|
|
Options |
|
Price |
|
Life (years) |
|
(add 000) |
|
Outstanding at
January 1, 2007 |
|
|
1,466,336 |
|
|
$ |
49.78 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
178,695 |
|
|
$ |
151.92 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(720,036 |
) |
|
$ |
43.81 |
|
|
|
|
|
|
|
|
|
Terminated |
|
|
(3,380 |
) |
|
$ |
70.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2007 |
|
|
921,615 |
|
|
$ |
74.17 |
|
|
|
6.1 |
|
|
$ |
53,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
December 31, 2007 |
|
|
610,075 |
|
|
$ |
53.42 |
|
|
|
5.8 |
|
|
$ |
48,308 |
|
|
The weighted-average grant-date exercise price of options granted during 2007, 2006 and 2005 was
$151.92, $89.02 and $61.06, respectively. The aggregate intrinsic values of options exercised
during the years ended December 31, 2007, 2006 and 2005 were $61,363,000, $58,960,000 and
$35,912,000, respectively, and were based on the closing prices of the Corporations common stock
on the dates of exercise. The aggregate intrinsic value for options outstanding and exercisable at
December 31, 2007 was based on the closing price of the Corporations common stock at December 31,
2007, which was $132.60.
Additionally, an incentive stock plan has been adopted under the Plans whereby certain participants
may elect to use up to 50% of their annual incentive compensation to acquire units representing
shares of the Corporations common stock at a 20% discount to the market value on the date of the
incentive compensation award. Certain executive officers are required to participate in the
incentive stock plan at certain minimum levels. Participants earn the right to receive unrestricted
shares of common stock in an amount equal to their respective units generally at the end of a
34-month period of additional employment from the date of award or at retirement beginning at age
62. All rights of ownership of the common stock convey to the participants upon the issuance of
their respective shares at the end of the ownership-vesting period, with the exception of dividend
equivalents that are paid on the units during the vesting period.
The Corporation grants restricted stock awards under the Plans to a group of executive officers
and key personnel. Certain restricted stock awards are based on specific common stock performance
criteria over a specified period of time. In addition, certain awards were granted to individuals
to encourage retention and motivate key employees. These awards generally vest if the employee is
continuously employed over a specified period of time and require no payment from the employee.
The following table summarizes information for incentive stock awards and restricted stock awards
as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Stock |
|
Restricted Stock |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
Number of |
|
Grant-Date |
|
Number of |
|
Grant-Date |
|
|
Awards |
|
Fair Value |
|
Awards |
|
Fair Value |
|
January 1, 2007 |
|
|
60,752 |
|
|
|
|
|
|
|
378,047 |
|
|
|
|
|
Awarded |
|
|
21,083 |
|
|
$ |
117.56 |
|
|
|
121,115 |
|
|
$ |
142.89 |
|
Distributed |
|
|
(34,855 |
) |
|
|
|
|
|
|
(53,828 |
) |
|
|
|
|
Forfeited |
|
|
(32 |
) |
|
|
|
|
|
|
(5,537 |
) |
|
|
|
|
|
December 31, 2007 |
|
|
46,948 |
|
|
|
|
|
|
|
439,797 |
|
|
|
|
|
|
The weighted-average grant-date fair value of incentive compensation awards granted during 2007,
2006 and 2005 was $117.56, $91.05 and $55.15, respectively. The weighted-average grant-date fair
value of restricted stock awards granted during 2007, 2006 and 2005 was $142.89, $88.85 and
$60.63, respectively.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page twenty-nine
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
The aggregate intrinsic values for incentive compensation awards and restricted stock awards at
December 31, 2007 were $2,408,000 and $58,317,000, respectively, and were based on the closing
price of the Corporations common stock at December 31, 2007, which was $132.60. The aggregate
intrinsic values of incentive compensation awards distributed during the years ended December 31,
2007, 2006 and 2005 were $2,587,000, $1,664,000 and $2,184,000, respectively. The aggregate
intrinsic values of restricted stock awards distributed during the years ended December 31, 2007,
2006 and 2005 were $4,394,000, $390,000 and $1,774,000, respectively. The aggregate intrinsic
values for distributed awards were based on the closing prices of the Corporations common stock on
the dates of distribution.
At
December 31, 2007, there are approximately 1,222,000 awards available for grant under the Plans.
In 1996, the Corporation adopted the Shareholder Value Achievement Plan to award shares of the
Corporations common stock to key senior employees based on certain common stock performance
criteria over a long-term period. Under the terms of this plan, 250,000 shares of common stock
were reserved for issuance. Through December 31, 2007, 42,025 shares have been issued under this
plan. No awards have been granted under this plan after 2000.
Also, the Corporation adopted and the shareholders approved the Common Stock Purchase Plan for
Directors in 1996, which provides nonemployee directors the election to receive all or a portion of
their total fees in the form of the Corporations common stock. Under the terms of this plan,
300,000 shares of common stock were reserved for issuance. Currently, directors are required to
defer at least 50% of their retainer in the form of the Corporations common stock at a 20%
discount to market value. Directors elected to defer portions of
their fees representing 3,672, 7,263 and 9,838 shares of the Corporations common stock under this plan during 2007, 2006 and
2005, respectively.
The following table summarizes stock-based compensation expense for the years ended December 31,
2007, 2006 and 2005, unrecognized compensation cost for non-vested awards at December 31, 2007 and
the weighted-average period over which unrecognized compensation cost is expected to be
recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Compen- |
|
|
|
|
|
|
Stock |
|
Stock |
|
sation |
|
Directors |
|
|
(add 000) |
|
Options |
|
Awards |
|
Awards |
|
Awards |
|
Total |
|
Stock-based compensation expense recognized for years ended December 31 : |
2007 |
|
$ |
7,740 |
|
|
$ |
10,897 |
|
|
$ |
493 |
|
|
$ |
557 |
|
|
$ |
19,687 |
|
2006 |
|
$ |
5,897 |
|
|
$ |
6,410 |
|
|
$ |
474 |
|
|
$ |
657 |
|
|
$ |
13,438 |
|
2005 |
|
$ |
255 |
|
|
$ |
2,505 |
|
|
$ |
314 |
|
|
$ |
628 |
|
|
$ |
3,702 |
|
|
Unrecognized compensation cost at December 31, 2007: |
|
|
$ |
5,485 |
|
|
$ |
15,541 |
|
|
$ |
329 |
|
|
$ |
|
|
|
$ |
21,355 |
|
|
Weighted-average period over which unrecognized compensation cost to be recognized: |
|
|
2.1 years |
|
2.6 years |
|
1.6 years |
|
|
|
|
|
|
|
|
For the years ended December 31, 2007, 2006 and 2005, the Corporation recognized a tax benefit
related to stock-based compensation of $27,209,000, $24,112,000 and $15,337,000, respectively.
The following presents expected stock-based compensation expense in future periods for outstanding
awards as of December 31, 2007:
|
|
|
|
|
(add 000) |
|
2008 |
|
$ |
10,157 |
|
2009 |
|
|
6,801 |
|
2010 |
|
|
3,344 |
|
2011 |
|
|
1,053 |
|
|
Total |
|
$ |
21,355 |
|
|
Stock-based compensation expense is included in selling, general and administrative expenses on
the Corporations consolidated statements of earnings.
Note L: Leases
Total lease expense for all operating leases was $64,717,000, $72,248,000 and $61,468,000 for the
years ended December 31, 2007, 2006 and 2005, respectively. The Corporations operating leases
generally contain renewal and/or purchase options with varying terms. The Corporation has royalty
agreements that generally require
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page thirty
N
O T E S T O F I N A N C I A L S T A T E M E N T
S (C O N T I N U E D)
royalty payments based on tons produced or total sales dollars and also contain minimum payments.
Total royalties, principally for leased properties, were $40,673,000, $43,751,000 and $40,377,000
for the years ended December 31, 2007, 2006 and 2005, respectively.
The Corporation has capital lease agreements, expiring in 2010, for machinery and equipment.
Current and long-term capital lease obligations are included in other current liabilities and other
noncurrent liabilities, respectively, in the consolidated balance sheet.
Future minimum lease and mineral and other royalty commitments for all noncancelable agreements as
of December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
(add 000) |
|
Capital Leases |
|
|
Operating Leases |
|
|
2008 |
|
$ |
213 |
|
|
$ |
92,294 |
|
2009 |
|
|
137 |
|
|
|
61,856 |
|
2010 |
|
|
308 |
|
|
|
52,967 |
|
2011 |
|
|
|
|
|
|
43,544 |
|
2012 |
|
|
|
|
|
|
36,890 |
|
Thereafter |
|
|
|
|
|
|
176,152 |
|
|
Total |
|
|
658 |
|
|
$ |
463,703 |
|
|
|
|
|
|
|
|
|
Less imputed interest |
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
Present value of minimum
lease payments |
|
|
610 |
|
|
|
|
|
Less current capital lease obligations |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
Long-term capital lease obligations |
|
$ |
422 |
|
|
|
|
|
|
|
|
|
|
Note M: Shareholders Equity
The authorized capital structure of the Corporation includes 100,000,000 shares of common stock,
with a par value of $0.01 a share. At December 31, 2007, approximately 3,044,000 common shares were
reserved for issuance under stock-based plans. At December 31, 2007 and 2006, there were 868 and
945, respectively, shareholders of record.
Pursuant to authority granted by its Board of Directors, the Corporation can repurchase common
stock through open purchases. The Corporation repurchased 4,189,100 shares at an aggregate price
of $575,181,000 in 2007, 1,874,200 shares at an aggregate price of $172,888,000 in 2006 and
2,658,000 shares at an aggregate price of $175,570,000 in 2005. The Corporation settled $24,017,000 of the 2007 repurchases in January 2008. In August 2007, the Board authorized the
Corporation to repurchase an additional 5,000,000 shares of its com-
mon stock. At December 31, 2007, 5,041,900 shares of common stock were remaining under the
Corporations repurchase authorization.
In addition to common stock, the capital structure includes 10,000,000 shares of preferred stock
with a par value of $0.01 a share. 100,000 shares of Class A Preferred Stock were reserved for
issuance under the Corporations 1996 Rights Agreement that expired by its own terms on October 21,
2006. Upon its expiration, the Board of Directors adopted a new Rights Agreement (the Rights
Agreement) and reserved 200,000 shares of Junior Participating Class B Preferred Stock for
issuance. In accordance with the Rights Agreement, the Corporation issued a dividend of one right
for each share of the Corporations common stock outstanding as of October 21, 2006, and one right
continues to attach to each share of common stock issued thereafter. The rights will become
exercisable if any person or group acquires beneficial ownership of 15 percent or more of the
Corporations common stock. Once exercisable and upon a person or group acquiring 15 percent or
more of the Corporations common stock, each right (other than rights owned by such person or
group) entitles its holder to purchase, for an exercise price of $315 per share, a number of shares
of the Corporations common stock (or in certain circumstances, cash, property or other securities
of the Corporation) having a market value of twice the exercise price, and under certain
conditions, common stock of an acquiring company having a market value of twice the exercise price.
If any person or group acquires beneficial ownership of 15 percent or more of the Corporations
common stock, the Corporation may, at its option, exchange the outstanding rights (other than
rights owned by such acquiring person or group) for shares of the Corporations common stock or
Corporation equity securities deemed to have the same value as one share of common stock or a
combination thereof, at an exchange ratio of one share of common stock per right. The rights are
subject to adjustment if certain events occur, and they will initially expire on October 21, 2016,
if not terminated sooner. The Corporations Rights Agreement provides that the Corporations Board
of Directors may, at its option, redeem all of the outstanding rights at a redemption price of
$0.001 per right.
|
|
|
|
|
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries
|
|
Page
thirty-one
|
|
|
N O T E S T O F I N A N C I A L S T A
T E M E N T S (CONTINUED)
Note N: Commitments and Contingencies
The Corporation is engaged in certain legal and administrative proceedings incidental to its normal
business activities. While it is not possible to determine the ultimate outcome of those actions at
this time, in the opinion of management and counsel, it is unlikely that the outcome of such
litigation and other proceedings, including those pertaining to environmental matters (see Note A),
will have a material adverse effect on the results of the Corporations operations, its cash flows
or financial position.
Asset Retirement Obligations. The Corporation incurs reclamation costs as part of its aggregates
mining process. The estimated future reclamation obligations have been discounted to their present
value and are being accreted to their projected future obligations via charges to operating
expenses. Additionally, the fixed assets recorded concurrently with the liabilities are being
depreciated over the period until reclamation activities are expected to occur. Total accretion
and depreciation expenses for 2007, 2006 and 2005 were $2,042,000, $2,033,000 and $2,144,000,
respectively, and are included in other operating income and expenses, net, on the consolidated
statements of earnings.
The provisions of FAS 143 require the projected estimated reclamation obligation to include a
market risk premium which represents the amount an external party would charge for bearing the
uncertainty of guaranteeing a fixed price today for performance in the future. However, due to the
average remaining quarry life exceeding 50 years at current production rates and the nature of
quarry reclamation work, the Corporation believes that it is impractical for external parties to
agree to a fixed price today. Therefore, a market risk premium has not been included in the
estimated reclamation obligation.
The following shows the changes in the asset retirement obligations for the years ended December
31:
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
Balance at January 1 |
|
$ |
25,234 |
|
|
$ |
22,965 |
|
Accretion expense |
|
|
1,363 |
|
|
|
1,190 |
|
Liabilities incurred |
|
|
2,576 |
|
|
|
1,822 |
|
Liabilities settled |
|
|
(811 |
) |
|
|
(894 |
) |
Revisions in estimated cash flows |
|
|
10,786 |
|
|
|
151 |
|
|
Balance at December 31 |
|
$ |
39,148 |
|
|
$ |
25,234 |
|
|
During 2007, the Corporation revised its estimates for plant removal costs based on recent
experience with such activities for fully reclaimed locations.
Other Environmental Matters. The Corporations operations are subject to and affected by federal,
state and local laws and regulations relating to the environment, health and safety and other
regulatory matters. Certain of the Corporations operations may, from time to time, involve the use
of substances that are classified as toxic or hazardous within the meaning of these laws and
regulations. Environmental operating permits are, or may be, required for certain of the
Corporations operations, and such permits are subject to modification, renewal and revocation. The
Corporation regularly monitors and reviews its operations, procedures and policies for compliance
with these laws and regulations. Despite these compliance efforts, risk of environmental
remediation liability is inherent in the operation of the Corporations businesses, as it is with
other companies engaged in similar businesses. The Corporation has no material provisions for
environmental remediation liabilities and does not believe such liabilities will have a material
adverse effect on the Corporation in the future.
Insurance Reserves and Letters of Credit. The Corporation has insurance coverage for workers
compensation, automobile liability and general liability claims with deductibles ranging from
$250,000 to $3,000,000. The Corporation is also self-insured for health claims. During 2007, the
Corporation decreased its accrual for incurred but not reported casualty claims based on the
Corporations recent claims experience. The change in estimate increased net earnings by
$1,981,000, or $0.05 per diluted share. At December 31, 2007 and 2006 reserves of approximately
$28,661,000 and $30,301,000, respectively, were recorded for all such insurance claims. In
connection with these workers compensation and automobile and general liability insurance
deductibles, the Corporation has entered into standby letter of credit agreements in the amount of
$24,910,000 at December 31, 2007.
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page
thirty-two
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
Surety Bonds. In the normal course of business, at December 31, 2007, the Corporation was
contingently liable for $105,074,000 in surety bonds required by certain states and municipalities
and their related agencies. The bonds are principally for certain construction contracts,
reclamation obligations and mining permits guaranteeing the Corporations own performance. The
Corporation has indemnified the underwriting insurance company against any exposure under the
surety bonds. In the Corporations past experience, no material claims have been made against
these financial instruments. Three of these bonds, totaling $27,036,000, or 26% of all outstanding
surety bonds, relate to specific performance for road construction projects currently underway.
Purchase Commitments. The Corporation had purchase commitments for property, plant and equipment
of $16,148,000 as of December 31, 2007. The Corporation also had other purchase obligations related
to energy and service contracts of $12,288,000 as of December 31, 2007. The Corporations
contractual purchase commitments as of December 31, 2007 are as follows:
|
|
|
|
|
(add 000) |
|
|
|
|
|
2008 |
|
$ |
24,204 |
|
2009 |
|
|
2,157 |
|
2010 |
|
|
2,075 |
|
|
Total |
|
$ |
28,436 |
|
|
Employees. The Corporation had approximately 5,300 employees at December 31, 2007. Approximately
13% of the Corporations employees are represented by a labor union. All such employees are hourly
employees.
Note O: Business Segments
During 2006, the Corporation reorganized the operations and management of its Aggregates Business,
which resulted in a change to its reportable segments. The Corporation currently conducts its
aggregates operations through three reportable business segments: Mideast Group, Southeast Group
and West Group. The Corporation also has a Specialty Products segment that produces magnesia-based
chemicals products, dolomitic lime and structural composite products. These segments are
consistent with the Corporations current management reporting structure. The accounting policies
used for segment reporting are the same as those described in Note A.
The Corporations evaluation of performance and allocation of resources are based primarily on
earnings from operations. Earnings from operations are net sales less cost of sales, selling,
general and administrative expenses, and research and development expenses; include other operating
income and expenses; and exclude interest expense, other nonoperating income and expenses, net, and
income taxes. Corporate earnings from operations primarily include depreciation on capitalized
interest, expenses for corporate administrative functions, unallocated corporate expenses and other
nonrecurring and/or non-operational adjustments excluded from the Corporations evaluation of
business segment performance and resource allocation. All debt and related interest expense is held
at Corporate.
Assets employed by segment include assets directly identified with those operations. Corporate
assets consist primarily of cash and cash equivalents, property, plant and equipment for corporate
operations and other assets not directly identifiable with a reportable business segment. Property
additions include property, plant and equipment that have been purchased through acquisitions in
the amount of $5,513,000 in 2007 and $2,095,000 in 2005 for the West Group. During 2006, the
Corporation did not purchase any property, plant and equipment through acquisitions. Property
additions in 2007 also include $2,897,000 of land acquired through the issuance of notes payable
for the Mideast Group.
The following tables display selected financial data for the Corporations reportable business
segments for each of the three years in the period ended December 31, 2007. Prior year information
has been reclassified to conform to the presentation of the Corporations current reportable
segments.
|
|
|
|
|
Martin Marietta Materials, Inc.
and Consolidated Subsidiaries
|
|
page thirty-three
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
Selected Financial Data by Business Segment
years
ended December 31
(add 000)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
2007 |
|
2006 |
|
2005 |
|
Mideast Group |
|
$ |
727,482 |
|
|
$ |
716,722 |
|
|
$ |
639,064 |
|
Southeast Group |
|
|
533,140 |
|
|
|
543,022 |
|
|
|
475,661 |
|
West Group |
|
|
774,847 |
|
|
|
764,747 |
|
|
|
716,005 |
|
|
Total Aggregates Business |
|
|
2,035,469 |
|
|
|
2,024,491 |
|
|
|
1,830,730 |
|
Specialty Products |
|
|
171,672 |
|
|
|
166,561 |
|
|
|
144,558 |
|
|
Total |
|
$ |
2,207,141 |
|
|
$ |
2,191,052 |
|
|
$ |
1,975,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mideast Group |
|
$ |
682,458 |
|
|
$ |
662,127 |
|
|
$ |
587,018 |
|
Southeast Group |
|
|
457,926 |
|
|
|
455,741 |
|
|
|
400,597 |
|
West Group |
|
|
672,803 |
|
|
|
661,083 |
|
|
|
610,747 |
|
|
Total Aggregates Business |
|
|
1,813,187 |
|
|
|
1,778,951 |
|
|
|
1,598,362 |
|
Specialty Products |
|
|
154,425 |
|
|
|
150,715 |
|
|
|
130,615 |
|
|
Total |
|
$ |
1,967,612 |
|
|
$ |
1,929,666 |
|
|
$ |
1,728,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mideast Group |
|
$ |
287,850 |
|
|
$ |
259,886 |
|
|
$ |
205,117 |
|
Southeast Group |
|
|
107,923 |
|
|
|
96,389 |
|
|
|
74,935 |
|
West Group |
|
|
136,419 |
|
|
|
143,315 |
|
|
|
132,378 |
|
|
Total Aggregates Business |
|
|
532,192 |
|
|
|
499,590 |
|
|
|
412,430 |
|
Specialty Products |
|
|
43,374 |
|
|
|
33,512 |
|
|
|
21,445 |
|
Corporate |
|
|
(4,603 |
) |
|
|
(7,809 |
) |
|
|
(4,940 |
) |
|
Total |
|
$ |
570,963 |
|
|
$ |
525,293 |
|
|
$ |
428,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
Mideast Group |
|
$ |
45,748 |
|
|
$ |
43,565 |
|
|
$ |
43,374 |
|
Southeast Group |
|
|
25,900 |
|
|
|
24,047 |
|
|
|
22,296 |
|
West Group |
|
|
46,156 |
|
|
|
44,959 |
|
|
|
43,346 |
|
|
Total Aggregates Business |
|
|
117,804 |
|
|
|
112,571 |
|
|
|
109,016 |
|
Specialty Products |
|
|
10,316 |
|
|
|
10,954 |
|
|
|
11,271 |
|
Corporate |
|
|
27,066 |
|
|
|
23,140 |
|
|
|
10,416 |
|
|
Total |
|
$ |
155,186 |
|
|
$ |
146,665 |
|
|
$ |
130,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mideast Group |
|
$ |
246,628 |
|
|
$ |
223,946 |
|
|
$ |
167,200 |
|
Southeast Group |
|
|
84,189 |
|
|
|
73,090 |
|
|
|
53,427 |
|
West Group |
|
|
101,013 |
|
|
|
102,531 |
|
|
|
99,070 |
|
|
Total Aggregates Business |
|
|
431,830 |
|
|
|
399,567 |
|
|
|
319,697 |
|
Specialty Products |
|
|
32,888 |
|
|
|
22,528 |
|
|
|
9,522 |
|
Corporate |
|
|
(31,688 |
) |
|
|
(31,546 |
) |
|
|
(15,418 |
) |
|
Total |
|
$ |
433,030 |
|
|
$ |
390,549 |
|
|
$ |
313,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets employed |
|
2007 |
|
2006 |
|
2005 |
|
Mideast Group |
|
$ |
780,074 |
|
|
$ |
729,200 |
|
|
$ |
687,939 |
|
Southeast Group |
|
|
519,681 |
|
|
|
475,941 |
|
|
|
449,516 |
|
West Group |
|
|
1,072,808 |
|
|
|
1,020,572 |
|
|
|
931,548 |
|
|
Total Aggregates Business |
|
|
2,372,563 |
|
|
|
2,225,713 |
|
|
|
2,069,003 |
|
Specialty Products |
|
|
98,718 |
|
|
|
95,511 |
|
|
|
84,138 |
|
Corporate |
|
|
212,524 |
|
|
|
185,197 |
|
|
|
280,175 |
|
|
Total |
|
$ |
2,683,805 |
|
|
$ |
2,506,421 |
|
|
$ |
2,433,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
Mideast Group |
|
$ |
51,038 |
|
|
$ |
49,257 |
|
|
$ |
48,322 |
|
Southeast Group |
|
|
31,032 |
|
|
|
27,268 |
|
|
|
25,819 |
|
West Group |
|
|
49,539 |
|
|
|
46,053 |
|
|
|
46,973 |
|
|
Total Aggregates Business |
|
|
131,609 |
|
|
|
122,578 |
|
|
|
121,114 |
|
Specialty Products |
|
|
6,906 |
|
|
|
7,692 |
|
|
|
6,387 |
|
Corporate |
|
|
11,823 |
|
|
|
11,159 |
|
|
|
10,750 |
|
|
Total |
|
$ |
150,338 |
|
|
$ |
141,429 |
|
|
$ |
138,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mideast Group |
|
$ |
94,491 |
|
|
$ |
71,332 |
|
|
$ |
77,119 |
|
Southeast Group |
|
|
58,637 |
|
|
|
51,252 |
|
|
|
56,986 |
|
West Group |
|
|
90,446 |
|
|
|
115,726 |
|
|
|
70,702 |
|
|
Total Aggregates Business |
|
|
243,574 |
|
|
|
238,310 |
|
|
|
204,807 |
|
Specialty Products |
|
|
10,508 |
|
|
|
12,985 |
|
|
|
8,724 |
|
Corporate |
|
|
19,251 |
|
|
|
14,681 |
|
|
|
9,965 |
|
|
Total |
|
$ |
273,333 |
|
|
$ |
265,976 |
|
|
$ |
223,496 |
|
|
The product lines, asphalt, ready mixed concrete, road paving and other, are considered internal
customers of the core aggregates business. The following tables display total revenues and net
sales by product line for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
|
|
|
|
|
Total revenues |
|
2007 |
|
2006 |
|
2005 |
|
Aggregates |
|
$ |
1,913,908 |
|
|
$ |
1,906,171 |
|
|
$ |
1,715,672 |
|
Asphalt |
|
|
56,285 |
|
|
|
56,612 |
|
|
|
49,706 |
|
Ready Mixed Concrete |
|
|
41,126 |
|
|
|
35,421 |
|
|
|
33,446 |
|
Road Paving |
|
|
13,453 |
|
|
|
17,657 |
|
|
|
21,048 |
|
Other |
|
|
10,697 |
|
|
|
8,630 |
|
|
|
10,858 |
|
|
Total Aggregates Business |
|
|
2,035,469 |
|
|
|
2,024,491 |
|
|
|
1,830,730 |
|
Specialty Products |
|
|
171,672 |
|
|
|
166,561 |
|
|
|
144,558 |
|
|
Total |
|
$ |
2,207,141 |
|
|
$ |
2,191,052 |
|
|
$ |
1,975,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates |
|
$ |
1,705,835 |
|
|
$ |
1,670,127 |
|
|
$ |
1,490,993 |
|
Asphalt |
|
|
47,569 |
|
|
|
48,832 |
|
|
|
44,421 |
|
Ready Mixed Concrete |
|
|
41,126 |
|
|
|
35,421 |
|
|
|
33,446 |
|
Road Paving |
|
|
13,453 |
|
|
|
17,657 |
|
|
|
21,048 |
|
Other |
|
|
5,204 |
|
|
|
6,914 |
|
|
|
8,454 |
|
|
Total Aggregates Business |
|
|
1,813,187 |
|
|
|
1,778,951 |
|
|
|
1,598,362 |
|
Specialty Products |
|
|
154,425 |
|
|
|
150,715 |
|
|
|
130,615 |
|
|
Total |
|
$ |
1,967,612 |
|
|
$ |
1,929,666 |
|
|
$ |
1,728,977 |
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page thirty-four
|
|
|
N O T E S T O F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )
The following table presents domestic and foreign total revenues for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
2005 |
|
Domestic |
|
$ |
2,164,658 |
|
|
$ |
2,149,021 |
|
|
$ |
1,939,298 |
|
Foreign |
|
|
42,483 |
|
|
|
42,031 |
|
|
|
35,990 |
|
|
Total |
|
$ |
2,207,141 |
|
|
$ |
2,191,052 |
|
|
$ |
1,975,288 |
|
|
Note P: Supplemental Cash Flow Information
The following table presents supplemental cash flow information for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
2005 |
|
Noncash investing and
financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of notes payable for
acquisition of land |
|
$ |
2,897 |
|
|
$ |
|
|
|
$ |
|
|
Machinery and equipment
acquired through capital
leases |
|
$ |
|
|
|
$ |
274 |
|
|
$ |
740 |
|
The following table presents the components of the change in other assets and liabilities, net, for
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
2006 |
|
2005 |
|
Other current and
noncurrent assets |
|
$ |
(3,029 |
) |
|
$ |
(9,297 |
) |
|
$ |
(3,565 |
) |
Notes receivable |
|
|
327 |
|
|
|
5,833 |
|
|
|
1,178 |
|
Accrued salaries, benefits
and payroll taxes |
|
|
(3,747 |
) |
|
|
951 |
|
|
|
1,348 |
|
Accrued insurance and
other taxes |
|
|
(7,174 |
) |
|
|
(7,285 |
) |
|
|
3,678 |
|
Accrued income taxes |
|
|
18,448 |
|
|
|
14,679 |
|
|
|
(14,541 |
) |
Accrued pension,
postretirement and
postemployment benefits |
|
|
125 |
|
|
|
(281 |
) |
|
|
(5,182 |
) |
Other current and
noncurrent liabilities |
|
|
24,698 |
|
|
|
5,722 |
|
|
|
6,394 |
|
|
Total |
|
$ |
29,648 |
|
|
$ |
10,322 |
|
|
$ |
(10,690 |
) |
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page thirty-five
|
|
|
M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S
INTRODUCTORY OVERVIEW
Martin Marietta Materials, Inc., (the Corporation) is a leading producer of construction
aggregates. The Aggregates business includes the following reportable segments, primary markets and
primary product lines:
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AGGREGATES
BUSINESS |
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Reportable |
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Mideast |
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Southeast |
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West |
Segments |
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Group |
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Group |
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Group |
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Arkansas, |
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California, |
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Alabama, |
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Iowa, |
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Indiana, |
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Florida, |
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Kansas, |
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Maryland, |
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Georgia, |
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Minnesota, |
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North |
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Illinois, |
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Missouri, |
Primary |
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Carolina, |
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Kentucky, |
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Nebraska, |
Markets |
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Ohio, |
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Louisiana, |
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Nevada, |
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South |
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Mississippi, |
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Oklahoma, |
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Carolina, |
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Tennessee, |
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Texas, |
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Virginia and |
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Nova Scotia |
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Washington, |
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West Virginia |
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and the |
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Wisconsin |
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Bahamas |
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and |
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Wyoming |
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Aggregates |
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|
(stone, sand |
Primary |
|
|
Aggregates |
|
|
Aggregates |
|
|
and gravel), |
Product |
|
|
(stone, sand |
|
|
(stone, sand |
|
|
asphalt, |
Lines |
|
|
and gravel) |
|
|
and gravel) |
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ready mixed |
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concrete and |
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road paving |
The Corporations Specialty Products segment produces magnesia-based chemicals products used in
industrial, agricultural and environmental applications and dolomitic lime used in the steel
industry, and engages in targeted activity in structural composites.
The overall areas of focus for the Corporation include the following:
|
|
Maximize long-term shareholder return by pursuing sound growth and earnings objectives; |
|
|
|
Conduct business in full compliance with applicable laws, rules, regulations and the highest ethical standards; |
|
|
|
Provide a safe and healthy workplace for the Corporations employees; and |
|
|
|
Reflect all aspects of good citizenship by being responsible neighbors. |
Notable items regarding the Corporations financial condition and 2007 operating results include:
|
|
Return, assuming reinvestment of dividends, of 28.8% on the Corporations common stock price in
2007 compared with a return of 5.5% for the S&P 500 Index; |
|
|
|
Return on shareholders equity of 23.9% in 2007; |
|
|
|
Record earnings per diluted share of $6.06; |
|
|
|
Gross margin improvement and operating margin improvement in the core aggregates business as a result of: |
|
|
|
heritage aggregates product line pricing increase of 10.3%, partially offset by a volume decrease of 7.6%; |
|
|
|
|
enhanced operating efficiency and targeted cost reduction resulting from plant automation and
productivity improvement initiatives; and |
|
|
|
|
focused expansion in high-growth markets, particularly in the southeastern and southwestern
United States where 74% of the Aggregates business net sales were generated. |
|
|
Return of $629 million in cash to shareholders, inclusive of $575 million for the repurchase of
4,189,100 shares of the Corporations common stock at an average price of $137.30 along with $54
million in dividends; |
|
|
|
Issuance of $250 million of 6.25% Senior Notes due in 2037 and $225 million of Floating Rate
Senior Notes due in 2010 (collectively the Senior Notes); |
|
|
|
Consolidated debt-to-consolidated EBITDA, as defined in the Corporations $250 million
five-year revolving credit agreement, of 1.86 for the trailing twelve months ended December 31,
2007; ratio was nearly 2.0 in January 2008 after the Corporation issued additional commercial
paper to fund $24 million of share repayments that were completed in December 2007 but settled in
January 2008; |
|
|
|
Capital expenditures of $265 million focused on capacity expansion and efficiency
improvement projects in high-growth areas and at fixed-based quarries serving long-haul high-growth
markets, along with a continuing investment in land with long-term mineral reserves to serve
high-growth markets; |
|
|
|
Continued maximization of transportation and materials options created by the Corporations
long-haul distribution network; |
|
|
|
Strong financial results by the Specialty Products segment; |
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page thirty-six
|
|
|
M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
|
|
Improvement in employee safety performance as measured by total injury incidence
and lost-time incidence rates; and |
|
|
|
Managements assessment and the independent auditors opinion that the Corporations system of
internal control over financial reporting was effective as of December 31, 2007. |
In 2008, management will emphasize, among other things, the following initiatives:
|
|
Effectively serving high-growth markets, particularly in the Southeast and Southwest; |
|
|
|
Continuing to build a competitive advantage from its long-haul distribution network; |
|
|
|
Using best practices and information technology to drive cost performance; |
|
|
|
Investing in acquisitions of value-added aggregates operations; |
|
|
|
Focusing a significant part of the growth capital spending program on locations along the
geological fall line in Georgia and South Carolina; |
|
|
|
Increasing the number of quarries using enhanced plant automation; |
|
|
|
Continuing the strong performance and operating results of the Specialty Products segment; |
|
|
|
Increasing the Corporations gross margin and operating margin toward its targeted goal of a
1,000-basis-point improvement in operating margin over the 5-year period ending December 31, 2010; |
|
|
|
Maximizing return on invested capital consistent with the successful long-term operation of the
Corporations business; |
|
|
|
Returning cash to shareholders through sustainable dividends and share repurchases; and |
|
|
|
Continuing to improve the Corporations safety performance. |
Management considers each of the following factors in evaluating the Corporations financial
condition and operating results.
Aggregates
Economic Considerations
The construction aggregates industry is a mature and cyclical business dependent on activity within
the construction marketplace. The principal end-users are in public infrastructure (e.g., highways,
bridges, schools and prisons); commercial construction (e.g., manufacturing and distribution
facilities, energy facilities including windfarms and ethanol plants, office buildings, large
retailers and wholesalers, and malls); and residential construction (housing). Aggregates products
are also used in the railroad, environmental and agricultural industries as illustrated by the
following examples. Ballast is an aggregates product used to line trackbeds of railroads.
High-calcium limestone is used as a supplement in animal feed, to neutralize soil acidity and
enhance agricultural growth, and also as a filler in glass, plastic, paint, rubber, adhesives,
grease and paper. Chemical-grade calcium limestone is used as a desulfurization material in utility
plants. Limestone can also be used to absorb moisture and dry up areas around building foundations.
Stone is used as a stabilizing material to control erosion at ocean beaches, inlets, rivers and
streams.
As discussed further under the section Aggregates Industry and Corporation Trends on pages 45
through 47, end-user markets respond to changing economic conditions in different ways. Public
infrastructure construction is ordinarily more stable than commercial and residential construction
due to funding from federal, state and local governments. The Safe, Accountable, Flexible and
Efficient Transportation Equity Act A Legacy for Users (SAFETEA-LU) is the current federal
highway legislation providing funding of $286.4 billion over the six-year period ending September
30, 2009. Overall, infrastructure spending was strong in 2007 and the outlook for 2008 is positive,
although rising construction and materials prices have made projects more costly.
Commercial and residential construction levels are interest rate-sensitive and typically move in a
direct correlation with economic cycles. The commercial construction market was mixed in 2007, with
the rate of growth slowing over the course of the year. Management believes certain commercial
construction, notably office and retail space, is declining in some areas as developers consider
the impact of the current credit markets on construction and development
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page thirty-seven
|
|
|
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
plans. Tighter credit conditions may result in businesses finding it difficult to obtain financing
for capital investments. The residential construction market, which accounted for approximately 12
percent of the Corporations aggregates shipments in 2007, declined significantly in 2007 in
connection with the housing market downturn. Further, the outlook reflects diminished demand with
recovery not expected prior to late 2009 or 2010. In response to a weak economic outlook and
increasing downside risks to growth, the Federal Reserve cut the federal funds rate by 125 basis
points to 3.00 percent in January, 2008. Typically, the economy feels the effects of a significant
cut in the federal funds rate 6 to 12 months later.
In 2007, the Corporation shipped 182.3 million tons of aggregates to customers in 31 states,
Canada, the Bahamas and the Caribbean Islands from 272 quarries, underground mines and distribution
yards. While the Corporations aggregates operations cover a wide geographic area, financial
results depend on the strength of the applicable local economies because of the high cost of
transportation relative to the price of the product. The Aggregates business top five
revenue-generating states -North Carolina, Texas, Georgia, Iowa and South Carolina
- accounted for approximately 61% of its 2007 net sales by state of destination, while the top ten
revenue-generating states accounted for approximately 81% of its 2007 net sales. Management closely
monitors economic conditions and public infrastructure spending in the market areas in the states
where the Corporations operations are located. Further, supply and demand conditions in these
states affect their respective profitability.
Aggregates Industry Considerations
Since the construction aggregates business is conducted outdoors, seasonal changes, wet weather and
other weather-related conditions, such as droughts or hurricanes, significantly affect the
aggregates industry by impacting shipments, production schedules and profitability. The financial
results of the first quarter are generally significantly lower than the financial results of the
other quarters due to winter weather.
While natural aggregates sources typically occur in relatively homogeneous deposits in certain
areas of the United States, a significant challenge facing aggregates producers is to locate
suitable deposits that can be economically mined at locations that qualify for regulatory permits
and are in close proximity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to growing markets (or in close proximity to long-haul transportation corridors
that economically serve growing markets). This is becoming more challenging as residential
expansion and other real estate development encroach on attractive quarrying locations, often
triggering regulatory constraints or otherwise making these locations impractical for mining. The
Corporations management continues to meet this challenge through strategic planning to identify
site locations in advance of economic expansion; |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESTIMATED
POPULATION MOVEMENT |
|
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|
|
Top 10 Revenue-
Generating States of
Aggregates Business
|
|
|
Population Rank
in 2000
|
|
|
Rank in Estimated
Change in Population
From 2000 to 2030
|
|
|
Estimated Rank in
Population in 2030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Carolina
|
|
|
11
|
|
|
7
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
2
|
|
|
4
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
|
|
10
|
|
|
8
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iowa
|
|
|
30
|
|
|
48
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Carolina
|
|
|
26
|
|
|
19
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
|
4
|
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louisiana
|
|
|
22
|
|
|
41
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indiana
|
|
|
14
|
|
|
31
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
|
23
|
|
|
35
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio
|
|
|
7
|
|
|
47
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: United States Census Bureau
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page thirty-eight
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
acquire land around existing quarry sites to increase mineral reserve capacity and lengthen quarry
life or add a site buffer; develop underground mines; and create a competitive advantage with its
long-haul distribution network. This network moves aggregates materials from domestic and offshore
sources, via rail and water, to markets where aggregates supply is limited. The movement of
aggregates materials through long-haul networks introduces risks to operating results as discussed
more fully under the sections Analysis of Gross Margin and Transportation Exposure on pages 44 and
45 and pages 54 through 56, respectively.
The construction aggregates industry has been consolidating, as evidenced by several large domestic
and international vertically-integrated companies acquiring three of the top ten companies in the
industry in 2007. The Corporation has actively participated in the consolidation of the industry.
When acquired, new locations sometimes do not satisfy the Corporations internal safety,
maintenance and pit development standards and may require additional resources before benefits of
the acquisitions are realized. Management expects the industry consolidation trend to slow as the
number of suitable small to mid-sized acquisition targets in high-growth markets declines. During
the recent period of fewer acquisition opportunities, the Corporation has focused on investing in
internal expansion projects in high-growth markets and on divesting underperforming operations.
Aggregates Financial Considerations
The production of construction-related aggregates requires a significant capital investment
resulting in high fixed and semi-fixed costs, as discussed more fully
under the section Cost Structure on pages 52 through 54. Operating results and financial performance are sensitive to
volume changes. However, the shift in pricing dynamics within the industry, beginning in 2005, has
provided management with the opportunity to increase prices at a higher rate and/or with greater
frequency than historical averages. This pricing improvement has more than offset the impact of
the 8.1% decline in volume in the aggregates product line in 2007.
Management evaluates financial performance in a variety of ways. In particular, gross margin
excluding freight and delivery revenues is a significant measure of financial performance reviewed
by management on a site-by-site basis. Management also reviews changes in average selling prices,
costs per ton produced and return on invested capital. Changes in average selling prices
demonstrate economic and competitive conditions, while changes in costs per ton produced are
indicative of operating efficiency and economic conditions.
Other Business Considerations
The Corporation, through its Specialty Products segment, also produces dolomitic lime,
magnesia-based chemicals and a limited number of structural composites products.
The dolomitic lime business is dependent on the highly cyclical steel industry and operating
results are affected by changes in that industry. In the chemical products business, management is
focusing on higher-margin specialty chemicals that can be produced at volumes that support
efficient operations. This focus, coupled with an agreement to supply brine to The Dow Chemical
Company, has provided the magnesia chemicals business with a strategic advantage to improve
earnings and margins. A significant portion of cost related to the production of dolomitic lime and
magnesia chemical products is of a fixed or semi-fixed nature. The production of dolomitic lime and
certain magnesia chemical products also requires the use of natural gas, coal and petroleum coke.
Therefore, fluctuations in their pricing directly affect operating results.
Cash Flow Considerations
The Corporations cash flows are generated primarily from operations. Operating cash flows
generally fund working capital needs, capital expenditures, dividends, share repurchases and
smaller acquisitions. During 2007, the Corporations management continued to emphasize delivering
value to shareholders through the return of $629 million via share repurchases and dividends.
Certain of the 2007 share repurchases were financed by the issuance of $475 million of Senior
Notes. Additionally, the Corporation invested $265 million in internal capital projects ($150
million of maintenance capital and $115 million of growth capital) and made a voluntary $12 million
contribution to its pension plan.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page thirty-nine
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
FINANCIAL OVERVIEW
|
Highlights of 2007 Financial Performance |
|
|
|
|
|
|
|
Record earnings per diluted share of $6.06, up 15%
from 2006 earnings of $5.29 per diluted share |
|
|
|
|
Net sales of $1.968 billion, a 2% increase compared
with net sales of $1.930 billion in 2006 |
|
|
|
|
Heritage aggregates product line pricing increase of 10.3%,
partially offset by heritage volume decrease of 7.6% |
Results
of Operations
The discussion and analysis that follows reflect managements assessment of the financial condition
and results of operations of the Corporation and should be read in conjunction with the audited
consolidated financial statements on pages 6 through 35. As discussed in more detail herein, the
Corporations operating results are highly
dependent upon activity within the construction marketplace, economic cycles within the public and
private business sectors and seasonal and other weather-related conditions. Accordingly, the
financial results for a particular year, or year-to-year comparisons of reported results, may not
be indicative of future operating results. The Corporations Aggregates business generated 92% of
net sales and the majority of operating earnings during 2007. The following comparative analysis
and discussion should be read within that context. Further, sensitivity analysis and certain other
data are provided to enhance the readers understanding of Managements Discussion and Analysis of
Financial Condition and Results of Operations and is not intended to be indicative of managements
judgment of materiality. The Corporations consolidated operating results and operating results as
a percentage of net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31 |
|
|
|
|
|
%
of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
(add 000) |
|
2007 |
|
|
Net
Sales |
|
|
2006 |
|
|
Net Sales |
|
|
2005 |
|
|
Net Sales |
|
|
Net sales |
|
$ |
1,967,612 |
|
|
|
100.0 |
% |
|
$ |
1,929,666 |
|
|
|
100.0 |
% |
|
$ |
1,728,977 |
|
|
|
100.0 |
% |
Freight and delivery revenues |
|
|
239,529 |
|
|
|
|
|
|
|
261,386 |
|
|
|
|
|
|
|
246,311 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,207,141 |
|
|
|
|
|
|
|
2,191,052 |
|
|
|
|
|
|
|
1,975,288 |
|
|
|
|
|
|
Cost of sales |
|
|
1,396,649 |
|
|
|
71.0 |
|
|
|
1,404,373 |
|
|
|
72.8 |
|
|
|
1,300,042 |
|
|
|
75.2 |
|
Freight and delivery costs |
|
|
239,529 |
|
|
|
|
|
|
|
261,386 |
|
|
|
|
|
|
|
246,311 |
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
1,636,178 |
|
|
|
|
|
|
|
1,665,759 |
|
|
|
|
|
|
|
1,546,353 |
|
|
|
|
|
|
Gross profit |
|
|
570,963 |
|
|
|
29.0 |
|
|
|
525,293 |
|
|
|
27.2 |
|
|
|
428,935 |
|
|
|
24.8 |
|
Selling, general and administrative expenses |
|
|
155,186 |
|
|
|
7.9 |
|
|
|
146,665 |
|
|
|
7.6 |
|
|
|
130,703 |
|
|
|
7.6 |
|
Research and development |
|
|
869 |
|
|
|
0.0 |
|
|
|
736 |
|
|
|
0.0 |
|
|
|
662 |
|
|
|
0.0 |
|
Other operating (income) and expenses, net |
|
|
(18,122 |
) |
|
|
(0.9 |
) |
|
|
(12,657 |
) |
|
|
(0.6 |
) |
|
|
(16,231 |
) |
|
|
(0.9 |
) |
|
Earnings from operations |
|
|
433,030 |
|
|
|
22.0 |
|
|
|
390,549 |
|
|
|
20.2 |
|
|
|
313,801 |
|
|
|
18.1 |
|
Interest expense |
|
|
60,893 |
|
|
|
3.1 |
|
|
|
40,359 |
|
|
|
2.1 |
|
|
|
42,597 |
|
|
|
2.5 |
|
Other nonoperating (income) and expenses, net |
|
|
(6,443 |
) |
|
|
(0.3 |
) |
|
|
(2,819 |
) |
|
|
(0.2 |
) |
|
|
(1,483 |
) |
|
|
(0.2 |
) |
|
Earnings from continuing operations before taxes on income |
|
|
378,580 |
|
|
|
19.2 |
|
|
|
353,009 |
|
|
|
18.3 |
|
|
|
272,687 |
|
|
|
15.8 |
|
Taxes on income |
|
|
116,073 |
|
|
|
5.9 |
|
|
|
107,632 |
|
|
|
5.6 |
|
|
|
74,225 |
|
|
|
4.3 |
|
|
Earnings from continuing operations |
|
|
262,507 |
|
|
|
13.3 |
|
|
|
245,377 |
|
|
|
12.7 |
|
|
|
198,462 |
|
|
|
11.5 |
|
Discontinued operations, net of taxes |
|
|
242 |
|
|
|
0.1 |
|
|
|
45 |
|
|
|
0.0 |
|
|
|
(5,796 |
) |
|
|
(0.4 |
) |
|
Net earnings |
|
$ |
262,749 |
|
|
|
13.4 |
% |
|
$ |
245,422 |
|
|
|
12.7 |
% |
|
$ |
192,666 |
|
|
|
11.1 |
% |
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page forty
m
a n a g e m e n t s d i s c u s s i o
n &
a n a l y s i s o
f f i n a n c i a l
c o n d i t i o n
& r e s u l t s o f o p e r
a t i o n s ( c o n t i n u e d )
The comparative analysis in this Managements Discussion and Analysis of Financial Condition and
Results of Operations is based on net sales and cost of sales. However, 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 based on net sales, as it is consistent with the
basis by which management reviews the Corporations operating results. Further, management
believes it is consistent with the basis by which investors analyze the Corporations operating
results given that freight and delivery revenues and costs represent pass-throughs and have no
profit mark-up. Gross margin and operating margin calculated as percentages of total revenues
represent the most directly comparable financial measures calculated in accordance with generally
accepted accounting principles (GAAP). The following tables present the calculations of gross
margin and operating margin for the years ended December 31 in accordance with GAAP and
reconciliations of the ratios as percentages of total revenues to percentages of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin in Accordance with GAAP |
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Gross profit |
|
$ |
570,963 |
|
|
$ |
525,293 |
|
|
$ |
428,935 |
|
|
|
|
Total revenues |
|
$ |
2,207,141 |
|
|
$ |
2,191,052 |
|
|
$ |
1,975,288 |
|
|
|
|
Gross margin |
|
|
25.9 |
% |
|
|
24.0 |
% |
|
|
21.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Excluding Freight and Delivery Revenues |
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Gross profit |
|
$ |
570,963 |
|
|
$ |
525,293 |
|
|
$ |
428,935 |
|
|
|
|
Total revenues |
|
$ |
2,207,141 |
|
|
$ |
2,191,052 |
|
|
$ |
1,975,288 |
|
Less: Freight and delivery revenues |
|
|
(239,529 |
) |
|
|
(261,386 |
) |
|
|
(246,311 |
) |
|
|
|
Net sales |
|
$ |
1,967,612 |
|
|
$ |
1,929,666 |
|
|
$ |
1,728,977 |
|
|
|
|
Gross margin excluding freight and delivery revenues |
|
|
29.0 |
% |
|
|
27.2 |
% |
|
|
24.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin in Accordance with GAAP |
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Earnings from operations |
|
$ |
433,030 |
|
|
$ |
390,549 |
|
|
$ |
313,801 |
|
|
|
|
Total revenues |
|
$ |
2,207,141 |
|
|
$ |
2,191,052 |
|
|
$ |
1,975,288 |
|
|
|
|
Operating margin |
|
|
19.6 |
% |
|
|
17.8 |
% |
|
|
15.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin Excluding Freight and Delivery Revenues |
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Earnings from operations |
|
$ |
433,030 |
|
|
$ |
390,549 |
|
|
$ |
313,801 |
|
|
|
|
Total revenues |
|
$ |
2,207,141 |
|
|
$ |
2,191,052 |
|
|
$ |
1,975,288 |
|
Less: Freight and delivery revenues |
|
|
(239,529 |
) |
|
|
(261,386 |
) |
|
|
(246,311 |
) |
|
|
|
Net sales |
|
$ |
1,967,612 |
|
|
$ |
1,929,666 |
|
|
$ |
1,728,977 |
|
|
|
|
Operating margin excluding freight and delivery revenues |
|
|
22.0 |
% |
|
|
20.2 |
% |
|
|
18.1 |
% |
|
|
|
Net Sales
Net sales by reportable segment for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Mideast Group |
|
$ |
682,458 |
|
|
$ |
662,127 |
|
|
$ |
587,018 |
|
Southeast Group |
|
|
457,926 |
|
|
|
455,741 |
|
|
|
400,597 |
|
West Group |
|
|
672,803 |
|
|
|
661,083 |
|
|
|
610,747 |
|
|
Total Aggregates Business |
|
|
1,813,187 |
|
|
|
1,778,951 |
|
|
|
1,598,362 |
|
Specialty Products |
|
|
154,425 |
|
|
|
150,715 |
|
|
|
130,615 |
|
|
Total |
|
$ |
1,967,612 |
|
|
$ |
1,929,666 |
|
|
$ |
1,728,977 |
|
|
Aggregates. Net sales growth in the aggregates product line resulted primarily from strong pricing
improvement. Heritage and total aggregates product line average sales price increases were as
follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Mideast Group |
|
|
15.0 |
% |
|
|
14.2 |
% |
|
|
7.3 |
% |
Southeast Group |
|
|
12.2 |
% |
|
|
11.4 |
% |
|
|
11.0 |
% |
West Group |
|
|
4.9 |
% |
|
|
13.4 |
% |
|
|
7.3 |
% |
Heritage Aggregates Operations |
|
|
10.3 |
% |
|
|
13.4 |
% |
|
|
7.9 |
% |
Aggregates Business |
|
|
10.4 |
% |
|
|
13.5 |
% |
|
|
8.1 |
% |
Heritage aggregates operations exclude acquisitions that were not included in prior-year
operations for a full year and divestitures.
The average sales price increase in the West Group is lower when compared to the other groups
primarily due to product mix, which reflects a higher percentage of lower-priced products being
sold in 2007. The average annual aggregates product line price increase for the ten and twenty
years ended December 31, 2007 was 5.1% and 3.5%, respectively. Aggregates sales price increases in
2007, 2006 and 2005 reflect a tightening of supply and demand in high-growth markets (see Section
Aggregates Industry and Corporation Trends on pages 45 through 47).
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
forty-one
m
a n a g e m e n t s d i s c u s s i o
n &
a n a l y s i s
o f f i n a n c i a l
c o n d i t i o
n & r e s u l t s o
f o p e r a t i o n s ( c o n t i n u e d
)
Aggregates product line shipments of 182.3 million tons in 2007 decreased 8.1% compared with 198.5
million tons shipped in 2006. The decline in the residential construction market contributed to
this reduction. Other contributing factors included the increase in the cost of construction
materials in 2007 and 2006 and the near historic levels of rainfall in Texas, southern Oklahoma and
Kansas during the first nine months of 2007. 2006 aggregates product line shipments decreased 2.3%
compared with 203.2 million tons shipped in 2005. The following presents heritage and total
aggregates product line shipments for each reportable segment for the Aggregates business:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments (tons in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Heritage Aggregates Product Line: |
|
|
|
|
|
|
|
|
|
|
|
|
Mideast Group |
|
|
66,512 |
|
|
|
74,170 |
|
|
|
74,977 |
|
Southeast Group |
|
|
43,124 |
|
|
|
48,023 |
|
|
|
46,820 |
|
West Group |
|
|
71,563 |
|
|
|
73,959 |
|
|
|
77,020 |
|
|
Heritage Aggregates Operations |
|
|
181,199 |
|
|
|
196,152 |
|
|
|
198,817 |
|
Acquisitions |
|
|
349 |
|
|
|
|
|
|
|
|
|
Divestitures1 |
|
|
777 |
|
|
|
2,338 |
|
|
|
4,412 |
|
|
Aggregates Business |
|
|
182,325 |
|
|
|
198,490 |
|
|
|
203,229 |
|
|
|
|
|
1 |
|
Divestitures represent tons related to divested operations up to the date of divestiture. |
Heritage and total aggregates product line volume variance by reportable segment is as follows for
the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Mideast Group |
|
|
(10.3 |
%) |
|
|
(1.1 |
%) |
|
|
1.9 |
% |
Southeast Group |
|
|
(10.2 |
%) |
|
|
2.6 |
% |
|
|
7.2 |
% |
West Group |
|
|
(3.2 |
%) |
|
|
(4.0 |
%) |
|
|
16.0 |
% |
Heritage Aggregates Operations |
|
|
(7.6 |
%) |
|
|
(1.3 |
%) |
|
|
8.3 |
% |
Total Aggregates Business |
|
|
(8.1 |
%) |
|
|
(2.3 |
%) |
|
|
6.1 |
% |
Specialty
Products. Specialty Products 2007 net sales of $154.4 million increased 2% over 2006 net
sales of $150.7 million. An increase in the sales of chemical products to a variety of users was
partially offset by a reduction in sales of dolomitic lime due to softness in the steel industry.
Specialty Products net sales in 2006 increased 15% over 2005.
Freight and Delivery Revenues and Costs
Freight and delivery revenues and costs represent pass-through transportation costs incurred when
the Corporation arranges for a third-party carrier to deliver aggregates products to customers (see
section Transportation Exposure on pages 54 through 56). These third-party freight costs are then
fully billed to the customer. The reduction in these revenues
and costs in 2007 reflects a
reduction in aggregates shipments. The increase in these revenues and costs in 2006 is due to
higher transportation costs primarily caused by higher energy costs.
Cost of Sales
Cost of sales decreased slightly in 2007 as compared with 2006, primarily related to lower freight
costs on transported materials resulting from the decline in shipments (see section Transportation
Exposure on pages 54 through 56). 2006 cost of sales increased primarily due to rising costs for
energy, particularly diesel fuel and natural gas, and repair and supply parts. Additionally,
embedded freight costs increased 24% during 2006. These cost increases were somewhat moderated by
plant automation and productivity improvement initiatives, as well as control of headcount and
employee benefit costs.
The Corporations operating leverage can be substantial due to the high fixed and semi-fixed costs
associated with aggregates production. As a result of inventory control measures, production at
heritage locations declined 7.2% and 1.8% in 2007 and 2006, respectively, when compared with the
prior year.
Gross
Profit
The Corporation defines gross margin excluding freight and delivery revenues as gross profit
divided by net sales and is a measure of a companys efficiency during the production process. The
Corporations gross margin excluding freight and delivery revenues increased 180 basis points to
29.0% during 2007 and 240 basis points in 2006 as pricing improvements and productivity gains
outpaced shipment volume declines and increases in production costs.
Gross margin excluding freight and delivery revenues for the Mideast Group and the Southeast Group
improved in 2007 and 2006. Gross margin excluding freight and delivery revenues for the West Group
declined slightly in 2007, primarily due to weather-related issues which negatively affected
production costs and shipments. 2006 gross margin excluding freight and delivery revenues for the
West Group was flat with pricing increases being offset by higher embedded freight costs and a
decline in aggregates product line shipments. The following presents gross margin excluding freight
and delivery revenues by reporting segment for the Aggregates business:
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
forty-two
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Mideast Group |
|
|
42.2 |
% |
|
|
39.3 |
% |
|
|
34.9 |
% |
Southeast Group |
|
|
23.6 |
% |
|
|
21.1 |
% |
|
|
18.7 |
% |
West Group |
|
|
20.3 |
% |
|
|
21.7 |
% |
|
|
21.7 |
% |
Total Aggregates Business |
|
|
29.4 |
% |
|
|
28.1 |
% |
|
|
25.8 |
% |
Selling,
General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of net sales, were 7.9%, 7.6% and
7.6% for the years ended December 31, 2007, 2006 and 2005, respectively. The absolute dollar
increase in 2007 selling, general and administrative expenses reflects higher stock-based
compensation expense of $6.2 million. Excluding the increase in these costs, the increase in
selling, general and administrative expenses was 1.7% for 2007. The increase of $16.0 million in
2006 reflects a $9.7 million increase in stock-based compensation expense, which includes the
initial expensing of stock options in accordance with Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment, (FAS 123R) and increased performance-based incentive
compensation costs.
Other
Operating Income and Expenses, Net
Among other items, other operating income and expenses, net, include gains and losses on the sale
of assets; gains and losses related to certain amounts 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. The increase in 2007 compared with
2006 resulted from higher gains on sales of assets, primarily excess land. The decrease in 2006
when compared with 2005 reflects lower gains on sales of assets partially offset by a lower loss on
receivables.
Earnings
from Operations
The Corporation defines operating margin excluding freight and delivery revenues as earnings from
operations divided by net sales and is a measure of its operating profitability. The Corporations
operating margin excluding freight and delivery revenues improved 180 basis points and 210 basis
points in 2007 and 2006, respectively, as compared with prior year, primarily as a result of the improvement in gross margin excluding freight and delivery revenues and partially offset by higher
selling, general and administrative expenses.
Interest
Expense
Interest expense increased $20.5 million in 2007 due to the issuance of $250 million of 6.25%
Senior Notes and $225 million of Floating Rate Senior Notes in April 2007 and a lower amount of
capitalized interest related to major plant expansion and efficiency projects in 2007 compared with
2006. Interest expense decreased 5.3% in 2006 as compared with 2005 due to a higher amount of
capitalized interest related to major capital projects in 2006.
Other
Nonoperating Income and Expenses, Net
Other nonoperating income and expenses, net, are comprised generally of interest income, net equity
earnings from nonconsolidated investments and eliminations of minority interests for consolidated,
non-wholly owned subsidiaries. In 2007, $1.3 million of the increase compared with 2006 resulted
from lower earnings by consolidated subsidiaries which reduced the expense for the elimination of
minority interests. Additionally, higher earnings from nonconsolidated equity investments and
higher gains on foreign currency transactions contributed to the increase. In 2006, the elimination
of minority interest for consolidated subsidiaries increased other nonoperating income, net, by
$3.1 million and was partially offset by a $2.5 million decrease in interest income compared with
2005.
Income
Taxes
Variances in the estimated effective income tax rates, when compared with the federal corporate tax
rate of 35%, are due primarily to the effect of state income taxes, the impact of book and tax
accounting differences arising from the net permanent benefits associated with the depletion
allowances for mineral reserves, the domestic production deduction, and the tax effect of
nondeductibility of goodwill related to asset sales. The effective income tax rates for
discontinued operations reflect the tax effects of individual operations transactions and are not
indicative of the Corporations overall effective tax rate.
The Corporations estimated effective income tax rates for the years ended December 31 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Continuing operations |
|
|
30.7 |
% |
|
|
30.5 |
% |
|
|
27.2 |
% |
|
|
|
Discontinued operations |
|
|
68.9 |
% |
|
|
80.4 |
% |
|
|
34.6 |
% |
|
|
|
Overall |
|
|
30.7 |
% |
|
|
30.5 |
% |
|
|
27.0 |
% |
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page forty-three
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
The Corporations overall estimated effective income tax rate for 2007 was comparable to 2006. The
increase in the overall estimated effective income tax rate for 2006 compared with 2005 reflects
the impact of higher pretax earnings in relation to tax-deductible items and the effect of tax
contingencies reversed upon expiration of the federal statute of limitations. In 2006, reserves of
$2.7 million related to contingencies in the 2002 income tax return were reversed. In 2005,
reserves of $5.9 million were reversed when the federal statute of limitations for examination of
the 2001 tax year expired.
Discontinued
Operations
Divestitures and closures included in discontinued operations reflect nonstrategic, underperforming
operations within the Aggregates business that were sold or permanently shut down. The results of
all divested operations through the dates of disposal and any gains or losses on disposals are
included in discontinued operations on the consolidated statements of earnings. The discontinued
operations included the following net sales, pretax loss on operations, pretax gain or loss on
disposals, income tax expense or benefit and the overall net earnings or loss for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Net sales |
|
$ |
6,256 |
|
|
$ |
17,427 |
|
|
$ |
32,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss on operations |
|
$ |
(1,966 |
) |
|
$ |
(2,825 |
) |
|
$ |
(8,423 |
) |
Pretax gain (loss) on disposals |
|
|
2,745 |
|
|
|
3,055 |
|
|
|
(446 |
) |
|
Pretax gain (loss) |
|
|
779 |
|
|
|
230 |
|
|
|
(8,869 |
) |
Income tax expense (benefit) |
|
|
537 |
|
|
|
185 |
|
|
|
(3,073 |
) |
|
Net
earnings (loss) |
|
$ |
242 |
|
|
$ |
45 |
|
|
$ |
(5,796 |
) |
|
Net
Earnings
2007 net earnings of $262.7 million, or $6.06 per diluted share, increased 7.1% compared with 2006
net earnings of $245.4 million, or $5.29 per diluted share.
2006 net earnings increased 27.4%
compared with 2005 net earnings of $192.7 million, or $4.08 per diluted share.
Analysis of Gross Margin
|
|
|
2007 Aggregates business gross margin excluding freight and delivery revenues increased 130
basis points in spite of the 490-basis-point negative impact of embedded freight. |
The Aggregates business achieved its objective of improved gross margin excluding freight and
delivery revenues in 2007 by maximizing pricing opportunities and improving its cost structure
through productivity improvement and plant automation initiatives. The Aggregates business gross
margin excluding freight and delivery revenues for continuing operations for the years ended
December 31 was as follows:
|
|
|
|
|
2007 |
|
|
29.4 |
% |
2006 |
|
|
28.1 |
% |
2005 |
|
|
25.8 |
% |
The development of water and rail distribution yards continues to be a key component of the
Corporations strategic growth plan and has already led to increased market share in certain
areas. Most of this activity is in coastal areas located in the Southeast and West Groups, which
generally do not have an indigenous supply of aggregates but exhibit above-average growth
characteristics driven by long-term population growth. Transportation freight costs from the
production site to the distribution terminals is embedded in the delivered price of aggregates
products and reflected in the pricing structure at the distribution yards. However, sales from
rail and water distribution locations have generally yielded lower gross margins as compared with
sales directly from quarry operations. In 2007, approximately 26 million tons of aggregates were
sold from distribution yards, and results from these distribution operations reduced the
Aggregates business gross margin excluding freight and delivery revenues by approximately 490
basis points. Management expects that the distribution network currently in place will provide the
Corporation a greater growth opportunity than many of its competitors, and gross margin excluding
freight and delivery revenues should continue to improve, subject to the economic environment and
other of the Corporations risk factors (see Aggregates Industry and Corporation Risks on pages 47
through 58).
Other factors, including vertical integration asphalt, ready mixed concrete and road paving
operations have also negatively affected gross margin, particularly in the West Group. Gross
margins excluding freight and delivery revenues associated with vertically-integrated operations
are lower as compared with aggregates operations. Gross margins excluding freight and delivery
revenues for the Aggregates business asphalt and ready mixed concrete product lines,
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page forty-four
M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S O F F I N A N C I A L
C O N D I T I O
N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
which reside in the West Group, typically range from 10%
to 12% as compared with the Aggregates business overall
gross margin excluding freight and delivery revenues,
which generally ranges from 25% to 30%. The road paving
business, acquired as supplemental operations that were
part of larger acquisitions, does not represent a strategic
business of the Corporation and yields profits that are
insignificant to the Corporation as a whole. In 2007,
the mix of vertically-integrated operations lowered the
Aggregates business gross margin excluding freight and
delivery revenues by approximately 140 basis points. The
Aggregates business gross margin excluding freight and
delivery revenues will continue to be adversely affected
by the lower gross margins for these vertically-integrated
businesses and for the water and rail distribution network
as a result of managements strategic growth plan.
BUSINESS ENVIRONMENT
The sections on Business Environment on pages 45 through
60, and the disclosures therein, provide a synopsis of
the business environment trends and risks facing the
Corporation. However, no single trend or risk stands alone.
The relationship between trends and risks is dynamic, and
this discussion should be read accordingly.
Aggregates Industry and Corporation Trends
|
|
|
Spending statistics, from 2006 to 2007, according to U.S. Census Bureau: |
|
|
|
Public-works construction spending increased 12.6% |
|
|
|
Private commercial construction market spending increased 18.3% |
|
|
|
Private residential construction market spending decreased 18.3% |
The Corporations principal business serves customers in
construction aggregates-related markets. This business is
strongly affected by activity within the construction
marketplace, which is cyclical in nature. Consequently, the
Corporations profitability is sensitive to national, regional
and local economic conditions and especially to cyclical
swings in construction spending. The cyclical swings in
construction spending are in turn affected by fluctuations in
interest rates, levels of infrastructure funding by the public
sector, and demographic and population shifts.
![(GRAPH)](https://cdn.kscope.io/adca57f00a377caf7ecbbd1bc9a85004-g11819g1181924.gif)
Total aggregates
consumption in the United States in 2007 was
approximately 3.0 billion tons as
reported by the
U. S. Geological Survey. Assuming
gross domestic
product growth
of 3% per year,
an additional 100
million tons of
aggregates will be
required annually,
predominantly in
the high-growth
areas of the southern
United States.
An average-sized
quarry produces
one million tons
per year; therefore,
the equivalent
of an additional
100 new quarries per year would be required to
support the increased tonnage. As discussed further under
the section
Environmental Regulation and Litigation on pages
56 and 57, barriers to entry can limit the opening of new
quarries. The opening of a number of quarries that could
significantly affect the Corporations overall operations is
considered remote.
The Aggregates business sells its products principally to
contractors in connection with highway and other public
infrastructure projects as well as commercial and residential
development. While construction spending in the public
and private market sectors is affected by economic cycles,
the historic level of spending on public infrastructure
projects has been more stable as governmental appropriations
and expenditures are typically less interest
rate-sensitive than private-sector spending. Generally,
increased levels of funding have supported highway and
other infrastructure projects. By way of example, the U.S.
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
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![(PICTURE OF AGGREGATES SUPPLY)](https://cdn.kscope.io/adca57f00a377caf7ecbbd1bc9a85004-g11819g1181905.gif) |
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Census Bureau shows the total value of the United States construction spending on highways, streets
and bridges was $77 billion in 2007 compared with $72 billion in 2006, while overall public-works
construction spending
increased 12.6% in 2007. Management believes public-works projects accounted for more than 50% of
the total annual aggregates consumption in the United States during 2007; this has consistently
been the case since 1990. Approximately 48% of the Corporations 2007 aggregates shipments were in
the public sector; thus, the Aggregates business enjoys benefits from this level of public-works
construction projects. Accordingly, management believes exposure to fluctuations in commercial and
residential, or private sector, construction spending is lessened by the business mix of public
sector-related shipments. |
According to the U.S. Census Bureau, private commercial construction market spending increased
18.3% in 2007 as compared with 2006. Management believes certain commercial construction, notably
office and retail space, is declining in some areas as developers consider the impact of the
current credit markets on construction and development plans. Approximately 30% of the
Corporations 2007 aggregates shipments was related to the commercial construction market.
Private residential construction market spending decreased 18.3% in 2007 from 2006, according to
the U.S. Census Bureau. The decline in this sector occurred as homebuilders reduced
![(PIE CHART)](https://cdn.kscope.io/adca57f00a377caf7ecbbd1bc9a85004-g11819g1181906.gif)
the level of
homebuilding and subdivision development as compared with the building levels during the recent
period of historically low interest rates. Further, current credit market conditions removed
speculative and subprime buyers from the market. The Corporations percentage of its shipments
attributable to the residential construction market declined in 2007 as compared with 2006. The
Corporations exposure to residential construction is typically split evenly between aggregates
used in the construction of subdivisions, including roads, sidewalks, and storm and sewage
drainage, and aggregates used in the construction of homes. Therefore, the timing of new
subdivision starts by homebuilders affects residential volumes as much as new home starts.
The Corporations asphalt, ready mixed concrete and road paving operations generally follow
construction industry trends. These vertically-integrated operations accounted for approximately 5%
of the Aggregates business 2007 total revenues.
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
forty-six
M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S O F F I N A N C I A L
C O N D I T I O
N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
Since 1995, a higher percentage of the Corporations shipments have been transported by rail and
water. The gross margin on these shipments is lower as a result of the Corporation generally not
charging customers a profit on the transportation portion of the selling price. However, as demand
increases in supply-constrained areas, additional pricing opportunities, along with improved
distribution cost, may continue to improve profitability and gross margin on transported material.
Further, the long-haul transportation network can diversify market risk for locations that engage
in long-haul transportation of their aggregates products. Many locations serve both a local market
and transport products via rail and/or water to be sold in other markets. The risk of a downturn in
one market may be somewhat mitigated by other markets served by the location.
Pricing on construction projects is generally based on terms committing to delivery of specified
products at a specified price. While commercial construction jobs usually are completed within a
year, infrastructure contracts can require several years to complete. Therefore, pricing increases
can have a lag time before taking effect while the Corporation sells aggregates products under
existing price agreements.
Management believes the Corporation experienced the beginning of a shift in industry pricing trends
during 2005 and 2006. In those years, mid-year and other interim price
The Aggregates business is subject to potential losses on customer accounts receivable in response
to economic cycles. A growing economy decreases the risk of non-payment and bankruptcy, while a
recessionary economy increases those risks. Historically, the Corporations bad debt write-offs
have not been significant to its operating results, and management considers the allowance for
doubtful accounts adequate as of December 31, 2007.
Management expects the overall long-term trend for construction aggregates consolidation to
continue. However, management expects the consolidation trend to slow as the number of suitable
small to mid-sized acquisition targets in attractive markets declines. The Corporations Board of
Directors and management continue to review and monitor strategic long-term plans. These plans
include assessing business combinations and arrangements with other companies engaged in similar
businesses, increasing market share in the Corporations strategic businesses and pursuing new
opportunities that are related to existing markets of the Corporation.
Aggregates Industry and Corporation Risks
General Economic Conditions
The overall economy has been negatively affected by mortgage security losses and the tightening
credit markets.
![(MAP)](https://cdn.kscope.io/adca57f00a377caf7ecbbd1bc9a85004-g11819g1181907.gif)
increases became widespread
as opposed to the previous pattern of annual increases. This shift resulted from increased demand
for aggregates, along with the scarcity of supply in high-growth markets. Further, cost pressures,
primarily related to energy, also influenced pricing. In 2007, the easing of demand and cost
pressures reduced the rate of annual price increases and there were fewer mid-year price increases
for the Corporations aggregates products. Management expects pricing in the near term to increase
at a rate higher than long-term historic averages and correlate, with a lag factor, with the rate
of growth in demand. Pricing is determined locally and is affected by supply and demand.
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
forty-seven
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A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S O F F I N A N C I A L
C O N D I T I O
N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
Further, the housing market experienced a significant downturn during 2007. In response to a weak
economic outlook and increasing downside risks to growth, the Federal Reserve cut the federal funds
rate by 125 basis points to 3.00 percent in January, 2008. Typically, the economy feels the effects
of a significant cut in the federal funds rate 6 to 12 months later.
Public-sector construction projects are funded through a combination of federal, state and local
sources (see section Federal and State Highway Appropriations on pages 50 through 52). The level of
state public-works spending is varied across the nation and dependent upon individual state
economies. In addition to federal appropriations, each
2006, the Commonwealth of Virginia leased the nine-mile
Pocahontas Parkway for 99 years to Transurban, a private Australian firm. Transurban paid $522
million for the parkway rights and also agreed to build a connecting road to the Richmond airport.
Additionally, Texas has a transaction pending, subject to the completion of environmental studies,
which would sell the rights to build a 300-mile, $6 billion toll road from San Antonio to Dallas to
a private firm for $1.2 billion. While these public/private partnerships address underlying demand
and should continue, there is currently limited opportunity for widespread use until issues
surrounding whether public assets should be used in this manner are resolved.
![(2007 ECONOMIES)](https://cdn.kscope.io/adca57f00a377caf7ecbbd1bc9a85004-g11819g1181908.gif)
state funds its infrastructure spending from
specifically allocated amounts collected from various taxes, typically gasoline taxes and vehicle
fees. Additionally, subject to voter approval, the states may pass bond programs to fund
infrastructure spending. Increasingly, local governments are funding projects through bond issues
and local option taxes. Shortfalls in tax revenues can result in reductions in appropriations for
infrastructure spending. Accordingly, amounts put in place or spent may be below amounts awarded
under legislative bills.
In addition to bond issuances and local option taxes, state governments have developed other
alternative sources for financing the construction and maintenance of roads. For example, the state
of Indiana passed a bill in 2006 that leased the 157-mile Indiana Toll Road to Macquarie
Infrastructure Group of Sydney, Australia, and Cintra Concesiones de Infraestructuras de
Transporta, S.A. of Madrid, Spain for 75 years. The $3.8 billion received by Indiana as part of the
agreement is allocated to the Major Moves Program that supports highway and economic development
projects, road bond retirements and the establishment of funds that will ultimately be used for
construction projects. Further, in
Source:
Moodys Economy.com Inc. |
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
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C O N D I T I O
N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
The impact of economic improvement will vary by local market. Profitability of the Aggregates
business by state may not be proportional to net sales by state because certain of the
Corporations markets are more profitable than others. Further, while the Corporations aggregates
operations cover a wide geographic area, financial results depend on the strength of local
economies, which may differ from the economic conditions of the state or region. This is
particularly relevant given the high cost of transportation as it relates to the price of the
product. The impact of state or regional economic conditions is felt less by large fixed plant
operations that serve multiple end-use markets through the Corporations long-haul distribution
network.
In 2007, as reported by Moodys Economy.com Inc., most states experienced an expanding economy.
Exceptions included flat economies in Ohio, Arkansas, Missouri, Tennessee and Kentucky and
recessionary economies in
Florida, Nevada, California, Michigan and Arizona. For comparison, in 2006, most states also
experienced an expanding economy. Exceptions included flat economies in South Carolina, Louisiana,
Ohio and Mississippi and a recessionary economy in Michigan.
The Aggregates business top five revenue-generating states, namely North Carolina, Texas, Georgia,
Iowa and South Carolina, together accounted for approximately 61% of its 2007 net sales by state of
destination. The top ten revenue-generating states, which also include Florida, Louisiana, Indiana,
Alabama and Ohio, together accounted for approximately 81% of the Aggregates business 2007 net
sales by state of destination.
The North Carolina economy is expanding at a rate greater than the national average. Growth from
an expanding high-tech manufacturing and research base has offset losses from closings of furniture
and textile plants. The state has authorized $900 million of Grant Anticipation Revenue Vehicle
Bonds (GARVEE bonds) to fund various road projects statewide. In July 2007, the state of North
Carolina approved the issuance of $300 million of these bonds which will be repaid with federal
money the state expects to receive for highway and interstate projects in future years. Inclusive
of GARVEE bond jobs, the state bid approximately $1.0 billion of projects in 2007 and the same
level is projected for 2008. This compares with $722 million of state projects
bid in 2006.
Additionally, construction activity continued from the $3.1 billion education bond passed in 2002
funding new construction, repairs and renovations on the states sixteen-campus university system.
Further, a $970 million school bond for public school construction in the Raleigh area was passed
in November 2006 and an additional $516 million bond package for Charlotte-area school construction
was approved in November 2007. The states commercial construction market is expected to remain
steady. The residential construction market has remained steady in the Charlotte area, but has
slowed in the Raleigh and Greensboro areas. Single-family housing permits are projected to be down
6% statewide in 2008. Historically, the Corporations North Carolina operations have been above
average in profitability due to its quarry locations in growing market areas and their related
transportation advantage.
In Texas, the infrastructure market outlook reflects a projected reduction in state Department of
Transportation spending being partially offset by increased local spending. A multi-use, statewide
network of transportation routes, the Trans-Texas Corridor, has been proposed and would include
existing and new highways, railways and utility right-of-ways. This proposal is a long-term project
to be completed in phases over the next 50 years. In San Antonio, the infrastructure construction
market has remained strong. Despite delays in tollway spending along the burgeoning northern
corridor of the community while environmental impact studies are completed, toll projects in this
area are ultimately expected to provide a significant economic boost. The San Antonio market should
benefit further from Washington Mutual, Inc.s decision to open a regional center that will bring
approximately 5,000 new jobs to the area over the next several years. Coupled with the recent
completion of the construction of a Toyota truck manufacturing facility and the net gain of several
thousand new jobs from the recent military base realignment, San Antonio is one the fastest growing
markets in Texas. By contrast, mortgage rate increases, an all-time high inventory of repossessed
homes and a growing number of other available homes have adversely affected the residential
construction market, which is expected to decline slightly in 2008. In Dallas, the infrastructure
construction market should remain positive, supported by record spending by the North Texas Tollway
Authority. The Dallas residential construction market has slowed. In Houston, the overall
construction market has
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
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M A N A G E M E N T S D I S C U S S I O N &
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C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
been strong, although residential construction has
declined. The Houston construction materials market faces
the potential of increased competition from waterborne
imports due to higher railroad freight pricing and train
availability, which affects the delivered price of stone
from interior quarries in Texas, Arkansas and Oklahoma.
The overall economy of Houston is currently being bolstered
by the strong performance of the energy sector.
The Georgia state economy remains healthy despite the
announced closings of the General Motors and Ford assembly
plants and several military base closures in the Atlanta
area. The groundbreaking of a KIA automobile assembly plant
in western Georgia, as well as the announced expansions at
the Ports of Savannah and Brunswick, indicate Georgias
increasing international focus. Infrastructure improvements
are helping to further establish the states position as a
major southeastern distribution center. The
infrastructure construction market remains strong and the
outlook is favorable. The residential construction market
is currently depressed, while the commercial construction
market outlook is for slower growth in 2008.
The Iowa state economy, heavily dependent on the
agriculture industry, is growing at a rate that surpasses
the national average. The Farm Security and Rural
Investment Act of 2002, which governed federal farm
programs, expired by its own terms on September 30, 2007.
Among other things, this legislation provided minimum price
supports for certain crops, including corn and soybeans,
and stimulated the agricultural economy in Iowa, which
provided an overall benefit for the state. Management
expects a successor Farm Bill to be passed. Iowa continues
to be the largest pork-producing state in the nation. Local
economies have been strong in urban areas of the state,
while economies in rural areas have been bolstered by
construction of alternative energy facilities, including
ethanol, bio-diesel and wind. In fact, corn used for the
production of ethanol has increased to the point where
Iowa, the nations largest corn producer, could become an
importer of corn. The infrastructure construction market
has been soft and reflects a reduced level of projects by
the Iowa Department of Transportation. The residential
construction market declined in 2007 and no improvement is
expected in 2008. The commercial construction market has
remained stable.
The South Carolina economy is expected to start
outperforming the national average. Future growth is
expected to come from service-based industries, including
education, healthcare, and leisure and hospitality. The
infrastructure construction market has declined with no
recent material contract awards. The South Carolina
Department of Transportation is undergoing
administrative reform and is considering alternative
sources of revenues. Such considerations include increasing
gasoline taxes and tolling roads. The state has been
granted permission to toll Interstate 95 and is considering
tolling portions of Interstate 26 between Columbia and
Charleston. The residential construction market has started
to slow down, including areas along the coast that had
previously been strong. In the commercial market, Jafza
International is planning a $600 million logistics and
manufacturing park in Orangeburg that could ultimately
employ 10,000 people. Additionally, Google, Inc., is
constructing a data center in Berkeley County and has also
purchased land in Blythewood County.
Federal and State Highway Appropriations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-year $286.4 billion federal highway law
passed in 2005 |
|
|
|
|
Law increases states minimum rates of returns of
gasoline taxes paid to Highway Trust Fund |
|
|
|
|
|
The federal highway law is the principal source of highway
funding for public-sector construction projects. SAFETEA-LU
is a six-year $286.4 billion law succeeding The
Transportation Equity Act for the 21st Century (TEA-21),
which expired by its terms on September 30, 2003.
SAFETEA-LU is presently scheduled to expire on September
30, 2009.
SAFETEA-LU includes approximately $228 billion for highway
programs, $52 billion for transit programs and $6 billion
for highway safety programs. Law provisions include
increasing the minimum rate of return for donor states,
meaning those states are paying more in gasoline taxes than
they receive from the highway trust fund. The minimum rate
of return will increase from the current rate of 90.5
percent to 92.0 percent by 2008. Nine of the Aggregates
business top ten revenue-generating states (North
Carolina, Texas, Georgia, Iowa, South Carolina, Florida,
Louisiana, Indiana and Ohio) were donor states for fiscal
year 2007.
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
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A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
The federal highway law provides spending authorizations
that represent maximum amounts. Each year, an appropriation
act is passed establishing the amount that can actually be
used for particular programs. The annual funding level is
generally tied to receipts of highway user taxes placed in
the Highway Trust Fund. Once the annual appropriation is
passed, funds are distributed to each state based on
formulas (apportionments) or other procedures
(allocations). Apportioned and allocated funds generally
must be spent on specific programs as outlined in the
federal legislation. SAFETEA-LU includes a revenue-aligned
budget authority (RABA) provision, an annual review and
adjustment to link annual funding to actual and anticipated
revenues credited to the Highway Trust Fund. This review
commenced in fiscal year 2007 and continues through the
term of the bill. In September 2007, the Senate Finance
Committee approved proposed legislation that will generate
new revenues for the Highway Trust Fund to ensure its
solvency through fiscal year 2009. Without this
legislation, it is estimated that the Highway Trust Fund
will not be able to support fiscal year 2009 SAFETEA-LU
guaranteed funding. The proposed legislation has not yet
received full Congressional or Presidential approval.
Congress passed an omnibus spending bill for fiscal year
2008 that included $40.2 billion in guaranteed spending for
the federal-aid highway program.
A significant number of roads, highways and bridges built
following the establishment of the Interstate Highway
System in 1956 are now aging. According to The Road
Information Program (TRIP), a national transportation
research group, vehicle travel on United States highways
increased 39 percent from 1990 to 2005, while new road
mileage increased only 4 percent over the same period. TRIP
also reports that 33 percent of Americas major roads are
in poor or mediocre condition and 26 percent of Americas
bridges are structurally deficient or functionally
obsolete. Furthermore, a 2005 report issued by the American
Society of Civil Engineers (the Society) rated fourteen
out of fifteen infrastructure categories as being in poor
or mediocre condition. The Society believes that the aging
infrastructure and the poor condition of roads in the
United States is costing approximately $120 billion per
year in repairs, operating costs and time spent in traffic.
According to American Association of State Highway
Transportation Officials, construction costs are expected
to increase 70 percent from 1993 to 2015. Additionally, as
reported by TRIP, the current backlog of needed road,
highway and bridge repairs is approximately $461 billion.
Considering these statistics, the follow-on bill to
SAFETEA-LU will be key to funding continued infrastructure
spending. Many stakeholder groups have united to engage in
discussions with Congress regarding the importance of the
successor federal highway bill. Although there can be no
assurance that a successor bill will be passed prior to the
expiration of SAFETEA-LU, management expects, based on past
history, that federal funding for highways would be
provided under continuing resolution(s) if a successor bill
is not passed on or before September 30, 2009.
Most federal funds are available for four years. Once the
federal government approves a state project, funds are
committed and considered spent regardless of when the cash
is actually spent by the state and reimbursed by the
federal government. Funds are generally spent by the state
over a period of years, with approximately 27% in the year
of funding authorization, 41% in the succeeding year and
16% in the third year. The remaining 16% is spent in the
fourth year and beyond, according to the Federal Highway
Administration.
Federal highway laws require Congress to annually
appropriate highway funding levels, which continue to be
subject to balanced budget and other proposals that may
impact the funding available for the Highway Trust Fund.
However, investments in transportation improvements
generally create new jobs, which is a priority of many of
the governments economic plans. According to American Road
and Transportation Builders Association (ARTBA), federal
data indicates that every $1 billion in federal highway
investment creates 47,500 jobs. Approximately half of the
Aggregates business net sales to the infrastructure market
come from federal funding authorizations, including
matching funds from the states.
States are required to match funds at a predetermined rate
to receive federal funds for highways. Matching levels vary
depending on the type of project. If a state is unable to
match its allocated federal funds, funding is forfeited.
Any forfeitures are reallocated to states providing the
appropriate matching funds. States rarely forfeit federal
highway funds.
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Marietta Materials, Inc. and Consolidated
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
The rate of growth in state tax collections has declined
during 2007. Given that most states are required to balance
their budgets, reductions in revenues will generally
require a reduction in expenditures. In an economic
downturn, there is typically a time lag before states
experience lower tax receipts. Although state highway
construction programs are primarily financed from highway
user fees (including fuel taxes and vehicle registration
fees), there has been a reduction in many states
investment in highway maintenance. Significant increases in
federal infrastructure funding typically require state
governments to increase highway user fees to match federal
spending. Management believes that innovative financing at
the state level will grow at a faster rate than federal
funding. During the November 2006 election cycle, ARTBAs
Special 2006 Ballot Initiatives Report indicated that
voters in various states approved 22 state and local
measures that, once enacted, would provide over $2.1
billion in additional annual transportation funding.
Generally, state spending on infrastructure leads to
increased growth opportunity for the Corporation. The
degree to which the Corporation could be affected by a
reduction or slowdown in infrastructure spending varies by
state. The state economies of the Aggregates business five
largest revenue-generating states may disproportionately
affect performance.
The Vision 100-Century of Aviation Reauthorization Act is a
four-year bill that ended September 30, 2007 and provided
funding for airport improvements throughout the United
States. A successor four-year bill has been proposed in Congress.
and Southwest. Excessive rainfall, and conversely excessive
drought, can also jeopardize shipments, production and
profitability.
The Corporations operations in the southeastern and Gulf
Coast regions of the United States and the Bahamas are at
risk for hurricane activity. The Corporation did not incur
significant damage from hurricanes in 2007. However, the
West Group, particularly Texas, southern Oklahoma and
Kansas, experienced near historic levels of rainfall and
flooding during 2007, which affected both shipments and
operations.
Cost Structure
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Top 10 cost categories represent 96% of the Aggregates
business cost of sales; |
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Increased fuel costs negatively affected the Aggregates
business cost of sales by $7 million; |
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Health and welfare cost increased 2% over past five years compared with national average of 6% to 7%; and |
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Consolidated headcount reduced by 200 employees in 2007; earnings from operations per
average number of employees increased 15% in 2007 as compared with 2006.
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Generally, the top ten categories of cost of sales for the
Aggregates business are (1) labor and related benefits; (2)
freight on transported material (excluding freight billed
directly to customers); (3) energy; (4) repairs; (5)
depreciation, depletion and amortization; (6) supplies;
(7) contract services; (8) raw materials;
(9) materials purchased for resale; and
(10) royalties. In 2007, these categories
represented approximately 96% of the
Aggregates business total cost of sales.
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Geographic Exposure and
Seasonality
Seasonal changes and other
weather-related conditions significantly
affect the aggregates industry.
Aggregates production and shipment levels
coincide with general construction
activity, 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
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Due to high fixed costs associated with
production, the operating leverage of the
Aggregates business can be substantial.
Management believes approximately
one-third of the Aggregates business cost
of sales is fixed, one-third is variable
and one-third is semi-fixed. Fixed costs
are expenses that do not vary
based on production or sales volume.
Depreciation expense is an example of
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Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page
fifty-two
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
a fixed cost. Variable costs
fluctuate with the level of
production or sales volume. Energy
is an example of a variable cost.
Semi-fixed costs contain both a fixed
component and a variable component. An
example of a semi-fixed cost is labor
for hourly employees. These employees
generally work a certain minimum
number of hours per week for
continuity of workforce and safety
reasons. However, the actual number
of hours worked by these employees
will primarily depend on production
demands.
The Corporation has a process
improvement program in which personnel
teams review operational effectiveness
on a function-by-function and
location-by-location basis. The
resulting plant automation, mobile
fleet modernization and right-sizing,
coupled with continuous cost
improvement, have contributed to an
improved cost structure. In particular,
plant automation maximizes the
efficiency of materials flow through
the production process and has resulted
in reduced headcount. Additionally,
the process improvement program has
helped control repairs and maintenance
costs.
Wage inflation and increases in labor
costs may be somewhat mitigated by
enhanced productivity in an expanding
economy. Rising health care costs have
affected total labor costs in recent
years and are expected to continue.
However, workforce reductions resulting
from plant automation, mobile fleet
right-sizing and the economic downturn
have helped the Corporation control
rising costs.
The Corporation has experienced
health care cost increases averaging
2% over the past five years, whereas
the national average was 6% to 7%.
The Corporations voluntary pension
plan contributions have lessened the
impact of rising pension costs.
Lead times for large mobile equipment
purchases eased in 2007 in connection
with the softening of the
construction market. Generally, when
the Corporation incurs higher capital
costs to replace facilities and
equipment, increased capacity and
productivity along with reduced
repair costs can offset increased depreciation costs. However, when
aggregates demand weakens, the
increased productivity and related
efficiencies may not be fully realized,
resulting in underabsorption of fixed
costs, including depreciation.
The impact of inflation on the
Corporations businesses has been less
significant as inflation rates have
moderated. However, the Corporation has
experienced increases in most cost
areas. Notably, energy sector inflation
affects the costs of operating mobile
equipment used in quarry operations,
electricity to operate plants,
waterborne and rail transportation of
aggregates materials, and asphalt
production. In 2007, increases in fuel
prices lowered net earnings for the
Aggregates business by $0.10 per
diluted share when compared with 2006
fuel prices.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page fifty-three
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
As a percentage of net sales, consolidated selling, general and administrative costs increased to
7.9% in 2007 as compared with 7.6% in 2006. The increase results from $6.2 million in increased
share-based incentive compensation expense. Selling, general and administrative expenses for 2007
increased less than 2% excluding the increase in incentive compensation expense.
Shortfalls in federal and state revenues may result in increases in income and other taxes.
Transportation Exposure
The U.S. Department of the Interiors geological map of the United States shows the possible
sources of indigenous surface rock and illustrates the limited supply in the coastal areas of the
United States from Virginia to Texas.
online at its Bahamas and Nova Scotia locations to transport materials via oceangoing ships. In
2006, the Corporation completed the second largest capital project in its history, a new
highly-automated plant and barge loadout system at its Three Rivers facility in Kentucky. The new
plant, a key site in the Corporations long-haul distribution network, is capable of producing more
than 8 million tons per year and can ship to 14 states along the Ohio and Mississippi River
network. The Corporation is also currently focusing a significant part of its capital growth
spending program on locations that are part of the rail transportation network and are positioned
along the geological fall line in Georgia and South Carolina.
As the Corporation continues to move more aggregates by rail and water, embedded freight costs have
eroded profit margins. The freight costs for aggregates products
often equal
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or exceed the selling
price of the underlying aggregates products. The Corporation administers freight costs principally
in three ways: |
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Option 1:
The customer supplies transportation. |
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Option 2:
The Corporation directly
ships aggregates products from a production location to a customer by
arranging for a third party carrier to deliver aggregates and then charging the freight costs to
the customer. These freight and delivery revenues and costs are presented in the consolidated
statements of earnings as required by Emerging Issues Task Force Issue No. 00-10, Accounting For
Shipping and Handling Fees and Costs. These freight and delivery revenues and costs for the
Aggregates business were $222.3 million, $245.5 million and $232.4 million in 2007, 2006 and 2005,
respectively. |
With population migration into the southeastern and southwestern United States, local crushed stone
supplies must be supplemented, or in most cases supplied, from inland and offshore quarries. The
Corporations strategic focus includes expanding inland and offshore capacity and acquiring
distribution terminals and port locations to offload transported material. In 1994, the Corporation
had 7 distribution terminals. Today, with 68 distribution terminals, a growing percentage of the
Corporations aggregates shipments are being moved by rail or water through this network. In
recent years, the Corporation brought additional capacity
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Option
3:
The Corporation transports aggregates, either by rail or water, from a production location to a
distribution terminal. The selling price at the distribution terminal includes the freight cost to
move it there. These freight costs are included in the Aggregates business cost of sales and were
$181.5
million, $202.1 million and $160.9 million for 2007, 2006 and 2005, respectively. Transportation
costs from the distribution location to the customer are |
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page fifty-four
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A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
accounted for as described above in options 1 or 2, as applicable.
this decade. Further, in response to these issues, rail
transportation providers focused on increasing the number of cars per unit train under
transportation contracts and are
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For analytical purposes, the Corporation eliminates the effect of freight on margins with the
second option. When the third option is used, margins as a percentage of net sales are negatively
affected because the customer does not typically pay the Corporation a profit associated with the
transportation component of the selling price. For example, a truck customer in a local market will
pick up the material at the quarry and pay $6.50 per ton of
aggregate. Assuming a $1.50 gross
profit per ton, the Corporation would recognize a 23% gross margin. However, if a customer
purchased a ton of aggregate that was transported to a distribution yard by the Corporation via
rail or water, the selling price may be $12.50 per ton,
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generally requiring customers, through the freight rate structure,
to accommodate larger unit train movements. A unit train is a freight train moving large tonnages
of a single bulk product between two points without intermediate yarding and switching. In 2006,
the Corporation brought a new plant online at its North Troy operation in Oklahoma, which is
capable of producing 5 million tons per year and handling
multiple 90-car unit trains. Rail availability is seasonal and can impact aggregates shipments depending on other competing
movements. In January 2008, the Corporation entered into lease agreements for additional railcars
in its West Group. Further, in 2005, the Corporation |
assuming a $6.00 cost of freight. With the
same $1.50 gross profit per ton and no profit associated with the transportation component, the
gross margin would be reduced to 12% as a result of the embedded freight cost.
In 1994, 93% of the Corporations aggregates shipments were moved by truck and the remainder by
rail. In contrast, the originating mode of transportation for the Corporations aggregates
shipments in 2007 was 74% by truck, 17% by rail and 9% by water (see section Analysis of Gross
Margin on pages 44 and 45).
The Corporations increased dependence on rail shipments has made it vulnerable to railroad
performance issues, including track congestion, crew and power availability, and the ability to
renegotiate favorable railroad shipping contracts. For example, in 2006, the Corporation
experienced significant rail transportation shortages in Texas and parts of the Southeast, which
were caused by the downsizing of personnel and equipment by certain railroads during the economic
downturn in the early part of
addressed certain of its railcar needs by
leasing 780 railcars under two master lease agreements. One of the lease agreements has an initial
lease term of 5 years with a renewal option for an additional 5-year period; the other lease has a
term of 20 years.
Generally, the Corporation does not buy railcars, barges or ships, but instead supports its
long-term distribution network with leases and contracts of affreightments for these modes of
transportation. However, the limited availability of water and rail transportation providers,
coupled with increased demand and limited distribution sites, can adversely affect lease rates for
such services. In fact, in 2007, a lease versus buy analysis resulted in the Corporation purchasing
50 barges that were initially going to be financed via an operating lease.
The waterborne distribution network increases the Corporations exposure to certain risks,
including, among other items, the ability to negotiate favorable shipping contracts, demurrage
costs, fuel costs, barge or ship availability and weather disruptions. The Corporation has
long-term
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page fifty-five
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
agreements providing dedicated shipping capacity from its Bahamas and Nova Scotia operations to its
coastal ports. These contracts of affreightments have varying expiration dates ranging from 2008 to
2017 and generally contain renewal options. However, there can be no assurance that such contracts
can be renewed upon expiration. Further, barge availability has become an issue, as the rate of
retirements is exceeding the rate of construction. Shipyards that build barges are operating at
capacity and lead times for barges are approximately 18 months.
Water levels can also affect the Corporations ability to transport materials. In 2007, dry weather
caused low water levels and resulted in reduced tonnage that could be shipped on a barge.
Consequently, the per ton cost of transporting materials was higher than normal. Additionally, high
water levels can result in a reduction in the number of barges that can be included in a tow and
also require additional horsepower to provide necessary towing services.
Management expects the multiple transportation modes that have been developed with various rail
carriers and via deepwater ships and barges to provide the Corporation with the flexibility to
effectively serve customers in the Southwest and Southeast coastal markets.
Internal Expansion
The Corporations capital expansion, acquisition and greensite programs are designed to take
advantage of construction market growth through investment in both permanent and portable quarrying
operations. Recently, the Corporation has focused on an extensive array of plant automation and
capacity expansion projects, particularly at locations that are part of its long-haul distribution
network. A current priority of the Corporations capital spending program is to recapitalize its
Southeast operations. In particular, the Corporation commenced work on a major plant project in the
Augusta, Georgia, area during the fourth quarter of 2007 with completion expected in early 2009.
This project, which will increase annual production capacity from 2 million tons to 6 million tons,
is the first of a planned series of capital projects along the geological fall line in Georgia and
South Carolina. Additionally, in 2007, the Corporation completed a large-scale plant project
in Weeping Water, Nebraska, that increased annual production capacity from 2 million tons to 3.5
million tons. While such capital projects generally increase capacity, lower production costs and
improve product quality, they may experience short-term, higher-than-average start-up costs.
Additionally, it may take time to increase shipments and absorb the increased depreciation and
other fixed costs, particularly in a slow economy. Therefore, the full economic benefit of a
capital project may not be realized immediately upon completion.
A long-term capital focus for the Corporation is underground aggregates mines, which provide a
neighbor-friendly alternative to surface quarries. The Corporation is the largest operator of
underground aggregates mines in the United States. Production costs are generally higher
underground than for surface quarries since the depth of the aggregates deposits and the access to
the reserves result in higher development, explosives and depreciation costs. However, these
locations tend to be closer to their end-use markets and generally have higher average selling
prices than surface quarries.
On average, the Corporations aggregates reserves exceed 50 years of production based on current
levels of activity. Management of the Corporation has focused on acquisitions of additional
property around existing quarry locations. This property can serve as buffer property or additional
mineral reserve capacity, assuming the underlying geology supports economical aggregates mining. In
either instance, the acquisition of additional property around an existing quarry allows the
expansion of the quarry footprint and extension of quarry life. Some locations having limited
reserves may be unable to expand.
Environmental Regulation and Litigation
The expansion and growth of the aggregates industry is subject to increasing challenges from
environmental and political advocates hoping to control the pace and direction of future
development. Certain environmental groups have published lists of targeted municipal areas,
including areas within the Corporations marketplace, for environmental and suburban growth
control. The effect of these initiatives on the Corporations growth is typically localized.
Further challenges are expected as these initiatives gain momentum across the United States. Rail
and other transportation
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page fifty-six
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
alternatives are being heralded by these special-interest groups as solutions to mitigate road
traffic congestion and overcrowding.
The Clean Air Act, originally passed in 1963 and periodically updated by amendments, is the United
States national air pollution control program that granted the Environmental Protection Agency
(EPA) authority to set limits on the level of various air pollutants. To be in compliance with
national ambient air quality standards (NAAQS), a defined geographic area must be below the
limits set for six pollutants. Recently, environmental groups have been successful in lawsuits
against the federal and certain state departments of transportation, delaying highway construction
in municipal areas not yet in compliance with the Clean Air Act. The EPA designates geographic
areas as nonattainment areas when the level of air pollutants exceeds the national standard.
Nonattainment areas receive deadlines to reduce air pollutants by instituting various control
strategies. They otherwise face fines or control by the EPA. Included as non-attainment areas are
several major metropolitan areas in the Corporations markets, such as Charlotte, North Carolina;
Greensboro/Winston-Salem/High Point, North Carolina; Raleigh/Durham/Chapel Hill, North Carolina;
Hickory/ Morganton/Lenoir, North Carolina; Houston/Galveston, Texas; Dallas/Fort Worth, Texas; San
Antonio, Texas; Atlanta, Georgia; Macon, Georgia; Columbia, South Carolina; Rock Hill, South
Carolina; Indianapolis, Indiana; and Baton Rouge, Louisiana. Federal transportation funding through
SAFETEA-LU is directly tied to compliance with the Clean Air Act.
The Corporations operations are subject to and affected by federal, state and local laws and
regulations relating to the environment, health and safety and other regulatory matters. Certain of
the Corporations operations may occasionally involve the use of substances classified as toxic or
hazardous. The Corporation regularly monitors and reviews its operations, procedures and policies
for compliance with these laws and regulations. Despite these compliance efforts, risk of
environmental liability is inherent in the operation of the Corporations businesses, as it is with
other companies engaged in similar businesses.
Environmental operating permits are, or may be, required for certain of the Corporations
operations; such permits are subject to modification, renewal and revocation. New permits, which
are generally required for opening new sites or for expansion at existing operations, can take
several years to obtain. Rezoning and special-purpose permits are increasingly difficult to
acquire. Once a permit is obtained, the location is required to generally operate in accordance
with the approved site plan.
The Corporation is engaged in certain legal and administrative proceedings incidental to its normal
business activities (see Notes A and N to the audited consolidated financial statements on pages 13
through 18 and pages 32 and 33, respectively).
Specialty Products Segment
Through its Specialty Products segment, the Corporation manufactures and markets magnesia-based
chemicals products for industrial, agricultural and environmental applications; dolomitic lime for
use primarily in the steel industry; and structural composites products. Chemicals products have
varying uses, including flame retardants, wastewater treatment, pulp and paper production and other
environmental applications. In 2007, 66% of Specialty Products net sales were attributable to
chemicals products, 29% were attributable to lime, 2% were attributable to stone and 3% were
attributable to structural composites products.
Given the high fixed costs, low capacity utilization negatively affects the segments results of
operations. Further, the production of certain magnesia chemical products and lime products
requires
natural gas, coal and petroleum coke to fuel kilns. Price fluctuations of these fuels affect the
segments profitability.
In 2007, approximately 75% of the lime produced was sold to third-party customers, while the
remaining 25% was used internally as a raw material for the business manufacturing of chemicals
products. Dolomitic lime products sold to external customers are primarily used by the steel
industry, and overall, approximately 70% of Specialty Products 2007 net sales related to products
used in the steel industry. Accordingly, a portion of the segments revenues and profits is
affected by production
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
and inventory trends within the steel industry. These trends are guided by the rate of consumer
consumption, the flow of offshore imports and other economic factors. During 2007, softness in
housing-related steel products and automobile manufacturing curtailed demand in the United States
steel industry. Further, steel production in 2007 was reduced following a record year for steel
imports in 2006. Import rates in 2007 adjusted to the domestic market, but the continued downturn
in steel-related industries will affect Specialty Products revenues and profitability.
Approximately 11% of Specialty Products 2007 revenues came from foreign jurisdictions, including
Canada, Mexico, Europe, South America and the Pacific Rim. As a result of foreign market sales,
financial results could be affected by foreign currency exchange rates or weak economic conditions
in the foreign markets. To mitigate the short-term effect of currency exchange rates, the U.S.
dollar is used as the functional currency in foreign transactions.
Approximately 90% of Specialty Products hourly workforce belongs to a labor union. Union contracts
cover employees at the Manistee, Michigan magnesia-based chemicals plant and the Woodville, Ohio
lime plant. The labor contract with the Woodville labor union expires in June 2010, while the
Manistee labor union contract expires in August 2011.
Credit Market Risk
The current credit environment has negatively affected the economy and management has considered
the potential impact to the Corporations 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 of capital projects. Additionally, the Corporation may experience
difficulty placing its A-2/P-2 commercial paper. The Corporation experienced delays in placing
30-day commercial paper in August and September, 2007, but has not had placement problems since
that time. Management expects to refinance the $200 million Notes due December 2008. However, there
is no guarantee that the Corporation will be able to access the capital markets at financially
economical interest rates.
Internal Control and Accounting and Reporting Risk
The Corporations independent registered public accounting firm issued an unqualified opinion on
the effectiveness of the Corporations internal controls as of December 31, 2007. A system of
internal controls over financial reporting is designed to provide reasonable assurance, in a
cost-effective manner, on the reliability of a companys financial reporting and the process for
preparing and fairly presenting financial statements in accordance with generally accepted
accounting principles. Further, a system of internal control over financial reporting, by its
nature, should be dynamic and responsive to the changing risks of the underlying business. Changes
in the system of internal control over financial reporting could increase the risk of occurrence of
a significant deficiency or material weakness.
Accounting rulemaking, which may come in the form of accounting standards, principles,
interpretations or speeches, has become increasingly more complex and generally requires
significant estimates and assumptions in their interpretation and application. Further, accounting
principles generally accepted in the United States continue to be reviewed, updated and subject to
change by various rule-making bodies, including the Financial Accounting Standards Board and the
Securities and Exchange Commission (see Accounting Changes section of Note A to the audited
consolidated financial statements on pages 18 and section Critical Accounting Policies and
Estimates on pages 60 through 68).
For additional discussion on risks, see the section Risk Factors in the Corporations Annual
Report on Form 10-K for the year ended December 31, 2007.
Outlook 2008
Management expects 2008 will be a challenging year as the Corporation deals with the uncertainty
prevalent in the United States economy; however, demand for aggregate products in the
infrastructure and commercial construction markets appears solid. Many states are exploring new
funding alternatives, in addition to federal funding, to meet increasing demand for highways and
roads and to mitigate congestion and commute times in urban areas. Commercial demand for
industrial-related construction projects is steady and generally low vacancy rates in
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M A N A G E M E N T S D I S C U S S I O N &
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C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
many of the Corporations markets support the fact that
office space is not overbuilt. Retail commercial
construction is slowing, but demand over the near term
should be supported as commercial building catches up
with the extended residential buildout. Residential
construction is expected to continue to decline, but
the recent interest rate cuts by the Federal Reserve
Bank should create better conditions in the second half
of 2008 and into 2009. However, management does not
expect growth in the homebuilding sector to materialize
in a significant way until late 2009 or 2010. By
contrast, management expects solid growth for
chemical-grade aggregates used for flue gas
desulfurization and in agriculture lime, as well as
ballast used in railroad maintenance. Management is
also seeing significant demand for new wind farm
projects and continuing construction of ethanol plants.
In the Specialty Products segment, management expects
magnesia-based chemicals products demand to steadily
increase as industries focus on clean air, clean water,
and other green initiatives. Dolomitic lime demand used
in the Corporations chemicals products and as a
fluxing agent in steel production should see solid
volume growth in 2008.
The overriding drivers of the Corporations performance
for 2008 will depend upon a number of macroeconomic
factors. Managements current view is weighted toward a
stabilization of the economy during the second half of
2008, which it believes could provide impetus for
increased construction activity to address the
underlying demand in the infrastructure and commercial
markets and result in an increase in aggregates
volumes.
After careful consideration with respect to the many
factors that can affect the Corporations performance,
especially over the short term, management has decided
that it will continue to provide annual earnings
guidance, but will eliminate quarterly guidance.
Management believes that providing annual earnings
guidance is more consistent with the approach it takes
in running the Corporations business and provides
investors with a view that better aligns them with
managements own performance objectives, all of which
are based on annual, versus quarterly, targets. If,
during the course of the year, events cause management
to view the years performance as being materially
different from the guidance it has provided,
management will update the guidance as warranted. Also
during the course of the year, management will continue
to provide quarterly insight into the volume and price
drivers that could affect the Corporations
performance.
Management expects 2008 aggregates volumes will range
from up 1% to down 3% and the rate of price increase
will be in a range from 5.5% to 7.5%. The relationship
between volume and the rate of pricing growth is
co-dependent. As volumes increase or decrease, the rate
of pricing growth will tend to increase or decrease,
but with a lag factor. The Specialty Products segment,
which includes magnesia chemicals, dolomitic lime and
targeted activity in structural composites, is expected
to contribute $36 million to $38 million in pretax
earnings compared with $33 million in 2007.
In this context, management currently expects record
net earnings per diluted share, in a range of $6.25 to
$7.00 for 2008.
Risks
to Earnings Expectations
The 2008 estimated earnings range includes managements
assessment of the likelihood of certain risk factors
that will affect performance within the range. The
most significant risk to 2008 earnings, whether within
or outside current earnings expectations, will be, as
previously noted, the performance of the United States
economy and its effect on construction activity.
Management has estimated its earnings range, assuming a
stabilization of the United States economy in the
second half of 2008. Should the second half 2008
stabilization not occur or if the decline anticipated
in the first half 2008 is worse than currently
expected, earnings could vary significantly.
Risks to the earnings range are primarily
volume-related and include a greater-than-expected drop
in demand as a result of the continued decline in
residential construction, a decline in commercial
construction, delays in infrastructure projects, or
some combination thereof. Further, increased highway
construction funding pressures as a result of either
federal or state issues can affect profitability.
Currently, North Carolina, Texas, and South Carolina
are experiencing state-level funding pressures and
these states may disproportionately affect
profitability. The level of
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C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
aggregates demand in the Corporations end-use markets,
production levels and the management of production
costs will affect the operating leverage of the
aggregates business and, therefore, profitability.
Production costs in the Aggregates business are also
sensitive to energy prices, the costs of repair and
supply parts, and the start-up expenses for large-scale
plant projects. The continued rising cost of diesel and
other fuels increases production costs either directly
through consumption or indirectly in the increased cost
of energy-related consumables, namely steel,
explosives, tires and conveyor belts. Sustained periods
of diesel fuel cost at the current level will affect
profitability. The availability of transportation in
the Corporations long-haul network, particularly the
availability of barges on the Mississippi River system
and the availability of rail cars and locomotive power
to move trains, affects the Corporations ability to
efficiently transport material into certain markets,
most notably Texas and the Gulf Coast region. The
business is also subject to weather-related risks that
can significantly affect production schedules and
profitability. Opportunities to reach the upper end of
the earnings range depend on the aggregates product
line demand exceeding expectations.
Risks to earnings outside of the range include a change
in volume beyond current expectations as a result of
economic events outside of the Corporations control.
In addition to the impact on residential and commercial
construction, the Corporation is exposed to risk in its
earnings expectations from tightening credit markets,
and the availability of and interest cost related to
its commercial paper program, which is rated A-2 by
Standards & Poors and P-2 by Moodys. Commercial paper
of $72,000,000 was outstanding at December 31, 2007.
OTHER FINANCIAL INFORMATION
Critical Accounting Policies and Estimates
The Corporations audited consolidated financial
statements include certain critical estimates regarding
the effect of matters that are inherently uncertain.
These estimates require managements subjective and
complex judgments. Amounts reported in the
Corporations consolidated financial statements could
differ materially if management had used different
assumptions in making these estimates, resulting in
actual results differing from those estimates.
Methodologies
used and assumptions selected by management in making
these estimates, as well as the related disclosures,
have been reviewed by and discussed with the
Corporations Audit Committee. Managements
determination of the critical nature of accounting
estimates and judgments may change from time to time
depending on facts and circumstances that management
cannot currently predict.
Impairment Review of Goodwill
Goodwill is required to be tested at least annually for
impairment using a discounted cash flow model to
estimate fair value. The impairment evaluation of
goodwill is a critical accounting estimate because
goodwill represents 21.4% of the Corporations total
assets at December 31, 2007, the evaluation requires
the selection of assumptions that are inherently
volatile and an impairment charge could be material to
the Corporations financial condition and its results
of operations.
There is no goodwill associated with the Specialty Products segment. For the Aggregates business,
management determined the reporting units, which represent the level at which goodwill is tested
for impairment under Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, (FAS 142), were as follow:
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Carolina, which includes North Carolina and South Carolina; |
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Mideast, which includes Indiana, Maryland, Ohio, Virginia and West Virginia; |
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South Central, which includes Alabama, Illinois, Kentucky, Louisiana, Mississippi, North
Georgia, and Tennessee; quarry operations and distribution yards along the Mississippi River
system and Gulf Coast; and offshore quarry operations in the Bahamas and Nova Scotia; |
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Southeast, which includes Florida and South Georgia; |
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West, which includes Arkansas, California, Iowa, Kansas, Minnesota, Missouri, Nebraska,
Nevada, Oklahoma, Texas, Washington, Wisconsin and Wyoming. |
In accordance with FAS 142, the Corporation identified
its reporting units as its operating segments or one
level below its operating segments, referred to as
components, if certain criteria were met. These
criteria include the component having discrete
financial information available and the information
being regularly reviewed by segment management.
However, components within an operating segment can be
combined into a reporting unit if they have similar
economic
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
characteristics. In accordance with Statement of
Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related
Information, disclosures for certain of the
aforementioned reporting units are consolidated for
financial reporting purposes as they meet the
aggregation criteria. Any impact on reporting units
resulting from organizational changes made by
management is reflected in the succeeding FAS
142 evaluation.
Goodwill for each of the reporting units was tested for
impairment by comparing the reporting units fair value
to its carrying value, which represents step 1 of a
two-step approach required by FAS 142. If the fair
value of a reporting unit exceeds its carrying value,
no further calculation is necessary. A reporting unit
with a carrying value in excess of its fair value
constitutes a step 1 failure and leads to a step 2
evaluation to determine the goodwill write off. If a
step 1 failure occurs, the excess of the carrying value
over the fair value does not equal the amount of the
goodwill write off. Step 2 requires the calculation of
the implied fair value of goodwill by allocating the
fair value of the reporting unit to its tangible and
intangible assets, other than goodwill, similar to the
purchase price allocation prescribed under Statement of
Financial Accounting Standards No. 141, Business
Combinations. The remaining unallocated fair value
represents the implied fair value of the goodwill. If
the implied fair value of goodwill exceeds its carrying
amount, there is no impairment. If the carrying value
of goodwill exceeds its implied fair value, an
impairment charge is recorded for the difference. When
performing step 2 and allocating a reporting units
fair value, assets having a higher fair value as
compared to book value increase any possible write off
of impaired goodwill.
In accordance with FAS 142, the fair value of a
reporting unit can be carried forward if it meets three
criteria. First, the most recent evaluation resulted in
a reporting units fair value exceeding its carrying
value by a substantial amount. Second, the assets and
liabilities that make up the reporting unit have not
changed significantly since the most recent fair value
determination. Finally, the likelihood that a current
fair value determination would be less than the current
carrying amount of the reporting unit is remote.
In 2007, the impairment evaluation was performed as of
October 1, which represents the ongoing annual
evaluation date. The fair values of all reporting units
were carried forward from the prior year. The
carried-forward fair values were determined using a
15-year discounted cash flow model. Key assumptions
included managements estimates of future
profitability, capital requirements, a 9% or 10%
discount rate depending on which year the reporting
units fair value was calculated, and a 2.5% terminal
growth rate. The fair values for each reporting unit
exceeded their respective carrying values.
The term of the discounted cash flow model is a
significant factor in determining the fair value of the
reporting units. A 15-year term was selected based on
managements judgment supported by quantitative
factors, including the Corporations strong financial
position, long history of earnings growth and the
remaining life of underlying mineral reserves,
estimated at over 50 years at current production rates.
Additional consideration was given to qualitative
factors, including the Corporations industry
leadership position and the lack of obsolescence risks
related to the Aggregates business.
Future profitability and capital requirements are, by
their nature, estimates. The profitability estimates
utilized in the evaluation were consistent with the
five-year operating plan prepared by management and
reviewed by the Board of Directors. The succeeding ten
years of profitability were estimated using assumptions
for price, cost and volume increases. Future price,
cost and volume assumptions were primarily weighted
toward forecasts and market conditions, but also
included a review of these trends during the most
recent preceding fifteen-year period. Capital
requirements were estimated based on expected
recapitalization needs of the reporting units.
The assumed discount rate was based on the
Corporations weighted-average cost of capital. The
terminal growth rate was selected based on the
projected annual increase in Gross Domestic Product.
Price, cost and volume increases, profitability of
acquired operations, efficiency improvements, the
discount rate and the terminal growth rate are
significant assumptions in performing the impairment
test. These assumptions are interdependent and have a
significant impact on the results of the test.
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty-one
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
The West reporting unit is significant to the
evaluation as $407 million of the Corporations
goodwill at December 31, 2007 is attributable to this
reporting unit. For the 2007 evaluation, the excess of
fair value over carrying value for this reporting unit
was $172 million.
Management believes that all assumptions used were
reasonable based on historical operating results and
expected future trends. However, if future operating
results are unfavorable as compared with forecasts, the
results of future FAS 142 evaluations could be
negatively affected. Additionally, mineral reserves,
which represent the underlying assets producing the
reporting units cash flows, are depleting assets by
their nature. The reporting units future cash flows
will be updated as required based on expected future
cash flow trends. Management does not expect
significant changes to the valuation model for the 2008
evaluation. The potential write off of goodwill from
future evaluations represents a risk to the
Corporation.
Pension Expense-Selection of Assumptions
The Corporation sponsors noncontributory defined
benefit retirement plans that cover substantially all
employees and a Supplemental Excess Retirement Plan
(SERP) for certain retirees (see Note J to the
audited consolidated financial statements on pages 25
through 28). Key assumptions for these benefit plans
are selected in accordance with Statement of Financial
Accounting Standards No. 87, Employers Accounting for
Pensions (FAS 87). In accordance with FAS 87, annual
pension expense (inclusive of SERP expense) consists of
several components:
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Service Cost, which represents the present value
of benefits attributed to services rendered in the
current year, measured by expected future salary
levels. |
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Interest Cost, which represents the accretion
cost on the liability that has been discounted
back to its present value. |
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Expected Return on Assets, which represents the
expected investment return on pension fund assets. |
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Amortization of Prior Service Cost and Actuarial
Gains and Losses, which represents components that
are recognized over time rather than immediately,
in accordance with FAS 87. Prior service cost
represents credit given to employees for years of
service prior to plan inception. Actuarial gains
and losses arise from changes in assumptions |
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regarding future events or when actual returns
on assets differ from expected returns. At December
31, 2007, the net unrecognized actuarial loss and
unrecognized prior service cost were $70.5 million
and $4.9 million, respectively. Pension accounting
rules currently allow companies to amortize the
portion of the unrecognized actuarial loss that
represents more than 10 percent of the greater of the
projected benefit obligation or pension plan assets,
using the average remaining service life for the
amortization period. Therefore, the $70.5 million
unrecognized actuarial loss consists of approximately
$35.3 million that is currently subject to
amortization in 2008 and $35.2 million that is not
subject to amortization in 2008. Assuming the
December 31, 2007 projected benefit obligation and an
average remaining service life of 8.8 years,
approximately $4.7 million of amortization of the
actuarial loss and prior service cost will be a
component of 2008 annual pension expense. |
These components are calculated annually to determine
the pension expense that is reflected in the
Corporations results of operations.
Management believes the selection of assumptions related to the annual pension expense is a
critical accounting estimate due to the high degree of volatility in the expense dependent on
selected assumptions. The key assumptions are as follow:
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The discount rate is the rate used to present value the pension obligation and represents the
current rate at which the pension obligations could be effectively settled. |
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The rate of increase in future compensation
levels is used to project the pay-related pension
benefit formula and should estimate actual future
compensation levels. |
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The expected long-term rate of return on pension
fund assets is used to estimate future asset
returns and should reflect the average rate of
long-term earnings on assets already invested. |
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The mortality table represents published
statistics on the expected lives of people. |
Managements selection of the discount rate is based on
an analysis that estimates the current rate of return
for high quality, fixed-income investments with
maturities matching the payment of pension benefits
that could be purchased
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty-two
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
to settle the obligations. The Corporation used the
10th to 90th percentile of the universe (approximately
400 issues) of Moodys Aa noncallable bonds in its
analysis to determine the discount rate. Of the four
key assumptions, the discount rate is generally the
most volatile and sensitive estimate. Accordingly, a
change in this assumption would have the most
significant impact on the annual pension expense.
Managements selection of the rate of increase in
future compensation levels is generally based on the
Corporations historical salary increases, including
cost of living adjustments and merit and promotion
increases, giving consideration to any known future
trends. A higher rate of increase will result in a
higher pension expense. The actual rate of increase in
compensation levels in 2007 was approximately 4.3% as
compared with an assumed rate of increase of 5.0%.
Managements selection of the expected long-term rate
of return on pension fund assets is based on a
building-block approach, whereby the components are
weighted based on the allocation of pension plan
assets. Given that these returns are long-term, there
are generally not significant fluctuations in the
expected rate of return from year to year. However,
management selected an expected rate of return of 8.00%
at December 31, 2007, which represents a reduction of
25 basis points. This is due to lower expected returns
on bonds, which comprise approximately 40% of the
Corporations pension plan assets. The lower expected
rate of return will result in a higher pension expense
for 2008. The following table presents the expected
return on pension fund assets as compared with the
actual return on pension assets for 2007, 2006 and
2005:
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Expected Return |
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Actual Return |
(add 000) |
|
on Pension Assets |
|
on Pension Assets |
20071 |
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$ |
22,474 |
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$ |
11,839 |
|
20062 |
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$ |
19,638 |
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$ |
30,329 |
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20053 |
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$ |
17,713 |
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$ |
18,599 |
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1 |
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Return on assets is for the period December 1, 2006 to November 30, 2007. |
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2 |
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Return on assets is for the period December 1, 2005 to November 30, 2006. |
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3 |
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Return on assets is for the period December 1, 2004 to November 30, 2005. |
The difference between expected return on pension
assets and the actual return on pension assets is not
immediately recognized in the statement of earnings.
Rather, pension accounting rules require the difference
to be included in actuarial gains and losses, which are
amortized into annual pension expense.
At December 31, 2007 and 2006, the Corporation used the
RP 2000 Mortality Table to estimate the remaining lives
of the participants in the pension plans. The RP 2000
Mortality Table includes separate tables for
blue-collar employees and white-collar employees. The
Corporation used the blue-collar table for its hourly
workforce and the white-collar table for its salaried
employees.
Assumptions are selected on December 31 to be used in
the calculation of the succeeding years expense. For
the 2007 pension expense, the assumptions selected at
December 31, 2006 were as follow:
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Discount rate |
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5.70 |
% |
Rate of increase in future compensation levels |
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5.00 |
% |
Expected long-term rate of return on assets |
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8.25 |
% |
Average remaining service period for
participants |
|
8.9 years |
RP 2000 Mortality Table |
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Using these assumptions, the 2007 pension expense was
$15.5 million. A change in the assumptions would have
had the following impact on the 2007 expense:
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A change of 25 basis points in the discount rate
would have changed 2007 expense by approximately
$1.5 million. |
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|
A change of 25 basis points in the expected long-term
rate of return on assets would have changed the 2007
expense by approximately $0.7 million. |
For the 2008 pension expense, the assumptions selected
were as follow:
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|
Discount rate |
|
|
6.09 |
% |
Rate of increase in future compensation levels |
|
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5.00 |
% |
Expected long-term rate of return on assets |
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|
8.00 |
% |
Average remaining service period for
participants |
|
8.8 years |
RP 2000 Mortality Table |
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty-three
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
Using these assumptions, the 2008 pension expense is
expected to be approximately $19.1 million based on
current demographics and structure of the plans.
Changes in the underlying assumptions would have the
following estimated impact on the 2008 expected
expense:
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A change of 25 basis points in the discount rate
would change the 2008 expected expense by
approximately $1.7 million. |
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|
A change of 25 basis points in the expected
long-term rate of return on assets would change
the 2008 expected expense by approximately $0.7
million. |
The Corporations pension plans are underfunded
(projected benefit obligation exceeds the fair value of
plan assets) by $64.2 million at December 31, 2007.
Although an under-funded plan indicates a need for cash
contributions, the Employee Retirement Income Security
Act of 1974 (ERISA) and, more recently, Congressional
changes in the timing and calculation of pension plan
funding generally allow companies several years to make
the required contributions. During this period,
improvements in actual returns on assets may decrease
or eliminate the need for cash contributions. The
Corporation made pension plan contributions of $100
million in the five-year period ended December 31,
2007, of which $88 million were voluntary. In 2008, the
Corporations expected contributions to its pension
plans are $17 million, consisting of a voluntary $12
million contribution to the qualified pension plan and
a $5 million contribution to the SERP.
Estimated Effective Income Tax Rate
The Corporation uses the liability method to determine
its provision for income taxes, as outlined in
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (FAS 109). Accordingly,
the annual provision for income taxes reflects
estimates of the current liability for income taxes,
estimates of the tax effect of financial reporting
versus tax basis differences using statutory income tax
rates and managements judgment with respect to any
valuation allowances on deferred tax assets. The result
is managements estimate of the annual effective tax
rate (the ETR) (see Note I to the audited consolidated
financial statements on pages 23 and 24).
Income for tax purposes is determined through the
application of the rules and regulations under the
United States Internal Revenue Code and the statutes of
various foreign, state and local tax jurisdictions in
which the Corporation conducts business. Changes in the
statutory tax rates and/ or tax laws in these
jurisdictions may have a material effect on the ETR.
The effect of these changes, if any, is recognized when
the change is effective. As prescribed by these tax
regulations, as well as generally accepted accounting
principles, the manner in which revenues and expenses
are recognized for financial reporting and income tax
purposes is not always the same. Therefore, these
differences between the Corporations pretax income for
financial reporting purposes and the amount of taxable
income for income tax purposes are treated as either
temporary or permanent, depending on their nature.
Temporary differences reflect revenues or expenses that
are recognized in financial reporting in one period and
taxable income in a different period. Temporary
differences result from differences between the
financial reporting basis and tax basis of assets or
liabilities and give rise to deferred tax assets or
liabilities (i.e., future tax deductions or future
taxable income). Therefore, when temporary differences
occur, they are offset by a corresponding change in a
deferred tax account. As such, total income tax expense
as reported on the Corporations consolidated
statements of earnings is not changed by temporary
differences. For example, accelerated methods of
depreciating machinery and equipment are often used for
income tax purposes as compared with the straight-line
method used for financial reporting purposes.
Initially, the straight-line method used for financial
reporting purposes, as compared with accelerated
methods for income tax purposes, will result in higher
current income tax expense for financial reporting
purposes, with the difference between these methods
resulting in the establishment of a deferred tax
liability.
The Corporation has deferred tax liabilities, primarily
for property, plant and equipment and goodwill. The
deferred tax liabilities attributable to property,
plant and equipment relate to accelerated depreciation
and depletion methods used for income tax purposes as
compared with the straight-line and units of production
methods used for financial reporting purposes. These
temporary differences will reverse over the remaining
useful lives of the related assets. The deferred tax
liabilities attributable to goodwill arise as a
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty-four
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
result of amortizing goodwill for income tax purposes
but not for financial reporting purposes. This
temporary difference reverses when goodwill is written
off for financial reporting purposes, either through
divestitures or an impairment charge. The timing of
such events cannot be estimated.
The Corporation has deferred tax assets, primarily for
unvested stock-based compensation awards, employee
pension and postretirement benefits, valuation
reserves, inventories and net operating loss
carryforwards. The deferred tax assets attributable to
unvested stock-based compensation awards relate to
differences in the timing of deductibility for
financial reporting purposes versus income tax
purposes. For financial reporting purposes, the fair
value of the awards is deducted ratably over the
requisite service period. For income tax purposes, no
deduction is allowed until the award is vested or no
longer subject to substantial risk of forfeiture. The
deferred tax assets attributable to employee pension
and postretirement benefits relate to deductions as
plans are funded for income tax purposes as compared
with deductions for financial reporting purposes that
are based on accounting standards. The reversal of
these differences depends on the timing of the
Corporations contributions to the related benefit
plans as compared to the annual expense for financial
reporting purposes. The deferred tax assets
attributable to valuation reserves and inventories
relate to the deduction of estimated cost reserves and
various period expenses for financial reporting
purposes that are deductible in a later period for
income tax purposes. The reversal of these differences
depends on facts and circumstances, including the
timing of deduction for income tax purposes for
reserves previously established and the establishment
of additional reserves for financial reporting
purposes. At December 31, 2007, the Corporation had
state net operating loss carryforwards of $117.8
million and related deferred tax assets of $7.9 million
that have varying expiration dates. These deferred tax
assets have a valuation allowance of $7.4 million,
which was established based on the uncertainty of
generating future taxable income in certain states
during the limited period that the net operating loss
carryforwards can be utilized under state statutes.
The Corporations estimated ETR reflects adjustments to
financial reporting income for permanent differences.
Permanent differences reflect revenues or expenses that
are
recognized in determining either financial reporting
income or taxable income, but not both. Permanent
differences either increase or decrease income tax
expense with no offset in deferred tax liabilities. An
example of a material permanent difference that affects
the Corporations estimated ETR is tax depletion in
excess of basis for mineral reserves. For income tax
purposes, the depletion deduction is calculated as a
percentage of sales, subject to certain limitations. As
a result, the Corporation may continue to claim tax
depletion deductions exceeding the cost basis of the
mineral reserves, whereas the depletion expense for
financial reporting purposes ceases once the value of
the mineral reserves is fully amortized. The continuing
depletion for tax purposes is treated as a permanent
difference. Another example of a permanent difference
is goodwill established for financial reporting
purposes from an acquisition of another companys
stock. This goodwill has no basis for income tax
purposes. If the goodwill is subsequently written off
as a result of divestitures or impairment losses, the
financial reporting deduction is treated as a permanent
difference.
Tax depletion in excess of book basis for mineral
reserves is the single largest recurring permanent
deduction for the Corporation in calculating taxable
income. Therefore, a significant amount of the
financial reporting risk related to the estimated ETR
is based on this estimate. Estimates of the percentage
depletion allowance are based on other accounting
estimates such as sales and profitability by tax unit,
which compound the risk related to the estimated ETR.
Further, the percentage depletion allowance may not
increase or decrease proportionately to a change in
pretax earnings.
To calculate the estimated ETR for any year, management
uses actual information where practical. Certain
permanent and temporary differences are calculated
prior to filing the income tax returns. However, other
amounts, including deductions for percentage depletion
allowances, are estimated at the time the provision for
income taxes is calculated. After estimating amounts
that management considers reasonable under the
circumstances, a provision for income taxes is
recorded.
Each quarter, management updates the estimated ETR for
the current year based on events that occur during the quarter. For example, changes to forecasts of annual
sales
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty-five
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
and related earnings, purchases and sales of
business units and product mix subject to different
percentage depletion rates are reflected in the
quarterly estimate of the annual ETR. As required by
FAS 109, some events may be treated as discrete events
and the tax impact is fully recorded in the quarter in
which the discrete event occurs. During 2007, the
estimated ETR changed in each quarter. In particular,
the change in the third quarter was primarily to
reflect the filing of the 2006 federal and state income
tax returns that adjusted prior estimates of permanent
and temporary differences, the evaluation of the
deferred tax balances and the related valuation
allowances, and the reversal of $4.8 million of tax
reserves for the 2003 tax year for which the statute of
limitations expired in 2007. Further, at the end of the
fourth quarter, certain estimates were adjusted to
reflect actual reported annual sales and related
earnings and any changes in permanent differences.
Historically, the Corporations adjustment of prior
estimates of permanent and temporary differences has
not been material to its results of operations or total
tax expense.
For 2007, an estimated overall ETR of 30.7% was used to
calculate the provision for income taxes, a portion of
which was allocated to discontinued operations. The
estimated ETR is sensitive given that changes in the
rate can have a significant impact on annual earnings.
A change of 100 basis points in the estimated ETR would
affect 2007 income tax expense by $3.8 million.
All income tax filings are subject to examination by
federal, state and local regulatory agencies, generally
within three years of the filing date. In accordance
with Financial Accounting Standards Board
Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
Interpretation of FAS 109 (FIN 48), the Corporation
has established reserves of $31.9 million for uncertain
tax positions at December 31, 2007. FIN 48 requires the
recognition of a tax benefit when it is
more-likely-than-not, based on the technical merits,
that the position would be sustained upon examination
by a taxing authority. FIN 48 reserves are analyzed
quarterly and, if necessary, are adjusted based on
changes in underlying facts and circumstances. The Corporation
estimates that it is reasonably possible that unrecognized tax
benefits ranging from $0 to $24.8 million may change during 2008
as a result of the settlement of the Internal Revenue Service audits
for the 2004 and 2005 tax years. The
Corporations open tax years that are subject to
examination are 2004 to 2007.
Further, certain state
and foreign tax jurisdictions have open tax years from
2001 to 2007.
Property, Plant and Equipment
Property, plant and equipment represent 53% of total
assets at December 31, 2007 and accordingly, accounting
for these assets represents a critical accounting
policy. Useful lives of the assets can vary depending
on factors, including production levels, geographic
location, portability and maintenance practices.
Additionally, climate and inclement weather can reduce
the useful life of an asset. Historically, the
Corporation has not recognized significant losses on
the disposal or retirement of fixed assets.
The Corporation evaluates aggregates reserves in
several ways, depending on the geology at a particular
location and whether the location is a potential new
site (greensite), an acquisition or an existing
operation. Greensites require a more extensive
drilling program that is undertaken before any
significant investment is made in terms of time, site
development or efforts to obtain appropriate zoning and
permitting (see section Environmental Regulation and
Litigation on pages 56 and 57). The amount of
overburden and the quality of the aggregates material
are significant factors in determining whether to
pursue opening the site. Further, the estimated average
selling price for products in a market is also a
significant factor in concluding that reserves are
economically mineable. If the Corporations analysis
based on these factors is satisfactory, the total
aggregates reserves available are calculated and a
determination is made whether to open the location.
Reserve evaluation at existing locations is typically
performed to evaluate purchasing adjoining properties
and, for quality control, calculating overburden
volumes and mine planning. Reserve evaluation of
acquisitions may require a higher degree of sampling to
locate any problem areas that may exist and to verify
the total reserves.
Well-ordered subsurface sampling of the underlying
deposit is basic to determining reserves at any
location. This subsurface sampling usually involves
one or more types of drilling, determined by the nature
of the material to be sampled and the particular
objective of the sampling. The Corporations objectives
are to ensure that the underlying deposit meets
aggregates specifications and the total reserves on
site are sufficient for mining and economically
recoverable. Locations underlain with hard rock
deposits, such as granite
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty-six
|
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|
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
and limestone, are drilled
using the diamond core method, which provides the most
useful and accurate samples of the deposit. Selected core samples are tested for
soundness, abrasion resistance and other physical
properties relevant to the aggregates industry. The
number and depth of the holes are determined by the
size of the site and the complexity of the
site-specific geology. Geological factors that may
affect the number and depth of holes include faults,
folds, chemical irregularities, clay pockets, thickness
of formations and weathering. A typical spacing of core
holes on the area to be tested is one hole for every
four acres, but wider spacing may be justified if the
deposit is homogeneous.
Despite previous drilling and sampling, once accessed,
the quality of reserves within a deposit can vary.
Construction contracts, for the infrastructure market
in particular, include specifications related to the
aggregates material. If a flaw in the deposit is
discovered, the aggregates material may not meet the
required specifications. This can have an adverse
effect on the Corporations ability to serve certain
customers or on the Corporations profitability. In
addition, other issues can arise that limit the
Corporations ability to access reserves in a
particular quarry, including geological occurrences,
blasting practices and zoning issues.
Locations underlain with sand and gravel are typically
drilled using the auger method, whereby a 6-inch
corkscrew brings up material from below the ground
which is then sampled. Deposits in these locations are
typically limited in thickness, and the quality and
sand-to-gravel ratio of the deposit can vary both
horizontally and vertically. Hole spacing at these
locations is approximately one hole for every acre to
ensure a representative sampling.
The geologist conducting the reserve evaluation makes
the decision as to the number of holes and the spacing
in accordance with standards and procedures established
by the Corporation. Further, the anticipated
heterogeneity of the deposit, based on U.S. geological
maps, also dictates the number of holes used.
The generally accepted reserve categories for the
aggregates industry and the designations the
Corporation uses for reserve categories are summarized
as follow:
Proven Reserves These reserves are designated using
closely spaced drill data as described above and a
determination by
a professional geologist that the deposit is relatively
homogeneous based on the drilling results and
exploration data provided in U.S. geologic maps, the
U.S. Department of Agriculture soil maps, aerial
photographs and/or electromagnetic, seismic or other
surveys conducted by independent geotechnical
engineering firms. The proven reserves that are
recorded reflect reductions incurred as a result of
quarrying that result from leaving ramps, safety
benches, pillars (underground), and the fines (small
particles) that will be generated during processing.
Proven reserves are further reduced by reserves that
are under the plant and stockpile areas, as well as
setbacks from neighboring property lines. The
Corporation typically assumes a loss factor of 25%.
However, the assumed loss factor at coastal operations
is approximately 50% due to the nature of the material.
The assumed loss factor for underground operations is
35% due to pillars.
Probable Reserves These reserves are inferred
utilizing fewer drill holes and/or assumptions about
the economically recoverable reserves based on local
geology or drill results from adjacent properties.
The Corporations proven and probable reserves reflect
reasonable economic and operating constraints as to
maximum depth of overburden and stone excavation, and
also include reserves at the Corporations inactive and
undeveloped sites, including some sites where
permitting and zoning applications will not be filed
until warranted by expected future growth. The
Corporation has historically been successful in
obtaining and maintaining appropriate zoning and
permitting (see section Environmental Regulation and Litigation on pages 56 and 57).
The Corporation expenses all
exploration costs until proven or probable reserves are established. Mineral reserves, when
acquired in connection with a business combination, are valued at the present value of royalty
payments, using a prevailing market royalty rate that would have been incurred if the Corporation
had leased the reserves as opposed to fee-ownership for the life of the reserves, not to exceed
twenty years.
The Corporation uses proven and probable reserves as
the denominator in its units-of-production calculation
to amortize fee ownership mineral deposits. During
2007, depletion expense was $4.5 million.
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty-seven
|
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M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
Inventory Standards
The Corporation values its finished goods inventories under the first-in, first-out methodology
using standard costs. For quarries, the standards are developed using production costs for a
twelve-month period, in addition to complying with the principle of lower of cost or market, and
adjusting, if necessary, for normal capacity levels and abnormal costs. In addition to production
costs, the standards for sales yards include a freight component for the cost of transporting the
inventory from a quarry to the sales yard and materials handling costs. Preoperating start-up costs
are expensed as incurred and are not capitalized as part of inventory costs.
Standard costs are updated on a quarterly basis to match finished goods inventory values with
changes in production costs and production volumes. In periods in which production costs, in
particular energy costs, and/or production volumes have changed significantly from the prior
period, the revision of standards can have a significant impact on the Corporations operating
results (see section Cost Structure on pages 52 through 54).
Liquidity and Cash Flows
Operating Activities
The primary source of the Corporations liquidity during the past three years has been cash
generated from its operating activities. Cash provided by operations was $395.6 million in 2007,
compared with $338.2 million in 2006 and $317.8 million in 2005. These cash flows were derived,
substantially, from net earnings before deducting certain noncash charges for depreciation,
depletion and amortization of its properties and intangible assets. Depreciation, depletion and
amortization for the years ended December 31 were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Depreciation |
|
$ |
142,938 |
|
|
$ |
130,608 |
|
|
$ |
128,160 |
|
Depletion |
|
|
4,489 |
|
|
|
6,258 |
|
|
|
5,433 |
|
Amortization |
|
|
2,911 |
|
|
|
4,563 |
|
|
|
4,658 |
|
|
Total |
|
$ |
150,338 |
|
|
$ |
141,429 |
|
|
$ |
138,251 |
|
|
The increase in cash provided by operating activities in 2007 as compared with 2006 of $57.4
million is due to higher net earnings before depreciation, depletion and amortization expense, a
lower increase in receivables, and less cash paid for income taxes. These factors were partially
|
|
|
|
|
offset by higher excess tax benefits attributable to stock-based compensation transactions.
The increase in cash provided by operating activities in 2006 as compared with 2005 is due to
higher earnings partially offset by larger increases in inventories and accounts receivable.
However, inventories and accounts receivable levels were in line with the increased level of
sales. Additionally, excess tax benefits attributable to stock-based compensation transactions were
initially classified as a financing cash flow effective January 1, 2006 |
in connection with the
adoption of FAS 123(R), as compared with the pre-adoption
presentation in operating cash inflows.
Investing Activities
Net cash used for investing activities was $256.0 million in 2007, $213.4 million in 2006 and
$213.9 million in 2005.
Cash used for investing activities was $42.6 million higher in 2007 compared with 2006. The
increase was primarily related to lower proceeds from the sale of assets, including investments,
during 2007. Additionally, 2007 reflects an increase in payments for acquisitions to $12.2 million
from $3.0 million in 2006.
Cash used for investing activities in 2006 was comparable to 2005. Increased capital expenditures
related to plant capacity and efficiency improvements were offset by the Corporation selling $25.0
million of variable demand rate notes in 2006. These investments were purchased in 2005.
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page sixty-eight
|
|
|
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
Capital spending by reportable segment was as follows for 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Mideast Group |
|
$ |
91,594 |
|
|
$ |
71,332 |
|
|
$ |
77,119 |
|
Southeast Group |
|
|
58,637 |
|
|
|
51,252 |
|
|
|
56,986 |
|
West Group |
|
|
84,933 |
|
|
|
115,726 |
|
|
|
68,607 |
|
|
Total Aggregates Business |
|
|
235,164 |
|
|
|
238,310 |
|
|
|
202,712 |
|
Specialty Products |
|
|
10,508 |
|
|
|
12,985 |
|
|
|
8,724 |
|
Corporate |
|
|
19,251 |
|
|
|
14,681 |
|
|
|
9,965 |
|
|
Total |
|
$ |
264,923 |
|
|
$ |
265,976 |
|
|
$ |
221,401 |
|
|
Spending
for property, plant and equipment is expected to approximate $260 million in 2008,
including the Hunt Martin Materials joint venture but exclusive of acquisitions. However, 2008
capital spending could be reduced, if necessary, to a maintenance level, defined as aggregates
depreciation, depletion and amortization.
Proceeds from divestitures and sales of assets include the cash from the sales of surplus land and
equipment and the divestitures of several Aggregates operations. These proceeds provided pretax
cash of $21.1 million, $30.6 million and $37.6 million in 2007, 2006 and 2005, respectively.
Financing Activities
The Corporation used $151.8 million, $169.2 million and $188.8 million of cash for financing
activities during 2007, 2006 and 2005, respectively.
In 2007, the Corporation had net borrowings of long-term debt of $417.3 million, net of debt issue
costs related to the issuance of $250 million of Senior Notes and $225 million of Floating Rate
Senior Notes. The Corporation had net borrowings of $0.1 million in 2006 and net repayments of $0.5
million in 2005.
During 2007, the Corporation continued its common stock repurchase plan through open market
purchases pursuant to authority granted by its Board of Directors. In 2007, the Corporation
repurchased 4,189,100 shares at an aggregate price of $575.2 million as compared with 1,874,200
shares at an aggregate price of $172.9 million in 2006 and 2,658,000 shares at an aggregate price
of $175.6 million in 2005. $24.0 million of the 2007 repurchases were settled in January 2008.
In 2007, the Board of Directors approved total cash dividends on the Corporations common stock of
$1.24 per share. Regular quarterly dividends were authorized and paid by the Corporation at a rate
of $0.275 per share for the first and second quarters and at a rate of $0.345 per share for the
third and fourth quarters. Total cash dividends were $53.6 million in 2007, $46.4 million in 2006
and $40.0 million in 2005.
During 2007, the Corporation issued stock under its stock-based award plans, providing $14.6
million in cash. Comparable cash provided by issuance of common stock was $31.5 million and $33.3
million in 2006 and 2005, respectively.
Excess tax benefits from stock-based compensation transactions were $23.3 million in 2007 and $17.5
million in 2006, the first year that such benefits were classified as financing activities in the
consolidated statement of cash flows.
Capital Structure and Resources
Long-term debt, including current maturities, increased to $1.124 billion at the end of 2007, from
$705.3 million at the end of 2006, primarily due to the issuance of $250 million of 6.25% Senior
Notes due in 2037 and $225 million of Floating Rate Senior Notes due in 2010. The Corporation also
had a net issuance of $72 million of commercial paper in 2007. A portion of the proceeds from the
issuance of new debt in 2007 was used to repay $125 million of Notes that matured on August 1,
2007. The Corporations debt at December 31, 2007 was principally in the form of publicly issued
long-term notes and debentures and issuances of short-term commercial paper. The unamortized
portion of unwound interest rate swaps, $2.2 million and $4.5 million, is included in the December
31, 2007 and 2006 long-term debt balance, respectively, and will decrease 2008 interest expense by
$2.2 million.
On April 17, 2007, the Corporation entered into an amendment of its $250 million five-year
revolving credit agreement, which modified the leverage ratio covenant in the agreement. As
modified, the covenant requires the Corporations ratio of consolidated debt to consolidated
earnings before interest, taxes, depreciation, depletion and amortization
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
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page sixty-nine
|
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|
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
(EBITDA), as defined, for the trailing twelve months (the Ratio) to not exceed 2.75 to 1.00 as of
the end of any fiscal quarter. Furthermore, the covenant allows the Ratio to exclude debt incurred
in connection with an acquisition for a period of 180 days, provided that the Ratio does not exceed
3.25 to 1.00. The Ratio is calculated as total long-term debt divided by consolidated EBITDA, as
defined, for the trailing twelve months. Consolidated EBITDA is generally defined as earnings
before interest expense, income tax expense, and depreciation, depletion and amortization expense
for continuing operations. Additionally, stock-based compensation expense is added back and
interest income is deducted in the calculation of consolidated EBITDA. Certain other nonrecurring
items and noncash items, if they occur, can affect the calculation of consolidated EBITDA. At
December 31, 2007, the Corporations ratio of consolidated debt to consolidated EBITDA, as defined,
for the trailing twelve month EBITDA was 1.86 and was calculated as follows (dollars in thousands):
|
|
|
|
|
|
|
Twelve-Month Period |
|
|
|
January 1, 2007 to |
|
|
|
December 31, 2007 |
|
|
Earnings from continuing operations |
|
$ |
262,507 |
|
Add back: |
|
|
|
|
Interest expense |
|
|
60,893 |
|
Income tax expense |
|
|
116,073 |
|
Depreciation, depletion and amortization expense |
|
|
148,423 |
|
Stock-based compensation expense |
|
|
19,687 |
|
Deduct: |
|
|
|
|
Interest income |
|
|
(2,262 |
) |
|
|
|
|
Consolidated EBITDA, as defined |
|
$ |
605,321 |
|
|
|
|
|
|
Consolidated debt at December 31, 2007 |
|
$ |
1,124,322 |
|
|
|
|
|
|
Consolidated debt-to-consolidated
EBITDA, as defined, at December
31, 2007 for trailing twelve-month
EBITDA |
|
|
1.86 |
|
The Ratio was nearly 2.0 in January 2008 after the Corporation issued additional commercial paper
to fund $24 million of share repayments that were completed in December 2007 but settled in January
2008.
At December 31, 2007, the Corporation had $20.0 million in cash. The cash, along with the
Corporations internal cash flows and availability of financing resources, including its access to
capital markets, both debt and equity, and its commercial paper program and revolving credit
agreement, 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 and allow for payment of dividends for the
foreseeable future. The Corporations ability to borrow or issue securities is dependent upon,
among other things, prevailing economic, financial and market conditions (see Section Credit Market
Risk on page 58).
The Corporations senior unsecured debt has been rated BBB+ by Standard & Poors and Baa1 by
Moodys. The Corporations $250 million commercial paper program is rated A-2 by Standard &
Poors and P-2 by Moodys. While management believes its credit ratings will remain at an
investment grade level, no assurance can be given that these ratings will remain at the
aforementioned levels.
The Corporations $200 million 5.875% Notes mature on December 1, 2008, and management currently
expects to refinance these Notes. If the Corporation is unable to access the capital markets at
financially economically interests rates at that time, it will use available cash on hand and its
borrowing facilities, including its commercial paper program and revolving credit agreement, to
repay the Notes.
In September 2006, the Corporation entered into two forward starting interest rate swap agreements
(the Swap Agreements) with a total notional amount of $150 million. Each of the two Swap
Agreements covers $75 million of principal. The Swap Agreements locked in at 5.42% the interest
rate relative to LIBOR related to $150 million of the Corporations anticipated refinancing of its
$200 million 5.875% Notes due in 2008. Each of the Swap Agreements provides for a single payment at
its mandatory termination date, December 1, 2008. If the LIBOR swap rate increases above 5.42% at
the mandatory termination date, the Corporation will receive a payment from each of the
counterparties based on the notional amount of each agreement over an assumed 10-year period. If
the LIBOR swap rate falls below 5.42% at the mandatory termination date, the Corporation will be
obligated to make a payment to each of the counterparties on the same basis. In accordance with
Statement of Financial Accounting Standards No. 133
Accounting for Derivative Instruments and Hedging Activities
(FAS 133), the fair values of the Swap Agreements are recorded as an asset or liability in the
consolidated balance
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Martin Marietta Materials, Inc. and Consolidated Subsidiaries
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page seventy
|
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|
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
sheet. The change in fair value is recorded directly in shareholders equity as other comprehensive
earnings or loss, net of tax. At December 31, 2007 the fair value of the Swap Agreements was a
liability of $7.3 million and was included in other current liabilities in the Corporations
consolidated balance sheet with a corresponding cumulative loss of $4.4 million recorded in
accumulated other comprehensive loss, which is net of a deferred tax asset of $2.9 million.
Shareholders equity decreased to $946.0 million at December 31, 2007 from $1.254 billion at
December 31, 2006, primarily as a result of share repurchases of $575.2 million during 2007. In
2007, the Board of Directors authorized the repurchase of an additional 5.0 million shares of the
Corporations common stock. At December 31, 2007, 5.0 million shares of common stock were remaining
under the Corporations repurchase authorization. The Corporation may repurchase shares of its
common stock in the open market or through private transactions at such prices and upon such terms
as the Chairman and Chief Executive Officer deem appropriate. At December 31, 2007, the Corporation
recognized accumulated other comprehensive loss of $37.0 million, resulting from foreign currency
translation gains, the change in the fair value of the Swap Agreements and the amortization of
unrecognized amounts related to pension and postretirement benefits.
Management continuously evaluates the ways it can use available cash to provide benefits to its
shareholders, including dividend payments. The Corporation has targeted an average dividend payout
range of 25 to 30 percent of earnings over the course of an economic cycle.
Contractual and Off Balance Sheet Obligations
In addition to long-term debt, the Corporation has a $250 million revolving five-year credit
facility, syndicated through a group of commercial domestic and foreign banks, which supports a
$250 million United States commercial paper program. The five-year agreement expires in June 2011
(see Note G to the audited consolidated financial statements on pages 20 through 22). No borrowings
were outstanding under the revolving credit agreement at December 31, 2007. The Corporation had
borrowings of $72 million of commercial paper at December 31, 2007.
At December 31, 2007, the Corporations recorded benefit obligation related to postretirement
benefits totaled $46.8 million. These benefits will be paid from the Corporations assets. The
obligation, if any, for retiree medical payments is subject to the terms of the plan.
The Corporation has other retirement benefits related to the SERP. At December 31, 2007, the
Corporation had a total obligation of $36.1 million related to this plan.
The Corporation has $31.9 million of accruals for uncertain tax positions in accordance with FIN
48. Such accruals may become payable if the tax positions are not sustained upon examination by a
taxing authority.
In connection with normal, ongoing operations, the Corporation enters into market-rate leases for
property, plant and equipment and royalty commitments principally associated with leased land.
Additionally, the Corporation enters into equipment rentals to meet shorter-term, nonrecurring and
intermittent needs and capital lease agreements for certain machinery and equipment. At December
31, 2007, the Corporation had $0.6 million of capital lease obligations. For operating leases and
royalty agreements, amounts due are expensed in the period incurred. Management anticipates that
in the ordinary course of business, the Corporation will enter into royalty agreements for land and
mineral reserves during 2008.
The Corporation is a minority member of a LLC whereby the majority member is paid preferred
returns. The Corporation does not have the right to acquire the remaining interest of the LLC until
2010.
The Corporation has purchase commitments for property, plant and equipment, which were $16.1
million as of December 31, 2007. The Corporation also has other purchase obligations related to
energy and service contracts which totaled $12.3 million as of December 31, 2007.
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|
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|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page seventy-one
|
|
|
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
The Corporations contractual commitments as of December 31, 2007 are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(add 000) |
|
Total |
|
|
< 1 yr. |
|
|
1-3 yrs. |
|
|
3-5 yrs. |
|
|
> 5 yrs. |
|
|
ON BALANCE SHEET: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
1,122,135 |
|
|
$ |
273,949 |
|
|
$ |
224,823 |
|
|
$ |
250,305 |
|
|
$ |
373,058 |
|
Postretirement benefits |
|
|
46,777 |
|
|
|
5,000 |
|
|
|
7,639 |
|
|
|
8,158 |
|
|
|
25,980 |
|
SERP |
|
|
36,133 |
|
|
|
4,660 |
|
|
|
19,120 |
|
|
|
4,250 |
|
|
|
8,103 |
|
Uncertain tax positions |
|
|
31,868 |
|
|
|
19,805 |
|
|
|
12,063 |
|
|
|
|
|
|
|
|
|
Capital leases |
|
|
610 |
|
|
|
188 |
|
|
|
422 |
|
|
|
|
|
|
|
|
|
Other commitments |
|
|
755 |
|
|
|
31 |
|
|
|
66 |
|
|
|
72 |
|
|
|
586 |
|
OFF BALANCE SHEET: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on noncallable
publicly-traded long-term
debt |
|
|
719,243 |
|
|
|
64,879 |
|
|
|
100,459 |
|
|
|
57,343 |
|
|
|
496,562 |
|
Preferred payments to LLC
majority member |
|
|
3,123 |
|
|
|
707 |
|
|
|
1,414 |
|
|
|
1,002 |
|
|
|
|
|
Operating leases |
|
|
402,697 |
|
|
|
83,023 |
|
|
|
101,542 |
|
|
|
69,915 |
|
|
|
148,217 |
|
Royalty agreements |
|
|
61,006 |
|
|
|
9,271 |
|
|
|
13,281 |
|
|
|
10,519 |
|
|
|
27,935 |
|
Purchase commitments- capital |
|
|
16,148 |
|
|
|
16,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments energy
and services |
|
|
12,288 |
|
|
|
8,056 |
|
|
|
4,232 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,452,783 |
|
|
$ |
485,717 |
|
|
$ |
485,061 |
|
|
$ |
401,564 |
|
|
$ |
1,080,441 |
|
|
Notes A, G, I, J, L and N to the audited consolidated financial statements on pages 13 through 18;
20 through 22; 23 and 24; 25 through 28; 30 and 31; and 32 and 33, respectively, contain additional
information regarding these commitments and should be read in conjunction with the above table.
Contingent Liabilities and Commitments
The Corporation has entered into standby letter of credit agreements relating to workers
compensation and automobile and general liability self-insurance. On December 31, 2007, the
Corporation had contingent liabilities guaranteeing its own performance under these outstanding
letters of credit of approximately $24.9 million.
In the normal course of business at December 31, 2007, the Corporation was contingently liable for
$105.1 million in surety bonds that guarantee its own performance and are required by certain
states and municipalities and their related agencies. The bonds are principally for certain
construction contracts, reclamation obligations and mining permits. Three of these bonds, totaling
$27.0 million, or 26% of all outstanding surety bonds, relate to specific performance for road
projects currently underway. The Corporation has indemnified the underwriting insurance company
against any exposure under the surety bonds. In the Corporations past experience, no material
claims have been made against these financial instruments.
Quantitative and Qualitative Disclosures about Market Risk
As discussed earlier, the Corporations operations are highly dependent upon the interest
rate-sensitive construction and steelmaking industries. Consequently,
these marketplaces could
experience lower levels of economic activity in an environment of rising interest rates or
escalating costs (see Business Environment section on pages 45 through 60).
The current credit environment has negatively affected the economy and management has considered
the potential impact to the Corporations 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, the Corporation may experience
difficulty placing its A-2/P-2 commercial paper. The Corporation experienced delays in placing
30-day commercial paper in August and September, 2007, but has not had placement problems since
that time. Management expects to refinance the $200 million Notes due December 2008. However,
there is no guarantee that the Corporation will be able to access the capital markets at
financially economical interest rates.
Demand in the residential construction market is affected by interest rates. The Federal Reserve
cut the federal funds rate by 125 basis points to 3.00 percent in January, 2008. In addition to
other factors that contributed to the rate cut, the Federal Open Market Committee stated that it
saw a deepening of the housing contraction. The residential construction market accounted for
approximately 12 percent of the Corporations aggregates product line shipments in 2007.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page seventy-two
|
|
|
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
Aside from these inherent risks from within its operations, the Corporations earnings are affected
also by changes in short-term interest rates as a result of any temporary cash investments,
including money market funds and overnight investments in Eurodollars; any outstanding commercial
paper obligations; Floating Rate Senior Notes; and defined benefit pension plans. Additionally, the
Corporations earnings are affected by energy costs. Further, shareholders equity is affected by
changes in the fair values of forward starting swap agreements.
Commercial Paper Obligations
The Corporation has a $250 million commercial paper program in which borrowings bear interest at a
variable rate based on LIBOR. At December 31, 2007, there were outstanding commercial paper
borrowings of $72 million. Due to the borrowings bearing interest at a variable rate, the
Corporation has interest rate risk. The effect of a hypothetical increase in interest rates of 1%
on borrowings of $72 million would be an increase of $0.7 million in interest expense on an annual
basis.
Floating Rate Senior Notes
The Corporation has $225 million of Floating Rate Senior Notes that bear interest at a rate equal
to the three-month LIBOR plus 0.15%. As the Floating Rate Senior Notes bear interest at a variable
rate, the Corporation has interest rate risk. The effect of a hypothetical 100-basis-point increase
in interest rates on borrowings of $225 million would increase interest expense by $2.3 million on
an annual basis.
Pension Expense
The Corporations results of operations are affected by its pension expense. Assumptions that
affect this expense include the discount rate and, for the defined benefit pension plans only, the
expected long-term rate of return on assets. Therefore, the Corporation has interest rate risk
associated with these factors. The impact of hypothetical changes in these assumptions on the
Corporations annual pension expense is discussed in the section Critical Accounting Policies and
Estimates on pages 60 through 68.
Energy Costs
Energy costs, including diesel fuel and natural gas, represent significant production costs for the
Corporation. Increases in these costs generally are tied to energy sector inflation. In 2007,
increases in these costs lowered earnings per diluted share by $0.05. A hypothetical 10% change in
the Corporations energy prices in 2008 as compared with 2007, assuming constant volumes, would
impact 2008 pretax earnings by approximately $17.9 million.
Aggregate Risk for Interest Rates and Energy Sector Inflation
The pension expense for 2008 is calculated based on assumptions selected at December 31, 2007.
Therefore, interest rate risk in 2008 is limited to the potential effect related to outstanding
commercial paper, of which $72 million was outstanding at December 31, 2007, and the Floating Rate
Senior Notes. The effect of a hypothetical increase in interest rates of 1% on commercial paper
borrowings of $72 million and the currently outstanding $225 million of Floating Rate Senior Notes
would be an increase of $3.0 million in interest expense on an annual basis. Additionally, a 10%
change in energy costs would impact annual pretax earnings by approximately $17.9 million.
Forward Starting Interest Rate Swap Agreements
In September 2006, the Corporation entered into forward starting interest rate swap agreements (the
Swap Agreements) with a total notional amount of $150 million. The Swap Agreements locked in the
interest rate relative to LIBOR related to $150 million of the Corporations anticipated
refinancing of its $200 million 5.875% Notes due in 2008 at 5.42%. Each of the Swap Agreements
provides for a single payment at its mandatory termination date, December 1, 2008. If the LIBOR
swap rate increases above 5.42% at the mandatory termination date, the Corporation will receive a
payment from each of the counterparties based on the notional amount of each agreement over an
assumed 10-year period. If the LIBOR swap rate falls below 5.42% at the mandatory termination date,
the Corporation will be obligated to make a payment to each of the counterparties on the same
basis.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page seventy-three
|
|
|
M A N A G E M E N T S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N & R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D )
In accordance with FAS 133, the fair values of the Swap Agreements are recorded as an asset or
liability in the consolidated balance sheet. The change in fair value is recorded directly in
shareholders equity, net of tax, as other comprehensive earnings or loss. At December 31, 2007,
the fair value of the Swap Agreements was a liability of $7.3 million and was included in other
current liabilities in the Corporations consolidated balance sheet.
As a result of the Swap Agreements, the Corporations comprehensive earnings/loss will be affected
by changes in the LIBOR rate. A hypothetical change in interest rates of 1% would change other
comprehensive earnings/loss by approximately $6.9 million, which is net of taxes of $4.5 million.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page seventy-four
|
|
|
m a n a g e m e n t s
d i s c u s s i o n & a n a l y s i s o f
f i n a n c i a l
c o n d i t i o n & r e s u l t s o f
o p e r a t i o n s ( c o
n t i n u e d )
Forward-Looking Statements Safe Harbor Provisions
If you are interested in Martin Marietta Materials, Inc. stock, management recommends that, at a
minimum, you read the Corporations current annual report and Forms 10-K, 10-Q and 8-K reports
to the SEC over the past year. The Corporations recent proxy statement for the annual meeting
of shareholders also contains important information. These and other materials that have been
filed with the SEC are accessible through the Corporations web site at www.martinmarietta.com
and are also available at the SECs web site at www.sec.gov. You may also write or call the
Corporations Corporate Secretary, who will provide copies of such reports.
Investors are cautioned that all statements in this annual report that relate to the future are
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934 and 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
managements 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, expect, should be, believe, and other words of similar meaning in connection
with future events or future operating or financial performance. Any or all of managements
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 include, but are not limited to, the performance of the
United States economy and assumed stabilization in the second half of 2008; the level and timing
of federal and state transportation funding, particularly in North Carolina, one of the
Corporations largest and most profitable states, and Texas and South Carolina, which when
coupled with North Carolina, represented 46% of 2007 net sales in the Aggregates business;
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 the 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 Corporations
Texas and Gulf Coast markets; increased transportation costs, including increases from higher
passed-through energy costs and higher volumes of rail and water shipments; continued strength
in the steel industry markets served by the Corporations dolomitic lime products; successful
development and implementation of the structural composite technological process,
commercialization of strategic products for specific market segments, and the generation of
earnings streams sufficient enough to support the recorded assets of the structural composites
product line; and other risk factors listed from time to time found in the Corporations filings
with the Securities and Exchange Commission. Other factors besides those listed here may also
adversely affect the Corporation, and may be material to the Corporation. The Corporation
assumes no obligation to update any such forward-looking statements.
For a discussion identifying some important factors that could cause actual results to vary
materially from those anticipated in the forward-looking statements, see the Corporations
Securities and Exchange Commission filings including, but not limited to, the discussion of
Competition in the Corporations Annual Report on Form 10-K, Managements Discussion and
Analysis of Financial Condition and Results of Operations on pages 36 through 75 of the 2007
Annual Report and Note A: Accounting Policies and Note N: Commitments and Contingencies of
the Notes to Financial Statements on pages 13 through 18 and pages 32 and 33, respectively, of
the audited consolidated financial statements included in the 2007 Annual Report.
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page seventy-five
|
|
|
q u a r t e r l y p e r f o r m a n c e
(unaudited)
(add 000, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
Net Sales |
|
|
Gross Profit |
|
|
Net Earnings |
|
|
Quarter |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
20072 |
|
|
20063 |
|
|
20074,5 |
|
|
20065,6 |
|
|
First |
|
$ |
459,674 |
|
|
$ |
479,705 |
|
|
$ |
412,312 |
|
|
$ |
420,608 |
|
|
$ |
94,196 |
|
|
$ |
85,206 |
|
|
$ |
32,990 |
|
|
$ |
31,006 |
|
Second |
|
|
592,856 |
|
|
|
583,323 |
|
|
|
532,679 |
|
|
|
513,661 |
|
|
|
178,530 |
|
|
|
152,814 |
|
|
|
82,952 |
|
|
|
75,790 |
|
Third |
|
|
618,637 |
|
|
|
599,066 |
|
|
|
547,567 |
|
|
|
525,120 |
|
|
|
167,640 |
|
|
|
149,288 |
|
|
|
90,266 |
|
|
|
76,160 |
|
Fourth |
|
|
535,974 |
|
|
|
528,958 |
|
|
|
475,054 |
|
|
|
470,277 |
|
|
|
130,597 |
|
|
|
137,985 |
|
|
|
56,541 |
|
|
|
62,466 |
|
|
Totals |
|
$ |
2,207,141 |
|
|
$ |
2,191,052 |
|
|
$ |
1,967,612 |
|
|
$ |
1,929,666 |
|
|
$ |
570,963 |
|
|
$ |
525,293 |
|
|
$ |
262,749 |
|
|
$ |
245,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Prices |
|
|
|
Basic Earnings1 |
|
|
Diluted Earnings1 |
|
|
Dividends Paid |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
Quarter |
|
20074,5 |
|
|
20065,6 |
|
|
20074,5 |
|
|
20065,6 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
First |
|
$ |
0.74 |
|
|
$ |
0.68 |
|
|
$ |
0.73 |
|
|
$ |
0.66 |
|
|
$ |
0.275 |
|
|
$ |
0.230 |
|
|
$ |
137.27 |
|
|
$ |
98.91 |
|
|
$ |
107.75 |
|
|
$ |
76.26 |
|
Second |
|
|
1.95 |
|
|
|
1.66 |
|
|
|
1.92 |
|
|
|
1.63 |
|
|
|
0.275 |
|
|
|
0.230 |
|
|
$ |
170.25 |
|
|
$ |
131.64 |
|
|
$ |
113.69 |
|
|
$ |
76.90 |
|
Third |
|
|
2.16 |
|
|
|
1.68 |
|
|
|
2.12 |
|
|
|
1.65 |
|
|
|
0.345 |
|
|
|
0.275 |
|
|
$ |
165.97 |
|
|
$ |
116.52 |
|
|
$ |
92.10 |
|
|
$ |
74.05 |
|
Fourth |
|
|
1.35 |
|
|
|
1.38 |
|
|
|
1.33 |
|
|
|
1.36 |
|
|
|
0.345 |
|
|
|
0.275 |
|
|
$ |
144.28 |
|
|
$ |
114.40 |
|
|
$ |
106.28 |
|
|
$ |
83.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
6.16 |
|
|
$ |
5.40 |
|
|
$ |
6.06 |
|
|
$ |
5.29 |
|
|
$ |
1.24 |
|
|
$ |
1.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The sum of per-share earnings by quarter may not equal earnings per share for the year due to
changes in average share calculations. This is in accordance with prescribed reporting
requirements. |
|
2 |
|
Gross profit in the second quarter of 2007 included a $9.0 million write up of finished goods
inventory to reflect increasing production costs and transportation costs to distribution
yards. |
|
3 |
|
Gross profit in the fourth quarter of 2006 included a write up of $13.4 million related to
the annual updating of inventory standards and a $3.8 million charge related to the exit of
the composite truck trailer business. |
|
4 |
|
Net earnings and basic and diluted earnings per common share in the second quarter of 2007
included $5.5 million, or $0.13 per basic and diluted share, for the write up of finished
goods inventory to reflect increasing production costs and transportation costs to
distribution yards. |
|
5 |
|
Net earnings and basic and diluted earnings per common share in the third quarter included
the reversal of $4.8 million, or $0.11 per basic and diluted share, in 2007 and $2.7 million,
or $0.06 per diluted share, in 2006 of tax reserves upon the expiration of the statute of
limitations for federal examination of certain tax years. |
|
6 |
|
Net earnings and basic and diluted earnings per common share in the fourth quarter of 2006
included a write up of $8.1 million, or $0.18 per basic and diluted share, related to the
annual updating of inventory standards and a charge of $2.3 million, or $0.05 per basic and
diluted share, related to the exit of the composite truck trailer business. |
At
February 15, 2008, there were 859 shareholders of record.
The following presents total revenues, net sales, net earnings (loss) and earnings per diluted
share attributable to discontinued operations:
(add 000, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
Net Sales |
|
|
Net Earnings (Loss) |
|
|
Earnings per Diluted Share1 |
|
|
Quarter |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
First |
|
$ |
2,567 |
|
|
$ |
4,368 |
|
|
$ |
2,220 |
|
|
$ |
3,898 |
|
|
$ |
38 |
|
|
$ |
148 |
|
|
$ |
|
|
|
$ |
|
|
Second |
|
|
2,436 |
|
|
|
5,458 |
|
|
|
2,126 |
|
|
|
4,752 |
|
|
|
126 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
Third |
|
|
1,695 |
|
|
|
5,150 |
|
|
|
1,441 |
|
|
|
4,618 |
|
|
|
166 |
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
Fourth |
|
|
592 |
|
|
|
4,621 |
|
|
|
469 |
|
|
|
4,159 |
|
|
|
(88 |
) |
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
7,290 |
|
|
$ |
19,597 |
|
|
$ |
6,256 |
|
|
$ |
17,427 |
|
|
$ |
242 |
|
|
$ |
45 |
|
|
$ |
0.01 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page seventy-six |
|
|
F I V E Y E A R S U M M A R Y
(add 000, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|
|
Consolidated Operating Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,967,612 |
|
|
$ |
1,929,666 |
|
|
$ |
1,728,977 |
|
|
$ |
1,489,796 |
|
|
$ |
1,385,467 |
|
Freight and delivery revenues |
|
|
239,529 |
|
|
|
261,386 |
|
|
|
246,311 |
|
|
|
202,125 |
|
|
|
200,257 |
|
|
|
|
Total revenues |
|
|
2,207,141 |
|
|
|
2,191,052 |
|
|
|
1,975,288 |
|
|
|
1,691,921 |
|
|
|
1,585,724 |
|
|
Cost of sales, other costs and expenses |
|
|
1,552,704 |
|
|
|
1,551,774 |
|
|
|
1,431,407 |
|
|
|
1,268,401 |
|
|
|
1,192,280 |
|
Freight and delivery costs |
|
|
239,529 |
|
|
|
261,386 |
|
|
|
246,311 |
|
|
|
202,125 |
|
|
|
200,257 |
|
|
|
|
Cost of operations |
|
|
1,792,233 |
|
|
|
1,813,160 |
|
|
|
1,677,718 |
|
|
|
1,470,526 |
|
|
|
1,392,537 |
|
Other operating (income) and expenses, net |
|
|
(18,122 |
) |
|
|
(12,657 |
) |
|
|
(16,231 |
) |
|
|
(10,516 |
) |
|
|
(6,506 |
) |
|
Earnings from Operations |
|
|
433,030 |
|
|
|
390,549 |
|
|
|
313,801 |
|
|
|
231,911 |
|
|
|
199,693 |
|
Interest expense |
|
|
60,893 |
|
|
|
40,359 |
|
|
|
42,597 |
|
|
|
42,734 |
|
|
|
42,587 |
|
Other nonoperating (income) and expenses, net |
|
|
(6,443 |
) |
|
|
(2,819 |
) |
|
|
(1,483 |
) |
|
|
(607 |
) |
|
|
429 |
|
|
Earnings from continuing operations before taxes on income
and cumulative effect of change in accounting principle |
|
|
378,580 |
|
|
|
353,009 |
|
|
|
272,687 |
|
|
|
189,784 |
|
|
|
156,677 |
|
Taxes on income |
|
|
116,073 |
|
|
|
107,632 |
|
|
|
74,225 |
|
|
|
58,491 |
|
|
|
47,034 |
|
|
Earnings from continuing operations before
cumulative effect of change in accounting principle |
|
|
262,507 |
|
|
|
245,377 |
|
|
|
198,462 |
|
|
|
131,293 |
|
|
|
109,643 |
|
Discontinued operations, net of taxes |
|
|
242 |
|
|
|
45 |
|
|
|
(5,796 |
) |
|
|
(2,130 |
) |
|
|
(9,146 |
) |
|
Earnings before cumulative effect of
change in accounting principle |
|
|
262,749 |
|
|
|
245,422 |
|
|
|
192,666 |
|
|
|
129,163 |
|
|
|
100,497 |
|
Cumulative effect of change in accounting
for asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,874 |
) |
|
Net Earnings |
|
$ |
262,749 |
|
|
$ |
245,422 |
|
|
$ |
192,666 |
|
|
$ |
129,163 |
|
|
$ |
93,623 |
|
|
Basic Earnings (Loss) Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before cumulative
effect of change in accounting principle |
|
$ |
6.15 |
|
|
$ |
5.40 |
|
|
$ |
4.26 |
|
|
$ |
2.73 |
|
|
$ |
2.23 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
(0.12 |
) |
|
|
(0.05 |
) |
|
|
(0.18 |
) |
|
|
|
Earnings before cumulative effect of change
in accounting principle |
|
|
6.16 |
|
|
|
5.40 |
|
|
|
4.14 |
|
|
|
2.68 |
|
|
|
2.05 |
|
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.14 |
) |
|
|
|
Basic Earnings Per Common Share |
|
$ |
6.16 |
|
|
$ |
5.40 |
|
|
$ |
4.14 |
|
|
$ |
2.68 |
|
|
$ |
1.91 |
|
|
Diluted Earnings (Loss) Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before cumulative
effect of change in accounting principle |
|
$ |
6.05 |
|
|
$ |
5.29 |
|
|
$ |
4.20 |
|
|
$ |
2.71 |
|
|
$ |
2.23 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
(0.12 |
) |
|
|
(0.05 |
) |
|
|
(0.18 |
) |
|
|
|
Earnings before cumulative effect of change
in accounting principle |
|
|
6.06 |
|
|
|
5.29 |
|
|
|
4.08 |
|
|
|
2.66 |
|
|
|
2.05 |
|
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.14 |
) |
|
|
|
Diluted Earnings Per Common Share |
|
$ |
6.06 |
|
|
$ |
5.29 |
|
|
$ |
4.08 |
|
|
$ |
2.66 |
|
|
$ |
1.91 |
|
|
Cash Dividends Per Common Share |
|
$ |
1.24 |
|
|
$ |
1.01 |
|
|
$ |
0.86 |
|
|
$ |
0.76 |
|
|
$ |
0.69 |
|
|
Condensed Consolidated Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred income tax benefits |
|
$ |
44,285 |
|
|
$ |
25,317 |
|
|
$ |
14,989 |
|
|
$ |
5,750 |
|
|
$ |
21,603 |
|
Current assets other |
|
|
581,725 |
|
|
|
567,037 |
|
|
|
587,052 |
|
|
|
618,503 |
|
|
|
589,048 |
|
Property, plant and equipment, net |
|
|
1,433,553 |
|
|
|
1,295,491 |
|
|
|
1,166,351 |
|
|
|
1,065,215 |
|
|
|
1,042,432 |
|
Goodwill |
|
|
574,667 |
|
|
|
570,538 |
|
|
|
569,263 |
|
|
|
567,495 |
|
|
|
577,586 |
|
Other intangibles, net |
|
|
9,426 |
|
|
|
10,948 |
|
|
|
18,744 |
|
|
|
18,642 |
|
|
|
25,142 |
|
Other noncurrent assets |
|
|
40,149 |
|
|
|
37,090 |
|
|
|
76,917 |
|
|
|
80,247 |
|
|
|
63,414 |
|
|
Total Assets |
|
$ |
2,683,805 |
|
|
$ |
2,506,421 |
|
|
$ |
2,433,316 |
|
|
$ |
2,355,852 |
|
|
$ |
2,319,225 |
|
|
Current liabilities other |
|
$ |
230,480 |
|
|
$ |
189,116 |
|
|
$ |
199,259 |
|
|
$ |
202,843 |
|
|
$ |
221,683 |
|
Current maturities of long-term debt and commercial paper |
|
|
276,136 |
|
|
|
125,956 |
|
|
|
863 |
|
|
|
970 |
|
|
|
1,068 |
|
Long-term debt |
|
|
848,186 |
|
|
|
579,308 |
|
|
|
709,159 |
|
|
|
713,661 |
|
|
|
717,073 |
|
Pension and postretirement benefits |
|
|
103,518 |
|
|
|
106,413 |
|
|
|
98,714 |
|
|
|
88,241 |
|
|
|
76,917 |
|
Noncurrent deferred income taxes |
|
|
160,902 |
|
|
|
159,094 |
|
|
|
149,972 |
|
|
|
139,179 |
|
|
|
116,647 |
|
Other noncurrent liabilities |
|
|
118,592 |
|
|
|
92,562 |
|
|
|
101,664 |
|
|
|
57,531 |
|
|
|
55,990 |
|
Shareholders equity |
|
|
945,991 |
|
|
|
1,253,972 |
|
|
|
1,173,685 |
|
|
|
1,153,427 |
|
|
|
1,129,847 |
|
|
Total Liabilities and Shareholders Equity |
|
$ |
2,683,805 |
|
|
$ |
2,506,421 |
|
|
$ |
2,433,316 |
|
|
$ |
2,355,852 |
|
|
$ |
2,319,225 |
|
|
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page
seventy-seven
|
|
|
c o m m o n s t o c k p e r f o r m a n c e g r a p h
The following graph compares the performance of the Corporations common stock to that of the
Standard and Poors (S&P) 500 Index and the S&P Materials Index.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Total Return1 |
|
|
|
|
|
12/31/01 |
|
|
12/31/02 |
|
|
12/31/03 |
|
|
12/31/04 |
|
|
12/31/05 |
|
|
12/31/06 |
|
|
Martin Marietta Materials, Inc. |
|
|
$ |
100.00 |
|
|
|
$ |
66.83 |
|
|
|
$ |
104.41 |
|
|
|
$ |
121.24 |
|
|
|
$ |
175.60 |
|
|
|
$ |
240.46 |
|
|
|
S&P 500 Index |
|
|
$ |
100.00 |
|
|
|
$ |
77.90 |
|
|
|
$ |
100.25 |
|
|
|
$ |
111.15 |
|
|
|
$ |
116.61 |
|
|
|
$ |
135.03 |
|
|
|
S&P Materials Index |
|
|
$ |
100.00 |
|
|
|
$ |
94.54 |
|
|
|
$ |
130.65 |
|
|
|
$ |
147.89 |
|
|
|
$ |
154.43 |
|
|
|
$ |
183.19 |
|
|
|
|
|
1 |
Assumes that the investment in the Corporations common stock and each index was $100, with quarterly reinvestment of dividends. |
|
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page seventy-eight |
|
|
G E N E R A L I N F O R M A T I O N
NOTICE OF PROXY
A formal notice of the Annual Meeting of
Shareholders of the Corporation, together
with a proxy and proxy statement, will be
mailed to each shareholder approximately
four weeks prior to the meeting. Proxies
will be requested by the Board of Directors
in connection with the meeting.
ANNUAL REPORT ON FORM 10-K
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, 2007, by
writing to:
Martin Marietta Materials, Inc.
Attention: Corporate Secretary
2710 Wycliff Road
Raleigh, North Carolina 27607-3033
REGISTERED SHAREHOLDER CONTACT INFORMATION
American Stock Transfer & Trust Company
Shareholder Services Department
6201 15th Street
Brooklyn, NY 11219
Toll Free: (800) 937-5449
Local & International: (718) 921-8124
Email: investors@amstock.com
Web site: www.amstock.com
Inquiries regarding your account records,
issuance of stock certificates,
distribution of dividends and IRS Form 1099
should be directed to American Stock
Transfer & Trust Company.
COMMON STOCK
Listed: New York Stock Exchange
Stock Symbol: MLM
INDEPENDENT AUDITORS
Ernst & Young LLP
3200 Beechleaf Court, Suite 700
Raleigh, North Carolina 27604-1063
CORPORATE HEADQUARTERS
2710 Wycliff Road
Raleigh, North Carolina 27607-3033
Telephone: (919) 781-4550
INVESTOR RELATIONS
Martin Marietta Materials, Inc.s press
releases and filings with the Securities and
Exchange Commission can be accessed via the
Corporations web site.
Telephone: (919) 783-4540
Web site: www.martinmarietta.com
CORPORATE CODE OF ETHICS
Martin Marietta Materials, Inc.s Code of
Ethics and Standards of Conduct booklet is
posted on the Corporations web site,
www.martinmarietta.com.
CERTIFICATIONS
The Corporation has filed with the
Securities and Exchange Commission as
Exhibits to its latest Annual Report on Form
10-K Section 302 Certifications made by the
Corporations Chief Executive Officer and
Chief Financial Officer regarding the
quality of the Corporations public
disclosure. The Corporation has also
submitted to the New York Stock Exchange a
certification made by the Corporations
Chief Executive Officer regarding compliance
with the Exchanges corporate governance
listing standards.
|
|
|
Martin Marietta Materials, Inc. and Consolidated Subsidiaries
|
|
page eighty-two |
Data
for 2007 Net Sales by State of Destination
Aggregates Business on page 47
Aggregates Production and Sales
|
|
|
|
|
|
Location |
|
% of Net Sales |
|
|
|
|
|
|
Alabama |
|
|
4 |
% |
Arkansas |
|
|
2 |
% |
Bahamas |
|
|
< 1 |
% |
California |
|
|
< 1 |
% |
Florida |
|
|
5 |
% |
Georgia |
|
|
8 |
% |
Illinois |
|
|
< 1 |
% |
Indiana |
|
|
4 |
% |
Iowa |
|
|
6 |
% |
Kansas |
|
|
1 |
% |
Kentucky |
|
|
< 1 |
% |
Louisiana |
|
|
5 |
% |
Maryland |
|
|
< 1 |
% |
Minnesota |
|
|
1 |
% |
Mississippi |
|
|
< 1 |
% |
Missouri |
|
|
2 |
% |
Nebraska |
|
|
2 |
% |
Nevada |
|
|
< 1 |
% |
North Carolina |
|
|
22 |
% |
Nova Scotia |
|
|
< 1 |
% |
Ohio |
|
|
3 |
% |
Oklahoma |
|
|
2 |
% |
South Carolina |
|
|
5 |
% |
Tennessee |
|
|
< 1 |
% |
Texas |
|
|
19 |
% |
Virginia |
|
|
2 |
% |
Washington |
|
|
< 1 |
% |
West Virginia |
|
|
1 |
% |
Wisconsin |
|
|
< 1 |
% |
Wyoming |
|
|
< 1 |
% |
Aggregates Sales
|
|
|
|
|
|
Location |
|
% of Net Sales |
|
|
|
|
|
|
Colorado |
|
|
< 1 |
% |
Michigan |
|
|
< 1 |
% |
Pennsylvania |
|
|
< 1 |
% |
Exhibit 21.01
EXHIBIT 21.01
SUBSIDIARIES OF MARTIN MARIETTA MATERIALS, INC.
AS OF FEBRUARY 15, 2008
|
|
|
|
|
Name of Subsidiary |
|
Percent Owned |
|
|
|
|
|
Alamo Gulf Coast Railroad Company, a Texas corporation |
|
|
99.5 |
%1 |
|
|
|
|
|
Alamo North Texas Railroad Company, a Texas corporation |
|
|
99.5 |
%2 |
|
|
|
|
|
American Aggregates Corporation, a Delaware corporation |
|
|
100 |
% |
|
|
|
|
|
American Stone Company, a North Carolina corporation |
|
|
50 |
%3 |
|
|
|
|
|
Bahama Rock Limited, a Bahamas corporation |
|
|
100 |
% |
|
|
|
|
|
Fredonia Valley Railroad, Inc., a Delaware corporation |
|
|
100 |
% |
|
|
|
|
|
Granite Canyon Quarry, a Wyoming joint venture |
|
|
51 |
%4 |
|
|
|
|
|
Harding Street Corporation, a Delaware corporation |
|
|
100 |
% |
|
|
|
|
|
Hunt Martin Materials, LLC, a Delaware limited liability company |
|
|
50 |
%5 |
|
|
|
|
|
J.W. Jones Materials, LLC, a Delaware limited liability company |
|
|
99 |
%6 |
|
|
|
|
|
Martin Bauerly Materials, LLC, a Delaware limited liability company |
|
|
67 |
%7 |
|
|
|
|
|
Martin Marietta Composites, Inc., a Delaware corporation |
|
|
100 |
% |
|
|
|
|
|
Martin Marietta Employee Relief Foundation, a Delaware Not for
Profit corporation |
|
|
100 |
% |
|
|
|
1 |
|
Alamo Gulf Coast Railroad Company is owned by
Martin Marietta Materials Southwest, Inc. (99.5%) and certain individuals
(0.5%). |
|
2 |
|
Alamo North Texas Railroad Company is owned by
Martin Marietta Materials Southwest, Inc. (99.5%) and certain individuals
(0.5%). |
|
3 |
|
Martin Marietta Materials, Inc. owns a 50%
interest in American Stone Company. |
|
4 |
|
Meridian Granite Company, an indirect wholly
owned subsidiary of Martin Marietta Materials, Inc., owns a 51% interest in
Granite Canyon Quarry. |
|
5 |
|
Hunt Martin Materials, LLC is owned 45% by
Martin Marietta Materials, Inc. and 5% by Martin Marietta Materials of
Missouri, Inc., a wholly owned subsidiary of Martin Marietta Materials, Inc. |
|
6 |
|
Martin Marietta Materials, Inc. owns a 99%
interest in J.W. Jones Materials, LLC. |
|
7 |
|
Martin Bauerly Materials, LLC is owned 67% by
Martin Marietta Materials, Inc. and 33% by Bauerly Brothers, Inc. |
|
|
|
|
|
Martin Marietta Magnesia Specialties, LLC, a Delaware limited
liability company |
|
|
100 |
% |
|
|
|
|
|
Martin Marietta Materials Canada Limited, a Nova Scotia, Canada
corporation |
|
|
100 |
% |
|
|
|
|
|
Martin Marietta Materials of Alabama, LLC, a Delaware limited
liability company |
|
|
100 |
%8 |
|
|
|
|
|
Martin Marietta Materials Equipment, LLC, a Delaware limited
liability company |
|
|
100 |
% |
|
|
|
|
|
Martin Marietta Materials of Florida, LLC, a Delaware limited
liability company |
|
|
100 |
% |
|
|
|
|
|
Martin Marietta Materials of Louisiana, Inc., a Delaware corporation |
|
|
100 |
% |
|
|
|
|
|
Martin Marietta Materials of Missouri, Inc., a Delaware corporation |
|
|
100 |
% |
|
|
|
|
|
Martin Marietta Materials Real Estate Investments, Inc., a Delaware
corporation |
|
|
100 |
% |
|
|
|
|
|
Martin Marietta Materials Southwest, Inc., a Texas corporation |
|
|
100 |
% |
|
|
|
|
|
Material Producers, Inc., an Oklahoma corporation |
|
|
100 |
%9 |
|
|
|
|
|
Meridian Aggregates Company, a Limited Partnership, a Delaware
limited partnership |
|
|
100 |
%10 |
|
|
|
|
|
Meridian Aggregates Company Northwest, LLC, a Delaware limited
liability company |
|
|
100 |
%11 |
|
|
|
|
|
Meridian Aggregates Company Southwest, LLC, a Delaware limited
liability |
|
|
100 |
%12 |
|
|
|
|
|
Meridian Aggregates Investments, LLC, a Delaware limited liability
company |
|
|
100 |
%13 |
|
|
|
|
|
Meridian Granite Company, a Delaware corporation |
|
|
100 |
%14 |
|
|
|
|
|
Mid South-Weaver Joint Venture, a North Carolina joint venture |
|
|
50 |
%15 |
|
|
|
8 |
|
Martin Marietta Materials of Alabama, LLC is a
wholly owned subsidiary of American Aggregates Corporation. |
|
9 |
|
Material Producers, Inc. is a wholly owned
subsidiary of Martin Marietta Materials Southwest, Inc. |
|
10 |
|
Meridian Aggregates Company, a Limited
Partnership is owned 98% by Meridian Aggregates Investments, LLC. The
remaining 2% is owned by Martin Marietta Materials, Inc. |
|
11 |
|
Martin Marietta Materials, Inc. is the sole
member of Meridian Aggregates Company Northwest, LLC. |
|
12 |
|
Martin Marietta Materials Southwest, Inc. is
the sole member of Meridian Aggregates Company Southwest, LLC. |
|
13 |
|
Meridian Aggregates Investments, LLC is owned
99% by Martin Marietta Materials, Inc. and 1% by Martin Marietta Materials Real
Estate Investments, Inc. |
|
14 |
|
Meridian Granite Company is a wholly owned
subsidiary of Meridian Aggregates Company, a Limited Partnership. |
|
15 |
|
Mid South-Weaver Joint Venture is owned 50%
by Martin Marietta Materials, Inc. |
|
|
|
|
|
Mid-State Construction & Materials, Inc., an Arkansas corporation |
|
|
100 |
% |
|
|
|
|
|
MTD Pipeline LLC, a Delaware limited liability company |
|
|
50 |
%16 |
|
|
|
|
|
Powderly Transportation, Inc., a Delaware corporation |
|
|
100 |
%17 |
|
|
|
|
|
R&S Sand & Gravel, LLC, a Delaware limited liability company |
|
|
100 |
%18 |
|
|
|
|
|
Rocky Ridge, Inc., a Nevada corporation |
|
|
100 |
% |
|
|
|
|
|
Sha-Neva, LLC, a Nevada limited liability company |
|
|
100 |
% |
|
|
|
|
|
Theodore Holding, LLC, a Delaware limited liability company |
|
|
60.7 |
%19 |
|
|
|
|
|
Valley Stone LLC, a Virginia limited liability company |
|
|
50 |
%20 |
|
|
|
16 |
|
Martin Marietta Magnesia Specialties, LLC, a
wholly owned subsidiary of Martin Marietta Materials, Inc., owns a 50% interest
in MTD Pipeline LLC. |
|
17 |
|
Powderly Transportation, Inc. is a wholly
owned subsidiary of Meridian Aggregates Company, a Limited Partnership. |
|
18 |
|
Martin Marietta Materials, Inc. is the
manager of and owns a 90% interest in R&S Sand & Gravel, LLC. The other 10% is
owned by Harding Street Corporation, a wholly owned subsidiary of Martin
Marietta Materials, Inc. |
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19 |
|
Martin Marietta Materials, Inc. is the
manager of and owns a 60.7% interest in Theodore Holding, LLC. |
|
20 |
|
Martin Marietta Materials, Inc. is the
manager of and owns a 50% interest in Valley Stone LLC. |
Exhibit 23.01
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K) of Martin
Marietta Materials, Inc. of our reports dated February 12, 2008, with respect to the consolidated
financial statements of Martin Marietta Materials, Inc., and the effectiveness of internal control
over financial reporting of Martin Marietta Materials, Inc., included in the 2007 Annual Report to
Shareholders of Martin Marietta Materials, Inc.
Our audits also included the financial statement schedule of Martin Marietta Materials, Inc. listed
in Item 15(a). This schedule is the responsibility of the Martin Marietta Materials, Inc.s
management. Our responsibility is to express an opinion based on our audits. In our opinion, as
to which the date is February 12, 2008, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the following Registration Statements:
|
(1) |
|
Registration Statement (Form S-8 No. 333-115918) pertaining to the Amended and Restated
Martin Marietta Materials, Inc. Common Stock Purchase Plan for Directors, Martin Marietta
Materials, Inc. Performance Sharing Plan and the Martin Marietta Materials, Inc. Savings
and Investment Plan for Hourly Employees, |
|
|
(2) |
|
Registration Statement (Form S-8 No. 333-85608) pertaining to the Martin Marietta
Materials, Inc. Common Stock Purchase Plan for Directors, |
|
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(3) |
|
Registration Statement (Form S-8 No. 33-83516) pertaining to the Martin Marietta
Materials, Inc. Omnibus Securities Award Plan, as amended, |
|
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(4) |
|
Registration Statement (Form S-8 No. 333-15429) pertaining to the Martin Marietta
Materials, Inc. Common Stock Purchase Plan for Directors, Martin Marietta Materials, Inc.
Performance Sharing Plan and the Martin Marietta Materials, Inc. Savings and Investment
Plan for Hourly Employees, |
|
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(5) |
|
Registration Statement (Form S-8 No. 333-79039) pertaining to the Martin Marietta
Materials, Inc. Stock-Based Award Plan, as amended, and |
|
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(6) |
|
Registration Statement (Form S-3 No. 333-142343) and related Prospectus pertaining to
Senior Debt Securities of Martin Marietta Materials, Inc. |
of our report dated February 12, 2008, with respect to the consolidated financial statements of
Martin Marietta Materials, Inc., incorporated herein by reference, our report dated February 12,
2008, with respect to the effectiveness of internal control over financial reporting of Martin
Marietta Materials, Inc., incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule of Martin Marietta Materials,
Inc. included in this Annual Report (Form 10-K) of Martin Marietta Materials, Inc. for the year
ended December 31, 2007.
/s/ Ernst & Young
Raleigh, North Carolina
February 21, 2008
Exhibit 31.01
EXHIBIT 31.01
CERTIFICATION PURSUANT TO SECURITIES AND EXCHANGE ACT OF 1934
RULE 13a-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
I, Stephen P. Zelnak, Jr., certify that:
|
1. |
|
I have reviewed this Form 10-K of Martin Marietta Materials, Inc.; |
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report; |
|
|
4. |
|
The registrants other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the |
|
|
|
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
|
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(d) |
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and |
|
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of directors
(or persons performing the equivalent functions): |
|
(a) |
|
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
|
(b) |
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
control over financial reporting. |
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Date: February 25, 2008
|
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By:
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/s/ Stephen P. Zelnak, Jr. |
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Stephen P. Zelnak, Jr.
Chairman and Chief Executive Officer |
Exhibit 31.02
EXHIBIT 31.02
CERTIFICATION PURSUANT TO SECURITIES AND EXCHANGE ACT OF 1934
RULE 13a-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
I, Anne H. Lloyd, certify that:
|
1. |
|
I have reviewed this Form 10-K of Martin Marietta Materials, Inc.; |
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report; |
|
|
4. |
|
The registrants other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the |
|
|
|
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
|
|
(d) |
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and |
|
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of directors
(or persons performing the equivalent functions): |
|
(a) |
|
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
|
(b) |
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
control over financial reporting. |
|
|
|
|
|
Date: February 25, 2008
|
|
By:
|
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/s/ Anne H. Lloyd |
|
|
|
|
|
|
|
|
|
Anne H. Lloyd
Chief Financial Officer |
Exhibit 32.01
EXHIBIT 32.01
WRITTEN STATEMENT PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the 2007 Annual Report on Form 10-K (the Report) of Martin Marietta
Materials, Inc. (the Registrant), as filed with the Securities and Exchange Commission, I,
Stephen P. Zelnak, Jr., the Chief Executive Officer of the Registrant, certify that:
|
(1) |
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and |
|
|
(2) |
|
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant. |
|
|
|
|
|
/s/ Stephen P. Zelnak, Jr. |
|
|
|
|
|
Stephen P. Zelnak, Jr.
Chief Executive Officer |
|
|
|
Date: February 25, 2008 |
|
|
A signed original of this written statement required by Section 906 has been provided to Martin
Marietta Materials, Inc. and will be retained by Martin Marietta Materials, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
Exhibit 32.02
EXHIBIT 32.02
WRITTEN STATEMENT PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the 2007 Annual Report on Form 10-K (the Report) of Martin Marietta
Materials, Inc. (the Registrant), as filed with the Securities and Exchange Commission, I, Anne
H. Lloyd, the Chief Financial Officer of the Registrant, certify that:
|
(1) |
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and |
|
|
(2) |
|
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant. |
|
|
|
|
|
/s/ Anne Lloyd |
|
|
|
|
|
Anne H. Lloyd
Chief Financial Officer |
|
|
|
Date: February 25, 2008 |
|
|
A signed original of this written statement required by Section 906 has been provided to Martin
Marietta Materials, Inc. and will be retained by Martin Marietta Materials, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.