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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
| 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)
| North Carolina | 56-1848578 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| 2710 Wycliff Road, Raleigh, North Carolina | 27607-3033 | |
| (Address of principal executive offices) | (Zip Code) |
(919) 781-4550
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common Stock (par value $.01 per share) (including rights attached thereto) |
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 þ 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 þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark 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 registrant’s 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
| Large accelerated filer þ | 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 þ
As of June 30, 2009, the last business day of the registrant’s most recently completed second
fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates
of the registrant was $2,070,942,497 based on the closing sale price as reported on the New York
Stock Exchange.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock on
the latest practicable date.
| Class | Outstanding at February 12, 2010 | ||||||
Common Stock, $.01 par value per share |
45,325,859 shares | ||||||
DOCUMENTS INCORPORATED BY REFERENCE
Document
|
Parts Into Which Incorporated | |
Excerpts from Annual Report to Shareholders
for the Fiscal Year Ended December 31, 2009
(Annual Report)
|
Parts I, II, and IV | |
Proxy Statement for the Annual Meeting of
Shareholders to be held May 27, 2010 (Proxy
Statement)
|
Part III |
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PART I
| ITEM 1. | BUSINESS |
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 and dolomitic lime sold
primarily to customers in the steel industry. In 2009, the Company’s Aggregates business accounted
for 90% of the Company’s total net sales, and the Company’s Specialty Products segment accounted
for 10% of the Company’s 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 Company’s Common Stock was completed in 1994, followed
by a tax-free exchange transaction in 1996 that resulted in 100% of the Company’s Common Stock
being publicly traded.
Initially, the Company’s 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 Company’s granite operations on the Strait of Canso in Nova
Scotia, complemented the Company’s new coastal distribution network.
Subsequent acquisitions in 1997 and 1998 expanded the Company’s 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 Company’s 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 parties contributed a total of 15 active quarry operations to the joint
venture.
In 2008, the Company entered into a swap transaction with Vulcan Materials Company (“Vulcan”),
pursuant to which it acquired six quarry locations in Georgia and Tennessee. The
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acquired
locations significantly expanded the Company’s presence in Georgia and Tennessee, particularly
south and west of Atlanta, Georgia. The Company also acquired a land parcel previously leased from
Vulcan at the Company’s Three Rivers Quarry near Paducah, Kentucky. In addition to a cash payment,
as part of this swap, the Company divested to Vulcan its only California quarry located in
Oroville, an idle facility north of San Antonio, Texas, and land in Henderson, North Carolina,
formerly leased to Vulcan.
In 2009, the Company acquired three quarry locations plus the remaining 49% interest in an
existing joint venture from CEMEX, Inc. The quarry operations are located in Nebraska, Wyoming,
and Utah, while the 49% interest purchased relates to a quarry in Wyoming where the Company was the
operating manager. The acquired locations enhanced the Company’s existing long-haul distribution
network and provided attractive product synergies.
Between 2001 and 2009, 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 Specialty
Products segment. 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 2010 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.
Information concerning the Company’s 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, 2009 is included in “Note O: Business
Segments” of the “Notes to Financial Statements” of the Company’s 2009 consolidated financial
statements (the “2009 Financial Statements”), which are included under Item 8 of this Form 10-K,
and are part of the Company’s 2009 Annual Report to Shareholders (the “2009 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 agriculture, railroad ballast, chemical, and other 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 2009, the Company’s Aggregates business shipped 123.4 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 $1.4 billion and $177.0 million, respectively.
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The Aggregates business markets its products primarily to the construction industry, with
approximately 55% 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 historic economic recession has resulted in unprecedented declines in aggregates
shipments, as evidenced by United States aggregates consumption declining by almost 40% from the
peak volume in 2006. Further, states have stalled construction spending due to budget shortfalls
caused by decreasing tax revenues and uncertainty related to long-term federal highway funding.
The American Recovery and Reinvestment Act of 2009 (“ARRA”), the federal economic stimulus
plan signed into law in February 2009, provided approximately $30 billion of additional funding
for highways, bridges and airports expected to be spent through 2012. The Company also anticipates
that other components of ARRA, including, for example, federal spending for rail transportation,
public transit, and the Army Corps of Engineers, should result in increased construction activity.
There have been delays in stimulus-related jobs reaching the actual construction phase, as
evidenced by only 21% of total ARRA highway funds being spent at the state level in 2009. The
Company expects the majority of stimulus project work to occur in 2010 with any carryover in 2011
and 2012, the year all spending, by law, should be completed.
The Company’s Aggregates business covers a wide geographic area, with aggregates, asphalt
products, and ready mixed concrete sold and shipped from a network of approximately 289 quarries,
underground mines, distribution facilities, and plants to customers in 31 states, Canada, the
Bahamas, and the Caribbean Islands. The Company’s five largest revenue-generating states (Texas,
North Carolina, Georgia, Iowa, and Louisiana) account for approximately 56% of total 2009 net sales
for the Aggregates business by state of destination. The Company’s 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 current economic recession
nationally and in these states has negatively impacted the Company’s Aggregates business.
The Company’s 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 or severe drought, however, can jeopardize shipments,
production, and profitability in all of the Company’s markets. Due to these factors, the Company’s
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 Company’s 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.
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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 Company’s 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 Company’s aggregates shipments are being moved by rail or water
through a distribution yard network. In 1994, 93% of the Company’s aggregates shipments were moved
by truck, the rest by rail. In contrast, in 2009, the originating mode of transportation for the
Company’s aggregates shipments was 69% by truck, 20% by rail, and 11% 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 ships. During the recent economic recession, the Company set a priority of
preserving capital while maintaining safe, environmentally-sound operations. As the Company
returns to a more normalized operating environment, management expects to focus a significant part
of its capital growth spending program on expanding key Southeast and Southwest operations.
In addition, the Company’s 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
number of locations that can now accommodate larger unit train movements. These expansion projects
have enhanced the Company’s long-haul distribution network. The Company’s 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
Company’s 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.
The water and rail distribution network initially resulted in the Company increasing its
market share in certain areas. However, recent consolidation in the aggregates industry has made
it more competitive for the Company in various parts of the country. The Company believes that as
shipment volumes recover, the Company will increase its market share in those areas.
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 Company’s expansion of its rail-based distribution
network, coupled with the extensive use of rail service in the Southeast and West Groups, increase
the Company’s dependence on and exposure to railroad performance, including track congestion, crew
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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 Company’s 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 Company’s aggregates to various coastal ports.
The Company’s long-term shipping contracts are generally take-or-pay contracts with minimum
and maximum shipping requirements. If the Company fails to ship the minimum tonnages in a given
year under the agreement, it will be required to pay the shipping company the contractually-stated
minimum amount for that year. In 2009, the Company incurred a $2.0 million expense due to not
shipping the minimum tonnages. Similar charges are possible in 2010 if shipment volumes do not
increase.
From time to time the Company has experienced rail transportation shortages, particularly in
the Southwest and Southeast. These shortages were caused by the downsizing in personnel and
equipment by certain railroads during economic downturns. 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. Certain of
the Company’s sales yards 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
order to better accommodate unit train unloadings. Rail availability is seasonal and can impact
aggregates shipments depending on competing movements.
The Company’s management expects the multiple transportation modes that have been developed
with various rail carriers and via barges and deepwater ships should provide the Company with the
flexibility to effectively serve customers in the southeastern and southwestern regions of the
United States.
The construction aggregates industry has been consolidating, and the Company has actively
participated in the consolidation of the industry. When acquired, new locations sometimes do not
satisfy the Company’s internal safety, maintenance, and pit development standards, and may require
additional resources before benefits of the acquisitions are fully realized. Management expects a
slowing in the industry consolidation trend 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 Company has focused on investing in internal expansion projects in high-growth
markets. The Company’s Board of Directors and management continue to review and monitor the
Company’s strategic long-term plans, which include assessing business combinations and arrangements
with other companies engaged in similar businesses, increasing market share in the Company’s core
businesses,
investing in internal expansion projects in high-growth markets, and pursuing new opportunities
related to the Company’s 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
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Company’s
aggregates business. These vertically integrated operations accounted for approximately 8% of
revenues of the Aggregates business in 2009. 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 Company’s 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 Company’s
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 Company’s aggregates reserves on the average
exceed 60 years of production, based on normalized levels of production. 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
$19.8 million, $24.8 million, and $22.3 million during 2009, 2008, and 2007, respectively.
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 2009, 69% of Specialty Products’ net sales were attributable to chemical
products, 30% to lime, and 1% to stone. Net sales of chemical products in 2009 were enhanced by
the acquisition of the ElastomagÒ product line from Morton International, Inc. in 2008.
Overall net sales in the Specialty Products business decreased in 2009 reflecting slowing magnesia
chemicals sales and reduced dolomitic lime shipments to the steel industry, both trends consistent
with declines in general industrial demand.
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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 2009, approximately 70% of the lime produced was sold to third-party customers, while the
remaining 30% 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.
Products used in the steel industry accounted for approximately 40% of the Specialty Products’ net
sales in 2009, attributable primarily to the sale of dolomitic lime products. Accordingly, a
portion of the profitability of the Specialty Products business is dependent on steel production
capacity utilization and the related marketplace. These trends are guided by the rate of consumer
consumption, the flow of offshore imports, and other economic factors. The economic downturn has
caused a significant decline in the manufacturing of steel. The Company anticipates continued
weakness in the manufacturing of steel for much of 2010, dependent upon domestic economic recovery
rates.
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 Dow’s 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 Dow’s facility in Ludington, Michigan.
Construction of the pipeline was 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 10% 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 $16.2 million, $24.3 million, and $20.2 million in 2009, 2008, and
2007,
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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.
Patents and Trademarks
As of February 12, 2010, the Company owns, has the right to use, or has pending applications
for approximately 114 patents pending or granted by the United States and various countries and
approximately 115 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 Company’s
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 Company’s products are sold principally to commercial customers in private
industry. Although large amounts of construction materials are used in public works projects,
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 Company’s
production facilities. Although all of the Company’s 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 4,000 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 Company’s
ability to compete in the aggregates business. Some of the Company’s competitors in the aggregates
industry have greater financial resources than the Company.
The Company’s Specialty Products business 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 10% of revenues for the Specialty Products business in 2009, principally in
Canada, Mexico, Europe, South America, and the Pacific Rim. Certain of the Company’s competitors
in the Specialty Products business have greater financial resources than the Company.
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Research and Development
The Company conducts research and development activities principally for its magnesia-based
chemicals business, at its plant in Manistee, Michigan. In general, the Company’s research and
development efforts in 2009 were directed to applied technological development for the use of its
chemicals products. The Company spent approximately $0.4 million in 2009, $0.6 million in 2008,
and $0.9 million in 2007 on research and development activities.
Environmental and Governmental Regulations
The Company’s 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 Company’s 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 Company’s operations, and such
permits are subject to modification, renewal, and revocation.
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 $8.7 million in 2009 and approximately $11.5 million in
2008 and are related to the Company’s environmental staff, ongoing monitoring costs for various
matters (including those matters disclosed in this Annual Report on Form 10-K), and asset
retirement costs. Capitalized costs related to environmental control facilities were approximately
$5.5 million in 2009 and are expected to be approximately $5.5 million in 2010 and 2011. The
Company’s capital expenditures for environmental matters were not material to its results of
operations or financial condition in 2009 and 2008. 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 Company’s
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
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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.
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 Company’s obligations or financial condition.
Future reclamation costs are estimated using statutory reclamation requirements and
management’s 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. For additional information regarding compliance with legal requirements,
see “Note N: Commitments and Contingencies” of the “Notes to Financial Statements” of the 2009
Financial Statements and the 2009 Annual Report. 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 Company’s 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 2009 Financial Statements included under Item 8 of this Form
10-K and the 2009 Annual Report, and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Environmental Regulation and Litigation” included under Item 7 of this
Form
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10-K and the 2009 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
Company’s 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.
As is the case with other companies in the same industry, some of the Company’s 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 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 PCA’s 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 Company’s 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
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MDEQ’s 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 Company’s 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.
The Company has been reviewing its operations with respect to climate change matters and its
sources of greenhouse gas emissions. On December 7, 2009, the USEPA made an endangerment finding
under the Clean Air Act that the current and projected concentrations of the six key greenhouse
gases in the atmosphere threaten the public health and welfare of current and future generations.
The six greenhouses gases are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons,
perfluorocarbons, and sulfur hexafluoride. Beginning in 2010, facilities that emit 25,000 metric
tons or more per year of greenhouse gases will be required to annually report greenhouse gas
generation to comply with the USEPA’s Mandatory Greenhouse Gas Reporting Rule. The USEPA has also
proposed a rule to impose additional permitting requirements on existing greenhouse gas sources
emitting greater than 25,000 metric tons per year of greenhouse gases. In Congress, both the House
and Senate are considering climate change legislation, including the “cap-and-trade” approach. Cap
and trade is an environmental policy tool that delivers results with a mandatory cap on emissions
while providing sources flexibility in how they comply by trading credits with other sources whose
emissions are below the cap. Various states where the Company has operations are also considering
climate change initiatives, and the Company may be subject to state regulations in addition to any
federal laws and rules that are passed.
The operations of the Company’s Aggregates business are not major sources of greenhouse gas
emissions. Most of the greenhouse gas emissions from aggregate operations are tailpipe emissions
from mobile sources such as heavy construction and earth-moving equipment. The lime manufacturing
operation of the Company’s Specialty Products business in Woodville, Ohio releases carbon dioxide,
methane and nitrous oxide during the production of lime and will be filing an annual report of its
greenhouse gas emissions. The Company believes it is likely that a tax will be enacted or
operational restraints or additional permitting requirements will be implemented on emissions
of greenhouse gases from its Woodville operation. However, the Company anticipates that any
increased operating costs or taxes relating to greenhouse gas emission limitations at the Woodville
operation would be passed on to its customers. The Specialty Products operation in Manistee,
Michigan releases carbon dioxide, methane, and nitrous oxides in the manufacture of magnesium oxide
and hydroxide products and will be filing an annual report of its greenhouse gas emissions. The
Company believes that the Manistee facility will be subject to additional permitting requirements
if pending federal legislation or regulations are passed. The magnesium oxide products compete
against other products which emit a lower level of greenhouse gases in their production.
Therefore, the Manistee facility may have to absorb extra costs due to the pending greenhouse gas
regulations in order to remain competitive in pricing in that market. The Company at this time
cannot reasonably predict what the costs might be. The fastest growing part of the business is
magnesium hydroxide, however, and the Company believes its market competition will be similarly
regulated under the greenhouse gas
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legislation and regulations. The Manistee facility sells
materials to distributors and customers in a number of countries in Asia, Europe and South America,
and to Canada and Mexico. The Company is analyzing the obligations of our global customer base
with regards to climate change treaties and accords.
Employees
As of January 31, 2010, the Company has approximately 4,554 employees, of which 3,351 are
hourly employees and 1,203 are salaried employees. Included among these employees are 636 hourly
employees represented by labor unions (14.0% of the Company’s employees). Of such amount, 13.1% of
the Company’s Aggregates business’s hourly employees are members of a labor union, while 100% of
the Specialty Products segment’s hourly employees are represented by labor unions. The Company’s
principal union contracts cover employees of the Specialty Products business at the 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. While the Company’s management does not expect significant
difficulties in renewing these labor contracts, there can be no assurance that a successor
agreement will be reached at the Woodville location this year or at the Manistee location next
year.
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 Company’s 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 Company’s 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 Company’s code of ethics is available on the Company’s 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 committee’s 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 Company’s web site
at www.martinmarietta.com.
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The Company’s 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 Company’s public
disclosure of its financial condition. The annual certifications are included as Exhibits to this
Annual Report on Form 10-K. The Company’s 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.
| ITEM 1A. | RISK FACTORS |
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
Company’s 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 Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Our aggregates business is cyclical and depends on activity within the construction industry.
The current market environment has hurt the economy, and we have considered the impact on our
business. Demand for our products, particularly in the commercial and residential construction
markets, could continue to fall if companies and consumers are unable to get credit for
construction projects or if the economic slowdown causes delays or cancellations of capital
projects. State and federal budget issues may continue to hurt the funding available for
infrastructure spending. The lack of available credit has limited the ability of states to issue
bonds to finance construction projects. Several of our top sales states have stopped bidding
projects in their transportation departments.
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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 and the aggregates intensity of the underlying spending on aggregates. 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. The recent economic recession is an example, and our business has been hurt.
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
Texas, North Carolina, Georgia, Iowa and Louisiana, our profitability will decrease. We are
experiencing this situation with the current economic recession.
The historic economic recession resulted in large declines in shipments of aggregate products
in our industry. Use of aggregate products in the United States has declined almost 40% from the
highest volume in 2006. The states have also reduced their construction spending because of budget
shortfalls caused by lower tax revenues and uncertainly relating to long-term federal highway
funding. There has been a reduction in many states’ investment in highway maintenance. These
factors resulted in a continued reduction in sales of aggregate products for the Company during
2009, which, combined with a widespread decline in aggregates pricing, hurt the Company’s business.
In February 2009, President Obama signed into law an economic stimulus plan, which was
designed to stimulate the economy by providing over $29 billion in new funding for transportation
infrastructure. However, nationally only about 21% of stimulus spending occurred in 2009. The
majority of stimulus spending is expected to occur in 2010 with expected carryover in 2011 and
2012, the last year of the stimulus plan spending. While management believes the federal stimulus
plan will
increase the Company’s aggregates shipments in 2010 and 2011, we cannot be assured of the full
impact of the stimulus plan.
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. The overall economy has been hurt by the changes in the
financial services sector, including failures of several large financial institutions, historical
merger and acquisition activity within that industry, and the resulting lack of credit
availability. The commercial construction market remained weak in 2009, notably in office and
retail construction. Management expects the commercial construction market to decline in 2010.
Approximately 25% of our aggregates shipments in 2009 were to the commercial construction market.
Also, continued weakness in the residential construction market negatively affected the commercial
construction market. The residential construction market remained dismal in 2009 in connection
with the housing market downtown. While management believes the residential construction market
has bottomed out and
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expects moderate growth in 2010, we cannot be assured of such growth.
Approximately 7% of our aggregates shipments in 2009 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. The current federal highway law passed in 2005 provided funding of $286.4
billion for highway, transit, and highway safety programs but ended September 30, 2009. While a
multi-year successor federal highway bill has not been approved, Congress has extended the
provisions of the current law under continuing resolutions through February 28, 2010. We cannot
be assured that Congress will pass a multi-year successor federal highway bill or will continue to
extend the provisions of the current law at the same level authorized in the current 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. Nearly all states are now experiencing state-level
funding pressures caused by lower tax revenues and an inability to finance approved projects.
North Carolina and Texas are among the states experiencing these pressures, and these states
disproportionately affect our revenues and profits.
Our aggregates business is seasonal and subject to the weather.
Since the construction aggregates business is conducted outdoors, seasonal changes and
other weather-related conditions affect our business. Adverse weather conditions, including
hurricanes and tropical storms, cold weather, snow, and heavy or sustained rainfall, reduce
construction activity, restrict the demand for our products, and impede our ability to efficiently
transport material, particularly by barge. 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, restrict production, and limit movement of barge traffic.
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 weather’s effect on the
construction industry’s 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
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
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transport our products longer distances than would normally be considered economical,
but we can give no assurances that we will be successful.
Our aggregates business is a capital-intensive business.
The property and machinery needed to produce our products are very expensive. Therefore, we
require large amounts of cash to operate our businesses. We believe that our cash on hand, along
with our projected internal cash flows and our available financing resources, will be enough to
give us the cash we need to support our anticipated operating and capital needs. Our ability to
generate sufficient cash flow depends on future performance, which will be subject to general
economic conditions, industry cycles and financial, business, and other factors affecting our
operations, many of which are beyond our control. If we are unable to generate sufficient cash to
operate our business, we may be required, among other things, to further reduce or delay planned
capital or operating expenditures.
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. As another example, our aggregates business may compete
with recycled asphalt and concrete products that could be used instead of new 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 have acquired many companies since 1995. 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
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margin businesses like our asphalt plants in Houston, Texas, and our road paving businesses
in Shreveport, Louisiana, and Texarkana, Arkansas.
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 by the short supply
or high costs of these fuels and energy. While we can contract for some fuels and sources of
energy, such as fixed-price supply contracts for coal and petroleum coke, significant increases in
costs or reduced availability of these items have and may in the future reduce our financial
results. Moreover, fluctuations in the supply and costs of these fuels and energy can make
planning our businesses more difficult. For example, in 2008, increases in energy costs lowered
net earnings for our businesses by $0.65 per diluted share when compared with 2007 prices.
Conversely, in 2009, decreases in energy costs contributed $1.01 to our net earnings per diluted
share. We do not hedge our diesel fuel price risk, but instead focus on volume-related price
reductions, fuel efficiency, consumption, and the natural hedge created by the ability to increase
aggregates prices.
In addition, the price of liquid asphalt is a large part of the cost of producing hot mix
asphalt products and can cause road builders and commercial contractors to delay or defer work in
anticipation of liquid asphalt cost changes. In 2008, liquid asphalt prices more than doubled over
the prior year price, with prices in excess of $800 per ton at their peak.
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.
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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. We
are currently involved in various legal proceedings in both federal and state courts relating to
our Greenwood, Missouri operations. A jury verdict for actual and exemplary damages was rendered
against us in favor of the City of Greenwood in one of the state court proceedings based on the
jury’s finding that quarry customers’ trucks caused damage to a road in Greenwood. The Missouri
Supreme Court recently declined to accept our appeal in this proceeding. The Company’s management
believes this result in state court is unsupported by relevant legal principles and is considering
our alternatives, although we cannot reasonably predict the ultimate outcome of this proceeding.
Accordingly, we have recorded an $11.9 million legal reserve on our books as of December 31, 2009.
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.
Labor disputes could disrupt operations of our businesses.
Labor unions represent 13.1% of the hourly employees of our aggregates business and 97.4% 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. In 2008
high water levels from severe flooding in Iowa hurt both shipments and operations.
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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. In 2007, barges were particularly scarce, as barges
were being retired faster than new barges were being built. In 2005, we leased 780 additional
rail cars. In 2006, we contracted to buy 50 new barges that were delivered in 2007. In 2008, we
leased additional rail cars in the Southwest.
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 2011 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.
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
goodwill impairment testing, our expenses and cash requirements for our pension plans, our
estimated income taxes, how we allocate the purchase price of our acquisitions, 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 Management’s 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. Beginning in 2009, we
were required under new accounting standards to determine whether instruments granted in
stock-based payment transactions under our employee benefit plans were considered “participating
securities” and included in determining our earnings per share. This resulted in a reduction of
our previously-reported net earnings and decreased our previously-reported earnings per share
amounts. We urge you to read about our accounting policies and changes in our accounting policies
in Note A of our 2009 financial statements.
23
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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 continue to decline if companies and consumers are unable
to finance construction projects or if the economic slowdown continues to cause delays or
cancellations to capital projects. State and federal budget issues may continue to negatively
affect the funding available for infrastructure spending without continued economic stimulus at the
federal level.
A recessionary economy can also increase the likelihood we will not be able to collect on all
of our accounts receivable with our customers. We are protected in part, however, by payment bonds
posted by many of our customers or end-users. Nevertheless, we have experienced a delay in payment
from some of our customers during this economic downturn. Historically our bad debt write-offs have
not been significant to our operating results, and, although the amount of our bad debt write-offs
has increased, we believe our allowance for doubtful accounts is adequate.
During this economic downturn we have been forced to shut down some of our facilities
permanently and have temporarily idled others. In 2009, the Company’s Aggregates business operated
at a level significantly below capacity, which restricted the Company’s ability to capitalize $48.8
million of costs that could have been inventoried under normal operating conditions. If demand
does
not improve, such temporary idling could become longer-term, impairing the value of some of
the assets at those locations. The timing of increased demand will determine when these locations
will be reopened. During the idling period, the plant and equipment will continue to be
depreciated. If practicable, we will transfer the mobile equipment and use it elsewhere. Because
we continue to have long-term access to the aggregate reserves, these sites are not considered
impaired during temporary idlings. Nevertheless, there is a risk of long-term asset impairment at
sites that are temporarily idled if the economic downturn does not improve in the near term.
The current credit environment has limited our ability to issue borrowings under our
commercial paper program. Additional financing or refinancing might not be available and, if
available, may not be at economically favorable terms. Further, an increase in leverage could lead
to deterioration in our credit ratings. A reduction in our credit ratings, regardless of the
cause, could also limit our ability to obtain additional financing and/or increase our cost of
obtaining financing. In 2009, we issued 3.8 million shares of common stock and raised net proceeds
of $293 million. We also entered into a $100 million three-year secured accounts receivable credit
facility and a $130 million unsecured term loan. We further amended our various credit agreements
to provide for an increased leverage ratio covenant. There is no guarantee we will be able to
access the capital markets at financially economical interest rates, which could negatively affect
our business.
24
Table of Contents
We may be required to obtain financing in order to fund certain strategic acquisitions, if
they arise, or to refinance our outstanding debt. Any large strategic acquisition would require
that we issue both newly issued equity and debt securities in order to maintain our investment
grade credit rating. We are also exposed to risks from tightening credit markets, through the
interest payable on our outstanding debt and the interest cost on our commercial paper program, to
the extent it is available to us. Our senior unsecured (long term) debt is rated BBB+ by Standard
& Poor’s and Baa3 by Moody’s. Our commercial paper is rated A-2 by Standard & Poor’s and P-3 by
Moody’s. While management believes our credit ratings will remain at an investment-grade level, we
cannot be assured these ratings will remain at those levels. While management believes the Company
will continue to have credit available to it adequate to meet its needs, there can be no assurance
of that.
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 economic downturn has caused a
significant decline in steel manufacturing. We anticipate this weakness to continue in 2010. 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 articles of incorporation, bylaws, and shareholder rights plan and North Carolina law may
inhibit a change in control that you may favor.
Our restated articles of incorporation and restated 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 ability of the board of directors to establish the terms of, and issue, preferred stock without shareholder approval; | ||
| • | the requirement that our shareholders may only remove directors for cause; | ||
| • | the inability of shareholders to call special meetings of shareholders; and | ||
| • | super majority shareholder approval requirements for business combination transactions with certain five percent shareholders. |
In addition, we have in place a shareholder rights plan that will trigger a dilutive issuance
of common stock upon acquisitions of our common stock by a third party above a threshold that are
not
25
Table of Contents
approved by the board of directors. Additionally, the occurrence of certain change of control
events could result in an event of default under certain of our existing or future debt
instruments.
Changes in our effective tax rate may harm our results of operations.
A number of factors may increase our future effective tax rate, including:
| • | Governmental authorities increasing taxes to fund deficits; | ||
| • | The jurisdictions in which earnings are taxed; | ||
| • | The resolution of issues arising from tax audits with various tax authorities; | ||
| • | Changes in the valuation of our deferred tax assets and liabilities; | ||
| • | Adjustments to estimated taxes upon finalization of various tax returns; | ||
| • | Changes in available tax credits; | ||
| • | Changes in share-based compensation; | ||
| • | Other changes in tax laws, and | ||
| • | The interpretation of tax laws and/or administrative practices. |
Any significant increase in our future effective tax rate could reduce net earnings for future
periods.
* * * * * * * * * * * * * *
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 Company has listed all known material risks it
considers relevant in evaluating the Company and its operations. 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 statements are made as of the date hereof based on management’s 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 Company’s 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, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” under Item 7 of this Form 10-K and the 2009 Annual Report,
26
Table of Contents
and “Note A: Accounting Policies” and “Note N: Commitments and Contingencies” of the “Notes to
Financial Statements” of the 2009 Financial Statements included under Item 8 of this Form 10-K and
the 2009 Annual Report.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2. | PROPERTIES |
Aggregates Business
As of December 31, 2009, the Company processed or shipped aggregates from 274 quarries,
underground mines, and distribution yards in 27 states and in Canada and the Bahamas, of which 101
are located on land owned by the Company free of major encumbrances, 59 are on land owned in part
and leased in part, 110 are on leased land, and 4 are on facilities neither owned nor leased, where
raw materials are removed under an agreement. The Company’s aggregates reserves on the average
exceed 60 years based on normalized levels of production, and 109 years at current production
rates. However, certain locations may be subject to more limited reserves and may not be able to
expand. In addition, as of December 31, 2009, 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 Company’s 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 degree of certainty for probable reserves is 70% to 75%. In determining
the amount of reserves, the Company’s 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
Company’s assessment of reserves, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Other Financial Information — Critical Accounting Policies and
Estimates- Property, Plant and Equipment” under Item
27
Table of Contents
7 of this Form 10-K and the 2009 Annual Report
for discussion of reserves evaluation by the Company.
Set forth in the tables below are the Company’s estimates of reserves of recoverable
aggregates of suitable quality for economic extraction, shown on a state-by-state basis, and the
Company’s total annual production for the last 3 years, along with the Company’s 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 Company’s 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 Company’s 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.
28
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| Percentage of aggregate | ||||||||||||||||||||||||||||||||||||||||||||||||
| Tonnage of Reserves for | Tonnage of Reserves for | reserves located at an | Percentage of | |||||||||||||||||||||||||||||||||||||||||||||
| Number of | each general type of | each general type of | existing quarry, and | aggregate reserves | ||||||||||||||||||||||||||||||||||||||||||||
| Producing | aggregate at 12/31/08 | aggregate at 12/31/09 | Change in Tonnage from 2008 | reserves not located at an | on land that has | Percent of reserves owned | ||||||||||||||||||||||||||||||||||||||||||
| Quarries | (Add 000) | (Add 000) | (Add 000) | existing quarry. | not been zoned for | and percent leased | ||||||||||||||||||||||||||||||||||||||||||
| State | 2009 | Hard Rock | S & G | Hard Rock | S & G | Hard Rock | S & G | At Quarry | Not at Quarry | quarrying. | Owned | Leased | ||||||||||||||||||||||||||||||||||||
Alabama |
7 | 85,112 | 10,337 | 82,630 | 10,163 | (2,482 | ) | (174 | ) | 100 | % | 0 | % | 0 | % | 23 | % | 77 | % | |||||||||||||||||||||||||||||
Arkansas |
3 | 213,591 | 0 | 239,761 | 0 | 26,170 | 0 | 96 | % | 4 | % | 0 | % | 58 | % | 42 | % | |||||||||||||||||||||||||||||||
Florida |
2 | 120,543 | 0 | 119,902 | 0 | (641 | ) | 0 | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % | ||||||||||||||||||||||||||||||
Georgia |
13 | 1,165,596 | 0 | 1,241,080 | 0 | 75,484 | 0 | 92 | % | 8 | % | 0 | % | 76 | % | 24 | % | |||||||||||||||||||||||||||||||
Illinois |
2 | 809,494 | 0 | 750,405 | 0 | (59,089 | ) | 0 | 59 | % | 41 | % | 0 | % | 53 | % | 47 | % | ||||||||||||||||||||||||||||||
Indiana |
10 | 482,464 | 35,042 | 478,497 | 38,010 | (3,967 | ) | 2,968 | 100 | % | 0 | % | 15 | % | 41 | % | 60 | % | ||||||||||||||||||||||||||||||
Iowa |
28 | 658,531 | 54,953 | 656,618 | 54,390 | (1,913 | ) | (563 | ) | 99 | % | 1 | % | 1 | % | 12 | % | 88 | % | |||||||||||||||||||||||||||||
Kansas |
12 | 123,122 | 0 | 120,739 | 0 | (2,383 | ) | 0 | 100 | % | 0 | % | 0 | % | 35 | % | 65 | % | ||||||||||||||||||||||||||||||
Kentucky |
3 | 562,614 | 45,626 | 556,310 | 45,533 | (6,304 | ) | (93 | ) | 100 | % | 0 | % | 0 | % | 8 | % | 92 | % | |||||||||||||||||||||||||||||
Maryland |
2 | 96,173 | 0 | 95,347 | 0 | (826 | ) | 0 | 100 | % | 0 | % | 0 | % | 100 | % | 0 | % | ||||||||||||||||||||||||||||||
Minnesota |
2 | 449,185 | 0 | 447,144 | 0 | (2,041 | ) | 0 | 77 | % | 23 | % | 0 | % | 69 | % | 31 | % | ||||||||||||||||||||||||||||||
Mississippi |
1 | 0 | 83,861 | 0 | 83,645 | 0 | (216 | ) | 100 | % | 0 | % | 0 | % | 100 | % | 0 | % | ||||||||||||||||||||||||||||||
Missouri |
8 | 371,240 | 0 | 346,885 | 0 | (24,355 | ) | 0 | 88 | % | 12 | % | 0 | % | 21 | % | 79 | % | ||||||||||||||||||||||||||||||
Montana |
0 | 50,000 | 0 | 50,000 | 0 | 0 | 0 | 100 | % | 0 | % | 0 | % | 100 | % | 0 | % | |||||||||||||||||||||||||||||||
Nebraska |
4 | 77,484 | 0 | 188,975 | 0 | 111,491 | 0 | 100 | % | 0 | % | 0 | % | 49 | % | 51 | % | |||||||||||||||||||||||||||||||
Nevada |
1 | 158,502 | 0 | 156,477 | 0 | (2,025 | ) | 0 | 100 | % | 0 | % | 0 | % | 84 | % | 16 | % | ||||||||||||||||||||||||||||||
North Carolina |
43 | 3,281,063 | 0 | 3,374,396 | 0 | 93,333 | 0 | 82 | % | 18 | % | 3 | % | 64 | % | 36 | % | |||||||||||||||||||||||||||||||
Ohio |
15 | 181,939 | 194,897 | 181,509 | 194,399 | (430 | ) | (498 | ) | 100 | % | 0 | % | 3 | % | 92 | % | 8 | % | |||||||||||||||||||||||||||||
Oklahoma |
9 | 736,185 | 38,174 | 728,065 | 37,688 | (8,120 | ) | (486 | ) | 100 | % | 0 | % | 0 | % | 83 | % | 17 | % | |||||||||||||||||||||||||||||
South Carolina |
6 | 405,842 | 0 | 406,173 | 0 | 331 | 0 | 89 | % | 11 | % | 19 | % | 16 | % | 84 | % | |||||||||||||||||||||||||||||||
Tennessee |
1 | 38,167 | 0 | 37,273 | 0 | (894 | ) | 0 | 100 | % | 0 | % | 0 | % | 100 | % | 0 | % | ||||||||||||||||||||||||||||||
Texas |
9 | 991,042 | 111,369 | 1,177,978 | 109,782 | 186,936 | (1,587 | ) | 65 | % | 35 | % | 33 | % | 19 | % | 90 | % | ||||||||||||||||||||||||||||||
Utah |
1 | 15,649 | 0 | 15,649 | 0 | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % | |||||||||||||||||||||||||||||||||
Virginia |
4 | 408,569 | 0 | 383,152 | 0 | (25,417 | ) | 0 | 86 | % | 14 | % | 1 | % | 76 | % | 24 | % | ||||||||||||||||||||||||||||||
Washington |
2 | 47,300 | 0 | 27,484 | 0 | (19,816 | ) | 0 | 46 | % | 54 | % | 0 | % | 72 | % | 28 | % | ||||||||||||||||||||||||||||||
West Virginia |
1 | 59,204 | 0 | 59,161 | 0 | (43 | ) | 0 | 31 | % | 69 | % | 0 | % | 90 | % | 10 | % | ||||||||||||||||||||||||||||||
Wyoming |
2 | 68,944 | 0 | 118,582 | 0 | 49,638 | 0 | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % | |||||||||||||||||||||||||||||||
U. S. Total |
191 | 11,641,906 | 574,259 | 12,040,192 | 573,610 | 398,286 | (649 | ) | 89 | % | 11 | % | 9 | % | 53 | % | 47 | % | ||||||||||||||||||||||||||||||
| 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||
Non-U. S. |
2 | 916,445 | 0 | 845,108 | 0 | (71,337 | ) | 0 | 100 | % | 0 | % | 0 | % | 99 | % | 1 | % | ||||||||||||||||||||||||||||||
Grand Total |
193 | 12,558,351 | 574,259 | 12,885,300 | 573,610 | 326,949 | (649 | ) | ||||||||||||||||||||||||||||||||||||||||
29
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| Total Annual Production (in tons) (add 000) | Number of years of production | |||||||||||||||
| For year ended December 31 | available at December 31, 2009 | |||||||||||||||
| Reportable Segment | 2009 | 2008 | 2007 | |||||||||||||
Mideast Group |
35,310 | 46,578 | 63,420 | 147.6 | ||||||||||||
Southeast Group |
31,095 | 39,574 | 44,710 | 121.3 | ||||||||||||
West Group |
56,837 | 69,439 | 72,832 | 78.8 | ||||||||||||
Total Aggregates
Business |
123,242 | 155,591 | 180,962 | 109.2 | ||||||||||||
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 previously
served as the assembly and manufacturing hub for the former structural composites product line of
the Specialty Products business. This lease will expire on March 31, 2010.
Other Properties
The Company’s 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 Company’s 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 2009, the
principal properties were believed to be utilized at average productive capacities of approximately
60% and were capable of supporting a higher level of market demand. However, due to the current
economic recession, the Company has adjusted its production schedules to meet reduced demand for
its products. For example, the Company has reduced operating hours at a number of its facilities,
closed some of its facilities, and temporarily idled some of its facilities. In 2009 the Company’s
Aggregates business operated at a level significantly below capacity, which restricted the
Company’s ability to capitalize $48.8 million of costs that could have been inventoried under
normal operating conditions. If demand does not improve over the near term, such reductions and
temporary idlings could continue. The Company expects, however, as the economy recovers, it will
be able to resume production at its normalized levels and increase production again as demand for
its products increases.
30
Table of Contents
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 Company’s 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 2009 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 2009 Financial Statements included under Item 8 of this Form 10-K and the 2009 Annual Report
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations -
Environmental Regulation and Litigation” under Item 7 of this Form 10-K and the 2009 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 2009.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers of Martin
Marietta Materials, Inc. as of February 12, 2010:
| Year Assumed | Other Positions and Other Business | |||||||||||
| Name | Age | Present Position | Present Position | Experience Within the Last Five Years | ||||||||
Stephen P. Zelnak, Jr.
|
65 | Chairman of the | 1997 | President (1993-2006); | ||||||||
| Board of Directors | Chief Executive Officer (1993-2009) | |||||||||||
C. Howard Nye
|
47 | Chief Executive Officer; | 2010 | Executive Vice President, Hanson | ||||||||
| President; | 2006 | Aggregates North America (2003-2006);* | ||||||||||
| President of Aggregates | 2010 | Chief Operating Officer (2006-2009) | ||||||||||
| Business; | ||||||||||||
| Chairman of Magnesia | 2007 | |||||||||||
| Specialties Business | ||||||||||||
Anne H. Lloyd
|
48 | Executive Vice President; | 2009 | Senior Vice President (2005-2009); | ||||||||
| Treasurer; | 2006 | Vice President and Controller (1998-2005); | ||||||||||
| Chief Financial Officer | 2005 | Chief Accounting Officer (1999-2006) | ||||||||||
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Daniel G. Shephard
|
51 | Executive Vice President; | 2005 | Vice President-Business Development | ||||||||
| Chief Executive Officer | 2005 | and Capital Planning (2002-2005); | ||||||||||
| of Magnesia Specialties | Senior Vice President (2004-2005); | |||||||||||
| Business | Regional Vice President and General | |||||||||||
| Manager-MidAmerica Region (2003-2005); | ||||||||||||
| President of Magnesia Specialties Business | ||||||||||||
| (1999-2005) | ||||||||||||
Bruce A. Vaio
|
49 | President – Martin Marietta | 2006 | President – Southwest Division (1998-2006); | ||||||||
| Materials West; | Senior Vice President (2002-2005) | |||||||||||
| Executive Vice President | 2005 | |||||||||||
Roselyn R. Bar
|
51 | Senior Vice President; | 2005 | Vice President (2001-2005) | ||||||||
| General Counsel; | 2001 | |||||||||||
| Corporate Secretary | 1997 | |||||||||||
Jonathan T. Stewart
|
61 | Senior Vice President, | 2001 | |||||||||
| Human Resources |
| * | 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. |
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information, Holders, and Dividends
The Company’s 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 2009 Annual Report, and that information is
incorporated herein by reference. There were 827 holders of record of the Company’s Common Stock
as of February 12, 2010.
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.
32
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Issuer Purchases of Equity Securities
| Total Number of Shares | Maximum Number of | |||||||||||||||
| Purchased as Part of | Shares that May Yet | |||||||||||||||
| Publicly Announced | be Purchased Under | |||||||||||||||
| Total Number of | Average Price Paid | Plans or | the Plans or | |||||||||||||
| Period | Shares Purchased | per Share | Programs(1) | Programs | ||||||||||||
October 1, 2009 –
October 31, 2009 |
0 | $ | — | 0 | 5,041,871 | |||||||||||
November 1, 2009 –
November 30, 2009 |
0 | $ | — | 0 | 5,041,871 | |||||||||||
December 1, 2009 –
December 31, 2009 |
0 | $ | — | 0 | 5,041,871 | |||||||||||
Total |
0 | $ | — | 0 | 5,041,871 | |||||||||||
| (1) | The Company’s initial stock repurchase program, which authorized the repurchase of 2.5 million shares of common stock, was announced in a press release dated May 6, 1994, and has been updated as appropriate. The program does not have an expiration date. 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 2009 Annual Report, and that information is incorporated herein by reference.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following is management’s 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
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2009
Annual Report, and that information is incorporated herein by reference, except that the
information contained under the caption “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Outlook 2010” in the 2009 Annual Report is not incorporated
herein by reference.
33
Table of Contents
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information required in response to this Item 7A is included under the caption
“Management’s Discussion and Analysis of Financial Condition and Results of Operations-Quantitative
and Qualitative Disclosures About Market Risk” of the 2009 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 Total Equity,” “Notes to Financial Statements,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and
“Quarterly Performance (Unaudited)” of the 2009 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, 2009, an evaluation was performed under the supervision and with the
participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures and the Company’s internal control over financial reporting.
Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the
Company’s 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,
2009 and further concluded that the Company’s internal control over financial reporting was
effective in providing reasonable assurance regarding the reliability of financial reporting and
the preparation of the Company’s financial statements for external purposes in accordance with
generally accepted accounting principles as of December 31, 2009. There were no changes in the
Company’s internal control over financial reporting during the most recently completed fiscal quarter that materially
affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
The foregoing evaluation of the Company’s disclosure controls and procedures was based on the
definition in Exchange Act Rule 13a-15(e), which requires that disclosure controls and procedures
are effectively designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits with the Securities and Exchange Commission under the Exchange Act
is recorded, processed, summarized, and reported, within the time periods specified in the
Securities and
34
Table of Contents
Exchange Commission’s rules and forms, and is accumulated and communicated to the
issuer’s management, including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
The Company’s management, including the CEO and CFO, does not expect that the Company’s
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 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 Company’s management has issued its annual report on the Company’s internal control over
financial reporting, which included management’s assessment that the Company’s internal control
over financial reporting was effective at December 31, 2009. The Company’s independent registered
public accounting firm has issued an attestation report that the Company’s internal control over
financial reporting was effective at December 31, 2009. Management’s report on the Company’s
internal controls and the attestation report of the Company’s independent registered public
accounting firm are included in the 2009 Financial Statements, included under Item 8 of this Form
10-K and the 2009 Annual Report. See also “Management’s 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 2009 Annual Report.
Included among the Exhibits to this Form 10-K are forms of “Certifications” of the Company’s
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
Company’s 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.
35
Table of Contents
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 Company’s definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within
120 days after the close of the Company’s fiscal year ended December 31, 2009 (the “2010 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 Company’s 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.
| 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 Company’s 2010 Proxy Statement, and that information 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 Company’s 2010 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 Company’s 2010 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 Company’s 2010 Proxy Statement, and that information is hereby
incorporated by reference in this Form 10-K.
36
Table of Contents
PART IV
| ITEM 15. | EXHIBITS, 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 2009 Annual Report and incorporated by reference under Item 8 of this Form 10-K: |
Consolidated Statements of Earnings—
for years ended December 31, 2009, 2008, and 2007
for years ended December 31, 2009, 2008, and 2007
Consolidated Balance Sheets—
at December 31, 2009 and 2008
at December 31, 2009 and 2008
Consolidated Statements of Cash Flows—
for years ended December 31, 2009, 2008, and 2007
for years ended December 31, 2009, 2008, and 2007
Consolidated Statements of Total Equity—
Balance at December 31, 2009, 2008, and 2007
Balance at December 31, 2009, 2008, and 2007
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 Company’s independent registered public accounting firm with respect to the above-referenced financial statements is included in the 2009 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 Company’s independent registered public accounting firm are attached as Exhibit 23.01 to this Form 10-K. |
37
Table of Contents
(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 Company’s 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 Company’s 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 | —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)) |
|||
| 4.07 | —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)) |
|||
| 4.08 | —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) |
|||
| 4.09 | —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) |
|||
38
Table of Contents
| Exhibit | ||||
| No. | ||||
| 4.10 | —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) |
|||
| 4.11 | —Third Supplemental Indenture, dated as of April 21, 2008, 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 $300,000,000
aggregate principal amount of 6.60% Senior Notes due 2018 of Martin Marietta Materials, Inc.
(incorporated by reference to Exhibit 4.1 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, filed on April 21, 2008 (Commission File No. 1-12744) |
|||
| 4.12 | —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 Company’s Current Report on Form 8-K, filed
on September 28, 2006) (Commission File No. 1-12744) |
|||
| 4.13 | —Form of Indenture for Senior Debt Securities (incorporated by reference to Exhibit 4.5 to
the Martin Marietta Materials, Inc. registration statement on Form S-3) (SEC Registration No.
333-157731) |
|||
| 4.14 | —Form of Indenture for Subordinated Debt Securities (incorporated by reference to Exhibit
4.6 to the Martin Marietta Materials, Inc. registration statement on Form S-3) (SEC
Registration No. 333-157731) |
|||
| 4.15 | —Form of Senior Note (included in Exhibit 4.13) (incorporated by reference to Exhibit 4.5 to
the Martin Marietta Materials, Inc. registration statement on Form S-3) (SEC Registration No.
333-157731) |
|||
| 4.16 | —Form of Subordinated Note (included in Exhibit 4.14) (incorporated by reference to Exhibit
4.6 to the Martin Marietta Materials, Inc. registration statement on Form S-3) (SEC
Registration No. 333-157731) |
|||
| 10.01 | —$325,000,000 Second Amended and Restated Credit Agreement dated as of October 24, 2008,
among Martin Marietta Materials, Inc., the banks parties thereto, and JP Morgan 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 September 30,
2008) (Commission File No. 1-12744) |
|||
| 10.02 | —Amendment No. 1 dated as of December 23, 2009 to $325,000,000 Second Amended and Restated
Credit Agreement dated as of October 24, 2008 among Martin Marietta Materials, Inc., the banks
party thereto, and J.P. Morgan 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 December 23, 2009) (Commission File No. 1-12744) |
|||
| 10.03 | —$130,000,000 Term Loan Agreement dated as of April 23, 2009 among Martin Marietta
Materials, Inc., SunTrust Bank, as Administrative Agent and a syndicate of banks (incorporated
by reference to Exhibit 10.02 to the Martin Marietta Materials, Inc., Current Report on Form
8-K filed on April 27, 2009) (Commission File No. 1-12744) |
|||
39
Table of Contents
| Exhibit | ||||
| No. | ||||
| 10.04 | —First Amendment dated as of December 23, 2009 to $130,000,000 Term Loan Agreement dated as
of April 23, 2009 among Martin Marietta Materials, Inc., SunTrust Bank, as Administrative
Agent and syndicate of banks (incorporated by reference to Exhibit 10.02 to the Martin
Marietta Materials, Inc. Current Report on Form 8-K, filed on December 23, 2009) (Commission
File No. 1-12744) |
|||
| 10.05 | —$100,000,000 Account Purchase Agreement dated as of April 21, 2009 between Martin Marietta
Materials, Inc. and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.01 to the
Martin Marietta Materials, Inc., Current Report on Form 8-K filed on April 27, 2009)
(Commission File No. 1-12744) |
|||
| 10.06 | —First Amendment dated as of December 23, 2009 to $100,000,000 Account Purchase Agreement
dated as of April 21, 2009 between Martin Marietta Materials, Inc. and Wells Fargo Bank, N.A.
(incorporated by reference to Exhibit 10.03 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, filed on December 23, 2009) (Commission File No. 1-12744) |
|||
| 10.07 | —Distribution Agreement dated November 18, 2009 between Martin Marietta Materials, Inc. and
Wells Fargo Securities, LLC (incorporated by reference to Exhibit 99.1 to the Martin Marietta
Materials, Inc. Current Report on Form 8-K, filed on November 18, 2009) (Commission File No.
1-12744) |
|||
| 10.08 | —Form of Martin Marietta Materials, Inc. Third Amended and Restated Employment Protection
Agreement (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc.
Current Report on Form 8-K, filed on August 19, 2008) (Commission File No. 1-12744)** |
|||
| 10.09 | —Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for
Directors (incorporated by reference to Exhibit 10.04 to the Martin Marietta Materials, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No.
1-12744)** |
|||
| 10.10 | —Martin Marietta Materials, Inc. Amended and Restated Executive Incentive Plan
(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, 2008) (Commission File No.
1-12744)** |
|||
| 10.11 | —Martin Marietta Materials, Inc. Incentive Stock Plan, as Amended (incorporated by
reference to Exhibit 10.06 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K
for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)** |
|||
| 10.12 | —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)** |
|||
| 10.13 | —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)** |
|||
| 10.14 | —Martin Marietta Materials, Inc. Amended and Restated Supplemental Excess Retirement Plan
(incorporated by reference to Exhibit 10.2 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, filed on August 19, 2008 ) (Commission File No. 1-12744)** |
|||
| 10.15 | —Form of Option Award Agreement under the Martin Marietta Materials, Inc. Amended and
Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.11 to the Martin
Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31,
2008) (Commission File No. 1-12744)** |
|||
| 10.16 | —Form of Restricted Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended
and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.01 to the
Martin Marietta Materials, Inc. Quarter Report on Form 10-Q for the quarter ended June 30,
2009) (Commission File No. 1-12744)** |
|||
40
Table of Contents
| Exhibit | ||||
| No. | ||||
| 10.17 | —Form of Amendment to the Stock Unit Agreement under the Martin Marietta Materials, Inc.
Amended and Restated Stock-Based Award 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, 2008) (Commission File No. 1-12744)** |
|||
| *12.01 | —Computation of ratio of earnings to fixed charges for the year ended December 31, 2009 |
|||
| *13.01 | —Excerpts from Martin Marietta Materials, Inc. 2009 Annual Report to Shareholders, portions of which are incorporated
by reference in this Form 10-K. Those portions of the 2009 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 26, 2010 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 26, 2010 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 26, 2010 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 26, 2010 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 2010 Proxy Statement filed pursuant to Regulation 14A, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2010 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 |
41
Table of Contents
(c) Financial Statement Schedule
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
| Col C | ||||||||||||||||||||||||||||
| Additions | Col E | |||||||||||||||||||||||||||
| Col B | (1) | (2) | Col D | Balance at | ||||||||||||||||||||||||
| Col A | Balance at beginning | Charged to costs | Charged to other accounts— | Deductions— | end of | |||||||||||||||||||||||
| Description | of period | and expenses | describe | describe | period | |||||||||||||||||||||||
| (Amounts in Thousands) | ||||||||||||||||||||||||||||
Year ended December 31, 2009 |
||||||||||||||||||||||||||||
Allowance for doubtful accounts |
$ | 4,696 | $ | — | $ | — | $ | 74 | (a) | $ | 4,622 | |||||||||||||||||
Allowance for uncollectible
notes receivable |
— | 151 | — | — | 151 | |||||||||||||||||||||||
Inventory valuation allowance |
19,019 | 1,313 | — | — | 20,332 | |||||||||||||||||||||||
Accumulated amortization of
intangible assets |
12,644 | 1,711 | — | 1,200 | (b) | 13,155 | ||||||||||||||||||||||
Year ended December 31, 2008 |
||||||||||||||||||||||||||||
Allowance for doubtful accounts |
$ | 3,661 | $ | 1,035 | $ | — | $ | — | $ | 4,696 | ||||||||||||||||||
Allowance for uncollectible
notes receivable |
— | — | — | — | — | |||||||||||||||||||||||
Inventory valuation allowance |
19,136 | — | — | 117 | (a) | 19,019 | ||||||||||||||||||||||
Accumulated amortization of
intangible assets |
18,816 | 1,886 | — | 8,058 | (b) | 12,644 | ||||||||||||||||||||||
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 | ||||||||||||||||||||||
| (a) | To adjust allowance for change in estimates. | |
| (b) | Write off of fully amortized intangible assets. |
42
Table of Contents
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 26, 2010
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.
43
Table of Contents
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.
|
Chairman of the Board | February 26, 2010 | ||
Stephen P. Zelnak, Jr. |
||||
/s/ C. Howard Nye
|
President and | February 26, 2010 | ||
C. Howard Nye
|
Chief Executive Officer | |||
/s/ Anne H. Lloyd
|
Executive Vice President, Chief Financial Officer and | February 26, 2010 | ||
Anne H. Lloyd
|
Treasurer | |||
/s/ Dana F. Guzzo
|
Vice President, Controller and | February 26, 2010 | ||
Dana F. Guzzo
|
Chief Accounting Officer | |||
/s/ Sue W. Cole
|
Director | February 26, 2010 | ||
Sue W. Cole |
||||
/s/ David G. Maffucci
|
Director | February 26, 2010 | ||
David G. Maffucci |
||||
/s/ William E. McDonald
|
Director | February 26, 2010 | ||
William E. McDonald |
||||
/s/ Frank H. Menaker, Jr.
|
Director | February 26, 2010 | ||
Frank H. Menaker, Jr. |
||||
/s/ Laree E. Perez
|
Director | February 26, 2010 | ||
Laree E. Perez |
||||
/s/ Michael J. Quillen
|
Director | February 26, 2010 | ||
Michael J. Quillen |
44
Table of Contents
| Signature | Title | Date | ||
/s/ Dennis L. Rediker
|
Director | February 26, 2010 | ||
Dennis L. Rediker |
||||
/s/ Richard A. Vinroot
|
Director | February 26, 2010 | ||
Richard A. Vinroot |
45
Table of Contents
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 Company’s 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 Company’s 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 | —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)) |
|||
| 4.07 | —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)) |
|||
| 4.08 | —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) |
|||
| 4.09 | —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. |
|||
46
Table of Contents
| Exhibit | ||||
| No. | ||||
(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) |
||||
| 4.10 | —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) |
|||
| 4.11 | —Third Supplemental Indenture, dated as of April 21, 2008, 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 $300,000,000
aggregate principal amount of 6.60% Senior Notes due 2018 of Martin Marietta Materials, Inc.
(incorporated by reference to Exhibit 4.1 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, filed on April 21, 2008 (Commission File No. 1-12744) |
|||
| 4.12 | —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 Company’s Current Report on Form 8-K, filed
on September 28, 2006) (Commission File No. 1-12744) |
|||
| 4.13 | —Form of Indenture for Senior Debt Securities (incorporated by reference to Exhibit 4.5 to
the Martin Marietta Materials, Inc. registration statement on Form S-3) (SEC Registration No.
333-157731) |
|||
| 4.14 | —Form of Indenture for Subordinated Debt Securities (incorporated by reference to Exhibit
4.6 to the Martin Marietta Materials, Inc. registration statement on Form S-3) (SEC
Registration No. 333-157731) |
|||
| 4.15 | —Form of Senior Note (included in Exhibit 4.13) (incorporated by reference to Exhibit 4.5 to
the Martin Marietta Materials, Inc. registration statement on Form S-3) (SEC Registration No.
333-157731) |
|||
| 4.16 | —Form of Subordinated Note (included in Exhibit 4.14) (incorporated by reference to Exhibit
4.6 to the Martin Marietta Materials, Inc. registration statement on Form S-3) (SEC
Registration No. 333-157731) |
|||
| 10.01 | —$325,000,000 Second Amended and Restated Credit Agreement dated as of October 24, 2008,
among Martin Marietta Materials, Inc., the banks parties thereto, and JP Morgan 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 September 30,
2008) (Commission File No. 1-12744) |
|||
| 10.02 | —Amendment No. 1 dated as of December 23, 2009 to $325,000,000 Second Amended and Restated
Credit Agreement dated as of October 24, 2008 among Martin Marietta Materials, Inc., the banks
party thereto, and J.P. Morgan 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 December 23, 2009) (Commission File No. 1-12744) |
|||
| 10.03 | —$130,000,000 Term Loan Agreement dated as of April 23, 2009 among Martin Marietta
Materials, Inc., SunTrust Bank, as Administrative Agent and a syndicate of banks (incorporated
by reference to Exhibit 10.02 to the Martin Marietta Materials, Inc., Current Report on Form
8-K filed on April 27, 2009) (Commission File No. 1-12744) |
|||
47
Table of Contents
| Exhibit | ||||
| No. | ||||
| 10.04 | —First Amendment dated as of December 23, 2009 to $130,000,000 Term Loan Agreement dated as
of April 23, 2009 among Martin Marietta Materials, Inc., SunTrust Bank, as Administrative
Agent and syndicate of banks (incorporated by reference to Exhibit 10.02 to the Martin
Marietta Materials, Inc. Current Report on Form 8-K, filed on December 23, 2009) (Commission
File No. 1-12744) |
|||
| 10.05 | —$100,000,000 Account Purchase Agreement dated as of April 21, 2009 between Martin Marietta
Materials, Inc. and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.01 to the
Martin Marietta Materials, Inc., Current Report on Form 8-K filed on April 27, 2009)
(Commission File No. 1-12744) |
|||
| 10.06 | —First Amendment dated as of December 23, 2009 to $100,000,000 Account Purchase Agreement
dated as of April 21, 2009 between Martin Marietta Materials, Inc. and Wells Fargo Bank, N.A.
(incorporated by reference to Exhibit 10.03 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, filed on December 23, 2009) (Commission File No. 1-12744) |
|||
| 10.07 | —Distribution Agreement dated November 18, 2009 between Martin Marietta Materials, Inc. and
Wells Fargo Securities, LLC (incorporated by reference to Exhibit 99.1 to the Martin Marietta
Materials, Inc. Current Report on Form 8-K, filed on November 18, 2009) (Commission File No.
1-12744) |
|||
| 10.08 | —Form of Martin Marietta Materials, Inc. Third Amended and Restated Employment Protection
Agreement (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc.
Current Report on Form 8-K, filed on August 19, 2008) (Commission File No. 1-12744)** |
|||
| 10.09 | —Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for
Directors (incorporated by reference to Exhibit 10.04 to the Martin Marietta Materials, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No.
1-12744)** |
|||
| 10.10 | —Martin Marietta Materials, Inc. Amended and Restated Executive Incentive Plan
(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, 2008) (Commission File No.
1-12744)** |
|||
| 10.11 | —Martin Marietta Materials, Inc. Incentive Stock Plan, as Amended (incorporated by
reference to Exhibit 10.06 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K
for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)** |
|||
| 10.12 | —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)** |
|||
| 10.13 | —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)** |
|||
| 10.14 | —Martin Marietta Materials, Inc. Amended and Restated Supplemental Excess Retirement Plan
(incorporated by reference to Exhibit 10.2 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, filed on August 19, 2008 ) (Commission File No. 1-12744)** |
|||
| 10.15 | —Form of Option Award Agreement under the Martin Marietta Materials, Inc. Amended and
Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.11 to the Martin
Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31,
2008) (Commission File No. 1-12744)** |
|||
| 10.16 | —Form of Restricted Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended
and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.01 to the |
|||
48
Table of Contents
| Exhibit | ||||
| No. | ||||
Martin Marietta Materials, Inc. Quarter Report on Form 10-Q for the quarter
ended June 30, 2009) (Commission File No. 1-12744)** |
||||
| 10.17 | —Form of Amendment to the Stock Unit Agreement under the Martin Marietta Materials, Inc.
Amended and Restated Stock-Based Award 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, 2008) (Commission File No. 1-12744)** |
|||
| *12.01 | —Computation of ratio of earnings to fixed charges for the year ended December 31, 2009 |
|||
| *13.01 | —Excerpts from Martin Marietta Materials, Inc. 2009 Annual Report to Shareholders, portions of which are incorporated
by reference in this Form 10-K. Those portions of the 2009 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 26, 2010 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 26, 2010 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 26, 2010 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 26, 2010 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 2010 Proxy Statement filed pursuant to Regulation 14A, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2010 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 |
49
EXHIBIT 12.01
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Year Ended December 31, 2009
(add 000, except ratio)
EARNINGS: |
||||
Earnings before income taxes |
$ | 112,557 | ** | |
Loss from less than 50%-owned associated companies, net |
1,313 | |||
Interest Expense* |
73,460 | |||
Portion of rents representative of an interest factor |
17,301 | |||
Adjusted Earnings and Fixed Charges |
$ | 204,631 | ||
FIXED CHARGES: |
||||
Interest Expense* |
$ | 73,460 | ||
Capitalized Interest |
1,010 | |||
Portion of rents representative of an interest factor |
17,301 | |||
Total Fixed Charges |
$ | 91,771 | ||
Ratio of Earnings to Fixed Charges |
2.23 | |||
| * | Interest Expense excluded interest income of $343 related to the reversal of interest accruals for uncertain tax positions. | |
| ** | Note: Use Earnings from Continuing Operations less net earnings attributable to noncontrolling interests. |
STATEMENT OF FINANCIAL RESPONSIBILITY AND REPORT OF MANAGEMENT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Martin Marietta Materials, Inc., is responsible for the consolidated
financial statements, the related financial information contained in this 2009 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, 2009 and 2008, and
the related consolidated statements of earnings, total equity and cash flows for each of the three
years in the period ended December 31, 2009, 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 management’s 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 Corporation’s management recognizes its responsibility to foster a strong ethical climate.
Management has issued written policy statements that document the Corporation’s 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 Corporation’s
internal control over financial reporting as of December 31, 2009. 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 management’s
assessment under the framework in Internal Control — Integrated Framework, management concluded
that the Corporation’s internal control over financial reporting was effective as of December 31,
2009.
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.
|
 |
|
C. Howard Nye
|
Anne H. Lloyd | |
President and Chief Executive Officer
|
Executive Vice President, | |
| Chief Financial Officer and Treasurer | ||
February 26, 2010 |
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Martin Marietta Materials, Inc.
Martin Marietta Materials, Inc.
We have audited Martin Marietta Materials, Inc.’s internal control over financial
reporting as of December 31, 2009, 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
Corporation’s 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 company’s 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 company’s 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 company’s 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, 2009, 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, 2009 and 2008, and the related consolidated statements
of earnings, total equity and cash flows for each of the three years in the period ended
December 31, 2009, of Martin Marietta Materials, Inc., and our report dated February 26,
2010, expressed an unqualified opinion thereon.
Raleigh, North Carolina
February 26, 2010
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Martin Marietta Materials, Inc.
Martin Marietta Materials, Inc.
We have audited the accompanying consolidated balance sheets of Martin Marietta Materials,
Inc., as of December 31, 2009 and 2008, and the related consolidated statements of earnings, total
equity and cash flows for each of the three years in the period ended December 31, 2009. These
financial statements are the responsibility of the Corporation’s 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,
2009 and 2008, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note A to the consolidated financial statements, in 2009, the Corporation changed
its method of accounting for business combinations with the adoption of the guidance originally
issued in Financial Accounting Standards Board (FASB) Statement No. 141(R), Business Combinations
(codified in FASB Accounting Standards Codification (ASC) Topic 805, Business Combinations), its
method of accounting for noncontrolling interests with the adoption of the guidance originally
issued in FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements
(codified in FASB ASC Topic 810, Consolidation), and its method of accounting for earnings per
share with the adoption of the guidance originally issued in FASB Staff Position No. Emerging
Issues Task Force 03-6-1, Determining Whether Shares Granted in Share-Based Payment Transactions
are Participating Securities (codified in FASB ASC Topic 260, Earnings per Share).
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, 2009, 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 26, 2010, expressed an unqualified opinion thereon.
Raleigh, North Carolina
February 26, 2010
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 8
CONSOLIDATED STATEMENTS OF EARNINGS for years ended December 31
| (add 000, except per share) | 2009 | 2008 | 2007 | |||||||||
Net Sales |
$ | 1,496,640 | $ | 1,859,697 | $ | 1,950,396 | ||||||
Freight and delivery revenues |
205,963 | 256,724 | 238,852 | |||||||||
Total revenues |
1,702,603 | 2,116,421 | 2,189,248 | |||||||||
Cost of sales |
1,158,907 | 1,389,182 | 1,382,191 | |||||||||
Freight and delivery costs |
205,963 | 256,724 | 238,852 | |||||||||
Total cost of revenues |
1,364,870 | 1,645,906 | 1,621,043 | |||||||||
Gross Profit |
337,733 | 470,515 | 568,205 | |||||||||
Selling, general and administrative expenses |
139,400 | 151,348 | 155,186 | |||||||||
Research and development |
373 | 596 | 869 | |||||||||
Other operating expenses and (income), net |
10,383 | (4,815 | ) | (18,077 | ) | |||||||
Earnings from Operations |
187,577 | 323,386 | 430,227 | |||||||||
Interest expense |
73,460 | 74,299 | 60,893 | |||||||||
Other nonoperating (income) and expenses, net |
(1,145 | ) | 1,958 | (7,291 | ) | |||||||
Earnings from continuing operations before taxes on income |
115,262 | 247,129 | 376,625 | |||||||||
Taxes on income |
27,375 | 72,088 | 115,360 | |||||||||
Earnings from Continuing Operations |
87,887 | 175,041 | 261,265 | |||||||||
Gain on discontinued operations, net of related tax
expense of $192, $5,449 and $1,561, respectively |
277 | 4,709 | 2,074 | |||||||||
Consolidated net earnings |
88,164 | 179,750 | 263,339 | |||||||||
Less: Net earnings attributable to noncontrolling interests |
2,705 | 3,494 | 590 | |||||||||
Net Earnings Attributable to Martin Marietta Materials,
Inc. |
$ | 85,459 | $ | 176,256 | $ | 262,749 | ||||||
Net Earnings Attributable to Martin Marietta Materials,
Inc. |
||||||||||||
Earnings from continuing operations |
$ | 85,182 | $ | 171,547 | $ | 260,675 | ||||||
Discontinued operations |
277 | 4,709 | 2,074 | |||||||||
| $ | 85,459 | $ | 176,256 | $ | 262,749 | |||||||
Net Earnings Attributable to Martin Marietta Materials,
Inc. |
||||||||||||
Per Common Share (See Note A) |
||||||||||||
— Basic from continuing operations available to
common shareholders |
$ | 1.91 | $ | 4.09 | $ | 6.04 | ||||||
— Discontinued operations available to common
shareholders |
0.01 | 0.11 | 0.05 | |||||||||
| $ | 1.92 | $ | 4.20 | $ | 6.09 | |||||||
— Diluted from continuing operations available to
common shareholders |
$ | 1.90 | $ | 4.07 | $ | 5.98 | ||||||
— Discontinued operations available to common
shareholders |
0.01 | 0.11 | 0.05 | |||||||||
| $ | 1.91 | $ | 4.18 | $ | 6.03 | |||||||
Weighted-Average Common Shares Outstanding |
||||||||||||
— Basic |
44,000 | 41,370 | 42,653 | |||||||||
— Diluted |
44,190 | 41,617 | 43,021 | |||||||||
The notes on pages 13 to 38 are an integral part of these financial statements.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 9
CONSOLIDATED BALANCE SHEETS at December 31
| Assets (add 000) | 2009 | 2008 | ||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 263,591 | $ | 37,794 | ||||
Accounts receivable, net |
162,815 | 211,596 | ||||||
Inventories, net |
332,569 | 318,018 | ||||||
Current deferred income tax benefits |
60,303 | 57,967 | ||||||
Other current assets |
37,582 | 39,656 | ||||||
Total Current Assets |
856,860 | 665,031 | ||||||
Property, plant and equipment, net |
1,692,905 | 1,690,529 | ||||||
Goodwill |
624,224 | 622,297 | ||||||
Other intangibles, net |
12,469 | 13,890 | ||||||
Other noncurrent assets |
52,825 | 40,755 | ||||||
Total Assets |
$ | 3,239,283 | $ | 3,032,502 | ||||
Liabilities and Equity (add 000, except parenthetical share data) |
||||||||
Current Liabilities: |
||||||||
Bank overdraft |
$ | 1,737 | $ | 4,677 | ||||
Accounts payable |
52,107 | 62,921 | ||||||
Accrued salaries, benefits and payroll taxes |
15,222 | 19,232 | ||||||
Pension and postretirement benefits |
18,823 | 3,728 | ||||||
Accrued insurance and other taxes |
24,274 | 23,419 | ||||||
Current maturities of long-term debt and short-term facilities |
226,119 | 202,530 | ||||||
Other current liabilities |
35,271 | 32,132 | ||||||
Total Current Liabilities |
373,553 | 348,639 | ||||||
Long-term debt |
1,023,492 | 1,152,414 | ||||||
Pension, postretirement and postemployment benefits |
160,354 | 207,830 | ||||||
Noncurrent deferred income taxes |
195,946 | 174,308 | ||||||
Other noncurrent liabilities |
79,527 | 82,051 | ||||||
Total Liabilities |
1,832,872 | 1,965,242 | ||||||
Equity: |
||||||||
Common stock ($0.01 par value; 100,000,000 shares authorized;
45,399,000 and 41,462,000 shares outstanding at December 31,
2009 and 2008, respectively) |
453 | 414 | ||||||
Preferred stock ($0.01 par value; 10,000,000 shares
authorized; no shares outstanding) |
— | — | ||||||
Additional paid-in capital |
381,173 | 78,545 | ||||||
Accumulated other comprehensive loss |
(75,084 | ) | (101,672 | ) | ||||
Retained earnings |
1,058,698 | 1,044,417 | ||||||
Total Shareholders’ Equity |
1,365,240 | 1,021,704 | ||||||
Noncontrolling interests |
41,171 | 45,556 | ||||||
Total Equity |
1,406,411 | 1,067,260 | ||||||
Total Liabilities and Equity |
$ | 3,239,283 | $ | 3,032,502 | ||||
The notes on pages 13 to 38 are an integral part of these financial statements.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 10
CONSOLIDATED STATEMENTS OF CASH FLOWS for years ended December 31
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Cash Flows from Operating Activities: |
||||||||||||
Consolidated net earnings |
$ | 88,164 | $ | 179,750 | $ | 263,339 | ||||||
Adjustments to reconcile consolidated net earnings to net
cash provided by operating activities: |
||||||||||||
Depreciation, depletion and amortization |
179,391 | 171,129 | 150,338 | |||||||||
Stock-based compensation expense |
20,552 | 21,865 | 19,687 | |||||||||
Losses (Gains) on divestitures and sales of assets |
2,121 | (25,565 | ) | (11,259 | ) | |||||||
Deferred income taxes |
8,685 | 23,848 | 8,741 | |||||||||
Excess tax benefits from stock-based compensation
transactions |
(555 | ) | (3,370 | ) | (23,278 | ) | ||||||
Other items, net |
(1,018 | ) | (2,675 | ) | (7,723 | ) | ||||||
Changes in operating assets and liabilities, net of effects
of acquisitions and divestitures: |
||||||||||||
Accounts receivable, net |
48,521 | 34,242 | (3,315 | ) | ||||||||
Inventories, net |
(12,525 | ) | (25,182 | ) | (31,514 | ) | ||||||
Accounts payable |
(10,452 | ) | (24,411 | ) | 1,494 | |||||||
Other assets and liabilities, net |
(4,516 | ) | (3,997 | ) | 31,040 | |||||||
Net Cash Provided by Operating Activities |
318,368 | 345,634 | 397,550 | |||||||||
Cash Flows from Investing Activities: |
||||||||||||
Additions to property, plant and equipment |
(139,230 | ) | (258,246 | ) | (264,923 | ) | ||||||
Acquisitions, net |
(49,593 | ) | (218,544 | ) | (12,211 | ) | ||||||
Proceeds from divestitures and sales of assets |
7,792 | 26,028 | 21,107 | |||||||||
Loan to affiliate |
(4,000 | ) | — | — | ||||||||
Railcar construction advances |
(8,743 | ) | (7,286 | ) | — | |||||||
Repayments of railcar construction advances |
8,743 | 7,286 | — | |||||||||
Net Cash Used for Investing Activities |
(185,031 | ) | (450,762 | ) | (256,027 | ) | ||||||
Cash Flows from Financing Activities: |
||||||||||||
Borrowings of long-term debt |
330,000 | 297,837 | 471,990 | |||||||||
Repayments of long-term debt |
(236,006 | ) | (205,022 | ) | (125,342 | ) | ||||||
(Repayments) Borrowings on short-term facilities, net |
(200,000 | ) | 128,000 | 71,463 | ||||||||
Debt issuance costs |
(2,389 | ) | (1,105 | ) | (807 | ) | ||||||
Termination of interest rate swaps |
— | (11,139 | ) | — | ||||||||
Change in bank overdraft |
(2,940 | ) | (1,674 | ) | (2,039 | ) | ||||||
Payments on capital lease obligations |
(137 | ) | (191 | ) | (177 | ) | ||||||
Dividends paid |
(71,178 | ) | (62,511 | ) | (53,610 | ) | ||||||
Distributions to owners of noncontrolling interests |
(2,562 | ) | (3,935 | ) | (1,982 | ) | ||||||
Purchase of remaining 49% interest in existing joint venture |
(17,060 | ) | — | — | ||||||||
Repurchases of common stock |
— | (24,017 | ) | (551,164 | ) | |||||||
Issuances of common stock |
294,177 | 3,271 | 14,623 | |||||||||
Excess tax benefits from stock-based compensation transactions |
555 | 3,370 | 23,278 | |||||||||
Net Cash Provided by (Used for)
Financing Activities |
92,460 | 122,884 | (153,767 | ) | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
225,797 | 17,756 | (12,244 | ) | ||||||||
Cash and Cash Equivalents, beginning of year |
37,794 | 20,038 | 32,282 | |||||||||
Cash and Cash Equivalents, end of year |
$ | 263,591 | $ | 37,794 | $ | 20,038 | ||||||
Supplemental Disclosures of Cash Flow Information: |
||||||||||||
Cash paid for interest |
$ | 72,027 | $ | 75,622 | $ | 64,034 | ||||||
Cash paid for income taxes |
$ | 17,087 | $ | 54,827 | $ | 69,737 | ||||||
The notes on pages 13 to 38 are an integral part of these financial statements.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 11
CONSOLIDATED STATEMENTS OF TOTAL EQUITY
| Accumulated | ||||||||||||||||||||||||||||||||
| Shares of | Additional | Other | Total | Non- | ||||||||||||||||||||||||||||
| Common | Common | Paid-In | Comprehensive | Retained | Shareholders’ | controlling | Total | |||||||||||||||||||||||||
| (add 000, except per share data) | Stock | Stock | Capital | Earnings/(Loss) | Earnings | Equity | Interests | Equity | ||||||||||||||||||||||||
Balance at December 31, 2006 |
44,851 | $ | 448 | $ | 147,491 | $ | (36,051 | ) | $ | 1,142,084 | $ | 1,253,972 | $ | 47,458 | $ | 1,301,430 | ||||||||||||||||
Increase in reserves for uncertain tax positions |
— | — | — | — | (1,407 | ) | (1,407 | ) | — | (1,407 | ) | |||||||||||||||||||||
Consolidated net earnings |
— | — | — | — | 262,749 | 262,749 | 590 | 263,339 | ||||||||||||||||||||||||
Unrecognized actuarial losses, prior service costs
and transition assets related to pension and
postretirement benefits, net of tax benefit of $1,085 |
— | — | — | (1,592 | ) | — | (1,592 | ) | (69 | ) | (1,661 | ) | ||||||||||||||||||||
Foreign currency translation gain |
— | — | — | 3,831 | — | 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 | ) | — | (3,220 | ) | |||||||||||||||||||||
Consolidated comprehensive earnings |
261,768 | 521 | 262,289 | |||||||||||||||||||||||||||||
Dividends declared ($1.24 per common share) |
— | — | — | — | (53,610 | ) | (53,610 | ) | — | (53,610 | ) | |||||||||||||||||||||
Issuances of common stock for stock award plans |
656 | 6 | 40,756 | — | — | 40,762 | — | 40,762 | ||||||||||||||||||||||||
Repurchases of common stock |
(4,189 | ) | (42 | ) | (156,979 | ) | — | (418,160 | ) | (575,181 | ) | — | (575,181 | ) | ||||||||||||||||||
Stock-based compensation expense |
— | — | 19,687 | — | — | 19,687 | — | 19,687 | ||||||||||||||||||||||||
Distributions to owners of noncontrolling interests |
— | — | — | — | — | — | (1,982 | ) | (1,982 | ) | ||||||||||||||||||||||
Balance at December 31, 2007 |
41,318 | 412 | 50,955 | (37,032 | ) | 931,656 | 945,991 | 45,997 | 991,988 | |||||||||||||||||||||||
Consolidated net earnings |
— | — | — | — | 176,256 | 176,256 | 3,494 | 179,750 | ||||||||||||||||||||||||
Unrecognized actuarial losses, prior service costs and
transition assets related to pension and postretirement
benefits, net of tax benefit of $38,543 |
— | — | — | (58,912 | ) | — | (58,912 | ) | — | (58,912 | ) | |||||||||||||||||||||
Foreign currency translation loss |
— | — | — | (3,906 | ) | — | (3,906 | ) | — | (3,906 | ) | |||||||||||||||||||||
Change in fair value of forward starting interest
rate swap agreements, net of tax benefit of $1,305 |
— | — | — | (1,994 | ) | — | (1,994 | ) | — | (1,994 | ) | |||||||||||||||||||||
Consolidated comprehensive earnings |
111,444 | 3,494 | 114,938 | |||||||||||||||||||||||||||||
Elimination of early measurement date for pension
and postretirement benefits, net of tax expense of $111 |
— | — | — | 172 | (984 | ) | (812 | ) | — | (812 | ) | |||||||||||||||||||||
Dividends declared ($1.49 per common share) |
— | — | — | — | (62,511 | ) | (62,511 | ) | — | (62,511 | ) | |||||||||||||||||||||
Issuances of common stock for stock award plans |
144 | 2 | 5,725 | — | — | 5,727 | — | 5,727 | ||||||||||||||||||||||||
Stock-based compensation expense |
— | — | 21,865 | — | — | 21,865 | — | 21,865 | ||||||||||||||||||||||||
Distributions to owners of noncontrolling interests |
— | — | — | — | — | — | (3,935 | ) | (3,935 | ) | ||||||||||||||||||||||
Balance at December 31, 2008 |
41,462 | 414 | 78,545 | (101,672 | ) | 1,044,417 | 1,021,704 | 45,556 | 1,067,260 | |||||||||||||||||||||||
Consolidated net earnings |
— | — | — | — | 85,459 | 85,459 | 2,705 | 88,164 | ||||||||||||||||||||||||
Unrecognized actuarial losses, prior service costs and
transition assets related to pension and
postretirement benefits, net of tax of $15,315 |
— | — | — | 23,409 | — | 23,409 | (2 | ) | 23,407 | |||||||||||||||||||||||
Foreign currency translation gain |
— | — | — | 2,673 | — | 2,673 | — | 2,673 | ||||||||||||||||||||||||
Amortization of terminated value of forward starting
interest rate swap agreements into interest
expense, net of tax of $331 |
— | — | — | 506 | — | 506 | — | 506 | ||||||||||||||||||||||||
Consolidated comprehensive earnings |
112,047 | 2,703 | 114,750 | |||||||||||||||||||||||||||||
Dividends declared ($1.60 per common share) |
— | — | — | — | (71,178 | ) | (71,178 | ) | — | (71,178 | ) | |||||||||||||||||||||
Issuances of common stock |
3,778 | 38 | 293,404 | 293,442 | 293,442 | |||||||||||||||||||||||||||
Issuances of common stock for stock award plans |
159 | 1 | (3,727 | ) | — | — | (3,726 | ) | — | (3,726 | ) | |||||||||||||||||||||
Stock-based compensation expense |
— | — | 20,552 | — | — | 20,552 | — | 20,552 | ||||||||||||||||||||||||
Purchase of remaining 49% interest in
existing joint venture |
— | — | (7,601 | ) | — | — | (7,601 | ) | (4,526 | ) | (12,127 | ) | ||||||||||||||||||||
Distributions to owners of noncontrolling interests |
— | — | — | — | — | — | (2,562 | ) | (2,562 | ) | ||||||||||||||||||||||
Balance at December 31, 2009 |
45,399 | $ | 453 | $ | 381,173 | $ | (75,084 | ) | $ | 1,058,698 | $ | 1,365,240 | $ | 41,171 | $ | 1,406,411 | ||||||||||||||||
The notes on pages 13 to 38 are an integral part of these financial statements.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 12
NOTES TO FINANCIAL STATEMENTS
Note A: Accounting Policies
Organization. Martin Marietta Materials, Inc., (the “Corporation”) is engaged principally in the
construction aggregates business. The Corporation’s 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 289 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 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, Iowa, Kansas, Minnesota, Missouri, Nebraska, Nevada, Oklahoma, Texas, Utah,
Washington and Wyoming. The following states account for approximately 56% of the Aggregates
Business’ 2009 net sales: Texas, North Carolina, Georgia, Iowa and Louisiana.
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 and dolomitic lime sold primarily to customers in the steel industry.
Use of Estimates. The preparation of the Corporation’s consolidated financial statements in
conformity with accounting principles generally accepted in the United States requires management
to make certain estimates and assumptions about future events. These estimates and the underlying
assumptions affect the amounts of assets and liabilities reported, disclosures about contingent
assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the
valuation of accounts receivable, inventories, goodwill, intangible assets, and other long-lived
assets, and assumptions used in the calculation of income taxes, retirement and other
postemployment benefits. These estimates and assumptions are based on management’s best
estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including the current economic environment.
Management adjusts such estimates and assumptions when facts and circumstances dictate. Volatile
credit, equity and energy markets and declines in construction activity have combined to increase
the uncertainty inherent in certain of these estimates and assumptions. As future events and their
effects cannot be determined with precision, actual results could differ significantly from these
estimates. Changes in estimates, including those resulting from continuing changes in the economic
environment, will be reflected in the financial statements in the period in which the change in
estimate occurs.
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 or accounted for at cost or as equity investments, depending on the level of
ownership interest or the Corporation’s 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 member’s
interest after May 31, 2010. The Corporation consolidates the limited liability company in its
consolidated financial statements.
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.
Freight and Delivery Costs. Freight and delivery costs represent pass-through transportation costs
incurred and paid to third-party carriers by the Corporation to deliver products to customers.
These costs are then billed to the Corporation’s customers.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. The Corporation
manages its cash and cash equivalents to ensure that short-term operating cash needs are met and
that excess funds are managed efficiently. The Corporation subsidizes shortages in operating cash
through short-term borrowings on its available line of credit. The Corporation typically invests
excess funds in money market funds and Eurodollar time deposit accounts, which are exposed to bank
solvency risk and are not FDIC insured. Funds not yet available in lockboxes generally exceed the
$250,000 FDIC insurance limit. The Corporation’s cash management policy prohibits cash and cash
equivalents over $100,000,000 to be maintained at any one bank.
At December 31, 2009, cash and cash equivalents were $263,591,000, of which $255,119,000 was
deposited in overnight bank time deposit accounts. At December 31, 2008, cash and cash equivalents
were $37,794,000, of which $25,910,000 was deposited in overnight bank time deposit accounts. The
remaining cash and cash equivalents represent deposits in transit to the Corporation’s lockbox
accounts and deposits held at local banks.
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.
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. The
Corporation’s inventory allowance for finished products limits the tons reported at standard to a
twelve-month period, as measured by historical actual sales. The Corporation also establishes an
allowance for expendable parts over five years old and supplies over one year old.
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 and recorded as other current or noncurrent
assets on the consolidated balance sheets. The Corporation records an allowance for notes
receivable deemed uncollectible. At December 31, 2009, the allowance for uncollectible notes
receivable was $151,000. At December 31, 2008, there were no notes receivable deemed uncollectible.
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 or probable, economically mineable and when demand supports investment in
the market. Capitalization of these costs ceases when production commences. Quarry development
costs are classified as land and improvements.
The Corporation reviews relevant facts and circumstances to determine whether to capitalize or
expense pre-production stripping costs when additional pits are developed within an existing
quarry. If the additional pit operates in a separate and distinct area of the quarry, these costs
are capitalized as quarry development costs and depreciated over the life of the uncovered
reserves. Additionally, a separate asset retirement obligation is created for additional pits when
the liability is incurred. Once a pit enters the production phase, all post-production stripping
costs are expensed as incurred as periodic inventory production costs.
Mineral reserves and mineral interests, when acquired in connection with a business combination,
are valued using an income approach over the life of the proven and probable reserves.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
Property, plant and equipment are reviewed for impairment whenever facts and circumstances
indicate that the carrying amount of an asset may not be recoverable. An impairment loss is
recognized if expected future undiscounted cash flows of the related asset are less than its
carrying value.
Repair and Maintenance Costs. Repair and maintenance costs that do not substantially extend the
life of the Corporation’s plant and equipment are expensed as incurred.
Goodwill and 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. 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 Corporation’s reporting units, which represent the level at which goodwill is tested for
impairment, 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.
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. From time to time, the Corporation holds derivative instruments to manage the
exposure of interest rate risk on its long-term debt. When held, the Corporation records
derivative instruments at fair value on its consolidated balance sheet. At December 31, 2009 and
2008, the Corporation did not hold any derivative instruments. In April 2008, the Corporation
unwound its forward starting interest rate swaps, which represented cash flow hedges, in
connection with a public debt offering (see Note G). The accumulated other comprehensive loss at
the date of termination is being charged to earnings in the same periods as interest expense is
incurred on the underlying debt issuance.
Retirement Plans and Postretirement Benefits. The Corporation sponsors defined benefit retirement
plans and also provides other postretirement benefits. 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 on the
consolidated balance sheets, with a corresponding adjustment to accumulated other comprehensive
earnings or loss, net of tax. Actuarial gains or losses that arise during the year are not
recognized as net periodic benefit cost in the same year, but rather are recognized as a component
of accumulated other comprehensive earnings or loss. Those amounts are amortized over the
participants’ average remaining service period and recognized as a component of net periodic
benefit cost.
Stock-Based Compensation. The Corporation has stock-based compensation plans for employees and
directors. The Corporation recognizes all forms of share-based payments to employees, including
stock options, as compensation expense. The compensation expense is the fair value of the awards
at the measurement date and is recognized over the requisite service period.
The Corporation uses the accelerated expense recognition method for stock options. 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.
The Corporation expenses the fair value of restricted stock awards, incentive compensation awards
and directors’ fees paid in the form of common stock based on the closing price of the
Corporation’s common stock on the awards’ respective grant dates.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Corporation uses the lattice valuation model to determine the fair value of stock
option awards. The lattice valuation model takes into account employees’ exercise patterns based
on changes in the Corporation’s stock price and other variables. 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 2009, 2008 and 2007 were:
| 2009 | 2008 | 2007 | ||||||||||
Risk-free interest rate |
3.31 | % | 3.71 | % | 4.74 | % | ||||||
Dividend yield |
1.70 | % | 1.10 | % | 1.10 | % | ||||||
Volatility factor |
36.90 | % | 30.40 | % | 31.00 | % | ||||||
Expected term |
7.1 years | 7.0 years | 6.9 years | |||||||||
Based on these assumptions, the weighted-average fair value of each stock option granted was
$28.72, $40.32 and $55.94 for 2009, 2008 and 2007, 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
option’s expected life. The dividend yield represents the dividend rate expected to be paid over
the option’s expected life. The Corporation’s 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. Forfeitures are required 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.
Beginning in 2008, the Corporation recognizes income tax benefits received on dividends or
dividend equivalents of unvested share-based payments as an increase to additional paid-in capital
and includes them in the pool of excess tax benefits. Prior to 2008, these benefits were included
in retained earnings.
Environmental Matters. The Corporation records a liability for an asset retirement obligation 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 asset’s carrying amount. The estimate of fair
value is impacted by management’s assumptions regarding the scope of the work required, inflation
rates and quarry closure dates.
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. The Corporation recognizes 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 is 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.
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, 2009, accrued interest of $1,709,000, net of tax benefits of
$1,118,000, was recorded as a noncurrent liability on the Corporation’s consolidated balance
sheet. At December 31, 2008, accrued interest of $1,366,000, net of tax benefits of $894,000, was
recorded as a noncurrent liability on the Corporation’s consolidated balance sheet.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 and Accumulated Other Comprehensive Loss. Consolidated comprehensive
earnings for the Corporation consist of net earnings; amortization of actuarial losses, prior
service costs and transition assets related to pension and postretirement benefits; foreign
currency translation adjustments; and the amortization of the value of terminated forward starting
interest swap agreements into interest expense. Prior to their unwinding in April 2008, changes in
the fair value of forward starting interest rate swap agreements were also included in
consolidated comprehensive earnings.
The components of accumulated other comprehensive loss, which is included in the Corporation’s
consolidated statements of total equity, consist of the following:
| December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Unrecognized actuarial losses,
prior service costs and transition
assets related to pension and
postretirement benefits |
$ | (74,214 | ) | $ | (97,623 | ) | $ | (38,883 | ) | |||
Foreign currency
translation gains |
5,017 | 2,344 | 6,250 | |||||||||
Unamortized value of terminated
forward starting interest
rate swap agreements |
(5,887 | ) | (6,393 | ) | — | |||||||
Fair value of forward starting
interest rate swap agreements |
— | — | (4,399 | ) | ||||||||
Accumulated other
comprehensive loss |
$ | (75,084 | ) | $ | (101,672 | ) | $ | (37,032 | ) | |||
Unrecognized actuarial losses, prior service costs and transition assets related to pension
and postretirement benefits at December 31, 2009, 2008 and 2007 are net of cumulative noncurrent
deferred tax assets of $48,601,000, $63,916,000 and $25,484,000, respectively. The unamortized
fair value of terminated forward interest rate swap agreements at December 31, 2009 and 2008 is
net of cumulative noncurrent deferred tax assets of $3,852,000 and $4,183,000, respectively. The fair value of the forward
interest rate swap agreements at December 31, 2007 is net of cumulative noncurrent deferred tax
assets of $2,878,000.
Earnings Per Common Share. Effective January 1, 2009, the Corporation retrospectively determined
whether instruments granted in share-based payment transactions are participating securities.
Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are participating securities and, therefore, included in computing earnings per share
(EPS) pursuant to the two-class method. The two-class method determines earnings per share for each
class of common stock and participating securities according to dividends or dividend equivalents
and their respective participation rights in undistributed earnings. The Corporation pays
nonforfeitable dividend equivalents during the vesting period on its restricted stock awards and
incentive stock awards, which results in these being considered participating securities. The
inclusion of participating securities in the Corporation’s EPS calculations decreased
previously-reported basic EPS by $0.06 and previously-reported diluted EPS by $0.02 for the year
ended December 31, 2008. For the year ended December 31, 2007, the inclusion of participating
securities in the Corporation’s EPS calculations decreased previously-reported basic EPS by $0.07
and previously-reported diluted EPS by $0.03.
The numerator for basic and diluted earnings per common share is net earnings attributable to
Martin Marietta Materials, Inc., reduced by dividends and undistributed earnings attributable to
the Corporation’s unvested restricted stock awards and incentive stock awards. The denominator for
basic earnings per common share is 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 Corporation’s 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.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table reconciles the numerator and denominator for basic and diluted
earnings per common share:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Net earnings from
continuing operations
attributable to Martin
Marietta Materials, Inc. |
$ | 85,182 | $ | 171,547 | $ | 260,675 | ||||||
Less: Distributed and
undistributed earnings
attributable to unvested
awards |
(1,048 | ) | (2,394 | ) | (3,200 | ) | ||||||
Basic and diluted net
earnings available to
common shareholders from
continuing operations
attributable to Martin
Marietta Materials,
Inc. |
84,134 | 169,153 | 257,475 | |||||||||
Basic and diluted net
earnings available to
common shareholders from
discontinued
operations |
277 | 4,709 | 2,074 | |||||||||
Basic and diluted net
earnings available to
common shareholders
attributable to Martin
Marietta Materials, Inc. |
$ | 84,411 | $ | 173,862 | $ | 259,549 | ||||||
Basic weighted-average
common shares
outstanding |
44,000 | 41,370 | 42,653 | |||||||||
Effect of dilutive
employee and director
awards |
190 | 247 | 368 | |||||||||
Diluted
weighted-average common
shares outstanding |
44,190 | 41,617 | 43,021 | |||||||||
Accounting Changes. On July 1, 2009, the Financial Accounting Standards Board (FASB) released
the authoritative version of the FASB Accounting Standards
Codification (the “Codification”) as the
single source of authoritative nongovernmental U.S. Generally Accepted Accounting Principles
(GAAP). The Codification, which does not change U.S. GAAP, reorganizes the thousands of U.S. GAAP
pronouncements into 90 accounting topics and displays all topics using a consistent structure. It
also includes relevant Securities and Exchange Commission guidance that follows the same topical
structure in separate sections in the Codification. The Codification is effective for annual and
interim periods ending after September 15, 2009. The Codification did not change the Corporation’s
existing accounting policies.
Effective January 1, 2009, if the Corporation is required to record any nonrecurring nonfinancial
assets and nonfinancial liabilities at fair value, they are measured in accordance with the Fair
Value Measurements and Disclosures Topic of the Codification.
The Corporation accounts for all business combinations with acquisition dates on or after January
1, 2009 by 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. Furthermore, the Corporation classifies
noncontrolling interests as a separate component of total equity and net earnings attributable to
noncontrolling interests as a separate line item on the face of the earnings statement for all
business combinations with acquisitions dates on or after January 1, 2009. As disclosed in Note C,
on June 12, 2009, the Corporation acquired three quarry locations plus the remaining 49% interest
in an existing joint venture from CEMEX, Inc.
The accounting guidance for noncontrolling interests in consolidated financial statements also
requires retrospective application of its disclosure and presentation requirements for all periods
presented. Accordingly, noncontrolling interests at December 31, 2008 and 2007, which were
previously reported as other noncurrent liabilities, have been reclassified as a separate component
of total equity. Furthermore, net earnings attributable to noncontrolling interests for the years
ended December 31, 2008 and 2007 have been presented as a separate line item on the Corporation’s
consolidated statements of earnings. Consolidated comprehensive earnings for the years ended
December 31, 2008 and 2007 were also adjusted to include the comprehensive earnings attributable to
noncontrolling interests.
Reclassifications. Certain 2008 and 2007 amounts have been reclassified to conform to the 2009
presentation. The reclassifications increased previously-reported operating cash flows by an
immaterial amount. The reclassifications had no impact on previously reported results of operations
or financial position.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note B: Goodwill and 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) | 2009 | |||||||||||||||
Balance at
beginning of
period |
$ | 118,249 | $ | 105,857 | $ | 398,191 | $ | 622,297 | ||||||||
Acquisitions |
— | — | 414 | 414 | ||||||||||||
Adjustments to
purchase price
allocations |
1,500 | 13 | — | 1,513 | ||||||||||||
Balance at end
of period |
$ | 119,749 | $ | 105,870 | $ | 398,605 | $ | 624,224 | ||||||||
| 2008 | ||||||||||||||||
Balance at
beginning of
period |
$ | 115,986 | $ | 51,265 | $ | 407,416 | $ | 574,667 | ||||||||
Acquisitions |
3,780 | 45,862 | — | 49,642 | ||||||||||||
Adjustments to
purchase price
allocations |
(1,517 | ) | 8,826 | — | 7,309 | |||||||||||
Amounts
allocated to
divestitures |
— | (96 | ) | (9,225 | ) | (9,321 | ) | |||||||||
Balance at end
of period |
$ | 118,249 | $ | 105,857 | $ | 398,191 | $ | 622,297 | ||||||||
Intangible assets subject to amortization consist of the following at December 31:
| Gross | Accumulated | Net | ||||||||||
| Amount | Amortization | Balance | ||||||||||
| (add 000) | 2009 | |||||||||||
Noncompetition
agreements |
$ | 9,284 | $ | (6,911 | ) | $ | 2,373 | |||||
Customer
relationships |
3,550 | (841 | ) | 2,709 | ||||||||
Use rights and other |
10,025 | (5,403 | ) | 4,622 | ||||||||
Total |
$ | 22,859 | $ | (13,155 | ) | $ | 9,704 | |||||
| 2008 | ||||||||||||
Noncompetition agreements |
$ | 10,484 | $ | (7,457 | ) | $ | 3,027 | |||||
Customer relationships |
3,260 | (351 | ) | 2,909 | ||||||||
Use rights and other |
10,025 | (4,836 | ) | 5,189 | ||||||||
Total |
$ | 23,769 | $ | (12,644 | ) | $ | 11,125 | |||||
During 2009, the Corporation acquired $290,000 of customer relationships for the Aggregates
Business, which are subject to amortization. The weighted-average amortization period for these
agreements was 7.0 years.
During 2008, the Corporation acquired $6,350,000 of other intangibles, consisting of the following
amortizable assets by segment:
| Weighted- | ||||||||||||||||
| average | ||||||||||||||||
| Aggregates | Specialty | amortization | ||||||||||||||
| (add 000) | Business | Products | Total | period | ||||||||||||
Noncompetition
agreements |
$ | 240 | $ | 285 | $ | 525 | 5.9 years | |||||||||
Customer
relationships |
3,260 | — | 3,260 | 7.0 years | ||||||||||||
Total |
$ | 3,500 | $ | 285 | $ | 3,785 | 6.8 years | |||||||||
The Corporation also acquired a $2,565,000 trade name related to the ElastoMag® product
during 2008. The trade name, which is recorded within the Specialty Products segment, is deemed to
have an indefinite life and is not being amortized. At December 31, 2009 and 2008, the Corporation
also had water use rights of $200,000 that are deemed to have an indefinite life and are not being
amortized.
Total amortization expense for intangible assets for the years ended December 31, 2009, 2008 and
2007 was $1,711,000, $1,886,000 and $1,947,000, respectively.
The estimated amortization expense for intangible assets for each of the next five years and
thereafter is as follows:
| (add 000) | ||||
2010 |
$ | 1,608 | ||
2011 |
1,608 | |||
2012 |
1,527 | |||
2013 |
1,423 | |||
2014 |
1,299 | |||
Thereafter |
2,239 | |||
Total |
$ | 9,704 | ||
Note C: Business Combinations and Discontinued Operations
Business Combinations. On June 12, 2009, the Corporation acquired three quarry locations
plus the remaining 49% interest in an existing joint venture from CEMEX, Inc. The quarry
operations are located at Fort Calhoun, Nebraska; Guernsey, Wyoming; and Milford, Utah. Guernsey
and Milford are rail-connected quarries, while Fort Calhoun ships material via barge on the
Missouri River in addition to its local and long-haul truck market in Nebraska. The 49% interest
purchased relates to the Granite Canyon, Wyoming, quarry (“Granite Canyon”) where
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries
page 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Corporation was the operating manager. Granite Canyon is a major supplier of
railroad ballast serving both the Union Pacific Railroad and Burlington Northern Santa Fe Railway.
The acquired locations enhance the Corporation’s existing long-haul distribution network and
provide attractive product synergies. The Corporation’s acquired locations, including the partial
interest only in Granite Canyon, have aggregates reserves that exceed 250 million tons.
The purchase price for the three quarries plus the remaining 49% interest in Granite Canyon was
$65,000,000, which represents the fair value of the assets (cash) paid to CEMEX, Inc. Of the total
purchase price, the Corporation allocated $48,000,000 to the three quarry locations and
$17,000,000 to Granite Canyon based on the locations’ relative fair values.
The three new quarry locations represent a business combination. Accordingly, the purchase price
has been allocated to the fair values of the assets acquired and the liabilities assumed. The
Corporation recognized goodwill in the amount of $414,000, all of which is deductible for income
tax purposes. The final fair values of the other assets acquired related to the three quarry
locations were allocated as follows:
| (add 000) | ||||
Inventories |
$ | 2,025 | ||
Mineral reserves and interests |
$ | 31,686 | ||
Land |
$ | 1,220 | ||
Machinery and equipment |
$ | 12,533 | ||
Customer relationships |
$ | 290 | ||
The $48,000,000 purchase price for the three acquired quarries has been classified as an
investing activity in the Corporation’s consolidated statement of cash flows for the year ended
December 31, 2009. In addition, the operating results of the acquired quarries have been included
with those of the Corporation since the date of acquisition and are being reported through the
Corporation’s West Group in the financial statements.
The purchase of the remaining 49% interest in Granite Canyon represents an equity transaction.
Accordingly, the assets and liabilities related to the noncontrolling interest continued to be
valued at their basis at the transaction date; the noncontrolling interest of $4,526,000 was eliminated; additional paid-in capital
was reduced by $7,601,000 for the excess of the cash paid, including transaction costs, over the
noncontrolling interest at the acquisition date; and a deferred tax asset of $4,933,000 was
recorded. The total purchase price of $17,060,000 for Granite Canyon has been classified as a
financing activity in the Corporation’s consolidated statement of cash flows for the year ended
December 31, 2009.
On April 11, 2008, the Corporation entered into a swap transaction with Vulcan Materials Company
(“Vulcan”), pursuant to which it acquired six quarry locations in Georgia and Tennessee. The
Corporation also acquired a land parcel previously leased from Vulcan at the Corporation’s Three
Rivers Quarry near Paducah, Kentucky. The operating results of the acquired quarries have been
included with those of the Corporation since the date of acquisition and are being reported
through the Corporation’s Southeast Group in the financial statements.
In addition to a $192,000,000 cash payment and normal closing adjustments related to working
capital, the Corporation divested to Vulcan its only California quarry located in Oroville, an
idle facility north of San Antonio, Texas, and land in Henderson, North Carolina, formerly leased
to Vulcan. Furthermore, the Corporation recognized goodwill in the amount of $54,688,000, all of
which is deductible for income tax purposes. The fair values of the other assets acquired from
Vulcan were allocated as follows:
| (add 000) | ||||
Inventories |
$ | 6,559 | ||
Mineral reserves and interests |
$ | 105,531 | ||
Land |
$ | 22,260 | ||
Machinery and equipment |
$ | 41,491 | ||
Customer relationships |
$ | 3,260 | ||
Divestitures and Closures. In 2009, the Corporation disposed of or permanently shut down
certain underperforming operations in the following markets of the Aggregates Business:
| Reportable Segment | Markets | |
Mideast Group
|
Ohio | |
Southeast Group
|
Georgia and Kentucky | |
West Group
|
Iowa and Kansas |
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries
page 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
These divestitures and closures 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.
Discontinued operations included the following net sales, pretax gain or loss on operations,
pretax gain on disposals, income tax expense and overall net earnings:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Net sales |
$ | 1,769 | $ | 7,585 | $ | 23,472 | ||||||
Pretax gain (loss) on operations |
$ | 466 | $ | (438 | ) | $ | 837 | |||||
Pretax gain on disposals |
3 | 10,596 | 2,798 | |||||||||
Pretax gain |
469 | 10,158 | 3,635 | |||||||||
Income tax expense |
192 | 5,449 | 1,561 | |||||||||
Net earnings |
$ | 277 | $ | 4,709 | $ | 2,074 | ||||||
Note D: Accounts Receivable, Net
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Customer receivables |
$ | 164,975 | $ | 211,294 | ||||
Other current receivables |
2,462 | 4,998 | ||||||
| 167,437 | 216,292 | |||||||
Less allowances |
(4,622 | ) | (4,696) | |||||
Total |
$ | 162,815 | $ | 211,596 | ||||
Note E: Inventories, Net
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Finished products |
$ | 289,051 | $ | 268,763 | ||||
Products in process and raw materials |
16,296 | 17,206 | ||||||
Supplies and expendable parts |
47,554 | 51,068 | ||||||
| 352,901 | 337,037 | |||||||
Less allowances |
(20,332 | ) | (19,019 | ) | ||||
Total |
$ | 332,569 | $ | 318,018 | ||||
Note F: Property, Plant and Equipment, Net
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Land and improvements |
$ | 554,932 | $ | 524,943 | ||||
Mineral reserves and interests |
334,633 | 301,523 | ||||||
Buildings |
105,926 | 100,375 | ||||||
Machinery and equipment |
2,395,270 | 2,303,528 | ||||||
Construction in progress |
75,217 | 90,536 | ||||||
| 3,465,978 | 3,320,905 | |||||||
Less allowances for depreciation,
depletion and amortization |
(1,773,073 | ) | (1,630,376 | ) | ||||
Total |
$ | 1,692,905 | $ | 1,690,529 | ||||
At December 31, 2009 and 2008, the net carrying value of mineral reserves and interests was
$273,183,000 and $243,353,000, respectively.
Depreciation, depletion and amortization expense related to property, plant and equipment was
$176,050,000, $167,977,000 and $147,427,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.
Interest cost of $1,010,000, $3,692,000 and $3,873,000 was capitalized during 2009, 2008 and 2007,
respectively.
At December 31, 2009 and 2008, $75,372,000 and $75,348,000, respectively, of the Aggregate
Business’s net fixed assets were located in foreign countries, namely the Bahamas and Canada.
Note G: Long-Term Debt
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
6.875% Notes, due 2011 |
$ | 242,092 | $ | 249,892 | ||||
6.6% Senior Notes, due 2018 |
298,111 | 297,946 | ||||||
7% Debentures, due 2025 |
124,371 | 124,350 | ||||||
6.25% Senior Notes, due 2037 |
247,851 | 247,822 | ||||||
Floating Rate Senior Notes, due
2010, interest rate of 0.43% at
December 31, 2009 |
217,502 | 224,650 | ||||||
Term Loan, due 2012, interest
rate of 3.25% at December 31,
2009 |
111,750 | — | ||||||
Credit Agreement, interest rate
of 2.555% at December 31, 2008 |
— | 200,000 | ||||||
Other notes |
7,934 | 10,284 | ||||||
Total |
1,249,611 | 1,354,944 | ||||||
Less current maturities |
(226,119 | ) | (202,530 | ) | ||||
Long-term debt |
$ | 1,023,492 | $ | 1,152,414 | ||||
On April 23, 2009, the Corporation entered into a $130,000,000 unsecured term loan (the
“Term Loan”) with a syndicate of banks as follows:
| Commitment | ||||
| Lender | (add 000) | |||
SunTrust Bank |
$ | 35,000 | ||
Northern Trust Company |
25,000 | |||
Branch Banking and Trust Company |
25,000 | |||
Regions Bank |
20,000 | |||
Bank of America, N.A. |
15,000 | |||
Comerica Bank |
10,000 | |||
Total |
$ | 130,000 | ||
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries
page 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Term Loan bears interest, at the Corporation’s option, at rates based upon LIBOR
or a base rate, plus, for each rate, basis points related to a pricing grid. The base rate is
defined as the highest of (i) the bank’s prime lending rate, (ii) the Federal Funds rate plus 0.5%
and (iii) one-month LIBOR plus 1%. At December 31, 2009, the interest rate on the Term Loan was
based on one-month LIBOR plus 300 basis points, or 3.25%. At December 31, 2009, the outstanding
balance on the Term Loan was $111,750,000. The Term Loan requires quarterly principal payments of
$1,625,000 through March 31, 2011 and $3,250,000 thereafter, with the remaining outstanding
principal due in full on June 6, 2012.
On April 21, 2009, the Corporation entered into a $100,000,000 three-year secured accounts
receivable credit facility (the “AR Credit Facility”) with Wells Fargo Bank, N.A. (“Wells Fargo”).
The AR Credit Facility provides for borrowings, on a revolving basis, of up to 90% of the
Corporation’s eligible accounts receivable less than 90 days old and bears interest at a rate
equal to the one-month LIBOR plus 2.75%. Under the AR Credit Facility, borrowings and settlements
are made bi-weekly between the Corporation and Wells Fargo. Upon the terms and subject to the
conditions in the AR Credit Facility, Wells Fargo may determine which receivables are eligible
receivables, may determine the amount it will advance on such receivables, and may require the
Corporation to repay advances made on receivables and thereby repay amounts outstanding under the
AR Credit Facility. Wells Fargo also has the right to require the Corporation to repurchase
receivables that remain outstanding 90 days past their invoice date. The Corporation continues to
be responsible for the servicing and administration of the receivables purchased. The Corporation
carries the receivables and any outstanding borrowings on its consolidated balance sheet. At
December 31, 2009, there were no borrowings outstanding under the Corporation’s AR Credit
Facility.
On April 21, 2008, the Corporation issued $300,000,000 of 6.6% Senior Notes due in 2018 (the “6.6%
Senior Notes”). The 6.6% Senior Notes, which are unsecured, may be redeemed in whole or in part
prior to their maturity at a make whole redemption price.
The 6.6% Senior Notes and 6.25% Senior Notes (collectively, the “Senior Notes”) are senior
unsecured obligations of the Corporation, ranking equal in right of payment with the Corporation’s
existing and future unsubordinated indebtedness. Upon a change of control repurchase event and a
below investment grade credit rating, 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.
During the year ended December 31, 2009, the Corporation repurchased certain of its
publicly-traded bonds that mature in 2010 and 2011. The Corporation paid $15,600,000, excluding
accrued interest, for bonds that had a par value of $15,245,000, resulting in a loss of $355,000
on the repurchases. The Corporation may execute additional repurchases of debt prior to its
contractual maturity.
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 Corporation’s Notes, Debentures and Senior Notes are as
follows:
| Principal | ||||||||||||
| Amount | Effective | Maturity | ||||||||||
| (add 000) | Interest Rate | Date | ||||||||||
6.875% Notes |
$ | 242,140 | 6.98 | % | April 1, 2011 | |||||||
6.6% Senior Notes |
$ | 300,000 | 6.81 | % | April 15, 2018 | |||||||
7% Debentures |
$ | 125,000 | 7.12 | % | December 1, 2025 | |||||||
6.25% Senior Notes |
$ | 250,000 | 6.45 | % | April 30, 2037 | |||||||
Floating Rate
Senior Notes |
$ | 217,590 | 0.43 | % | April 30, 2010 | |||||||
On April 16, 2008, the Corporation unwound its two forward starting interest rate swap
agreements with a total notional amount of $150,000,000 (the “Swap Agreements”). The Corporation
made a cash payment of $11,139,000, which represented the fair value of the Swap Agreements on the
date of termination. The accumulated other comprehensive loss, net of tax, at the date of
termination is being recognized in earnings over
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries
page 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the life of the 6.6% Senior Notes. For the years ended December 31, 2009 and 2008, the
Corporation recognized $837,000 and $563,000, respectively, as additional interest expense. The
ongoing amortization of the terminated value of the Swap Agreements will increase annual interest
expense by approximately $1,000,000 until the maturity of the 6.6% Senior Notes in 2018. The
accumulated other comprehensive loss related to the Swap Agreements was $5,887,000, net of
cumulative noncurrent deferred tax assets of $3,852,000, at December 31, 2009. The accumulated
other comprehensive loss related to the Swap Agreements was $6,393,000, net of cumulative
noncurrent deferred tax assets of $4,183,000, at December 31, 2008. Other comprehensive
earnings/loss for the year ended December 31, 2007 included a loss of $3,220,000, net of a deferred
tax asset of $2,106,000, for the change in the fair value of the Swap Agreements.
The Corporation’s $325,000,000 five-year revolving credit agreement (the “Credit Agreement”),
which expires on June 30, 2012, is syndicated with a group of domestic and foreign commercial
banks as follows:
| Commitment | ||||
| Lender | (add 000) | |||
JP Morgan Chase Bank, N.A. |
$ | 61,100 | ||
Wells Fargo Bank, N.A. |
56,225 | |||
Wachovia Bank, N.A. |
56,225 | |||
Bank of America, N.A. |
56,225 | |||
Branch Banking and Trust Company |
56,225 | |||
Citibank, N.A. |
29,000 | |||
Northern Trust Company |
10,000 | |||
Total |
$ | 325,000 | ||
Borrowings under the Credit Agreement are unsecured and bear interest, at the Corporation’s
option, at rates based upon: (i) 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 Corporation’s debt-to-EBITDA ratio, requirements for limitations on encumbrances
and provisions that relate to certain changes in control.
The Corporation’s Credit Agreement, Term Loan and AR Credit Facility are subject to a leverage
ratio covenant. On December 23, 2009, the Corporation amended these credit facilities to provide
for an increased leverage ratio covenant. As amended, the covenant requires the Corporation’s ratio
of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and
amortization (EBITDA), as defined, for the trailing twelve months (the “Ratio”) to not exceed 3.75
to 1.00 as of December 31, 2009 or March 31, 2010 and to not exceed 3.50 to 1.00 as of the end of
any fiscal quarter ending on or after June 30, 2010. Furthermore, the covenant allows the
Corporation to exclude debt incurred in connection with acquisitions from the Ratio for a period of
180 days so long as the Corporation maintains specified ratings on its long-term unsecured debt and
the Ratio calculated without such exclusion does not exceed the modified ratio plus 0.25. Certain
other nonrecurring items and noncash items, if they occur, can also be excluded from the Ratio. In
exchange for the covenant modification, the Corporation agreed to an increased pricing grid for
borrowings under the Credit Agreement. The Corporation was in compliance with the Ratio at December
31, 2009.
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, 2009 and 2008, 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, 2009. At December 31, 2008, $200,000,000 was outstanding
under the Credit Agreement.
The Credit Agreement supports a $325,000,000 commercial paper program to the extent commercial
paper is available to the Corporation. No borrowings were outstanding under the commercial paper
program at December 31, 2009 or 2008.
The Corporation has a $10,000,000 short-term line of credit. No amounts were outstanding under this
line of credit at December 31, 2009 or 2008.
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries
page 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Corporation’s long-term debt maturities for the five years following December 31,
2009, and thereafter are:
| (add 000) | ||||
2010 |
$ | 226,119 | ||
2011 |
255,551 | |||
2012 |
96,057 | |||
2013 |
731 | |||
2014 |
229 | |||
Thereafter |
670,924 | |||
Total |
$ | 1,249,611 | ||
Note H: Financial Instruments
The Corporation’s financial instruments include temporary cash investments, accounts receivable,
notes receivable, bank overdraft, publicly registered long-term notes and debentures and other
long-term debt.
Temporary cash investments are placed primarily in money market funds and Eurodollar time deposits
with the following financial institutions: Bank of America, N.A., Branch Banking and Trust
Company, JP Morgan Chase Bank, N.A. and Wells Fargo Bank, N.A. The Corporation’s 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 Corporation’s publicly registered long-term notes and debentures
at December 31, 2009 was approximately $1,125,384,000, compared with a carrying amount of
$1,129,927,000 on the consolidated balance sheet. The fair value of this long-term debt was
estimated based on quoted market prices. The estimated fair value of other borrowings of
$119,684,000 at December 31, 2009 approximates its carrying amount.
The carrying values and fair values of the Corporation’s financial instruments are as follows:
| December 31 | 2009 | |||||||
| (add 000) | Carrying Value | Fair Value | ||||||
Cash and cash equivalents |
$ | 263,591 | $ | 263,591 | ||||
Accounts receivable, net |
$ | 162,815 | $ | 162,815 | ||||
Notes receivable, net |
$ | 13,415 | $ | 13,415 | ||||
Bank overdraft |
$ | 1,737 | $ | 1,737 | ||||
Long-term debt |
$ | 1,249,611 | $ | 1,245,068 | ||||
| 2008 | ||||||||
| Carrying Value | Fair Value | |||||||
Cash and cash equivalents |
$ | 37,794 | $ | 37,794 | ||||
Accounts receivable, net |
$ | 211,596 | $ | 211,596 | ||||
Notes receivable, net |
$ | 9,084 | $ | 9,084 | ||||
Bank overdraft |
$ | 4,677 | $ | 4,677 | ||||
Long-term debt |
$ | 1,354,944 | $ | 1,204,320 | ||||
Note I: Income Taxes
Income tax expense reported in the Corporation’s consolidated statements of earnings includes
income taxes on earnings attributable to both controlling and noncontrolling interests. The
components of the Corporation’s tax expense (benefit) on income from continuing operations are as
follows:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Federal income taxes: |
||||||||||||
Current |
$ | 17,029 | $ | 31,904 | $ | 95,871 | ||||||
Deferred |
5,150 | 34,829 | 4,405 | |||||||||
Total federal income taxes |
22,179 | 66,733 | 100,276 | |||||||||
State income taxes: |
||||||||||||
Current |
3,897 | 3,641 | 14,080 | |||||||||
Deferred |
1,079 | 4,482 | 796 | |||||||||
Total state income taxes |
4,976 | 8,123 | 14,876 | |||||||||
Foreign income taxes: |
||||||||||||
Current |
528 | (2,915 | ) | (14 | ) | |||||||
Deferred |
(308 | ) | 147 | 222 | ||||||||
Total foreign income taxes |
220 | (2,768 | ) | 208 | ||||||||
Total taxes on income |
$ | 27,375 | $ | 72,088 | $ | 115,360 | ||||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2009, 2008 and 2007, income tax benefits attributable
to stock-based compensation transactions that were recorded to shareholders’ equity amounted to
$277,000, $3,716,000 and $27,209,000, respectively.
The Corporation’s 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 | 2009 | 2008 | 2007 | |||||||||
Statutory tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Increase (reduction) resulting
from: |
||||||||||||
Effect of statutory depletion |
(13.8 | ) | (7.6 | ) | (6.3 | ) | ||||||
State income taxes |
2.8 | 1.6 | 2.1 | |||||||||
Other items |
(0.2 | ) | 0.2 | (0.2 | ) | |||||||
Effective tax rate |
23.8 | % | 29.2 | % | 30.6 | % | ||||||
For tax purposes, the statutory depletion deduction is calculated as a percentage of sales,
subject to certain limitations. Due to these limitations, changes in sales volumes and earnings
may not proportionately affect the Corporation’s effective income tax rate on continuing
operations.
The principal components of the Corporation’s deferred tax assets and liabilities are as follows:
| Deferred | ||||||||
| December 31 | Assets (Liabilities) | |||||||
| (add 000) | 2009 | 2008 | ||||||
Deferred tax assets related to: |
||||||||
Employee benefits |
$ | 56,840 | $ | 39,592 | ||||
Inventories |
28,023 | 32,416 | ||||||
Valuation and other reserves |
12,781 | 10,156 | ||||||
Net operating loss carryforwards |
5,341 | 5,589 | ||||||
Total deferred tax assets |
102,985 | 87,753 | ||||||
Deferred tax liabilities related to: |
||||||||
Property, plant and equipment |
(230,890 | ) | (212,914 | ) | ||||
Goodwill and other intangibles |
(53,467 | ) | (44,809 | ) | ||||
Valuation allowance on deferred tax
assets |
(5,050 | ) | (5,270 | ) | ||||
Other items, net |
(1,674 | ) | (9,200 | ) | ||||
Total deferred tax liabilities |
(291,081 | ) | (272,193 | ) | ||||
Net deferred tax liability |
$ | (188,096 | ) | $ | (184,440 | ) | ||
Additionally, the Corporation had a net deferred tax asset of $52,453,000 and $68,099,000 for
certain items recorded in accumulated other comprehensive loss at December 31, 2009 and 2008,
respectively.
The Corporation’s deferred tax assets and (liabilities) are recognized on the consolidated balance
sheets as follows:
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Current deferred income
tax benefits |
$ | 60,303 | $ | 57,967 | ||||
Noncurrent deferred
income taxes |
(195,946 | ) | (174,308 | ) | ||||
Net deferred income taxes |
$ | (135,643 | ) | $ | (116,341 | ) | ||
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 based on
authoritative accounting guidance. For income tax purposes, 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.
Deferred tax liabilities for property, plant and equipment result from accelerated depreciation
methods being used for income tax purposes as compared with the straightline method for financial
reporting purposes.
Deferred tax liabilities related to goodwill and other intangibles reflect the cessation of
goodwill amortization for financial reporting purposes, while amortization continues for income
tax purposes.
The Corporation had state net operating loss carryforwards of $118,913,000 and $127,935,000 at
December 31, 2009 and 2008, respectively. These losses have various expiration dates. At December
31, 2009 and 2008, respectively, the deferred tax assets associated with these losses were
$5,341,000 and $5,589,000, for which valuation allowances of $5,050,000 and $5,270,000 were
recorded.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Corporation provides deferred taxes, as required, on the undistributed net earnings of all
non-U.S. subsidiaries for which the indefinite reversal criterion has not been met. The
Corporation had a deferred tax liability of $100,000 and $815,000 at December 31, 2009 and 2008,
respectively, related to its wholly-owned Bahamas subsidiary. The Corporation expects to reinvest
permanently the earnings from its wholly-owned Canadian subsidiary and accordingly, has not
provided deferred taxes on the subsidiary’s undistributed net earnings.
The Corporation’s unrecognized tax benefits are recorded in other current and other
noncurrent liabilities, as appropriate, on the consolidated balance sheets. The following table
summarizes the Corporation’s unrecognized tax benefits, excluding interest and correlative
effects:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Unrecognized tax benefits
at beginning of year |
$ | 15,482 | $ | 31,421 | $ | 29,277 | ||||||
Gross increases – tax
positions in prior years |
2,072 | 21,661 | 9,954 | |||||||||
Gross decreases – tax
positions in prior years |
(1,694 | ) | (39,317 | ) | (4,127 | ) | ||||||
Gross increases – tax
positions in current year |
6,312 | 9,165 | 5,246 | |||||||||
Gross decreases – tax
positions in current year |
(5,393 | ) | (5,693 | ) | — | |||||||
Settlements with taxing
authorities |
(57 | ) | (1,755 | ) | — | |||||||
Lapse of statute of limitations |
— | — | (8,929 | ) | ||||||||
Unrecognized tax
benefits at end of year |
$ | 16,722 | $ | 15,482 | $ | 31,421 | ||||||
At December 31, 2009 and 2008, unrecognized tax benefits of $9,709,000 and $8,012,000,
respectively, net of federal tax benefits and related to interest accruals and permanent income
tax differences, would have favorably affected the Corporation’s effective tax rate if recognized.
The Corporation’s open tax years that are subject to federal examination are 2006 through 2009.
The Internal Revenue Service is currently auditing the Corporation’s consolidated federal income
tax returns for the year ended December 31, 2007. Additionally, the Corporation has consented to
extend the statute of limitations for the 2004 and 2005 tax years for the purpose of settling
certain unresolved issues with respect to those tax years. The Corporation anticipates that it is
reasonably possible that unrecognized tax benefits may significantly change during the twelve
months ending December 31, 2010 as a result of the settlement of unresolved issues related to the
2004 and 2005 tax years, settlement of the Internal Revenue Service audit for the 2007 tax year,
and the expiration of the statute of limitations for federal examination of the 2006 tax year. The
Corporation estimates that these events could result in a reasonably possible change in
unrecognized tax benefits of up to $5,441,000.
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 its accrual for
unrecognized tax benefits is sufficient to cover any uncertain tax positions reviewed during any
audit by taxing authorities. For the year ended December 31, 2008, $3,368,000, or $0.08 per diluted
share, was reversed into income upon the effective settlement of agreed upon issues from the
Internal Revenue Service examination that covered the 2004 and 2005 tax years. 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.
The American Jobs Creation Act of 2004 (the “Act”) created a new tax deduction related to income
from domestic (i.e., United States) production activities. This provision, when fully phased in,
will permit a deduction equal to 9 percent of a company’s Qualified Production Activities Income
(“QPAI”) or its taxable income, whichever is lower. 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. The deduction was equal to 6 percent for 2007
through 2009 and reaches the full 9 percent deduction in 2010. The production deduction benefit of
the legislation reduced income tax expense and increased net earnings by $611,000, or $0.01 per
diluted share, in 2009, $2,766,000, or $0.07 per diluted share, in 2008 and $4,644,000, or $0.11
per diluted share, in 2007.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, such as workers’
compensation and disability benefits, to former or inactive employees after employment but before
retirement.
The measurement date for the Corporation’s defined benefit plans, postretirement benefit plans and
postemployment benefit plans was December 31 for 2009 and 2008 and November 30 for 2007.
Defined Benefit Retirement Plans. The assets of the Corporation’s retirement plans are held in the
Corporation’s Master Retirement Trust and are invested in listed stocks, bonds and cash
equivalents. Defined retirement benefits for salaried employees are based on each employee’s 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 SERP’s 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) | 2009 | 2008 | 2007 | |||||||||
Components of net periodic benefit cost: |
||||||||||||
Service cost |
$ | 11,169 | $ | 11,482 | $ | 12,363 | ||||||
Interest cost |
22,282 | 21,623 | 19,741 | |||||||||
Expected return on assets |
(16,271 | ) | (22,530 | ) | (22,474 | ) | ||||||
Amortization of: |
||||||||||||
Prior service cost |
655 | 686 | 679 | |||||||||
Actuarial loss |
14,379 | 4,287 | 4,473 | |||||||||
Transition asset |
(1 | ) | (1 | ) | (1 | ) | ||||||
Settlement charge |
— | 2,850 | 742 | |||||||||
Net periodic benefit cost |
$ | 32,213 | $ | 18,397 | $ | 15,523 | ||||||
The Corporation recognized the following amounts in comprehensive earnings:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Actuarial (gain) loss |
$ | (29,864 | ) | $ | 104,151 | $ | 11,838 | |||||
Amortization of: |
||||||||||||
Prior service cost |
(655 | ) | (744 | ) | (679 | ) | ||||||
Actuarial loss |
(14,379 | ) | (4,643 | ) | (4,473 | ) | ||||||
Transition asset |
1 | 1 | 1 | |||||||||
Settlement charge |
— | (2,850 | ) | (742 | ) | |||||||
Total |
$ | (44,897 | ) | $ | 95,915 | $ | 5,945 | |||||
Accumulated other comprehensive loss included the following amounts that have not yet been
recognized in net periodic benefit cost:
| December 31 | 2009 | 2008 | ||||||||||||||
| (add 000) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
Prior service cost |
$ | 3,674 | $ | 2,222 | $ | 4,329 | $ | 2,617 | ||||||||
Actuarial loss |
122,715 | 74,182 | 166,958 | 100,925 | ||||||||||||
Transition asset |
(14 | ) | (8 | ) | (15 | ) | (9 | ) | ||||||||
Total |
$ | 126,375 | $ | 76,396 | $ | 171,272 | $ | 103,533 | ||||||||
The prior service cost, actuarial loss and transition asset expected to be recognized in net
periodic benefit cost during 2010 are $583,000 (net of a deferred tax asset of $231,000),
$10,419,000 (net of a deferred tax asset of $4,121,000) and $1,000, respectively, and are included
in accumulated other comprehensive loss at December 31, 2009.
The defined benefit plans’ change in projected benefit obligation, change in plan assets, funded
status and amounts recognized on the Corporation’s consolidated balance sheets are as follows:
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
| years ended December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Change in projected benefit obligation: |
||||||||
Net projected benefit obligation at beginning of year |
$ | 370,930 | $ | 352,003 | ||||
Service cost |
11,169 | 11,482 | ||||||
Interest cost |
22,282 | 21,623 | ||||||
Actuarial loss |
2,031 | 1,287 | ||||||
Gross benefits paid |
(13,675 | ) | (17,232 | ) | ||||
Elimination of early measurement date: |
||||||||
Additional month of service cost and interest cost |
— | 2,752 | ||||||
Additional month of benefits paid |
— | (985 | ) | |||||
Net projected benefit obligation at end of year |
$ | 392,737 | $ | 370,930 | ||||
| years ended December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Change in plan assets: |
||||||||
Fair value of plan assets at beginning of year |
$ | 207,789 | $ | 287,763 | ||||
Actual return on plan assets, net |
48,169 | (80,334 | ) | |||||
Employer contributions |
24,563 | 16,701 | ||||||
Gross benefits paid |
(13,675 | ) | (17,232 | ) | ||||
Elimination of early measurement date: |
||||||||
Additional month of return on assets |
— | 1,872 | ||||||
Additional month of employer
contributions |
— | 4 | ||||||
Additional month of benefits paid |
— | (985 | ) | |||||
Fair value of plan assets at end of year |
$ | 266,846 | $ | 207,789 | ||||
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Funded status of the plan at end of year |
$ | (125,891 | ) | $ | (163,141 | ) | ||
Accrued benefit cost |
$ | (125,891 | ) | $ | (163,141 | ) | ||
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Amounts recognized on consolidated balance sheets consist of: |
||||||||
Current liability |
$ | (15,623 | ) | $ | (828 | ) | ||
Noncurrent liability |
(110,268 | ) | (162,313 | ) | ||||
Net amount recognized at end of year |
$ | (125,891 | ) | $ | (163,141 | ) | ||
The accumulated benefit obligation for all defined benefit pension plans was $357,565,000 and
$333,833,000 at December 31, 2009 and 2008, 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 $392,147,000,
$357,159,000 and $266,265,000, respectively, at December 31, 2009 and $370,930,000, $333,833,000
and $207,789,000, respectively, at December 31, 2008.
Weighted-average assumptions used to determine benefit obligations as of December 31 are:
| 2009 | 2008 | |||||||
Discount rate |
5.90 | % | 6.11 | % | ||||
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:
| 2009 | 2008 | 2007 | ||||||||||
Discount rate |
6.11 | % | 6.09 | % | 5.70 | % | ||||||
Rate of increase in future compensation levels |
5.00 | % | 5.00 | % | 5.00 | % | ||||||
Expected long-term rate of return on assets |
7.75 | % | 8.00 | % | 8.25 | % | ||||||
The Corporation’s 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, 2009 and 2008, 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, 2009 and 2008 and target allocation for 2009 by
asset category are as follows:
| Percentage of Plan Assets | ||||||||||||
| December 31 | ||||||||||||
| Target | ||||||||||||
| Asset Category | Allocation | 2009 | 2008 | |||||||||
Equity securities |
54 | % | 57 | % | 37 | % | ||||||
Debt securities |
46 | % | 43 | % | 33 | % | ||||||
Cash |
— | — | 30 | % | ||||||||
Total |
100 | % | 100 | % | 100 | % | ||||||
At December 31, 2008, the Corporation’s pension plan asset allocation was more heavily
weighted toward cash investments as the Corporation changed investment managers effective January
1, 2009 and further diversified its portfolio and risk of returns.
The Corporation’s investment strategy is for approximately 75% of the equity securities to be
invested in mid-sized to large capitalization funds with the remaining to be invested in small
capitalization, emerging markets and international funds. Fixed income investments are
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
invested in funds with the objective of exceeding the return of the Barclays Capital
Aggregate Bond Index. The Corporation expects to allocate 5% to 10% of its portfolio to alternative
investments in 2010.
The fair values of pension plan assets by asset category and fair value hierarchy level at December
31, 2009 are:
| Quoted Prices | ||||||||||||||||
| in Active | ||||||||||||||||
| Markets for | Significant | Significant | ||||||||||||||
| Identical | Observable | Unobservable | Total | |||||||||||||
| Assets | Inputs | Inputs | Fair | |||||||||||||
| (add 000) | (Level 1) | (Level 2) | (Level 3) | Value | ||||||||||||
Equity securities: |
||||||||||||||||
Mid-sized to large cap |
$ | 108,099 | $ | — | $ | — | $ | 108,099 | ||||||||
International and emerging growth funds |
45,165 | — | — | 45,165 | ||||||||||||
Debt securities: |
||||||||||||||||
Core fixed income |
100,167 | — | — | 100,167 | ||||||||||||
High-yield bonds |
13,201 | — | — | 13,201 | ||||||||||||
Cash |
214 | — | — | 214 | ||||||||||||
Total |
$ | 266,846 | $ | — | $ | — | $ | 266,846 | ||||||||
In 2009 and 2008, the Corporation made pension contributions of $24,563,000 and $16,701,000,
respectively. The Corporation’s estimate of contributions to its pension and SERP plans in 2010
ranges from $35,600,000 to $40,600,000, depending on final interpretations of funding requirements
under the Pension Protection Act of 2006. However, under certain funding choices, the Corporation
may be able to defer 2010 contributions until 2011 and beyond.
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) | ||||
2010 |
$ | 19,933 | ||
2011 |
$ | 21,753 | ||
2012 |
$ | 23,299 | ||
2013 |
$ | 21,676 | ||
2014 |
$ | 23,292 | ||
Years 2015-2019 |
$ | 136,153 | ||
Postretirement Benefits. The net periodic postretirement benefit cost of postretirement plans
included the following components:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Components of net periodic benefit cost: |
||||||||||||
Service cost |
$ | 558 | $ | 582 | $ | 639 | ||||||
Interest cost |
2,919 | 2,773 | 2,802 | |||||||||
Amortization of: |
||||||||||||
Prior service credit |
(1,489 | ) | (1,490 | ) | (1,294 | ) | ||||||
Actuarial gain |
— | (70 | ) | (95 | ) | |||||||
Total net periodic benefit cost |
$ | 1,988 | $ | 1,795 | $ | 2,052 | ||||||
The Corporation recognized the following amounts in comprehensive earnings:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Actuarial loss (gain) |
$ | 4,699 | $ | (435 | ) | $ | (2,994 | ) | ||||
Prior service credit |
— | — | (1,581 | ) | ||||||||
Amortization of: |
||||||||||||
Prior service credit |
1,489 | 1,614 | 1,294 | |||||||||
Actuarial gain |
— | 75 | 95 | |||||||||
Total |
$ | 6,188 | $ | 1,254 | $ | (3,186 | ) | |||||
Accumulated other comprehensive loss included the following amounts that have not yet been
recognized in net periodic benefit cost:
| December 31 | 2009 | 2008 | ||||||||||||||
| (add 000) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
Prior service credit |
$ | (8,214 | ) | $ | (4,964 | ) | $ | (9,703 | ) | $ | (5,865 | ) | ||||
Actuarial loss |
4,735 | 2,863 | 36 | 21 | ||||||||||||
Total |
$ | (3,479 | ) | $ | (2,101 | ) | $ | (9,667 | ) | $ | (5,844 | ) | ||||
The prior service credit and actuarial gain expected to be recognized in net periodic benefit
cost during 2010 are $1,490,000 (net of a deferred tax liability of $589,000) and $62,000 (net of
deferred tax liability of $25,000), respectively, and are included in accumulated other
comprehensive loss.
The postretirement health care plans’ change in benefit obligation, change on plan assets, funded
status and amounts recognized on the Corporation’s consolidated balance sheets are as follows:
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
| years ended December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Change in benefit obligation: |
||||||||
Net benefit obligation at
beginning of year |
$ | 47,074 | $ | 47,259 | ||||
Service cost |
558 | 582 | ||||||
Interest cost |
2,919 | 2,773 | ||||||
Participants’ contributions |
1,508 | 1,338 | ||||||
Actuarial loss (gain) |
4,699 | (435 | ) | |||||
Plan amendments |
— | — | ||||||
Gross benefits paid |
(5,302 | ) | (4,611 | ) | ||||
Federal subsidy on benefits paid |
450 | 369 | ||||||
Elimination of early measurement date: |
||||||||
Additional month of service cost and interest cost |
— | 280 | ||||||
Additional month of benefits paid |
— | (481 | ) | |||||
Net benefit obligation at end of year |
$ | 51,906 | $ | 47,074 | ||||
| years ended December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Change in plan assets: |
||||||||
Fair value of plan assets at
beginning of year |
$ | — | $ | — | ||||
Employer contributions |
3,344 | 2,904 | ||||||
Participants’ contributions |
1,508 | 1,338 | ||||||
Gross benefits paid |
(5,302 | ) | (4,611 | ) | ||||
Federal subsidy on benefits paid |
450 | 369 | ||||||
Elimination of early measurement date: |
||||||||
Additional month employer
contributions |
— | 481 | ||||||
Additional month of benefits paid |
— | (481 | ) | |||||
Fair value of plan assets at end of year |
$ | — | $ | — | ||||
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Funded status of the plan at end of year |
$ | (51,906 | ) | $ | (47,074 | ) | ||
Accrued benefit cost |
$ | (51,906 | ) | $ | (47,074 | ) | ||
| December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Amounts recognized on consolidated balance sheets consist of: |
||||||||
Current liability |
$ | (3,200 | ) | $ | (2,900 | ) | ||
Noncurrent liability |
(48,706 | ) | (44,174 | ) | ||||
Net amount recognized at end of year |
$ | (51,906 | ) | $ | (47,074 | ) | ||
In accordance with the Medicare Prescription Drug, Improvement and Modernization Act of 2003,
the Corporation receives a non-taxable subsidy from the federal government as the Corporation
sponsors prescription drug benefits to retirees that are “actuarially equivalent” to the Medicare
benefit. The Corporation’s postretirement health care plans’ benefit obligation reflects the effect
of the federal subsidy.
Weighted-average assumptions used to determine the postretirement benefit obligations as of
December 31 are:
| 2009 | 2008 | |||||||
Discount rate |
5.60 | % | 6.03 | % | ||||
Weighted-average assumptions used to determine net postretirement benefit cost for the years
ended December 31 are:
| 2009 | 2008 | 2007 | ||||||||||
Discount rate |
6.03 | % | 5.96 | % | 5.63 | % | ||||||
At December 31, 2009 and 2008, 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:
| 2009 | 2008 | |||||||
Health care cost trend rate assumed
for next year |
8.0 | % | 8.0 | % | ||||
Rate to which the cost trend
rate gradually declines |
5.0 | % | 5.0 | % | ||||
Year the rate reaches the ultimate rate |
2016 | 2015 | ||||||
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 |
$ | 90 | $ | (77 | ) | |||
Postretirement benefit obligation |
$ | 1,642 | $ | (1,409 | ) | |||
The Corporation’s estimate of its contributions to its post-retirement health care plans in
2010 is $3,200,000.
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 | ||||||
2010 |
$ | 3,200 | $ | 578 | ||||
2011 |
$ | 3,868 | $ | 645 | ||||
2012 |
$ | 4,027 | $ | 723 | ||||
2013 |
$ | 4,137 | $ | 811 | ||||
2014 |
$ | 4,211 | $ | 895 | ||||
Years 2015-2019 |
$ | 19,632 | $ | 6,154 | ||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Defined Contribution Plans. The Corporation maintains two defined contribution plans that
cover substantially all employees. These plans, qualified under Section 401(a) of the Internal
Revenue Code, are retirement savings and investment plans for the Corporation’s salaried and hourly
employees. Under certain provisions of these plans, the Corporation, at established rates, matches
employees’ eligible contributions. The Corporation’s matching obligations were $5,012,000 in 2009,
$5,553,000 in 2008 and $5,405,000 in 2007.
Postemployment Benefits. The Corporation has accrued postemployment benefits of $1,380,000 and
$1,343,000 at December 31, 2009 and 2008, 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 Corporation’s common stock for issuance under the Plans.
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 153,932
employee stock options during 2009. Options granted in years subsequent to 2004 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.
Prior to 2009, nonemployee directors received 3,000 non-qualified stock options annually. 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, 2009:
| Weighted- | Weighted-Average | |||||||||||
| Average | Remaining | |||||||||||
| Number of | Exercise | Contractual | ||||||||||
| Options | Price | Life (years) | ||||||||||
Outstanding at
January 1, 2009 |
1,045,398 | $ | 85.00 | |||||||||
Granted |
153,932 | $ | 79.79 | |||||||||
Exercised |
(20,708 | ) | $ | 46.67 | ||||||||
Outstanding at December 31, 2009 |
1,178,622 | $ | 84.99 | 5.1 | ||||||||
Exercisable at December 31, 2009 |
775,164 | $ | 73.29 | 4.5 | ||||||||
The weighted-average grant-date exercise price of options granted during 2009, 2008 and 2007
was $79.79, $117.77 and $151.92, respectively. The aggregate intrinsic values of options exercised
during the years ended December 31, 2009, 2008 and 2007 were $889,000, $5,524,000 and $61,363,000,
respectively, and were based on the closing prices of the Corporation’s common stock on the dates
of exercise. The aggregate intrinsic values for options outstanding and exercisable at December 31,
2009 were $5,209,000 and $12,493,000, respectively, and were based on the closing price of the
Corporation’s common stock at December 31, 2009, which was $89.41.
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 Corporation’s 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.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Corporation grants restricted stock awards under the Plans to a group of
executive officers and key personnel and, beginning in 2009, nonemployee directors. Certain
restricted stock awards are based on specific common stock performance criteria over a specified
period of time. In addition, certain awards are 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. Awards granted to nonemployee
directors vest immediately.
The following table summarizes information for incentive stock awards and restricted stock awards
as of December 31, 2009:
| Incentive Stock | Restricted Stock | |||||||||||||||
| Weighted- | Weighted- | |||||||||||||||
| Average | Average | |||||||||||||||
| Number of | Grant-Date | Number of | Grant-Date | |||||||||||||
| Awards | Fair Value | Awards | Fair Value | |||||||||||||
January 1, 2009 |
39,992 | $ | 117.74 | 495,121 | $ | 94.58 | ||||||||||
Awarded |
19,553 | $ | 81.75 | 136,954 | $ | 80.29 | ||||||||||
Distributed |
(20,274 | ) | $ | 117.60 | (179,020 | ) | $ | 59.60 | ||||||||
Forfeited |
— | $ | — | (1,783 | ) | $ | 106.37 | |||||||||
December 31, 2009 |
39,271 | $ | 99.89 | 451,272 | $ | 104.07 | ||||||||||
The weighted-average grant-date fair value of incentive compensation awards granted during
2009, 2008 and 2007 was $81.75, $123.28 and $117.56, respectively. The weighted-average grant-date
fair value of restricted stock awards granted during 2009, 2008 and 2007 was $80.29, $118.82 and
$142.89, respectively.
The aggregate intrinsic values for incentive compensation awards and restricted stock awards at
December 31, 2009 were $373,000 and $40,348,000, respectively, and were based on the closing price
of the Corporation’s common stock at December 31, 2009, which was $89.41. The aggregate intrinsic
values of incentive compensation awards distributed during the years ended December 31, 2009, 2008
and 2007 were $0, $147,000 and $2,979,000, respectively. The aggregate intrinsic values of
restricted stock awards distributed during the years ended December 31, 2009, 2008 and 2007 were
$14,888,000, $7,138,000 and $6,768,000, respectively. The aggregate intrinsic values for
distributed awards were based on the closing prices of the Corporation’s common stock on the dates
of distribution.
At December 31, 2009, there are approximately 682,000 awards available for grant under the Plans.
In 1996, the Corporation adopted the Shareholder Value Achievement Plan to award shares of the
Corporation’s 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, 2009, 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 Corporation’s 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 Corporation’s common stock at a 20%
discount to market value. Directors elected to defer portions of their fees representing 18,072,
5,790 and 3,672 shares of the Corporation’s common stock under this plan during 2009, 2008 and
2007, respectively.
The following table summarizes stock-based compensation expense for the years ended December 31,
2009, 2008 and 2007, unrecognized compensation cost for nonvested awards at December 31, 2009 and
the weighted-average period over which unrecognized compensation cost is expected to be recognized:
| Restricted | Incentive | |||||||||||||||||||
| (add 000, | Stock | Stock | Compensation | Directors’ | ||||||||||||||||
| except year data) | Options | Awards | Awards | Awards | Total | |||||||||||||||
| Stock-based compensation expense recognized for years ended December 31: | ||||||||||||||||||||
2009 |
$ | 5,828 | $ | 13,722 | $ | 406 | $ | 596 | $ | 20,552 | ||||||||||
2008 |
$ | 7,830 | $ | 12,982 | $ | 439 | $ | 614 | $ | 21,865 | ||||||||||
2007 |
$ | 7,740 | $ | 10,897 | $ | 493 | $ | 557 | $ | 19,687 | ||||||||||
| Unrecognized compensation cost at December 31,2009: | ||||||||||||||||||||
| $ | 4,486 | $ | 14,931 | $ | 265 | $ | 134 | $ | 19,816 | |||||||||||
| Weighted-average period over which unrecognized compensation cost to be recognized: | ||||||||||||||||||||
| 1.8 years | 2.2 years | 1.5 years | — | |||||||||||||||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2009, 2008 and 2007, the Corporation recognized a tax
benefit related to stock-based compensation of $277,000, $3,716,000 and $27,209,000, respectively.
The following presents expected stock-based compensation expense in future periods for outstanding
awards as of December 31, 2009:
| (add 000) | ||||
2010 |
$ | 10,933 | ||
2011 |
5,952 | |||
2012 |
2,398 | |||
2013 |
533 | |||
Total |
$ | 19,816 | ||
Stock-based compensation expense is included in selling, general and administrative expenses
in the Corporation’s consolidated statements of earnings.
Note L: Leases
Total lease expense for operating leases was $51,738,000, $65,097,000 and $64,717,000 for the
years ended December 31, 2009, 2008 and 2007, respectively. The Corporation’s operating leases
generally contain renewal and/or purchase options with varying terms. The Corporation has royalty
agreements that generally require royalty payments based on tons produced or total sales dollars
and also contain minimum payments. Total royalties, principally for leased properties, were
$34,563,000, $42,065,000 and $40,673,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.
Future minimum lease and mineral and other royalty commitments for all noncancelable agreements as
of December 31, 2009 are as follows:
| (add 000) | ||||
2010 |
$ | 73,576 | ||
2011 |
59,621 | |||
2012 |
50,158 | |||
2013 |
44,723 | |||
2014 |
38,608 | |||
Thereafter |
148,784 | |||
Total |
$ | 415,470 | ||
Of the total future minimum commitments, $181,000,000 relates to the Corporation’s contracts
of affreightment.
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, 2009, approximately 2,741,000 common
shares were reserved for issuance under stock-based plans. At December 31, 2009 and 2008, there
were 843 and 828, respectively, shareholders of record.
Pursuant to authority granted by its Board of Directors, the Corporation can repurchase common
stock through open purchases. The Corporation did not repurchase any shares of common stock during
the years ended December 31, 2009 or 2008. However, $24,017,000 in cash was used during January
2008 to settle common stock repurchases made as of December 31, 2007. At December 31, 2009,
5,041,900 shares of common stock were remaining under the Corporation’s repurchase authorization.
Pursuant to authority granted by its Board of Directors, the Corporation could offer and sell up to
6,000,000 shares of its common stock having an aggregate offering price of up to $350,000,000
through December 31, 2009. On March 5, 2009, the Corporation entered into a distribution agreement
with J.P. Morgan Securities Inc. (“J.P. Morgan”). Under the distribution agreement, the Corporation
could offer and sell up to 5,000,000 shares of its common stock having an aggregate offering price
of up to $300,000,000 from time to time through J.P. Morgan, as distribution agent. The Corporation
sold 3,051,365 shares of its common stock at an average price of $77.90 per share, resulting in
gross proceeds to the Corporation of $237,701,000. The aggregate net proceeds from such sales were
$232,543,000 after deducting related expenses, including $4,800,000 in gross sales commissions paid
to J.P. Morgan. The Corporation terminated the distribution agreement with J.P. Morgan on November
16, 2009.
On November 18, 2009, the Corporation entered into a distribution agreement with Wells Fargo
Securities Inc. (“Wells Fargo Securities”). Under the distribution agreement, the Corporation could
offer and sell up to 1,948,635 shares of its common stock having an aggregate offering price of up
to $62,298,000 from time to time through Wells Fargo Securities, as distribution agent. The
Corporation sold 726,200 shares of its common stock at an average price
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of $85.78 per share, resulting in gross proceeds to the Corporation of $62,297,000. The
aggregate net proceeds from such sales were $60,899,000 after deducting related expenses, including
$1,246,000 in gross sales commissions paid to Wells Fargo Securities. The distribution agreement
expired by its own terms on December 31, 2009.
In addition to common stock, the Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s common stock. Once exercisable and upon a person or group acquiring 15 percent or
more of the Corporation’s 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 Corporation’s 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 Corporation’s
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 Corporation’s 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 Corporation’s Rights Agreement provides that the Corporation’s Board
of Directors may, at its option, redeem all of the outstanding rights at a redemption price of
$0.001 per right.
Note N: Commitments and Contingencies
The Corporation is engaged in certain legal and administrative proceedings incidental to its
normal business activities. Currently, the Corporation is a named party in various legal
proceedings in both federal and state courts relating to its Greenwood, Missouri, operation. In
January 2010, the Missouri Supreme Court declined to accept the appeal on a matter related to the
Greenwood operation. The Corporation is considering its alternatives regarding this decision.
Management believes the result with regard to this legal proceeding is contrary to the evidence
presented and governing legal principles, although it cannot reasonably predict the ultimate
outcome of the proceeding. Accordingly, the Corporation recorded an $11,900,000 legal reserve as of
December 31, 2009.
In the opinion of management and counsel, it is unlikely that the outcome of any other litigation
and other proceedings, including those pertaining to environmental matters (see Note A), relating
to the Corporation and its subsidiaries, will have a material adverse effect on the results of the
Corporation’s operations, its cash flows or its 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 2009, 2008 and 2007 were $4,019,000, $4,520,000 and $2,042,000,
respectively, and are included in other operating income and expenses, net, in the consolidated
statements of earnings.
Projected estimated reclamation obligations should 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 60
years at normalized 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.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following shows the changes in the asset retirement obligations:
| years ended December 31 | ||||||||
| (add 000) | 2009 | 2008 | ||||||
Balance at January 1 |
$ | 39,440 | $ | 39,148 | ||||
Accretion expense |
2,349 | 2,212 | ||||||
Liabilities incurred |
1,249 | 676 | ||||||
Liabilities settled |
(1,272 | ) | (1,302 | ) | ||||
Revisions in estimated cash flows |
(2,987 | ) | (1,294 | ) | ||||
Balance at December 31 |
$ | 38,779 | $ | 39,440 | ||||
Other Environmental Matters. The Corporation’s 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 Corporation’s 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
Corporation’s 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 Corporation’s 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. The Corporation has insurance coverage for workers’ compensation, automobile
liability, marine liability and general liability claims with deductibles ranging from $250,000 to
$3,000,000. The Corporation is also self-insured for health claims. At December 31, 2009 and 2008,
reserves of $23,725,000 and $27,384,000, respectively, were recorded for all such insurance claims.
During 2009, the Corporation decreased its accrual for casualty claims by $2,167,000 based on
changes in the estimated ultimate cost of claims for prior policy years. This change in estimate
increased 2009 net earnings by $1,310,000, or $0.03 per diluted share.
Letters of Credit. In the normal course of business, the Corporation provides certain third
parties with standby letter of credit agreements guaranteeing its payment for certain insurance
claims, utilities and property improvements. At December 31, 2009, the Corporation was contingently
liable for $10,550,000 in letters of credit, of which $1,650,000 were issued under the
Corporation’s Credit Agreement.
Surety Bonds. In the normal course of business, at December 31, 2009, the Corporation was
contingently liable for $129,257,000 in surety bonds required by certain states and municipalities
and their related agencies. The bonds are principally for certain insurance claims, construction
contracts, reclamation obligations and mining permits guaranteeing the Corporation’s own
performance. Certain of these underlying obligations, including those for asset retirement
requirements, are accrued on the Corporation’s balance sheet. Five of these bonds total
$47,475,000, or 37% of all outstanding surety bonds. The Corporation has indemnified the
underwriting insurance company, Safeco Corporation, a subsidiary of Liberty Mutual Group, against
any exposure under the surety bonds. In the Corporation’s past experience, no material claims have
been made against these financial instruments.
Purchase Commitments. The Corporation had purchase commitments for property, plant and equipment of
$11,777,000 as of December 31, 2009. The Corporation also had other purchase obligations related to
energy and service contracts of $36,842,000 as of December 31, 2009. The Corporation’s contractual
purchase commitments as of December 31, 2009 are as follows:
| (add 000) | ||||
2010 |
$ | 31,142 | ||
2011 |
15,245 | |||
2012 |
2,232 | |||
Total |
$ | 48,619 | ||
Employees. The Corporation had approximately 4,600 employees at December 31, 2009. Approximately
14% of the Corporation’s employees are represented by a labor union. All such employees are hourly
employees. One of the Corporation’s labor union contracts expires in June 2010.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note O: Business 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 and dolomitic lime.
These segments are consistent with the Corporation’s current management reporting structure. The
accounting policies used for segment reporting are the same as those described in Note A.
The Corporation’s 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 Corporation’s 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.
The following tables display selected financial data for the Corporation’s reportable business
segments:
| Selected Financial Data by Business Segment | ||||||||||||
| years ended December 31 | ||||||||||||
| (add 000) | ||||||||||||
| Total revenues | 2009 | 2008 | 2007 | |||||||||
Mideast Group |
$ | 467,012 | $ | 618,562 | $ | 725,161 | ||||||
Southeast Group |
424,105 | 548,867 | 529,367 | |||||||||
West Group |
651,575 | 762,159 | 763,044 | |||||||||
Total Aggregates Business |
1,542,692 | 1,929,588 | 2,017,572 | |||||||||
Specialty Products |
159,911 | 186,833 | 171,676 | |||||||||
Total |
$ | 1,702,603 | $ | 2,116,421 | $ | 2,189,248 | ||||||
Net sales |
||||||||||||
Mideast Group |
$ | 438,469 | $ | 578,366 | $ | 680,138 | ||||||
Southeast Group |
350,123 | 447,890 | 454,413 | |||||||||
West Group |
564,329 | 666,252 | 661,420 | |||||||||
Total Aggregates Business |
1,352,921 | 1,692,508 | 1,795,971 | |||||||||
Specialty Products |
143,719 | 167,189 | 154,425 | |||||||||
Total |
$ | 1,496,640 | $ | 1,859,697 | $ | 1,950,396 | ||||||
Gross profit |
||||||||||||
Mideast Group |
$ | 138,978 | $ | 219,588 | $ | 287,546 | ||||||
Southeast Group |
45,635 | 76,842 | 107,723 | |||||||||
West Group |
111,166 | 136,413 | 134,165 | |||||||||
Total Aggregates Business |
295,779 | 432,843 | 529,434 | |||||||||
Specialty Products |
45,584 | 41,831 | 43,374 | |||||||||
Corporate |
(3,630 | ) | (4,159 | ) | (4,603 | ) | ||||||
Total |
$ | 337,733 | $ | 470,515 | $ | 568,205 | ||||||
| Selling, general and administrative expenses | ||||||||||||
Mideast Group |
$ | 44,200 | $ | 45,109 | $ | 45,748 | ||||||
Southeast Group |
26,915 | 26,069 | 25,900 | |||||||||
West Group |
41,983 | 44,479 | 46,156 | |||||||||
Total Aggregates Business |
113,098 | 115,657 | 117,804 | |||||||||
Specialty Products |
9,446 | 9,989 | 10,316 | |||||||||
Corporate |
16,856 | 25,702 | 27,066 | |||||||||
Total |
$ | 139,400 | $ | 151,348 | $ | 155,186 | ||||||
| Earnings from operations | ||||||||||||
Mideast Group |
$ | 95,083 | $ | 187,165 | $ | 246,299 | ||||||
Southeast Group |
20,498 | 48,086 | 83,976 | |||||||||
West Group |
61,440 | 95,799 | 98,752 | |||||||||
Total Aggregates Business |
177,021 | 331,050 | 429,027 | |||||||||
Specialty Products |
35,734 | 28,136 | 32,888 | |||||||||
Corporate |
(25,178 | ) | (35,800 | ) | (31,688 | ) | ||||||
Total |
$ | 187,577 | $ | 323,386 | $ | 430,227 | ||||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
| Assets employed | 2009 | 2008 | 2007 | |||||||||
Mideast Group |
$ | 803,438 | $ | 831,139 | $ | 780,074 | ||||||
Southeast Group |
783,343 | 801,776 | 519,681 | |||||||||
West Group |
1,081,565 | 1,060,206 | 1,072,808 | |||||||||
Total Aggregates Business |
2,668,346 | 2,693,121 | 2,372,563 | |||||||||
Specialty Products |
102,405 | 103,949 | 98,718 | |||||||||
Corporate |
468,532 | 235,432 | 212,524 | |||||||||
Total |
$ | 3,239,283 | $ | 3,032,502 | $ | 2,683,805 | ||||||
| Depreciation, depletion and amortization | ||||||||||||
Mideast Group |
$ | 56,138 | $ | 55,173 | $ | 51,038 | ||||||
Southeast Group |
48,954 | 41,196 | 31,032 | |||||||||
West Group |
55,176 | 52,913 | 49,539 | |||||||||
Total Aggregates Business |
160,268 | 149,282 | 131,609 | |||||||||
Specialty Products |
7,518 | 8,052 | 6,906 | |||||||||
Corporate |
11,605 | 13,795 | 11,823 | |||||||||
Total |
$ | 179,391 | $ | 171,129 | $ | 150,338 | ||||||
| Total property additions | ||||||||||||
Mideast Group |
$ | 39,761 | $ | 107,217 | $ | 94,491 | ||||||
Southeast Group |
37,355 | 262,104 | 58,637 | |||||||||
West Group |
92,156 | 63,750 | 90,446 | |||||||||
Total Aggregates Business |
169,272 | 433,071 | 243,574 | |||||||||
Specialty Products |
10,766 | 11,814 | 10,508 | |||||||||
Corporate |
5,450 | 8,642 | 19,251 | |||||||||
Total |
$ | 185,488 | $ | 453,527 | $ | 273,333 | ||||||
| Property additions through acquisitions | ||||||||||||
Mideast Group |
$ | — | $ | 12,021 | $ | — | ||||||
Southeast Group |
— | 169,630 | — | |||||||||
West Group |
46,133 | — | 5,513 | |||||||||
Total Aggregates Business |
46,133 | 181,651 | 5,513 | |||||||||
Specialty Products |
— | 2,000 | — | |||||||||
Corporate |
— | — | — | |||||||||
Total |
$ | 46,133 | $ | 183,651 | $ | 5,513 | ||||||
Property additions in 2009, 2008 and 2007 also include $125,000, $11,630,000 and $2,897,000,
respectively, of land acquired through noncash transactions for the Mideast Group.
The asphalt, ready mixed concrete, road paving and other product lines are considered internal
customers of the core aggregates business. Product lines for the Specialty Products segment consist
of magnesia-based chemicals, dolomitic lime and other. Total revenues and net sales by product line
are as follows:
| years ended December 31 | ||||||||||||
| (add 000) | ||||||||||||
| Total revenues | 2009 | 2008 | 2007 | |||||||||
Aggregates |
$ | 1,426,362 | $ | 1,808,726 | $ | 1,900,852 | ||||||
Asphalt |
59,861 | 54,036 | 56,285 | |||||||||
Ready Mixed Concrete |
26,311 | 36,981 | 41,126 | |||||||||
Road Paving |
13,483 | 14,184 | 13,453 | |||||||||
Other |
16,675 | 15,661 | 5,856 | |||||||||
Total Aggregates Business |
1,542,692 | 1,929,588 | 2,017,572 | |||||||||
Magnesia-Based Chemicals |
109,685 | 131,464 | 114,362 | |||||||||
Dolomitic Lime |
48,571 | 51,406 | 49,212 | |||||||||
Other |
1,655 | 3,963 | 8,102 | |||||||||
Specialty Products |
159,911 | 186,833 | 171,676 | |||||||||
Total |
$ | 1,702,603 | $ | 2,116,421 | $ | 2,189,248 | ||||||
Net sales |
||||||||||||
Aggregates |
$ | 1,262,894 | $ | 1,594,512 | $ | 1,693,286 | ||||||
Asphalt |
45,164 | 46,340 | 47,569 | |||||||||
Ready Mixed Concrete |
26,265 | 36,937 | 41,126 | |||||||||
Road Paving |
13,483 | 14,184 | 13,453 | |||||||||
Other |
5,115 | 535 | 537 | |||||||||
Total Aggregates Business |
1,352,921 | 1,692,508 | 1,795,971 | |||||||||
Magnesia-Based Chemicals |
98,643 | 116,128 | 100,918 | |||||||||
Dolomitic Lime |
43,421 | 47,098 | 45,405 | |||||||||
Other |
1,655 | 3,963 | 8,102 | |||||||||
Specialty Products |
143,719 | 167,189 | 154,425 | |||||||||
Total |
$ | 1,496,640 | $ | 1,859,697 | $ | 1,950,396 | ||||||
Domestic and foreign total revenues are as follows:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Domestic |
$ | 1,666,606 | $ | 2,067,331 | $ | 2,146,765 | ||||||
Foreign |
35,997 | 49,090 | 42,483 | |||||||||
Total |
$ | 1,702,603 | $ | 2,116,421 | $ | 2,189,248 | ||||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note P: Supplemental Cash Flow Information
The following table presents supplemental cash flow information:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Noncash investing and
financing activities: |
||||||||||||
Issuance of notes payable
for acquisition of land |
$ | 125 | $ | 11,500 | $ | 2,897 | ||||||
Note receivable issued in
connection with divestiture
and sale of assets |
$ | 1,675 | $ | 300 | $ | — | ||||||
Acquisition of land through
settlement of notes
receivable |
$ | — | $ | 130 | $ | — | ||||||
The following table presents the components of the change in other assets and liabilities, net:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Other current and
noncurrent assets |
$ | (8,441 | ) | $ | (2,432 | ) | $ | 802 | ||||
Notes receivable |
247 | (531 | ) | 327 | ||||||||
Accrued salaries, benefits
and payroll taxes |
(9,137 | ) | (3,292 | ) | (3,747 | ) | ||||||
Accrued insurance and
other taxes |
855 | (1,704 | ) | (7,174 | ) | |||||||
Accrued income taxes |
2,414 | 14,341 | 18,448 | |||||||||
Accrued pension,
postretirement and
postemployment benefits |
6,339 | 306 | 57 | |||||||||
Other current and
noncurrent liabilities |
3,207 | (10,685 | ) | 22,327 | ||||||||
Total |
$ | (4,516 | ) | $ | (3,997 | ) | $ | 31,040 | ||||
Note Q: Other Operating Income and Expenses, Net
In January 2010, the Missouri Supreme Court declined to accept the appeal on a matter pending
between the Corporation and the City of Greenwood, Missouri. The Corporation is considering its
alternatives regarding this decision. Management believes the result with regard to this legal
proceeding is contrary to the evidence presented and governing legal principles, although it cannot
reasonably predict the ultimate outcome of the proceeding. Accordingly, the Corporation recorded an
$11,900,000 legal reserve for the West Group as of December 31, 2009. This noncash charge, which
was included in other operating income and expenses, net, in the consolidated statement of earnings
for the year ended December 31, 2009, decreased net earnings by $8,000,000, or $0.18 per diluted
share.
During the fourth quarter of 2008, the Corporation terminated certain employees as part of a
reduction in workforce designed to control its cost structure. Based on the terms of the severance
arrangements, the Corporation accrued $5,400,000 of severance and other termination benefits at the
communication date, which was included in other operating income and
expenses, net, in the
consolidated statement of earnings for the year ended December 31, 2008. During the year ended
December 31, 2009, the Corporation paid $3,243,000 in accordance with the terms of the severance
agreements. The remaining accrual of $963,000 at December 31, 2009 is expected to be paid within
the upcoming twelve months.
During 2008, the Corporation wrote off $1,678,000 of machinery and equipment and $1,632,000 of
prepaid royalties related to its structural composites product line of the Specialty Products
segment as the assets had no future use to the Corporation. The total write off, which was included
in other operating income and expenses, net, in the consolidated statement of earnings for the year
ended December 31, 2008, decreased net earnings by $2,001,000, or $0.05 per diluted share.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 38
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
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:
| AGGREGATES BUSINESS | ||||||
| Reportable | Mideast | Southeast | West | |||
| Segments | Group | Group | Group | |||
Primary Markets
|
Indiana, Maryland, North Carolina, Ohio, South Carolina, Virginia and West Virginia | Alabama, Florida, Georgia, Illinois, Kentucky, Louisiana, Mississippi, Tennessee, Nova Scotia and the Bahamas | Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, Nevada, Oklahoma, Texas, Utah, Washington and Wyoming | |||
Primary Product Lines |
Aggregates (stone, sand and gravel) | Aggregates (stone, sand and gravel) | Aggregates (stone, sand and gravel), asphalt, ready mixed concrete and road paving | |||
Primary Types
of Aggregates
Locations
|
Quarries | Quarries and Distribution Yards | Quarries and Distribution Yards | |||
Primary Modes
of
Transportation
for Aggregates
Product Line
|
Truck | Truck, Water and Rail | Truck and Rail | |||
The Corporation’s Specialty Products segment produces magnesia-based chemicals products
used in industrial, agricultural and environmental applications and dolomitic lime used in the
steel industry.
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 compliance with applicable laws, rules, regulations and the highest ethical standards; |
| • | Provide a safe and healthy workplace for the Corporation’s employees; and |
| • | Reflect all aspects of good citizenship by being responsible neighbors. |
Notable items regarding the Corporation’s operating results, cash flows and operations include:
Operating Results:
| • | Earnings per diluted share of $1.91, inclusive of an accrual for a legal reserve which reduced earnings per diluted share by $0.18 |
| • | Return on shareholders’ equity of 7.2% in 2009 |
| • | Heritage aggregates product line pricing increase of 1.9%, despite a volume decrease of 23.0% |
| • | Record financial results by the Specialty Products segment, which provided earnings from operations of $35.7 million |
| • | Energy expense decreased $74.0 million, which contributed $1.01 to earnings per diluted share |
| • | Effective management of controllable costs as evidenced by selling, general and administrative expenses decreasing $11.9 million in 2009 compared with 2008, despite an increase of $6.4 million in pension costs |
Cash Flows:
| • | Ratio of consolidated debt-to-consolidated EBITDA, as defined in the Corporation’s $325 million credit agreement, as amended, of 3.19 times for the trailing twelve months ended December 31, 2009 |
| • | Secured two new credit facilities providing $230 million of incremental liquidity |
| • | Paid cash dividends of $71.2 million, representing $1.60 per common share |
| • | Issued 3.8 million shares of common stock providing net proceeds of $293.4 million |
| • | Capital expenditures of $139.2 million focused on preserving capital while maintaining safe, environmentally-sound operations, along with a continuing investment in land with long-term mineral reserves to serve high-growth markets |
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 39
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS (CONTINUED)
Operations:
| • | Record employee safety performance as measured by total injury incidence and lost-time incidence rates |
| • | Reduction of headcount by 6% to approximately 4,600 employees |
| • | Acquisition and successful integration of 3 quarries from CEMEX, Inc. |
| • | Continued maximization of transportation and materials options created by the Corporation’s long-haul distribution network |
In 2010, the operating plan will track consistently with the past year as the Corporation manages
the business through the trough of this economic recession. Risks that are typical for the
aggregates industry and the Corporation specifically became more pronounced during the protracted
recession. In 2010, management will emphasize, among other things, the following financial and
operational initiatives:
Financial:
| • | Maintaining a strict focus on cost containment |
| • | Preserving cash, maintaining liquidity and keeping the Corporation’s financial position strong |
| • | Continuing the strong performance and operating results of the Specialty Products segment |
| • | Increasing the Corporation’s operating margin toward its targeted goal of a 1,000-basis-point improvement in operating margin (excluding freight and delivery revenues) over the 6-year period ending December 31, 2013 |
| • | Maximizing return on invested capital consistent with the successful long-term operation of the Corporation’s business |
| • | Returning cash to shareholders through sustainable dividends |
Operational:
| • | Continuing to focus on the Corporation’s safety performance |
| • | Effectively serving high-growth markets, particularly in the Southeast and Southwest |
| • | Continuing to build a competitive advantage from the Corporation’s long-haul distribution network |
| • | Using best practices and information technology to drive cost performance |
| • | Investing in acquisitions of value-added operations |
Management considers each of the following factors in evaluating the Corporation’s 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 historic economic recession has resulted in unprecedented
reductions in aggregates shipments, as evidenced by United States aggregates consumption declining
by almost 40% from the peak volume in 2006. Further, states have stalled construction spending due
to budget shortfalls caused by decreasing tax revenues and uncertainty related to long-term federal
highway funding.
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 wind farms, office buildings, large retailers and wholesalers, and malls);
and residential construction (housing and subdivisions). Aggregates products are also used in the
railroad, environmental and agricultural industries. Ballast is an aggregates product used to line
trackbeds of railroads and, increasingly, concrete rail ties are being used as a substitute for
wooden ties. High-calcium limestone is used as a supplement in animal feed, as a soil acidity
neutralizer and agricultural growth enhancer, 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 51
through 53, 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, with approximately half from the federal
government and the other half from state and local governments. The American Recovery and
Reinvestment Act of 2009
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 40
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS (CONTINUED)
(“ARRA”), the federal economic stimulus plan signed into law in February 2009, provided
approximately $30 billion of additional funding for highways, bridges and airports expected to be
spent through 2012. Management also anticipates that other components of ARRA, including, for
example, federal spending for rail transportation, public transit and the Army Corps of Engineers,
should result in increased construction activity. The Safe, Accountable, Flexible and Efficient
Transportation Equity Act — A Legacy for Users (“SAFETEA-LU”) was the federal highway legislation
that provided funding of $286.4 billion over the six-year period ended September 30, 2009. While a
multi-year successor federal highway bill has not been approved, the provisions of SAFETEA-LU have
been extended under continuing resolutions through February 28, 2010. Infrastructure spending in
2009 was negatively affected by the overall weakness in the United States economy and state
government budget deficits. Further, there have been delays in stimulus-related projects reaching
the actual construction phase, as evidenced by only 21% of total ARRA highway funds being spent at
the state level in 2009. Management expects the majority of stimulus project work to occur in 2010
with any carryover in 2011. The infrastructure construction market accounted for approximately 55%
of the Corporation’s 2009 aggregates shipments. See further discussion in the section Federal and
State Highway Appropriations on pages 56 and 57.
Commercial and residential construction levels are interest rate-sensitive and typically move in a
direct correlation with economic cycles. The commercial construction market, which accounted for
approximately 25% of the Corporation’s 2009 aggregates shipments, remained weak in 2009, notably in
office and retail construction. Additionally, continued weakness in the residential construction
market negatively affected the commercial construction market, which generally follows the
residential construction market with a 12-to-18-month lag. Management expects the commercial
construction market to decline in 2010.
The residential construction market, which accounted for approximately 7% of the Corporation’s
aggregates shipments in 2009, remained dismal. Despite the Federal Reserve keeping the federal
funds rate at zero percent
throughout the year, the overall weakness in the economy and reduced consumer lending by banks have
limited the impact of the low rate. Management believes the residential construction market has
bottomed out and expects moderate growth in 2010.
Chemical rock (comprised primarily of material used for agricultural lime and flue gas
desulfurization) and ballast product sales (collectively, referred to as “ChemRock/Rail” and
formerly referred to as “Other”) accounted for approximately 13% of the Corporation’s aggregates
shipments in 2009. Further, three of the Corporation’s top ten customers in 2009 were railroads.
These shipments were enhanced by the acquisition of several rail-connected quarries from CEMEX
Inc., in June 2009. Management expects moderate growth in the Corporation’s ChemRock/Rail
shipments in 2010.
In 2009, the Corporation shipped 123.4 million tons of aggregates to customers in 31 states,
Canada, the Bahamas and the Caribbean Islands from 274 quarries, underground mines and distribution
yards. While the Corporation’s 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 — Texas, North Carolina, Georgia, Iowa and Louisiana — accounted for
approximately 56% of its 2009 net sales by state of destination, while the top ten
revenue-generating states accounted for approximately 76% of its 2009 net sales. Management closely
monitors economic conditions and public infrastructure spending in the market areas in the states
where the Corporation’s 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
shipments, production schedules and profitability of the aggregates industry. The financial results
of the first quarter are generally significantly lower than the financial results of the other
quarters due to winter weather.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 41
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS (CONTINUED)
| ESTIMATED POPULATION MOVEMENT | ||||||||||||
| Top 10 Revenue- | Rank in Estimated | |||||||||||
| Generating States of | Population Rank | Change in Population | Estimated Rank in | |||||||||
| Aggregates Business | in 2000 | From 2000 to 2030 | Population in 2030 | |||||||||
Texas
|
2 | 4 | 2 | |||||||||
North Carolina
|
11 | 7 | 7 | |||||||||
Georgia
|
10 | 8 | 8 | |||||||||
Iowa
|
30 | 48 | 34 | |||||||||
Louisiana
|
22 | 41 | 26 | |||||||||
South Carolina
|
26 | 19 | 23 | |||||||||
Florida
|
4 | 3 | 3 | |||||||||
Indiana
|
14 | 31 | 18 | |||||||||
Alabama
|
23 | 35 | 24 | |||||||||
Oklahoma
|
27 | 29 | 29 | |||||||||
Source: United States Census Bureau
While natural aggregates sources typically occur in relatively homogeneous deposits in certain
areas of the United States, a significant challenge facing aggregates producers is locating
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 objective 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 Corporation’s management continues to meet this challenge through strategic planning to
identify site locations in advance of economic expansion; land acquisition around existing quarry
sites to increase mineral reserve capacity and lengthen quarry life or add a site buffer;
underground mine development; and enhancing 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 page 50 and pages 60 and 61, respectively.
The construction aggregates industry has been consolidating, and the
Corporation has actively participated in the consolidation of the industry.
When acquired, new locations sometimes do not satisfy the Corporation’s
internal safety, maintenance and pit development standards and may require
additional resources before benefits of the acquisitions are fully
realized. Management expects a slowing in the industry consolidation trend
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.
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 58 and 59. Further, operating results and financial performance are sensitive
to shipment volume and sales price changes.
During the period from 2005 to 2008, the Corporation increased prices at a higher rate and/or with
greater frequency than historical averages. For reference, the Corporation’s 15-year annual average
price increase for the period ended December 31, 2004 was 2.3%. In 2009, the Corporation’s heritage
aggregates pricing increased 1.9% and was negatively affected by the overall economy, the decline
in aggregates shipments and an increasingly competitive environment.
The production of construction-related aggregates also requires the use of diesel fuel. Therefore,
fluctuations in
diesel fuel pricing directly affect operating results. During
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 42
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS (CONTINUED)
2009, energy costs decreased $74.0 million compared with 2008, with the reduction in
diesel fuel cost being the primary component. The Corporation does not hedge its diesel fuel price
risk, but instead focuses on volume-related price reductions, fuel efficiency, consumption and the
natural hedge created by the ability to increase aggregates prices.
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, tons produced per paid man hour and return on invested capital, along with
other key financial and nonfinancial data. Changes in average selling prices demonstrate economic
and competitive conditions, while changes in costs per ton produced and tons produced per paid man
hour are indicative of operating efficiency and economic conditions.
Other Business Considerations
The Corporation, through its Specialty Products segment, also produces dolomitic lime and
magnesia-based chemicals.
The dolomitic lime business, 30% of Specialty Products’ 2009 net sales, is dependent on the
highly-cyclical steel industry and operating results are affected by changes in that industry. The
chemical products business focuses on higher-margin specialty chemicals that can be produced at
volumes that support efficient operations. Net sales decreased in 2009, reflecting slowing magnesia
chemicals sales and reduced dolomitic lime shipments to the steel industry, both trends consistent
with declines in general industrial demand.
A significant portion of costs 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. The Corporation has entered into
fixed-price supply contracts for coal and petroleum coke to help mitigate this risk.
Cash Flow Considerations
The Corporation’s cash flows are generated primarily from operations. Operating cash flows
generally fund working capital needs, capital expenditures, dividends, share repurchases and
smaller acquisitions. During 2009, the Corporation issued 3.8 million shares of common stock and
raised net proceeds of $293.4 million. Additionally, the Corporation entered into a $100 million
three-year secured accounts receivable credit facility (the “AR Credit Facility”) and a $130
million unsecured term loan (the “Term Loan”). The proceeds from the equity offering and the new
credit facilities were used for working capital and general corporate purposes, which included
financing the acquisition of three quarries from CEMEX, Inc., and repaying $200 million of
outstanding obligations under the Corporation’s revolving credit agreement. Additionally, during
2009, the Corporation invested $139 million in internal capital projects, paid $71 million in
dividends and made contributions of $25 million to its pension plans.
Cash on hand, $264 million at December 31, 2009, along with the Corporation’s projected internal
cash flows and its available financing resources, including access to debt and equity markets, are
expected to continue to be sufficient to provide the capital resources necessary to support
anticipated operating needs, cover debt service requirements, satisfy noncancelable agreements,
meet capital expenditures and discretionary investment needs, fund certain acquisition
opportunities that may arise, and allow for payment of dividends. At December 31, 2009, the
Corporation had unused borrowing capacity of $323 million under its credit agreement and $100
million under the AR Credit Facility, subject to complying with a leverage covenant based on its
debt-to-EBITDA ratio. Of the $423 million of unused borrowing capacity, $212 million, or 50%, has
been committed from Wells Fargo Bank, N.A., (“Wells Fargo”) and Wachovia Bank, N.A., (“Wachovia”)
under commitments entered into prior to Wells Fargo’s acquisition of Wachovia. Management does not
expect any material change in this commitment prior to the June 30, 2012 expiration. The
Corporation’s ability to borrow or issue securities is dependent upon, among other things,
prevailing economic, financial and market conditions. As of December 31, 2009, the Corporation had
principal
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 43
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS (CONTINUED)
indebtedness of $1.25 billion, including $218 million of Floating Rate Senior Notes that
mature on April 30, 2010, and future minimum lease and mineral and other royalty commitments for
all noncancelable agreements of $415 million. The Corporation intends to use cash on hand and
borrowing capacity under short-term credit facilities to repay the $218 million of debt due in
April 2010. The Corporation’s ability to generate sufficient cash flow depends on future
performance, which will be subject to general economic conditions, industry cycles and financial,
business and other factors affecting its consolidated operations, many of which are beyond the
Corporation’s control. If the Corporation is unable to generate sufficient cash flow from
operations in the future to satisfy its financial obligations, it may be required, among other
things:
| • | To seek additional financing in the debt or equity markets; | ||
| • | To suspend or reduce the amount of the cash dividend to shareholders; | ||
| • | To refinance or restructure all or a portion of its indebtedness; and/or | ||
| • | To further reduce or delay planned capital or operating expenditures. |
The current credit environment has limited the Corporation’s ability to issue borrowings under its
commercial paper program. Additional financing or refinancing might not be available and, if
available, may not be at economically favorable terms. Further, an increase in leverage could lead
to deterioration in the Corporation’s credit ratings. A reduction in its credit ratings, regardless
of the cause, could also limit the Corporation’s ability to obtain additional financing and/or
increase its cost of obtaining financing.
FINANCIAL OVERVIEW
Highlights of 2009 Financial Performance
| • | Earnings per diluted share of $1.91, inclusive of legal reserve, compared with 2008 earnings of $4.18 per diluted share |
| • | Net sales of $1.497 billion, a 20% decrease compared with net sales of $1.860 billion in 2008 |
| • | Heritage aggregates product line pricing increase of 1.9%, despite a heritage volume decrease of 23.0% |
Results of Operations
The discussion and analysis that follows reflect management’s 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 38. As discussed in more detail herein, the
Corporation’s 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 Corporation’s Aggregates business generated 90% of net sales and the majority of operating
earnings during 2009. The following comparative analysis and discussion should be read within that
context. Further, sensitivity analysis and certain other data are provided to enhance the reader’s
understanding of Management’s Discussion and Analysis of Financial Condition and Results of
Operations and are not intended to be indicative of management’s judgment of materiality.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 44
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS (CONTINUED)
The Corporation’s consolidated operating results and operating results as a percentage of net
sales were as follows:
| years ended December 31 | % of | % of | % of | |||||||||||||||||||||
| (add 000) | 2009 | Net Sales | 2008 | Net Sales | 2007 | Net Sales | ||||||||||||||||||
Net sales |
$ | 1,496,640 | 100.0 | % | $ | 1,859,697 | 100.0 | % | $ | 1,950,396 | 100.0 | % | ||||||||||||
Freight and delivery revenues |
205,963 | 256,724 | 238,852 | |||||||||||||||||||||
Total revenues |
1,702,603 | 2,116,421 | 2,189,248 | |||||||||||||||||||||
Cost of sales |
1,158,907 | 77.4 | 1,389,182 | 74.7 | 1,382,191 | 70.9 | ||||||||||||||||||
Freight and delivery costs |
205,963 | 256,724 | 238,852 | |||||||||||||||||||||
Total cost of revenues |
1,364,870 | 1,645,906 | 1,621,043 | |||||||||||||||||||||
Gross profit |
337,733 | 22.6 | 470,515 | 25.3 | 568,205 | 29.1 | ||||||||||||||||||
Selling, general and administrative
expenses |
139,400 | 9.3 | 151,348 | 8.1 | 155,186 | 8.0 | ||||||||||||||||||
Research and development |
373 | 0.0 | 596 | 0.0 | 869 | 0.0 | ||||||||||||||||||
Other operating (income) and
expenses, net |
10,383 | 0.8 | (4,815 | ) | (0.2 | ) | (18,077 | ) | (1.0 | ) | ||||||||||||||
Earnings from operations |
187,577 | 12.5 | 323,386 | 17.4 | 430,227 | 22.1 | ||||||||||||||||||
Interest expense |
73,460 | 4.9 | 74,299 | 4.0 | 60,893 | 3.1 | ||||||||||||||||||
Other nonoperating (income) and
expenses, net |
(1,145 | ) | (0.1 | ) | 1,958 | 0.1 | (7,291 | ) | (0.3 | ) | ||||||||||||||
Earnings from continuing operations
before taxes on income |
115,262 | 7.7 | 247,129 | 13.3 | 376,625 | 19.3 | ||||||||||||||||||
Taxes on income |
27,375 | 1.8 | 72,088 | 3.9 | 115,360 | 5.9 | ||||||||||||||||||
Earnings from continuing operations |
87,887 | 5.9 | 175,041 | 9.4 | 261,265 | 13.4 | ||||||||||||||||||
Gain on discontinued operations,
net of taxes |
277 | 0.0 | 4,709 | 0.3 | 2,074 | 0.1 | ||||||||||||||||||
Consolidated net earnings |
88,164 | 5.9 | 179,750 | 9.7 | 263,339 | 13.5 | ||||||||||||||||||
Less: Net earnings attributable to
noncontrolling interests |
2,705 | 0.2 | 3,494 | 0.2 | 590 | 0.0 | ||||||||||||||||||
Net Earnings Attributable to
Martin Marietta Materials, Inc. |
$ | 85,459 | 5.7 | $ | 176,256 | 9.5 | $ | 262,749 | 13.5 | |||||||||||||||
The comparative analysis in this Management’s
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
Corporation’s operating results. Further, management
believes it is consistent with the basis by which
investors analyze the Corporation’s operating results
given that freight and delivery revenues and costs
represent pass-throughs and have no profit
mark-up. Gross margin and operating margin calculated
as percentages of total revenues represent the most
directly comparable financial measures calculated in
accordance with generally accepted accounting
principles (“GAAP”). The following tables present the
calculations of gross margin and operating margin for
the years ended December 31 in accordance with GAAP and
reconciliations of the ratios as percentages of total
revenues to percentages of net sales.
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries Page 45
MANAGEMENT’S
DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (CONTINUED)
Gross Margin in Accordance with GAAP
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Gross profit |
$ | 337,733 | $ | 470,515 | $ | 568,205 | ||||||
Total revenues |
$ | 1,702,603 | $ | 2,116,421 | $ | 2,189,248 | ||||||
Gross margin |
19.8 | % | 22.2 | % | 26.0 | % | ||||||
Gross Margin Excluding Freight and Delivery Revenues
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Gross profit |
$ | 337,733 | $ | 470,515 | $ | 568,205 | ||||||
Total revenues |
$ | 1,702,603 | $ | 2,116,421 | $ | 2,189,248 | ||||||
Less: Freight
and delivery
revenues |
(205,963 | ) | (256,724 | ) | (238,852 | ) | ||||||
Net sales |
$ | 1,496,640 | $ | 1,859,697 | $ | 1,950,396 | ||||||
Gross margin
excluding freight and
delivery revenues |
22.6 | % | 25.3 | % | 29.1 | % | ||||||
Operating Margin in Accordance with GAAP
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Earnings from
operations |
$ | 187,577 | $ | 323,386 | $ | 430,227 | ||||||
Total revenues |
$ | 1,702,603 | $ | 2,116,421 | $ | 2,189,248 | ||||||
Operating margin |
11.0 | % | 15.3 | % | 19.7 | % | ||||||
Operating Margin Excluding Freight and Delivery Revenues
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Earnings from
operations |
$ | 187,577 | $ | 323,386 | $ | 430,227 | ||||||
Total revenues |
$ | 1,702,603 | $ | 2,116,421 | $ | 2,189,248 | ||||||
Less: Freight and
delivery revenues |
(205,963 | ) | (256,724 | ) | (238,852 | ) | ||||||
Net sales |
$ | 1,496,640 | $ | 1,859,697 | $ | 1,950,396 | ||||||
Operating margin
excluding freight
and delivery
revenues |
12.5 | % | 17.4 | % | 22.1 | % | ||||||
Net Sales
Net sales by reportable segment were as follows:
| years ended December 31 | ||||||||||||
| (add 000) | 2009 | 2008 | 2007 | |||||||||
Mideast Group |
$ | 438,469 | $ | 578,366 | $ | 680,138 | ||||||
Southeast Group |
350,123 | 447,890 | 454,413 | |||||||||
West Group |
564,329 | 666,252 | 661,420 | |||||||||
Total Aggregates Business |
1,352,921 | 1,692,508 | 1,795,971 | |||||||||
Specialty Products |
143,719 | 167,189 | 154,425 | |||||||||
Total |
$ | 1,496,640 | $ | 1,859,697 | $ | 1,950,396 | ||||||
Aggregates. Heritage and total aggregates product
line average selling price increases (decreases) were
as follows:
| years ended December 31 | 2009 | 2008 | 2007 | |||||||||
Mideast Group |
3.8 | % | 10.8 | % | 15.0 | % | ||||||
Southeast Group |
(1.0 | %) | 7.7 | % | 12.2 | % | ||||||
West Group |
3.4 | % | 4.2 | % | 4.6 | % | ||||||
Heritage Aggregates Operations |
1.9 | % | 6.6 | % | 10.2 | % | ||||||
Aggregates Business |
2.1 | % | 6.9 | % | 10.4 | % | ||||||
Heritage aggregates operations exclude
acquisitions that were not included in prior-year
operations for a full year and divestitures.
The average annual aggregates product line price
increase for the ten and twenty years ended December
31, 2009 was 5.3% and 3.7%, respectively. The downward
trend in the rate of growth in aggregates selling price
in 2009 and 2008 reflects a reduction in demand and
competitive pressures (see Section Aggregates Industry
and Corporation Trends on pages 51 through 53).
The 2009 decline in the average selling price for the
Southeast Group was related to the decline in volumes
and competition, particularly in Florida and markets
served by the Mississippi River system. In 2008 and
2007, the average selling price increase in the West
Group was lower when compared with the other reportable
segments primarily due to product mix, which reflects a
higher percentage of lower-priced products being sold.
Aggregates product line shipments of 123.4 million tons
in 2009 decreased 22.6% compared with 159.4 million
tons shipped in 2008. Aggregates product line shipments
in 2008 decreased 12.6% compared with 182.3 million
tons shipped in 2007. These declines reflect the
recessionary construction markets that resulted in the
Corporation’s fifteenth consecutive quarter of
declining volumes as of December 31, 2009. Through the
end of 2009, the
Corporation’s shipments volumes have declined 40% from
its peak period, the twelve months ended March 31,
2006. Other contributing factors include increased cost
of construction materials in 2008 and 2007. The
following presents heritage and total aggregates
product line shipments for each reportable segment for
the Aggregates business:
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 46
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS (CONTINUED)
| years ended December 31 | ||||||||||||
| Shipments (add 000) | 2009 | 2008 | 2007 | |||||||||
Heritage Aggregates Product Line: |
||||||||||||
Mideast Group |
37,265 | 51,035 | 66,512 | |||||||||
Southeast Group |
30,417 | 39,087 | 42,752 | |||||||||
West Group |
54,503 | 68,627 | ||||||||||