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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, 2010 |
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 (State or other jurisdiction of incorporation or organization) |
56-1848578 (I.R.S. Employer Identification No.) |
|
| 2710 Wycliff Road, Raleigh, North Carolina (Address of principal executive offices) |
27607-3033 (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 þ 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, 2010, 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 $2,155,496,273 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 24, 2011 | |
| Common Stock, $.01 par value per share | 45,496,606 shares |
DOCUMENTS INCORPORATED BY REFERENCE
| Document | Parts Into Which Incorporated | |
| Excerpts from Annual Report to Shareholders for the Fiscal Year Ended December 31, 2010 (Annual Report) |
Parts I, II, and IV | |
| Proxy Statement for the Annual Meeting of Shareholders to be held May 12, 2011 (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, agricultural, nonresidential, 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 2010, the Company’s Aggregates business
accounted for 89% of the Company’s total net sales, and the Company’s Specialty Products segment
accounted for 11% 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 acquired
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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.
In 2010, the Company acquired a deep-water port facility in Port Canaveral, Florida, which
serves the greater Orlando market, the second-largest aggregates-consuming area in Florida. The
Port Canaveral acquisition, the only developed deep-water aggregates import terminal located on
Florida’s central east coast, was complemented by the Company’s organic investment in 2010 in a new
aggregates import facility at Port Manatee, Florida.
Between 2001 and 2010, 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 2011 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, gross profit, 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, 2010 is included in
“Note O: Business Segments” of the “Notes to Financial Statements” of the Company’s 2010
consolidated financial statements (the “2010 Financial Statements”), which are included under Item
8 of this Form 10-K, and are part of the Company’s 2010 Annual Report to Shareholders (the “2010
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, nonresidential 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
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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 the second largest producer of aggregates for the construction industry in the
United States. In 2010, the Company’s Aggregates business shipped 130 million tons of aggregates
primarily to customers in 30 states, Canada, the Bahamas, and the Caribbean Islands, generating net
sales and earnings from operations of $1.4 billion and $166.6 million, respectively.
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 nonresidential 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 5.4% increase in 2010 in aggregates shipments over 2009 levels represented the Company’s
first year of volume growth since 2005. Prior to 2010, the ongoing economic recession had resulted
in unprecedented declines in aggregates shipments, as evidenced by United States aggregates
consumption declining by almost 40% from peak volumes in 2006. Aggregates shipments have also
suffered as states continue to balance their construction spending with the uncertainty related to
long-term federal highway funding and budget shortfalls caused by decreasing tax revenues..
The American Recovery and Reinvestment Act of 2009 (“ARRA”), the federal economic stimulus
plan signed into law in February 2009, provided approximately $28.6 billion of additional funding
for highways, roads, bridges and airports through 2012. However, the lack of shovel-ready projects
has delayed the impact of ARRA on the aggregates industry. The Company expects approximately 30%
of ARRA-related jobs in the Company’s critical states will be completed in 2011. Any carryover in
2012, by law, must be completed that year. Based on its market position, the Company estimates
that it has and will continue to supply approximately 6% to 8% of aggregates required for projects
funded by ARRA.
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 284 quarries,
underground mines, distribution facilities, and plants to customers in 30 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 55% of total 2010 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 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
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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.
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 2010, the originating mode of transportation for the
Company’s aggregates shipments was 68% by truck, 21% 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 aggregate 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
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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 of the materials. 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 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 annual minimum tonnages under
the agreement, it must still pay the shipping company the contractually-stated minimum amount for
that year. In 2010, the Company incurred a $1.4 million expense due to not shipping the minimum
tonnages. Similar charges are possible in 2011 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
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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 Company’s
aggregates business. These vertically integrated operations accounted for approximately 7% of
revenues of the Aggregates business in 2010. 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
$17.0 million, $19.8 million, and $24.8 million during 2010, 2009, and 2008, respectively.
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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 2010, 68% of Specialty Products’ net sales were attributable to chemical
products, 31% to lime, and 1% to stone. Overall net sales in the Specialty Products business
increased in 2010 reflecting growth in both magnesia chemicals sales and dolomitic lime shipments
to the steel industry.
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 2010, approximately 80% of the lime produced was sold to third-party customers, while the
remaining 20% 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 46% of the Specialty Products’ net
sales in 2010, 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. In 2010, steelmaking rates
in the United States improved 37% over 2009, driven by inventory restocking, improved automotive
manufacturing, and a slowly improving general economy. However, production rates for steel were
approximately 70% of domestic steelmaking capacity, making 2010, along with 2009, some of the
lowest steel production rates in decades. The Company anticipates small to moderate growth in
domestic steelmaking in 2011, with the growth attributable to continued gains in consumer
confidence.
Management has shifted the strategic focus of the 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,
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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. In 2010, Dow sold the assets of Dow’s facility in
Ludington, Michigan to Occidental Chemical Corporation (“Occidental”) and assigned to Occidental
its interests in the long-term processed brine supply agreement and the pipeline venture with
Specialty Products.
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 9% of the revenues of the Specialty Products business in 2010 were from foreign
jurisdictions, principally Canada, Mexico, Europe, South America, and the Pacific Rim, so no single
foreign country accounted for 10% or more of the revenues of the business. Revenues from customers
in foreign countries totaled $17.1 million, $16.2 million, and $24.3 million, in 2010, 2009, and
2008, 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 25, 2011, the Company owns, has the right to use, or has pending applications
for approximately 109 patents pending or granted by the United States and various countries and
approximately 107 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
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.
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There are over 5,400 companies in the United States that produce construction aggregates.
These include active crushed stone companies and active sand and gravel companies. The largest ten
producers account for approximately 35% 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 9% of revenues for the Specialty Products business in 2010, 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.
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 2010 were directed to applied technological development for the use of its
chemicals products. The Company spent approximately $0.2 million in 2010, $0.4 million in 2009,
and $0.6 million in 2008 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 $9.1 million in 2010 and approximately $8.7 million in
2009 and are related to the Company’s environmental staff, ongoing monitoring costs for various
matters (including
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those matters disclosed in this Annual Report on Form 10-K), and asset
retirement costs. Capitalized costs related to environmental control facilities were approximately
$3.0 million in 2010 and are expected to be approximately $3 million in 2011 and 2012. The
Company’s capital expenditures for environmental matters were not material to its results of
operations or financial condition in 2010 and 2009. 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 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 2010
Financial Statements and the 2010 Annual Report. The Company is generally required by state or
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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 2010 Financial Statements included under Item 8 of this Form
10-K and the 2010 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 10-K and the 2010 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.
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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
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 (sometimes referred to as “GHG” or GHGs”) in the atmosphere threaten the public health and
welfare of current and future generations. The six GHGs are carbon dioxide, methane, nitrous
oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. As of 2010, facilities that
emitted 25,000 metric tons or more per year of GHGs are required to annually report GHG generation
to comply with the USEPA’s Mandatory Greenhouse Gas Reporting Rule. On May 13, 2010, the USEPA
issued a final rule to impose additional permitting requirements on existing GHG sources emitting
greater than 25,000 metric tons per year of GHGs. Permitting requirements will be phased in over
several years and apply to both new sources and modifications to existing facilities where GHGs
increase and exceed certain specified thresholds. The regulated facilities will have to determine
the best available control technology to control GHG emissions. In Congress, both the House and
Senate had considered 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
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below the cap. Another approach that had been proposed was a tax on emissions. However, the
Company believes that climate change legislation is not a priority item in Congress in the near
future and that the primary method that greenhouse gases will be regulated is through the USEPA
using its rule-making authority. 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 GHG emissions.
Most of the GHG emissions from aggregate operations are tailpipe emissions from mobile sources such
as heavy construction and earth-moving equipment. The manufacturing operations of the Company’s
Specialty Products business in Woodville, Ohio releases carbon dioxide, methane and nitrous oxide
during the production of lime. The Specialty Products operation in Manistee, Michigan releases
carbon dioxide, methane, and nitrous oxides in the manufacture of magnesium oxide and hydroxide
products. Both of these operations are filing annual reports of their GHG emissions in accordance
with the USEPA’s Mandatory Greenhouse Gas Reporting Rule. If and when Congress passes legislation
on GHGs, the Woodville and Manistee operations will likely be subject to the new program. Also,
the Company believes that the USEPA may impose additional regulatory restrictions on emissions of
GHGs from its Woodville and Manistee operations. However, the Company anticipates that any
increased operating costs or taxes relating to GHG emission limitations at the Woodville operation
would be passed on to its customers. The magnesium oxide products produced at the Manistee
operation compete against other products which emit a lower level of GHGs in their production.
Therefore, the Manistee facility may have to absorb extra costs due to the regulation of GHG
emissions 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 GHG 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, 2011, the Company has approximately 4,471 employees, of which 3,284 are
hourly employees and 1,187 are salaried employees. Included among these employees are 625 hourly
employees represented by labor unions (14.0% of the Company’s employees). Of such amount, 12.9% 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 2014. 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 Manistee location this year or at the Woodville location in 2014.
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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.
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
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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. The overall United States economy remains weak, with national debt at a record high.
While we were encouraged by an increase in our aggregates shipments in 2010, the first year of
volume growth since 2005, demand for our products, particularly in the nonresidential and
residential construction markets, could 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.
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,
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Iowa and Louisiana, our profitability will decrease. We experienced this situation with
the recent economic recession.
The historic economic recession resulted in large declines in shipments of aggregate products
in our industry. Our 5.4% increase in aggregates shipments in 2010 was our first year of volume
growth since 2005. Prior to 2010, use of aggregate products in the United States had declined
almost 40% from the highest volume in 2006. While historical spending on public infrastructure
projects has been comparatively more stable as governmental appropriations and expenditures are
typically less interest rate-sensitive than private sector spending, the current uncertainty
created by the lack of a successor federal highway bill has negatively affected spending on public
infrastructure projects. There has been a reduction in many states’ investment in highway
maintenance.
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, the lack of shovel-ready projects and the substitution of stimulus funds
for other projects has both delayed and limited the impact of this stimulus spending on the
aggregates industry. Stimulus spending in four of the top seven states, based on sales, of our
aggregates business, lag the national average. We expect approximately 30% of stimulus-related jobs
in our critical states will be completed in 2011, with any carryover in 2012, the last year of the
stimulus plan spending. 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
nonresidential construction and residential construction. Nonresidential 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.
We experienced an 8% increase in shipments to the nonresidential construction market in 2010,
with growth driven by shipments to the energy sector to support natural gas drilling and
exploration projects. However, other components of the nonresidential construction market remained
weak in 2010 and were negatively affected by continued weakness in the residential construction
market. The commercial part of nonresidential construction generally follows the residential
construction market with a 12-to-18 month lag. We expect this component of the nonresidential
construction market to experience modest volume recovery in 2011. Approximately 26% of our
aggregates shipments in 2010 were to the nonresidential construction market.
Our shipments to the residential construction market increased 5% in 2010. While the Federal
Reserve kept the federal funds rate at 0% throughout the year, overall weakness in the U.S. economy
and reduced consumer lending by banks limited the impact of this low rate. The excess supply of
developed lots also stifled new housing starts. Although we expect moderate improvement in the
residential construction market in 2011, housing starts are not expected to achieve a normalized
level, estimated at 1.5 million starts nationally, until 2013. Approximately 7% of our aggregates
shipments in 2010 were to the residential construction market.
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Shipments of chemical rock (comprised primarily of material used for agricultural lime and
flue gas desulfurization) and ballast product sales (“ChemRock/Rail”) increased 5% in 2010,
primarily due to increased railroad industry demand. Three of our top ten customers in 2010 were
railroads. We expect our ChemRock/Rail shipments to be relatively flat in 2011 compared to 2010.
Our aggregates business is dependent on funding from a combination of federal, state and local
sources.
Our aggregates 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 future projects.
The federal highway bill provides annual highway funding for public-sector construction
projects. The most recent federal highway bill 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 March 4, 2011. Given the record level of
national debt and the resulting pressure on all government spending, we cannot be assured that
Congress will pass a multi-year successor federal highway bill or will continue to extend the
provisions of the most recent law at the same levels. Historically, states have been reluctant to
commit to long-term projects while under continuing resolutions. In fact, obligations for federal
highway funds are at a five-year low through the first half of the fiscal year ending June 30,
2011.
Federal highway bills provide spending authorizations that represent maximum amounts. Each
year, an appropriation act is passed establishing the amount that can actually be used for
particular programs. The annual funding level is generally tied to receipts of highway user taxes
placed in the Highway Trust Fund. Once the annual appropriation is passed, funds are distributed
to each state based on formulas (apportionments) or other procedures (allocations). Apportioned
and allocated funds generally must be spent on specific programs as outlined in the federal
legislation. The Highway Trust Fund has experienced shortfalls in recent years, due to high gas
prices, fewer miles driven and improved automobile fuel efficiency. These shortfalls created a
significant decline in federal highway funding levels. In response to the projected shortfalls,
money has been transferred from the General Fund into the Highway Trust Fund over the past three
years. Presently, the Congressional Budget Office projects that the highway account, one of the
two components of the Highway Trust Fund, will be unable to meet its obligations in a timely manner
sometime during 2012. We cannot be assured of the existence, timing or amount of federal highway
funding levels in the future.
At the state level, 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
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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, erratic weather
patterns, 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 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.
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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 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 when
compared with 2007 prices lowered net earnings for our businesses by $0.65 per diluted share. Conversely, in 2009, decreases in
energy
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costs compared with 2008 prices contributed $1.01 to our net earnings per diluted share.
But in 2010, increases in energy costs compared with 2009 prices again lowered net earnings for our
businesses by $0.34 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.
Changes in legal requirements and governmental policies concerning zoning, land use, the
environment, and other areas of the law, and litigation relating to these matters, affect our
businesses. Our operations expose us to the risk of material environmental liabilities.
Many federal, state, and local laws and regulations relating to zoning, land use, the
environment, health, safety, and other regulatory matters govern our operations. We take great
pride in our operations and try to remain in strict compliance at all times with all applicable
laws and regulations. Despite our extensive compliance efforts, risk of liabilities, particularly
environmental liabilities, is inherent in the operation of our businesses, as it is with our
competitors. We cannot assume that these liabilities will not negatively affect us in the future.
We are also subject to future events, including changes in existing laws or regulations or
enforcement policies, or further investigation or evaluation of the potential health hazards of
some of our products or business activities, which may result in additional compliance and other
costs. We could be forced to invest in preventive or remedial action, like pollution control
facilities, which could be substantial.
Our operations are subject to manufacturing, operating, and handling risks associated with the
products we produce and the products we use in our operations, including the related storage and
transportation of raw materials, products, hazardous substances, and wastes. We are exposed to
hazards including storage tank leaks, explosions, discharges or releases of hazardous substances,
exposure to dust, and the operation of mobile equipment and manufacturing machinery.
These risks can subject us to potentially significant liabilities relating to personal injury
or death, or property damage, and may result in civil or criminal penalties, which could hurt our
productivity or profitability. For example, from time to time we investigate and remediate
environmental contamination relating to our prior or current operations, as well as operations we
have acquired from others, and in some cases we have been or could be named as a defendant in
litigation brought by governmental agencies or private parties.
We are involved from time to time in litigation and claims arising from our operations. While
we do not believe the outcome of pending or threatened litigation will have a material adverse
effect on our operations or our financial condition, we cannot assume that an adverse outcome in a
pending or future legal action would not negatively affect us.
Labor disputes could disrupt operations of our businesses.
Labor unions represent 12.9% of the hourly employees of our aggregates business and 100% of
the hourly employees of our specialty products business. Our collective bargaining agreements for
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employees of our magnesia specialties business at the Manistee, Michigan magnesia chemicals plant
and the Woodville, Ohio lime plant expire in August 2011 and June 2014, 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.
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.
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.
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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. The federal regulatory body overseeing our accounting
standards is now implementing a convergence project, which would confirm the accounting in the
United States for various topics to the requirements under international accounting standards.
Proposed changes are being issued one topic at a time. We have not looked at how all of these
topics might impact us. New or revised accounting standards could change our financial results
either positively or negatively.
We depend on the recruitment and retention of qualified personnel, and our failure to attract and
retain such personnel could affect our business.
Our success depends to a significant degree upon the continued services of our key personnel
and executive officers. Our prospects depend upon our ability to attract and retain qualified
personnel for our operations. Competition for personnel is intense, and we may not be successful
in attracting or retaining qualified personnel, which could negatively affect our business.
Disruptions in the credit markets could affect our business.
The current credit environment has negatively affected the economy, and we have considered how
it might affect our business. Demand for our products, particularly in the commercial and
residential construction markets, could decline if companies and consumers are unable to finance
construction projects or if the economic slowdown 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
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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 temporarily idle some of our facilities.
In 2010, the Company’s Aggregates business operated at a level significantly below capacity, which
restricted the Company’s ability to capitalize $52.4 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 credit environment could impact the Company’s ability to borrow money in the future.
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 2010,
we repaid with cash $217.6 million of our Floating Rate Senior Notes. We plan to renegotiate our
short-term and accounts credit facility with our banks. We expect to close on a new, multi-year
credit facility by the end of the first quarter of 2011. We expect the new credit facility will
have the same financial covenants as our existing credit facility and will provide us the ability
to refinance our $242 million of Notes that become due and payable in April 2011. While we
anticipate this new credit facility will be in place by the end of the first quarter 2011, there is
no guarantee we will be able to negotiate and put into place the credit facility as described.
There is no guarantee we will be able to access the capital markets at financially economical
interest rates, which could negatively affect our business.
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. 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. While steelmaking increased in 2010, it is still far
below levels of the past. We anticipate this weakness to continue in 2011. The specialty products
business also requires significant
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amounts of natural gas, coal, and petroleum coke, and financial
results are negatively affected by increases in 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 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; |
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| • | 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 2010 Annual Report, and
“Note A: Accounting Policies” and “Note N: Commitments and Contingencies” of the “Notes to
Financial Statements” of the 2010 Financial Statements included under Item 8 of this Form 10-K and
the 2010 Annual Report.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Aggregates Business
As of December 31, 2010, the Company processed or shipped aggregates from 269 quarries,
underground mines, and distribution yards in 27 states and in Canada and the Bahamas, of which 99
are located on land owned by the Company free of major encumbrances, 59 are on land owned in part
and leased in part, 107 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 50 years based on normalized levels of production, and 107 years at current production
rates.
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However, certain locations may be subject to more limited reserves and may not be able to
expand. In addition, as of December 31, 2010, 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 7 of this Form 10-K and the 2010 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.
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| Percentage of | ||||||||||||||||||||||||||||||||||||
| Percentage of aggregate | aggregate | |||||||||||||||||||||||||||||||||||
| Tonnage of Reserves for | Tonnage of Reserves for | reserves located at an | reserves on | |||||||||||||||||||||||||||||||||
| Number of | each general type of | each general type of | Change in Tonnage from | existing quarry, and | land that has | Percent of reserves | ||||||||||||||||||||||||||||||
| Producing | aggregate at 12/31/09 | aggregate at 12/31/10 | 2009 | reserves not located at an | not been | owned and percent | ||||||||||||||||||||||||||||||
| Quarries | (Add 000) | (Add 000) | (Add 000) | existing quarry. | zoned for | leased | ||||||||||||||||||||||||||||||
| State | 2010 | Hard Rock | S & G | Hard Rock | S & G | Hard Rock | S & G | At Quarry | Not at Quarry | quarrying. | Owned | Leased | ||||||||||||||||||||||||
Alabama |
5 | 82,630 | 10,163 | 104,161 | 12,087 | 21,531 | 1,924 | 100% | 0% | 0% | 23% | 77% | ||||||||||||||||||||||||
Arkansas |
3 | 239,761 | 0 | 231,853 | 0 | (7,908 | ) | 0 | 96% | 4% | 0% | 58% | 42% | |||||||||||||||||||||||
Florida |
2 | 119,902 | 0 | 211,627 | 0 | 91,725 | 0 | 100% | 0% | 0% | 0% | 100% | ||||||||||||||||||||||||
Georgia |
13 | 1,241,080 | 0 | 1,249,337 | 0 | 8,257 | 0 | 92% | 8% | 0% | 70% | 30% | ||||||||||||||||||||||||
Illinois |
2 | 750,405 | 0 | 676,733 | 0 | (73,672 | ) | 0 | 59% | 41% | 0% | 58% | 42% | |||||||||||||||||||||||
Indiana |
10 | 478,497 | 38,010 | 474,514 | 35,650 | (3,983 | ) | (2,360 | ) | 100% | 0% | 15% | 40% | 60% | ||||||||||||||||||||||
Iowa |
23 | 656,618 | 54,390 | 621,136 | 53,976 | (35,482 | ) | (414 | ) | 99% | 1% | 1% | 12% | 88% | ||||||||||||||||||||||
Kansas |
6 | 120,739 | 0 | 112,162 | 0 | (8,577 | ) | 0 | 100% | 0% | 0% | 37% | 63% | |||||||||||||||||||||||
Kentucky |
3 | 556,310 | 45,533 | 550,460 | 30,970 | (5,850 | ) | (14,563 | ) | 100% | 0% | 0% | 0% | 100% | ||||||||||||||||||||||
Maryland |
2 | 95,347 | 0 | 94,630 | 0 | (717 | ) | 0 | 100% | 0% | 0% | 100% | 0% | |||||||||||||||||||||||
Minnesota |
2 | 447,144 | 0 | 442,524 | 0 | (4,620 | ) | 0 | 77% | 23% | 0% | 69% | 31% | |||||||||||||||||||||||
Mississippi |
1 | 0 | 83,645 | 0 | 83,457 | 0 | (188 | ) | 100% | 0% | 0% | 100% | 0% | |||||||||||||||||||||||
Missouri |
6 | 346,885 | 0 | 425,614 | 0 | 78,729 | 0 | 88% | 12% | 0% | 17% | 83% | ||||||||||||||||||||||||
Montana |
0 | 50,000 | 0 | 50,000 | 0 | 0 | 0 | 100% | 0% | 0% | 100% | 0% | ||||||||||||||||||||||||
Nebraska |
3 | 188,975 | 0 | 181,821 | 0 | (7,154 | ) | 0 | 100% | 0% | 0% | 50% | 50% | |||||||||||||||||||||||
Nevada |
1 | 156,477 | 0 | 156,038 | 0 | (439 | ) | 0 | 100% | 0% | 0% | 84% | 16% | |||||||||||||||||||||||
North Carolina |
38 | 3,374,396 | 0 | 3,414,099 | 0 | 39,703 | 0 | 82% | 18% | 3% | 64% | 36% | ||||||||||||||||||||||||
Ohio |
15 | 181,509 | 194,399 | 180,646 | 191,301 | (863 | ) | (3,098 | ) | 100% | 0% | 3% | 92% | 8% | ||||||||||||||||||||||
Oklahoma |
8 | 728,065 | 37,688 | 742,625 | 37,169 | 14,560 | (519 | ) | 100% | 0% | 0% | 82% | 18% | |||||||||||||||||||||||
South Carolina |
7 | 406,173 | 0 | 454,235 | 32,340 | 48,062 | 32,340 | 89% | 11% | 19% | 13% | 87% | ||||||||||||||||||||||||
Tennessee |
1 | 37,273 | 0 | 36,741 | 0 | (532 | ) | 0 | 100% | 0% | 0% | 100% | 0% | |||||||||||||||||||||||
Texas |
10 | 1,177,978 | 109,782 | 1,164,108 | 107,978 | (13,870 | ) | (1,804 | ) | 65% | 35% | 33% | 10% | 90% | ||||||||||||||||||||||
Utah |
1 | 15,649 | 0 | 15,250 | 0 | (399 | ) | 0 | 100% | 0% | 0% | 0% | 100% | |||||||||||||||||||||||
Virginia |
4 | 383,152 | 0 | 379,557 | 0 | (3,595 | ) | 0 | 86% | 14% | 1% | 76% | 24% | |||||||||||||||||||||||
Washington |
2 | 27,484 | 0 | 27,179 | 0 | (305 | ) | 0 | 46% | 54% | 0% | 72% | 28% | |||||||||||||||||||||||
West Virginia |
1 | 59,161 | 0 | 58,825 | 0 | (336 | ) | 0 | 31% | 69% | 0% | 90% | 10% | |||||||||||||||||||||||
Wyoming |
2 | 118,582 | 0 | 115,614 | 0 | (2,968 | ) | 0 | 100% | 0% | 0% | 0% | 100% | |||||||||||||||||||||||
U. S. Total |
171 | 12,040,192 | 573,610 | 12,171,489 | 584,928 | 131,297 | 11,318 | 89% | 11% | 9% | 52% | 48% | ||||||||||||||||||||||||
| 0 | 0 | |||||||||||||||||||||||||||||||||||
Non-U. S. |
2 | 845,108 | 0 | 815,111 | 0 | (29,997 | ) | 0 | 100% | 0% | 0% | 99% | 1% | |||||||||||||||||||||||
Grand Total |
173 | 12,885,300 | 573,610 | 12,986,600 | 584,928 | 101,300 | 11,318 | |||||||||||||||||||||||||||||
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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, 2010 | |||||||||||||||
| Reportable Segment | 2010 | 2009 | 2008 | |||||||||||||
Mideast Group |
36,596 | 35,310 | 46,578 | 145.7 | ||||||||||||
Southeast Group |
29,295 | 31,095 | 39,574 | 128.7 | ||||||||||||
West Group |
60,646 | 56,837 | 69,439 | 74.0 | ||||||||||||
Total Aggregates
Business |
126,537 | 123,242 | 155,591 | 107.3 | ||||||||||||
Specialty Products Business
The Specialty Products business currently operates major manufacturing facilities in Manistee,
Michigan, and Woodville, Ohio. Both of these facilities are owned.
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 2010, the
principal properties were believed to be utilized at average productive capacities of approximately
50% 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 2010, the
Company’s Aggregates business operated at a level significantly below capacity, which restricted
the Company’s ability to capitalize $52.4 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.
| 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
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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 2010 Financial Statements included under Item 8 of this Form 10-K and the 2010 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 2010 Annual
Report.
| ITEM 4. | [REMOVED AND RESERVED] |
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers of Martin
Marietta Materials, Inc. as of February 25, 2011:
| Year Assumed | Other Positions and Other Business | |||||||
| Name | Age | Present Position | Present Position | Experience Within the Last Five Years | ||||
C. Howard Nye |
48 | Chief Executive Officer; | 2010 | Chief Operating Officer (2006-2009) | ||||
| President; | 2006 | Executive Vice President, Hanson | ||||||
| President of Aggregates | 2010 | Aggregates North America (2003-2006)* | ||||||
| Business | ||||||||
| Chairman of Magnesia | 2007 | |||||||
| Specialties Business | ||||||||
Anne H. Lloyd |
49 | Executive Vice President; | 2009 | Senior Vice President (2005-2009); | ||||
| Treasurer; | 2006 | Chief Accounting Officer (1999-2006) | ||||||
| Chief Financial Officer | 2005 | |||||||
Daniel G. Shephard |
52 | Executive Vice President; | 2005 | |||||
| Chief Executive Officer | 2005 | |||||||
| of Magnesia Specialties | ||||||||
| Business | ||||||||
Bruce A. Vaio |
50 | President — Martin Marietta | 2006 | President — Southwest Division (1998-2006) | ||||
| Materials West; | ||||||||
| Executive Vice President | 2005 | |||||||
Roselyn R. Bar |
52 | Senior Vice President; | 2005 | |||||
| General Counsel; | 2001 | |||||||
| Corporate Secretary | 1997 |
| * | 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. |
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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 2010 Annual Report, and that information is
incorporated herein by reference. There were 760 holders of record of the Company’s Common Stock
as of February 25, 2011.
Recent Sales of Unregistered Securities
None.
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 Shares | Average Price Paid | Plans or | the Plans or | |||||||||||||
| Period | Purchased | per Share | Programs(1) | Programs | ||||||||||||
October 1, 2010 —
October 31, 2010 |
0 | $ | — | 0 | 5,041,871 | |||||||||||
November 1, 2010 —
November 30, 2010 |
0 | $ | — | 0 | 5,041,871 | |||||||||||
December 1, 2010 —
December 31,
2010 |
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. |
33
Table of Contents
| ITEM 6. | SELECTED FINANCIAL DATA |
The information required in response to this Item 6 is included under the caption “Five Year
Summary” of the 2010 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 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 2010
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 2011” in the 2010 Annual Report is not incorporated
herein by reference.
| 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 2010 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 2010 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, 2010, 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
34
Table of Contents
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,
2010 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, 2010. 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 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, 2010. 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, 2010. 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 2010 Financial Statements, included under Item 8 of this Form
10-K and the 2010 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 2010 Annual Report.
35
Table of Contents
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 |
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act) was enacted. Section 1503 of the Dodd-Frank Act requires companies that are
“operators” (as such term is defined in the Federal Mine Safety and Health Act of 1977 (the Mine
Act)) to disclose certain mine safety information in each periodic report to the Commission. This
information is related to the enforcement of the Mine Act by the Mine Safety and Health
Administration (MSHA). The disclosures required by Section 1503 are included on Exhibit 99.01 to
this Form 10-K, which is incorporated herein in its entirety by reference.
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, 2010 (the “2011 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 2011 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 |
36
Table of Contents
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 2011 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 2011 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 2011 Proxy Statement, and that information is hereby
incorporated by reference in this Form 10-K.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) List of financial statements filed as part of this Form 10-K.
| The following consolidated financial statements of Martin Marietta Materials, Inc. and consolidated subsidiaries, included in the 2010 Annual Report and incorporated by reference under Item 8 of this Form 10-K: |
Consolidated Statements of Earnings—
for years ended December 31, 2010, 2009, and 2008
Consolidated Balance Sheets—
at December 31, 2010 and 2009
Consolidated Statements of Cash Flows—
for years ended December 31, 2010, 2009, and 2008
Consolidated Statements of Total Equity—
Balance at December 31, 2010, 2009, and 2008
Notes to Financial Statements
(2) List of financial statement schedules filed as part of this Form 10-K
37
Table of Contents
| 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 2010 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. | ||
| (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)) |
|||
38
Table of Contents
| Exhibit | ||||
| No. | ||||
| 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 | —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) |
|||
| 4.10 | —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) |
|||
| 4.11 | —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) |
|||
| 4.12 | —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) |
|||
| 4.13 | —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) |
|||
| 4.14 | —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) |
|||
| 4.15 | —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) |
|||
39
Table of Contents
| Exhibit | ||||
| No. | ||||
| 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) |
|||
| 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 March 5, 2009 between Martin
Marietta Materials, Inc. and J.P. Morgan Securities Inc.
(incorporated by reference to Exhibit 99.1 to the Martin
Marietta Materials, Inc. Current Report on Form 8-K, filed on
March 6, 2009) (Commission File No. 1-12744) |
|||
| 10.08 | —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)10.09 —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)** |
|||
| 10.10 | —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)** |
|||
| 10.11 | —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)** |
|||
| 10.12 | —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)** |
|||
| 10.13 | —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)** |
|||
| 10.14 | —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)** |
|||
40
Table of Contents
10.15
|
—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)** | |||
10.16
|
—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)** | |||
10.17
|
—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)** | |||
10.18
|
—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, 2010 | |||
*13.01
|
—Excerpts from Martin Marietta Materials, Inc. 2010 Annual Report to Shareholders, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2010 Annual Report to Shareholders that are not incorporated by reference shall not be deemed to be “filed” as part of this report. | |||
*21.01
|
—List of subsidiaries of Martin Marietta Materials, Inc. | |||
*23.01
|
—Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm for Martin Marietta Materials, Inc. and consolidated subsidiaries | |||
*24.01
|
—Powers of Attorney (included in this Form 10-K immediately following Signatures) | |||
*31.01
|
—Certification dated February 25, 2011 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
*31.02
|
—Certification dated February 25, 2011 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
*32.01
|
—Certification dated February 25, 2011 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
*32.02
|
—Certification dated February 25, 2011 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
*99.01
|
—Mine Safety Disclosure |
Other material incorporated by reference:
| Martin Marietta Materials, Inc.’s 2011 Proxy Statement filed pursuant to Regulation 14A, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2011 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 A | Col B | Col C | Col D | Col E | ||||||||||||||||
| Additions | ||||||||||||||||||||
| (1) | (2) | |||||||||||||||||||
| Balance at | Charged to | Charged to other | Balance at | |||||||||||||||||
| beginning | costs and | accounts | Deductions | end of | ||||||||||||||||
| Description | of period | expenses | describe | describe | period | |||||||||||||||
| (Amounts in Thousands) | ||||||||||||||||||||
Year ended December 31, 2010 |
||||||||||||||||||||
Allowance for doubtful accounts |
$ | 4,622 | $ | — | $ | — | $ | 1,044 | (a) | $ | 3,578 | |||||||||
Allowance for uncollectible
notes receivable |
151 | 28 | — | — | 179 | |||||||||||||||
Inventory valuation allowance |
82,674 | 4,370 | — | 87,044 | ||||||||||||||||
Accumulated amortization of
intangible assets |
13,155 | 1,453 | — | 285 | (b) | 14,323 | ||||||||||||||
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 |
80,854 | (c) | 1,820 | — | 82,674 | (c) | ||||||||||||||
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 |
78,264 | (c) | 2,590 | — | — | 80,854 | (c) | |||||||||||||
Accumulated amortization of
intangible assets |
18,816 | 1,886 | — | 8,058 | (b) | 12,644 | ||||||||||||||
| (a) | To adjust allowance for change in estimates. | |
| (b) | Write off of fully amortized intangible assets. | |
| (c) | Reflects the gross up of certain finished products and the related inventory allowances. |
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 25, 2011
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 25, 2011 | ||
/s/ C. Howard Nye
|
President and Chief Executive Officer |
February 25, 2011 | ||
/s/ Anne H. Lloyd
|
Executive Vice President, Chief Financial Officer and Treasurer |
February 25, 2011 | ||
/s/ Dana F. Guzzo
|
Vice President, Controller and Chief Accounting Officer |
February 25, 2011 | ||
/s/ Sue W. Cole
|
Director | February 25, 2011 | ||
/s/ David G. Maffucci
|
Director | February 25, 2011 | ||
/s/ William E. McDonald
|
Director | February 25, 2011 | ||
/s/ Frank H. Menaker, Jr.
|
Director | February 25, 2011 | ||
/s/ Laree E. Perez
|
Director | February 25, 2011 | ||
/s/ Michael J. Quillen
|
Director | February 25, 2011 |
44
Table of Contents
Signature
|
Title | Date | ||
/s/ Dennis L. Rediker
|
Director | February 25, 2011 | ||
/s/ Richard A. Vinroot
|
Director | February 25, 2011 |
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
|
—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 |
46
Table of Contents
| 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) | ||
4.10
|
—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) | |
4.11
|
—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) | |
4.12
|
—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) | |
4.13
|
—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) | |
4.14
|
—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) | |
4.15
|
—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) | |
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 |
47
Table of Contents
| 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 March 5, 2009 between Martin Marietta Materials, Inc. and J.P. Morgan Securities Inc. (incorporated by reference to Exhibit 99.1 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on March 6, 2009) (Commission File No. 1-12744) | |
10.08
|
—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) | |
10.09
|
—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)** | |
10.10
|
—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)** | |
10.11
|
—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)** | |
10.12
|
—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)** | |
10.13
|
—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)** | |
10.14
|
—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)** | |
10.15
|
—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)** | |
10.16
|
—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)** | |
10.17
|
—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)** | |
10.18
|
—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 |
48
Table of Contents
| 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, 2010 | |
*13.01
|
—Excerpts from Martin Marietta Materials, Inc. 2010 Annual Report to Shareholders, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2010 Annual Report to Shareholders that are not incorporated by reference shall not be deemed to be “filed” as part of this report. | |
*21.01
|
—List of subsidiaries of Martin Marietta Materials, Inc. | |
*23.01
|
—Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm for Martin Marietta Materials, Inc. and consolidated subsidiaries | |
*24.01
|
—Powers of Attorney (included in this Form 10-K immediately following Signatures) | |
*31.01
|
—Certification dated February 25, 2011 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
*31.02
|
—Certification dated February 25, 2011 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
*32.01
|
—Certification dated February 25, 2011 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
*32.02
|
—Certification dated February 25, 2011 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
*99.01
|
—Mine Safety Disclosure |
| Other material incorporated by reference: |
| Martin Marietta Materials, Inc.’s 2011 Proxy Statement filed pursuant to Regulation 14A, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2011 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, 2010
(add 000, except ratio)
EARNINGS: |
||||
Earnings before income taxes |
$ | 126,044 | ** | |
Loss from less than 50%-owned associated companies, net |
2,173 | |||
Interest Expense* |
68,456 | |||
Portion of rents representative of an interest factor |
19,218 | |||
Adjusted Earnings and Fixed Charges |
$ | 215,891 | ||
FIXED CHARGES: |
||||
Interest Expense* |
$ | 68,456 | ||
Capitalized Interest |
2,129 | |||
Portion of rents representative of an interest factor |
19,218 | |||
Total Fixed Charges |
$ | 89,803 | ||
Ratio of Earnings to Fixed Charges |
2.40 | |||
| * | Interest Expense excluded $1,327 accrued for the interest component associated with uncertain tax positions. | |
| ** | Note: Use Earnings from Continuing Operations less net earnings attributable to noncontrolling interests. |
50
Exhibit 13
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 2010 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, 2010 and 2009, and
the related consolidated statements of earnings, total equity and cash flows for each of the three
years in the period ended December 31, 2010, 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, 2010. 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,
2010.
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 25, 2011 |
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.
We have audited Martin Marietta Materials, Inc.’s internal control over financial reporting
as of December 31, 2010, 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 and
Report of Management on Internal Control over Financial Reporting. 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, 2010, 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, 2010 and 2009, and the related consolidated statements of earnings, total equity and
cash flows for each of the three years in the period ended December 31, 2010, of Martin Marietta
Materials, Inc., and our report dated February 25, 2011, expressed an unqualified opinion thereon.
Raleigh, North Carolina
February 25, 2011
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.
We have audited the accompanying consolidated balance sheets of Martin Marietta Materials,
Inc., as of December 31, 2010 and 2009, and the related consolidated statements of earnings, total
equity and cash flows for each of the three years in the period ended December 31, 2010. 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,
2010 and 2009, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2010, 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 Topic 805, Business Combinations).
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, 2010, 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 25, 2011, expressed an unqualified opinion thereon.
Raleigh, North Carolina
February 25, 2011
Martin
Marietta Materials, Inc. and Consolidated
Subsidiaries page 8
CONSOLIDATED STATEMENTS OF EARNINGS
for years ended December 31
| (add 000, except per share) | 2010 | 2009 | 2008 | |||||||||
Net Sales |
$ | 1,550,895 | $ | 1,496,640 | $ | 1,859,697 | ||||||
Freight and delivery revenues |
231,962 | 205,963 | 256,724 | |||||||||
Total revenues |
1,782,857 | 1,702,603 | 2,116,421 | |||||||||
Cost of sales |
1,228,944 | 1,158,907 | 1,389,182 | |||||||||
Freight and delivery costs |
231,962 | 205,963 | 256,724 | |||||||||
Total cost of revenues |
1,460,906 | 1,364,870 | 1,645,906 | |||||||||
Gross Profit |
321,951 | 337,733 | 470,515 | |||||||||
Selling, general and administrative expenses |
133,230 | 139,400 | 151,348 | |||||||||
Research and development |
153 | 373 | 596 | |||||||||
Other operating (income) and expenses, net |
(7,786 | ) | 10,383 | (4,815 | ) | |||||||
Earnings from Operations |
196,354 | 187,577 | 323,386 | |||||||||
Interest expense |
68,456 | 73,460 | 74,299 | |||||||||
Other nonoperating expenses and (income), net |
202 | (1,145 | ) | 1,958 | ||||||||
Earnings from continuing operations before taxes on income |
127,696 | 115,262 | 247,129 | |||||||||
Taxes on income |
29,217 | 27,375 | 72,088 | |||||||||
Earnings from Continuing Operations |
98,479 | 87,887 | 175,041 | |||||||||
Gain on discontinued operations, net of related tax expense
of $126, $192 and $5,449, respectively |
185 | 277 | 4,709 | |||||||||
Consolidated net earnings |
98,664 | 88,164 | 179,750 | |||||||||
Less: Net earnings attributable to noncontrolling interests |
1,652 | 2,705 | 3,494 | |||||||||
Net Earnings Attributable to Martin Marietta Materials, Inc. |
$ | 97,012 | $ | 85,459 | $ | 176,256 | ||||||
Net Earnings Attributable to Martin Marietta Materials, Inc. |
||||||||||||
Earnings from continuing operations |
$ | 96,827 | $ | 85,182 | $ | 171,547 | ||||||
Discontinued operations |
185 | 277 | 4,709 | |||||||||
| $ | 97,012 | $ | 85,459 | $ | 176,256 | |||||||
Net Earnings Attributable to Martin Marietta Materials, Inc.
|
||||||||||||
Per Common Share (See Note A) |
||||||||||||
— Basic from continuing operations available to
common shareholders |
$ | 2.11 | $ | 1.91 | $ | 4.09 | ||||||
— Discontinued operations
available to common
shareholders |
— | 0.01 | 0.11 | |||||||||
| $ | 2.11 | $ | 1.92 | $ | 4.20 | |||||||
— Diluted from continuing
operations available to
common shareholders |
$ | 2.10 | $ | 1.90 | $ | 4.07 | ||||||
— Discontinued operations
available to common
shareholders |
— | 0.01 | 0.11 | |||||||||
| $ | 2.10 | $ | 1.91 | $ | 4.18 | |||||||
Weighted-Average Common Shares Outstanding |
||||||||||||
— Basic |
45,485 | 44,000 | 41,370 | |||||||||
— Diluted |
45,659 | 44,190 | 41,617 | |||||||||
The notes on pages 13 to 36 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) | 2010 | 2009 | ||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 70,323 | $ | 263,591 | ||||
Accounts receivable, net |
183,361 | 162,815 | ||||||
Inventories, net |
331,894 | 332,569 | ||||||
Current deferred income tax benefits |
83,380 | 60,303 | ||||||
Other current assets |
27,253 | 37,582 | ||||||
Total Current Assets |
696,211 | 856,860 | ||||||
Property, plant and equipment, net |
1,687,830 | 1,692,905 | ||||||
Goodwill |
626,527 | 624,224 | ||||||
Other intangibles, net |
17,548 | 12,469 | ||||||
Other noncurrent assets |
46,627 | 52,825 | ||||||
Total Assets |
$ | 3,074,743 | $ | 3,239,283 | ||||
Liabilities and Equity (add 000, except parenthetical share data) |
||||||||
Current Liabilities: |
||||||||
Bank overdraft |
$ | 2,123 | $ | 1,737 | ||||
Accounts payable |
60,333 | 52,107 | ||||||
Accrued salaries, benefits and payroll taxes |
17,506 | 15,222 | ||||||
Pension and postretirement benefits |
6,034 | 18,823 | ||||||
Accrued insurance and other taxes |
23,535 | 24,274 | ||||||
Current maturities of long-term debt and short-term facilities |
248,714 | 226,119 | ||||||
Other current liabilities |
27,248 | 35,271 | ||||||
Total Current Liabilities |
385,493 | 373,553 | ||||||
Long-term debt |
782,045 | 1,023,492 | ||||||
Pension, postretirement and postemployment benefits |
127,671 | 160,354 | ||||||
Noncurrent deferred income taxes |
228,698 | 195,946 | ||||||
Other noncurrent liabilities |
82,577 | 79,527 | ||||||
Total Liabilities |
1,606,484 | 1,832,872 | ||||||
Equity: |
||||||||
Common stock ($0.01 par value; 100,000,000 shares authorized; 45,579,000 and
45,399,000 shares outstanding at December 31, 2010 and 2009, respectively) |
455 | 453 | ||||||
Preferred stock ($0.01 par value; 10,000,000 shares authorized; no shares outstanding) |
— | — | ||||||
Additional paid-in capital |
396,485 | 381,173 | ||||||
Accumulated other comprehensive loss |
(53,660 | ) | (75,084 | ) | ||||
Retained earnings |
1,082,160 | 1,058,698 | ||||||
Total Shareholders’ Equity |
1,425,440 | 1,365,240 | ||||||
Noncontrolling interests |
42,819 | 41,171 | ||||||
Total Equity |
1,468,259 | 1,406,411 | ||||||
Total Liabilities and Equity |
$ | 3,074,743 | $ | 3,239,283 | ||||
The notes on pages 13 to 36 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) | 2010 | 2009 | 2008 | |||||||||
Cash Flows from Operating Activities: |
||||||||||||
Consolidated net earnings |
$ | 98,664 | $ | 88,164 | $ | 179,750 | ||||||
Adjustments to reconcile consolidated net earnings to net cash
provided by operating activities: |
||||||||||||
Depreciation, depletion and amortization |
181,537 | 179,391 | 171,129 | |||||||||
Stock-based compensation expense |
14,675 | 20,552 | 21,865 | |||||||||
(Gains) Losses on divestitures and sales of assets |
(4,492 | ) | 2,121 | (25,565 | ) | |||||||
Deferred income taxes |
1,708 | 8,685 | 23,848 | |||||||||
Excess tax benefits from stock-based compensation transactions |
(1,291 | ) | (555 | ) | (3,370 | ) | ||||||
Other items, net |
4,629 | (1,018 | ) | (2,675 | ) | |||||||
Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures: |
||||||||||||
Accounts receivable, net |
(20,546 | ) | 48,521 | 34,242 | ||||||||
Inventories, net |
1,241 | (12,525 | ) | (25,182 | ) | |||||||
Accounts payable |
8,223 | (10,452 | ) | (24,411 | ) | |||||||
Other assets and liabilities, net |
(14,540 | ) | (4,516 | ) | (3,997 | ) | ||||||
Net Cash Provided by Operating Activities |
269,808 | 318,368 | 345,634 | |||||||||
Cash Flows from Investing Activities: |
||||||||||||
Additions to property, plant and equipment |
(135,916 | ) | (139,230 | ) | (258,246 | ) | ||||||
Acquisitions, net |
(43,299 | ) | (49,593 | ) | (218,544 | ) | ||||||
Proceeds from divestitures and sales of assets |
5,033 | 7,792 | 26,028 | |||||||||
Loan to affiliate |
— | (4,000 | ) | — | ||||||||
Railcar construction advances |
(8,997 | ) | (8,743 | ) | (7,286 | ) | ||||||
Repayments of railcar construction advances |
8,997 | 8,743 | 7,286 | |||||||||
Net Cash Used for Investing Activities |
(174,182 | ) | (185,031 | ) | (450,762 | ) | ||||||
Cash Flows from Financing Activities: |
||||||||||||
Borrowings of long-term debt |
200,000 | 330,000 | 297,837 | |||||||||
Repayments of long-term debt |
(419,680 | ) | (236,006 | ) | (205,022 | ) | ||||||
(Repayments) Borrowings on short-term facilities, net |
— | (200,000 | ) | 128,000 | ||||||||
Debt issuance costs |
(80 | ) | (2,389 | ) | (1,105 | ) | ||||||
Termination of interest rate swaps |
— | — | (11,139 | ) | ||||||||
Change in bank overdraft |
386 | (2,940 | ) | (1,674 | ) | |||||||
Payments on capital lease obligations |
(308 | ) | (137 | ) | (191 | ) | ||||||
Dividends paid |
(73,550 | ) | (71,178 | ) | (62,511 | ) | ||||||
Distributions to owners of noncontrolling interests |
— | (2,562 | ) | (3,935 | ) | |||||||
Purchase of remaining 49% interest in existing joint venture |
— | (17,060 | ) | — | ||||||||
Repurchases of common stock |
— | — | (24,017 | ) | ||||||||
Issuances of common stock |
3,047 | 294,177 | 3,271 | |||||||||
Excess tax benefits from stock-based compensation transactions |
1,291 | 555 | 3,370 | |||||||||
Net Cash (Used for) Provided by Financing Activities |
(288,894 | ) | 92,460 | 122,884 | ||||||||
Net (Decrease) Increase in Cash and Cash Equivalents |
(193,268 | ) | 225,797 | 17,756 | ||||||||
Cash and Cash Equivalents, beginning of year |
263,591 | 37,794 | 20,038 | |||||||||
Cash and Cash Equivalents, end of year |
$ | 70,323 | $ | 263,591 | $ | 37,794 | ||||||
Supplemental Disclosures of Cash Flow Information: |
||||||||||||
Cash paid for interest |
$ | 68,135 | $ | 72,027 | $ | 75,622 | ||||||
Cash paid for income taxes |
$ | 19,661 | $ | 17,087 | $ | 54,827 | ||||||
The notes on pages 13 to 36 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, 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 | ||||||||||||||||||||||||
Adjustment for funded status of pension and postretirement
benefit plans, 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 | ||||||||||||||||||||||||
Adjustment for funded status of pension and postretirement
benefit plans, 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 | |||||||||||||||||||||||
Consolidated net earnings |
— | — | — | — | 97,012 | 97,012 | 1,652 | 98,664 | ||||||||||||||||||||||||
Adjustment for funded status of pension and postretirement
benefit plans, net of tax of $9,100 |
— | — | — | 19,969 | — | 19,969 | (4 | ) | 19,965 | |||||||||||||||||||||||
Foreign currency translation gain |
— | — | — | 912 | — | 912 | — | 912 | ||||||||||||||||||||||||
Amortization of terminated value of forward starting
interest rate swap agreements into interest
expense, net of tax of $355 |
— | — | — | 543 | — | 543 | — | 543 | ||||||||||||||||||||||||
Consolidated comprehensive earnings |
118,436 | 1,648 | 120,084 | |||||||||||||||||||||||||||||
Dividends declared ($1.60 per common share) |
— | — | — | — | (73,550 | ) | (73,550 | ) | — | (73,550 | ) | |||||||||||||||||||||
Issuances of common stock for stock award plans |
180 | 2 | 637 | — | — | 639 | — | 639 | ||||||||||||||||||||||||
Stock-based compensation expense |
— | — | 14,675 | — | — | 14,675 | — | 14,675 | ||||||||||||||||||||||||
Balance at December 31, 2010 |
45,579 | $ | 455 | $ | 396,485 | $ | (53,660 | ) | $ | 1,082,160 | $ | 1,425,440 | $ | 42,819 | $ | 1,468,259 | ||||||||||||||||
The notes on pages 13 to 36 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 nonresidential and residential construction industries. Aggregates
products are also used in the railroad, environmental, utility 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 284 quarries, distribution facilities and plants to
customers in 30 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 accounted for approximately 55% of the Aggregates business’ 2010
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. Changes in 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. 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 borrowing facilities. 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, 2010, cash and cash equivalents were $70,323,000, of which $63,222,000 was
deposited in overnight bank time deposit accounts. 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. 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 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.
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
|
4 to 50 years | |
Machinery & Equipment
|
2 to 35 years | |
Land Improvements
|
3 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.
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.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 14
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
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.
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, 2010 and 2009, the
Corporation did not hold any derivative instruments.
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.
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 2010, 2009 and 2008 were:
| 2010 | 2009 | 2008 | ||||||||||
Risk-free interest rate |
2.97 | % | 3.31 | % | 3.71 | % | ||||||
Dividend yield |
1.80 | % | 1.70 | % | 1.10 | % | ||||||
Volatility factor |
37.30 | % | 36.90 | % | 30.40 | % | ||||||
Expected term |
7.2 years | 7.1 years | 7.0 years | |||||||||
Based on these assumptions, the weighted-average fair value of each stock option granted was
$33.95, $28.72 and $40.32 for 2010, 2009 and 2008, 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
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 15
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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, 2010, accrued interest of $327,000, net of tax benefits of $214,000,
was recorded as a noncurrent liability on the Corporation’s consolidated balance sheet. 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.
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.
Consolidated Comprehensive Earnings and Accumulated Other Comprehensive Loss. Consolidated
comprehensive earnings for the Corporation consist of consolidated net earnings; adjustments for
the funded status of pension and postretirement benefit plans; foreign currency translation
adjustments; and the amortization of the value of terminated forward starting interest swap
agreements into interest expense.
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) | 2010 | 2009 | 2008 | |||||||||
Unrecognized actuarial losses,
prior service costs and transition
assets related to pension and
postretirement benefits |
$ | (54,245 | ) | $ | (74,214 | ) | $ | (97,623 | ) | |||
Foreign currency
translation gains |
5,929 | 5,017 | 2,344 | |||||||||
Unamortized value of terminated
forward starting interest
rate swap agreements |
(5,344 | ) | (5,887 | ) | (6,393 | ) | ||||||
Accumulated other comprehensive loss |
$ | (53,660 | ) | $ | (75,084 | ) | $ | (101,672 | ) | |||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 16
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
The components of accumulated other comprehensive loss are net of cumulative noncurrent
deferred tax assets as follows:
| December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Unrecognized actuarial losses,
prior service costs and transition
assets related to pension and
postretirement benefits |
$ | 39,501 | $ | 48,601 | $ | 63,916 | ||||||
Unamortized value of terminated
forward starting interest
rate swap agreements |
3,497 | 3,852 | 4,183 | |||||||||
Cumulative noncurrent
deferred tax assets |
$ | 42,998 | $ | 52,453 | $ | 68,099 | ||||||
Earnings Per Common Share. The Corporation computes 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 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 period. 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 if the conversion is dilutive. 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.
The following table reconciles the numerator and denominator for basic and diluted earnings per
common share:
| years ended December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Net earnings from continuing
operations attributable to
Martin Marietta Materials, Inc. |
$ | 96,827 | $ | 85,182 | $ | 171,547 | ||||||
Less: Distributed and
undistributed earnings
attributable to unvested
awards |
(993 | ) | (1,048 | ) | (2,394 | ) | ||||||
Basic and diluted net earnings
available to common
shareholders from continuing
operations attributable to
Martin Marietta Materials, Inc. |
95,834 | 84,134 | 169,153 | |||||||||
Basic and diluted net earnings
available to common
shareholders from
discontinued operations |
185 | 277 | 4,709 | |||||||||
Basic and diluted net earnings
available to common
shareholders attributable to
Martin Marietta Materials, Inc. |
$ | 96,019 | $ | 84,411 | $ | 173,862 | ||||||
Basic weighted-average
common shares outstanding |
45,485 | 44,000 | 41,370 | |||||||||
Effect of dilutive employee
and director awards |
174 | 190 | 247 | |||||||||
Diluted weighted-average
common shares outstanding |
45,659 | 44,190 | 41,617 | |||||||||
Accounting Change. 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; and
recognizing contingent consideration obligations and contingent gains acquired and contingent
losses assumed (see Note C).
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 17
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:
| Mideast | Southeast | West | ||||||||||||||
| years ended December 31 | Group | Group | Group | Total | ||||||||||||
| (add 000) | 2010 | |||||||||||||||
Balance at beginning of period |
$ | 119,749 | $ | 105,870 | $ | 398,605 | $ | 624,224 | ||||||||
Acquisitions |
2,303 | — | — | 2,303 | ||||||||||||
Balance at end of period |
$ | 122,052 | $ | 105,870 | $ | 398,605 | $ | 626,527 | ||||||||
| 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 | ||||||||
Intangible assets subject to amortization consist of the following:
| Gross | Accumulated | Net | ||||||||||
| December 31 | Amount | Amortization | Balance | |||||||||
| (add 000) | 2010 | |||||||||||
Noncompetition agreements |
$ | 9,850 | $ | (7,485 | ) | $ | 2,365 | |||||
Customer relationships |
3,550 | (1,347 | ) | 2,203 | ||||||||
Use rights and other |
9,105 | (5,490 | ) | 3,615 | ||||||||
Total |
$ | 22,505 | $ | (14,322 | ) | $ | 8,183 | |||||
| 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 | |||||
Intangible assets deemed to have an indefinite life and not being amortized consist of the
following:
| ||||||||||||
| Aggregates | Specialty | |||||||||||
| December 31 | Business | Products | Total | |||||||||
| (add 000) | 2010 | |||||||||||
Use rights |
$ | 6,800 | $ | — | $ | 6,800 | ||||||
Trade name |
— | 2,565 | 2,565 | |||||||||
Total |
$ | 6,800 | $ | 2,565 | $ | 9,365 | ||||||
| 2009 | ||||||||||||
Use rights |
$ | 200 | $ | — | $ | 200 | ||||||
Trade name |
— | 2,565 | 2,565 | |||||||||
Total |
$ | 200 | $ | 2,565 | $ | 2,765 | ||||||
During 2010, the Corporation acquired $7,166,000 of other intangibles for its Aggregates
business, consisting of the following:
| Weighted-average | ||||||||
| (add 000) | Amount | amortization period | ||||||
Subject to amortization: |
||||||||
Noncompetition agreements |
$ | 566 | 9.2 years | |||||
Not subject to amortization: |
||||||||
Use rights |
6,600 | N/A | ||||||
Total |
$ | 7,166 | ||||||
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.
Total amortization expense for intangible assets for the years ended December 31, 2010, 2009 and
2008 was $1,453,000, $1,711,000 and $1,886,000, respectively.
The estimated amortization expense for intangible assets for each of the next five years and
thereafter is as follows:
| (add 000) | ||||
2011 |
$ | 1,525 | ||
2012 |
1,448 | |||
2013 |
1,388 | |||
2014 |
1,383 | |||
2015 |
620 | |||
Thereafter |
1,819 | |||
Total |
$ | 8,183 | ||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note C: Business Combinations and Discontinued Operations
Business Combinations. The Corporation’s consolidated statements of earnings include the
operating results of an acquired business starting from the date of acquisition.
During 2010, the Corporation invested $43,299,000 in business combinations and allocated this
amount to assets acquired and liabilities assumed. In February 2010, the Corporation acquired an
aggregates distribution facility at Port Canaveral, Florida. In October 2010, the Corporation
acquired a sand and gravel business near Charlotte, North Carolina.
In June 2009, the Corporation acquired three quarry locations plus the remaining 49% interest in an
existing joint venture from CEMEX, Inc. for a purchase price of $65,000,000, which represented 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 the remaining interest in
the existing joint venture based on the locations’ relative fair values. 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 are reported through the Corporation’s
West Group in the financial statements.
The purchase of the remaining 49% interest in an existing joint venture 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 purchase price and the payment of
transaction costs have been classified as a financing activity in the Corporation’s consolidated
statement of cash flows for the year ended December 31, 2009.
In April 2008, the Corporation entered into an asset exchange plus cash 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 are
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.
Divestitures and Permanent Closures. Divestitures and permanent closures of underperforming
operations of the Aggregates business 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 in 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) | 2010 | 2009 | 2008 | |||||||||
Net sales |
$ | 236 | $ | 1,769 | $ | 7,585 | ||||||
Pretax gain (loss) on operations |
$ | 311 | $ | 466 | $ | (438 | ) | |||||
Pretax gain on disposals |
— | 3 | 10,596 | |||||||||
Pretax gain |
311 | 469 | 10,158 | |||||||||
Income tax expense |
126 | 192 | 5,449 | |||||||||
Net earnings |
$ | 185 | $ | 277 | $ | 4,709 | ||||||
Note D: Accounts Receivable, Net
| December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Customer receivables |
$ | 184,857 | $ | 164,975 | ||||
Other current receivables |
2,082 | 2,462 | ||||||
| 186,939 | 167,437 | |||||||
Less allowances |
(3,578 | ) | (4,622 | ) | ||||
Total |
$ | 183,361 | $ | 162,815 | ||||
Note E: Inventories, Net
| December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Finished products |
$ | 358,138 | $ | 351,393 | ||||
Products in process and
raw materials |
13,842 | 16,296 | ||||||
Supplies and expendable parts |
46,958 | 47,554 | ||||||
| 418,938 | 415,243 | |||||||
Less allowances |
(87,044 | ) | (82,674 | ) | ||||
Total |
$ | 331,894 | $ | 332,569 | ||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In 2010, the Corporation reclassified certain of its finished products and inventory
allowances and currently presents them on a gross basis. Prior-period amounts, which were
previously presented on a net basis, have been recast for comparability. The reclassifications had
no effect on the Corporation’s financial condition, results of operations or cash flows.
Note F: Property, Plant and Equipment, Net
| December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Land and improvements |
$ | 594,866 | $ | 554,932 | ||||
Mineral reserves and interests |
351,543 | 334,633 | ||||||
Buildings |
108,266 | 105,926 | ||||||
Machinery and equipment |
2,420,759 | 2,395,270 | ||||||
Construction in progress |
92,841 | 75,217 | ||||||
| 3,568,275 | 3,465,978 | |||||||
Less allowances for depreciation,
depletion and amortization |
(1,880,445 | ) | (1,773,073 | ) | ||||
Total |
$ | 1,687,830 | $ | 1,692,905 | ||||
At December 31, 2010 and 2009, the net carrying value of mineral reserves and interests was
$285,729,000 and $273,183,000, respectively.
Depreciation, depletion and amortization expense related to property, plant and equipment was
$178,426,000, $176,050,000 and $167,977,000 for the years ended December 31, 2010, 2009 and 2008,
respectively.
Interest cost of $2,129,000, $1,010,000 and $3,692,000 was capitalized during 2010, 2009 and 2008,
respectively.
At December 31, 2010 and 2009, $73,883,000 and $75,372,000, 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) | 2010 | 2009 | ||||||
6.875% Notes, due 2011 |
$ | 242,129 | $ | 242,092 | ||||
6.6% Senior Notes, due 2018 |
298,288 | 298,111 | ||||||
7% Debentures, due 2025 |
124,393 | 124,371 | ||||||
6.25% Senior Notes, due 2037 |
247,882 | 247,851 | ||||||
Floating Rate Senior Notes,
due 2010, interest rate of 0.43%
at December 31, 2009 |
— | 217,502 | ||||||
Term Loan, due 2012, interest rate
of 3.29% at December 31, 2010
and 3.25% at December 31, 2009 |
111,750 | 111,750 | ||||||
Other notes |
6,317 | 7,934 | ||||||
Total |
1,030,759 | 1,249,611 | ||||||
Less current maturities |
(248,714 | ) | (226,119 | ) | ||||
Long-term debt |
$ | 782,045 | $ | 1,023,492 | ||||
In 2010, the Corporation repaid $217,590,000 of Floating Rate Senior Notes through the use of
cash.
The Corporation’s 6.6% Senior Notes due 2018 and 6.25% Senior Notes due 2037 (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.
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 | |||||||
In April 2009, the Corporation entered into a $130,000,000 unsecured term loan (the “Term
Loan”) syndicated with a group 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 | ||
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)
LIBOR plus 1%. At December 31, 2010, the interest rate on the Term
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Loan was based on 3-month LIBOR plus 300 basis points, or 3.29%. At December 31, 2010 and
2009, the outstanding balance on the Term Loan was $111,750,000. The Term Loan requires quarterly
principal payments of $3,250,000 beginning September 20, 2011, with the remaining outstanding
principal due in full on June 6, 2012.
The Corporation’s $100,000,000 three-year secured accounts receivable credit facility (the “AR
Credit Facility”) with Wells Fargo Bank, N.A. (“Wells Fargo”) 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, which terminates on April 20, 2012, 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. The Corporation had no outstanding
borrowings under its AR Credit Facility at December 31, 2010 and 2009.
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 commercial banks as follows:
| Commitment | ||||
| Lender | (add 000) | |||
Wells Fargo Bank, N.A. |
$ | 112,450 | ||
JP Morgan Chase Bank, N.A. |
61,100 | |||
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. 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 3.50 to 1.00 as of the end of any fiscal
quarter. The covenant requires the inclusion of debt guaranteed by the Corporation in the Ratio
calculation. 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 ratio plus 0.25. Certain other nonrecurring noncash items, if they
occur, can also be excluded from the Ratio. The Corporation was in compliance with the Ratio at
December 31, 2010.
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, 2010 and 2009, the
Corporation had $1,963,000 and $1,650,000, respectively, 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, 2010 and 2009.
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, 2010 or 2009.
The Corporation has a $10,000,000 short-term line of credit. No amounts were outstanding under this
line of credit at December 31, 2010 or 2009.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Corporation’s long-term debt maturities for the five years following December 31, 2010,
and thereafter are:
| (add 000) | ||||
2011 |
$ | 248,714 | ||
2012 |
109,432 | |||
2013 |
1,181 | |||
2014 |
229 | |||
2015 |
207 | |||
Thereafter |
670,996 | |||
Total |
$ | 1,030,759 | ||
The Corporation unwound two forward starting interest rate swap agreements with a total
notional amount of $150,000,000 (the “Swap Agreements”) in April 2008. 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 the life of the 6.6% Senior Notes. For the years ended December
31, 2010 and 2009, the Corporation recognized $898,000 and $837,000, 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
$5,344,000, net of cumulative noncurrent deferred tax assets of $3,497,000, at December 31, 2010.
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.
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., Regions Financial Corporation 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.
At December 31, 2010 and 2009, the estimated fair value of the Corporation’s publicly registered
long-term notes and debentures was approximately $933,637,000 and $1,125,384,000, respectively,
compared with a carrying amount of $912,692,000 and $1,129,927,000, respectively, on the
consolidated balance sheet. The fair values of this long-term debt were estimated based on quoted
market prices. The estimated fair values of other borrowings of $118,067,000 and $119,684,000 at
December 31, 2010 and 2009, respectively, approximate its carrying amounts.
The carrying values and fair values of the Corporation’s financial instruments are as follows:
| December 31 | 2010 | |||||||
| (add 000) | Carrying Value | Fair Value | ||||||
Cash and cash equivalents |
$ | 70,323 | $ | 70,323 | ||||
Accounts receivable, net |
$ | 183,361 | $ | 183,361 | ||||
Notes receivable, net |
$ | 10,866 | $ | 10,866 | ||||
Bank overdraft |
$ | 2,123 | $ | 2,123 | ||||
Long-term debt |
$ | 1,030,759 | $ | 1,051,704 | ||||
| 2009 | ||||||||
| 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 | ||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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) | 2010 | 2009 | 2008 | |||||||||
Federal income taxes: |
||||||||||||
Current |
$ | 9,146 | $ | 17,029 | $ | 31,904 | ||||||
Deferred |
14,779 | 5,150 | 34,829 | |||||||||
Total federal income taxes |
23,925 | 22,179 | 66,733 | |||||||||
State income taxes: |
||||||||||||
Current |
1,680 | 3,897 | 3,641 | |||||||||
Deferred |
3,429 | 1,079 | 4,482 | |||||||||
Total state income taxes |
5,109 | 4,976 | 8,123 | |||||||||
Foreign income taxes: |
||||||||||||
Current |
(260 | ) | 528 | (2,915 | ) | |||||||
Deferred |
443 | (308 | ) | 147 | ||||||||
Total foreign income taxes |
183 | 220 | (2,768 | ) | ||||||||
Total taxes on income |
$ | 29,217 | $ | 27,375 | $ | 72,088 | ||||||
For the years ended December 31, 2010, 2009 and 2008, income tax benefits attributable to
stock-based compensation transactions that were recorded to shareholders’ equity amounted to
$1,291,000, $555,000 and $3,370,000, 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 | 2010 | 2009 | 2008 | |||||||||
Statutory tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Increase (reduction)
resulting from: |
||||||||||||
Effect of statutory depletion |
(13.7 | ) | (13.8 | ) | (7.6 | ) | ||||||
State income taxes |
2.6 | 2.8 | 1.6 | |||||||||
Other items |
(1.0 | ) | (0.2 | ) | 0.2 | |||||||
Effective income tax rate |
22.9 | % | 23.8 | % | 29.2 | % | ||||||
For income 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.
On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law.
Among other things, the PPACA reduces the tax benefits available to an employer that receives the
Medicare Part D subsidy. Employers that receive the Medicare Part D subsidy recognize the deferred
tax effects of the reduced deductibility of the postretirement prescription drug coverage in
continuing operations in the period of enactment. The effects of changes in tax law are recognized
as discrete events in the period of enactment. Accordingly, the overall effective income tax rate
for the year ended December 31, 2010 includes the effect to the Corporation of the PPACA.
The principal components of the Corporation’s deferred tax assets and liabilities are as follows:
| Deferred | ||||||||
| December 31 | Assets (Liabilities) | |||||||
| (add 000) | 2010 | 2009 | ||||||
Deferred tax assets related to: |
||||||||
Employee benefits |
$ | 44,517 | $ | 56,840 | ||||
Inventories |
59,612 | 28,023 | ||||||
Valuation and other reserves |
8,636 | 12,781 | ||||||
Net operating loss carryforwards |
6,970 | 5,341 | ||||||
Gross deferred tax assets |
119,735 | 102,985 | ||||||
Valuation allowance on deferred
tax assets |
(7,119 | ) | (5,050 | ) | ||||
Total net deferred tax assets |
112,616 | 97,935 | ||||||
Deferred tax liabilities related to: |
||||||||
Property, plant and equipment |
(235,674 | ) | (230,890 | ) | ||||
Goodwill and other intangibles |
(61,318 | ) | (53,467 | ) | ||||
Other items, net |
(3,940 | ) | (1,674 | ) | ||||
Total deferred tax liabilities |
(300,932 | ) | (286,031 | ) | ||||
Net deferred tax liability |
$ | (188,316 | ) | $ | (188,096 | ) | ||
Additionally, the Corporation had a net deferred tax asset of $42,998,000 and $52,453,000 for
certain items recorded in accumulated other comprehensive loss at December 31, 2010 and 2009,
respectively.
The Corporation’s deferred tax assets and (liabilities) are recognized on the consolidated balance
sheets as follows:
| December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Current deferred income
tax benefits |
$ | 83,380 | $ | 60,303 | ||||
Noncurrent deferred
income taxes |
(228,698 | ) | (195,946 | ) | ||||
Net deferred income taxes |
$ | (145,318 | ) | $ | (135,643 | ) | ||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
Deferred tax liabilities for property, plant and equipment result from accelerated depreciation
methods being used for income tax purposes as compared with the straight-line method for financial
reporting purposes.
Deferred tax liabilities related to goodwill and other intangibles reflect the cessation of
goodwill amortization for financial reporting purposes, while amortization continues for income tax
purposes.
Amounts related to stock-based compensation transactions are deductible for income tax purposes
upon vesting or exercise of the underlying award.
The Corporation had net operating loss carryforwards and tax credit carryforwards of $130,702,000
and $123,261,000 at December 31, 2010 and 2009, respectively. These carryforwards have various
expiration dates. At December 31, 2010 and 2009, respectively, the deferred tax assets associated
with these carryforwards were $10,044,000 and $8,816,000, for which valuation allowances of
$7,119,000 and $5,050,000, respectively, were recorded.
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 $52,000 and $100,000 at December 31, 2010 and 2009, 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) | 2010 | 2009 | 2008 | |||||||||
Unrecognized tax benefits
at beginning of year |
$ | 16,722 | $ | 15,482 | $ | 31,421 | ||||||
Gross increases – tax
positions in prior years |
19,619 | 2,072 | 21,661 | |||||||||
Gross decreases – tax
positions in prior years |
(3,258 | ) | (1,694 | ) | (39,317 | ) | ||||||
Gross increases – tax
positions in current year |
6,462 | 6,312 | 9,165 | |||||||||
Gross decreases – tax
positions in current year |
(5,135 | ) | (5,393 | ) | (5,693 | ) | ||||||
Settlements with taxing
authorities |
(12,573 | ) | (57 | ) | (1,755 | ) | ||||||
Lapse of statute of limitations |
(10,826 | ) | — | — | ||||||||
Unrecognized tax benefits
at end of year |
$ | 11,011 | $ | 16,722 | $ | 15,482 | ||||||
At December 31, 2010 and 2009, unrecognized tax benefits of $4,892,000 and $9,709,000,
respectively, net of federal tax benefits and related to interest accruals and permanent income tax
differences, would have favorably affected the Corporation’s effective income tax rate if
recognized.
The Corporation’s open tax years that are subject to federal examination are 2007 through 2010. The
Corporation does not anticipate that its unrecognized tax benefits will significantly change during
the twelve months ending December 31, 2011.
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, 2010, $5,571,000, or $0.12 per diluted
share, was reversed into income upon the effective settlement of issues related to the 2004 and
2005 tax years, the effective 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.
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.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, permits 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 2008
and 2009 and reached the full 9 percent deduction in 2010. The production deduction benefit of the
legislation reduced income tax expense and increased net earnings by $1,696,000, or $0.04 per
diluted share, in 2010, $611,000, or $0.01 per diluted share, in 2009 and $2,766,000, or $0.07 per
diluted share, in 2008.
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 is December 31.
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. 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) | 2010 | 2009 | 2008 | |||||||||
Components of net periodic
benefit cost: |
||||||||||||
Service cost |
$ | 11,056 | $ | 11,169 | $ | 11,482 | ||||||
Interest cost |
22,588 | 22,282 | 21,623 | |||||||||
Expected return on assets |
(21,041 | ) | (16,271 | ) | (22,530 | ) | ||||||
Amortization of: |
||||||||||||
Prior service cost |
583 | 655 | 686 | |||||||||
Actuarial loss |
9,986 | 14,379 | 4,287 | |||||||||
Transition asset |
(1 | ) | (1 | ) | (1 | ) | ||||||
Settlement charge |
3,455 | — | 2,850 | |||||||||
Net periodic benefit cost |
$ | 26,626 | $ | 32,213 | $ | 18,397 | ||||||
The Corporation recognized the following amounts in comprehensive earnings:
| years ended December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Actuarial (gain) loss |
$ | (10,915 | ) | $ | (29,864 | ) | $ | 104,151 | ||||
Amortization of: |
||||||||||||
Prior service cost |
(583 | ) | (655 | ) | (744 | ) | ||||||
Actuarial loss |
(9,986 | ) | (14,379 | ) | (4,643 | ) | ||||||
Transition asset |
1 | 1 | 1 | |||||||||
Settlement charge |
(3,455 | ) | — | (2,850 | ) | |||||||
Total |
$ | (24,938 | ) | $ | (44,897 | ) | $ | 95,915 | ||||
Accumulated other comprehensive loss included the following amounts that have not yet been
recognized in net periodic benefit cost:
| December 31 | 2010 | 2009 | ||||||||||||||
| (add 000) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
Prior service cost |
$ | 3,089 | $ | 1,868 | $ | 3,674 | $ | 2,222 | ||||||||
Actuarial loss |
98,359 | 59,458 | 122,715 | 74,182 | ||||||||||||
Transition asset |
(11 | ) | (7 | ) | (14 | ) | (8 | ) | ||||||||
Total |
$ | 101,437 | $ | 61,319 | $ | 126,375 | $ | 76,396 | ||||||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 25
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
The prior service cost, actuarial loss and
transition asset expected to be recognized in net
periodic benefit cost during 2011 are $7,465,000 (net
of a deferred tax asset of $2,952,000), $534,000 (net
of a deferred tax asset of $211,000) and $1,000,
respectively, and are included in accumulated other
comprehensive loss at December 31, 2010.
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:
| years ended December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Change in projected benefit obligation: |
||||||||
Net projected benefit obligation at
beginning of year |
$ | 392,737 | $ | 370,930 | ||||
Service cost |
11,056 | 11,169 | ||||||
Interest cost |
22,588 | 22,282 | ||||||
Actuarial loss |
2,017 | 2,031 | ||||||
Gross benefits paid |
(29,760 | ) | (13,675 | ) | ||||
Net projected benefit obligation at end of year |
$ | 398,638 | $ | 392,737 | ||||
| years ended December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Change in plan assets: |
||||||||
Fair value of plan assets at beginning of year |
$ | 266,846 | $ | 207,789 | ||||
Actual return on plan assets, net |
33,973 | 48,169 | ||||||
Employer contributions |
40,629 | 24,563 | ||||||
Gross benefits paid |
(29,760 | ) | (13,675 | ) | ||||
Fair value of plan assets at end of year |
$ | 311,688 | $ | 266,846 | ||||
| December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Funded status of the plan at end of year |
$ | (86,950 | ) | $ | (125,891 | ) | ||
Accrued benefit cost |
$ | (86,950 | ) | $ | (125,891 | ) | ||
| December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Amounts recognized on consolidated
balance sheets consist of: |
||||||||
Current liability |
$ | (1,934 | ) | $ | (15,623 | ) | ||
Noncurrent liability |
(85,016 | ) | (110,268 | ) | ||||
Net amount recognized at end of year |
$ | (86,950 | ) | $ | (125,891 | ) | ||
The accumulated benefit obligation for all
defined benefit pension plans was $366,701,000 and
$357,565,000 at December 31, 2010 and 2009,
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 $397,985,000, $366,234,000 and
$311,061,000, respectively, at December 31, 2010 and
$392,147,000, $357,159,000 and $266,265,000,
respectively, at December 31, 2009.
Weighted-average assumptions used to determine benefit obligations as of December 31 are:
| 2010 | 2009 | |||||||
Discount rate |
5.84 | % | 5.90 | % | ||||
Rate of increase in future compensation levels |
5.00 | % | 5.00 | % | ||||
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 are:
| 2010 | 2009 | 2008 | ||||||||||
Discount rate |
5.90 | % | 6.11 | % | 6.09 | % | ||||||
Rate of increase in future
compensation levels |
5.00 | % | 5.00 | % | 5.00 | % | ||||||
Expected long-term rate of
return on assets |
7.75 | % | 7.75 | % | 8.00 | % | ||||||
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, 2010 and 2009, the Corporation used the
RP 2000 Mortality Table to estimate the remaining lives
of participants in the pension plans.
The target allocation for 2010 and the actual pension
plan asset allocation by asset class are as follows:
| Percentage of Plan Assets | ||||||||||||
| 2010 | December 31 | |||||||||||
| Target | ||||||||||||
| Asset Class | Allocation | 2010 | 2009 | |||||||||
Equity securities |
53 | % | 54 | % | 57 | % | ||||||
Debt securities |
42 | % | 41 | % | 43 | % | ||||||
Hedge funds |
5 | % | 4 | % | — | |||||||
Cash |
— | 1 | % | — | ||||||||
Total |
100 | % | 100 | % | 100 | % | ||||||
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. Debt securities, or fixed income investments,
are
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 26
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 an
additional 5% of its fixed income investment portfolio
to alternative investments in 2011.
The fair values of pension plan assets by asset class
and fair value hierarchy level are as follows:
| Quoted Prices | ||||||||||||||||
| in Active | ||||||||||||||||
| Markets for | Significant | Significant | ||||||||||||||
| Identical | Observable | Unobservable | Total | |||||||||||||
| Assets | Inputs | Inputs | Fair | |||||||||||||
| December 31 | (Level 1) | (Level 2) | (Level 3) | Value | ||||||||||||
| (add 000) | 2010 | |||||||||||||||
Equity securities: |
||||||||||||||||
Mid-sized to
large cap |
$ | — | $ | 121,596 | $ | — | $ | 121,596 | ||||||||
International and
emerging growth
funds |
— | 47,285 | — | 47,285 | ||||||||||||
Debt securities: |
||||||||||||||||
Core fixed income |
— | 113,355 | — | 113,355 | ||||||||||||
High-yield bonds |
— | 15,322 | — | 15,322 | ||||||||||||
Hedge funds |
— | — | 13,453 | 13,453 | ||||||||||||
Cash |
677 | — | — | 677 | ||||||||||||
Total |
$ | 677 | $ | 297,558 | $ | 13,453 | $ | 311,688 | ||||||||
| 2009 | ||||||||||||||||
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 |
$ | 214 | $ | 266,632 | $ | — | $ | 266,846 | ||||||||
The change in the fair value of pension plan
assets valued using significant unobservable inputs
(Level 3) is as follows:
| year ended December 31 | ||||
| (add 000) | 2010 | |||
Balance at January 1 |
$ | — | ||
Purchases |
13,000 | |||
Unrealized gain |
453 | |||
Balance at December 31 |
$ | 13,453 | ||
In 2010 and 2009, the Corporation made pension
contributions and SERP payments of $40,629,000 and
$24,563,000, respectively. The Corporation currently
estimates that it will contribute $34,500,000 to its
pension and SERP plans in 2011.
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) | ||||
2011 |
$ | 18,180 | ||
2012 |
$ | 19,576 | ||
2013 |
$ | 21,085 | ||
2014 |
$ | 22,634 | ||
2015 |
$ | 24,366 | ||
Years 2016 - 2020 |
$ | 143,943 | ||
Postretirement Benefits. The net periodic
postretirement benefit cost of postretirement plans
included the following components:
| years ended December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Components of net periodic
benefit cost: |
||||||||||||
Service cost |
$ | 548 | $ | 558 | $ | 582 | ||||||
Interest cost |
2,754 | 2,919 | 2,773 | |||||||||
Amortization of: |
||||||||||||
Prior service credit |
(1,740 | ) | (1,489 | ) | (1,490 | ) | ||||||
Actuarial loss (gain) |
13 | — | (70 | ) | ||||||||
Total net periodic benefit cost |
$ | 1,575 | $ | 1,988 | $ | 1,795 | ||||||
The Corporation recognized the following amounts
in comprehensive earnings:
| years ended December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Actuarial (gain) loss |
$ | (4,133 | ) | $ | 4,699 | $ | (435 | ) | ||||
Prior service credit |
(1,722 | ) | — | — | ||||||||
Amortization of: |
||||||||||||
Prior service credit |
1,740 | 1,489 | 1,614 | |||||||||
Actuarial (loss) gain |
(13 | ) | — | 75 | ||||||||
Total |
$ | (4,128 | ) | $ | 6,188 | $ | 1,254 | |||||
Accumulated other comprehensive loss included the
following amounts that have not yet been recognized in
net periodic benefit cost:
| December 31 | 2010 | 2009 | ||||||||||||||
| (add 000) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
Prior service credit |
$ | (8,196 | ) | $ | (4,954 | ) | $ | (8,214 | ) | $ | (4,964 | ) | ||||
Actuarial loss |
589 | 356 | 4,735 | 2,863 | ||||||||||||
Total |
$ | (7,607 | ) | $ | (4,598 | ) | $ | (3,479 | ) | $ | (2,101 | ) | ||||
The actuarial gain expected to be recognized in
net periodic benefit cost during 2011 is $1,740,000
(net of a deferred tax liability of $688,000) and is
included in accumulated other comprehensive loss at
December 31, 2010.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The postretirement health care plans’ change in
benefit obligation, change in plan assets, funded
status and amounts recognized on the Corporation’s
consolidated balance sheets are as follows:
| years ended December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Change in benefit obligation: |
||||||||
Net benefit obligation at
beginning of year |
$ | 51,906 | $ | 47,074 | ||||
Service cost |
548 | 558 | ||||||
Interest cost |
2,754 | 2,919 | ||||||
Participants’ contributions |
1,919 | 1,508 | ||||||
Actuarial (gain) loss |
(4,133 | ) | 4,699 | |||||
Plan amendments |
(1,722 | ) | — | |||||
Gross benefits paid |
(6,523 | ) | (5,302 | ) | ||||
Federal subsidy on benefits paid |
461 | 450 | ||||||
Net benefit obligation at end of year |
$ | 45,210 | $ | 51,906 | ||||
| years ended December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Change in plan assets: |
||||||||
Fair value of plan assets at
beginning of year |
$ | — | $ | — | ||||
Employer contributions |
4,143 | 3,344 | ||||||
Participants’ contributions |
1,919 | 1,508 | ||||||
Gross benefits paid |
(6,523 | ) | (5,302 | ) | ||||
Federal subsidy on benefits paid |
461 | 450 | ||||||
Fair value of plan assets at end of year |
$ | — | $ | — | ||||
| years ended December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Funded status of the plan at end of year |
$ | (45,210 | ) | $ | (51,906 | ) | ||
Accrued benefit cost |
$ | (45,210 | ) | $ | (51,906 | ) | ||
| December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Amounts recognized on
consolidated balance sheets
consist of: |
||||||||
Current liability |
$ | (4,100 | ) | $ | (3,200 | ) | ||
Noncurrent liability |
(41,110 | ) | (48,706 | ) | ||||
Net amount recognized at end of year |
$ | (45,210 | ) | $ | (51,906 | ) | ||
In accordance with the Medicare Prescription
Drug, Improvement and Modernization Act of 2003, the
Corporation receives a 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:
| 2010 | 2009 | |||||||
Discount rate |
5.57 | % | 5.60 | % | ||||
Weighted-average assumptions used to determine
net postretirement benefit cost for the years ended
December 31 are:
| 2010 | 2009 | 2008 | ||||||||||
Discount rate
|
5.60 | % | 6.03 | % | 5.96 | % | ||||||
At December 31, 2010 and 2009, 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:
| 2010 | 2009 | |||||||
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 |
2017 | 2016 | ||||||
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 |
$ | 87 | $ | (75 | ) | |||
Postretirement benefit obligation |
$ | 1,650 | $ | (1,427 | ) | |||
The Corporation’s estimate of its contributions
to its postretirement health care plans in 2011 is
$4,100,000.
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 | ||||||
2011 |
$ | 4,100 | $ | 586 | ||||
2012 |
$ | 4,383 | $ | 657 | ||||
2013 |
$ | 4,645 | $ | 738 | ||||
2014 |
$ | 4,857 | $ | 820 | ||||
2015 |
$ | 4,984 | $ | 912 | ||||
Years 2016 - 2020 |
$ | 24,577 | $ | 6,278 | ||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 28
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 $5,074,000 in 2010, $5,012,000 in 2009 and
$5,553,000 in 2008.
Postemployment Benefits. The Corporation has accrued
postemployment benefits of $1,545,000 and $1,380,000 at
December 31, 2010 and 2009, 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 50,058 employee stock options
during 2010. 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 as of December 31, 2010:
| Weighted- | Weighted-Average | |||||||||||
| Average | Remaining | |||||||||||
| Number of | Exercise | Contractual | ||||||||||
| Options | Price | Life (years) | ||||||||||
Outstanding at
January 1, 2010 |
1,178,622 | $ | 84.99 | |||||||||
Granted |
50,058 | $ | 95.27 | |||||||||
Exercised |
(83,842 | ) | $ | 43.36 | ||||||||
Terminated |
(1,553 | ) | $ | 88.34 | ||||||||
Outstanding at
December 31, 2010 |
1,143,285 | $ | 88.49 | 4.4 | ||||||||
Exercisable at
December 31, 2010 |
846,633 | $ | 83.20 | 3.9 | ||||||||
The weighted-average grant-date exercise price of
options granted during 2010, 2009 and 2008 was $95.27,
$79.79 and $117.77, respectively. The aggregate
intrinsic values of options exercised during the years
ended December 31, 2010, 2009 and 2008 were $3,978,000,
$889,000 and $5,524,000, 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, 2010 were $4,289,000 and $7,653,000,
respectively, and were based on the closing price of
the Corporation’s common stock at December 31, 2010,
which was $92.24.
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 29
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, 2010:
| Incentive Stock | Restricted Stock | |||||||||||||||
| Weighted- | Weighted- | |||||||||||||||
| Average | Average | |||||||||||||||
| Number of | Grant-Date | Number of | Grant-Date | |||||||||||||
| Awards | Fair Value | Awards | Fair Value | |||||||||||||
January 1, 2010 |
39,271 | $ | 99.89 | 451,272 | $ | 104.07 | ||||||||||
Awarded |
12,757 | $ | 79.78 | 54,679 | $ | 91.33 | ||||||||||
Distributed |
(23,319 | ) | $ | 114.28 | (112,583 | ) | $ | 86.41 | ||||||||
Forfeited |
(17 | ) | $ | 123.28 | (3,148 | ) | $ | 118.07 | ||||||||
December 31, 2010 |
28,692 | $ | 79.24 | 390,220 | $ | 107.27 | ||||||||||
The weighted-average grant-date fair value of incentive compensation awards granted during
2010, 2009 and 2008 was $79.78, $81.75 and $123.28, respectively. The weighted-average grant-date
fair value of restricted stock awards granted during 2010, 2009 and 2008 was $91.33, $80.29 and
$118.82, respectively.
The aggregate intrinsic values for incentive compensation awards and restricted stock awards at
December 31, 2010 were $828,000 and $35,994,000, respectively, and were based on the closing price
of the Corporation’s common stock at December 31, 2010, which was $92.24. The aggregate intrinsic
values of incentive compensation awards distributed during the years ended December 31, 2010, 2009
and 2008 were $0, $0 and $147,000, respectively. The aggregate intrinsic values of restricted stock
awards distributed during the years ended December 31, 2010, 2009 and 2008 were $10,031,000,
$14,888,000 and $7,138,000, 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, 2010, there are approximately 627,000 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, 2010, 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 17,804,
18,072 and 5,790 shares of the Corporation’s common stock under this plan during 2010, 2009 and
2008, respectively.
The following table summarizes stock-based compensation expense for the years ended December 31,
2010, 2009 and 2008, unrecognized compensation cost for nonvested awards at December 31, 2010 and
the weighted-average period over which unrecognized compensation cost is expected to be recognized:
| Incentive | ||||||||||||||||||||
| Restricted | ||||||||||||||||||||
| (add 000, | Stock | Stock | Compensation | Directors’ | ||||||||||||||||
| except year data) | Options | Awards | Awards | Awards | Total | |||||||||||||||
| Stock-based compensation expense recognized for years ended December 31: | ||||||||||||||||||||
2010 |
$ | 3,406 | $ | 10,368 | $ | 261 | $ | 640 | $ | 14,675 | ||||||||||
2009 |
$ | 5,828 | $ | 13,722 | $ | 406 | $ | 596 | $ | 20,552 | ||||||||||
2008 |
$ | 7,830 | $ | 12,982 | $ | 439 | $ | 614 | $ | 21,865 | ||||||||||
| Unrecognized compensation cost at December 31, 2010: | ||||||||||||||||||||
| $ | 2,760 | $ | 10,098 | $ | 208 | $ | 269 | $ | 13,335 | |||||||||||
| Weighted-average period over which unrecognized compensation cost to be recognized: | ||||||||||||||||||||
| 1.7 years | 2.0 years | 1.5 years | — | |||||||||||||||||
For the years ended December 31, 2010, 2009 and 2008, the Corporation recognized a tax
benefit related to stock-based compensation expense of $5,804,000, $8,128,000 and $8,648,000,
respectively.
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries page 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following presents expected stock-based compensation expense in future periods for
outstanding awards as of December 31, 2010:
| (add 000) | ||||
2011 |
$ | 8,013 | ||
2012 |
3,720 | |||
2013 |
1,308 | |||
2014 |
294 | |||
Total |
$ | 13,335 | ||
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 $47,830,000, $51,738,000 and $65,097,000 for the
years ended December 31, 2010, 2009 and 2008, 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
$37,474,000, $34,563,000 and $42,065,000 for the years ended December 31, 2010, 2009 and 2008,
respectively.
Future minimum lease and mineral and other royalty commitments for all noncancelable agreements as
of December 31, 2010 are as follows:
| (add 000) | ||||
2011 |
$ | 79,378 | ||
2012 |
57,920 | |||
2013 |
52,702 | |||
2014 |
44,698 | |||
2015 |
40,857 | |||
Thereafter |
117,100 | |||
Total |
$ | 392,655 | ||
Of the total future minimum commitments, $154,076,000 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, 2010, approximately 2,560,000 common
shares were reserved for issuance under
stock-based plans. At December 31, 2010 and 2009, there were 775 and 843, 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, 2010, 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, 2010,
5,041,900 shares of common stock were remaining under the Corporation’s repurchase authorization.
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 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
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries page 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
Legal and Administrative Proceedings. The Corporation is engaged in certain legal and
administrative proceedings incidental to its normal business activities. In the opinion of
management and counsel, it is unlikely that the outcome of any 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.
During the year ended December 31, 2010, the Corporation settled legal proceedings relating to its
Greenwood, Missouri, operation for approximately $7,000,000 in cash. In connection with the
settlement, the Corporation reversed the excess of the legal reserve established as of December 31,
2009, thereby increasing 2010 net earnings by $2,751,000, or $0.06 per diluted share (see Note O).
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 2010, 2009 and 2008 were $3,689,000, $4,019,000 and $4,520,000,
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.
The following shows the changes in the asset retirement obligations:
| years ended December 31 | ||||||||
| (add 000) | 2010 | 2009 | ||||||
Balance at January 1 |
$ | 38,779 | $ | 39,440 | ||||
Accretion expense |
2,464 | 2,349 | ||||||
Liabilities incurred |
495 | 1,249 | ||||||
Liabilities settled |
(392 | ) | (1,272 | ) | ||||
Revisions in estimated cash flows |
(267 | ) | (2,987 | ) | ||||
Balance at December 31 |
$ | 41,079 | $ | 38,779 | ||||
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries page 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 selfinsured
for health claims. At December 31, 2010 and 2009,
reserves of $24,666,000 and $23,725,000, respectively,
were recorded for all such insurance claims. During 2010,
the Corporation increased its accrual for casualty claims by
$1,500,000 based on changes in the estimated ultimate
cost of claims for prior policy years. This change in estimate
decreased 2010 net earnings by $907,000, or $0.02 per
diluted share. 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, 2010, the Corporation was contingently
liable for $10,863,000 in letters of credit, of which
$1,963,000 were issued under the Corporation’s Credit
Agreement. Certain of these underlying obligations are
accrued on the Corporation’s balance sheet.
Surety Bonds. In the normal course of business, at December
31, 2010, the Corporation was contingently liable for
$118,459,000 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
and insurance claims, are accrued on the Corporation’s
balance sheet. Three of these bonds total $45,682,000, or
39% 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.
Guarantee of Affiliate. On July 14, 2010, the Corporation
entered into a reimbursement and indemnification agreement
with Fifth Third Bank (“Fifth Third”), pursuant to
which Fifth Third issued a letter of credit for the repayment
of amounts borrowed by an affiliate under a $20,000,000
two-year revolving line of credit provided by Fifth Third and
the Corporation agreed to reimburse Fifth Third for any
amounts funded under the letter of credit. Additionally, on
July 13, 2010, the Corporation provided Bank of America,
N.A. with a guarantee of $12,400,000 of payment obligations
of the Corporation’s affiliate under certain equipment
lease agreements. The affiliate has agreed to reimburse and
indemnify the Corporation for any payments and expenses
the Corporation may incur from either the reimbursement
and indemnification agreement or the guarantee agreement.
The Corporation holds a subordinate lien of the
affiliate’s assets as collateral for potential payments under
the reimbursement and indemnification agreement. As of
December 31, 2010, no payments have been made under
the gaurantee arrangements.
Purchase Commitments. The Corporation had purchase commitments
for property, plant and equipment of $24,434,000
as of December 31, 2010. The Corporation also had other
purchase obligations related to energy and service contracts
of $17,821,000 as of December 31, 2010.
Martin
Marietta Materials, Inc. and Consolidated Subsidiaries
page 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Corporation’s contractual purchase
commitments as of December 31, 2010 are as follows:
| (add 000) | ||||
2011 |
$ | 41,492 | ||
2012 |
763 | |||
Total |
$ | 42,255 | ||
Employees. The Corporation had approximately 4,500
employees at December 31, 2010. 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
August 2011.
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 | 2010 | 2009 | 2008 | |||||||||
Mideast Group |
$ | 485,423 | $ | 467,012 | $ | 618,562 | ||||||
Southeast Group |
413,054 | 424,105 | 548,867 | |||||||||
West Group |
691,200 | 651,575 | 762,159 | |||||||||
Total Aggregates Business |
1,589,677 | 1,542,692 | 1,929,588 | |||||||||
Specialty Products |
193,180 | 159,911 | 186,833 | |||||||||
Total |
$ | 1,782,857 | $ | 1,702,603 | $ | 2,116,421 | ||||||
Net sales |
||||||||||||
Mideast Group |
$ | 450,048 | $ | 438,469 | $ | 578,366 | ||||||
Southeast Group |
329,345 | 350,123 | 447,890 | |||||||||
West Group |
595,156 | 564,329 | 666,252 | |||||||||
Total Aggregates Business |
1,374,549 | 1,352,921 | 1,692,508 | |||||||||
Specialty Products |
176,346 | 143,719 | 167,189 | |||||||||
Total |
$ | 1,550,895 | $ | 1,496,640 | $ | 1,859,697 | ||||||
Gross profit |
||||||||||||
Mideast Group |
$ | 133,129 | $ | 138,978 | $ | 219,588 | ||||||
Southeast Group |
22,584 | 45,635 | 76,842 | |||||||||
West Group |
108,847 | 111,166 | 136,413 | |||||||||
Total Aggregates Business |
264,560 | 295,779 | 432,843 | |||||||||
Specialty Products |
61,685 | 45,584 | 41,831 | |||||||||
Corporate |
(4,294 | ) | (3,630 | ) | (4,159 | ) | ||||||
Total |
$ | 321,951 | $ | 337,733 | $ | 470,515 | ||||||
Selling, general and administrative expenses |
||||||||||||
Mideast Group |
$ | 41,710 | $ | 44,200 | $ | 45,109 | ||||||
Southeast Group |
25,720 | 26,915 | 26,069 | |||||||||
West Group |
42,862 | 41,983 | 44,479 | |||||||||
Total Aggregates Business |
110,292 | 113,098 | 115,657 | |||||||||
Specialty Products |
11,046 | 9,446 | 9,989 | |||||||||
Corporate |
11,892 | 16,856 | 25,702 | |||||||||
Total |
$ | 133,230 | $ | 139,400 | $ | 151,348 | ||||||
Earnings (Loss) from operations |
||||||||||||
Mideast Group |
$ | 93,899 | $ | 95,083 | $ | 187,165 | ||||||
Southeast Group |
(3,164 | ) | 20,498 | 48,086 | ||||||||
West Group |
75,827 | 61,440 | 95,799 | |||||||||
Total Aggregates Business |
166,562 | 177,021 | 331,050 | |||||||||
Specialty Products |
50,578 | 35,734 | 28,136 | |||||||||
Corporate |
(20,786 | ) | (25,178 | ) | (35,800 | ) | ||||||
Total |
$ | 196,354 | $ | 187,577 | $ | 323,386 | ||||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
years ended December 31
(add 000)
(add 000)
| Assets employed | 2010 | 2009 | 2008 | |||||||||
Mideast Group |
$ | 800,888 | $ | 803,438 | $ | 831,139 | ||||||
Southeast Group |
802,139 | 783,343 | 801,776 | |||||||||
West Group |
1,098,367 | 1,081,565 | 1,060,206 | |||||||||
Total Aggregates Business |
2,701,394 | 2,668,346 | 2,693,121 | |||||||||
Specialty Products |
102,103 | 102,405 | 103,949 | |||||||||
Corporate |
271,246 | 468,532 | 235,432 | |||||||||
Total |
$ | 3,074,743 | $ | 3,239,283 | $ | 3,032,502 | ||||||
Depreciation, depletion and amortization |
||||||||||||
Mideast Group |
$ | 54,943 | $ | 56,138 | $ | 55,173 | ||||||
Southeast Group |
52,203 | 48,954 | 41,196 | |||||||||
West Group |
56,705 | 55,176 | 52,913 | |||||||||
Total Aggregates Business |
163,851 | 160,268 | 149,282 | |||||||||
Specialty Products |
8,385 | 7,518 | 8,052 | |||||||||
Corporate |
9,301 | 11,605 | 13,795 | |||||||||
Total |
$ | 181,537 | $ | 179,391 | $ | 171,129 | ||||||
Total property additions |
||||||||||||
Mideast Group |
$ | 50,869 | $ | 39,761 | $ | 107,217 | ||||||
Southeast Group |
54,138 | 37,355 | 262,104 | |||||||||
West Group |
58,819 | 92,156 | 63,750 | |||||||||
Total Aggregates Business |
163,826 | 169,272 | 433,071 | |||||||||
Specialty Products |
6,431 | 10,766 | 11,814 | |||||||||
Corporate |
1,823 | 5,450 | 8,642 | |||||||||
Total |
$ | 172,080 | $ | 185,488 | $ | 453,527 | ||||||
Property additions through acquisitions |
||||||||||||
Mideast Group |
$ | 12,912 | $ | — | $ | 12,021 | ||||||
Southeast Group |
20,902 | — | 169,630 | |||||||||
West Group |
— | 46,133 | — | |||||||||
Total Aggregates Business |
33,814 | 46,133 | 181,651 | |||||||||
Specialty Products |
— | — | 2,000 | |||||||||
Corporate |
— | — | — | |||||||||
Total |
$ | 33,814 | $ | 46,133 | $ | 183,651 | ||||||
Property additions for the Mideast Group in 2010,
2009 and 2008 also include $1,900,000, $125,000 and
$11,630,000, respectively, of land acquired through
non-cash transactions. Property additions for the
Southeast Group in 2010 include $450,000 of land
acquired through noncash transactions.
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 | 2010 | 2009 | 2008 | |||||||||
Aggregates |
$ | 1,480,485 | $ | 1,426,362 | $ | 1,808,726 | ||||||
Asphalt |
51,662 | 59,861 | 54,036 | |||||||||
Ready Mixed Concrete |
25,067 | 26,311 | 36,981 | |||||||||
Road Paving |
17,775 | 13,483 | 14,184 | |||||||||
Other |
14,688 | 16,675 | 15,661 | |||||||||
Total Aggregates Business |
1,589,677 | 1,542,692 | 1,929,588 | |||||||||
Magnesia-Based Chemicals |
132,890 | 109,685 | 131,464 | |||||||||
Dolomitic Lime |
60,137 | 48,571 | 51,406 | |||||||||
Other |
153 | 1,655 | 3,963 | |||||||||
Specialty Products |
193,180 | 159,911 | 186,833 | |||||||||
Total |
$ | 1,782,857 | $ | 1,702,603 | $ | 2,116,421 | ||||||
| years ended December 31 (add 000) |
||||||||||||
| Net sales | 2010 | 2009 | 2008 | |||||||||
Aggregates |
$ | 1,289,083 | $ | 1,262,894 | $ | 1,594,512 | ||||||
Asphalt |
38,524 | 45,164 | 46,340 | |||||||||
Ready Mixed Concrete |
25,031 | 26,265 | 36,937 | |||||||||
Road Paving |
17,775 | 13,483 | 14,184 | |||||||||
Other |
4,136 | 5,115 | 535 | |||||||||
Total Aggregates Business |
1,374,549 | 1,352,921 | 1,692,508 | |||||||||
Magnesia-Based Chemicals |
120,475 | 98,643 | 116,128 | |||||||||
Dolomitic Lime |
55,719 | 43,421 | 47,098 | |||||||||
Other |
152 | 1,655 | 3,963 | |||||||||
Specialty Products |
176,346 | 143,719 | 167,189 | |||||||||
Total |
$ | 1,550,895 | $ | 1,496,640 | $ | 1,859,697 | ||||||
Domestic and foreign total revenues are as follows:
| years ended December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Domestic |
$ | 1,748,766 | $ | 1,666,606 | $ | 2,067,331 | ||||||
Foreign |
34,091 | 35,997 | 49,090 | |||||||||
Total |
$ | 1,782,857 | $ | 1,702,603 | $ | 2,116,421 | ||||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note P: Supplemental Cash Flow Information
The components of the change in other assets and
liabilities, net, are as follows:
| years ended December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Other current and
noncurrent assets |
$ | 3,245 | $ | (8,194 | ) | $ | (2,963 | ) | ||||
Accrued salaries, benefits
and payroll taxes |
(1,415 | ) | (9,137 | ) | (3,292 | ) | ||||||
Accrued insurance and
other taxes |
(739 | ) | 855 | (1,704 | ) | |||||||
Accrued income taxes |
10,890 | 2,414 | 14,341 | |||||||||
Accrued pension,
postretirement and
postemployment benefits |
(22,257 | ) | 6,339 | 306 | ||||||||
Other current and
noncurrent liabilities |
(4,264 | ) | 3,207 | (10,685 | ) | |||||||
Change in other assets
and liabilities |
$ | (14,540 | ) | $ | (4,516 | ) | $ | (3,997 | ) | |||
Noncash investing and financing activities are as follows:
| years ended December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Noncash investing and
financing activities: |
||||||||||||
Acquisition of land through
property exchange |
$ | 1,900 | $ | — | $ | — | ||||||
Issuance of notes payable
for acquisition of land |
$ | 450 | $ | 125 | $ | 11,500 | ||||||
Note receivable issued in
connection with divestiture
and sale of assets |
$ | — | $ | 1,675 | $ | 300 | ||||||
Acquisition of land through
settlement of notes
receivable |
$ | — | $ | — | $ | 130 | ||||||
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 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 for 2009 by $8,000,000, or
$0.18 per diluted share.
In June 2010, the Corporation settled legal proceedings
relating to its Greenwood, Missouri, operation for
approximately $7,000,000 in cash. In connection with
the settlement, the Corporation reversed the excess of
the legal reserve established as of December 31, 2009,
thereby increasing net earnings for 2010 by $2,751,000,
or $0.06 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 years ended
December 31, 2010 and 2009, the Corporation paid
$849,000 and $3,243,000, respectively, in accordance
with the terms of the severance agreements. No further
payments are required under the terms of the severance
agreements subsequent to December 31, 2010.
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
for 2008 by $2,001,000, or $0.05 per diluted share.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 36
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
INTRODUCTORY OVERVIEW
Martin Marietta Materials, Inc., (the “Corporation”) is the nation’s second largest producer of
construction aggregates. The Aggregates business includes the following reportable segments,
operating locations and primary product lines:
| AGGREGATES BUSINESS | ||||||
| Mideast | Southeast | West | ||||
| Reportable Segments | Group | Group | Group | |||
| Operating Locations | 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 and Distribution Yards |
Quarries and Distribution Yards |
Quarries and Distribution Yards |
|||
| Primary Modes of Transportation for Aggregates Product Line |
Truck and Rail | 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 2010 operating results, cash flows and operations
include:
Operating Results:
| • | Earnings per diluted share of $2.10 | |
| • | Return on shareholders’ equity of 7.0% in 2010 | |
| • | Heritage aggregates product line volume increase of 5.3% and pricing decrease of 3.4% | |
| • | Record financial results by the Specialty Products segment, which provided earnings from operations of $50.6 million | |
| • | Energy expense increased $25.5 million, which reduced earnings per diluted share by $0.34 | |
| • | Effective management of controllable costs as evidenced by selling, general and administrative expenses decreasing $6.2 million in 2010 compared with 2009, despite absorbing $3.5 million of costs related to the payment of certain retirement benefits |
Cash Flows:
| • | Ratio of consolidated debt-to-consolidated EBITDA, as defined in the Corporation’s $325 million credit agreement (the “Credit Agreement”), as amended, of 2.73 times for the trailing twelve months ended December 31, 2010, in compliance with the limit of 3.50 times | |
| • | Repayment of $217.6 million of Floating Rate Senior Notes through use of cash | |
| • | Cash dividends of $73.6 million, representing $1.60 per common share | |
| • | Capital expenditures of $135.9 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; investment includes new aggregates import facility at the Corporation’s Port Manatee distribution yard on Florida’s west coast | |
| • | Investment of $43.3 million for acquisitions |
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 37
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS (CONTINUED)
Operations:
| • | Record employee safety performance as measured by lost-time incidence rates | |
| • | Successful integration of the acquisitions of (i) an aggregates distribution facility in Port Canaveral, Florida that serves the greater Orlando market and (ii) a sand and gravel business in South Carolina that serves the Charlotte, North Carolina region as well as certain South Carolina markets | |
| • | Continued maximization of transportation and materials options created by the Corporation’s long-haul distribution network |
In 2011, the operating plan is targeted to track consistently with the prior year as the
Corporation continues to manage the business through this trough period of the construction cycle.
Risks that are typical for the aggregates industry and the Corporation specifically become more
pronounced during a protracted recession. In 2011, management intends to emphasize, among other
things, the following financial and operational initiatives:
Financial:
| • | Preserving cash, maintaining liquidity and keeping the Corporation’s financial position strong | |
| • | Increasing the Corporation’s incremental operating margin toward its targeted goal of an average of 60% over the course of a recovery in the business cycle | |
| • | 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 | |
| • | Maintaining a focus on cost containment and operational efficiencies | |
| • | Investing in value-added growth initiatives and successfully integrating them with the Corporation’s heritage operations | |
| • | Using best practices and information technology to drive improved cost 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 | |
| • | Continuing the strong performance and operating results of the Specialty Products segment |
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. In 2010, the Corporation’s aggregates shipments increased 5.4% over
2009 levels, which marked the first year of volume growth in five years. Prior to 2010, the recent
economic recession had resulted in unprecedented reductions in aggregates shipments, as evidenced
by United States aggregates consumption declining by almost 40% from peak volumes in 2006.
Aggregates shipments have also been negatively affected as states continue to balance their
construction spending against uncertainty related to long-term federal highway funding and budget
shortfalls caused by decreasing tax revenues.
The principal end-users in the aggregates industry are in public infrastructure (e.g., highways,
bridges, schools and prisons); nonresidential construction (e.g., manufacturing and distribution
facilities; energy projects, including natural gas drilling; office buildings; large retailers and
wholesalers; and malls); and residential construction (housing and subdivisions). Aggregates
products are also used in the railroad, environmental, utility 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 high-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.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 38
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (CONTINUED)
As discussed further under the section Aggregates
Industry and Corporation Trends on pages 48 through 50,
end-user markets respond to changing economic
conditions in different ways. Public infrastructure
construction is ordinarily more stable than
nonresidential 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 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 March 4, 2011. The lack of a
long-term federal highway bill, the overall weakness in
the United States economy and the lower-than-expected
impact of the American Recovery and Reinvestment Act of
2009 (“ARRA” or “Stimulus”) have negatively affected
infrastructure spending. However, the Corporation’s
shipments to the infrastructure construction market
increased 4% in 2010, which supports management’s view
that the transportation component of state budgets in
the Corporation’s core states enjoys a greater relative
stability that will continue to be beneficial in 2011.
Overall, the infrastructure construction market
accounted for approximately 55% of the Corporation’s
2010 aggregates shipments.
While Stimulus provided approximately $30 billion of
additional funding for highways, bridges and airports
to be spent through 2012, the lack of shovel-ready
projects and the substitution of Stimulus funds for
other projects has both delayed and limited its impact
on the aggregates industry. Stimulus spending in four of the Aggregates
business’ top seven sales-generating states lags the
national average. Further, management is disappointed
that other components of Stimulus, including federal
spending for rail transportation, public transit and
the Army Corps of Engineers, have not provided the
expected increase in construction activity. Management
estimates that approximately 30% of Stimulus funds for
highways, bridges and airports will be spent in 2011 in
the Corporation’s critical states.
Nonresidential and residential construction levels are
interest rate-sensitive and typically move in a direct
correlation with economic cycles. The Corporation’s
shipments to the nonresidential construction market,
which accounted for approximately 26% of the
Corporation’s 2010 aggregates shipments, increased 8%
in 2010. The growth was driven by shipments to the
energy sector to support natural gas drilling and
exploration projects at the Haynesville, Barnett and
Eagle Ford Shale deposits in East Texas, South Texas,
Southwest Arkansas and Northeast Louisiana. Other
components of the nonresidential construction market
remained weak in 2010 and were negatively affected by
continued weakness in the residential construction
market. Specifically, the commercial component of
nonresidential construction generally follows the
residential construction market with a 12-to-18-month
lag. Management anticipates this component of the
nonresidential end-use market to experience modest
volume recovery in 2011.
The Corporation’s shipments to the residential
construction market increased 5% in 2010. While the
Federal Reserve kept the federal funds rate at zero
percent throughout the year, overall weakness in the
U.S. economy and reduced consumer lending by banks
limited the impact of the low rate. Additionally, the
excess supply of developed lots stifled new housing
starts. The residential construction market accounted
for approximately 7% of the Corporation’s aggregates
shipments in 2010. Looking ahead, management expects
modest improvement in the residential construction
market in 2011. However, housing starts are not
expected to achieve a normalized annual level,
estimated at 1.5 million starts nationally, until 2013.
Shipments of chemical rock (comprised primarily of
material used for agricultural lime and flue gas
desulfurization) and ballast product sales
(collectively, referred to as “ChemRock/ Rail”)
increased 5% in 2010, primarily due to increased
railroad industry demand. Three of the Corporation’s
top ten customers in 2010 were railroads. Management
expects the Corporation’s ChemRock/Rail shipments to be
relatively flat in 2011 compared with 2010.
In 2010, the Corporation shipped 130.0 million tons of
aggregates to customers in 30 states, Canada, the
Bahamas and the Caribbean Islands from 269 quarries and
distribution yards. While the Corporation’s aggregates
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 39
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (CONTINUED)
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 sales-generating
states — Texas, North Carolina, Georgia, Iowa and
Louisiana — accounted for approximately 55% of its
2010 net sales by state of destination, while the top
ten sales-generating states accounted for approximately
75% of its 2010 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, erratic weather patterns, seasonal changes,
precipitation and other weather-related conditions,
such as snowstorms, droughts or hurricanes,
significantly affect production schedules, shipments
and profitability of the aggregates industry. The
financial results for the first quarter are generally
significantly lower than the financial results of the
other quarters due to winter weather.
| 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 | |||||||||
Arkansas |
33 | 21 | 32 | |||||||||
Nebraska |
38 | 42 | 38 | |||||||||
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 enhanced
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 long-haul
network moves aggregates
materials from domestic
and offshore sources, via
rail and water, to
markets where aggregates supply
is limited. The movement
of aggregates materials
through long-haul
networks introduces risks
to operating results as
discussed more fully
under the sections
Analysis of Gross Margin
and Transportation
Exposure on pages 47 and
48 and pages 58 through
60, respectively.
During the late 1990’s
and through the early
2000’s, the aggregates
industry experienced
significant
consolidation, and the
Corporation actively
participated in that
industry consolidation.
During this period,
large, often public,
companies acquired
small-to-medium-sized
businesses, primarily
private
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 40
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (CONTINUED)
companies. Thereafter, this consolidation trend
slowed as the number of suitable small-to-midsized
acquisition targets in high-growth markets declined. In
the mid 2000’s at the apex of the most recent business
cycle, large public companies acquired other large
public companies and paid peak multiples of peak EBITDA
(earnings before interest expense, income tax expense,
and depreciation and amortization expense), often
stretching their financial capacity beyond
investment-grade limits. The Corporation was not an
active acquirer during this period, as management
deemed the values of potential acquisitions to be
significantly below the sellers’ expectations.
Management anticipates the number of acquisition
opportunities, including larger private, family-owned
businesses, to increase as a result of the protracted
recession. The Corporation will pursue acquisitions
that fit its strategic objectives.
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 56
through 58. Further, operating results and financial
performance are sensitive to shipment volume and sales
price changes.
In 2010, the average selling price for the heritage
aggregates product line decreased 3.4%. The decline is
primarily attributable to changes in mix — both
product and geographic — as well as competitive
pressures. In addition, higher-priced projects bid in
more stable economic periods are nearing completion and
being replaced by projects bid during a more
challenging time.
The production of construction-related aggregates also
requires the use of diesel fuel. Therefore,
fluctuations in diesel fuel pricing directly affect
operating results. During 2010, energy costs increased
$25.5 million compared with
2009; higher diesel fuel cost was 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 typically 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. Net sales for the segment
increased 23% in 2010, reflecting the strength of the
steel industry and strong demand in the chemicals
product line. The dolomitic lime business, 31% of
Specialty Products’ 2010 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.
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 natural gas 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
2010, the Corporation repaid $218 million of Floating
Rate Senior Notes using cash. The Corporation also
invested $136 million in capital expenditures, invested
$43 million in acquisitions, paid $74 million in
dividends and made contributions of $41 million to its
pension plans.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 41
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (CONTINUED)
Cash on hand, $70 million at December 31, 2010,
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, 2010, the
Corporation had unused borrowing capacity of $323
million under the Credit Agreement and $100 million
under the Corporation’s Accounts Receivable Credit
Facility (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”).
The Corporation is in the process of renegotiating its
short-term credit facilities. Management expects to
close on a new, multi-year credit facility during the
quarter ending March 31, 2011 that would replace the
Credit Agreement and the Corporation’s unsecured term
loan (the “Term Loan”), which has $112 million
outstanding at December 31, 2010. The new credit
facility is expected to have the same financial
covenant as the current short-term credit facilities
and also provide adequate liquidity to refinance the
$242 million maturity of Notes in April 2011. The
Corporation also expects to renegotiate or replace the
$100 million AR Credit Facility during the first
quarter of 2011.
The Corporation’s ability to borrow funds or issue
securities is dependent upon, among other things,
prevailing economic, financial and market conditions.
The current credit environment has limited the
Corporation’s ability to issue borrowings under its commercial paper
program. As of December 31, 2010, the Corporation had
principal indebtedness of $1.03 billion and future
minimum lease and mineral and other royalty commitments
for all noncancelable agreements of $393 million. 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 refinance or restructure all or a portion
of its indebtedness; to further reduce or delay planned
capital or operating expenditures; and/or to suspend or
reduce the amount of the cash dividend to shareholders.
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 2010 Financial Performance
| • | Earnings per diluted share of $2.10 compared with 2009 earnings of $1.91 per diluted share | |
| • | Net sales of $1.551 billion, a 3.6% increase compared with net sales of $1.497 billion in 2009 | |
| • | Heritage aggregates product line volume increase of 5.3% and pricing decrease of 3.4% |
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 36. 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 89% of net
sales and the majority of operating earnings during
2010. 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 42
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 are as follows:
| years ended December 31 | % of | % of | % of | |||||||||||||||||||||
| (add 000, except for % of net sales) | 2010 | Net Sales | 2009 | Net Sales | 2008 | Net Sales | ||||||||||||||||||
Net sales |
$ | 1,550,895 | 100.0 | % | $ | 1,496,640 | 100.0 | % | $ | 1,859,697 | 100.0 | % | ||||||||||||
Freight and delivery revenues |
231,962 | 205,963 | 256,724 | |||||||||||||||||||||
Total revenues |
1,782,857 | 1,702,603 | 2,116,421 | |||||||||||||||||||||
Cost of sales |
1,228,944 | 79.2 | 1,158,907 | 77.4 | 1,389,182 | 74.7 | ||||||||||||||||||
Freight and delivery costs |
231,962 | 205,963 | 256,724 | |||||||||||||||||||||
Total cost of revenues |
1,460,906 | 1,364,870 | 1,645,906 | |||||||||||||||||||||
Gross profit |
321,951 | 20.8 | 337,733 | 22.6 | 470,515 | 25.3 | ||||||||||||||||||
Selling, general and administrative
expenses |
133,230 | 8.6 | 139,400 | 9.3 | 151,348 | 8.1 | ||||||||||||||||||
Research and development |
153 | 0.0 | 373 | 0.0 | 596 | 0.0 | ||||||||||||||||||
Other operating (income) and
expenses, net |
(7,786 | ) | (0.5 | ) | 10,383 | 0.8 | (4,815 | ) | (0.2 | ) | ||||||||||||||
Earnings from operations |
196,354 | 12.7 | 187,577 | 12.5 | 323,386 | 17.4 | ||||||||||||||||||
Interest expense |
68,456 | 4.4 | 73,460 | 4.9 | 74,299 | 4.0 | ||||||||||||||||||
Other nonoperating expenses and
(income), net |
202 | 0.1 | (1,145 | ) | (0.1 | ) | 1,958 | 0.1 | ||||||||||||||||
Earnings from continuing operations
before taxes on income |
127,696 | 8.2 | 115,262 | 7.7 | 247,129 | 13.3 | ||||||||||||||||||
Taxes on income |
29,217 | 1.9 | 27,375 | 1.8 | 72,088 | 3.9 | ||||||||||||||||||
Earnings from continuing operations |
98,479 | 6.3 | 87,887 | 5.9 | 175,041 | 9.4 | ||||||||||||||||||
Gain on discontinued operations,
net of taxes |
185 | 0.1 | 277 | 0.0 | 4,709 | 0.3 | ||||||||||||||||||
Consolidated net earnings |
98,664 | 6.4 | 88,164 | 5.9 | 179,750 | 9.7 | ||||||||||||||||||
Less: Net earnings attributable to
noncontrolling interests |
1,652 | 0.1 | 2,705 | 0.2 | 3,494 | 0.2 | ||||||||||||||||||
Net
Earnings Attributable to Martin Marietta Materials, Inc. |
$ | 97,012 | 6.3 | $ | 85,459 | 5.7 | $ | 176,256 | 9.5 | |||||||||||||||
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 43
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (CONTINUED)
Gross Margin in Accordance with GAAP
| (add 000, except for margin %) | 2010 | 2009 | 2008 | |||||||||
Gross profit |
$ | 321,951 | $ | 337,733 | $ | 470,515 | ||||||
Total revenues |
$ | 1,782,857 | $ | 1,702,603 | $ | 2,116,421 | ||||||
Gross margin |
18.1 | % | 19.8 | % | 22.2 | % | ||||||
Gross Margin Excluding Freight and Delivery Revenues
| (add 000, except for margin %) | 2010 | 2009 | 2008 | |||||||||
Gross profit |
$ | 321,951 | $ | 337,733 | $ | 470,515 | ||||||
Total revenues |
$ | 1,782,857 | $ | 1,702,603 | $ | 2,116,421 | ||||||
Less: Freight and
delivery revenues |
(231,962 | ) | (205,963 | ) | (256,724 | ) | ||||||
Net sales |
$ | 1,550,895 | $ | 1,496,640 | $ | 1,859,697 | ||||||
Gross margin
excluding freight and
delivery revenues |
20.8 | % | 22.6 | % | 25.3 | % | ||||||
Operating Margin in Accordance with GAAP
| (add 000, except for margin %) | 2010 | 2009 | 2008 | |||||||||
Earnings from
operations |
$ | 196,354 | $ | 187,577 | $ | 323,386 | ||||||
Total revenues |
$ | 1,782,857 | $ | 1,702,603 | $ | 2,116,421 | ||||||
Operating margin |
11.0 | % | 11.0 | % | 15.3 | % | ||||||
Operating Margin Excluding Freight and Delivery Revenues
| (add 000, except for margin %) | 2010 | 2009 | 2008 | |||||||||
Earnings from
operations |
$ | 196,354 | $ | 187,577 | $ | 323,386 | ||||||
Total revenues |
$ | 1,782,857 | $ | 1,702,603 | $ | 2,116,421 | ||||||
Less: Freight and
delivery revenues |
(231,962 | ) | (205,963 | ) | (256,724 | ) | ||||||
Net sales |
$ | 1,550,895 | $ | 1,496,640 | $ | 1,859,697 | ||||||
Operating margin
excluding freight and
delivery revenues |
12.7 | % | 12.5 | % | 17.4 | % | ||||||
Net Sales
Net sales by reportable segment are as follows:
| years ended December 31 (add 000) |
2010 | 2009 | 2008 | |||||||||
Mideast Group |
$ | 450,048 | $ | 438,469 | $ | 578,366 | ||||||
Southeast Group |
329,345 | 350,123 | 447,890 | |||||||||
West Group |
595,156 | 564,329 | 666,252 | |||||||||
Total Aggregates Business |
1,374,549 | 1,352,921 | 1,692,508 | |||||||||
Specialty Products |
176,346 | 143,719 | 167,189 | |||||||||
Total |
$ | 1,550,895 | $ | 1,496,640 | $ | 1,859,697 | ||||||
Aggregates. Heritage and total aggregates product
line average selling price increases (decreases) are as
follows:
| years ended December 31 | 2010 | 2009 | 2008 | |||||||||
Mideast Group |
(5.3 | %) | 3.8 | % | 10.8 | % | ||||||
Southeast Group |
(2.0 | %) | (1.0 | %) | 7.7 | % | ||||||
West Group |
(1.9 | %) | 3.8 | % | 4.2 | % | ||||||
Heritage Aggregates Operations |
(3.4 | %) | 1.9 | % | 6.6 | % | ||||||
Aggregates Business |
(3.4 | %) | 2.1 | % | 6.9 | % | ||||||
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, 2010 was 4.6% and 3.6%, respectively. The decline
in average selling price in 2010 reflects changes in
product and geographic mix, which resulted in more
lower-priced products being sold. In addition,
higher-priced projects having been bid in more stable
economic periods are nearing completion and being
replaced by projects bid during a period of significant
competitive pressures. 2009 aggregates pricing reflects
the impact of reduced demand.
(see section Aggregates Industry and Corporation Trends
on pages 48 through 50).
The decline in the average selling price for the
Southeast Group in 2009 was related to the decline in
shipments and increased competitive pressures,
particularly in Florida
and markets served by the Mississippi River system. In
2008, 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 130.0 million tons
in 2010 increased 5.4% compared with 123.4 million tons
shipped in 2009. The increase is primarily due to
increases in state transportation spending and
increased shipments to the energy sector. Aggregates
product line shipments of 123.4 million tons in 2009
decreased 22.6% compared with 159.4 million tons
shipped in 2008. The decline in 2009 reflects the
recessionary construction markets which resulted in a
40% decline in aggregates shipments from the
Corporation’s peak period, the twelve months ended
March 31, 2006. The following presents heritage and
total
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 44
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (CONTINUED)
aggregates product line shipments for each
reportable segment for the Aggregates business:
| years ended December 31 Tons (add 000) |
2010 | 2009 | 2008 | |||||||||
Heritage Aggregates Product Line: |
||||||||||||
Mideast Group |
40,257 | 37,265 | 51,035 | |||||||||
Southeast Group |
29,289 | 30,417 | 39,087 | |||||||||
West Group |
60,380 | 55,674 | 68,627 | |||||||||
Heritage Aggregates Operations |
129,926 | 123,356 | 158,749 | |||||||||
Acquisitions |
33 | — | — | |||||||||
Divestitures1 |
48 | 45 | 606 | |||||||||
Aggregates Business |
130,007 | 123,401 | 159,355 | |||||||||
| 1 | Divestitures represent tons related to divested operations up to the date of divestiture. |
Heritage and total aggregates product line
volume variance by reportable segment is as follows:
| years ended December 31 | 2010 | 2009 | 2008 | |||||||||
Mideast Group |
8.0 | % | (27.0 | %) | (23.3 | %) | ||||||
Southeast Group |
(3.7 | %) | (22.2 | %) | (8.6 | %) | ||||||
West Group |
8.5 | % | (18.9 | %) | (2.5 | %) | ||||||
Heritage Aggregates Operations |
5.3 | % | (22.3 | %) | (11.6 | %) | ||||||
Total Aggregates Business |
5.4 | % | (22.6 | %) | (12.6 | %) | ||||||
The decline in the shipments for the Southeast
Group in 2010 was primarily due to delays in key heavy
industrial projects in the nonresidential market.
Specialty Products. Specialty Products 2010 net sales
of $176.3 million increased 22.7% over 2009 net sales
of $143.7 million. The increase is due to the strength
of the steel industry and strong demand in the
chemicals product line. 2009 net sales decreased 14.0%
compared with
2008 net sales of $167.2 million. The decrease in 2009
was due to slowing magnesia chemicals sales and reduced
dolomitic lime shipments to the steel industry.
Freight and Delivery Revenues and Costs
Freight and delivery revenues and costs represent
pass-through transportation costs incurred when the
Corporation arranges for a third-party carrier to
deliver aggregates products to customers (see section
Transportation Exposure on pages 58 through 60). These
third-party freight costs are then billed to the
customer. The 12.6% increase in these revenues and
costs in 2010 compared with 2009 reflects an increase
in aggregates shipments and higher fuel costs. The
reduction in these revenues and costs in 2009 compared
with 2008 reflects the reduction in aggregates
shipments.
Cost of Sales
Cost of sales increased 6.0% in 2010 as compared
with 2009. The increase was due to a 3.6% increase in
net sales and higher energy costs, which increased
$25.5 million. These increases were offset by
efficiency gains as measured by the 3.0% improvement in
tons produced per working man hour for the aggregates
product line. Cost of sales decreased 16.6% in 2009 as
compared with 2008, primarily related to lower energy
costs, with the reduction in diesel fuel cost being the
most significant component; lower embedded freight
costs on aggregates materials transported via rail and
water, consistent with the reduction in shipments from
distribution yards (see section Transportation Exposure
on pages 58 through 60); and lower personnel costs due
to headcount reductions.
As a result of inventory control measures, production
at heritage locations declined 21.4% in 2009 when
compared with 2008. This negatively affected the
Corporation’s operating leverage due to the high fixed
and semi-fixed costs associated with aggregates
production and led to certain normally inventoriable
costs being recognized as period expenses during 2009.
Gross Profit
The Corporation defines gross margin excluding
freight and delivery revenues as gross profit divided
by net sales. The Corporation’s gross margin excluding
freight and delivery revenues decreased 180 basis
points in 2010 due to higher energy costs and the
reduction in average selling price for the aggregates
product line. Gross margin decreased 270 basis points
in 2009 due to the 22.6% decline in aggregates
shipments, which was partially offset by lower energy
costs.
The following presents a rollforward of the
Corporation’s gross profit from 2009 to 2010 and from
2008 to 2009:
| years ended December 31 (add 000) |
2010 | 2009 | ||||||
Consolidated Gross Profit, prior year |
$ | 337,733 | $ | 470,515 | ||||
Aggregates Business: |
||||||||
Volume strength (weakness) |
66,045 | (385,074 | ) | |||||
Pricing (weakness) strength |
(44,417 | ) | 45,486 | |||||
Cost (increases) decreases, net |
(52,847 | ) | 202,524 | |||||
Decrease in Aggregates Business
Gross Profit |
(31,219 | ) | (137,064 | ) | ||||
Specialty Products |
16,101 | 3,753 | ||||||
Corporate |
(664 | ) | 529 | |||||
Decrease in Consolidated Gross Profit |
(15,782 | ) | (132,782 | ) | ||||
Consolidated Gross Profit, current year |
$ | 321,951 | $ | 337,733 | ||||
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 45
MANAGEMENT’S
DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (CONTINUED)
The following presents gross margin excluding freight and
delivery revenues by reportable segment for the Aggregates
business:
| years ended December 31 | 2010 | 2009 | 2008 | |||||||||
Mideast Group |
29.6 | % | 31.7 | % | 38.0 | % | ||||||
Southeast Group |
6.9 | % | 13.0 | % | 17.2 | % | ||||||
West Group |
18.3 | % | 19.7 | % | 20.5 | % | ||||||
Total Aggregates Business |
19.2 | % | 21.9 | % | 25.6 | % | ||||||
Gross margin excluding freight and delivery revenues for the Southeast Group reflects the 3.7%
decline in aggregates product line shipments in 2010 and the 1.0% decline in average selling price
at its heritage operations in 2009. Additionally, the Southeast Group’s operations include the
water distribution network, which produces lower gross margins due to embedded freight (see
sections Analysis of Gross Margin on pages 47 and 48 and Transportation Exposure on pages 58
through 60).
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $6.2 million in 2010, despite absorbing $3.5
million for settlement charges for the payment of vested benefits under the SERP (Supplemental
Excess Retirement Plan). In 2009, there was an $11.9 million reduction compared with 2008, despite
absorbing a $6.4 million increase in pension costs. The reductions in 2010 and 2009 were due to
lower overall personnel costs and management’s continued focus on cost control. 2008 expenses
included $2.8 million for settlement charges related to the SERP.
Other Operating Income and Expenses, Net
Among other items, other operating income and expenses, net, include gains and losses on the sale
of assets; gains and losses related to certain amounts receivable; rental, royalty and services
income; and the accretion expense, depreciation expense, and gains and losses related to asset
retirement obligations. The 2010 amount includes the settlement and reversal of part of an $11.9
million legal reserve that was established in 2009 for the West Group and a $4.5 million gain on
the sale of assets, partially offset by a $2.7 million charge for bad debts. Additionally, the 2009
amount reflects $2.2 million of transaction costs related to acquisitions; prior to 2009, such
costs were capitalized if the acquisition was consummated. The 2009
amount also includes a $3.0 million charge for a property loss and the loss on the sales of assets,
and a $3.3 million charge for bad debts. The 2008 amount included a $14.4 million gain on the sale
of assets offset by a $3.3 million charge for asset write offs related to the structural composites
product line, a nonrecurring $3.6 million charge for professional fees paid to advisors related to
strategic initiatives, a $5.4 million charge for termination benefits related to a reduction in the
Corporation’s workforce, a $2.5 million charge for bad debts and a $1.6 million charge related to a
property loss.
Earnings from Operations
The Corporation defines operating margin excluding freight and delivery revenues as earnings from
operations divided by net sales and it represents a measure of operating profitability. The 2010
increase of 20 basis points compared with 2009 reflects the record operating results for the
Specialty Products segment, lower selling, general and administrative expenses and the gain on a
legal settlement, partially offset by the lower gross margin excluding freight and delivery
revenues for the Aggregates business, primarily due to higher energy costs. The 2009 decrease of
490 basis points compared with 2008 reflects the lower gross margin excluding freight and delivery
revenues and the $11.9 million legal reserve accrued in 2009. Additionally, selling, general and
administrative expenses as a percentage of net sales were higher in 2009 due to the 19.5% decline
in net sales.
Interest Expense
Interest expense decreased $5.0 million in 2010 primarily due to lower outstanding borrowings.
Interest expense decreased $0.8 million in 2009 primarily due to lower interest rates on variable
rate debt.
Other Nonoperating Income and Expenses, Net
Other nonoperating income and expenses, net, are comprised generally of interest income, foreign
currency transaction gains and losses, and net equity earnings from nonconsolidated investments.
The expense in 2010 compared with income in 2009 was due to lower gains on foreign currency
transactions. The increase of $3.1 million in 2009 compared with 2008 was due to higher gains on
foreign currency transactions.
Martin Marietta Materials, Inc. and Consolidated Subsidiaries page 46
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS (CONTINUED)
Income Taxes
Variances in the estimated effective income tax rates, when compared with the federal corporate tax
rate of 35%, are due primarily to the impact of book and tax accounting differences arising from
the net permanent benefits associated with the depletion allowances for mineral reserves, the
effect of state income taxes, the domestic production deduction, and the tax effect of
nondeductibility of goodwill related to asset sales. The permanent benefits associated with the
depletion deduction for mineral reserves is the significant driver of the effective income tax
rate. Due to the limitations imposed on percentage depletion, decreases in sales volumes and pretax
earnings do not decrease the depletion deduction proportionately.
The effective income tax rates for discontinued operations reflect the tax effects of individual
operations’ transactions and are not indicative of the Corporation’s overall effective tax rate.
The Corporation’s estimated effective income tax rates are as follows:
| years ended December 31 | 2010 | 2009 | 2008 | |||||||||
Continuing operations |
22.9 | % | 23.8 | % | 29.2 | % | ||||||
Discontinued operations |
40.5 | % | 40.9 | % | 53.6 | % | ||||||
Overall |
22.9 | % | 23.8 | % | 30.1 | % | ||||||
Discontinued Operations
Divestitures and closures included in discontinued operations reflect operations within the
Aggregates business that were sold or permanently shut down. The results of all divested operations
through the dates of disposal and any gains or losses on disposals are included in discontinued
operations in the consolidated statements of earnings. The discontinued operations included the
following net sales, pretax gain or loss on operations, pretax gain on disposals, income tax
expense and the overall net earnings:
| years ended December 31 | ||||||||||||
| (add 000) | 2010 | 2009 | 2008 | |||||||||
Net sales |
$ | 236 | $ | 1,769 | $ | 7,585 | ||||||
Pretax gain (loss) on operations |
$ | 311 | $ | 466 | $ | (438 | ) | |||||
Pretax gain on disposals |
— | 3 | 10,596 | |||||||||
Pretax gain |
311 | 469 | 10,158 | |||||||||
Income tax expense |
126 | 192 | 5,449 | |||||||||
Net earnings |
$ | 185 | $ | 277 | $ | 4,709 | ||||||
Net Earnings Attributable to Martin Marietta Materials, Inc. and Earnings Per Diluted Share
2010 net earnings attributable to Martin Marietta Mate