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UNITED STATES
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)
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
 
 

 


TABLE OF CONTENTS

EX-12.01
EX-13.01
EX-21.01
EX-23.01
EX-31.01
EX-31.02
EX-32.01
EX-32.02
EX-99.01
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


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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.

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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

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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.

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     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

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     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

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    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))

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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)

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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)**

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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

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(c) Financial Statement Schedule
SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
                                         
Col A   Col B     Col C     Col D     Col E  
            Additions              
            (1)     (2)                  
    Balance at     Charged to     Charged to 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.

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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.

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     Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
         
Signature
  Title   Date
 
       
/s/ Stephen P. Zelnak, Jr.
 
Stephen P. Zelnak, Jr.
  Chairman of the Board   February 25, 2011
 
       
/s/ C. Howard Nye
 
C. Howard Nye
  President and
Chief Executive Officer
  February 25, 2011
 
       
/s/ Anne H. Lloyd
 
Anne H. Lloyd
  Executive Vice President,
Chief Financial Officer and
Treasurer
  February 25, 2011
 
       
/s/ Dana F. Guzzo
 
Dana F. Guzzo
  Vice President, Controller and
Chief Accounting Officer
  February 25, 2011
 
       
/s/ Sue W. Cole
 
Sue W. Cole
  Director   February 25, 2011
 
       
/s/ David G. Maffucci
 
David G. Maffucci
  Director   February 25, 2011
 
       
/s/ William E. McDonald
 
William E. McDonald
  Director   February 25, 2011
 
       
/s/ Frank H. Menaker, Jr.
 
Frank H. Menaker, Jr.
  Director   February 25, 2011
 
       
/s/ Laree E. Perez
 
Laree E. Perez
  Director   February 25, 2011
 
       
/s/ Michael J. Quillen
 
Michael J. Quillen
  Director   February 25, 2011

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Signature
  Title   Date
 
/s/ Dennis L. Rediker
 
Dennis L. Rediker
  Director   February 25, 2011
 
       
/s/ Richard A. Vinroot
 
Richard A. Vinroot
  Director   February 25, 2011

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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

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  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

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  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

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  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

exv12w01
For the fiscal year ended December 31, 2010
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

exv13w01
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. HOWARED NYE)
  (ANNE H. LLOYD)
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.
(YOUNG LLP LOGO)
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.
(YOUNG LLP LOGO)
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)
                         
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
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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.
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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
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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
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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.
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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.
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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.
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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 )