SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
For the quarterly period ended June 30, 2000
Commission File Number 1-12744
MARTIN MARIETTA MATERIALS, INC.
(Exact name of registrant as specified in its charter)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
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Exhibit Index is on Page 20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
For the Quarter Ended June 30, 2000
INDEX
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See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OVERVIEW Martin Marietta Materials, Inc. (the “Corporation”), operates in two principal business segments: aggregates products and magnesia-based products. The Corporation’s sales and earnings are predominately derived from its aggregates segment, which processes and sells granite, sandstone, limestone, and other aggregates products from a network of approximately 300 quarries and distribution facilities in more than 20 states in the southeastern, southwestern, midwestern and central regions of the United States and in the Bahama Islands and Canada. The division’s products are used primarily by commercial customers principally in domestic construction of highways and other infrastructure projects and for commercial and residential buildings. The Corporation is vertically integrated in other construction materials businesses in Louisiana, Arkansas and Texas, as a result of acquisitions of asphalt production facilities, ready mixed concrete operations and road construction companies. The magnesia-based products segment produces refractory materials and dolomitic lime used in domestic and foreign basic steel production and produces chemicals products used in industrial, agricultural and environmental applications. The magnesia-based products segment derives a major portion of its sales and earnings from the products used in the steel industry.
RESULTS OF OPERATIONS Consolidated net sales for the quarter were $362.5 million, a 10% increase over 1999 second quarter sales of $328.9 million. Consolidated earnings from operations were $71.6 million in the second quarter of 2000 compared with $64.8 million in the second quarter of 1999. Consolidated net earnings for the quarter were $42.1 million, or $0.90 per diluted share, compared to 1999 second quarter net earnings of $41.3 million, or $0.88 per diluted share.
Sales for the first six months of 2000 increased 12% to $638.6 million, from $569.9 million for the year-earlier period. For the six-months ended June 30, 2000, net earnings increased slightly to $49.5 million, or $1.05 per diluted share, from net earnings for the comparable prior-year period of $49.2 million, also $1.05 per diluted share. On a year-to-date basis, other income and expenses, net, was $8.8 million less than the prior year, while operating earnings increased $10.8 million or 13%.
Sales for the Aggregates division increased 11% to $328.9 million for the second quarter, compared with the year-earlier period, while the division’s earnings from operations for the quarter were $68.7 million, an increase of 7% from the year-earlier period. Operating margin for the division was 20.9%, compared with 21.6% in the prior quarterly period. The increase in sales for the division results from an almost 4% increase in aggregates shipments coupled with an approximately 3% increase in average selling prices during the quarter. However, operating margins were negatively affected by higher fuel costs, acquisitions of lower margin asphalt products operations and prolonged wet weather in certain operating areas. In fact, the sharp escalation of energy-related costs had a significant impact on earnings. Diesel fuel, which is used primarily to operate mobile equipment in quarry production, has increased in price by about 125% between January 1999 and June 2000. The combined cost of diesel fuel, liquid asphalt and natural gas used in our heritage business increased $4.9 million in the second quarter and $9.2 million year-to-date. In addition, barge freight costs have increased, primarily caused by an increase in fuel prices, by $1.6 million for the six-month period. However, in spite of an approximately 2% decline in aggregates shipments volume and other previously-mentioned factors, heritage aggregates operations, which are typically those businesses included in prior-year operations for the full year, experienced an 80 basis point improvement in operating margins. Year-to-date sales of $572.2 million and earnings from operations of $86.4 million exceeded the prior-year period by 13% and 9%, respectively.
(Continued)
Seasonal changes and other weather-related conditions significantly affect the Aggregates division’s business. Therefore, the Aggregates division’s production and shipment levels coincide with general construction activity levels, most of which occur in the division’s markets typically during the spring, summer and fall seasons. Unusually wet weather experienced during the second quarter 2000 has continued into July and the early part of August, 2000 in some of the Corporation’s markets. Further, as expected, softening in residential construction and softening in commercial construction in some market areas coupled with adverse weather conditions continues to negatively impact construction activity levels. Consequently, heritage aggregates shipment levels are below management’s expectations to date. As a result, management currently believes that the Corporation’s heritage annual aggregates shipment growth, which was flat through the six-months ended June 30, 2000, will increase moderately by 0% to 2% for the second half of 2000. Management continues to believe that average selling prices for heritage aggregates operations will increase 3% to 4%, outpacing potential increases in production costs in 2000 for comparable heritage aggregates operations. However, higher-than-expected costs for diesel fuel, liquid asphalt and natural gas, which had a significantly negative impact on the first six months of 2000, are expected to continue to affect earnings for the remainder of the year. In fact, the average cost per gallon for diesel fuel in July 2000 is 47% higher than July 1999.
The Magnesia Specialties division had second quarter 2000 sales of $33.5 million, a slight increase of approximately 2% compared with the second quarter of 1999. The division’s second quarter earnings from operations increased to $2.9 million from $0.8 million in the second quarter of 1999. The Magnesia Specialties division’s increased sales and earnings in the second quarter resulted from improving steel industry performance, continued strong chemicals sales and a better balance between production and shipments. For the first six months of 2000, sales were $65.9 million and earnings from operations were $5.3 million, an increase of $0.9 million and $4.0 million, respectively, from the prior-year period.
The Magnesia Specialties division continues to experience improvements in sales and earnings; however, this business segment is not core to the Corporation. Therefore, the Corporation’s management continues to evaluate its strategic alternatives with respect to the Magnesia Specialties division; and, in that regard, the Corporation has retained Banc of America Securities to act as financial advisors in connection with a possible sale of the division. However, there can be no assurance that management will complete a sale of the division.
Second Quarter and Six-Months Ended June 30, 2000 and 1999
The following table presents net sales, gross profit, selling, general and administrative expense, and earnings from operations data for the Corporation and each of its divisions for the second quarter and six-months ended June 30, 2000 and 1999. In each case, the data is stated as a percentage of net sales, of the Corporation or the relevant division, as the case may be:
Other income and expenses, net, for the quarter ended June 30, was $3.8 million in income in 2000 compared with $8.7 million in income in 1999. In addition to several offsetting amounts, other income and expenses, net, are comprised generally of interest income, gains and losses associated with the disposition of certain assets, gains and losses related to certain amounts receivable, income from non-operating services, costs associated with the commercialization of certain new technologies, and net equity earnings from non-consolidated investments. Further, in 2000, other income and expenses, net, included a nonrecurring insurance settlement related to Hurricane Floyd, while other income and expenses, net, in 1999, included a nonrecurring settlement from an antitrust claim. On a year-to-date basis, other income and expenses, net, was $5.2 million as compared to $14.0 million in the prior-year period
Interest expense was $10.7 million in the second quarter of 2000, compared to $9.7 million in the second quarter of 1999. Interest expense was $20.8 million and $19.0 million for the six-months ended June 30, 2000 and 1999, respectively.
The Corporation’s estimated effective income tax rate was 35.0% in 2000 and 35.2% in 1999. See Note 4 of the Notes to Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES Net cash flow provided by operating activities during the first six months of 2000 was $72.3 million compared with $57.3 million in the comparable period of 1999. The cash flow for both 2000 and 1999 was principally from earnings, before deducting depreciation, depletion and amortization, offset by working capital requirements. Depreciation, depletion and amortization was $67.0 million and $59.1 million for the six-months ended June 30, 2000 and 1999, respectively. Amortization of goodwill and other intangibles, included in depreciation, depletion and amortization, was $11.2 million and $9.0 million for the six-months ended June 30, 2000 and 1999, respectively. The seasonal nature of the construction aggregates business impacts quarterly net cash provided by operating activities when compared with the year. Full year 1999 net cash provided by operating activities was $223.7 million, compared with $57.3 million provided by operations in the six-months ended June 30, 1999.
Six-month capital expenditures, exclusive of acquisitions, were $73.3 million in 2000 and $59.8 million in 1999. Capital expenditures, exclusive of acquisitions, are expected to be approximately $175 million for 2000, which is $45 million less than previously anticipated. Comparable full year capital expenditures were $137.8 million in 1999. During the six-months ended June 30, 2000, the Corporation spent $36.7 million for acquisitions in continuation of its internal expansion strategy.
The Corporation continues to rely upon internally generated funds and access to capital markets, including its two revolving credit agreements and a cash management facility, to meet its liquidity requirements, finance its operations, and fund its capital requirements. The Corporation has signed amendments to its revolving credit agreements which, among other things, modified certain restrictive covenants relating to leverage and extended the term of the 364-day agreement to August, 2001.
With respect to the Corporation’s ability to access the public market, currently, management has the authority to file a universal shelf registration statement with the Commission for up to $500 million in issuance of either debt or equity securities. It should be noted, however, that the Corporation has not determined the timing when, or the amount for which, it may file such shelf registration. The Corporation’s ability to borrow or issue debt securities is dependent, among other things, upon prevailing economic, financial and market conditions.
Based on prior performance and current expectations, the Corporation’s management believes that cash flows from internally generated funds and its access to capital markets are expected to continue to be sufficient to provide the capital resources necessary to fund the operating needs of its existing businesses, cover debt service requirements, and allow for payment of dividends in 2000. The Corporation may be required to obtain additional levels of financing in order to fund certain strategic acquisitions if any such opportunities arise. Currently, the Corporation’s senior unsecured debt is rated “A” by Standard & Poor’s and “A3” by Moody’s. The Corporation’s commercial paper obligations are rated “A-1” by Standard & Poor’s, “P-2” by Moody’s and “F-1” by Fitch IBCA, Inc. While management believes its credit ratings will remain at an investment-grade level, no assurance can be given that these ratings will remain at the above-mentioned levels.
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MARTIN MARIETTA MATERIALS, INC AND CONSOLIDATED SUBSIDIARIES
ACCOUNTING CHANGES The accounting changes that currently impact the Corporation are included in Note 6 to the Condensed Consolidated Financial Statements.
OTHER MATTERS Investors are cautioned that statements in this Quarterly Report on Form 10-Q that relate to the future are, by their nature, uncertain and dependent upon numerous contingencies — including political, economic, regulatory, climatic, competitive, and technological — any of which could cause actual results and events to differ materially from those indicated in such forward-looking statements. Additional information regarding these and other risk factors and uncertainties may be found in the Corporation’s other filings, which are made from time, to time with the Securities and Exchange Commission.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Part I. Item 3. Legal Proceedings of the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the year ended December 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders held on May 23, 2000, the shareholders of Martin Marietta Materials, Inc.:
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Item 5. Other Information.
On May 23, 2000, the Corporation announced that the Board of Directors had declared a regular quarterly cash dividend of $0.13 per share on the Corporation’s common stock. This dividend, which represents a cash payout of $0.52 per share on an annualized basis, was payable June 30, 2000, to shareholders of record at the close of business on June 1, 2000.
On May 24, 2000, the Corporation announced that the Board of Directors had elected Dan Shephard as Vice President and Treasurer of the Corporation at its meeting on May 23, 2000.
On June 30, 2000, the Corporation announced the acquisition of the A.B. Long Quarries, Inc. located in Harriman, Tennessee, in the Knoxville area. The quarry mines limestone and has annual capacity in excess 750,000 tons, with mineral reserves in excess of a 20-year supply. The Corporation also announced the purchase of Texarkana Asphalt, Inc., in Texarkana, Texas. This facility operates a rail-served aggregates distribution yard in Texarkana and operates two asphalt plants located in Texarkana and Prescott, Arkansas, with annual capacity in excess of 700,000 tons, and performs construction in Northeast Texas and Southern Arkansas. In another separate transaction, the Corporation purchased a rail distribution yard near Wilmington, North Carolina, which serves the area between Wilmington and Myrtle Beach, South Carolina. All three purchases were cash for assets transactions, with the purchase price not disclosed.
On July 17, 2000, the Corporation announced that it had signed a long-term agreement with Chemical Lime Company to process aggregates materials and provide certain operating services at its New Braunfels, Texas, location.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 14, 2000
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EXHIBIT INDEX
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