SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
For the quarterly period ended March 31, 2001
Commission File Number 1-12744
MARTIN MARIETTA MATERIALS, INC.
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.
Page 1 of 20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
For the Quarter Ended March 31, 2001
INDEX
Page 2 of 20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
See accompanying notes to condensed consolidated financial statements.
Page 3 of 20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Page 4 of 20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 5 of 20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIESFORM 10-QFor the Quarter Ended March 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 6 of 20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Page 7 of 20
Page 8 of 20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONSFirst Quarter Ended March 31, 2001 and 2000
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, limestone, and other aggregates products from a network of approximately 300 quarries and distribution facilities in 27 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 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, ready mixed concrete operations and road construction companies. The magnesia-based products segment produces chemical products used in industrial, agricultural and environmental applications. The magnesia-based products segment sold its refractories business and transferred the operation of its dolomitic lime production facility in Woodville, Ohio, to the MidAmerica Division of the Aggregates Division, as discussed below. The magnesia-based products segment derives a major portion of its sales and earnings from the products used in the steel industry.
PURCHASE OF MERIDIAN AND SALE OF MAGNESIA SPECIALITES’ REFRACTORIES BUSINESS On April 3, 2001, the Corporation completed the purchase of the remaining interest of Meridian under the purchase option terms of the original October 1998, investment agreement. The purchase price of Meridian, inclusive of the Corporation’s original $42 million investment was approximately $235 million, plus the assumption of normal balance sheet liabilities. The purchase price is subject to normal post-closing adjustments and appropriate accruals. The acquisition will be accounted for under the purchase method of accounting and the operating results of Meridian will be included with those of the Corporation from the April 3, 2001 acquisition date forward. In contemplation of the Meridian acquisition, the Corporation completed a private offering of $250 million of 6.875% Notes. See Note 3 of the Notes to Condensed Consolidated Financial Statements.
On May 1, 2001, the Corporation completed the sale of certain of its assets related to the Magnesia Specialties refractories business to Minerals Technologies Inc. for $34 million. The Corporation will retain certain current assets of the refractories business, including accounts receivable, and certain current liabilities, which are expected to yield an additional $8 million to $12 million in net working capital. The Corporation anticipates to recognizing a gain on the sale of assets. However, the gain will be largely reduced by a write-down of certain retained refractories assets, including assets at the Magnesia Specialties division’s Manistee, Michigan, operating facility, as the facility is repositioned to focus on production of chemicals products. The refractories business contributed $57.3 million to Magnesia Specialties’ net sales in 2000. The Corporation also transferred the operation of its Woodville, Ohio, dolomitic lime operation to the MidAmerica Division of the Aggregates Division. However, the dolomitic lime operations will continue to be reported within the magnesia-based products segment until final determination of the strategic direction of the business.
RESULTS OF OPERATIONS Consolidated net sales for the quarter were $263.7 million, a 4.5% decrease from 2000 first quarter sales of $276.1 million. Consolidated earnings from operations were $2.2 million in the first three months of 2001 compared with $20.1 million in the first three months of 2000. Consolidated net loss for the quarter was $4.7 million, or $0.10 per diluted share, compared with 2000 first quarter net earnings of $7.3 million, or $0.16 per diluted share.
Net sales for the Aggregates division declined 4.5% to $232.7 million for the first quarter of 2001, compared with the year-earlier period. The division’s operating profits were $2.4 million for the period compared to the prior year’s first quarter earnings from operations of $17.7 million. The decrease in net sales resulted primarily from a 6.5% decrease in the Corporation’s heritage aggregates operations’ shipments, offset somewhat by a 1.4% increase in heritage aggregates’ average selling price. The increase in average selling price is skewed downward during the quarter due to lower sales volume of higher-priced tonnage from distribution yards and more sales volume of lower-priced fill materials.
Page 9 of 20
The Aggregates division’s business is significantly impacted by seasonal changes and other weather-related conditions. Consequently, 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. Further, because of the potentially significant impact of weather on the Corporation’s operations, first quarter results are not necessarily indicative of expected performance for the year. Management expects, based on current customer indications and forecasts, strong aggregates demand from mid-April to mid-November, which is when most highway work is performed. The compression of anticipated strong demand into the mid-April to mid-November 2001 time frame heightens the impact of the operating risks of the aggregates business, including economic, political, regulatory, climatic, competitive and technological. See the “Other Matters” section to follow.
Page 10 of 20
Management continues to believe that the Corporation’s annual production and shipments, excluding acquisitions, will grow up to 2% for the full year 2001, compared with the prior year. Further, management continues to believe that average selling prices for heritage aggregates operations will increase 3% to 4%, outpacing potential increases in production costs in 2001 for comparable heritage aggregates operations. Aggregates shipments volume, inclusive of acquisitions, should increase 12% to 15%, with revenues growing 15% to 19%. Earnings are expected to improve 10% to 15% over 2000. The earnings figures do not include the positive impact from the proposed changes in the treatment of goodwill by the Financial Accounting Standards Board, which, if enacted as anticipated, would increase earnings in the third quarter. The earnings estimates also do not include the impact on operating earnings as a result of the sale of Magnesia Specialties’ refractories business.
The Corporation outlined the risks associated with its aggregates operations in its Annual Report on Form 10-K for the year ended December 31, 2000, filed with the Securities and Exchange Commission on March 22, 2001. Management continues to evaluate its exposure to all operating risks on an ongoing basis. However, due to current general economic conditions, adverse exposure to certain operating risks is heightened, including the ability of state and local governments to fund road construction and maintenance. Also, current levels of commercial and residential construction activity may be more negatively affected if the general economic downturn continues or deteriorates.
The Magnesia Specialties division had first quarter 2001 net sales of $30.9 million, a decrease of 4.6% compared with the first three months of 2000. The division’s first quarter earnings from operations decreased to a loss of $0.2 million from earnings of $2.4 million in the first quarter of 2000. Magnesia Specialties division’s first-quarter 2001 results were severely affected by natural gas prices. Energy-related costs, including natural gas, reduced first quarter earnings by $2.2 million, when compared with first quarter 2000.
Page 11 of 20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS(Continued)
First Quarter Ended March 31, 2001 and 2000
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 three months ended March 31, 2001 and 2000. 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:
Page 12 of 20
Other income and expenses, net, for the quarters ended March 31, 2001 and 2000 was $1.3 million in income. 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.
Interest expense was $10.5 million in the first quarter 2001, compared to $10.2 million in the first quarter of 2000.
The Corporation’s estimated effective income tax rate for the first three months was 33.6% in 2001 and 35.3% in 2000. See Note 4 of the Notes to Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES Net cash flow used by operating activities during the first quarter of 2001 was $3.4 million compared with net cash provided by operating activities of $26.7 million in the comparable period of 2000. The cash flow for both 2001 and 2000 was principally from earnings, before deducting depreciation, depletion and amortization, offset by working capital requirements. Depreciation, depletion and amortization was as follows (amounts in millions):
The seasonal nature of the construction aggregates business impacts quarterly net cash provided by operating activities when compared with the year. Full year 2000 net cash provided by operating activities was $212.9 million, compared with $26.7 million provided by operations in the first quarter of 2000.
First quarter capital expenditures, exclusive of acquisitions, were $51.2 million in 2001 and $34.0 million in 2000. Capital expenditures are expected to be approximately $180 million for 2001, including an estimated $15 million for Meridian, but exclusive of all other acquisitions. Comparable full year capital expenditures were $170.8 million in 2000. During the first quarter 2001, the Corporation spent $13.3 million in cash, and issued approximately 509,000 shares of common stock, in continuation of its expansion strategy.
Page 13 of 20
Net cash provided by financing activities was $308.9 million for the first quarter 2001 and $15.2 million for the first quarter 2000. The increase in net cash provided by financing activities resulted principally from the private offering of $250 million of 6.785% Notes. The Corporation will register the 6.785% Notes with the Securities and Exchange Commission in accordance with the terms of the Notes. See Note 3 of the Notes to Condensed Consolidated Financial Statements.
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.
With respect to the Corporation’s ability to access the public market, management currently 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 2001. 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-2” by Standard & Poor’s, “P-2” by Moody’s and “F-2” by Fitch, IBCA, Duff & Phelps. 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.
Page 14 of 20
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. 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. These forward-looking statements are made as of the date hereof based on management’s current expectations and the Corporation does not undertake an obligation to update such statements, whether as a result of new information, future events or otherwise. 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.
Page 15 of 20
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, 2000.
Item 4. Submission of Matters to a Vote of Security Holders.
(b) No matters were submitted to a vote of security holders during the first quarter of 2000.
Item 5. Other Information.
On April 10, 2001, the Corporation announced the completion of the purchase of the remaining equity interest of Meridian Aggregates Company under the terms of the original October 1998 investment agreement. The Corporation also reaffirmed its 2001 business outlook, although expecting a moderate first quarter 2001 loss.
On April 24, 2001, the Corporation reported financial results for the first-quarter and year ended March 31, 2001.
Page 16 of 20
PART II — OTHER INFORMATION(Continued)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Page 17 of 20
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: May 14, 2001
Page 18 of 20
EXHIBIT INDEX
Page 19 of 20