SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 2134 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.
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 22Exhibit Index is on Page 22
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
For the Quarter Ended September 30, 2001
INDEX
Page 2 of 22
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
See accompanying notes to condensed consolidated financial statements.
Page 3 of 22
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Page 4 of 22
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 5 of 22
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIESFORM 10-QFor the Quarter Ended September 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 6 of 22
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Page 7 of 22
Page 8 of 22
Page 9 of 22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS
Third Quarter and Nine-Months Ended September 30, 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 more than 27 states in the southeastern, southwestern, midwestern and central regions of the United States and in the Bahamas 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 vertically integrated in other construction materials businesses in Louisiana, Arkansas, Oklahoma and Texas, as a result of acquisitions of asphalt production, ready mixed concrete operations, road construction and trucking companies. The magnesia-based products segment produces chemicals products used in industrial, agricultural and environmental applications and lime for use primarily in the steel industry. The magnesia-based products segment sold its refractories business 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 AGGREGATES COMPANY AND SALE OF MAGNESIA SPECIALTIES REFRACTORIES BUSINESS On April 3, 2001, the Corporation completed the purchase of the remaining interest of Meridian Aggregates Company (“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 $238 million, plus the assumption of normal balance sheet liabilities. The purchase price is subject to normal post-closing adjustments and appropriate accruals.
The acquisition was accounted for under the purchase method of accounting and the operating results of Meridian were 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 a subsidiary of Minerals Technologies Inc. (“Minteq”) for $34 million. The Corporation retained certain current assets of the refractories business, including accounts receivable and certain current liabilities, which are expected to yield an additional $10 million to $14 million in net working capital.
(Continued)Page 10 of 22
The Corporation recognized a net gain of $8.9 million on the sale of assets after the write-down of certain retained refractories assets, including assets at the Magnesia Specialties division’s Manistee, Michigan, operating facility, as the facility is being repositioned to focus on production of chemicals products. Further, Magnesia Specialties will supply Minteq with certain refractories products for up to two years after the sale. The refractories business contributed $57.3 million to Magnesia Specialties’ net sales in 2000. The Corporation also transferred the operating responsibility for its Woodville, Ohio, dolomitic lime facility 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 remaining Magnesia Specialties business.
RESULTS OF OPERATIONS Net sales for the quarter increased 15% to $437.0 million from 2000 third-quarter sales of $380.3 million, as a result of a 3% increase in heritage aggregates average selling price and a 21% increase in aggregates shipments for the quarter. The increase in aggregates shipments is due primarily to the acquisition of Meridian and 17 other companies in 2001 and 2000. Earnings from operations increased approximately 13% for the quarter to $79.8 million, from $70.8 million in the third quarter 2000. Interest expense increased 13% to $12.1 million for the third quarter 2001, primarily due to the Meridian acquisition. Net earnings for the quarter increased 9% to $45.9 million, or $0.95 per diluted share, from third-quarter 2000 net earnings of $42.1 million, or $0.90 per diluted share.
Net sales for the first nine months of 2001 increased 10% to over $1.1 billion, from $1.0 billion for the year-earlier period. Earnings from operations decreased 10% to $146.5 million for the nine-months ended September 30, 2001, as compared to $162.6 million for the same period in 2000. Year-to-date 2001 net earnings were $80.3 million, or $1.68 per diluted share, compared to $91.5 million, or $1.95 per diluted share, for the year-earlier period. Earnings for the year-to-date period have been negatively affected by lower than anticipated heritage volumes and higher costs, primarily as a result of the significant impact of unusual weather events in key markets, plant construction project delays and certain other nonrecurring costs, all previously announced in the first and second quarters of 2001. On a year-to-date basis, other income and expenses, net, was $8.3 million in 2001, compared to $6.8 million in 2000. Other income and expenses, net, includes the recognition of an $8.9 million gain on the sale of certain assets related to the Magnesia Specialties refractories business.
(Continued)
Interest expense increased $4.4 million, or 14%, primarily due to the Meridian acquisition. On a year-to-date basis, net earnings reflect a 32.4% tax rate, down from the prior-year rate of 33.6%.
Net sales for the Aggregates division increased 20% during the third quarter 2001 to $414.9 million, from 2000 third-quarter sales of $347.0 million. Earnings from operations for the third quarter 2001 were $79.0 million, when compared to $68.9 million during third quarter 2000. The gross margin for the heritage aggregates product line increased 40 basis points for the quarter, when compared to the prior-year period; however, operating margin for the division was 19.0%, compared with 19.9% in the prior year’s quarterly period, principally due to lower margins from recently acquired operations. Year-to-date sales of $1.041 billion exceeded the prior-year period by 13%, and earnings from operations of $144.9 million was 7% below prior year, due to factors previously discussed.
Total shipments for the quarter of 56.9 million tons increased 21.2% when compared with the third quarter 2000 principally as a result of the acquisition of Meridian. Heritage aggregates shipments volume during the third quarter increased 1.2% to 46.8 million tons. Average selling prices for heritage aggregates operations have increased almost 3% for the quarter ended September 30, 2001.
(Continued)Page 12 of 22
The Aggregates division’s business is significantly affected 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, nine-month results are not necessarily indicative of expected performance for the year. As previously disclosed, the Corporation acquired the operations of Meridian on April 3, 2001, and the operating results have been included with those of the Corporation from that date forward. Meridian typically experiences operating losses during the first quarter that result from winter weather conditions at its operations in western and upper midwest states. Therefore, first quarter 2002 operating results will be adversely affected by Meridian’s winter losses.
The Corporation’s outlook for the fourth quarter and 2002 is uncertain as the economy tries to cope with and digest the events of September 11, 2001; however, management believes the Corporation is well positioned during this period. The Corporation’s aggregates business is expected to perform better than the general economy, given that about 50% of the business is related to highways and other infrastructure construction. Further, potential for increased infrastructure spending exists from possible economic stimulus packages related to recent events. While the level of state infrastructure spending is varied across the nation and dependent on individual state economies, North Carolina, one of the Corporation’s key states which comprised 18% of 2000 net sales, recently passed new funding, which is projected to lead to a 32% increase in road spending over the next year. Special contract lettings are being held in October and November to assure quick release of $170 million in new money, primarily for asphalt resurfacing. However, management continues to expect a decline in building construction as corporate layoffs and lagging consumer confidence further depress the building construction market. Management will have a better sense of the economic impact on building construction mid-year 2002 as the spring construction season begins.
Management, as part of its long-term strategy, is reviewing the possible divestiture of nonstrategic, underperforming assets where redeployment of capital enhances financial returns for the Corporation and provides a continued focus on the core Aggregates division operations. The Aggregates division has generated over 90% of the Corporation’s year-to-date 2001 net sales and substantially all of the operating earnings during that same period. Management continues to evaluate strategic alternatives within the Magnesia Specialties business, as well as with a small number of Aggregates division facilities, which the Corporation may choose to exit by sale or shutdown.
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 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 as a result of the events of September 11, 2001.
(Continued)Page 13 of 22
Magnesia Specialties’ third-quarter sales of $22.2 million declined 33% due, as expected, to the sale of certain assets of the refractories business, when compared to the year-earlier period. Earnings from operations for the third quarter were $0.8 million and $1.9 million, for 2001 and 2000, respectively. The decline in operating earnings results principally from higher energy-related costs for natural gas and absorption of higher fixed costs as the division repositions its Manistee, Michigan, operating facility to focus on the production of chemicals products. Year-to-date sales were $79.4 million and earnings from operations were $1.6 million, decreases of 20% and 77%, respectively.
The following tables present 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-month and nine-month periods ended September 30, 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS(Continued)
(Continued)Page 15 of 22
Other income and expenses, net, for the quarter ended September 30, was $1.0 million in expense in 2001, compared with $1.7 million in income in 2000. 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 nonoperating services, costs associated with the commercialization of certain new technologies, and net equity earnings from non-consolidated investments. Other income and expenses, net, for the nine-months ended September 30, was $8.3 million in income in 2001 and $6.8 million in income in 2000. In 2001, other income and expenses, net, includes an $8.9 million gain on the sale of certain assets related to the Magnesia Specialties refractories business, while in 2000, other income includes a nonrecurring insurance settlement related to Hurricane Floyd.
Interest expense was $12.1 million in the third quarter 2001, compared to $10.7 million in the third quarter of 2000, primarily due to the Meridian acquisition.
The Corporation’s estimated effective income tax rate for the first nine months was 32.4% in 2001 and 33.6% in 2000. See Note 4 of the Notes to Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES Net cash flow provided by operating activities during the nine-months ended September 30, 2001, was $159.1 million, compared with $155.4 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:
(Continued)Page 16 of 22
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 $155.4 million provided by operations in the nine-months ended September 30, 2000.
Nine-month capital expenditures, exclusive of acquisitions, were $149.7 million in 2001 and $117.9 million in 2000. Capital expenditures are expected to be approximately $180 to $190 million for 2001, exclusive of acquisitions. Comparable full-year capital expenditures were $170.8 million in 2000. During the first nine-months ended September 30, 2001, the Corporation spent $217.4 million, net of cash, in continuation of its 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.
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 2001.
(Continued)Page 17 of 22
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. In July 2001, Standard & Poor’s revised its outlook on the Corporation to negative from stable while reaffirming its ratings. The outlook revision reflects Standard & Poor’s belief that the Corporation’s acquisition activity could make it more difficult for the Corporation to restore credit quality measures to certain levels. 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.
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 18 of 22
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 Vote of Security Holders.
No matters were submitted to a vote of security holders during the third quarter of 2001.
Item 5. Other Information.
On August 17, 2001, the Corporation announced that the Board of Directors had declared a regular quarterly cash dividend of $0.14 per share of the Corporation’s common stock. The dividend, which represents a cash payout of $0.56 per share on an annualized basis, was payable on September 28, 2001, to shareholders of record at the close of business on August 31, 2001.
On September 27, 2001, the Corporation announced the acquisition of four active limestone quarries and two inactive sites, located in Central Kansas, from Walker Stone Company. The transaction was for cash and common stock, with the purchase price not disclosed. The Corporation also announced the acquisition of a small limestone quarry, located near Omaha, Nebraska, from City Wide Rock & Excavating, Co., Incorporated. The purchase was for cash, with the purchase price not announced.
On October 23, 2001, the Corporation reported its financial results for the third quarter and nine-months ended September 30, 2001.
Page 19 of 22
PART II — OTHER INFORMATION(Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Page 20 of 22
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.
Page 21 of 22
EXHIBIT INDEX
Page 22 of 22