What drove the decline in 2002 earnings?

Management cited the recessionary economy, which reduced aggregates volume and caused underabsorption of fixed costs. Wet weather, twelve hurricanes or tropical storms, higher pension and health care costs, and start-up costs at the Bahamas facility also weighed on results. The $11.5 million goodwill impairment for the road paving business further reduced reported net earnings.

What is the 2003 earnings outlook?

Management expects net earnings of $1.95 to $2.25 per diluted share for 2003, with heritage aggregates volume flat and price increases of 1.5% to 2%. It believes downside risks, including war with Iraq, weakening economic conditions, and higher energy costs, outweigh the upside potential.

How is the company's balance sheet positioned?

Total debt was $744.9 million at year-end 2002, down from $801.9 million, and the debt-to-capitalization ratio was 41%, compared with 44% a year earlier. Shareholders' equity rose to $1.083 billion. The company's senior unsecured debt is rated A- by Standard & Poor's and A3 by Moody's.

What is the company doing to diversify beyond aggregates?

The company is developing a structural composites business for bridge decks, truck trailers, and construction products, with a 185,000 square foot facility in Sparta, North Carolina expected to begin manufacturing in the second half of 2003. Management expects 2004 to be the first full year of operations and says revenue has been insignificant to date.

MLM 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 27, 2003. Cited figures are marked; the original filing is the authoritative source.

Martin Marietta Materials, Inc. (NYSE: MLM) describes itself as the United States' second largest producer of aggregates for construction, with a smaller magnesia-based chemicals and dolomitic lime business.

In 2002 the Aggregates segment accounted for 95% of total net sales and Magnesia Specialties for 5%. Consolidated net sales were $1.497 billion^a in 2002 versus $1.506 billion in 2001, and net earnings fell to $86.3 million, or $1.77 per diluted share, from $105.4 million, or $2.19 per diluted share. Earnings before the $11.5 million cumulative effect of the FAS 142 goodwill impairment were $97.8 million, or $2.00 per diluted share.

Operating cash flow was $203.6 million^b, down from $252.9 million in 2001. Management attributes the weak results to the recessionary economy, with commercial construction declining sharply, wet weather, and twelve hurricanes or tropical storms in 2002. Gross margin declined to 19.7% from 20.6%, and 2002 results included $20.0 million of nonrecurring divestiture gains.

Aggregates shipments fell 2% to 188.6 million tons. Heritage price increases were 2.4%. The company completed six acquisitions for $48.0 million^c in cash and sold nonstrategic operations.

Total debt fell to $744.9 million^d from $801.9 million, and the debt-to-capitalization ratio improved to 41% from 44%. For 2003, management expects heritage aggregates volume to be flat, with price increases of 1.5% to 2%, and projects net earnings of $1.95 to $2.25 per diluted share.

It cites war with Iraq and weakening economic conditions as downside risks, and considers those risks to outweigh the upside. The company is also building a structural composites business, with manufacturing in Sparta, North Carolina expected to start in the second half of 2003.

02—Key points

Key Highlights

2002 net sales of $1.497 billion, down slightly from $1.506 billion in 2001; Aggregates was 95% of net sales.
Net earnings of $86.3 million, or $1.77 per diluted share, versus $105.4 million, or $2.19, in 2001, after an $11.5 million goodwill impairment recorded as a cumulative effect of accounting change.
Earnings from operations of $174.7 million, down from $197.2 million; gross margin fell to 19.7% from 20.6%.
Aggregates shipments decreased 2% to 188.6 million tons, with commercial construction down sharply amid the recession.
Operating cash flow of $203.6 million versus $252.9 million in 2001; capital expenditures of $152.7 million excluding acquisitions.
Total debt reduced to $744.9 million from $801.9 million; debt-to-capitalization improved to 41% from 44%.
2003 guidance of $1.95 to $2.25 per diluted share, excluding any impact from FAS 143 adoption.

03—Questions

Frequently Asked Questions

What drove the decline in 2002 earnings?
Management cited the recessionary economy, which reduced aggregates volume and caused underabsorption of fixed costs. Wet weather, twelve hurricanes or tropical storms, higher pension and health care costs, and start-up costs at the Bahamas facility also weighed on results. The $11.5 million goodwill impairment for the road paving business further reduced reported net earnings.
What is the 2003 earnings outlook?
Management expects net earnings of $1.95 to $2.25 per diluted share for 2003, with heritage aggregates volume flat and price increases of 1.5% to 2%. It believes downside risks, including war with Iraq, weakening economic conditions, and higher energy costs, outweigh the upside potential.
How is the company's balance sheet positioned?
Total debt was $744.9 million at year-end 2002, down from $801.9 million, and the debt-to-capitalization ratio was 41%, compared with 44% a year earlier. Shareholders' equity rose to $1.083 billion. The company's senior unsecured debt is rated A- by Standard & Poor's and A3 by Moody's.
What is the company doing to diversify beyond aggregates?
The company is developing a structural composites business for bridge decks, truck trailers, and construction products, with a 185,000 square foot facility in Sparta, North Carolina expected to begin manufacturing in the second half of 2003. Management expects 2004 to be the first full year of operations and says revenue has been insignificant to date.

04—Continue

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