SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-12744

MARTIN MARIETTA MATERIALS, INC.

 

(Exact name of registrant as specified in its charter)

North Carolina		56-1848578
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
2710 Wycliff Road, Raleigh, NC		27607-3033
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code 919-781-4550

Former name:		None
		Former name, former address and former fiscal year, if changes since last report.

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 o No o

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.

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

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

Class		Outstanding as of October 31, 2009
Common Stock, $0.01 par value		44,636,355

 

 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

		Page
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets — September 30, 2009, December 31, 2008 and September 30, 2008			3
Consolidated Statements of Earnings - Three and Nine Months Ended September 30, 2009 and 2008			4
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2009 and 2008			5
Consolidated Statement of Total Equity			6
Condensed Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			49
Item 4. Controls and Procedures			50
Part II. Other Information:
Item 1. Legal Proceedings			51
Item 1A. Risk Factors			51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 6. Exhibits			52
Signatures			53
Exhibit Index			54
EX-31.01
EX-31.02
EX-32.01
EX-32.02

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		September 30,				December 31,				September 30,
		2009				2008				2008
		(Unaudited)				(Audited)				(Unaudited)
		(Dollars in Thousands, Except Per Share Data)
ASSETS
Current Assets:
Cash and cash equivalents		$	193,835			$	37,794			$	13,896
Accounts receivable, net			241,520				211,596				300,416
Inventories, net			329,781				318,018				305,550
Current portion of notes receivable, net			1,206				1,474				1,354
Current deferred income tax benefits			58,272				57,967				29,347
Other current assets			20,352				38,182				23,098
Total Current Assets			844,966				665,031				673,661
Property, plant and equipment			3,436,078				3,320,905				3,315,558
Allowances for depreciation, depletion and amortization			(1,737,939	)			(1,630,376	)			(1,597,112	)
Net property, plant and equipment			1,698,139				1,690,529				1,718,446
Goodwill			624,224				622,297				613,634
Other intangibles, net			12,887				13,890				14,339
Noncurrent notes receivable, net			12,252				7,610				7,594
Other noncurrent assets			40,213				33,145				35,958
Total Assets		$	3,232,681			$	3,032,502			$	3,063,632
LIABILITIES AND EQUITY
Current Liabilities:
Bank overdraft		$	162			$	4,677			$	5,670
Accounts payable			61,741				62,921				97,247
Accrued salaries, benefits and payroll taxes			18,155				19,232				18,809
Pension and postretirement benefits			5,852				3,728				3,135
Accrued insurance and other taxes			34,307				23,419				37,005
Income taxes			2,469				—				11,418
Current maturities of long-term debt and short-term facilities			226,025				202,530				203,517
Accrued interest			27,680				13,277				32,041
Other current liabilities			18,394				18,855				15,714
Total Current Liabilities			394,785				348,639				424,556
Long-term debt			1,038,873				1,152,414				1,152,715
Pension, postretirement and postemployment benefits			193,249				207,830				100,437
Noncurrent deferred income taxes			175,255				174,308				189,237
Other noncurrent liabilities			78,543				82,051				76,481
Total Liabilities			1,880,705				1,965,242				1,943,426
Equity:
Common stock, par value $0.01 per share			446				414				414
Preferred stock, par value $0.01 per share			—				—				—
Additional paid-in capital			319,777				78,545				74,809
Accumulated other comprehensive loss			(89,267	)			(101,672	)			(36,952	)
Retained earnings			1,080,084				1,044,417				1,036,944
Total Shareholders’ Equity			1,311,040				1,021,704				1,075,215
Noncontrolling interests			40,936				45,556				44,991
Total Equity			1,351,976				1,067,260				1,120,206
Total Liabilities and Equity		$	3,232,681			$	3,032,502			$	3,063,632

See accompanying condensed notes to consolidated financial statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(In Thousands, Except Per Share Data)
						(Unaudited)
Net Sales		$	428,615			$	525,662			$	1,169,627			$	1,447,621
Freight and delivery revenues			59,696				73,049				159,110				199,708
Total revenues			488,311				598,711				1,328,737				1,647,329
Cost of sales			310,865				374,088				891,691				1,081,243
Freight and delivery costs			59,696				73,049				159,110				199,708
Total cost of revenues			370,561				447,137				1,050,801				1,280,951
Gross Profit			117,750				151,574				277,936				366,378
Selling, general & administrative expenses			32,932				37,734				106,855				117,470
Research and development			51				145				350				457
Other operating (income) and expenses, net			(4,448	)			(1,216	)			(2,311	)			(14,387	)
Earnings from Operations			89,215				114,911				173,042				262,838
Interest expense			18,181				19,498				55,358				54,636
Other nonoperating (income) and expenses, net			(1,196	)			766				(1,514	)			298
Earnings from continuing operations before taxes on income			72,230				94,647				119,198				207,904
Income tax expense			15,309				26,173				28,667				59,481
Earnings from Continuing Operations			56,921				68,474				90,531				148,423
(Loss) Gain on discontinued operations, net of related tax expense of $36, $1,809, $275 and $5,308, respectively			(53	)			(167	)			548				5,011
Consolidated net earnings			56,868				68,307				91,079				153,434
Less: Net earnings attributable to noncontrolling interests			1,354				1,981				2,467				2,439
Net Earnings Attributable to Martin Marietta Materials, Inc.		$	55,514			$	66,326			$	88,612			$	150,995
Net Earnings Attributable to Martin Marietta Materials, Inc.
Earnings from continuing operations		$	55,567			$	66,493			$	88,064			$	145,984
Discontinued operations			(53	)			(167	)			548				5,011
		$	55,514			$	66,326			$	88,612			$	150,995
Net Earnings Attributable to Martin Marietta Materials, Inc.
Per Common Share
Basic from continuing operations available to common shareholders		$	1.23			$	1.58			$	1.99			$	3.48
Discontinued operations available to common shareholders			—				—				0.01				0.12
		$	1.23			$	1.58			$	2.00			$	3.60
Diluted from continuing operations available to common shareholders		$	1.23			$	1.57			$	1.98			$	3.46
Discontinued operations available to common shareholders			—				—				0.01				0.12
		$	1.23			$	1.57			$	1.99			$	3.58
Weighted-Average Common Shares Outstanding
Basic			44,622				41,385				43,690				41,347
Diluted			44,813				41,630				43,879				41,615
Cash Dividends Per Common Share		$	0.40			$	0.40			$	1.20			$	1.09

See accompanying condensed notes to consolidated financial statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months Ended
		September 30,
		2009				2008
		(Dollars in Thousands)
		(Unaudited)
Cash Flows from Operating Activities:
Consolidated net earnings		$	91,079			$	153,434
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities:
Depreciation, depletion and amortization			133,276				125,659
Stock-based compensation expense			17,084				17,635
Losses (Gains) on divestitures and sales of assets			2,045				(29,363	)
Deferred income taxes			(1,851	)			26,045
Excess tax benefits from stock-based compensation transactions			(1,956	)			(3,776	)
Other items, net			(2,165	)			(2,149	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable, net			(30,291	)			(53,378	)
Inventories, net			(9,738	)			(12,713	)
Accounts payable			(982	)			10,452
Other assets and liabilities, net			38,097				42,597
Net Cash Provided by Operating Activities			234,598				274,443
Cash Flows from Investing Activities:
Additions to property, plant and equipment			(100,493	)			(223,777	)
Acquisitions, net			(49,574	)			(218,426	)
Proceeds from divestitures and sales of assets			7,375				19,341
Loan to affiliate			(4,000	)			—
Railcar construction advances			—				(7,286	)
Repayments of railcar construction advances			—				7,286
Net Cash Used for Investing Activities			(146,692	)			(422,862	)
Cash Flows from Financing Activities:
Borrowings of long-term debt			280,000				297,837
Repayments of long-term debt and capital lease obligations			(167,687	)			(4,125	)
Repayments on short-term facilities, net			(200,000	)			(72,000	)
Debt issuance costs			(2,285	)			(1,105	)
Termination of interest rate swap agreements			—				(11,139	)
Change in bank overdraft			(4,515	)			(681	)
Dividends paid			(52,945	)			(45,707	)
Distributions to owners of noncontrolling interests			(2,561	)			(3,444	)
Purchase of remaining 49% interest in existing joint venture			(17,060	)			—
Repurchases of common stock			—				(24,017	)
Issuances of common stock			233,232				2,882
Excess tax benefits from stock-based compensation transactions			1,956				3,776
Net Cash Provided by Financing Activities			68,135				142,277
Net Increase (Decrease) in Cash and Cash Equivalents			156,041				(6,142	)
Cash and Cash Equivalents, beginning of period			37,794				20,038
Cash and Cash Equivalents, end of period		$	193,835			$	13,896
Noncash Investing and Financing Activities:
Issuance of notes payable for acquisition of land		$	125			$	11,500
Notes receivable issued in connection with divestiture and sales of assets		$	1,675			$	300
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest		$	39,503			$	36,689
Cash payments for income taxes		$	8,101			$	18,491

See accompanying condensed notes to consolidated financial statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF TOTAL EQUITY
(Unaudited)

		Shares of																				Total
		Common				Common				Additional				Accumulated Other				Retained				Shareholders’				Noncontrolling				Total
(in thousands)		Stock				Stock				Paid-in Capital				Comprehensive Loss				Earnings				Equity				Interests				Equity
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			—				—				—				—				88,612				88,612				2,467				91,079
Unrecognized actuarial losses and prior service costs related to pension and postretirement benefits, net of tax benefit of $6,404			—				—				—				9,785				—				9,785				—				9,785
Foreign currency translation gain			—				—				—				2,244				—				2,244				—				2,244
Amortization of terminated value of forward starting interest rate swap agreements into interest expense, net of tax benefit of $246			—				—				—				376				—				376				—				376
Consolidated comprehensive earnings																							101,017				2,467				103,484
Dividends declared			—				—				—				—				(52,945	)			(52,945	)			—				(52,945	)
Issuances of common stock			3,052				30				232,513				—				—				232,543				—				232,543
Issuances of common stock for stock award plans			122				2				(764	)			—				—				(762	)			—				(762	)
Stock-based compensation expense			—				—				17,084				—				—				17,084				—				17,084
Purchase of remaining 49% interest in existing joint venture			—				—				(7,601	)			—				—				(7,601	)			(4,526	)			(12,127	)
Distributions to owners of noncontrolling interests			—				—				—				—				—				—				(2,561	)			(2,561	)
Balance at September 30, 2009			44,636			$	446			$	319,777			$	(89,267	)		$	1,080,084			$	1,311,040			$	40,936			$	1,351,976

See accompanying condensed notes to consolidated financial statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

Significant Accounting Policies

		Basis of Presentation
		The accompanying unaudited consolidated financial statements of Martin Marietta Materials, Inc. (the “Corporation”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and to Article 10 of Regulation S-X. The Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on February 17, 2009. In the opinion of management, the interim financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods. The results of operations for the quarter and nine months ended September 30, 2009 are not indicative of the results expected for other interim periods or the full year.
		Accounting Changes
		On July 1, 2009, the Financial Accounting Standards Board (FASB) released the authoritative version of the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental U.S. Generally Accepted Accounting Principles (GAAP). The Codification, which does not change U.S. GAAP, reorganizes the thousands of U.S. GAAP pronouncements into 90 accounting topics and displays all topics using a consistent structure. It also includes relevant Securities and Exchange Commission guidance that follows the same topical structure in separate sections in the Codification. The Codification is effective for annual and interim periods ending after September 15, 2009. The Codification did not change the Corporation’s existing accounting policies.
		Effective January 1, 2009, if the Corporation is required to record any nonrecurring nonfinancial assets and nonfinancial liabilities at fair value, they are measured in accordance with the Fair Value Measurements and Disclosures Topic of the Codification.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

1.		Significant Accounting Policies (continued)
		Accounting Changes (continued)
		In accordance with the Business Combinations Topic of the Codification, 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; capitalizing in-process research and development assets acquired; and recognizing contingent consideration obligations and contingent gains acquired and contingent losses assumed. Furthermore, the Corporation classifies noncontrolling interests as a separate component of equity and net earnings attributable to noncontrolling interests as a separate line item on the face of the earnings statement for all business combinations with acquisitions dates on or after January 1, 2009. As disclosed in Note 2, on June 12, 2009, the Corporation acquired three quarry locations plus the remaining 49% interest in an existing joint venture from CEMEX, Inc.
		The accounting guidance for noncontrolling interests in consolidated financial statements also requires retrospective application of its disclosure and presentation requirements for all periods presented. Accordingly, noncontrolling interests at December 31, 2008 and September 30, 2008, which were previously reported as other noncurrent liabilities, have been reclassified as a separate component of equity. Furthermore, net earnings attributable to noncontrolling interests for the three and nine months ended September 30, 2008 have been presented as a separate line item on the Corporation’s consolidated statement of earnings. Consolidated comprehensive earnings for the three and nine months ended September 30, 2008 were also adjusted to include the comprehensive earnings attributable to noncontrolling interests.
		Effective January 1, 2009, the Corporation retrospectively determined whether instruments granted in share-based payment transactions are participating securities. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, included in computing 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 non-forfeitable dividend equivalents during the vesting period on its restricted stock awards and incentive stock awards, which results in these being considered participating securities. The inclusion of participating securities in the Corporation’s EPS calculations decreased previously-reported basic EPS by $0.02 and previously-reported diluted EPS by $0.01 for the three months ended September 30, 2008. For the nine months ended September 30, 2008, the inclusion of participating securities in the Corporation’s EPS calculations decreased previously-reported basic EPS by $0.05 and previously-reported diluted EPS by $0.02.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

1.		Significant Accounting Policies (continued)
		Earnings per Common Share
		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. 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:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(In Thousands)
Net earnings from continuing operations attributable to Martin Marietta Materials, Inc.		$	55,567			$	66,493			$	88,064			$	145,984
Less: Distributed and undistributed earnings attributable to unvested awards			617				935				1,122				2,044
Basic and diluted net earnings available to common shareholders from continuing operations attributable to Martin Marietta Materials, Inc.			54,950				65,558				86,942				143,940
Basic and diluted net earnings available to common shareholders from discontinued operations			(53	)			(167	)			548				5,011
Basic and diluted net earnings available to common shareholders attributable to Martin Marietta Materials, Inc.		$	54,897			$	65,391			$	87,490			$	148,951
Basic weighted-average common shares outstanding			44,622				41,385				43,690				41,347
Effect of dilutive employee and director awards			191				245				189				268
Diluted weighted-average common shares outstanding			44,813				41,630				43,879				41,615

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

1.		Significant Accounting Policies (continued)
		Comprehensive Earnings
		Consolidated comprehensive earnings consist of consolidated net earnings or loss; amortization of actuarial losses and prior service costs related to pension and postretirement benefits; foreign currency translation adjustments; and the amortization of the terminated value of forward starting interest rate swap agreements into interest expense. Consolidated comprehensive earnings for the three and nine months ended September 30, 2009 were $64,097,000 and $103,484,000, respectively. For the three and nine months ended September 30, 2008, consolidated comprehensive earnings were $70,287,000 and $153,514,000, respectively.
		Subsequent Events
		The Corporation has evaluated subsequent events through November 3, 2009, which represents the date the Corporation’s Form 10-Q for the quarter ended September 30, 2009 was filed with the Securities and Exchange Commission.
		Reclassifications
		Certain 2008 amounts have been reclassified to conform to the 2009 presentation. The reclassifications had no impact on previously reported results of operations or financial position.

2.

Business Combinations and Discontinued Operations

		Business Combinations
		On June 12, 2009, the Corporation acquired three quarry locations plus the remaining 49% interest in an existing joint venture from CEMEX, Inc. The quarry operations are located at Fort Calhoun, Nebraska; Guernsey, Wyoming; and Milford, Utah. Guernsey and Milford are rail-connected quarries while Fort Calhoun ships material via barge on the Missouri River in addition to its local and long-haul truck market in Nebraska. The 49% interest purchased relates to the Granite Canyon, Wyoming, quarry (“Granite Canyon”) where the Corporation is the operating manager. Granite Canyon is a major supplier of railroad ballast serving both the Union Pacific Railroad and Burlington Northern Santa Fe Railway. The acquired locations enhance the Corporation’s existing long-haul distribution network and provide attractive product synergies. For the year ended December 31, 2008, the Corporation’s newly acquired locations, including the partial interest only in Granite Canyon, shipped 3.3 million tons and have aggregates reserves that exceed 250 million tons.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

2.		Business Combinations and Discontinued Operations (continued)
		The purchase price for the three quarries plus the remaining 49% interest in Granite Canyon was $65,000,000, which represents the fair value of the assets (cash) given to CEMEX, Inc. Of the total purchase price, the Corporation allocated $48,000,000 to the three quarry locations and $17,000,000 to Granite Canyon based on the locations’ relative fair values.
		The three new quarry locations represent a business combination. Accordingly, the purchase price has been allocated to the fair values of the assets acquired and the liabilities assumed. The Corporation recognized goodwill in the amount of $414,000, all of which is deductible for income tax purposes. The final fair values of the other assets acquired related to the three quarry locations were allocated as follows (dollars in thousands):

Inventories		$	2,025
Mineral reserves and interests		$	31,686
Land		$	1,220
Machinery and equipment		$	12,533
Customer relationships		$	290

		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 nine months ended September 30, 2009. In addition, the operating results of the acquired quarries have been included with those of the Corporation since the date of acquisition and are being reported through the Corporation’s West Group in the financial statements.
		The purchase of the remaining 49% interest in Granite Canyon 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 total purchase price of $17,060,000 for Granite Canyon has been classified as a financing activity in the Corporation’s consolidated statement of cash flows for the nine months ended September 30, 2009.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

2.

Business Combinations and Discontinued Operations (continued)

		Discontinued Operations
		Operations that are disposed of or permanently shut down 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 on the consolidated statements of earnings. All discontinued operations relate to the Aggregates business.
		Discontinued operations included the following net sales, pretax gain or loss on operations, pretax gains on disposals, income tax expense and overall net loss or earnings:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(Dollars in Thousands)
Net sales		$	64			$	1,105			$	794			$	5,136
Pretax (loss) gain on operations		$	(17	)		$	(120	)		$	820			$	(293	)
Pretax gain on disposals			—				1,762				3				10,612
Pretax (loss) gain			(17	)			1,642				823				10,319
Income tax expense			36				1,809				275				5,308
Net (loss) earnings		$	(53	)		$	(167	)		$	548			$	5,011

3.

Inventories, Net

		September 30,				December 31,				September 30,
		2009				2008				2008
		(Dollars in Thousands)
Finished products		$	282,032			$	268,763			$	262,189
Products in process and raw materials			17,432				17,206				15,638
Supplies and expendable parts			47,551				51,068				47,875
			347,015				337,037				325,702
Less allowances			(17,234	)			(19,019	)			(20,152	)
Total		$	329,781			$	318,018			$	305,550

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

4.

Goodwill

		The following table shows changes in goodwill, all of which relate to the Aggregates business, by reportable segment and in total (dollars in thousands):

		Three Months Ended September 30, 2009
						Southeast				West
		Mideast Group				Group				Group				Total
Balance at beginning of period		$	119,749			$	105,870			$	403,468			$	629,087
Adjustments to purchase price allocations			—				—				(4,863	)			(4,863	)
Balance at end of period		$	119,749			$	105,870			$	398,605			$	624,224

		Nine Months Ended September 30, 2009
						Southeast				West
		Mideast Group				Group				Group				Total
Balance at beginning of period		$	118,249			$	105,857			$	398,191			$	622,297
Acquisitions			—				—				5,277				5,277
Adjustments to purchase price allocations			1,500				13				(4,863	)			(3,350	)
Balance at end of period		$	119,749			$	105,870			$	398,605			$	624,224

During the three months ended September 30, 2009, the Corporation adjusted the preliminary fair values of inventories and mineral reserves recorded in connection with the June 2009 acquisition of three quarries from CEMEX, Inc. The adjustment to the purchase price allocation increased inventories and mineral reserves by $107,000 and $4,756,000, respectively, and reduced the goodwill recognized in the transaction by $4,863,000.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

5.

Long-Term Debt

		September 30,				December 31,				September 30,
		2009				2008				2008
		(Dollars in Thousands)
6.875% Notes, due 2011		$	242,083			$	249,892			$	249,884
6.6% Senior Notes, due 2018			298,068				297,946				297,907
7% Debentures, due 2025			124,366				124,350				124,345
6.25% Senior Notes, due 2037			247,844				247,822				247,815
Floating Rate Senior Notes, due 2010, interest rate of 0.64% at September 30, 2009			217,437				224,650				224,584
5.875% Notes, due 2008			—				—				200,380
Term Loan, due 2012, interest rate of 3.0% at September 30, 2009			126,750				—				—
Revolving Credit Agreement, interest rate of 2.555% at December 31, 2008			—				200,000				—
Acquisition note, interest rate of 8.00%			610				629				635
Other notes			7,740				9,655				10,682
			1,264,898				1,354,944				1,356,232
Less current maturities			(226,025	)			(202,530	)			(203,517	)
Total		$	1,038,873			$	1,152,414			$	1,152,715

During the three months ended September 30, 2009, the Corporation repurchased certain of its publicly-traded bonds that mature in 2010 and 2011. The Corporation paid $15,600,000, excluding accrued interest, for bonds that have a par value of $15,245,000, resulting in a loss of $355,000 on the repurchases. The Corporation may execute additional repurchases of debt prior to its contractual maturity.

On April 23, 2009, the Corporation entered into a $130,000,000 unsecured term loan with a syndicate of banks (the “Term Loan”). 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) one-month LIBOR plus 1%. At September 30, 2009, the interest rate on the Term Loan was based on one-month LIBOR plus 300 basis points, or 3.0%. At September 30, 2009, the outstanding balance on the Term Loan was $126,750,000. The Term Loan requires quarterly principal payments of $1,625,000 through March 31, 2011 and $3,250,000 thereafter, with the remaining outstanding principal due in full on June 6, 2012.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

5.

Long-Term Debt (continued)

On April 21, 2009, the Corporation entered into a $100,000,000 three-year secured accounts receivable credit facility (the “AR Credit Facility”) with Wells Fargo Bank, N.A. (“Wells Fargo”). The AR Credit Facility 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, purchases and settlements will be 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 will carry the receivables and any outstanding borrowings on its consolidated balance sheet. From April 21, 2009 through September 30, 2009, the Corporation borrowed $150,000,000 under the AR Credit Facility, which was subsequently repaid in full. At September 30, 2009, there were no borrowings outstanding under the Corporation’s AR Credit Facility.

The Corporation’s $325,000,000 five-year revolving 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 3.25 to 1.00 as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with acquisitions 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 3.50 to 1.00. The Corporation was in compliance with the Ratio at September 30, 2009.

On April 16, 2008, the Corporation unwound its two forward starting interest rate swap agreements with a total notional amount of $150,000,000 (the “Swap Agreements”). 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 three and nine months ended September 30, 2009, the Corporation recognized $211,000 and $622,000, respectively, as additional interest expense. The accumulated other comprehensive loss related to the Swap Agreements at September 30, 2009 was $6,017,000, net of cumulative noncurrent deferred tax assets of $3,937,000. 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.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

6.

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. 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 (namely, North Carolina, Texas, Georgia, Iowa and Florida which accounted for approximately 60% of the Aggregate Business’ 2008 net sales). 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.

The estimated fair value of the Corporation’s publicly registered long-term notes and debentures at September 30, 2009 was $1,114,521,000, compared with a carrying amount of $1,129,798,000 on the consolidated balance sheet. The fair value of this long-term debt was estimated based on quoted market prices. The estimated fair value of other borrowings, including the Corporation’s Term Loan, was $135,100,000 at September 30, 2009 and approximates its carrying amount.

The carrying values and fair values of the Corporation’s financial instruments at September 30, 2009 are as follows (dollars in thousands):

		Carrying Value				Fair Value
Cash and cash equivalents		$	193,835			$	193,835
Accounts receivable, net		$	241,520			$	241,520
Notes receivable, net		$	13,458			$	13,458
Bank overdraft		$	162			$	162
Long-term debt		$	1,264,898			$	1,249,621

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

7.

Income Taxes

Income tax expense reported on the Corporation’s consolidated statements of earnings includes income taxes on earnings attributable to both controlling and noncontrolling interests.

		Nine Months Ended September 30,
		2009				2008
Estimated effective income tax rate:
Continuing operations			24.0	%			28.6	%
Discontinued operations			33.4	%			51.4	%
Consolidated Overall			24.1	%			29.7	%

The Corporation’s effective income tax rate reflects the effect of state income taxes and the impact of differences in book and tax accounting arising from the net permanent benefits associated with the depletion allowances for mineral reserves, the domestic production deduction and the tax effect of nondeductibility of goodwill related to asset sales. 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 income tax rate.

The change in the year-to-date consolidated overall estimated effective income tax rate during the third quarter of 2009, when compared with the year-to-date consolidated overall effective tax rate as of June 30, 2009, increased consolidated net earnings for the nine months ended September 30, 2009 by $5,161,000, or $0.12 per diluted share. The percentage depletion deduction is the most significant driver of the Corporation’s overall effective tax rate. Due to certain limitations imposed on percentage depletion, decreases in sales volumes and pretax earnings do not decrease the depletion deduction proportionately. Furthermore, the overall estimated effective income tax rate for the nine months ended September 30, 2009 includes the true-up of the 2008 provision estimates to actual taxes paid as a result of filing the related tax returns during the period. Management expects the overall effective tax rate for the full year to be approximately 25%.

The overall estimated effective tax rate for the nine months ended September 30, 2008 includes the following discrete items, which had an immaterial effect on net earnings: effective settlement of agreed upon issues from the Internal Revenue Service examination that covered the 2004 and 2005 tax years and the true-up of the 2007 provision estimates to actual taxes paid as a result of filing the related tax returns during the period.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

8.

Pension and Postretirement Benefits

The following presents the estimated components of the recorded net periodic benefit cost for pension and postretirement benefits for the three and nine months ended September 30 (dollars in thousands):

		Three Months Ended September 30,
		Pension								Postretirement Benefits
		2009				2008				2009				2008
Service cost		$	2,788			$	2,674			$	139			$	145
Interest cost			5,566				5,036				730				693
Expected return on assets			(4,060	)			(5,247	)			—				—
Amortization of:
Prior service cost (credit)			164				160				(372	)			(372	)
Actuarial loss (gain)			3,596				998				—				(17	)
Settlement charge			—				2,576				—				—
Total net periodic benefit cost		$	8,054			$	6,197			$	497			$	449

		Nine Months Ended September 30,
		Pension								Postretirement Benefits
		2009				2008				2009				2008
Service cost		$	8,364			$	8,607			$	418			$	436
Interest cost			16,699				16,209				2,189				2,080
Expected return on assets			(12,181	)			(16,888	)			—				—
Amortization of:
Prior service cost (credit)			491				513				(1,116	)			(1,117	)
Actuarial loss (gain)			10,787				3,214				—				(52	)
Settlement charge			—				2,849				—				—
Total net periodic benefit cost		$	24,160			$	14,504			$	1,491			$	1,347

During the nine months ended September 30, 2009, the Corporation contributed $19,454,000 to its pension and SERP plans. The Corporation expects to contribute an additional $5,000,000 during the remainder of the year.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9.

Contingencies

The Corporation is engaged in certain legal and administrative proceedings incidental to its normal business activities. Currently, the Corporation is a named party in various legal proceedings in both federal and state courts relating to its Greenwood, Missouri, operation. The Corporation believes its positions with regard to these legal proceedings are strong and cannot, at this time, reasonably predict the ultimate outcome of the proceedings or payments that would be required, if any. A future charge, if any, related to these proceedings could have a material adverse effect on the results of the Corporation’s operations or its financial position.

In the opinion of management and counsel, it is unlikely that the outcome of any other litigation and other proceedings, including those pertaining to environmental matters, 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.

10.

Business Segments

The Corporation conducts its aggregates operations through three reportable business segments: Mideast Group, Southeast Group and West Group. The operating results and assets of the quarries acquired from CEMEX, Inc. are being reported in the West Group. The Corporation also has a Specialty Products segment that includes magnesia chemicals and dolomitic lime.

The following tables display selected financial data for the Corporation’s reportable business segments. Corporate loss from operations primarily includes depreciation on capitalized interest, expenses for corporate administrative functions, unallocated corporate expenses and other nonrecurring and/or non-operational adjustments.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

10.

Business Segments (continued)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(Dollars in Thousands)
Total revenues:
Mideast Group		$	140,085			$	180,947			$	359,299			$	485,529
Southeast Group			108,162				146,568				333,519				421,389
West Group			196,044				219,167				518,001				590,392
Total Aggregates Business			444,291				546,682				1,210,819				1,497,310
Specialty Products			44,020				52,029				117,918				150,019
Total		$	488,311			$	598,711			$	1,328,737			$	1,647,329
Net sales:
Mideast Group		$	131,520			$	167,722			$	338,379			$	455,294
Southeast Group			87,938				118,593				275,392				342,647
West Group			169,571				193,004				449,872				515,236
Total Aggregates Business			389,029				479,319				1,063,643				1,313,177
Specialty Products			39,586				46,343				105,984				134,444
Total		$	428,615			$	525,662			$	1,169,627			$	1,447,621
Earnings (Loss) from operations:
Mideast Group		$	40,069			$	60,957			$	79,183			$	154,499
Southeast Group			4,812				13,013				22,977				36,189
West Group			36,207				38,385				65,830				72,183
Total Aggregates Business			81,088				112,355				167,990				262,871
Specialty Products			11,947				8,632				26,108				27,453
Corporate			(3,820	)			(6,076	)			(21,056	)			(27,486	)
Total		$	89,215			$	114,911			$	173,042			$	262,838

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

10.

Business Segments (continued)

The asphalt, ready mixed concrete, road paving and other product lines are considered internal customers of the core aggregates business. Net sales by product line are as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(Dollars in Thousands)
Aggregates		$	364,775			$	452,662			$	992,087			$	1,237,597
Asphalt			12,041				11,774				34,988				35,375
Ready Mixed Concrete			6,194				9,508				21,301				28,938
Road Paving			4,349				4,667				10,550				9,171
Other			1,670				708				4,717				2,096
Total Aggregates Business			389,029				479,319				1,063,643				1,313,177
Specialty Products			39,586				46,343				105,984				134,444
Total		$	428,615			$	525,662			$	1,169,627			$	1,447,621

11.

Supplemental Cash Flow Information

The following table presents the components of the change in other assets and liabilities, net:

		Nine Months Ended
		September 30,
		2009				2008
		(Dollars in Thousands)
Other current and noncurrent assets		$	(5,731	)		$	(3,170	)
Notes receivable			252				(366	)
Accrued salaries, benefits and payroll taxes			(4,594	)			(2,890	)
Accrued insurance and other taxes			10,888				11,883
Accrued income taxes			22,560				42,832
Accrued pension, postretirement and postemployment benefits			3,729				(5,866	)
Other current and noncurrent liabilities			10,993				174
		$	38,097			$	42,597

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

12.

Accrual for Reduction in Workforce

During the fourth quarter of 2008, the Corporation accrued severance and other termination benefits for certain employees that were terminated as part of a reduction in workforce designed to control its cost structure. During the three and nine months ended September 30, 2009, the Corporation paid $661,000 and $2,722,000, respectively, in accordance with the terms of the severance arrangements. The remaining accrual of $1,483,000 at September 30, 2009 is expected to be paid within the upcoming twelve months.

13.

Sale of Equity Securities

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 distribution agreement expires by its own terms no later than December 31, 2009. From March 5, 2009 through March 31, 2009, 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 did not sell any shares of its common stock pursuant to the distribution agreement during the three months ended September 30, 2009.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2009

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW Martin Marietta Materials, Inc. (the “Corporation”), conducts its operations through four reportable business segments: Mideast Group, Southeast Group, West Group (collectively, the “Aggregates business”) and Specialty Products. The Corporation’s net sales and earnings are predominately derived from its Aggregates business, which processes and sells granite, limestone, and other aggregates products from a network of 289 quarries, distribution facilities and plants to customers in 30 states, Canada, the Bahamas and the Caribbean Islands. The Aggregates business’ products are used primarily by commercial customers principally in domestic construction of highways and other infrastructure projects and for commercial and residential building development. The Specialty Products segment produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.

CRITICAL ACCOUNTING POLICIES The Corporation outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on February 17, 2009. The following presents an addition to the Corporation’s critical accounting policies for the allocation of purchase price for acquisitions.

The Corporation’s Board of Directors and management regularly review strategic long-term plans, which include potential investments in value-added acquisitions of companies that engage in similar businesses, would increase the Corporation’s market presence and/or are related to existing markets of the Corporation. When an acquisition is completed, the Corporation’s consolidated statement of earnings includes the operating results of the acquired business starting from the date of acquisition, which is the date that control is obtained. The purchase price is determined based on the fair value of assets given to and liabilities assumed from the seller as of the date of acquisition. The Corporation allocates the purchase price to the fair values of the tangible and intangible assets acquired and liabilities assumed as valued at the date of acquisition. Goodwill is recorded for the excess of the purchase price over the net of the fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date. The allocation of the purchase price is a critical accounting policy because the estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions. Further, the amounts and useful lives assigned to depreciable and amortizable assets versus amounts assigned to goodwill, which is not amortized, can significantly affect the results of operations in the period of and in periods subsequent to a business combination.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2009

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2009
(Continued)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and, therefore, represents an exit price. A fair value measurement assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible, and financially feasible at the measurement date. The Corporation assigns the highest level of fair value available to assets acquired and liabilities assumed based on the following options:

	•		Level 1 — Quoted prices in active markets for identical assets and liabilities
	•		Level 2 — Observable inputs, other than quoted prices, for similar assets or liabilities in active markets
	•		Level 3 — Unobservable inputs are used to value the asset or liability. This includes the use of valuation models.

Level 2 fair values are typically used to value acquired inventories, machinery and equipment, and land. Additionally, Level 2 fair values are typically used to value assumed contracts that are not at market rates and assumed liabilities for asset retirement obligations, environmental remediation and compliance obligations, and contingencies.

Level 3 fair values are used to value acquired mineral reserves, mineral interests, and separately-identifiable intangible assets. The fair values of mineral reserves and mineral interests are determined using an excess earnings approach, which requires management to estimate future cash flows, net of capital investments in the specific operation and contributory asset charges. The estimate of future cash flows is based on available historical information and on future expectations and assumptions deemed reasonable by management, but is inherently uncertain. Key assumptions in estimating future cash flows include sales price, shipment volumes and costs. The present value of the projected net cash flows represents the fair value assigned to mineral reserves and mineral interests. The discount rate is a significant assumption used in the valuation model. The rate is selected based on the required rate of return that a hypothetical market participant would require if purchasing the acquired business combination, with an adjustment for the risk of the assets generating the projected cash flows.

The Corporation values separately-identifiable acquired intangible assets which may include, but are not limited to, noncompetition agreements, customer relationships and permits. The fair values of these assets are generally determined using a cost approach based on the estimated amount to purchase or replace the asset. Amortization periods are based on either the contractual rights or the expected useful life of the asset if not contractually specified.