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

For the quarterly period ended June 30, 2006

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

For the transition period from            to

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

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

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 July 28, 2006
Common Stock, $0.01 par value		45,333,799

Page 1 of 48

 

 

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

		Page
Part I. Financial Information:
Item 1. Financial Statements.
Consolidated Balance Sheets — June 30, 2006 and December 31, 2005			3
Consolidated Statements of Earnings — Three and Six Months Ended June 30, 2006 and 2005			4
Consolidated Statements of Cash Flows — Six Months Ended June 30, 2006 and 2005			5
Consolidated Statement of Shareholders’ 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.			42
Item 4. Controls and Procedures.			43
Part II. Other Information:
Item 1. Legal Proceedings.			44
Item 1A. Risk Factors.			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			44
Item 4. Submission of Matters to a Vote of Security Holders.			45
Item 6. Exhibits.			46
Signatures			47
Exhibit Index			48

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

Item 1. Financial Statements

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

		June 30,				December 31,				June 30,
		2006				2005				2005
		(Unaudited)				(Audited)				(Unaudited)
		(Dollars in Thousands, Except Per Share Data)
ASSETS
Current Assets:
Cash and cash equivalents		$	20,386			$	76,745			$	81,410
Investments			—				25,000				10,000
Accounts receivable, net			292,559				225,012				282,844
Inventories, net			243,714				222,728				217,003
Current portion of notes receivable			2,494				5,081				3,844
Current deferred income tax benefits			16,906				14,989				6,112
Other current assets			31,708				32,486				23,052
Total Current Assets			607,767				602,041				624,265
Property, plant and equipment			2,641,697				2,501,774				2,408,816
Allowances for depreciation and depletion			(1,385,697	)			(1,335,423	)			(1,285,309	)
Net property, plant and equipment			1,256,000				1,166,351				1,123,507
Goodwill			570,336				569,263				569,294
Other intangibles, net			16,846				18,744				20,369
Noncurrent notes receivable			10,836				27,883				24,917
Other noncurrent assets			40,231				49,034				43,915
Total Assets		$	2,502,016			$	2,433,316			$	2,406,267
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Bank overdraft		$	15,324			$	7,290			$	5,200
Accounts payable			99,526				93,445				103,566
Accrued salaries, benefits and payroll taxes			20,664				24,199				22,648
Pension and postretirement benefits			6,268				4,200				4,413
Accrued insurance and other taxes			43,442				39,582				43,351
Income taxes			24,088				1,336				23,785
Current maturities of long-term debt and commercial paper			13,989				863				915
Other current liabilities			27,275				29,207				25,578
Total Current Liabilities			250,576				200,122				229,456
Long-term debt and commercial paper			705,359				709,159				711,491
Pension, postretirement and postemployment benefits			97,056				98,714				87,924
Noncurrent deferred income taxes			143,678				149,972				138,469
Other noncurrent liabilities			86,062				101,664				100,447
Total Liabilities			1,282,731				1,259,631				1,267,787
Shareholders’ Equity:
Common stock, par value $0.01 per share			453				457				462
Preferred stock, par value $0.01 per share			—				—				—
Additional paid-in capital			205,529				240,541				301,836
Accumulated other comprehensive loss			(15,325	)			(15,325	)			(8,970	)
Retained earnings			1,028,628				948,012				845,152
Total Shareholders’ Equity			1,219,285				1,173,685				1,138,480
Total Liabilities and Shareholders’ Equity		$	2,502,016			$	2,433,316			$	2,406,267

See accompanying condensed notes to consolidated financial statements.

Page 3 of 48

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
		(In Thousands, Except Per Share Data)
		(Unaudited)
Net Sales		$	518,271			$	477,259			$	942,682			$	815,476
Freight and delivery revenues			70,370				66,582				129,923				118,093
Total revenues			588,641				543,841				1,072,605				933,569
Cost of sales			365,006				347,634				705,454				636,182
Freight and delivery costs			70,370				66,582				129,923				118,093
Total cost of revenues			435,376				414,216				835,377				754,275
Gross Profit			153,265				129,625				237,228				179,294
Selling, general & administrative expenses			37,148				31,801				73,309				63,629
Research and development			140				193				304				341
Other operating (income) and expenses, net			(3,643	)			(2,225	)			(7,290	)			(3,983	)
Earnings from Operations			119,620				99,856				170,905				119,307
Interest expense			9,708				10,662				19,684				21,452
Other nonoperating (income) and expenses, net			(306	)			964				(2,400	)			(1,271	)
Earnings from continuing operations before income tax expense			110,218				88,230				153,621				99,126
Income tax expense			34,234				25,449				47,976				27,735
Earnings from continuing operations			75,984				62,781				105,645				71,391
(Loss) Gain on discontinued operations, net of related tax expense (benefit) of $46, $(597), $670 and $(1,254) respectively			(194	)			(1,309	)			1,151				(2,842	)
Net Earnings		$	75,790			$	61,472			$	106,796			$	68,549
Net Earnings (Loss) Per Common Share:
Basic from continuing operations		$	1.66			$	1.35			$	2.31			$	1.52
Discontinued operations			—				(0.03	)			0.03				(0.06	)
		$	1.66			$	1.32			$	2.34			$	1.46
Diluted from continuing operations		$	1.63			$	1.33			$	2.26			$	1.50
Discontinued operations			—				(0.03	)			0.03				(0.06	)
		$	1.63			$	1.30			$	2.29			$	1.44
Cash Dividends Per Common Share		$	0.23			$	0.20			$	0.46			$	0.40
Weighted Average Common Shares Outstanding:
Basic			45,663				46,569				45,706				46,814
Diluted			46,623				47,174				46,704				47,454

See accompanying condensed notes to consolidated financial statements.

Page 4 of 48

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

		Six Months Ended
		June 30,
		2006				2005
		(Dollars in Thousands)
		(Unaudited)
Net earnings		$	106,796			$	68,549
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation, depletion and amortization			66,622				67,730
Stock-based compensation expense			6,065				1,527
Gains on divestitures and sales of assets			(5,142	)			(483	)
Deferred income taxes			(4,994	)			(1,072	)
Excess tax benefits from stock-based compensation transactions			(9,375	)			2,713
Other items, net			(2,649	)			(2,717	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable, net			(67,547	)			(63,255	)
Inventories, net			(21,065	)			(5,517	)
Accounts payable			6,080				13,741
Other assets and liabilities, net			39,088				27,434
Net cash provided by operating activities			113,879				108,650
Investing activities:
Additions to property, plant and equipment			(157,699	)			(101,284	)
Acquisitions, net			(2,939	)			(4,138	)
Proceeds from divestitures and sales of assets			22,613				20,922
Purchases of investments			—				(10,000	)
Proceeds from sale of investments			25,000				—
Railcar construction advances			(32,077	)			—
Repayments of railcar construction advances			32,077				—
Net cash used for investing activities			(113,025	)			(94,500	)
Financing activities:
Repayments of long-term debt			(415	)			(438	)
Borrowings on line of credit and commercial paper			13,539				—
Change in bank overdraft			8,034				(4,326	)
Payments on capital lease obligations			(69	)			—
Dividends paid			(21,251	)			(18,697	)
Repurchases of common stock			(83,180	)			(81,130	)
Issuances of common stock			16,754				10,231
Excess tax benefits from stock-based compensation transactions			9,375				—
Net cash used for financing activities			(57,213	)			(94,360	)
Net decrease in cash and cash equivalents			(56,359	)			(80,210	)
Cash and cash equivalents, beginning of period			76,745				161,620
Cash and cash equivalents, end of period		$	20,386			$	81,410
Supplemental disclosures of cash flow information:
Cash paid for interest		$	23,596			$	23,270
Cash payments for income taxes		$	12,233			$	11,093

See accompanying condensed notes to consolidated financial statements.

Page 5 of 48

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

														Accumulated
		Shares of								Additional				Other								Total
		Common				Common				Paid-in				Comprehensive				Retained				Shareholders’
(in thousands)		Stock				Stock				Capital				Loss				Earnings				Equity
Balance at December 31, 2005			45,727			$	457			$	240,541			$	(15,325	)		$	948,012			$	1,173,685
Writeoff of capitalized stripping costs, net			—				—				—				—				(4,929	)			(4,929	)
Reclassification of stock-based compensation liabilities to shareholders’ equity for FAS 123(R) adoption			—				—				12,339				—				—				12,339
Net earnings			—				—				—				—				106,796				106,796
Dividends declared			—				—				—				—				(21,251	)			(21,251	)
Issuances of common stock for stock award plans			520				5				29,755				—				—				29,760
Repurchases of common stock			(914	)			(9	)			(83,171	)			—								(83,180	)
Stock-based compensation expense			—				—				6,065				—				—				6,065
Balance at June 30, 2006			45,333			$	453			$	205,529			$	(15,325	)		$	1,028,628			$	1,219,285

See accompanying condensed notes to consolidated financial statements.

Page 6 of 48

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

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, 2005, filed with the Securities and Exchange Commission on February 27, 2006. 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 for the interim periods. The results of operations for the six months ended June 30, 2006 are not indicative of the results to be expected for the full year.
		Reclassifications
		Certain 2005 amounts have been reclassified to conform to the 2006 presentation. The reclassifications had no impact on previously reported net earnings or financial position.
		Sales Taxes
		Sales taxes collected from customers are recorded as liabilities until remitted to taxing authorities and therefore are not reflected in the consolidated statements of earnings.
		Stripping Costs
		Effective January 1, 2006, the Corporation adopted Emerging Issues Task Force Issue 04-06, Accounting for Stripping Costs in the Mining Industry (“EITF 04-06”). EITF 04-06 clarifies that post-production stripping costs, which represent costs of removing overburden and waste materials to access mineral deposits, should be considered costs of the extracted minerals under a full absorption costing system and recorded as a component of inventory to be recognized in costs of sales in the same period as the revenue from the sale of the inventory. Prior to the adoption of EITF 04-06, the Corporation capitalized certain post-production stripping costs and amortized these costs over the lesser of half of the life of the uncovered reserves or 5 years.
		In connection with the adoption of EITF 04-06, the Corporation wrote off $8,148,000 of capitalized post-production stripping costs previously reported as other noncurrent assets and a related deferred tax liability of $3,219,000, thereby reducing retained earnings by $4,929,000 at January 1, 2006.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

1.		Significant Accounting Policies (continued)
		Stock-Based Compensation
		The Corporation has stock-based compensation plans for employees and directors as more fully described in Note 9. Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)”) to account for these plans. FAS 123(R) requires all forms of share-based payments to employees, including stock options, to be recognized as compensation expense. The compensation expense is the fair value of the awards at the measurement date. Further, FAS 123(R) requires compensation cost to be recognized over the requisite service period for all awards granted subsequent to adoption. As required by FAS 123(R), the Corporation will continue to recognize compensation cost over the explicit vesting period for all unvested awards as of January 1, 2006, with acceleration for any remaining unrecognized compensation cost if an employee retires prior to the end of the vesting period.
		The Corporation adopted the provisions of FAS 123(R) using the modified prospective transition method, which recognizes stock option awards as compensation expense for unvested awards as of January 1, 2006 and awards granted or modified subsequent to that date. In accordance with the modified prospective transition method, the Corporation’s consolidated statements of earnings for the three and six months ended June 30, 2005 and its consolidated statement of cash flows for the six months ended June 30, 2005 have not been restated and do not include the impact of FAS 123(R).
		Under FAS 123(R), an entity may elect either the accelerated expense recognition method or a straight-line recognition method for awards subject to graded vesting based on a service condition. The Corporation elected to use the accelerated expense recognition method for stock options issued to employees. The accelerated recognition method requires stock options that vest ratably to be divided into tranches. The expense for each tranche is allocated to its particular vesting period.
		The adoption of FAS 123(R) did not change the Corporation’s accounting for stock-based compensation related to restricted stock awards, incentive compensation awards and nonemployee directors’ awards. The Corporation continues to expense the fair value of these awards based on the closing price of the Corporation’s common stock on the awards’ respective measurement dates.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

1.		Significant Accounting Policies (continued)
		Stock-Based Compensation (continued)
		The adoption of FAS 123(R) resulted in the recognition of compensation expense for stock options granted by the Corporation. During the three months ended June 30, 2006, the Corporation recognized $1,302,000 of compensation expense for the May 2006 grant of 168,393 stock options (141,393 to employees and 27,000 to directors). Of this amount, $885,000 relates to directors’ options that were expensed at the grant date as the options vested immediately. The remaining options are being expensed over their requisite service periods. With the current forfeiture rate assumptions, total stock-based compensation expense to be recognized for the May 2006 option grant is $5,530,000. No stock options were granted during the quarter ended March 31, 2006.
		The impact of expensing stock options granted in 2006 and the unvested portion of outstanding employee stock options at January 1, 2006 affected the Corporation’s results of operations as follows:

		Three Months Ended				Six Months Ended
		June 30, 2006				June 30, 2006
Decreased earnings from continuing operations before income tax expense by:		$	2,121,000			$	3,189,000
Decreased earnings from continuing operations and net earnings by:		$	1,282,000			$	1,928,000
Decreased basic earnings per share by:		$	0.03			$	0.04
Decreased diluted earnings per share by:		$	0.03			$	0.04

		Furthermore, FAS 123(R) requires tax benefits attributable to stock-based compensation transactions to be classified as financing cash flows. Prior to the adoption of FAS 123(R), the Corporation presented excess tax benefits from stock-based compensation transaction as an operating cash flow on its consolidated statements of cash flows. The $9,375,000 excess tax benefit classified as a financing cash flow for the six months ended June 30, 2006 would have been classified as an operating cash inflow had the Corporation not adopted FAS 123(R).
		In connection with the adoption of FAS 123(R), the Corporation reclassified $12,339,000 of stock-based compensation liabilities to additional paid-in-capital, thereby increasing shareholders’ equity at January 1, 2006.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

1.		Significant Accounting Policies (continued)
		Stock-Based Compensation (continued)
		Prior to January 1, 2006, the Corporation accounted for its stock-based compensation plans under the intrinsic value method prescribed by APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations. As the Corporation granted stock options with an exercise price equal to the market value of the stock on the date of grant, no stock-based compensation cost for stock options granted was recognized in net earnings as reported in the consolidated statements of earnings prior to adopting FAS 123(R). The following table illustrates the effect on net earnings and earnings per share if the Corporation had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”) (dollars in thousands, except per share amounts):

		Three Months Ended				Six Months Ended
		June 30, 2005				June 30, 2005
Net earnings, as reported		$	61,472			$	68,549
Add: Stock-based compensation expense included in reported net earnings, net of related tax effects			428				856
Deduct: Stock-based compensation expense determined under fair value for all awards, net of related tax effects			(1,654	)			(2,941	)
Pro forma net earnings		$	60,246			$	66,464
Earnings per share:
Basic-as reported		$	1.32			$	1.46
Basic-pro forma		$	1.29			$	1.42
Diluted-as reported		$	1.30			$	1.44
Diluted-pro forma		$	1.28			$	1.40

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

1.		Significant Accounting Policies (continued)
		Stock-Based Compensation (continued)
		The Corporation used a lattice valuation model to determine the fair value of stock option awards granted in 2006 and 2005 and the Black-Scholes valuation model for stock options granted prior to 2004. The lattice valuation model takes into account employees’ exercise patterns based on changes in the Corporation’s stock price and other variables and is considered to result in a more accurate valuation of employee stock options than the Black-Scholes valuation model. The period of time for which options are expected to be outstanding, or expected term of the option, is a derived output of the lattice valuation model. The Corporation considers the following factors when estimating the expected term of options: vesting period of the award, expected volatility of the underlying stock, employees’ ages and external data. Other key assumptions used in determining the fair value of the stock options awarded in 2006 and 2005 were:

		2006		2005
Risk-free interest rate		4.90%		3.80%
Dividend yield		1.10%		1.60%
Volatility factor		31.20%		30.80%
Expected term		6.9 years		6.3 years

		Based on these assumptions, the weighted-average fair value of each stock option granted was $33.21 for 2006 and $18.72 for 2005.
		The risk-free interest rate reflects the interest rate on zero-coupon U.S. government bonds available at the time each option was granted having a remaining life approximately equal to the option’s expected life. The dividend yield represents the dividend rate expected to be paid over the option’s expected life and is based on the Corporation’s history and targeted dividend pattern. The Corporation’s volatility factor measures the amount by which its stock price is expected to fluctuate during the expected life of the option and is based on historical stock price changes and other factors. Additionally, FAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Corporation estimated forfeitures and will ultimately recognize compensation cost only for those stock-based awards that vest.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

1.		Significant Accounting Policies (continued)
		Earnings per Common Share
		The following table sets forth the computation of basic and diluted earnings (loss) per share:

		Three Months Ended June 30,								Six Months Ended June 30,
		2006				2005				2006				2005
Earnings from continuing operations		$	75,984			$	62,781			$	105,645			$	71,391
(Loss) Gain on discontinued operations			(194	)			(1,309	)			1,151				(2,842	)
Net earnings		$	75,790			$	61,472			$	106,796			$	68,549
Reconciliation of denominators for basic and diluted earnings per share computations:
Basic weighted average number of common shares			45,662,541				46,569,420				45,706,196				46,814,271
Effect of dilutive employee and director awards			960,376				604,226				997,361				640,190
Diluted weighted average number of common shares and assumed conversions			46,622,917				47,173,646				46,703,557				47,454,461
Net earnings (loss) per common share:
Basic from continuing operations		$	1.66			$	1.35			$	2.31			$	1.52
Discontinued operations			—				(0.03	)			0.03				(0.06	)
		$	1.66			$	1.32			$	2.34			$	1.46
Diluted from continuing operations		$	1.63			$	1.33			$	2.26			$	1.50
Discontinued operations			—				(0.03	)			0.03				(0.06	)
		$	1.63			$	1.30			$	2.29			$	1.44

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

2.		Business Combinations and Divestitures
		In 2006 and 2005, the Corporation disposed of certain underperforming operations in its Aggregates operating segment. These divestitures 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.
		The discontinued operations included the following net sales, pretax loss on operations, pretax gain or loss on disposals, income tax expense or benefit and overall net earnings or loss (dollars in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net sales		$	142			$	2,151			$	237			$	6,245
Pretax loss on operations		$	(148	)		$	(1,906	)		$	(402	)		$	(3,172	)
Pretax gain (loss) on disposals			—				—				2,223				(924	)
Pretax (loss) gain			(148	)			(1,906	)			1,821				(4,096	)
Income tax expense (benefit)			46				(597	)			670				(1,254	)
Net (loss) earnings		$	(194	)		$	(1,309	)		$	1,151			$	(2,842	)

3.

Inventories

		June 30,				December 31,
		2006				2005
		(Dollars in Thousands)
Finished products		$	199,529			$	185,681
Products in process and raw materials			18,195				17,990
Supplies and expendable parts			37,845				31,158
			255,569				234,829
Less allowances			(11,855	)			(12,101	)
Total		$	243,714			$	222,728

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

4.		Goodwill
		The following table shows changes in goodwill, all of which relate to the Aggregates segment (dollars in thousands):

		Three Months Ended				Six Months Ended
		June 30, 2006				June 30, 2006
Balance at beginning of period		$	570,336			$	569,263
Adjustments to purchase price allocations			—				1,998
Amounts allocated to divestitures			—				(925	)
Balance at end of period		$	570,336			$	570,336

5.

Long-Term Debt

		June 30,				December 31,
		2006				2005
		(Dollars in Thousands)
6.875% Notes, due 2011		$	249,814			$	249,800
5.875% Notes, due 2008			205,265				206,277
6.9% Notes, due 2007			124,992				124,988
7% Debentures, due 2025			124,304				124,295
Commercial paper and line of credit, interest rates ranging from 4.40 % to 5.45%			13,539				—
Acquisition notes, interest rates ranging from 2.11% to 8.00%			769				3,657
Other notes			665				1,005
			719,348				710,022
Less current maturities			(13,989	)			(863	)
Total		$	705,359			$	709,159

		The carrying values of the notes due in 2008 included $5,570,000 and $6,640,000 at June 30, 2006 and December 31, 2005, respectively, for the unamortized value of terminated interest rate swaps.
		In June 2006, the Corporation extended the expiration date of its $250,000,000 five-year revolving credit agreement (the “Credit Agreement”) by one year to June 30, 2011. No borrowings were outstanding under the Credit Agreement at June 30, 2006 or December 31, 2005. However, the Credit Agreement supports a $250,000,000 commercial paper program, of which borrowings of $10,000,000 were outstanding at June 30, 2006. No borrowings were outstanding under the commercial paper program at December 31, 2005.
		The Corporation had $3,539,000 outstanding under a $10,000,000 line of credit.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

6.

Income Taxes

		Six Months Ended June 30,
		2006				2005
Estimated effective income tax rate:
Continuing operations			31.2	%			28.0	%
Discontinued operations			36.8	%			30.6	%
Overall			31.3	%			27.9	%

		The Corporation’s effective 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, foreign operating earnings 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 tax rate.
		The overall effective income tax rate for the six months ended June 30, 2005 reflects the benefit of a decrease in tax reserves related to certain international tax issues currently under examination that increased net earnings by $1,000,000, or $0.02 per diluted share. Additionally, the State of Ohio enacted tax reform legislation that reduced income tax expense and increased net earnings by $1,200,000, or $0.02 per diluted share, during the quarter ended June 30, 2005.
7.		Pension and Postretirement Benefits
		The following presents the estimated components of the recorded net periodic benefit cost for pension and postretirement benefits for the quarter ended June 30 (dollars in thousands):

		Pension								Postretirement Benefits
		2006				2005				2006				2005
Service cost		$	3,072			$	2,637			$	134			$	70
Interest cost			4,540				4,022				652				370
Expected return on assets			(4,904	)			(4,322	)			—				—
Amortization of:
Prior service cost			219				161				(340	)			(161	)
Actuarial loss (gain)			650				512				(98	)			(18	)
Total net periodic benefit cost		$	3,577			$	3,010			$	348			$	261

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

7.		Pension and Postretirement Benefits (continued)
		The following presents the estimated components of the recorded net periodic benefit cost for pension and postretirement benefits for the six months ended June 30 (dollars in thousands):

		Pension								Postretirement Benefits
		2006				2005				2006				2005
Service cost		$	6,104			$	5,457			$	276			$	284
Interest cost			9,054				8,320				1,339				1,490
Expected return on assets			(9,810	)			(8,942	)			—				—
Amortization of:
Prior service cost			371				334				(648	)			(647	)
Actuarial loss (gain)			1,430				1,059				(119	)			(74	)
Total net periodic benefit cost		$	7,149			$	6,228			$	848			$	1,053

		The Corporation has no required pension plan contribution for 2006. However, the Corporation is currently considering a contribution of up to $23,000,000 during the third quarter of 2006 depending on its then current cash position and an evaluation of alternative uses of available cash.
8.		Contingencies
		In the opinion of management and counsel, it is unlikely that the outcome of 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 or its financial position.
9.		Stock-Based Compensation
		The shareholders approved, on May 8, 1998, the Martin Marietta Materials, Inc. Stock-Based Award Plan, as amended from time to time (along with the Amended Omnibus Securities Award Plan, originally approved in 1994, the “Plans”). The Corporation has been authorized by the Board of Directors to repurchase shares of the Corporation’s common stock for issuance under the Plans.
		Under the Plans, the Corporation grants options to employees to purchase its common stock at a price equal to the market value at the date of grant. The Corporation granted 141,393 employee stock options during the six months ended June 30, 2006. Options granted in 2006 and 2005 become exercisable in four annual installments beginning one year after date of grant and expire eight years from such date. Options granted in years prior to 2005 become exercisable in three equal annual installments beginning one year after date of grant and expire ten years from such date.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9.		Stock-Based Compensation (continued)
		Pursuant to the Plans, each nonemployee director currently receives 3,000 non-qualified stock options annually. During the six months ended June 30, 2006, the Corporation granted 27,000 options to nonemployee directors. These options have an exercise price equal to the market value at the date of grant, vest immediately and expire ten years from the grant date.
		The following table includes summary information for stock options for employees and nonemployee directors for the six months ended June 30, 2006:

						Weighted-
		Number of				Average				Aggregate
		Options				Exercise Price				Intrinsic Value
Outstanding at December 31, 2005			2,478,220			$	43.97
Granted			168,393			$	89.02
Exercised			(610,491	)		$	42.87			$	32,659,000
Terminated			(3,728	)		$	42.38
Outstanding at June 30, 2006			2,032,394			$	48.04			$	87,611,000
Exercisable at June 30, 2006			1,307,709			$	45.28			$	59,989,000

		For the six months ended June 30, 2005, the intrinsic value of options exercised was $6,860,000. The intrinsic values of options exercised during the six months ended June 30, 2006 and 2005 were based on the closing prices of the Corporation’s common stock on the dates of exercise. The aggregate intrinsic value for options outstanding and exercisable at June 30, 2006 was based on the closing price of the Corporation’s common stock at June 30, 2006, which was $91.15.
		The following tables summarize information for options outstanding and exercisable at June 30, 2006:

Options Outstanding
Range of						Weighted-Average				Weighted-Average
Exercise Prices		Number of Shares				Remaining Life (years)				Exercise Price
$24.25-$35.50			18,084				1.1			$	35.50
$36.55-$51.50			1,684,783				5.8			$	42.83
$61.05-$89.02			329,527				7.6			$	75.39
			2,032,394				6.1

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9.

Stock-Based Compensation (continued)

Options Exercisable
Range of						Weighted-Average				Weighted-Average
Exercise Prices		Number of Shares				Remaining Life (years)				Exercise Price
$24.25-$35.50			18,084				1.1			$	35.50
$36.55-$51.50			1,197,608				5.1			$	43.57
$61.05-$89.02			92,017				8.0			$	69.44
			1,307,709				5.2

		Additionally, an incentive stock plan has been adopted under the Plans whereby certain participants may elect to use up to 50% of their annual incentive compensation to acquire units representing shares of the Corporation’s common stock at a 20% discount to the market value on the date of the incentive compensation award. Certain executive officers are required to participate in the incentive stock plan at certain minimum levels. Participants earn the right to receive their respective shares at the discounted value generally at the end of a 35-month period of additional employment from the date of award or at retirement beginning at age 62. All rights of ownership of the common stock convey to the participants upon the issuance of their respective shares at the end of the ownership-vesting period, with the exception of dividend equivalents that are paid on the units during the vesting period.
		The Corporation grants restricted stock awards under the Plans to a group of executive officers and key personnel. Certain restricted stock awards are based on specific common stock performance criteria over a specified period of time. In addition, certain awards were granted to individuals to encourage retention and motivate key employees. These awards generally vest if the employee is continuously employed over a specified period of time and require no payment from the employee.
		The following table summarizes information for incentive compensation awards and restricted stock awards for the six months ended June 30, 2006:

		Incentive Compensation								Restricted Stock
		Awards								Awards
						Weighted-								Weighted-
						Average								Average
		Number of				Grant-Date				Number of				Grant-Date
		Awards				Fair Value				Awards				Fair Value
Balance at December 31, 2005			69,855								276,712
Awarded			27,302			$	91.05				109,306			$	89.49
Distributed			(2,199	)							(463	)
Forfeited			(241	)							(956	)
Balance at June 30, 2006			94,717								384,599
Aggregate intrinsic value		$	3,899,000							$	13,715,000

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9.		Stock-Based Compensation (continued)
		The weighted-average grant-date fair value for incentive compensation awards and restricted awards granted during the six months ended June 30, 2005 was $55.15 and $60.63, respectively.
		The aggregate intrinsic values for incentive compensation awards and restricted stock awards at June 30, 2006 were based on the closing price of the Corporation’s common stock at June 30, 2006, which was $91.15.
		At June 30, 2006, approximately 1,246,000 shares were available for grant under the Plans.
		In 1996, the Corporation adopted the Shareholder Value Achievement Plan to award shares of the Corporation’s common stock to key senior employees based on certain common stock performance criteria over a long-term period. Under the terms of this plan, 250,000 shares of common stock were reserved for issuance. Through June 30, 2006, 42,025 shares have been issued under this plan. No awards have been granted under this plan after 2000.
		Also, the Corporation adopted and the shareholders approved the Common Stock Purchase Plan for Directors in 1996, which provides nonemployee directors the election to receive all or a portion of their total fees in the form of the Corporation’s common stock. The Corporation has reserved 300,000 shares of common stock for issuance in connection with this plan. Currently, directors are required to defer at least 50% of their retainer in the form of the Corporation’s common stock at a 20% discount to market value. Directors elected to defer portions of their fees representing 5,940 shares of the Corporation’s common stock under this plan during the six months ended June 30, 2006.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9.		Stock-Based Compensation (continued)
		The following table summarizes stock-based compensation expense for the three and six months ended June 30, 2006 and 2005, unrecognized compensation cost for nonvested awards not yet recognized at June 30, 2006 and the weighted-average period over which unrecognized compensation cost is expected to be recognized:

										Incentive
		Stock				Restricted				Compensation				Directors’
		Options				Stock Awards				Awards				Awards				Total
Stock-based compensation expense recognized for three months ended June 30:
2006		$	2,121,000			$	1,412,000			$	124,000			$	188,000			$	3,845,000
2005		$	—			$	516,000			$	76,000			$	171,000			$	763,000
Stock-based compensation expense recognized for six months ended June 30:
2006		$	3,189,000			$	2,262,000			$	255,000			$	359,000			$	6,065,000
2005		$	—			$	1,040,000			$	157,000			$	330,000			$	1,527,000
Unrecognized compensation cost at June 30, 2006:		$	6,238,000			$	14,587,000			$	593,000			$	336,000			$	21,754,000
Weighted-average period over which unrecognized compensation cost to be recognized:		1.8 years				2.6 years				1.5 years				0.8 years

		For the six months ended June 30, 2006, the Corporation recognized a tax benefit related to stock-based compensation of $2,020,000.
		The following presents expected stock-based compensation expense in future periods for outstanding awards as of June 30, 2006:

Remainder of 2006		$	7,350,000
2007			7,330,000
2008			4,292,000
2009			2,234,000
2010			548,000
Total		$	21,754,000

Stock-based compensation expense is included in selling, general and administrative expenses on the Corporation’s consolidated statements of earnings.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

10.		Business Segments
		The Corporation conducts its operations through two reportable business segments: Aggregates and Specialty Products. The following tables display selected financial data for the Corporation’s reportable business segments (dollars in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Total revenues
Aggregates		$	548,068			$	509,607			$	986,739			$	865,289
Specialty Products			40,573				34,234				85,866				68,280
Total		$	588,641			$	543,841			$	1,072,605			$	933,569
Net sales
Aggregates		$	481,843			$	446,578			$	864,845			$	754,261
Specialty Products			36,428				30,681				77,837				61,215
Total		$	518,271			$	477,259			$	942,682			$	815,476
Earnings from operations
Aggregates		$	112,555			$	98,122			$	156,916			$	115,099
Specialty Products			7,065				1,734				13,989				4,208
Total		$	119,620			$	99,856			$	170,905			$	119,307

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

11.		Accounting Changes
		In March 2006, the Financial Accounting Standards Board (“FASB”) issued an Exposure Draft, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefits, an amendment of FAS 87, 88, 106 and 132(R). In its current form, the proposed statement requires an employer that sponsors one or more defined benefit pension or other postretirement plans to recognize an asset or liability for the overfunded or underfunded status of the plan. Additionally, employers would be required to record all unrecognized prior service costs and credits, unrecognized actual gains and losses and any unrecognized transition obligations or assets in accumulated other comprehensive income. Such amounts would be reclassified into earnings as components of net period benefit cost/income pursuant to the current recognition and amortization provisions of Statements of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions (“FAS 87”) and No. 106, Employers’ Accounting for Postretirement Benefits Other than Pensions (“FAS 106”). Finally, the proposed statement requires an employer to measure plan assets and benefit obligations as of the date of the employer’s statement of financial position. The FASB has indicated that it expects to issue a final standard later this year. Except for the measurement date requirement, the proposed statement would be effective for fiscal years ending after December 15, 2006 and should be applied prospectively. The measurement date requirement would be effective for fiscal years beginning after December 31, 2006. At December 31, 2005, the Corporation’s pension plans were underfunded by $59.7 million and its postretirement plans, which provide medical benefits for retirees, were underfunded by $51.6 million. Further, the Corporation currently uses an annual measurement date of November 30.
		In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertain Tax Positions, an Interpretation of FAS 109 (“FIN 48”), which clarifies the criteria for recognition and measurement of benefits from uncertain tax positions. Under FIN 48, an entity should recognize a tax benefit when it is “more-likely-than-not”, based on the technical merits, that the position would be sustained upon examination by a taxing authority. The amount to be recognized should be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Furthermore, any change in the recognition, derecognition or measurement of a tax position should be recognized in the interim period in which the change occurs. FIN 48 is effective January 1, 2007 for the Corporation, and any change in net assets as a result of applying the Interpretation will be recognized as an adjustment to retained earnings at that date. Management is in the process of evaluating its uncertain tax positions in accordance with FIN 48.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2006

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 two reportable business segments: Aggregates and Specialty Products. The Corporation’s net sales and earnings are predominately derived from its Aggregates segment, which processes and sells granite, limestone, and other aggregates products from a network of 322 quarries, distribution facilities and plants in 28 states in the southeastern, southwestern, midwestern and central regions of the United States and in the Bahamas and Canada. The Aggregates segment’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 Specialty Products segment produces magnesia-based chemicals products used in industrial, agricultural and environmental applications; dolomitic lime sold primarily to customers in the steel industry; and structural composite products used in a wide variety of applications, both military and commercial.

CRITICAL ACCOUNTING POLICIES The Corporation outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission on February 27, 2006. As discussed in Note 9 to the Consolidated Financial Statements, the Corporation adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)”) on January 1, 2006. FAS 123(R) requires all forms of share-based payments to employees, including employee stock options, to be recognized as compensation expense. The compensation expense is the fair value of the awards at the measurement date. The Corporation adopted the provisions of FAS 123(R) using the modified prospective transition method, which recognizes stock option awards as compensation expense for unvested awards as of January 1, 2006 and awards granted or modified subsequent to that date. In accordance with the modified prospective transition method, the Corporation’s consolidated statements of earnings and cash flows for the prior-year periods have not been restated. The impact to the Corporation of adopting FAS 123(R) and expensing stock options granted in 2006 and the unvested portion of outstanding employee stock options was as follows:

		Three Months Ended				Six Months Ended
		June 30, 2006				June 30, 2006
Decreased earnings from continuing operations before income tax expense by:		$	2,121,000			$	3,189,000
Decreased earnings from continuing operations and net earnings by:		$	1,282,000			$	1,928,000
Decreased basic earnings per share by:		$	0.03			$	0.04
Decreased diluted earnings per share by:		$	0.03			$	0.04

In addition, the Corporation reclassified $12,339,000 of stock-based compensation liabilities to additional paid-in-capital, thereby increasing shareholders’ equity at January 1, 2006.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2006
(Continued)

Prior to January 1, 2006, the Corporation accounted for its stock-based compensation plans under the intrinsic value method prescribed by APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations. Compensation cost was recognized in net earnings for awards granted under those plans with an exercise price less than the market value of the underlying common stock on the date of grant. For nonqualified stock options granted under those plans with an exercise price equal to the market value of the stock on the date of grant, no compensation cost was recognized in net earnings as reported in the consolidated statement of earnings. Rather, stock-based compensation expense was included as a pro forma disclosure in the notes to the financial statements. Pro forma disclosures of net earnings and earnings per share continue to be provided for periods prior to January 1, 2006.

The Corporation has stock-based compensation plans for certain of its employees and its nonemployee directors. All stock-based compensation equity awards are units until distributed as shares of common stock upon vesting. The plans provide for the following types of equity awards:

	•		Nonqualified stock options to certain employees and nonemployee directors
	•		Restricted stock awards to certain employees (“restricted stock awards”)
	•		Stock awards to certain employees related to incentive compensation (“incentive compensation awards”)
	•		Common stock purchase plan for nonemployee directors related to their annual retainer and meeting fees (“directors’ awards”)

In 2005, the Corporation’s Management Development and Compensation Committee redesigned the Corporation’s long-term compensation program to more directly tie pay with performance. Prior to redesign, the long-term compensation program consisted primarily of stock options, which were awarded based on a multiple of base compensation and targeted to be competitive with equity awards granted for comparable positions in other corporations similar to the Corporation. The revised program consists of a mix of stock options and restricted stock awards for senior level employees and restricted stock awards for other participants. Awards granted under the revised program are based on the Corporation’s achievement of specific goals related to the return on invested capital as compared to its weighted average cost of capital. Additionally, the Corporation may grant restricted stock awards based on its performance relative to peer groups to certain employees.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2006

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 2006
(Continued)

The following table summarizes stock-based compensation expense for the three and six months ended June 30, 2006 and 2005, unrecognized compensation cost for nonvested awards not yet recognized at June 30, 2006 and the weighted-average period over which unrecognized compensation cost is expected to be recognized:

										Incentive
		Stock				Restricted				Compensation				Directors’
		Options				Stock Awards				Awards				Awards				Total
Stock-based compensation expense recognized for three months ended June 30:
2006		$	2,121,000			$	1,412,000			$	124,000			$	188,000			$	3,845,000
2005		$	—			$	516,000			$	76,000			$	171,000			$	763,000
Stock-based compensation expense recognized for six months ended June 30:
2006		$	3,189,000			$	2,262,000			$	255,000			$	359,000			$	6,065,000
2005		$	—			$	1,040,000			$	157,000			$	330,000			$	1,527,000
Unrecognized compensation cost at June 30, 2006:		$	6,238,000			$	14,587,000			$	593,000			$	336,000			$	21,754,000
Weighted-average period over which unrecognized compensation cost to be recognized:		1.8 years				2.6 years				1.5 years				0.8 years