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 September 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		(I.R.S. Employer Identification Number)
incorporation or organization)

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 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 October 27, 2006
Common Stock, $0.01 par value		45,144,572

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

						Page
Part I. Financial Information:
		Item 1.		Financial Statements.
				Consolidated Balance Sheets – September 30, 2006, December 31, 2005 and September 30, 2005			3
				Consolidated Statements of Earnings - Three and Nine Months Ended September 30, 2006 and 2005			4
				Consolidated Statements of Cash Flows - Nine Months Ended September 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.			22
		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.			44
		Item 6.		Exhibits.			45
Signatures							46
Exhibit Index							47
Ex-31.01
Ex-31.02
Ex-32.01
Ex-32.02

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

Item 1. Financial Statements

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		September 30,				December 31,				September 30,
		2006				2005				2005
		(Unaudited)				(Audited)				(Unaudited)
		(Dollars in Thousands, Except Per Share Data)
ASSETS
Current Assets:
Cash and cash equivalents		$	22,829			$	76,745			$	111,583
Investments			—				25,000				25,000
Accounts receivable, net			293,702				225,012				288,422
Inventories, net			244,537				222,728				209,451
Current portion of notes receivable			2,299				5,081				3,787
Current deferred income tax benefits			16,022				14,989				6,088
Other current assets			28,900				32,486				21,842
Total Current Assets			608,289				602,041				666,173
Property, plant and equipment			2,695,560				2,501,774				2,452,704
Allowances for depreciation and depletion			(1,416,194	)			(1,335,423	)			(1,310,939	)
Net property, plant and equipment			1,279,366				1,166,351				1,141,765
Goodwill			570,336				569,263				569,284
Other intangibles, net			12,624				18,744				19,541
Noncurrent notes receivable			10,713				27,883				24,565
Other noncurrent assets			51,368				49,034				53,755
Total Assets		$	2,532,696			$	2,433,316			$	2,475,083
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Bank overdraft		$	9,720			$	7,290			$	13,724
Accounts payable			89,650				93,445				94,754
Accrued salaries, benefits and payroll taxes			24,675				24,199				24,246
Pension and postretirement benefits			6,260				4,200				4,471
Accrued insurance and other taxes			46,436				39,582				45,092
Income taxes			10,253				1,336				18,611
Current maturities of long-term debt and commercial paper			137,606				863				880
Other current liabilities			35,095				29,207				33,540
Total Current Liabilities			359,695				200,122				235,318
Long-term debt			579,824				709,159				709,780
Pension, postretirement and postemployment benefits			97,222				98,714				88,273
Noncurrent deferred income taxes			144,540				149,972				135,117
Other noncurrent liabilities			89,345				101,664				105,046
Total Liabilities			1,270,626				1,259,631				1,273,534
Shareholders’ Equity:
Common stock, par value $0.01 per share			450				457				463
Preferred stock, par value $0.01 per share			—				—				—
Additional paid-in capital			186,611				240,541				299,193
Accumulated other comprehensive loss			(17,187	)			(15,325	)			(8,970	)
Retained earnings			1,092,196				948,012				910,863
Total Shareholders’ Equity			1,262,070				1,173,685				1,201,549
Total Liabilities and Shareholders’ Equity		$	2,532,696			$	2,433,316			$	2,475,083

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,
		2006				2005				2006				2005
		(In Thousands, Except Per Share Data)
		(Unaudited)
Net Sales		$	529,643			$	496,992			$	1,472,270			$	1,311,271
Freight and delivery revenues			74,464				66,922				204,387				184,916
Total revenues			604,107				563,914				1,676,657				1,496,187
Cost of sales			381,630				362,103				1,087,013				997,097
Freight and delivery costs			74,464				66,922				204,387				184,916
Total cost of revenues			456,094				429,025				1,291,400				1,182,013
Gross Profit			148,013				134,889				385,257				314,174
Selling, general & administrative expenses			35,254				33,526				108,563				97,155
Research and development			175				189				479				530
Other operating (income) and expenses, net			(2,131	)			(6,644	)			(9,421	)			(10,627	)
Earnings from Operations			114,715				107,818				285,636				227,116
Interest expense			10,070				10,772				29,754				32,224
Other nonoperating (income) and expenses, net			239				189				(2,161	)			(1,082	)
Earnings from continuing operations before income tax expense			104,406				96,857				258,043				195,974
Income tax expense			28,699				20,810				76,665				48,543
Earnings from continuing operations			75,707				76,047				181,378				147,431
Gain (Loss) on discontinued operations, net of related tax expense (benefit) of $344, $582, $1,024 and $(670) respectively			453				313				1,578				(2,522	)
Net Earnings		$	76,160			$	76,360			$	182,956			$	144,909
Net Earnings (Loss) Per Common Share:
Basic from continuing operations		$	1.67			$	1.64			$	3.98			$	3.16
Discontinued operations			0.01				0.01				0.04				(0.05	)
		$	1.68			$	1.65			$	4.02			$	3.11
Diluted from continuing operations		$	1.64			$	1.61			$	3.90			$	3.11
Discontinued operations			0.01				0.01				0.03				(0.05	)
		$	1.65			$	1.62			$	3.93			$	3.06
Cash Dividends Per Common Share		$	0.275			$	0.23			$	0.735			$	0.63
Reconciliation of denominators for basic and diluted earnings per share computations:
Basic weighted average number of common shares			45,275				46,349				45,561				46,658
Effect of dilutive employee and director awards			846				824				947				701
Diluted weighted average number of common shares and assumed conversions			46,121				47,173				46,508				47,359

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,
		2006				2005
		(Dollars in Thousands)
		(Unaudited)
Net earnings		$	182,956			$	144,909
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation, depletion and amortization			102,694				103,390
Stock-based compensation expense			9,679				2,488
Gains on divestitures and sales of assets			(6,805	)			(6,234	)
Deferred income taxes			(3,248	)			(4,400	)
Excess tax benefits from stock-based compensation transactions			(11,343	)			8,084
Other items, net			(3,347	)			(3,567	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable, net			(68,663	)			(68,834	)
Inventories, net			(21,931	)			2,035
Accounts payable			(3,796	)			4,930
Other assets and liabilities, net			33,526				25,227
Net cash provided by operating activities			209,722				208,028
Investing activities:
Additions to property, plant and equipment			(212,587	)			(156,110	)
Acquisitions, net			(2,992	)			(4,277	)
Proceeds from divestitures and sales of assets			26,916				32,818
Purchases of investments			—				(25,000	)
Proceeds from sale of investments			25,000				—
Railcar construction advances			(32,077	)			—
Repayments of railcar construction advances			32,077				—
Other investing activities, net			—				(400	)
Net cash used for investing activities			(163,663	)			(152,969	)
Financing activities:
Repayments of long-term debt			(440	)			(498	)
Termination of interest rate swaps			—				(467	)
Borrowings on line of credit and commercial paper			12,190				—
Change in bank overdraft			2,430				4,197
Payments on capital lease obligations			(112	)			(59	)
Dividends paid			(33,843	)			(29,345	)
Repurchases of common stock			(112,594	)			(102,069	)
Issuances of common stock			21,051				23,145
Excess tax benefits from stock-based compensation transactions			11,343				—
Net cash used for financing activities			(99,975	)			(105,096	)
Net decrease in cash and cash equivalents			(53,916	)			(50,037	)
Cash and cash equivalents, beginning of period			76,745				161,620
Cash and cash equivalents, end of period		$	22,829			$	111,583
Supplemental disclosures of cash flow information:
Cash paid for interest		$	28,015			$	27,755
Cash payments for income taxes		$	50,238			$	36,169

See accompanying condensed notes to consolidated financial statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)

		Shares of																				Total
		Common				Common				Additional				Accumulated Other				Retained				Shareholders’
(in thousands)		Stock				Stock				Paid-in-Capital				Comprehensive 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			—				—				—				—				182,956				182,956
Change in fair value of forward starting interest rate swap agreements			—				—				—				(1,862	)			—				(1,862	)
Comprehensive earnings																							181,094
Dividends declared			—				—				—				—				(33,843	)			(33,843	)
Issuances of common stock for stock award plans			658				6				36,633				—				—				36,639
Repurchases of common stock			(1,274	)			(13	)			(112,581	)			—				—				(112,594	)
Stock-based compensation expense			—				—				9,679				—				—				9,679
Balance at September 30, 2006			45,111			$	450			$	186,611			$	(17,187	)		$	1,092,196			$	1,262,070

See accompanying condensed notes to consolidated financial statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 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 nine months ended September 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 September 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 nine months ended September 30, 2005 and its consolidated statement of cash flows for the nine months ended September 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 September 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 year. No stock options were granted during the quarter ended September 30, 2006. During the nine months ended September 30, 2006, the Corporation recognized $2,249,000 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 $5,397,000, of which $3,148,000 has yet to be recognized as of September 30, 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				Nine Months Ended
		September 30, 2006				September 30, 2006
Decreased earnings from continuing operations before income tax expense by:		$	1,440,000			$	4,629,000
Decreased earnings from continuing operations and net earnings by:		$	871,000			$	2,799,000
Decreased basic earnings per share by:		$	0.02			$	0.06
Decreased diluted earnings per share by:		$	0.02			$	0.06

		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 $11,343,000 excess tax benefit classified as a financing cash flow for the nine months ended September 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 September 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				Nine Months Ended
		September 30, 2005				September 30, 2005
Net earnings, as reported		$	76,360			$	144,909
Add: Stock-based compensation expense included in reported net earnings, net of related tax effects			569				1,425
Deduct: Stock-based compensation expense determined under fair value for all awards, net of related tax effects			(1,347	)			(4,288	)
Pro forma net earnings		$	75,582			$	142,046
Earnings per share:
Basic-as reported		$	1.65			$	3.11
Basic-pro forma		$	1.63			$	3.04
Diluted-as reported		$	1.62			$	3.06
Diluted-pro forma		$	1.60			$	3.00

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 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. 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 historical dividend payments 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.
		Comprehensive Earnings
		Comprehensive earnings for the Corporation consist of net earnings and, for the three and nine months ended September 30, 2006, a $1,862,000 loss for the change in fair value of forward starting interest rate swaps. For the three and nine months ended September 30, 2006, comprehensive earnings were $74,298,000 and $181,094,000, respectively.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 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 gain or 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								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Net sales		$	95			$	2,494			$	387			$	9,936
Pretax gain (loss) on operations		$	50			$	895			$	(368	)		$	(2,268	)
Pretax gain (loss) on disposals			747				—				2,970				(924	)
Pretax gain (loss)			797				895				2,602				(3,192	)
Income tax expense (benefit)			344				582				1,024				(670	)
Net earnings (loss)		$	453			$	313			$	1,578			$	(2,522	)

3.

Inventories

		September 30,				December 31,				September 30,
		2006				2005				2005
		(Dollars in Thousands)
Finished products		$	198,541			$	185,681			$	174,645
Products in process and raw materials			17,975				17,990				17,443
Supplies and expendable parts			40,202				31,158				28,430
			256,718				234,829				220,518
Less allowances			(12,181	)			(12,101	)			(11,067	)
Total		$	244,537			$	222,728			$	209,451

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

		September 30,				December 31,				September 30,
		2006				2005				2005
		(Dollars in Thousands)
6.875% Notes, due 2011		$	249,821			$	249,800			$	249,793
5.875% Notes, due 2008			204,746				206,277				206,775
6.9% Notes, due 2007			124,994				124,988				124,987
7% Debentures, due 2025			124,308				124,295				124,291
Commercial paper and line of credit, interest rates ranging from 4.40 % to 5.45%			12,190				—				—
Acquisition notes, interest rates ranging from 2.11% to 8.00%			731				3,657				3,773
Other notes			640				1,005				1,041
			717,430				710,022				710,660
Less current maturities			(137,606	)			(863	)			(880	)
Total		$	579,824			$	709,159			$	709,780

		The carrying values of the notes due in 2008 included $5,022,000, $6,640,000 and $7,167,000 at September 30, 2006, December 31, 2005 and September 30, 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 September 30, 2006, December 31, 2005 or September 30, 2005. However, the Credit Agreement supports a $250,000,000 commercial paper program, of which borrowings of $11,000,000 were outstanding at September 30, 2006. No borrowings were outstanding under the commercial paper program at December 31, 2005 or September 30, 2005.

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

5.		Long-Term Debt (continued)
		In September 2006, the Corporation entered into two forward starting interest rate swap agreements (the “Swap Agreements”) with a total notional amount of $150,000,000. Each of the two Swap Agreements covers $75,000,000 of principal. The Swap Agreements locked in at 5.42% the interest rate relative to LIBOR related to $150,000,000 of the Corporation’s anticipated refinancing of its $200,000,000 5.875% Notes due in 2008. Each of the Swap Agreements provides for a single payment at its mandatory termination date, December 1, 2008. If the LIBOR swap rate increases above 5.42% on the mandatory termination date, the Corporation will receive a payment from each of the counterparties based on the notional amount of each agreement over an assumed 10-year period. If the LIBOR swap rate falls below 5.42% on the mandatory termination date, the Corporation will be obligated to make a payment to each of the counterparties on the same basis. In accordance with Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities (“FAS 133”), the fair values of the Swap Agreements are recorded as an asset or liability in the consolidated balance sheet. The change in fair value is recorded directly in shareholders’ equity as other comprehensive earnings/loss. At September 30, 2006, the fair value of the Swap Agreements was a liability of $1,862,000 and was included in other noncurrent liabilities in the Corporation’s consolidated balance sheet with a corresponding loss of $1,862,000 recorded in other comprehensive earnings/loss.
		At September 30, 2006, $1,190,000 was outstanding under a $10,000,000 line of credit. No borrowings were outstanding under the line of credit at December 31, 2005 or September 30, 2005.
6.		Income Taxes

		Nine Months Ended September 30,
		2006				2005
Estimated effective income tax rate:
Continuing operations			29.7	%			24.8	%
Discontinued operations			39.4	%			21.0	%
Overall			29.8	%			24.8	%

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.

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

6.		Income Taxes (continued)
		The change in the year-to-date estimated effective income tax rate during the third quarter of 2006, when compared with the year-to-date effective tax rate as of June 30, 2006, increased net earnings for the quarter ended September 30, 2006 by $2,679,000, or $0.06 per diluted share. The change was due to discrete tax events primarily consisting of the reversal of tax contingencies related to the expiration of the statute of limitations for the 2002 tax year, providing reserves for tax contingencies and the evaluation of deferred taxes.
		The change in the year-to-date estimated effective income tax rate during the third quarter of 2005, as compared with the year-to-date effective tax rate as of June 30, 2005, increased net earnings for the nine months ended September 30, 2005 by $6,000,000. Included in this change is $6,700,000, or $0.14 per diluted share, of discrete tax events primarily consisting of the reversal of $5,900,000 of reserves for tax contingencies related to the expiration of the statute of limitations for the 2001 tax year.
		The overall effective income tax rate for the nine months ended September 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 nine months ended September 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 September 30 (dollars in thousands):

		Pension								Postretirement Benefits
		2006				2005				2006				2005
Service cost		$	3,050			$	2,698			$	138			$	141
Interest cost			4,523				4,115				670				743
Expected return on assets			(4,901	)			(4,422	)			—				—
Amortization of:
Prior service cost			185				165				(324	)			(323	)
Actuarial loss (gain)			714				524				(60	)			(37	)
Total net periodic benefit cost		$	3,571			$	3,080			$	424			$	524

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 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 nine months ended September 30 (dollars in thousands):

		Pension								Postretirement Benefits
		2006				2005				2006				2005
Service cost		$	9,154			$	8,155			$	414			$	425
Interest cost			13,577				12,435				2,009				2,234
Expected return on assets			(14,711	)			(13,364	)			—				—
Amortization of:
Prior service cost			556				499				(971	)			(971	)
Actuarial loss (gain)			2,144				1,583				(179	)			(110	)
Total net periodic benefit cost		$	10,720			$	9,308			$	1,273			$	1,578

		The Corporation made a $12,000,000 voluntary contribution to its pension plan in the third quarter of 2006. The contribution was deductible for tax purposes for the 2005 tax year. No additional contributions are expected during the remainder of the year.
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 23, 2006, 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 nine months ended September 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 September 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 nine months ended September 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 nine months ended September 30, 2006:

										Weighted-
						Weighted-				Average
		Number of				Average				Remaining				Aggregate
		Options				Exercise Price				Life (years)				Intrinsic Value
Outstanding at December 31, 2005			2,478,220			$	43.97
Granted			168,393			$	89.02
Exercised			(778,784	)		$	42.48							$	39,583,000
Terminated			(16,593	)		$	58.38
Outstanding at September 30, 2006			1,851,236			$	48.57				5.7			$	66,730,000
Exercisable at September 30, 2006			1,463,460			$	44.67				5.2			$	58,470,000

		For the nine months ended September 30, 2005, the intrinsic value of options exercised was $21,448,000. The intrinsic values of options exercised during the nine months ended September 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 September 30, 2006 was based on the closing price of the Corporation’s common stock at September 30, 2006, which was $84.62.
		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.

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9.		Stock-Based Compensation (continued)
		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 nine months ended September 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				119,306			$	88.85
Distributed			(2,611	)							(695	)
Forfeited			(4,064	)							(9,736	)
Balance at September 30, 2006			90,482								385,587
Aggregate intrinsic value		$	3,140,000							$	32,628,000

		The weighted-average grant-date fair value for incentive compensation awards and restricted awards granted during the nine months ended September 30, 2005 was $55.15 and $60.63, respectively.
		The aggregate intrinsic values for incentive compensation awards and restricted stock awards at September 30, 2006 were based on the closing price of the Corporation’s common stock at September 30, 2006, which was $84.62.
		At September 30, 2006, approximately 1,294,000 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 September 30, 2006, 42,025 shares have been issued under this plan. No awards have been granted under this plan after 2000.

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9.		Stock-Based Compensation (continued)
		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 6,858 shares of the Corporation’s common stock under this plan during the nine months ended September 30, 2006.
		The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2006 and 2005, unrecognized compensation cost for nonvested awards at September 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 September 30:
2006		$	1,440,000			$	1,919,000			$	99,000			$	156,000			$	3,614,000
2005		$	—			$	733,000			$	78,000			$	150,000			$	961,000
Stock-based compensation expense recognized for nine months ended September 30:
2006		$	4,629,000			$	4,181,000			$	354,000			$	515,000			$	9,679,000
2005		$	—			$	1,773,000			$	235,000			$	480,000			$	2,488,000
Unrecognized compensation cost at September 30, 2006:		$	4,607,000			$	12,965,000			$	444,000			$	236,000			$	18,252,000
Weighted-average period over which unrecognized compensation cost to be recognized:		1.8 years				2.5 years				1.3 years				0.6 years

For the nine months ended September 30, 2006, the Corporation recognized a tax benefit related to stock-based compensation of $3,791,000.

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

9.		Stock-Based Compensation (continued)
		The following presents expected stock-based compensation expense in future periods for outstanding awards as of September 30, 2006:

Remainder of 2006		$	3,549,000
2007			7,273,000
2008			4,302,000
2009			2,328,000
2010			691,000
2011			109,000
Total		$	18,252,000

		Stock-based compensation expense is included in selling, general and administrative expenses on the Corporation’s consolidated statements of earnings.
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								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Total revenues:
Aggregates		$	564,077			$	528,917			$	1,550,861			$	1,392,956
Specialty Products			40,030				34,997				125,796				103,231
Total		$	604,107			$	563,914			$	1,676,657			$	1,496,187
Net sales:
Aggregates		$	493,768			$	465,796			$	1,358,558			$	1,218,860
Specialty Products			35,875				31,196				113,712				92,411
Total		$	529,643			$	496,992			$	1,472,270			$	1,311,271
Earnings from operations:
Aggregates		$	109,619			$	105,332			$	266,551			$	220,422
Specialty Products			5,096				2,486				19,085				6,694
Total		$	114,715			$	107,818			$	285,636			$	227,116

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

11.		Accounting Changes
		In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefits, an amendment of FAS 87, 88, 106 and 132(R) (“FAS 158”). FAS 158 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 actuarial 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, FAS 158 requires an employer to measure plan assets and benefit obligations as of the date of the employer’s statement of financial position. Except for the measurement date requirement, FAS 158 is effective for fiscal years ending after December 15, 2006 and should be applied prospectively. The measurement date requirement would be effective for fiscal years ending after December 31, 2008. At December 31, 2005, the Corporation’s pension plans were underfunded by $59,700,000 and its postretirement plans, which provide medical benefits for retirees, were underfunded by $51,600,000. Further, the Corporation currently uses an annual measurement date of November 30. The adoption of FAS 158 will not affect the Corporation’s consolidated results of operations.
		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 September 30, 2006

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 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 318 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				Nine Months Ended
		September 30, 2006				September 30, 2006
Decreased earnings from continuing operations before income tax expense by:		$	1,440,000			$	4,629,000
Decreased earnings from continuing operations and net earnings by:		$	871,000			$	2,799,000
Decreased basic earnings per share by:		$	0.02			$	0.06
Decreased diluted earnings per share by:		$	0.02			$	0.06

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 September 30, 2006

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 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 September 30, 2006

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2006
(Continued)

The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2006 and 2005, unrecognized compensation cost for nonvested awards at September 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 September 30:
2006		$	1,440,000			$	1,919,000			$	99,000			$	156,000			$	3,614,000
2005		$	—			$	733,000			$	78,000			$	150,000			$	961,000
Stock-based compensation expense recognized for nine months ended September 30:
2006		$	4,629,000			$	4,181,000			$	354,000			$	515,000			$	9,679,000
2005		$	—			$	1,773,000			$	235,000			$	480,000			$	2,488,000
Unrecognized compensation cost at September 30, 2006:		$	4,607,000			$	12,965,000			$	444,000			$	236,000			$	18,252,000
Weighted-average period over which unrecognized compensation cost to be recognized:		1.8 years				2.5 years				1.3 years				0.6 years

The following presents a horizon for stock-based compensation expense for outstanding awards as of September 30, 2006:

Remainder of 2006		$	3,549,000
2007			7,273,000
2008			4,302,000
2009			2,328,000
2010			691,000
2011			109,000
Total		$	18,252,000

Page 24 of 47

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2006
(Continued)

Valuation of Stock-Based Compensation Awards

The Corporation used a lattice valuation model to determine the fair value of stock option awards granted in 2006, 2005 and 2004. The Black-Scholes valuation model was used for stock options granted prior to 2004. The lattice valuation model takes into account exercise patterns based on changes in the Corporation’s stock price, the lack of transferability of the awards and other complex and subjective variables and is considered to result in a more accurate valuation of 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 historical dividend payments and targeted dividend pattern. The Corporation’s dividend pattern is outlined 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. 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.

Page 25 of 47

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2006
(Continued)

Any change in the aforementioned assumptions could affect the estimated fair value of future stock options. The following table shows the impact on the fair value estimate if there were a change in any of the key assumptions:

An increase to the:		Results in a fair value that is:
Price of the underlying common stock		Higher
Exercise price of option		Lower
Expected term of option		Higher
Risk-free interest rate		Higher
Expected dividends on stock		Lower
Expected volatility of stock		Higher

Restricted stock awards require no payment from the employee upon distribution. Therefore, the closing price of the Corporation’s common stock on the measurement date represents the fair value of these awards.

Incentive compensation awards allow participants 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 compensation plan at certain minimum levels. The Corporation expenses the 80% purchase price to the employees in the year the employees earn the incentive compensation. Additionally, the Corporation amortizes the 20% discount over 35 months for unvested awards as of January 1, 2006 and/or over the requisite service period for awards granted subsequent to the adoption of FAS 123(R). The expense related to the 20% discount is based on the closing price of the Corporation’s common stock on the measurement date of the award.

Common stock awards provide nonemployee directors the election to receive all or a portion of their total fees in the form of the Corporation’s common stock. Currently, directors are required to defer at least 50% of their annual retainer in the form of the Corporation’s common stock at a 20% discount to market value. The Corporation expenses directors’ fees in the period in which they are earned, with the exception of the annual retainer, which is expensed over a 12 month period from the award date. Additionally, the Corporation amortizes the 20% discount over 12 months. The expense related to the 20% discount is based on the closing price of the Corporation’s common stock on the measurement date of the award.

Page 26 of 47

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2006
(Continued)

Expense Allocation

FAS 123(R) requires stock-based compensation cost to be recognized over the requisite service period for all awards granted subsequent to adoption. The requisite service period is defined as the period of time over which an employee must provide service in exchange for an award under a share-based payment arrangement. Certain of the Corporation’s stock-based compensation plans provide for accelerated vesting of awards when an employee retires from active service and is eligible to receive unreduced retirement benefits under the Corporation’s pension plans (defined as “age 62” or “normal retirement age”). The requisite service period for employees of the Corporation who reach normal retirement age of 62 prior to the end of the stated vesting period of the award is the period from the measurement date of the award until the date the employee reaches retirement age. For stock-based payment awards granted to employees that are close to age 62 or have already reached the age of 62, the expense will be front-loaded as compared with the vesting period. Stock options granted to nonemployee directors vest immediately. Therefore, these awards have no requisite service period and are expensed on the measurement date.

Prior to the adoption of FAS 123(R), the Corporation expensed stock-based payment awards for recognition or pro forma purposes, as required, over their stated vesting periods. The Corporation will recognize compensation cost over the stated vesting period for the unvested portion of existing awards as of January 1, 2006, with acceleration for any remaining unrecognized compensation cost if an employee actually retires prior to the vesting date. The stated vesting periods for existing awards as of January 1, 2006 are as follow:

Options granted in 2006 and 2005		4-year graded vesting
Options granted prior to 2005		3-year graded vesting
Restricted stock awards		35 to 93 months (award specific)
Incentive compensation awards		35 months

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.

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 for each homogenous group of employees granted awards. Employee groups consist of Directors; Section 16 Officers and Division Presidents; Vice Presidents/General Managers; and Others. The Corporation will ultimately recognize compensation cost only for those stock-based awards that vest.

Page 27 of 47

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 2006
(Continued)

Other Factors

FAS 123(R), similar to other accounting rulemaking, is complex and requires significant estimates and assumptions. In response to certain implementation issues, the Financial Accounting Standards Board has created the FAS 123(R) Resource Group (the “Resource Group”) to deliberate certain issues. The Corporation’s accounting and reporting treatment of certain issues may change as a result of the issuance of any future guidance by the Resource Group.

RESULTS OF OPERATIONS

Except as indicated, the following comparative analysis in the Results of Operations section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects results from continuing operations and is based on net sales and cost of sales.

Gross margin as a percentage of net sales and operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales, as it is consistent with the basis by which management reviews the Corporation’s operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporation’s operating results given that freight and delivery revenues and costs represent pass-throughs and have no mark-up. Gross margin and operating margin calculated as percentages of total revenues represent the most directly comparable financial measures calculated in accordance with generally accepted accounting principles (“GAAP”). The following tables present the calculations of gross margin and operating margin for the three and nine months ended September 30 in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales (dollars in thousands).

Gross Margin in Accordance with GAAP

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Gross profit		$	148,013			$	134,889			$	385,257			$	314,174
Total revenues		$	604,107			$	563,914			$	1,676,657			$	1,496,187
Gross margin			24.5	%			23.9	%			23.0	%			21.0	%