Martin Marietta Chairman Thomas G. Pownall and other company officials plan to tell stockholders meeting Thursday in Denver that Marietta is over the hardest part of a massive clean-up following "the Bendix affair."
The company that the executives will describe to the shareholders will be one moving away from cyclical materials businesses and into high-technology fields that better complement Marietta's core aerospace business.
The company is not completely free of risk, however. Its aluminum business is suffering from a general depression in that industry--enough so that losses in aluminum offset gains in the company's other divisions to produce a so-so first-quarter earnings report last week.
And the company's otherwise booming aerospace division could still face the long-term effects of the political machinations over the MX and Pershing II missiles, both Martin Marietta products. Cancellation of either or both missile programs, though not causing serious financial damage to the company, would nevertheless deprive it of an important source of future growth.
Pownall, the 61-year-old, chain-smoking chief executive whose feistiness and resolve in the fight against Bendix startled many on Wall Street (and caught Bendix President William Agee completely by surprise), has just as firmly directed the rebuilding of the company's fortunes in the wake of the fracas.
"We had a fairly substantial debt," he said in an interview. "We had to demonstrate that we had assets we could indeed divest to work down the debt level and service it."
"We believe we've done the hardest part of the job," said Charles H. Leithauser, the company's senior vice president and chief financial officer.
Outside opinions seem to agree. The company's bond rating, lowered by Moody's and Standard & Poor's from double-A to triple-B in the wake of the tussle with Bendix, has now inched up to double-B.
Since the battle with Bendix ended in late September, Marietta has sold or agreed to sell more than half the assets of its cement division, disposed of two small mining interests, sold a small part of its chemical business, and floated three separate issues of stock. Late last week, it announced plans to sell its industrial sand division for $30 million to a Connecticut company.
And the pruning isn't over: the remainder of the cement division and a small laser manufacturing business are still on the block, company officials acknowledge, and Pownall doesn't try to hide his desire to sell the troubled aluminum business--even though he admits that in its current financial state, it would be difficult to get a favorable price for it.
But Pownall says the company will take its time disposing of the remaining operations up for sale. "For the moment there's no great pressure for selling other parts of the company," he said in an interview. "We needn't be in a hurry about other assets within the corporate structure."
Taken together--including the $150 million-plus sale of the cement assets that will be completed in a few weeks--the steps already taken by the company have raised more than $450 million, slicing Martin Marietta's total debt to about $850 million.
That cuts the company's debt-to-total capital ratio to 65 percent--still quite high, but well below the 82 percent ratio the company reached immediately after the end of the battle with Bendix.
Marietta executives seem in no hurry to return that ratio to the 23 percent level that prevailed before Bendix came calling. They say the company was underleveraged at that time, and they are striving for a ratio somewhere in between--say between 40 and 50 percent. "I'll know it when I see it," Leithauser remarked.
In "the Bendix affair," as Martin Marietta executives refer to the fight, Marietta and Bendix wound up with majority interests in each other, a deadlock broken by the intervention of Allied Corp., which bought out Bendix and swapped stock with Marietta. Allied was left with 39 percent of Marietta, a holding since diluted by new stock issues to less than 30 percent.Marietta ran up a $900 million debt -- at or above the prime rate--buying the Bendix stock, and it's that debt the company has been working to eliminate. The part the company has not yet paid off is still being carried at high interest rates, and Pownall and the rest of Marietta's management are still working to refinance the debt at lower, long-term rates.
Although sales of other assets would further reduce the debt load, Marietta hopes to use earnings to repay the loans. Company officials are counting on an economic recovery to buoy profits in the aggregate division and remaining cement operations, and to provide some measure of balance to the losses in the aluminum business.
"We are situated to get the benefit of an economic recovery," Pownall said. "We took some of the brunt of the economic recession. Anybody who took some of it in one direction is bound to get some benefit going in the other direction."
Particularly heartening, he said, have been signs of an upturn in the past few weeks--enough to avert a predicted first-quarter loss that would have been the first for the company in more than two decades.
Even the moribund aluminum business is showing signs of life, Pownall said--and the more it improves, the more saleable it becomes. But the rise in aluminum prices that is fueling that optimism is from an extremely low base. Martin Marietta still expects the aluminum division to lose money this year, and, said senior vice president and chief operating officer Laurence J. Adams, "It doesn't look like we'll be disappointed."
The company doesn't have to worry much about cycles in its chief business, however. The rockets, missiles, airplane parts and other products of its aerospace business seem recession-proof, particularly with defense spending increasing.
Still, the company is hanging fire over decisions on two of its major programs: the Pershing II, opposed in Europe, where U.S. allies would provide a home for it; and the MX, which is controversial at home. But Marietta officials aver that the company has not planned its future around either missile, although the loss of either would remove a major profit center from the long-term picture.
"We obviously run the what-ifs in looking at the prospects for our aerospace company," Adams said. "So the loss of any single element, important though it may be--and these are both important to us--is not disastrous."
Marietta may be able to rely for future growth on a couple of businesses that so far are tiny parts of the company. It is pouring resources into a data-processing subsidiary that is responding with excellent growth, and it recently invested about $25 million buying good-sized stakes in three genetic-engineering companies, including a 21 percent share of Molecular Genetics, a fast-growing Minneapolis firm.
Although enthusiastic about the data-processing operation--"We are excited about that," he says--Pownall downplays the biotechnology investment, insisting that it's just an attempt by the company to dip its toe into the water. But the company seems committed to its investment in the three companies.
"We think they have got potential," Pownall says. "We think we have three fine young companies."
And, he adds, "This is not the only opportunity we intend to find in this growing technology field."