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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 1-12744
MARTIN MARIETTA MATERIALS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1848578
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2710 WYCLIFF ROAD, RALEIGH, NORTH CAROLINA 27607- 3033
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 781-4550
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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COMMON STOCK (PAR VALUE $.01 PER SHARE) (INCLUDING NEW YORK STOCK EXCHANGE
RIGHTS ATTACHED THERETO)
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Securities registered pursuant to Section 12(g) of the Act: 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 X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. X
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The aggregate market value of voting stock (based on the closing price
on the New York Stock Exchange on March 13, 1998 as published in the Wall
Street Journal) held by non-affiliates of the Company was $1,566,027,777.
Shares of Common Stock held by each executive officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The number of shares outstanding of each of the Registrant's classes
of common stock on March 13, 1998 as follows:
COMMON STOCK (PAR VALUE $.01 PER SHARE) 46,217,779 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Martin Marietta Materials, Inc. 1998 Proxy Statement are
incorporated by reference into Part III.
Portions of the Martin Marietta Materials, Inc. 1997 Annual Report to
Shareholders are incorporated by reference into Parts I, II and IV.
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TABLE OF CONTENTS
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Page
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PART I
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Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 12
Forward Looking Statements - Safe Harbor Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II
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Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 14
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART III
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Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . 15
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . 15
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 15
PART IV
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Item 14 Exhibits, Financial Statements, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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PART I
ITEM 1. BUSINESS
GENERAL
Martin Marietta Materials, Inc. (the "Company") is the United States'
second largest producer of aggregates for the construction industry, including
highways, infrastructure, commercial and residential. The Company also
manufactures and markets magnesia and other specialty products, including
heat-resistant refractory products for the steel industry, chemicals products
for industrial, agricultural and environmental uses and dolomitic lime. In
1997, the Company's aggregates business accounted for 84% of the Company's
total revenues and the Company's magnesia and other specialty products segment
accounted for 16% of the Company's total revenues.
The Company was formed in November 1993 as a North Carolina
corporation to be the successor to substantially all of the assets and
liabilities of the materials group of Martin Marietta Corporation and its
subsidiaries. An initial public offering of a portion of the common stock, par
value $.01, of the Company (the "Common Stock") was completed in February 1994
whereby 8,797,500 shares of Common Stock (representing approximately 19% of the
shares outstanding) were sold at an initial public offering price of $23 per
share. Lockheed Martin Corporation, which was formed as the result of a
business combination between Martin Marietta Corporation and Lockheed
Corporation in March 1995, owned approximately 81% of the Common Stock directly
and through its wholly-owned subsidiary Martin Marietta Investments Inc. until
October 1996.
In October 1996, the outstanding common stock of Martin Marietta
Materials that was held by Lockheed Martin Corporation became available to the
public market when Lockheed Martin disposed of its 81% ownership interest.
This transaction was completed by means of a tax-free exchange offer pursuant
to which Lockheed Martin stockholders were given the opportunity to exchange
shares of Lockheed Martin common stock for shares of the Company's Common
Stock, which resulted in 100% of the outstanding shares of Common Stock being
publicly-traded.
On January 3, 1995, the Company purchased certain assets of Dravo
Corporation relating to its construction aggregates business for a purchase
price of approximately $121 million in cash, plus certain assumed liabilities
(the "Dravo Acquisition"). When acquired, the business had production and
distribution facilities in nine states and the Bahamas. The Dravo Acquisition
added more than 24 million tons of annual production capacity to the Company's
operations. It also expanded the Company's method of conducting business by
adding water distribution by ocean vessels and river barges, in addition to the
use of truck and rail transportation. Further, the Dravo Acquisition expanded
the Company's presence in nonconstruction aggregate markets, including the
chemical, steel, cement, utility desulphurization, poultry feed and
agricultural lime industries.
On May 28, 1997, the Company purchased all of the outstanding common
stock of American Aggregates Corporation ("American Aggregates") along with
certain other assets from American Aggregates' former parent, CSR America,
Inc., for an acquisition price of approximately $242 million in cash plus
certain assumed liabilities (the "American Aggregates Acquisition"). The
American Aggregates Acquisition included the Ohio and Indiana operations of
American Aggregates with 29 production facilities and increased the Company's
annual production capacity by more than 25 million tons -- in addition to
adding over 1 billion tons of mineral reserves of which approximately 700
million are zoned for production and 11,000 acres of property. American
Aggregates is a leading supplier of aggregates products in
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Indianapolis, Cincinnati, Dayton and Columbus. The American Aggregates
Acquisition expanded the Company's Aggregates Division's business by adding
operating facilities in the states of Indiana and Ohio and significant
long-term mineral reserve capacity.
The Company announced in February 1997 that it entered into agreements
giving the Company rights to commercialize two proprietary technologies related
to the Company's business. One of the agreements gives the Company the
opportunity to pursue the use of certain composites technology for products
where corrosion resistance and high strength-to-weight ratios are important
factors, such as bridge decks, rail cars and other structures. The other
technology relates to a patented microwave technology which is intended for use
in cleaning the inside of mixer drums on ready mixed concrete trucks. The
Company is also developing a laser device that may be used to measure the
refractory thickness of steel furnaces. In addition, as part of the American
Aggregates Acquisition, the Company is working on certain technology related to
remineralization of soil and microbial products for enhanced plant growth and
other microbial products that may be used for solid waste treatment. These
technologies, if fully developed by the Company, would complement and expand
the Company's business.
BUSINESS SEGMENT INFORMATION
The Company operates in two principal business segments. These
segments are aggregates products and magnesia and other specialty products.
Information concerning the Company's net sales, operating profit, assets
employed and certain additional information attributable to each reportable
industry segment for each year in the three-year period ended December 31, 1997
is included in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 31 through 32 and in "Note O: Segment
Incorporation" of the "Notes to Financial Statements" on pages 24 and 25 of the
Company's 1997 Annual Report to Shareholders (the "1997 Annual Report"), which
information is incorporated herein by reference.
AGGREGATES
The Company's aggregates segment processes and sells granite,
sandstone, limestone, shell (a portion of which business was transferred in
1998 to the Company's magnesia and other specialty products segment) and other
aggregates products for use in all sectors of the public infrastructure,
industrial, commercial and residential construction industries. The Company is
the United States' second largest producer of aggregates. In 1997, the Company
shipped approximately 129 million tons of aggregates to customers in 25
southeastern, midwestern and central states and 8 foreign countries, generating
net sales and earnings from operations of $760.7 million and $148.9 million,
respectively. In 1997, approximately 85% of the aggregates shipped by the
Company were crushed stone, primarily granite and limestone, and approximately
15% were sand and gravel. The Company has focused on the production of
aggregates and has not integrated vertically in a substantial manner into other
construction materials businesses.
As a result of dependence upon the construction industry, the
profitability of aggregates producers is sensitive to national and regional
economic conditions, particularly to cyclical swings in construction spending,
which is affected by fluctuations in interest rates, and changes in the level
of infrastructure spending funded by the public sector. The Company's
aggregates business is concentrated principally in the southeast, midwest and
central states. The addition of the Dravo operations opened extensive markets
for the aggregates business along the Ohio and Mississippi River systems from
Western Pennsylvania throughout the central and southern United States. The
distribution centers acquired along the Gulf of Mexico and Atlantic coasts, as
well as operating facilities in the Bahamas, provided entry into those markets
for aggregates. The Gulf and Atlantic coastal areas are being supplied
primarily from the Bahamas location, two
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large quarries on the Ohio River system and a Canadian quarry on the Strait of
Canso in Nova Scotia, the assets related to which were purchased in October
1995 by the Company (the "Canadian Acquisition"). The Company's business is
accordingly affected by the economies in these regions.
The Company's aggregates business is also highly seasonal, due
primarily to the effect of weather conditions on construction activity within
its markets. As a result of the American Aggregates Acquisition, more of the
Company's aggregates operations have exposure to weather-related risk during
the winter months. These operations are concentrated principally in the north
central region of the Midwest, which generally experiences more severe winter
weather conditions than the division's operations in the Southeast. Due to
these factors, the Company's second and third quarters are generally the
strongest, with the first quarter generally reflecting the weakest results.
Aggregates can be found in abundant quantities throughout the United
States, and there are many producers nationwide. However, as a general rule,
the size of the market area of an aggregates quarry is limited because the cost
of transporting processed aggregates to customers is high in relation to the
value of the product itself. As a result, proximity of quarry facilities to
customers is the most important factor in competition for aggregates business
and helps explain the highly fragmented nature of the aggregates industry.
Access to lower-cost water distribution as a result of certain acquisitions
made by the Company, including the Dravo Acquisition and the Canadian
Acquisition, enables the Company to extend its market reach in the coastal
markets and areas immediately contiguous thereto.
Environmental and zoning regulations have made it increasingly
difficult for the construction aggregates industry to expand existing quarries
and to develop new quarry operations. Although it cannot be predicted what
policies will be adopted in the future by federal, state and local governmental
bodies regarding these matters, the Company anticipates that future
restrictions will not have a materially adverse effect upon its business.
Management believes the Aggregates Division's raw material reserves
are sufficient to permit production at present operational levels for the
foreseeable future. The Company does not anticipate any material difficulty in
obtaining the raw materials that it uses for production in its aggregates
segment.
The Company generally delivers products in its aggregates segment upon
receipt of orders or requests from customers. Accordingly, there is no
significant backlog information. Inventory of aggregates is generally
maintained in sufficient quantities to meet rapid delivery requirements of
customers.
MAGNESIA AND OTHER SPECIALTY PRODUCTS
The Company also manufactures and markets dolomitic lime and magnesia
and other specialty products, including heat-resistant refractory products for
the steel industry and magnesia and other specialty chemicals products for
industrial, agricultural and environmental uses, including wastewater
treatment, sulphur dioxide scrubbing and acid neutralization. In 1997, the
Company's Magnesia Specialties Division generated net sales of $140.2 million
and earnings from operations of $13.8 million. Magnesia Specialties'
refractory and dolomitic lime products are sold primarily to the steel
industry, and such sales are affected by economic conditions in that industry.
The principal raw materials used in the Company's magnesia and other
specialty products are lime, brine and imported magnesia. Management believes
that its reserves of limestone to produce lime and its reserves of brine are
sufficient to permit production at present operational levels for the
foreseeable future. The supply of magnesia is abundant worldwide. In 1997,
the Company purchased some of its magnesia
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requirements from various sources located in China. While the Company does not
expect an interruption in the supply of magnesia from these sources, various
factors associated with economic and political uncertainty in China could
result in future supply interruptions. If such an interruption were to occur,
the Company believes it could obtain alternate supplies worldwide, although
there could be no assurance that the Company could do so at current prices.
Alternatively, the Company believes it could adjust its mix of products and/or
increase production capacity at its Manistee, Michigan operation. In addition,
because of the significant Asian presence within the worldwide steel industry,
the current problems and uncertainties surrounding the Asian financial and
economic markets are being monitored at this time. A crash in these foreign
economies, including related production and manufacturing cycles, could have an
adverse impact on the worldwide steel industry. A high level of exports from
the Asian steel markets as a result of the desire to generate cash could have a
negative impact on domestic and worldwide levels of steel production and
prices, and consequently on the division's operations.
The Company generally delivers its magnesia and other specialty
products upon receipt of orders or requests from customers. Accordingly, there
is no significant backlog information. Inventory for magnesia and other
specialty products is generally maintained in sufficient quantities to meet
rapid delivery requirements of customers. The Company has provided extended
payment terms to certain international customers.
PATENTS AND TRADEMARKS
As of March 13, 1998, the Company owns, has the right to use, or has
pending applications for approximately 70 patents granted by the United States
and various countries and approximately 80 trademarks related to its Magnesia
Specialties business and its developing technology and services business. The
Company believes that its rights under its existing patents, patent
applications and trademarks are of value to its operations, but no one patent
or trademark or group of patents or trademarks is material to the conduct of
the Company's business as a whole.
CUSTOMERS
No material part of the business of either segment of the Company is
dependent upon a single customer or upon a few customers, the loss of any one
of which would have a material adverse effect on the segment. The Company's
products are sold principally to commercial customers in private industry.
Although large amounts of construction materials are used in public works
projects, relatively insignificant sales are made directly to federal, state,
county or municipal governments, or agencies thereof.
COMPETITION
Because of the impact of transportation costs on the aggregates
business, competition in each of the Company's aggregates markets tends to be
limited to producers in proximity to the Company's production facilities.
Although the Company experiences competition in all of its markets, it believes
that it is generally a leading producer in the market areas it serves.
Competition is based primarily on quarry location and price, but quality of
aggregates and level of customer service are also factors.
The Company is the second largest producer of aggregates in the United
States based on tons shipped. There are over 4,000 companies in the United
States that produce aggregates. The largest producer accounts for less than 6%
of the total market. The Company competes with a number of other large and
small producers. The Company believes that its ability to transport materials
by ocean vessels and river barges as a result of certain acquisitions made by
the Company, including the Dravo Acquisition and the
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Canadian Acquisition, has enhanced the Company's ability to compete in certain
extended market areas. Certain of the Company's competitors in the aggregates
industry have greater financial resources than the Company.
The Magnesia Specialties Division of the Company competes with various
companies in different geographic and product markets. The Company believes
that the Magnesia Specialties Division is one of the largest suppliers of
monolithic (unshaped) refractory products and dolomitic lime to the steel
industry in the United States and one of the largest suppliers of
magnesia-based chemicals products to various industries. The Company's largest
competitors for monolithic refractory sales are Mineral Technologies, Inc. and
Premier Refractories International, Inc., and its largest competitor for
hydroxide slurry is The Dow Chemical Company. The division competes principally
on the basis of quality, price and technical support for its products. The
Magnesia Specialties Division also competes for sales to customers located
outside the United States with sales to such customers accounting for
approximately $24.1 million in sales in 1997 (representing approximately 17% of
total sales of the Company's magnesia and other specialty products segment)
principally in Canada, Mexico, the United Kingdom, Germany and Korea. The
Magnesia Specialties Division's sales to foreign customers were $19.2 million
in 1996 and $16.0 million in 1995.
RESEARCH AND DEVELOPMENT
The Company conducts research and development activities for its
magnesia and other specialty products segment at its laboratory located near
Baltimore, Maryland and at various locations for the new proprietary
technologies. In general, the Company's research and development efforts are
directed to applied technological development for the use of its refractories
and chemicals products and for composite materials, soil remineralization
products, microbial products, a laser-measuring device and a microwave
technology. The Company spent approximately $ 3.4 million in 1997, $1.9
million in 1996 and $1.9 million in 1995 on research and development
activities.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to and affected by federal, state
and local laws and regulations relating to the environment, health and safety
and other regulatory matters. Certain of the Company's operations may from
time to time involve the use of substances that are classified as toxic or
hazardous substances within the meaning of these laws and regulations.
Environmental operating permits are, or may be, required for certain of the
Company's operations and such permits are subject to modification, renewal and
revocation. The Company regularly monitors and reviews its operations,
procedures and policies for compliance with these laws and regulations.
Despite these compliance efforts, risk of environmental liability is inherent
in the operation of the Company's businesses, as it is with other companies
engaged in similar businesses, and there can be no assurance that environmental
liabilities will not have a material adverse effect on the Company in the
future. In accordance with the Company's accounting policy for environmental
costs, amounts are not accrued and included in the Company's financial
statements until it is probable that a liability has been incurred and such
amount can be estimated reasonably. Costs incurred by the Company in
connection with environmental matters in the preceding two fiscal years were
not material to the Company's operations or financial condition.
The Company believes that its operations and facilities, both owned or
leased, are in substantial compliance with applicable laws and regulations and
that any noncompliance is not likely to have a material adverse effect on the
Company's operations or financial condition. See "Legal Proceedings" on page
11 of this Form 10-K and "Note N: Commitments and Contingencies" of the "Notes
to Financial Statements" on page 24 and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on
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pages 35 through 36 of the 1997 Annual Report. However, future events, such as
changes in or modified interpretations of existing laws and regulations or
enforcement policies, or further investigation or evaluation of the potential
health hazards of certain products or business activities, may give rise to
additional compliance and other costs that could have a material adverse effect
on the Company.
In general, quarry sites must comply with noise, water discharge and
dust suppression regulations, zoning and special use permitting requirements,
applicable mining regulations and federal health and safety requirements. As
new quarry sites are located and acquired, the Company works closely with local
authorities during the zoning and permitting processes to design new quarries
in such a way as to minimize disturbances. The Company frequently acquires
large tracts of land so that quarry and production facilities can be situated
substantial distances from surrounding property owners. The Company maintains
a centralized blasting function for all of its quarry operations, and develops
blasting plans designed to minimize disturbances to surrounding property
owners.
The Company is required by state laws to reclaim quarry sites after
use. The Company generally reclaims its quarries on an ongoing basis,
reclaiming mined-out areas of the quarry while continuing operations at other
areas of the site. Historically, the Company has not incurred extraordinary or
substantial costs in connection with the closing of quarries. Reclaimed quarry
sites owned by the Company are available for sale, typically for commercial
development.
As is the case with other companies in the same industries, some of
the Company's products contain varying amounts of crystalline silica, a common
mineral. Excessive, prolonged inhalation of very small-sized particles of
crystalline silica has been associated with non-malignant lung disease. The
carcinogenic potential of crystalline silica was evaluated by the International
Agency for Research on Cancer and later by the U.S. National Toxicology
Program. In 1987, the agency found limited evidence of carcinogenicity in
humans but sufficient evidence of carcinogenicity in animals. The National
Toxicology Program concluded in 1991 that crystalline silica is "reasonably
anticipated to be a carcinogen." In October 1996, the International Agency for
Research on Cancer issued another report stating that "inhaled crystalline
silica in the form of quartz or cristobalite from occupational sources is
carcinogenic to humans." The Company, through safety information sheets and
other means, communicates what it believes to be appropriate warnings and
cautions to employees and customers about the risks associated with excessive,
prolonged inhalation of mineral dust in general and crystalline silica in
particular. The Company has not been made a party to any litigation regarding
crystalline silica.
At the Magnesia Specialties Division's Manistee, Michigan facility,
the Company maintains a stockpile of off- specification magnesia and binder
materials, and fine-particle product generated in processing magnesium oxide.
These materials are used at the Manistee plant as a portion of the feed stock
for producing lower magnesium oxide level products. This stockpile of
recyclable materials currently contains approximately 73,000 cubic yards of
material and has been reduced over the past three years at a rate of
approximately 1,000 to 4,000 cubic yards per year. In 1986, the EPA
investigated the stockpile for possible designation under the Comprehensive
Environmental Response Compensation and Liability Act (the "Superfund"
statute), but has not taken any action since that date. In addition, the
Michigan Department of Environmental Quality is reviewing information submitted
by the Company to determine whether the pile should be classified as "low
hazard industrial waste." If the pile is so classified, the Company would be
required to obtain an appropriate license for the continued storage of these
recyclable materials, which may require pile modifications. Such modifications
would require either the installation of a pad under the pile, the construction
of a berm surrounding the pile, the installation of monitoring wells or a
combination of the foregoing. Because of the limited expense of any such
modifications, the Company believes that such modifications will not have a
material adverse effect on the Company's operations or its financial condition.
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As a result of the processing of dolomitic limestone at the Magnesia
Specialties Division's Woodville, Ohio facility, lime kiln dust ("LKD") is
produced as a by-product. The Ohio Environmental Protection Agency ("OEPA")
has promulgated regulations that apply to the disposal of LKD. The Company
executed an administrative order on November 24, 1997 with the OEPA which
requires the Company to submit a permit application for a landfill within 180
days. The Company, along with other lime producers, have had certain
discussions with the OEPA, which is in the process of determining the scope of
these regulations. Depending upon the result of these ongoing discussions, the
Company may be required to incur certain compliance costs. The Company
believes that any such costs would not have a material adverse effect on the
Company's operations or its financial condition but can give no assurance that
the compliance costs will not have a material adverse effect on the financial
condition or results of the magnesia and other specialty products segment's
operations.
The United States Environmental Protection Agency (the "EPA") in
November 1996 proposed certain changes to the regulations relating to the
standard for particulate matter in connection with air quality, which were
recently placed into law as the National Ambient Air Quality Standards. The
new law places an ambient air limit on the emission of fine particles (smaller
than 2.5 microns) that typically result from industrial, motor vehicle and
power generation fuel combustion, in addition to the coarse particles
previously regulated. As adopted, the regulations impact many industries,
including the aggregates industry. The National Stone Association ("NSA") has
joined a lawsuit with many other industries challenging the standard and the
lack of scientific data available supporting the limits and the ability of
industry to monitor the pollutant. In addition, the NSA filed a petition with
EPA seeking a mineral particulate exclusion from the PM2.5 standard. Although
it is not known with certainty what the applicability and scope of the new law
will be to the aggregates industry generally and thus to the Company, the
Company believes that the final regulations will not have a material adverse
effect on the Company's operations or its financial condition.
The Company has been designated a Potentially Responsible Party (a
"PRP") by the U.S. Environmental Protection Agency (the "EPA"). In August
1995, the EPA requested information regarding the disposal of polychlorinated
biphenyl ("PCB") waste during the 1980s at sites operated by PCB Treatment
Site, Inc. ("PCB Treatment"), which had facilities in Kansas City, Missouri,
and Kansas City, Kansas (the "Sites"). PCB Treatment had the proper permits to
operate the Sites. According to the EPA, PCB Treatment received waste
shipments of PCBs from more than 1,500 parties and received total shipments of
materials in excess of 25 million pounds, of which approximately 9,500 pounds
of PCB waste was shipped by the Aggregates Division of Lockheed Martin
Corporation, which is the Company's predecessor in interest. The Sites closed
in 1986.
PCB Treatment removed the waste material from the Sites but did not
complete the remediation. The EPA has identified the Sites as requiring
removal or remedial action under the federal Superfund laws. A group of PRPs,
each of whom disposed of more than 200,000 pounds of waste at the Sites, have
formed a steering committee which is conducting site assessments to further
evaluate the corrective action that will be required. It is anticipated that
the remaining work that needs to be completed involves the clean up of the
contamination in two buildings - which may require demolition of the building
structures - as well as the clean up of the surrounding soils. Based on the
expected level of remediation, total clean-up costs have been estimated by the
steering committee to be approximately $10 million to $40 million.
In a letter from the EPA, dated September 16, 1997, the Company was
designated a PRP for these Sites. Generally, PRPs that are ultimately
determined to be responsible parties are strictly liable for site clean ups and
usually agree among themselves to share, on an allocated basis, in the costs
and expenses for investigation and remediation of the hazardous materials.
Under existing environmental laws, however,
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responsible parties are jointly and severally liable and, therefore, the
Company is potentially liable for the full cost of funding such remediation.
In the event that the Company were required to fund the entire cost of such
remediation, the statutory framework provides that the Company may pursue
rights of contribution from the other PRPs. According to the steering
committee, the major contributor of waste to the Sites is the U.S. Department
of Defense. Also, there is a group of other solvent PRPs that will be
responsible for a large share of the clean-up costs based upon the individual
PRP's respective share of waste disposed of at the Sites.
Furthermore, management believes that as a result of the cost
allocation process the Company's share of clean- up costs will be minor because
the amount will be based upon the Company's share of waste disposed of at the
Sites (approximately 9,500 pounds) out of the total waste deposited at the
Sites (approximately 25 million pounds), and because the cost allocation is
expected to be shared among the more than 1,500 PRPs as identified thus far by
the EPA. Additionally, management believes any costs incurred by the Company
associated with the Sites would not have a material adverse effect on the
Company's operations or its financial condition.
In February 1998, the Georgia Department of Natural Resources ("GDNR")
determined that both the Company and the Georgia Department of Transportation
("GDOT"), which operated a former maintenance shop on the property in the
1940's and 1950's, are responsible parties for investigation and remediation at
the Company's Camak Quarry in Thomson, Georgia. The Company was designated by
virtue of its ownership of the property. GDOT was designated because it caused
a release of trichloroethene ("TCE") above its naturally occurring background
concentration in the drinking water well on site. The use of the well was
discontinued by the Company. Georgia law provides that responsible parties are
jointly and severally liable and, therefore, the Company is potentially liable
for the full cost of funding the investigation and any necessary remediation.
At this time, remediation costs have not been estimated because the preliminary
investigation defining the extent of contamination has not been initiated. In
the event that the Company is required to fund the entire cost of such
remediation, the statutory framework provides that the Company may pursue
rights of contribution from the other responsible parties. Additionally,
management believes any costs incurred by the Company associated with the sites
will not have a material adverse effect on the Company's operations or its
financial condition.
EMPLOYEES
As of March 13, 1998, the Company has approximately 5,000 employees.
Approximately 3,700 are hourly employees and approximately 1,300 are salaried
employees. Included among these employees are approximately 1,250 hourly
employees represented by labor unions. Approximately 27% of the Company's
Aggregates Division's hourly employees are members of a labor union, while 95%
of the Magnesia Specialties Division's hourly employees are represented by
labor unions. The Company's principal union contracts cover employees at the
Manistee, Michigan magnesia and other specialty products plant and the
Woodville, Ohio lime plant. The Manistee labor union contract expires in 1999
and the Woodville labor union contract expires in 2000. The Company considers
its relations with its employees to be good.
ITEM 2. PROPERTIES
AGGREGATES
As of March 13, 1998, the Company processed or shipped aggregates from
252 quarries and distribution yards in 20 states in the southeast, midwest and
central United States and in Canada and the Bahamas, of which 65 are located on
land owned by the Company free of major encumbrances, 58 are on
10
<PAGE> 11
land owned in part and leased in part, 117 are on leased land, and 12 are on
facilities neither owned nor leased, where raw materials are removed under an
agreement.
MAGNESIA AND OTHER SPECIALTY PRODUCTS
The Magnesia Specialties Division currently operates major
manufacturing facilities in Manistee, Michigan and Woodville, Ohio, and smaller
processing plants in River Rouge, Michigan; Bridgeport, Connecticut; Mobile,
Alabama; Baton Rouge, Louisiana; Lenoir City, Tennessee; and Pittsburgh,
Pennsylvania. All of these facilities are owned in fee, except Pittsburgh and
Lenoir City, which are leased. In addition, the Company has entered into
several third-party toll-manufacturing agreements pursuant to which it processes
various chemical and refractory products.
OTHER PROPERTIES
The Company's corporate headquarters, which it owns, is located in
Raleigh, North Carolina. The Company owns and leases various administrative
offices and research and development laboratories for its Aggregates Division
and its Magnesia Specialties Division.
The Company's principal properties, which are of varying ages and are
of different construction types, are believed to be generally in good
condition, are well maintained, and are generally suitable and adequate for the
purposes for which they are used. The principal properties are believed to be
utilized at average productive capacities of approximately 85% and are capable
of supporting a higher level of market demand.
ITEM 3. LEGAL PROCEEDINGS
From time to time claims are asserted against the Company arising out
of its operations in the normal course of business. In the opinion of
management of the Company (which opinion is based in part upon consideration of
the opinion of counsel), it is unlikely that the outcome of litigation and
other proceedings relating to the Company, including those relating to
environmental matters and those described specifically below, will have a
material adverse effect on the Company's operations or its financial condition;
however, there can be no assurance that an adverse outcome in any of such
litigation would not have a material adverse effect on the Company.
The Company is involved in litigation in the State District Court of
Morris County, Texas, James Fowler, Jr. v. Union Carbide Corporation. This
case was commenced on November 9, 1987 as separate claims for unspecified
amounts of monetary damages (joined in one lawsuit) by approximately 3,000
plaintiffs against approximately 400 defendants. The case involves claims
asserted by former employees of Lone Star Steel Company alleging injuries to
their health suffered by exposure to the products supplied to Lone Star's
facility in Morris County, Texas since 1947. It is the Company's understanding
that the current and former defendants in the litigation constitute almost
every supplier to the facility, regardless of the type of product supplied.
The plaintiffs in this litigation have alleged that all defendants are jointly
and severally liable for any recoverable damages. By making an allegation of
joint and several liability, the plaintiffs claim that any defendant found to
be liable should potentially be liable for damages caused by all defendants.
The Company believes it has been made a party to the litigation because it
supplied refractory products to the Lone Star facility and believes that
exposure to its products did not lead to the injuries claimed by the
plaintiffs.
11
<PAGE> 12
See also "Note N: Commitments and Contingencies" of the "Notes to
Financial Statements" on page 24 of the 1997 Annual Report and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 26 through 36 of the 1997 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 1997.
FORWARD LOOKING STATEMENTS - SAFE HARBOR PROVISIONS
This Annual Report on Form 10-K contains statements which constitute
"forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Investors are cautioned that all forward looking statements involve risks and
uncertainties, including those arising out of economic, climatic, political,
regulatory, competitive and other factors. The forward looking statements in
this document are intended to be subject to the safe harbor protection provided
by Sections 27A and 21E. For a discussion identifying some important factors
that could cause actual results to vary materially from those anticipated in
the forward looking statements see the Corporation's Securities and Exchange
Commission filings, including but not limited to, the discussion of
"Competition" on page 6 through 7 of this Annual Report on Form 10-K,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 26 through 36 of the 1997 Annual Report and "Note A:
Accounting Policies" and "Note N: Commitments and Contingencies" of the "Notes
to Financial Statements" on pages 15 through 17 and 24, respectively, of the
Audited Consolidated Financial Statements included in the 1997 Annual Report.
12
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of Martin Marietta Materials, Inc. as of March 13, 1998:
<TABLE>
<CAPTION>
PRESENT POSITION YEAR ASSUMED OTHER POSITIONS AND OTHER BUSINESS
NAME AGE AT MARCH 13, 1998 PRESENT POSITION EXPERIENCE WITHIN THE LAST FIVE YEARS
- ---- --- ------------------ ----------------- -------------------------------------
<S> <C> <C> <C> <C>
Stephen P. Zelnak, Jr. 53 Chairman of the 1997 Vice Chairman of the Board of Directors
Board of Directors of Martin Marietta Materials, Inc. (1996-1997);
of Martin Marietta President, Martin Marietta Materials
Materials, Inc.; Group (1992-1993)
President and Chief 1993
Executive Officer
of Martin Marietta
Materials, Inc.;
President of Aggregates 1993
Division
Philip J. Sipling 50 Executive Vice President 1997 Senior Vice President of Martin Marietta
of Martin Marietta Materials, Inc. (1993-1997); President of
Materials, Inc.; Magnesia Specialties Division (1993-1997);
Chairman of Magnesia Vice President, Martin Marietta Aggregates
Specialties Division; Division (1989-1993)
Executive Vice President 1993
of Aggregates Division
Robert R. Winchester 60 Senior Vice President 1993 Vice President Operations,
of Martin Marietta Martin Marietta Aggregates
Materials, Inc.; Division (1982-1993)
Executive Vice President
of Aggregates Division
Bruce A. Deerson 46 Vice President and 1993 General Counsel, Martin Marietta
General Counsel Materials Group (1988-1993)
Donald J. Easterlin, III 56 Vice President, 1994 President, Hanson-Beazer, Southeast
Business Development Division (1992); President, Beazer East
(1991-1992)
Janice K. Henry 46 Vice President and 1994 Vice President, Business Mgmt.,
Chief Financial Officer; Martin Marietta Astronautics (1992-1993)
Treasurer 1996
Jonathan T. Stewart 49 Vice President, 1993 Vice President, Human Resources,
Human Resources Martin Marietta Aggregates
Division (1990-1992)
</TABLE>
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
There were approximately 1,726 holders of record of Martin Marietta
Materials, Inc. common stock, $.01 par value, as of March 13, 1998. The
Company's Common Stock is traded on the New York Stock Exchange (Symbol: MLM).
Information concerning stock prices and dividends paid is included under the
caption "Quarterly Performance (Unaudited)" on page 37 of the 1997 Annual
Report, and that information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required in response to this Item 6 is included under
the caption "Five Year Summary" on page 38 of the 1997 Annual Report, and that
information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required in response to this Item 7 is included under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 26 through 36 of the 1997 Annual Report, and
that information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this Item 8 is included under
the caption "Statement of Earnings," "Balance Sheet," "Statement of Cash
Flows," "Statement of Shareholders' Equity," "Notes to Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Quarterly Performance (Unaudited)" on pages 11 through 37 of
the 1997 Annual Report, and that information is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
14
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required in response to this Item
10 is included under the captions "Election of Directors" and "Compliance With
Section 16(a) of the Exchange Act" in the Company's definitive proxy statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after the close of the Company's fiscal year ended December
31, 1997 (the "1998 Proxy Statement"), and that information is hereby
incorporated by reference in this Form 10-K. Information concerning executive
officers of the Company required in response to this Item 10 is included in
Part I on page 13 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this Item 11 is included under
the captions "Executive Compensation" and "Compensation Committee Interlocks
and Insider Participation in Compensation Decisions" in the Company's 1998
Proxy Statement, and that information, except for the information required by
Items 402(k) and (l) of Regulation S-K, is hereby incorporated by reference in
this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required in response to this Item 12 is included under
the captions "Voting Securities and Record Date" and "Beneficial Ownership of
Shares" in the Company's 1998 Proxy Statement, and that information is hereby
incorporated by reference in this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item 13 is included under
the captions "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions," and "Certain Related Transactions" in the Company's
1998 Proxy Statement, and that information is hereby incorporated by reference
in this Form 10-K.
15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) LIST OF FINANCIAL STATEMENTS FILED AS PART OF THIS FORM 10-K.
The following financial statements of Martin Marietta Materials, Inc.
and consolidated subsidiaries, included in the 1997 Annual Report, are
incorporated by reference into Item 8 on page 14 of this Form 10-K.
Page numbers refer to the 1997 Annual Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Balance Sheet-- 12
December 31, 1997 and 1996
Statement of Earnings-- 11
Years ended December 31, 1997, 1996 and 1995
Statement of Shareholders' Equity-- 14
Years ended December 31, 1997, 1996 and 1995
Statement of Cash Flows-- 13
Years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements-- 15 through 25
Years ended December 31, 1997, 1996, and 1995
</TABLE>
(2) LIST OF FINANCIAL STATEMENT SCHEDULES FILED AS PART OF THIS FORM 10-K
The following financial statement schedule of Martin Marietta
Materials, Inc. and consolidated subsidiaries is included in Item
14(d). The page number refers to this Form 10-K.
Schedule II - Valuation and Qualifying Accounts................... 21
All other schedules have been omitted because they are not applicable,
not required, or the information has been otherwise supplied in the
financial statements or notes to the financial statements.
The report of the Company's independent auditors with respect to the
above-referenced financial statements appears on page 10 of the 1997
Annual Report, and that report is hereby incorporated by reference in
this Form 10-K. The report on the financial statement schedule and
the consent of the Company's independent auditors appear on page 30 of
this Form 10-K.
The report of American Aggregates Corporation and subsidiary's
independent auditors with respect to the American Aggregates
Corporation and subsidiary's financial statements as of March 31, 1997
and 1996, and for two years then ended which independent auditors'
report is hereby incorporated by
16
<PAGE> 17
reference in this Form 10-K. The consent of American Aggregates
Corporation and subsidiary's independent auditors appears on page 31
of this Form 10-K.
(3) EXHIBITS
The list of Exhibits on the accompanying Index of Exhibits on pages 18
through 20 of this Form 10-K is hereby incorporated by reference.
Each management contract or compensatory plan or arrangement required
to be filed as an exhibit is indicated by an asterisk.
(B) REPORTS ON FORM 8-K
None.
17
<PAGE> 18
(C) INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Page
- ------- ----
<S> <C> <C>
3.01 --Restated Articles of Incorporation of the Company, as amended (incorporated by
reference to Exhibits 3.1 and 3.2 to the Martin Marietta Materials, Inc.
Current Report on Form 8-K, filed on October 25, 1996)
3.02 --Restated Bylaws of the Company, as amended (incorporated by reference to Exhibit
3.3 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed
on October 25, 1996)
4.01 --Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.01 to the
Martin Marietta Materials, Inc. registration statement on Form S-1 (SEC
Registration No. 33-72648))
4.02 --Articles 2 and 8 of the Company's Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 4.02 to the Martin Marietta Materials,
Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996)
4.03 --Article I of the Company's Restated Bylaws, as amended (incorporated by reference
to Exhibit 4.03 to the Martin Marietta Materials, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31, 1996)
4.04 --Indenture dated as of December 1, 1995 between Martin Marietta Materials, Inc.
and First Union National Bank of North Carolina (incorporated by reference to
Exhibit 4(a) to the Martin Marietta Materials, Inc. registration statement on
Form S-3 (SEC Registration No. 33-99082))
4.05 --Form of Martin Marietta Materials, Inc. 7% Debenture due 2025 (incorporated by
reference to Exhibit 4(a)(i) to the Martin Marietta Materials, Inc.
registration statement on Form S-3 (SEC Registration No. 33-99082))
4.06 --Form of Martin Marietta Materials, Inc. 6.9% Notes due 2007 (incorporated by reference
to Exhibit 4(a)(i) to the Martin Marietta Materials, Inc. registration statement
on Form S-3 (SEC on Registration No. 33-99082)).
10.01 --Assumption Agreement between the Company and Martin Marietta Technologies, Inc.
(now known as Lockheed Martin Corporation) dated as of November 12, 1993
(incorporated by reference to Exhibit 10.01 to the
Martin Marietta Materials, Inc. registration statement on Form S-1 (SEC Registration
No. 33-72648))
10.02 --Transfer and Capitalization Agreement dated as of November 12, 1993 among
Martin Marietta Technologies, Inc. (now known as Lockheed Martin Corporation),
Martin Marietta Investments Inc. and the Company (incorporated by reference
to Exhibit 10.02 to the Martin Marietta Materials, Inc. registration statement
on Form S-1 (SEC Registration No. 33-72648))
10.03 --Tax Assurance Agreement dated as of September 13, 1996 between the Company and
Lockheed Martin Corporation (incorporated by reference to Exhibit 10.10 to the
Martin Marietta Materials, Inc. Form 10-Q for the quarter ended September 30, 1996)
10.04 --Supplemental Tax Sharing Agreement dated as of September 13, 1996 between the
Company and Lockheed Martin Corporation (incorporated by reference to Exhibit
10.09 to the Martin Marietta Materials, Inc. Form 10-Q for the quarter ended
September 30, 1996)
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit
No. Page
- ------- ----
<S> <C> <C>
10.05 --Rights Agreement, dated as of October 21, 1996, between the Company and First Union National Bank of
North Carolina, as Rights Agent, which includes the Form of Articles of Amendment With Respect to
the Junior Participating Class A Preferred Stock of Martin Marietta Materials, Inc., as Exhibit A,
the Form of Rights Certificate, as Exhibit B, and the Summary of Rights to Purchase Preferred Stock,
as Exhibit C (incorporated by reference to Exhibit 1 to the Martin Marietta Materials, Inc.
registration statement on Form 8-A, filed with the Securities and Exchange Commission on October 21,
1996)
10.06 --Revolving Credit Agreement dated as of January 29, 1997 among the Company and Morgan Guaranty Trust
Company of New York, as Agent Bank (incorporated by reference to Exhibit 10.06 to the Martin
Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996)
10.07 --Martin Marietta Materials, Inc. Amended Omnibus Securities Award Plan (incorporated by reference to
Exhibit 10.05 to the Martin Marietta Materials, Inc. Form 10-Q for the quarter ended September 30,
1996)**
10.08 --Martin Marietta Materials, Inc. Shareholder Value Achievement Plan (incorporated by reference to Exhibit
10.06 to the Martin Marietta Materials, Inc. Form 10-Q for the quarter ended September 30, 1996)**
10.09 --Form of Martin Marietta Materials, Inc. Employment Protection Agreement (incorporated by reference to
Exhibit 10.07 to the Martin Marietta Materials, Inc. Form 10-Q for the quarter ended September 30,
1996)**
10.10 --Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for
Directors (incorporated by reference to Exhibit 10.10 to the Martin Marietta Materials, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 1996)**
10.11 --Martin Marietta Corporation (now known as Lockheed Martin Corporation) 1984 Stock Option Plan for Key
Employees, as amended (incorporated by reference to Exhibit 10.12 to Lockheed Martin Corporation's
registration statement on Form S-4 (SEC Registration No. 33-57645) and Exhibit 10(cc) to Lockheed
Martin Corporation's Annual Report on 10-K for the year ended December 31, 1995)**
10.12 --Martin Marietta Materials, Inc. Executive Incentive Plan, as amended (incorporated by reference to Exhibit
10.18 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended
December 31, 1995)**
10.13 --Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated by reference to Exhibit 10.01 to the
Martin Marietta Materials, Inc. Form 10-Q for the quarter ended June 30, 1995)**
10.14 --Amendment No. 1 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Form 10-Q for the quarter ended
September 30, 1997)**
10.15 --Revolving Credit Agreement dated May 27, 1997 among the Company and Morgan Guaranty Trust Company of New
York, as Agent Bank (incorporated by reference to Exhibit 99.3 to the Martin Marietta Materials, Inc.
Current Report on Form 8-K, filed with the Commission on June 12, 1997)
</TABLE>
__________________
**Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K
19
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit
No. Page
------- ----
<S> <C> <C>
*12.01 --Computation of ratio of earnings to fixed charges for the year ended December 31, 1997
*13.01 --Martin Marietta Materials, Inc. 1997 Annual Report to Shareholders, portions of which are incorporated by
reference in this Form 10-K. Those portions of the 1997 Annual Report to Shareholders that are
not incorporated by reference shall not be deemed to be "filed" as part of this report
*21.01 --List of subsidiaries of Martin Marietta Materials, Inc.
*23.01 --Consent of Ernst & Young LLP, Independent Auditors for Martin Marietta Materials, Inc. and consolidated
subsidiaries
*23.02 --Consent of Deloitte & Touche LLP, Independent Auditors for American Aggregates Corporation and subsidiary
*24.01 --Powers of Attorney (included in this Form 10-K at page 22)
*27.01 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.02 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.03 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.04 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.05 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.06 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.07 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.08 --Financial Data Schedule (for Securities and Exchange Commission use only)
</TABLE>
Other material incorporated by reference:
Martin Marietta Materials, Inc.'s 1998 Proxy Statement filed pursuant
to Regulation 14A, portions of which are incorporated by reference in
this Form 10-K. Those portions of the 1998 Proxy Statement which are
not incorporated by reference shall not be deemed to be "filed" as
part of this report.
__________________
*Filed herewith
20
<PAGE> 21
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -------------------------------------- ----------- ---------- ---------- ------------ --------------
(AMOUNTS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1997
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts . . . . $ 2,950 $ 411 $ 1,733(a) $ 305(d) $ 4,789
Allowance for affiliates receivable . . -- -- -- -- --
Inventory valuation allowance . . . . . 6,078 556 537(a) -- 7,171
Amortization of intangible assets . . . 22,044 7,926 -- 325(b) 29,464
181(c)
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts . . . . $ 4,450 $ -- $ -- $1,500(d) $ 2,950
Allowance for affiliates receivable . . 954 -- -- 954(e) --
Inventory valuation allowance . . . . . 7,370 -- -- 1,292(c) 6,078
Amortization of intangible assets . . . 17,268 5,060 -- 284(b) 22,044
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts . . . . $ 2,950 $ -- $ 1,500(a) $ -- $ 4,450
Allowance for affiliates receivable . . 1,300 -- -- 346(e) 954
Inventory valuation allowance . . . . . 6,269 -- 1,240(a) 139(c) 7,370
Amortization of intangible assets . . . 12,095 5,173 -- -- 17,268
</TABLE>
(a) Purchase accounting adjustments.
(b) Fully-amortized intangible assets written off.
(c) Revaluation adjustments.
(d) To adjust allowance for change in estimates.
(e) Uncollectible accounts written off, net of recoveries.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MARTIN MARIETTA MATERIALS, INC.
By: /s/ Bruce A. Deerson
----------------------------------
Bruce A. Deerson
Vice President and General Counsel
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below appoints Bruce A. Deerson and Roselyn R. Bar, jointly and
severally, as his true and lawful attorney-in-fact, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact, jointly and severally, full power and authority to
do and perform each in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, jointly and severally, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated: March 27, 1998
22
<PAGE> 23
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen P. Zelnak, Jr. Chairman of the Board, March 27, 1998
- -------------------------------------- President and Chief Executive
Stephen P. Zelnak, Jr. Officer
/s/ Janice K. Henry Vice President, Chief March 27, 1998
- -------------------------------------- Financial Officer and
Janice K. Henry Treasurer
/s/ Edward D. Miles Vice President, Controller March 27, 1998
- -------------------------------------- and Chief Accounting Officer
Edward D. Miles
/s/ Richard G. Adamson Director March 27, 1998
- --------------------------------------
Richard G. Adamson
/s/ Marcus C. Bennett Director March 27, 1998
- --------------------------------------
Marcus C. Bennett
/s/ Bobby F. Leonard Director March 27, 1998
- --------------------------------------
Bobby F. Leonard
/s/ William E. McDonald Director March 27, 1998
- --------------------------------------
William E. McDonald
/s/ Frank H. Menaker, Jr. Director March 27, 1998
- --------------------------------------
Frank H. Menaker, Jr.
/s/ James M. Reed Director March 27, 1998
- --------------------------------------
James M. Reed
/s/ William B. Sansom Director March 27, 1998
- --------------------------------------
William B. Sansom
/s/ Richard A. Vinroot Director March 27, 1998
- --------------------------------------
Richard A. Vinroot
</TABLE>
23
<PAGE> 24
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Page
------- ----
<S> <C> <C>
3.01 --Restated Articles of Incorporation of the Company, as amended (incorporated by
reference to Exhibits 3.1 and 3.2 to the Martin Marietta Materials, Inc.
Current Report on Form 8-K, filed on October 25, 1996)
3.02 --Restated Bylaws of the Company, as amended (incorporated by reference to Exhibit
3.3 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed
on October 25, 1996)
4.01 --Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.01 to the
Martin Marietta Materials, Inc. registration statement on Form S-1 (SEC
Registration No. 33-72648))
4.02 --Articles 2 and 8 of the Company's Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 4.02 to the Martin Marietta Materials,
Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996)
4.03 --Article I of the Company's Restated Bylaws, as amended (incorporated by reference to
Exhibit 4.03 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K
for the fiscal year ended December 31, 1996)
4.04 --Indenture dated as of December 1, 1995 between Martin Marietta Materials, Inc.
and First Union National Bank of North Carolina (incorporated by reference to
Exhibit 4(a) to the Martin Marietta Materials, Inc. registration statement on
Form S-3 (SEC Registration No. 33-99082))
4.05 --Form of Martin Marietta Materials, Inc. 7% Debenture due 2025 (incorporated by
reference to Exhibit 4(a)(i) to the Martin Marietta Materials, Inc.
registration statement on Form S-3 (SEC Registration No. 33-99082))
4.06 --Form of Martin Marietta Materials, Inc. 6.9% Notes due 2007 (incorporated by reference
to Exhibit 4(a)(i) to the Martin Marietta Materials, Inc. registration statement
on Form S-3 (SEC on Registration No. 33-99082)).
10.01 --Assumption Agreement between the Company and Martin Marietta Technologies, Inc.
(now known as Lockheed Martin Corporation) dated as of November 12, 1993
(incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc.
registration statement on Form S-1 (SEC Registration No. 33-72648))
10.02 --Transfer and Capitalization Agreement dated as of November 12, 1993 among
Martin Marietta Technologies, Inc. (now known as Lockheed Martin Corporation),
Martin Marietta Investments Inc. and the Company (incorporated by reference
to Exhibit 10.02 to the Martin Marietta Materials, Inc. registration statement
on Form S-1 (SEC Registration No. 33-72648))
10.03 --Tax Assurance Agreement dated as of September 13, 1996 between the Company and
Lockheed Martin Corporation (incorporated by reference to Exhibit 10.10 to the
Martin Marietta Materials, Inc. Form 10-Q for the quarter ended September 30, 1996)
10.04 --Supplemental Tax Sharing Agreement dated as of September 13, 1996 between the
Company and Lockheed Martin Corporation (incorporated by reference to Exhibit
10.09 to the Martin Marietta Materials, Inc. Form 10-Q for the quarter ended
September 30, 1996)
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit
No. Page
- ------- ----
<S> <C> <C>
10.05 --Rights Agreement, dated as of October 21, 1996, between the Company and First
Union National Bank of North Carolina, as Rights Agent, which includes
the Form of Articles of Amendment With Respect to the Junior Participating
Class A Preferred Stock of Martin Marietta Materials, Inc., as Exhibit A, the
Form of Rights Certificate, as Exhibit B, and the Summary of Rights to Purchase
Preferred Stock, as Exhibit C (incorporated by reference to Exhibit 1 to the
Martin Marietta Materials, Inc. registration statement on Form 8-A, filed with
the Securities and Exchange Commission on October 21, 1996)
10.06 --Revolving Credit Agreement dated as of January 29, 1997 among the Company and Morgan
Guaranty Trust Company of New York, as Agent Bank (incorporated by reference to
Exhibit 10.06 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K
for the fiscal year ended December 31, 1996)
10.07 --Martin Marietta Materials, Inc. Amended Omnibus Securities Award Plan (incorporated by
reference to Exhibit 10.05 to the Martin Marietta Materials, Inc. Form 10-Q for
the quarter ended September 30, 1996)**
10.08 --Martin Marietta Materials, Inc. Shareholder Value Achievement Plan (incorporated by
reference to Exhibit 10.06 to the Martin Marietta Materials, Inc. Form 10-Q for
the quarter ended September 30, 1996)**
10.09 --Form of Martin Marietta Materials, Inc. Employment Protection Agreement (incorporated
by reference to Exhibit 10.07 to the Martin Marietta Materials, Inc. Form 10-Q for
the quarter ended September 30, 1996)**
10.10 --Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for
Directors (incorporated by reference to Exhibit 10.10 to the Martin Marietta Materials,
Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996)**
10.11 --Martin Marietta Corporation (now known as Lockheed Martin Corporation) 1984 Stock Option
Plan for Key Employees, as amended (incorporated by reference to Exhibit 10.12 to
Lockheed Martin Corporation's registration statement on Form S-4 (SEC Registration
No. 33-57645) and Exhibit 10(cc) to Lockheed Martin Corporation's Annual Report on
10-K for the year ended December 31, 1995)**
10.12 --Martin Marietta Materials, Inc. Executive Incentive Plan, as amended (incorporated by
reference to Exhibit 10.18 to the Martin Marietta Materials, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31, 1995)**
10.13 --Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated by reference to Exhibit
10.01 to the Martin Marietta Materials, Inc. Form 10-Q for the quarter ended
June 30, 1995)**
10.14 --Amendment No. 1 to the Martin Marietta Materials, Inc. Incentive Stock Plan (incorporated
by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Form 10-Q for
the quarter ended September 30, 1997)**
10.15 --Revolving Credit Agreement dated May 27, 1997 among the Company and Morgan Guaranty Trust
Company of New York, as Agent Bank (incorporated by reference to Exhibit 99.3 to the
Martin Marietta Materials, Inc. Current Report on Form 8-K, filed with the Commission
on June 12, 1997)
</TABLE>
__________________
**Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K
25
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit
No. Page
------- ----
<S> <C>
*12.01 --Computation of ratio of earnings to fixed charges for the year ended December 31, 1997
*13.01 --Martin Marietta Materials, Inc. 1997 Annual Report to Shareholders, portions of which are
incorporated by reference in this Form 10-K. Those portions of the 1997 Annual
Report to Shareholders that are not incorporated by reference shall not be deemed to
be "filed" as part of this report
*21.01 --List of subsidiaries of Martin Marietta Materials, Inc.
*23.01 --Consent of Ernst & Young LLP, Independent Auditors for Martin Marietta Materials, Inc.
and consolidated subsidiaries
*23.02 --Consent of Deloitte & Touche LLP, Independent Auditors for American Aggregates
Corporation and subsidiary
*24.01 --Powers of Attorney (included in this Form 10-K at page 22)
*27.01 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.02 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.03 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.04 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.05 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.06 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.07 --Financial Data Schedule (for Securities and Exchange Commission use only)
*27.08 --Financial Data Schedule (for Securities and Exchange Commission use only)
</TABLE>
Other material incorporated by reference:
Martin Marietta Materials, Inc.'s 1998 Proxy Statement filed pursuant
to Regulation 14A, portions of which are incorporated by reference in
this Form 10-K. Those portions of the 1998 Proxy Statement which are
not incorporated by reference shall not be deemed to be "filed" as
part of this report.
__________________
*Filed herewith
26
<PAGE> 1
EXHIBIT 12.01
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
EARNINGS:
Earnings before income taxes $151,212
Earnings of less than 50%-owned associated companies, net <805>
Interest expense 16,899
Portion of rents representative of an interest factor 2,192
--------
ADJUSTED EARNINGS AND FIXED CHARGES $169,498
========
FIXED CHARGES:
Interest Expense $ 16,899
Capitalized interest 571
Portion of rents representative of an interest factor 2,192
--------
TOTAL FIXED CHARGES $ 19,662
========
RATIO OF EARNINGS TO FIXED CHARGES 8.62
========
</TABLE>
27
<PAGE> 1
MARTIN MARIETTA MATERIALS
[LOGO]
1997 ANNUAL REPORT
<PAGE> 2
MARTIN MARIETTA MATERIALS, INC.
- --------------------------------------------------------------------------------
Martin Marietta Materials is the nation's second largest producer of aggregates
used for the construction of highways and other infrastructure projects and for
commercial and residential construction. The Corporation is also a leading
producer of magnesia-based chemical and refractory products used in a wide
variety of industrial, environmental and chemical applications.
[MAP]*
- Martin Marietta Aggregates' Markets
-- Major Metropolitan Markets
* Martin Marietta Magnesia Specialties' Locations
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Letter to Shareholders 2
Business Review 4
Report of Independent Auditors 10
Statement of Financial Responsibility 10
Financial Statements and Related Notes 11
Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Quarterly Performance 37
Five Year Summary 38
Corporate Directory 39
Corporate Officers and Principal Operating Elements 40
General Information Inside Back Cover
</TABLE>
*Map Description
---------------
Map of applicable geographic areas of North America and the Caribbean islands
reflecting the Corporation's business segments' markets and certain production
locations.
<PAGE> 3
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in thousands except per share) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 900,863 $ 721,947
Earnings from operations $ 162,770 $ 120,676
Net earnings $ 98,529 $ 78,628
Basic earnings per common share $ 2.14 $ 1.71
Diluted earnings per common share $ 2.13 $ 1.71
Cash dividends per common share $ 0.48 $ 0.46
Debt-to-capitalization ratio 36% 21%
Common shares outstanding at year-end 46,211,200 46,079,300
Number of shareholders 1,738 1,760
</TABLE>
[Description of graphics]
NET SALES
(in millions)
<TABLE>
<S> <C>
1993 $435
1994 $502
1995 $664
1996 $722
1997 $901
</TABLE>
EARNINGS FROM
OPERATIONS
(in millions)
<TABLE>
<S> <C>
1993 $ 76
1994 $ 92
1995 $108
1996 $121
1997 $163
</TABLE>
EARNINGS
before extraordinary item and cumulative
effect of accounting changes
(in millions)
<TABLE>
<S> <C>
1993 $ 48
1994 $ 58
1995 $ 68
1996 $ 79
1997 $ 99
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 1
<PAGE> 4
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Nineteen ninety-seven was a year of extraordinary growth, record
financial results, and outstanding rewards for our shareholders.
Our 1997 financial results reflect the successful execution of our growth
strategy, supported by a continued strong economy. Record sales of $901 million
were up 25 percent from the prior year, along with a 25 percent increase in net
earnings, to a new record of $98.5 million, or $2.14 per share.
In our first full year since the late 1996 split-off from Lockheed
Martin Corporation, we were most gratified by the performance of our stock
price. Total shareholder return of 59 percent outperformed the S&P 500 by close
to a factor of two.
As anticipated, the autonomy resulting from the split-off enhanced
Materials' ability to aggressively pursue its growth strategy. During 1997,
Materials increased aggregates capacity by a record 46 million tons, or 38
percent, strategically positioning the Corporation for future growth. This
expansion exceeded the cumulative capacity added over the previous five years.
Martin Marietta Aggregates completed a record nine acquisitions during
the year. Certainly, the most important of these transactions was the
acquisition in May of all the common stock of American Aggregates Corporation
from CSR America, Inc. This acquisition, the largest ever made by the
Corporation, established the division as a leading supplier in Indianapolis,
Indiana, and in the Ohio cities of Columbus, Dayton and Cincinnati. The
integration of these operations was accomplished quickly, as we combined
heritage Martin Marietta Aggregates operations in Indiana, Illinois and Ohio
with the newly acquired quarries to create the MidAmerica Division. These
combined operations build a strong platform in an area we have targeted for
growth. This acquisition has met our expectations in 1997, and we look forward
to increasing contributions from MidAmerica in 1998 and beyond.
The remaining eight acquisitions, while smaller, were equally
fundamental to the continuing execution of our growth strategy. Located in
Virginia, Kentucky, Illinois, Indiana, Missouri, Iowa and Mississippi, these
acquisitions are an excellent fit with our existing operations, and provide an
opportunity to achieve market and operational synergy, as well as enhance and
expand our presence in the construction aggregates marketplace. In addition,
several of these newly acquired quarries produce chemical-grade limestone, which
can be used to service a wide array of agricultural, industrial and utility
needs. This nonconstruction aggregates market has been targeted for the growth
and diversification opportunities it presents.
Complementing our acquisition activity, we also continued to pursue our
long-standing program of permitting and opening strategically located quarries,
known as greensiting. During the past year, Martin Marietta Aggregates opened or
initiated eight greensite locations - a record number for the Corporation. These
new operations are designed to meet the growing demand for aggregates products
in our core southeast and central U.S. markets. We are currently planning to
open five additional greensites in 1998.
Martin Marietta Magnesia Specialties also experienced an outstanding
year with sales growth the strongest it has been since 1988. Highlighting the
year's contributions: our magnesium hydroxide powder plant at the Manistee,
Michigan, facility began production of flame-retardant products; our River
Rouge, Michigan, plant made its first precast shapes; and international sales
continued to grow in all of our product lines. To achieve continued growth, the
long-term focus for Magnesia Specialties will be in areas that emphasize new
product development and continued international expansion, while at the same
time maintaining superior relations with our customers.
Nineteen ninety-seven also saw progress from our technologies and
services initiative, a long-term program to seek technology-based growth
opportunities in closely related
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 2
<PAGE> 5
markets we know and understand.
In 1997, we placed our first composite bridge into service in Butler
County, Ohio. This bridge has drawn considerable worldwide attention, which has
resulted in several orders. In addition to bridges, we believe some of the most
exciting applications for this technology may be in other markets where
corrosion resistance, high strength-to-weight ratio, seismic properties, and
ease of construction and installation are key considerations.
We also completed field-testing of our leading-edge laser product for
measuring the thickness of refractory
[PICTURE]
Stephen P. Zelnak, Jr.
linings in steel mills. We expect to put these devices into service in 1998; the
use of these measuring devices will provide further cost efficiencies to key
Magnesia Specialties customers. We are also exploring additional markets where
this measuring technology may have applications.
With the acquisition of American Aggregates, the Corporation acquired
the rights to several new technologies. These products are being developed for
use in the agricultural industry and for waste treatment applications. We are
optimistic that products based on these technologies will be proven effective
for the increased growth of healthy plants with reduced use of conventional
fertilizers and for animal waste treatment to reduce environmental issues.
We are encouraged by these developments and continue to believe this
technologies and services initiative offers opportunities for the future growth
of the Corporation.
Importantly for the future, the Corporation ended the year with a
strong balance sheet reflecting leverage of 36 percent. Strong cash flow is
critical for continued execution of our growth strategy. During 1997, the
Corporation generated earnings before interest, taxes, depreciation, depletion
and amortization (commonly referred to as EBITDA), of $248 million, an increase
of 30 percent over 1996. At 27.5 percent, the Corporation's EBITDA, as a
percentage of sales, was the highest within our industry's peer group.
Based on strong 1997 results, the Corporation increased its five-year
compounded annual sales growth rate to over 17 percent, while operating earnings
over the same period grew at an average annual rate of more than 24 percent. We
are proud of that record, and it is our objective to continue to increase
shareholder value through continued aggressive, but disciplined growth.
Our confidence in the future and our belief in the continued success of
our growth strategy are predicated on the following assumptions:
- The aggregates industry will continue its rapid consolidation
with most activity concluding within the next five to ten
years.
- Martin Marietta Materials will continue to be a leading
acquirer in the aggregates industry.
- When the major consolidation activity is concluded, our
Corporation's free cash flow must be effectively deployed
toward continued growth in shareholder value.
- Over time, an increasing portion of our growth will be derived
from new products and services, as well as expansion into new
geographic areas.
We believe Materials is well equipped to meet the challenges of
tomorrow, which can be met by planning and executing well today. We are fully
committed to continuing our pursuit of sound, profitable growth which creates
value for our shareholders and job stability and career opportunities for our
employees.
In closing, I especially thank our more than 5,000 employees for their
commitment to excellence and superb performance in 1997. Our success as a
Company is directly attributable to the outstanding people who are Martin
Marietta Materials. I also thank each of you - our shareholders - for your trust
and confidence in us. We look forward to a rewarding 1998.
Respectfully,
/s/ Stephen P. Zelnak, Jr.
Stephen P. Zelnak, Jr.
Chairman, Board of Directors
President & Chief Executive Officer
February 20, 1998
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 3
<PAGE> 6
[PICTURE]*
* Picture Description
A picture of the Aggregates division's sand and gravel production facilities
near Des Moines, Iowa.
<PAGE> 7
Martin Marietta Aggregates, headquartered in Raleigh, North Carolina,
is an industry leader in the production of crushed stone, sand and gravel for
the construction market.
In 1997, consolidation continued to be a dominant theme for both the aggregates
industry and Martin Marietta Aggregates. The Corporation's strong balance sheet
and cash flow enabled it to capitalize on key acquisition and other growth
opportunities presented throughout the year.
In May, a significant consolidation step was accomplished when the
division successfully completed its largest single acquisition through the
purchase of the common stock of American Aggregates Corporation. This
acquisition, which included 29 operating locations in Ohio and Indiana,
increased the division's annual production capacity by 25 million tons, or over
20 percent, and positioned the division as a leading supplier of aggregates
products in the Indianapolis, Cincinnati, Dayton and Columbus areas.
Increased presence in these areas enabled Martin Marietta Aggregates to
supply materials for several major projects during 1997. For instance, the
division participated in the expansion of the James Cox International Airport,
located in Dayton, and the Rickenbacker project, a large warehouse and
distribution center in Columbus.
During the year, the division took numerous other actions toward
implementing its strategy of disciplined growth. Along with the American
Aggregates transaction, eight smaller, but equally strategic acquisitions were
completed. Together, these acquisitions are expected to complement existing
markets and provide substantial synergy. Besides increasing the division's
presence in diversified markets, these acquisitions enabled the division to
better serve customers at key locations, by providing a full spectrum of
products and by capitalizing on its operational expertise.
Growth of the division's chemical-grade product line is a key
ingredient in the Corporation's strategic plan. Several 1997 acquisitions
provided the division an opportunity to execute this plan by expanding its
ability to supply chemical-grade limestone products. Specifically, three
acquisitions with quarries located in Illinois, Missouri and Kentucky,
significantly increased Martin Marietta's production and shipment capabilities
for these specialty products. End-uses for products containing this limestone
include agricultural products and specialty applications, such as roofing
shingles, coal mine dusting and stack gas scrubbing for coal-fired facilities.
Additionally, some of these quarries are located along the Ohio and
Mississippi Rivers, allowing the division to ship these products considerable
distances using river barges. This water-based transportation system provides an
opportunity to serve the
AGGREGATES
DIVISION SALES
(in millions)
<TABLE>
<S> <C>
1995 $539
1996 $591
1997 $761
</TABLE>
[Caption for picture on page 4 of the Annual Report]
Melting glaciers some 10,000 years ago are responsible for a substantial portion
of the sand and gravel deposits found in many lakes and waterways in the midwest
region of the United States today. Sand and gravel are widely used in the
construction industry with applications such as roads, bridges, sidewalks and in
commercial and residential structures. Martin Marietta Materials is one of the
nation's leading producers of sand and gravel products.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 5
<PAGE> 8
needs of a wide range of customers more efficiently and cost effectively than
customary trucking transportation.
Product diversification is another area the Corporation considers as an
opportunity to better serve customers, while expanding market presence in the
aggregates industry. Acquisitions during 1997 significantly increased the
division's presence in the sand and gravel marketplace. During the year, Martin
Marietta Aggregates made several acquisitions in the midwestern and central
regions of the country, where the geography provides vast deposits of sand and
gravel, as well as significant quantities of limestone reserves. The addition of
these sand and gravel operations, which are strategically located near major
markets, provide the means to supply customers with a broad range of products
for a variety of construction applications.
Underground mining, which permits round-the-clock, all-season
production, is an area where the division's operational expertise further
improves its ability to meet customer needs. In 1997, the division's
acquisitions included four underground mining operations in Iowa, Indiana and
Illinois. These additional mines bring the total number of underground
aggregates mines the division operates to 11. These skillfully engineered
facilities are operated safely and efficiently, often in close proximity to
major population centers -- as is the case in Indianapolis where Martin Marietta
Aggregates operates three underground mines within a ten-mile radius of the
city.
Complementing its acquisition and growth strategy, Martin Marietta
Aggregates continued to maintain a consistent and disciplined approach to
greensiting, the process of opening new quarry sites. During 1997, the division
experienced a record year with respect to opening new greensites, with eight
locations either opened or under way. These greensites are strategically located
to take advantage of anticipated market growth. For example, the Jefferson
quarry, located northeast of Atlanta along the I-85 growth corridor, increases
Martin Marietta Aggregates' presence in a region that has been a primary focus
for the division.
As a result of record acquisition and greensiting activity in 1997, the
division's products are now sold from a network of more than 250 quarries and
distribution facilities in 20 states, the Bahamas and Canada. Strong federal,
state and local highway programs, increased commercial construction, and
continued demand for new homes led to a record shipping year for Martin Marietta
Aggregates. The division shipped 129 million tons of product in 1997, an
increase of 28 percent over the previous year.
The Corporation continues to see many growth opportunities within the
aggregates industry. Martin Marietta Aggregates is well positioned to meet the
anticipated demand generated by the rebuilding of the nation's infrastructure,
and to better serve customers in other construction and nonconstruction markets.
AGGREGATES DIVISION
OPERATING EARNINGS
(in millions)
<TABLE>
<S> <C>
1995 $ 98
1996 $109
1997 $149
</TABLE>
[Caption for picture on page 7 of the Annual Report.]
Pictured here, deep inside a mine in Indianapolis, Indiana, are hauling
routes and mining work areas that can be as wide as a two-lane highway with a
lighting capability equal to that of a modern expressway. The Corporation's
Aggregates division is a leading operator of underground aggregates mines in the
United States.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 6
<PAGE> 9
[PICTURE]*
* Picture Description
A picture of the Aggregates division's underground aggregates mine located in
Indianapolis, Indiana.
<PAGE> 10
[PICTURE]*
* Picture Description
A picture of one of the Magnesia Specialties division's production processes
involving electrical steel and magnesium oxide.
<PAGE> 11
Martin Marietta Magnesia Specialties is a leading producer of
magnesia-based chemical and refractory products used in a wide variety of
industrial, environmental and chemical applications.
Headquartered in Raleigh, North Carolina, Magnesia Specialties operates
facilities in Michigan, Ohio, Maryland, Connecticut, Pennsylvania, Tennessee,
Louisiana and Alabama. In 1997, net sales for the division increased seven
percent to over $140 million.
This increase reflects growth in all primary market segments. Strong
steelmaking demand supported increased volume and revenues in the refractories,
periclase and lime product areas. In the chemicals product area, record sales
were fueled by continued expansion in historical markets, combined with the
introduction of new products. The export business also continued to expand, with
international sales accounting for 17 percent of total division sales in 1997.
During the year, Magnesia Specialties successfully began operation of a
new magnesium hydroxide powder plant at its Manistee, Michigan, facility. This
operation will initially target the flame-retardant market, where magnesium
hydroxide has performance advantages over products currently used in this
application. Other applications for this product are under evaluation.
The principal market for Magnesia Specialties continues to be the steel
industry, where the division is recognized worldwide as a performance leader in
furnace-maintenance products and services. High steel industry output, coupled
with various market initiatives, resulted in a record sales year for the
division's refractories product area. Steel-related products include a broad
range of monolithic refractory products, furnace maintenance services, pre-cast
refractory shapes, periclase for use in refractory brick, dolomitic lime for use
as a steel-fluxing agent, electrical steel-coating materials, and
water-treatment chemicals.
In 1997, the division completed the second phase of an expansion at its
Woodville, Ohio, dolomitic lime plant. This expansion was accomplished through
the use of improved process technologies that resulted in increased
productivity. The added capacity will be directed into the steel industry and is
expected to help satisfy the strong demand that currently exists for dolomitic
lime. Woodville remains the largest dolomitic lime production site in North
America.
The Magnesia Specialties division is committed to providing consistent,
high-quality products developed and designed to meet the ever-changing needs of
its worldwide customer base. The division, with customers in over 30 countries,
is working to expand activities in areas of the world where demand for chemical
products and steelmaking capacity are growing, and the division's technical
expertise can add value to customers.
MAGNESIA SPECIALITIES
DIVISION SALES
(in millions)
<TABLE>
<S> <C>
1995 $126
1996 $131
1997 $140
</TABLE>
[Caption for picture on page 8 of the Annual Report.]
MagChem(R) 20-SC magnesium oxide being applied to electrical steel used in power
transformers. When annealed (a specialized heating and cooling process), this
product reacts with the electrical steel to form an insulating layer that
enhances the electrical and magnetic properties of the metal, which improves
performance of the power transformer.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 9
<PAGE> 12
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS AND SHAREHOLDERS
MARTIN MARIETTA MATERIALS, INC.
We have audited the accompanying balance sheet of Martin Marietta Materials,
Inc., and consolidated subsidiaries at December 31, 1997 and 1996, and the
related statements of earnings, shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Martin
Marietta Materials, Inc., and consolidated subsidiaries at December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Raleigh, North Carolina
January 19, 1998
STATEMENT OF FINANCIAL RESPONSIBILITY
- --------------------------------------------------------------------------------
SHAREHOLDERS
MARTIN MARIETTA MATERIALS, INC.
The management of Martin Marietta Materials, Inc., is responsible for the
consolidated financial statements and all related financial information
contained in this report. The financial statements, which include amounts based
on estimates and judgments, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis.
The Corporation maintains a system of internal accounting controls
designed and intended to provide reasonable assurance that assets are
safeguarded, that transactions are executed and recorded in accordance with
management's authorization, and that accountability for assets is maintained. An
environment that establishes an appropriate level of control-consciousness is
maintained and monitored and includes examinations by an internal audit staff
and by the independent auditors in connection with their annual audit.
The Corporation's management recognizes its responsibility to foster a
strong ethical climate. Management has issued written policy statements which
document the Corporation's business code of ethics. The importance of ethical
behavior is regularly communicated to all employees through the distribution of
the Code of Ethics and Standards of Conduct booklet and through ongoing
education and review programs designed to create a strong commitment to ethical
business practices.
The Audit Committee of the Board of Directors, which consists of four
outside directors, meets periodically and when appropriate, separately with the
independent auditors, management and the internal auditors to review the
activities of each.
The consolidated financial statements have been audited by Ernst &
Young LLP, independent auditors, whose report appears on this page.
/s/ Janice K. Henry
Janice K. Henry
Vice President, Chief Financial Officer
and Treasurer
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 10
<PAGE> 13
STATEMENT OF EARNINGS
- --------------------------------------------------------------------------------
for years ended December 31
<TABLE>
<CAPTION>
(add 000, except per share) 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $900,863 $721,947 $664,406
Cost of sales 665,594 539,437 497,242
- ---------------------------------------------------------------------------------------
GROSS PROFIT 235,269 182,510 167,164
Selling, general and administrative expenses 69,093 59,937 57,738
Research and development 3,406 1,897 1,861
- ---------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 162,770 120,676 107,565
Other income and expenses, net 5,341 8,398 5,959
- ---------------------------------------------------------------------------------------
168,111 129,074 113,524
Interest expense on debt 16,899 10,121 9,733
- ---------------------------------------------------------------------------------------
Earnings before taxes on income 151,212 118,953 103,791
Taxes on income 52,683 40,325 36,240
- ---------------------------------------------------------------------------------------
NET EARNINGS $ 98,529 $ 78,628 $ 67,551
=======================================================================================
EARNINGS PER COMMON SHARE $ 2.14 $ 1.71 $ 1.47
=======================================================================================
EARNINGS PER COMMON SHARE - ASSUMING DILUTION $ 2.13 $ 1.71 $ 1.47
=======================================================================================
</TABLE>
The notes on pages 15 to 25 are an integral part of these financial statements.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 11
<PAGE> 14
BALANCE SHEET
- --------------------------------------------------------------------------------
at December 31
<TABLE>
<CAPTION>
ASSETS
(add 000) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,661 $ --
Accounts receivable, net 147,432 136,583
Inventories 132,583 113,774
Current deferred income tax benefits 16,873 15,547
Other current assets 6,463 5,262
- -----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 322,012 271,166
- -----------------------------------------------------------------------------------------
Property, plant and equipment, net 591,420 408,820
Other noncurrent assets 17,385 25,764
Cost in excess of net assets acquired 148,481 39,952
Other intangibles 26,415 23,216
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $1,105,713 $768,918
=========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
(add 000)
- -----------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Book overdraft $ -- $ 4,260
Accounts payable 49,599 36,420
Accrued salaries, benefits and payroll taxes 19,742 17,858
Accrued insurance and other taxes 16,440 7,930
Income taxes 4,691 13,388
Current maturities of long-term debt 1,431 1,273
Other current liabilities 16,332 7,015
- -----------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 108,235 88,144
- -----------------------------------------------------------------------------------------
Long-term debt 310,675 125,890
Pension, postretirement and postemployment benefits 63,070 52,646
Other noncurrent liabilities 11,889 7,669
Noncurrent deferred income taxes 50,008 13,592
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES 543,877 287,941
- -----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000,000 shares authorized 462 461
Additional paid-in capital 335,766 331,303
Retained earnings 225,608 149,213
- -----------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 561,836 480,977
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,105,713 $768,918
=========================================================================================
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 12
<PAGE> 15
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
for the years ended December 31
<TABLE>
<CAPTION>
(add 000) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 98,529 $ 78,628 $ 67,551
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation, depletion and amortization 79,720 61,210 55,674
Other items, net (3,638) (3,984) (3,656)
Changes in operating assets and liabilities:
Deferred income taxes 7,090 61 71
Net changes in receivables, inventories and payables (2,865) (12,131) (4,781)
Other assets and liabilities, net 16,782 11,161 13,732
- ------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 195,618 134,945 128,591
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (86,440) (79,503) (71,637)
Acquisitions, net (279,056) (3,660) (159,020)
Note receivable from Lockheed Martin Corporation -- -- 53,000
Transactions with Lockheed Martin Corporation 23,768 63,615 (55,569)
Other investing activities, net 8,359 8,195 5,203
- ------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (333,369) (11,353) (228,023)
CASH FLOWS FROM FINANCING ACTIVITIES AND DIVIDENDS:
Repayments of long-term debt (366,367) (103,729) (4,468)
Increase in long-term debt 549,947 -- 124,970
Debt issue costs (938) -- (1,504)
Increase in loan payable to Lockheed Martin Corporation -- -- 70,000
Repayment of loan payable to Lockheed Martin Corporation -- -- (70,000)
Dividends (22,134) (21,196) (20,275)
Issuances of common stock 164 -- --
- ------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 160,672 (124,925) 98,723
============================================================================================================
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 22,921 (1,333) (709)
BOOK OVERDRAFT, beginning of year (4,260) (2,927) (2,218)
============================================================================================================
CASH AND CASH EQUIVALENTS (BOOK OVERDRAFT), end of year $ 18,661 $ (4,260) $ (2,927)
============================================================================================================
</TABLE>
The notes on pages 15 to 25 are an integral part of these financial statements.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 13
<PAGE> 16
STATEMENT OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
for the years ended December 31
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Shareholders'
(add 000) Stock Capital Earnings Equity
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $461 $331,303 $ 44,505 $ 376,269
Net earnings -- -- 67,551 67,551
Dividends declared ($0.44 a share) -- -- (20,275) (20,275)
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1995 461 331,303 91,781 423,545
Net earnings -- -- 78,628 78,628
Dividends declared ($0.46 a share) -- -- (21,196) (21,196)
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1996 461 331,303 149,213 480,977
NET EARNINGS -- -- 98,529 98,529
DIVIDENDS DECLARED ($0.48 A SHARE) -- -- (22,134) (22,134)
ISSUANCES OF COMMON STOCK 1 4,463 -- 4,464
- ------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $462 $335,766 $ 225,608 $ 561,836
================================================================================================
</TABLE>
The notes on pages 15 to 25 are an integral part of these financial statements.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 14
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A: ACCOUNTING POLICIES
Organization. Martin Marietta Materials, Inc. ("Martin Marietta Materials" or
the "Corporation") is engaged principally in the construction aggregates
business. Aggregates products are used primarily for construction of highways
and other infrastructure projects in the United States, and in the domestic
commercial, industrial and residential construction industries. In addition, the
Corporation produces magnesia-based chemical and refractory products used in a
wide variety of industrial, environmental and agricultural applications with a
majority of its products used by customers in the worldwide steel industry.
Basis of Consolidation and Use of Estimates. The consolidated financial
statements include the accounts of the Corporation and its wholly owned and
majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The preparation of the
Corporation's financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. Such judgments affect the reported amounts in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
Classifications. Certain amounts for the prior years have been reclassified
to conform to the 1997 presentation.
Revenue Recognition. Substantially all revenues are recognized, net of
discounts, if any, when finished products are shipped to unaffiliated customers
or services have been rendered, with appropriate provision for uncollectible
amounts.
Cash and Cash Equivalents. Cash and cash equivalents are net of outstanding
checks that are funded daily as presented for payment. Cash equivalents are
comprised generally of highly liquid instruments with original maturities of
three months or less from the date of purchase. For years ended prior to January
1, 1997, the Corporation's cash and cash equivalents were invested with its
former parent, Lockheed Martin Corporation ("Lockheed Martin"), under the terms
of a cash management agreement that, by its terms, was terminated on January 31,
1997. Upon termination of this agreement, all funds held by Lockheed Martin were
transferred to the Corporation and invested under its own cash management
arrangements. At December 31, 1996, the Corporation's cash and cash equivalents
invested with Lockheed Martin were included with other current receivables for
financial reporting purposes (see Note C).
Inventories Valuation. Inventories are stated at the lower of cost or market.
Costs are determined principally by the first-in, first-out ("FIFO") method.
Properties and Depreciation. Property, plant and equipment are stated at
cost. Depreciation and amortization are computed over estimated service lives
principally by the straight-line method. Depletion of mineral deposits is
calculated over estimated recoverable quantities principally by the
units-of-production method.
Intangible Assets. Cost in excess of net assets acquired (goodwill) is
amortized ratably over appropriate periods ranging from 10 to 30 years. At
December 31, 1997 and 1996, the amounts for accumulated amortization of costs in
excess of net assets acquired were approximately $13,520,000 and $9,087,000,
respectively. Other intangibles represent amounts assigned principally to
noncompete agreements and are amortized ratably over periods based on related
contractual terms. At December 31, 1997 and 1996, the amounts for accumulated
amortization of other intangibles were approximately $15,944,000 and
$12,957,000, respectively.
The carrying values of intangible assets are reviewed if the facts and
circumstances indicate potential impairment of their carrying value. Any
impairment in the carrying value of such intangibles is recorded when
identified.
Environmental Matters. The Corporation records an accrual for environmental
remediation liabilities in the period in which it is probable that a liability
has been incurred and the appropriate amount can be estimated reasonably. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value. Certain reclamation and other
environmental-related costs are treated as normal ongoing operating expenses and
expensed generally in the period in which they are incurred.
Income Taxes. The Corporation accounts for income taxes as prescribed in the
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Deferred income tax assets and liabilities on the consolidated balance
sheet reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Through October 1996, the results of operations of the Corporation were
included in a consolidated federal income tax return with the Corporation's
former parent, Lockheed Martin. Income taxes allocable to the operations of the
Corporation through this date were calculated as if it had filed separate
federal income tax
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 15
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
returns for each tax-reporting period. For all periods subsequent to October
1996, the Corporation's results of operations are reported separately for
federal income tax reporting purposes.
Related Party Transactions. Lockheed Martin disposed of its ownership of the
Corporation's common stock in October 1996. The disposition was completed by
means of a split-off, or exchange offer, whereby Lockheed Martin shareholders
were given the opportunity to exchange some or all of their common stock of
Lockheed Martin for shares of Martin Marietta Materials common stock.
Through the consummation of the split-off transaction in October 1996 (the
"Consummation Date"), the Corporation was charged by Lockheed Martin for certain
general and administrative services, the cost of which was allocated to the
Corporation generally using a formula that considered the Corporation's
proportionate share of sales, payroll and properties. The amounts charged the
Corporation for services under this method were $4,770,000 through the
Consummation Date in 1996 and $5,290,000 for the year ended December 31, 1995.
In addition, the costs of certain administrative services relating to employee
benefits were charged separately to the Corporation. The cost of these services
was allocated to the Corporation based on plan assets attributable to the
Corporation's employees and the number of participants who were employees of the
Corporation. The amounts charged to the Corporation for such benefits
administration services were $931,000 through the Consummation Date in 1996 and
$1,447,000 for the year ended December 31, 1995. Management believes that the
allocation methods with respect to all such charges were reasonable for such
periods.
For a brief period subsequent to the Consummation Date, certain services were
provided by Lockheed Martin under a transition agreement. The costs for the
services under this agreement were based on market rates. Services under the
transition agreement have been terminated and amounts charged the Corporation
were not material during 1997. In addition to these intercompany charges, the
Corporation reimbursed Lockheed Martin for the costs of certain services
Lockheed Martin procured on behalf of the Corporation.
In connection with the split-off of its stock, the Corporation agreed under
certain circumstances to indemnify Lockheed Martin for certain liabilities that
could result from the failure of the distribution of the Corporation's common
stock to qualify as a tax free distribution. While it is unlikely that the
requirement for indemnity will arise, nevertheless payment of the indemnity by
the Corporation could have a material adverse effect on its results of
operations and its financial position.
Research and Development and Similar Costs. Research and development and
similar costs are charged to operations as incurred. Pre-operating costs and
start-up costs for new facilities and products are generally charged to
operations as incurred.
Derivative Financial Instruments. From time to time, the Corporation uses
derivative financial instruments to manage its exposure to fluctuations in
interest rates. The Corporation designates its interest rate swap agreements as
hedges of specific debt instruments and recognizes the interest differentials as
adjustments to interest expense over the terms of the related debt obligations.
When using interest rate swap agreements, the intermediaries to such agreements
expose the Corporation to the risk of nonperformance, though such risk is not
considered likely under the circumstances. The Corporation does not hold or
issue financial instruments for trading purposes.
Earnings Per Common Share. Basic earnings per common share are based on the
weighted-average number of common shares outstanding during the year. The
weighted-average number of common shares outstanding was approximately
46,121,800 in 1997 and 46,079,300 in both 1996 and 1995. Diluted earnings per
common share were computed assuming that the weighted-average number of common
shares was increased by the conversion of fixed awards (employee stock options
and incentive stock) and nonvested stock to be issued to employees and
non-employee members of the Corporation's Board of Directors under certain
stock-based compensation arrangements. The diluted per-share computations
reflect a change in the number of common shares outstanding (the "denominator")
to include the number of additional shares that would have been outstanding if
the potentially dilutive common shares had been issued. In each year presented,
the income available to common shareholders (the "numerator") is the same for
both basic and dilutive per-share computations. The following table sets forth a
reconciliation of the denominators for the basic and diluted earnings per share
computations for each of the years ended December 31:
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 16
<PAGE> 19
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER
COMMON SHARE:
Weighted-average
number of shares 46,121,800 46,079,300 46,079,300
- --------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES:
Employee fixed awards 113,300 21,700 100
Employee and Directors'
nonvested stock 2,700 -- --
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER
COMMON SHARE:
Adjusted weighted-average
number of shares and
assumed conversions 46,237,800 46,101,000 46,079,400
================================================================================
</TABLE>
Accounting Changes. In 1997, the Financial Accounting Standards Board (the
"FASB") issued the Statement of Financial Accounting Standards No. 128, Earnings
Per Share (the "SFAS 128"), which the Corporation adopted at December 31, 1997,
as required. The SFAS 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of,
among other potentially dilutive securities, options and nonvested stock. The
computation for diluted earnings per share is very similar to the method used
previously to compute fully diluted earnings per share. In prior years, the
Corporation's per-share computation assuming full dilution excluded the effect
of potential dilutive securities because the aggregate reduction from such
securities was less than 3%. Consequently, the Corporation did not report fully
diluted earnings per share in prior years. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the SFAS 128 requirements.
Also in 1997, the Corporation adopted, effective January 1, 1997, the
provisions of the American Institute of Certified Public Accountants Statement
of Position No. 96-1, Environmental Remediation Liabilities (the "SOP 96-1"),
which provides authoritative guidance for the accrual of environmental
remediation costs. In addition, the SOP 96-1 establishes expanded financial
reporting disclosure requirements regarding environmental liabilities. The
impact of the adoption of this standard was not material to the Corporation's
consolidated earnings or financial position.
NOTE B: ACQUISITION OF AMERICAN AGGREGATES CORPORATION
On May 28, 1997, Martin Marietta Materials purchased all of the outstanding
common stock of American Aggregates Corporation ("American Aggregates") along
with certain other assets from American Aggregates' former parent, CSR America,
Inc. The operating results of the acquired business have been included with
those of the Corporation since that date.
The purchase price consisted of approximately $242 million in cash plus
certain assumed liabilities. The acquisition has been accounted for under the
purchase method of accounting, wherein the Corporation recognized approximately
$104 million in goodwill after recording approximately $3 million in other
intangibles (representing the estimated fair market value of certain assets) and
other purchase adjustments necessary to allocate the purchase price to the value
of assets acquired and liabilities assumed. Goodwill is being amortized over a
30-year period and other intangibles are being amortized over periods not
exceeding 14 years.
For comparative purposes, the following unaudited pro forma summary financial
information presents the historical results of operations of the Corporation and
the American Aggregates business for the years ended December 31, 1997 and 1996,
with pro forma adjustments as if the acquisition had been consummated as of the
beginning of the periods presented. The pro forma financial information is based
upon certain estimates and assumptions that management of the Corporation
believes are reasonable in the circumstances. The unaudited pro forma
information presented below is not necessarily indicative of what results of
operations actually would have been if the acquisition had occurred on the date
indicated. Moreover, they are not necessarily indicative of future results.
PRO FORMA INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
years ended December 31
(add 000, except per share) 1997 1996
- --------------------------------------------------------
<S> <C> <C>
Net sales $939,179 $854,568
Net earnings $ 92,414 $ 75,298
Earnings per common
share:
Basic $ 2.01 $ 1.63
Diluted $ 2.00 $ 1.63
========================================================
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE C: ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
December 31
(add 000) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Customer receivables $ 145,773 $ 110,522
Other current receivables 6,448 29,011
- ----------------------------------------------------------------------------
152,221 139,533
Less allowances (4,789) (2,950)
- ----------------------------------------------------------------------------
Total $ 147,432 $ 136,583
============================================================================
</TABLE>
NOTE D: INVENTORIES
<TABLE>
<CAPTION>
December 31
(add 000) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Finished products $ 108,707 $ 85,363
Products in process and
raw materials 7,886 14,682
Supplies and expendable
parts 23,161 19,807
- ----------------------------------------------------------------------------
139,754 119,852
Less allowances (7,171) (6,078)
- ----------------------------------------------------------------------------
Total $ 132,583 $ 113,774
============================================================================
</TABLE>
NOTE E: PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
December 31
(add 000) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Land and
improvements $ 85,261 $ 52,158
Mineral deposits 125,128 60,893
Buildings 56,116 43,361
Machinery and equipment 942,162 791,631
Construction in progress 34,010 33,171
- ----------------------------------------------------------------------------
1,242,677 981,214
Less allowances for
depreciation, depletion
and amortization (651,257) (572,394)
- ----------------------------------------------------------------------------
Total $ 591,420 $ 408,820
============================================================================
</TABLE>
NOTE F: LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
(add 000) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
6.9% Notes, due 2007 $ 124,948 $ --
7% Debentures, due 2025 124,195 124,185
Commercial Paper,
interest rates ranging
from 5.7% to 6% 60,000 --
Acquisition notes, interest
rates ranging from 5%
to 10% 1,337 2,254
Other notes 1,626 724
- ----------------------------------------------------------------------------
Total 312,106 127,163
Less current maturities (1,431) (1,273)
- ----------------------------------------------------------------------------
Long-term debt $ 310,675 $ 125,890
============================================================================
</TABLE>
During August 1997, the Corporation offered and sold the 6.9% Notes at 99.7%
of their principal amount of $125,000,000. The entire amount of these long-term
fixed rate debt securities was registered under the Corporation's shelf
registration statement on file with the Securities and Exchange Commission.
These notes are carried net of original issue discount, which is being amortized
by the interest method over the life of the issue. The effective interest rate
on these securities is 6.906% (see Note G). The notes are not redeemable prior
to their maturity on August 15, 2007.
The 7% Debentures were sold at 99.341% of their principal amount of
$125,000,000 in December 1995. These debentures are carried net of original
issue discount, which is being amortized by the interest method over the life of
the issue. The effective interest rate is 7.053% and the debentures are not
redeemable prior to their maturity date of December 1, 2025.
In January 1997, the Corporation's revolving credit agreement with Lockheed
Martin was, by its terms, terminated. Also during January, the Corporation
entered into a revolving credit agreement with a group of domestic and foreign
commercial banks, which provides for borrowings of up to $150,000,000 for
general corporate purposes through January 2002 (the "Long-Term Credit
Agreement"). Borrowings under this credit agreement would be unsecured and bear
interest, at the Corporation's option, at rates based upon: (i) the Euro-Dollar
rate (as defined on the basis of a LIBOR); (ii) a bank base rate (as defined on
the basis of a published prime rate or the Federal Funds Rate plus 1/2 of 1%);
or (iii) a competitively determined rate (as defined on the basis of a bidding
process). The Long-Term Credit Agreement contains restrictive covenants relating
to leverage, requirements for limitations on encumbrances, and provisions which
relate to certain changes in control. The Corporation is required to pay an
annual loan commitment fee to the bank group.
In May 1997, the Corporation entered into an additional revolving credit
agreement with the same group of commercial banks, as referenced above, which
provides for borrowings of up to an additional $150,000,000 for general
corporate purposes through May 26, 1998 (the "Short-Term Credit Agreement").
Borrowings under this short-term agreement would also be unsecured and bear
interest, at the Corporation's option, at rates based upon: (i) the Euro-Dollar
rate (as defined on the basis of a LIBOR); (ii) a bank base rate (as defined on
the basis of a published prime rate or the Federal Funds Rate plus 1/2 of 1%);
or (iii) a competitively determined rate (as defined on the basis of a bidding
process). The Short-
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 18
<PAGE> 21
Term Credit Agreement is subject to the same restrictive covenants as those
contained in the above-referenced long-term revolving credit agreement. The
Corporation is also required to pay a loan commitment fee to the bank group.
No borrowings were outstanding under either of the revolving credit
agreements at December 31, 1997. However, the Long-Term Credit Agreement
supports the commercial paper borrowings of $60,000,000 outstanding at December
31, 1997, which have been classified as long-term debt in the Corporation's
consolidated balance sheet based on management's ability and intention to
maintain this debt outstanding for at least one year.
Excluding commercial paper classified as long term, the Corporation's
long-term debt maturities for the five years following December 31, 1997, are:
$1,431,000 in 1998; $335,000 in 1999; $276,000 in 2000; $284,000 in 2001;
$615,000 in 2002; and $249,165,000 thereafter.
Total interest paid was $14,487,000, $12,004,000 and $9,254,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
Amounts reflected in acquisitions, net, in the statement of cash flows
include assumed or incurred indebtedness of $1,364,000 and $2,166,000 for the
years ended December 31, 1997 and 1996, respectively, in connection with certain
acquisitions. In addition, the amount reflected in acquisitions, net, for 1997
excludes the effect of the issuance of approximately 124,000 shares of the
Corporation's common stock in connection with a certain acquisition during the
year.
NOTE G: FINANCIAL INSTRUMENTS
In July 1997, the Corporation entered into an interest rate swap agreement to
offset a portion of its exposure to rising interest rates relating to an
anticipated long-term financing. This agreement was closed during the third
quarter of 1997 in connection with the Corporation's issuance of the long-term
debt securities in August. The Corporation realized a gain of approximately
$313,000 on the closing of this agreement, which has been deferred and is being
amortized and recognized as an adjustment to interest expense over the term of
the related debt obligation (see Note F). No interest rate swap agreements were
outstanding as of December 31, 1997.
In addition to its long-term debt arrangements, the Corporation's financial
instruments also include temporary cash investments, customer accounts and notes
receivable, and commercial paper borrowings. Temporary investments are placed
with creditworthy financial institutions, primarily in Euro-time deposits. The
Corporation's cash equivalents principally have maturities of less than three
months. Customer receivables are due from a large number of customers that are
dispersed across wide geographic and economic regions. At December 31, 1997 and
1996, the Corporation had no significant concentrations of credit risk.
The carrying amounts reported in the Corporation's consolidated balance sheet
for cash and cash equivalents approximate fair value due to the short maturity
of these instruments. The estimated fair values of customer receivables and
commercial paper borrowings approximate their carrying amounts. The estimated
fair values of the Corporation's long-term debt instruments (excluding
commercial paper borrowings) at December 31, 1997, aggregated approximately
$257.2 million compared with a carrying amount of $252.1 million on the
consolidated balance sheet. The fair values of long-term debt were estimated
based on quoted market prices for those instruments publicly traded. For
privately placed debt, the fair values were estimated based on the quoted market
prices for similar issues, or on current rates offered to the Corporation for
debt of the same remaining maturities.
NOTE H: INCOME TAXES
The components of the Corporation's taxes on income are as follows:
<TABLE>
<CAPTION>
years ended December 31
(add 000) 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $ 39,723 $ 33,265 $ 30,147
Deferred 2,566 (416) 313
- ------------------------------------------------------------------
Total federal
income taxes 42,289 32,849 30,460
- ------------------------------------------------------------------
State income taxes:
Current 9,032 6,560 5,875
Deferred 169 410 (245)
- ------------------------------------------------------------------
Total state
income taxes 9,201 6,970 5,630
- ------------------------------------------------------------------
Foreign income taxes 1,193 506 150
- ------------------------------------------------------------------
Total provision $ 52,683 $ 40,325 $ 36,240
==================================================================
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 19
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Corporation's effective income tax rate varied from the statutory United
States income tax rate because of the following permanent tax differences:
<TABLE>
<CAPTION>
years ended December 31 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Increase (reduction)
resulting from:
Excess of tax over
book depletion (5.8) (5.5) (6.1)
State income taxes 4.0 3.8 3.5
Other items 1.6 0.6 2.5
- ----------------------------------------------------------------
Effective tax rate 34.8% 33.9% 34.9%
================================================================
</TABLE>
The principal components of the Corporation's deferred tax assets and
liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
Deferred
Assets (Liabilities)
(add 000) 1997 1996
- -------------------------------------------------
<S> <C> <C>
Property, plant and
equipment $(61,465) $(29,684)
Employee benefits 21,559 19,730
Financial reserves 7,708 8,804
Other items, net (937) 3,105
- -------------------------------------------------
$(33,135) $ 1,955
=================================================
</TABLE>
Deferred income taxes on the consolidated balance sheet reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amount used for income tax
purposes. The Corporation does not believe a valuation allowance is required at
December 31, 1997 or 1996.
The components of the provision for deferred income taxes for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
(add 000) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Amounts expensed
for books not yet
deducted for tax
purposes $ (220) $(1,757) $ (780)
Inventories valuation (438) (1,551) 406
Vacation pay accrual -- (179) (206)
Tax depreciation,
depletion and
amortization 7,165 3,124 2,941
Employee benefits (2,168) (2,285) (2,554)
Financial reserves (142) 506 10
Miscellaneous, net (1,462) 2,136 251
- ---------------------------------------------------------------
$ 2,735 $ (6) $ 68
===============================================================
</TABLE>
The Corporation's total income tax payments were $54,181,000 during the year
ended December 31, 1997. Total income taxes paid by Lockheed Martin attributable
to the Corporation were $29,229,000 and $36,088,000 for the years ended December
31, 1996 and 1995, respectively (see Note A).
NOTE I: RETIREMENT PLANS
Defined Contribution Plans. The Corporation maintains two defined
contribution plans, which cover substantially all employees. These plans,
intended to be qualified under Section 401(a) of the Internal Revenue Code, are
retirement savings and investment plans for the Corporation's salaried and
hourly employees. Under certain provisions of these 401(k) plans, the
Corporation at established rates matches employees' eligible contributions. The
Corporation's matching obligations were $1,418,000 in 1997, $1,336,000 in 1996,
and $1,230,000 in 1995. Effective January 1, 1998, salaried and certain hourly
employees of the former American Aggregates business that was acquired by the
Corporation during 1997 are eligible to participate in the Corporation's 401(k)
plans.
Defined Benefit Plans. The Corporation sponsors a number of noncontributory
defined benefit retirement plans, covering substantially all employees. The
assets of the Corporation's retirement plans are held in the Corporation's
Master Retirement Trust and are invested principally in commingled funds, the
underlying investments in which are invested in listed stocks and bonds and cash
equivalents. Defined benefit plans for salaried employees provide benefits based
on employees' years of service and average compensation for a specified period
of time before retirement. Defined benefit plans for hourly paid employees
generally provide benefits of stated amounts for specified periods of service.
The Corporation's defined benefit pension plans comply with two principal
standards: the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which, in conjunction with the Internal Revenue Code, determines
legal minimum and maximum deductible funding requirements, and the Statement of
Financial Accounting Standards No. 87, Employers' Accounting for Pensions (the
"SFAS 87"), which establishes rules for financial accounting and reporting. When
any funded plan exceeds the full-funding limits of ERISA, no contribution is
made to that plan. The SFAS 87 specifies that certain key actuarial assumptions
be adjusted annually to reflect current, rather than long-term, trends in the
economy.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 20
<PAGE> 23
It is the Corporation's funding policy to stabilize annual contributions with
assumptions selected on the basis of expected long-term trends. The net pension
cost of defined benefit plans included the following components:
<TABLE>
<CAPTION>
years ended December 31
(add 000) 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the
period $ 5,039 $ 5,305 $ 3,603
Interest cost 8,245 7,255 6,668
Net amortization and
other components 6,589 5,364 7,501
Actual return on
assets (16,658) (12,968) (14,535)
- ----------------------------------------------------------------------
Net pension cost $ 3,215 $ 4,956 $ 3,237
======================================================================
</TABLE>
Assumptions used as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Plan discount rates 7.25% 7.75% 7.50%
Rates of increase in
future compensation
levels 5.50% 5.50% 6.00%
Expected long-term
rates of return on
assets 9.00% 8.75% 8.75%
</TABLE>
The following table sets forth the defined benefit plans' funded status and
amounts recognized in the respective balance sheet as of:
<TABLE>
<CAPTION>
years ended December 31
(add 000) 1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Actuarial present value
of benefit obligations:
Vested $(105,913) $ (80,252)
Non-vested (2,117) (7,042)
- ----------------------------------------------------------
Accumulated benefit
obligation (108,030) (87,294)
Effect of future pay
increases (17,943) (14,897)
- ----------------------------------------------------------
Projected benefit
obligation ("PBO") (125,973) (102,191)
Plan assets at fair value 130,345 108,270
- ----------------------------------------------------------
Plan assets in excess of
PBO 4,372 6,079
Unrecognized prior
service cost 5,173 5,691
Unrecognized net assets (1,436) (1,796)
Unrecognized gain (18,279) (17,089)
- ----------------------------------------------------------
Accrued pension cost $ (10,170) $ (7,115)
==========================================================
</TABLE>
NOTE J: POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Corporation provides certain health care and life insurance benefits for
retired employees who may become eligible for such benefits if employed by the
Corporation at retirement. The Corporation has deposited funds into irrevocable
trusts established to fund and pay a portion of future health benefits to
eligible retirees and dependents. Plan assets are invested in mutual funds.
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
years ended December 31
(add 000) 1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the
period $ 1,360 $ 1,664 $ 1,384
Interest cost 3,539 4,346 3,967
Net amortization and
other components (371) 324 330
Actual return on
assets (211) (375) (659)
- -------------------------------------------------------------------
Net periodic
postretirement
benefit cost $ 4,317 $ 5,959 $ 5,022
===================================================================
</TABLE>
The postretirement health care plans' funded status and amounts recognized in
the Corporation's consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
years ended December 31
(add 000) 1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligations
("APBO"):
Actives, fully eligible $ (9,397) $(10,610)
Actives, not fully
eligible (17,380) (19,623)
Retirees (25,381) (28,657)
- ------------------------------------------------------------
Total APBO (52,158) (58,890)
Plan assets at fair value 2,926 4,971
- ------------------------------------------------------------
APBO in excess of plan
assets (49,232) (53,919)
Unrecognized prior service
cost 481 1,134
Unrecognized (gain) loss (4,644) 5,137
- ------------------------------------------------------------
Accrued postretirement
benefit cost $(53,395) $(47,648)
============================================================
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Assumptions used as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Discount rate 7.25% 7.75%
Expected long-term rate of
return on assets 9.00% 8.75%
</TABLE>
The assumed trend rate for health care inflation used in measuring the net
periodic benefit cost and APBO is 7.5% for 1997, declining gradually to 4.5% in
the year 2001 and remaining at that level thereafter. It is estimated that a 1%
increase in the health care cost trend rate would increase the APBO by
approximately 14% and would increase the sum of the service cost and interest
cost by approximately 17%.
The Corporation provides certain benefits to former or inactive employees
after employment but before retirement, such as workers' compensation and
disability benefits. The Corporation has accrued postemployment benefit costs of
$1,734,000 at December 31, 1997 and 1996.
NOTE K: STOCK OPTIONS AND AWARD PLANS
The shareholders of the Corporation have approved an Amended Omnibus
Securities Award Plan (an "Amended Omnibus Plan"). Under the Amended Omnibus
Plan, employees of the Corporation may be granted stock-based incentive awards,
including options to purchase common stock, stock appreciation rights,
restricted stock or other stock-based incentive awards. These awards may be
granted either singly or in combination with other awards. Under the terms of
the Amended Omnibus Plan, 2,000,000 shares of common stock may be available for
awards and grants.
Under the Amended Omnibus Plan, the Corporation grants options to purchase
its common stock at a price equal to the market value at the date of grant.
These options become exercisable in three equal annual installments beginning
one year after date of grant and expire 10 years from such date. The Amended
Omnibus Plan allows the Corporation to provide for financing of purchases,
subject to certain conditions, by interest-bearing notes payable to the
Corporation.
Additionally, the Amended Omnibus Plan provides for an incentive stock plan
whereby certain participants may be awarded stock units which permit them to use
up to 50% of their annual incentive compensation to acquire shares of the
Corporation's common stock at a 20% discount to the market value on the date of
the incentive compensation award. Stock unit awards, representing 28,029 shares
for 1997, 29,327 shares for 1996 and 26,026 shares for 1995 of the Corporation's
common stock, were awarded under the incentive stock plan. Under the awards
outstanding, participants earn the right to acquire their respective shares at
the discounted value generally at the end of a three-year period of additional
employment from the date of award. 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.
A summary of the Corporation's stock-based plans' activity and related
information follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------
AVAILABLE WEIGHTED
FOR AWARDS AVERAGE
GRANT OUTSTANDING EXERCISE PRICE
- --------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1994 1,807,500 192,500 $22.00
Additions -- -- --
Granted (222,000) 222,000 $20.00
Exercised -- -- --
Terminated -- -- --
- --------------------------------------------------------------------
December 31, 1995 1,585,500 414,500 $20.93
Additions -- -- --
Granted (270,026) 270,026 $23.53
Exercised -- -- --
Terminated 1,667 (1,667) $20.00
- --------------------------------------------------------------------
December 31, 1996 1,317,141 682,859 $21.96
ADDITIONS -- -- --
GRANTED (315,327) 315,327 $34.10
EXERCISED -- (10,030) $21.33
TERMINATED 2,334 (2,334) $25.57
- --------------------------------------------------------------------
DECEMBER 31, 1997 1,004,148 985,822 $25.84
====================================================================
</TABLE>
Approximately 411,000; 202,000; and 64,000 outstanding awards were
exercisable at December 31, 1997, 1996 and 1995, respectively. Exercise prices
for awards outstanding as of December 31, 1997, ranged from $16.80 to $35.50.
The weighted-average remaining contractual life of those awards is 7.9 years.
The weighted-average exercise price of outstanding exercisable awards at
December 31, 1997, is $ 21.73.
In 1996, the Corporation adopted the Amended and Restated Common Stock
Purchase Plan for Directors, which provides non-employee Directors the election
to receive all or a portion of their total fees in the form of the Corporation's
common stock. Under the terms of this plan, 50,000 shares of common stock may be
available for issuance. Currently, Directors are required to defer at least 30%
of the retainer portion of their fees in the form of common stock. In 1997,
Directors elected to defer portions of their fees representing 6,725 shares of
the Corporation's common stock under this plan.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 22
<PAGE> 25
This was the first year that the election under this plan was available to
non-employee Directors. Also 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 performance criteria over a long-term period,
as defined. Under the terms of this plan, 250,000 shares of common stock may be
available for grant. During 1997, stock units potentially representing 26,801
shares of the Corporation's common stock were granted under this plan. No such
grants were made in prior years.
In 1996, the Corporation adopted the Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (the "SFAS 123"). In
accordance with the SFAS 123, the Corporation has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25") and related Interpretations in accounting for certain of its employee
stock-based compensation plans.
Pro forma information regarding net income and earnings per share is required
by the SFAS 123, which also requires that the information be determined as if
the Corporation has accounted for its employee stock options and other
stock-based awards and grants subsequent to December 31, 1994, under the fair
value method prescribed by the SFAS 123. The fair value for these stock-based
plans was estimated as of the date of grant using a Black-Scholes valuation
model with the following weighted-average assumptions as of December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.40% 6.70% 6.45%
Dividend yield 1.70% 2.10% 2.10%
Volatility factor 20.40% 20.90% 16.40%
Expected life 7 YEARS 7 years 7 years
</TABLE>
The Black-Scholes valuation model was developed for use in estimating the
fair value of traded awards which have no vesting restrictions and are fully
transferable. In addition, valuation models require the input of highly
subjective assumptions, including the expected stock price volatility factor.
Because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based plans.
For purposes of pro forma disclosure, the estimated fair value of the
stock-based plans is amortized hypothetically over the vesting period of the
related grant or award. The Corporation's pro forma information for the years
ended December 31 is as follows:
<TABLE>
<CAPTION>
(add 000, except per share) 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per common share:
Net earnings $97,557 $78,174 $67,446
Earnings per share $ 2.12 $ 1.70 $ 1.46
Diluted earnings per common share:
Net earnings $97,072 $78,174 $67,446
Earnings per share $ 2.10 $ 1.70 $ 1.46
===========================================================================
</TABLE>
NOTE L: LEASES
Total rent expense for all operating leases was $19,700,000, $18,480,000, and
$18,353,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
Total mineral royalties for all leased properties were $17,750,000, $14,270,000,
and $13,315,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. Future minimum rental and royalty commitments for all
non-cancelable operating leases and royalty agreements as of December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
(add 000)
- ----------------------------------------------
<S> <C>
1998 $ 7,353
1999 4,786
2000 3,830
2001 2,780
2002 and thereafter 37,814
- ----------------------------------------------
$56,563
==============================================
</TABLE>
NOTE M: SHAREHOLDERS' EQUITY
The authorized capital structure of Martin Marietta Materials, Inc., includes
10,000,000 shares of Preferred Stock with par value of $0.01 a share, none of
which is issued currently, in addition to the 100,000,000 shares of common
stock, with a par value of $0.01 a share. As of December 31, 1997, there were
approximately 46,211,200 shares of the Corporation's common stock issued and
outstanding. Approximately 4,300,000 common shares have been reserved for
issuance under benefit and stock-based incentive plans.
In 1994, the Board of Directors authorized the repurchase of up to 2,000,000
shares of the Corporation's common stock for issuance under various stock-based
compensation and common stock purchase plans. Further, the Board of Directors
authorized the repurchase of an additional 500,000 shares for general corporate
purposes. During 1994, the Corporation repurchased
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 23
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
68,200 shares of its common stock under these authorizations. No additional
shares have been repurchased by the Corporation.
Under the North Carolina Business Corporation Act, shares of common stock
reacquired by a corporation constitute unissued shares. For financial reporting
purposes, reacquired shares are recorded as reductions to issued common stock
and to additional paid-in capital.
NOTE N: COMMITMENTS AND CONTINGENCIES
The Corporation is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of those actions at this time, in the opinion of
management and counsel, it is unlikely that the outcome of such litigation and
other proceedings, including those pertaining to environmental matters (see Note
A and Management's Discussion and Analysis of Financial Condition and Results of
Operations, pages 35 and 36), will have a material adverse effect on the results
of the Corporation's operations or on its financial position.
Environmental Matters. The Corporation recently was notified by the U.S.
Environmental Protection Agency (the "EPA") that it is a potentially responsible
party (a "PRP") with respect to environmental remediation at sites in Kansas
City, Missouri, and Kansas City, Kansas. Meetings have been held between the EPA
and several of the other named PRPs, and site assessments have begun to
determine the required level of corrective action. Although a loss is considered
probable, it is not possible at this time to reasonably estimate the amount of
any obligation for remediation of the sites. The extent of environmental impact
studies, allocation among the other named PRPs, remediation alternatives, and
concurrence of the regulatory authorities have not yet advanced to the stage
where such estimate of any loss to the Corporation can be made. However,
management believes that any costs incurred by the Corporation associated with
these sites would not have a material adverse effect on the Corporation's
consolidated results of operations or on its consolidated financial position.
Letters of Credit. The Corporation has entered into a standby letter of
credit agreement relating to workers' compensation self-insurance requirements.
At December 31, 1997, the Corporation had a contingent liability on this
outstanding letter of credit of approximately $2,500,000.
NOTE O: SEGMENT INFORMATION
The Corporation operates in two principal business segments: aggregates
products and magnesia-based products. The Corporation's sales and earnings are
predominantly derived from its aggregates segment which processes and sells
granite, sandstone, limestone and other aggregates products for use primarily by
commercial customers. The division's products are used principally in domestic
construction of highways and other infrastructure projects and for commercial
and residential buildings. The magnesia-based products segment produces
refractory materials and dolomitic lime used in domestic and foreign basic steel
production and produces chemicals products used in industrial, agricultural and
environmental applications. The magnesia-based products segment derives a major
portion of its sales and earnings from the products used in the steel industry.
Earnings from operations is total revenue less operating expenses (excluding
interest expense) and general corporate expenses. Assets employed by segment
include assets directly identified with those operations. General corporate
assets consist primarily of cash and cash equivalents and property, plant and
equipment for corporate operations. For years prior to 1997, the Corporation's
cash and cash equivalents were included with affiliates receivable or with other
current receivables for financial reporting purposes. Property additions include
property, plant and equipment that has been purchased through acquisitions in
the amount of $174,339,000 in 1997, $1,880,000 in 1996 and $80,908,000 in 1995.
SELECTED FINANCIAL DATA BY BUSINESS SEGMENT
years ended December 31
(add 000)
NET SALES
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $760,702 $591,268 $538,827
Magnesia Specialties 140,161 130,679 125,579
- --------------------------------------------------------------
Total $900,863 $721,947 $664,406
==============================================================
</TABLE>
GROSS PROFIT
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $202,197 $152,179 $137,704
Magnesia Specialties 33,072 30,331 29,460
- --------------------------------------------------------------
Total $235,269 $182,510 $167,164
==============================================================
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 24
<PAGE> 27
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $ 52,062 $ 42,788 $ 39,617
Magnesia Specialties 17,031 17,149 18,121
- --------------------------------------------------------------------
Total $ 69,093 $ 59,937 $ 57,738
====================================================================
</TABLE>
EARNINGS FROM OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $ 148,944 $109,391 $ 98,087
Magnesia Specialties 13,826 11,285 9,478
- --------------------------------------------------------------------
Total $ 162,770 $120,676 $107,565
====================================================================
</TABLE>
ASSETS EMPLOYED
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $ 959,883 $616,268 $583,154
Magnesia Specialties 115,682 122,365 110,073
- --------------------------------------------------------------------
1,075,565 738,633 693,227
General corporate assets 30,148 30,285 96,144
- --------------------------------------------------------------------
Total $1,105,713 $768,918 $789,371
====================================================================
</TABLE>
DEPRECIATION, DEPLETION AND AMORTIZATION
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $ 70,552 $ 52,650 $ 47,186
Magnesia Specialties 8,716 8,342 8,298
Corporate headquarters 452 218 190
- --------------------------------------------------------------------
Total $ 79,720 $ 61,210 $ 55,674
====================================================================
</TABLE>
PROPERTY ADDITIONS
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $ 248,215 $ 66,977 $145,632
Magnesia Specialties 11,072 9,503 6,218
Corporate headquarters 1,492 4,903 695
- --------------------------------------------------------------------
Total $ 260,779 $ 81,383 $152,545
====================================================================
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Martin Marietta Materials, Inc., ("Martin Marietta Materials" or the
"Corporation") is the nation's second largest producer of construction
aggregates and a leading producer of magnesia-based chemical and refractory
products used in a wide variety of industries. The discussion and analysis that
follows reflects management's assessment of the financial condition and results
of operations of Martin Marietta Materials, and should be read in conjunction
with the audited consolidated financial statements on pages 11 through 25.
BUSINESS COMBINATION WITH AMERICAN AGGREGATES CORPORATION
On May 28, 1997, the Corporation purchased all of the outstanding common
stock of American Aggregates Corporation ("American Aggregates") along with
certain other assets from American Aggregates' former parent, CSR America, Inc.,
for an acquisition price of approximately $242 million in cash plus certain
assumed liabilities. This acquisition has been accounted for under the purchase
method of accounting and the operating results of the American Aggregates
business acquired are included with those of the Corporation from the closing
date in May 1997. The Corporation recognized approximately $104 million in
goodwill after recording approximately $3 million in other intangibles
(representing the estimated fair market value of certain assets) and other
purchase adjustments necessary to allocate the purchase price to the value of
the underlying assets acquired and liabilities assumed based on their estimated
fair values as of the closing date. Goodwill is being amortized over a 30-year
period and other intangibles are being amortized over periods not exceeding 14
years.
The funds for the consummation of the American Aggregates acquisition were
provided initially through borrowings under the Corporation's revolving credit
agreements. To finance the transaction on the closing date, the Corporation
borrowed approximately $210 million under these agreements. These borrowings,
coupled with other working capital borrowings, remained outstanding at June 30,
1997. In July 1997, the Corporation offered and sold $200 million of commercial
paper obligations, the proceeds of which were used to repay certain amounts
outstanding under the revolving credit agreements. During August 1997, the
Corporation issued $125 million of long-term fixed rate debt securities, the net
proceeds from the sale of which were used to repay remaining amounts outstanding
under the revolving credit agreements and to reduce the amount of commercial
paper obligations. Additional information regarding this acquisition and the
related financing is contained in Note B to the audited consolidated financial
statements on page 17, and under "Business Environment" on page 29 and
"Liquidity and Cash Flows" and "Capital Structure and Resources" on pages 32
through 35.
RESULTS OF OPERATIONS
The Corporation's aggregates business is characterized by a high level of
dependence upon construction sector spending. The magnesia specialties product
lines, particularly refractory and dolomitic lime products, are used principally
within the steel industry. Therefore, the Corporation's operating results are
highly dependent upon activity within the construction and steel-related
marketplaces, both of which are subject to interest rate fluctuations and
economic cycles within the public and private business sectors. Factors such as
seasonal and other weather-related conditions also affect the Corporation's
business production schedules and levels of profitability. Accordingly, the
financial results for a particular year, or year-to-year comparisons of reported
results, may not be indicative of future operating results. The following
comparative analysis and discussion should be read in this context.
The Corporation's 1997 net earnings of $98.5 million represent an increase of
25% over 1996 net earnings of $78.6 million. The 1996 net earnings in turn were
16% higher than 1995 net earnings of $67.6 million. Under new accounting
standards that went into effect in late 1997, the Corporation must report
per-share earnings under two redefined computations: basic and diluted. The
Corporation's basic earnings per common share, or net income available to common
shareholders divided by the weighted-average number of common shares outstanding
during the year, were $2.14 per share for the year ended December 31, 1997,
compared with $1.71 per share for 1996. The Corporation's basic earnings per
common share for the year ended December 31, 1995, were $1.47 per share. The
Corporation's diluted earnings per common share, or net earnings available to
common shareholders divided by the weighted-average number of common shares
outstanding increased by the additional number of shares that would have been
outstanding if potentially dilutive common shares had been issued, were $2.13
per share for 1997. The 1996 and 1995 comparable diluted earnings per common
share were $1.71 and $1.47, respectively.
The Corporation's consolidated net sales were $900.9 million in 1997 and
$721.9 million in 1996. Net sales increased $178.9 million, or 25%, in 1997 and
$57.5
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 26
<PAGE> 29
million, or 9%, in 1996. The Corporation's consolidated net sales in 1995 were
$664.4 million. Consolidated earnings from operations were $162.8 million in
1997 and $120.7 million in 1996, reflecting an increase of $42.1 million, or
35%, in 1997 and $13.1 million, or 12%, in 1996. The Corporation's 1995
operating earnings were $107.6 million. The Corporation's financial results for
1997 include the operations of the American Aggregates business that was
acquired by the Corporation in May 1997.
Other income and expenses, net, for the year ended December 31, 1997, was
$5.3 million in income, compared to income of $8.4 million and $6.0 million in
1996 and 1995, respectively. In addition to other offsetting amounts, other
income, net, for the three years in the period ended December 31, 1997, was
comprised principally of interest income, gains and losses associated with the
disposition of certain assets, gains and losses related to certain amounts
receivable, and net equity earnings from nonconsolidated investments.
Interest expense for the year ended December 31, 1997, was $16.9 million,
compared with an interest expense of $10.1 million for the prior year. This
represents an increase of approximately $6.8 million, or 67%, in 1997 over 1996.
The increased interest expense in 1997 resulted from the effect of the
additional indebtedness and long-term borrowings incurred by the Corporation
associated primarily with its acquisition of the American Aggregates business in
May 1997. The Corporation financed this transaction by borrowing funds initially
under its revolving credit agreements, then repaying a portion of these
borrowings with the proceeds from the sale of its commercial paper obligations.
In August 1997, the Corporation publicly offered and sold the $125-million fixed
rate long-term debt securities, the net proceeds from the sale of which were
used to repay remaining amounts borrowed under the revolving credit agreements
and to reduce the amount of commercial paper outstanding. Interest expense of
$10.1 million in 1996 was $0.4 million, or 4%, higher than in 1995. This
increase for 1996 resulted from the net effect of the Corporation's additional
long-term borrowings in December 1995, offset somewhat by the repayment of
certain long-term debt securities in March 1996 and reduced amounts outstanding
during the year under the Corporation's former credit agreement with Lockheed
Martin Corporation. During 1995, the Corporation's interest expense was higher
than the prior year's due to higher-level borrowings by the Corporation during
the year.
The Corporation's effective income tax rate for 1997 was 34.8%, compared with
33.9% in 1996 and 34.9% in 1995. The favorable variance in the effective income
tax rates for these years, which are lower than the federal corporate tax rate
of 35%, is due to the effect of several offsetting factors. In this regard, the
Corporation's effective tax rates for these years reflect the effect of state
income taxes and the impact of differences in book and tax accounting arising
from the net permanent benefit associated with the depletion allowances for
mineral reserves, amortization of certain goodwill balances, foreign operating
earnings, and earnings from nonconsolidated investments.
The Corporation's debt-to-capitalization ratio increased from 21% at December
31, 1996, to 36% at December 31, 1997, with total debt increasing from $127.2
million to $312.1 million (including commercial paper obligations) and
shareholders' equity increasing from $481.0 million to $561.8 million. During
1997, the Corporation paid common stock dividends of $22.1 million, or $0.48 per
common share. Additional information regarding the Corporation's debt and
capital structure is contained in Note F on pages 18 and 19 and under "Liquidity
and Cash Flows" and "Capital Structure and Resources" on pages 32 through 35.
BUSINESS ENVIRONMENT
The Corporation's principal lines of business include Martin Marietta
Aggregates, which primarily serves commercial customers in the construction
aggregates-related markets, and Martin Marietta Magnesia Specialties, which
manufactures and markets magnesia-based products principally for use in the
steel industry. These businesses are strongly affected by activity within the
construction and steel-related marketplaces, both of which represent industries
that are cyclical in nature.
The aggregates markets are dependent upon public and private sector
construction spending. Generally, overall construction industry spending is
affected by trends within all levels of the nation's economy. Specifically,
general economic conditions at the national, regional and local levels
potentially impact markets such as the construction industry. Economic
conditions, which are sensitive to such factors as interest rate fluctuations,
governmental spending changes, and demographic and population shifts, affect
overall construction expenditures that, in turn, increase or decrease the demand
for aggregates products in both the private and public sectors. Accordingly,
fluctuation of these characteristics makes demand from within the construction
industry cyclical in nature.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
While construction spending in the public and private market sectors is
affected by changes in economic cycles, there has been a tendency for the level
of spending for infrastructure projects in the public-sector portion of this
market to be more stable than spending for projects in the private sector.
Governmental appropriations and expenditures are less interest rate sensitive
than private sector spending, and generally improved levels of funding have
enabled highway and other infrastructure projects to register improvement over
the past few years. Even considering the effect of favorable economic conditions
on the construction spending within the private sector during 1997, public works
projects consumed more than 50% of the total annual aggregates consumption in
the United States during 1997. This has consistently been the trend in
construction spending for each year since 1990. Additionally, since public
sector-related shipments account for approximately one-half of the Corporation's
aggregates shipments, the Aggregates division also enjoyed the benefit from a
high level of public works construction projects during 1997. Accordingly, the
Corporation's management believes the Corporation's exposure to fluctuations in
commercial and residential, or private sector, construction spending is lessened
somewhat by the division's broad mix of public sector-related shipments that
account for approximately 50% of the Aggregates division's annual product
shipments.
Since 1992, construction of public works projects has expanded steadily due
to enhanced funding at state levels and greater amounts of funds from the
federal highway bill - Intermodal Surface Transportation Act ("ISTEA"). This
five-year highway bill expired September 30, 1997, without congressional
approval of a successor bill. This left the nation technically, without a
funding mechanism for 1998-and-beyond public works construction projects.
However, after failing to reach a long-term agreement for highway funding before
its year-end adjournment, Congress agreed to extend the current bill to May 1,
1998. The extension provides stable, federal monetary support and sufficient
spending authority for continued public works construction activities through
the extension period. The Corporation's management believes Congress will enact
a successor highway bill during the current congressional session. Additionally,
management is cautiously optimistic that authorization levels under the
successor bill will at least equal current funding levels, while meeting the
limits of the federal balanced budget agreement.
The ultimate level of spending for public works construction projects over
the next few years will be shaped by the successor to ISTEA. In this regard, the
outcome of the upcoming legislative process will affect both the level of
federal highway appropriations and the methodology by which federal funds are
distributed. Management expects the distribution of funds under a new federal
highway bill for public works construction projects associated with the state-
and local-level highway programs in markets in which the Corporation does
business should continue at or above current levels. Increased state and local
highway funds, coupled with a potentially higher level of federal funds computed
under a proposed highway funding distribution formula that will shift higher
levels of money to southern states, could accelerate many of the projects under
current state and local authorizations. The distribution formula under the
existing highway bill is based on allocation factors that favor states, mostly
in the Northeast and West, and leaves others, mostly in the South, paying more
money into the Highway Trust Fund than they receive. A proposed distribution
formula under consideration in the new highway bill will modify the allocation
of federal highway money distributed from the Highway Trust Fund so that each
state receives a more equitable share based on its relative contribution into
the fund. The impact on the Corporation's operations could be positive, if the
new distribution formula is approved and a higher level of federal money is paid
to states within the Corporation's markets.
However, if construction-spending reductions occur in these state- and
local-level highway programs, or reductions in overall authorization levels
occur in the successor federal highway bill, the operations of the Corporation's
Aggregates division could be adversely affected, if such reductions occur within
the division's respective markets. It should be noted, however, that the federal
Highway Trust Fund presently has a surplus of more
[Description of graphic]
1997 AGGREGATES DIVISION MARKETS
48% INFRASTRUCTURE
9% CHEMICAL, RAILROAD BALLAST & OTHER
17% RESIDENTIAL
26% COMMERCIAL
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 28
<PAGE> 31
than $20 billion. The Highway Trust Fund and a significant portion of the state
and local highway programs within the Corporation's markets are funded from
sources such as dedicated gasoline taxes, which management believes should not
be affected by federal and state-level budgetary and legislative actions.
Because of the Aggregates division's operations in the southeastern,
midwestern and central regions of the nation, the division's - and consequently,
the Corporation's - operating performance and financial results are dependent
upon the strength of these specific regional economies. In recent years, the
general economic growth in these regions of the United States, and particularly
in the Southeast, has been strong, and the Corporation's management expects this
trend to continue.
Some financial and economic analysts expect the general economy to post
more moderate growth in 1998 than in 1997. With the possibility of a tightening
of future monetary policies by the Federal Reserve, it is anticipated that the
economic growth curve should return to a more sustainable trend rate of growth.
At the same time, some industry analysts believe that supportive demographics
and available public and private sector funding, coupled with a moderation in
general economic growth, would allow the construction industry to also
experience more moderate growth in 1998 over 1997. A moderation in the growth of
construction activity would be expected to yield a mixture of strengthening and
weakening of the sectors within the construction industry during 1998.
Additionally, an increase in long-term interest rates during 1998 would be
expected to directly slow the economy's interest rate sensitive sectors -
residential and commercial building. However, a slow down in these sectors could
be mitigated by continued moderate growth levels in public works construction
due to sustained, and possibly enhanced, funding at both the federal and state
levels. At the same time, some economists predict an economic downturn sometime
during the 1999-to-2001-time period.
Currently, while management believes the construction industry's overall
consumption levels and the Corporation's production and shipments will grow
moderately during 1998, there is no assurance that these levels will continue.
Over the longer term, the Aggregates division's business and financial results
will continue to follow the national, as well as regional and local, general
economic and construction industry trends.
While the aggregates business is cyclical in nature, another characteristic
of the business involves the significant impact of seasonal changes and other
weather-related conditions on business production schedules. Consequently, the
Aggregates division's production and shipment levels coincide with general
construction activity levels, most of which occur in the division's markets
typically during the spring, summer and fall seasons. Principally, as a result
of the acquisition of the American Aggregates business during 1997, the
division's operations have a higher level of exposure to weather-related risk
during the winter months. These operations are concentrated principally in the
north central region of the Midwest, which generally experiences more severe
winter weather conditions than the division's operations in the Southeast.
The Corporation's management believes the overall, long-term trend for the
construction aggregates industry continues to be one of consolidation. The
Corporation's Board of Directors and management continue to review and monitor
the Corporation's strategic long-term plans. These plans include assessing
business combinations and arrangements with other companies engaged in similar
businesses, building market share in the Corporation's core businesses, and
pursuing new technological opportunities that are related to the Corporation's
existing markets. During 1997, the Corporation expanded its market
[Description of graphics]
AGGREGATES DIVISION
SHIPMENTS AND CAPACITY
(in millions of tons)
<TABLE>
<CAPTION>
CAPACITY SHIPMENTS
-------- ---------
<S> <C> <C>
1993 84.0 64.9
1994 85.7 71.2
1995 117.3 94.0
1996 120.0 101.2
1997 165.8 129.1
</TABLE>
UNITED STATES
AGGREGATES CONSUMPTION
(in millions of tons)
<TABLE>
<CAPTION>
CRUSHED STONE SAND & GRAVEL
------------- -------------
<S> <C> <C>
1993 1,238 958
1994 1,360 982
1995 1,389 1,003
1996 1,437 1,008
1997 EST. 1,561 1,046
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 29
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
opportunities by consummating transactions for the acquisition of the American
Aggregates Corporation, along with the acquisition of eight additional smaller
aggregates operations, and either opened, or began the process of opening, eight
quarry site locations - known as greensiting - in the Southeast and Midwest.
The Corporation's raw materials reserves are sufficient to permit production
at present levels for the foreseeable future. Based upon 1997 shipments, the
Corporation's raw materials reserves exceed 50 years of production activity.
Through its Magnesia Specialties division, the Corporation also
manufactures and markets magnesia-based products, including heat-resistant
refractory products for the steel industry and magnesia-based chemicals products
for industrial, agricultural and environmental uses, including wastewater
treatment and acid neutralization. The Magnesia Specialties division's products,
particularly refractory products and dolomitic lime, which are used within the
steel industry account for approximately 73% of the division's current net
sales. Accordingly, the division's profitability is highly dependent on the
production of steel and the related marketplace. A significant portion of the
division's product pricing structure is affected by current business economic
trends within the steel industry, which continues to experience price
weaknesses.
Approximately 17% of the Magnesia Specialties division's products are sold in
foreign jurisdictions. While the division's products are manufactured and sold
principally in the United States, the division also markets its products in the
Canadian, Mexican, European (principally England and Germany), and Pacific Rim
(primarily Korea) markets. As a result of these foreign market sales, the
division's financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in the foreign
markets in which the division distributes its products. To mitigate the
short-term effect of changes in currency exchange rates on the division's
operations, the division uses the U.S. dollar as the functional currency in
substantially all foreign transactions. However, adverse general economic
conditions within a foreign market where the Magnesia Specialties division
conducts business could have a negative impact on the division's results of
operations. The division does not have a significant presence in the Southeast
Asian markets. However, because of the significant Asian presence within the
worldwide steel industry, the current problems and uncertainties surrounding the
Asian financial and economic markets are being monitored at this time. A crash
in these foreign economies, including related production and manufacturing
cycles, could have an adverse impact on the worldwide steel industry. A high
level of exports from the Asian steel markets could have a negative impact on
domestic and worldwide levels of steel production and prices, and consequently
on the division's operations.
To mitigate its exposure to market dependence on the steel industry, the
division's management has taken steps to emphasize new product development and
concentrate on additional products for use in environmental, agricultural and
other industrial applications. Accordingly, the division's financial results
have benefited from increased sales of its higher-margin chemicals products.
During 1997, progress was made to expand the Corporation's presence in
related commercial product markets through continued research and development in
new proprietary technologies. Currently, the Corporation is investing in several
new technological product areas that are in various stages of research and
development. These potential product markets include: composite materials used
for a variety of construction-related purposes including bridge decks, soil
remineralization products that may be potentially used for enhancing plant
growth, microbial products that may be potentially used for organic waste
treatment, a laser-measuring device for use in steel production furnaces, and a
microwave technology that may be used for cleaning ready mixed concrete
equipment.
The Corporation has established a dedicated information technology task force
to coordinate the identification, evaluation and implementation of modifications
and replacements to the Corporation's information systems and related
applications necessary to achieve a year 2000 date conversion with no effect on
customers or disruption to its business operations. The major systems and
applications carrying potential business impact have been identified and are
being evaluated,
[Description of graphic]
RAW STEEL PRODUCTION
AND IMPORTS
(in millions of short tons)
<TABLE>
<CAPTION>
NORTH U.S.
AMERICAN PRODUCTION IMPORTS
------------------- -------
<S> <C> <C>
1993 123.8 21.7
1994 127.1 32.7
1995 134.1 27.2
1996 136.0 32.1
1997 EST. 138.2 33.0
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 30
<PAGE> 33
and initial conversion efforts are underway. In addition, the Corporation is
communicating with suppliers, customers, financial institutions and others with
which it does business to coordinate the year 2000 conversion process. The cost
of the year 2000 initiatives is not expected to be material to the Corporation's
results of operations or financial position.
The impact of inflation on Martin Marietta Materials' businesses has become
less significant with the benefit of lower inflation rates in recent years. When
the Corporation incurs higher costs to replace productive facilities and
equipment, increased capacity and productivity, increased selling prices and
various other offsetting factors generally counter balance increased
depreciation costs.
DISCUSSION OF BUSINESS SEGMENTS
The Corporation conducts its operations through two reportable business
segments: Aggregates and Magnesia Specialties. The Aggregates division is the
second largest producer of construction aggregates in the United States. Its
products are used primarily for construction of highways and other
infrastructure projects and in the commercial and residential construction
industries. The Corporation's Magnesia Specialties division sells a majority of
its products to customers in the steel industry; it also serves other
industrial, agricultural and environmental markets. The following tables display
net sales, gross profit, selling, general and administrative expenses, and
earnings from operations for the two Martin Marietta Materials business
operating segments for each of the three years in the period ended December 31,
1997. This information corresponds directly to the segment information presented
in Note O on pages 24 and 25.
SELECTED FINANCIAL DATA BY BUSINESS SEGMENT
years ended December 31
(add 000)
NET SALES
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $760,702 $591,268 $538,827
Magnesia Specialties 140,161 130,679 125,579
- ------------------------------------------------------------------
Total $900,863 $721,947 $664,406
==================================================================
</TABLE>
GROSS PROFIT
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $202,197 $152,179 $137,704
Magnesia Specialties 33,072 30,331 29,460
- ------------------------------------------------------------------
Total $235,269 $182,510 $167,164
==================================================================
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $ 52,062 $ 42,788 $ 39,617
Magnesia Specialties 17,031 17,149 18,121
- ------------------------------------------------------------------
Total $ 69,093 $ 59,937 $ 57,738
==================================================================
</TABLE>
EARNINGS FROM OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Aggregates $148,944 $109,391 $ 98,087
Magnesia Specialties 13,826 11,285 9,478
- ------------------------------------------------------------------
Total $162,770 $120,676 $107,565
==================================================================
</TABLE>
Aggregates. The Aggregates division's sales increased 29% to $760.7 million
for the year ended December 31, 1997, compared with the prior year's sales. This
increase in sales reflects a 27.9 million-ton increase in total tons shipped
during 1997 to 129.1 million tons. Approximately 21.4 million tons of the
increase in 1997 shipments are attributable to the acquisitions made by the
Corporation during 1997, including the American Aggregates business acquired in
May. The remainder of the increase in the Corporation's 1997 shipments is
attributable to sales volume growth within Martin Marietta Materials' heritage
aggregates operations. As a result of the Corporation's 1997 strategic growth
activities, including greensiting - the opening of new quarry sites - and
acquisitions, the division's aggregates production capacity increased by
approximately 38% during the year ended December 31, 1997. The division's
heritage operations experienced pricing improvements during 1997 of more than 4%
in its average net selling price, while the division's overall average net
selling price (including the pricing effect resulting from those businesses
acquired during the year) increased approximately 1%, when compared
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 31
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
with the prior year's prices. The pricing structure in the operations acquired
by the division during 1997 reflect lower overall net average selling prices,
principally because of differences in product type and production costs, as well
as demand and competitive conditions, compared with product sales from the
Corporation's heritage operations. The division's operating earnings for the
full year 1997 increased approximately 36% to $148.9 million from the prior
year's earnings from operations of $109.4 million. The division's operating
profits during the year reflect certain operating performance improvements in
its heritage operations and synergies achieved in the acquired businesses, which
were offset somewhat by costs associated with higher levels of greensiting
activity during the year. The prior year's operating margins were somewhat
depressed from the effects of Hurricane Fran, which hit the southeastern region
of the country, and the extreme winter weather conditions that existed
throughout the country during the first quarter of 1996.
For the year ended December 31, 1996, the Aggregates division had net sales
of $591.3 million, which were $52.4 million, or 10%, higher than the
year-earlier net sales. This improvement reflects a 7.2 million-ton increase in
total tons shipped during 1996 of 101.2 million tons and reflects an increase of
more than 2% in the division's average net selling price, when compared with the
prior year's. Earnings from operations in the year were $109.4 million, an
increase of 12% over the division's operating earnings for 1995, despite adverse
weather conditions within the division's markets during 1996.
Magnesia Specialties. For the year ended December 31, 1997, the Magnesia
Specialties division had sales of $140.2 million, an increase of $9.5 million,
or 7%, in 1997 over 1996. Shipment levels of all the division's product lines
increased in 1997, when compared with year-earlier shipments. While the division
experienced some modest pricing improvements in certain product areas, the
division's magnesia-based refractory products continued to experience worldwide
pricing pressures during 1997. The division's management continues to expect
pricing weaknesses in this sector for the foreseeable future due to the fixed
market within the steel industry, which is the Magnesia Specialties division's
principal product market. During 1997, the division's sales to the steel
industry accounted for approximately 73% of the division's total net sales,
compared with approximately 72% in the prior year. In addition, because of the
significant Asian presence within the worldwide steel industry, coupled with the
uncertainties surrounding the current economic situation in this region,
management believes there is a potential for additional pricing and
production-related pressures within the steel-related market sector in the
coming months (see "Business Environment" on page 30). The division's earnings
from operations for 1997 of $13.8 million were 23% over the prior year's, which
had been adversely affected by a fire at the division's Woodville, Ohio, lime
plant.
Magnesia Specialties division's 1996 net sales of $130.7 million were 4%
above the prior year's. Shipment levels, as well as overall prices, of
refractory products were up slightly when compared with year-earlier shipments
and prices. These improved refractory product sales resulted from a more
favorable customer and product sales mix during 1996 than in the prior year. The
division's operating earnings for 1996 of $11.3 million were 19% over the prior
year's earnings, which had been adversely affected by a two-month strike in
connection with an expired labor union agreement.
LIQUIDITY AND CASH FLOWS
Cash provided by operating activities, which has been the primary source of
the Corporation's liquidity over the past three years, was approximately $195.6
million in 1997, as compared with the $134.9 million and $128.6 million reported
for 1996 and 1995, respectively. As in prior years, positive cash flows were
derived in large part from the Corporation's operating profits before deducting
non-cash charges for depreciation, depletion and amortization of property and
intangible assets, as well as changes in operating assets and liabilities.
Working capital changes for 1997 and 1996 included in the above-referenced
changes in operating assets and liabilities were due primarily to increases in
accounts receivable balances resulting from increased sales volume activity,
offset partially by increased trade accounts payable balances and, in 1996,
certain accrued expense amounts. Working capital changes for 1995 reflect a
build-up of certain magnesia-based product inventory amounts in connection with
a 1995 labor dispute, offset partially by increased accounts payable balances.
Cash used for investing activities was approximately $333.4 million in 1997,
a significant increase from the $11.4 million and $228.0 million reported in
1996 and 1995, respectively. The Corporation used approximately $279.1 million
of cash in 1997 to finance the American Aggregates transaction, as well as eight
smaller acquisitions, compared with $3.7 million in 1996, and $159.0 million in
1995 that included the acquisition of the
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 32
<PAGE> 35
[Description of graphic]
CONSOLIDATED OPERATING
CASH FLOW
(in millions)
<TABLE>
<S> <C>
1993 $ 90.9
1994 $ 79.5
1995 $128.6
1996 $134.9
1997 $195.6
</TABLE>
construction aggregates business of the Dravo Corporation. Also, additions to
property, plant and equipment, excluding acquisitions, of $86.4 million were
almost 9% higher in 1997 compared with 1996. Comparable full-year capital
expenditures were $79.5 million in 1996 and $71.6 million 1995. The
Corporation's acquisition and capital expenditures reflect planned strategic
growth and capital spending activities that are consistent with management's
strategy for investment and expansion within the consolidating aggregates
industry. Through January 1997, the Corporation's cash and cash equivalents
balances were invested under a cash management agreement with its former parent,
Lockheed Martin (see Note A on page 15). Consequently, changes in these balances
were reflected in cash provided by investing activities in the statements of
cash flows for such years presented. During the years ended December 31, 1997
and 1996, the Corporation reduced the balance of cash and cash equivalents
invested with Lockheed Martin by $23.8 million and $63.6 million, respectively.
Approximately $160.7 million of cash was provided by financing activities
during 1997, compared with cash used for financing activities of $124.9 million
in 1996 and cash provided by financing activities of $98.7 million in 1995. The
Corporation incurred approximately $183.6 million of net indebtedness in 1997
principally in connection with the consummation of the American Aggregates
acquisition, which was financed through a combination of borrowings under
revolving credit facilities and the issuance of commercial paper. The
Corporation subsequently issued $125 million of long-term debt securities, the
net proceeds of which were used to repay amounts outstanding under the revolving
credit agreements and to reduce the amount of commercial paper outstanding.
Excluding commercial paper obligations, approximately $1.4 million of long-term
debt will mature in 1998.
In March 1996, the Corporation repaid the $100-million aggregate principal
amount of indebtedness assumed by the Corporation at the time of its
incorporation in 1993. These long-term debt securities were repaid with funds
from the Corporation's working capital, including cash invested under its cash
management agreement, and funds borrowed under its credit agreement, both of
which were agreements with Lockheed Martin. In December 1995, in anticipation of
this debt repayment in March 1996, the Corporation issued $125 million of
long-term fixed rate debt securities. The net proceeds from the sale of these
securities were used initially to repay amounts borrowed under the Corporation's
credit agreement with the excess funds invested pursuant to the cash management
agreement.
During 1995, the Corporation paid net cash consideration of approximately
$121 million for the acquisition of the Dravo Corporation's former construction
aggregates business. The source of funds for this acquisition was from the
Corporation's own working capital, repayment of amounts due the Corporation from
its former parent, and borrowings under its then existing credit facility.
In 1997, the Board of Directors approved total cash dividends on the
Corporation's common stock at $0.48 a share. Regular quarterly dividends were
authorized and paid by the Corporation at a rate of $0.12 a share in each of the
four quarters during 1997. Under 1994 authorizations from the Corporation's
Board of Directors, the Corporation may repurchase up to 2.5 million shares of
its common stock for use in the Corporation's Amended Omnibus Securities Award
Plan and for general corporate purposes. During 1994, the Corporation
repurchased 68,200 shares of its common stock under these authorizations. The
Corporation has repurchased no additional shares since 1994.
CAPITAL STRUCTURE AND RESOURCES
Long-term debt, including current maturities, increased to approximately
$312.1 million at the end of 1997 from approximately $127.2 million at the end
of 1996. Total debt represented approximately 36% of total capitalization at
December 31, 1997, compared with 21% at December 31, 1996. Most of the
Corporation's debt is in the form of publicly issued, long-term fixed-rate notes
and debentures (see Note F on pages 18 and 19). Shareholders' equity grew to
approximately $561.8 million at December 31, 1997, from approximately $481.0
million a year ago.
In 1997, the Corporation arranged revolving credit facilities of $300 million
through a syndicate of commercial domestic and foreign banks. The credit
facilities
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 33
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
consist of a five-year unsecured revolving credit agreement in the amount of
$150 million (the "Long-Term Credit Agreement") and a 364-day unsecured
revolving credit agreement in the amount of $150 million (the "Short-Term Credit
Agreement") (see Note F on pages 18 and 19). In connection with the
establishment of the Long-Term Credit Agreement in January 1997, the
Corporation's previously existing revolving credit facility with its former
parent, Lockheed Martin, was, by its terms, terminated.
During the second quarter of 1997 and principally in connection with the
financing of the American Aggregates acquisition, approximately $225.0 million
was borrowed under a combination of the Long-Term Credit Agreement and
Short-Term Credit Agreement. In July, the Corporation issued $200 million of
commercial paper, the proceeds of which were used to repay certain amounts
outstanding under the revolving credit agreements. As stated previously, the
Corporation offered and sold $125 million in debt securities in August, the net
proceeds from the sale of which were used to repay remaining amounts outstanding
under the revolving credit agreements and to reduce the amount of commercial
paper obligations (see Note F on pages 18 and 19).
No borrowings were outstanding under either of the revolving credit
agreements at December 31, 1997. However, the Long-Term Credit Agreement
supports commercial paper borrowings of $60.0 million outstanding at December
31, 1997, which has been classified as long-term debt in the Corporation's
consolidated balance sheet based on management's ability and intention to
maintain this debt outstanding for at least one year.
Prior to January 1997, the Corporation's funds were invested with Lockheed
Martin under the terms of a cash management agreement that was, by its terms,
terminated in January along with the previous credit agreement. At December 31,
1996, approximately $23.8 million of the Corporation's funds were invested with
Lockheed Martin under the terms of this agreement. Upon termination of this cash
management agreement on January 31, 1997, all funds held by Lockheed Martin were
transferred to the Corporation and invested under the terms of its own cash
management arrangements (see Note A on page 15 and Note G on page 19 ).
In July 1997, the Corporation entered into an interest rate swap agreement to
fix the interest rate relating to an anticipated long-term financing. This
agreement matured during the third quarter of 1997 in connection with the
Corporation's issuance of the $125 million long-term securities in August (see
Note F on pages 18 and 19 and Note G on page 19). No interest rate swap
agreements were outstanding at December 31, 1997.
As discussed earlier, the Corporation's operations are highly dependent upon
the interest-rate sensitive construction and steelmaking industries.
Consequently, these marketplaces could experience lower levels of economic
activity in an environment of rising interest rates (see "Business Environment"
on pages 27 through 31). Aside from these inherent risks from within its
operations, the Corporation's earnings are affected also by changes in
short-term interest rates as a result of its outstanding commercial paper
obligations and temporary cash investments. However, the Corporation's market
risk exposure to interest rate changes is limited, after considering the
potential use of interest rate swap agreements and other actions available to
management that would further mitigate the Corporation's exposure to such
changes. Consequently, based on these factors and the fair value of the market
sensitive instruments at December 31, 1997, management believes that the
Corporation's exposure to short-term interest rate market risk is not material.
The Corporation has entered into a standby letter of credit agreement
relating to workers' compensation self-insurance requirements. At December 31,
1997, the Corporation had a contingent liability on this outstanding letter of
credit of approximately $2.5 million.
With respect to the Corporation's ability to access the public market, it has
an effective shelf registration statement on file with the Securities and
Exchange Commission (the "Commission") for the offering of up to $50 million of
debt securities, which may be issued, from time to time. Presently, it is
management's intent to file another shelf registration statement with the
Commission. It should be noted, however, that management has not determined the
timing when, or the amount for which, it may file such shelf registration. The
Corporation's ability to borrow or issue securities is dependent, among other
things, upon prevailing economic, financial and market conditions.
Martin Marietta Materials' internal cash flows and availability of financing
resources, including its access to capital markets and its revolving credit
agreements, are expected to continue to be sufficient to provide the capital
resources necessary to support anticipated operating needs, to cover debt
service requirements, to meet capital expenditures and discretionary investment
needs, and to allow for payment of dividends for the foreseeable future.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 34
<PAGE> 37
Currently, the Corporation's senior unsecured debt is rated "A" by Standard &
Poor's and "A3" by Moody's. The Corporation's commercial paper obligations are
rated "A-1" by Standard & Poor's, "P-2" by Moody's and "F-1" by Fitch. While
management believes its credit ratings will remain at an investment-grade level,
no assurance can be given that these ratings will remain at the above-mentioned
levels.
ENVIRONMENTAL MATTERS
The Corporation is involved in various environmental and reclamation
proceedings and potential proceedings, including a matter where it has been
designated a Potentially Responsible Party (a "PRP") by the U.S. Environmental
Protection Agency (the "EPA"). In August 1995, the EPA requested information
regarding the disposal of polychlorinated biphenyl ("PCB") waste during the
1980s at sites operated by PCB Treatment Site, Inc. ("PCB Treatment"), which had
facilities in Kansas City, Missouri, and Kansas City, Kansas (the "Sites"). PCB
Treatment had the proper permits to operate the Sites. According to the EPA, PCB
Treatment received waste shipments of PCBs from more than 1,500 parties and
received total shipments of materials in excess of 25 million pounds, of which
approximately 9,500 pounds of PCB waste was shipped by the Aggregates Division
of Lockheed Martin Corporation, which is the Corporation's predecessor in
interest. The Sites closed in 1986.
PCB Treatment removed the waste material from the Sites but did not complete
the remediation. The EPA has identified the Sites as requiring removal or
remedial action under the federal Superfund laws. A group of PRPs, each of whom
disposed of more than 200,000 pounds of waste at the Sites, have formed a
steering committee which is conducting site assessments to further evaluate the
corrective action that will be required. It is anticipated that the remaining
work that needs to be completed involves the clean up of the contamination in
two buildings - which may require demolition of the building structures - as
well as the clean up of the surrounding soils. Based on the expected level of
remediation, total clean-up costs have been estimated by the steering committee
to be approximately $10 million to $40 million.
In a letter from the EPA, dated September 16, 1997, the Corporation was
designated a PRP for these Sites. Generally, PRPs that are ultimately determined
to be responsible parties are strictly liable for site clean ups and usually
agree among themselves to share, on an allocated basis, in the costs and
expenses for investigation and remediation of the hazardous materials. Under
existing environmental laws, however, responsible parties are jointly and
severally liable and, therefore, the Corporation is potentially liable for the
full cost of funding such remediation. In the event that the Corporation were
required to fund the entire cost of such remediation, the statutory framework
provides that the Corporation may pursue rights of contribution from the other
PRPs. According to the steering committee, the major contributor of waste to the
Sites is the U.S. Department of Defense. Also, there is a group of other solvent
PRPs that will be responsible for a large share of the clean-up costs based upon
the individual PRP's respective share of waste disposed of at the Sites.
Furthermore, management believes that as a result of the cost allocation
process the Corporation's share of clean-up costs will be minor because the
amount will be based upon the Corporation's share of waste disposed of at the
Sites (approximately 9,500 pounds) out of the total waste deposited at the Sites
(approximately 25 million pounds), and because the cost allocation is expected
to be shared among the more than 1,500 PRPs as identified thus far by the EPA.
Additionally, management believes any costs incurred by the Corporation
associated with the Sites would not have a material adverse effect on the
Corporation's consolidated results of operations or on its consolidated
financial position.
Among the variables that management must assess in evaluating costs
associated with these issues are the evolving environmental regulatory
standards. The nature of these matters makes it difficult to estimate the amount
of any costs that may be necessary for future remedial measures. Additionally,
management believes any costs incurred by the Corporation in connection with
such sites and locations would not have material adverse effect on the
Corporation's consolidated results of operations or on its consolidated
financial position (see Note N on page 24).
The Corporation records appropriate financial statement accruals for
environmental matters in the period in which liability is established and the
appropriate amount can be estimated reasonably. The Corporation currently has no
material provisions for estimated costs in connection with expected remediation
costs or other environmental-related expenditures, because it is impossible to
quantify the impact of all actions regarding environmental matters, particularly
the extent and cost of future remediation and other compliance efforts. However,
in the opinion of management, it is unlikely that any additional liability the
Corporation may incur for known environmental issues or compliance with
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 35
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
present environmental protection laws would have a material adverse effect on
the Corporation's consolidated financial position or on its results of
operations.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
the Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. Also during June, the FASB issued the Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information. In February 1998, the FASB issued the Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. These new accounting pronouncements must all be adopted
for years beginning after December 15, 1997. The impact of the adoption of these
accounting standards on the Corporation's financial reporting and related
disclosures is not expected to be material.
CAUTIONARY STATEMENTS
This Annual Report contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that
all forward-looking statements involve risks and uncertainties, including those
arising out of economic, climatic, political, regulatory, competitive and other
factors. The forward-looking statements in this document are intended to be
subject to the safe harbor protection provided by Sections 27A and 21E. For a
discussion identifying some important factors that could cause actual results to
vary materially from those anticipated in the forward-looking statements, see
the Corporation's filings with the Securities and Exchange Commission, including
but not limited to, the discussion of "Competition" on page 6 of the
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "1997 Form 10-K"), and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 26 through 36 of this
Annual Report and "Note A: Accounting Policies" on pages 15 through 17, and
"Note N: Commitments and Contingencies" on page 24 of the Notes to Financial
Statements of the audited consolidated financial statements included in this
Annual Report on pages 11 through 25, incorporated by reference into the 1997
Form 10-K.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 36
<PAGE> 39
QUARTERLY PERFORMANCE
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Basic Earnings Per
(add 000, except per share) Net Sales Gross Profit Net Earnings Common Share*
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter 1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $158,163 $136,547 $ 30,144 $ 23,805 $ 8,907 $ 4,337 $0.19 $0.09
Second 232,190 200,438 65,487 55,330 30,369 26,807 0.66 0.58
Third 271,717 201,504 79,936 58,547 36,274 27,490 0.79 0.60
Fourth 238,793 183,458 59,702 44,828 22,979 19,994 0.50 0.43
- -----------------------------------------------------------------------------------------------------------------------------------
Totals $900,863 $721,947 $235,269 $182,510 $98,529 $78,628 $2.14 $1.71
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Common Dividends Paid and Stock Prices
------------------------------------------------------------------
Market Prices
Diluted Earnings ---------------------------------------------
Per Common Share* Dividends Paid High Low High Low
- ------------------------------------------------------------------------------------------------------------------
Quarter 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $0.19 $0.09 $0.12 $0.11 $28 3/8 $23 $23 1/4 $20 1/8
Second 0.66 0.58 0.12 0.11 33 25 24 7/8 21 1/2
Third 0.78 0.60 0.12 0.12 37 3/8 32 1/4 24 3/4 19 1/2
Fourth 0.50 0.43 0.12 0.12 38 1/2 33 13/16 25 3/4 20 7/8
- ------------------------------------------------------------------------------------------------------------------
Totals $2.13 $1.71 $0.48 $0.46
==================================================================================================================
</TABLE>
*The sum of per-share earnings by quarter may not equal earnings per share for
the year due to rounding or share repurchases during the year. Additionally, the
1996 and first three quarters of 1997 earnings per share amounts have been
restated, where appropriate, to comply with the Statement of Financial
Accounting Standards No. 128, Earnings per Share.
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 37
<PAGE> 40
FIVE YEAR SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(add 000, except per share) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 900,863 $721,947 $664,406 $ 501,660 $452,906
Cost of sales, other costs and expenses 738,093 601,271 556,841 409,773 376,511
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 162,770 120,676 107,565 91,887 76,395
Other income and expenses, net 5,341 8,398 5,959 5,398 897
- -----------------------------------------------------------------------------------------------------------------------
168,111 129,074 113,524 97,285 77,292
Interest expense on debt 16,899 10,121 9,733 6,865 3,234
- -----------------------------------------------------------------------------------------------------------------------
Earnings before taxes on income,
extraordinary item and cumulative effect
of accounting changes 151,212 118,953 103,791 90,420 74,058
Taxes on income 52,683 40,325 36,240 32,075 26,057
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 98,529 78,628 67,551 58,345 48,001
Extraordinary loss on early extinguishment
of debt -- -- -- (4,641) --
Cumulative effect of accounting changes -- -- -- -- (17,512)
- -----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 98,529 $ 78,628 $ 67,551 $ 53,704 $ 30,489
=======================================================================================================================
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary item $ 2.14 $ 1.71 $ 1.47 $ 1.30 N/A
Extraordinary item -- -- -- (0.11) N/A
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 2.14 $ 1.71 $ 1.47 $ 1.19 N/A
=======================================================================================================================
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary item $ 2.13 $ 1.71 $ 1.47 $ 1.30 N/A
Extraordinary item -- -- -- (0.11) N/A
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 2.13 $ 1.71 $ 1.47 $ 1.19 N/A
=======================================================================================================================
CASH DIVIDENDS $ 0.48 $ 0.46 $ 0.44 $ 0.22 N/A
=======================================================================================================================
CONDENSED BALANCE SHEET DATA
Current deferred income taxes $ 16,873 $ 15,547 $ 12,622 $ 9,979 $ 6,121
Current assets - other 305,139 255,619 301,733 178,054 151,018
Other noncurrent assets 17,385 25,764 21,581 74,177 23,167
Property, plant and equipment, net 591,420 408,820 392,223 291,622 278,310
Cost in excess of net assets acquired 148,481 39,952 37,245 22,968 20,503
Other intangibles 26,415 23,216 23,967 17,091 17,872
=======================================================================================================================
TOTAL $1,105,713 $768,918 $789,371 $ 593,891 $ 496,991
=======================================================================================================================
Currrent liabilities - other $ 106,804 $ 86,871 $ 69,596 $ 51,134 $ 64,796
Current maturities of long-term debt 1,431 1,273 103,740 4,478 3,224
Long-term debt 310,675 125,890 124,986 103,746 232,088
Pension and postretirement benefits 63,070 52,646 47,483 42,286 37,941
Other noncurrent liabilities 11,889 7,669 9,415 5,800 5,565
Noncurrent deferred income taxes 50,008 13,592 10,606 10,178 7,930
Shareholders' equity 561,836 480,977 423,545 376,269 145,447
=======================================================================================================================
TOTAL $1,105,713 $768,918 $789,371 $ 593,891 $ 496,991
=======================================================================================================================
</TABLE>
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 38
<PAGE> 41
CORPORATE DIRECTORY
- --------------------------------------------------------------------------------
[PICTURE]
(LEFT TO RIGHT) BOBBY F. LEONARD, STEPHEN P. ZELNAK, JR., WILLIAM B. SANSOM
[PICTURE] [PICTURE]
(LEFT TO RIGHT) JAMES M. REED, (LEFT TO RIGHT) FRANK H. MENAKER, JR.,
MARCUS C. CENNETT, RICHARD A. VINROOT,
WILLIAM E. MCDONALD RICHARD G. ADAMSON
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
STEPHEN P. ZELNAK, JR.
Chairman, Board of Directors
President and Chief Executive Officer
Martin Marietta Materials, Inc.
RICHARD G. ADAMSON
Retired Vice President, Strategic
Development
Martin Marietta Corporation
MARCUS C. BENNETT
Executive Vice President and Chief
Financial Officer
Lockheed Martin Corporation
BOBBY F. LEONARD
Retired Vice President, Human
Resources
Martin Marietta Corporation
WILLIAM E. MCDONALD
Senior Vice President, Customer
Service Operations
Sprint Corporation
FRANK H. MENAKER, JR.
Senior Vice President and General
Counsel
Lockheed Martin Corporation
JAMES M. REED
Retired Vice Chairman and Chief
Financial Officer
Union Camp Corporation
WILLIAM B. SANSOM
Chairman and Chief Executive Officer
The H. T. Hackney Co.
RICHARD A. VINROOT
Partner
Robinson, Bradshaw & Hinson, P.A.
COMMITTEES
- --------------------------------------------------------------------------------
AUDIT COMMITTEE
Mr. Reed, Chairman
Messrs. Adamson, McDonald and Menaker
COMPENSATION COMMITTEE
Mr. Leonard, Chairman
Messrs. Bennett, McDonald and Sansom
ETHICS, ENVIRONMENT, SAFETY AND HEALTH COMMITTEE
Mr. Sansom, Chairman
Messrs. Adamson, Menaker and Vinroot
EXECUTIVE COMMITTEE
Mr. Bennett, Chairman
Messrs. Reed and Zelnak
FINANCE COMMITTEE
Mr. Bennett, Chairman
Messrs. Leonard, Reed and Zelnak
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 39
<PAGE> 42
CORPORATE OFFICERS AND PRINCIPAL OPERATING ELEMENTS
- --------------------------------------------------------------------------------
CORPORATE OFFICERS
- --------------------------------------------------------------------------------
STEPHEN P. ZELNAK, JR.
Chairman, Board of Directors
President and Chief Executive Officer
PHILIP J. SIPLING
Executive Vice President
ROBERT R. WINCHESTER
Senior Vice President
ROSELYN R. BAR
Corporate Secretary
BRUCE A. DEERSON
Vice President and General Counsel
DONALD J. EASTERLIN, III
Vice President, Corporate Development
JANICE K. HENRY
Vice President, Chief Financial
Officer and Treasurer
JONATHAN T. STEWART
Vice President, Human Resources
PRINCIPAL OPERATING ELEMENTS
- --------------------------------------------------------------------------------
MARTIN MARIETTA AGGREGATES
Raleigh, North Carolina
Stephen P. Zelnak, Jr., President
Philip J. Sipling, Executive Vice President
Robert R. Winchester, Executive Vice President
CAROLINA DIVISION
Raleigh, North Carolina
Donald M. Moe, President
CENTRAL DIVISION
New Orleans, Louisiana
H. Donovan Ross, President
MIDAMERICA DIVISION
Dayton, Ohio
Geoffrey C. Harris, President
MIDEAST DIVISION
Richmond, Virginia
George S. Seamen, President
MIDWEST DIVISION
Des Moines, Iowa
Robert C. Meskimen, President
SOUTHEAST DIVISION
Atlanta, Georgia
J. Michael Pertsch, President
MARTIN MARIETTA MAGNESIA SPECIALTIES
Raleigh, North Carolina
Philip J. Sipling, Chairman
David B. Locker, President
SALES, MARKETING AND OPERATIONS
Baltimore, Maryland
Richard W. Arnold, Vice President
Refractory Products
Peter S. Gaillard, Vice President Periclase and Lime
John R. Harman, Vice President Magnesia Chemicals
Manistee, Michigan
William F. Sawhill, Vice President Operations and
Refractory Products
Martin Marietta
Materials, Inc.
and Consolidated
Subsidiaries
Page 40
<PAGE> 43
GENERAL INFORMATION
- --------------------------------------------------------------------------------
NOTICE OF PROXY
A formal notice of the Annual Meeting of Shareholders of the Corporation,
together with a proxy, will be mailed to each shareholder approximately four
weeks prior to the meeting. Proxies will be requested by the Board of Directors
at the meeting.
ANNUAL REPORT ON FORM 10-K
Shareholders may obtain, without charge, a copy of Martin Marietta Materials'
Annual Report on Form 10-K, as filed with the Securities and Exchange Commission
for the fiscal year ended December 31, 1997, by writing to:
Martin Marietta Materials, Inc.
Attention: Corporate Secretary
2710 Wycliff Road
Raleigh, North Carolina 27607-3033
TRANSFER AGENT & REGISTRAR
First Union National Bank
Shareholder Services Group
230 South Tryon Street
Charlotte, North Carolina 28288-1154
Telephone: (800) 829-8432
Inquiries regarding your account records, issuance of stock certificates,
distribution of dividends and IRS Form 1099 should be directed to First Union
National Bank at (800) 829-8432.
COMMON STOCK
Listed: New York Stock Exchange
Stock Symbol: MLM
INDEPENDENT AUDITORS
Ernst & Young LLP
3200 Beechleaf Court
Raleigh, North Carolina 27604-1063
CORPORATE HEADQUARTERS
2710 Wycliff Road
Raleigh, North Carolina 27607-3033
Telephone: (919) 781-4550
INVESTOR RELATIONS
Telephone: (919) 783-4658
Email: [email protected]
Principal Photography by Patrick H. Corkery
<PAGE> 44
MARTIN MARIETTA MATERIALS
[LOGO]
2710 Wycliff Road
Raleigh, North Carolina 27607-3033
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF MARTIN MARIETTA MATERIALS, INC.
AS OF MARCH 13, 1998
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY
------------------
PERCENT OWNED
-------------
<S> <C>
American Aggregates Corporation, a Delaware corporation 100%
American Stone Company, a North Carolina corporation 50%(1)
Bahama Rock Limited, a Bahamas corporation 100%
Bayou Mining, Inc., a Louisiana corporation 100%
Central Rock Company, a North Carolina corporation 100%
Dredging & Hauling, Inc., a Delaware corporation 100%(2)
Martin Marietta Aggregates of Iowa, Inc., an Iowa corporation 100%
Martin Marietta Aggregates of Southern Iowa, Inc., an Iowa corporation 100%
Martin Marietta Exports, Inc., a Barbados corporation 100%
Martin Marietta Magnesia Specialties Inc., a Delaware corporation 100%
Martin Marietta Materials Canada Limited, a Nova Scotia, Canada corporation 100%
Martin Marietta Materials de Mexico, S.A. de C.V., a Mexican corporation 100%(3)
Martin Marietta Technologies Corporation, a Delaware corporation 100%
OK Sand & Gravel, LLC, a Delaware limited liability company 99%
R&S Sand & Gravel, LLC, a Delaware limited liability company 99%
Superior Stone Company, a North Carolina corporation 100%
Theodore Holdings, LLC, a Delaware limited liability company 51%
</TABLE>
__________________
1 Central Rock Company, a wholly-owned subsidiary of the Company, owns a 50%
interest in American Stone Company.
2 Dredging & Hauling, Inc. is a wholly-owned subsidiary of American
Aggregates Corporation.
3 Martin Marietta Materials de Mexico, S.A. de C.V. is owned by Martin
Marietta Magnesia Specialties Inc. (99%) and Martin Marietta Materials,
Inc. (1%).
28
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Martin Marietta Materials, Inc., of our report dated January 19,
1998, included in the 1997 Annual Report to Shareholders of Martin Marietta
Materials, Inc. and consolidated subsidiaries.
Our audit also included the financial statement schedule of Martin
Marietta Materials, Inc. and consolidated subsidiaries listed in Item 14(a).
This schedule is the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-83516) pertaining to the Martin Marietta Materials,
Inc. Omnibus Securities Award Plan and in the Registration Statement (Form S-3
No. 33-99082) pertaining to the Martin Marietta Materials, Inc. shelf
registration, of our report dated January 19, 1998, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Martin
Marietta Materials, Inc., for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
March 27, 1998
29
<PAGE> 1
EXHIBIT 23.02
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in Registration Statement
No. 33-83516 of Martin Marietta Materials, Inc. on Form S-8 pertaining to the
Martin Marietta Materials, Inc. Omnibus Securities Award Plan and in
Registration Statement No. 33-99082 of Martin Marietta Materials, Inc. on Form
S-3 pertaining to the Martin Marietta Materials, Inc. shelf registration, of
our report dated June 6, 1997, with respect to the consolidated financial
statements of American Aggregates Corporation and Subsidiary for the years
ended March 31, 1997 and 1996, incorporated by reference in the Annual Report
on Form 10-K of Martin Marietta Materials, Inc., for the year ended December
31, 1997.
/s/ DELOITTE & TOUCHE LLP
Dayton, Ohio
March 27, 1998
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997, AND THE RELATED
CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR THEN ENDED, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,661
<SECURITIES> 0
<RECEIVABLES> 152,221
<ALLOWANCES> 4,789
<INVENTORY> 132,583
<CURRENT-ASSETS> 322,012
<PP&E> 1,242,677
<DEPRECIATION> 651,257
<TOTAL-ASSETS> 1,105,713
<CURRENT-LIABILITIES> 108,235
<BONDS> 310,675
0
0
<COMMON> 462
<OTHER-SE> 561,374
<TOTAL-LIABILITY-AND-EQUITY> 1,105,713
<SALES> 900,863
<TOTAL-REVENUES> 900,863
<CGS> 665,594
<TOTAL-COSTS> 738,093
<OTHER-EXPENSES> (7,180)
<LOSS-PROVISION> 1,839
<INTEREST-EXPENSE> 16,899
<INCOME-PRETAX> 151,212
<INCOME-TAX> 52,683
<INCOME-CONTINUING> 98,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,529
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997, AND THE RELATED
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS THEN ENDED, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,045
<SECURITIES> 0
<RECEIVABLES> 182,216
<ALLOWANCES> 5,352
<INVENTORY> 128,747
<CURRENT-ASSETS> 339,882
<PP&E> 1,239,674
<DEPRECIATION> 636,351
<TOTAL-ASSETS> 1,145,797
<CURRENT-LIABILITIES> 114,732
<BONDS> 351,760
0
0
<COMMON> 462
<OTHER-SE> 543,878
<TOTAL-LIABILITY-AND-EQUITY> 1,145,797
<SALES> 662,070
<TOTAL-REVENUES> 662,070
<CGS> 486,503
<TOTAL-COSTS> 539,312
<OTHER-EXPENSES> (5,733)
<LOSS-PROVISION> 503
<INTEREST-EXPENSE> 11,380
<INCOME-PRETAX> 116,608
<INCOME-TAX> 41,058
<INCOME-CONTINUING> 75,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,550
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.63<F1>
<FN>
<F1>Financial Data Schedule restated to reflect adoption of SFAS No. 128.
Earnings per share amounts have been restated, where appropriate, to comply
with the SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997, AND THE RELATED
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE AND SIX MONTHS THEN
ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,484
<SECURITIES> 0
<RECEIVABLES> 168,861
<ALLOWANCES> 4,849
<INVENTORY> 132,850
<CURRENT-ASSETS> 326,945
<PP&E> 1,190,709
<DEPRECIATION> 601,411
<TOTAL-ASSETS> 1,121,176
<CURRENT-LIABILITIES> 204,347
<BONDS> 275,935
0
0
<COMMON> 461
<OTHER-SE> 508,739
<TOTAL-LIABILITY-AND-EQUITY> 1,121,176
<SALES> 390,353
<TOTAL-REVENUES> 390,353
<CGS> 294,722
<TOTAL-COSTS> 327,615
<OTHER-EXPENSES> (5,546)
<LOSS-PROVISION> 1,899
<INTEREST-EXPENSE> 5,765
<INCOME-PRETAX> 60,620
<INCOME-TAX> 21,344
<INCOME-CONTINUING> 39,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,276
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85<F1>
<FN>
<F1>Financial Data Schedule restated to reflect adoption of SFAS No. 128.
Earnings per share amounts have been restated, where appropriate, to comply
with the SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997, AND THE RELATED
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS THEN ENDED,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,424
<SECURITIES> 0
<RECEIVABLES> 111,450
<ALLOWANCES> 2,992
<INVENTORY> 118,281
<CURRENT-ASSETS> 257,482
<PP&E> 998,771
<DEPRECIATION> 585,726
<TOTAL-ASSETS> 762,741
<CURRENT-LIABILITIES> 74,318
<BONDS> 125,836
0
0
<COMMON> 461
<OTHER-SE> 483,900
<TOTAL-LIABILITY-AND-EQUITY> 762,741
<SALES> 158,163
<TOTAL-REVENUES> 158,163
<CGS> 128,019
<TOTAL-COSTS> 143,810
<OTHER-EXPENSES> (1,511)
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 2,201
<INCOME-PRETAX> 13,621
<INCOME-TAX> 4,714
<INCOME-CONTINUING> 8,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,907
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19<F1>
<FN>
<F1>Financial Data Schedule restated to reflect adoption of SFAS No. 128.
Earnings per share amounts have been restated, where appropriate, to comply
with the SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996, AND THE RELATED
CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR THEN ENDED, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 137,157
<ALLOWANCES> 2,950
<INVENTORY> 113,774
<CURRENT-ASSETS> 271,166
<PP&E> 981,214
<DEPRECIATION> 572,394
<TOTAL-ASSETS> 768,918
<CURRENT-LIABILITIES> 88,144
<BONDS> 125,890
0
0
<COMMON> 461
<OTHER-SE> 480,516
<TOTAL-LIABILITY-AND-EQUITY> 768,918
<SALES> 721,947
<TOTAL-REVENUES> 721,947
<CGS> 539,437
<TOTAL-COSTS> 601,271
<OTHER-EXPENSES> (6,898)
<LOSS-PROVISION> (1,500)
<INTEREST-EXPENSE> 10,121
<INCOME-PRETAX> 118,953
<INCOME-TAX> 40,325
<INCOME-CONTINUING> 78,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,628
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71<F1>
<FN>
<F1>Financial Data Schedule restated to reflect adoption of SFAS No. 128.
Earnings per share amounts have been restated, where appropriate, to comply
with the SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996, AND THE RELATED
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS THEN ENDED, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,364
<SECURITIES> 0
<RECEIVABLES> 138,059
<ALLOWANCES> 4,500
<INVENTORY> 113,082
<CURRENT-ASSETS> 269,141
<PP&E> 957,856
<DEPRECIATION> 561,315
<TOTAL-ASSETS> 750,600
<CURRENT-LIABILITIES> 86,222
<BONDS> 124,807
0
0
<COMMON> 461
<OTHER-SE> 466,051
<TOTAL-LIABILITY-AND-EQUITY> 750,600
<SALES> 538,489
<TOTAL-REVENUES> 538,489
<CGS> 400,807
<TOTAL-COSTS> 446,988
<OTHER-EXPENSES> (5,218)
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 7,964
<INCOME-PRETAX> 88,705
<INCOME-TAX> 30,071
<INCOME-CONTINUING> 58,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,634
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27<F1>
<FN>
<F1>Financial Data Schedule restated to reflect adoption of SFAS No. 128.
Earnings per share amounts have been restated, where appropriate, to comply
with the SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996, AND THE RELATED
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS THEN ENDED, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 136,882
<ALLOWANCES> 4,500
<INVENTORY> 114,785
<CURRENT-ASSETS> 271,060
<PP&E> 942,223
<DEPRECIATION> 548,515
<TOTAL-ASSETS> 746,368
<CURRENT-LIABILITIES> 105,821
<BONDS> 124,871
0
0
<COMMON> 461
<OTHER-SE> 444,091
<TOTAL-LIABILITY-AND-EQUITY> 746,368
<SALES> 336,985
<TOTAL-REVENUES> 336,985
<CGS> 257,850
<TOTAL-COSTS> 288,535
<OTHER-EXPENSES> (4,412)
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 5,696
<INCOME-PRETAX> 47,116
<INCOME-TAX> 15,972
<INCOME-CONTINUING> 31,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,144
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68<F1>
<FN>
<F1>Financial Data Schedule restated to reflect adoption of SFAS No. 128.
Earnings per share amounts have been restated, where appropriate, to comply
with the SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996, AND THE RELATED
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE QUARTER THEN ENDED, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 102,275
<ALLOWANCES> 4,490
<INVENTORY> 119,842
<CURRENT-ASSETS> 239,721
<PP&E> 924,754
<DEPRECIATION> 538,689
<TOTAL-ASSETS> 706,759
<CURRENT-LIABILITIES> 90,062
<BONDS> 124,871
0
0
<COMMON> 461
<OTHER-SE> 422,352
<TOTAL-LIABILITY-AND-EQUITY> 760,759
<SALES> 136,547
<TOTAL-REVENUES> 136,547
<CGS> 112,742
<TOTAL-COSTS> 127,953
<OTHER-EXPENSES> (1,210)
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 3,174
<INCOME-PRETAX> 6,590
<INCOME-TAX> 2,253
<INCOME-CONTINUING> 4,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,337
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09<F1>
<FN>
<F1>Financial Data Schedule restated to reflect adoption of SFAS No. 128.
Earnings per share amounts have been restated, where appropriate, to comply
with the SFAS No. 128.
</FN>
</TABLE>
