1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 Identification Number)
incorporation or organization)
2710 Wycliff Road, Raleigh, NC 27607-3033
- -------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 919-781-4550
------------------------
Former name: None
----------------------------------------------------------------
Former name, former address and former fiscal year,
if changes since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding as of October 31, 1996
- ------------------------------------ ----------------------------------
Common Stock, $.01 par value 46,079,300
Page 1
Exhibit Index is on Page 24
2
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
INDEX
Page
----
Part I. Financial Information:
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Earnings Three Months and Nine Months
Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
Part II. Other Information:
Item 1. Legal Proceedings. 16
Item 4. Submission of Matters to a Vote of Security Holders. 16
Item 5. Other Information. 18
Item 6. Exhibits and Reports on Form 8-K. 18
Signatures 23
Exhibit Index 24
Page 2
3
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
---------------- -----------------
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 2,364 $ --
Accounts receivable, net 133,559 94,759
Affiliates receivable 6,080 89,712
Inventories, net 113,082 113,402
Deferred income tax benefit 12,567 12,622
Other current assets 1,489 3,860
-------- --------
Total Current Assets 269,141 314,355
-------- --------
Property, plant and equipment 957,856 919,862
Allowances for depreciation, depletion and
amortization (561,315) (527,639)
-------- --------
Net property, plant and equipment 396,541 392,223
Other noncurrent assets 22,926 18,248
Noncurrent affiliates receivable -- 3,333
Cost in excess of net assets acquired 38,192 37,245
Other intangibles 23,800 23,967
-------- --------
Total Assets $750,600 $789,371
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Book overdraft $ -- $ 2,927
Accounts payable 28,832 26,211
Affiliates payable 14,076 6,822
Accrued salaries, benefits and payroll taxes 15,857 15,426
Accrued insurance and other taxes 10,779 5,551
Income taxes 7,343 2,192
Current maturities of long-term debt 190 103,740
Other current liabilities 9,145 10,467
-------- --------
Total Current Liabilities 86,222 173,336
Long-term debt 124,807 124,986
Pension, postretirement, and postemployment benefits 52,064 47,483
Other noncurrent liabilities 8,308 9,415
Noncurrent deferred income taxes 12,687 10,606
-------- --------
Total Liabilities 284,088 365,826
-------- --------
Shareholders' equity:
Common stock, par value $.01 per share 461 461
Additional paid-in capital 331,303 331,303
Retained earnings 134,748 91,781
-------- --------
Total Shareholders' Equity 466,512 423,545
-------- --------
Total Liabilities and
Shareholders' Equity $750,600 $789,371
======== ========
See accompanying notes to condensed consolidated financial statements.
Page 3
4
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in Thousands, Except Per Share Data)
Net sales $201,504 $191,094 $538,489 $496,950
Cost of sales 142,957 139,334 400,807 369,867
-------- --------- --------- ---------
Gross Profit 58,547 51,760 137,682 127,083
Selling, general & administrative expense 15,030 14,270 44,763 43,084
Research and development 466 465 1,418 1,358
-------- --------- --------- ---------
Earnings from Operations 43,051 37,025 91,501 82,641
Interest expense (2,268) (2,457) (7,964) (6,951)
Other income and expenses, net 806 1,775 5,168 4,350
-------- --------- --------- ---------
Earnings before Taxes on Income 41,589 36,343 88,705 80,040
Taxes on income 14,099 12,918 30,071 28,429
-------- --------- --------- ---------
Net earnings $ 27,490 $ 23,425 $ 58,634 $ 51,611
======== ========= ========= =========
Net Earnings per share $0.60 $0.51 $1.27 $1.12
===== ===== ===== =====
Average number of shares outstanding 46,079,300 46,079,300 46,079,300 46,079,300
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
Page 4
5
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
-------------------------
1996 1995
-------- --------
(Dollars in Thousands)
Operating activities:
Net earnings $ 58,634 $ 51,611
Adjustments to reconcile earnings to cash
provided by operating activities:
Depreciation, depletion and amortization 45,346 41,286
Other items, net (1,266) (2,340)
Changes in operating assets and liabilities:
Accounts receivable (38,799) (28,315)
Affiliates receivable (418) 3,154
Inventories 352 (18,085)
Accounts payable (883) 3,633
Other assets and liabilities, net 8,888 34,594
--------- ---------
Net cash provided by operating activities 71,854 85,538
--------- ---------
Investing activities:
Additions to property, plant & equipment
and acquisitions, net (51,818) (196,128)
Transactions with Lockheed Martin Corporation 87,383 2,513
Note receivable from Lockheed Martin Corporation -- 53,000
Other investing activities, net 6,509 3,215
--------- ---------
Net cash provided by (used for) investing activities 42,074 (137,400)
--------- ---------
Financing activities:
Repayments and extinguishments of long-term debt, net (103,729) (3,120)
Dividends (15,667) (15,206)
Loan payable to Lockheed Martin Corporation 10,759 70,000
--------- ---------
Net cash (used for) provided by financing activities (108,637) 51,674
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,291 (188)
Book overdraft, beginning of period (2,927) (2,218)
--------- ---------
Cash and cash equivalents/(book overdraft), end of period $ 2,364 $ (2,406)
========= =========
See accompanying notes to condensed consolidated financial statements.
Page 5
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
of Martin Marietta Materials, Inc. (the "Corporation") have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to the
Quarterly Report on Form 10-Q and to Article 10 of Regulation S-X.
The Corporation has continued to follow the accounting policies set
forth in the audited consolidated financial statements and related
notes thereto included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 27, 1996. In the opinion of management,
the interim financial information provided herein reflects all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the results of operations for the interim
periods. The results of operations for the nine months ended
September 30, 1996, are not necessarily indicative of the results to
be expected for the full year.
During 1993, the Board of Directors of Lockheed Martin Corporation
("Lockheed Martin") approved a plan to form a new subsidiary, Martin
Marietta Materials, Inc. Under the plan, Lockheed Martin transferred
to the Corporation its ownership interest in the construction
aggregates business along with its ownership of 100% of the common
stock of Martin Marietta Magnesia Specialties Inc. The Corporation,
which was incorporated on November 12, 1993, consummated an initial
public offering (an "IPO") of 8,797,500 shares (approximately 19%) of
its outstanding Common Stock in February 1994. Upon completion of the
IPO, Lockheed Martin's beneficial ownership of the Corporation's
outstanding Common Stock was reduced to approximately 81%. Lockheed
Martin disposed of its remaining ownership in October 1996 by means of
a split-off, an exchange offer whereby Lockheed Martin stockholders
were given the opportunity to exchange some or all of their shares of
Lockheed Martin common stock for a certain number of shares of the
Corporation's Common Stock held by Lockheed Martin. For a more
detailed discussion of this transaction, see the "Overview" section of
the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 9. For purposes of these financial
statements and the related notes thereto, all references to Lockheed
Martin, which was formed as a result of a business combination in
March 1995 between the Martin Marietta Corporation and the Lockheed
Corporation, are meant to include Martin Marietta Corporation and its
consolidated subsidiaries, except where otherwise specified.
Additionally, transactions with Lockheed Martin remain classified and
accounted for as related party transactions for financial reporting
purposes.
2. Inventories:
September 30, December 31,
1996 1995
------------- --------------
(Dollars in Thousands)
Finished products $ 86,290 $ 86,086
Product in process and raw materials 14,263 15,427
Supplies and expendable parts 19,312 19,259
-------- --------
119,865 120,772
Less allowances (6,783) (7,370)
--------- --------
Total $113,082 $113,402
======== ========
Page 6
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. Long-Term Debt:
September 30, December 31,
1996 1995
------------- ------------
(Dollars in Thousands)
7% Debentures, due 2025 $124,183 $124,177
8-1/2% Notes, due 1996 -- 100,000
Acquisition notes, interest rates
ranging from 6% to 10% 88 3,675
Other notes 726 874
-------- --------
124,997 228,726
Less current maturities (190) (103,740)
-------- --------
Total $124,807 $124,986
======== ========
The 8-1/2% Notes were redeemed by the holders upon their maturity on
March 1, 1996. During the period these Notes were outstanding,
Lockheed Martin reimbursed the Corporation for the portion of the
interest in excess of 5% per annum.
In addition to the above stated long-term debt, as of September 30,
1996, the Corporation had borrowed, from a subsidiary of Lockheed
Martin, $10.8 million under the terms of its credit agreements. For
financial reporting purposes, this amount remains classified with
affiliates payable in the accompanying financial statements. These
borrowing proceeds were used primarily to help finance the repayment
of the 8-1/2% Notes and to assist funding the Corporation's working
capital requirements during the first nine months of 1996. As of
November 1, 1996, no amount was outstanding under the terms of this
agreement.
The Corporation's interest payments were approximately $7.6 million in
1996 and $8.3 million in 1995 for the nine months ended September 30.
4. Income Taxes
The Corporation's effective income tax rate for the first nine months
was 33.9% in 1996 and 35.5% in 1995. The effective rate for the first
three quarters of 1996 was lower than the current federal corporate
income tax rate of 35%, due to the effect of several partially
offsetting factors. The Corporation's year-to-date 1996 effective tax
rate reflects the effect of state income taxes which has been more
than offset by the favorable impact of differences in book and tax
accounting arising from the permanent benefits associated with the
depletion allowances for mineral reserves, foreign subsidiaries'
operating earnings, and equity earnings in nonconsolidated
investments.
Page 7
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Income Taxes (continued)
The results of operations of the Corporation through the effective date of
the consummation of the split-off from Lockheed Martin are included in a
consolidated federal income tax return with Lockheed Martin. However,
following the effective date of the consummation of the split-off, as
discussed in Note 1 and in the "Overview" section of the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
on page 9, the Corporation will file consolidated federal income tax
returns independently from Lockheed Martin. For years ended prior to
January 1, 1995, the Corporation's results of operations are included in
the consolidated federal income tax returns with Martin Marietta
Corporation. Income taxes allocable to the operations of the Corporation
are calculated as if it had filed separate income tax returns for the
periods presented herein. For all periods following the consummation of
the split-off from Lockheed Martin, recognition and measurement of the
Corporation's current and deferred income tax liabilities and assets will
be presented under the financial accounting and reporting standards for
the effects of income taxes that result from the Corporation's activities
on a stand-alone basis. The Corporation will file separate income tax
returns for all periods following the consummation date of the split-off.
The Corporation's income tax payments were approximately $22.9 million in
1996 and $9.8 million in 1995, for the nine months ended September 30.
5. Contingencies
In the opinion of management and counsel, it is unlikely that the outcome
of litigation and other proceedings, including those pertaining to
environmental matters, relating to the Corporation and its subsidiaries,
will have a material adverse effect on the results of the Corporation's
operations or its financial position.
6. Other Matters
In February 1994, the Corporation was authorized by its shareholders and
the Board of Directors to repurchase up to 2,000,000 shares of the
Corporation's Common Stock for issuance under the Corporation's Amended
Omnibus Securities Award Plan. On May 3, 1994, the Board of Directors
authorized the repurchase of an additional 500,000 shares for general
corporate purposes. As of November 1, 1996, there have been 68,200 shares
of Common Stock repurchased by the Corporation under these authorizations.
Page 8
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended September 30, 1996 and 1995
OVERVIEW Martin Marietta Materials, Inc., (the "Corporation") was created
after the Board of Directors of Lockheed Martin Corporation ("Lockheed Martin")
approved a plan under which Lockheed Martin transferred to the Corporation its
ownership interest in the construction aggregates business along with its
ownership of 100% of the common stock of Martin Marietta Magnesia Specialties
Inc. The Corporation was incorporated on November 12, 1993, and consummated an
initial public offering of 8,797,500 shares of its Common Stock in February
1994. Upon completion of the initial public offering, Lockheed Martin's
beneficial ownership of the Corporation's Common Stock was reduced to
approximately 81% of the Corporation's outstanding Common Stock. Lockheed
Martin disposed of its remaining ownership interest in the Corporation in
October 1996, by means of a split-off, an exchange offer pursuant to which
Lockheed Martin stockholders were given the opportunity to exchange some or all
of their shares of Lockheed Martin common stock for a certain number of shares
of the Corporation's Common Stock (the "Exchange Offer") on a tax-free basis.
As a result of this transaction, all of Lockheed Martin's
approximately 81% interest in the Corporation's Common Stock was exchanged with
Lockheed Martin stockholders who participated in the Exchange Offer.
Consummation of the Exchange Offer did not impact the Corporation's financial
position or its results of operations as of the consummation date of the
transaction and for the period then ended. For additional discussion in
connection with the Exchange Offer, see "Other Matters" on page 15.
The Corporation reports operations in two industry reporting segments,
aggregates and magnesia-based products. The Corporation is the United States'
second largest producer of aggregates used for the construction of highways and
other infrastructure projects and for commercial and residential construction.
The Corporation's Aggregates division processes or ships aggregates, primarily
crushed stone, from a network of approximately 200 quarries and distribution
facilities in 19 states in the southeastern, midwestern and central regions of
the United States and in the Bahamas and Canada. The Corporation also
manufacturers and markets magnesia-based products, including heat-resistant
refractory products for the steel industry and magnesia-based chemical products
for industrial, agricultural and environmental uses, including wastewater
treatment and acid neutralization.
The Corporation continued in excellent overall financial condition
during the third quarter of 1996 and has adequate capital resources to operate,
compete and grow in an increasingly challenging and competitive environment.
Net earnings for the third quarter of 1996 were $27.5 million, or $0.60 per
share, an increase of 17% over 1995 third-quarter earnings of $23.4 million,
or $0.51 per share.
Page 9
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Third Quarter and Nine Months Ended September 30, 1996 and 1995
At September 30, 1996, total shareholders' equity reached $466.5
million, and the Corporation's ratio of debt to total capitalization was 23%,
compared with a debt-to-capitalization ratio of 35% at year-end 1995. Total
debt at year-end reflected a temporary increase in long-term debt associated
with the December 1995 sale of the Corporation's $125 million 7% Debentures.
The proceeds from the sale of these Debentures were used ultimately to repay
the $100 million aggregate principal amount of the Corporation's 8-1/2% Notes
upon their maturity on March 1, 1996.
RESULTS OF OPERATIONS Net sales for the quarter were $201.5 million, a
5% increase over 1995 third quarter sales of $191.1 million. Net sales for the
first nine months of 1996 were $538.5 million, an increase of 8% over net sales
for the year-earlier period of $497.0 million. Earnings from operations were
up $6.0 million, or 16%, to $43.1 million for the third quarter of 1996 over
the same period in 1995, with earnings from operations up $8.9 million, to
$91.5 million for the first nine months of 1996, compared with the first nine
months of 1995. Consolidated net earnings for the quarter increased 17% to
$27.5 million, or $0.60 per share, from 1995 third quarter net earnings of
$23.4 million, or $0.51 per share. For the nine-month period ended September
30, 1996, consolidated net earnings were $58.6 million, or $1.27 per share.
This represents an increase of 14% over net earnings for the first nine months
of 1995 of $51.6 million, or $1.12 per share.
Sales for the Aggregates division increased 6% to $169.5 million for
the third quarter, compared with the year-earlier period. The division's
sales increased 9% to $440.8 million for the first nine months of 1996,
compared with the first nine months of 1995. This increase in sales reflects
record year-to-date aggregates shipments of 75.3 million tons and an increase
in the division's average net selling price, when compared to the same period
in 1995. The division's third quarter operating profits were $40.5 million, an
increase of 18% over operating profits for the year-earlier period of $34.4
million. The division's operating profits for the first nine months of 1996
increased 9% to $83.7 million from $76.8 million for the first nine months of
1995, despite the effect of Hurricane Fran and subsequent heavy rainfall during
September in the southeast and the effect of the adverse weather conditions
that existed within most of the markets served by the division during the first
quarter of 1996. The Corporation's aggregates business is highly seasonal, due
primarily to the effect of weather conditions on construction activity levels,
most of which occurs typically in the spring, summer, and early fall.
Production costs were negatively affected by the severe winter weather
conditions experienced during the first quarter, along with the hurricane and
related wet conditions that existed during the third quarter of this year.
Management continues to believe that the Corporation's annual production and
shipments, excluding any acquisition activities, will see some improvement for
the full year ending December 31, 1996, compared with the prior year.
The Magnesia Specialties division had third quarter 1996 sales of
$32.0 million, a slight increase over the third quarter sales of 1995, and had
nine month 1996 sales of $97.7 million, an increase of 4% in 1996 over 1995.
The division's operating earnings for the third quarter of $2.5 million were 3%
below the operating results for the prior-year period as a result of an
explosion and fire in an electrical substation, which occurred at the
Woodville, Ohio, lime plant during the latter part of the second quarter of
this year. For the nine-month period, the division's earnings from operations
increased substantially from $5.9 million in 1995 to $7.8 million in 1996.
This increase principally reflects the negative effect of the strike which
occurred during 1995 at a major operating location.
Page 10
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Third Quarter and Nine Months Ended September 30, 1996 and 1995
The following tables present net sales, gross profit, selling, general
and administrative expense, and earnings from operations data for the
Corporation and each of its divisions for the three and nine months ended
September 30, 1996 and 1995. In each case, the data is stated as a percentage
of net sales, of the Corporation or the relevant division, as the case may be:
Three Months Ended
September 30,
--------------------------------------------------------------------
(Dollars in Thousands)
1996 1995
------------------------- -----------------------
% of % of
Amount Net Sales Amount Net Sales
---------- --------- ---------- ----------
Net sales:
Aggregates $169,485 100.0 $159,206 100.0
Magnesia Specialties 32,019 100.0 31,888 100.0
-------- ----- ------ -----
Total $201,504 100.0 $191,094 100.0
Gross profit:
Aggregates $ 51,381 30.3 $ 43,929 27.6
Magnesia Specialties 7,166 22.4 7,831 24.6
--------- ----- -------- -----
Total $ 58,547 29.1 $ 51,760 27.1
Selling, general & administrative
expense:
Aggregates $ 10,859 6.4 $ 9,518 6.0
Magnesia Specialties 4,171 13.0 4,752 14.9
-------- ----- -------- -----
Total $ 15,030 7.5 $ 14,270 7.5
Earnings from operations:
Aggregates $ 40,521 23.9 $ 34,410 21.6
Magnesia Specialties 2,530 7.9 2,615 8.2
-------- ----- -------- -----
Total $ 43,051 21.4 $ 37,025 19.4
Page 11
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Third Quarter and Nine Months Ended September 30, 1996 and 1995
Three Months Ended
September 30,
--------------------------------------------------------------------
(Dollars in Thousands)
1996 1995
------------------------- -----------------------
% of % of
Amount Net Sales Amount Net Sales
---------- --------- ---------- ----------
Net sales:
Aggregates $440,787 100.0 $403,068 100.0
Magnesia Specialties 97,702 100.0 93,882 100.0
-------- ----- -------- -----
Total $538,489 100.0 $496,950 100.0
Gross profit:
Aggregates $115,780 26.3 $105,561 26.2
Magnesia Specialties 21,902 22.4 21,522 22.9
-------- ----- -------- -----
Total $137,682 25.6 $127,083 25.6
Selling, general & administrative
expense:
Aggregates $ 32,099 7.3 $ 28,777 7.1
Magnesia Specialties 12,664 13.0 14,307 15.2
-------- ----- -------- -----
Total $ 44,763 8.3 $ 43,084 8.7
Earnings from operations:
Aggregates $ 83,681 19.0 $ 76,784 19.0
Magnesia Specialties 7,820 8.0 5,857 6.2
-------- ----- -------- -----
Total $ 91,501 17.0 $ 82,641 16.6
Other income and expenses, net, for the nine months ended September 30, were
$5.2 million in income in 1996 and $4.4 million in income in 1995. In addition
to several offsetting amounts, the 1996 amount included nonrecurring pretax
gains of approximately $1.2 million associated with the selling of certain
assets and approximately $1.2 million of interest income from affiliates loans.
The 1995 amount also included a nonrecurring pretax gain of approximately $1.4
million related to certain
Page 12
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Third Quarter and Nine Months Ended September 30, 1996 and 1995
asset dispositions in connection with one of the Corporation's equity
investments and $0.9 million of interest income from loans to affiliates. It
should be noted that interest income from loans to Lockheed Martin has remained
classified with transactions with affiliates for financial reporting purposes.
Interest expense was approximately $1.0 million, or 16%, higher in the
first nine months of 1996 over 1995. The increase in 1996 resulted from the
net effect of the additional long-term borrowings by the Corporation in
December 1995, when the Corporation publicly offered and sold its $125 million
7% Debentures, offset by the reduction of long-term debt during the period
caused by the repayment of the 8 1/2% Notes on March 1, 1996, and the reduced
amounts outstanding during the period that were due to Lockheed Martin under
the credit agreement.
The Corporation's estimated effective income tax rate for the first
nine months was 33.9% in 1996 and 35.5% in 1995. See Note 4 of the Notes to
Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES Net cash flow provided by operating
activities during the first nine months of 1996 was $71.9 million, compared
with $85.5 million in the comparable period of 1995. The cash flow from
operating activities for both 1995 and 1996 was principally from earnings,
before deducting depreciation, depletion and amortization, offset by increased
demand for working capital. Working capital increases during the first nine
months of 1996 were principally due to an increase in accounts receivable
balances as a result of growth in aggregates demand. The increased demand on
working capital during the first nine months of 1995 was primarily the result
of increases in inventory and accounts receivable balances, both of which were
offset somewhat by increased trade accounts payable and other liabilities
balances. The seasonal nature of the construction aggregates business impacts
quarterly net cash provided by operating activities when compared with the
year. Accordingly, full year 1995 net cash provided by operating activities
was $128.6 million, compared with the $85.5 million provided by operations in
the first nine months of 1995. Capital expenditures are expected to be
approximately $83 million for 1996, exclusive of acquisitions. Comparable
capital expenditures, were $71.6 million in 1995.
Page 13
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Third Quarter and Nine Months Ended September 30, 1996 and 1995
The Corporation relies, for its liquidity requirements, upon
internally generated funds, access to capital markets, and funds obtained under
its cash management agreement and credit agreement, each with its former
majority shareholder, Lockheed Martin. Prospectively, management may choose to
borrow from third-party lenders or through the Corporation's access to capital
markets. The above-referenced credit agreement with Lockheed Martin, which may
be extended by mutual consent of both parties, provides for borrowings of up to
$55 million. Loans outstanding under the credit agreement bear interest at a
published prime interest rate or at LIBOR plus a graduated rate.
During the fourth quarter of 1996, management expects to establish a
revolving credit facility with a syndicate of banks to replace the current
credit agreements with Lockheed Martin. It should be noted, however, that the
Corporation has not determined the specific timing when, or method by which, it
may establish and access such a banking credit facility. Further, while any
such borrowings may be used initially to provide necessary working capital
funds, it is anticipated that the Corporation will repay the funds borrowed
under its credit agreement with Lockheed Martin with such bank borrowings.
Additionally, management may choose at some future time to further access the
public debt markets through the issuance of commercial paper or other debt
securities. Again, it should be noted that the Corporation has not determined
the method or methods by which it may further access the public market.
With respect to the Corporation's ability to access the public market,
it has an effective shelf registration on file with the Securities and Exchange
Commissions for the offering of up to $175 million of debt securities, which
may be issued from time to time. The Corporation's ability to issue such debt
securities at any time is dependent, among other things, upon market
conditions.
Based on prior performance and current expectations, the Corporation's
management believes that cash flows from internally generated funds and its
access to capital markets are expected to continue to be sufficient to provide
the capital resources necessary to fund the operating needs of its existing
businesses, cover debt service requirements, and allow for payment of
dividends. The Corporation may be required to obtain additional levels of
financing in order to fund certain strategic acquisitions if any such
opportunities arise. Currently, the Corporation's senior unsecured debt is
rated "A" by Standard &
Page 14
15
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Third Quarter and Nine Months Ended September 30, 1996 and 1995
Poor's and "A3" by Moody's. In an October 1996 press release, Standard &
Poor's affirmed the Corporation's "A" senior debt rating and removed it from
CreditWatch -- an action that was taken in March 1996 as a result of its then
81% ownership by Lockheed Martin. Standard & Poor's announced that the October
rating action reflects the completion of Lockheed Martin's split-off of its
ownership interest in the Corporation. 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.
The Corporation may repurchase up to 2.5 million shares of its common
stock under authorizations from the Corporation's Board of Directors for use in
the Amended Omnibus Securities Award Plan and for general corporate purposes.
As of November 1, 1996, there have been 68,200 shares repurchased under these
authorizations.
OTHER MATTERS In connection with the Exchange Offer, the Corporation's Board
of Directors adopted a shareholder rights plan that became effective, and
certain terms of which were established, upon consummation of the split-off
from Lockheed Martin. The shareholder rights plan provides, among other
things, that if any person or group of persons becomes the beneficial owner of
15% or more of the Corporation's Common Stock, all holders of rights issued
pursuant to the plan (other than such person or group of persons and their
affiliates, associates and transferees) will have the right to acquire shares
of the Corporation's Common Stock at 50% of the then current market value.
Also in connection with the Exchange Offer, the Board of Directors
adopted, and recommended that the shareholders of the Corporation approve at a
special meeting called for such purpose, certain amendments to the
Corporation's Articles of Incorporation. The amendments reduce the
vulnerability of the Corporation to an unsolicited takeover proposal,
particularly one that is made at an inadequate price or does not contemplate
the acquisition of all of the Corporation's Common Stock. The special meeting
of the shareholders to approve such amendments was held on September 27, 1996,
and all amendments were approved as proposed.
This Quarterly Report on Form 10-Q contains statements which, to the
extent that they are not recitations of historical fact, 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. All forward
looking statements involve risks and uncertainties. The forward looking
statements in this document are intended to be subject to the safe harbor
protection provided by Sections 27A and 21E. Political, climatic, currency,
regulatory, technological, competitive and other factors could cause actual
results to vary materially from those anticipated in the forward looking
statements. Additional information regarding these risk factors and
uncertainties is detailed from time to time in the Corporation's filings with
the Securities and Exchange Commission.
Page 15
16
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Part II Item 1. Legal Proceedings of the Martin Marietta
Materials, Inc. Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
Reference is made to Part II. Item 4. Submission of Matters to a Vote of
Security Holders of the Martin Marietta Materials, Inc. Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996.
At the Special Meeting of Shareholders held on September 27, 1996, the
shareholders of Martin Marietta Materials, Inc.:
1. Approved the following amendments to the Corporation's Articles of
Incorporation:
(a) Approved the establishment of a variable range for the size of the
Board of Directors (the "Board"). The amendment provides that the
Board be comprised of a minimum of nine members and a maximum of
eleven members, which number may be increased or decreased from
time to time within such range by vote of the Board or the
shareholders of the Corporation.
(b) Approved the Board being divided into three classes of directors
whereby approximately one-third of the Directors would be elected
at the annual meeting of shareholders each year to serve for a
term of three years.
(c) Approved that Directors may be removed only for cause by a
majority of the votes cast by shareholders of the Corporation, and
that directors may not be removed by the shareholders at a meeting
unless the notice of the meeting states that one of the purposes
of the meeting is the removal of Directors.
(d) Approved that special meetings of shareholders may be called only
by the Chairman of the Board or the President of the Corporation,
or by the affirmative vote of a majority of the members of the
Board or the Executive Committee of the Board.
(e) Approved that if a vacancy occurs on the Board, such vacancy may
be filled only by the affirmative vote of a majority of the
remaining Directors in office, even though less than a quorum.
Additionally, shareholders are not permitted to fill any vacancy
on the Board, other than vacancies that result from the removal of
a Director from office by the shareholders that is filled by the
shareholders at the same meeting at which such removal occurs.
Page 16
17
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
PART II - OTHER INFORMATION
(continued)
(f) Approved that for purposes of the "fair market value" exception to
the stock repurchase provision contained within Article 10(a) of
the Articles of Incorporation, that the market price be determined
as of the earlier of (i) the date of such stock repurchase, or
(ii) the date any agreement with respect to such transaction was
entered into.
(g) Approved that proposed business combinations between the
Corporation and an interested shareholder, as well as any
amendment of the business combination provisions of the Articles
of Incorporation, would require the approval of (i) 66-2/3% of the
voting stock of the Corporation not held by any interested
shareholder, voting together as a single class, and (ii) 80% of
all voting stock of the Corporation, voting together as a single
class.
(h) Approved the modification or deletion in their entirety of several
provisions of the Articles of Incorporation relating to the
relationship between Lockheed Martin and the Corporation.
(i) Approved the modification or deletion of several miscellaneous
provisions of the Articles of Incorporation to reflect the
amendments described above in (a) through (h).
The following table sets forth the voting results for each of the above actions
with respect to the amendments to the Corporation's Articles of Incorporation:
Action Cast For Cast Against Abstained
------ ------------ ------------ ---------
(a) 41,060,661 414,533 2,415
(b) 38,693,761 1,375,192 2,505
(c) 38,743,131 1,309,742 18,585
(d) 38,783,286 1,285,167 3,005
(e) 39,227,901 839,602 3,955
(f) 40,058,768 9,085 3,605
(g) 39,276,508 791,045 3,905
(h) 39,989,243 78,595 3,620
(i) 40,037,443 31,410 2,605
2. Approved the Martin Marietta Materials, Inc. Shareholder Value
Achievement Plan. The voting results for this approval were:
41,453,829 -- For; 20,265 -- Against; and 3,515 -- Abstained.
3. Approved the Martin Marietta Materials, Inc. Common Stock Purchase
Plan for Directors. The voting results for this approval were:
41,382,123 -- For; 58,996 -- Against; and 36,490 -- Abstained.
Page 17
18
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
PART II - OTHER INFORMATION
(Continued)
4. Approved the Martin Marietta Materials, Inc. Amended Omnibus
Securities Award Plan. The voting results for this approval were:
41,416,014 -- For; 57,255 -- Against; and 4,340 -- Abstained.
Item 5. Other Information.
On November 7, 1996, the Corporation's Board of Directors took action, pursuant
to the Corporation's Restated Articles of Incorporation, that divided the
members of its Board of Directors into the following three classes with terms
expiring as indicated:
Class Term Expiring
----- -------------
Class I: Frank H. Menaker, Jr. Annual Shareholders Meeting 1997
William E.McDonald
Richard A. Vinroot
Class II: Richard G. Adamson Annual Shareholders Meeting 1998
Marcus C. Bennett
Bobby F. Leonard
Class III: James M. Reed Annual Shareholders Meeting 1999
William B. Sansom
Stephen P. Zelnak, Jr.
On November 8, 1996, the Corporation announced that the Board of Directors had
declared a regular quarterly cash dividend on the Corporation's Common Stock of
$0.12 a share, payable December 31, 1996, to shareholders of record at the
close of business on November 29, 1996.
On November 11, 1996, the Corporation announced the election of two additional
members to its Board of Directors. The new Directors are William E. McDonald,
President and Chief Executive Officer of Sprint MidAtlantic Telecom, located in
Raleigh, North Carolina, and Richard A. Vinroot, a Partner in the law firm of
Robinson, Bradshaw and Hinson, located in Charlotte, North Carolina. The
addition of the two new Directors increases the size of the Board of Directors
to nine members.
Page 18
19
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
PART II - OTHER INFORMATION
(Continued)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
No. Document
- ------- --------
10.01 Restated Articles of Incorporation of the Corporation (incorporated by reference to Exhibit 3.1 to the
Martin Marietta Materials, Inc. current report on Form 8-K, filed with the Securities and Exchange
Commission on October 25, 1996).
10.02 Restated Bylaws of the Corporation (incorporated by reference to Exhibit 3.3 to the Martin Marietta
Materials, Inc. current report on Form 8-K, filed with the Securities and Exchange Commission on
October 25, 1996).
10.03 Rights Agreement, dated as of October 21, 1996, between Martin Marietta Materials, Inc., 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).
10.04 Articles of Amendment of the Corporation with respect to the Junior Participating Class A Preferred
Stock (incorporated by reference to Exhibit 3.2 to the Martin Marietta Materials, Inc. current report
on Form 8-K, filed with the Securities and Exchange Commission on October 25, 1996).
10.05 Martin Marietta Materials, Inc. Amended Omnibus Securities Award Plan.
10.06 Martin Marietta Materials, Inc. Shareholder Value Achievement Plan.
Page 19
20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
PART II - OTHER INFORMATION
(Continued)
Item 6. Exhibits and Reports on Form 8-K (continued).
(a) Exhibits (continued)
Exhibit
No. Document
- ------- --------
10.07 Form of Martin Marietta Materials, Inc. Employment Protection Agreement.
10.08 Martin Marietta Materials, Inc. Common Stock Purchase Plan for Directors.
10.09 Supplemental Tax Sharing Agreement, dated as of September 13, 1996, between the Corporation and
Lockheed Martin Corporation.
10.10 Tax Assurance Agreement, dated as of September 13, 1996, between the Corporation and Lockheed Martin
Corporation.
11.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries Computation of Earnings Per Share for the
Quarter and Nine Months Ended September 30, 1996 and 1995
12.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries Computation of Ratio of Earnings to Fixed
Charges for the Nine Months ended September 30, 1996
27.01 Financial Data Schedule (for SEC use only)
Page 20
21
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
PART II - OTHER INFORMATION
(Continued)
Item 6. Exhibits and Reports on Form 8-K (continued).
(b) Reports on Form 8-K filed in the third quarter of 1996.
Current Report on Form 8-K, filed October 25, 1996.
Item 5. Other Events.
The Registrant filed information in connection with the
following events:
Adoption of a Shareholder Rights Plan
On October 15, 1996, the Corporation declared a dividend
distribution of one Right for each outstanding share of the
Corporation's Common Stock, payable to shareholders of record
at the close of business on October 21, 1996, and with respect
to the Common Stock issued thereafter until a distribution
date and, in certain circumstances, with respect to the Common
Stock issued after the distribution date. Each right, when it
becomes exercisable, generally entitles the registered holder
to purchase from the Corporation a unit consisting initially
of one one-thousandth of a share (a "Unit") of Junior
Participating Class A Preferred Stock, par value $0.01 per
share (the "Preferred Stock"), of the Corporation, at a
purchase price of $100 per Unit, subject to adjustment. The
description and terms of the rights are set forth on a Rights
Agreement, dated as of October 21, 1996, between the
Corporation and First Union National Bank of North Carolina,
as Rights Agent. On October 21, 1996, the Corporation filed a
registration statement (Form 8-A) in connection with the
registration of the Rights to Purchase Junior Participating
Class A Preferred Stock, a new class of securities of the
Corporation. A copy of the Rights Agreement is filed as an
Exhibit hereto. This summary description of the Rights does
not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement.
Completion of Split-Off of the Company by Lockheed Martin
Corporation
On October 21, 1996, Lockheed Martin Corporation and the
Corporation jointly announced the successful completion of the
split-off of the Corporation from Lockheed Martin Corporation.
Page 21
22
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
PART II - OTHER INFORMATION
(Continued)
Item 6. Exhibits and Reports on Form 8-K (continued).
(b) Reports on Form 8-K filed in the third quarter of 1996 (continued).
Current Report on Form 8-K, filed October 25, 1996 (continued).
Item 5. Other Events (continued).
Effectiveness of Anti-takeover Amendments to Charter and
Bylaws
Effective on October 21, 1996, various amendments to the
Articles of Incorporation and Bylaws of the Corporation that
were approved at the Special Meeting of Shareholders held on
September 27, 1996, became effective. The purposes and effects
of such amendments are described in Part II -- Other
Information, Item 4. Submission of Matters to a Vote of
Security Holders on page 16 of this filing and in the
Corporation's Proxy Statement dated August 28, 1996 (the
"Proxy Statement"), which information is incorporated herein
by this reference in its entirety. Copies of the Restated
Articles of Incorporation and Bylaws of the Corporation are
filed as Exhibits hereto. Copies of the Proxy Statement are
available free of charge from the Corporation.
Release of Third Quarter Earnings Results
On October 21, 1996, the Corporation issued a press release
announcing financial results for the third quarter and nine
months ended September 30, 1996.
Page 22
23
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: November 14, 1996 By: /s/ JANICE K. HENRY
----------------------------------
Janice K. Henry
Vice President, Chief Financial
Officer and Treasurer
Page 23
24
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
EXHIBIT INDEX
Exhibit No. Document
- ----------- --------
10.01 Restated Articles of Incorporation of the Corporation (incorporated
by reference to Exhibit 3.1 to the Martin Marietta Materials, Inc. current report on
Form 8-K, filed with the Securities and Exchange Commission on October 25, 1996).
10.02 Restated Bylaws of the Corporation (incorporated by reference to
Exhibit 3.3 to the Martin Marietta Materials, Inc. current report on Form 8-K, filed
with the Securities and Exchange Commission on October 25, 1996).
10.03 Rights Agreement, dated as of October 21, 1996, between Martin
Marietta Materials, Inc., 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).
10.04 Articles of Amendment of the Corporation with respect to the
Junior Participating Class A Preferred Stock (incorporated by reference to Exhibit 3.2
to the Martin Marietta Materials, Inc. current report on Form 8-K, filed with the
Securities and Exchange Commission on October 25, 1996).
10.05 Martin Marietta Materials, Inc. Amended Omnibus Securities
Award Plan.
10.06 Martin Marietta Materials, Inc. Shareholder Value Achievement
Plan.
10.07 Form of Martin Marietta Materials, Inc. Employment Protection Agreement.
(Continued)
Page 24
25
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 1996
EXHIBIT INDEX
(continued)
Exhibit No. Document
- ----------- --------
10.08 Martin Marietta Materials, Inc. Common Stock Purchase Plan
for Directors.
10.09 Supplemental Tax Sharing Agreement, dated as of September 13,
1996, between the Corporation and Lockheed Martin Corporation.
10.10 Tax Assurance Agreement, dated as of September 13, 1996,
between the Corporation and Lockheed Martin Corporation.
11.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries
Computation of Earnings Per Share for the Quarter and Nine Months Ended September 30,
1996 and 1995
12.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries
Computation of Ratio of Earnings to Fixed Charges for the Nine Months ended
September 30, 1996
27.01 Financial Data Schedule (for SEC use only)
Page 25