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 June 30, 1997
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 July 31, 1997
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 46,080,458
Page 1 of 24
Exhibit Index is on Page 22
2
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
INDEX
Page
----
Part I. Financial Information:
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Earnings -
Three Months and Six Months Ended
June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11
Part II. Other Information:
Item 1. Legal Proceedings. 18
Item 4. Submission of Matters to a Vote of Security Holders. 18
Item 5. Other Information. 18
Item 6. Exhibits and Reports on Form 8-K. 18
Signatures 21
Exhibit Index 22
Page 2 of 24
3
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
----------- ---------
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 8,484 $ --
Accounts receivable, net 164,012 134,207
Inventories, net 132,850 113,774
Deferred income tax benefit 15,959 15,547
Other current assets 5,640 7,638
----------- ---------
Total Current Assets 326,945 271,166
----------- ---------
Property, plant and equipment 1,190,709 981,214
Allowances for depreciation, depletion and
amortization (601,411) (572,394)
----------- ---------
Net property, plant and equipment 589,298 408,820
Other noncurrent assets 28,010 25,764
Cost in excess of net assets acquired 140,351 39,952
Other intangibles 36,572 23,216
----------- ---------
Total Assets $ 1,121,176 $ 768,918
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Book overdraft $ -- $ 4,260
Accounts payable 45,763 36,420
Accrued salaries, benefits and payroll taxes 20,927 17,858
Accrued insurance and other taxes 13,025 7,930
Income taxes 10,951 13,388
Loans payable 100,000 --
Current maturities of long-term debt 1,313 1,273
Other current liabilities 12,368 7,015
----------- ---------
Total Current Liabilities 204,347 88,144
Long-term debt 275,935 125,890
Pension, postretirement, and postemployment benefits 63,068 52,646
Other noncurrent liabilities 12,663 7,669
Noncurrent deferred income taxes 55,963 13,592
----------- ---------
Total Liabilities 611,976 287,941
----------- ---------
Shareholders' equity:
Common stock, par value $.01 per share 461 461
Additional paid-in capital 331,309 331,303
Retained earnings 177,430 149,213
----------- ---------
Total Shareholders' Equity 509,200 480,977
----------- ---------
Total Liabilities and Shareholders' Equity $ 1,121,176 $ 768,918
=========== =========
See accompanying notes to condensed consolidated financial statements.
Page 3 of 24
4
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Dollars in Thousands, Except Per Share Data)
Net sales $ 232,190 $ 200,438 $ 390,353 $ 336,985
Cost of sales 166,703 145,108 294,722 257,850
------------ ------------ ------------ ------------
Gross Profit 65,487 55,330 95,631 79,135
Selling, general & administrative expense 16,313 14,997 31,612 29,733
Research and development 789 477 1,281 952
------------ ------------ ------------ ------------
Earnings from Operations 48,385 39,856 62,738 48,450
Interest expense (3,564) (2,522) (5,765) (5,696)
Other income and expenses, net 2,178 3,192 3,647 4,362
------------ ------------ ------------ ------------
Earnings before Taxes on Income 46,999 40,526 60,620 47,116
Taxes on income 16,630 13,719 21,344 15,972
------------ ------------ ------------ ------------
Net Earnings $ 30,369 $ 26,807 $ 39,276 $ 31,144
============ ============ ============ ============
Net earnings per share $ 0.66 $ 0.58 $ 0.85 $ 0.68
============ ============ ============ ============
Average number of common shares outstanding 46,079,604 46,079,300 46,079,567 46,079,300
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
Page 4 of 24
5
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
----------------------------
1997 1996
--------- ---------
(Dollars in Thousands)
Operating activities:
Net earnings $ 39,276 $ 31,144
Adjustments to reconcile earnings to cash
provided by operating activities:
Depreciation, depletion and amortization 34,800 30,000
Other items, net (859) (1,380)
Changes in operating assets and liabilities:
Accounts receivable (36,217) (37,623)
Inventories (763) (1,458)
Accounts payable 3,874 512
Other assets and liabilities, net 16,169 5,604
--------- ---------
Net cash provided by operating activities 56,280 26,799
--------- ---------
Investing activities:
Additions to property, plant and equipment (33,074) (33,432)
Acquisitions, net (275,168) --
Transactions with Lockheed Martin Corporation 23,768 87,383
Other investing activities, net 2,112 6,346
--------- ---------
Net cash (used for) provided by investing activities (282,362) 60,297
--------- ---------
Financing activities:
Borrowings (repayments) of long-term debt, net 149,885 (103,064)
Loans payable 100,000 24,480
Dividends (11,059) (10,137)
--------- ---------
Net cash provided by (used for) financing activities 238,826 (88,721)
--------- ---------
Net increase (decrease) in cash and cash equivalents 12,744 (1,625)
Book overdraft, beginning of period (4,260) (2,927)
--------- ---------
Cash balance (book overdraft), end of period $ 8,484 $ (4,552)
========= =========
See accompanying notes to condensed consolidated financial statements.
Page 5 of 24
6
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
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, 1996, filed with the Securities and
Exchange Commission on March 25, 1997. In the opinion of management,
the interim financial information provided herein reflects all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the results of operations for the interim periods.
The results of operations for the six months ended June 30, 1997, are
not necessarily indicative of the results to be expected for the full
year.
2. Acquisition of American Aggregates Corporation
On May 28, 1997, the Corporation purchased all of the outstanding
common stock of American Aggregates Corporation and subsidiary
("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. This business combination is being accounted for under
the purchase method of accounting.
After initial working capital adjustments, the purchase price consists
of approximately $242 million in cash plus certain assumed liabilities,
including liabilities of $6.7 million for projected and accumulated
postretirement benefit obligations in excess of certain benefit plans'
assets, and a provision of approximately $8 million to consummate the
transaction and integrate the operations. The final purchase price is
subject to certain post-closing adjustments relating to working
capital. Any change in the purchase price resulting from final
post-closing adjustments will be reflected in the determination of the
final purchase consideration during the allocation period. As of June
30, 1997, approximately $97 million in goodwill has been recognized by
the Corporation after recording amounts for 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 assets acquired and liabilities assumed. Goodwill is
being amortized over a 30-year period and other intangibles are being
amortized over periods not exceeding ten years. A portion of the cash
purchase price, in the amount of $25 million, has been deferred. This
amount is evidenced by a note, due August 27, 1997. For financial
reporting purposes, this amount is included with current loans payable
in the accompanying balance sheet at June 30, 1997.
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 three
months and six months ended June 30, 1997 and 1996, with pro forma
adjustments as if the acquisition had been consummated as of the
beginning of the earliest period presented. The pro forma 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.
Page 6 of 24
7
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Acquisition of American Aggregates Corporation (continued)
Pro Forma Information (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- --------
(Dollars in Thousands, Except Per Share Data)
Net sales $ 254,768 $ 235,475 $ 428,669 $385,125
========= ========= ========= ========
Net earnings $ 29,122 $ 26,428 $ 33,161 $ 26,387
========= ========= ========= ========
Net earnings per share $ 0.63 $ 0.57 $ 0.72 $ 0.57
========= ========= ========= ========
3. Inventories
June 30, December 31,
1997 1996
--------- ---------
(Dollars in Thousands)
Finished products $ 109,008 $ 85,363
Product in process and raw materials 9,905 14,682
Supplies and expendable parts 21,127 19,807
--------- ---------
140,040 119,852
Less allowances (7,190) (6,078)
--------- ---------
Total $ 132,850 $ 113,774
========= =========
4. Long-Term Debt
June 30, December 31,
1997 1996
--------- ---------
(Dollars in Thousands)
7% Debentures, due 2025 $ 124,190 $ 124,185
Acquisition notes, interest rates
ranging from 5% to 10% 2,432 2,254
Other notes 150,626 724
--------- ---------
277,248 127,163
Less current maturities (1,313) (1,273)
--------- ---------
Total $ 275,935 $ 125,890
========= =========
Page 7 of 24
8
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Long-Term Debt (continued)
On January 31, 1997, the Corporation's revolving credit agreement with
Lockheed Martin Corporation ("Lockheed Martin") was, by its terms,
terminated. Also during January, the Corporation entered into a new
revolving credit agreement with a group of domestic and foreign banks
which provides for borrowings of up to $150 million for general
corporate purposes through January 2002. Borrowings under this
agreement are 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 revolving credit agreement contains several
covenants, including specific financial covenants relating to leverage,
limitations on encumbrances, and provisions which relate to certain
changes of the Corporation's control. The Corporation is required to
pay an annual loan commitment fee to the bank group. At June 30, 1997,
the Corporation had $150 million borrowed against this revolving credit
agreement. As of August 1, 1997, approximately $25 million remains
outstanding under this agreement.
On May 27, 1997, the Corporation entered into an additional revolving
credit agreement with the same group of domestic and foreign banks, as
referenced above, which provides for incremental borrowings of up to
$150 million for general corporate purposes through May 26, 1998.
Borrowings under this agreement are 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). This short-term revolving credit agreement
contains the same covenants as those contained in the above-referenced
long-term revolving credit agreement. The Corporation is required to
pay a loan commitment fee to the bank group. At June 30, 1997, the
Corporation had $75 million borrowed against this short-term revolving
credit agreement. As of August 1, 1997, no borrowings were outstanding
under this agreement.
On July 3, 1997, the Corporation offered and sold $200 million of
commercial paper obligations with interest rates ranging from 5.67% to
5.77%. Proceeds from the sale of the commercial paper were used
initially to repay certain amounts borrowed under the Corporation's
revolving credit agreements in connection with the American Aggregates
acquisition.
Also during July, the Corporation entered into an interest rate swap
agreement to fix the interest rate relating to an anticipated long-term
financing. This agreement matures during the third quarter of 1997. The
effect of this interest rate hedging agreement will be recorded as an
adjustment to interest expense related to the underlying debt
obligation. Management intends to use the proceeds from the anticipated
long-term financing to repay a substantial portion of the amount
outstanding currently under the Corporation's commercial paper
obligations. See
Page 8 of 24
9
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Long-Term Debt (continued)
the "Liquidity and Capital Resources" section of Management's
Discussion and Analysis of Financial Condition and Results of
Operations on pages 15 through 17 of this Form 10-Q.
During the first quarter of 1996, the Corporation's 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.
The Corporation's interest payments were approximately $4.9 million in
1997 and $7.3 million in 1996 for the six months ended June 30.
5. Income Taxes
The Corporation accounts for income taxes as prescribed in 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 of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
The Corporation's effective income tax rate for the first six months
was 35.2% in 1997 and 33.9% in 1996. The effective rate for the first
half of 1997 was slightly higher than the current federal corporate
income tax rate of 35% due to the effect of several offsetting factors.
The Corporation's effective tax rate reflects the effect of state
income taxes and the impact of differences in book and tax accounting
arising from the permanent benefits associated with the depletion
allowances for mineral reserves, amortization of certain goodwill
balances, foreign operating earnings, and earnings from nonconsolidated
investments.
Through October 1996, the results of operations of the Corporation are
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 are calculated as
if it had filed separate federal income tax returns for each tax
reporting period.
The Corporation's income tax payments were approximately $21.5 million
in 1997 and $4.6 million in 1996, for the six months ended June 30.
Page 9 of 24
10
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. 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.
7. 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 Omnibus
Securities Award Plan, as amended. On May 3, 1994, the Board of
Directors authorized the repurchase of an additional 500,000 shares for
general corporate purposes. As of August 1, 1997, there have been
68,200 shares of Common Stock repurchased by the Corporation under
these authorizations.
Page 10 of 24
11
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter and Six Months Ended June 30, 1997 and 1996
OVERVIEW Martin Marietta Materials, Inc., (the "Corporation") operates in two
principal business segments: aggregates products and magnesia-based products.
The Corporation's sales and earnings are predominately derived from its
aggregates segment which processes and sells granite, sandstone, limestone,
shell and other aggregates products from a network of more than 250 quarries and
distribution facilities in 19 states in the southeastern, midwestern and central
regions of the United States and in the Bahama islands and Canada. The
division's products are used primarily by commercial customers principally in
domestic construction of highways and other infrastructure projects and for
commercial and residential buildings. The 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.
The Corporation continued in excellent overall financial condition
during the second quarter of 1997 and has adequate capital resources to operate,
compete and grow in an increasingly challenging and competitive environment. In
addition to the acquisition of the American Aggregates business during the
quarter, the Corporation completed several small acquisitions. Net earnings for
the second quarter of 1997 were $30.4 million, or $0.66 per share, an increase
of 13% over 1996 second-quarter earnings of $26.8 million, or $0.58 per share.
At June 30, 1997, total shareholders' equity reached a record $509.2
million, and the Corporation's ratio of debt to total capitalization was 43%
compared with a debt-to-capitalization ratio of 21% at year-end 1996. Total debt
at the end of the second quarter reflected incremental borrowings associated
with the financing of the acquisition of the American Aggregates business. For
further discussion of the Corporation's capitalization structure following this
acquisition, see the "Liquidity and Capital Resources" section on pages 15
through 17 of this Form 10-Q.
BUSINESS COMBINATION WITH AMERICAN AGGREGATES CORPORATION On May 28, 1997, the
Corporation purchased all of the outstanding common stock of American Aggregates
Corporation and subsidiary ("American Aggregates") along with certain other
assets from American Aggregates' former parent, CSR America, Inc., in a
transaction being accounted for under the purchase method of accounting.
Following the initial working capital adjustments, the purchase consideration,
which remains subject to certain further post-closing adjustments relating to
working capital, consists of approximately $242 million in cash plus certain
assumed liabilities, including a liability of $6.7 million for projected and
accumulated postretirement benefit obligations in excess of plan assets for
various defined benefit and retiree medical benefit plans. Any changes in the
final purchase price resulting from final post-closing adjustments will be
reflected in the determination of the final purchase consideration during the
allocation period. In addition, the Corporation recorded a provision of
approximately $8 million to consummate the transaction and integrate the
operations. Management expects that the costs
(Continued)
Page 11 of 24
12
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter and Six Months Ended June 30, 1997 and 1996
estimated to consummate the transaction and integrate the operations will be
incurred over the next 24-month period. Currently, approximately $97 million in
goodwill has been recognized by the Corporation after recording amounts for
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. With the addition of
the American Aggregates business, the Corporation's total raw materials reserves
increased by more than 1 billion tons, of which approximately 0.7 billion tons
are zoned currently for production. Goodwill is being amortized over a 30-year
period and other intangibles are being amortized over periods not exceeding ten
years. See Note 2 of the Notes to Condensed Consolidated Financial Statements
for certain pro forma summary financial information in connection with this
business combination.
RESULTS OF OPERATIONS Net sales for the quarter were $232.2 million, a 16%
increase over 1996 second quarter sales of $200.4 million. Net sales for the
first six months of 1997 were $390.4 million, an increase of 16% over net sales
for the year-earlier period of $337.0 million. Earnings from operations were up
$8.5 million, or 21%, to $48.4 million for the second quarter of 1997 over the
same period in 1996, with earnings from operations up $14.3 million, to $62.7
million for the first six months of 1997, compared with the first six months of
1996. Consolidated net earnings for the quarter increased 13% to $30.4 million,
or $0.66 per share, from 1996 second quarter net earnings of $26.8 million, or
$0.58 per share. For the six-month period ended June 30, 1997, consolidated net
earnings were $39.3 million, or $0.85 per share. This represents an increase of
26% over net earnings for the first six months of 1996 of $31.1 million, or
$0.68 per share. These increases in both sales and earnings reflect the results
of operations of the American Aggregates business that have been combined with
those of the Corporation since May 28, 1997.
Sales for the Aggregates division increased 17% to $196.4 million for
the second quarter, compared with the year-earlier period. The division's sales
increased 18% to $320.5 million for the first six months of 1997, compared with
the first six months of 1996. This increase in sales reflects record
year-to-date aggregates shipments of 53.3 million tons and an increase in the
division's average net selling price, when compared to the same period in 1996.
The division's results reflect the acquisition of American Aggregates, which
accounts for approximately one-third of the increase in shipments during the
first half of 1997, compared with the same period in 1996. The division's second
quarter operating profits were $44.4 million, an increase of 18% over operating
profits for the year-earlier period of $37.6 million. The division's operating
profits for the first six months of 1997 increased 30% to $56.2 million from
$43.2 million for the first six months 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. 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, 1997, compared with the
prior year. Additionally, management believes that the American Aggregates
acquisition offers the opportunity to further increase the division's sales and
earnings in 1997.
(Continued)
Page 12 of 24
13
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter and Six Months Ended June 30, 1997 and 1996
The Magnesia Specialties division had second quarter 1997 sales of
$35.8 million, an increase of 9% over the second quarter of 1996, and had six
month 1997 sales of $69.9 million, an increase of 6% in the first six months of
1997 over 1996. Shipments of the division's products, as well as overall prices,
for the first six months of 1997 increased when compared with the year-earlier
period. However, the division's management continues to expect price weaknesses
in this business for the foreseeable future due to the fixed market limitations
inherent within the steel industry, which is the division's largest product
market. Chemical product sales for the first half of 1997 were above those for
the comparable period in 1996, principally due to strong industrial products
sales. Additionally, sales of the division's periclase grain products
strengthened through the first half of the year.
Compared to the year-earlier period, the Magnesia Specialties
division's earnings from operations for the first six months of 1997 increased
to $6.6 million from $5.3 million in 1996. The division's lower operating
earnings for the first half of 1996 principally reflected the negative impact of
a fire in an electrical substation at the division's Woodville, Ohio, lime
plant.
Other income and expenses, net, for the six months ended June 30, were
$3.6 million in income in 1997 and $4.4 million in income in 1996. Including
several offsetting amounts, other income and expenses, net, is comprised
generally of interest income, gains and losses associated with the selling of
certain assets, and equity earnings and losses from nonconsolidated investments.
The 1997 amount included a $0.6 million claim recovery for business interruption
resulting from lost production time during Hurricane Fran in late 1996. The 1996
amount included nonrecurring pretax gains of approximately $1.8 million in
connection with the selling of certain assets and a foreign investment.
Interest expense for the first six months of 1997 compared with the
year-earlier period is essentially flat. However, the recent borrowings
associated with the Corporation's acquisition of the American Aggregates
business will increase interest expense on debt for the balance of 1997. See
Note 4 of the Notes to Condensed Consolidated Financial Statements.
The Corporation's estimated effective income tax rate for the first six
months was 35.2% in 1997 and 33.9% in 1996. See Note 5 of the Notes to Condensed
Consolidated Financial Statements.
(Continued)
Page 13 of 24
14
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter and Six Months Ended June 30, 1997 and 1996
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 six months ended June
30, 1997 and 1996. 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
June 30,
-------------------------------------------------------
(Dollars in Thousands)
1997 1996
----------------------- ------------------------
% of % of
Amount Net Sales Amount Net Sales
------ --------- ------ ---------
Net sales:
Aggregates $196,394 100.0 $167,660 100.0
Magnesia Specialties 35,796 100.0 32,778 100.0
-------- ----- -------- -----
Total $232,190 100.0 $200,438 100.0
Gross profit:
Aggregates $ 56,620 28.8 $ 48,359 28.8
Magnesia Specialties 8,867 24.8 6,971 21.3
-------- ----- -------- -----
Total $ 65,487 28.2 $ 55,330 27.6
Selling, general & administrative expense:
Aggregates $ 11,985 6.1 $ 10,784 6.4
Magnesia Specialties 4,328 12.1 4,213 12.9
-------- ----- -------- -----
Total $ 16,313 7.0 $ 14,997 7.5
Earnings from operations:
Aggregates $ 44,374 22.6 $ 37,576 22.4
Magnesia Specialties 4,011 11.2 2,280 7.0
-------- ----- -------- -----
Total $ 48,385 20.8 $ 39,856 19.9
(Continued)
Page 14 of 24
15
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter and Six Months Ended June 30, 1997 and 1996
Six Months Ended
June 30,
-------------------------------------------------------
(Dollars in Thousands)
1997 1996
----------------------- ------------------------
% of % of
Amount Net Sales Amount Net Sales
------ --------- ------ ---------
Net sales:
Aggregates $320,477 100.0 $271,302 100.0
Magnesia Specialties 69,876 100.0 65,683 100.0
-------- ----- -------- -----
Total $390,353 100.0 $336,985 100.0
Gross profit:
Aggregates $ 79,628 24.9 $ 64,399 23.7
Magnesia Specialties 16,003 22.9 14,736 22.4
-------- ----- -------- -----
Total $ 95,631 24.5 $ 79,135 23.5
Selling, general & administrative expense:
Aggregates $ 23,180 7.2 $ 21,240 7.8
Magnesia Specialties 8,432 12.1 8,493 12.9
-------- ----- -------- -----
Total $ 31,612 8.1 $ 29,733 8.8
Earnings from operations:
Aggregates $ 56,187 17.5 $ 43,160 15.9
Magnesia Specialties 6,551 9.4 5,290 8.1
-------- ----- -------- -----
Total $ 62,738 16.1 $ 48,450 14.4
LIQUIDITY AND CAPITAL RESOURCES Net cash flow provided by operating activities
during the first six months of 1997 was $56.3 million, compared with $26.8
million in the comparable period of 1996. The cash flow from operating
activities for both 1996 and 1997 was principally from earnings, before
deducting depreciation, depletion and amortization, offset by increased demand
for working capital. The increased demand on working capital during the first
half of 1996 and 1997 was most significantly due to increases in accounts
receivable balances principally due to timing and growth in aggregates demand.
The seasonal nature of the construction aggregates business impacts quarterly
net cash provided by operating activities when compared with the year.
Accordingly, full year 1996 net cash provided by operating activities was $134.9
million, compared with the $26.8 million provided by operations in the first
half of 1996.
(Continued)
Page 15 of 24
16
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter and Six Months Ended June 30, 1997 and 1996
Capital expenditures, excluding acquisitions, for the first half of
1997 were $33.1 million, compared with $33.4 million for the same period in
1996. Capital expenditures are expected to be approximately $97 million for
1997, exclusive of acquisitions. Comparable capital expenditures were
approximately $80 million in 1996.
The Corporation continues to rely upon internally generated funds and
access to capital markets, including funds obtained under its two revolving
credit agreements and cash management facility to meet its liquidity
requirements, finance its operations, and fund its capital requirements. With
respect to the Corporation's ability to access the public market, the
Corporation has an effective shelf registration on file with the Securities and
Exchange Commission (the "Commission") for the offering of up to $175 million of
debt securities, which may be issued from time to time. Its ability to borrow or
issue debt securities is dependent, among other things, upon market conditions.
In connection with the stock acquisition of the American Aggregates Corporation,
the Corporation has financed the transaction by borrowing the funds initially
from its revolving credit agreements. At closing, the Corporation borrowed
approximately $210 million under these agreements which, coupled with other
working capital borrowings, remained outstanding at June 30, 1997. On July 3,
1997, the Corporation offered and sold $200 million of commercial paper
obligations, the proceeds of which were used initially to repay certain amounts
outstanding under the revolving credit agreements. Presently, it is the intent
of management to issue medium- to long-term debt securities to the public market
from its effective shelf registration statement on file with the Commission
during the third quarter of 1997. The proceeds from the offering and sale of
such securities would be used to repay certain commercial paper obligations. It
should be noted that, among other things, market conditions may restrict the
Corporation's ability to access the public market.
In connection with this anticipated financing, the Corporation entered
into an interest rate swap agreement to fix the interest rate. This agreement
matures during the third quarter of 1997. The Corporation is exposed to the risk
of nonperformance by the intermediary to this agreement, however such
nonperformance is not anticipated. 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. The Corporation
does not hold or issue financial instruments for trading purposes.
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
in 1997. 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 & 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 Investors Service, L.P. 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.
(Continued)
Page 16 of 24
17
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Second Quarter and Six Months Ended June 30, 1997 and 1996
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 August 1, 1997, there have been 68,200 shares repurchased under these
authorizations.
ACCOUNTING CHANGES In February 1997, the Financial Accounting Standards Board
(the "FASB") issued the Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("FAS 128"), which is required to be adopted on December
31, 1997. Upon adoption, the Corporation will be required to change the method
used currently to compute earnings per share and to restate all prior periods
presented. Under the new requirements for calculating basic, or primary,
earnings per share, the dilutive effect of common stock equivalents will be
excluded. Currently, shares issuable under the Corporation's employee stock
option and other stock-based plans are excluded from the weighted average number
of shares used in the Corporation's computation of primary earnings per share on
the assumption that their effect is not dilutive. Consequently, adoption of FAS
128 will have no impact on the Corporation's computation of primary earnings per
share for the three and six months ended June 30, 1997 and 1996. The impact of
FAS 128 on the calculation of fully diluted earnings per share for these
quarters is not expected to be material.
In June 1997, the FASB issued the Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"), which is
required to be adopted for years beginning after December 15, 1997. Also during
June 1997, the FASB issued the Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). This pronouncement must also be adopted for years beginning after
December 15, 1997. The impact of both FAS 130 and FAS 131 on the Corporation's
financial reporting is not expected to be material.
OTHER MATTERS 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 17 of 24
18
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
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
March 31, 1997.
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 March 31, 1997.
Item 5. Other Information.
On May 21, 1997, the Corporation announced that it had purchased a limestone
quarry and six sand and gravel operations located in north central Iowa. The
combined annual capacity for these seven locations exceeds 1.2 million tons. The
terms of the transaction were not disclosed.
Item 6. Exhibits and Reports on Form 8-K .
(a) Exhibits
Exhibit
No. Document
--- --------
10.01 Stock Purchase Agreement, dated May 28, 1997, by and between Martin
Marietta Materials, Inc., and CSR America, Inc. (incorporated by
reference to Exhibit 2 to the Martin Marietta Materials, Inc. Current
Report on Form 8-K, dated May 28, 1997, filed with the Commission June
12, 1997).
10.02 Revolving Credit Agreement, dated May 27, 1997, among Martin Marietta
Materials, Inc., 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, dated May 28,
1997, filed with the Commission June 12, 1997).
11.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries
Computation of Earnings Per Share for the Quarter and Six Months Ended
June 30, 1997 and 1996
12.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries
Computation of Ratio of Earnings to Fixed Charges for the Six Months
ended June 30, 1997
27.01 Financial Data Schedule (for Securities and Exchange Commission use
only)
Page 18 of 24
19
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
PART II - OTHER INFORMATION
(Continued)
(b) Reports on Form 8-K filed in the second quarter of 1997.
Current Report on Form 8-K, dated May 28, 1997, filed with the
Commission on June 12, 1997.
Item 2. Acquisition or Disposition of Assets.
The Registrant filed information in connection with a Stock Purchase
Agreement by and between Martin Marietta Materials, Inc., and CSR
America, Inc., pursuant to which the Registrant acquired all of the
issued and outstanding shares of capital stock of American Aggregates
Corporation and certain other assets of CSR America, Inc.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements required by this item were not
included in this report and will be filed no later than 60
days from the date this report must have been filed.
(b) Pro Forma Financial Information.
The pro forma financial information required by this item were
not included in this report and will be filed no later than 60
days from the date this report must have been filed.
(c) Exhibits.
Exhibit
No. Document
--- --------
2 Stock Purchase Agreement, dated as of May 28, 1997,
by and between Martin Marietta Materials, Inc., and
CSR America, Inc. Note: The Registrant has not filed
the exhibits and schedules to the Stock Purchase
Agreement on the basis that these are not material
for the purposes of this filing; however, the
Registrant agrees to furnish such documents to the
Commission upon request.
99.1 Press Release, dated May 27, 1997.
99.2 Press Release, dated May 29, 1997.
99.3 Revolving Credit Agreement, dated as of May 27, 1997,
among Martin Marietta Materials, Inc., and Morgan
Guaranty Trust Company of New York, as Agent Bank.
Page 19 of 24
20
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
PART II - OTHER INFORMATION
(Continued)
(b) Reports on Form 8-K filed in the second quarter of 1997. (continued)
Current Report on Form 8-K/A, dated May 28, 1997, filed with the
Commission on August 4, 1997.
Item 5. Other Events.
The Registrant filed the audited financial statements for American
Aggregates Corporation and subsidiary ("American Aggregates") as of
March 31, 1997 and 1996 and for the two years then ended, and the
unaudited pro forma combined condensed financial statements and related
notes thereto, both of which are, in connection with the Registrant's
acquisition in May 1997 of all the issued and outstanding shares of
capital stock of American Aggregates and certain other assets of CSR
America, Inc. This information serves to provide the required financial
statements and pro forma financial information of the business acquired
amending the Current Report on Form 8-K, dated May 28, 1997, filed with
the Commission on June 12, 1997.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
American Aggregates Corporation and subsidiary
Financial Statements for the Years Ended March 31, 1997
and 1996 and Independent Auditors' Report
(b) Pro Forma Financial Information.
Unaudited Pro Forma Combined Condensed Financial Statements
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
(c) Exhibits.
Exhibits 23.0 Consent of Independent Auditors
Page 20 of 24
21
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
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: August 7, 1997 By: /s/ Janice K. Henry
-------------------------- --------------------------------
Janice K. Henry
Vice President, Chief Financial
Officer and Treasurer
Page 21 of 24
22
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1997
EXHIBIT INDEX
Exhibit No. Document Page
- ----------- -------- ----
10.01 Stock Purchase Agreement, dated May 28, 1997, by and between --
Martin Marietta Materials, Inc., and CSR America, Inc.
(incorporated by reference to Exhibit 2 to the Martin Marietta
Materials, Inc. Current Report on Form 8-K, dated May 28,
1997, filed with the Commission June 12, 1997).
10.02 Revolving Credit Agreement, dated May 27, 1997, among Martin --
Marietta Materials, Inc., 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, dated May 28, 1997, filed with the Commission June
12, 1997).
11.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries 23
Computation of Earnings Per Share for the Quarter and Six
Months Ended June 30, 1997 and 1996
12.01 Martin Marietta Materials, Inc. and Consolidated Subsidiaries 24
Computation of Ratio of Earnings to Fixed Charges for the Six
Months ended June 30, 1997
27.01 Financial Data Schedule (for Securities and Exchange --
Commission use only)
Page 22 of 24
1
Exhibit 11.01
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the Quarter and Six Months Ended June 30, 1997 and 1996
(Dollars in Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
Net earnings $ 30,369 $ 26,807 $ 39,276 $ 31,144
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 46,079,604 46,079,300 46,079,567 46,079,300
=========== =========== =========== ===========
Net earnings per common share $ 0.66 $ 0.58 $ 0.85 $ 0.68
=========== =========== =========== ===========
Page 23 of 24
1
Exhibit 12.01
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Six Months Ended June 30, 1997
(Dollars in Thousands)
EARNINGS:
Earnings before income taxes $ 60,620
(Earnings) losses of less than 50% owned associated companies, net (634)
Interest expense 5,765
Portions of rents representative of an interest factor 457
--------
Adjusted Earnings and Fixed Charges $ 66,208
========
FIXED CHARGES:
Interest expense $ 5,765
Capitalized Interest 349
Portion of rents representative of an interest factor 457
--------
Total Fixed Charges $ 6,571
========
RATIO OF EARNINGS TO FIXED CHARGES 10.08
========
Page 24 of 24
5
1,000
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
8,484
0
168,861
4,849
132,850
326,945
1,190,709
601,411
1,121,176
204,347
275,935
0
0
461
508,739
1,121,176
390,353
390,353
294,722
327,615
(5,546)
1,899
5,765
60,620
21,344
39,276
0
0
0
39,276
0.85
0.85
