ITEM 1. BUSINESS
GENERAL
Martin Marietta Materials, Inc. (the "Company") is the United States' second largest producer of aggregates for the construction industry, including highways, infrastructure, commercial and residential. The Company also manufactures and markets magnesia-based products, including heat-resistant refractory products for the steel industry, chemicals products for industrial, agricultural and environmental uses and dolomitic lime. In 1996, the Company's aggregates business accounted for 82% of the Company's total revenues and the Company's magnesia-based products segment accounted for 18% of the Company's total revenues.
The Company was formed in November 1993 as a North Carolina corporation to be the successor to substantially all of the assets and liabilities of the materials group of Martin Marietta Corporation and its subsidiaries. An initial public offering of a portion of the common stock, par value $.01, of the Company (the "Common Stock") was completed in February 1994 whereby 8,797,500 shares of Common Stock (representing approximately 19% of the shares outstanding) were sold at an initial public offering price of $23 per share. Lockheed Martin Corporation, which was formed as the result of a business combination between Martin Marietta Corporation and Lockheed Corporation in March 1995, owned approximately 81% of the Common Stock directly and through its wholly-owned subsidiary Martin Marietta Investments Inc. until October 1996.
In October 1996, the outstanding common stock of Martin Marietta Materials that was held by Lockheed Martin Corporation became available to the public market when Lockheed Martin disposed of its 81% ownership interest. This transaction was completed by means of a tax-free exchange offer pursuant to which Lockheed Martin stockholders were given the opportunity to exchange shares of Lockheed Martin common stock for shares of the Company's Common Stock, which resulted in 100% of the outstanding shares of Common Stock being publicly-traded.
On January 3, 1995, the Company purchased certain assets of Dravo Corporation relating to its construction aggregates business for a purchase price of approximately $121 million in cash, plus certain assumed liabilities and a provision of approximately $7 million to consummate the transaction and integrate the operations (the "Dravo Acquisition"). The acquired business has production and distribution facilities in nine states and the Bahamas. The Dravo Acquisition added more than 24 million tons of annual production capacity to the Company's operations. It also expanded the Company's method of conducting business by adding water distribution by ocean vessels and river barges, in addition to the use of truck and rail transportation. Further, the Dravo Acquisition expanded the Company's presence in nonconstruction aggregate markets, including the chemical, steel, cement, utility desulphurization, poultry feed and agricultural lime industries.
On January 30, 1997, the Company announced that it had signed a non-binding letter of intent with CSR America, Inc. to purchase the common stock of its wholly-owned subsidiary, American Aggregates Corporation, for approximately $235 million in cash plus certain assumed liabilities (excluding long-term indebtedness). The final purchase price will be subject to certain post-closing adjustments relating to
changes in working capital. The transaction, which is subject to negotiating the terms of a definitive stock purchase agreement, completing due diligence reviews and receiving governmental regulatory approvals, is expected to close during the second quarter of 1997. The acquisition, when consummated, will include the Ohio and Indiana operations of American Aggregates with more than 25 production facilities and will, in a single transaction, increase the Company's annual production capacity by more than 25 million tons -- in addition to adding over 1 billion tons of mineral reserves and 11,000 acres of property. Currently, American Aggregates is a leading supplier of aggregates products in Indianapolis, Cincinnati, Dayton and Columbus. If consummated, this acquisition would expand the Aggregates Division's business by adding operating facilities in the states of Indiana and Ohio and significant long-term mineral reserve capacity.
The Company announced in February 1997 that it entered into agreements giving the Company rights to commercialize two proprietary technologies related to the Company's business. One of the agreements gives the Company the opportunity to pursue the use of certain composites technology for products where corrosion resistance and strength-to-weight ratios are important factors, such as bridge decks, rail cars and other structures. The other technology relates to a patented microwave technology used in cleaning the inside of mixer drums on ready mixed concrete trucks. Both of these technologies, if fully developed by the Company, would complement and expand the Company's business in areas in which it has expertise.
BUSINESS SEGMENT INFORMATION
The Company operates in two principal business segments. These segments are aggregates products and magnesia-based products. Information concerning the Company's net sales, operating profit, assets employed and certain additional information attributable to each reportable industry segment for each year in the three-year period ended December 31, 1996 is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 26 through 35 and in "Note N: Segment Incorporation" of the "Notes to Financial Statements" on pages 24 and 25 of the Company's 1996 Annual Report to Shareholders (the "1996 Annual Report"), which information is incorporated herein by reference.
AGGREGATES
The Company's aggregates segment processes and sells granite, sandstone, limestone, shell and other aggregates products for use in all sectors of the public infrastructure, industrial, commercial and residential construction industries. The Company is the United States' second largest producer of aggregates. In 1996, the Company shipped approximately 101 million tons of aggregates to customers in 25 Southeastern, Midwestern and Central states and 5 foreign countries, generating net sales and earnings from operations of $591.3 million and $109.4 million, respectively. In 1996, approximately 88% of the aggregates shipped by the Company were crushed stone, primarily granite and limestone, and approximately 12% were sand and gravel. The Company has focused on the production of aggregates and has not integrated vertically into other construction materials businesses.
As a result of dependence upon the construction industry, the profitability of aggregates producers is sensitive to national and regional economic conditions, particularly to cyclical swings in construction spending, which is affected by fluctuations in interest rates, and changes in the level of infrastructure spending funded by the public sector. The Company's aggregates business is concentrated principally in the Southeast, Midwest and Central states. The addition of the Dravo operations opened extensive markets for the aggregates business along the Ohio and Mississippi River systems from Western Pennsylvania throughout the central and southern United States. The recently-acquired distribution centers along the Gulf
of Mexico and Atlantic coasts, as well as operating facilities in the Bahamas, have provided entry into those new markets for aggregates. The Gulf and Atlantic coastal areas are being supplied primarily from the Bahamas location, two large quarries on the Ohio River system and a Canadian quarry on the Strait of Canso in Nova Scotia, the assets related to which were purchased in October 1995 by the Company (the "Canadian Acquisition"). The Company's business is accordingly affected by the economies in these regions.
The Company's aggregates business is also highly seasonal, due primarily to the effect of weather conditions on construction activity within its markets. Accordingly, the Company's second and third quarters are generally the strongest, with the first quarter generally reflecting the weakest results.
Aggregates can be found in abundant quantities throughout the United States, and there are many producers nationwide. However, as a general rule, the size of the market area of an aggregates quarry is limited because the cost of transporting processed aggregates to customers is high in relation to the value of the product itself. As a result, proximity of quarry facilities to customers is the most important factor in competition for aggregates business and helps explain the highly fragmented nature of the aggregates industry. Access to water distribution as a result of certain acquisitions made by the Company, including the Dravo Acquisition and the Canadian Acquisition, enables the Company to extend its market reach in the coastal markets and areas immediately contiguous thereto.
Environmental and zoning regulations have made it increasingly difficult for the construction aggregates industry to expand existing quarries and to develop new quarry operations. Although it cannot be predicted what policies will be adopted in the future by federal, state and local governmental bodies regarding these matters, the Company anticipates that future restrictions will not have a materially adverse effect upon its business.
Management believes the Company's raw material reserves are sufficient to permit production at present operational levels for the foreseeable future. The Company does not anticipate any material difficulty in obtaining the raw materials that it uses for production in its aggregates segment.
The Company generally delivers products in its aggregates segment upon receipt of orders or requests from customers. Accordingly, there is no significant backlog information. Inventory of aggregates is generally maintained in sufficient quantities to meet rapid delivery requirements of customers.
MAGNESIA-BASED PRODUCTS
The Company also manufactures and markets dolomitic lime and magnesia-based products, including heat-resistant refractory products for the steel industry and magnesia-based chemicals products for industrial, agricultural and environmental uses, including wastewater treatment, sulphur dioxide scrubbing and acid neutralization. In 1996, the Company's Magnesia Specialties Division generated net sales of $130.7 million and earnings from operations of $11.3 million. Magnesia Specialties' refractory and dolomitic lime products are sold primarily to the steel industry, and such sales are affected by economic conditions in that industry.
As of March 10, 1997, the Company owns, or has the right to use, approximately 20 patents granted by various countries and approximately 70 trademarks related to its Magnesia Specialties business. The Company believes that its rights under its existing patents, patent applications and trademarks are of value to its operations, but no one patent or trademark or group of patents or trademarks is material to the conduct of the Company's business as a whole.
The principal raw materials used in the Company's magnesia-based products are lime, brine and imported magnesia. Management believes that its reserves of limestone to produce lime and its reserves of brine are sufficient to permit production at present operational levels for the foreseeable future. The supply of magnesia is abundant worldwide. In 1996, the Company purchased some of its magnesia requirements from various sources located in China. While the Company does not expect an interruption in the supply of magnesia from these sources, various factors associated with economic and political uncertainty in China could result in future supply interruptions. If such an interruption were to occur, the Company believes it could obtain alternate supplies worldwide, although there could be no assurance that the Company could do so at current prices. Alternatively, the Company believes it could adjust its mix of products and/or increase production capacity at its Manistee, Michigan operation.
The Company generally delivers its magnesia-based products upon receipt of orders or requests from customers. Accordingly, there is no significant backlog information. Inventory for magnesia-based products is generally maintained in sufficient quantities to meet rapid delivery requirements of customers. The Company has provided extended payment terms to certain international customers.
CUSTOMERS
No material part of the business of either segment of the Company is dependent upon a single customer or upon a few customers, the loss of any one of which would have a material adverse effect on the segment. The Company's products are sold principally to private industry. Although large amounts of construction materials are used in public works projects, relatively insignificant sales are made directly to federal, state, county or municipal governments, or agencies thereof.
COMPETITION
Because of the impact of transportation costs on the aggregates business, competition in each of the Company's aggregates markets tends to be limited to producers in proximity to the Company's production facilities. Although the Company experiences competition in all of its markets, it believes that it is generally a leading producer in the market areas it serves. Competition is based primarily on quarry location and price, but quality of aggregates and level of customer service are also factors.
The Company is the second largest producer of aggregates in the United States based on tons shipped. There are over 4,000 companies in the United States that produce aggregates. The largest producer accounts for less than 6% of the total market. The Company competes with a number of other large and small producers. The Company believes that its ability to transport materials by ocean vessels and river barges as a result of certain acquisitions made by the Company, including the Dravo Acquisition and the Canadian Acquisition, has enhanced the Company's ability to compete in certain extended market areas. Certain of the Company's competitors in the aggregates industry have greater financial resources than the Company.
The Magnesia Specialties Division of the Company competes with various companies in different geographic and product markets. The Company believes that the Magnesia Specialties Division is one of the largest suppliers of monolithic (unshaped) refractory products and dolomitic lime to the steel industry in the United States and one of the largest suppliers of magnesia-based chemicals products to various industries. The Company's largest competitor for monolithic refractory sales in the basic oxygen steel furnace market is Mineral Technologies, Inc., and its largest competitor for hydroxide slurry is The Dow Chemical Company.
The division competes principally on the basis of quality, price and technical support for its products. The Magnesia Specialties Division also competes for sales to customers located outside the United States with sales to such customers accounting for approximately $19.2 million in sales in 1996 (representing approximately 15% of total sales of the Company's magnesia-based segment) principally in Canada, Mexico, the United Kingdom, France and Korea. The Magnesia Specialties Division's sales to foreign customers were $16.0 million in 1995 and $12.9 million in 1994.
RESEARCH AND DEVELOPMENT
The Company conducts research and development activities for its magnesia-based products segment at its laboratory located near Baltimore, Maryland. In general, the Company's research and development efforts are directed to applied technological development for the use of its refractories and chemicals products. The Company spent approximately $1.9 million in 1996, $1.9 million in 1995 and $2.0 million in 1994 on research and development activities.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to and affected by federal, state and local laws and regulations relating to the environment, health and safety and other regulatory matters. Certain of the Company's operations may from time to time involve the use of substances that are classified as toxic or hazardous substances within the meaning of these laws and regulations. Environmental operating permits are, or may be, required for certain of the Company's operations and such permits are subject to modification, renewal and revocation. The Company regularly monitors and reviews its operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, risk of environmental liability is inherent in the operation of the Company's businesses, as it is with other companies engaged in similar businesses, and there can be no assurance that environmental liabilities will not have a material adverse effect on the Company in the future. In accordance with the Company's accounting policy for environmental costs, amounts are not accrued and included in the Company's financial statements until it is probable that a liability has been incurred and such amount can be estimated reasonably. Costs incurred by the Company in connection with environmental matters in the preceding two fiscal years were not material to the Company's operations or financial condition.
The Company believes that its operations and facilities, both owned or leased, are in substantial compliance with applicable laws and regulations and that any noncompliance is not likely to have a material adverse effect on the Company's operations or financial condition. See "Legal Proceedings" on page 10 of this Form 10-K and "Note M: Contingencies" of the "Notes to Financial Statements" on page 24 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 26 through 35 of the 1996 Annual Report. However, future events, such as changes in or modified interpretations of existing laws and regulations or enforcement policies, or further investigation or evaluation of the potential health hazards of certain products or business activities, may give rise to additional compliance and other costs that could have a material adverse effect on the Company.
In general, quarry sites must comply with noise, water discharge and dust suppression regulations, zoning and special use permitting requirements, applicable mining regulations and federal health and safety requirements. As new quarry sites are located and acquired, the Company works closely with local authorities during the zoning and permitting processes to design new quarries in such a way as to minimize disturbances. The Company frequently acquires large tracts of land so that quarry and production facilities
can be situated substantial distances from surrounding property owners. The Company maintains a centralized blasting function for all of its quarry operations, and develops blasting plans designed to minimize disturbances to surrounding property owners.
The Company is required by state laws to reclaim quarry sites after use. The Company generally reclaims its quarries on an ongoing basis, reclaiming mined-out areas of the quarry while continuing operations at other areas of the site. Historically, the Company has not incurred extraordinary or substantial costs in connection with the closing of quarries. Reclaimed quarry sites owned by the Company are available for sale, typically for commercial development.
As is the case with other companies in the same industries, some of the Company's products contain varying amounts of crystalline silica, a common mineral. Excessive, prolonged inhalation of very small-sized particles of crystalline silica has been associated with non-malignant lung disease. The carcinogenic potential of crystalline silica was evaluated by the International Agency for Research on Cancer and later by the U.S. National Toxicology Program. In 1987, the agency found limited evidence of carcinogenicity in humans but sufficient evidence of carcinogenicity in animals. The National Toxicology Program concluded in 1991 that crystalline silica is "reasonably anticipated to be a carcinogen." In October 1996, the International Agency for Research on Cancer issued another report stating that "inhaled crystalline silica in the form of quartz or cristobalite from occupational sources is carcinogenic to humans." The Company, through safety information sheets and other means, communicates what it believes to be appropriate warnings and cautions to employees and customers about the risks associated with excessive, prolonged inhalation of mineral dust in general and crystalline silica in particular. The Company has not been made a party to any litigation regarding crystalline silica.
At the Magnesia Specialties Division's Manistee, Michigan facility, the Company maintains a stockpile of off-specification magnesia and binder materials, and fine-particle product generated in processing magnesium oxide. These materials are used at the Manistee plant as a portion of the feed stock for producing lower magnesium level products. This stockpile of recyclable materials currently contains approximately 74,000 cubic yards of material and has been reduced over the past five years at a rate of approximately 3,000 to 6,000 cubic yards per year. In 1986, the EPA investigated the stockpile for possible designation under the Comprehensive Environmental Response Compensation and Liability Act (the "Superfund" statute), but has not taken any action since that date. In addition, the Michigan Department of Natural Resources is reviewing information submitted by the Company to determine whether the pile should be classified as "low hazard industrial waste." If the pile is so classified, the Company would be required to obtain an appropriate license for the continued storage of these recyclable materials, which might require pile modifications. Such modifications would require either the installation of a pad under the pile, the construction of a berm surrounding the pile, the installation of monitoring wells or a combination of the foregoing. Because of the limited expense of any such modifications, the Company believes that such modifications would not have a material adverse effect on the Company's operations or its financial condition.
As a result of the processing of dolomitic limestone at the Magnesia Specialties Division's Woodville, Ohio facility, lime kiln dust ("LKD") is produced as a by-product. The Ohio Environmental Protection Agency has promulgated regulations that apply to the disposal of LKD. The Company, along with other lime producers, is currently meeting with state regulators to clarify the applicability and scope of these regulations. Depending upon the result of these ongoing discussions, the Company may be required to
incur certain compliance costs. The Company believes that any such costs would not have a material adverse effect on the Company's operations or its financial condition.
The United States Environmental Protection Agency (the "EPA") in November 1996 proposed certain changes to the regulations relating to the standard for particulate matter in connection with air quality. The proposed changes would, among other things, regulate the emission of fine particles (smaller than 2.5 microns) in addition to the coarse particles currently regulated. If adopted, as proposed, the regulations would impact many industries, including the aggregates industry. Since the proposed changes are currently in preliminary form, it is not known what the applicability and scope of any final revisions to the regulations will be to the aggregates industry generally and thus to the Company. Since the Company cannot predict the final form of the regulations, the Company cannot provide assurances that there will not be a material adverse effect on the Company's financial position or on its results of operations.
EMPLOYEES
As of March 10, 1997, the Company has approximately 4,000 employees. Approximately 2,950 are hourly employees and approximately 1,050 are salaried employees. Included among these employees are approximately 800 hourly employees represented by labor unions. Approximately 17% of the Company's Aggregates Division's hourly employees are members of a labor union, while 95% of the Magnesia Specialties Division's hourly employees are represented by labor unions. The Company's principal union contracts cover employees at the Manistee, Michigan magnesia-based products plant and the Woodville, Ohio lime plant. The Manistee labor union contract expires in 1999. The Woodville labor union contract, which expired at the end of May 1996, was renegotiated and a new four-year agreement was reached without any disruption to normal operations. The Company considers its relations with its employees to be good.
ITEM 2.

ITEM 2. PROPERTIES
AGGREGATES
As of March 10, 1997, the Company processed or shipped aggregates from 211 quarries and distribution yards in 19 states in the Southeast, Midwest and Central United States and in Canada and the Bahamas, of which 69 are located on land owned by the Company free of major encumbrances, 53 are on land owned in part and leased in part, 82 are on leased land, and 7 are on facilities neither owned nor leased, where raw materials are removed under an agreement.
MAGNESIA-BASED PRODUCTS
The magnesia-based products division currently operates major manufacturing facilities in Manistee, Michigan and Woodville, Ohio, and smaller processing plants in River Rouge, Michigan, Bridgeport, Connecticut, Lenoir City, Tennessee and Pittsburgh, Pennsylvania. All of these facilities are owned in fee, except Pittsburgh and Lenoir City, which are leased. In addition, the Company has entered into several third-party toll-manufacturing agreements pursuant to which it processes Chinese magnesite, including a Louisiana facility on the Gulf of Mexico coast.
OTHER PROPERTIES
The Company's corporate headquarters, which it owns, is located in Raleigh, North Carolina. The Company leases administrative offices and a research and development laboratory for its Magnesia Specialties Division in Baltimore, Maryland.
The Company's principal properties, which are of varying ages and are of different construction types, are believed to be generally in good condition, are well maintained, and are generally suitable and adequate for the purposes for which they are used. The principal properties are believed to be utilized at average productive capacities of approximately 85% and are capable of supporting a higher level of market demand.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
From time to time claims are asserted against the Company arising out of its operations in the normal course of business. In the opinion of management of the Company (which opinion is based in part upon consideration of the opinion of counsel), it is unlikely that the outcome of litigation and other proceedings relating to the Company, including those relating to environmental matters and those described specifically below, will have a material adverse effect on the Company's operations or its financial condition; however, there can be no assurance that an adverse outcome in any of such litigation would not have a material adverse effect on the Company.
The Company is involved in litigation in the State District Court of Morris County, Texas, James Fowler, Jr. v. Union Carbide Corporation. This case was commenced on November 9, 1987 as separate claims for unspecified amounts of monetary damages (joined in one lawsuit) by approximately 3,000 plaintiffs against approximately 400 defendants. The case involves claims asserted by former employees of Lone Star Steel Company alleging injuries to their health suffered by exposure to the products supplied to Lone Star's facility in Morris County, Texas since 1947. It is the Company's understanding that the current and former defendants in the litigation constitute almost every supplier to the facility, regardless of the type of product supplied. The plaintiffs in this litigation have alleged that all defendants are jointly and severally liable for any recoverable damages. By making an allegation of joint and several liability, the plaintiffs claim that any defendant found to be liable should potentially be liable for damages caused by all defendants. The Company believes it has been made a party to the litigation because it supplied refractory products to the Lone Star facility and believes that exposure to its products did not lead to the injuries claimed by the plaintiffs.
See also "Note M: Contingencies" of the "Notes to Financial Statements" on page 24 of the 1996 Annual Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 26 through 35 of the 1996 Annual Report.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 1996.
FORWARD LOOKING STATEMENTS - SAFE HARBOR PROVISIONS
This Annual Report on Form 10-K contains statements which constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those arising out of economic, climactic, political, regulatory, competitive and other factors. The forward looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A and 21E. For a discussion identifying some important factors that could cause actual results to vary materially from those anticipated in the forward looking statements see the Corporation's Securities and Exchange Commission filings, including but not limited to, the discussion of "Competition" on page 6 of this Annual Report on Form 10-K, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 26 through 35 of the 1996 Annual Report and "Note A: Accounting Policies" and "Note M: Contingencies" of the "Notes to Financial Statements" on pages 15 through 16 and 24, respectively, of the Audited Consolidated Financial Statements included in the 1996 Annual Report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers of Martin Marietta Materials, Inc. as of March 10, 1997:
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There were approximately 1,820 holders of record of Martin Marietta Materials, Inc. common stock, $.01 par value, as of March 10, 1997. The Company's Common Stock is traded on the New York Stock Exchange (Symbol: MLM). Information concerning stock prices and dividends paid is included under the caption "Quarterly Performance (Unaudited)" on page 36 of the 1996 Annual Report, and that information is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information required in response to this Item 6 is included under the caption "Five Year Summary" on page 37 of the 1996 Annual Report, and that information is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required in response to this Item 7 is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 26 through 35 of the 1996 Annual Report, and that information is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this Item 8 is included under the caption "Statement of Earnings," "Balance Sheet," "Statement of Cash Flows," "Statement of Shareholders' Equity," "Notes to Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quarterly Performance (Unaudited)" on pages 11 through 36 of the 1996 Annual Report, and that information is incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required in response to this Item 10 is included under the captions "Election of Directors" and "Compliance With Section 16(a) of the Exchange Act" in the Company's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year ended December 31, 1996 (the "1997 Proxy Statement"), and that information is hereby incorporated by reference in this Form 10-K. Information concerning executive officers of the Company required in response to this Item 10 is included in Part I on page 12 of this Form 10-K.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this Item 11 is included under the captions "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation in Compensation Decisions" in the Company's 1997 Proxy Statement, and that information, except for the information required by Items 402(k) and (l) of Regulation S-K, is hereby incorporated by reference in this Form 10-K.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this Item 12 is included under the captions "Voting Securities and Record Date" and "Beneficial Ownership of Shares" in the Company's 1997 Proxy Statement, and that information is hereby incorporated by reference in this Form 10-K.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item 13 is included under the captions "Compensation Committee Interlocks and Insider Participation in Compensation Decisions," and "Certain Related Transactions" in the Company's 1997 Proxy Statement, and that information is hereby incorporated by reference in this Form 10-K.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) LIST OF FINANCIAL STATEMENTS FILED AS PART OF THIS FORM 10-K.
The following financial statements of Martin Marietta Materials, Inc. and consolidated subsidiaries, included in the 1996 Annual Report, are incorporated by reference into Item 8 on page 13 of this Form 10-K. Page numbers refer to the 1996 Annual Report:
(2) LIST OF FINANCIAL STATEMENT SCHEDULES FILED AS PART OF THIS FORM 10-K.
The following financial statement schedule of Martin Marietta Materials, Inc. and consolidated subsidiaries is included in Item 14(d). The page number refers to this Form 10-K.
Schedule II - Valuation and Qualifying Accounts....................20
All other schedules have been omitted because they are not applicable, not required, or the information has been otherwise supplied in the financial statements or notes to the financial statements.
The report of the Company's independent auditors with respect to the above-referenced financial statements appears on page 10 of the 1996 Annual Report, and that report is hereby incorporated by reference in this Form 10-K. The report on the financial statement schedule and the consent of the Company's independent auditors appear on page 30 of this Form 10-K.
The report of the Dravo Basic Materials Company, Inc. and subsidiaries' independent auditors with respect to the Dravo Basic Materials Company, Inc. and subsidiaries' financial statements as of
December 29, 1994 and for the period from January 1, 1994 through December 29, 1994, which independent auditors' report is hereby incorporated by reference in this Form 10-K. The consent of the Dravo Basic Materials Company, Inc. and subsidiaries' independent auditors appears on page 31 of this Form 10-K.
(3) EXHIBITS
The list of Exhibits on the accompanying Index of Exhibits on pages 17 through 19 of this Form 10-K is hereby incorporated by reference. Each management contract or compensatory plan or arrangement required to be filed as an exhibit is indicated by an asterisk.
(b) REPORTS ON FORM 8-K
On October 25, 1996, the Company filed a Current Report on Form 8-K in connection with the following events:
(1) Adoption of a shareholder rights plan. (2) On October 15, 1996, the Company declared a dividend distribution of one Right for each outstanding share of the Company'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 Company 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 Company, 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 Company and First Union National Bank of North Carolina, as Rights Agent. On October 21, 1996, the Company 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 Company. 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. (3) Completion of split-off of the Company by Lockheed Martin Corporation. (4) On October 21, 1996, Lockheed Martin Corporation and the Company jointly announced the successful completion of the split-off of the Company from Lockheed Martin Corporation. (5) Effectiveness of anti-takeover amendments to charter and bylaws. (6) Effective on October 21, 1996, various amendments to the articles of incorporation and bylaws of the Company that were approved at the Special Meeting of Shareholders held on September 27, 1996, became effective. (7) Release of third quarter earnings results. (8) On October 21, 1996, the Company issued a press release announcing financial results for the third quarter and nine months ended September 30, 1996.
(c) INDEX OF EXHIBITS
- -------------------- *Filed herewith
- ------------------ *Filed herewith **Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K
Other material incorporated by reference: Martin Marietta Materials, Inc.'s 1997 Proxy Statement filed pursuant to Regulation 14A, portions of which are incorporated by reference in this Form 10-K. Those portions of the 1997 Proxy Statement which are not incorporated by reference shall not be deemed to be "filed" as part of this report.
- ------------------ *Filed herewith
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
(a) To adjust allowance for change in estimates. (b) Uncollectible accounts written off, net of recoveries. (c) Inventory revaluation adjustments. (d) Fully-amortized intangible assets written off. (e) Purchase accounting adjustments.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MARTIN MARIETTA MATERIALS, INC.
By: /s/ Bruce A. Deerson -------------------------- Bruce A. Deerson Vice President, Secretary and General Counsel
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below appoints Bruce A. Deerson and Roselyn R. Bar, jointly and severally, as his true and lawful attorney-in-fact, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, jointly and severally, full power and authority to do and perform each in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, jointly and severally, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: March 13, 1997
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/Marcus C. Bennett Chairman of the Board March 13, 1997 - ---------------------------- Marcus C. Bennett
/s/Stephen P. Zelnak, Jr. Vice Chairman of the Board, March 13, 1997 - ---------------------------- President and Chief Executive Stephen P. Zelnak, Jr. Officer
/s/Janice K. Henry Vice President, Chief March 13, 1997 - ---------------------------- Financial Officer and Janice K. Henry Treasurer
/s/Edward D. Miles Vice President, Controller March 13, 1997 - ---------------------------- and Chief Accounting Officer Edward D. Miles
/s/Richard G. Adamson Director March 13, 1997 - ---------------------------- Richard G. Adamson
/s/Bobby F. Leonard Director March 13, 1997 - ---------------------------- Bobby F. Leonard
/s/William E. McDonald Director March 13, 1997 - ---------------------------- William E. McDonald
/s/Frank H. Menaker, Jr. Director March 13, 1997 - ---------------------------- Frank H. Menaker, Jr.
/s/James M. Reed Director March 13, 1997 - ---------------------------- James M. Reed
/s/William B. Sansom Director March 13, 1997 - ---------------------------------------- William B. Sansom
/s/Richard A. Vinroot Director March 13, 1997 - ---------------------------------------- Richard A. Vinroot
EXHIBITS
- -------------------- *Filed herewith
- ------------------ *Filed herewith **Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K
Other material incorporated by reference: Martin Marietta Materials, Inc.'s 1997 Proxy Statement filed pursuant to Regulation 14A, portions of which are incorporated by reference in this Form 10-K. Those portions of the 1997 Proxy Statement which are not incorporated by reference shall not be deemed to be "filed" as part of this report.
- ------------------ *Filed herewith


Item 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS. Kiewit Royalty Trust (hereinafter referred to as the "Trust") is a trust organized under the laws of the State of Nebraska. The Trust was created under a Trust Indenture dated May 17, 1982, which subsequently was amended as of June 9, 1982, June 23, 1982, and by a court order dated September 23, 1994. A copy of the Trust Indenture is attached to the Form 10 filed by the Trust on December 23, 1982, and is incorporated herein by reference. A copy of the Order of the County Court of Douglas County, Nebraska, dated September 23, 1994, amending the Trust Indenture is attached to the Form 10-Q filed by the Trust on November 14, 1994, and is incorporated herein by reference.
The Trust was created by Peter Kiewit Sons', Inc., a Delaware corporation (hereinafter referred to as "Kiewit"). It was organized to provide an efficient, orderly and practical means for the administration of income received from certain royalty and overriding royalty interests */ in certain coal leases. The royalty and overriding royalty interests that the Trust owns were conveyed to the Trust by Kiewit effective June 28, 1982, pursuant to conveyance documents that gave the Trust legal title to the property interests conveyed. Ownership interests in the Trust are represented by 12,633,432 units of beneficial interest (hereinafter referred to as "Units"). On June 23, 1982, the Units were distributed pro rata to holders of Kiewit's Class B and Class C common stock, as of June 10, 1982, who were citizens of the United States.
The Trust has no active plan of business operation and is a purely ministerial trust. The Trust Indenture currently provides that all available income, after paying or making provisions for liabilities and obligations, is
- -----------------------------------
*/ When the owner of mineral rights executes a lease entitling the lessee to develop, mine, and sell the minerals, the lessee takes an "operating interest" and the owner may retain a "royalty interest." A royalty interest is a right to receive a specified amount per ton or a specified portion of the value of the total production of the property, free of the expense of development and operation. An "overriding royalty interest," which is similar to a royalty interest, is sometimes retained by the lessee of the mineral rights upon the lessee's assignment of the lease. Payment of an overriding royalty is generally subject to payment of the royalty.
to be distributed to holders of Units (hereinafter referred to as "Unit Holders") during the months of January, April, July, and October of each year. The trustee of the Trust is First Bank, National Association ("Trustee"), Omaha, Nebraska, which is a wholly owned subsidiary of First Bank System, Inc., a registered bank holding company.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Trust receives its income from only one industry segment. Financial information for that industry segment appears in Item 8, below.
(c) NARRATIVE DESCRIPTION OF BUSINESS. The Trust owns three (3) royalty interests and sixteen (16) overriding royalty interests relating to leases in four coal mining areas in Montana and Wyoming. The royalty and overriding royalty interests transferred to the Trust previously had been owned by various wholly owned Kiewit subsidiaries, and by Montana Royalty Company, Ltd., a partnership among three wholly owned Kiewit subsidiaries and Resource Development Co., Inc., a Washington state corporation.
The Trust is administered by officers and employees of the Trustee, but there are no specific persons employed by the Trustee having the full-time duty of administering the Trust. Under the Trust Indenture, the basic function of the Trustee is to collect income from the Trust's properties, to pay out of the Trust's income and assets all expenses, charges, and obligations, and to pay remaining cash to Unit Holders on a quarterly basis. The Trustee also is obligated to make annual financial reports to Unit Holders, to file all fiduciary income tax returns, and to prepare, execute, and deliver certificates of beneficial interest to the Unit Holders. The Trustee is obligated, subject to the terms of the Trust Indenture, to use its best judgment in good faith in all matters relating to the Trust and Trust properties.
The Trustee is authorized and required to use the money it receives to pay all liabilities of the Trust, including but not limited to all services as Trustee, and the compensation of geologists, engineers, accountants, attorneys, or the professional expert persons that the Trustee
may, in its discretion, employ in the administration of the Trust. With respect to any liability that is contingent or uncertain in amount or that otherwise is not currently due, the Trustee has the discretion to establish cash reserves for the payment thereof.
All available net income of the Trust will be distributed pro rata on a quarterly basis to Unit Holders. During any period between distributions to Unit Holders, the Trustee may invest any cash being held as a reserve for liabilities or for distribution in (i) time deposits of the Trustee Bank; (ii) any open-ended management type investment company or investment trust registered pursuant to the Investment Company Act of 1940 (provided that such investment matures on or before the next succeeding distribution date and is held until maturity); or (iii) trust-quality fixed net asset money market funds that have total assets of $100,000,000 or more and consist solely of direct obligations of the U.S. Government and/or next-business day repurchase agreements fully collateralized by direct obligations of the U.S. Government.
The Trust Indenture grants to the Trustee only such rights and powers as are necessary to achieve the purposes of the Trust. The Trust Indenture prohibits the Trustee from entering into or engaging in any business or commercial activity of any kind or from using any portion of the assets of the Trust to acquire any coal lease, royalty, or mineral interest. The Trustee may sell Trust properties only as authorized by a vote of a majority-in-interest of Unit Holders, except that the Trustee may sell Trust properties upon the termination of the Trust without a vote of Unit Holders. Any sale of Trust properties must be for cash, and the Trustee is obligated to distribute the available net proceeds of any such sale pro rata to Unit Holders.
The Trust is irrevocable, but it may be terminated by (i) three successive fiscal years in which net revenue is less than $1,000,000 per year; (ii) a vote in favor of termination by a majority-in-interest of Unit Holders; or (iii) operation of the provisions of the Trust Indenture intended to permit the Trust to comply with the rule against perpetuities. Upon the termination
of the Trust, the Trustee will continue to act in such capacity until all assets of the Trust are distributed. The Trustee will sell all Trust properties for cash in one or more sales and, after satisfying all expenses, claims and liabilities and establishing adequate reserves, if necessary, for the payment of contingent liabilities, will distribute the remaining proceeds of such sales according to the respective interests and rights of Unit Holders.
(d) FINANCIAL INFORMATION ABOUT OPERATIONS. During 1996, the Trust received net royalty income of $5,764,334 for distribution to Unit Holders. See Item 8, below.
Item 2.

Item 2. PROPERTIES.
The Trust's properties consist of royalty and overriding royalty interests in nineteen (19) coal leases in four mining areas located in the States of Wyoming and Montana. All of these royalty and overriding royalty interests were transferred to the Trust, as described in Item 1, above, by Kiewit and are subject to the provisions of the coal lease agreements under which they were created.
The royalty and overriding royalty interests transferred to the Trust provide for the payment of either a specified amount per ton of coal produced, or a fixed percentage of the value or price with respect to the coal produced under the leases relating to these interests. The terms of these royalty and overriding royalty interests vary considerably, as does the acreage covered by the underlying coal leases, the total recoverable reserves on such leases, and the recoverable reserves to be mined under current contracts.
The remaining periods of the underlying coal leases as of December 31, 1996, including optional renewal periods, are such that, given the productive capacity of the mines that are the subjects of the leases, the full estimated total recoverable reserves could be extracted. However, it does not appear likely that the estimated total recoverable reserves will in fact be extracted. See "Properties -- Producing Leases -- Revised Production Estimates" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," below. Failure to extract the total recoverable reserves or failure to sell any portion of the coal extracted could adversely affect the royalties payable to the Trust.
The following chart sets forth the actual total amount of coal production (including production under leases in which the Trust has no royalty or overriding royalty interests) of the four mines to which the coal leases pertain:
Set forth below is a summary by mine area of pertinent information as of December 31, 1996, about each of the producing leases in which the Trust has either royalty or overriding royalty interests.
(a) PRODUCING LEASES.
(i) DECKER MINE. Decker Coal Company ("Decker") operates this mine, which is located in Big Horn County, Montana, approximately 20 miles north of Sheridan, Wyoming. Decker is a joint venture between Kiewit Coal Properties Inc. (a wholly owned subsidiary of Kiewit and formerly named Kiewit Mining Group Inc.) and Western Minerals, Inc. (a wholly owned subsidiary of NERCO, Inc.). Each joint venturer owns a fifty percent (50%) interest in the joint venture. The Decker Mine in its entirety includes approximately 17,838 acres and has an annual productive capacity of 16,000,000 tons.
The Trust owns overriding royalty interests in six (6) productive leases at the Decker Mine. The terms of the Trust's overriding royalty interests and the estimated total recoverable reserves of each lease are set
forth in the table below, of which the accompanying notes are an integral part:
(ii) BLACK BUTTE MINE. Black Butte Coal Company ("Black Butte") operates this mine in Sweetwater County, approximately 35 miles east of Rock Springs, Wyoming. Black Butte is a joint venture between Kiewit Coal Properties Inc. and Bitter Creek Coal Company (a wholly owned subsidiary of Union Pacific Corporation). The Black Butte Mine in its entirety includes approximately 50,220 acres and has an annual productive capacity of 6,000,000 tons.
The Trust owns overriding royalty interests in two (2) productive leases at the Black Butte Mine. The terms of the Trust's overriding royalty interests and the estimated total recoverable reserves of each lease are set forth in the table below, of which the accompanying note is an integral part:
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*/ The Trust has an undivided one-half interest in a second overriding royalty pertaining to this lease. By the terms of the assignment by which it was created, this second overriding royalty, when added to all other overriding royalties pertaining to the lease, may not exceed fifty percent (50%) of the royalty payable to the lessor under the lease.
**/ This Lease was renewed effective November 13, 1993 and was assigned a new lease number of C-1085-93.
***/ The Trust has an undivided one-half interest in a second overriding royalty pertaining to this lease. By the terms of the assignment by which it was created, this second overriding royalty, when added to the underlying royalty pertaining to the lease, will be equal to the highest cumulative royalties being paid in the States of Montana or Wyoming.
****/ This Lease was renewed effective April 14, 1995 and was assigned a new lease number of C-1087-95.
*****/ This Lease was renewed effective June 2, 1996 and was assigned a new lease number of C-1090-96.
The Trust's overriding royalty from lease number W-6266 is further limited to the difference between a specified amount per ton and the royalty per ton payable to the lessor.*/
(iii) BIG HORN MINE. Big Horn Coal Company ("Big Horn") has operated this mine, which is located approximately 5 miles north of Sheridan, Wyoming, in Sheridan County. Big Horn is a wholly owned subsidiary of Kiewit Coal Properties Inc. The Big Horn Mine in its entirety includes approximately 4,890 acres and has an annual productive capacity of 3,000,000 tons. The Trust owns royalty interests in three (3) productive leases at the Big Horn Mine.
The terms of the Trust's royalty interests and the estimated total recoverable reserves of each lease are set forth in the table below, of which the accompanying notes are an integral part:
- ----------------------------
*/ Total remaining reserves on lease W-6266 are 25,154,000 tons. However, due to a renegotiation provision regarding the royalty payable under the lease and the cap on the amount of the overriding royalty, the Trust no longer receives an overriding royalty on coal produced after March 31, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Trustee understands that Kiewit anticipates minimal production from the Big Horn Mine in 1997 (and in future years) as a result of the expiration of the primary coal sales contract at the end of 1988. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," below.
(iv) SPRING CREEK MINE. Spring Creek Coal Company ("Spring Creek") operates this mine, which is located in Big Horn County, Montana, approximately 25 miles north of Sheridan, Wyoming. Spring Creek is a subsidiary of NERCO, Inc. The Spring Creek Mine in its entirety includes approximately 2,560 acres and has an annual productive capacity of 10,000,000 tons.
The Trust owns an overriding royalty interest in one productive lease at the Spring Creek Mine. The terms of the overriding royalty interest and the estimated total recoverable reserves of the lease are set out below:
- -------------------------
*/ Peter Kiewit Sons' Co. is a wholly owned subsidiary of PKS Information Services, Inc., which in turn is a wholly owned subsidiary of Kiewit Diversified Group Inc., which in turn is a wholly owned subsidiary of Kiewit.
**/ By the terms of the assignment by which it was created, the royalty payable for this lease is 10% of the average gross sales price per ton or, if greater, the highest royalty payable to the U.S. government for similar quality coal mined in the State of Wyoming.
(v) REVISED PRODUCTION ESTIMATES. The numbers set forth in the charts above in the column entitled "Estimated Total Recoverable Reserves" reflect estimates made at the time of the formation of the Trust in 1982, reduced to reflect the amount of coal actually extracted from the relevant leases. As a result, certain of these numbers do not reflect current conditions in the coal market. In light of recent reductions in the amounts of coal purchased under existing coal contracts (based both upon elections by customers to take the minimum quantities of coal permitted under the terms of such agreements and upon amendments of such agreements) and current conditions in the coal market, the amount of coal expected to be produced from such leases has been significantly reduced. As of December 31, 1996, the Trustee understands that the amounts of coal expected to be recovered from the relevant leases were as follows:
(b) NON-PRODUCING LEASES. In addition to its interests in these productive leases, the Trust has overriding royalty interests in three (3) leases, containing 27,800,000 tons of total estimated recoverable coal reserves from which no production is currently contemplated and in four (4)
- ---------------------------
*/ Under the terms of the lease, if the production royalty payable to the United States is increased, then the overriding royalty will be recomputed to equal 10.75% of such production royalty.
leases, containing approximately 19,300,000 tons of coal, which are considered to be not minable because of access, alluvial valley, or other problems.
Item 3.

Item 3. LEGAL PROCEEDINGS.
None.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
Item 5.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. There is no established public trading market for the Units. The Units have not been registered under the Securities Act of 1933 ("1933 Act"), nor have they been registered under the securities laws of any state. Accordingly, resales of the Units are subject to certain restrictions on transferability.
Under the 1933 Act, the Units should be treated as "restricted securities." As such, resales of the Units are subject to certain restrictions on transferability under the federal securities laws. Unit Holders should consult with their own counsel regarding their ability to sell their Units. However, under the Securities and Exchange Commission's Rule 144, a Unit Holder who is not an "affiliate" */ of the Trust and has held his or her Units since the creation of the Trust should be able to sell such Units without restriction. Any Unit Holder who has acquired his or her Units since the creation of the Trust should likewise be able to sell such Units without restriction so long as at least three years have elapsed since such Units were owned by any affiliate of the Trust. In this regard, it should also be noted that sales of the Units might be made without compliance with Rule 144 pursuant to the less definite standards of the so-called Section 4(1-1/2) exemption from the registration requirements of the 1933 Act.
- ------------------------------------
*/ Under Rule 144(a)(i), an "affiliate" of the Trust would be any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Trust.
None of the Units is subject to outstanding options or warrants to purchase, and no securities are convertible into Units. Under the terms of the Trust Indenture, the Trust may not issue additional Units.
(b) HOLDERS. The Units are the only class of security issued by the Trust. The table below sets forth the approximate number of Unit Holders of record on December 31, 1996:
(c) DIVIDENDS. The Trust pays no dividends since it is not a corporation. Within ten (10) business days after the end of each calendar quarter, however, the Trustee will distribute the Quarterly Distribution Amount (as defined below) for the three preceding months, together with any undistributed interest earned on each such amount to the payment date. This distribution is made pro rata to Unit Holders of record on the last business day for each such quarter (the "Quarterly Record Date").
The Quarterly Distribution Amount distributed to each Unit Holder is the excess, if any, of (i) the cash received during such quarter that is attributable to the royalties and overriding royalties held by the Trust, plus any decrease in any cash reserve theretofore established by the Trustee for the payment of liabilities of the Trust, plus any other cash receipts of the Trust during such quarter other than interest earned on the Quarterly Distribution Amount for any other quarter that is earned before the actual distribution for the fiscal quarter that includes that other quarter, over (ii) the liabilities of the Trust paid during such quarter plus the amount of any cash reserve established or increased by the Trustee for the payment of any future or contingent liabilities of the Trust.
The table below shows the aggregate Quarterly Distribution Amounts (including interest) for each quarter during 1996 and 1995 and shows the date on which such amounts were distributed:
Item 6.

Item 6. SELECTED FINANCIAL DATA.
The table below sets forth selected financial data, drawn from the Trust's audited financial statements, for each of the last five years.
- ----------------------------
*/ This figure represents $80,538 paid by Black Butte to the Trust during thefourth quarter of 1993 but reserved by the Trustee, plus accrued interest thereon in the amount of $117 as of December 31, 1993.
Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Distributable income (the total amount of net royalty and overriding royalty payments received from the various mines, increased by the amount of interest earned and any other amounts received by the Trust and decreased by the amount of Trust expenses) for 1996 was $5,780,326 compared to $7,534,101 for 1995.
The following schedule reflects the royalty and overriding royalty payments received by the Trust in respect of leases at the following mines:
(a) DECKER MINE. The amount of royalties and overriding royalties received by the Trust with respect to the Decker Mine decreased to $4,707,364 in 1996 from $5,783,247 in 1995. This decrease was due to a change in the relative amounts of coal mined under leases bearing high and low overriding royalty rates per ton, which was a normal result of the execution of a mining plan encompassing several coal leases bearing different royalty rates.
(b) BLACK BUTTE MINE. Royalties received by the Trust from the Black Butte Mine decreased to $153,352 in 1996 from $655,834 in 1995. This decrease is the result of decreased sales from the Black Butte Mine as well as the fact that Federal Lease W-6266 was renewed effective April 1, 1996 and the Trust no longer receives an overriding royalty on coal produced after March 31, 1996 as explained below.
Lease number W-6266 provides that the terms and conditions of the lease are subject to "reasonable readjustment" effective on April 1, 1996. At that time, the royalty rate payable to the United States will be increased to 12- 1/2%, which is the currently prevailing federal royalty rate. Because of the
cap on the amount of the overriding royalty payable to the Trust with respect to this lease, the increased royalty rate will effectively eliminate further payments to the Trust with respect to that lease.
(c) SPRING CREEK MINE. Royalties received from the Spring Creek Mine decreased to $879,192 during 1996 from $913,096 in 1995. This decrease reflects decreased production under the applicable leases.
(d) BIG HORN MINE. Royalties received from the Big Horn Mine decreased to $24,426 during 1996 from $130,206 in 1995. The decrease reflects decreased production under the applicable leases.
(e) TRUST EXPENSES. Trust expenses increased to $49,637 in 1996 from $47,023 in 1995.
Item 8.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) FINANCIAL STATEMENTS. The following documents are filed as part of the Trust's financial statements for the period from January 1, 1996 to December 31, 1996:
(1) Report of Independent Accountants
(2) Statements of Assets, Liabilities and Trust Corpus
(3) Statements of Distributable Income and Statements of Changes in Trust Corpus
(4) Notes to Financial Statements
KIEWIT ROYALTY TRUST
--------
FINANCIAL STATEMENTS as of December 31, 1996 and 1995 and for the three years ended December 31, 1996
COOPERS & LYBRAND L.L.P. a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
The Trustee and Unit Holders Kiewit Royalty Trust
We have audited the accompanying statements of assets, liabilities and trust corpus of Kiewit Royalty Trust as of December 31, 1996 and 1995, and the related statements of distributable income and changes in trust corpus for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Trustee. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Trustee, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, the financial statements have been prepared on the basis of accounting which differs in some respects from generally accepted accounting principles. Accordingly, the accompanying financial statements are not intended to present financial position and results of operations of Kiewit Royalty Trust in conformity with generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and trust corpus of Kiewit Royalty Trust as of December 31, 1996 and 1995, and the distributable income and changes in trust corpus for each of the three years in the period ended December 31, 1996, in conformity with the basis of accounting described in Note 1 to the financial statements.
/s/ Coopers & Lybrand L.L.P.
Omaha, Nebraska March 26, 1997
KIEWIT ROYALTY TRUST STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS December 31, 1996 and 1995
--------
The accompanying notes are an integral part of the financial statements.
KIEWIT ROYALTY TRUST STATEMENTS OF DISTRIBUTABLE INCOME for the three years ended December 31, 1996 -------
STATEMENTS OF CHANGES IN TRUST CORPUS for the three years ended December 31, 1996 -------
The accompanying notes are an integral part of the financial statements.
KIEWIT ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS
--------
1. Summary of Significant Accounting Policies and Basis of Accounting:
(a) Basis of Accounting:
The financial statements of the Kiewit Royalty Trust (the Trust) are prepared on the following basis:
(1) The royalty income recorded for a month is the amount received from the lease holder for such month.
(2) Trust administration expenses are recorded in the month they accrue.
This basis for reporting royalty income is thought to be the most meaningful because distributions to unit holders for a month are based on net cash receipts for such month. However, these statements differ from financial statements prepared in accordance with generally accepted accounting principles because under such principles royalty income for a month would be based on production for such month, without regard to when royalty payments are received. In addition, amortization of the net royalty and overriding royalty interests, which is calculated on a units-of-production basis on a lease, is charged directly to trust corpus since such amount does not affect distributable income.
(b) Cash Equivalents:
Cash equivalents consist of money market funds, which are recorded at cost plus interest.
2. Trust Organization and Provisions:
The Kiewit Royalty Trust was established on May 17, 1982. On June 28, 1982, Peter Kiewit Sons', Inc. (Kiewit) conveyed to the Trust royalty and overriding royalty interests owned by Kiewit's subsidiaries in certain coal properties in Montana and Wyoming.
Units of beneficial interest (Units) in the Trust were distributed on June 23, 1982 to Kiewit's Class B and Class C shareholders of record as of June 10, 1982 who were citizens of the United States. These shareholders received one Unit in the Trust for each share of Kiewit stock held.
KIEWIT ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS, CONTINUED
-------
2. Trust Organization and Provisions, Continued:
FirsTier Bank, N.A., Omaha was Trustee for the Trust through February 15, 1996. On February 16, 1996, FirsTier Bank merged with First Bank, National Association, who is now the Trustee for the Trust. The terms of the trust indenture provide, among other things, that:
(a) the Trust shall not engage in any business or investment activity of any kind or acquire any assets other than those initially conveyed to the Trust;
(b) the Trustee may not sell all or any part of the royalty interests unless approved by a majority of Units outstanding, in which case the sale must be for cash and the proceeds promptly distributed;
(c) the Trustee may establish a cash reserve for the payment of any liability which is contingent or uncertain in amount;
(d) the Trustee will make cash distributions to the unit holders in January, April, July and October of each year as discussed in Note 4; and
(e) in September 1994, the Trust Indenture was amended to authorize the Trustee to invest funds in government obligations, government-secured obligations and funds registered pursuant to the Investment Company Act of 1940.
3. Royalty and Overriding Royalty Interests:
The cash received by the Trustee from the royalty interest will consist of a specified amount per ton or a specified fraction of the value of the total production of the property, free of the expense of development and operation.
The initial carrying value of the royalty interests of $167,817 represents Kiewit's historical net book value at the date of the transfer to the Trust.
4. Distributions to Unit Holders:
The amounts to be distributed to unit holders (Quarterly Distribution Amount) are determined on a quarterly basis. The Quarterly Distribution Amount is the excess of (i) the cash received during the quarter which is attributable to royalties, plus any decrease in cash reserves, plus any other cash receipts of the Trust during the quarter over (ii) the liabilities of the Trust paid during the quarter, plus any increase in cash reserves. The Quarterly Distribution Amount is payable to unit holders of record as of the last business day of each quarter. The cash distributions are made quarterly within the first 10 business days of January, April, July and October.
KIEWIT ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS, CONTINUED
-------
5. Income Taxes:
Provision for federal and state income taxes has not been made in the financial statements since, in the opinion of legal counsel, the Trust should be treated as a "grantor trust" which is not a taxable entity.
6. Summary of Quarterly Financial Data (Unaudited):
The following is a summary of the unaudited quarterly financial information:
7. Other Matters:
Black Butte Coal Company had been involved in a dispute with the Minerals Management Service ("MMS") of the U.S. Department of the Interior concerning the calculation of royalties on a Federal lease. Because of an overall limitation on the overriding royalty payable to the Trust from this lease, any additional amounts owed to MMS would have decreased the overriding royalties to which the Trust was entitled. An escrow account was established pending the resolution of the dispute with MMS and the disputed amounts were deposited into escrow. Upon resolution of the dispute, the escrow agent distributed the funds held in escrow, with interest, during the fourth quarter of 1994 and the escrow account was terminated.
(b) SUPPLEMENTARY DATA. Not applicable.
Item 9.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
Item 10.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Trust was created as a trust under the laws of the State of Nebraska and its Indenture does not provide for the election of directors or officers. First Bank, National Association serves as Trustee. See Item 1, above.
Item 11.

Item 11. EXECUTIVE COMPENSATION.
As stated in Item 10, above, the Trust has no directors and no officers. During 1996, the Trust incurred $49,637 of administration expenses.
Item 12.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets forth the persons who, as of December 31, 1996, were known by the Trust to be beneficial owners of more than five percent of the
Units:
(b) SECURITY OWNERSHIP OF MANAGEMENT. There are no executive officers or directors of the Trust. See Item 10, above. As of December 31, 1996, First Bank, National Association, Trustee, did not beneficially own any Units in the Trust.
(c) CHANGES IN CONTROL. As of December 31, 1996, the Trust had no knowledge of any arrangements, the operation of which could, at a subsequent date, result in a change of control of the Trust.
Item 13.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS. As stated in Item 10, above, the Trust has no directors and no officers. During 1996, there were no transactions to which the Trust was a party and in which any persons known to the Trust to be the beneficial owners of more than five percent of the Units had a direct or indirect material interest.
(b) CERTAIN BUSINESS RELATIONSHIPS. There are no directors or nominees for director of the Trust. See Item 10, above.
(c) INDEBTEDNESS OF MANAGEMENT. As stated in Item 10, above, the Trust has no directors and no officers.
(d) TRANSACTIONS WITH PROMOTERS. Not applicable.
Item 14.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS. See Item 8, above.
(2) FINANCIAL STATEMENT SCHEDULES. See Item 8, above, and Item 14(d), below.
(3) EXHIBITS. See Item 14(c), below.
(b) REPORTS ON FORM 8-K. The Trust did not file any reports on Form 8-K during the quarter ended December 31, 1996.
(c) EXHIBITS.
4.1 Kiewit Royalty Trust Indenture dated May 17, 1982, as amended June 9, 1982, and June 23, 1982 (filed as Exhibit 1 to the Trust's Form 10 filed with the Securities and Exchange Commission on December 23, 1982, and incorporated herein by reference).
4.2 Order dated September 23, 1994, of the County Court of Douglas County, Nebraska (filed as Exhibit 2 to the Trust's Form 10-Q filed with the Securities and Exchange Commission on November 14, 1994, and incorporated herein by reference).
27.1 Financial Data Schedule.
99.1 Location Map of Coal Properties (filed as Exhibit 2 to the Trust's Form 10-K filed with the Securities and Exchange Commission on March 31, 1985, and incorporated herein by reference).
(d) SEPARATE FINANCIAL STATEMENTS AND SCHEDULES. Not applicable.
S I G N A T U R E S
Pursuant to the requirements of Section 13 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.
KIEWIT ROYALTY TRUST (Registrant) By: First Bank, National Association in its capacity as Trustee and not in its individual capacity or otherwise
By: /s/ Susan K. Rosburg --------------------------- Susan K. Rosburg Trust Officer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Capacity Date ---- -------- ---- First Bank, National Association Trustee March 26, 1997
By: /s/ Susan K. Rosburg -------------------------- Susan K. Rosburg Trust Officer
EXHIBIT INDEX
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*/ Appears at sequentially numbered page 35 in the Trust's Form 10, as amended.
**/ Appears at sequentially numbered page 37 in the Trust's Form 10-Q filed on November 14, 1994.
***/ Appears at sequentially numbered page 36 in the Trust's Form 10-K filed on March 31, 1985.