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Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-12744

MARTIN MARIETTA MATERIALS, INC.

(Exact name of registrant as specified in its charter)


North Carolina		56-1848578
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2710 Wycliff Road, Raleigh, North Carolina		27607-3033
(Address of principal executive offices)		(Zip Code)

(919) 781-4550

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock (par value $.01 per share)

(including rights attached thereto)

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x

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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $7,537,227,743 based on the closing sale price as reported on the New York Stock Exchange.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock on the latest practicable date.


Class		Outstanding at February 12, 2016
Common Stock, $.01 par value per share		64,331,436 shares

DOCUMENTS INCORPORATED BY REFERENCE


Document				Parts Into Which Incorporated
Excerpts from Annual Report to Shareholders for the Fiscal Year Ended December 31, 2015 (Annual Report)				Parts I, II, and IV

Proxy Statement for the Annual Meeting of Shareholders to be held May 19, 2016 (Proxy Statement)				Part III

TABLE OF CONTENTS


		Page

PART I			4

ITEM 1.	BUSINESS		4

ITEM 1A.	RISK FACTORS		22

ITEM 1B.	UNRESOLVED STAFF COMMENTS		37

ITEM 2.	PROPERTIES		37

ITEM 3.	LEGAL PROCEEDINGS		42

ITEM 4.	MINE SAFETY DISCLOSURES		42

EXECUTIVE OFFICERS OF THE REGISTRANT			43

PART II			43

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		43

ITEM 6.	SELECTED FINANCIAL DATA		44

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		44

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		45

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		45

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		45

ITEM 9A.	CONTROLS AND PROCEDURES		45

PART III			46

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		47

ITEM 11.	EXECUTIVE COMPENSATION		48

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		48



ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	48

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	48

PART IV		48

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	48

SIGNATURES		55

PART I

ITEM 1.

BUSINESS

General

Martin Marietta Materials, Inc. (the “Company”) is a leading supplier of aggregates products (crushed stone, sand, and gravel) for the construction industry, used for the construction of infrastructure, nonresidential, and residential projects. In addition, aggregates products are used for railroad ballast and in agricultural, utility and environmental applications. The Company’s Aggregates business consists primarily of mining, processing, and selling granite, limestone, sand and gravel. The Aggregates business also includes its aggregates-related downstream product lines (including its heavy building materials such as asphalt products, ready mixed concrete, and road paving construction services). The Company’s Cement business produces Portland and specialty cements. The Company also has a Magnesia Specialties business that manufactures and markets magnesia-based chemical products used in industrial, agricultural, and environmental applications, and dolomitic lime sold primarily to customers in the steel industry. In 2015, the Company’s Aggregates business accounted for 82% of the Company’s consolidated net sales, the Company’s Cement business accounted for 11% of the Company’s consolidated net sales, and the Company’s Magnesia Specialties business accounted for 7% of the Company’s consolidated net sales. Within the Company’s Aggregates business, the aggregates product line accounted for 67% of 2015 net sales, while the aggregates-related downstream operations accounted for 33% of 2015 net sales.

The Company was formed in 1993 as a North Carolina corporation to serve as successor to the operations of the materials group of the organization that is now Lockheed Martin Corporation. An initial public offering of a portion of the Company’s Common Stock was completed in 1994, followed by a tax-free exchange transaction in 1996 that resulted in 100% of the Company’s Common Stock being publicly traded.

The Company completed over 80 smaller acquisitions from the time of its initial public offering until the present, which allowed the Company to enhance and expand its presence in the aggregates marketplace. The Company uses its ability to distribute materials over long distances by rail and water to further expand its operations.

The business has developed further through the following transactions over the past five years. In 2011, the Company acquired three aggregates-related businesses. First, it acquired the assets of an aggregates, asphalt, and ready mixed concrete business located in western San Antonio, Texas. Second, it exchanged certain assets with Lafarge North America Inc. (“Lafarge”), pursuant to which it received aggregate quarry sites, ready mixed concrete and asphalt plants, and a road paving business in and around the metropolitan Denver, Colorado, region, in exchange for which Lafarge received properties consisting of quarries, an asphalt plant, and distribution yards operated by the Company along the Mississippi River (referred to herein as the Company’s “River District Operations”) and a cash payment. Finally, the Company acquired a privately-held ready mixed concrete business in the Denver, Colorado area.

In 2013, the Company acquired three aggregates quarries in the greater Atlanta, Georgia area. The transaction provided over 800 million tons of permitted aggregate reserves and enhanced the Company’s existing long-term position in this market.

In 2014, the Company completed the acquisition of Texas Industries, Inc. (“TXI”), further augmenting its position as a leading supplier of aggregates and heavy building materials. TXI, as a stand-alone entity, was a leading supplier of heavy construction materials in the southwestern United States and a major supplier of natural aggregates and ready-mixed concrete in Texas, northern Louisiana and, to a lesser extent, in Oklahoma and Arkansas. TXI was the largest supplier of construction aggregates, ready mixed concrete, concrete products, and cement in Texas. Now as a wholly-owned subsidiary, TXI enhances the Company’s position as an aggregates-led, low-cost operator in the large and fast-growing geographies in the United States and provides high-quality assets in cement and ready mixed concrete.

In addition to the Cement business, the Company acquired as part of the TXI acquisition nine quarries and six aggregates distribution terminals located in Texas, Louisiana, and Oklahoma. The Company also acquired approximately 120 ready mixed concrete plants, situated primarily in three areas of Texas (the Dallas/Fort Worth/Denton area of north Texas; the Austin area of central Texas; and from Beaumont to Texarkana in east Texas), in north and central Louisiana, and in Southwestern Arkansas. The aggregates and ready mixed concrete operations are reported in the Company’s West Group of its Aggregates business. As part of an agreement with the United States Department of Justice’s review of the transaction, the Company divested of its North Troy Quarry in Oklahoma and two related rail distribution yards in Dallas and Frisco, Texas.

TXI was also a major cement producer in California. In 2015, the Company divested its California cement business acquired from TXI. These operations were not in close proximity to other core assets of the Company and, unlike other marketplace competitors, were not vertically integrated with ready mixed concrete production. The divestiture primarily included a cement plant, two distribution terminals, mobile equipment, intangible assets, and inventory. The Company also completed the integration of the TXI operations in 2015, and completed three smaller acquisitions, which included three aggregate operations and related assets.

Between 2001 and 2015, the Company disposed of or idled a number of underperforming operations, including aggregates, asphalt, ready mixed concrete, trucking, and road paving operations of its Aggregates business and the refractories business of its Magnesia Specialties business. In some of its divestitures, the Company concurrently entered into supply agreements to provide aggregates at market rates to certain of these divested businesses. During 2015, the Company disposed of certain non-core asphalt operations in San Antonio, Texas. The Company will continue to evaluate opportunities to divest underperforming assets during 2016 in an effort to redeploy capital for other opportunities.

Business Segment Information

The Company conducts its Aggregates business through three reportable segments: the Mid-America Group, Southeast Group, and West Group. The Company’s Cement business is reported through the Cement segment. The Company also has the Magnesia Specialties segment, which includes its magnesia-based chemicals and dolomitic lime businesses. Information concerning the Company’s total revenues, net sales, gross profit, earnings from operations, assets employed, and certain additional information attributable to each reportable business segment for each year in the three-year period ended December 31, 2015 is included in “Note O: Business Segments” of the “Notes to Financial Statements” of the Company’s 2015 consolidated financial statements (the “2015 Financial Statements”), which are included under Item 8 of this Form 10-K, and are part of the Company’s 2015 Annual Report to Shareholders (the “2015 Annual Report”), which information is incorporated herein by reference.

Aggregates Business

The Aggregates business mines, processes and sells granite, limestone, sand, gravel, and other aggregate products for use in all sectors of the public infrastructure, nonresidential and residential construction industries, as well as agriculture, railroad ballast, chemical, and other uses. The Aggregates business also includes the operation of other construction materials businesses. These businesses, located in the West Group, were acquired through continued selective vertical integration by the Company, and include asphalt, ready mixed concrete, and road paving operations in Arkansas, Colorado, Louisiana, Texas, and Wyoming.

The Company is a leading supplier of aggregates for the construction industry in the United States. In 2015, the Company’s Aggregates business shipped and delivered aggregates, asphalt products, and ready mixed concrete from a network of over 400 quarries, underground mines, distribution facilities, and plants to customers in 36 states, Canada, and the Bahamas, generating net sales and earnings from operations of $2.7 billion and $429.0 million, respectively.

The Aggregates and Cement businesses market their products primarily to the construction industry, with approximately 42% of the aggregates product line shipments made to contractors in connection with highway and other public infrastructure projects and the balance of its shipments made primarily to contractors in connection with nonresidential and residential construction projects. The Company believes public-works projects have historically accounted for approximately 50% of the total annual aggregates and cement consumption in the United States. These businesses benefit from public-works construction projects. As a result of dependence upon the construction industry, the profitability of aggregates and cement producers is sensitive to national, regional, and local economic conditions, and particularly to cyclical swings in construction spending, which is affected by fluctuations in interest rates, demographic and population shifts, and changes in the level of infrastructure spending funded by the public sector.

The Company’s aggregates product line shipments have increased each of the past four years, reflecting a certain degree of volume stability and modest growth, albeit at and from historically low levels. Prior to 2011, the economic recession resulted in United States aggregates consumption declining by almost 40% from peak volumes in 2006. Aggregates shipments had also suffered as states continued to balance their construction spending with the uncertainty related to long-term federal highway funding and budget shortfalls caused by decreasing tax revenues. During 2015, the Company’s heritage aggregates shipments increased 2.1% compared with 2014 levels, despite the impact of historic levels of rainfall in many of the Company’s markets. Most state budgets began to improve starting in 2013 as increased tax revenues helped states resolve or begin to resolve budget deficits.

The federal highway bill provides annual funding for public-sector highway construction projects. After a decade of 36 short-term funding provisions since Moving Ahead for Progress in the 21^st Century (“MAP-21”) expired, a five-year, $305 billion highway bill, Fixing America’s Surface Transportation Act (the “FAST Act”), was signed into law on December 4, 2015. FAST Act funding will primarily be secured through gas tax collections. In an investigation performed by S-C Market Analytics, aggregate demand is projected to increase with the availability of federal funding and is expected to peak in 2018. However, we believe that in subsequent years, the projected demand for aggregates will decline with anticipated higher interest and inflation rates. Additionally, many states have recently shown a commitment to securing alternative funding sources, including initiating special-purpose taxes and raising gas taxes. According to American Road and Transportation Builders Association (“ARTBA”), fifteen states have raised gas taxes and 30 legislative measures (which represented 68% of ballot initiatives) for transportation funding were approved by voters in 2015. Supported by state-spending programs, the Company’s heritage aggregates volumes to the infrastructure market in the eastern United States increased in the mid-single digits in 2015 compared with 2014. Overall, the infrastructure market accounted for approximately 42% of the Company’s 2015 aggregates product line shipments.

The FAST Act will reauthorize federal highway and public transportation programs and stabilize the Highway Trust Fund. $207.4 billion of the funding will be apportioned to the states by formula, with a 5.1% increase over actual fiscal year 2015 apportionments in 2016 and then inflationary increases in subsequent years. Meaningful impact from the FAST Act is not expected before the second half of 2016.

The FAST Act retains the programs supported under the predecessor bill, MAP-21, but with some changes. Specifically, TIFIA, a U.S. Department of Transportation alternative funding mechanism, which under MAP-21 provided three types of federal credit assistance for nationally or regionally significant surface transportation projects, will now allow more diversification of projects. TIFIA is designed to fill market gaps and leverage substantial private co-investment by providing projects with supplemental or subordinate debt that is not subject to national debt ceiling challenges or sequestration. Since 2012, TIFIA has provided credit assistance to over 30 projects representing over $49 billion in infrastructure investment. Under the FAST Act, TIFIA annual funding will range from $275 million to $300 million, and will no longer require the 20% matching funds from state departments of transportation. Consequently, states can advance construction projects immediately with potentially zero upfront outlay of local state department of transportation dollars. TIFIA requires projects to have a revenue source to pay back the credit assistance within a 30 to 40 year period. Moreover, TIFIA funds may represent up to 49% of total eligible project costs for a TIFIA-secured loan and 33% for a TIFIA standby line of credit. Therefore, the TIFIA program has the ability to significantly leverage construction dollars. Each dollar of federal funds can provide up to $10 in TIFIA credit assistance and support up to $30 in transportation infrastructure investment. Private investment in transportation projects funded through the TIFIA program is particularly attractive, in part due to the subordination of public investment to private. Management believes TIFIA could provide a substantial boost for state department of transportation construction programs well above what is currently budgeted. As of January 2016, TIFIA funded projects for the Company’s key states (Texas, Colorado, North Carolina, Georgia, and Florida) exceeded $12 billion.

The federal highway bill provides spending authorizations, which represent the maximum financial obligation that will result from the immediate or future outlays of federal funds for highway and transit programs. The federal government’s surface transportation programs are financed mostly through the receipts of highway user taxes placed in the Highway Trust Fund, which is divided into the Highway Account and the Mass Transit Account. Revenues credited to the Highway Trust Fund are primarily derived from a federal gas tax, a federal tax on certain other motor fuels and interest on the accounts’ accumulated balances. MAP-21 extended federal motor fuel taxes through September 30, 2016 and truck excise taxes through September 30, 2017. Of the currently imposed federal gas tax of $0.184 per gallon, which has been static since 1993, $0.15 is allocated to the Highway Account of the Highway Trust Fund.

Transportation investments generally boost the national economy by enhancing mobility and access and by creating jobs, which is a priority of many of the government’s economic plans. According to the Federal Highway Administration, every $1 billion in federal highway investment creates approximately 28,000 jobs. The number of jobs created is dependent on the nature and aggregates intensity of the projects. Approximately half of the Aggregates business’ net sales to the infrastructure market come from federal funding authorizations, including matching funds from the states. For each dollar spent on road, highway and bridge improvements, the Federal Highway Administration estimates an average benefit of $5.20 is recognized in the form of reduced vehicle maintenance costs, reduced delays, reduced fuel consumption, improved safety, reduced road and bridge maintenance costs and reduced emissions as a result of improved traffic flow.

The Company’s Aggregates business covers a wide geographic area. The Company’s five largest revenue-generating states (Texas, Colorado, North Carolina, Iowa, and Georgia) accounted for 70% of total 2015 net sales for the Aggregates business by state of destination. The Company’s Aggregates business is

accordingly affected by the economies in these regions and has been adversely affected in part by recessions and weaknesses in these economies from time to time. Recent improvements in the national economy and in some of the states in which the Company operates have led to improvements in profitability in the Company’s Aggregates business.

The Company’s Aggregates business is also highly seasonal, due primarily to the effect of weather conditions on construction activity within its markets. The operations of the Aggregates business that are concentrated in the northern and midwestern United States and Canada typically experience more severe winter weather conditions than operations in the southeastern and southwestern regions of the United States. Excessive rainfall, flooding, or severe drought can also jeopardize shipments, production, and profitability in all of the Company’s markets. Subject to these factors, the Company’s second and third quarters are typically the strongest, with the first quarter generally reflecting the weakest results. Results in any quarter are not necessarily indicative of the Company’s annual results. Similarly, the operations of the Aggregates business in the coastal areas are at risk for hurricane activity, most notably in August, September, and October, and have experienced weather-related losses from time to time. Weather-related hindrances were exacerbated in 2015 by record precipitation in many of the Company’s key markets. The National Oceanic and Atmospheric Administration (“NOAA”) has tracked precipitation for 121 years. According to NOAA, 2015 represented the wettest year on record for Texas and Oklahoma, while North Carolina, South Carolina, Colorado and Iowa each experienced a top-ten precipitation year, and the nation as a whole had its third wettest year in NOAA recorded history. These weather events reduced the Company’s overall profitability in 2015, creating a backlog of construction activity expected to be completed in 2016. The completion of construction activity backlog in 2016 will depend on the capacity of the affected areas to provide enough resources, such as construction crews and equipment, among others.

Natural aggregates sources can be found in relatively homogeneous deposits in certain areas of the United States. As a general rule, truck shipments from an individual quarry are limited because the cost of transporting processed aggregates to customers is high in relation to the price of the product itself. As described below, the Company’s distribution system mainly uses trucks, but also has access to a river barge and ocean vessel network where the per mile unit cost of transporting aggregates is much lower. In addition, acquisitions have enabled the Company to extend its customer base through increased access to rail transportation. Proximity of quarry facilities to customers or to long-haul transportation corridors is an important factor in competition for aggregates businesses.

A significant percentage of the Company’s aggregates shipments continue to be moved by rail or water through a distribution yard network. In 1994, 93% of the Company’s aggregates shipments were moved by truck, the rest by rail. In contrast, in 2015, the originating mode of transportation for the Company’s aggregates shipments was 75% by truck, 21% by rail, and 4% by water. Although the Company divested its River District Operations in 2011 as part of the asset exchange with Lafarge, the development of deep-water and rail distribution yards continues to be a key component of the Company’s strategic growth plan. While the River District Operations were being serviced as part of the Company’s barge long-haul distribution network, those divested operations were not in high-growth states. The majority of rail and water movements occur in the Southeast Group and the West Group, that have certain areas which generally lack a long-term indigenous supply of coarse aggregates but exhibit above-average growth characteristics driven by long-term population growth and density. The Company has an extensive network of aggregate quarries and distribution centers throughout the southern United States and in the Bahamas and Canada, as well as distribution centers along the Gulf of Mexico and Atlantic coasts. In 2015, 24.3 million tons of aggregates were sold from distribution yards. Results from these distribution operations lowered the gross margin (excluding freight and delivery revenues) of the Aggregates business by 240 basis points in 2015. The gross margin (excluding freight and delivery

revenues) of the Aggregates business will continue to be reduced by the lower gross margins of the long-haul distribution network.

During the recent economic recession, the Company set a priority of preserving capital while maintaining safe, environmentally-sound operations. As the Company returns to a more normalized operating environment, management expects to focus part of its capital spending program on expanding key Southeast and Southwest operations.

The Company’s Medina Rock and Rail capital project, with a total cost of $160 million, is the largest capital expansion project in its history. The project, located near San Antonio, Texas, consists of a rail-connected limestone aggregates processing facility which is expected to ship approximately six million tons in 2016 and have the future capability of producing in excess of 10 million tons per year. Land acquisitions were completed over several years as part of ongoing capital expenditures, and construction began in 2013. The project began operations in January 2016.

The Company also acquires contiguous property around existing quarry locations. This property can serve as buffer property or additional mineral reserve capacity, assuming the underlying geology supports economical aggregates mining. In either instance, the acquisition of additional property around an existing quarry allows the expansion of the quarry footprint and extension of quarry life. Some locations having limited reserves may be unable to expand.

A long-term capital focus for the Company, primarily in the midwestern United States due to the nature of its indigenous aggregates supply, is underground limestone aggregate mines, which provide a neighbor-friendly alternative to surface quarries. The Company operates 14 active underground mines, located primarily in the Mid-America Group, and is the largest operator of underground limestone aggregate mines in the United States. Production costs are generally higher at underground mines than surface quarries since the depth of the aggregate deposits and the access to the reserves result in higher development, explosives and depreciation costs. However, these locations often possess transportation advantages that can lead to higher average selling prices than more distant surface quarries.

The Company’s acquisitions and capital projects have expanded its ability to ship material by rail, as discussed in more detail below. The Company has added additional capacity in a number of locations that can now accommodate larger unit train movements. These expansion projects have enhanced the Company’s long-haul distribution network. The Company’s process improvement efforts have also improved operational effectiveness through plant automation, mobile fleet modernization, right-sizing, and other cost control improvements. Accordingly, the Company has enhanced its reach through its ability to provide cost-effective coverage of coastal markets on the east and gulf coasts, as well as geographic areas that can be accessed economically by the Company’s expanded distribution system. This distribution network moves aggregates materials from domestic and offshore sources, via rail and water, to markets where aggregates supply is limited.

As the Company continues to move more aggregates by rail and water, internal freight costs are expected to reduce gross margins (excluding freight and delivery revenues). This typically occurs where the Company transports aggregates from a production location to a distribution location by rail or water, and the customer pays a selling price that includes a freight component. Margins are negatively affected because the Company typically does not charge the customer a profit associated with the transportation component of the selling price of the materials. Moreover, the Company’s expansion of its rail-based distribution network, coupled with the extensive use of rail service in the Southeast and West Groups, increases the Company’s dependence on and exposure to railroad performance, including track congestion, crew availability, and power availability, and the ability to renegotiate favorable railroad shipping contracts. The waterborne distribution

network, primarily located within the Southeast Group, also increases the Company’s exposure to certain risks, including the ability to negotiate favorable shipping contracts, demurrage costs, fuel costs, ship availability, and weather disruptions. The Company has entered into long-term agreements with shipping companies to provide ships to transport the Company’s aggregates to various coastal ports.

The Company’s long-term shipping contracts are generally take-or-pay contracts with minimum and maximum shipping requirements. If the Company fails to ship the annual minimum tonnages under the agreement, it must still pay the shipping company the contractually-stated minimum amount for that year. In 2015, the Company did not incur any such charges; however, a charge is possible in 2016 if shipment volumes do not meet the contractually-stated minimums.

From time to time, the Company has experienced rail transportation shortages, particularly in the Southwest and Southeast. These shortages were caused by the downsizing in personnel and equipment by certain railroads during economic downturns. Further, in response to these issues, rail transportation providers focused on increasing the number of cars per unit train under transportation contracts and are generally requiring customers, through the freight rate structure, to accommodate larger unit train movements. A unit train is a freight train moving large tonnages of a single bulk product between two points without intermediate yarding and switching. Certain of the Company’s sales yards have the system capabilities to meet the unit train requirements. Over the last few years, the Company has made capital improvements to a number of its sales yards in order to better accommodate unit train unloadings. Rail availability is seasonal and can impact aggregates shipments depending on competing movements.

From time to time, we have also experienced rail and trucking shortages due to competition from other products. For example, in Texas, competition with operations in the oil and gas fields for third-party trucking services constrains the availability of these services to us. If there are material changes in the availability or cost of rail or trucking services, we may not be able to arrange alternative and timely means to ship our products at a reasonable cost, which could lead to interruptions or slowdowns in our businesses or increases in our costs.

The Company’s management expects the multiple transportation modes that have been developed with various rail carriers and via deep-water ships should provide the Company with the flexibility to effectively serve customers in the southeastern and southwestern regions of the United States.

The construction aggregates industry has been consolidating, and the Company has actively participated in the consolidation of the industry. When acquired, new locations sometimes do not satisfy the Company’s internal safety, maintenance, and pit development standards, and may require additional resources before benefits of the acquisitions are fully realized. Industry consolidation slowed several years ago as the number of suitable small to mid-sized acquisition targets in high-growth markets declined. During that period of fewer acquisition opportunities, the Company focused on investing in internal expansion projects in high-growth markets. The number of acquisition opportunities has increased in the last few years as the economy has begun to recover from the protracted recession. Opportunities include public and larger private, family-owned businesses, as well as asset swaps and divestitures from companies rationalizing non-core assets and repairing financially-constrained balanced sheets. The Company’s Board of Directors and management continue to review and monitor the Company’s strategic long-term plans, which include assessing business combinations and arrangements with other companies engaged in similar businesses, increasing market share in the Company’s core businesses, investing in internal expansion projects in high-growth markets, and pursuing new opportunities related to the Company’s existing markets.

The Company became more vertically integrated with an acquisition in 1998 and subsequent acquisitions, including the 2014 TXI acquisition, particularly in the West Group, pursuant to which the

Company acquired asphalt, ready mixed concrete, paving construction, trucking, and other businesses, which complement the Company’s aggregates operations. These aggregates-related downstream operations accounted for 33% of net sales of the Aggregates business in 2015. These aggregates-related downstream operations reported within the Aggregates business segment have lower gross margins (excluding freight and delivery revenues) than the Company’s aggregates product line due to highly competitive market dynamics and lower barriers to entry, and are affected by volatile factors, including fuel costs, operating efficiencies, and weather, to an even greater extent than the Company’s aggregates operations. Liquid asphalt and cement serve as key raw materials in the production of hot mix asphalt and ready mixed concrete, respectively. Therefore, fluctuations in prices for these raw materials directly affect the Company’s operating results. During 2015, prices for liquid asphalt were lower than 2014. Liquid asphalt prices may not always follow other energy products (e.g., oil or diesel fuel) because of complexities in the refining process which converts a barrel of oil into other fuels and petrochemical products. We expect the Company’s gross margins (excluding freight and delivery revenues) for the legacy TXI aggregates-related downstream operations to improve, similar to the pattern experienced at the Colorado aggregates-related downstream operations acquired in 2011.

The Company continues to review carefully each of the acquired aggregates-related downstream operations to determine if they represent opportunities to divest underperforming assets in an effort to redeploy capital for other opportunities. The Company also reviews other independent aggregates-related downstream operations to determine if they might present attractive acquisition opportunities in the best interest of the Company, either as part of their own aggregates-related downstream operations or operations that might be vertically integrated with other operations owned by the Company. Based on these assessments, in 2011 the Company completed the acquisitions described under General above, which included aggregates-related downstream operations, including asphalt, ready mixed concrete, and road paving businesses in the Denver, Colorado, and San Antonio, Texas markets. The 2014 business combination with TXI described under General above further expanded the Company’s aggregates-related downstream operations, with the addition of TXI’s aggregates and ready mixed concrete operations. The TXI combination also added the cement operations of TXI, which are accounted for as a separate business segment of the Company.

Environmental and zoning regulations have made it increasingly difficult for the 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 likely make zoning and permitting more difficult, thereby potentially enhancing the value of the Company’s existing mineral reserves.

Management believes the Aggregates business’ raw materials, or aggregates 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 current production in its Aggregates business. The Company’s aggregates reserves on the average exceed 60 years of production, based on normalized levels of production. However, certain locations may be subject to more limited reserves and may not be able to expand. Moreover, as noted above, environmental and zoning regulations will likely make it harder for the Company to expand its existing quarries or develop new quarry operations. The Company generally sells products in its Aggregates business upon receipt of orders or requests from customers. Accordingly, there is no significant order backlog. The Company generally maintains inventories of aggregate products in sufficient quantities to meet the requirements of customers.

Less than 2% of the revenues from the Aggregates business are from foreign jurisdictions, principally Canada and the Bahamas, with revenues from customers in foreign countries totaling $12.3 million, $13.0 million, and $16.8 million, during 2015, 2014, and 2013, respectively.

Cement Business

The Cement business produces Portland and specialty cements. Cement is the basic binding agent for concrete, a primary construction material. The principal raw material used in the production of cement is calcium carbonate in the form of limestone. The Company owns more than 600 million tons of limestone reserves adjacent to its two cement production plants in Texas. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. Consequently, the cement industry is cyclical and dependent on the strength of the construction sector.

The Company has the leading cement position in Texas, with two production facilities, one located in Midlothian, Texas, south of Dallas/Fort Worth, and the other located in Hunter, Texas, north of San Antonio. In addition to these production facilities, the Company also operates three cement distribution terminals in Texas. During 2015 the Company also operated a state-of-the-art, rail-located cement plant in southern California at Oro Grande, California, near Los Angeles, California, and operated cement grinding and packaging facilities at the Crestmore plant near Riverside, California. In addition to the manufacturing and packaging facilities, the Company also operated two cement distribution terminals in California in 2015. As of September 30, 2015, the Company sold all of its California cement operations. It retained the real estate at the Crestmore facility, which the Company expects to sell for non-cement use. These operations were not in close proximity to other core assets of the Company and, unlike other marketplace competitors, were not vertically integrated with ready mixed concrete production.

Cement consumption is dependent on the time of year and prevalent weather conditions. According to the Portland Cement Association, nearly two-thirds of U.S. cement consumption occurs in the six months between May and October. The majority of all cement shipments, approximately 70 percent, are sent to ready-mix concrete operators. The rest are shipped to manufacturers of concrete related products, contractors, materials dealers, oil well/mining/drilling companies, as well as government entities.

Energy, including electricity and fossil fuels, accounts for approximately one-third of the cement production cost profile. Therefore, profitability of the Cement business is affected by changes in energy prices and the availability of the supply of these products. The Company currently has fixed-price supply contracts for coal and diesel fuel but also consumes natural gas, alternative fuel and petroleum coke. Further, profitability of the Cement business is also subject to kiln maintenance. This process typically requires a plant to be shut down for a period of time as repairs are made. In 2015, the Cement business incurred ordinary kiln maintenance shutdown costs of $26.0 million.

Texas and California accounted for 73% and 27% of the Cement business’ net sales, respectively, in 2015, including the California cement operations for the nine months ended September 30, 2015. The Cement business is benefitting from continued strength in the Texas markets, where current demand exceeds local supply, a trend that is expected to continue for the near future. The Cement business sold cement to customers in 13 states and Mexico. Truck and rail transportation modes represent 97% and 3%, respectively, of total tons shipped. A portion of the cement is used internally in the Company’s ready mixed concrete product line. The Company shipped a total of 4.6 million tons of cement in 2015, with 3.7 million tons shipped to external customers and 0.9 million tons consumed by the Company for internal use. Of this amount, 1.1 million tons were shipped from the California cement plant prior to its sale as of September 30, 2015. For 2015 the Cement business generated net sales and earnings from operations of $367.6 million and $47.8 million, respectively.

The limestone reserves used as a raw material for cement are located on property, owned by the Company, adjacent to each of the cement plants. Management believes that its reserves of limestone are sufficient to permit production at the current operational levels for the foreseeable future.

The Cement business generally delivers its products upon receipt of orders or requests from customers. Accordingly, there are no significant levels of order backlog. Inventory for products is generally maintained in sufficient quantities to meet rapid delivery requirements of customers.

Less than 2% of the revenues from the Cement business are from foreign jurisdictions, principally Mexico, with revenues from customers in foreign countries totaling $0.4 million during 2015 and $3.8 million during 2014 for the period from the July 1, 2014 acquisition of TXI.

Magnesia Specialties Business

The Company manufactures and markets, through its Magnesia Specialties business, magnesia-based chemical products for industrial, agricultural, and environmental applications, and dolomitic lime for use primarily in the steel industry. These chemical products have varying uses, including flame retardants, wastewater treatment, pulp and paper production, and other environmental applications. In 2015, 67% of Magnesia Specialties’ net sales were attributable to chemical products, 32% to lime, and 1% to stone sold as construction materials. Magnesia Specialties’ net sales declined 3.6% in 2015 compared with 2014. The reduction reflects a decrease in both the chemicals and dolomitic lime product lines. Net sales were impacted by lower domestic steel production, which was down 9% versus 2014. For 2015 the Magnesia Specialties business generated net sales and earnings from operations of $227.5 million and $68.9 million, respectively.

Given the high fixed costs associated with operating this business, low capacity utilization negatively affects its results of operations. A significant portion of the costs related to the production of magnesia-based products and dolomitic lime is of a fixed or semi-fixed nature. In addition, the production of certain magnesia chemical products and lime products requires natural gas, coal, and petroleum coke to fuel kilns. Price fluctuations of these fuels affect the profitability of this business.

In 2015, 80% of the lime produced was sold to third-party customers, while the remaining 20% was used internally as a raw material in making the business’ chemical products. Dolomitic lime products sold to external customers are used primarily by the steel industry. Products used in the steel industry, either directly as dolomitic lime or indirectly as a component of other industrial products, accounted for 42% of the Magnesia Specialties’ net sales in 2015, attributable primarily to the sale of dolomitic lime products. Accordingly, a portion of the profitability of the Magnesia Specialties business is dependent on steel production capacity utilization and the related marketplace. These trends are guided by the rate of consumer consumption, the flow of offshore imports, and other economic factors. The dolomitic lime business runs most profitably at 70% or greater steel capacity utilization; domestic capacity utilization averaged 70% in 2015, according to the American Iron and Steel Institute. Average steel production in 2015 declined 9% versus 2014 and the 2016 forecast is an increase of 2% over 2015.

Management has shifted the strategic focus of the magnesia-based business to specialty chemicals that can be produced at volume levels that support efficient operations. Accordingly, that business is not as dependent on the steel industry as is the dolomitic lime portion of the Magnesia Specialties business.

The principal raw materials used in the Magnesia Specialties business are dolomitic limestone and alkali-rich brine. Management believes that its reserves of dolomitic limestone and brine are sufficient to permit production at the current operational levels for the foreseeable future.

After the brine is used in the production process, the Magnesia Specialties business must dispose of the processed brine. In the past, the business did this by reinjecting the processed brine back into its underground brine reserve network around its facility in Manistee, Michigan. The business has also sold a portion of this processed brine to third parties. In 2003, Magnesia Specialties entered into a long-term processed brine supply agreement with The Dow Chemical Company (“Dow”) pursuant to which Dow purchases processed brine from Magnesia Specialties, at market rates, for use in Dow’s production of calcium chloride products. Magnesia Specialties also entered into a venture with Dow to construct, own, and operate a processed brine supply pipeline between the Magnesia Specialties facility in Manistee, Michigan, and Dow’s facility in Ludington, Michigan. Construction of the pipeline was completed in 2003, and Dow began purchasing processed brine from Magnesia Specialties through the pipeline. In 2010, Dow sold the assets of Dow’s facility in Ludington, Michigan to Occidental Chemical Corporation (“Occidental”) and assigned to Occidental its interests in the long-term processed brine supply agreement and the pipeline venture with Magnesia Specialties.

Magnesia Specialties generally delivers its products upon receipt of orders or requests from customers. Accordingly, there is no significant order backlog. Inventory for products is generally maintained in sufficient quantities to meet rapid delivery requirements of customers. A significant portion of the 275,000 ton dolomitic lime capacity from a lime kiln completed in 2012 at Woodville, Ohio is committed under a long-term supply contract.

Approximately 13.3% of the revenues of the Magnesia Specialties business in 2015 were from foreign jurisdictions, principally Canada, Mexico, Europe, South America, and the Pacific Rim, but no single foreign country accounted for 10% or more of the revenues of the business. Revenues from customers in foreign countries totaled $32.7 million, $29.0 million, and $25.7 million, in 2015, 2014, and 2013, respectively. As a result of these foreign market sales, the financial results of the Magnesia Specialties business could be affected by foreign currency exchange rates or weak economic conditions in the foreign markets. To mitigate the short-term effects of currency exchange rates, the Magnesia Specialties business principally uses the United States dollar as the functional currency in foreign transactions. However, the current strength of the United States dollar in foreign markets is affecting the overall price of Magnesia Specialties’ products when compared to foreign-domiciled competitors.

Patents and Trademarks

As of February 12, 2016, the Company owns, has the right to use, or has pending applications for approximately 33 patents pending or granted by the United States and various countries and approximately 112 trademarks related to business. The Company believes that its rights under its existing patents, patent applications, and trademarks are of value to its operations, but no one patent or trademark or group of patents or trademarks is material to the conduct of the Company’s business as a whole.

Customers

No material part of the business of any segment of the Company is dependent upon a single customer or upon a few customers, the loss of any one of which would have a material adverse effect on the segment. The Company’s products are sold principally to commercial customers in private industry. Although large amounts

of construction materials are used in public works projects, relatively insignificant sales are made directly to federal, state, county, or municipal governments, or agencies thereof.

Competition

Because of the impact of transportation costs on the aggregates industry, competition in the Aggregates business tends to be limited to producers in proximity to each of the Company’s facilities. Although all of the Company’s locations experience competition, the Company believes that it is generally a leading producer in the areas it serves. Competition is based primarily on quarry or distribution location and price, but quality of aggregates and level of customer service are also factors.

There are over 5,600 companies in the United States that produce construction aggregates. These include active crushed stone companies and active sand and gravel companies. The largest ten producers account for approximately 35% of the total market. The Company’s aggregates-related downstream operations are also characterized by numerous operators. A national trade association estimates there are about 5,500 ready mixed concrete plants in the United States owned by over 2,200 companies, with about 65,000 mixer trucks delivering ready mixed concrete. Similarly, a national trade association estimates there are about 3,700 asphalt plants in the United States owned by over 800 companies. The Company, in its Aggregates business, including its aggregates-related downstream operations, competes with a number of other large and small producers. The Company believes that its ability to transport materials by ocean vessels and rail have enhanced the Company’s ability to compete in the aggregates industry. Some of the Company’s competitors in the aggregates industry have greater financial resources than the Company.

The Company’s Magnesia Specialties business competes with various companies in different geographic and product areas principally on the basis of quality, price, technological advances, and technical support for its products. The Magnesia Specialties business also competes for sales to customers located outside the United States, with revenues from foreign jurisdictions accounting for 13.3% of revenues for the Magnesia Specialties business in 2015, principally in Canada, Mexico, Europe, South America, and the Pacific Rim. Certain of the Company’s competitors in the Magnesia Specialties business have greater financial resources than the Company.

According to the Portland Cement Association, United States cement production is widely dispersed with the operation of 107 cement plants in 36 states. The top five companies collectively operate 49.6 percent of U.S. clinker capacity with the largest company representing 14.2 percent of all domestic clinker capacity. An estimated 76.7 percent of U.S. clinker capacity is owned by companies headquartered outside of the United States. In reviewing these figures for cement plants, capacity is often stated in terms of “clinker” capacity. “Clinker” is the initial product of cement production. Cement producers mine materials such as limestone, shale, or other materials, crush and screen the materials, and place them in a cement kiln. After being heated to extremely high temperatures, these materials form marble-sized balls or pellets called “clinker” that are then very finely ground to produce portland cement.

The Company’s Cement business competes with various companies in different geographic and product areas principally on the basis of proximity, quality and price for its products, but level of customer service is also a factor. The Cement business also competes with imported cement because of the higher value of the product and the existence of major ports in some of our markets. A small percentage of the Company’s cement sales are to customers located outside the United States, with less than 2% of revenues for the Cement business in 2015 coming from sales from California to customers in Mexico. The Company divested of its California cement business as of September 30, 2015. Certain of the Company’s competitors in the Cement business have greater financial resources than the Company.

The nature of the Company’s competition varies among its product lines due to the widely differing amounts of capital necessary to build production facilities. Crushed stone production from stone quarries or mines, or sand and gravel production by dredging, is moderately capital intensive. The Company’s major competitors in the aggregates markets are typically large vertically integrated companies, with international operations. Ready-mixed concrete production requires relatively small amounts of capital to build a concrete batching plant and acquire delivery trucks. As a result, in each local market the Company faces competition from numerous small producers as well as large vertically integrated companies with facilities in many markets. Construction of cement production facilities is highly capital intensive and requires long lead times to complete engineering design, obtain regulatory permits, acquire equipment and construct a plant. Most domestic producers of cement are owned by large foreign companies operating in multiple international markets. Many of these producers maintain the capability to import cement from foreign production facilities.

Research and Development

The Company conducts research and development activities, principally for its magnesia-based chemicals business, at its plant in Manistee, Michigan. In general, the Company’s research and development efforts are directed to applied technological development for the use of its chemicals products. The amounts spent by the Company in each of the last two years on research and development activities were not material.

Environmental and Governmental 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 records an accrual for environmental remediation liabilities in the period in which it is probable that a liability has been incurred and the amounts can be reasonably estimated. Such accruals are adjusted as further information develops or circumstances change. The accruals are not discounted to their present value or offset for potential insurance or other claims or potential gains from future alternative uses for a site.

The Company regularly monitors and reviews its operations, procedures, and policies for compliance with existing laws and regulations, changes in interpretations of existing laws and enforcement policies, new laws that are adopted, and new laws that the Company anticipates will be adopted that could affect its operations. The Company has a full time staff of environmental engineers and managers that perform these responsibilities. The direct costs of ongoing environmental compliance were approximately $24.7 million in 2015 and approximately $19.6 million in 2014 and are related to the Company’s environmental staff, ongoing monitoring costs for various matters (including those matters disclosed in this Annual Report on Form 10-K), and asset retirement costs. Capitalized costs related to environmental control facilities were approximately $9.7 million in 2015 and are expected to be approximately $9.0 million in 2016 and 2017. The Company’s capital expenditures for environmental matters were not material to its results of operations or financial condition in 2015 and 2014. However, our expenditures for environmental matters generally have increased over time and are likely to increase in the future. Despite our 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.

Many of the requirements of the environmental laws are satisfied by procedures that the Company adopts as best business practices in the ordinary course of its operations. For example, plant equipment that is used to crush aggregates products may, as an ordinary course of operations, have an attached water spray bar that is used to clean the stone. The water spray bar also suffices as a dust control mechanism that complies with applicable environmental laws. The Company does not break out the portion of the cost, depreciation, and other financial information relating to the water spray bar that is only attributable to environmental purposes, as it would be derived from an arbitrary allocation methodology. The incremental portion of such operating costs that is attributable to environmental compliance rather than best operating practices is impractical to quantify. Accordingly, the Company expenses costs in that category when incurred as operating expenses.

The environmental accruals recorded by the Company are based on internal studies of the required remediation costs and estimates of potential costs that arise from time to time under federal, state, and/or local environmental protection laws. Many of these laws and the regulations promulgated under them are complex, and are subject to challenges and new interpretations by regulators and the courts from time to time. In addition, new laws are adopted from time to time. It is often difficult to accurately and fully quantify the costs to comply with new rules until it is determined the type of operations to which they will apply and the manner in which they will be implemented is more accurately defined. This process often takes years to finalize and changes significantly from the time the rules are proposed to the time they are final. The Company typically has several appropriate alternatives available to satisfy compliance requirements, which could range from nominal costs to some alternatives that may be satisfied in conjunction with equipment replacement or expansion that also benefits operating efficiencies or capacities and carry significantly higher costs.

Management believes that its current accrual for environmental costs is reasonable, although those amounts may increase or decrease depending on the impact of applicable rules as they are finalized from time to time and changes in facts and circumstances. The Company believes that any additional costs for ongoing environmental compliance would not have a material adverse effect on the Company’s obligations or financial condition.

Future reclamation costs are estimated using statutory reclamation requirements and management’s experience and knowledge in the industry, and are discounted to their present value using a credit-adjusted, risk-free rate of interest. The future reclamation costs are not offset by potential recoveries. For additional information regarding compliance with legal requirements, see “Note N: Commitments and Contingencies” of the “Notes to Financial Statements” of the 2015 Financial Statements and the 2015 Annual Report. The Company is generally required by state or local laws or pursuant to the terms of an applicable lease to reclaim quarry sites after use. The Company performs activities on an ongoing basis that may reduce the ultimate reclamation obligation. These activities are performed as an integral part of the normal quarrying process. For example, the perimeter and interior walls of an open pit quarry are sloped and benched as they are developed to prevent erosion and provide stabilization. This sloping and benching meets dual objectives — safety regulations required by the Mine Safety and Health Administration for ongoing operations and final reclamation requirements. Therefore, these types of activities are included in normal operating costs and are not a part of the asset retirement obligation. Historically, the Company has not incurred substantial reclamation costs in connection with the closing of quarries. Reclaimed quarry sites owned by the Company are available for sale, typically for commercial development or use as reservoirs.

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” under Item 3 of this Form 10-K, “Note N: Commitments and Contingencies” of the “Notes to Financial Statements” of the 2015 Financial Statements included under Item 8 of this Form 10-K and the 2015 Annual Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Regulation and Litigation” included under Item 7 of this Form 10-K and the 2015 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, mining, and cement production facilities must comply with air quality, water quality, and noise regulations, zoning and special use permitting requirements, applicable mining regulations, and federal health and safety requirements. As new quarry and mining sites are located and acquired, the Company works closely with local authorities during the zoning and permitting processes to design new quarries and mines in such a way as to minimize disturbances. The Company frequently acquires large tracts of land so that quarry, mine, and production facilities can be situated substantial distances from surrounding property owners. Also, in certain markets the Company’s ability to transport material by rail and ship allows it to locate its facilities further away from residential areas. The Company has established policies designed to minimize disturbances to surrounding property owners from its operations.

As is the case with other companies in the same industry, some of the Company’s products contain varying amounts of crystalline silica, a common mineral also known as quartz. Excessive, prolonged inhalation of very small-sized particles of crystalline silica has been associated with lung diseases, including silicosis, and several scientific organizations and some states, such as California, have reported that crystalline silica can cause lung cancer. The Mine Safety and Health Administration and the Occupational Safety and Health Administration have established occupational thresholds for crystalline silica exposure as respirable dust. The Company monitors occupational exposures at its facilities and implements dust control procedures and/or makes available appropriate respiratory protective equipment to maintain the occupational exposures at or below the appropriate levels. The Company, through safety information sheets and other means, also communicates what it believes to be appropriate warnings and cautions its employees and customers about the risks associated with excessive, prolonged inhalation of mineral dust in general and crystalline silica in particular.

As is the case with other companies in the cement industry, the Company’s cement operations produce varying quantities of cement kiln dust (“CKD”). This production by-product consists of fine-grained, solid, highly alkaline material removed from cement kiln exhaust gas by air pollution control devices. Because much of the CKD is actually unreacted raw materials, it is generally permissible to recycle the CKD back into the production process, and large amounts often are treated in such manner. CKD that is not returned to the production process or sold as a product itself is disposed in landfills. CKD is currently exempted from federal hazardous waste regulations under Subtitle C of the Resource Conservation and Recovery Act.

In 2010, the United States Environmental Protection Agency (“USEPA”) included the lime industry as a national enforcement priority under the federal Clean Air Act (“CAA”). As part of the industry wide effort, the USEPA issued Notices of Violation/Findings of Violation (“NOVs”) to the Company in 2010 and 2011 regarding the Company’s compliance with the CAA New Source Review (“NSR”) program at the Magnesia Specialties dolomitic lime manufacturing plant in Woodville, Ohio. The Company has been providing information to the USEPA in response to these NOVs and has had several meetings with the USEPA. The Company believes it is in substantial compliance with the NSR program. The Company cannot at this time reasonably estimate what reasonable likely penalties or upgrades to equipment might ultimately be required.

The Company believes that any costs related to any required upgrades will be spread over time and will not have a material adverse effect on the Company’s operations or its financial condition, but can give no assurance that the ultimate resolution of this matter will not have a material adverse effect on the financial condition or results of operations of the Magnesia Specialties segment of the business.

In October 2014, the Company received a CAA Section 114 request for information regarding the Manistee, Michigan operations from the USEPA, similar to the one initially received at the Woodville, Ohio plant. The letter seeks information regarding the Company’s compliance with the NSR program at the Magnesia Specialties manufacturing plant in Manistee, Michigan. No notices of violation have been received by the Company relating to alleged non-compliance at the Manistee plant. The Company believes it is in substantial compliance with the NSR program and has submitted information to the USEPA for review and is awaiting a response or additional questions. The Company cannot at this time reasonably estimate the costs, if any, that may be incurred relating to this matter.

In September 2005, the USEPA designated several entities as potentially responsible parties (“PRPs”) under the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), at the Ward Transformer Superfund site located in Raleigh, North Carolina. In April 2009, two PRPs filed separate actions in the U.S. District Court for the Eastern District of North Carolina against more than 100 other entities, including the Company, seeking contribution from the defendants for expenses incurred by the plaintiffs related to work performed at a portion of the site. The USEPA has not designated the Company as a PRP. The ultimate outcome of these matters will depend upon further environmental assessment and the ultimate number of PRPs and defendants who are held liable for the costs and cannot be determined at this time. The Company believes that any liability will not have a material adverse effect on the Company’s financial condition or results of operations.

The Company has been reviewing its operations with respect to climate change matters and its sources of greenhouse gas emissions. In December 2009, the USEPA made an endangerment finding under the Clean Air Act that the current and projected concentrations of the six key greenhouse gases (“GHG” or “GHGs”) in the atmosphere threaten the public health and welfare of current and future generations. The six GHGs are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. As of 2010, facilities that emitted 25,000 metric tons or more per year of GHGs are required to annually report GHG generation to comply with the USEPA’s Mandatory Greenhouse Gas Reporting Rule. In May 2010, the USEPA issued a final rule (known as the Greenhouse Gas Tailoring Rule) that would have required the Company to incorporate best available GHG control technology in any new plant that it might propose to build and in its existing plants if it modified them in a manner that would increase GHG emissions (in the Company’s case, principally carbon dioxide emissions) by more than 75,000 tons per year. This rule was challenged in court by various public and private parties, and was upheld in part and invalidated in part by the United States Supreme Court in an opinion issued on June 23, 2014. The Court concluded that the USEPA may in fact require best available control technology for GHG, but only if the plant is otherwise subject to Prevention of Significant Deterioration or Title V air permitting under the USEPA’s rules. It is not known whether the USEPA will revise its rules in response to the Court’s decision and, if so, what the impact will be on the Company’s operations. No technologies or methods of operation for reducing or capturing GHGs such as carbon dioxide have been proven successful in large scale applications other than improvements in fuel efficiency, and it is not known what the USEPA will require as best available control technology for plants or conditions it will require for operating permits in the event of modifications to plants or construction of new plants.

In Congress, both the House and Senate had considered climate change legislation, including the “cap-and-trade” approach. Cap and trade is an environmental policy tool that delivers results with a mandatory cap

on emissions while providing sources flexibility in how they comply by trading credits with other sources whose emissions are below the cap. Another approach that had been proposed was a tax on emissions. The Company believes that climate change legislation is not a priority item in Congress in the near future and that the primary method that greenhouse gases will be regulated is through the USEPA using its rule-making authority. Various states where the Company has operations are also considering climate change initiatives, and the Company may be subject to state regulations in addition to any federal laws and rules that are passed.

The operations of the Company’s Aggregates business are not major sources of GHG emissions. Most of the GHG emissions from aggregate operations are tailpipe emissions from mobile sources such as heavy construction and earth-moving equipment. The manufacturing operations of the Company’s Magnesia Specialties business in Woodville, Ohio releases carbon dioxide, methane and nitrous oxide during the production of lime. The Magnesia Specialties operation in Manistee, Michigan releases carbon dioxide, methane, and nitrous oxides in the manufacture of magnesium oxide and hydroxide products. Both of these operations are filing annual reports of their GHG emissions in accordance with the USEPA’s Mandatory Greenhouse Gas Reporting Rule.

Cement production worldwide is estimated to comprise approximately 5% to 10% of CO₂ or GHG emissions, and the USEPA has indicated that CO₂ emitted from cement production is the second largest source of CO₂ emissions in the United States. The Company’s subsidiaries, Riverside Cement Company and TXI, file annual reports of the GHG emissions relating to their cement operations. In addition, as it operated in California, Riverside Cement has been subject to California’s existing GHG emissions trading/credit program. With the sale of its California business, Riverside will no longer be required to file such reports. The Company believes that Riverside Cement has purchased an adequate number of additional emission credits to remain under the regulated limits for the pre-sale periods, and that program will not have a material adverse effect on the Company’s or the Cement business’ financial condition or results of operations.

If and when Congress passes legislation on GHGs, the Woodville and Manistee operations, as well as the Company’s cement operations, will likely be subject to the new program. In addition, the Company believes that the USEPA may impose additional regulatory restrictions on emissions of GHGs that will impact the Company’s Woodville, Manistee, and cement operations. The Company anticipates that any increased operating costs or taxes relating to GHG emission limitations at the Woodville, Manistee, or cement operations would be passed on to customers. The magnesium oxide products produced at the Manistee operation compete against other products that emit a lower level of GHGs in their production. Therefore, the Manistee facility may be required to absorb additional costs due to the regulation of GHG emissions in order to remain competitive in pricing in that market. The Company is also continuing to review the obligations of our Manistee facility’s global customer base with regards to climate change treaties and accords. The Company at this time cannot reasonably predict what the costs of compliance will be, but does not believe it will have a material adverse effect on the financial condition or results of the operations of either the Magnesia Specialties or Cement businesses.

In California, the California Global Warming Solutions Act of 2006, or AB32, required the California Air Resources Board (“CARB”) to implement rules designed to achieve a statewide reduction in emissions of GHGs in California to 1990 levels by 2020. In response, CARB adopted rules that establish a market-based cap-and-trade program, which began on January 1, 2013. The rules applied to Riverside Cement’s cement plant in Oro Grande, California. However, as the plant was sold as of September 30, 2015, Riverside has no further reporting or compliance obligations for the post-closing periods with respect to these rules.

In 2010, the USEPA issued rules that dramatically reduced the permitted emissions of mercury, total hydrocarbons, particulate matter and hydrochloric acid from cement plants. The compliance date for these new

standards was September 2015, but the USEPA granted a one-year extension to verify monitoring systems are effective for mercury and hydrogen chloride emissions. The Company has conducted tests to analyze the current level of compliance of its cement plants with the new standards. All plants required the installation of continuous emissions monitoring (“CEMs”). The Company, through its subsidiary TXI, identified, tested and installed new control and monitoring equipment for these purposes prior to the original September 2015 deadline, and believe that the cement plants meet the other emission requirements in these rules. The Company does not believe that the costs relating to these controls and equipment will have a material adverse effect on the financial condition or results of the operations of either the Company or the Cement business.

Employees

As of January 31, 2016, the Company has approximately 7,300 employees, of which 5,543 are hourly employees and 1,756 are salaried employees. Included among these employees are 751 hourly employees represented by labor unions (10.3% of the Company’s employees). Of such amount, 9.8% of the Company’s Aggregates business’s hourly employees are members of a labor union, none of the Company’s Cement business’s hourly employees are represented by labor unions, and 100% of the Magnesia Specialties segment’s hourly employees are represented by labor unions. The Company’s principal union contracts for the Magnesia Specialties business cover employees at the Manistee, Michigan, magnesia-based chemicals plant and the Woodville, Ohio, lime plant. The Woodville collective bargaining agreement expires in May 2018. The Manistee collective bargaining agreement expires in August 2019. While the Company’s management does not expect significant difficulties in renewing these labor contracts, there can be no assurance that a successor agreement will be reached at any of these locations.

Available Information

The Company maintains an Internet address at www.martinmarietta.com. The Company makes available free of charge through its Internet web site its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports and any amendments are accessed via the Company’s web site through a link with the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system maintained by the Securities and Exchange Commission (the “SEC”) at www.sec.gov. Accordingly, the Company’s referenced reports and any amendments are made available as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC, once EDGAR places such material in its database.

The Company has adopted a Code of Ethical Business Conduct that applies to all of its directors, officers, and employees. The Company’s code of ethics is available on the Company’s web site at www.martinmarietta.com. The Company intends to disclose on its Internet web site any waivers of or amendments to its code of ethics as it applies to its directors and executive officers.

The Company has adopted a set of Corporate Governance Guidelines to address issues of fundamental importance relating to the corporate governance of the Company, including director qualifications and responsibilities, responsibilities of key board committees, director compensation, and similar issues. Each of the Audit Committee, the Management Development and Compensation Committee, and the Nominating and Corporate Governance Committee of the Board of Directors of the Company has adopted a written charter addressing various issues of importance relating to each committee, including the committee’s purposes and responsibilities, an annual performance evaluation of each committee, and similar issues. These Corporate Governance Guidelines, and the charters of each of these committees, are available on the Company’s web site at www.martinmarietta.com.

The Company’s Chief Executive Officer and Chief Financial Officer are required to file with the SEC each quarter and each year certifications regarding the quality of the Company’s public disclosure of its financial condition. The annual certifications are included as Exhibits to this Annual Report on Form 10-K. The Company’s Chief Executive Officer is also required to certify to the New York Stock Exchange each year that he is not aware of any violation by the Company of the New York Stock Exchange corporate governance listing standards.

ITEM 1A.

RISK FACTORS

General Risk Factors

An investment in our common stock or debt securities involves risks and uncertainties. You should consider the following factors carefully, in addition to the other information contained in this Form 10-K, before deciding to purchase or otherwise trade our securities.

This Form 10-K and other written reports and oral statements made from time to time by the Company contain statements which, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of federal securities law. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and are based on assumptions that the Company believes in good faith are reasonable, but which may be materially different from actual results. Investors can identify these statements by the fact that they do not relate only to historic or current facts. The words “may,” “will,” “could,” “should,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “outlook,” “plan,” “project,” “scheduled,” and similar expressions in connection with future events or future operating or financial performance are intended to identify forward-looking statements. Any or all of the Company’s forward-looking statements in this Form 10-K and in other publications may turn out to be wrong.

Statements and assumptions on future revenues, income and cash flows, performance, economic trends, the outcome of litigation, regulatory compliance, and environmental remediation cost estimates are examples of forward-looking statements. Numerous factors, including potentially the risk factors described in this section, could affect our forward-looking statements and actual performance.

Investors are also cautioned that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties. Other factors besides those listed may also adversely affect the Company and may be material to the Company. The Company has listed the known material risks it considers relevant in evaluating the Company and its operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A and 21E of the Securities Exchange Act of 1934. These forward-looking statements are made as of the date hereof based on management’s current expectations, and the Company does not undertake an obligation to update such statements, whether as a result of new information, future events, or otherwise.

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 factors listed below, along with the discussion of “Competition” under Item 1 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this Form 10-K and the 2015 Annual Report, and “Note A: Accounting Policies” and “Note N: Commitments and Contingencies” of the “Notes to Financial Statements” of the 2015 Financial Statements included under Item 8 of this Form 10-K and the 2015 Annual Report.

Our business is cyclical and depends on activity within the construction industry.

Economic and political uncertainty can impede growth in the markets in which we operate. Demand for our products, particularly in the nonresidential and residential construction markets, could fall if companies and consumers are unable to get credit for construction projects or if an economic slowdown causes delays or cancellations of capital projects. State and federal budget issues may also hurt the funding available for infrastructure spending. The lack of available credit may limit the ability of states to issue bonds to finance construction projects. Several of our top sales states, from time-to-time, stop or slow bidding projects in their transportation departments.

We sell most of our aggregate products, our primary business, and our cement products, to the construction industry, so our results depend on the strength of the construction industry. Since our businesses depend on construction spending, which can be cyclical, our profits are sensitive to national, regional, and local economic conditions and the intensity of the underlying spending on aggregates and cement products. During the past few years, the overall economy was hurt by mortgage security losses and the tightening credit markets. Construction spending was affected by economic conditions, changes in interest rates, demographic and population shifts, and changes in construction spending by federal, state, and local governments. If economic conditions change, a recession in the construction industry may occur and affect the demand for our products. The recent economic recession was an example, and our business was hurt. Construction spending can also be disrupted by terrorist activity and armed conflicts.

While our business operations cover a wide geographic area, our earnings depend on the strength of the local economies in which we operate because of the high cost to transport our products relative to their price. If economic conditions and construction spending decline significantly in one or more areas, particularly in our top five sales-generating states of our Aggregates business (based on net sales by state of destination) of Texas, Colorado, North Carolina, Iowa, and Georgia, our profitability will decrease. We experienced this situation with the recent economic recession.

The historic economic recession resulted in large declines in shipments of aggregate products in our industry. Recent years, however, have shown a turnaround in this trend. For the last four years, our aggregates shipments have increased, reflecting a certain degree of volume stability and modest growth. Prior to 2010, use of aggregate products in the United States had declined almost 40% from the highest volume in 2006. During 2015 our heritage aggregates shipments showed 2.1% improvement compared with 2014 levels, after a 7.5% increase the prior year. This improvement was made in 2015 despite the impact of historic levels of rainfall in many of our major markets. While historical spending on public infrastructure projects has been comparatively more stable as governmental appropriations and expenditures are typically less interest rate-sensitive than private sector spending, during 2015 the unprecedented uncertainty on both the timing and amount of future long-term federal infrastructure funding had negatively affected spending on public infrastructure projects. This uncertainty was accompanied by a reduction in some states’ investment in highway maintenance.

After a decade of 36 short-term funding provisions, a five-year, $305 billion highway bill, Fixing America’s Surface Transportation Act (“FAST Act”), was signed into law on December 4, 2015. FAST Act funding will primarily be secured through gas tax collections. Market analysis projects aggregate demand to increase with the availability of federal funding, with demand peaking in 2018, and thereafter declining with anticipated higher interest and inflation rates. Additionally, many states have recently shown a commitment to securing alternative funding sources, including initiating special-purpose taxes and raising gas taxes. According to American Road and Transportation Builders Association (“ARTBA”), fifteen states have raised gas taxes

and 30 legislative measures (which represented 68% of ballot initiatives) for transportation funding were approved by voters in 2015.

Supported by state spending programs, our aggregates shipments to the infrastructure construction market increased 5% in 2015 compared to an increase of 12% in 2014 compared with 2013. We believe that the demand and need for infrastructure projects will continue to support consistent growth in this market now that long-term federal funding has been resolved. In 2015, 41% of our product line aggregates shipments were to the infrastructure construction market.

Within the construction industry, we also sell our aggregates and cement products for use in both nonresidential construction and residential construction. Nonresidential and residential construction levels generally move with economic cycles; when the economy is strong, construction levels rise, and when the economy is weak, construction levels fall.

In 2015, construction growth was driven by private-sector activity. Nonresidential and residential construction levels are interest rate-sensitive and typically move in direct correlation with economic cycles. The Dodge Momentum Index, a 12-month leading indicator of construction spending for nonresidential building compiled by McGraw Hill Construction and where the year 2000 serves as an index basis of 100, remained strong and was 125.2 in December 2015. According to Dodge Data & Analytics, the recent increasing trend of the index is an indication that construction growth will continue into 2016.

Our aggregates volumes to the nonresidential construction market accounted for 32% of our 2015 aggregates product line shipments and increased 3% compared with 2014. Light nonresidential, which includes the commercial sector, increased 27% and was partially offset by a decline in heavy nonresidential, which includes the industrial and energy sectors. Nonresidential investment varies significantly by state. Texas continues to lead the nation in nonresidential construction, demonstrating economic diversity and the ability to replace energy-related shipments currently displaced by low oil prices with other residential projects. Even with its challenging commodity price environment, we expect continued energy-related activity. On a national scale, Florida and South Carolina each rank in the top 10 states and North Carolina and Colorado each rank in the top 20 states in growth (based on dollars invested) in nonresidential construction. Notably, recovery in the residential market typically leads to nonresidential growth with a 12-to-18-month lag.

Our aggregates shipments to the residential construction market increased 20% in 2015. Housing strength varies considerably in different areas of the country. We saw significant residential growth in our key geographic markets, including Florida, Georgia, North Carolina, and Texas. The U.S. Census Bureau reported the total value of private residential construction put in place in 2015 increased 13%. Furthermore, housing starts, a key indicator for residential construction activity, continues to show year-over-year improvement. While 2015 represented the second year that starts exceeded one million since 2008, they still remain below the 50-year historical annual average of 1.5 million units. Importantly, 2015 housing starts exceeded completions, a trend expected to continue in 2016. Geographically, housing strength varies considerably by state, and Texas leads the nation in residential starts. Notably, Dallas-Fort Worth is the second ranked metro area in the United States for growth in housing permits. Additionally, Florida, South Carolina, Colorado and North Carolina each rank in the top ten states for residential starts. In 2015, 17% of our aggregates shipments were to the residential construction market.

Our aggregates product line shipment variances in 2015 for the Mid-America and Southeast Groups reflect the ongoing recovery in these markets, notably Georgia, Florida, and North Carolina. While shipments in the West Group were up due to acquired operations, volumes reflect the significant precipitation in Texas,

Oklahoma and Colorado, which deferred certain shipments to future periods. The West Group volume variance in 2015 was also impacted by the divestiture of the North Troy quarry and two rail yards, which were sold in the third quarter of 2014.

Shipments of chemical rock (comprised primarily of high-calcium carbonate material used for agricultural lime and flue gas desulfurization) and ballast product sales (collectively “ChemRock/Rail”) accounted for 10% of our aggregates shipments and increased 10% in 2015.

Shipments of aggregates-related downstream products typically follow construction aggregates trends.

The Cement business was acquired from TXI on July 1, 2014. The net sales of $367.6 million for 2015 reflected the Company’s leading position in the Texas market.

Our business is dependent on funding from a combination of federal, state and local sources.

Our aggregates and cement products are used in public infrastructure projects, which include the construction, maintenance, and improvement of highways, streets, roads, bridges, schools, and similar projects. So our business is dependent on the level of federal, state, and local spending on these projects. The year 2015 was another year of unprecedented uncertainty as it related to both the timing and amount of future long-term federal infrastructure funding, which negatively affected spending on public infrastructure projects. Despite the uncertainty in long-term funding levels, which wasn’t resolved until near the end of the year, the total value of United States overall public-works spending increased in 2015. However, federal funding remained flat for the year. This increase in overall public works spending in 2015 demonstrates the commitment of states to address the underlying demand for infrastructure investment. However, infrastructure investment continued to vary by market and was strongest in the southwestern and southeastern United States in 2015. We saw increased infrastructure spending in 2015 in Texas, North Carolina, Iowa, and Georgia, four of our five largest revenue generating states. We cannot be assured, however, of the existence, amount, and timing of appropriations for spending on future projects.

The federal highway bill provides annual highway funding for public-sector construction projects. The most recent federal highway bill passed in December 2015, the FAST Act, after a decade of 36 short-term funding provisions, reauthorizes federal highway and transportation funding programs and stabilizes the Highway Trust Fund. The FAST Act also changes TIFIA funding, a federal alternative funding mechanism for transportation projects. Under the FAST Act TIFIA funding will range from $275 million to $300 million, and will no longer require the 20% matching funds from state departments of transportation.

Federal highway bills provide spending authorizations that represent maximum amounts. Each year, an appropriation act is passed establishing the amount that can actually be used for particular programs. The annual funding level is generally tied to receipts of highway user taxes placed in the Highway Trust Fund. Once the annual appropriation is passed, funds are distributed to each state based on formulas (apportionments) or other procedures (allocations). Apportioned and allocated funds generally must be spent on specific programs as outlined in the federal legislation. The Highway Trust Fund has experienced shortfalls in recent years, due to high gas prices (until recently), fewer miles driven and improved automobile fuel efficiency. These shortfalls created a significant decline in federal highway funding levels. In response to the projected shortfalls, money has been transferred from the General Fund into the Highway Trust Fund over the past several years. According to the Congressional Budget Office, current revenues of approximately $34 billion are falling short of the current annual expenditure level of $41 billion. Therefore, timely Congressional action is needed to address the funding mechanism for the Highway Trust Fund. We cannot be assured of the existence, timing or amount of federal highway funding levels in the future. We also cannot be assured of the impact of the recent

sharp reduction in gasoline prices on the levels of highway user taxes that might be collected in the future and the corresponding levels of funding to the Highway Trust Fund.

At the state level, each state funds its infrastructure spending from specially allocated amounts collected from various taxes, typically gasoline taxes and vehicle fees, along with voter-approved bond programs. Shortages in state tax revenues can reduce the amounts spent on state infrastructure projects, even below amounts awarded under legislative bills. Delays in state infrastructure spending can hurt our business. Many states have experienced state-level funding pressures caused by lower tax revenues and an inability to finance approved projects. North Carolina was among the states experiencing these pressures, and this state disproportionately affects our revenues and profits. Most state budgets, including North Carolina, began to improve in 2014 and 2015 as increased tax revenues helped states resolve budget deficits. Prior to the FAST Act, States had also taken on a larger role in funding sustained infrastructure investment. For example, the Texas voters in 2014 approved use of the state’s oil and gas production tax collections for annual disbursements to the State Highway Fund. Additionally, in November 2015, voters passed Proposition 7, a constitutional amendment that will provide an additional $2.5 billion of funding for non-toll roads beginning in 2017. We anticipate further growth in state-level funding initiatives, such as bond issues, toll roads, and special purpose taxes, as states address infrastructure needs, particularly in periods of federal funding uncertainty. Nevertheless, it is a continuing risk to our business that sufficient funding from federal, state, and local sources will not be available to address infrastructure needs.

With the passage of FAST Act in December 2015, the infrastructure market should have increased activity in 2016 and beyond, which should help our business. With most states in recovery or expansion, the sustained decline in energy costs may be the catalyst in some markets to boost construction and help our business. But those markets heavily dependent on the energy sector, namely Oklahoma and West Virginia, may result in recessions in those areas, with the decrease in oil production, which would hurt our business.

Our aggregates business is seasonal and subject to the weather.

Since the construction business is conducted outdoors, erratic weather patterns, seasonal changes and other weather-related conditions affect our business. Adverse weather conditions, including hurricanes and tropical storms, cold weather, snow, and heavy or sustained rainfall, reduce construction activity, restrict the demand for our products, and impede our ability to efficiently transport material. Adverse weather conditions also increase our costs and reduce our production output as a result of power loss, needed plant and equipment repairs, time required to remove water from flooded operations, and similar events. Severe drought conditions can restrict available water supplies and restrict production. The construction aggregates business production and shipment levels follow activity in the construction industry, which typically occur in the spring, summer and fall. Because of the weather’s effect on the construction industry’s activity, the production and shipment levels for the Company’s Aggregates business, including all of its aggregates-related downstream operations, vary by quarter. The second and third quarters are generally the most profitable and the first quarter is generally the least profitable. Weather-related hindrances were exacerbated in 2015 by record precipitation in many of our key markets. The National Oceanic and Atmospheric Administration (“NOAA”) has tracked precipitation for 121 years. According to NOAA, 2015 represented the wettest year on record for Texas and Oklahoma, while North Carolina, South Carolina, Colorado and Iowa each experienced a top-ten precipitation year. Our nation as a whole had its third wettest year in NOAA recorded history. These weather events reduced the Company’s overall profitability in 2015, creating a backlog of construction activity expected to be completed in 2016. The completion of construction activity backlog in 2016 will depend on the capacity of the affected areas to provide enough resources, such as construction crews and equipment, among others.

Our aggregates business depends on the availability of aggregate reserves or deposits and our ability to mine

them economically.

Our challenge is to find aggregate deposits that we can mine economically, with appropriate permits, near either growing markets or long-haul transportation corridors that economically serve growing markets. As communities have grown, they have taken up attractive quarrying locations and have imposed restrictions on mining. We try to meet this challenge by identifying and permitting sites prior to economic expansion, buying more land around our existing quarries to increase our mineral reserves, developing underground mines, and developing a distribution network that transports aggregates products by various transportation methods, including rail and water, that allows us to transport our products longer distances than would normally be considered economical, but we can give no assurances that we will be successful.

Our business is a capital-intensive business.

The property and machinery needed to produce our products are very expensive. Therefore, we require large amounts of cash to operate our businesses. We believe that our cash on hand, along with our projected internal cash flows and our available financing resources, will be enough to give us the cash we need to support our anticipated operating and capital needs. Our ability to generate sufficient cash flow depends on future performance, which will be subject to general economic conditions, industry cycles and financial, business, and other factors affecting our operations, many of which are beyond our control. If we are unable to generate sufficient cash to operate our business, we may be required, among other things, to further reduce or delay planned capital or operating expenditures.

Our businesses face many competitors.

Our businesses have many competitors, some of whom are bigger and have more resources than we do. Some of our competitors also operate on a worldwide basis. Our results are affected by the number of competitors in a market, the production capacity that a particular market can accommodate, the pricing practices of other competitors, and the entry of new competitors in a market. We also face competition for some of our products from alternative products. For example, our magnesia specialties business may compete with other chemical products that could be used instead of our magnesia-based products. As other examples, our aggregates business may compete with recycled asphalt and concrete products that could be used instead of new products and our cement business may compete with international competitors who are importing product to the United States with lower production and regulatory costs.

Our businesses could be impacted by rising interest rates.

As discussed previously, our operations are highly dependent upon the interest rate-sensitive construction and steelmaking industries. Therefore, business in these industries and for us may decline if interest rates rise and costs increase.

For example, demand in the residential construction market in which we sell our aggregate products is affected by interest rates. The Federal Reserve kept the federal funds rate near zero percent for the majority of 2015. The recent increase in the rate by 0.25% represented the first increase since 2008. The residential construction market accounted for 17% of our aggregates product line shipments in 2015.

Aside from these inherent risks from within our operations, our earnings are also affected by changes in short-term interest rates. However, rising interest rates are not necessarily predictive of weaker operating results. In fact, since 2007, our profitability increased when interest rates rose, based on the last twelve months

quarterly historical net income regression versus a 10-year U.S. government bond. In essence, our underlying business generally serves as a natural hedge to rising interest rates.

Rising interest rates could also result in disruptions in the credit markets, which could affect our business, as described in greater detail under “Disruptions in the credit markets could affect our business” below.

Our future growth may depend in part on acquiring other businesses in our industry.

We expect to continue to grow, in part, by buying other businesses. We will continue to look for strategic businesses to acquire, like our acquisition of TXI in 2014. In the past, we have made acquisitions to strengthen our existing locations, expand our operations, and enter new geographic markets. We will continue to make selective acquisitions, joint ventures, or other business arrangements we believe will help our company. However, the continued success of our acquisition program will depend on our ability to find and buy other attractive businesses at a reasonable price and our ability to integrate acquired businesses into our existing operations. We cannot assume there will continue to be attractive acquisition opportunities for sale at reasonable prices that we can successfully integrate into our operations.

We may decide to pay all or part of the purchase price of any future acquisition with shares of our common stock. For example, we used our common stock in our acquisition of TXI. We may also use our stock to make strategic investments in other companies to complement and expand our operations. If we use our common stock in this way, the ownership interests of our shareholders will be diluted and the price of our stock could fall. We operate our businesses with the objective of maximizing the long-term shareholder return.

We have acquired many companies since 1995. Some of these acquisitions were more easily integrated into our existing operations and have performed as well or better than we expected, while others have not. For example, in 2015 we completed the integration of the operations of TXI, as discussed below, which was more successful than anticipated. We have sold some underperforming and other non-strategic assets, such as underperforming road paving operations in Arkansas and east Texas, which were sold in 2014, and our non-core asphalt operations in San Antonio, Texas, which were sold in 2015.

Our integration of the acquisition of or business combination with other businesses may not be as successful as we hope.

We have a successful history of business combinations and integration of these businesses into our heritage operations. Our largest business acquisition has been our business combination with TXI, which closed in July 2014. In 2015 we completed the integration of TXI’s operations into our own operations, which allowed us to achieve the synergies, cost savings, and operating efficiencies we had forecast from the TXI acquisition. In fact we completed this integration ahead of schedule and achieved even greater synergies and cost saving than the amount we originally forecast from the TXI acquisition. However, in connection with the integration of any business that we may seek to acquire, it is a risk factor that we will not be able to achieve such integration in a successful manner or on the time schedule we have projected or in a way that will achieve the level of synergies, cost savings, or operating efficiencies we have forecast from the acquisition.

Any other significant business acquisition or combination we might chose to do, like the acquisition of TXI, would require that we devote significant management attention and resources to preparing for and then integrating our business practices and operations. We believe we would be successful in this integration process. Nevertheless, we may fail to realize some of the anticipated benefits of any potential acquisition or other business combination that we might choose to pursue in the future, if the integration process takes longer

than expected or is more costly than expected. Potential difficulties we may encounter in the integration process include:

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the inability to successfully combine operations in a manner that permits us to achieve the cost savings and revenue synergies anticipated to result from the proposed acquisition or business combination, which would result in the anticipated benefits of the acquisition or business combination not being realized partly or wholly in the time frame currently anticipated or at all;

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lost sales and customers as a result of certain customers of either the Company or former customers of the acquired or combined company deciding not to do business with the Company;

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complexities associated with managing the combined operations;

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integrating personnel;

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creation of uniform standards, internal controls, procedures, policies and information systems;

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potential unknown liabilities and unforeseen increased expenses, delays or regulatory issues associated with integrating the remaining operations; and

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performance shortfalls at business units as a result of the diversion of management attention caused by completing the remaining integration of the operations.

Aggregates-related downstream businesses have lower profit margins and can be more volatile.

For 2015, our asphalt, ready mixed concrete, and road paving businesses accounted for 33% of the net sales of our Aggregates business, up from 8% in 2011. These businesses typically provide lower profit margins (excluding freight and delivery revenues) than our aggregates product line due to potentially volatile input costs, highly competitive market dynamics, and lower barriers to entry. Therefore, as we expand these operations, our overall gross margin is likely to be adversely affected. We saw this impact our gross margin in recent years. Our overall aggregates-related downstream operations gross margin (excluding freight and delivery revenues) was 8.9% for 2015 and 2014. The overall gross margin (excluding freight and delivery revenues) of our Aggregates business will continue to be reduced by the lower gross margins for our aggregates-related downstream operations.

Short supplies and high costs of fuel, energy, and raw materials affect our businesses.

Our businesses require a continued supply of diesel fuel, natural gas, coal, petroleum coke and other energy. The financial results of these businesses have been affected by the short supply or high costs of these fuels and energy. While we can contract for some fuels and sources of energy, such as fixed-price supply contracts for coal and petroleum coke, significant increases in costs or reduced availability of these items have and may in the future reduce our financial results. Moreover, fluctuations in the supply and costs of these fuels and energy can make planning our businesses more difficult. Because of the fluctuating trends in diesel fuel prices, we enter into fixed-price fuel agreements from time to time for a portion of our diesel fuel to reduce our diesel fuel price risk. We currently have a fixed-price commitment for approximately 40% of our diesel fuel requirements at a rate of $2.20 per gallon through December 31, 2016.

To illustrate how diesel fuel price fluctuations, and other energy costs, have impacted our business, consider the recent years. In 2013 the average price we paid per gallon of diesel fuel was 4% lower than we

paid in 2012, but the average cost of natural gas was 18% higher than 2012. Similarly, in 2014 the average price we paid per gallon of diesel fuel was 8% lower compared to 2013, but the average cost of natural gas increased 24% from 2013. Diesel fuel, which averaged $2.82 per gallon in 2014 and $2.98 per gallon in 2013, represents the single largest component of energy costs for our Aggregates business. Diesel fuel prices declined rapidly during December 2014, ending the year at a per gallon price that was 26% below the 2014 average. This trend continued in 2015, as the Company’s average price per gallon of diesel fuel in 2015 was $2.05 on 42.5 million gallons compared with $3.02 on 36.9 million gallons in 2014. Natural gas costs also declined in 2015, down 28% from the 2014 average cost.

The Company has fixed price agreements for 100% of its 2016 coal needs. The Magnesia Specialties business has fixed price agreements for the supply of a portion of its coal and natural gas needs.

Cement production requires large amounts of energy, including electricity and fossil fuels. Energy costs represented approximately 26% of the 2015 direct production costs of our Cement business. Therefore, the cost of energy is one of our largest expenses. Prices for energy are subject to market forces largely beyond our control and can be quite volatile. Price increases that we are unable to pass through in the form of price increases for our products, or disruption of the uninterrupted supply of fuel and electricity, could adversely affect us. Accordingly, volatility in energy costs can adversely affect the financial results of our Cement business. Profitability of the Cement business is also subject to kiln maintenance, which requires the plant to be shut down for a period of time as repairs are made. In 2014, the Cement business incurred shutdown costs of $13.3 million during the second half of the year. In 2015, the Cement business incurred shutdown costs of $26 million for the full year.

Similarly our aggregates-related downstream operations also require a continued supply of liquid asphalt and cement, which serve as key raw materials in the production of hot mix asphalt and ready mixed concrete, respectively. Some of these raw materials we can produce internally but most are purchased from third parties. These purchased raw materials are subject to potential supply constraints and significant price fluctuations, which are beyond our control. The financial results of our aggregates-related downstream operations have been affected by the short supply or high costs of these raw materials. We generally see frequent volatility in the costs for these raw materials. For 2014, we saw higher prices for these raw materials than 2013. This trend reversed in 2015, when we saw lower prices for these raw materials than 2014. Liquid asphalt prices may not always follow other energy products (e.g., oil or diesel fuel) because of complexities in the refining process which converts a barrel of oil into other fuels and petrochemical products.

Cement is a commodity sensitive to supply and price volatility.

Cement is a commodity, and competition is often based mainly on price, which is highly sensitive to changes in supply and demand. Prices change a lot in response to relatively minor changes in supply and demand, general economic conditions and other market conditions, which we cannot control. When cement producers increase production capacity or more cement is imported into the market, an oversupply of cement in the market may occur if supply exceeds demand. In that case cement prices generally fall. We cannot be assured that prices for our cement products sold will not decline in the future or that such decline will not have a material adverse effect on our Cement business.

Unexpected equipment failures, catastrophic events and scheduled maintenance may lead to production curtailments or shutdowns.

Our manufacturing processes are dependent upon critical pieces of equipment, such as our kilns and finishing mills. This equipment, on occasion, may be out of service as a result of unanticipated failures or

damage during accidents. In addition to equipment failures, our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions or violent weather conditions. We have one to two-week scheduled outages at least once a year to refurbish our cement and dolomitic lime production facilities. In 2015, the Cement business incurred shutdown costs of $26 million during the year. In 2015, the Magnesia Specialties business incurred shutdown costs of $5.1 million during the year. Any significant interruption in production capability may require us to make significant capital expenditures to remedy problems or damage as well as cause us to lose revenue due to lost production time.

Our Cement and Magnesia Specialties businesses may become capacity constrained.

If our Cement or Magnesia Specialties businesses become capacity constrained, they may be unable to satisfy on a timely basis the demand for some of their products, and any resulting changes in customers would introduce volatility to the earnings of these segments. We can address capacity needs by enhancing our manufacturing productivity, increasing the operational availability of equipment, reducing machinery down time and extending machinery useful life. Future demand for our products may require us to expand further our manufacturing capacity, particularly through the purchase of additional manufacturing equipment. However, we may not be able to increase our capacity in time to satisfy increases in demand that may occur from time to time. Capacity constraints may prevent us from satisfying customer orders and result in a loss of sales to competitors that are not capacity constrained. In addition, we may suffer excess capacity if we increase our capacity to meet actual or anticipated demand and that demand decreases or does not materialize.

Our cement business could suffer if cement imports from other countries significantly increase or are sold in the U.S. in violation of U.S. fair trade laws.

The cement industry has in the past obtained antidumping orders imposing duties on imports of cement and clinker from other countries that violated U.S. fair trade laws. Currently, an antidumping order against cement and clinker from Japan will expire in 2016 unless it is extended by the Federal Trade Commission. As has always been the case, cement operators with import facilities can purchase cement from other countries, such as those in Latin America and Asia, which could compete with domestic producers. In addition, if environmental regulations increase the costs of domestic producers compared to foreign producers that are not subject to similar regulations, imported cement could achieve a significant cost advantage over domestically produced cement. An influx of cement or clinker products from countries not subject to antidumping orders, or sales of imported cement or clinker in violation of U.S. fair trade laws, could adversely affect our cement business.

Road paving construction operations present additional risks to our business.

Our aggregates-related downstream operations also present challenges in the paving construction business where many of our contracts have penalties for late completion. In some instances, including many of our fixed price contracts, we guarantee that we will complete a project by a certain date. If we subsequently fail to complete the project as scheduled we may be held responsible for costs resulting from the delay, generally in the form of contractually agreed-upon liquidated damages. Under these circumstances, the total project cost could exceed our original estimate, and we could experience a loss of profit or a loss on the project. In our road paving construction operations we also have fixed price and fixed unit price contracts where our profits can be adversely affected by a number of factors beyond our control, which can cause our actual costs to materially exceed the costs estimated at the time or our original bid. These same issues and risks can also impact some of our contacts in our asphalt and ready mixed concrete operations. These risks are somewhat mitigated by the fact that a majority of our road paving contracts are for short duration projects.

Changes in legal requirements and governmental policies concerning zoning, land use, the environment, and other areas of the law, and litigation relating to these matters, affect our businesses. Our operations expose us to the risk of material environmental liabilities.

Many federal, state, and local laws and regulations relating to zoning, land use, the environment, health, safety, and other regulatory matters govern our operations. We take great pride in our operations and try to remain in strict compliance at all times with all applicable laws and regulations. Despite our extensive compliance efforts, risk of liabilities, particularly environmental liabilities, is inherent in the operation of our businesses, as it is with our competitors. We cannot assume that these liabilities will not negatively affect us in the future.

We are also subject to future events, including changes in existing laws or regulations or enforcement policies, or further investigation or evaluation of the potential health hazards of some of our products or business activities, which may result in additional compliance and other costs. We could be forced to invest in preventive or remedial action, like pollution control facilities, which could be substantial.

Our operations are subject to manufacturing, operating, and handling risks associated with the products we produce and the products we use in our operations, including the related storage and transportation of raw materials, products, hazardous substances, and wastes. We are exposed to hazards including storage tank leaks, explosions, discharges or releases of hazardous substances, exposure to dust, and the operation of mobile equipment and manufacturing machinery.

These risks can subject us to potentially significant liabilities relating to personal injury or death, or property damage, and may result in civil or criminal penalties, which could hurt our productivity or profitability. For example, from time to time we investigate and remediate environmental contamination relating to our prior or current operations, as well as operations we have acquired from others, and in some cases we have been or could be named as a defendant in litigation brought by governmental agencies or private parties.

We are involved from time to time in litigation and claims arising from our operations. While we do not believe the outcome of pending or threatened litigation will have a material adverse effect on our operations or our financial condition, we cannot assume that an adverse outcome in a pending or future legal action would not negatively affect us.

Labor disputes could disrupt operations of our businesses.

Labor unions represent 9.8% of the hourly employees of our aggregates business, none of the hourly employees of our cement business, and 100% of the hourly employees of our Magnesia Specialties business. Our collective bargaining agreements for employees of our magnesia specialties business at the Manistee, Michigan magnesia chemicals plant and the Woodville, Ohio lime plant expire in August 2019 and May 2018, respectively.

Disputes with our trade unions, or the inability to renew our labor agreements, could lead to strikes or other actions that could disrupt our businesses, raise costs, and reduce revenues and earnings from the affected locations. We believe we have good relations with all of our employees, including our unionized employees.

Delays or interruptions in shipping products of our businesses could affect our operations.

Transportation logistics play an important role in allowing us to supply products to our customers, whether by truck, rail, or ship. We also rely heavily on third-party truck and rail transportation to ship coal, natural gas, and other fuels to our plants. Any significant delays, disruptions, or the non-availability of our transportation support system could negatively affect our operations. Transportation operations are subject to capacity constraints, high fuel costs and various hazards, including extreme weather conditions and slowdowns due to labor strikes and other work stoppages. In Texas, we compete for third party trucking services with operations in the oil and gas fields, which can significantly constrain the availability of those services to us. If there are material changes in the availability or cost of transportation services, we may not be able to arrange alternative and timely means to ship our products or fuels at a reasonable cost, which could lead to interruptions or slowdowns in our businesses or increases in our costs.

The availability of rail cars can also affect our ability to transport our products. Rail cars can be used to transport many different types of products across all of our segments. If owners sell or lease rail cars for use in other industries, we may not have enough rail cars to transport our products.

We have long-term agreements with shipping companies to provide ships to transport our aggregate products from our Bahamas and Nova Scotia operations to various coastal ports. These contracts have varying expiration dates ranging from 2016 to 2027 and generally contain renewal options. Our inability to renew these agreements or enter into new ones with other shipping companies could affect our ability to transport our products.

When we sold our River District operations in 2011 as part of our asset exchange with Lafarge, we sold most of our barge long-haul distribution network. As a result, we reduced our risks from distributing our products by barges, especially along the Mississippi River. We still distribute some of our product by barge along rivers in West Virginia. We may continue to experience, to a lesser degree, risks associated with distributing our products by barges, including significant delays, disruptions, or the non-availability of our barge transportation system that could negatively affect our operations, water levels that could affect our ability to transport our products by barge, and barges that may not be available in quantities that we might need from time to time to support our operations.

Our earnings are affected by the application of accounting standards and our critical accounting policies, which involve subjective judgments and estimates by our management. Our estimates and assumptions could be wrong.

The accounting standards we use in preparing our financial statements are often complex and require that we make significant estimates and assumptions in interpreting and applying those standards. We make critical estimates and assumptions involving accounting matters including our goodwill impairment testing, our expenses and cash requirements for our pension plans, our estimated income taxes, and how we account for our property, plant and equipment, and inventory. These estimates and assumptions involve matters that are inherently uncertain and require our subjective and complex judgments. If we used different estimates and assumptions or used different ways to determine these estimates, our financial results could differ.

While we believe our estimates and assumptions are appropriate, we could be wrong. Accordingly, our financial results could be different, either higher or lower. We urge you to read about our critical accounting policies in our Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The adoption of new accounting standards may affect our financial results.

The accounting standards we apply in preparing our financial statements are reviewed by regulatory bodies and are changed from time to time. New or revised accounting standards could change our financial results either positively or negatively. We urge you to read about our accounting policies in Note A of our 2015 financial statements. Additional accounting standard updates have been issued, effective January 1, 2018, that amend the accounting guidance on revenue recognition and provide a more robust framework for addressing revenue issues, improving comparability of revenue recognition practices, and improving disclosure requirements. We are currently reviewing how these new provisions will affect us. At this time we do not expect the changes to have a material impact on our financial results. New or revised accounting standards could change our financial results either positively or negatively.

The Sarbanes-Oxley Act of 2002, and other related rules and regulations, have increased the scope, complexity, and cost of corporate governance. Reports from the Public Company Accounting Oversight Board’s (“PCAOB”) inspections of public accounting firms continue to outline findings and recommendations which could require these firms to perform additional work as part of their financial statement audits. The Company’s costs to respond to these additional requirements and exposure to adverse findings by the PCAOB of the work performed may increase as to internal controls.

We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could affect our business.

Our success depends to a significant degree upon the continued services of our key personnel and executive officers. Our prospects depend upon our ability to attract and retain qualified personnel for our operations. Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel, which could negatively affect our business.

Disruptions in the credit markets could affect our business.

We have considered the current economic environment and its potential impact to the Company’s business. Demand for aggregates products, particularly in the infrastructure construction market, has already been negatively affected by federal and state budget and deficit issues and the uncertainty over future highway funding levels, until the recent enactment of a new federal highway bill. Further, delays or cancellations to capital projects in the nonresidential and residential construction markets could occur if companies and consumers are unable to obtain financing for construction projects or if consumer confidence continues to be eroded by economic uncertainty.

A recessionary construction economy can also increase the likelihood we will not be able to collect on all of our accounts receivable with our customers. We are protected in part, however, by payment bonds posted by many of our customers or end-users. Nevertheless, we experienced a delay in payment from some of our customers during the construction downturn, which can negatively affect operating cash flows. Historically, our bad debt write-offs have not been significant to our operating results, and, although the amount of our bad debt write-offs has increased, we believe our allowance for doubtful accounts is adequate.

The credit environment could impact the Company’s ability to borrow money in the future. Additional financing or refinancing might not be available and, if available, may not be at economically favorable terms. Further, an increase in leverage could lead to deterioration in our credit ratings. A reduction in our credit ratings, regardless of the cause, could also limit our ability to obtain additional financing and/or increase our

cost of obtaining financing. There is no guarantee we will be able to access the capital markets at financially economical interest rates, which could negatively affect our business.

We may be required to obtain financing in order to fund certain strategic acquisitions, if they arise, or to refinance our outstanding debt. Any large strategic acquisition would require that we issue both newly issued equity and debt securities, like we did with the acquisition of TXI, in order to maintain our investment grade credit rating and could result in a ratings downgrade notwithstanding our issuance of equity securities to fund the transaction. We are also exposed to risks from tightening credit markets, through the interest payable on our outstanding debt and the interest cost on our commercial paper program, to the extent it is available to us. While management believes our credit ratings will remain at a composite investment-grade level, we cannot be assured these ratings will remain at those levels. While management believes the Company will continue to have credit available to it adequate to meet its needs, there can be no assurance of that.

Our Magnesia Specialties business depends in part on the steel industry and the supply of reasonably priced fuels.

Our Magnesia Specialties business sells some of its products to companies in the steel industry. While we have reduced this risk over the last few years, this business is still dependent, in part, on the strength of the cyclical steel industry. The Magnesia Specialties business also requires significant amounts of natural gas, coal, and petroleum coke, and financial results are negatively affected by increases in fuel prices or shortages.

Our Magnesia Specialties business faces currency risks from its overseas operations.

Our Magnesia Specialties business sells some of its products to companies located outside the United States. Approximately 13.3% of the revenues of the Magnesia Specialties business in 2015 were from foreign jurisdictions, principally Canada, Mexico, Europe, South America, and the Pacific Rim, but no single foreign county accounted for 10% or more of the revenues of the business. Therefore the operations of the Magnesia Specialties business are affected from time to time by the fluctuating values of the currency exchange rates of the countries in which it does business in relation to the value of the U.S. Dollar. The business tries to mitigate the short-term effects of currency exchange rates by using the U.S. Dollar as its functional currency in foreign transactions. This still leaves the business subject to certain risks, depending on the strength of the U.S. Dollar. In 2015, the strength of the U.S. Dollar in foreign markets negatively affected the overall price of the products of the Magnesia Specialties business when compared to foreign-domiciled competitors.

Our acquisitions could harm our results of operations.

In pursuing our business strategy, we conduct discussions, evaluate opportunities, and enter into acquisition agreements. Acquisitions involve significant challenges and risks, including risks that:

•

We may not realize a satisfactory return on the investment we make;

•

We may not be able to retain key personnel of the acquired business;

•

We may experience difficulty in integrating new employees, business systems, and technology;

•

Our due diligence process may not identify compliance issues or other liabilities that are in existence at the time of our acquisition;

•

We may have difficulty entering into new geographic markets in which we are not experienced; or

•

We may be unable to retain the customers and partners of acquired businesses following the acquisition.

Our articles of incorporation, bylaws, and shareholder rights plan and North Carolina law may inhibit a change in control that you may favor.

Our restated articles of incorporation and restated bylaws, shareholder rights plan, and North Carolina law contain provisions that may delay, deter or inhibit a future acquisition of us not approved by our Board of Directors. This could occur even if our shareholders are offered an attractive value for their shares or if many or even a majority of our shareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring us to negotiate with and obtain the approval of our Board of Directors in connection with the transaction. Provisions that could delay, deter, or inhibit a future acquisition include the following:

•

a classified Board of Directors;

•

the ability of the Board of Directors to establish the terms of, and issue, preferred stock without shareholder approval;

•

the requirement that our shareholders may only remove directors for cause;

•

the inability of shareholders to call special meetings of shareholders; and

•

super majority shareholder approval requirements for business combination transactions with certain five percent shareholders.

In addition, we have in place a shareholder rights plan that will trigger a dilutive issuance of common stock upon acquisitions of our common stock by a third party above a threshold that are not approved by the Board of Directors. Additionally, the occurrence of certain change of control events could result in an event of default under certain of our existing or future debt instruments.

Changes in our effective income tax rate may harm our results of operations.

A number of factors may increase our future effective income tax rate, including:

•

Governmental authorities increasing taxes or eliminating deductions, particularly the depletion deduction;

•

The jurisdictions in which earnings are taxed;

•

The resolution of issues arising from tax audits with various tax authorities;

•

Changes in the valuation of our deferred tax assets and liabilities;

•

Adjustments to estimated taxes upon finalization of various tax returns;

•

Changes in available tax credits;

•

Changes in stock-based compensation;

•

Other changes in tax laws, and

•

The interpretation of tax laws and/or administrative practices.

Any significant increase in our future effective income tax rate could reduce net earnings for future periods.

We are dependent on information technology and our systems and infrastructure face certain risks, including cybersecurity risks and data leakage risks.

We are dependent on information technology systems and infrastructure. Any significant breakdown, invasion, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively impact operations. There is also a risk that we could experience a business interruption, theft of information, or reputational damage as a result of a cyber-attack, such as an infiltration of a data center, or data leakage of confidential information either internally or at our third-party providers. While we have invested in the protection of our data and information technology to reduce these risks and routinely test the security of our information systems network, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

There are no unresolved written comments that were received from the staff of the SEC one hundred and eighty (180) days or more before the end of our fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934.

ITEM 2.

PROPERTIES

Aggregates Business

As of December 31, 2015, the Company processed or shipped aggregates from 272 quarries, underground mines, and distribution yards in 26 states, Canada, and the Bahamas, of which 109 are located on land owned by the Company free of major encumbrances, 57 are on land owned in part and leased in part, 99 are on leased land, and 7 are on facilities neither owned nor leased, where raw materials are removed under an agreement. The Company’s aggregates reserves, on the average, exceed 60 years based on normalized levels of production, and exceed 100 years at current production rates. However, certain locations may be subject to more limited reserves and may not be able to expand. In addition, as of December 31, 2015, the Company processed and shipped ready mixed concrete and/or asphalt products from 131 properties in 5 states, of which 109 are located on land owned by the Company free of major encumbrances, 1 is on land owned in part and leased in part, 20 are on leased land, and 1 is on a facility neither owned or leased, where product is sold under an agreement.

The Company uses various drilling methods, depending on the type of aggregate, to estimate aggregates reserves that are economically mineable. The extent of drilling varies and depends on whether the location is a potential new site (greensite), an existing location, or a potential acquisition. More extensive drilling is performed for potential greensites and acquisitions, and in rare cases, the Company may rely on existing geological data or results of prior drilling by third parties. Subsequent to drilling, selected core samples are

tested for soundness, abrasion resistance, and other physical properties relevant to the aggregates industry. If the reserves meet the Company’s standards and are economically mineable, then they are either leased or purchased.

The Company estimates proven and probable reserves based on the results of drilling. Proven reserves are reserves of deposits designated using closely spaced drill data, and based on that data the reserves are believed to be relatively homogenous. Proven reserves have a certainty of 85% to 90%. Probable reserves are reserves that are inferred utilizing fewer drill holes and/or assumptions about the economically mineable reserves based on local geology or drill results from adjacent properties. The degree of certainty for probable reserves is 70% to 75%. In determining the amount of reserves, the Company’s policy is to not include calculations that exceed certain depths, so for deposits, such as granite, that typically continue to depths well below the ground, there may be additional deposits that are not included in the reserve calculations. The Company also deducts reserves not available due to property boundaries, set-backs, and plant configurations, as deemed appropriate when estimating reserves. The Company uses the same methods of analysis to evaluate and estimate the amount of its aggregates reserves used in the cement manufacturing process for its Cement business as it does for its Aggregates business. For additional information on the Company’s assessment of reserves, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Financial Information - Critical Accounting Policies and Estimates- Property, Plant and Equipment” under Item 7 of this Form 10-K and the 2015 Annual Report for discussion of reserves evaluation by the Company.

Set forth in the tables below are the Company’s estimates of reserves of recoverable aggregates of suitable quality for economic extraction, shown on a state-by-state basis, and the Company’s total annual production for the last 3 years, along with the Company’s estimate of years of production available, shown on a segment-by-segment basis. The number of producing quarries shown on the table includes underground mines. The Company’s reserve estimates for the last 2 years are shown for comparison purposes on a state-by-state basis. The changes in reserve estimates at a particular state level from year to year reflect the tonnages of reserves on locations that have been opened or closed during the year, whether by acquisition, disposition, or otherwise; production and sales in the normal course of business; additional reserve estimates or refinements of the Company’s existing reserve estimates; opening of additional reserves at existing locations; the depletion of reserves at existing locations; and other factors. The Company evaluates its reserve estimates primarily on a Company-wide, or segment-by-segment basis, and does not believe comparisons of changes in reserve estimates on a state-by-state basis from year to year are particularly meaningful. The Company’s estimate of reserves shown in the tables below include reserves used in the Company’s Cement and Magnesia Specialties businesses.


	Number of Producing Quarries		Tonnage of Reserves for each general type of aggregate at 12/31/14 (Add 000)				Tonnage of Reserves for each general type of aggregate at 12/31/15 (Add 000)				Change in Tonnage from 2014 (Add 000)						Percentage of aggregate reserves located at an existing quarry, and reserves not located at an existing quarry.						Percentage of aggregate reserves on land that has not been zoned for quarrying.* **			Percent of reserves owned and percent leased
State	2015		Hard Rock		S & G		Hard Rock		S & G		Hard Rock			S & G			At Quarry			Not at Quarry						Owned			Leased
Alabama		4		130,199		12,110		128,775		12,110		(1,424	)		0			100	%		0	%		0	%		14	%		86	%
Arkansas		3		238,844				223,382				(15,462	)		0			100	%		0	%		0	%		49	%		51	%
California		0		329,392								(329,392	)		0
Colorado		8		107,562		87,575		139,872		65,698		32,310			(21,877	)		94	%		6	%		0	%		99	%		1	%
Florida		1		252,614				208,805				(43,809	)		0			100	%		0	%		0	%		0	%		100	%
Georgia		15		2,144,817				2,154,134				9,317			0			95	%		5	%		0	%		81	%		19	%
Indiana		10		501,461		52,450		496,257		51,030		(5,204	)		(1,420	)		100	%		0	%		0	%		37	%		63	%
Iowa		29		688,783		38,983		761,927		20,495		73,144			(18,488	)		100	%		0	%		0	%		28	%		72	%
Kansas		4		99,859				80,757				(19,102	)		0			100	%		0	%		8	%		35	%		65	%
Kentucky		1				24,891				24,891		0			0			100	%		0	%		0	%		0	%		100	%
Louisiana		3				8,902				9,091		0			189			100	%		0	%		0	%		1	%		99	%
Maryland		2		135,006				133,980				(1,026	)		0			100	%		0	%		0	%		100	%		0	%
Minnesota		2		420,116				328,352				(91,764	)		0			68	%		32	%		0	%		63	%		37	%
Mississippi		0				67,210				67,238		0			28			100	%		0	%		0	%		100	%		0	%
Missouri		4		416,034				412,034				(4,000	)		0			89	%		11	%		0	%		17	%		83	%
Montana		0		50,000				48,807				(1,193	)		0			100	%		0	%		0	%		100	%		0	%
Nebraska		3		185,498				181,196				(4,302	)		0			100	%		0	%		0	%		51	%		49	%
Nevada		1		138,662				136,871				(1,791	)		0			100	%		0	%		0	%		90	%		10	%
North Carolina		38		3,452,099				3,491,412				39,313			0			82	%		18	%		0	%		60	%		40	%
Ohio ***		12		722,920		120,161		558,169		128,998		(164,751	)		8,837			47	%		53	%		0	%		97	%		3	%
Oklahoma		9		1,214,840		14,023		1,226,101		13,534		11,261			(489	)		100	%		0	%		0	%		90	%		10	%
South Carolina		6		517,472		29,110		513,002		28,746		(4,470	)		(364	)		100	%		0	%		0	%		15	%		85	%
Tennessee		1		36,389				35,938				(451	)		0			100	%		0	%		0	%		100	%		0	%
Texas ****		26		2,367,460		144,067		2,305,251		141,872		(62,209	)		(2,195	)		100	%		0	%		0	%		58	%		42	%
Utah		1		24,514				23,888				(626	)		0			100	%		0	%		0	%		0	%		100	%
Virginia		4		350,113				344,298				(5,815	)		0			84	%		16	%		0	%		73	%		27	%
Washington		3		40,806				22,051				(18,755	)		0			66	%		34	%		0	%		68	%		32	%
West Virginia		2		45,352				44,718				(634	)		0			43	%		57	%		0	%		85	%		15	%
Wyoming		2		148,162				159,866				11,704			0			100	%		0	%		0	%		40	%		60	%
U. S. Total		194		14,758,974		599,482		14,159,843		563,703		(599,131	)		(35,779	)		92	%		8	%		0	%		55	%		45	%

Non-U. S.		2		867,914		0		861,420		0		(6,494	)		0			100	%		0	%		0	%		100	%		0	%

Grand Total		196		15,626,888		599,482		15,021,263		563,703		(605,625	)		(35,779	)

*	The Company calculates its aggregate reserves for purposes of this table based on land that has been zoned for quarrying and land for which the Company has determined zoning is not required.

**	The Company may own additional land adjacent or near existing quarries on which reserves may be located but does not include such reserves in these calculations if zoning is required but has not been obtained.

***	The Company’s reserves presented in the State of Ohio include dolomitic limestone reserves used in the business of the Magnesia Specialties segement.

****	The Company’s reserves presented in the State of Texas include limestone reserves used in the business of the Cement segment.


	Total Annual Production (in tons) (add 000) For year ended December 31						Number of years of production available at December 31, 2015
Reportable Segment*	2015		2014		2013
Mid-America Group		62,846		59,785		57,529		114.7
Southeast Group		21,148		18,932		17,275		164.0
West Group		69,223		62,579		53,395		70.9

Total Aggregates Business		153,217		141,296		128,199		101.7

*	Prior year segment information has been reclassified to conform to the presentation of the Company’s current reportable segments.

Cement Business

As of December 31, 2015, the Company, through its subsidiaries, processed or shipped cement from 6 properties in 1 state, of which 5 are located on land owned by the Company free of major encumbrances and 1 is on leased land. The Company’s Cement business has production facilities located at two sites in Texas: Midlothian, Texas, south of Dallas/Fort Worth; Hunter, Texas, north of San Antonio. The following table summarizes certain information about the Company’s cement manufacturing facilities at December 31, 2015:

Plant

Rated Annual
Productive
Capacity-Tons
of Clinker

Manufacturing
Process

Service Date

Internally
Estimated
Minimum
Reserves—Years

Midlothian, TX

2,200,000

Dry

2001

Hunter, TX

2,250,000

Dry

2013 and 1981

140

Total

4,450,000

Reserves identified with the facilities shown above are contained on approximately 2,844 acres of land owned by the Company. As of December 31, 2015, the Company estimated its total proven and probable limestone reserves on such land to be approximately 701 million tons.

The Company’s cement manufacturing facilities include kilns, crushers, pre-heaters/calciners, coolers, finish mills and other equipment used to process limestone and other raw materials into cement, as well as equipment used to extract and transport the limestone from the adjacent quarries. These cement manufacturing facilities are served by rail and truck.

As of December 31, 2015, the Company, through its subsidiaries, also operated 3 cement distribution terminals and owned the real estate at the California cement grinding and packaging facility it sold on September 30, 2015, which it expects to sell for non-cement use.

Magnesia Specialties Business

The Magnesia Specialties business currently operates major manufacturing facilities in Manistee, Michigan, and Woodville, Ohio. Both of these facilities are owned.

Other Properties

The Company’s principal corporate office, which it owns, is located in Raleigh, North Carolina. The Company owns and leases various administrative offices for its five reportable business segments.

Condition and Utilization

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 generally well maintained, and are generally suitable and adequate for the purposes for which they are used.

During 2015, the principal properties of the Aggregates business were believed to be utilized at average productive capacities of approximately 65% and were capable of supporting a higher level of market demand. However, during the economic recession, the Company adjusted its production schedules to meet reduced demand for its products. For example, the Company has reduced operating hours at a number of its facilities, closed some of its facilities, and temporarily idled some of its facilities. In 2015, the Company’s Aggregates business operated at a level significantly below capacity, which restricted the Company’s ability to capitalize $36.7 million of costs that could have been inventoried under normal operating conditions. If demand does not improve over the near term, such reductions and temporary idling could continue. The Company expects, however, as the economy continues to recover, it will be able to resume production at its normalized levels and increase production again as demand for its products increases.

During 2015 the Texas cement plants were operating on average at 70 percent utilization. The Company divested of the California cement plant in 2015. The Portland Cement Association (“PCA”) forecasts a 2.5% increase in demand in Texas in 2016 over 2015. The Cement business’ leadership, in collaboration with the aggregates and ready mixed concrete teams, have developed strategic plans regarding interplant efficiencies, as well as tactical plans addressing plant utilization and efficiency and a road map for significantly improved profitability for 2016 and beyond. Due to the 24/7/365 nature of cement operations, significant gains in plant utilization and efficiency are typically achieved only during plant shutdowns.

The Company expects future organic growth to result from increased pricing, rationalization of the current product portfolio and/or further cost reductions. In the current operating environment where steel utilization is at levels close to or below 70% and the strength of the United States dollar pressures product competitiveness in international markets, any unplanned change in costs or customers introduces volatility to the earnings of the Magnesia Specialties segment.

ITEM 3.

LEGAL PROCEEDINGS

From time to time claims of various types are asserted against the Company arising out of its operations in the normal course of business, including claims relating to land use and permits, safety, health, and environmental matters (such as noise abatement, blasting, vibrations, air emissions, and water discharges). Such matters are subject to many uncertainties, and it is not possible to determine the probable outcome of, or the amount of liability, if any, from, these matters. In the opinion of management of the Company (which opinion is based in part upon consideration of the opinion of counsel), based upon currently-available facts, it is remote that the ultimate outcome of any litigation and other proceedings will have a material adverse effect on the overall results of the Company’s operations, its cash flows, 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 or its operating segments.

The Company was not required to pay any penalties in 2015 for failure to disclose certain “reportable transactions” under Section 6707A of the Internal Revenue Code.

See also “Note N: Commitments and Contingencies” of the “Notes to Financial Statements” of the 2015 Financial Statements included under Item 8 of this Form 10-K and the 2015 Annual Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Regulation and Litigation” under Item 7 of this Form 10-K and the 2015 Annual Report.

ITEM 4.

MINE SAFETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this Annual Report on Form 10-K.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain information regarding the executive officers of Martin Marietta Materials, Inc. as of February 12, 2016:


*Name*	*Age*	*Present Position*	*Year Assumed* *Present Position*	*Other Positions and Other Business* *Experience Within the Last Five Years*
C. Howard Nye	53	Chairman of the Board;	2014
		Chief Executive Officer;	2010
		President;	2006
		President of Aggregates	2010
		Business;
		Chairman of Magnesia	2007
		Specialties Business

Anne H. Lloyd	54	Executive Vice President;	2009	Treasurer (2006-2013)
		Chief Financial Officer	2005

Roselyn R. Bar	57	Executive Vice President;	2015	Senior Vice President (2005-2015)
		General Counsel;	2001
		Corporate Secretary	1997

Dana F. Guzzo	50	Senior Vice President;	2011	Chief Information Officer (2011-2015)
		Chief Accounting Officer;	2006
		Controller	2005

Donald A. McCunniff	58	Senior Vice President, Human Resources	2011

Daniel L. Grant	61	Senior Vice President, Strategy & Development	2013	Senior Vice President, Strategy & Development, Lehigh Hanson, Inc., a producer of construction materials, and a subsidiary of Heidelberg Cement (1995-2013)

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information, Holders, and Dividends

The Company’s Common Stock, $.01 par value, is traded on the New York Stock Exchange (“NYSE”) (Symbol: MLM). Information concerning stock prices and dividends paid is included under the caption “Quarterly Performance (Unaudited)” of the 2015 Annual Report, and that information is incorporated herein by reference. There were 1,054 holders of record of the Company’s Common Stock as of February 12, 2016.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
October 1, 2015 – October 31, 2014		0	$	—		0		18,412,706

November 1, 2015 – November 30, 2015		1,000,806	$	157.73		1,000,806		17,411,900

December 1, 2015 – December 31, 2015		697,280	$	149.77		697,280		16,714,620

Total		1,698,086	$	154.46		1,698,086		16,714,620

(1)

The Company’s initial stock repurchase program, which authorized the repurchase of 2.5 million shares of common stock, was announced in a press release dated May 6, 1994, and has been updated as appropriate. The program does not have an expiration date. The Company announced in a press release dated February 22, 2006 that its Board of Directors had authorized the repurchase of an additional 5 million shares of common stock. The Company announced in a press release dated August 15, 2007 that its Board of Directors had authorized the repurchase of an additional 5 million shares of common stock. The Company announced in a press release dated February 10, 2015 that its Board of Directors had authorized the repurchase of an additional 15 million shares of common stock, for a total repurchase authorization of 20 million shares.

ITEM 6.

SELECTED FINANCIAL DATA

The information required in response to this Item 6 is included under the caption “Five Year Summary” of the 2015 Annual Report, and that information is incorporated herein by reference.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required in response to this Item 7 is included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2015 Annual Report, and that information is incorporated herein by reference, except that the information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook 2016” in the 2015 Annual Report is not incorporated herein by reference.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required in response to this Item 7A is included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Quantitative and Qualitative Disclosures About Market Risk” of the 2015 Annual Report, and that information is incorporated herein by reference.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required in response to this Item 8 is included under the caption “Consolidated Statements of Earnings,” “Consolidated Statements of Comprehensive Earnings,” “Consolidated Balance Sheets,” “Consolidated Statements of Cash Flows,” “Consolidated Statements of Total Equity,” “Notes to Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quarterly Performance (Unaudited)” of the 2015 Annual Report, and that information is incorporated herein by reference, except that the information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook 2016” in the 2015 Annual Report is not incorporated herein by reference.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

As of December 31, 2015, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective in ensuring that all material information required to be disclosed is made known to them in a timely manner as of December 31, 2015 and further concluded that the Company’s internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles as of December 31, 2015. There were no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The foregoing evaluation of the Company’s disclosure controls and procedures was based on the definition in Exchange Act Rule 13A-15(e), which requires that disclosure controls and procedures are effectively designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits with the SEC under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, including the CEO and CFO, does not expect that the Company’s control system will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

The Company’s management has issued its annual statement of financial responsibility and report on the Company’s internal control over financial reporting, which included management’s assessment that the Company’s internal control over financial reporting was effective at December 31, 2015. The Company’s independent registered public accounting firm has issued an attestation report that the Company’s internal control over financial reporting was effective at December 31, 2015. Management’s report on the Company’s internal controls and the attestation report of the Company’s independent registered public accounting firm are included in the 2015 Financial Statements, included under Item 8 of this Form 10-K and the 2015 Annual Report. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Internal Control and Accounting and Reporting Risk” under Item 7 of this Form 10-K and the 2015 Annual Report.

Included among the Exhibits to this Form 10-K are forms of “Certifications” of the Company’s CEO and CFO as required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certification”). The Section 302 Certifications refer to this evaluation of the Company’s disclosure policies and procedures and internal control over financial reporting. The information in this section should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information concerning directors of the Company, the Audit Committee of the Board of Directors, and the Audit Committee financial expert serving on the Audit Committee, all as required in response to this Item 10, is included under the captions “Corporate Governance Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of the Company’s fiscal year ended December 31, 2015 (the “2016 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, under the heading “Executive Officers of the Registrant,” of this Form 10-K. The information concerning the Company’s code of ethics required in response to this Item 10 is included in Part I, under the heading “Available Information,” of this Form 10-K.

ITEM 11.

EXECUTIVE COMPENSATION

The information required in response to this Item 11 is included under the captions “Executive Compensation,” “Compensation Discussion and Analysis,” “Corporate Governance Matters,” “Management Development and Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation” in the Company’s 2016 Proxy Statement, and that information is hereby incorporated by reference in this Form 10-K.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required in response to this Item 12 is included under the captions “General Information,” “Security Ownership of Certain Beneficial Owners and Management,” and “Securities Authorized for Issuance Under Equity Compensation Plans” in the Company’s 2016 Proxy Statement, and that information is hereby incorporated by reference in this Form 10-K.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required in response to this Item 13 is included under the captions “Compensation Committee Interlocks and Insider Participation in Compensation Decisions” and “Corporate Governance Matters” in the Company’s 2016 Proxy Statement, and that information is hereby incorporated by reference in this Form 10-K.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required in response to this Item 14 is included under the caption “Independent Auditors” in the Company’s 2016 Proxy Statement, and that information is hereby incorporated by reference in this Form 10-K.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) List of financial statements filed as part of this Form 10-K.

The following consolidated financial statements of Martin Marietta Materials, Inc. and consolidated subsidiaries, included in the 2015 Annual Report and incorporated by reference under Item 8 of this Form 10-K:

Consolidated Statements of Earnings—

for years ended December 31, 2015, 2014, and 2013

Consolidated Statements of Comprehensive Earnings—

for years ended December 31, 2015, 2014, and 2013

Consolidated Balance Sheets—

at December 31, 2015 and 2014

Consolidated Statements of Cash Flows—

for years ended December 31, 2015, 2014, and 2013

Consolidated Statements of Total Equity—

for years ended December 31, 2015, 2014 and 2013

Notes to Financial Statements

(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 15(c) of this Form 10-K.

Schedule II - Valuation and Qualifying Accounts

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 registered public accounting firm with respect to the above-referenced financial statements is included in the 2015 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 registered public accounting firm are attached as Exhibit 23.01 to this Form 10-K.

(3)

Exhibits

The list of Exhibits on the accompanying Index of Exhibits included in Item 15(b) 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 asterisks.

(b)

Index of Exhibits


Exhibit No.

3.01		—Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.01 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2013) (Commission File No. 1-12744))

3.02		—Restated Bylaws of the Company (incorporated by reference to Exhibit 3.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on May 22, 2015) (Commission File No. 1-12744)

4.01		—Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.01 to the Martin Marietta Materials, Inc. registration statement on Form S-1 (SEC Registration No. 33-72648)

4.02		—Articles 2 and 8 of the Company’s Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 4.02 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996) (Commission File No. 1-12744)

4.03		—Article 1 of the Company’s Restated Bylaws, as amended (incorporated by reference to Exhibit 3.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on November 10, 2011) (Commission File No. 1-12744)

4.04		—Indenture dated as of December 1, 1995 between Martin Marietta Materials, Inc. and First Union National Bank of North Carolina (incorporated by reference to Exhibit 4(a) to the Martin Marietta Materials, Inc. registration statement on Form S-3 (SEC Registration No. 33-99082))

4.05		—Form of Martin Marietta Materials, Inc. 7% Debenture due 2025 (incorporated by reference to Exhibit 4(a)(i) to the Martin Marietta Materials, Inc. registration statement on Form S-3 (SEC Registration No. 33-99082))

4.06		—Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee (incorporated by reference to Exhibit 4.1 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on April 30, 2007 (Commission File No. 1-12744))

4.07		—Second Supplemental Indenture, dated as of April 30, 2007, between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, to that certain Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, pursuant to which were issued $250,000,000 aggregate principal amount of 6 ¹⁄₄% Senior Notes due 2037 of Martin Marietta Materials, Inc. (incorporated by reference to Exhibit 4.3 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on April 30, 2007 (Commission File No. 1-12744))

4.08		—Third Supplemental Indenture, dated as of April 21, 2008, between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, to that certain Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, pursuant to which were issued $300,000,000 aggregate principal amount of 6.60% Senior Notes due 2018 of Martin Marietta Materials, Inc. (incorporated by reference to Exhibit 4.1 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on April 21, 2008 (Commission File No. 1-12744))

4.09		—Rights Agreement, dated as of September 27, 2006, by and between Martin Marietta Materials, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the Form of Articles of Amendment With Respect to the Junior Participating Class B Preferred Stock of Martin Marietta Materials, Inc., as Exhibit A, and the Form of Rights Certificate, as Exhibit B (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on September 28, 2006) (Commission File No. 1-12744)

4.10		—Purchase Agreement dated as of June 23, 2014 among Martin Marietta Materials, Inc. and Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the



		several initial purchasers named in Schedule 1 thereto (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on June 24, 2014) (Commission File No. 1-12744)

4.11		—Indenture, dated as of July 2, 2014, between Martin Marietta Materials, Inc. and Regions Bank, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on July 2, 2014) (Commission File No. 1-12744)

4.12		—Form of Floating Rate Senior Notes due 2017 (included in Exhibit 4.10)

4.13		—Form of 4.250% Senior Notes due 2024 (included in Exhibit 4.10)

4.14		—Registration Rights Agreement, dated as of July 2, 2014, among Martin Marietta Materials, Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the Initial Purchasers (incorporated by reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K, filed on July 2, 2014) (Commission File No. 1-12744)

10.01		—$600,000,000 Credit Agreement dated as of November 29, 2013 among Martin Marietta Materials, Inc. and JPMorgan Chase Bank, N.A., as Administrative Agent, and Wells Fargo Bank, N.A., Branch Banking and Trust Company, and SunTrust Bank, as Co-Syndication Agents (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc., Current Report on Form 8-K filed on December 5, 2013) (Commission File No. 1-12744)

10.02		— Credit and Security Agreement dated as of April 19, 2013, among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on April 24, 2013) (Commission File No. 1-12744)

10.03		—Commitment Letter dated as of June 20, 2014 to the Credit and Security Agreement, dated as of April 19, 2013 (as last amended April 18, 2014), among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on June 25, 2014) (Commission File No. 1-12744)

10.04		—First Amendment dated as of June 23, 2014 to the Credit Agreement dated as of November 29, 2013, among Martin Marietta Materials, Inc., the lenders listed therein and J.P. Morgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.02 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on June 25, 2014) (Commission File No. 1-12744)

10.05		—Second Amendment to Credit and Security Agreement, dated as of April 18, 2014, among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.02 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on April 24, 2014) (Commission File No. 1-12744)

10.06		—Fifth Amendment to Credit and Security Agreement, dated as of September 30, 2014, among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on October 3, 2014) (Commission File No. 1-12744)

10.07		—Purchase and Contribution Agreement dated as of April 19, 2013, between Martin Marietta Materials, Inc., as seller and as servicer, and Martin Marietta Funding LLC, as buyer



		(incorporated by reference to Exhibit 10.02 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on April 24, 2013) (Commission File No. 1-12744)

10.08		—Form of Martin Marietta Materials, Inc. Third Amended and Restated Employment Protection Agreement (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on August 19, 2008) (Commission File No. 1-12744)**

10.09		—Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for Directors (incorporated by reference to Exhibit 10.05 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2013) (Commission File No. 1-12744)**

10.10		—Martin Marietta Materials, Inc. Amended and Restated Executive Incentive Plan (incorporated by reference to Exhibit 10.05 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)**

10.11		—Martin Marietta Materials, Inc. Incentive Stock Plan, as Amended (incorporated by reference to Exhibit 10.06 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)**

10.12		—Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan dated April 3, 2006 (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2006) (Commission File No. 1-12744)**

10.13		—Martin Marietta Materials, Inc. Amended Omnibus Securities Award Plan (incorporated by reference to Exhibit 10.16 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2000) (Commission File No. 1-12744)**

10.14		—Martin Marietta Materials, Inc. Third Amended and Restated Supplemental Excess Retirement Plan (incorporated by reference to Exhibit 10 to the Martin Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2012) (Commission File No. 1-12744)**

10.15		—Form of Option Award Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.11 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)**

10.16		—Form of Restricted Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2009) (Commission File No. 1-12744)**

10.17		—Form of Amendment to the Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.13 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)**

10.18		—Form of Restricted Stock Unit Agreement for Directors under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.14 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2013) (Commission File No. 1-12744)**

10.19		—Form of Special Restricted Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.19 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2014) (Commission File No. 1-12744)**

10.20		—Form of Performance Share Unit Award Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.20



		to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2014) (Commission File No. 1-12744)**

*12.01		—Computation of ratio of earnings to fixed charges for the year ended December 31, 2015

*13.01		—Excerpts from Martin Marietta Materials, Inc. 2015 Annual Report to Shareholders, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2015 Annual Report to Shareholders that are not incorporated by reference shall not be deemed to be “filed” as part of this report.

*21.01		—List of subsidiaries of Martin Marietta Materials, Inc.

*23.01		—Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm for Martin Marietta Materials, Inc. and consolidated subsidiaries

*24.01		—Powers of Attorney (included in this Form 10-K immediately following Signatures)

*31.01		—Certification dated February 23, 2016 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.02		—Certification dated February 23, 2016 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*32.01		—Certification dated February 23, 2016 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*32.02		—Certification dated February 23, 2016 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*95		—Mine Safety Disclosure Exhibit

*101.INS		—XBRL Instance Document

*101.SCH		—XBRL Taxonomy Extension Schema Document

*101.CAL		—XBRL Taxonomy Extension Calculation Linkbase Document

*101.LAB		—XBRL Taxonomy Extension Label Linkbase Document

*101.PRE		—XBRL Taxonomy Extension Presentation Linkbase Document

*101.DEF		—XBRL Taxonomy Extension Definition Linkbase

Other material incorporated by reference:

Martin Marietta Materials, Inc.’s 2016 Proxy Statement filed pursuant to Regulation 14A, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2016 Proxy Statement which are not incorporated by reference shall not be deemed to be “filed” as part of this report.

*	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

(c)

Financial Statement Schedule

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES


Col A	Col B		Col C					Col D			Col E
			Additions
Description	Balance at beginning of period		(1) Charged to costs and expenses		(2) Charged to other accounts— describe			Deductions- describe			Balance at end of period
(Amounts in Thousands)
Year ended December 31, 2015
Allowance for doubtful accounts	$	4,077	$	2,863				$	—			6,940
Allowance for uncollectible notes receivable		1,486		—		—			901	(a)		585
Inventory valuation allowance		119,189		13,365		1,400	(c)		3,370	(d)		130,584
Year ended December 31, 2014
Allowance for doubtful accounts	$	4,081	$	—	$	—		$	4	(a)	$	4,077
Allowance for uncollectible notes receivable		809		—		1,103	(b)		426	(a)		1,486
Inventory valuation allowance		99,026		11,762		9,942	(c)		1,541	(d)		119,189
Year ended December 31, 2013
Allowance for doubtful accounts	$	6,069	$	—	$	—		$	1,988	(a)	$	4,081
Allowance for uncollectible notes receivable		440		369		—			—			809
Inventory valuation allowance		96,817		1,165		1,044	(c)		—			99,026

(a)	Write off of uncollectible accounts and change in estimates.

(b)	Application of reserves to acquired notes receivable.

(c)	Application of reserve policy to acquired inventories.

(d)	Divestitures.

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/ Roselyn R. Bar
	Roselyn R. Bar
	Executive Vice President, General Counsel and Corporate Secretary

Dated: February 23, 2016

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below appoints Roselyn R. Bar and M. Guy Brooks, III, jointly and severally, as his or her true and lawful attorney-in-fact, each with full power of substitution and resubstitution, for him or her and in his or her 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 or she 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.

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/ C. Howard Nye	Chairman of the Board, President and Chief Executive Officer	February 18, 2016
C. Howard Nye


/s/ Anne H. Lloyd	Executive Vice President and Chief Financial Officer	February 18, 2016
Anne H. Lloyd	Executive Vice President and Chief Financial Officer

/s/ Dana F. Guzzo	Senior Vice President, Chief Accounting Officer and Controller	February 18, 2016
Dana F. Guzzo


/s/ Sue W. Cole	Director	February 18, 2016
Sue W. Cole

/s/ David G. Maffucci	Director	February 18, 2016
David G. Maffucci

/s/ William E. McDonald	Director	February 18, 2016
William E. McDonald

/s/ Frank H. Menaker, Jr.	Director	February 18, 2016
Frank H. Menaker, Jr.

/s/ Laree E. Perez	Director	February 18, 2016
Laree E. Perez

/s/ Michael J. Quillen	Director	February 18, 2016
Michael J. Quillen

/s/ Dennis L. Rediker	Director	February 18, 2016
Dennis L. Rediker

/s/ Richard A. Vinroot	Director	February 18, 2016
Richard A. Vinroot

/s/ Stephen P. Zelnak, Jr.	Director	February 18, 2016
Stephen P. Zelnak, Jr.

EXHIBITS


Exhibit No.

3.01		—Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.01 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2013) (Commission File No. 1-12744)

3.02		—Restated Bylaws of the Company (incorporated by reference to Exhibit 3.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on May 22, 2015) (Commission File No. 1-12744)

4.01		—Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.01 to the Martin Marietta Materials, Inc. registration statement on Form S-1 (SEC Registration No. 33-72648))

4.02		—Articles 2 and 8 of the Company’s Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 4.02 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996) (Commission File No. 1-12744)

4.03		—Article 1 of the Company’s Restated Bylaws, as amended (incorporated by reference to Exhibit 3.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on November 10, 2011) (Commission File No. 1-12744)

4.04		—Indenture dated as of December 1, 1995 between Martin Marietta Materials, Inc. and First Union National Bank of North Carolina (incorporated by reference to Exhibit 4(a) to the Martin Marietta Materials, Inc. registration statement on Form S-3 (SEC Registration No. 33-99082))

4.05		—Form of Martin Marietta Materials, Inc. 7% Debenture due 2025 (incorporated by reference to Exhibit 4(a)(i) to the Martin Marietta Materials, Inc. registration statement on Form S-3 (SEC Registration No. 33-99082))

4.06		—Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee (incorporated by reference to Exhibit 4.1 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on April 30, 2007 (Commission File No. 1-12744))

4.07		—Second Supplemental Indenture, dated as of April 30, 2007, between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, to that certain Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, pursuant to which were issued $250,000,000 aggregate principal amount of 6 ¹⁄₄% Senior Notes due 2037 of Martin Marietta Materials, Inc. (incorporated by reference to Exhibit 4.3 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on April 30, 2007 (Commission File No. 1-12744))

4.08		—Third Supplemental Indenture, dated as of April 21, 2008, between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, to that certain Indenture dated as of April 30, 2007 between Martin Marietta Materials, Inc. and Branch Banking and Trust Company, Inc., as trustee, pursuant to which were issued $300,000,000 aggregate principal amount of 6.60% Senior Notes due 2018 of Martin Marietta Materials, Inc. (incorporated by reference to Exhibit 4.1 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on April 21, 2008 (Commission File No. 1-12744))

4.09		—Rights Agreement, dated as of September 27, 2006, by and between Martin Marietta Materials, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the Form of Articles of Amendment With Respect to the Junior Participating Class B Preferred Stock of Martin Marietta Materials, Inc., as Exhibit A,



		and the Form of Rights Certificate, as Exhibit B (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on September 28, 2006) (Commission File No. 1-12744)

4.10		—Purchase Agreement dated as of June 23, 2014 among Martin Marietta Materials, Inc. and Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasers named in Schedule 1 thereto (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on June 24, 2014) (Commission File No. 1-12744)

4.11		—Indenture, dated as of July 2, 2014, between Martin Marietta Materials, Inc. and Regions Bank, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on July 2, 2014) (Commission File No. 1-12744)

4.12		—Form of Floating Rate Senior Notes due 2017 (included in Exhibit 4.10)

4.13		—Form of 4.250% Senior Notes due 2024 (included in Exhibit 4.10)

4.14		—Registration Rights Agreement, dated as of July 2, 2014, among Martin Marietta Materials, Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the Initial Purchasers (incorporated by reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K, filed on July 2, 2014) (Commission File No. 1-12744)

10.01		—$600,000,000 Credit Agreement dated as of November 29, 2013 among Martin Marietta Materials, Inc. and JPMorgan Chase Bank, N.A., as Administrative Agent, and Wells Fargo Bank, N.A., Branch Banking and Trust Company, and SunTrust Bank, as Co-Syndication Agents (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc., Current Report on Form 8-K filed on December 5, 2013) (Commission File No. 1-12744)

10.02		— Credit and Security Agreement dated as of April 19, 2013, among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on April 24, 2013) (Commission File No. 1-12744)

10.03		—Commitment Letter dated as of June 20, 2014 to the Credit and Security Agreement, dated as of April 19, 2013 (as last amended April 18, 2014), among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on June 25, 2014) (Commission File No. 1-12744)

10.04		—First Amendment dated as of June 23, 2014 to the Credit Agreement dated as of November 29, 2013, among Martin Marietta Materials, Inc., the lenders listed therein and J.P. Morgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.02 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on June 25, 2014) (Commission File No. 1-12744)

10.05		—Second Amendment to Credit and Security Agreement, dated as of April 18, 2014, among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.02 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on April 24, 2014) (Commission File No. 1-12744)

10.06		—Fifth Amendment to Credit and Security Agreement, dated as of September 30, 2014, among Martin Marietta Funding LLC, as borrower, Martin Marietta Materials, Inc., as servicer, and SunTrust Bank, as lender together with the other lenders from time to



		time party thereto, and SunTrust Bank, as administrative agent for the lenders (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on October 3, 2014) (Commission File No. 1-12744)

10.07		— Purchase and Contribution Agreement dated as of April 19, 2013, between Martin Marietta Materials, Inc., as seller and as servicer, and Martin Marietta Funding LLC, as buyer (incorporated by reference to Exhibit 10.02 to the Martin Marietta Materials, Inc. Current Report on Form 8-K filed on April 24, 2013) (Commission File No. 1-12744)

10.08		—Form of Martin Marietta Materials, Inc. Third Amended and Restated Employment Protection Agreement (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Current Report on Form 8-K, filed on August 19, 2008) (Commission File No. 1-12744)**

10.09		—Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for Directors (incorporated by reference to Exhibit 10.05 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2013) (Commission File No. 1-12744)**

10.10		—Martin Marietta Materials, Inc. Amended and Restated Executive Incentive Plan (incorporated by reference to Exhibit 10.05 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)**

10.11		—Martin Marietta Materials, Inc. Incentive Stock Plan, as Amended (incorporated by reference to Exhibit 10.06 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)**

10.12		—Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan dated April 3, 2006 (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2006) (Commission File No. 1-12744)**

10.13		—Martin Marietta Materials, Inc. Amended Omnibus Securities Award Plan (incorporated by reference to Exhibit 10.16 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2000) (Commission File No. 1-12744)**

10.14		—Martin Marietta Materials, Inc. Third Amended and Restated Supplemental Excess Retirement Plan (incorporated by reference to Exhibit 10 to the Martin Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2012) (Commission File No. 1-12744)**

10.15		—Form of Option Award Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.11 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)**

10.16		—Form of Restricted Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.01 to the Martin Marietta Materials, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2009) (Commission File No. 1-12744)**

10.17		—Form of Amendment to the Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.13 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008) (Commission File No. 1-12744)**

10.18		—Form of Restricted Stock Unit Agreement for Directors under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.14 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2013) (Commission File No. 1-12744)**



10.19		—Form of Special Restricted Stock Unit Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.19 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2014) (Commission File No. 1-12744)**

10.20		—Form of Performance Share Unit Award Agreement under the Martin Marietta Materials, Inc. Amended and Restated Stock-Based Award Plan (incorporated by reference to Exhibit 10.20 to the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2014) (Commission File No. 1-12744)**

*12.01		—Computation of ratio of earnings to fixed charges for the year ended December 31, 2015

*13.01		—Excerpts from Martin Marietta Materials, Inc. 2015 Annual Report to Shareholders, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2015 Annual Report to Shareholders that are not incorporated by reference shall not be deemed to be “filed” as part of this report.

*21.01		—List of subsidiaries of Martin Marietta Materials, Inc.

*23.01		—Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm for Martin Marietta Materials, Inc. and consolidated subsidiaries

*24.01		—Powers of Attorney (included in this Form 10-K immediately following Signatures)

*31.01		—Certification dated February 23, 2016 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.02		—Certification dated February 23, 2016 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934, rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*32.01		—Certification dated February 23, 2016 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*32.02		—Certification dated February 23, 2016 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*95		—Mine Safety Disclosure Exhibit

*101.INS		—XBRL Instance Document

*101.SCH		—XBRL Taxonomy Extension Schema Document

*101.CAL		—XBRL Taxonomy Extension Calculation Linkbase Document

*101.LAB		—XBRL Taxonomy Extension Label Linkbase Document

*101.PRE		—XBRL Taxonomy Extension Presentation Linkbase Document

*101.DEF		—XBRL Taxonomy Extension Definition Linkbase

Other material incorporated by reference:

*	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

EX-12.01

EXHIBIT 12.01

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

For the Year Ended December 31, 2015

(add 000, except ratio)


EARNINGS:
Earnings before income taxes*	$	413,655
Gain from less than 50%-owned associated companies, net		(7,694	)
Interest expense**		76,287
Portion of rents representative of an interest factor		21,136

Adjusted Earnings and Fixed Charges	$	503,384

FIXED CHARGES:

Interest expense**	$	76,287
Capitalized interest		5,832
Portion of rents representative of an interest factor		21,136

Total Fixed Charges	$	103,255

Ratio of Earnings to Fixed Charges		4.88

*	Represents earnings from continuing operations plus/minus net (loss) earnings attributable to noncontrolling interests.

**	Interest expense excluded $217 for the interest expense component associated with uncertain tax provisions.

EX-13

STATEMENT OF FINANCIAL RESPONSIBILITY AND REPORT OF MANAGEMENT

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Martin Marietta Materials, Inc. (“Martin Marietta”), is responsible for the consolidated financial statements, the related financial information contained in this 2015 Annual Report and the establishment and maintenance of adequate internal control over financial reporting. The consolidated balance sheets for Martin Marietta, at December 31, 2015 and 2014, and the related consolidated statements of earnings, comprehensive earnings, total equity and cash flows for each of the three years in the period ended December 31, 2015, include amounts based on estimates and judgments and have been prepared in accordance with accounting principles generally accepted in the United States applied on a consistent basis.

A system of internal control over financial reporting is designed to provide reasonable assurance, in a cost-effective manner, that assets are safeguarded, transactions are executed and recorded in accordance with management’s authorization, accountability for assets is maintained and financial statements are prepared and presented fairly in accordance with accounting principles generally accepted in the United States. Internal control systems over financial reporting have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Corporation operates in an environment that establishes an appropriate system of internal control over financial reporting and ensures that the system is maintained, assessed and monitored on a periodic basis. This internal control system includes examinations by internal audit staff and oversight by the Audit Committee of the Board of Directors.

The Corporation’s management recognizes its responsibility to foster a strong ethical climate. Management has issued written policy statements that document the Corporation’s business code of ethics. The importance of ethical behavior is regularly communicated to all employees through the distribution of the Code of Ethical Business Conduct booklet and through ongoing education and review programs designed to create a strong commitment to ethical business practices.

The Audit Committee of the Board of Directors, which consists of four independent, nonemployee directors, meets periodically and separately with management, the independent auditors and the internal auditors to review the activities of each. The Audit Committee meets standards established by the Securities and Exchange Commission and the New York Stock Exchange as they relate to the composition and practices of audit committees.

Management of Martin Marietta, assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“COSO”). Based on management’s assessment under the framework in Internal Control – Integrated Framework, management concluded that the Corporation’s internal control over financial reporting was effective as of December 31, 2015.

The consolidated financial statements and internal control over financial reporting have been audited by Ernst & Young LLP, an independent registered public accounting firm, whose reports appear on the following pages.



C. Howard Nye		Anne H. Lloyd
Chairman, President and Chief Executive Officer		Executive Vice President and Chief Financial Officer
February 23, 2016

Martin Marietta | Page 9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Martin Marietta Materials, Inc.

We have audited Martin Marietta Materials, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Martin Marietta Materials, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Statement of Financial Responsibility and Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Martin Marietta Materials, Inc., maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Martin Marietta Materials, Inc., as of December 31, 2015 and 2014, and the related consolidated statements of earnings, comprehensive earnings, total equity and cash flows for each of the three years in the period ended December 31, 2015, of Martin Marietta Materials, Inc., and our report dated February 23, 2016 expressed an unqualified opinion thereon.

LOGO

Raleigh, North Carolina

February 23, 2016

Martin Marietta | Page 10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Martin Marietta Materials, Inc.

We have audited the accompanying consolidated balance sheets of Martin Marietta Materials, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of earnings, comprehensive earnings, total equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Martin Marietta Materials, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Martin Marietta Materials, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2016 expressed an unqualified opinion thereon.

LOGO

Raleigh, North Carolina

February 23, 2016

Martin Marietta | Page 11

CONSOLIDATED STATEMENTS OF EARNINGS for years ended December 31



(add 000, except per share)	2015			2014			2013
Net Sales	$	3,268,116		$	2,679,095		$	1,943,218
Freight and delivery revenues		271,454			278,856			212,333
Total revenues		3,539,570			2,957,951			2,155,551
Cost of sales		2,546,349			2,156,735			1,579,261
Freight and delivery costs		271,454			278,856			212,333
Total cost of revenues		2,817,803			2,435,591			1,791,594
Gross Profit		721,767			522,360			363,957
Selling, general and administrative expenses		218,234			169,245			150,091
Acquisition-related expenses, net		8,464			42,891			671
Other operating expenses and (income), net		15,653			(4,649	)		(4,793	)
Earnings from Operations		479,416			314,873			217,988
Interest expense		76,287			66,057			53,467
Other nonoperating (income) and expenses, net		(10,672	)		(362	)		295
Earnings from continuing operations before taxes on income		413,801			249,178			164,226
Taxes on income		124,863			94,847			44,045
Earnings from Continuing Operations		288,938			154,331			120,181
Loss on discontinued operations, net of related tax benefit of $0, $40 and $417, respectively		–			(37	)		(749	)
Consolidated net earnings		288,938			154,294			119,432
Less: Net earnings (loss) attributable to noncontrolling interests		146			(1,307	)		(1,905	)
Net Earnings Attributable to Martin Marietta	$	288,792		$	155,601		$	121,337

Net Earnings (Loss) Attributable to Martin Marietta
Earnings from continuing operations	$	288,792		$	155,638		$	122,086
Discontinued operations		–			(37	)		(749	)
	$	288,792		$	155,601		$	121,337

Net Earnings (Loss) Attributable to Martin Marietta Per Common Share (see Note A)
– Basic from continuing operations attributable to common shareholders	$	4.31		$	2.73		$	2.64
– Discontinued operations attributable to common shareholders		–			–			(0.02	)
	$	4.31		$	2.73		$	2.62
– Diluted from continuing operations attributable to common shareholders	$	4.29		$	2.71		$	2.63
– Discontinued operations attributable to common shareholders		–			–			(0.02	)
	$	4.29		$	2.71		$	2.61

Weighted-Average Common Shares Outstanding
– Basic		66,770			56,854			46,164
– Diluted		67,020			57,088			46,285

The notes on pages 17 through 41 are an integral part of these financial statements.

Martin Marietta | Page 12

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS for years ended December 31



(add 000)	2015			2014			2013
Consolidated Net Earnings	$	288,938		$	154,294		$	119,432
Other comprehensive earnings (loss), net of tax:

Defined benefit pension and postretirement plans:
Net (loss) gain arising during period, net of tax of $(4,530), $(39,752) and $36,294, respectively		(7,101	)		(62,767	)		55,472
Amortization of prior service credit, net of tax of $(731), $(1,108) and $(1,111), respectively		(1,149	)		(1,702	)		(1,696	)
Amortization of actuarial loss, net of tax of $6,551, $1,490 and $6,211, respectively		10,299			2,289			9,493
Amount recognized in net periodic pension cost due to settlement, net of tax of $289		–			–			440
Amount recognized in net periodic pension cost due to special plan termination benefits, net of tax of $811		1,274			–			–
		3,323			(62,180	)		63,709

Foreign currency translation loss		(3,542	)		(624	)		(2,255	)

Amortization of terminated value of forward starting interest rate swap agreements into interest expense, net of tax of $509, $470 and $438, respectively		771			718			670
		552			(62,086	)		62,124
Consolidated comprehensive earnings		289,490			92,208			181,556
Less: Comprehensive earnings (loss) attributable to noncontrolling interests		161			(1,348	)		(1,836	)
Comprehensive Earnings Attributable to Martin Marietta	$	289,329		$	93,556		$	183,392

The notes on pages 17 through 41 are an integral part of these financial statements.

Martin Marietta | Page 13

CONSOLIDATED BALANCE SHEETS at December 31



Assets (add 000)	2015			2014
Current Assets:
Cash and cash equivalents	$	168,409		$	108,651
Accounts receivable, net		410,921			421,001
Inventories, net		469,141			484,919
Other current assets		33,697			29,607
Total Current Assets		1,082,168			1,044,178

Property, plant and equipment, net		3,156,000			3,402,770
Goodwill		2,068,235			2,068,799
Operating permits, net		444,725			499,487
Other intangibles, net		65,827			95,718
Other noncurrent assets		144,777			108,802
Total Assets	$	6,961,732		$	7,219,754

Liabilities and Equity (add 000, except parenthetical share data)
Current Liabilities:
Bank overdraft	$	10,235		$	183
Accounts payable		164,718			202,476
Accrued salaries, benefits and payroll taxes		30,939			36,576
Pension and postretirement benefits		8,168			6,953
Accrued insurance and other taxes		62,781			58,356
Current maturities of long-term debt		19,246			14,336
Other current liabilities		71,104			77,768
Total Current Liabilities		367,191			396,648

Long-term debt		1,553,649			1,571,059
Pension, postretirement and postemployment benefits		224,538			249,333
Deferred income taxes, net		583,459			489,945
Other noncurrent liabilities		172,718			160,021
Total Liabilities		2,901,555			2,867,006

Equity:
Common stock ($0.01 par value; 100,000,000 shares authorized; 64,479,000 and 67,293,000 shares outstanding at December 31, 2015 and 2014, respectively)		643			671
Preferred stock ($0.01 par value; 10,000,000 shares authorized; no shares outstanding)		–			–
Additional paid-in capital		3,287,827			3,243,619
Accumulated other comprehensive loss		(105,622	)		(106,159	)
Retained earnings		874,436			1,213,035
Total Shareholders’ Equity		4,057,284			4,351,166
Noncontrolling interests		2,893			1,582
Total Equity		4,060,177			4,352,748
Total Liabilities and Equity	$	6,961,732		$	7,219,754

The notes on pages 17 through 41 are an integral part of these financial statements.

Martin Marietta | Page 14

CONSOLIDATED STATEMENTS OF CASH FLOWS for years ended December 31



(add 000)	2015			2014			2013
Cash Flows from Operating Activities:
Consolidated net earnings	$	288,938		$	154,294		$	119,432
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities:
Depreciation, depletion and amortization		263,587			222,746			173,761
Stock-based compensation expense		13,589			8,993			7,008
Loss (gains) on divestitures and sales of assets		14,093			(52,297	)		(2,265	)
Deferred income taxes		85,225			50,292			24,113
Excess tax benefits from stock-based compensation transactions		–			(2,508	)		(2,368	)
Other items, net		(5,972	)		4,795			(429	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable, net		12,309			(16,650	)		(22,523	)
Inventories, net		(21,525	)		(12,020	)		(11,639	)
Accounts payable		(40,053	)		5,303			20,063
Other assets and liabilities, net		(37,040	)		18,710			3,798
Net Cash Provided by Operating Activities		573,151			381,658			308,951

Cash Flows from Investing Activities:
Additions to property, plant and equipment		(318,232	)		(232,183	)		(155,233	)
Acquisitions, net		(43,215	)		(189	)		(64,478	)
Cash received in acquisition		63			59,887			–
Proceeds from divestitures and sales of assets		448,122			121,985			8,564
Payment of railcar construction advances		(25,234	)		(14,513	)		–
Reimbursement of railcar construction advances		25,234			14,513			–
Repayments from affiliate		1,808			1,175			–
Loan to affiliate		–			–			(3,402	)
Net Cash Provided By (Used for) Investing Activities		88,546			(49,325	)		(214,549	)

Cash Flows from Financing Activities:
Borrowings of long-term debt		230,000			868,762			604,417
Repayments of long-term debt		(244,704	)		(1,057,289	)		(621,142	)
Debt issuance costs		–			(2,782	)		(2,148	)
Change in bank overdraft		10,052			(2,373	)		2,556
Payments on capital lease obligations		(6,616	)		(3,075	)		(28	)
Dividends paid		(107,462	)		(91,304	)		(74,197	)
Distributions to owners of noncontrolling interests		(325	)		(800	)		(876	)
Repurchase of common stock		(519,962	)		–			–
Purchase of remaining interest in existing subsidiaries		–			(19,480	)		–
Issuances of common stock		37,078			39,714			11,691
Excess tax benefits from stock-based compensation transactions		–			2,508			2,368
Net Cash Used for Financing Activities		(601,939	)		(266,119	)		(77,359	)
Net Increase in Cash and Cash Equivalents		59,758			66,214			17,043
Cash and Cash Equivalents, beginning of year		108,651			42,437			25,394

Cash and Cash Equivalents, end of year	$	168,409		$	108,651		$	42,437

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	71,011		$	81,304		$	52,034
Cash paid for income taxes	$	46,774		$	15,955		$	23,491

The notes on pages 17 through 41 are an integral part of these financial statements.

Martin Marietta | Page 15

CONSOLIDATED STATEMENTS OF TOTAL EQUITY


(add 000, except per share data)	Shares of Common Stock			Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Earnings				Retained Earnings				Total Shareholders’ Equity				Non- controlling Interests				Total Equity
Balance at December 31, 2012		46,002			$	459			$	414,657		$	(106,169	)		$	1,101,598			$	1,410,545			$	39,754			$	1,450,299

Consolidated net earnings (loss)		–				–				–			–				121,337				121,337				(1,905	)			119,432
Other comprehensive earnings		–				–				–			62,055				–				62,055				69				62,124
Dividends declared ($1.60 per common share)		–				–				–			–				(74,197	)			(74,197	)			–				(74,197	)
Issuances of common stock for stock award plans		259				2				11,127			–				–				11,129				–				11,129
Stock-based compensation expense		–				–				7,008			–				–				7,008				–				7,008
Distributions to owners of noncontrolling interests		–				–				–			–				–				–				(876	)			(876	)
Balance at December 31, 2013		46,261				461				432,792			(44,114	)			1,148,738				1,537,877				37,042				1,574,919

Consolidated net earnings (loss)		–				–				–			–				155,601				155,601				(1,307	)			154,294
Other comprehensive loss		–				–				–			(62,045	)			–				(62,045	)			(41	)			(62,086	)
Dividends declared ($1.60 per common share)		–				–				–			–				(91,304	)			(91,304	)			–				(91,304	)
Issuances of common stock, stock options and stock appreciation rights for TXI acquisition		20,309				203				2,751,670			–				–				2,751,873				–				2,751,873
Issuances of common stock for stock award plans		723				7				41,765			–				–				41,772				–				41,772
Stock-based compensation expense		–				–				8,993											8,993				–				8,993
Distributions to owners of noncontrolling interests		–				–				–			–				–				–				(800	)			(800	)
Purchase of subsidiary shares from noncontrolling interest		–				–				8,399			–				–				8,399				(33,312	)			(24,913	)
Balance at December 31, 2014		67,293			$	671			$	3,243,619		$	(106,159	)		$	1,213,035			$	4,351,166			$	1,582			$	4,352,748

Consolidated net earnings		–				–				–			–				288,792				288,792				146				288,938
Other comprehensive earnings		–				–				–			537				–				537				15				552
Dividends declared ($1.60 per common share)		–				–				–			–				(107,462	)			(107,462	)			–				(107,462	)
Issuances of common stock for stock award plans		471				5				30,619			–				–				30,624				–				30,624
Repurchases of common stock		(3,285	)			(33	)			–			–				(519,929	)			(519,962	)			–				(519,962	)
Stock-based compensation expense		–				–				13,589											13,589				–				13,589
Minority interest acquired via business combination		–				–				–			–				–				–				1,475				1,475
Distributions to owners of noncontrolling interests		–				–				–			–				–				–				(325	)			(325	)
Balance at December 31, 2015		64,479			$	643			$	3,287,827		$	(105,622	)		$	874,436			$	4,057,284			$	2,893			$	4,060,177

The notes on pages 17 through 41 are an integral part of these financial statements.

Martin Marietta | Page 16

NOTES TO FINANCIAL STATEMENTS

Note A: Accounting Policies

Organization. Martin Marietta Materials, Inc., (the “Corporation” or “Martin Marietta”) is engaged principally in the construction aggregates business. The aggregates product line accounted for 55% of consolidated 2015 net sales and includes crushed stone, sand and gravel, and is used for the construction of infrastructure, nonresidential and residential projects. Aggregates products are also used for railroad ballast, and in agricultural, utility and environmental applications. These aggregates products, along with the Corporation’s aggregates-related downstream product lines, namely heavy building materials such as asphalt products, ready mixed concrete and road paving construction services (which accounted for 27% of consolidated 2015 net sales), are sold and shipped from a network of more than 400 quarries, distribution facilities and plants to customers in 36 states, Canada, the Bahamas and the Caribbean Islands. The aggregates and aggregates-related downstream product lines are reported collectively as the “Aggregates business”. As of December 31, 2015, the Aggregates business contains the following reportable segments: Mid-America Group, Southeast Group and West Group. The Mid-America Group operates in Indiana, Iowa, northern Kansas, Kentucky, Maryland, Minnesota, Missouri, eastern Nebraska, North Carolina, Ohio, South Carolina, Virginia, Washington and West Virginia. The Southeast Group has operations in Alabama, Florida, Georgia, Tennessee, Nova Scotia and the Bahamas. The West Group operates in Arkansas, Colorado, southern Kansas, Louisiana, western Nebraska, Nevada, Oklahoma, Texas, Utah and Wyoming. The following states accounted for 70% of the Aggregates business’ 2015 net sales: Texas, Colorado, North Carolina, Iowa and Georgia.

The Cement segment, accounting for 11% of consolidated 2015 net sales, produces Portland and specialty cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. Texas and California accounted for 72% and 25%, respectively, of the Cement business’ 2015 net sales. In September 2015, the Corporation divested of its California cement operations.

The Magnesia Specialties segment, accounting for 7% of consolidated 2015 net sales, produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.

Use of Estimates. The preparation of the Corporation’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets and other long-lived assets and assumptions used in the calculation of taxes on income, retirement and other postemployment benefits, and the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as part of business combinations. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and adjusts such estimates and assumptions when facts and circumstances dictate. Changes in credit, equity and energy markets and changes in construction activity increase the uncertainty inherent in certain of these estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates, including those resulting from continuing changes in the economic environment, are reflected in the consolidated financial statements for the period in which the change in estimate occurs.

Basis of Consolidation. The consolidated financial statements include the accounts of the Corporation and its wholly-owned and majority-owned subsidiaries. Partially-owned affiliates are either consolidated or accounted for at cost or as equity investments, depending on the level of ownership interest or the Corporation’s ability to exercise control over the affiliates’ operations. Intercompany balances and transactions have been eliminated in consolidation.

Early Adoption of New Accounting Standard. Effective December 31, 2015, the Corporation early adopted the Financial Accounting Standard Board’s (the “FASB”) final guidance on the balance sheet classification of deferred taxes. The guidance requires deferred tax assets and liabilities to be classified as noncurrent rather than split between current and noncurrent; however, deferred tax assets and liabilities from different federal, state and foreign jurisdictions are not netted for financial statement presentation. The adoption of Accounting

Martin Marietta | Page 17

NOTES TO FINANCIAL STATEMENTS (continued)

Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes, had no impact on the Corporation’s consolidated shareholders’ equity, results of operations or cash flows. Retrospective application is allowed and $244,638,000 of current deferred tax assets was reclassed into deferred income taxes, net, on the consolidated balance sheet as of December 31, 2014 to conform with current year presentation.

Revenue Recognition. Total revenues include sales of materials and services provided to customers, net of discounts or allowances, if any, and include freight and delivery costs billed to customers. Revenues for product sales are recognized when risks associated with ownership have passed to unaffiliated customers. Typically, this occurs when finished products are shipped. Revenues derived from the road paving business are recognized using the percentage-of-completion method under the revenue-cost approach. Under the revenue-cost approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion. Recognized costs equal the total estimated contract cost multiplied by the percentage of completion.

The FASB issued an accounting standard update that amends the accounting guidance on revenue recognition. The new standard intends to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The new standard is effective for interim and annual reporting periods beginning after December 31, 2017 and can be applied on a full retrospective or modified retrospective approach. The Corporation is currently evaluating the impact of the provisions of the new standard, and at this time does not expect the impact to be material to its results of operations.

Freight and Delivery Costs. Freight and delivery costs represent pass-through transportation costs incurred and paid by the Corporation to third-party carriers to deliver products to customers. These costs are then billed to the Corporation’s customers.

Cash and Cash Equivalents. Cash equivalents are comprised of highly-liquid instruments with original maturities of three months or less from the date of purchase. The Corporation manages its cash and cash equivalents to ensure that short-term operating cash needs are met and that excess funds are managed efficiently. The Corporation subsidizes shortages in operating

cash through short-term borrowing facilities. The Corporation utilizes excess cash to either pay down short-term borrowings or invest in money market funds, money market demand deposit accounts or Eurodollar time deposit accounts. Money market demand deposits and Eurodollar time deposit accounts are exposed to bank solvency risk. Money market demand deposit accounts are FDIC insured up to $250,000. The Corporation’s deposits in bank funds generally exceed the $250,000 FDIC insurance limit. The Corporation’s cash management policy prohibits cash and cash equivalents over $100,000,000 to be maintained at any one bank.

Customer Receivables. Customer receivables are stated at cost. The Corporation does not charge interest on customer accounts receivables. The Corporation records an allowance for doubtful accounts, which includes a provision for probable losses based on historical write offs and a specific reserve for accounts greater than $50,000 deemed at risk. The Corporation writes off customer receivables as bad debt expense when it becomes apparent based upon customer facts and circumstances that such amounts will not be collected.

Inventories Valuation. Inventories are stated at the lower of cost or net realizable value. Costs for finished products and in process inventories are determined by the first-in, first-out method. The Corporation records an allowance for finished product inventories in excess of sales for a twelve-month period, as measured by historical sales. The Corporation also establishes an allowance for expendable parts over five years old and supplies over one year old.

Post-production stripping costs, which represent costs of removing overburden and waste materials to access mineral deposits, are a component of inventory production costs and recognized in cost of sales in the same period as the revenue from the sale of the inventory.

Properties and Depreciation. Property, plant and equipment are stated at cost.

The estimated service lives for property, plant and equipment are as follows:


Class of Assets		Range of Service Lives
Buildings		5 to 20 years
Machinery & Equipment		2 to 20 years
Land Improvements		5 to 15 years

Martin Marietta | Page 18

NOTES TO FINANCIAL STATEMENTS (continued)

The Corporation begins capitalizing quarry development costs at a point when reserves are determined to be proven or probable, economically mineable and when demand supports investment in the market. Capitalization of these costs ceases when production commences. Capitalized quarry development costs are classified as land improvements.

The Corporation reviews relevant facts and circumstances to determine whether to capitalize or expense pre-production stripping costs when additional pits are developed at an existing quarry. If the additional pit operates in a separate and distinct area of the quarry, these costs are capitalized as quarry development costs and depreciated over the life of the uncovered reserves. Additionally, a separate asset retirement obligation is created for additional pits when the liability is incurred. Once a pit enters the production phase, all post-production stripping costs are charged to inventory production costs as incurred.

Mineral reserves and mineral interests acquired in connection with a business combination are valued using an income approach over the life of the reserves.

Depreciation is computed over estimated service lives, principally by the straight-line method. Depletion of mineral reserves is calculated over proven and probable reserves by the units-of-production method on a quarry-by-quarry basis.

Property, plant and equipment are reviewed for impairment whenever facts and circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized if expected future undiscounted cash flows over the estimated remaining service life of the related asset are less than its carrying value.

Repair and Maintenance Costs. Repair and maintenance costs that do not substantially extend the life of the Corporation’s plant and equipment are expensed as incurred.

Goodwill and Intangible Assets. Goodwill represents the excess purchase price paid for acquired businesses over the estimated fair value of identifiable assets and liabilities. Other intangibles represent amounts assigned principally to contractual agreements and are amortized ratably over periods based on related contractual terms.

The Corporation’s reporting units, which represent the level at which goodwill is tested for impairment, are based on the geographic regions of the Aggregates business. Additionally,

the Cement business is a separate reporting unit. Goodwill is allocated to each reporting unit based on the location of acquisitions and divestitures at the time of consummation.

The carrying values of goodwill and other indefinite-lived intangible assets are reviewed annually, as of October 1, for impairment. An interim review is performed between annual tests if facts or circumstances indicate potential impairment. The carrying value of other amortizable intangibles is reviewed if facts and circumstances indicate potential impairment. If a review indicates that the carrying value is impaired, a charge is recorded.

Retirement Plans and Postretirement Benefits. The Corporation sponsors defined benefit retirement plans and also provides other postretirement benefits. The Corporation recognizes the funded status, defined as the difference between the fair value of plan assets and the benefit obligation, of its pension plans and other postretirement benefits as an asset or liability on the consolidated balance sheets. Actuarial gains or losses that arise during the year are not recognized as net periodic benefit cost in the same year, but rather are recognized as a component of accumulated other comprehensive earnings or loss. Those amounts are amortized over the participants’ average remaining service period and recognized as a component of net periodic benefit cost. The amount amortized is determined using a corridor approach based on the amount in excess of 10% of the greater of the projected benefit obligation or pension plan assets.

Stock-Based Compensation. The Corporation has stock-based compensation plans for employees and its Board of Directors. The Corporation recognizes all forms of stock-based payments to employees, including stock options, as compensation expense. The compensation expense is the fair value of the awards at the measurement date and is recognized over the requisite service period.

The Corporation uses the accelerated expense recognition method for stock options. The accelerated recognition method requires stock options that vest ratably to be divided into tranches. The expense for each tranche is allocated to its particular vesting period.

The Corporation expenses the fair value of restricted stock awards, incentive compensation awards and Board of Directors’ fees paid in the form of common stock based on the closing price of the Corporation’s common stock on the awards’ respective grant dates.

Martin Marietta | Page 19

NOTES TO FINANCIAL STATEMENTS (continued)

The Corporation uses the lattice valuation model to determine the fair value of stock option awards. The lattice valuation model takes into account employees’ exercise patterns based on changes in the Corporation’s stock price and other variables. The period of time for which options are expected to be outstanding, or expected term of the option, is a derived output of the lattice valuation model. The Corporation considers the following factors when estimating the expected term of options: vesting period of the award, expected volatility of the underlying stock, employees’ ages and external data.

Key assumptions used in determining the fair value of the stock options awarded in 2015, 2014 and 2013 were:


	2015		2014		2013
Risk-free interest rate		2.20%		2.50%		1.70%
Dividend yield		1.20%		1.50%		1.80%
Volatility factor		36.10%		35.30%		35.40%
Expected term		8.5 years		8.5 years		8.6 years

Based on these assumptions, the weighted-average fair value of each stock option granted was $57.71, $43.42 and $36.48 for 2015, 2014 and 2013, respectively.

The risk-free interest rate reflects the interest rate on zero-coupon U.S. government bonds available at the time each option was granted having a remaining life approximately equal to the option’s expected life. The dividend yield represents the dividend rate expected to be paid over the option’s expected life. The Corporation’s volatility factor measures the amount by which its stock price is expected to fluctuate during the expected life of the option and is based on historical stock price changes. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Corporation estimates forfeitures and will ultimately recognize compensation cost only for those stock-based awards that vest.

The Corporation recognizes income tax benefits resulting from the payment of dividend equivalents on unvested stock-based payments as an increase to additional paid-in capital and includes them in the pool of excess tax benefits.

Environmental Matters. The Corporation records a liability for an asset retirement obligation at fair value in the period in which it is incurred. The asset retirement obligation is recorded at the acquisition date of a long-lived tangible asset if the fair value can be reasonably estimated. A corresponding amount is capitalized as part of the asset’s

carrying amount. The estimate of fair value is affected by management’s assumptions regarding the scope of the work required, inflation rates and quarry closure dates.

Further, the Corporation records an accrual for other environmental remediation liabilities in the period in which it is probable that a liability has been incurred and the appropriate amounts can be estimated reasonably. Such accruals are adjusted as further information develops or circumstances change. These costs are not discounted to their present value or offset for potential insurance or other claims or potential gains from future alternative uses for a site.

Income Taxes. Deferred income taxes, net on the consolidated balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, net of valuation allowances.

Uncertain Tax Positions. The Corporation recognizes a tax benefit when it is more-likely-than-not, based on the technical merits, that a tax position would be sustained upon examination by a taxing authority. The amount to be recognized is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. The Corporation’s unrecognized tax benefits are recorded in other liabilities, on the consolidated balance sheets.

The Corporation records interest accrued in relation to unrecognized tax benefits as income tax expense. Penalties, if incurred, are recorded as operating expenses in the consolidated statements of earnings.

Sales Taxes. Sales taxes collected from customers are recorded as liabilities until remitted to taxing authorities and therefore are not reflected in the consolidated statements of earnings.

Research and Development Costs. Research and development costs are charged to operations as incurred.

Start-Up Costs. Noncapital start-up costs for new facilities and products are charged to operations as incurred.

Warranties. The Corporation’s construction contracts contain warranty provisions covering defects in equipment,

Martin Marietta | Page 20

NOTES TO FINANCIAL STATEMENTS (continued)

materials, design or workmanship that generally run from nine months to one year after project completion. Because of the nature of its projects, including contract owner inspections of the work both during construction and prior to acceptance, the Corporation has not experienced material warranty costs for these short-term warranties and therefore does not believe an accrual for these costs is necessary. Certain construction contracts carry longer warranty periods, ranging from two to ten years, for which the Corporation has accrued an estimate of warranty cost based on experience with the type of work and any known risks relative to the project. These costs were not material to the Corporation’s consolidated results of operations for the years ended December 31, 2015, 2014 and 2013.

Consolidated Comprehensive Earnings and Accumulated Other Comprehensive Loss. Consolidated comprehensive earnings for the Corporation consist of consolidated net earnings, adjustments for the funded status of pension and postretirement benefit plans, foreign currency translation adjustments and the amortization of the value of terminated forward starting interest rate swap agreements into interest expense, and are presented in the Corporation’s consolidated statements of comprehensive earnings.

Accumulated other comprehensive loss consists of unrealized gains and losses related to the funded status of the pension and postretirement benefit plans, foreign currency translation and the unamortized value of terminated forward starting interest rate swap agreements, and is presented on the Corporation’s consolidated balance sheets.

The components of the changes in accumulated other comprehensive loss and related cumulative noncurrent deferred tax assets are as follows:


		Pension and Postretirement Benefit Plans			Foreign Currency			Unamortized Value of Terminated Forward Starting Interest Rate Swap			Total
years ended December 31 (add 000)		2015
Accumulated other comprehensive (loss) earnings at beginning of period	$		(106,688	)	$	3,278		$	(2,749	)	$	(106,159	)
Other comprehensive loss before reclassifications, net of tax			(7,116	)		(3,542	)		–			(10,658	)
Amounts reclassified from accumulated other comprehensive loss, net of tax			10,424			–			771			11,195
Other comprehensive earnings (loss), net of tax			3,308			(3,542	)		771			537
Accumulated other comprehensive loss at end of period	$		(103,380	)	$	(264	)	$	(1,978	)	$	(105,622	)

Cumulative noncurrent deferred tax assets at end of period	$		66,467		$	–		$	1,290		$	67,757

		2014
Accumulated other comprehensive (loss) earnings at beginning of period	$		(44,549	)	$	3,902		$	(3,467	)	$	(44,114	)
Other comprehensive loss before reclassifications, net of tax			(62,726	)		(624	)		–			(63,350	)
Amounts reclassified from accumulated other comprehensive loss, net of tax			587			–			718			1,305
Other comprehensive (loss) earnings, net of tax			(62,139	)		(624	)		718			(62,045	)
Accumulated other comprehensive (loss) earnings at end of period	$		(106,688	)	$	3,278		$	(2,749	)	$	(106,159	)

Cumulative noncurrent deferred tax assets at end of period	$		68,568		$	–		$	1,799		$	70,367

		2013
Accumulated other comprehensive (loss) earnings at beginning of period	$		(108,189	)	$	6,157		$	(4,137	)	$	(106,169	)
Other comprehensive earnings (loss) before reclassifications, net of tax			55,403			(2,255	)		–			53,148
Amounts reclassified from accumulated other comprehensive loss, net of tax			8,237			–			670			8,907
Other comprehensive earnings (loss), net of tax			63,640			(2,255	)		670			62,055
Accumulated other comprehensive (loss) earnings at end of period	$		(44,549	)	$	3,902		$	(3,467	)	$	(44,114	)

Cumulative noncurrent deferred tax assets at end of period	$		29,198		$	–		$	2,269		$	31,467

Martin Marietta | Page 21

NOTES TO FINANCIAL STATEMENTS (continued)

Reclassifications out of accumulated other comprehensive loss are as follows:


years ended December 31 (add 000)	2015			2014			2013			Affected line items in the consolidated statements of earnings
Pension and postretirement benefit plans
Special plan termination benefit	$	2,085		$	–		$	–
Settlement charge		–			–			729
Amortization of:
Prior service credit		(1,880	)		(2,810	)		(2,807	)	Cost of sales; Selling, general & administrative expenses
Actuarial loss		16,850			3,779			15,704		Taxes on income
		17,055			969			13,626
Tax effect		(6,631	)		(382	)		(5,389	)
Total	$	10,424		$	587		$	8,237

Unamortized value of terminated forward starting interest rate swap										Interest expense Taxes on income
Additional interest expense	$	1,280		$	1,188		$	1,108
Tax effect		(509	)		(470	)		(438	)
Total	$	771		$	718		$	670

Earnings Per Common Share. The Corporation computes earnings per share (“EPS”) pursuant to the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. The Corporation pays non-forfeitable dividend equivalents during the vesting period on its restricted stock awards and incentive stock awards, which results in these being considered participating securities.

The numerator for basic and diluted earnings per common share is net earnings attributable to Martin Marietta, reduced by dividends and undistributed earnings attributable to the Corporation’s unvested restricted stock awards and incentive stock awards. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards issued to employees and nonemployee members of the Corporation’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive.

The following table reconciles the numerator and denominator for basic and diluted earnings per common share:


years ended December 31 (add 000)	2015		2014			2013
Net earnings from continuing operations attributable to Martin Marietta	$	288,792	$	155,638		$	122,086
Less: Distributed and undistributed earnings attributable to unvested awards		1,252		647			513
Basic and diluted net earnings attributable to common shareholders from continuing operations attributable to Martin Marietta		287,540		154,991			121,573
Basic and diluted net loss attributable to common shareholders from discontinued operations		–		(37	)		(749	)
Basic and diluted net earnings attributable to common shareholders attributable to Martin Marietta	$	287,540	$	154,954		$	120,824

Basic weighted-average common shares outstanding		66,770		56,854			46,164
Effect of dilutive employee and director awards		250		234			121
Diluted weighted-average common shares outstanding		67,020		57,088			46,285

Martin Marietta | Page 22

NOTES TO FINANCIAL STATEMENTS (continued)

Reclassifications. Effective January 1, 2014, the Corporation reorganized the operations and management reporting structure of the Aggregates business, resulting in a change to the reportable segments. Segment information for 2013 has been reclassified to conform to the presentation of the current reportable segments.

Note B: Goodwill and Intangible Assets

The following table shows the changes in goodwill by reportable segment and in total:


	Mid- America			Southeast		West
December 31	Group			Group		Group			Cement			Total
(add 000)						2015
Balance at beginning of period	$	282,117		$	50,346	$	852,436		$	883,900		$	2,068,799
Acquisitions		–			–		8,464			–			8,464
Adjustments to purchase price allocations		–			–		15,538			(18,634	)		(3,096	)
Divestitures		(714	)		–		(5,218	)		–			(5,932	)
Balance at end of period	$	281,403		$	50,346	$	871,220		$	865,266		$	2,068,235

						2014
Balance at beginning of period	$	263,967		$	50,346	$	302,308		$	–		$	616,621
Division reorganization		18,150			–		(18,150	)		–			–
Acquisitions		–			–		600,372			883,900			1,484,272
Divestitures		–			–		(32,094	)		–			(32,094	)
Balance at end of period	$	282,117		$	50,346	$	852,436		$	883,900		$	2,068,799

Intangible assets subject to amortization consist of the following:


	Gross		Accumulated			Net
December 31	Amount		Amortization			Balance
(add 000)			2015
Noncompetition agreements	$	6,274	$	(6,069	)	$	205
Customer relationships		35,805		(10,448	)		25,357
Operating permits		450,419		(12,294	)		438,125
Use rights and other		16,746		(8,030	)		8,716
Trade names		12,800		(3,408	)		9,392
Total	$	522,044	$	(40,249	)	$	481,795

			2014
Noncompetition agreements	$	6,274	$	(5,971	)	$	303
Customer relationships		36,610		(7,654	)		28,956
Operating permits		498,462		(5,575	)		492,887
Use rights and other		15,385		(6,940	)		8,445
Trade names		12,800		(1,143	)		11,657
Total	$	569,531	$	(27,283	)	$	542,248

Intangible assets deemed to have an indefinite life and not being amortized consist of the following:


December 31	Aggregates Business		Cement		Magnesia Specialties		Total
(add 000)	2015
Operating permits	$	6,600	$	–	$	–	$	6,600
Use rights		10,175		9,137		–		19,312
Trade names		–		280		2,565		2,845
Total	$	16,775	$	9,417	$	2,565	$	28,757

	2014
Operating permits	$	6,600	$	–	$	–	$	6,600
Use rights		9,975		19,437		–		29,412
Trade names		–		14,380		2,565		16,945
Total	$	16,575	$	33,817	$	2,565	$	52,957

During 2015, the Corporation acquired $2,953,000 of intangibles, consisting of the following:


(add 000, except year data)	Amount		Weighted-average amortization period
Subject to amortization:
Customer relationships	$	375		13.3 years
Operating permits		1,017		26.5 years
Use rights and other		1,361		22.1 years
		2,753		22.5 years
Not subject to amortization:
Use rights		200		N/A
Total	$	2,953

Use rights include, but are not limited to, water rights, subleases and proprietary information.

Total amortization expense for intangible assets for the years ended December 31, 2015, 2014 and 2013 was $13,962,000, $9,311,000 and $3,587,000, respectively.

The estimated amortization expense for intangible assets for each of the next five years and thereafter is as follows:


(add 000)
2016	$	13,431
2017		13,345
2018		12,557
2019		11,665
2020		11,630
Thereafter		419,167
Total	$	481,795

Martin Marietta | Page 23

NOTES TO FINANCIAL STATEMENTS (continued)

Note C: Business Combinations and Dispositions

Business Combinations. The Corporation acquired Texas Industries, Inc. (“TXI”) on July 1, 2014. Total revenues and earnings from operations included in the consolidated statements of earnings attributable to TXI were $941,499,000 and $70,121,000, respectively, for the year ended December 31, 2015 and $539,061,000 and $42,239,000, respectively, for the period July 1, 2014 through December 31, 2014.

Acquisition and integration expenses associated with TXI were $6,762,000 and $90,487,000 for the years ended December 31, 2015 and December 31, 2014, respectively.

Unaudited Pro Forma Financial Information. The pro forma financial information in the table below summarizes the combined consolidated results of operations for the Corporation and TXI as though the companies were combined as of January 1, 2013. Transactions between Martin Marietta and TXI during the periods presented in the pro forma financial statements have been eliminated as if Martin Marietta and TXI were consolidated affiliates during the periods.

The unaudited pro forma financial information for the year ended December 31, 2014 includes TXI’s historical operating results for the six months ended May 31, 2014 (due to a difference in TXI’s historical reporting periods) and the results of operations for the TXI locations from July 1, 2014, the acquisition date, to December 31, 2014. The pro forma financial information presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place as of January 1, 2013.


year ended December 31 (add 000)	2014
Net Sales	$	3,088,642
Earnings from continuing operations attributable to controlling interests	$	171,822

Disposition of Assets. On September 30, 2015, the Corporation divested its California cement operations, which were reported in the Cement segment. These operations were not in close proximity to other core assets of the Corporation and, unlike other marketplace competitors, were not vertically integrated with ready mixed concrete production.

The divestiture primarily included a cement plant, two distribution terminals, mobile equipment, intangible assets and inventory. In accordance with the asset purchase agreement, the liabilities assumed by the purchaser included asset retirement obligations. The Corporation received proceeds of $420,000,000 and recognized a loss of $24,214,000 on the sale, inclusive of transaction-related accruals. The Corporation also recognized other disposal-related expenses of $4,849,000. The loss and related expenses are included in other operating expenses, net, in the consolidated statement of earnings.

Note D: Accounts Receivable, Net


December 31 (add 000)	2015			2014
Customer receivables	$	408,551		$	418,016
Other current receivables		9,310			7,062
		417,861			425,078
Less allowances		(6,940	)		(4,077	)
Total	$	410,921		$	421,001

Of the total accounts receivable, net, balances, $3,794,000 and $3,765,000 at December 31, 2015 and 2014, respectively, were due from unconsolidated affiliates.

Note E: Inventories, Net


December 31 (add 000)	2015			2014
Finished products	$	433,649		$	413,766
Products in process and raw materials		55,194			65,250
Supplies and expendable parts		110,882			125,092
		599,725			604,108
Less allowances		(130,584	)		(119,189	)
Total	$	469,141		$	484,919

Note F: Property, Plant and Equipment, Net


December 31 (add 000)	2015			2014
Land and land improvements	$	865,700		$	849,704
Mineral reserves and interests		1,001,295			990,438
Buildings		144,076			157,233
Machinery and equipment		3,473,826			3,568,342
Construction in progress		128,301			125,959
		5,613,198			5,691,676
Less allowances for depreciation, depletion and amortization		(2,457,198	)		(2,288,906	)
Total	$	3,156,000		$	3,402,770

Martin Marietta | Page 24

NOTES TO FINANCIAL STATEMENTS (continued)

The gross asset value and related allowance for amortization for machinery and equipment recorded under capital leases at December 31 were as follows:


(add 000)	2015			2014
Machinery and equipment under capital leases	$	19,379		$	25,775
Less allowance for amortization		(5,102	)		(2,808	)
Total	$	14,277		$	22,967

Depreciation, depletion and amortization expense related to property, plant and equipment was $246,874,000, $211,242,000 and $168,333,000 for the years ended December 31, 2015, 2014 and 2013, respectively. Depreciation, depletion and amortization expense for 2015 and 2014 includes amortization of machinery and equipment under capital leases.

Interest cost of $5,832,000, $8,033,000 and $1,792,000 was capitalized during 2015, 2014 and 2013, respectively.

At December 31, 2015 and 2014, $58,937,000 and $68,340,000, respectively, of the Aggregates business’ net property, plant and equipment were located in foreign countries, namely the Bahamas and Canada.

Note G: Long-Term Debt


December 31 (add 000)	2015			2014
6.6% Senior Notes, due 2018	$	299,368		$	299,123
7% Debentures, due 2025		124,532			124,500
6.25% Senior Notes, due 2037		228,223			228,184
4.25% Senior Notes, due 2024		395,717			395,309
Floating Rate Notes, due 2017, interest rate of 1.71% and 1.33% at December 31, 2015 and 2014, respectively		299,318			298,869
Term Loan Facility, due 2018, interest rate of 1.86% and 1.67% at December 31, 2015 and 2014, respectively		224,075			236,258
Other notes		1,662			3,152
Total		1,572,895			1,585,395
Less current maturities		(19,246	)		(14,336	)
Long-term debt	$	1,553,649		$	1,571,059

The Corporation’s 6.6% Senior Notes due 2018, 7% Debentures due 2025, 6.25% Senior Notes due 2037, 4.25% Senior Notes due 2024 and Floating Rate Notes due 2017 (collectively, the “Senior Notes”) are senior unsecured obligations of the Corporation, ranking equal in right of payment with the Corporation’s existing and future unsubordinated indebtedness. Upon a change of control repurchase event and a resulting below-investment-grade credit rating, the Corporation

would be required to make an offer to repurchase all outstanding Senior Notes, with the exception of the 7% Debentures due 2025, at a price in cash equal to 101% of the principal amount of the Senior Notes, plus any accrued and unpaid interest to, but not including, the purchase date.

All Senior Notes and Debentures are carried net of original issue discount, which is being amortized by the effective interest method over the life of the issue. Senior Notes are redeemable prior to their respective maturity dates. The principal amount, effective interest rate and maturity date for the Corporation’s Senior Notes and Debentures are as follows:


	Principal Amount (add 000)		Effective Interest Rate	Maturity Date
6.6% Senior Notes	$	300,000	6.81%	April 15, 2018
7% Debentures	$	125,000	7.12%	December 1, 2025
6.25% Senior Notes	$	230,000	6.45%	May 1, 2037
4.25% Senior Notes	$	400,000	4.25%	July 2, 2024
Floating Rate Notes	$	300,000	LIBOR+1.10%	June 30, 2017

Borrowings under the Senior Unsecured Credit Facilities bear interest, at the Corporation’s option, at rates based upon the London Interbank Offered Rate (“LIBOR”) or a base rate, plus, for each rate, a margin determined in accordance with a ratings-based pricing grid.

In connection with the issuance of its $300,000,000 Floating Rate Senior Notes due 2017 (the “Floating Rate Notes”) and its $400,000,000 4.25% Senior Notes due 2024 (the “4.25% Senior Notes” and together with the Floating Rate Notes, the “Notes”), the Corporation entered into an indenture, between the Corporation and Regions Bank, as trustee, and a Registration Rights Agreement, among the Corporation, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasers named in Schedule I to the purchase agreement. The Floating Rate Notes bear interest at a rate equal to the three-month LIBOR plus 1.10% and may not be redeemed prior to maturity. The 4.25% Senior Notes may be redeemed in whole or in part prior to their maturity at a make-whole redemption price.

The Corporation has a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, N.A., Branch Banking and Trust Company (“BB&T”) and SunTrust Bank, as Co-Syndication Agents, and the lenders party thereto (the “Credit Agreement”). The Credit Agreement provides a $250,000,000 senior unsecured term

Martin Marietta | Page 25

NOTES TO FINANCIAL STATEMENTS (continued)

loan (the “Term Loan Facility”) and a $350,000,000 five-year senior unsecured revolving facility (the “Revolving Facility”, and together with the Term Loan Facility, the “Senior Unsecured Credit Facilities”). The Senior Unsecured Credit Facilities are syndicated with the following banks:


Lender (add 000)	Revolving Facility Commitment			Term Loan Facility Commitment
JPMorgan Chase Bank, N.A.		$	46,667		$	33,333
Wells Fargo Bank, N.A.			46,667			33,333
BB&T			46,667			33,333
SunTrust Bank			46,667			33,333
Deutsche Bank AG New York Branch			46,667			33,333
PNC Bank, National Association			29,167			20,833
Regions Bank			29,167			20,833
The Northern Trust Company			29,167			20,833
Comerica Bank			14,582			10,418
The Bank of Tokyo-Mitsubishi UFJ, Ltd.			14,582			10,418
Total		$	350,000		$	250,000

The Corporation’s Credit Agreement requires the Corporation’s ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (“EBITDA”), as defined, for the trailing-twelve months (the “Ratio”) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its rating on long-term unsecured debt fall below BBB by Standard & Poor’s or Baa2 by Moody’s as a result of the acquisition, and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if no amounts are outstanding under both the Revolving Facility and the Trade Receivable Facility, consolidated debt, including debt for which the Corporation is a co-borrower (see Note N), may be reduced by the Corporation’s unrestricted cash and cash equivalents in excess of $50,000,000, such reduction not to exceed $200,000,000, for purposes of the covenant calculation. The Corporation was in compliance with this Ratio at December 31, 2015.

In 2014, the Corporation amended the Credit Agreement to ensure the impact of the business combination with TXI did not impair liquidity available under the Term Loan Facility and the Revolving Facility. The amendment adjusted consolidated EBITDA, as defined, to add back fees, costs or expenses relating to the TXI business combination incurred on or prior to the closing

of the combination not to exceed $95,000,000; any integration or similar costs or expenses related to the TXI business combination incurred in any period prior to the second anniversary of the closing of the TXI business combination not to exceed $70,000,000; and any make-whole fees incurred in connection with the redemption of TXI’s 9.25% senior notes due 2020.

Under the Term Loan Facility, the Corporation made required quarterly principal payments equal to 1.25% of the original principal balance during 2015 and is required to make quarterly principal payments equal to 1.875% of the remaining principal balance during the remaining years, with the remaining outstanding principal, together with interest accrued thereon, due in full on November 29, 2018.

The Revolving Facility expires on November 29, 2018, with any outstanding principal amounts, together with interest accrued thereon, due in full on that date. Available borrowings under the Revolving Facility are reduced by any outstanding letters of credit issued by the Corporation under the Revolving Facility. At December 31, 2015 and 2014, the Corporation had $2,507,000 of outstanding letters of credit issued under the Revolving Facility. The Corporation paid the bank group an upfront loan commitment fee that is being amortized over the life of the Revolving Facility. The Revolving Facility includes an annual facility fee.

The Corporation, through a wholly-owned special-purpose subsidiary, has a $250,000,000 trade receivable securitization facility (the “Trade Receivable Facility”), which matures on September 30, 2016. The Trade Receivable Facility, with SunTrust Bank, Regions Bank, PNC Bank, National Association and certain other lenders that may become a party to the facility from time to time, is backed by eligible trade receivables, as defined, of $364,419,000 and $369,575,000 at December 31, 2015 and 2014, respectively. These receivables are originated by the Corporation and then sold to the special-purpose subsidiary wholly-owned by the Corporation. Borrowings under the Trade Receivable Facility bear interest at a rate equal to one-month LIBOR plus 0.7% and are limited to the lesser of the facility limit or the borrowing base, as defined, of $282,258,000 and $313,428,000 at December 31, 2015 and 2014, respectively. The Corporation continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned special-purpose subsidiary.

Martin Marietta | Page 26

NOTES TO FINANCIAL STATEMENTS (continued)

The Corporation’s long-term debt maturities for the five years following December 31, 2015, and thereafter are:


(add 000)
2016	$	19,246
2017		318,028
2018		486,843
2019		90
2020		60
Thereafter		748,628
Total	$	1,572,895

The Corporation has a $5,000,000 short-term line of credit. No amounts were outstanding under this line of credit at December 31, 2015 or 2014.

Accumulated other comprehensive loss includes the unamortized value of terminated forward starting interest rate swap agreements. For the years ended December 31, 2015, 2014 and 2013, the Corporation recognized $1,280,000, $1,188,000 and $1,108,000, respectively, as additional interest expense. The ongoing amortization of the terminated value of the forward starting interest rate swap agreements will increase annual interest expense by approximately $1,400,000 until the maturity of the 6.6% Senior Notes in 2018.

Note H: Financial Instruments

The Corporation’s financial instruments include temporary cash investments, accounts receivable, notes receivable, bank overdraft, accounts payable, publicly-registered long-term notes, debentures and other long-term debt.

Temporary cash investments are placed primarily in money market funds and money market demand deposit accounts with the following financial institutions: BB&T, Comerica Bank and Regions Bank. The Corporation’s cash equivalents have maturities of less than three months. Due to the short maturity of these investments, they are carried on the consolidated balance sheets at cost, which approximates fair value.

Accounts receivable are due from a large number of customers, primarily in the construction industry, and are dispersed across wide geographic and economic regions. However, accounts receivable are more heavily concentrated in certain states, namely Texas, Colorado, North Carolina, Iowa and Georgia. The estimated fair values of accounts receivable approximate their carrying amounts.

Notes receivable are primarily promissory notes with customers and are not publicly traded. Management estimates that the fair value of notes receivable approximates its carrying amount.

The bank overdraft represents amounts to be funded to financial institutions for checks that have cleared the bank. The estimated fair value of the bank overdraft approximates its carrying value.

Accounts payable represent amounts owed to suppliers and vendors. The estimated fair value of accounts payable approximates its carrying amount due to the short-term nature of the payables.

The carrying values and fair values of the Corporation’s long-term debt were $1,572,895,000 and $1,625,193,000, respectively, at December 31, 2015 and $1,585,395,000 and $1,680,584,000, respectively, at December 31, 2014. The estimated fair value of the Corporation’s publicly-registered long-term debt was estimated based on Level 2 of the fair value hierarchy using quoted market prices. The estimated fair values of other borrowings, which primarily represent variable-rate debt, approximate their carrying amounts as the interest rates reset periodically.

Note I: Income Taxes

The components of the Corporation’s tax expense (benefit) on income from continuing operations are as follows:


years ended December 31 (add 000)	2015			2014			2013
Federal income taxes:
Current	$	20,627		$	35,313		$	30,856
Deferred		85,295			46,616			8,399
Total federal income taxes		105,922			81,929			39,255
State income taxes:
Current		18,153			10,307			3,201
Deferred		930			3,376			478
Total state income taxes		19,083			13,683			3,679
Foreign income taxes:
Current		99			1,262			972
Deferred		(241	)		(2,027	)		139
Total foreign income taxes		(142	)		(765	)		1,111
Total taxes on income	$	124,863		$	94,847		$	44,045

The increase in federal deferred tax expense in 2015 and 2014 is attributable to the utilization of net operating loss (“NOL”) carryforwards acquired in the acquisition of TXI to the extent allowed. For the years ended December 31, 2015 and 2014, the benefit related to the utilization of federal NOL carryforwards, reflected in current tax expense, was $156,554,000 and $16,940,000, respectively.

Martin Marietta | Page 27

NOTES TO FINANCIAL STATEMENTS (continued)

For the year ended December 31, 2015, the realized tax benefit for stock-based compensation transactions was $871,000 less than the amounts estimated during the vesting periods, resulting in a decrease in the pool of excess tax credits. For the years ended December 31, 2014 and 2013, excess tax benefits attributable to stock-based compensation transactions that were recorded to shareholders’ equity amounted to $2,508,000 and $2,368,000, respectively.

For the years ended December 31, 2015, 2014 and 2013, foreign pretax loss was $1,175,000, $10,557,000 and $10,277,000, respectively. In 2014, current foreign tax expense primarily related to unrecognized tax benefits for tax positions taken in prior years and the deferred foreign tax benefit primarily related to the true-up of deferred tax liabilities. In 2013, current foreign tax expense was primarily attributable to the settlement of the Canadian Advance Pricing Agreement (“APA”). The tax effect of currency translations included in foreign taxes was immaterial.

The Corporation’s effective income tax rate on continuing operations varied from the statutory United States income tax rate because of the following permanent tax differences:


years ended December 31	2015	2014	2013
Statutory tax rate	35.0%	35.0%	35.0%
(Reduction) increase resulting from:
Effect of statutory depletion	(7.8)	(9.6)	(12.0)
State income taxes	3.0	3.6	1.5
Domestic production deduction	(0.1)	(0.9)	(2.1)
Transfer pricing	–	(0.2)	0.9
Goodwill write off	0.4	3.9	–
Foreign tax rate differential	–	1.3	2.1
Disallowed compensation	0.2	3.7	0.3
Purchase accounting transaction costs	–	2.4	–
Other items	(0.5)	(1.1)	1.1
Effective income tax rate	30.2%	38.1%	26.8%

For income tax purposes, the statutory depletion deduction is calculated as a percentage of sales, subject to certain limitations. Due to these limitations, the impact of changes in the sales volumes and earnings may not proportionately affect the Corporation’s statutory depletion deduction and the corresponding impact on the effective income tax rate on continuing operations.

The Corporation is entitled to receive a 9% tax deduction related to income from domestic (i.e., United States) production activities. The deduction reduced income tax expense and increased consolidated net earnings by $222,000, or

less than $0.01 per diluted share, in 2015, $3,239,000, or $0.05 per diluted share, in 2014, and $3,979,000, or $0.09 per diluted share, in 2013.

In 2015 and 2014, the Corporation wrote off goodwill not deductible for income tax purposes as part of the sale of certain operations. In addition, the Corporation incurred certain compensation and transaction expenses in 2014 in connection with the TXI acquisition that are not deductible for income tax purposes, which increased the effective income tax rate.

The principal components of the Corporation’s deferred tax assets and liabilities are as follows:


December 31	Deferred Assets (Liabilities)
(add 000)	2015			2014
Deferred tax assets related to:
Employee benefits	$	56,302		$	74,288
Inventories		75,907			64,484
Valuation and other reserves		42,857			48,278
Net operating loss carryforwards		11,448			171,781
Accumulated other comprehensive loss		67,757			70,367
Alternative Minimum Tax credit carryforward		48,197			28,809
Gross deferred tax assets		302,468			458,007
Valuation allowance on deferred tax assets		(8,967	)		(6,133	)
Total net deferred tax assets		293,501			451,874
Deferred tax liabilities related to:
Property, plant and equipment		(593,767	)		(638,730	)
Goodwill and other intangibles		(266,436	)		(288,471	)
Other items, net		(16,757	)		(14,618	)
Total deferred tax liabilities		(876,960	)		(941,819	)
Net deferred tax liability	$	(583,459	)	$	(489,945	)

The increase in the net deferred tax liability is primarily a result of the utilization of deferred tax assets related to net operating loss carryforwards, offset by the recognition of deferred tax liabilities resulting from the sale of the California cement operations.

Deferred tax assets for employee benefits result from the temporary differences between the deductions for pension and postretirement obligations and stock-based compensation transactions. For financial reporting purposes, such amounts are expensed based on authoritative accounting guidance. For income tax purposes, amounts related to pension and postretirement obligations are deductible as funded. Amounts related to stock-based compensation transactions are deductible for income tax purposes upon vesting or exercise of the under-

Martin Marietta | Page 28

NOTES TO FINANCIAL STATEMENTS (continued)

lying award. Deferred tax assets are carried on stock options with exercise prices in excess of the Corporation’s stock price at December 31, 2015. If these options expire without being exercised, the deferred tax assets are written off by reducing the pool of excess tax benefits to the extent available and expensing any excess.

The Corporation had domestic federal and state net operating loss carryforwards of $273,251,000 (federal $33,863,000; state $239,388,000) and $710,163,000 (federal $465,467,000; state $244,696,000) at December 31, 2015 and 2014, respectively. These carryforwards have various expiration dates through 2035. At December 31, 2015 and 2014, deferred tax assets associated with these carryforwards were $11,448,000 and $171,781,000, respectively, net of unrecognized tax benefits, for which valuation allowances of $8,690,000 and $5,084,000, respectively, were recorded. The Corporation recorded a $3,714,000 valuation reserve in 2015 for certain state net operating loss carryforwards, which was driven by the sale of the California cement operations. The Corporation also had domestic tax credit carryforwards of $3,179,000 and $3,682,000 at December 31, 2015 and 2014, respectively, for which valuation allowances were recorded in the amount of $277,000 and $1,049,000 at December 31, 2015 and 2014, respectively. Federal tax credit carryforwards recorded at December 31, 2015 will begin to expire in 2025. State tax credit carryforwards recorded at December 31, 2015 expire in 2018. At December 31, 2015, the Corporation also had Alternative Minimum Tax (“AMT”) credit carryforwards of $48,197,000, which do not expire.

Deferred tax liabilities for property, plant and equipment result from accelerated depreciation methods being used for income tax purposes as compared with the straight-line method for financial reporting purposes.

Deferred tax liabilities related to goodwill and other intangibles reflect the cessation of goodwill amortization for financial reporting purposes, while amortization continues for income tax purposes. No deferred tax liabilities were recorded on goodwill acquired in the TXI acquisition.

The Corporation provides deferred taxes, as required, on the undistributed net earnings of all non-U.S. subsidiaries for which the indefinite reversal criterion has not been met. The Corporation expects to reinvest permanently the earnings from its wholly-owned Canadian subsidiary and accordingly, has not provided deferred taxes on the subsidiary’s undistributed

net earnings. The Canadian subsidiary’s undistributed net earnings are estimated to be $32,284,000 for the year ended December 31, 2015. The unrecognized deferred tax liability for temporary differences related to the investment in the wholly-owned Canadian subsidiary is estimated to be $1,815,000 for the year ended December 31, 2015.

The following table summarizes the Corporation’s unrecognized tax benefits, excluding interest and correlative effects:


years ended December 31 (add 000)	2015			2014			2013
Unrecognized tax benefits at beginning of year	$	21,107		$	11,826		$	15,380
Gross increases – tax positions in prior years		3,079			2,075			9,845
Gross decreases – tax positions in prior years		(3,512	)		(203	)		(5,121	)
Gross increases – tax positions in current year		4,978			3,369			2,540
Gross decreases – tax positions in current year		(594	)		(51	)		(529	)
Settlements with taxing authorities		–			–			(8,599	)
Lapse of statute of limitations		(6,331	)		(1,872	)		(1,690	)
Unrecognized tax benefits assumed with acquisition		–			5,963			–
Unrecognized tax benefits at end of year	$	18,727		$	21,107		$	11,826

For the year ended December 31, 2014, the unrecognized tax benefits assumed with acquisition included positions acquired in the acquisition of TXI. For the year ended December 31, 2013, settlements with taxing authorities related to the Canadian APA settlement.

At December 31, 2015, 2014 and 2013, unrecognized tax benefits of $7,975,000, $9,362,000 and $6,301,000, respectively, related to interest accruals and permanent income tax differences net of federal tax benefits, would have favorably affected the Corporation’s effective income tax rate if recognized.

Unrecognized tax benefits are reversed as a discrete event if an examination of applicable tax returns is not begun by a federal or state tax authority within the statute of limitations or upon effective settlement with federal or state tax authorities. Management believes its accrual for unrecognized tax benefits is sufficient to cover uncertain tax positions reviewed during audits by taxing authorities. The Corporation anticipates that it is reasonably possible that its unrecognized tax benefits may decrease up to $1,455,000,

Martin Marietta | Page 29

NOTES TO FINANCIAL STATEMENTS (continued)

excluding indirect benefits, during the twelve months ending December 31, 2016 due to the expiration of the statute of limitations for the 2011 and 2012 tax years.

For the years ended December 31, 2015, 2014 and 2013, $2,364,000 or $0.04 per diluted share, $687,000 or $0.01 per diluted share, and $1,368,000 or $0.03 per diluted share, respectively, were reversed into income upon the statute of limitations expiration for the 2009, 2010 and 2011 tax years.

The Corporation’s open tax years subject to federal, state or foreign examinations are 2011 through 2015.

Note J: Retirement Plans, Postretirement and Postemployment Benefits

The Corporation sponsors defined benefit retirement plans that cover substantially all employees. Additionally, the Corporation provides other postretirement benefits for certain employees, including medical benefits for retirees and their spouses and retiree life insurance. The Corporation also provides certain benefits, such as disability benefits, to former or inactive employees after employment but before retirement.

In connection with the TXI acquisition in 2014, the Corporation assumed three defined benefit plans, including two pension plans and a postretirement health benefit plan. The assets and obligations associated with these plans are reflected in the assets and obligations as of December 31, 2015 and 2014, in the tables below.

The measurement date for the Corporation’s defined benefit plans, postretirement benefit plans and postemployment benefit plans is December 31.

Defined Benefit Retirement Plans. Retirement plan assets invested in listed stocks, bonds, hedge funds, real estate and cash equivalents. Defined retirement benefits for salaried employees are based on each employee’s years of service and average compensation for a specified period of time before retirement. Defined retirement benefits for hourly employees are generally stated amounts for specified periods of service.

The Corporation sponsors a Supplemental Excess Retirement Plan (“SERP”) that generally provides for the payment of retirement benefits in excess of allowable Internal Revenue

Code limits. The SERP generally provides for a lump-sum payment of vested benefits. When these benefit payments exceed the sum of the service and interest costs for the SERP during a year, the Corporation recognizes a pro-rata portion of the SERP’s unrecognized actuarial loss as settlement expense.

The net periodic retirement benefit cost of defined benefit plans includes the following components:


years ended December 31 (add 000)	2015			2014			2013
Components of net periodic benefit cost:
Service cost	$	23,001		$	17,125		$	16,121
Interest cost		33,151			28,935			23,016
Expected return on assets		(36,385	)		(32,661	)		(26,660	)
Amortization of:
Prior service cost		422			445			449
Actuarial loss		17,159			4,045			15,679
Transition asset		(1	)		(1	)		(1	)
Settlement charge		–			–			729
Termination benefit charge		2,085			13,652			–
Net periodic benefit cost	$	39,432		$	31,540		$	29,333

The expected return on assets is based on the fair value of the plan assets. The termination benefit charge represents the increased benefits payable to former TXI executives as part of their change-in-control agreements.

The Corporation recognized the following amounts in consolidated comprehensive earnings:


years ended December 31 (add 000)	2015			2014			2013
Actuarial loss (gain)	$	9,916		$	105,546		$	(90,755	)
Amortization of:
Prior service cost		(422	)		(445	)		(449	)
Actuarial loss		(17,159	)		(4,045	)		(15,679	)
Transition asset		1			1			1
Special plan termination benefits		(2,085	)		–			–
Settlement charge		–			–			(729	)
Net prior service cost		2,338			–			–
Total	$	(7,411	)	$	101,057		$	(107,611	)

Accumulated other comprehensive loss includes the following amounts that have not yet been recognized in net periodic benefit cost:


December 31	2015						2014
(add 000)	Gross			Net of tax			Gross			Net of tax
Prior service cost	$	1,028		$	628		$	1,197		$	729
Actuarial loss		178,770			108,874			186,013			113,288
Transition asset		(8	)		(5	)		(9	)		(5	)
Total	$	179,790		$	109,497		$	187,201		$	114,012

Martin Marietta | Page 30

NOTES TO FINANCIAL STATEMENTS (continued)

The prior service cost, actuarial loss and transition asset expected to be recognized in net periodic benefit cost during 2016 are $350,000 (net of deferred taxes of $136,000), $11,318,000 (net of deferred taxes of $4,403,000) and $1,000, respectively. These amounts are included in accumulated other comprehensive loss at December 31, 2015.

The defined benefit plans’ change in projected benefit obligation is as follows:


years ended December 31 (add 000)	2015			2014
Change in projected benefit obligation:
Net projected benefit obligation at beginning of year	$	753,975		$	496,040
Service cost		23,001			17,125
Interest cost		33,151			28,935
Actuarial (gain) loss		(27,119	)		99,071
Gross benefits paid		(30,803	)		(23,489	)
Acquisitions		–			122,641
Nonrecurring termination benefit		2,338			13,652
Net projected benefit obligation at end of year	$	754,543		$	753,975

The Corporation’s change in plan assets, funded status and amounts recognized on the Corporation’s consolidated balance sheets are as follows:


years ended December 31
(add 000)	2015			2014
Change in plan assets:
Fair value of plan assets at beginning of year	$	524,042		$	443,973
Actual return on plan assets, net		(651	)		26,186
Employer contributions		53,924			25,654
Gross benefits paid		(30,803	)		(23,489	)
Acquisitions		–			51,718
Fair value of plan assets at end of year	$	546,512		$	524,042

years ended December 31
(add 000)	2015			2014
Funded status of the plan at end of year	$	(208,031	)	$	(229,933	)
Accrued benefit cost	$	(208,031	)	$	(229,933	)

years ended December 31
(add 000)	2015			2014
Amounts recognized on consolidated balance sheets consist of:
Current liability	$	(6,048	)	$	(4,183	)
Noncurrent liability		(201,983	)		(225,750	)
Net amount recognized at end of year	$	(208,031	)	$	(229,933	)

The accumulated benefit obligation for all defined benefit pension plans was $688,017,000 and $684,647,000 at December 31, 2015 and 2014, respectively.

Benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets are as follows:


December 31
(add 000)	2015		2014
Projected benefit obligation	$	754,543	$	753,975
Accumulated benefit obligation	$	688,017	$	684,647
Fair value of plan assets	$	546,512	$	524,042

Weighted-average assumptions used to determine benefit obligations as of December 31 are:


	2015			2014
Discount rate		4.67	%		4.25	%
Rate of increase in future compensation levels		4.50	%		4.50	%

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 are:


	2015			2014			2013
Discount rate		4.25	%		5.17	%		4.24	%
Rate of increase in future compensation levels		4.50	%		5.00	%		5.00	%
Expected long-term rate of return on assets		7.00	%		7.00	%		7.00	%

The expected long-term rate of return on assets is based on a building-block approach, whereby the components are weighted based on the allocation of pension plan assets.

For 2015 and 2014, the Corporation estimated the remaining lives of participants in the pension plans using the RP-2014 Mortality Table. The no-collar table was used for salaried participants and the blue-collar table, reflecting the experience of the Corporation’s participants, was used for hourly participants.

The target allocation for 2015 and the actual pension plan asset allocation by asset class are as follows:


	Percentage of Plan Assets
	2015			December 31
Asset Class	Target Allocation			2015			2014
Equity securities		54	%		55	%		59	%
Debt securities		30	%		31	%		29	%
Hedge funds		8	%		7	%		4	%
Real estate		8	%		7	%		7	%
Cash		0	%		0	%		1	%
Total		100	%		100	%		100	%

Martin Marietta | Page 31

NOTES TO FINANCIAL STATEMENTS (continued)

The Corporation’s investment strategy is for approximately 50% of equity securities to be invested in mid-sized to large capitalization U.S. funds with the remaining to be invested in small capitalization, emerging markets and international funds. Debt securities, or fixed income investments, are invested in funds benchmarked to the Barclays U.S. Aggregate Bond Index.

The fair values of pension plan assets by asset class and fair value hierarchy level are as follows:

December 31

(add 000)

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant

Unobservable
Inputs

(Level 3)

Total

Fair
Value

2015

Equity securities:

Mid-sized to large cap

–

156,008

–

156,008

Small cap,

international and emerging growth funds

–

144,405

–

144,405

Debt securities:

Core fixed income

–

167,545

–

167,545

High-yield bonds

–

Real estate

15,479

–

23,242

38,721

Hedge funds

–

39,219

Cash

614

–

614

Total

16,093

467,958

62,461

546,512

2014

Equity securities:

Mid-sized to large cap

–

219,092

–

219,092

Small cap,

international and emerging growth funds

–

87,706

–

87,706

Debt securities:

Core fixed income

–

154,997

–

154,997

High-yield bonds

–

Real estate

–

20,363

Hedge funds

–

38,264

Cash

3,620

–

3,620

Total

3,620

461,795

58,627

524,042

Level 3 real estate investments are stated at estimated fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of real estate investments generally do not reflect transaction costs which may be incurred upon disposition of the real estate investments and do not necessarily represent the prices at which the real estate investments would be sold or repaid, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. An independent valuation consultant is employed to determine the fair value of the real estate investments. The value of hedge funds is based on the values of the sub-fund investments. In

determining the fair value of each sub-fund’s investment, the hedge funds’ Board of Trustees uses the values provided by the sub-funds and any other considerations that may, in its judgment, increase or decrease such estimated value.

The change in the fair value of pension plan assets valued using significant unobservable inputs (Level 3) is as follows:


years ended December 31	Real Estate		Hedge Funds
(add 000)	2015
Balance at beginning of year	$	20,363	$	38,264
Purchases, sales, settlements, net		–		–
Actual return on plan assets held at period end		2,879		955
Balance at end of year	$	23,242	$	39,219

	2014
Balance at beginning of year	$	19,357	$	21,764
Purchases, sales, settlements, net		441		15,600
Actual return on plan assets held at period end		565		900
Balance at end of year	$	20,363	$	38,264

In 2015 and 2014, the Corporation made pension and SERP contributions of $53,924,000 and $25,654,000, respectively. The Corporation currently estimates that it will contribute $29,927,000 to its pension and SERP plans in 2016.

The expected benefit payments to be paid from plan assets for each of the next five years and the five-year period thereafter are as follows:


(add 000)
2016	$	34,226
2017	$	36,301
2018	$	38,105
2019	$	40,327
2020	$	42,582
Years 2021 – 2025	$	238,610

Postretirement Benefits. The net periodic postretirement benefit (credit) cost of postretirement plans includes the following components:


years ended December 31
(add 000)	2015			2014			2013
Components of net periodic benefit credit:
Service cost	$	137		$	206		$	227
Interest cost		928			1,164			1,013
Amortization of:
Prior service credit		(2,302	)		(3,255	)		(3,255	)
Actuarial (gain) loss		(309	)		(266	)		25
Total net periodic benefit credit	$	(1,546	)	$	(2,151	)	$	(1,990	)


		Martin Marietta \| Page 32

NOTES TO FINANCIAL STATEMENTS (continued)

The Corporation recognized the following amounts in consolidated comprehensive earnings:


years ended December 31
(add 000)	2015			2014			2013
Actuarial gain	$	(626	)	$	(3,026	)	$	(1,011	)
Amortization of:
Prior service credit		2,302			3,255			3,255
Actuarial gain (loss)		309			266			(25	)
Total	$	1,985		$	495		$	2,219

Accumulated other comprehensive loss includes the following amounts that have not yet been recognized in net periodic benefit cost:


December 31	2015						2014
(add 000)	Gross			Net of tax			Gross			Net of tax
Prior service credit	$	(4,786	)	$	(2,924	)	$	(7,088	)	$	(4,316	)
Actuarial gain		(5,050	)		(3,086	)		(4,733	)		(2,883	)
Total	$	(9,836	)	$	(6,010	)	$	(11,821	)	$	(7,199	)

The prior service credit and actuarial gain expected to be recognized in net periodic benefit cost during 2016 is $1,846,000 (net of a deferred tax liability of $718,000) and $382,000 (net of a deferred tax liability of $149,000), respectively, and are included in accumulated other comprehensive loss at December 31, 2015.

The postretirement health care plans’ change in benefit obligation is as follows:


years ended December 31
(add 000)	2015			2014
Change in benefit obligation:
Net benefit obligation at beginning of year	$	25,086		$	27,352
Service cost		137			206
Interest cost		928			1,164
Participants’ contributions		1,777			2,100
Actuarial gain		(627	)		(3,026	)
Gross benefits paid		(3,893	)		(4,856	)
Acquisitions		–			2,146
Net benefit obligation at end of year	$	23,408		$	25,086

The Corporation’s change in plan assets, funded status and amounts recognized on the Corporation’s consolidated balance sheets are as follows:


years ended December 31
(add 000)	2015			2014
Change in plan assets:
Fair value of plan assets at beginning of year	$	–		$	–
Employer contributions		2,116			2,756
Participants’ contributions		1,777			2,100
Gross benefits paid		(3,893	)		(4,856	)
Fair value of plan assets at end of year	$	–		$	–

December 31
(add 000)	2015			2014
Funded status of the plan at end of year	$	(23,408	)	$	(25,086	)
Accrued benefit cost	$	(23,408	)	$	(25,086	)

December 31
(add 000)	2015			2014
Amounts recognized on consolidated balance sheets consist of:
Current liability	$	(2,120	)	$	(2,770	)
Noncurrent liability		(21,288	)		(22,316	)
Net amount recognized at end of year	$	(23,408	)	$	(25,086	)

Weighted-average assumptions used to determine the postretirement benefit obligations as of December 31 are:


	2015		2014
Discount rate		4.25%		3.83%

Weighted-average assumptions used to determine the postretirement benefit cost for the years ended December 31 are:


	2015		2014		2013
Discount rate		3.83%		4.42%		3.54%

For 2015 and 2014, the Corporation estimated the remaining lives of participants in the postretirement plan using the RP-2014 Mortality Table.


	2015		2014
Health care cost trend rate assumed for next year		7.0%		7.0%
Rate to which the cost trend rate gradually declines		5.0%		5.0%
Year the rate reaches the ultimate rate		2020		2019

Martin Marietta | Page 33

NOTES TO FINANCIAL STATEMENTS (continued)

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects:


	One Percentage Point
(add 000)	Increase		(Decrease)
Total service and interest cost components		$ 55		$ (51	)
Postretirement benefit obligation		$1,312		$(1,133	)

The Corporation estimates that it will contribute $2,120,000 to its postretirement health care plans in 2016.

The total expected benefit payments to be paid by the Corporation, net of participant contributions, for each of the next five years and the five-year period thereafter are as follows:


(add 000)
2016	$	2,120
2017	$	2,344
2018	$	2,275
2019	$	2,159
2020	$	2,051
Years 2021 - 2025	$	9,170

Defined Contribution Plans. The Corporation maintains defined contribution plans that cover substantially all employees. These plans, qualified under Section 401(a) of the Internal Revenue Code, are retirement savings and investment plans for the Corporation’s salaried and hourly employees. Under certain provisions of these plans, the Corporation, at established rates, matches employees’ eligible contributions. The Corporation’s matching obligations were $12,444,000 in 2015, $8,602,000 in 2014 and $7,097,000 in 2013. The increase in matching contributions reflect the participation of the new employees effective July 1, 2014 in connection with the TXI acquisition.

Postemployment Benefits. The Corporation had accrued postemployment benefits of $1,267,000 at December 31, 2015 and 2014.

Note K: Stock-Based Compensation

The shareholders approved, on May 23, 2006, the Martin Marietta Materials, Inc. Stock-Based Award Plan, as amended from time to time (along with the Amended Omnibus Securities Award Plan, originally approved in 1994, the “Plans”). The Corporation has been authorized by the Board of Directors to repurchase shares of the Corporation’s common stock for issuance under the Plans (see Note M).

Under the Plans, the Corporation grants options to employees to purchase its common stock at a price equal to the closing market value at the date of grant. Options become exercisable in four annual installments beginning one year after date of grant. Options granted starting 2013 expire ten years after the grant date while outstanding options granted prior to 2013 expire eight years after the grant date.

In connection with the TXI acquisition, the Corporation issued 821,282 Martin Marietta stock options (“Replacement Options”) to holders of outstanding TXI stock options at the acquisition date. The Corporation issued 0.7 Replacement Options for each outstanding TXI stock option, and the Replacement Option prices reflected the exchange ratio. The Replacement Options will expire on the original contractual dates when the TXI stock options were initially issued. Consistent with the terms of the Corporation’s other outstanding stock options, Replacement Options expire 90 days after employment is terminated.

Prior to 2009, each nonemployee Board of Director member received 3,000 non-qualified stock options annually. These options have an exercise price equal to the market value at the date of grant, vested immediately and expire ten years from the grant date.

The following table includes summary information for stock options as of December 31, 2015:


	Number of Options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life (years)
Outstanding at January 1, 2015		1,054,435			$ 96.53
Granted		55,244			$154.58
Exercised		(367,497	)		$101.31
Terminated		(56,170	)		$135.85
Outstanding at December 31, 2015		686,012			$ 95.43	3.8
Exercisable at December 31, 2015		544,755			$ 87.75	2.7

The weighted-average grant-date exercise price of options granted during 2015, 2014 and 2013 was $154.58, $121.00 and $108.24, respectively. The aggregate intrinsic values of options exercised during the years ended December 31, 2015, 2014 and 2013 were $7,318,000, $9,709,000 and $7,142,000, respectively, and were based on the closing prices of the Corporation’s common stock on the dates of exercise. The aggregate intrinsic values for options outstanding and exercisable at December 31, 2015 were $29,536,000 and $26,925,000, respectively, and were based on the closing price of the Corporation’s common stock at December 31, 2015, which was $136.58.

Martin Marietta | Page 34

NOTES TO FINANCIAL STATEMENTS (continued)

Additionally, an incentive stock plan has been adopted under the Plans whereby certain participants may elect to use up to 50% of their annual incentive compensation to acquire units representing shares of the Corporation’s common stock at a 20% discount to the market value on the date of the incentive compensation award. Certain executive officers are required to participate in the incentive stock plan at certain minimum levels. Participants earn the right to receive unrestricted shares of common stock in an amount equal to their respective units generally at the end of a 34-month period of additional employment from the date of award or at retirement beginning at age 62. All rights of ownership of the common stock convey to the participants upon the issuance of their respective shares at the end of the ownership-vesting period, with the exception of dividend equivalents that are paid on the units during the vesting period.

The Corporation grants restricted stock awards under the Plans to a group of executive officers, key personnel and non-employee Board of Directors. The vesting of certain restricted stock awards is based on specific performance criteria over a specified period of time. In addition, certain awards are granted to individuals to encourage retention and motivate key employees. These awards generally vest if the employee is continuously employed over a specified period of time and require no payment from the employee. Awards granted to nonemployee Board of Directors vest immediately.

The aggregate intrinsic values for incentive compensation awards and restricted stock awards at December 31, 2015 were $1,920,000 and $44,412,000, respectively, and were based on the closing price of the Corporation’s common stock at December 31, 2015, which was $136.58. The aggregate intrinsic values of incentive compensation awards distributed during the years ended December 31, 2015, 2014 and 2013 were $983,000, $584,000 and $466,000, respectively. The aggregate intrinsic values of restricted stock awards distributed during the years ended December 31, 2015, 2014 and 2013 were $11,387,000, $3,555,000 and $9,413,000, respectively. The aggregate intrinsic values for distributed awards were based on the closing prices of the Corporation’s common stock on the dates of distribution.

At December 31, 2015, there are approximately 2,099,000 awards available for grant under the Plans.

In 1996, the Corporation adopted the Shareholder Value Achievement Plan to award shares of the Corporation’s common stock to key senior employees based on certain common stock performance criteria over a long-term period. Under the terms of this plan, 250,000 shares of common stock were reserved for issuance. Through December 31, 2015, 42,025 shares have been issued under this plan. No awards have been granted under this plan after 2000.

The following table summarizes information for incentive compensation awards and restricted stock awards as of December 31, 2015:


	Incentive Compensation					Restrictive Stock - Service Based					Restrictive Stock - Performance Based
	Number of Awards			Weighted- Average Grant-Date Fair Value		Number of Awards			Weighted- Average Grant-Date Fair Value		Number of Awards		Weighted- Average Grant-Date Fair Value
January 1, 2015		27,608		$	101.61		319,230		$	105.62		16,388	$	129.14
Awarded		22,035		$	108.53		48,368		$	154.26		20,219	$	108.53
Distributed		(11,751	)	$	99.14		(75,411	)	$	77.27		–	$	–
Forfeited		(552	)	$	102.99		(3,624	)	$	127.06		–	$	–
December 31, 2015		37,340		$	106.45		288,563		$	120.92		36,607	$	117.76

The weighted-average grant-date fair value of incentive compensation awards granted during 2015, 2014 and 2013 was $108.53, $109.17 and $99.23, respectively. The weighted-average grant-date fair value of service based restricted stock awards granted during 2015, 2014 and 2013 was $154.26, $126.88 and $108.24, respectively. The weighted average grant-date fair value of performance based restricted stock awards granted during 2015 and 2014 was $108.53 and $129.14, respectively.

The Corporation adopted and the shareholders approved the Common Stock Purchase Plan for Directors in 1996, which provides nonemployee Board of Directors the election to receive all or a portion of their total fees in the form of the Corporation’s common stock. Under the terms of this plan, 300,000 shares of common stock were reserved for issuance. In 2015, members of the Board of Directors were required to defer at least 20% of their retainer in the form

Martin Marietta | Page 35

NOTES TO FINANCIAL STATEMENTS (continued)

of the Corporation’s common stock at a 20% discount to market value. Nonemployee Board of Directors elected to defer portions of their fees representing 4,035, 3,804 and 6,583 shares of the Corporation’s common stock under this plan during 2015, 2014 and 2013, respectively.

The following table summarizes stock-based compensation expense for the years ended December 31, 2015, 2014 and 2013, unrecognized compensation cost for nonvested awards at December 31, 2015 and the weighted-average period over which unrecognized compensation cost is expected to be recognized:

(add 000,

except year data)

Stock
Options

Restricted

Stock

Incentive

Compen-

sation

Directors’

Awards

Total

Stock-based
compensation
expense recognized
for years ended
December 31:

2015

$2,679

$ 9,809

$376

$725

$13,589

2014

$2,020

$ 6,189

$257

$527

$ 8,993

2013

$1,734

$ 4,377

$229

$668

$ 7,008

Unrecognized compensation cost at December 31, 2015:

$2,718

$18,985

$334

$ –

$22,037

Weighted-average period over which unrecognized compensation cost will be recognized:

2.0 years

2.8 years

1.5 years

–

For the years ended December 31, 2015, 2014 and 2013, the Corporation recognized a deferred tax asset related to stock-based compensation expense of $5,286,000, $3,542,000 and $2,772,000, respectively.

The following presents expected stock-based compensation expense in future periods for outstanding awards as of December 31, 2015:


(add 000)
2016	$	9,818
2017		6,578
2018		3,817
2019		1,824
2020		–
Total	$	22,037

Stock-based compensation expense is included in selling, general and administrative expenses in the Corporation’s consolidated statements of earnings.

Note L: Leases

Total lease expense for operating leases was $80,417,000, $59,590,000 and $45,093,000 for the years ended December 31, 2015, 2014 and 2013, respectively. The Corporation’s operating leases generally contain renewal and/or purchase options with varying terms. The Corporation has royalty agreements that generally require royalty payments based on tons produced or total sales dollars and also contain minimum payments. Total royalties, principally for leased properties, were $53,658,000, $50,535,000 and $41,604,000 for the years ended December 31, 2015, 2014 and 2013, respectively. The Corporation also has capital lease obligations for machinery and equipment.

Future minimum lease and royalty commitments for all non-cancelable agreements and capital lease obligations as of December 31, 2015 are as follows:


(add 000)	Capital Leases			Operating Leases and Royalty Commitments
2016		$ 3,166		$	111,317
2017		2,922			73,106
2018		2,981			55,047
2019		2,691			45,940
2020		1,891			43,692
Thereafter		3,997			272,066
Total		17,648		$	601,168
Less: imputed interest		(2,724	)
Present value of minimum lease payments		14,924
Less: current capital lease obligations		(2,438	)
Long-term capital lease obligations		$12,486

Of the total future minimum commitments, $246,903,000 relates to the Corporation’s contracts of affreightment.

Note M: Shareholders’ Equity

The authorized capital structure of the Corporation includes 100,000,000 shares of common stock, with a par value of $0.01 a share. At December 31, 2015, approximately 3,508,000 common shares were reserved for issuance under stock-based plans.

Pursuant to authority granted by its Board of Directors, the Corporation can repurchase up to 20,000,000 shares of common stock through open-market purchases. The Corporation repurchased 3,285,380 shares of common stock during 2015 and did not repurchase any shares of common stock during 2014 or 2013. At December 31, 2015, 16,714,620 shares of common stock were remaining under the Corporation’s repurchase authorization.

Martin Marietta | Page 36

NOTES TO FINANCIAL STATEMENTS (continued)

In addition to common stock, the Corporation’s capital structure includes 10,000,000 shares of preferred stock with a par value of $0.01 a share. On October 21, 2006, the Board of Directors adopted a Rights Agreement (the “Rights Agreement”) and reserved 200,000 shares of Junior Participating Class B Preferred Stock for issuance. In accordance with the Rights Agreement, the Corporation issued a dividend of one right for each share of the Corporation’s common stock outstanding as of October 21, 2006, and one right continues to attach to each share of common stock issued thereafter. The rights will become exercisable if any person or group acquires beneficial ownership of 15% or more of the Corporation’s common stock. Once exercisable and upon a person or group acquiring 15% or more of the Corporation’s common stock, each right (other than rights owned by such person or group) entitles its holder to purchase, for an exercise price of $315 per share, a number of shares of the Corporation’s common stock (or in certain circumstances, cash, property or other securities of the Corporation) having a market value of twice the exercise price, and under certain conditions, common stock of an acquiring company having a market value of twice the exercise price. If any person or group acquires beneficial ownership of 15 or more of the Corporation’s common stock, the Corporation may, at its option, exchange the outstanding rights (other than rights owned by such acquiring person or group) for shares of the Corporation’s common stock or Corporation equity securities deemed to have the same value as one share of common stock or a combination thereof, at an exchange ratio of one share of common stock per right. The rights are subject to adjustment if certain events occur, and they will initially expire on October 21, 2016, if not terminated sooner. The Corporation’s Rights Agreement provides that the Corporation’s Board of Directors may, at its option, redeem all of the outstanding rights at a redemption price of $0.001 per right.

Note N: Commitments and Contingencies

Legal and Administrative Proceedings. The Corporation is engaged in certain legal and administrative proceedings incidental to its normal business activities. In the opinion of management and counsel, based upon currently-available facts, it is remote that the ultimate outcome of any litigation and other proceedings, including those pertaining to environmental matters (see Note A), relating to the Corporation and its subsidiaries, will have a material adverse effect on the overall results of the Corporation’s operations, its cash flows or its financial position.

Asset Retirement Obligations. The Corporation incurs reclamation and teardown costs as part of its mining and production processes. Estimated future obligations are discounted to their present value and accreted to their projected future obligations via charges to operating expenses. Additionally, the fixed assets recorded concurrently with the liabilities are depreciated over the period until retirement activities are expected to occur. Total accretion and depreciation expenses for 2015, 2014 and 2013 were $6,767,000, $4,584,000 and $3,793,000, respectively, and are included in other operating income and expenses, net, in the consolidated statements of earnings.

The following shows the changes in the asset retirement obligations:


years ended December 31
(add 000)	2015			2014
Balance at beginning of year	$	70,422		$	48,727
Accretion expense		3,336			2,818
Liabilities incurred and assumed in business combinations		14,735			20,984
Liabilities settled		(4,490	)		(2,061	)
Revisions in estimated cash flows		5,601			(46	)
Balance at end of year	$	89,604		$	70,422

Other Environmental Matters. The Corporation’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 Corporation’s operations may, from time to time, involve the use of substances that are classified as toxic or hazardous within the meaning of these laws and regulations. Environmental operating permits are, or may be, required for certain of the Corporation’s operations, and such permits are subject to modification, renewal and revocation. The Corporation regularly monitors and reviews its operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, risk of environmental remediation liability is inherent in the operation of the Corporation’s businesses, as it is with other companies engaged in similar businesses. The Corporation has no material provisions for environmental remediation liabilities and does not believe such liabilities will have a material adverse effect on the Corporation in the future.

The United States Environmental Protection Agency (“EPA”) includes the lime industry as a national enforcement priority under the federal Clean Air Act (“CAA”). As part of the industry-wide effort, the EPA issued Notices of Violation/

Martin Marietta | Page 37

NOTES TO FINANCIAL STATEMENTS (continued)

Findings of Violation (“NOVs”) to the Corporation in 2010 and 2011 regarding its compliance with the CAA New Source Review (“NSR”) program at its Magnesia Specialties dolomitic lime manufacturing plant in Woodville, Ohio. The Corporation has been providing information to the EPA in response to these NOVs and has had several meetings with the EPA. The Corporation believes it is in substantial compliance with the NSR program. At this time, the Corporation cannot reasonably estimate what likely penalties or upgrades to equipment might ultimately be required. The Corporation believes that any costs related to any required upgrades to capital equipment will be spread over time and will not have a material adverse effect on the Corporation’s results of operations or its financial condition, but can give no assurance that the ultimate resolution of this matter will not have a material adverse effect on the financial condition or results of operations of the Magnesia Specialties segment.

Insurance Reserves. The Corporation has insurance coverage with large deductibles for workers’ compensation, automobile liability, marine liability and general liability claims. The Corporation is also self-insured for health claims. At December 31, 2015 and 2014, reserves of $45,911,000 and $42,552,000, respectively, were recorded for all such insurance claims. The Corporation carries various risk deductible workers’ compensation policies related to its workers’ compensation liabilities. The Corporation records the workers’ compensation reserves based on an actuarial-determined analysis. This analysis calculates development factors, which are applied to total reserves within the workers’ compensation program. While the Corporation believes the assumptions used to calculate these liabilities are appropriate, significant differences in actual experience and/or significant changes in these assumptions may materially affect workers’ compensation costs.

Letters of Credit. In the normal course of business, the Corporation provides certain third parties with standby letter of credit agreements guaranteeing its payment for certain insurance claims, utilities and property improvements. At December 31, 2015, the Corporation was contingently liable for $46,263,000 in letters of credit, of which $2,507,000 were issued under the Corporation’s Revolving Facility. Certain of these underlying obligations are accrued on the Corporation’s consolidated balance sheet.

Surety Bonds. In the normal course of business, at December 31, 2015, the Corporation was contingently liable for $326,516,000 in surety bonds required by certain states and municipalities and their related agencies. The bonds are principally for certain insurance claims, construction contracts, reclamation obligations and mining permits guaranteeing the Corporation’s own performance. Certain of these underlying obligations, including those for asset retirement requirements and insurance claims, are accrued on the Corporation’s consolidated balance sheet. Five of these bonds total $88,887,000, or 27% of all outstanding surety bonds. The Corporation has indemnified the underwriting insurance company, Safeco Corporation, a subsidiary of Liberty Mutual Group, against any exposure under the surety bonds. In the Corporation’s past experience, no material claims have been made against these financial instruments.

Borrowing Arrangements with Affiliate. The Corporation is a co-borrower with an unconsolidated affiliate for a $25,000,000 revolving line of credit agreement with BB&T. The line of credit expires in February 2018. The affiliate has agreed to reimburse and indemnify the Corporation for any payments and expenses the Corporation may incur from this agreement. The Corporation holds a lien on the affiliate’s membership interest in a joint venture as collateral for payment under the revolving line of credit.

In 2013, the Corporation loaned $3,402,000 to this unconsolidated affiliate to repay in full the outstanding balance of the affiliate’s loan with Bank of America, N.A. and entered into a loan agreement with the affiliate for monthly repayment of principal and interest of that loan. In 2015, the loan was repaid in full.

In 2014, the Corporation loaned the unconsolidated affiliate a total of $6,000,000 as an interest-only note due December 29, 2016.

Purchase Commitments. The Corporation had purchase commitments for property, plant and equipment of $70,431,000 as of December 31, 2015. The Corporation also had other purchase obligations related to energy and service contracts of $95,389,000 as of December 31, 2015.

Martin Marietta | Page 38

NOTES TO FINANCIAL STATEMENTS (continued)

The Corporation’s contractual purchase commitments as of December 31, 2015 are as follows:


(add 000)
2016	$	155,525
2017		6,457
2018		1,361
2019		451
2020		451
Thereafter		1,575
Total	$	165,820

Capital expenditures in 2015, 2014 and 2013 that were purchase commitments as of the prior year end were $116,681,000, $34,135,000 and $15,839,000, respectively.

Employees. Approximately 10% of the Corporation’s employees are represented by a labor union. All such employees are hourly employees. The Corporation maintains collective bargaining agreements relating to the union employees within the Aggregates business and Magnesia Specialties segment. Of the Magnesia Specialties segment, located in Manistee, Michigan and Woodville, Ohio, 100% of its hourly employees are represented by labor unions. The Manistee collective bargaining agreement expires in August 2019. The Woodville collective bargaining agreement expires in May 2018.

Note O: Business Segments

The Aggregates business is comprised of divisions which represent operating segments. Disclosures for certain divisions are consolidated as reportable segments for financial reporting purposes as they meet the aggregation criteria. The Aggregates business contains three reportable segments: Mid-America Group, Southeast Group and West Group. The Cement and Magnesia Specialties businesses also represent individual operating and reportable segments. The accounting policies used for segment reporting are the same as those described in Note A.

The Corporation’s evaluation of performance and allocation of resources are based primarily on earnings from operations. Consolidated earnings from operations include net sales less cost of sales, selling, general and administrative expenses, and acquisition-related expenses, net; other operating income and expenses; and exclude interest expense, other nonoperating income and expenses, net, and taxes on income. Corporate consolidated earnings from operations primarily include depreciation on capitalized interest, expenses for corporate administrative functions, acquisition-related expenses, net, and other nonrecurring and/or non-operational income and

expenses excluded from the Corporation’s evaluation of business segment performance and resource allocation. All debt and related interest expense is held at Corporate.

Assets employed by segment include assets directly identified with those operations. Corporate assets consist primarily of cash and cash equivalents, property, plant and equipment for corporate operations, investments and other assets not directly identifiable with a reportable business segment. The following tables display selected financial data for the Corporation’s reportable business segments.

Selected Financial Data by Business Segment


years ended December 31 (add 000)
Total revenues		2015		2014		2013
Mid-America Group	$	926,251	$	848,855	$	789,806
Southeast Group		304,472		274,352		245,340
West Group		1,675,021		1,356,283		875,588
Total Aggregates Business		2,905,744		2,479,490		1,910,734
Cement		387,947		221,759		–
Magnesia Specialties		245,879		256,702		244,817
Total	$	3,539,570	$	2,957,951	$	2,155,551

Net sales
Mid-America Group	$	851,854	$	770,568	$	720,007
Southeast Group		285,302		254,986		226,437
West Group		1,535,848		1,207,879		771,133
Total Aggregates Business	2,673,004		2,233,433		1,717,577
Cement		367,604		209,556		–
Magnesia Specialties	227,508		236,106		225,641
Total	$	3,268,116	$	2,679,095	$	1,943,218

Gross profit (loss)
Mid-America Group	$	256,586	$	216,883	$	192,747
Southeast Group		34,197		10,653		(3,515	)
West Group	254,946		155,678		92,513
Total Aggregates Business		545,729		383,214		281,745
Cement		103,473		52,469		–
Magnesia Specialties		78,732		84,594		83,703
Corporate	(6,167)		2,083		(1,491)
Total	$	721,767	$	522,360	$	363,957

Selling, general and administrative expenses
Mid-America Group	$	52,606	$	52,217	$	53,683
Southeast Group		18,467		17,788		18,081
West Group	66,639		50,147		42,929
Total Aggregates Business		137,712		120,152		114,693
Cement		26,626		12,741		–
Magnesia Specialties		9,499		9,776		10,165
Corporate	44,397		26,576		25,233
Total	$	218,234	$	169,245	$	150,091

Martin Marietta | Page 39

NOTES TO FINANCIAL STATEMENTS (continued)


years ended December 31 (add 000)

Earnings (Loss) from operations	2015			2014			2013
Mid-America Group	$	206,820		$	172,208		$	144,269
Southeast Group		16,435			(5,293	)		(19,849	)
West Group		205,699			153,182			53,150
Total Aggregates Business		428,954			320,097			177,570
Cement		47,821			40,751			–
Magnesia Specialties		68,886			74,805			73,506
Corporate		(66,245	)		(120,780	)		(33,088	)
Total	$	479,416		$	314,873		$	217,988

Cement intersegment sales, which were to the ready mixed concrete product line in the West Group, were $87,782,000 for the year ended December 31, 2015 and $43,356,000 for the six months ended December 31, 2014. The Cement business was acquired July 1, 2014.


years ended December 31 (add 000)

Assets employed	2015		2014		2013
Mid-America Group	$	1,304,574	$	1,290,833	$	1,242,395
Southeast Group		583,369		604,044		611,906
West Group		2,621,636		2,444,400		1,030,599
Total Aggregates Business		4,509,579		4,339,277		2,884,900
Cement		1,939,796		2,451,799		–
Magnesia Specialties		147,795		150,359		154,024
Corporate		364,562		278,319		146,081
Total	$	6,961,732	$	7,219,754	$	3,185,005

Depreciation, depletion and amortization
Mid-America Group	$	61,693	$	63,294	$	66,381
Southeast Group		31,644		31,955		32,556
West Group		93,947		74,283		56,004
Total Aggregates Business		187,284		169,532		154,941
Cement		53,672		30,620		–
Magnesia Specialties		13,769		10,394		10,564
Corporate		8,862		12,200		8,256
Total	$	263,587	$	222,746	$	173,761

Total property additions
Mid-America Group	$	77,640	$	76,753	$	82,667
Southeast Group		12,155		23,326		72,907
West Group		235,245		753,342		53,530
Total Aggregates Business		325,040		853,421		209,104
Cement		9,599		975,063		–
Magnesia Specialties		8,916		2,588		4,700
Corporate		20,561		15,349		6,477
Total	$	364,116	$	1,846,421	$	220,281

years ended December 31

(add 000)

Property additions
through acquisitions

2015

2014

2013

Mid-America Group

4,385

–

244

Southeast Group

–

54,463

West Group

35,965

632,560

–

Total Aggregates Business

40,350

632,560

54,707

Cement

–

970,300

–

Magnesia Specialties

–

Corporate

–

Total

40,350

1,602,860

54,707

Total property additions in the West Group include machinery and equipment of $1,445,000, $7,788,000 and $10,341,000 in 2015, 2014 and 2013 respectively, acquired through capital leases. In 2015, total property additions in Corporate include a $4,088,000 noncash component related to a property addition. The Corporation also acquired $3,591,000 of land via noncash transactions and asset exchanges in 2014. Total property additions through acquisitions in the Mid-America Group reflect $4,385,000 of property, plant and equipment acquired via an asset exchange in 2015.

The Aggregates business includes the aggregates product line and aggregates-related downstream product lines, which include the asphalt, ready mixed concrete and road paving product lines. All aggregates-related downstream product lines reside in the West Group. The following tables, which are reconciled to consolidated amounts, provide total revenues, net sales and gross profit by line of business: Aggregates (further divided by product line), Cement and Magnesia Specialties.


years ended December 31 (add 000)

Total revenues	2015		2014		2013
Aggregates	$	2,017,761	$	1,805,824	$	1,527,986
Asphalt		72,282		85,822		78,863
Ready Mixed Concrete		657,088		431,229		146,085
Road Paving		158,613		156,615		157,800
Total Aggregates Business		2,905,744		2,479,490		1,910,734
Cement		387,947		221,759		–
Magnesia Specialties		245,879		256,702		244,817
Total	$	3,539,570	$	2,957,951	$	2,155,551

Martin Marietta | Page 40

NOTES TO FINANCIAL STATEMENTS (continued)


years ended December 31
(add 000)

Net sales	2015			2014		2013
Aggregates	$	1,793,660		$	1,570,022	$	1,347,486
Asphalt		64,943			76,278		66,216
Ready Mixed Concrete		655,788			430,519		146,079
Road Paving		158,613			156,614		157,796
Total Aggregates Business		2,673,004			2,233,433		1,717,577
Cement		367,604			209,556		–
Magnesia Specialties		227,508			236,106		225,641
Total	$	3,268,116		$	2,679,095	$	1,943,218
Gross profit (loss)
Aggregates	$	467,053		$	324,093	$	259,054
Asphalt		18,189			13,552		12,928
Ready Mixed Concrete		42,942			39,129		8,337
Road Paving		17,545			6,440		1,426
Total Aggregates Business		545,729			383,214		281,745
Cement		103,473			52,469		–
Magnesia Specialties		78,732			84,594		83,703
Corporate		(6,167	)		2,083		(1,491	)
Total	$	721,767		$	522,360	$	363,957
Domestic and foreign total revenues are as follows:
years ended December 31
(add 000)		2015			2014		2013
Domestic	$	3,493,462		$	2,912,115	$	2,113,068
Foreign		46,108			45,836		42,483
Total	$	3,539,570		$	2,957,951	$	2,155,551

Note P: Supplemental Cash Flow Information

The components of the change in other assets and liabilities, net, are as follows:


years ended December 31


(add 000)		2015			2014			2013
Other current and noncurrent assets	$	(3,631	)	$	8,066		$	1,186
Accrued salaries, benefits and payroll taxes		(12,303	)		10,136			(4,276	)
Accrued insurance and other taxes		4,425			(17,641)			421
Accrued income taxes		(4,364	)		27,680			3,889
Accrued pension, postretirement and postemployment benefits		(18,153	)		1,150			(4,795	)
Other current and noncurrent liabilities		(3,014	)		(10,681	)		7,373
Change in other assets and liabilities	$	(37,040	)	$	18,710		$	3,798

The change in accrued salaries, benefits and payroll taxes in 2015 and 2014 was attributable to TXI-related severance accrual of $11,444,000 during 2014 and payments of $9,682,000 in 2015. The change in accrued pension, postretirement, and postemployment benefits in 2015 was attributable to higher pension plan funding, which increased $28,270,000. The change in accrued income taxes was primarily attributable to a reduction in the Corporation’s tax liability due to the utilization of net operating loss carryforwards, and the receipt of the federal tax refunds attributable to the settlement of the U.S. Advanced Pricing Agreement.

Noncash investing and financing activities are as follows:


years ended December 31


(add 000)		2015		2014		2013
Noncash investing and financing activities:
Acquisition of assets through asset exchange	$	5,000	$	2,091	$	–
Acquisition of assets through capital lease	$	1,445	$	7,788	$	10,341
Seller financing of land purchase	$	–	$	1,500	$	–
Acquisition of TXI net assets through issuances of common stock and options	$	–	$	2,691,986	$	–

Martin Marietta | Page 41

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

INTRODUCTORY OVERVIEW

Martin Marietta Materials, Inc. (the “Corporation” or “Martin Marietta”) is a leading supplier of aggregates products (crushed stone, sand and gravel) for the construction industry, used for the construction of infrastructure, nonresidential and residential projects. In addition, aggregates products are used for railroad ballast and in agricultural, utility and environmental applications. The Corporation’s annual consolidated net sales and operating earnings are predominately derived from its Aggregates business, which mines and processes granite, limestone, sand and gravel. The Aggregates business also includes aggregates-related downstream operations, namely heavy building materials such as asphalt, ready mixed concrete and road paving construction services.

At December 31, 2015, the Aggregates business included the following reportable segments, including underlying business characteristics:

LOGO


Reportable Segments	Mid-America Group	Southeast Group	West Group
Operating Locations	Indiana, Iowa, northern Kansas, Kentucky, Maryland, Minnesota, Missouri, eastern Nebraska, North Carolina, Ohio, South Carolina, Virginia, Washington and West Virginia	Alabama, Florida, Georgia, Mississippi, Tennessee, Nova Scotia and the Bahamas	Arkansas, Colorado, southern Kansas, Louisiana, western Nebraska, Nevada, Oklahoma, Texas, Utah and Wyoming
Product Lines	Aggregates (crushed stone, sand and gravel)	Aggregates (crushed stone, sand and gravel)	Aggregates (crushed stone, sand and gravel), asphalt, ready mixed concrete and road paving
Types of Aggregates Locations	Quarries and Distribution Facilities	Quarries and Distribution Facilities	Quarries and Distribution Facilities
Modes of Transportation for Aggregates Product Line	Truck and Rail	Truck, Rail and Water	Truck and Rail

The Cement business produces Portland and specialty cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and railroad, agricultural, utility and environmental industries. The production facilities are located in Midlothian, Texas, south of Dallas-Fort Worth, and Hunter, Texas, north of San Antonio. The limestone reserves used as a raw material are owned by the Corporation and are adjacent to each of the plants. In addition to the manufacturing facilities, the Corporation operates cement distribution terminals in Texas.

The Magnesia Specialties segment produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.

The Corporation’s overall areas of focus include the following:

•

Maximize long-term shareholder return by disciplined and rigorous pursuit of strategic growth and earnings objectives;

•

Conduct business in compliance with applicable laws, rules, regulations and the highest ethical standards;

•

Allocate capital by prioritizing acquisitions, organic capital investment and returning cash to shareholders via dividends and share repurchases; and

•

Support the Corporation’s sustainability through the following:

Protect the safety and well-being of all who come in contact with the Corporation’s business;

Reflect all aspects of good corporate citizenship by being responsible neighbors and supporting local communities; and

Protecting the Earth’s resources and minimizing the operations’ environmental impact.

Since the construction business is conducted outdoors, erratic weather patterns, seasonal changes, precipitation and other weather-related conditions, such as snowstorms, droughts, flooding or hurricanes, can significantly affect shipments, efficiencies and profitability of the Corporation’s Aggregates and Cement businesses. In addition, production of aggregates products is conducted outdoors; therefore, erratic and predictable weather patterns will also affect production schedules and costs for that product line. Generally, the financial results for the first and fourth quarters are significantly lower than the financial results of the other quarters due to winter weather. Weather-related hindrances were exacerbated in 2015 by record precipitation in many

Martin Marietta | Page 42

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

of the Corporation’s key markets. The National Oceanic and Atmospheric Administration (“NOAA”) has tracked precipitation for 121 years. According to NOAA, 2015 represented the wettest year on record for Texas and Oklahoma, while North Carolina, South Carolina, Colorado and Iowa each experienced a top-ten precipitation year. Notwithstanding these headwinds, notable items regarding the Corporation’s 2015 operating results, cash flows and operations include:

Operating Results:

•

Earnings per diluted share of $4.29 compared with $2.71; adjusted earnings per diluted share of $4.50 (excluding the net loss on the sale of the California cement operations and the net gain on the sale of the San Antonio asphalt operations) compared with $3.74 (excluding acquisition-related expenses, net, related to TXI and the impact of selling acquired inventory marked up to fair value);

•

Consolidated earnings before interest expense, income taxes, depreciation, depletion and amortization (“EBITDA”) of $750.7 million; adjusted EBITDA of $766.6 million, which excludes the loss and other expenses related to the divestitures of the California cement operations and the gain resulting from the divestiture of the San Antonio asphalt operations;

•

Return on shareholders’ equity of 6.9% in 2015;

•

Aggregates product line volume growth of 7.1% and pricing increase of 8.0%;

Heritage aggregates product line volume growth of 2.1% and pricing increase of 7.3%;

•

Magnesia Specialties segment financial results of net sales of $227.5 million and earnings from operations of $68.9 million;

•

Effective management of controllable production costs, as evidenced by a 260-basis-point improvement of consolidated gross margin (excluding freight and delivery revenues); and

•

Selling, general and administrative expenses of 6.7% as a percentage of net sales, up 40 basis points.

Cash Flows:

•

Operating cash flow of $573.2 million, up 50% over prior-year operating cash flow;

•

Return of $627.4 million of cash to shareholders through share repurchases ($520.0 million) and dividends ($107.4 million);

•

Ratio of consolidated debt-to-consolidated EBITDA of 1.9 times for the trailing-twelve months ended December 31, 2015, calculated as prescribed in the Corporation’s bank

credit agreements and in compliance with the covenant maximum of 3.5 times; and

•

Capital expenditures of $318.2 million, including $78.0 million for the new Medina limestone facility; capital plan focused on optimizing operational efficiencies while maintaining safe, environmentally-sound operations, along with a continuing investment in land with long-term mineral reserves to serve high-growth markets.

Operations:

•

Successfully completed the remaining integration of Texas Industries, Inc. (“TXI”) and increased synergy guidance to $120 million per year; and

•

Issued the Corporation’s Initial Sustainability Report, highlighting the Corporation’s continuing commitment to sustainability as a core business value:

Record safety performance for both total injury incident rate (“TIIR”) and lost-time incident rate (“LTIR”);

Continued to support the communities where the Corporation operates; and

Remained cognizant of being responsible environmental stewards.

The Corporation’s continued disciplined business approach and commitment to fundamentals and strategic vision, coupled with tactical execution, should enable management to prudently guide the business through the current uncertainty that exists regarding the general economy. Specifically to the construction cycle in its markets, the Corporation expects recovery in the majority of its markets and, if there is hesitation in demand, it is not expected to be significant.

The Corporation views its strategic objectives through the lens of building on the foundation of a world-class aggregates-led business. In the view of management, attractive aggregates markets exhibit population growth or population density, drivers of construction materials consumption and large-scale infrastructure networks; business and employment diversity, a driver of greater economic stability; and superior state financial position, a driver of public infrastructure growth. In light of these objectives, management intends to emphasize, among other things, the following strategic, financial and operational initiatives in 2016:

Martin Marietta | Page 43

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Strategic:

•

Pursuing aggregates-led expansion through acquisitions that complement existing operations (i.e., bolt-on acquisitions) and acquisitions that provide leadership entry into new markets or similar product lines (i.e., platform acquisitions);

•

Leveraging a competitive advantage from the Corporation’s long-haul distribution network;

•

Optimizing the Corporation’s current asset base to continue to enhance long-term shareholder value; and

•

Realize incremental value from possible divestiture of identified non-strategic or surplus assets.

Financial:

•

Maintaining the Corporation’s strong financial position while advancing strategic objectives;

•

Increasing the incremental gross margin (excluding freight and delivery revenues) of the aggregates product line toward management’s targeted goal of an average of 60% over the course of recovery in the business cycle, including recovery in the southeastern U.S. markets;

•

Maximizing return on invested capital consistent with the successful long-term operation of the Corporation’s business; and

•

Returning cash to shareholders through sustainable dividends and share repurchases.

Operational:

•

Continuing to focus on sustainability practices, including improved safety performance;

•

Maintaining a focus on functional excellence leading to cost containment and operational efficiencies;

Achieve total annual TXI synergies of $120 million;

•

Successfully integrating bolt-on acquisitions and platform acquisitions;

•

Increasing the percentage of markets where the Corporation has a leading market position;

•

Using best practices and information technology to drive improved cost performance;

•

Effectively serving high-growth markets; and

•

Sustaining the industry differentiating performance and operating results of the Magnesia Specialties segment.

Management considers each of the following factors in evaluating the Corporation’s financial condition and operating results.

Aggregates Industry Economic Considerations

The construction aggregates industry is a mature, cyclical business dependent on activity within the construction marketplace.

In 2015, the Corporation’s heritage aggregates product line shipments increased 2.1% compared with 2014. The Corporation’s heritage aggregates product line shipments have increased each of the past four years, indicative of degrees of volume stability and modest growth, albeit at and from historically low levels, after an unprecedented reduction. Prior to 2011, the economic recession resulted in United States aggregates consumption declining by almost 40% from peak volumes in 2006.

The principal end-use markets of the aggregates industry are public infrastructure (i.e., highways; streets; roads; bridges; and schools); nonresidential construction (i.e., manufacturing and distribution facilities; industrial complexes; office buildings; large retailers and wholesalers; and malls); and residential construction (i.e., subdivision development; and single- and multi-family housing). Aggregates products are also used in the railroad, agricultural, utility and environmental industries. Ballast is an aggregates product used to stabilize railroad track beds and, increasingly, concrete rail ties are being used as a substitute for wooden ties. Agricultural lime, a high-calcium carbonate material, is used as a supplement in animal feed, a soil acidity neutralizer and agricultural growth enhancer. High-calcium limestone is used as filler in glass, plastic, paint, rubber, adhesives, grease and paper. Chemical-grade high-calcium limestone is used as a desulfurization material in utility plants. Limestone can also be used to absorb moisture, particularly around building foundations. Stone is used as a stabilizing material to control erosion caused by water runoff or at ocean beaches, inlets, rivers and streams.

As discussed further under the section Aggregates and Cement Industries and Corporation Trends on pages 59 through 61, end-use markets respond to changing economic conditions in different ways. Public infrastructure construction has historically been more stable than nonresidential and residential construction due to typically stable and predictable funding from federal, state and local governments, with approximately half from the federal government and half from state and local governments. After a decade of 36 short-term funding provisions, a five-year, $305 billion highway bill, Fixing America’s Surface Transportation Act (“FAST Act”), was signed into law on December 4, 2015. FAST Act funding will primarily be secured through gas tax collections. In an investigation performed by S-C Market Analytics, aggregates demand is projected to increase with the availability of federal funding and is expected to peak in 2018. However, in subsequent years, the projected demand for aggregates is expected to decline with anticipated higher

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LOGO


	2011	2012	2013	2014	2015	5-Year Average
Infrastructure	48%	47%	48%	44%	42%	44%
Nonresidential	27%	29%	29%	32%	31%	31%
Residential	11%	12%	12%	14%	17%	14%
ChemRock /Rail	14%	12%	11%	10%	10%	11%

Source: Corporation data

nation in nonresidential construction, demonstrating economic diversity and the ability to replace energy-related shipments currently displaced by low oil prices with other nonresidential projects. Notwithstanding the challenging commodity price environment, the Corporation expects continued energy-related activity. On a national scale, Florida and South Carolina each rank in the top 10 states and North Carolina and Colorado each rank in the top 20 states in growth (based on dollars invested) in nonresidential construction. Notably, recovery in the residential market typically leads to nonresidential growth with a 12-to-18-month lag.

interest and inflation rates. Additionally, many states have recently shown a commitment to securing alternative funding sources, including initiating special-purpose taxes and raising gas taxes. According to American Road and Transportation Builders Association (“ARTBA”), fifteen states have raised gas taxes and 30 legislative measures (which represented 68% of ballot initiatives) for transportation funding were approved by voters in 2015. Supported by state-spending programs, the Corporation’s heritage aggregates volumes to the infrastructure market in the eastern United States increased in the mid-single digits compared with 2014. Overall, the infrastructure market accounted for 42% of the Corporation’s 2015 heritage aggregates product line shipments.

In 2015, construction growth was driven by private-sector activity. Nonresidential and residential construction levels are interest rate-sensitive and typically move in direct correlation with economic cycles. The Dodge Momentum Index, a 12-month leading indicator of construction spending for non-residential building compiled by McGraw Hill Construction and where the year 2000 serves as an index basis of 100, remained strong and was 125.2 in December 2015. According to Dodge Data & Analytics, the recent increasing trend of the index is an indication that construction growth will continue into 2016.

The Corporation’s heritage aggregates volumes to the non-residential construction market accounted for 31% of the Corporation’s 2015 aggregates product line shipments and increased 11.7% compared with 2014. Light nonresidential, which includes the commercial sector, increased 22.2% and was offset by a decline in heavy nonresidential, which includes the industrial and energy sectors. Nonresidential investment varies significantly by state. To that effect, Texas continues to lead the

The residential construction market accounted for 17% of the Corporation’s 2015 heritage aggregates product line shipments, in line with its historical average, and volumes to this market increased 15.1% over 2014. As reported by the United States Census Bureau, the total value of private residential construction put in place increased 13% in 2015. Housing starts, a key indicator for residential construction activity, continue to show year-over-year improvement. While 2015 represented the second year that starts exceeded one million since 2008, they still remain below the 50-year historical annual average of 1.5 million units. Importantly, 2015 housing starts exceeded completions, a trend expected to continue in 2016. Geographically, housing strength varies considerably by state, and Texas leads the nation in residential starts. Notably, Dallas-Fort Worth is the second ranked metro area in the United States for growth in housing permits. Additionally, Florida, South Carolina, Colorado and North Carolina each rank in the top ten states for residential starts.

Shipments of chemical rock (comprised primarily of high-calcium carbonate material used for agricultural lime and flue gas desulfurization) and ballast products (collectively, referred to as “ChemRock/Rail”) accounted for 10% of the Corporation’s heritage aggregates product line shipments and increased 2.5%.

In 2015, the Corporation shipped 156.4 million tons of aggregates to customers from a network of aggregates quarries and distribution yards in 26 states, Canada and the Bahamas. The Corporation also shipped 2.9 million tons of asphalt and 6.7 million cubic yards of ready mixed concrete from 131 plants in Arkansas, Colorado, Louisiana, Texas and Wyoming. While the Aggregates business covers a wide geographic area, financial results depend on the strength

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of the applicable local economies because of the high cost of transportation relative to the price of the product. The Aggregates business’ top five sales-generating states – Texas, Colorado, North Carolina, Iowa and Georgia – accounted for 70% of its 2015 net sales by state of destination, while the top ten sales-generating states accounted for 85% of its 2015 net sales. Management closely monitors economic conditions and public infrastructure spending in the market areas in the states where the Corporation’s operations are located. Further, supply and demand conditions in these states affect their respective profitability.

Shipments of aggregates-related downstream products typically follow construction aggregates trends.

Aggregates Industry Considerations

While natural aggregates sources typically occur in relatively homogeneous deposits in certain areas of the United States, a significant challenge facing aggregates producers is locating suitable deposits that can be economically mined at

locations that qualify for regulatory permits and are in close proximity to growing markets (or in close proximity to long-haul transportation corridors that economically serve growing markets). This objective becomes more challenging as residential expansion and other real estate development encroach on attractive quarrying locations, often triggering enhanced regulatory constraints or otherwise making these locations impractical for mining. The Corporation’s management continues to meet this challenge through strategic planning to identify site locations in advance of economic expansion; land acquisitions around existing quarry sites to increase mineral reserve capacity and lengthen quarry life or add a site buffer; underground mine development; and enhancing its competitive advantage with its long-haul distribution network. The Corporation’s long-haul network moves aggregates materials from domestic and offshore sources, via rail and water, to markets that generally exhibit above-average growth characteristics driven by long-term population growth and density but lack a long-term indigenous supply of coarse aggregates. The movement of aggregates materials through long-haul networks introduces risks to operating results as

LOGO

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discussed more fully under the sections Analysis of Aggregates Business Gross Margin and Transportation Exposure on pages 58 and 59 and pages 69 through 71, respectively.

During the construction industry’s protracted recession from 2008 through 2011, the Corporation was successful in executing against its strategic vision, completing several acquisitions, as well as asset swaps and divestitures from companies rationalizing non-core assets and repairing financially-constrained balance sheets. In 2014, the Corporation completed the TXI acquisition, the largest in its history. With further economic recovery, management anticipates the number of acquisition opportunities should increase as sellers view options for monetizing improving earnings. The Corporation pursues acquisitions that fit its strategic objectives as discussed more fully under the section Aggregates and Cement Industries and Corporation Trends on pages 59 through 61.

Aggregates Business Financial Considerations

The production of construction-related aggregates requires a significant capital investment resulting in high fixed and semi-fixed costs, as discussed more fully under the section Cost Structure on pages 67 through 69. Further, operating results and financial performance are sensitive to shipment volumes and changes in selling prices.

Average selling price for the heritage aggregates product line increased 7.3% in 2015. As expected, this overall pricing increase was not uniform throughout the Corporation. Pricing growth was led by the Corporation’s West Group, which reported an aggregates product line price increase of 10.8%, reflecting favorable supply and demand dynamics in these markets.

The production of construction-related aggregates also requires the use of various forms of energy, notably, diesel fuel. Therefore, fluctuations in diesel fuel pricing can significantly affect the Corporation’s operating results. The Corporation’s average price per gallon of diesel fuel in 2015 was $2.05 on 42.5 million gallons compared with $3.02 in 2014 on 36.9 million gallons. The Corporation has a fixed-price commitment for approximately 40% of its diesel fuel requirements at a rate of $2.20 per gallon through December 31, 2016.

Aggregates-related downstream operations, which represented 33% of the Aggregates business’ 2015 total net sales, have inherently lower gross margins (excluding freight and delivery revenues) than the aggregates product line. Market dynamics

for these operations include a highly competitive environment and lower barriers to entry. Liquid asphalt and cement are key raw materials in the production of hot mix asphalt and ready mixed concrete, respectively. Fluctuations in prices for purchased raw materials directly affect the Corporation’s operating results. Liquid asphalt prices in 2015 were lower than in 2014, but may not always follow other energy products (e.g., oil or diesel fuel) because of complexities in the refining process which converts a barrel of oil into other fuels and petrochemical products.

Management evaluates financial performance, particularly gross margin (excluding freight and delivery revenues), in a variety of ways. Management also reviews incremental gross margin, changes in average selling prices, direct production costs per ton shipped, tons produced per worked man hour and return on invested capital, along with other key financial, nonfinancial and employee safety data. Incremental gross margin (excluding freight and delivery revenues) is the incremental gross profit as a percentage of incremental net sales. This metric assists management in understanding the impact of increases in sales on profitability. Changes in average selling prices demonstrate economic and competitive conditions, while incremental gross margin and changes in direct production costs per ton shipped and tons produced per worked man hour are indicative of operating leverage and efficiency as well as economic conditions.

Cement Industry Considerations

Cement is the basic binding agent for concrete, a primary construction material. The principal raw material used in the production of cement is calcium carbonate in the form of limestone. The Corporation owns more than 600 million tons of limestone reserves adjacent to its two cement production plants in Texas.

Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and in the railroad, utility and environmental industries. Consequently, the cement industry is cyclical and dependent on the strength of the construction sector.

Energy, including electricity and fossil fuels, accounts for approximately one-third of the cement production cost profile. Therefore, profitability of the Cement business is affected by changes in energy prices and the availability of the supply of these products. The Corporation currently has fixed-price supply contracts for coal and diesel fuel but also consumes natural gas, alternative fuel and petroleum coke. Further, profitability of the Cement business is also subject to kiln maintenance. This

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process typically requires a plant to be shut down periodically of as repairs are made. In 2015, the Cement business incurred kiln maintenance shutdown related costs of $26.0 million.

The Texas plants operated an average of 70% utilization in 2015. The Portland Cement Association (“PCA”) forecasts a 2.5% increase in demand in Texas in 2016 over 2015. The Cement business’ leadership, in collaboration with the aggregates and ready mixed concrete teams, have developed strategic plans regarding interplant efficiencies, as well as tactical plans addressing plant utilization and efficiency and a road map for significantly improved profitability for 2016 and beyond. In 2015, the Corporation shipped 4.6 million tons of cement; 3.7 million tons to external customers in 13 states and Mexico and 0.9 million tons for internal use. Of this amount, 1.1 million tons (376,000 in the first quarter, 367,000 in the second quarter and 328,000 in the third quarter) were shipped from the California cement plant prior to its divestiture on September 30, 2015.

Magnesia Specialties Considerations

The Corporation, through its Magnesia Specialties segment, produces and sells dolomitic lime and magnesia-based chemicals. In 2015, this segment achieved net sales, gross profit and earnings from operations of $227.5 million, $78.7 million and $68.9 million, respectively. Net sales decreased 3.6%, reflecting declines in the chemicals and dolomitic lime product lines. The dolomitic lime business, which represented 32% of Magnesia Specialties’ 2015 net sales, is dependent on the steel industry and operating results are affected by cyclical changes in that industry. The dolomitic lime business runs most profitably at 70% or greater steel capacity utilization; domestic capacity utilization averaged 70% in 2015. The chemical products business focuses on higher-margin specialty chemicals that can be produced at volumes that support efficient operations.

A significant portion of costs related to the production of dolomitic lime and magnesia chemical products is of a fixed or semi-fixed nature. The production of dolomitic lime and certain magnesia chemical products also requires the use of natural gas, coal and petroleum coke. Therefore, fluctuations in their pricing directly affect operating results. The Corporation has entered into fixed-price supply contracts for natural gas, coal and petroleum coke to help mitigate this risk. During 2015, the Corporation’s average cost per MCF (thousand cubic feet) for natural gas decreased 28% from 2014.

Cash Flow Considerations

The Corporation’s cash flows are generated primarily from operations. Operating cash flows generally fund working capital needs, capital expenditures, debt repayments, dividends, share repurchases and smaller acquisitions. The Corporation has a $600 million credit agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreement provides a $350 million five-year senior unsecured revolving facility (the “Revolving Facility”) and a $250 million senior unsecured term loan (the “Term Loan Facility”). The Corporation also has a $250 million trade receivable securitization facility (the “Trade Receivable Facility”).

During 2015, the Corporation made net repayments of long-term debt of $14.7 million. Additionally, during 2015, the Corporation invested $318.2 million in capital expenditures, paid $107.5 million in dividends, repurchased $520.0 million of its common stock and made pension plan contributions of $54.0 million.

Cash and cash equivalents on hand of $168.4 million at December 31, 2015, along with the Corporation’s projected internal cash flows and its available financing resources, including access to debt and equity markets, as needed, is expected to continue to be sufficient to provide the capital resources necessary to:

•

Support anticipated operating needs;

•

Cover debt service requirements;

•

Satisfy non-cancelable agreements;

•

Meet capital expenditures and discretionary investment needs;

•

Fund certain acquisition opportunities that may arise; and

•

Allow for the payment of sustainable dividends and share repurchases.

At December 31, 2015, the Corporation had unused borrowing capacity of $347.5 million under its Revolving Facility and $250.0 million under its Trade Receivable Facility, subject to complying with its leverage covenant when applicable.

The Corporation’s ability to borrow funds or issue securities is dependent upon, among other things, prevailing economic, financial and market conditions. As of December 31, 2015, the Corporation had principal indebtedness of $1.573 billion and future minimum lease and mineral and other royalty commitments for all non-cancelable agreements of $389.1 million. The Corporation’s ability to generate sufficient cash flow depends on

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting its consolidated operations, many of which are beyond the Corporation’s control. If the Corporation is unable to generate sufficient cash flow from operations in the future to satisfy its financial obligations, it may be required, among other things, to seek additional financing in the debt or equity markets; to refinance or restructure all or a portion of its indebtedness; to further reduce or delay planned capital or operating expenditures; and/or to suspend or reduce the amount of the cash dividend to shareholders and share repurchases.

An increase in leverage could lead to deterioration in the Corporation’s credit ratings. A reduction in its credit ratings, regardless of the cause, could limit the Corporation’s ability to obtain additional financing and/or increase its cost of obtaining financing.

FINANCIAL OVERVIEW

Highlights of 2015 Financial Performance

(all comparisons are versus 2014)

•

Adjusted earnings per diluted share of $4.50 compared with $3.74

•

Consolidated EBITDA of $750.7 million; adjusted EBITDA of $766.6 million

•

Consolidated net sales of $3.27 billion compared with $2.68 billion, an increase of 22%

•

Aggregates product line volume increase of 7.1%; aggregates product line pricing increase of 8.0%

–

Heritage aggregates product line volume increase of 2.1%; heritage aggregates product line pricing increase of 7.3%

•

Aggregates-related downstream businesses net sales of $879.3 million and gross profit of $78.7 million

•

Cement business net sales of $367.6 million, gross profit of $103.5 million, EBITDA of $101.5 million and adjusted EBITDA of $130.5 million

•

Magnesia Specialties net sales of $227.5 million and gross profit of $78.7 million

•

Heritage consolidated gross margin (excluding freight and delivery revenues) of 24.5%, up 350 basis points

•

Selling, general and administrative expenses (“SG&A Expenses”) 6.7% of net sales

•

Consolidated earnings from operations of $479.4 million compared with $314.9 million, a 52% increase

Results of Operations

The discussion and analysis that follow reflect management’s assessment of the financial condition and results of operations of the Corporation and should be read in conjunction with the audited consolidated financial statements on pages 12 through 41. As discussed in more detail herein, the Corporation’s operating results are highly dependent upon activity within the construction marketplace, economic cycles within the public and private business sectors and seasonal and other weather-related conditions. In 2015, Texas and Oklahoma each had its wettest year and the nation as a whole had its third wettest year in NOAA’s recorded history of 121 years. Net sales, production and cost structure were adversely affected by the significant precipitation. Accordingly, the financial results for any year, and notably 2015, or year-to-year comparisons of reported results, may not be indicative of future operating results.

The Corporation’s Aggregates business generated 82% of consolidated net sales and the majority of consolidated operating earnings during 2015. Furthermore, management presents certain key performance indicators for the Aggregates business. The following comparative analysis and discussion should be read within these contexts. Further, sensitivity analysis and certain other data are provided to enhance the reader’s understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and are not intended to be indicative of management’s judgment of materiality.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

The Corporation’s consolidated operating results and operating results as a percentage of net sales are as follows:


years ended December 31 (add 000, except for % of net sales)	2015		% of Net Sales		2014		% of Net Sales		2013		% of Net Sales
Net sales	$	3,268,116		100.0%	$	2,679,095		100.0%	$	1,943,218		100.0%
Freight and delivery revenues		271,454				278,856				212,333
Total revenues		3,539,570				2,957,951				2,155,551
Cost of sales		2,546,349		77.9		2,156,735		80.5		1,579,261		81.3
Freight and delivery costs		271,454				278,856				212,333
Total cost of revenues		2,817,803				2,435,591				1,791,594
Gross profit		721,767		22.1		522,360		19.5		363,957		18.7
Selling, general and administrative expenses		218,234		6.7		169,245		6.3		150,091		7.7
Acquisition related expenses, net		8,464		0.3		42,891		1.6		671		–
Other operating expenses and (income), net		15,653		0.5		(4,649)		(0.2)		(4,793)		(0.2)
Earnings from operations		479,416		14.7		314,873		11.8		217,988		11.2
Interest expense		76,287		2.3		66,057		2.5		53,467		2.8
Other nonoperating (income) and expenses, net		(10,672)		–		(362)		–		295		–
Earnings from continuing operations before taxes on income		413,801		12.7		249,178		9.3		164,226		8.5
Taxes on income		124,863		3.8		94,847		3.5		44,045		2.3
Earnings from continuing operations		288,938		8.8		154,331		5.8		120,181		6.2
Loss on discontinued operations, net of taxes		–		–		(37)		–		(749)		–
Consolidated net earnings		288,938		8.8		154,294		5.8		119,432		6.1
Less: Net earnings (loss) attributable to noncontrolling interests		146		–		(1,307)		–		(1,905)		(0.1)
Net Earnings Attributable to Martin Marietta	$	288,792		8.8%	$	155,601		5.8%	$	121,337		6.2%

The comparative analysis in this Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on net sales and cost of sales. However, gross margin as a percentage of net sales and operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios based on net sales, as it is consistent with the basis by which management reviews the Corporation’s operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporation’s operating results given that freight and delivery revenues and costs represent pass-throughs and have no profit mark-up. Gross margin and operating margin calculated as percentages of total revenues represent the most directly comparable financial measures calculated in accordance with generally accepted accounting principles (“GAAP”).

EBITDA is a widely accepted financial indicator of a company’s ability to service and/or incur indebtedness. EBITDA and adjusted EBITDA are not defined by GAAP and, as such, should not be construed as alternatives to net earnings or operating cash flow.

Adjusted consolidated earnings from operations, adjusted net earnings and adjusted earnings per diluted share (“Adjusted EPS”) are non-GAAP measures which exclude the impact of TXI acquisition-related expenses, net; the impact of the markup of acquired inventory to fair value; and the gain or loss on business divestitures. The Corporation presents these measures to allow investors to analyze and forecast the Corporation’s operating results given that these costs do not reflect the ongoing cost of its operations.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

The following tables present (i) the calculations of gross margin and operating margin in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales; (ii) a reconciliation of net earnings attributable to Martin Marietta to consolidated EBITDA and adjusted consolidated EBITDA; (iii) a reconciliation of the Cement business pretax earnings to EBITDA and adjusted EBITDA; and (iv) the reconciliations of adjusted consolidated earnings from operations, adjusted net earnings and adjusted EPS to the nearest measures in accordance with GAAP:

Consolidated Gross Margin in Accordance with GAAP


years ended December 31 (add 000, except margin %)	2015		2014		2013

Gross profit	$	721,767	$	522,360	$	363,957

Total revenues	$	3,539,570	$	2,957,951	$	2,155,551

Gross margin		20.4%		17.7%		16.9%

Consolidated Gross Margin

(Excluding Freight and Delivery Revenues)


years ended December 31 (add 000, except margin %)	2015		2014		2013

Gross profit	$	721,767	$	522,360	$	363,957

Total revenues	$	3,539,570	$	2,957,951	$	2,155,551
Less: Freight and delivery revenues		(271,454)		(278,856)		(212,333)

Net sales	$	3,268,116	$	2,679,095	$	1,943,218

Gross margin (excluding freight and delivery revenues)		22.1%		19.5%		18.7%

Consolidated Heritage Business Gross

Margin in Accordance with GAAP


years ended December 31 (add 000, except margin %)	2015		2014		2013

Gross profit	$	568,064	$	454,626	$	363,957

Total revenues	$	2,543,732	$	2,418,890	$	2,155,551

Gross margin		22.3%		18.8%		16.9%

Consolidated Heritage Business Gross Margin

(Excluding Freight and Delivery Revenues)


years ended December 31 (add 000, except margin %)	2015		2014		2013

Gross profit	$	568,064	$	454,626	$	363,957

Total revenues	$	2,543,732	$	2,418,890	$	2,155,551
Less: Freight and delivery revenues		(225,705)		(251,373)		(212,333)

Net sales	$	2,318,027	$	2,167,517	$	1,943,218

Gross margin (excluding freight and delivery revenues)		24.5%		21.0%		18.7%

Consolidated Operating Margin in Accordance with GAAP


years ended December 31 (add 000, except margin %)	2015		2014		2013

Earnings from operations	$	479,416	$	314,873	$	217,988

Total revenues	$	3,539,570	$	2,957,951	$	2,155,551

Operating margin		13.5%		10.6%		10.1%

Consolidated Operating Margin

(Excluding Freight and Delivery Revenues)


years ended December 31 (add 000, except margin %)	2015		2014		2013

Earnings from operations	$	479,416	$	314,873		217,988

Total revenues	$	3,539,570	$	2,957,951	$	2,155,551
Less: Freight and delivery revenues		(271,454)		(278,856)		(212,333)

Net sales	$	3,268,116	$	2,679,095	$	1,943,218

Operating margin (excluding freight and delivery revenues)		14.7%		11.8%		11.2%

Consolidated EBITDA and Adjusted Consolidated EBITDA


year ended December 31 (add 000)	2015
Net earnings attributable to Martin Marietta	$	288,792
Add back:
Interest expense		76,287
Income tax expense for controlling interests		124,793
Depreciation, depletion and amortization expense		260,836
Consolidated EBITDA	$	750,708
Add back:
Loss on sale of California cement operations		29,063
Less:
Gain on sale of San Antonio asphalt operations		(13,123	)
Adjusted consolidated EBITDA	$	766,648

Cement EBITDA and Adjusted Cement EBITDA


year ended December 31 (add 000)	2015
Pretax earnings	$	47,770
Add back:
Interest expense		97
Depreciation, depletion and amortization expense		53,608
EBITDA	$	101,475
Add back:
Loss on sale of California cement operations		29,063
Adjusted cement EBITDA	$	130,538

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Adjusted Earnings from Operations


years ended December 31 (add 000)	2015			2014
Earnings from operations in accordance with generally accepted accounting principles	$	479,416		$	314,873
Add back:
Loss on the sale of California cement operations		29,063			–
Impact of selling acquired inventory due to markup to fair value		–			11,124
TXI acquisition-related expenses, net		–			42,689
Less:
Gain on the sale of San Antonio asphalt operations		(13,123	)		–
Adjusted earnings from operations	$	495,356		$	368,686
Adjusted Net Earnings
years ended December 31 (add 000)	2015			2014
Net earnings in accordance with generally accepted accounting principles	$	288,792		$	155,601
Add back:
Loss on sale of California cement operations		20,446			–
TXI acquisition-related expenses, net		–			42,689
Impact of selling acquired inventory due to markup to fair value		–			11,124
Income tax expense on acquisition-related expenses, net, and inventory markup		–			4,977
Less:
Gain on sale of San Antonio asphalt operations		(6,668	)		–
Adjusted net earnings	$	302,570		$	214,391
Adjusted Earnings Per Diluted Share
years ended December 31	2015			2014
Earnings per diluted share in accordance with generally accepted accounting principles	$	4.29		$	2.71
Add back:
Loss on sale of California cement operations		0.31			–
Per diluted share impact of TXI acquisition-related expenses, net		–			0.91
Per diluted share impact of selling acquired inventory due to markup to fair value		–			0.12
Less:
Gain on sale of San Antonio asphalt operations		(0.10	)		–
Adjusted earnings per diluted share	$	4.50		$	3.74

Net Sales

Net sales¹ by reportable segment are as follows:

years ended December 31


(add 000)	2015		2014		2013
Heritage:
Mid-America Group	$	849,215	$	770,568	$	720,007
Southeast Group		285,302		254,986		226,437
West Group		956,002		905,856		771,133
Total Heritage Aggregates Business		2,090,519		1,931,410		1,717,577
Magnesia Specialties		227,508		236,106		225,641
Total Heritage Consolidated		2,318,027		2,167,516		1,943,218
Acquisitions:
Aggregates Business:
Mid-America Group		2,639		–		–
West Group		579,846		302,023		–
Cement		367,604		209,556		–
Total Acquisitions		950,089		511,579		–
Total	$	3,268,116	$	2,679,095	$	1,943,218

¹Reflect the elimination of intersegment sales.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Net sales by product line for the Aggregates business are as follows:


years ended December 31 (add 000)	2015		2014		2013
Heritage:
Aggregates	$	1,642,842	$	1,502,476	$	1,347,486
Asphalt		64,943		76,278		66,216
Ready Mixed Concrete		224,121		196,042		146,079
Road Paving		158,613		156,614		157,796
Total Heritage Aggregates Business		2,090,519		1,931,410		1,717,577
Acquisitions:
Aggregates		150,818		67,546		–
Ready Mixed Concrete		431,667		234,477		–
Total Acquisitions		582,485		302,023		–
Total Aggregates Business¹	$	2,673,004	$	2,233,433	$	1,717,577

¹Net sales reflect the elimination of inter-product line sales.

The decline in the asphalt product line is due primarily to the sale of asphalt operations in Arkansas in 2014, which accounted for $7.8 million of net sales, and the sale of the San Antonio asphalt operations in the fourth quarter of 2015.

Aggregates Product Line. Heritage aggregates operations exclude acquisitions that were not included in prior-year operations for a full year. The legacy TXI operations, which the Corporation acquired in July 2014, are reported in acquisitions.

Heritage and total aggregates product line average selling price increases are as follows:


years ended December 31	2015		2014		2013
Mid-America Group		4.7%		3.8%		3.0%
Southeast Group		5.4%		6.4%		1.4%
West Group		10.8%		5.1%		4.0%
Heritage Aggregates Operations		7.3%		4.1%		3.0%
Aggregates Product Line		8.0%		4.5%		3.0%

The following presents the average selling price per ton for the heritage aggregates product line and the acquired operations:


years ended December 31	2015		2014		2013
Heritage	$	11.88	$	11.07	$	10.63
Acquisitions	$	13.12	$	11.96	$	–

In 2015, the average selling price increase exceeded the Corporation’s average for the ten- and twenty-year periods ended December 31, 2015 of 4.8% and 3.9%, respectively. The higher selling price increase reflects the supply

and demand dynamics in the Corporation’s markets. Direct comparisons between heritage and acquisitions average selling price can be misleading. The average selling price for the acquired aggregates product line of $13.12 reflects a higher mix of products shipped via rail distribution yards, coupled with sand and gravel shipments, which are higher priced products in those particular markets. Product mix for acquired locations is substantially different from the heritage aggregates product line mix. Average selling price increases in 2014 were in line with historical averages. Pricing variances for the aggregates product line in 2013 reflected price increases, partially offset with the impact of product mix.

The following presents heritage and total aggregates product line shipments for each reportable segment of the Aggregates business:


years ended December 31 Tons (add 000)	2015		2014		2013
Heritage Aggregates Product Line:
Mid-America Group		68,324		64,959		62,982
Southeast Group		19,479		18,289		17,250
West Group		53,212		54,873		48,201
Heritage Aggregates Operations		141,015		138,121		128,433
Acquisitions		15,407		7,929		–
Aggregates Product Line		156,422		146,050		128,433

For 2014, West Group shipments include 2,301,000 tons from operations divested in the third quarter 2014 in connection with the TXI acquisition.

Aggregates product line includes shipments sold externally to customers and tons used in other product lines as follows:

years ended December 31

Tons (add 000)

2015

2014

2013

Heritage Aggregates Product Line:

Tons to external customers

135,497

132,523

123,792

Internal tons used in other product lines

5,518

5,598

4,641

Total heritage aggregates tons

141,015

138,121

128,433

Acquisitions:

Tons to external customers

11,700

5,699

–

Internal tons used in other product lines

3,707

2,230

–

Total acquisition aggregates tons

15,407

7,929

–

Martin Marietta | Page 53

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Heritage aggregates product line shipments increased 2.1% in 2015 compared with 2014, despite the impact of historic levels of rainfall in many of the Corporation’s markets. Growth was achieved in the infrastructure, commercial component of nonresidential and residential markets, partially offset by a reduction in energy-sector shipments, notably for shale exploration. Heritage aggregates product line shipments in 2014 increased 7.5% compared with 2013. Private construction led the growth with the residential market increasing 12.4% and the nonresidential market increasing 8.6%. Shipments to the infrastructure market in 2014 increased 6.2%, with notable growth in Texas and Colorado.

Heritage and total aggregates product line volume variance by reportable segment is as follows:


years ended December 31	2015			2014		2013
Mid-America Group		5.2%			3.1%		0.3%
Southeast Group		6.5%			6.0%		(1.7%	)
West Group		(3.0%	)		13.8%		0.5%
Heritage Aggregates Operations		2.1%			7.5%		0.1%
Total Aggregates Product Line		7.1%			13.7%		0.1%

Aggregates product line shipment variances in 2015 for the Mid-America and Southeast Groups reflect the ongoing recovery in these markets, notably North Carolina, Georgia and Florida. The decline in the West Group is primarily due to the significant precipitation in Texas, Oklahoma and Colorado, which deferred certain shipments to future periods. As previously discussed, the West Group decline in 2015 was also impacted by the divestiture of the North Troy quarry and two rail yards, which were sold in the third quarter of 2014.

Aggregates product line shipments in 2014 increased in each group as construction activity across most of the nation was recovering from the Great Recession. The West Group experienced the highest rate of growth, as recovery in the western United States outpaced the eastern part of the country. Additionally, 2014 shipments in the West Group reflected the strength of the state Department of Transportation budgets in Texas and Colorado. The Southeast Group was recovering from historically low shipment levels. Growth in 2014 was most significant in the nonresidential market and coincided with employment gains in Florida and Georgia.

Aggregates-Related Downstream Operations. The Corporation’s aggregates-related downstream operations include asphalt, ready mixed concrete and road paving businesses in Arkansas, Colorado, Louisiana, Texas and Wyoming.

Average selling prices by product line for the Corporation’s aggregates-related downstream operations are as follows:


years ended December 31	2015		2014		2013
Heritage:
Asphalt - tons	$	42.57	$	41.26	$	42.09
Ready Mixed Concrete
- cubic yards	$	102.20	$	93.27	$	83.73

Acquisition:
Ready Mixed Concrete
- cubic yards	$	93.52	$	84.53		–

Unit shipments by product line for the Corporation’s aggregates-related downstream operations are as follows:


years ended December 31 Tons (add 000)	2015		2014		2013
Asphalt Product Line:
Tons to external customers		1,220		1,508		1,361
Internal tons used in road paving business		1,697		1,807		1,728
Total asphalt tons		2,917		3,315		3,089
Heritage Ready Mixed Concrete
– cubic yards		2,133		2,033		1,742
Acquisition Ready Mixed Concrete
– cubic yards		4,574		2,746		–

Cement. The Cement segment was acquired on July 1, 2014 and included two plants in Texas, one plant in Southern California and seven distribution terminals. On September 30, 2015, the Corporation divested its California cement operations, which included the plant and two cement terminals and contributed $98.3 million of net sales for the nine month period then ended. The total Cement business shipped 3.7 million tons of cement to external customers in 2015 (the California operations accounted for 1.1 million tons) and also used 0.9 million tons in the production of ready mixed concrete products. Net sales for the Cement business, which reflects the elimination of intersegment sales, benefitted from the strength of the Texas market and were $367.6 million in 2015. The business achieved a 10.2% increase in average selling price, which reflects the Corporation’s leading market position.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Net sales for the second half of 2014 were $209.6 million, of which $68 million related to the California cement operations.

Magnesia Specialties. Magnesia Specialties’ 2015 net sales of $227.5 million declined 3.6% compared with 2014. The reduction reflects a decrease in both the chemicals and dolomitic lime product lines. Net sales were impacted by lower domestic steel production, which was down 9% versus 2014.

2014 net sales grew 4.6%, attributable to an increase in the chemicals product line.

Freight and Delivery Revenues and Costs

Freight and delivery revenues and costs represent pass-through transportation costs incurred when the Corporation arranges for a third-party carrier to deliver aggregates products to customers (see section Transportation Exposure on pages 69 through 71). These third-party freight costs are then billed to the customer.

Cost of Sales

Cost of sales increased 18.1% in 2015, attributable to the 22.0% increase in net sales. Aggregates product line direct production cost per ton shipped increased 1.1% compared with 2014. Significant precipitation hindered production volumes and negatively affected operating leverage and direct production cost per ton shipped. The Corporation’s production costs benefitted from low energy prices throughout the year. On average, the Corporation paid $2.05 per gallon of diesel fuel in 2015 compared with $3.02 in 2014. The 2015 cost per gallon reflects a fixed-price commitment for approximately 40% of the Corporation’s diesel consumption that went into effect on July 1, 2015. The price fixed in that agreement was higher than the spot rate for the remainder of the year.

Cost of sales increased 36.6%, on an absolute dollar basis, in 2014 compared with 2013 primarily due to increased shipments in the heritage aggregates business and the acquisition of TXI. Notably, 2014 heritage aggregates product line direct production cost per ton shipped increased only 1.0% over 2013, reflecting increased leverage and effective cost management.

Gross Profit

The Corporation increased its consolidated gross profit by $199.4 million in 2015 compared with 2014. The growth was driven by a full year of ownership of legacy TXI operations and pricing strength.

Improved aggregates product line volume and pricing, strong performance by the Magnesia Specialties business and the contribution from acquired businesses led to consolidated gross profit of $522.4 million, an improvement of $158.4 million, or 43.5%, in 2014 compared with 2013.

The following presents a rollforward of the Corporation’s consolidated gross profit:


years ended December 31
(add 000)		2015			2014
Consolidated Gross Profit, prior year	$	522,360		$	363,957
Heritage Aggregates Product Line:
Pricing strength		114,599			60,855
Volume strength		32,011			102,871
Increase in production costs		(53,624	)		(70,092	)
Decrease (increase) in internal freight costs		3,756			(24,849	)
Decrease (increase) in other costs		9,303			(6,860	)
Increase in Heritage Aggregates Product Line Gross Profit		106,045			61,925
Heritage aggregates-related downstream business		24,433			22,912
Acquired Aggregates business operations		32,036			16,632
Cement		51,004			52,469
Magnesia Specialties		(5,862	)		891
Corporate		(8,249	)		3,574
Increase in Consolidated Gross Profit		199,407			158,403
Consolidated Gross Profit, current year	$	721,767		$	522,360

Production costs for the heritage aggregates product line reflect the increase in production in response to higher demand.

Internal freight costs represent freight expenses to transport materials from a producing quarry to a distribution yard. These costs in 2015 were favorably affected by lower energy prices. The increase in these costs in 2014 reflects an increase in shipments being transported via rail.

The increase in the gross profit in 2015 for acquired aggregates business operations and cement is due to a full year of ownership and the negative impact on 2014 cost of sales from writing up acquired inventory to fair value at the TXI acquisition date.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Gross profit (loss) by business is as follows:


years ended December 31
(add 000)		2015			2014			2013
Heritage:
Aggregates	$	427,026		$	320,979		$	259,054
Asphalt		18,189			13,552			12,928
Ready Mixed Concrete		34,301			25,611			8,337
Road Paving		17,545			6,440			1,426
Total Heritage Aggregates
Business		497,061			366,582			281,745
Magnesia Specialties		78,732			84,594			83,703
Corporate		(7,729	)		3,449			(1,491	)
Total Heritage Consolidated		568,064			454,625			363,957
Acquisitions:
Aggregates		40,027			3,114			–
Ready Mixed Concrete		8,641			13,518			–
Cement		103,473			52,469			–
Corporate		1,562			(1,366	)		–
Total Acquisitions		153,703			67,735			–
Total	$	721,767		$	522,360		$	363,957

During 2015, gross margin for the acquired ready mix operations was negatively affected by weather. Accordingly, the Corporation shipped fewer cubic yards of ready mixed concrete than was planned for 2015. By its nature, the ready mix business has inherently higher fixed costs, namely personnel, as compared to the Aggregates business, and was unable to reduce fixed costs in response to weather-deferred shipments.

Corporate gross (loss) profit includes depreciation on capitalized interest and unallocated operational expenses excluded from the Corporation’s evaluation of business segment performance. For 2015, the amount includes the variance between the contractual rate and the spot rate for diesel fuel under the fixed-price agreement. For 2014, the amount includes the settlement of a sales tax audit.

Consolidated gross margin (excluding freight and delivery revenues) was 22.1% for 2015, a 260-basis-point improvement over 2014. Notably, each of the reportable segments of the Aggregates business as well as the Cement business increased its gross margin, led by the 780-basis-point improvement in the Southeast Group. Consolidated gross margin (excluding freight and delivery revenues) for 2014 expanded 80 basis points compared with 2013 (see sections Analysis of Aggregates Business Gross Margin on pages 58 and 59 and Transportation Exposure on pages 69 through 71).

Gross profit (loss) by reportable segment for the Aggregates business is as follows:


years ended December 31
(add 000)		2015		2014		2013
Heritage Aggregates Business:
Mid-America Group	$	256,179	$	216,883	$	192,747
Southeast Group		34,197		10,653		(3,515	)
West Group		206,685		139,046		92,513
Total Heritage Aggregates Business		497,061		366,582		281,745
Acquisitions:
Mid-America Group		407		–		–
West Group		48,261		16,632		–
Total Aggregates Business ¹	$	545,729	$	383,214	$	281,745

¹Gross profit reflects the elimination of intersegment profit.

Gross margin (excluding freight and delivery revenues) by reportable segment is as follows:

years ended December 31

2015

2014

2013

Heritage:

Mid-America Group

30.2%

28.1%

26.8%

Southeast Group

12.0%

4.2%

(1.6%)

West Group

21.6%

15.3%

12.0%

Total Heritage Aggregates Business

23.8%

19.0%

16.4%

Magnesia Specialties

34.6%

35.8%

37.1%

Total Consolidated Heritage

24.5%

21.0%

18.7%

Acquisitions:

Mid-America Group

15.3%

–

West Group

8.3%

5.5%

–

Cement

28.1%

25.0%

–

Total Acquisitions

16.2%

13.2%

–

Consolidated

22.1%

19.5%

18.7%

Gross margin (excluding freight and delivery revenues) improvement for the heritage aggregates business reflects volume and pricing increases in the aggregates and ready mixed concrete product lines and the increased leverage provided by higher shipment levels.

Magnesia Specialties business’ 2015 gross margin (excluding freight and delivery revenues) was negatively affected by lower sales volumes which reduced operating leverage. The business’ 2014 gross margin (excluding freight and delivery revenues) reflects higher natural gas costs.

The 2015 gross margin (excluding freight and delivery revenues) for acquired operations increased over 2014 due to integration benefits, pricing increases and the impact of the one-time $12.1 million markup of acquired inventory to fair value at the TXI acquisition date in 2014.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Selling, General and Administrative Expenses

SG&A expenses for 2015 were 6.7% of net sales, an increase of 40 basis points, which reflects higher pension expense and the impact of net sales delayed by weather. 2014 SG&A expenses as a percentage of net sales decreased 140 basis points compared with 2013, driven by lower pension expense and the rate of growth in net sales outpacing the increase in SG&A expenses.

Acquisition-Related Expenses, Net

The Corporation incurred business development and acquisition integration costs (collectively “acquisition-related expenses, net”) as part of its strategic growth plan. In 2015, these costs were principally TXI integration costs. In 2014, acquisition-related expenses, net, were related to the consummation of the TXI transaction and also included a nonrecurring $42.7 million gain on a divestiture required by the Department of Justice as a result of the TXI acquisition.

Other Operating Expenses and (Income), Net

Among other items, other operating income and expenses, net, include gains and losses on the sale of assets; gains and losses related to certain customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense, and gains and losses related to asset retirement obligations; and research and development costs. These net amounts represented an expense of $15.7 million in 2015 and income of $4.6 million and $4.8 million in 2014 and 2013, respectively. The net expense for 2015 reflects a $29.1 million loss on the sale of the California cement operations partially offset by a $13.1 million gain on the sale of the San Antonio asphalt operations.

Earnings from Operations

Consolidated earnings from operations were $479.4 million in 2015 compared with $314.9 million in the prior year. Excluding the loss on the sale of the California cement operations and the gain on the sale of the San Antonio asphalt operations, adjusted consolidated earnings from operations for 2015 were $495.4 million. This is a $126.7 million improvement over adjusted consolidated earnings from operations for 2014 of $368.7 million, which excludes TXI acquisition-related expenses, net, and the one-time markup of acquired inventory. Consolidated earnings from operations were $218.0 million in 2013.

Interest Expense

Interest expense of $76.3 million in 2015 increased $10.2 million over 2014, attributable to the assumed and refinanced $700 million of TXI-related debt being outstanding for a full year in 2015 versus only 6 months in 2014. Interest expense of $66.1 million in 2014 increased $12.6 million over 2013 due to the TXI-related debt.

Other Nonoperating (Income) and Expenses, Net

Other nonoperating income and expenses, net, are comprised generally of interest income, foreign currency transaction gains and losses, and net equity earnings from nonconsolidated investments. Consolidated other nonoperating income and expenses, net, was income of $10.7 million and $0.4 million in 2015 and 2014, respectively, and an expense of $0.3 million in 2013. The higher income in 2015 was primarily due to increased earnings from nonconsolidated investments.

Taxes on Income

Variances in the estimated effective income tax rates, when compared with the federal corporate tax rate of 35%, are due primarily to the statutory depletion deduction for mineral reserves, the effect of state income taxes, the domestic production deduction, the tax effect of nondeductibility of goodwill related to divestitures of businesses and the impact of foreign income or losses for which no tax benefit is recognized. Additionally, certain acquisition-related expenses have limited deductibility for income tax purposes.

The permanent benefit associated with the statutory depletion deduction for mineral reserves is typically the significant driver of the estimated effective income tax rate. The statutory depletion deduction is calculated as a percentage of sales subject to certain limitations. Due to these limitations, changes in sales volumes and pretax earnings may not proportionately affect the statutory depletion deduction and the corresponding impact on the effective income tax rate on continuing operations. However, the impact of the depletion deduction on the estimated effective tax rate is inversely affected by increases or decreases in pretax earnings.

The estimated effective income tax rates for discontinued operations reflect the tax effects of individual operations’ transactions and are not indicative of the Corporation’s overall effective income tax rate.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

The Corporation’s estimated effective income tax rate for continuing operations and overall for the years ended December 31 are as follows:


2015		30.2%
2014		38.1%
2013		26.8%

For 2014, the effective income tax rate for full-year 2014 was 38.1%, which is higher than the Corporation’s historical rate. The estimated effective income tax rate, excluding the TXI transaction effects, would have been 30%. The rate increase reflects the tax impact of the TXI transaction, including the limited deductibility of certain acquisition-related expenses and the nondeductibility of goodwill written off as part of the required divestiture. These factors were partially offset by the income tax benefits resulting from the exercise of converted stock awards issued to former TXI personnel.

In August 2013, the Corporation filed the required amended returns and paid the taxes due to settle the Advance Pricing Agreements (“APA”) it has with Canada that increased the sales price charged for intercompany shipments from Canada to the United States during the years 2005 through 2011. The Corporation also filed amended returns in the United States for the years 2005 through 2011 to request the compensating refunds allowed pursuant to the corresponding APA with the United States. The effects of the APA increased the consolidated overall estimated effective income tax rate by 90 basis points for the year ended December 31, 2013.

In its third quarter filing on Form 10-Q, dated November 5, 2015, the Corporation estimated that it would fully utilize all of its federal net operating loss carryforwards in 2015. However, in December, the U.S. Congress extended bonus depreciation rules, allowing companies to accelerate tax depreciation deductions and thereby reduce taxable income. This reduced the estimated utilization of the net operating loss carryforwards in 2015 and resulted in a federal net operating loss carryforward balance at year end.

Net Earnings Attributable to Martin Marietta and Earnings Per Diluted Share

Net earnings attributable to Martin Marietta were $288.8 million, or $4.29 per diluted share. Excluding the loss on the sale of the California cement operations and the gain on the sale of the San Antonio asphalt operations, adjusted

earnings per diluted share were $4.50. For 2014, net earnings attributable to Martin Marietta were $155.6 million, or $2.71 per diluted share. Excluding the impact of acquisition-related expenses, net, and the increase in cost of sales for acquired inventory, adjusted earnings per diluted share were $3.74, an increase of 43.3% over 2013. Net earnings attributable to Martin Marietta in 2013 were $121.3 million, or $2.61 per diluted share.

Analysis of Aggregates Business Gross Margin

Heritage Aggregates business 2015 gross margin (excluding freight and delivery revenues) reflects

• a 480-basis point expansion from 2014; and

• a 240-basis point negative impact from internal freight

Gross margin (excluding freight and delivery revenues) for the heritage Aggregates business for the years ended December 31 was as follows:


2015		23.8%
2014		19.0%
2013		16.4%

The Aggregates business’ operating leverage for the aggregates product line is substantial given its significant amount of fixed costs. The lean cost structure, coupled with continued aggregates volume recovery, particularly in the eastern United States, and pricing increases, provides a significant opportunity to increase margins for the aggregates product line in the future. Management estimates that, subject to certain factors, including volume growth across the entire enterprise particularly in the southeastern United States, the aggregates product line can earn $0.60 of additional gross profit with each incremental $1 of sales over an estimated additional 40 million tons of shipments.

Aggregates-related downstream operations, which are included in the West Group, accounted for 33% of the Aggregates business’ net sales in 2015. Market dynamics for these operations are highly competitive. In cyclical trough periods, average selling prices for these product lines generally decline. Furthermore, aggregates-related downstream operations consume significant amounts of high-cost raw materials, namely, liquid asphalt and cement, for the production of hot mix asphalt and ready mixed concrete, respectively.

Martin Marietta | Page 58

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Gross margins (excluding freight and delivery revenues) for the Aggregates business’ asphalt and ready mixed concrete product lines typically range from 10% to 15% as compared with the aggregates product line gross margin (excluding freight and delivery revenues), which generally ranges from 25% to 30%. The road paving product line typically yields a gross margin (excluding freight and delivery revenues) ranging from 5% to 7%. The overall aggregates-related downstream operations’ gross margin (excluding freight and delivery revenues) was 8.9% for 2015 and 2014.

The long-haul distribution network, which includes water and rail distribution yards, continues to be a key component of the Corporation’s strategic growth plan. Most of this activity is located in areas of the Southeast and West Groups that generally lack a long-term indigenous supply of coarse aggregates but exhibit above-average growth characteristics driven by long-term population trends, including growth and density. Transportation freight costs from the production site to the distribution yards are included in the delivered price of aggregates products and reflected in the pricing structure at the distribution yards. Sales from rail and water distribution yards generally yield lower gross margins (excluding freight and delivery revenues) as compared with sales directly from quarry operations. Nonetheless, management expects that the distribution network currently in place will provide the Corporation solid growth opportunities, and gross margin (excluding freight and delivery revenues) should continue to improve, subject to the economic environment and other of the Corporation’s risk factors (see Aggregates Industry and Corporation Risks on pages 61 through 76). In 2015, 24.3 million tons of aggregates were sold from distribution yards. Results from these distribution operations reduced the Aggregates business’ gross margin (excluding freight and delivery revenues) by 240 basis points. In 2014 and 2013, the impact of internal freight on the Aggregates business’ gross margin (excluding freight and delivery revenues) was comparable.

The Aggregates business’ gross margin (excluding freight and delivery revenues) will continue to be adversely affected by lower gross margins for aggregates-related downstream operations and the long-haul distribution network. However, the Corporation expects gross margin (excluding freight and delivery revenues) for the legacy TXI ready mixed concrete product line to improve, similar to the pattern experienced at the Colorado operations acquired in 2011.

BUSINESS ENVIRONMENT

The sections on Business Environment on pages 59 through 76, and the disclosures therein, provide a synopsis of the business environment trends and risks facing the Corporation. However, no single trend or risk stands alone. The relationship between trends and risks is dynamic, and the economic climate can exacerbate this relationship. This discussion should be read in this context.

Aggregates and Cement Industries and

Corporation Trends

• According to the U.S. Geological Survey, for the third quarter 2015, the latest available data, estimated construction aggregates consumption increased 4% and estimated cement consumption increased 3% compared with the third quarter 2014

• Spending statistics, from 2014 to 2015, according to U.S. Census Bureau:

– Total value of construction put in place increased 10.5%

– Public-works construction spending increased 5.6%

– Private nonresidential construction market spending increased 12.0%

– Private residential construction market spending increased 12.6%

The Corporation’s principal business, the Aggregates business, as well as the Cement business, serve customers in construction aggregates-related markets. These businesses are strongly affected by activity within the construction marketplace, which is cyclical in nature. Consequently, the Corporation’s profitability is sensitive to national, regional and local economic conditions and especially to cyclical swings in construction spending. The cyclical swings in construction spending are in turn affected by fluctuations in interest rates, access to capital markets, levels of public-sector infrastructure funding, and demographic, geographic and population dynamics. Per the U.S. Census Bureau, total construction spending increased 10.5% in 2015.

The Aggregates and Cement businesses sell products principally to contractors in connection with highway and other public infrastructure projects as well as nonresidential and residential development. While construction spending in the public and private market sectors is affected by economic cycles, the historic level of spending on public infrastructure projects has been comparatively more stable as governmental appropriations and expenditures are typically less interest rate-sensitive

Martin Marietta | Page 59

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

than private-sector spending. Obligation of federal funds is a leading indicator of highway construction activity in the United States. Before a state or local department of transportation can solicit bids on an eligible construction project, it enters into an agreement with the Federal Highway Administration to obligate the federal government to pay its share of the project cost. Federal obligations are subject to annual funding appropriations by Congress. Although federal funding was relatively flat in 2015, the total value of public-works spending across the United States increased, demonstrating the commitment of many states to address the underlying demand for infrastructure investment. Management believes public-works projects have historically accounted for approximately 50% of the total annual aggregates and cement consumption in the United States. Management believes exposure to fluctuations in nonresidential and residential, or private-sector, construction spending is lessened by the business’ mix of public sector-related shipments. However, due to the significant length of time without a multi-year federal highway bill (prior to the passage of FAST Act), private construction became a larger percentage of overall construction investment. Consistent with this trend, the infrastructure market accounted for approximately 42% of the Corporation’s heritage aggregates product line shipments in 2015.

The nonresidential construction market accounted for approximately 31% of the Corporation’s heritage aggregates product line shipments

LOGO

in 2015. According to the U.S. Census Bureau, spending for the private nonresidential construction market increased in 2015 compared with 2014. Historically, half of the Corporation’s nonresidential construction shipments have been used for office and retail projects, while the remainder has been used for heavy industrial and capacity-related projects. Heavy industrial construction activity has been supported in recent years by expansion of the energy sector, namely development of shale-based natural gas fields. However, the decline in oil prices has suppressed exploration activity. In 2015, the Corporation shipped approximately 4 million tons to the energy sector compared to approximately 7 million tons in 2014.

The Corporation’s exposure to residential construction is typically split evenly between aggregates used in the construction of subdivisions (including roads, sidewalks, and storm and sewage drainage) and aggregates used in new home construction. Therefore, the timing of new subdivision starts, as well as new home starts, equally affects residential volumes. Private residential construction spending increased 13% in 2015 compared with 2014, according to the U.S. Census Bureau.

Gross margin on shipments transported by rail and water is lower as a result of the impact of internal freight. However, as demand increases in supply-constrained areas, additional pricing opportunities, along with improved distribution costs, may improve profitability and gross margin on transported material. Further, the long-haul transportation network can diversify market risk for locations that engage in long-haul transportation of their aggregates products. Many locations serve both a local market and transport products via rail and/ or water to be sold in other markets. The risk of a downturn in one market may be somewhat mitigated by other markets served by the location.

Pricing on construction projects is generally based on terms committing to the availability of specified products at a specified price during a specified period. While

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residential and nonresidential construction jobs usually are completed within one year, infrastructure contracts can require several years to complete. Therefore, changes in prices can have a lag time before taking effect while the Corporation sells aggregates products under existing price agreements. Pricing escalators included in multi-year infrastructure contracts somewhat mitigate this effect. However, during periods of sharp or rapid increases in production costs, multi-year infrastructure contract pricing may provide only nominal pricing growth. The Corporation also implements mid-year price increases where appropriate. These mid-year price increases are typically realized over eighteen months, such that 25% of the total increase is realized in the year of announcement with the balance realized in the subsequent year.

In 2015, the average selling price for the heritage aggregates product line increased 7.3%, in line with management’s expectations. Opportunities to increase pricing will occur on a market-by-market basis. Management believes pricing will continue to strengthen in 2016, and exceed the Corporation’s 20-year annual average, 3.9%, and correlate, after consideration of a 6-to-12-month lag factor, with changes in demand. Pricing is determined locally and is affected by supply and demand characteristics of the local market.

The Aggregates and Cement businesses are subject to potential losses on customer accounts receivable in response to economic cycles. While a recessionary construction economy increases those risks, both lien rights and payment bonds help mitigate the risk of uncollectible receivables; however, the Corporation can experience delayed payments from certain of its customers, negatively affecting operating cash flows. Historically, the Corporation’s bad debt write offs have not been significant to its operating results. Further, management considers the allowance for doubtful accounts adequate as of December 31, 2015.

Management expects the overall long-term trend of consolidation of the aggregates industry to continue. The Corporation’s Board of Directors and management continue to review and monitor strategic plans. These plans include assessing business combinations and arrangements with other companies engaged in similar or complementary businesses, increasing market share in the Corporation’s strategic businesses and pursuing new opportunities related to markets that the Corporation views as attractive (see section Internal Expansion and Integration of Acquisitions on pages 71 through 72).

Aggregates Industry and Corporation Risks

General Economic Conditions

According to the Bureau of Economic Analysis, the estimated real gross domestic product (“GDP”) for the third quarter, the latest available data, increased 2.1%. Growth was primarily attributable to increases in consumer and federal government spending as well as residential and nonresidential fixed investment. The moderate increase validates the overall United States economy is sustaining the pace of its mild recovery. Employment growth in the United States, a stimulus for construction activity, is at its highest rate since 2006 which coincides with national unemployment declining from 5.6% in December 2014 to 5.0% in December 2015. Notably, according to the Bureau of Labor Statistics, the construction industry added approximately 263,000 jobs during 2015.

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Public-sector construction projects are funded through a combination of federal, state and local sources (see section Federal and State Highway Transportation Funding on pages 64 through 66). The level of state public-works spending is varied across the nation and dependent upon individual state economies. In addition to federal appropriations, each state funds its infrastructure spending from specifically allocated amounts collected from various user taxes, typically gasoline taxes and vehicle fees. Based on national averages, user taxes represent the largest component of highway revenues,

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averaging 38% in fiscal year 2013, the latest available statistic. The use of general funds as a percentage of each state’s highway revenues varies, with a national average of 5% in fiscal year 2013, the latest available statistic. Therefore, state budget spending cuts typically only affect a small percentage of a state’s highway spending.

Over the past decade, states have taken on a larger role in funding infrastructure investment. Even with the passage of FAST Act, management anticipates further growth in sustained state-level funding initiatives, such as bond issues, toll roads and special-purpose taxes, as states continue to address infrastructure needs.

The impact of any economic improvement will vary by local market. Profitability of the Aggregates business by state is not proportional to net sales by state because certain of the Corporation’s intrastate markets are more profitable than others. Further, while the Corporation’s aggregates operations cover a wide geographic area, financial results depend on the strength of local economies, which may differ from the economic conditions of the state or region. This is particularly relevant given the high cost of transportation as it relates to the price of the product. The impact of local economic conditions is felt less by large fixed plant operations that serve multiple end-use markets through the Corporation’s long-haul distribution network.

Reported by Moody’s Economy.com Inc. (“Moody’s”) in December 2015, all but seven state economies were recovering or expanding; four are at risk while three, including Alaska, are in recession.

The Aggregates business’ top five sales-generating states, namely Texas, Colorado, North Carolina, Iowa and Georgia, together accounted for 70% of its 2015 net sales by state of destination. The top ten sales-generating states, which also include South Carolina, Florida, Indiana, Louisiana and Oklahoma, together accounted for 85% of the Aggregates business’ 2015 net sales by state of destination.

Texas is one of the Corporation’s strongest aggregates markets driven by a healthy state Department of Transportation program and growing residential and nonresidential activity. According to the Census Bureau, Texas’ population grew 8.8% from 2010 to 2015, adding 2.2 million residents. Notably, Texas is the third-ranked state for job growth, while nationally Dallas-Fort Worth is the third-ranked metro area in the country, fundamentals that should further enhance construction investment. The Texas Department of Transportation continues to operate with a robust budget and let $7.4 billion of projects in fiscal 2015 and estimates letting $10 billion in fiscal 2016. Funding for highway construction comes from dedicated sources as opposed to the use of general funds. Additionally, in November 2015, voters passed Proposition 7, a constitutional amendment that will provide an additional $2.5 billion of annual funding for non-toll roads beginning in fiscal 2017 (September 1, 2016 to August 31, 2017). Further, Texas has been proactive in applying for TIFIA funding and,

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in 2014, received approval for the Grand Parkway project in Houston. Major project activity also includes the expansion of I-35 in the Dallas-Fort Worth region. Given this state’s investment pattern, infrastructure drives approximately 50% of Texas’ end use. Further, Texas leads the nation in residential construction investment, driven by growth in single-family housing units. Texas also leads the nation in nonresidential construction investment. Although lower oil prices have negatively affected shale exploration activity, growth in other sectors has more than offset the decline in shale-related aggregates shipments. Management continues to believe growth in the Texas economy is sustainable, supported by a favorable business climate, diversity of economic drivers, state construction activity, recent commitments to major, multi-year projects and weather-deferred construction demand in 2015.

The Colorado economy has a diverse base and remains strong, with job growth ranking in the top twenty nationally. The unemployment rate has declined to 3.6%, its lowest level since 2007. In the Census Bureau’s population estimate report, Colorado grew 8.1%, or added 0.4 million residents, from 2010 to 2015. The Colorado Department of Transportation budget is expected to exceed $700 million in 2016, reflecting $300 million of annual funding from the Responsible Acceleration of Maintenance and Partnerships, or RAMP, program through fiscal 2018. Additionally, reconstruction efforts from the 2013 historic flooding will continue in 2016. Furthermore, Colorado recently submitted TIFIA applications for two projects, I-470 and I-70, with a combined cost of $1.7 billion. The residential market continues to expand as developers struggle to keep pace with increased demand. In fact, the state and the Denver metro area each rank in the top ten nationally for growth in residential starts. The nonresidential market remains positive, leading to Colorado being ranked in the top fifteen states in the country. Strong ballast demand combined with a robust Colorado Front Range economy has positively affected the Corporation’s Rocky Mountain operations.

The North Carolina economy enters 2016 with a positive outlook. The state ranks sixth nationally in job growth and the Charlotte metro area ranks in the top twenty. Continued economic growth in Charlotte is expected to remain solid, driven by expansions of existing businesses and relocations

from outside the region, in addition to recovery in the financial sector. The infrastructure market has shown solid growth in awards, driven in part by the TIFIA-backed I-77 high-occupancy toll (“HOT”) lanes project in Charlotte. The 26-mile expansion of I-77 is a $655 million, multi-year project that is expected to be complete in the latter part of 2018. In 2015, the North Carolina state legislature provided increased funding for transportation programs. First, the state gas tax, which was linked to the per gallon price of gasoline, was modified to decouple from that price, ultimately establishing a floor of $0.34 per gallon by midyear 2016. Prospectively, the gas tax will be adjusted based on the national Consumer Price Index and state population. Additionally, the state legislature provided an incremental $700 million of annual spending for transportation through increased various motor vehicle, registration, titling and license fees. Further, a $2.9 billion bond referendum, to help fund infrastructure repairs and expansions across the state, will be on the ballot for voters in March 2016. The state’s residential market ranks in the top-ten states, driven by growth in single-family housing units. The nonresidential market ranks in the top twenty nationally.

The economy of Iowa, one of the Corporation’s most stable markets over the past five years, is highly dependent on agriculture and related manufacturing industries and continues to show signs of steady expansion. Iowa is the largest corn and pork-producing state in the nation, and the Corporation’s agricultural lime volumes are dependent on, among other things, weather, demand for agricultural commodities, including corn and soybeans, commodity prices, farm and land values as well as funding from the Agricultural Act of 2014, the five-year domestic farm bill signed into law on February 7, 2014. The state is also attractive for companies to expand operations in Iowa due to enticing tax incentives offered by the state. To that effect, Google, Microsoft and Facebook have each announced plans to expand facilities in Iowa. Consistent with these events, the state’s seasonally-adjusted unemployment rate of 3.4% remains one of the lowest in the country. The state Department of Transportation budget is financed with federal funds and dedicated highway-user tax revenues; no state general fund revenue is used. State funding will benefit from a $0.10 increase in the gas tax, approved in 2015, and is expected to provide $215 million annually. Notable impact is expected beginning in 2016. The Iowa Transportation Commission’s Five-Year Highway Program forecasts $3.2 billion to be

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available for highway right-of-way and construction investments for the period 2016 through 2020. Of this, more than $1.3 billion is targeted for modernizing Iowa’s existing highway system and enhancing highway safety. The nonresidential construction market is expected to benefit as MidAmerican Energy, Iowa’s largest energy company, plans to construct approximately 250 additional wind turbines in 2016.

Georgia’s economy was more severely affected by the Great Recession compared with the nation as a whole. However, recovery has continued in 2015 as evidenced by Georgia ranking in the top-five states and Atlanta ranking as the fourth metro area for job growth. The infrastructure construction market is expanding and will significantly benefit from the passage of a gas tax increase and other funding mechanisms that will add approximately $1 billion to the state’s annual construction budget, essentially doubling the budget. State highway funding sources include motor fuel taxes, special fuel taxes, state bonds and state gas taxes. Additionally, the Transportation Special-Purpose Local-Option Sales Tax (“T-SPLOST”) program is starting to provide benefit in the southern part of the state. In January 2016, Governor Nathan Deal announced a comprehensive infrastructure maintenance plan, which includes a $2.2 billion 18-month project list, and a longer term 10-year plan, representing more than $10 billion in investment. Some elements of the Governor’s plan include the addition of toll lanes along the I-285 loop in Atlanta, interchange upgrades for I-20 and I-285 and additional capacity of metro sections of I-75, I-85 and GA 400. Driven in part by economic recovery, the state’s port activity reported record cargo volumes in 2015, and the capital budget for the state’s ports is $142 million in 2016. NCR Corporation recently announced its plans to construct a 22-story global headquarters, which will complement the presence of American Telephone & Telegraph, Southern Company and The Home Depot. In addition, Georgia Tech announced its intent to build a $300 million High Performance Computing Center. Other corporations expanding into Georgia include CareerBuilder, Amazon and Salesforce. Georgia ranks in the top ten in residential construction investment, with notable strength in the Atlanta market.

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Top 10 Revenue- Generating States of Aggregates Business	Percent Change in Population 2011 to 2015	Population Rank July 1, 2015
Texas	7.1%	2
Colorado	6.6%	22
North Carolina	4.1%	9
Iowa	1.9%	30
Georgia	4.1%	8
South Carolina	4.8%	23
Florida	6.1%	3
Indiana	1.6%	16
Louisiana	2.1%	25
Oklahoma	3.3%	28

Source: U.S. Census Bureau, Population Estimates Division

Federal and State Highway

Transportation Funding

• Passage of Fixing America’s Surface Transportation Act (“FAST Act”), a five-year, $305 billion federal highway bill

• Incremental funding dollars supported by TIFIA exceed $30 billion over the next few years

The federal highway bill provides annual funding for public-sector highway construction projects. Following 36 shorter-term extensions since Moving Ahead for Progress in the 21st Century (“MAP-21”) expired, a new five-year federal highway bill, FAST Act, was signed into law in December 2015. FAST Act will reauthorize federal highway and public transportation programs and stabilize the Highway Trust Fund. $207.4 billion of the funding will be apportioned to the states by formula, with a 5.1% increase over actual fiscal year 2015 apportionments in 2016 and then inflationary increases in subsequent years. Meaningful impact from FAST Act is not expected before the second half of 2016.

FAST Act retains the programs supported under MAP-21, but with some changes. Specifically, TIFIA, a U.S. Department of Transportation alternative funding mechanism, which under

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MAP-21 provided three types of federal credit assistance for nationally or regionally significant surface transportation projects, will now allow more diversification of projects. TIFIA is designed to fill market gaps and leverage substantial private co-investment by providing projects with supplemental or subordinate debt which is not subject to national debt ceiling challenges or sequestration. Since 2012, TIFIA has provided credit assistance to over 30 projects representing over $49 billion in infrastructure investment. Under FAST Act, TIFIA annual funding will range from $275 million to $300 million, and will no longer require the 20% matching funds from state departments of transportation. Consequently, states can advance construction projects immediately with potentially zero upfront outlay of local state department of transportation dollars. TIFIA requires projects to have a revenue source to pay back the credit assistance within a 30-to-40 year period. Moreover, TIFIA funds may represent up to 49% of total eligible project costs for a TIFIA-secured loan and 33% for a TIFIA standby line of credit. Therefore, the TIFIA program has the ability to significantly leverage construction dollars. Each dollar of federal funds can provide up to $10 in TIFIA credit assistance and support up to $30 in transportation infrastructure investment. Private investment in transportation projects funded through the TIFIA program is particularly attractive, in part due to the subordination of public investment to private. Management believes TIFIA could provide a substantial boost for state department of transportation construction programs well above what is currently budgeted. As of January 2016, TIFIA funded projects for the Corporation’s key states exceeded $12 billion.

Federal highway laws require Congress to annually appropriate funding levels for highways and other programs. Once the annual appropriation is passed, federal funds are distributed to each state based on formulas (apportionments) or other procedures (allocations). Apportioned and allocated funds generally must be spent on specific programs as outlined in the federal legislation. Most federal funds are available for four years. Once the federal government approves a state project, funds are committed and considered spent regardless of when the cash is actually spent by the state and reimbursed by the federal government. According to the Federal Highway Administration, funds are generally spent by the state over a period of years, with 27% in the year of funding authorization, 41% in the succeeding year, 16% in the third year and the remaining 16% is spent in the fourth year and beyond.

With the exception of TIFIA projects, in order to receive federal funds for highways, states are required to match funds at a predetermined rate. Matching levels vary depending on the type of project. If a state is unable to match its allocated federal funds, funding is forfeited. Any forfeitures are reallocated to states providing the appropriate matching funds. While states rarely forfeit federal highway funds, the possibility of forfeiture increases when states struggle to balance budgets and face declining tax revenues.

Given that most states are required to balance their budgets, reductions in revenues generally require a reduction in states’ expenditures. However, the impact of state

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revenue reductions on highway spending will vary depending on whether the spending comes from dedicated revenue sources, such as highway user fees, or whether portions are funded with general funds. Further, while state highway construction programs are primarily financed from highway user fees, significant increases in federal infrastructure funding typically require state governments to increase highway user fees to match federal spending.

States continue to play an expanding role in infrastructure funding. Management believes that innovative financing at the state level, such as bond issuances, toll roads and tax initiatives, will grow at a faster rate than federal funding. State spending on infrastructure generally leads to increased growth opportunities for the Corporation. The degree to which the Corporation could be affected by a reduction or slowdown in infrastructure spending varies by state. The state economies of the Aggregates business’ five largest revenue-generating states may disproportionately affect the Corporation’s financial performance.

The need for surface transportation improvements significantly outpaces the amount of funding available. A significant number of roads, highways and bridges, built following the establishment of the Interstate Highway System in 1956, are now in need of significant repair or reconstruction. According to The Road Information Program (“TRIP”), a national transportation research group, vehicle travel on United States highways increased 38% from 1990 to 2012, while new lane road mileage increased only 4% over the same period. TRIP also reports that 14% of the nation’s major roads are in poor condition and 25% of the nation’s bridges are structurally deficient or functionally obsolete. Currently, the Federal Highway Administration estimates that $170 billion is needed in annual capital investment through 2028 to significantly improve the current conditions and performance of the nation’s highways. During fiscal 2013, the latest data available from the Office of Highway Policy Information, $160.1 billion was spent for surface transportation projects by state governments.

Other Public-Sector Construction Exposure

In addition to highways and bridges, transportation infrastructure includes aviation, mass transit, and ports and waterways. Public-sector construction related to these forms of transportation infrastructure can be aggregates intensive.

The Federal Aviation Administration Modernization and Reform Act of 2012 (“FAA Act”) is a four-year bill that provided federal funding for airport improvements throughout the United States at $3.35 billion per year. Initially set to expire September 2015, the provisions were extended through March 2016. According to ARTBA, total spending for airport runways and terminals was $12.9 billion during 2015 and is forecasted to increase to $14.3 billion in 2016.

Construction spending for mass transit projects, which include subways, light rail and railroads, was $21.3 billion in 2015, according to ARTBA, and is expected to remain relatively flat in 2016. Railroad construction continues to benefit from economic growth and energy-sector shipments, which generate needs for additional maintenance and improvements. According to ARTBA, subway and light rail work is expected to decline slightly in 2016 with growth resuming in 2017 as the economy continues to grow and federal investments become more stable. Heavy rail investment, largely driven by Class I railroads, is forecasted to be flat in 2016 compared to 2015, principally resulting from declining coal shipments. One of the Corporation’s top-ten customers in 2015 was a Class I railroad.

Port and waterway construction spending was $2.3 billion in 2015 and is forecasted to be flat in 2016.

Geographic Exposure and Seasonality

Erratic weather patterns, seasonal changes and other weather-related conditions significantly affect the construction aggregates industry. Production and shipment levels for aggregates, asphalt, ready mixed concrete and road paving materials correlate with general construction activity, most of which occurs in the spring, summer and fall. Thus, production and shipment levels vary by quarter. Operations concentrated in the northern and midwestern United States generally experience more severe winter weather conditions than operations in the Southeast and Southwest.

Excessive rainfall, and conversely excessive drought, can also jeopardize production, shipments and profitability in all markets served by the Corporation. 2015 was a year of extreme temperature and precipitation. Every state’s average temperature for the year was above its historical average, which would typically aid construction activity during seasonally colder months;

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however, excessive rainfall precluded shipments and production. According to NOAA, May 2015 was the wettest month on record for the contiguous United States. Texas, the Corporation’s largest revenue-generating state, and Oklahoma each experienced a record year for precipitation in 2015 and became drought free for the first time since 2010. South Carolina experienced a significant amount of rain which flooded the Corporation’s North Columbia quarry. Further, Colorado, Iowa, North Carolina and Georgia, each experienced near-record levels of rainfall during the year. These weather events reduced the Corporation’s overall profitability in 2015, creating a backlog of construction activity expected to be completed in 2016.

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The Corporation’s operations in coastal areas are at risk for hurricane activity, most notably in August, September and October.

Cost Structure

• Top 7 cost categories represent 90% of the Aggregates business’ direct production costs

• Top 4 cost categories for the Cement business represent 69% of direct production costs

• Underabsorption of fixed costs due to operating below capacity

• Health and welfare costs increased 3% per year over past ten years compared with national average of 7% over same period; Corporation’s costs expected to increase 9% to 10% in 2016

• Pension expense increased from $17.9 million in 2014 to $37.3 million in 2015; pension costs expected to approximate $31.4 million in 2016 (2014 and 2015 amounts exclude nonrecurring termination benefits related to the acquisition of TXI)

Direct production costs for the Aggregates business are components of cost of sales incurred at the quarries, distribution yards, and asphalt and ready mixed concrete plants. These costs exclude resale materials, freight expenses to transport materials from a producing quarry to a distribution yard and production overhead.

Generally, the top seven categories of direct production costs for the Aggregates business are (1) labor and related benefits; (2) energy; (3) raw materials; (4) depreciation, depletion and amortization; (5) repairs and maintenance; (6) supplies; and (7) contract services. In 2015, these categories represented 90% of the Aggregates business’ direct production costs.

Fixed costs are expenses that do not vary based on production or sales volume. Management estimates that, under normal operating capacity, 40% of the Aggregates business’ cost of sales is fixed, another 30% is semi-fixed and 30% is variable in nature. Accordingly, the Corporation’s operating leverage can be substantial. Variable costs are expenses that fluctuate with the level of production volume. Production is the key driver in determining the levels of variable costs, as it affects the number of hourly employees and related labor hours. Further, diesel, supplies, repairs and freight costs also increase in connection with higher production volumes.

Generally, when the Corporation invests capital to replace facilities and equipment, increased capacity and productivity, along with reduced repair costs, can offset increased fixed depreciation costs. However, when aggregates demand weakens, increased productivity and related efficiencies may not be fully realized, resulting in underabsorption of fixed costs. Further, the Aggregates business continues to operate at a level significantly below capacity, thereby, restricting the Corporation’s ability to capitalize $75.1 million and $76.2 million of costs at December 31, 2015 and 2014, respectively, which could have been inventoried if operating at capacity.

Diesel fuel, which averaged $2.05 per gallon in 2015 and $3.02 per gallon in 2014, represents the single largest component of energy costs for the Aggregates business. Beginning the third quarter of 2015, the Corporation entered into a fixed-price fuel agreement for approximately 40% of its diesel fuel requirements. The agreement continues into December 2016 with a fixed rate of $2.20 per gallon. Changes in energy

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costs also affect the prices that the Corporation pays for supplies, including explosives, conveyor belting and tires. Further, the Corporation’s contracts of affreightment for shipping aggregates on its rail and waterborne distribution network typically include provisions for escalations or reductions in the amounts paid by the Corporation if the price of fuel moves outside a contractual range.

Similar to the Magnesia Specialties business, the Corporation’s Cement business is a capital-intensive operation with high fixed costs to run plants that operate all day, every day, with the exception of maintenance shut downs. The top cost in cement manufacturing is energy, which represented 26% of direct production costs in 2015. Depreciation and labor followed with 17% and 15% of 2015 direct production costs, respectively.

The Corporation also consumes natural gas, coal and petroleum coke in the Magnesia Specialties manufacturing processes. During 2015, the Corporation’s average cost per MCF (thousand cubic feet) for natural gas decreased 28% from 2014. The Corporation has fixed price agreements for 100% of its 2016 coal needs.

The Corporation’s aggregates-related downstream business requires the intersegment use of both internally produced and purchased products as raw materials. Liquid asphalt and cement are key raw materials in the production of hot mix asphalt and ready mixed concrete, respectively. Fluctuations in prices for purchased raw materials directly affect the Corporation’s operating results.

Wage inflation and increases in labor costs may be somewhat mitigated by enhanced productivity in an expanding economy. Further, workforce reductions resulting from plant automation and mobile fleet right-sizing have helped the Corporation control rising labor costs. During economic downturns, the Corporation reviews its operations and, where practical, temporarily idles certain quarries. The Corporation is able to serve these markets with other open quarries that are in close proximity. Further, in certain markets, management can create production “super crews” that work at various locations within a district. For example, a crew may work three days per week at one quarry and the other two workdays at another quarry within that market. This has allowed the Corporation to reduce headcount in periods of lower demand, as the number of full-time employees has been reduced or eliminated at locations that are not operating at full capacity.

Rising health care costs have affected total labor costs in recent years and are expected to continue to increase. Over the past ten years, national health care costs have increased 7% on average. The Corporation has experienced health care cost increases averaging 3% per year over the same period, driven in large part by favorable claims experience and design changes made to its health care plans, such as employee surcharges. In 2015, the Corporation’s health and welfare costs per employee increased 17%, driven primarily by adverse claims experience, largely due to increases in high-cost claimants and specialty pharmacy usage. For 2016, health and welfare costs are expected to increase 9% to 10%, slightly above general marketplace trends.

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A higher discount rate is expected to decrease the Corporation’s pension expense from $37.3 million in 2015 to an estimated $31.4 million in 2016, excluding termination benefits related to the acquisition of TXI (see section Critical Accounting Policies and Estimates – Pension Expense – Selection of Assumptions on pages 81 through 83).

The impact of current inflation on the Corporation’s businesses has been less significant due to moderate inflation rates. Historically, the Corporation has achieved pricing growth in periods of inflation based on its ability to increase its selling prices in a normal economic environment.

Consolidated SG&A costs increased $50.0 million in 2015 compared with 2014. The increase reflects a full year of ownership of TXI operations and increased pension expenses and incentive compensation expense, which is directly tied to individual and company performance during the year. As a percentage of net sales, SG&A expenses increased 40 basis points to 6.7%.

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Shortfalls in federal, state and local revenues may result in increases in income taxes and other taxes. Federal and state governments may also increase tax rates or eliminate deductions in response to the federal deficit. The Corporation derives a significant tax benefit from the federal depletion deduction (see section Critical Accounting Policies and Estimates – Estimated Effective Income Tax Rate on pages 83 and 84).

Transportation Exposure

The U.S. Department of the Interior’s geological map of the United States shows the possible sources of indigenous surface rock and illustrates its limited supply in the coastal areas of the United States from Virginia to Texas.

With population migration into the southeastern and southwestern United States, local crushed stone supplies must be supplemented, or in most cases wholly supplied, from inland and offshore quarries. Further, certain interior United States markets may experience limited resources of construction material resulting from increasingly restrictive zoning and permitting laws and regulations. The Corporation’s strategic focus includes expanding inland and offshore capacity and acquiring distribution yards and port locations to offload transported material. Accordingly, aggregates shipments are moved by rail or water through the Corporation’s long-haul distribution network. In 1994, the Corporation had seven distribution yards. At December 31, 2015, the Corporation had 70 distribution yards. The Corporation’s rail network serves its Texas, Florida and Gulf Coast markets. The Corporation’s Bahamas and Nova Scotia locations transport materials via oceangoing ships. The Corporation is currently focusing a portion of its capital spending program on key distribution yards in the southeastern United States.

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As the Corporation moves aggregates by rail and water, internal freight costs reduce profit margins when compared with aggregates moved by truck. The Corporation administers freight costs principally in three ways:


Option 1:		The customer supplies transportation.
Option 2:		The Corporation directly ships aggregates products from a production location to a customer by arranging for a third-party carrier to deliver aggregates and then charging the freight costs to the customer. These freight and delivery revenues and costs are separately presented in the consolidated statements of earnings. Such revenues and costs for the Aggregates business were $232.7 million, $245.6 million and $192.8 million in 2015, 2014 and 2013, respectively, and account for a substantial majority of all such costs.
Option 3:		The Corporation transports aggregates, either by rail or water, from a production location to a distribution yard at which the selling price includes the associated internal freight cost. These freight costs are included in the Aggregates business’ cost of sales and were $208.9 million, $185.2 million and $136.8 million for 2015, 2014 and 2013, respectively. Transportation costs from the distribution yard to the customer are accounted for as described above in options 1 or 2, as applicable.

For analytical purposes, the Corporation eliminates the effect of freight on margins with the second option. When the third option is used, margins as a percentage of net sales are negatively affected because the customer does not typically pay the Corporation a profit associated with the transportation component of the selling price. For example, a customer in a local market picks up aggregates by truck at the quarry and pays $10.00 per ton. Assuming a $2.50 gross profit per ton, the Corporation would recognize a 25% gross margin. However, if a customer purchased a ton of aggregates transported to a distribution yard by the Corporation via rail or water, the selling price may be $16.00 per ton, assuming a $6.00 cost of freight. With the same $2.50 gross profit per ton and no profit associated with the transportation component, the gross margin would be reduced to 15% as a result of the internal freight cost.

In 1994, 93% of the Corporation’s aggregates shipments were moved by truck and the remainder by rail. In contrast, the originating mode of transportation for the Corporation’s aggregates product line shipments in 2015 was 75% by truck, 21% by rail and 4% by water. The 2015 allocation for cement shipments was 97% by truck and 3% by rail (see section Analysis of Aggregates Business Gross Margin on pages 58 and 59).

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The Corporation’s increased dependence on rail shipments has made it more vulnerable to railroad performance issues, including track congestion, crew and locomotive power availability, the effects of adverse weather conditions and the ability to renegotiate favorable railroad shipping contracts. Further, in response to these issues, rail transportation providers have focused on increasing the number of cars per unit train under transportation contracts and are generally requiring customers, through the freight rate structure, to accommodate larger unit train movements. A unit train is a freight train moving large tonnages of a single bulk product between two points without intermediate yarding and switching. Rail availability is seasonal and can impact aggregates shipments depending on other competing movements.

Generally, the Corporation does not buy railcars, or ships, but instead supports its long-haul distribution network with leases and contracts of affreightment. However, the limited availability of water and rail transportation providers, coupled with limited distribution sites, can adversely affect lease rates for such services.

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The waterborne distribution network increases the Corporation’s exposure to certain risks, including, among other items, meeting minimum tonnage requirements of shipping contracts, demurrage costs, fuel costs, ship availability and weather disruptions. The Corporation’s waterborne transportation is predominately via oceangoing vessels. The Corporation’s average shipping distances from its Bahamas and Nova Scotia locations are 600 miles and 1,200 miles, respectively. Due to the majority of the shipments going to Florida, the weighted-average shipping distances are approximately 30% less than these averages. The Corporation has long-term agreements providing dedicated shipping capacity from its Bahamas and Nova Scotia operations to its coastal ports. These contracts of affreightment are take-or-pay contracts with minimum and maximum shipping requirements. If the Corporation fails to ship the annual minimum tonnages under the agreement, it must still pay the shipping company the contractually-stated minimum amount for that year. The Corporation did not incur any such charges in 2015; however, a charge is possible in 2016 if shipment volumes do not meet the contractually-stated minimums. The Corporation’s contracts of affreightment have varying expiration dates ranging from 2016 to 2027 and generally contain renewal options. However, there can be no assurance that such contracts can be renewed upon expiration or that terms will continue without significant increases.

Management expects the multiple transportation modes that have been developed with various rail carriers and deep-water ships will provide the Corporation with the flexibility to effectively serve customers in the Southwest and Southeast coastal markets.

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Internal Expansion and Integration of Acquisitions

The Corporation’s capital expansion, acquisition and greensite programs are designed to take advantage of construction market growth through investment in both permanent and portable facilities at the Corporation’s quarry operations. Over an economic cycle, the Corporation will typically invest, on average, organic capital at an annual level that approximates depreciation expense. At mid-cycle and through cyclical peaks, organic capital investment typically exceeds depreciation expense, as the Corporation supports current capacity needs and invests for future capacity growth. Conversely, at a cyclical trough, the Corporation can reduce levels of capital investment. Regardless of cycle, the Corporation sets a priority of investing capital to ensure safe, efficient and environmentally-sound operations, provide the highest quality of customer service and establish a foundation for future growth.

The Corporation’s Medina Rock and Rail (“Medina”) capital project, with a total cost of $160 million, is the largest capital expansion project in its history. The project, located near San Antonio, consists of a rail-connected limestone aggregates processing facility which will begin shipping approximately six million tons in 2016 and have the future capability of producing in excess of 10 million tons per year. Land acquisition was completed over several years as part of ongoing capital expenditures and construction began in 2013. The rail-connected quarry became operational in January 2016.

The Corporation also acquires contiguous property around existing quarry locations. This property can serve as buffer property or additional mineral reserve capacity, assuming the underlying geology supports economical aggregates mining. In either instance, the acquisition of additional property around an existing quarry allows the expansion of the quarry footprint and extension of quarry life. Some locations having limited reserves may be unable to expand.

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A long-term capital focus for the Corporation, primarily in the midwestern United States due to the nature of its indigenous aggregates supply, is underground limestone aggregates mines, which provide a more neighbor-friendly alternative to surface quarries. The Corporation operates 14 active underground mines, located primarily in the Mid-America Group, and is the largest operator of underground aggregates mines in the United States. Production costs are generally higher at underground mines than surface quarries since the depth of the aggregates deposits and access to the reserves result in higher development, explosives and depreciation costs. However, these locations often possess transportation advantages that can lead to value-added, higher average selling prices than more distant surface quarries.

On average, the Corporation’s aggregates reserves exceed 60 years based on normalized production levels and 100 years at current production rates.

During 2009 through 2013, and in response to the Great Recession, the Corporation set a priority of preserving capital while maintaining safe, environmentally-sound operations. Capital investment in excess of depreciation expense in previous years allowed the Corporation to reduce capital spending during the trough period of the construction cycle without compromising the Corporation’s commitment to safety, the environment, customer service and future growth. The Corporation has continued to opportunistically acquire land with long-term mineral reserves to expand its aggregates reserve base through the cyclical trough.

The Corporation has a successful history of business combinations and integration of these businesses into its heritage operations. The Corporation completed the integration of TXI operations, acquired on July 1, 2014, as of June 30, 2015. In addition, during 2015, the Corporation completed three smaller acquisitions, which included three aggregates operations and related assets.

Environmental Regulation and Litigation

The expansion and growth of the aggregates industry is subject to increasing challenges from environmental and political advocates hoping to control the pace and direction of future development. Certain environmental groups have published lists of targeted municipal areas, including areas within the Corporation’s marketplace, for environmental

and suburban growth control. The effect of these initiatives on the Corporation’s growth is typically localized. Further challenges are expected as the momentum of these initiatives ebb and flow across the United States. Rail and other transportation alternatives are being heralded by these special-interest groups as solutions to mitigate road traffic congestion and overcrowding.

As is the case with other companies in the cement industry, the Corporation’s cement operations produce varying quantities of cement kiln dust (“CKD”). This production by-product consists of fine-grained, solid, highly alkaline material removed from cement kiln exhaust gas by air pollution control devices. Because much of the CKD is actually unreacted raw materials, it is generally permissible to recycle the CKD back into the production process, and large amounts are often treated in such manner. CKD that is not returned to the production process is disposed in landfills. CKD is currently exempt from federal hazardous waste regulations under Subtitle C of the Resource Conservation and Recovery Act (“RCRA”).

The Clean Air Act, originally passed in 1963 and periodically updated by amendments, is the United States’ national air pollution control program that granted the Environmental Protection Agency (“EPA”) authority to set limits on the level of various air pollutants. To be in compliance with National Ambient Air Quality Standards (“NAAQS”), a defined geographic area must be below established limits for six pollutants. Environmental groups have been successful in lawsuits against the federal and certain state departments of transportation, delaying highway construction in municipal areas not in compliance with the Clean Air Act. The EPA designates geographic areas as nonattainment areas when the level of air pollutants exceeds the national standard. Nonattainment areas receive deadlines to reduce air pollutants by instituting various control strategies or otherwise face fines or control by the EPA. Included as nonattainment areas are several major metropolitan areas in the Corporation’s markets, such as Houston/Brazoria/Galveston, Texas; Dallas-Fort Worth, Texas; Charlotte/Gastonia, North Carolina; Denver, Colorado; Boulder, Colorado; Fort Collins/Greeley/Loveland, Colorado; Council Bluffs, Iowa; Atlanta, Georgia; Macon, Georgia; Rock Hill, South Carolina; Indianapolis, Indiana; and Crittenden County, Arkansas. Federal transportation funding has been directly tied to compliance with the Clean Air Act.

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The EPA includes the lime industry as a national enforcement priority under the Clean Air Act. As part of the industry-wide effort, the EPA issued notices of violation/findings of violation (“NOVs”) to the Corporation in 2010 and 2011 regarding its compliance with the Clean Air Act’s New Source Review (“NSR”) program at its Magnesia Specialties dolomitic lime manufacturing plant in Woodville, Ohio. The Corporation has been providing information to the EPA in response to these NOVs and has had several meetings with the EPA. The Corporation believes it is in substantial compliance with the NSR program. At this time, the Corporation cannot reasonably estimate what likely penalties or upgrades to equipment might ultimately be required. The Corporation believes that any costs related to any required upgrades to capital equipment will be spread over time and will not have a material adverse effect on the Corporation’s results of operations or its financial condition, but can give no assurance that the ultimate resolution of this matter will not have a material adverse effect on the financial condition or results of operations of the Magnesia Specialties segment.

The Corporation’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 Corporation’s operations may occasionally use substances classified as toxic or hazardous. The Corporation 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 Corporation’s businesses, as it is with other companies engaged in similar businesses.

Environmental operating permits are, or may be, required for certain of the Corporation’s operations; such permits are subject to modification, renewal and revocation. New permits are generally required for opening new sites or for expansion at existing operations and can take several years to obtain. In the area of land use, rezoning and special-purpose permits are increasingly difficult to obtain. Once a permit is issued, the location is required to generally operate in accordance with the approved site plan.

Large emitters (facilities that emit 25,000 metric tons or more per year) of greenhouse gases (“GHG”) must report GHG generation to comply with the EPA’s Mandatory Greenhouse Gases Reporting Rule (“GHG Rule”). The Corporation’s Magnesia

Specialties facilities in Woodville, Ohio and Manistee, Michigan emit certain of the GHG, including carbon dioxide, methane and nitrous oxide, and are filing annual reports in accordance with the GHG Rule. Should Congress pass legislation on GHG, these operations will likely be subject to the new program. The Corporation believes that the EPA may impose additional regulatory restrictions on emissions of GHG. However, the Corporation also anticipates that any increased operating costs or taxes related to GHG emission limitations at its Woodville operation would be passed on to its customers. The Manistee facility may have to absorb extra costs due to the regulation of GHG emissions in order to maintain competitive pricing in its markets. The Corporation cannot reasonably predict how much those increased costs may be.

The Corporation is engaged in certain legal and administrative proceedings incidental to its normal business activities. In the opinion of management and counsel, based upon currently available facts, the likelihood is remote that the ultimate outcome of any litigation or other proceedings, including those pertaining to environmental matters, relating to the Corporation and its subsidiaries, will have a material adverse effect on the overall results of the Corporation’s operations, cash flows or financial position.

Cement Segment

The Corporation’s Cement segment includes a leading position in the Texas cement markets (two plants). These plants produce Portland and specialty cements with a combined annual capacity of 4.5 million tons, as well as a current permit that provides an 800,000-ton-expansion opportunity at the Midlothian plant, near Dallas-Fort Worth. The Cement segment generated net sales of $367.6 million and gross profit of $103.5 million. Of 4.6 million tons shipped during 2015, inclusive of 1.1 million tons shipped from the California cement operations prior to its divestiture, 0.9 million tons were used in the Corporation’s ready mixed concrete product line. The average selling price per ton of cement in 2015 was $98.35, an 8.2% increase over prior year. This pricing strength is a result of price increases and the expiration of legacy TXI contracts, priced well below the current market.

The Cement segment is benefitting from continued strength in the Texas markets, where current demand exceeds local supply, a trend that is expected to continue for the near

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future. The Texas plants are collectively operating on average around 70% utilization. The PCA is forecasting 2016 cement consumption in Texas to expand by 2.5% over 2015, and projects that consumption will continue to grow annually between 5% and 6% in 2017 through 2019.

The cement plants are subject to periodic maintenance which requires shutting the plant down. Shutdown costs due to these outages may accumulate to significant costs. For 2016, planned shutdown costs are estimated to total $23 million, where spending is estimated to be $6 million, $4 million, $2 million and $11 million for the first, second, third and fourth quarters, respectively. For comparative purposes, shutdown costs at the Texas cement plants were $3 million, $4 million, $3 million and $9 million for the first, second, third and fourth quarters, respectively.

Magnesia Specialties Segment

Through its Magnesia Specialties segment, the Corporation manufactures and markets magnesia-based chemicals products for industrial, agricultural and environmental applications and dolomitic lime for use primarily in the steel industry. In 2015, 67% of Magnesia Specialties’ net sales were attributable to chemicals products, 32% were attributable to lime and 1% was attributable to stone.

LOGO

In 2015, 80% of the lime produced was sold to third-party customers, while the remaining 20% was used internally as a raw material for the business’ manufacturing of chemicals products. Dolomitic lime products sold to external customers

are primarily used by the steel industry, and overall, 42% of Magnesia Specialties’ 2015 net sales related to products used in the steel industry. Accordingly, a portion of the segment’s revenues and profits is affected by production and inventory trends within the steel industry. These trends are guided by the rate of consumer consumption, the flow of offshore imports and other economic factors. The dolomitic lime business runs most profitably at 70% or greater steel capacity utilization; domestic capacity utilization averaged 70% in 2015, according to the American Iron and Steel Institute. Average steel production in 2015 declined 9% versus 2014 and the 2016 forecast is an increase of 2% over 2015.

Of Magnesia Specialties’ 2015 net sales, 14% came from foreign jurisdictions, including Canada, Mexico, Europe, South America and the Pacific Rim. As a result of foreign market sales, financial results could be affected by foreign currency exchange rates, increasing transportation costs or weak economic conditions in the foreign markets. To mitigate the short-term effect of currency exchange rates, the United States dollar is used as the functional currency in foreign transactions. However, the current strength of the United States dollar in foreign markets is affecting the overall price of Magnesia Specialties’ products when compared to foreign-domiciled competitors.

Given high fixed costs, low capacity utilization can negatively affect the segment’s results of operations. Further, the production of certain magnesia chemical products and lime products requires natural gas, coal and petroleum coke to fuel kilns. Price fluctuations of these fuels affect the segment’s profitability.

The Magnesia Specialties business is highly dependent on rail transportation, particularly for movement of dolomitic lime from Woodville to Manistee and direct customer shipments of dolomitic lime and magnesia chemicals products from both Woodville and Manistee. The segment can be affected by the risks outlined in Transportation Exposure on pages 69 through 71. All of Magnesia Specialties’ hourly workforce belongs to a labor union. Union contracts cover hourly employees at the Manistee, Michigan magnesia-based chemicals plant and the Woodville, Ohio lime plant. The labor contract for the Woodville and Manistee locations expire in May 2018 and August 2019, respectively.

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Management expects future organic growth to result from increased pricing, rationalization of the current product portfolio and/or further cost reductions. In the current operating environment where steel utilization is at levels close to or below 70% and the strength of the United States dollar pressures product competitiveness in international markets, any unplanned change in costs or customers introduces volatility to the earnings of the Magnesia Specialties segment.

Current Market Environment and Related Risks

Management has considered the current economic environment and its potential impact to the Corporation’s business. With the extensions of MAP-21 and the temporary solvency of the Highway Trust Fund coupled with state initiatives to secure alternative funding sources, demand for aggregates products in the infrastructure construction market showed improvement in 2015. With the passage of FAST Act in December 2015, the infrastructure market should have increased activity in 2016 and beyond. With most states in recovery or expansion, the sustained decline in energy costs may be the catalyst in certain markets to boost construction. Conversely, markets heavily dependent on the energy sector, namely Oklahoma and West Virginia, may move into a depression-like economic cycle with the decrease in oil production.

As aforementioned, declining steel utilization and United States dollar strength could adversely affect Magnesia Specialties’ operating results. While a recessionary construction economy can increase collectability risks related to receivables, lien rights and payment bonds posted by some of the Corporation’s customers help mitigate the risk of uncollectible accounts. The Corporation can experience a delay in payments from certain of its customers during the construction downturn, negatively affecting operating cash flows. Further, market performance and its impact on pension asset values may require increased cash contributions to the Corporation’s plans in subsequent years. A higher discount rate is expected to decrease the Corporation’s pension expense in 2016.

There is a risk of long-lived asset impairment at temporarily-idled locations. The timing of increased demand will determine when these locations are reopened. During the time that locations are temporarily idled, the locations’ plant and equipment continue to be depreciated. When

appropriate, mobile equipment is transferred to and used at an open location. As the Corporation continues to have long-term access to the supply of aggregates reserves and useful lives of equipment are extended, these locations are not considered to be impaired while temporarily idled. When temporarily-idled locations are reopened, it is not uncommon for repair costs to temporarily increase.

Increases in the Corporation’s estimated effective income tax rate may negatively affect the Corporation’s results of operations. A number of factors could increase the estimated effective income tax rate, including government authorities increasing taxes to fund deficits; the jurisdictions in which earnings are taxed; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of deferred tax balances; adjustments to estimated taxes based upon the filing of the consolidated federal and individual state income tax returns; changes in available tax credits; changes in stock-based compensation; other changes in tax laws; and the interpretation of tax laws and/ or administrative practices.

Internal Control and Accounting and Reporting Risk

Management concluded that the Corporation’s internal control over financial reporting was effective as of December 31, 2015. Furthermore, the Corporation’s independent registered public accounting firm issued an unqualified opinion on the effectiveness of the Corporation’s internal controls as of December 31, 2015. A system of internal control over financial reporting is designed to provide reasonable assurance, in a cost-effective manner, on the reliability of a company’s financial reporting and the process for preparing and fairly presenting financial statements in accordance with GAAP. Further, a system of internal control over financial reporting, by its nature, should be dynamic and responsive to the changing risks of the underlying business. Changes in the system of internal control over financial reporting could increase the risk of occurrence of a significant deficiency or material weakness. The Sarbanes-Oxley Act of 2002, and other related rules and regulations, have increased the scope, complexity and cost of corporate governance. As reports from the Public Company Accounting Oversight Board’s (“PCAOB”) inspections of public accounting firms continue to outline findings and recommendations, the Corporation’s efforts and costs to respond may continue to increase.

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Accounting rulemaking, which may come in the form of updates to the Accounting Standards Codification and speeches by various rule-making bodies, has become increasingly complex and generally requires significant estimates and assumptions in its interpretation and application. Further, accounting principles generally accepted in the United States continue to be reviewed, updated and subject to change by various rule-making bodies, including the Financial Accounting Standards Board (the “FASB”) and SEC (section Critical Accounting Policies and Estimates on pages 78 through 86).

The FASB and the International Accounting Standards Board continue to work on several joint projects designed to improve both accounting standards under United States generally accepted accounting principles (“U.S. GAAP”) and International Financial Reporting Standards (“IFRS”), and ultimately make these standards comparable. Through these projects, the boards intend to improve financial reporting information for investors while also aligning U.S. and international accounting standards. Proposed accounting changes are being issued one topic at a time and include lease accounting. The impact of potential changes could be material to the Corporation’s consolidated financial statements.

The SEC has yet to make a decision whether to incorporate IFRS into the United States financial reporting system. To date, the SEC has received strong support for retaining U.S. GAAP as the statutory basis for U.S. financial reporting and for a gradual transition incorporating international accounting standards into U.S. GAAP.

For additional discussion on risks, see the Risk Factors section in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015.

FULL-YEAR 2016 OUTLOOK

Based on current forecasts and indications of activity, the Corporation has a positive outlook for its businesses in 2016. Aggregates product line pricing is expected to increase from 6% to 8%. Volume growth is expected to continue with an increase of 5% to 7%. These gains in aggregates coupled with pricing improvements across the downstream and cement businesses, together with effective cost management and strategic growth initiatives, are expected to drive increased earnings for the year. The Corporation also expects positive trends in its business and markets, notably:

•

Nonresidential construction is expected to increase in both the heavy industrial and commercial sectors. The Dodge Momentum Index is near its highest level since 2009 and signals continued growth.

•

Energy-related economic activity, including follow-on public and private construction activities in primary markets, will be mixed with overall strength in downstream activity more than offsetting the decline in shale-related volumes.

•

Residential construction is expected to continue to grow, driven by positive employment gains, historically low levels of construction activity over the previous several years, low mortgage rates, significant lot absorption and higher multi-family rental rates.

•

For the public sector, modest growth is expected in 2016 as new monies begin to flow into the system, particularly in the second half of the year. Additionally, state initiatives to finance infrastructure projects, including support from TIFIA, are expected to grow and continue to play an expanded role in public-sector activity.

Based on these trends and expectations, the Corporation anticipates the following for full-year 2016:

•

Aggregates end-use markets compared to 2015 levels are as follows:

Infrastructure market to increase mid-single digits.

Nonresidential market to increase in the high-single digits.

Residential market to experience a double-digit increase.

ChemRock/Rail market to remain relatively flat to down modestly.

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2016 GUIDANCE

(dollars and tons in millions, except per ton)


	Low		High
Consolidated Results
Consolidated net sales	$	3,500	$	3,700
Consolidated gross profit	$	875	$	925

SG&A	$	220	$	220
Interest expense	$	80	$	80
Estimated tax rate (excluding discrete events)		30%		30%
Capital Expenditures	$	350	$	350

EBITDA	$	930	$	980

Aggregates Product Line
Volume (total tons)¹		164.0		167.0
% growth¹		5%		7%

Volume (external tons)		154.5		157.5
% growth		5%		7%
Average selling price per ton	$	12.75	$	13.00
% growth		6%		8%
Net sales	$	1,950	$	2,050
Gross profit	$	570	$	600
Direct production cost per ton shipped	$	7.35	$	7.50

Aggregates-related downstream operations
Net sales	$	1,000	$	1,100
Gross profit	$	100	$	105

Cement
Volume (external tons)		2.8		2.9
% growth²		8%		11%
Average selling price per ton	$	110.00	$	112.00
% growth²		5%		7%

Net sales	$	310	$	325
Gross profit	$	125	$	135

Magnesia Specialties
Net sales	$	235	$	240
Gross profit	$	80	$	85

¹Represents 2016 total aggregates volumes, which includes approximately 9.5 million internal tons. Volume growth ranges are in comparison to total volumes of 156.4 million tons as reported for the full year 2015, which includes 9.2 million internal tons.

²2016 cement volume and price growth ranges are provided for Texas cement. The 2015 comparable excludes the sales of $98 million and volumes of 1.1 million tons related to the California cement operations which were sold in the third quarter of 2015.

Risks To Outlook

The 2016 outlook includes management’s assessment of the likelihood of certain risks and uncertainties that will affect performance, including but not limited to: both price and volume, and a recurrence of widespread decline in aggregates volume negatively affecting aggregates price; the termination, capping and/or reduction of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; a significant change in the funding patterns for traditional federal, state and/or local infrastructure projects; a reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in nonresidential construction; a further decline in energy-related drilling activity resulting from a sustained period of low global oil prices or changes in oil production patterns in response to this decline and certain regulatory or other economic factors; a slowdown in the residential construction recovery, or some combination thereof; a reduction in economic activity in the Corporation’s Midwest states resulting from reduced funding levels provided by the Agricultural Act of 2014 and a reduction in capital investment by the railroads; an increase in the cost of compliance with governmental laws and regulations; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/ or significant disruption to cement production facilities; and the possibility that certain expected synergies and operating efficiencies in connection with the TXI acquisition are not realized within the expected time-frames or at all. Further, increased highway construction funding pressures resulting from either federal or state issues can affect profitability. If these negatively affect transportation budgets more than in the past, construction spending could be reduced. Cement is subject to cyclical supply and demand and price fluctuations. Any unplanned changes in costs or realignment of customers in the Magnesia Specialties’ business introduce volatility to the earnings of this segment. Further, Magnesia Specialties earnings can be negatively impacted by declining steel utilization and the United States dollar’s strength in the segment’s international markets.

The Corporation’s principal business serves customers in aggregates-related construction markets. This concentration could increase the risk of potential losses on customer receivables; however, payment bonds normally posted on public projects, together with lien rights on private projects,

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help to mitigate the risk of uncollectible receivables. The level of aggregates demand in the Corporation’s end-use markets, production levels and the management of production costs will affect the operating leverage of the Aggregates business and, therefore, profitability. Production costs in the Aggregates business are also sensitive to energy and raw material prices, both directly and indirectly. Diesel fuel and other consumables change production costs directly through consumption or indirectly by increased energy-related input costs, such as steel, explosives, tires and conveyor belts. Fluctuating diesel fuel pricing also affects transportation costs, primarily through fuel surcharges in the Corporation’s long-haul distribution network. The Cement business is also energy intensive and fluctuations in the price of coal and natural gas affects costs. The Magnesia Specialties business is sensitive to changes in domestic steel capacity utilization and the absolute price and fluctuations in the cost of natural gas.

Transportation in the Corporation’s long-haul network, particularly the supply of rail cars and locomotive power and condition of rail infrastructure to move trains, affects the Corporation’s ability to efficiently transport aggregates into certain markets, most notably Texas, Florida and the Gulf Coast. In addition, availability of rail cars and locomotives affects the Corporation’s ability to move dolomitic lime, a key raw material for magnesia chemicals, to both the Corporation’s plant in Manistee, Michigan, and customers. The availability of trucks, drivers and railcars to transport the Corporation’s products, particularly in markets experiencing high growth and increased demand, is also a risk and pressures the associated costs.

All of the Corporation’s businesses are also subject to weather-related risks that can significantly affect production schedules and profitability. The first and fourth quarters are most adversely affected by winter weather. Hurricane activity in the Atlantic Ocean and Gulf Coast generally is most active during the third and fourth quarters.

Risks to the outlook also include shipment declines as a result of economic events beyond the Corporation’s control. In addition to the impact on nonresidential and residential construction, the Corporation is exposed to risk in its estimated outlook from credit markets and the availability of and interest cost related to its debt.

The Corporation’s future performance is also exposed to risks from tax changes at the federal and state levels.

For a discussion of additional risks, see Forward-Looking Statements – Safe Harbor Provisions on pages 92 and 93.

OTHER FINANCIAL INFORMATION

Critical Accounting Policies and Estimates

The Corporation’s audited consolidated financial statements include certain critical estimates regarding the effect of matters that are inherently uncertain. These estimates require management’s subjective and complex judgments. Amounts reported in the Corporation’s consolidated financial statements could differ materially if management used different assumptions in making these estimates, resulting in actual results differing from those estimates. Methodologies used and assumptions selected by management in making these estimates, as well as the related disclosures, have been reviewed by and discussed with the Corporation’s Audit Committee. Management’s determination of the critical nature of accounting estimates and judgments may change from time to time depending on facts and circumstances that management cannot currently predict.

Business Combinations – Allocation of Purchase Price

The Corporation’s Board of Directors and management regularly review strategic long-term plans, including potential investments in value-added acquisitions of related or similar businesses, which would increase the Corporation’s market share and/or are related to the Corporation’s existing markets. When an acquisition is completed, the Corporation’s consolidated statements of earnings include the operating results of the acquired business starting from the date of acquisition, which is the date that control is obtained. The purchase price is determined based on the fair value of assets and equity interests given to the seller and any future obligations to the seller as of the date of acquisition. Additionally, conversion of the seller’s equity awards into equity awards of the Corporation can affect the purchase price. The Corporation allocates the purchase price to the fair values of the tangible and intangible assets acquired and liabilities assumed as valued at the date of acquisition. Goodwill is recorded for the excess of the purchase price over the net of the fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation is a critical accounting policy

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because the estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions. Further, the amounts and useful lives assigned to depreciable and amortizable assets versus amounts assigned to goodwill and indefinite-lived intangible assets, which are not amortized, can significantly affect the results of operations in the period of and in periods subsequent to a business combination.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and, therefore, represents an exit price. A fair-value measurement assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible, and financially feasible at the measurement date. The Corporation assigns the highest level of fair value available to assets acquired and liabilities assumed based on the following options:

•

Level 1 – Quoted prices in active markets for identical assets and liabilities

•

Level 2 – Observable inputs, other than quoted prices, for similar assets or liabilities in active markets

•

Level 3 – Unobservable inputs are used to value the asset or liability which includes the use of valuation models

Level 1 fair values are used to value investments in publicly-traded entities and assumed obligations for publicly-traded long-term debt.

Level 2 fair values are typically used to value acquired receivables, inventories, machinery and equipment, land, buildings, deferred income tax assets and liabilities, and accruals for payables, asset retirement obligations, environmental remediation and compliance obligations, and contingencies. Additionally, Level 2 fair values are typically used to value assumed contracts that are not at market rates.

Level 3 fair values are used to value acquired mineral reserves and mineral interests produced and sold as final products, and separately-identifiable intangible assets. The fair values of mineral reserves and mineral interests produced and sold as final products are determined using an excess earnings approach, which requires management to estimate future cash flows, net of capital investments in the specific operation and contributory asset charges. The estimate of

future cash flows is based on available historical information and on future expectations and assumptions determined by management, but is inherently uncertain. Key assumptions in estimating future cash flows include sales price, shipment volumes, production costs and capital needs. The present value of the projected net cash flows represents the fair value assigned to mineral reserves and mineral interests. The discount rate is a significant assumption used in the valuation model and is based on the required rate of return that a hypothetical market participant would require if purchasing the acquired business, with an adjustment for the risk of these assets generating the projected cash flows.

The Corporation values separately-identifiable acquired intangible assets which may include, but are not limited to, permits, customer relationships, water rights and noncompetition agreements. The fair values of these assets are typically determined by an excess earnings method, a replacement cost method or, in the case of water rights, a market approach.

The useful lives of amortizable intangible assets and the remaining useful lives for acquired machinery and equipment have a significant impact on earnings. The selected lives are based on the periods that the assets provide value to the Corporation subsequent to the business combination.

The Corporation may adjust the amounts recognized for a business combination during a measurement period after the acquisition date. Any such adjustments are based on the Corporation obtaining additional information that existed at the acquisition date regarding the assets acquired or the liabilities assumed. Measurement-period adjustments are generally recorded as increases or decreases to the goodwill recognized in the transaction. The measurement period ends once the Corporation has obtained all necessary information that existed as of the acquisition date, but does not extend beyond one year from the date of acquisition. Any adjustments to assets acquired or liabilities assumed beyond the measurement period are recorded through earnings.

Impairment Review of Goodwill

Goodwill is required to be tested at least annually for impairment. The impairment evaluation of goodwill is a critical accounting estimate because goodwill represents 30% of the Corporation’s total assets at December 31, 2015, primarily driven by the July 2014 acquisition of TXI. The evaluation requires

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management to apply judgment and make assumptions and an impairment charge could be material to the Corporation’s financial condition and results of operations. The Corporation performs its impairment evaluation as of October 1, which represents the ongoing annual evaluation date.

The Corporation’s reporting units, which represent the level at which goodwill is tested for impairment, are based on the geographic regions of the Aggregates business. As of October 1, 2015, the reporting units for the Aggregates business were as follows:

•

Mid-Atlantic Division, which includes North Carolina, South Carolina, Maryland and Virginia;

•

Mideast Division, which includes Indiana, Kentucky, Ohio and West Virginia;

•

Midwest Division, which includes Iowa, northern Kansas, Minnesota, Missouri, eastern Nebraska and Washington;

•

Southeast Division, which includes Alabama, Florida, Georgia, Tennessee and offshore operations in the Bahamas and Nova Scotia;

•

Rocky Mountain Division, which includes Colorado, western Nebraska, Nevada, Utah and Wyoming; and

•

Southwest Division, which includes Arkansas, southern Kansas, Louisiana, Oklahoma and Texas.

Additionally, the Cement and Magnesia Specialties businesses are separate reporting units. There is no goodwill related to the Magnesia Specialties business.

Any impact on reporting units resulting from organizational changes made by management is reflected in the succeeding evaluation. Disclosures for certain of the aforementioned reporting units within the Aggregates business meet the aggregation criteria and are consolidated as reportable segments for financial reporting purposes.

Goodwill is assigned to the respective reporting unit(s) based on the location of acquisitions at the time of consummation. Goodwill is tested for impairment by comparing the reporting unit’s fair value to its carrying value, which represents Step 1 of a two-step approach. However, prior to Step 1, the Corporation may perform an optional qualitative assessment. As part of the qualitative assessment, the Corporation considers, among other things, the following events and circumstances: macroeconomic conditions, industry

and market conditions, cost factors, overall financial performance and other business- or reporting unit-specific events. If the Corporation concludes that it is more likely than not (i.e., a likelihood of more than 50%) that a reporting unit’s fair value is higher than its carrying value, the Corporation does not perform any further goodwill impairment testing for that reporting unit. Otherwise, it proceeds to Step 1 of its goodwill impairment analysis. The Corporation may bypass the qualitative assessment for any reporting unit in any period and proceed directly with the quantitative calculation in Step 1. When the Corporation validates its conclusion by measuring fair value, it may resume performing a qualitative assessment for a reporting unit in any subsequent period. If the reporting unit’s fair value exceeds its carrying value, no further calculation is necessary. A reporting unit with a carrying value in excess of its fair value constitutes a Step 1 failure and leads to a Step 2 evaluation to determine the goodwill write off. If a Step 1 failure occurs, the excess of the carrying value over the fair value does not equal the amount of the goodwill write off. Step 2 requires the calculation of the implied fair value of goodwill by allocating the fair value of the reporting unit to its tangible and intangible assets, other than goodwill, similar to the purchase price allocation performed for an acquisition of a business. The remaining unallocated fair value represents the implied fair value of the goodwill. If the implied fair value of goodwill exceeds its carrying amount, there is no impairment. If the carrying value of goodwill exceeds its implied fair value, an impairment charge is recorded for the difference. When performing Step 2 and allocating a reporting unit’s fair value, assets having a higher fair value compared with book value increase any possible write off of impaired goodwill.

For the 2015 annual impairment evaluation, the Corporation performed qualitative assessments for the Aggregates business reporting units. Based on the totality of drivers of fair value and relevant facts and circumstances, the Corporation determined that it is more likely than not that the fair values of each of these reporting units exceed their respective carrying amounts.

The Corporation performed a Step 1 analysis for the Cement business reporting unit in 2015. The fair value was calculated using a discounted cash flow model. Key assumptions included management’s estimates of future profitability, capital requirements, discount rate of 10.0%, and terminal growth rate of 3.5%. The fair value of the Cement business reporting unit exceeded its carrying value by 8%, or $130

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million. For sensitivity purposes, a 100-basis-point increase in the discount rate would result in the Cement business reporting unit failing the Step 1 analysis. The Cement business reporting unit had $865 million of goodwill at December 31, 2015.

Price, cost and volume changes, profitability, efficiency improvements, the discount rate and the terminal growth rate are significant assumptions in performing a Step 1 analysis. These assumptions are interdependent and have a significant impact on the results of the test.

Future profitability and capital requirements are, by their nature, estimates. Price, cost and volume assumptions were based on current forecasts, including the use of external sources, and market conditions. Capital requirements included maintenance-level needs, efficiency projects, and known capacity-increasing initiatives.

A discount rate is calculated for each reporting unit that requires a Step 1 analysis and represents its weighted average cost of capital. The calculation of the discount rate includes the following components, which are primarily based on published sources: equity risk premium, historical beta, risk-free interest rate, small-stock premium, company-specific premium, and borrowing rate.

The terminal growth rate was based on the projected annual increase in Gross Domestic Product.

Management believes that all assumptions used were reasonable based on historical operating results and expected future trends. However, if future operating results are unfavorable as compared with forecasts, the results of future goodwill impairment evaluations could be negatively affected. Further, mineral reserves, which represent underlying assets producing the reporting units’ cash flows for the Aggregates and Cement businesses, are depleting assets by their nature. The potential write off of goodwill from future evaluations represents a risk to the Corporation.

Pension Expense-Selection of Assumptions

The Corporation sponsors noncontributory defined benefit pension plans that cover substantially all employees and a Supplemental Excess Retirement Plan (“SERP”) for certain retirees (see Note J to the audited consolidated financial statements on pages 30 through 34). Annual pension expense (inclusive of SERP expense) consists of several components:

•

Service Cost, which represents the present value of benefits attributed to services rendered in the current year, measured by expected future salary levels.

•

Interest Cost, which represents one year’s additional interest on the outstanding liability.

•

Expected Return on Assets, which represents the expected investment return on pension fund assets.

•

Amortization of Prior Service Cost and Actuarial Gains and Losses, which represents components that are recognized over time rather than immediately. Prior service cost represents credit given to employees for years of service prior to plan inception. Actuarial gains and losses arise from changes in assumptions regarding future events or when actual returns on assets differ from expected returns. At December 31, 2015, unrecognized actuarial loss and unrecognized prior service cost were $178.8 million and $1.0 million, respectively. Pension accounting rules currently allow companies to amortize the portion of the unrecognized actuarial loss that represents more than 10% of the greater of the projected benefit obligation or pension plan assets, using the average remaining service life for the amortization period. Therefore, the $178.8 million unrecognized actuarial loss consists of $103.3 million that is currently subject to amortization in 2016 and $75.5 million that is not subject to amortization in 2016. $11.3 million of amortization of the actuarial loss will be a component of 2016 annual pension expense.

These components are calculated annually to determine the pension expense that is reflected in the Corporation’s results of operations.

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Management believes the selection of assumptions related to the annual pension expense is a critical accounting estimate due to the high degree of volatility in the expense dependent on selected assumptions. The key assumptions are as follows:

•

The discount rate is the rate used to present value the pension obligation and represents the current rate at which the pension obligations could be effectively settled.

•

The expected long-term rate of return on pension fund assets is used to estimate future asset returns and should reflect the average rate of long-term earnings on assets already invested or to be invested to provide for the benefits included in the projected benefit obligation.

•

The mortality table represents published statistics on the expected lives of people.

•

The rate of increase in future compensation levels is also a key assumption that projects the pay-related pension benefit formula and should estimate actual future compensation levels.

Management’s selection of the discount rate is based on an analysis that estimates the current rate of return for high-quality, fixed-income investments with maturities matching the payment of pension benefits that could be purchased to settle the obligations. The Corporation selected a hypothetical portfolio of Moody’s Aa bonds with maturities that mirror the benefit obligations to determine the discount rate. At December 31, 2015, the Corporation selected a discount rate assumption of 4.67%, a 42-basis-point increase over the prior-year assumption. Of the four key assumptions, the discount rate is generally the most volatile and sensitive estimate. Accordingly, a change in this assumption has the most significant impact on the annual pension expense.

Management’s selection of the rate of increase in future compensation levels is generally based on the Corporation’s historical salary increases, including cost of living adjustments and merit and promotion increases, giving consideration to any known future trends. A higher rate of increase results in higher pension expense. The actual rate of increase in compensation levels in 2015 was lower than the assumed long-term rate of increase of 4.5%.

Management’s selection of the expected long-term rate of return on pension fund assets is based on a building-block approach, whereby the components are weighted based on the allocation of pension plan assets. Given that these returns are long-term, there are generally not significant fluctuations in the expected rate of return from year to year. Based on the currently projected returns on these assets, the Corporation selected an expected return on assets of 7.0%, consistent with the prior-year rate. The following table presents the expected return on pension assets as compared with the actual return on pension assets:


	Expected Return		Actual Return
(add 000)	on Pension Assets		on Pension Assets
2015		$36,385		$ (651)
2014		$32,661		$ 26,186
2013		$26,660		$ 59,882

The difference between expected return on pension assets and the actual return on pension assets is not immediately recognized in the consolidated statements of earnings. Rather, pension accounting rules require the difference to be included in actuarial gains and losses, which are amortized into annual pension expense as previously described.

The Corporation estimates the remaining lives of participants in the pension plans using a table issued by the Society of Actuaries. For 2015, the Corporation estimated the remaining lives of participants in the pension plans using the RP-2014 Mortality Table. The no-collar table was used for salaried participants and the blue-collar table, reflecting the experience of the Corporation’s participants, was used for hourly participants.

Assumptions are selected on December 31 to calculate the succeeding year’s expense. For the 2015 pension expense, assumptions selected at December 31, 2014 were as follows:


Discount rate			4.25%
Rate of increase in future compensation levels			4.50%
Expected long-term rate of return on assets			7.00%
Average remaining service period for participants			10 years
RP 2014 Mortality Table

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Using these assumptions, 2015 pension expense was $39.4 million. A change in the assumptions would have had the following impact on 2015 expense:

•

A change of 25 basis points in the discount rate would have changed 2015 expense by approximately $2.6 million.

•

A change of 25 basis points in the expected long-term rate of return on assets would have changed the 2015 expense by approximately $1.2 million.

For 2016 pension expense, assumptions selected at December 31, 2015 were as follows:


Discount rate			4.67%
Rate of increase in future compensation levels			4.50%
Expected long-term rate of return on assets			7.00%
Average remaining service period for participants			10 years
RP-2014 Mortality Table

Using these assumptions, 2016 pension expense is expected to be approximately $31.4 million, excluding termination benefits related to TXI, based on current demographics and structure of the plans. Changes in the underlying assumptions would have the following estimated impact on the 2016 expected expense:

•

A change of 25 basis points in the discount rate would change the 2016 expected expense by approximately $2.8 million.

•

A change of 25 basis points in the expected long-term rate of return on assets would change the 2016 expected expense by approximately $1.3 million.

The Corporation made pension plan contributions of $53.9 million in 2015 and $172.2 million for the five-year period ended December 31, 2015. Despite these contributions, the Corporation’s pension plans are underfunded (projected benefit obligation exceeds the fair value of plan assets) by $208.0 million at December 31, 2015. The Corporation’s projected benefit obligation was $754.5 million at December 31, 2015, relatively constant compared with December 31, 2014. The Corporation expects to make pension plan and SERP contributions of $29.9 million in 2016.

Estimated Effective Income Tax Rate

The Corporation uses the liability method to determine its provision for income taxes. Accordingly, the annual provision

for income taxes reflects estimates of the current liability for income taxes, estimates of the tax effect of financial reporting versus tax basis differences using statutory income tax rates and management’s judgment with respect to any valuation allowances on deferred tax assets. The result is management’s estimate of the annual effective tax rate (the “ETR”).

Income for tax purposes is determined through the application of the rules and regulations under the United States Internal Revenue Code and the statutes of various foreign, state and local tax jurisdictions in which the Corporation conducts business. Changes in the statutory tax rates and/or tax laws in these jurisdictions can have a material effect on the ETR. The effect of these changes, if any, is recognized when the change is enacted.

As prescribed by these tax regulations, as well as generally accepted accounting principles, the manner in which revenues and expenses are recognized for financial reporting and income tax purposes is not always the same. Therefore, these differences between the Corporation’s pretax income for financial reporting purposes and the amount of taxable income for income tax purposes are treated as either temporary or permanent, depending on their nature.

Temporary differences reflect revenues or expenses that are recognized in financial reporting in one period and taxable income in a different period. An example of a temporary difference is the use of the straight-line method of depreciation of machinery and equipment for financial reporting purposes and the use of an accelerated method for income tax purposes. Temporary differences result from differences between the financial reporting basis and tax basis of assets or liabilities and give rise to deferred tax assets or liabilities (i.e., future tax deductions or future taxable income). Therefore, when temporary differences occur, they are offset by a corresponding change in a deferred tax account. As such, total income tax expense as reported in the Corporation’s consolidated statements of earnings is not changed by temporary differences.

The Corporation has deferred tax liabilities, primarily for property, plant and equipment and goodwill. The deferred tax liabilities attributable to property, plant and equipment relate to accelerated depreciation and depletion methods used for

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income tax purposes as compared with the straight-line and units of production methods used for financial reporting purposes. These temporary differences will reverse over the remaining useful lives of the related assets. The deferred tax liabilities attributable to goodwill arise as a result of amortizing goodwill for income tax purposes but not for financial reporting purposes. This temporary difference reverses when goodwill is written off for financial reporting purposes, either through divestitures or an impairment charge. The timing of such events cannot be estimated.

The Corporation has deferred tax assets, primarily for unvested stock-based compensation awards, employee pension and postretirement benefits, valuation reserves, inventories, net operating loss carryforwards and tax credit carryforwards. The deferred tax assets attributable to unvested stock-based compensation awards relate to differences in the timing of deductibility for financial reporting purposes versus income tax purposes. For financial reporting purposes, the fair value of the awards is deducted ratably over the requisite service period. For income tax purposes, no deduction is allowed until the award is vested or no longer subject to substantial risk of forfeiture. Deferred tax assets are carried on stock options that have exercise prices in excess of the closing price of the Corporation’s common stock at December 31, 2015. If these options expire without being exercised, the deferred tax assets are written off by reducing the pool of excess tax benefits to the extent available and expensing any excess. The deferred tax assets attributable to employee pension and postretirement benefits relate to deductions as plans are funded for income tax purposes as compared with deductions for financial reporting purposes that are based on accounting standards. The reversal of these differences depends on the timing of the Corporation’s contributions to the related benefit plans as compared to the annual expense for financial reporting purposes. The deferred tax assets attributable to valuation reserves and inventories relate to the deduction of estimated cost reserves and various period expenses for financial reporting purposes that are deductible in a later period for income tax purposes. The reversal of these differences depends on facts and circumstances, including the timing of deduction for income tax purposes for reserves previously established and the establishment of additional reserves for financial reporting purposes. At December 31, 2015, the Corporation had federal and state net operating loss carryforwards of $33.9 million and $273.3 million, respectively, with varying expiration dates through 2035 and related

state deferred tax assets of $11.4 million. The Corporation established a reserve of $8.7 million for these deferred tax assets based on the uncertainty of generating future taxable income in the respective jurisdictions during the limited period that the net operating loss carryforwards can be utilized under state statutes. The Corporation utilized total federal net operating loss carryforwards of $476.0 million in 2015. Additionally, the Corporation had domestic tax credit carryforwards of $3.2 million, for which a valuation allowance of $0.3 million was recorded at December 31, 2015, and alternative minimum tax credit carryforwards of $48.2 million.

Property, Plant and Equipment

Net property, plant and equipment represent 45% of total assets at December 31, 2015. Accordingly, accounting for these assets represents a critical accounting policy. Useful lives of the assets can vary depending on factors, including production levels, geographic location, portability and maintenance practices. Additionally, climate and inclement weather can reduce the useful life of an asset. Historically, the Corporation has not recognized significant losses on the disposal or retirement of fixed assets.

The Corporation evaluates aggregates reserves, including aggregates reserves used in the cement manufacturing process, in several ways, depending on the geology at a particular location and whether the location is a potential new site (greensite), an acquisition or an existing operation. Greensites require an extensive drilling program before any significant investment is made in terms of time, site development or efforts to obtain appropriate zoning and permitting (see section Environmental Regulation and Litigation on pages 72 and 73). The depth of overburden and the quality and quantity of the aggregates reserves are significant factors in determining whether to pursue opening the site. Further, the estimated average selling price for products in a market is also a significant factor in concluding that reserves are economically mineable. If the Corporation’s analysis based on these factors is satisfactory, the total aggregates reserves available are calculated and a determination is made whether to open the location. Reserve evaluation at existing locations is typically performed to evaluate purchasing adjoining properties, for quality control, calculating overburden volumes and for mine planning. Reserve evaluation of acquisitions may require a higher degree of sampling to locate any problem areas that may exist and to verify the total reserves.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Well-ordered subsurface sampling of the underlying deposit is basic to determining reserves at any location. This subsurface sampling usually involves one or more types of drilling, determined by the nature of the material to be sampled and the particular objective of the sampling. The Corporation’s objectives are to ensure that the underlying deposit meets aggregates specifications and the total reserves on site are sufficient for mining and economically recoverable. Locations underlain with hard rock deposits, such as granite and limestone, are drilled using the diamond core method, which provides the most useful and accurate samples of the deposit. Selected core samples are tested for soundness, abrasion resistance and other physical properties relevant to the aggregates industry and depending on its use. The number and depth of the holes are determined by the size of the site and the complexity of the site-specific geology. Some geological factors that may affect the number and depth of holes include faults, folds, chemical irregularities, clay pockets, thickness of formations and weathering. A typical spacing of core holes on the area to be tested is one hole for every four acres, but wider spacing may be justified if the deposit is homogeneous.

Despite previous drilling and sampling, once accessed, the quality of reserves within a deposit can vary. Construction contracts, for the infrastructure market in particular, include specifications related to the aggregates material. If a flaw in the deposit is discovered, the aggregates material may not meet the required specifications. This can have an adverse effect on the Corporation’s ability to serve certain customers or on the Corporation’s profitability. In addition, other issues can arise that limit the Corporation’s ability to access reserves in a particular quarry, including geological occurrences, blasting practices and zoning issues.

Locations underlain with sand and gravel are typically drilled using the auger method, whereby a 6-inch corkscrew brings up material from below the ground which is then sampled. Deposits in these locations are typically limited in thickness, and the quality and sand-to-gravel ratio of the deposit can vary both horizontally and vertically. Hole spacing at these locations is approximately one hole for every acre to ensure a representative sampling.

The geologist conducting the reserve evaluation makes the decision as to the number of holes and the spacing in accordance with standards and procedures established by the Corporation. Further, the anticipated heterogeneity of

the deposit, based on U.S. geological maps, also dictates the number of holes used.

The generally accepted reserve categories for the aggregates industry and the designations the Corporation uses for reserve categories are summarized as follows:

Proven Reserves – These reserves are designated using closely spaced drill data as described above and a determination by a professional geologist that the deposit is relatively homogeneous based on the drilling results and exploration data provided in U.S. geologic maps, the U.S. Department of Agriculture soil maps, aerial photographs and/or electromagnetic, seismic or other surveys conducted by independent geotechnical engineering firms. The proven reserves that are recorded reflect reductions incurred as a result of quarrying that result from leaving ramps, safety benches, pillars (underground), and the fines (small particles) that will be generated during processing. Proven reserves are further reduced by reserves that are under the plant and stockpile areas, as well as setbacks from neighboring property lines. The Corporation typically assumes a loss factor of 25%. However, the assumed loss factor at coastal operations is approximately 40% due to the nature of the material. The assumed loss factor for underground operations is 35% due to pillars.

Probable Reserves – These reserves are inferred utilizing fewer drill holes and/or assumptions about the economically recoverable reserves based on local geology or drill results from adjacent properties.

The Corporation’s proven and probable reserves reflect reasonable economic and operating constraints as to maximum depth of overburden and stone excavation, and also include reserves at the Corporation’s inactive and undeveloped sites, including some sites where permitting and zoning applications will not be filed until warranted by expected future growth. The Corporation has historically been successful in obtaining and maintaining appropriate zoning and permitting (see section Environmental Regulation and Litigation on pages 72 and 73).

Mineral reserves and mineral interests, when acquired in connection with a business combination, are valued using an excess earnings approach for the life of the proven and probable reserves.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

The Corporation uses proven and probable reserves as the denominator in its units-of-production calculation to record depletion expense for its mineral reserves and mineral interests. During 2015, depletion expense was $14.3 million.

The Corporation begins capitalizing quarry development costs at a point when reserves are determined to be proven or probable, economically mineable and when demand supports investment in the market. Capitalization of these costs ceases when production commences. Quarry development costs are classified as land improvements.

New mining areas may be developed at existing quarries in order to access additional reserves. When this occurs, management reviews the facts and circumstances of each situation in making a determination as to the appropriateness of capitalizing or expensing the related pre-production development costs. If the additional mining location operates in a separate and distinct area of a quarry, the costs are capitalized as quarry development costs and depreciated over the life of the uncovered reserves. Further, a separate asset retirement obligation is created for additional mining areas when the liability is incurred. Once a new mining area enters the production phase, all post-production stripping costs are expensed as incurred as periodic inventory production costs.

Inventory Standards

The Corporation values its finished goods inventories under the first-in, first-out methodology using standard costs. For quarries, standards are developed using production costs for a twelve-month period, in addition to complying with the principle of lower of cost or net realizable value, and adjusting, if necessary, for normal capacity levels and abnormal costs. In addition to production costs, standards for distribution yards include a freight component for the cost of transporting the inventory from a quarry to the distribution yard and materials handling costs. Preoperating start-up costs are expensed as incurred and not capitalized as part of inventory costs. In periods in which production costs, in particular energy costs, and/or production volumes have changed significantly from the prior period, the revision of standards can have a significant impact on the Corporation’s operating results (see section Cost Structure on pages 67 through 69).

Standard costs for the Aggregates business are updated on a quarterly basis to match finished goods inventory values with changes in production costs and production volumes.

Liquidity and Cash Flows

Operating Activities

The Corporation’s primary source of liquidity during the past three years has been cash generated from its operating activities. Operating cash flow is substantially derived from consolidated net earnings, before deducting depreciation, depletion and amortization, and offset by working capital requirements. Cash provided by operations was $573.2 million in 2015, $381.7 million in 2014, and $309.0 million in 2013. The increases in 2015 and 2014 were primarily attributable to higher earnings before depreciation, depletion and amortization expense. The 2014 increase was partially offset by $70.4 million of payments for TXI acquisition-related expenses.

LOGO

Depreciation, depletion and amortization were as follows:


years ended December 31
(add 000)	2015		2014		2013
Depreciation	$	232,527	$	200,242	$	162,638
Depletion		14,347		11,000		5,695
Amortization		16,713		11,504		5,428
Total	$	263,587	$	222,746	$	173,761

The increase in depreciation, depletion and amortization expense in 2015 and 2014 is primarily attributable to the TXI acquisition on July 1, 2014.

Investing Activities

Net cash provided by investing activities was $88.5 million in 2015 and cash used for investing activities was $49.3 million in 2014 and $214.5 million in 2013.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Capital spending by reportable segment, excluding acquisitions, was as follows:


years ended December 31
(add 000)	2015		2014		2013
Mid-America Group	$	73,255	$	75,253	$	81,232
Southeast Group		12,155		22,135		18,444
West Group		198,570		112,994		44,380
Total Aggregates Business		283,980		210,382		144,056
Cement		9,599		3,864		–
Magnesia Specialties		8,916		2,588		4,700
Corporate		15,737		15,349		6,477
Total	$	318,232	$	232,183	$	155,233

Increased capital spending in 2015 and 2014 for the West Group is attributable to investments in the legacy TXI locations and the construction of the new Medina limestone quarry near San Antonio, the largest internal capital project in the Corporation’s history.

The Corporation paid cash of $43.2 million, $0.2 million and $64.5 million for acquisitions in 2015, 2014 and 2013, respectively.

Proceeds from divestitures and sales of assets include cash from the sales of surplus land and equipment and the divestitures of several Aggregates business’ operations and, in 2015, the divestiture of the California cement operations. These transactions provided pretax cash of $448.1 million in 2015, $122.0 million in 2014 and $8.6 million in 2013. Proceeds in 2014 primarily relate to the required sale of an aggregates quarry in Oklahoma and two rail yards in Texas as a result of an agreement between the Corporation and the U.S. Department of Justice as part of its review of the TXI business combination.

In 2013, the Corporation loaned $3.4 million to an unconsolidated affiliate. The loan was repaid in full in 2015.

Financing Activities

The Corporation used $601.9 million, $266.1 million and $77.4 million of cash for financing activities during 2015, 2014 and 2013, respectively.

Net repayments of long-term debt were $14.7 million, $188.5 million and $16.7 million in 2015, 2014 and 2013, respectively. As discussed in Note G of the audited consolidated financial statements, in December 2014, the Corporation completed a private offering, subsequently exchanged for public notes,

of $700 million of senior unsecured notes. Net proceeds from the offering, along with cash on hand and incremental drawings on the trade facility, were used to redeem $650 million of assumed 9.25% notes from TXI plus a make-whole premium and accrued unpaid interest.

During 2015, the Corporation repurchased 3.3 million shares for a total cost of $520.0 million, or $158.25 per share.

For each of the years ended December 31, 2015, 2014 and 2013, the Board of Directors approved total cash dividends on the Corporation’s common stock of $1.60 per share. Total cash dividends were $107.5 million in 2015, $91.3 million in 2014 and $74.2 million in 2013.

Cash provided by issuances of common stock, which represents the exercises of stock options, was $37.1 million, $39.7 million, $11.7 million in 2015, 2014 and 2013, respectively.

Excess tax benefits from stock-based compensation transactions were $2.5 million and $2.4 million in 2014 and 2013, respectively.

During 2014, the Corporation acquired the remaining interests in two joint ventures in separate transactions for $19.5 million.

Capital Structure and Resources

Long-term debt, including current maturities, was $1.573 billion at the end of 2015. The Corporation’s debt was principally in the form of publicly-issued long-term notes and debentures and $224.1 million of borrowings under variable-rate credit facilities at December 31, 2015.

In connection with the TXI acquisition in 2014, the Corporation refinanced debt assumed from TXI by issuing $700 million of senior unsecured notes, which included $300 million of three-year variable-rate senior notes and $400 million of 4.25% ten-year senior notes.

The Corporation, through a wholly-owned special-purpose subsidiary, has a trade receivable securitization facility (the “Trade Receivable Facility”) with borrowing capacity of $250 million and a maturity date of September 30, 2016. The Trade Receivable Facility is backed by eligible trade receivables, as defined, of $363.2 million at December 31, 2015. These receivables are originated by the Corporation and then sold to the wholly-owned special-purpose subsidiary by

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the Corporation. The Corporation continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned special-purpose subsidiary. The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements.

The Credit Agreement (which consists of a $250 million Term Loan Facility and a $350 million Revolving Facility) requires the Corporation’s ratio of consolidated debt to consolidated EBITDA, as defined by the Credit Agreement, for the trailing-twelve month period (the “Ratio”) to not exceed 3.5x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its ratings on long-term unsecured debt fall below BBB by Standard & Poor’s or Baa2 by Moody’s as a result of the acquisition and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, under the Credit Agreement, if there are no amounts outstanding under the Revolving Facility, consolidated debt, including debt for which the Corporation is a co-borrower, will be reduced for purposes of the covenant calculation by the Corporation’s unrestricted cash and cash equivalents in excess of $50 million, such reduction not to exceed $200 million.

At December 31, 2015, the Corporation’s ratio of consolidated net debt to consolidated EBITDA, as defined, for the trailing-twelve month EBITDA was 1.88 times and was calculated as follows (dollars in thousands):


	Twelve-Month Period January 1, 2015 to December 31, 2015
Net earnings from continuing operations attributable to Martin Marietta Materials Inc.		$	288,792
Add back:
Interest expense			76,287
Income tax expense			124,793
Depreciation, depletion and amortization expense			260,836
Stock-based compensation expense			13,589
Nonrecurring transactions (acquisition-related expenses and net loss on divestitures)			21,941
Deduct:
Interest income			(352	)

Consolidated EBITDA, as defined		$	785,886


Consolidated net debt, as defined and including debt for which the Corporation is a co-borrower, at December 31, 2015		$	1,480,068


Consolidated net debt to consolidated EBITDA, as defined, at December 31, 2015 for trailing-twelve month EBITDA			1.88x

Total equity was $4.06 billion at December 31, 2015. At that date, the Corporation had an accumulated other comprehensive loss of $105.6 million, resulting from unrecognized actuarial losses and prior service costs related to pension and postretirement benefits, foreign currency translation loss and the unamortized loss on terminated forward starting interest rate swap agreements.

The Corporation may repurchase shares of its common stock through open-market purchases pursuant to authority granted by its Board of Directors or through private transactions at such prices and upon such terms as the Chief Executive Officer deems appropriate. During 2015, the Board of Directors granted authority for the Corporation to repurchase an additional 15.0 million shares of common stock for a total repurchase authorization of 20.0 million shares. Under that authorization, the Corporation repurchased 3,285,000 shares of its common stock for an aggregate purchase price of $520.0 million. In 2016, the Corporation expects to allocate capital for additional share repurchases based on available excess free cash flow, defined as operating cash flow less capital expenditures and dividends, subject to a leverage target of 2.0 times debt-to-EBITDA and consideration of other capital needs. Future repurchases are expected to be carried out through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share purchase transactions, or any combination of such methods. The Corporation expects to complete the repurchase program over the next several years, though the actual timing of completion will be based on an ongoing assessment of the capital needs of the business, the market price of its common stock and general market conditions. Share repurchases will be executed based on then-current business and market factors so the actual return of capital in any single quarter may vary. The repurchase program may be modified, suspended or discontinued by the Board of Directors at any time without prior notice.

At December 31, 2015, the Corporation had $168.4 million in cash and short-term investments that are considered cash equivalents. The Corporation manages its cash and cash equivalents to ensure short-term operating cash needs are met and excess funds are managed efficiently. The Corporation subsidizes shortages in operating cash through short-term

Martin Marietta | Page 88

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

borrowing facilities. The Corporation utilizes excess cash to either pay-down short-term borrowings or invest in money market funds, money market demand deposit accounts or Eurodollar time deposit accounts. Money market demand deposits and Eurodollar time deposit accounts are exposed to bank solvency risk. Money market demand deposit accounts are FDIC insured up to $250,000. The Corporation’s investments in bank funds generally exceed the $250,000 FDIC insurance limit. The Corporation’s cash management policy prohibits cash and cash equivalents over $100 million to be maintained at any one bank.

Cash on hand, along with the Corporation’s projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements including maturities in 2017 and 2018, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise and allow for payment of dividends for the foreseeable future. Borrowings under the Credit Agreement are unsecured and may be used for general corporate purposes. The Corporation’s ability to borrow or issue securities is dependent upon, among other things, prevailing economic, financial and market conditions (see section Current Market Environment and Related Risks on pages 75). At December 31, 2015, the Corporation had $347.5 million of unused borrowing capacity under its Revolving Facility and $250.0 million of available borrowings under its Trade Receivable Facility. The Revolving Facility expires on November 29, 2018 and the Trade Receivable Facility matures on September 30, 2016.

The Corporation may be required to obtain financing in order to fund certain strategic acquisitions, if any such opportunities arise, or to refinance outstanding debt. Any strategic acquisition of size would likely require an appropriate balance of newly-issued equity with debt in order to maintain a composite investment-grade credit rating. Furthermore, the Corporation is exposed to credit markets through the interest cost related to its variable-rate debt, which includes $300 million of Notes due 2017 and borrowings under its Revolving Facility, Term Loan Facility and Trade Receivable Facility. The Corporation is currently rated by three credit rating agencies; two of those agencies’ credit ratings are investment-grade level and the third agency’s credit rating is one level below investment-grade.

Contractual and Off Balance Sheet Obligations

Postretirement medical benefits will be paid from the Corporation’s assets. The obligation, if any, for retiree medical payments is subject to the terms of the plan. At December 31, 2015, the Corporation’s recorded benefit obligation related to these benefits totaled $23.4 million.

The Corporation has other retirement benefits related to pension plans. At December 31, 2015, the qualified pension plans were underfunded by $118.8 million. Inclusive of required amounts, the Corporation estimates that it will make contributions of $23.0 million to qualified pension plans in 2016. Any contributions beyond 2016 are currently undeterminable and will depend on the investment return on the related pension assets. However, management’s practice is to fund at least the normal service cost annually. At December 31, 2015, the Corporation had a total obligation of $89.2 million related to unfunded non-qualified pension plans and expects to make contributions of $6.9 million in 2016.

At December 31, 2015, the Corporation had $18.7 million accrued for uncertain tax positions. Such liabilities may become payable if the tax positions are not sustained upon examination by a taxing authority.

In connection with normal, ongoing operations, the Corporation enters into market-rate leases for property, plant and equipment and royalty commitments principally associated with leased land. Additionally, the Corporation enters into equipment rentals to meet shorter-term, non-recurring and intermittent needs. At December 31, 2015, the Corporation had $14.9 million in capital lease obligations. Amounts due for operating leases and royalty agreements are expensed in the period incurred. Management anticipates that, in the ordinary course of business, the Corporation will enter into additional royalty agreements for land and mineral reserves during 2016.

The Corporation has purchase commitments for property, plant and equipment of $70.4 million as of December 31, 2015. The Corporation also has other purchase obligations related to energy and service contracts which totaled $95.4 million as of December 31, 2015.

Martin Marietta | Page 89

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

The Corporation’s contractual commitments as of December 31, 2015 are as follows:


(add 000)	Total		< 1 Year		1 to 3 Years		3 to 5 Years		> 5 Years
*ON BALANCE SHEET:*
Long-term debt	$	1,572,895	$	19,246	$	804,871	$	151	$	748,627
Postretirement benefits		23,408		2,120		4,619		4,210		12,459
Qualified pension plan contributions ¹		23,032		23,032		–		–		–
Unfunded pension plan contributions		89,222		6,895		15,503		16,512		50,312
Uncertain tax positions		18,727		1,455		17,272		–		–
Capital leases - principal portion		14,924		2,438		4,798		3,970		3,718
Other commitments		566		64		128		128		246
*OFF BALANCE SHEET:*
Interest on publicly-traded long-term debt and capital lease obligations		595,286		65,784		110,320		80,861		338,321
Operating leases ²		529,106		100,239		110,944		77,291		240,632
Royalty agreements ²		72,062		11,078		17,210		12,341		31,433
Purchase commitments - capital		70,431		70,386		45		–		–
Other commitments - energy and services		95,389		85,139		7,773		902		1,575
Total	$	3,105,048	$	387,876	$	1,093,483	$	196,336	$	1,427,323

¹	Qualified pension plan contributions beyond 2016 are not determinable at this time

²	Represents future minimum payments

Notes A, G, I, J, L and N to the audited consolidated financial statements on pages 17 through 23; 25 through 27; 27 through 30; 30 through 34; 36 and 37 through 39, respectively, contain additional information regarding these commitments and should be read in conjunction with the above table.

Contingent Liabilities and Commitments

The Corporation has a $5 million short-term line of credit. No amounts were outstanding under this line of credit at December 31, 2015.

The Corporation has entered into standby letter of credit agreements relating to certain insurance claims, utilities and property improvements. At December 31, 2015, the Corporation had contingent liabilities guaranteeing its own performance under these outstanding letters of credit of $46.3 million, of which $2.5 million were issued under the Corporation’s Revolving Facility. Certain of these underlying obligations are accrued on the Corporation’s balance sheet.

In the normal course of business at December 31, 2015, the Corporation was contingently liable for $326.5 million in surety bonds underwritten by Safeco Corporation, a subsidiary of Liberty Mutual Group, which guarantee its own performance and are required by certain states and municipalities and their related agencies. Certain of the bonds guaranteeing performance of obligations, including those for asset

retirement requirements and insurance claims, are accrued on the Corporation’s balance sheet. Five of these bonds are for certain insurance claims, construction contracts and reclamation obligations and total $88.9 million, or 27% of all outstanding surety bonds. The Corporation has indemnified the underwriting insurance companies against any exposure under the surety bonds. In the Corporation’s past experience, no material claims have been made against these financial instruments.

The Corporation is a co-borrower with an unconsolidated affiliate for a $25.0 million revolving line of credit agreement with Branch Banking & Trust. The line of credit expires in February 2018. The affiliate has agreed to reimburse and indemnify the Corporation for any payments and expenses the Corporation may incur from this agreement. The Corporation holds a lien on the affiliate’s membership interest in a joint venture as collateral for payment under the revolving line of credit.

Quantitative and Qualitative Disclosures
about Market Risk

As discussed earlier, the Corporation’s operations are highly dependent upon the interest rate-sensitive construction and steelmaking industries. Consequently, these marketplaces could experience lower levels of economic activity in an environment of rising interest rates or escalating costs (see section Business Environment on pages 59 through 76).

Martin Marietta | Page 90

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Management has considered the current economic environment and its potential impact to the Corporation’s business. Demand for aggregates products, particularly in the infrastructure construction market, is affected by federal and state budget and deficit issues. Further, delays or cancellations of capital projects in the nonresidential and residential construction markets could occur if companies and consumers are unable to obtain financing for construction projects or if consumer confidence continues to be eroded by economic uncertainty.

Demand in the residential construction market is affected by interest rates. The Federal Reserve kept the federal funds rate near zero percent for the majority of the year ended December 31, 2015. The increase in the rate to 0.25% represented the first increase since 2008. The residential construction market accounted for 17% of the Corporation’s aggregates product line shipments in 2015.

Aside from these inherent risks from within its operations, the Corporation’s earnings are also affected by changes in short-term interest rates. However, rising interest rates are not necessarily predictive of weaker operating results. In fact, since 2007, the Corporation’s profitability increased when interest rates rose, based on the last twelve months quarterly historical net income regression versus a 10-year U.S. government bond. In essence, the Corporation’s underlying business generally serves as a natural hedge to rising interest rates.

Variable-Rate Borrowing Facilities

At December 31, 2015, the Corporation had a $600 million Credit Agreement, comprised of a $350 million Revolving Facility and $250 million Term Loan Facility, and a $250 million Trade Receivable Facility. The Corporation also has $300 million variable-rate senior notes. Borrowings under these facilities bear interest at a variable interest rate. A hypothetical 100-basis-point increase in interest rates on borrowings of $525.0 million, which was the collective outstanding balance at December 31, 2015, would increase interest expense by $5.3 million on an annual basis.

Pension Expense

The Corporation’s results of operations are affected by its pension expense. Assumptions that affect pension expense include the discount rate and, for the defined benefit pension plans only, the expected long-term rate of return on assets. Therefore, the Corporation has interest rate risk associated with these factors. The impact of hypothetical changes in these assumptions on the Corporation’s annual pension expense is discussed in the section Critical Accounting Policies and Estimates – Pension Expense – Selection of Assumptions on pages 81 through 83.

Energy Costs

Energy costs, including diesel fuel, natural gas, coal and liquid asphalt, represent significant production costs of the Corporation. The Corporation has a fixed-price commitment for approximately 40% of its diesel requirements at a rate of $2.20 per gallon through December 31, 2016. The Magnesia Specialties and Cement businesses each have fixed price agreements covering 100% of their 2016 coal requirements. A hypothetical 10% change in the Corporation’s energy prices in 2016 as compared with 2015, assuming constant volumes, would change 2016 energy expense by $25.7 million.

Commodity Risk

Cement is a commodity and competition is based principally on price, which is highly sensitive to changes in supply and demand. Prices are often subject to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions and other market conditions beyond the Corporation’s control. Increases in the production capacity of industry participants or increases in cement imports tend to create an oversupply of such products leading to an imbalance between supply and demand, which can have a negative impact on product prices. There can be no assurance that prices for products sold will not decline in the future or that such declines will not have a material adverse effect on the Corporation’s business, financial condition and results of operations. A hypothetical 10% change in sales price of the Texas Cement business would impact net sales by $26.9 million. Cement is a key raw material in the production of ready mixed concrete. A hypothetical 10% change in cement costs in 2016 as compared with 2015, assuming constant volumes, would change ready mixed concrete cost of sales by $17.1 million.

Martin Marietta | Page 91

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

Forward-Looking Statements – Safe Harbor Provisions

If you are interested in Martin Marietta Materials, Inc. stock, management recommends that, at a minimum, you read the Corporation’s current annual report and Forms 10-K, 10-Q and 8-K reports to the Securities and Exchange Commission (SEC) over the past year. The Corporation’s recent proxy statement for the annual meeting of shareholders also contains important information. These and other materials that have been filed with the SEC are accessible through the Corporation’s website at www.martinmarietta.com and are also available at the SEC’s website at www.sec.gov. You may also write or call the Corporation’s Corporate Secretary, who will provide copies of such reports.

Investors are cautioned that all statements in this Annual Report that relate to the future involve risks and uncertainties, and are based on assumptions that the Corporation believes in good faith are reasonable but which may be materially different from actual results. Forward-looking statements give the investor the Corporation’s expectations or forecasts of future events. These statements can be identified by the fact that they do not relate only to historical or current facts. They may use words such as “anticipate,” “expect,” “should be,” “believe,” “will,” and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of the Corporation’s forward-looking statements here and in other publications may turn out to be wrong.

Factors that the Corporation currently believes could cause actual results to differ materially from the forward-looking statements in this Annual Report include, but are not limited to, the performance of the United States economy and the resolution and impact of the debt ceiling and sequestration issues; widespread decline in aggregates pricing; the history of both cement and ready mixed concrete, to be subject to significant changes in supply, demand and price; the termination, capping and/or reduction of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; the level and timing of federal and state transportation funding, most particularly in Texas, Colorado, North Carolina, Iowa and Georgia; the ability of states and/or other entities to finance approved projects either with tax revenues or alternative financing structures; levels of construction spending in the markets the Corporation serves; a reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in the commercial component of the nonresidential construction market, notably office and retail space; a further slowdown in energy-related drilling activity, particularly in Texas; a slowdown in residential construction recovery; a reduction in construction activity and related shipments due to a decline in funding under the domestic farm bill; unfavorable weather conditions, particularly Atlantic Ocean hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or excessive rainfall in the markets served by the Corporation; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Cement and Magnesia Specialties businesses, natural gas; continued increases in the cost of other repair and supply parts; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to cement production facilities; increasing governmental regulation, including environmental laws; transportation availability, notably the availability of railcars and locomotive power to move trains to supply the Corporation’s Texas, Florida and Gulf Coast markets; increased transportation costs, including increases from higher passed-through energy and other costs to comply with tightening regulations as well as higher volumes of rail and water shipments; availability of trucks and licensed drivers for transport

Martin Marietta | Page 92

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)

of the Corporation’s materials, particularly in areas with significant energy-related activity, such as Texas and Colorado; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the Corporation’s dolomitic lime products; proper functioning of information technology and automated operating systems to manage or support operations; inflation and its effect on both production and interest costs; ability to successfully integrate acquisitions quickly and in a cost-effective manner and achieve anticipated profitability to maintain compliance with the Corporation’s leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Corporation’s tax rate; violation of the Corporation’s debt covenant if price and/or volumes return to previous levels of instability; downward pressure on the Corporation’s common stock price and its impact on goodwill impairment evaluations; reduction of the Corporation’s credit rating to non-investment grade resulting from strategic acquisitions; and other risk factors listed from time to time found in the Corporation’s filings with the SEC. Other factors besides those listed here may also adversely affect the Corporation, and may be material to the Corporation. The Corporation assumes no obligation to update any such forward-looking statements.

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 SEC filings including, but not limited to, the discussion of “Competition” in the Corporation’s Annual Report on Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 42 through 93 of the 2015 Annual Report and “Note A: Accounting Policies” and “Note N: Commitments and Contingencies” of the “Notes to Financial Statements” on pages 17 through 23 and 37 through 39, respectively, of the audited consolidated financial statements included in the 2015 Annual Report.

Martin Marietta | Page 93

QUARTERLY PERFORMANCE

(unaudited)

(add 000, except per share and stock prices)


																		Net Earnings (Loss)
													Consolidated Net					Attributable to
	Total Revenues				Net Sales				Gross Profit				Earnings (Loss)					Martin Marietta
Quarter	2015		2014		2015		2014		2015		2014²		2015^3,4		2014^2,5			2015^3,4		2014^2,5
First	$	691,347	$	428,630	$	631,876	$	379,678	$	74,261	$	25,835	$	6,159	$	(23,153	)	$	6,126	$	(21,618	)
Second		921,419		669,225		850,249		601,937		200,153		135,602		81,979		59,624			81,938		59,521
Third		1,082,249		1,003,723		1,005,218		917,942		262,504		195,593		117,578		53,834			117,544		53,743
Fourth		844,555		856,373		780,773		779,538		184,849		165,330		83,222		63,989			83,184		63,955
Totals	$	3,539,570	$	2,957,951	$	3,268,116	$	2,679,095	$	721,767	$	522,360	$	288,938	$	154,294		$	288,792	$	155,601


							Per Common Share
													Stock Prices
	Basic Earnings (Loss)¹				Diluted Earnings (Loss)¹				Dividends Paid				High		Low		High		Low
Quarter		2015^3,4		2014^2,5		2015^3,4		2014^2,5		2015		2014		2015				2014
First	$	0.07	$	(0.47)	$	0.07	$	(0.47)	$	0.40	$	0.40	$	146.21	$	104.15	$	128.95	$	98.63
Second		1.23		1.28		1.22		1.27		0.40		0.40	$	155.98	$	134.10	$	136.36	$	115.49
Third		1.75		0.80		1.74		0.79		0.40		0.40	$	178.67	$	141.54	$	134.64	$	123.64
Fourth		1.27		0.95		1.26		0.94		0.40		0.40	$	166.23	$	136.20	$	131.71	$	103.09
YTD	$	4.31	$	2.73	$	4.26	$	2.71	$	1.60	$	1.60

1	The sum of per-share earnings by quarter may not equal earnings per share for the year due to changes in average share calculations. This is in accordance with prescribed reporting requirements.

2	Gross profit in the third quarter of 2014 decreased by $10.9 million for a nonrecurring increase in the cost of sales for acquired inventory. This adjustment reduced net earnings by $6.9 million, or $0.13 per diluted share.

Consolidated net earnings, net earnings attributable to Martin Marietta and basic and diluted earnings per common share in the third quarter of 2015 decreased by $16.9 million, or $0.30 per basic and diluted share, inclusive of the impact of a valuation allowance for certain net operating loss carry forwards due to the loss on the sale of the California cement business and related expenses.

4	Consolidated net earnings, net earnings attributable to Martin Marietta and basic and diluted earnings per common share in the fourth quarter of 2015 were increased by $6.7 million, or $0.10 per basic and diluted share, as a result of the gain on the sale of the San Antonio asphalt operations.

Consolidated net earnings, net earnings attributable to Martin Marietta and basic and diluted earnings per common share in 2014 decreased by the following acquisition-related expenses, net, related to TXI: Q1 - $5.7 million, or $0.12 per basic and diluted share, Q2 - $3.2 million, or $0.07 per basic and diluted share, Q3 - $37.6 million, or $0.56 per basic and diluted share, Q4 - $3.2 million or $0.05 per basic and diluted share.

At February 15, 2016, there were 1,054 shareholders of record.

There were no discontinued operations in 2015. The following presents total revenues, net sales, net (loss) earnings and loss per diluted share attributable to discontinued operations in 2014:

(add 000, except per share)


Quarter	Revenues		Net Sales		Net (Loss) Earnings			Loss per Diluted Share
First	$	9	$	9	$	(8	)	$	0.00
Second		37		37		(38	)		0.00
Third		30		30		(47	)		0.00
Fourth		87		87		56			0.00
Totals	$	163	$	163	$	(37	)	$	0.00

Martin Marietta | Page 94

FIVE YEAR SELECTED FINANCIAL DATA

(add 000, except per share)


		2015			2014			2013			2012			2011
Consolidated Operating Results¹
Net sales	$	3,268,116		$	2,679,095		$	1,943,218		$	1,832,957		$	1,519,754
Freight and delivery revenues		271,454			278,856			212,333			198,944			193,862
Total revenues		3,539,570			2,957,951			2,155,551			2,031,901			1,713,616
Cost of sales		2,546,349			2,156,735			1,579,261			1,505,823			1,217,752
Freight and delivery costs		271,454			278,856			212,333			198,944			193,862
Total cost of revenues		2,817,803			2,435,591			1,791,594			1,704,767			1,411,614
Gross Profit		721,767			522,360			363,957			327,134			302,002
Selling, general and administrative expenses		218,234			169,245			150,091			138,398			124,138
Acquisition-related expenses, net		8,464			42,891			671			35,140			18,575
Other operating expenses and (income), net		15,653			(4,649	)		(4,793	)		(2,574	)		(1,720	)
Earnings from Operations		479,416			314,873			217,988			156,170			161,009
Interest expense		76,287			66,057			53,467			53,339			58,586
Other nonoperating (income) and expenses, net		(10,672	)		(362	)		295			(1,299	)		1,834
Earnings from continuing operations before taxes on income		413,801			249,178			164,226			104,130			100,589
Taxes on income		124,863			94,847			44,045			17,431			21,003
Earnings from Continuing Operations		288,938			154,331			120,181			86,699			79,586
Discontinued operations, net of taxes		–			(37	)		(749	)		(1,172	)		3,987
Consolidated net earnings		288,938			154,294			119,432			85,527			83,573
Less: Net earnings (loss) attributable to noncontrolling interests		146			(1,307	)		(1,905	)		1,053			1,194
Net Earnings Attributable to Martin Marietta	$	288,792		$	155,601		$	121,337		$	84,474		$	82,379

Basic Earnings Attributable to Martin Marietta Per Common Share (see Note A):
Earnings from continuing operations attributable to common shareholders¹	$	4.31		$	2.73		$	2.64		$	1.86		$	1.70
Discontinued operations attributable to common shareholders¹		–			–			(0.02	)		(0.03	)		0.09
Basic Earnings Per Common Share	$	4.31		$	2.73		$	2.62		$	1.83		$	1.79

Diluted Earnings Attributable to Martin Marietta Per Common Share (see Note A):
Earnings from continuing operations attributable to common shareholders¹	$	4.29		$	2.71		$	2.63		$	1.86		$	1.69
Discontinued operations attributable to common shareholders¹		–			–			(0.02	)		(0.03	)		0.09
Diluted Earnings Per Common Share	$	4.29		$	2.71		$	2.61		$	1.83		$	1.78

Cash Dividends Per Common Share	$	1.60		$	1.60		$	1.60		$	1.60		$	1.60

Condensed Consolidated Balance Sheet Data
Total current assets	$	1,082,168			1,044,178			680,545			622,685		$	577,176
Property, plant and equipment, net		3,156,000			3,402,770			1,799,241			1,753,241			1,774,291
Goodwill		2,068,235			2,068,799			616,621			616,204			616,671
Other intangibles, net		510,552			595,205			48,591			50,433			54,133
Other noncurrent assets²		144,777			108,802			40,007			40,647			44,877
Total Assets	$	6,961,732		$	7,219,754		$	3,185,005		$	3,083,210		$	3,067,148
Current liabilities – other	$	347,945		$	382,312		$	198,146		$	167,659		$	166,530
Current maturities of long-term debt		19,246			14,336			12,403			5,676			7,182
Long-term debt		1,553,649			1,571,059			1,018,518			1,042,183			1,052,902
Pension, postretirement and postemployment benefits, noncurrent		224,539			249,333			78,489			183,122			158,101
Deferred income taxes, net²		583,459			489,945			205,178			147,876			141,390
Other noncurrent liabilities		172,717			160,021			97,352			86,395			92,179
Shareholders’ equity		4,057,284			4,351,166			1,537,877			1,410,545			1,409,321
Noncontrolling interests		2,893			1,582			37,042			39,754			39,543
Total Liabilities and Equity	$	6,961,732		$	7,219,754		$	3,185,005		$	3,083,210		$	3,067,148

¹	Amounts may not equal amounts reported in the Corporation’s prior years’ Forms 10-K, as amounts have been recast to reflect discontinued operations.

²	Balance sheets reflect the adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes (see Note A to consolidated financial statements).

Martin Marietta | Page 95

COMMON STOCK PERFORMANCE GRAPH

The following graph compares the performance of the Corporation’s common stock to that of the Standard and Poor’s (“S&P”) 500 Index and the S&P 500 Materials Index.

LOGO

2010

2011

2012

2013

2014

2015

Martin Marietta

100.00

83.49

106.15

114.33

128.03

160.91

S&P 500 Index

100.00

102.09

118.30

156.21

177.32

180.25

S&P 500 Materials Index

100.00

90.36

103.74

129.93

138.86

127.39

¹	Assumes that the investment in the Corporation’s common stock and each index was $100, with quarterly reinvestment of dividends.

Martin Marietta | Page 96

EX-21.01

EXHIBIT 21.01

SUBSIDIARIES OF MARTIN MARIETTA MATERIALS, INC.

AS OF JANUARY 31, 2016


Name of Subsidiary	Percent Owned
Alamo Gulf Coast Railroad Company, a Texas corporation		99.5	%¹
Alamo North Texas Railroad Company, a Texas corporation		99.5	%²
American Aggregates Corporation, a North Carolina corporation		100	%
American Materials Technologies, LLC, a Tennessee limited liability company		100	%³
American Stone Company, a North Carolina corporation		50	%⁴
Bahama Rock Limited, a Bahamas corporation		100	%
Brookhollow of Alexandria, Inc., a Louisiana corporation		100	%⁵
Brookhollow Corporation, a Delaware corporation		100	%⁶
Brook Hollow Properties, Inc., a Texas corporation		100	%⁷
Brookhollow of Virginia, a Virginia corporation		100	%⁸
California Natural Aggregates, Inc., a California corporation		100	%⁹
Campbell’s C-Ment Contracting, Inc., a Colorado corporation		100	%¹⁰
CIG MC LLC, a Colorado limited liability company		100	%

¹	Alamo Gulf Coast Railroad Company is owned by Martin Marietta Materials Southwest, LLC., (99.5%) and certain individuals (0.5%).

²	Alamo North Texas Railroad Company is owned by Martin Marietta Materials Southwest, LLC, (99.5%) and certain individuals (0.5%).

³	American Materials Technologies, LLC is a wholly owned subsidiary of Meridian Aggregates Company, a Limited Partnership.

⁴	Martin Marietta Materials, Inc., owns a 50% interest in American Stone Company.

⁵	Brookhollow of Alexandria, Inc., is a wholly owned subsidiary of Brookhollow Corporation.

⁶	Brookhollow Corporation is a wholly owned subsidiary of Texas Industries, Inc.

⁷	Brook Hollow Properties, Inc., is a wholly owned subsidiary of Brookhollow Corporation.

⁸	Brookhollow of Virginia is a wholly owned subsidiary of Brookhollow Corporation.

⁹	California Natural Aggregates, Inc., is a wholly owned subsidiary of Texas Industries, Inc.

¹⁰	Campbell’s C-Ment Contracting, Inc., is a wholly-owned subsidiary of Suburban Acquisition Company.


Creole Corporation, a Delaware corporation	100	%¹¹
FRI Ready Mix of Tennessee, LLC, a Florida limited liability company	100	%¹²
Front Range Aggregates LLC, a Delaware limited liability company	100	%
Granite Canyon Quarry, a Wyoming joint venture	100	%¹³
Harding Street Corporation, a North Carolina corporation	100	%
HSMM LLC, a North Carolina limited liability company	100	%
Martin Marietta Composites, Inc., a Delaware corporation	100	%
Martin Marietta Fleet Management LLC, a North Carolina limited liability company	100	%¹⁴
Martin Marietta Funding LLC, a Delaware limited liability company	100	%
Martin Marietta Inc., a North Carolina corporation	100	%
Martin Marietta Kansas City, LLC, a Delaware limited liability company	100	%¹⁵
Martin Marietta Magnesia Specialties, LLC, a Delaware limited liability company	100	%
Martin Marietta Materials Canada Limited, a Nova Scotia, Canada corporation	100	%
Martin Marietta Materials of Missouri, Inc., a Delaware corporation	100	%
Martin Marietta Materials Real Estate Investments, Inc., a North Carolina corporation	100	%
Martin Marietta Materials Southwest, LLC, a Texas limited liability company	100	%¹⁶
Material Producers, Inc., an Oklahoma corporation	100	%¹⁷
Meridian Aggregates Company, a Limited Partnership, a North Carolina limited partnership	100	%¹⁸

¹¹	Creole Corporation is a wholly owned subsidiary of Texas Industries, Inc.

¹²	FRI Ready Mix of Tennessee, LLC, is a wholly owned subsidiary of American Materials Technologies, LLC.

¹³	Granite Canyon Quarry is owned 51% by Meridian Granite Company and 49% by Martin Marietta Materials Real Estate Investments, Inc.

¹⁴	Martin Marietta Fleet Management, LLC is a wholly-owned subsidiary of Texas Industries, Inc.

¹⁵	Martin Marietta Kansas City, LLC, is owned 95% by Martin Marietta Materials, Inc. and 5% by Martin Marietta Materials of Missouri, Inc.

¹⁶	Martin Marietta Materials Southwest, LLC is a wholly-owned subsidiary of Texas Industries, Inc.

¹⁷	Material Producers, Inc., is a wholly owned subsidiary of Martin Marietta Materials Southwest, Inc.

¹⁸	Meridian Aggregates Company, a Limited Partnership, is owned 98% by Meridian Aggregates Investments, LLC. The remaining 2% is owned by Martin Marietta Materials, Inc.


Meridian Aggregates Company Northwest, LLC, a North Carolina limited liability company	100	%¹⁹
Meridian Aggregates Company Southwest, LLC, a North Carolina limited liability company	100	%²⁰
Meridian Aggregates Investments, LLC, a North Carolina limited liability company	100	%²¹
Meridian Granite Company, a North Carolina corporation	100	%²²
Mid South-Weaver Joint Venture, a North Carolina joint venture	50	%²³
Mid-State Construction & Materials, Inc., an Arkansas corporation	100	%
MTD Pipeline LLC, a Delaware limited liability company	50	%²⁴
Partin Limestone Products, Inc., a California corporation	100	%²⁵
Powderly Transportation, Inc., a North Carolina corporation	100	%²⁶
R&S Sand & Gravel, LLC, a North Carolina limited liability company	100	%²⁷
Riverside Cement Company, a California partnership	100	%²⁸
Riverside Cement Holdings Company, a Delaware corporation	100	%²⁹
Rock & Rail LLC, a Colorado limited liability company	100	%
Rocky Mountain Ready Mix Concrete, Inc., a Colorado corporation	100	%³⁰
Royal Gorge Express, LLC, a Colorado limited liability company	50	%³¹

¹⁹	Martin Marietta Materials, Inc. is the sole member of Meridian Aggregates Company Northwest, LLC.

²⁰	Martin Marietta Materials Southwest, Inc. is the sole member of Meridian Aggregates Company Southwest, LLC.

²¹	Meridian Aggregates Investments, LLC, is owned 99% by Martin Marietta Materials, Inc. and 1% by Martin Marietta Materials Real Estate Investments, Inc.

²²	Meridian Granite Company is a wholly owned subsidiary of Meridian Aggregates Company, a Limited Partnership.

²³	Mid South-Weaver Joint Venture is owned 50% by Martin Marietta Materials, Inc.

²⁴	Martin Marietta Magnesia Specialties, LLC, a wholly owned subsidiary of Martin Marietta Materials, Inc., owns a 50% interest in MTD Pipeline LLC.

²⁵	Partin Limestone Products, Inc., is a wholly owned subsidiary of Riverside Cement Company.

²⁶	Powderly Transportation, Inc., is a wholly owned subsidiary of Meridian Aggregates Company, a Limited Partnership.

²⁷	Martin Marietta Materials, Inc. is the manager of and owns a 90% interest in R&S Sand & Gravel, LLC. The other 10% is owned by Harding Street Corporation, a wholly owned subsidiary of Martin Marietta Materials, Inc.

²⁸	Riverside Cement Company is owned 49% by TXI California, Inc. and 51% by TXI Riverside Inc.

²⁹	Riverside Cement Holdings Company is a wholly owned subsidiary of Riverside Cement Company.

³⁰	Rocky Mountain Ready Mix Concrete, Inc. is a wholly owned subsidiary of Campbell’s C-Ment Contracting, Inc.

³¹	Rock & Rail LLC, owns a 50% interest in Royal Gorge Express, LLC.


Southwestern Financial Corporation, a Texas Corporation	100	% ³²
Suburban Acquisition Company, a Colorado corporation	100	%
Texas Industries Holdings, LLC, a Delaware limited liability company	100	% ³³
Texas Industries, Inc., a Delaware corporation	100	%
Texas Industries Trust, a Delaware trust	100	% ³⁴
Theodore Holding, LLC, a Delaware limited liability company	60.7	% ³⁵
TXI Aviation, Inc. dba TXI Retail, a Texas corporation	100	% ³⁶
TXI California Inc., a Delaware corporation	100	% ³⁷
TXI Cement Company, a Delaware corporation	100	% ³⁸
TXI LLC, a Delaware limited liability company	100	% ³⁹
TXI Operating Trust, a Delaware trust	100	% ⁴⁰
TXI Operations, LP, a Delaware limited partnership	100	% ⁴¹
TXI Power Company, a Texas corporation	100	% ⁴²
TXI Riverside Inc., a Delaware corporation	100	% ⁴³
TXI Transportation Company, a Texas corporation	100	% ⁴⁴
Valley Stone LLC, a Virginia limited liability company	50	%

³²	Southwestern Financial Corporation is a wholly owned subsidiary of TXI Operations, LP.

³³	Texas Industries Holdings, LLC is a wholly owned subsidiary of Texas Industries, Inc.

³⁴	Texas Industries Trust is owned 100% by Texas Industries Holdings, LLC.

³⁵	Martin Marietta Materials, Inc., is the manager of and owns a 60.7% interest in Theodore Holdings, LLC.

³⁶	TXI Aviation, Inc., is a wholly owned subsidiary of Texas Industries, Inc.

³⁷	TXI California Inc., is a wholly owned subsidiary of Texas Industries, Inc.

³⁸	TXI Cement Company is a wholly owned subsidiary of Texas Industries, Inc.

³⁹	TXI, LLC is a wholly owned subsidiary of Texas Industries, Inc.

⁴⁰	TXI Operating Trust is owned 100% by TXI LLC.

⁴¹	TXI Operations, LP is owned 99% by Texas Industries Trust and owned 1% by TXI Operating Trust.

⁴²	TXI Power Company is a wholly owned subsidiary of Texas Industries, Inc.

⁴³	TXI Riverside Inc. is a wholly owned subsidiary of Texas Industries, Inc.

⁴⁴	TXI Transportation Company is a wholly owned subsidiary of Texas Industries, Inc.

EX-23.01

EXHIBIT 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Martin Marietta Materials, Inc. of our reports dated February 23, 2016, with respect to the consolidated financial statements of Martin Marietta Materials, Inc., and the effectiveness of internal control over financial reporting of Martin Marietta Materials, Inc., included in the 2015 Annual Report to Shareholders of Martin Marietta Materials, Inc.

Our audits also included the financial statement schedule of Martin Marietta Materials, Inc. listed in Item 15(a). This schedule is the responsibility of Martin Marietta Materials, Inc.’s management. Our responsibility is to express an opinion based on our audits. In our opinion, as to which the date is February 23, 2016, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the following Registration Statements:

(1)

Registration Statement (Form S-8 No. 333-115918) pertaining to the Amended and Restated Martin Marietta Materials, Inc. Common Stock Purchase Plan for Directors, Martin Marietta Materials, Inc. Performance Sharing Plan and the Martin Marietta Materials, Inc. Savings and Investment Plan for Hourly Employees,

(2)

Registration Statement (Form S-8 No. 333-85608) pertaining to the Martin Marietta Materials, Inc. Common Stock Purchase Plan for Directors,

(3)

Registration Statement (Form S-8 No. 33-83516) pertaining to the Martin Marietta Materials, Inc. Omnibus Securities Award Plan, as amended,

(4)

Registration Statement (Form S-8 No. 333-15429) pertaining to the Martin Marietta Materials, Inc. Common Stock Purchase Plan for Directors, Martin Marietta Materials, Inc. Performance Sharing Plan and the Martin Marietta Materials, Inc. Savings and Investment Plan for Hourly Employees,

(5)

Registration Statement (Form S-8 No. 333-79039) pertaining to the Martin Marietta Materials, Inc. Stock-Based Award Plan, as amended; and

(6)

Registration Statement (Form S-8 No. 333-) pertaining to the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan and the Texas Industries, Inc. Management Deferred Compensation Plan, as assumed by Martin Marietta Materials, Inc.

of our reports dated February 23, 2016, with respect to the consolidated financial statements of Martin Marietta Materials, Inc. and the effectiveness of internal control over financial reporting of Martin Marietta Materials, Inc., incorporated by reference in this Annual Report (Form 10-K), and our report included in the preceding paragraph with respect to the financial statement schedule of Martin Marietta Materials, Inc. included in this Annual Report (Form 10-K) of Martin Marietta Materials, Inc. for the year ended December 31, 2015.

/s/ Ernst & Young LLP

Raleigh, North Carolina

February 23, 2016

EX-31.01

EXHIBIT 31.01

CERTIFICATION PURSUANT TO SECURITIES AND EXCHANGE ACT OF 1934

RULE 13a-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, C. Howard Nye, certify that:

I have reviewed this Form 10-K of Martin Marietta Materials, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

EX-31.02

EXHIBIT 31.02

CERTIFICATION PURSUANT TO SECURITIES AND EXCHANGE ACT OF 1934

RULE 13a-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, Anne H. Lloyd, certify that:

I have reviewed this Form 10-K of Martin Marietta Materials, Inc.;

(a)

(b)

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the

effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

EX-32.01

EXHIBIT 32.01

WRITTEN STATEMENT PURSUANT TO 18 U.S.C. 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the 2015 Annual Report on Form 10-K (the “Report”) of Martin Marietta Materials, Inc. (the “Registrant”), as filed with the Securities and Exchange Commission, I, C. Howard Nye, the Chief Executive Officer of the Registrant, certify that:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ C. Howard Nye

C. Howard Nye

Chief Executive Officer

Date: February 23, 2016

A signed original of this written statement required by Section 906 has been provided to Martin Marietta Materials, Inc. and will be retained by Martin Marietta Materials, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.02

EXHIBIT 32.02

WRITTEN STATEMENT PURSUANT TO 18 U.S.C. 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the 2015 Annual Report on Form 10-K (the “Report”) of Martin Marietta Materials, Inc. (the “Registrant”), as filed with the Securities and Exchange Commission, I, Anne H. Lloyd, the Chief Financial Officer of the Registrant, certify that:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Anne H. Lloyd

Anne H. Lloyd

Chief Financial Officer

Date: February 23, 2016

EX-95

EXHIBIT 95

MINE SAFETY DISCLOSURE EXHIBIT

The operation of the Company’s U.S. aggregate quarries and mines (including the mining operations of the Cement business) is subject to regulation by the federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects the Company’s quarries and mines (and cement plants) on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Whenever MSHA issues a citation or order, it also generally proposes a civil penalty, or fine, related to the alleged violation. Citations or orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Company is required to present information regarding certain mining safety and health citations which MSHA has issued with respect to its aggregates mining operations in its periodic reports filed with the Securities and Exchange Commission (the “SEC”). In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the quarry or mine and type of operations (underground or surface), (ii) the number of citations issued will vary from inspector to inspector and location to location, and (iii) citations and orders can be contested and appealed, and in that process, may be reduced in severity and amount, and are sometimes dismissed.

We have provided information below in response to the rules and regulations of the SEC issued under Section 1503(a) of the Dodd-Frank Act. The disclosures reflect U.S. mining operations only, as the requirements of the Dodd-Frank Act and the SEC rules and regulations thereunder do not apply to our quarries and mines operated outside the United States.

The Company presents the following items regarding certain mining safety and health matters for the year ended December 31, 2015 (Appendix 1):

•

Total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under section 104 of the Mine Act for which the Company received a citation from MSHA (hereinafter, “Section 104 S&S Citations”). If MSHA determines that a violation of a mandatory health or safety standard is reasonably likely to result in a reasonably serious injury or illness under the unique circumstance contributed to by the violation, MSHA will classify the violation as a “significant and substantial” violation (commonly referred to as a “S&S” violation). MSHA inspectors will classify each citation or order written as a “S&S” violation or not.

•

Total number of orders issued under section 104(b) of the Mine Act (hereinafter, “Section 104(b) Orders”). These orders are issued for situations in which MSHA determines a previous violation covered by a Section 104(a) citation has not been totally abated within the prescribed time period, so a further order is needed to require the mine operator to

immediately withdraw all persons (except certain authorized persons) from the affected area of a quarry or mine.

•

Total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under Section 104(d) of the Mine Act (hereinafter, “Section 104(d) Citations and Orders”). These violations are similar to those described above, but the standard is that the violation could significantly and substantially contribute to the cause and effect of a safety or health hazard, but the conditions do not cause imminent danger, and the MSHA inspector finds that the violation is caused by an unwarranted failure of the operator to comply with the health and safety standards.

•

Total number of flagrant violations under section 110(b)(2) of the Mine Act (hereinafter, “Section 110(b)(2) Violations”). These violations are penalty violations issued if MSHA determines that violations are “flagrant”, for which civil penalties may be assessed. A “flagrant” violation means a reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory health or safety standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury.

•

Total number of imminent danger orders issued under section 107(a) of the Mine Act (hereinafter, “Section 107(a) Orders”). These orders are issued for situations in which MSHA determines an imminent danger exists in the quarry or mine and results in orders of immediate withdrawal of all persons (except certain authorized persons) from the area of the quarry or mine affected by its condition until the imminent danger and the underlying conditions causing the imminent danger no longer exist.

•

Total Dollar Value of MSHA Assessments Proposed. These are the amounts of proposed assessments issued by MSHA with each citation or order for the time period covered by the report. Penalties are assessed by MSHA according to a formula that considers a number of factors, including the mine operator’s history, size, negligence, gravity of the violation, good faith in trying to correct the violation promptly, and the effect of the penalty on the operator’s ability to continue in business.

•

Total Number of Mining-Related Fatalities. Mines subject to the Mine Act are required to report all fatalities occurring at their facilities unless the fatality is determined to be “non-chargeable” to the mining industry. The final rules of the SEC require disclosure of mining-related fatalities at mines subject to the Mine Act. Only fatalities determined by MSHA not to be mining-related may be excluded.

•

Receipt of written notice from MSHA of a pattern (or a potential to have such a pattern) of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of other mine health or safety hazards under section 104(e) of the Mine Act. If MHSA determines that a mine has a “pattern” of these types of violations, or the potential to have such a pattern, MSHA is required to notify the mine operator of the existence of such a thing.

•

Legal Actions Pending as of the Last Day of Period.

•

Legal Actions Initiated During Period.

•

Legal Actions Resolved During Period.

The Federal Mine Safety and Health Review Commission (the “Commission”) is an independent adjudicative agency that provides administrative trial and appellate review of legal disputes arising under the Mine Act. The cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under Section 105 of the Mine Act. Appendix 1 shows, for each of the Company’s quarries and mines identified, as of December 31, 2015, the number of legal actions pending before the Commission, along with the number of legal actions initiated before the Commission during the year as well as resolved during the year. In addition, Appendix 1 includes a footnote to the column for legal actions before the Commission pending as of the last day of the period, which footnote breaks down that total number of legal actions pending by categories according to the type of proceeding in accordance with various categories established by the Procedural Rules of the Commission.

Appendix 1 attached


Location	MSHA ID	Section 104 S&S Citations (#)		Section 104(b) Orders (#)		Section 104(d) Citations and Orders (#)		Section 110(b)(2) Violations (#)		Section 107(a) Orders (#)		Total Dollar Value of MSHA Assess- ment/$ Proposed		Total Number of Mining Related Fatalities (#)		Received Notice of Pattern of Violation Under Section 104(e) (yes/no)	Received Notice of Potential to have Pattern under Section 104(e) (yes/no)	Legal Actions Pending as of Last Day of Period (#)*		Legal Actions Instituted During Period (#)		Legal Actions Resolved During Period (#)

Alexander Quarry	BN5		0		0		0		0		0	$	0		0	no	no		0		0		0
American Stone Quarry	3100189		0		0		0		0		0	$	0		0	no	no		0		0		0
Anderson Creek	4402963		0		0		0		0		0	$	0		0	no	no		0		0		0
Arrowood Quarry	3100059		3		0		0		0		0	$	2,140		0	no	no		0		0		0
Asheboro Quarry	3100066		0		0		0		0		0	$	100		0	no	no		0		0		0
Bakers Quarry	3100071		0		0		0		0		0	$	0		0	no	no		0		0		0
Belgrade Quarry	3100064		0		0		0		0		0	$	0		0	no	no		0		0		0
Benson Quarry	3101979		0		0		0		0		0	$	0		0	no	no		0		0		0
Berkeley Quarry	3800072		0		0		0		0		0	$	414		0	no	no		0		0		0
Bessemer City Quarry	3101105		0		0		0		0		0	$	0		0	no	no		0		0		0
Black Ankle Quarry	3102220		0		0		0		0		0	$	0		0	no	no		0		0		0
Bonds Gravel Pit	3101963		1		0		0		0		0	$	363		0	no	no		0		0		0
Boonsboro Quarry	1800024		0		0		0		0		0	$	300		0	no	no		0		0		0
Burlington Quarry	3100042		0		0		0		0		0	$	0		0	no	no		0		0		1
Caldwell Quarry	3101869		0		0		0		0		0	$	200		0	no	no		0		0		2
Carmel Church Quarry	4405633		0		0		0		0		0	$	0		0	no	no		0		0		0
Castle Hayne Quarry	3100063		0		0		0		0		0	$	100		0	no	no		0		0		0
Cayce Quarry	3800016		0		0		0		0		0	$	1,058		0	no	no		0		0		0
Central Rock Quarry	3100050		0		0		0		0		0	$	0		0	no	no		0		0		0
Charlotte Quarry	3100057		1		0		0		0		0	$	1,545		0	no	no		0		0		0
Chesterfield Quarry	3800682		0		0		0		0		0	$	0		0	no	no		0		0		0
Clarks Quarry	3102009		1		0		0		0		0	$	687		0	no	no		0		0		0
Cumberland Quarry	3102237		0		0		0		0		0	$	0		0	no	no		0		0		0
Denver	3101971		0		0		0		0		0	$	0		0	no	no		0		0		0



Doswell Quarry	4400045	8	0	0	0	0	$	3,157	0	no	no	0	0	0
East Alamance	3102021	0	0	0	0	0	$	0	0	no	no	0	0	0
Fountain Quarry	3100065	0	0	0	0	0	$	100	0	no	no	0	0	0
Franklin Quarry	3102130	0	0	0	0	0	$	0	0	no	no	0	0	0
Fuquay Quarry	3102055	0	0	0	0	0	$	0	0	no	no	0	0	0
Garner Quarry	3100072	0	0	0	0	0	$	508	0	no	no	0	0	0
Georgetown ll Quarry	3800525	1	0	0	0	0	$	805	0	no	no	0	0	0
Hickory Quarry	3100043	2	0	0	0	0	$	2,902	0	no	no	0	0	0
Hicone Quarry	3102088	0	0	0	0	0	$	0	0	no	no	0	0	0
Jamestown Quarry	3100051	0	0	0	0	0	$	0	0	no	no	0	0	0
Kannapolis Quarry	3100070	0	0	0	0	0	$	0	0	no	no	0	0	0
Kings Mountain Quarry	3100047	0	0	0	0	0	$	100	0	no	no	0	0	0
Lemon Springs Quarry	3101104	0	0	0	0	0	$	200	0	no	no	0	0	0
Loamy Sand and Gravel	3800721	1	0	0	0	0	$	2,382	0	no	no	0	0	0
Maiden Quarry	3102125	0	0	0	0	0	$	108	0	no	no	0	0	0
Mallard Creek Quarry	3102006	0	0	0	0	0	$	200	0	no	no	0	0	0
Matthews Quarry	3102084	0	0	0	0	0	$	327	0	no	no	0	0	0
Midlothian Quarry	4403767	0	0	0	0	0	$	400	0	no	no	0	0	0
North Columbia Quarry	3800146	0	0	0	0	0	$	100	0	no	no	0	0	0
Onslow Quarry	3102120	0	0	0	0	0	$	0	0	no	no	0	0	0
Pinesburg	1800021	1	0	0	0	0	$	500	0	no	no	0	0	0
Pomona Quarry	3100052	0	0	0	0	0	$	0	0	no	no	0	0	0
Raleigh Durham Quarry	3101941	0	0	0	0	0	$	138	0	no	no	0	0	0
Red Hill Quarry	4400072	0	0	0	0	0	$	0	0	no	no	0	0	0
Reidsville Quarry	3100068	0	0	0	0	0	$	0	0	no	no	0	0	0
Rock Hill Quarry	3800026	3	0	0	0	0	$	10,892	0	no	no	2	0	3
Rocky Point Quarry	3101956	0	0	0	0	0	$	0	0	no	no	0	0	0
Rocky River Quarry	3102033	0	0	0	0	0	$	0	0	no	no	0	0	0
Salem Stone Company	3102038	0	0	0	0	0	$	0	0	no	no	0	0	0
Siler City Quarry	3100044	0	0	0	0	0	$	0	0	no	no	0	0	0
Statesville Quarry	3100055	0	0	0	0	0	$	0	0	no	no	0	0	0



Thomasville Quarry	3101475	0	0	0	0	0	$	0	0	no	no	0	0	0
Wilson Quarry	3102230	0	0	0	0	0	$	0	0	no	no	0	0	0
Woodleaf Quarry	3100069	0	0	0	0	0	$	0	0	no	no	0	0	0
(45) North Indianapolis SURFACE	1200002	3	0	0	0	0	$	1,601	0	no	no	0	0	0
Apple Grove	3301676	0	0	0	0	0	$	300	0	no	no	1	0	1
Belmont Sand	1201911	0	0	0	0	0	$	0	0	no	no	0	0	0
Blue Rock	3300016	0	0	0	0	0	$	0	0	no	no	0	0	0
Burning Springs	4608862	0	0	0	0	0	$	650	0	no	no	0	0	0
Carmel SandG	1202124	2	0	0	0	0	$	919	0	no	no	0	0	0
Cedarville	3304072	0	0	0	0	0	$	0	0	no	no	0	0	0
Cloverdale	1201744	0	0	0	0	0	$	0	0	no	no	0	0	0
Cook Road	3304534	0	0	0	0	0	$	300	0	no	no	0	0	0
E-Town SandG	3304279	1	0	0	0	0	$	400	0	no	no	0	0	0
Fairborn Gravel	3301388	0	0	0	0	0	$	0	0	no	no	0	0	0
Fairfield	3301396	0	0	0	0	0	$	300	0	no	no	0	0	0
Franklin Gravel	3302940	1	0	0	0	0	$	150	0	no	no	0	0	0
Hamilton Gravel	3301394	0	0	0	0	0	$	0	0	no	no	0	0	0
Harrison	3301395	0	0	0	0	0	$	0	0	no	no	0	0	0
Kentucky Ave Mine	1201762	11	0	0	0	0	$	9,016	0	no	no	1	1	0
Kokomo Mine	1202105	0	0	0	0	0	$	300	0	no	no	1	1	0
Kokomo Sand	1202203	0	0	0	0	0	$	200	0	no	no	0	0	0
Kokomo Stone	1200142	0	0	0	0	0	$	0	0	no	no	0	0	0
Lynchburg Quarry	3304281	0	0	0	0	0	$	0	0	no	no	0	0	0
Noblesville SandG	1201994	2	0	0	0	0	$	1,468	0	no	no	0	0	0
Noblesville Stone	1202176	3	0	1	0	0	$	19,320	0	no	no	1	1	0
North Indianapolis	1201993	4	0	0	0	0	$	3,443	0	no	no	2	1	0
Ohio Recycle	3304394	0	0	0	0	0	$	0	0	no	no	0	0	0
Petersburg	1516895	0	0	0	0	0	$	0	0	no	no	0	0	0
Phillipsburg	3300006	0	0	0	0	0	$	0	0	no	no	0	0	0
Ross Gravel	3301587	0	0	0	0	0	$	0	0	no	no	0	0	0
Shamrock SG	3304011	0	0	0	0	0	$	400	0	no	no	0	0	0



Troy Gravel	3301678	0	0	0	0	0	$	300	0	no	no	0	0	0
Waverly Sand	1202038	1	0	0	0	0	$	600	0	no	no	0	0	0
Xenia	3301393	0	0	0	0	0	$	400	0	no	no	0	0	0
Alabaster Quarry Co19	103068	0	0	0	0	0	$	0	0	no	no	0	0	0
Appling Quarry	901083	0	0	0	0	0	$	0	0	no	no	0	0	0
Auburn Al Quarry	100006	0	0	0	0	0	$	100	0	no	no	0	0	0
Auburn GA Quarry	900436	3	0	0	0	0	$	352	0	no	no	0	0	0
Augusta Quarry-GA	900065	0	0	0	0	0	$	200	0	no	no	0	0	0
Birmingham Shop	102096	0	0	0	0	0	$	0	0	no	no	0	0	0
Cabbage Grove Quarry	800008	0	0	0	0	0	$	0	0	no	no	0	0	0
Camak Quarry	900075	0	0	0	0	0	$	0	0	no	no	0	0	0
Chattanooga Quarry	4003159	0	0	0	0	0	$	612	0	no	no	0	0	0
Forsyth Quarry	901035	0	0	0	0	0	$	100	0	no	no	0	0	0
Jefferson Quarry	901106	0	0	0	0	0	$	0	0	no	no	0	0	0
Junction City Quarry	901029	0	0	0	0	0	$	0	0	no	no	0	0	0
Lithonia Quarry	900023	1	0	0	0	0	$	290	0	no	no	0	0	0
Maylene Quarry	100634	0	0	0	0	0	$	100	0	no	no	0	0	1
Morgan Co Quarry	901126	1	0	0	0	0	$	176	0	no	no	0	0	0
Newton Quarry	900899	0	0	0	0	0	$	100	0	no	no	0	0	0
ONeal Quarry Co19	103076	0	0	0	0	0	$	300	0	no	no	0	0	0
Paulding Quarry	901107	1	0	0	0	0	$	785	0	no	no	0	0	0
Perry Quarry	801083	0	0	0	0	0	$	300	0	no	no	0	0	0
Red Oak Quarry	900069	0	0	0	0	0	$	138	0	no	no	0	0	0
R-S Sand and Gravel	2200381	0	0	0	0	0	$	0	0	no	no	0	0	0
Ruby Quarry	900074	0	0	0	0	0	$	0	0	no	no	0	0	0
Shorter Sand and Gravel	102852	0	0	0	0	0	$	0	0	no	no	0	0	0
Six Mile Quarry	901144	0	0	0	0	0	$	100	0	no	no	0	0	0
Tyrone Quarry	900306	1	0	0	0	0	$	617	0	no	no	0	0	0
Vance Quarry Co19	103022	0	0	0	0	0	$	0	0	no	no	0	0	0
Warrenton Quarry	900580	0	0	0	0	0	$	238	0	no	no	0	0	0
Alden Portable Sand	1302037	0	0	0	0	0	$	0	0	no	no	0	0	0



Alden Portable Plant 1	1302031	0	0	0	0	0	$	127	0	no	no	0	0	0
Alden Portable Plant 2	1302033	0	0	0	0	0	$	854	0	no	no	0	0	0
Alden Portable Wash	1302122	0	0	0	0	0	$	100	0	no	no	0	0	0
Alden Quarry - Shop	1300228	0	0	0	0	0	$	1,025	0	no	no	0	0	0
Alden Shop	1302320	0	0	0	0	0	$	0	0	no	no	0	0	0
Ames Mine	1300014	3	0	0	0	0	$	3,394	0	no	no	1	1	0
Beaver Lake Quarry	4503347	0	0	0	0	0	$	0	0	no	no	0	0	0
Cedar Rapids Quarry	1300122	1	0	0	0	0	$	290	0	no	no	0	0	0
Des Moines Portable	1300150	0	0	0	0	0	$	200	0	no	no	0	0	0
Des Moines Shop	1300932	0	0	0	0	0	$	100	0	no	no	0	0	0
Dubois Quarry	2501046	1	0	0	0	0	$	2,868	0	no	no	0	0	0
Durham Mine	1301225	3	0	0	0	0	$	2,156	0	no	no	0	0	0
Earlham Quarry	1302123	0	0	0	0	0	$	300	0	no	no	0	0	0
Environmental Crew (Plant 854)	1302126	0	0	0	0	0	$	100	0	no	no	0	0	0
Ferguson Quarry	1300124	1	0	0	0	0	$	899	0	no	no	0	0	0
Fort Calhoun	2500006	0	0	0	0	0	$	424	0	no	no	0	0	0
Fort Dodge Mine	1300032	4	0	0	0	0	$	4,807	0	no	no	0	0	1
Greenwood	2300141	2	0	0	0	0	$	3,989	0	no	no	0	0	0
Iowa Grading	1302316	0	0	0	0	0	$	0	0	no	no	0	0	0
LeGrand Portable	1302317	0	0	0	0	0	$	0	0	no	no	0	0	0
Linn County Sand	1302208	1	0	0	0	0	$	670	0	no	no	0	0	0
Malcom Mine	1300112	2	0	0	0	0	$	3,501	0	no	no	0	0	0
Marshalltown Sand	1300718	0	0	0	0	0	$	100	0	no	no	0	0	0
Moore Quarry	1302188	0	0	0	0	0	$	550	0	no	no	0	0	0
New Harvey Sand	1301778	0	0	0	0	0	$	0	0	no	no	0	0	0
Northwest Division OH	A2354	0	0	0	0	0	$	0	0	no	no	0	0	0
Ottawa Quarry	1401590	0	0	0	0	0	$	527	0	no	no	0	0	0
Pacific Quarry	4500844	0	0	0	0	0	$	400	0	no	no	0	0	0
Parkville Mine	2301883	3	0	0	0	0	$	4,365	0	no	no	0	0	0
Pederson Quarry	1302192	0	0	0	0	0	$	200	0	no	no	0	0	0
Raccoon River Sand	1302315	0	0	0	0	0	$	100	0	no	no	0	0	0



Randolph Deep Mine	2302308	6	0	0	0	0	$	5,555	0	no	no	0	1	7
Reasnor Sand	1300814	0	0	0	0	0	$	0	0	no	no	0	0	0
Saylorville Sand	1302290	0	0	0	0	0	$	0	0	no	no	0	0	0
Springfield Quarry	2501103	0	0	0	0	0	$	0	0	no	no	0	0	0
St Cloud Quarry	2100081	7	0	0	0	0	$	5,325	0	no	no	0	0	0
Stamper Mine	2302232	6	0	0	0	0	$	23,426	0	no	no	0	0	3
Sully Mine	1300063	0	0	0	0	0	$	1,430	0	no	no	0	0	0
Sunflower	1401556	2	0	0	0	0	$	1,503	0	no	no	0	0	0
Weeping Water Mine	2500998	10	0	0	0	0	$	24,487	0	no	no	1	4	14
Yellow Medicine Quarry	2100033	0	0	0	0	0	$	1,376	0	no	no	0	0	0
211 Quarry	4103829	0	0	0	0	0	$	200	0	no	no	0	0	0
Augusta Quarry-KS	1400126	1	1	0	0	0	$	393	0	no	no	0	0	0
Beckman Quarry	4101335	1	0	0	0	0	$	3,086	0	no	no	0	0	0
Bedrock Plant	4103283	0	0	0	0	0	$	850	0	no	no	0	0	0
Bells Savoy SG TXI	4104019	3	0	0	0	0	$	1,032	0	no	no	0	0	0
Black Rock Quarry	300011	0	0	0	0	0	$	414	0	no	no	0	0	0
Black Spur Quarry	4104159	2	0	0	0	0	$	8,746	0	no	no	0	0	3
Blake Quarry	1401584	1	0	0	0	0	$	734	0	no	no	0	0	0
Bridgeport Stone TXI	4100007	2	0	0	0	0	$	3,688	0	no	no	0	0	0
Broken Bow SandG	3400460	0	0	0	0	0	$	276	0	no	no	0	0	1
Chico	4103360	0	0	0	0	0	$	100	0	no	no	0	0	0
Cobey	4104140	0	0	0	0	0	$	0	0	no	no	0	0	0
Davis	3401299	1	0	0	0	0	$	895	0	no	no	2	1	0
Garfield SG TXI	4103909	0	0	0	0	0	$	200	0	no	no	0	0	0
Garwood	4102886	0	0	0	0	0	$	1,333	0	no	no	0	1	1
GMS - TXI	C335	0	0	0	0	0	$	0	0	no	no	0	0	0
Hatton Quarry	301614	0	0	0	0	0	$	200	0	no	no	0	0	0
Helotes	4103137	1	0	0	0	0	$	2,420	0	no	no	0	0	0
Hondo	4104708	0	0	0	0	0	$	100	0	no	no	0	0	0
Hondo-1	4104090	0	0	0	0	0	$	100	0	no	no	0	0	0
Hugo	3400061	0	0	0	0	0	$	0	0	no	no	0	0	0



Idabel	3400507	0	0	0	0	0	$	100	0	no	no	0	0	1
Jena Aggregates TXI	1601298	0	0	0	0	0	$	200	0	no	no	0	0	0
Jones Mill Quarry	301586	0	0	0	0	0	$	100	0	no	no	0	0	0
Koontz McCombs Pit	4105048	1	0	0	0	0	$	499	0	no	no	0	0	0
Mill Creek	3401285	0	0	0	0	0	$	724	0	no	no	0	0	0
Mill Creek TXI	3401859	1	0	0	0	0	$	317	0	no	no	0	0	0
New Braunfels Quarry	4104264	4	0	0	0	0	$	4,687	0	no	no	1	1	0
Perryville Aggregates TXI	1601417	1	0	0	0	0	$	338	0	no	no	0	0	0
Poteet (Sand Plant)	4101342	0	0	0	0	0	$	0	0	no	no	0	0	0
Rio Medina	4103594	0	0	0	0	0	$	100	0	no	no	0	0	0
S.T. Porter Pit	4102673	0	0	0	0	0	$	0	0	no	no	0	0	0
San Pedro Quarry	4101337	0	0	0	0	0	$	227	0	no	no	0	0	0
Sawyer	3401634	0	0	0	0	0	$	250	0	no	no	0	0	0
Snyder	3401651	1	0	0	0	0	$	3,630	0	no	no	0	0	0
South Texas Port No.2	4104204	1	0	0	0	0	$	510	0	no	no	0	0	0
Tin Top SG TXI	4102852	0	0	0	0	0	$	100	0	no	no	0	0	0
Washita Quarry	3402049	1	0	0	0	0	$	624	0	no	no	0	0	0
Webberville TXI	4104363	0	0	0	0	0	$	100	0	no	no	1	1	0
Woodworth Aggregates TXI	1601070	1	0	0	0	0	$	300	0	no	no	0	0	0
Northern Portable Plant #3	504361	2	0	0	0	0	$	761	0	no	no	0	0	0
Northern Portable Plant #19	504382	0	0	0	0	0	$	0	0	no	no	0	0	0
Cottonwood Sand and Gravel	504418	0	0	0	0	0	$	300	0	no	no	0	0	0
Fountain Sand and Gravel	503821	0	0	0	0	0	$	217	0	no	no	0	0	0
Granite Canyon Quarry	4800018	1	0	0	0	0	$	3,509	0	no	no	0	0	0
Greeley 35th Ready Mix	503215	0	0	0	0	0	$	117	0	no	no	0	0	0
Greeley 35th Sand and Gravel	504613	0	0	0	0	0	$	0	0	no	no	0	0	0
Guernsey	4800004	2	0	0	0	0	$	1,949	0	no	no	0	0	0
Gypsum Portable 4 - 11	504320	0	0	0	0	0	$	0	0	no	no	0	0	0
Mamm Creek Portable 15	504647	0	0	0	0	0	$	0	0	no	no	0	0	0
Milford	4202177	0	0	0	0	0	$	814	0	no	no	0	0	0
Mustang Quarry	2602484	0	0	0	0	0	$	0	0	no	no	0	0	0



Parkdale Quarry	504635	2	0	0	0	0	$	3,349	0	no	no	0	0	0
Portable Crushing	503984	0	0	0	0	0	$	0	0	no	no	0	0	0
Portable Plant 10	503984	0	0	0	0	0	$	0	0	no	no	0	0	0
Portable Recycle 18	501057	0	0	0	0	0	$	0	0	no	no	0	0	0
Portable Recycle 2	504360	0	0	0	0	0	$	0	0	no	no	0	0	0
Portable Recycle 21	504520	2	0	0	0	0	$	1,215	0	no	no	0	0	0
Powers Portable	504531	0	0	0	0	0	$	0	0	no	no	0	0	0
Riverbend Sand and Gravel	504841	0	0	0	0	0	$	100	0	no	no	0	0	0
Sievers Portable 19 - 20	504531	0	0	0	0	0	$	0	0	no	no	0	0	0
Spanish Springs Co 2	2600803	3	0	0	0	0	$	9,250	0	no	no	0	0	0
Spec Agg Quarry	500860	0	0	0	0	0	$	400	0	no	no	0	0	0
Table Mountain Quarry	404847	0	0	0	0	0	$	0	0	no	no	0	0	0
Taft Sand and Gravel	504526	2	0	0	0	0	$	1,440	0	no	no	0	0	0
Taft Shop	504735	0	0	0	0	0	$	276	0	no	no	0	0	0
California District	400011	0	0	0	0	0	$	0	0	no	no	0	0	0
Hunter Cement TXI	4102820	4	0	0	0	0	$	5,696	0	no	no	5	2	2
Midlothian Cement TXI	4100071	3	0	0	0	0	$	3,041	0	no	no	0	0	0
**Riverside Cement - OG Distrib	400011	0	0	0	0	0	$	0	0	no	no	0	0	0
**Riverside CMT - Crestmore TXI	400010	0	0	0	0	0	$	400	0	no	no	0	0	0
**Riverside CMT - Oro Grande TXI	400011	0	0	0	0	0	$	0	0	no	no	0	0	0
Salisbury Shop	3101235	0	0	0	0	0	$	138	0	no	no	0	0	0
North Troy	3401905	0	0	0	0	0	$	0	0	no	no	0	0	0
North Troy Portable	3401949	0	0	0	0	0	$	0	0	no	no	0	0	0
Woodville	3300156	11	0	0	0	0	$	35,813	0	no	no	0	0	0
TOTALS		164	1	1	0	0	$	275,807	0			19	16	41

Of the 19 legal actions pending on December 31, 2015, 10 were contests of citations or orders referenced in Subpart B of CFR Part 2700, which includes contests of citations and orders issued under Section 104 of the Mine Act and contests of imminent danger orders under Section 107 of the Mine Act and 9 were contests of proposed penalties referenced in Subpart C of 29 CFR Part 2700, which are administrative proceedings before the Commission challenging a civil penalty that MSHA has proposed for the violation contained in a citation or order.

**	Sites disposed of by the Company on September 30, 2015. Represents citations, orders, violations, assessments, etc. with respect to the period of ownership from January 1, 2015 through September 30, 2015.