EX-13

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.

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.

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.

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

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

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.

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,

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:

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

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

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

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

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.

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.

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-

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,

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

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	%

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	)

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

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.

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:

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.

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/

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.

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


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


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	$	–

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

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:

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

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

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

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

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

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

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

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

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

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.

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:



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



(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



(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



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



(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


(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


		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


	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


	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%


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