Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2015

Martin Marietta Materials, Inc. (the “Corporation” or “Martin Marietta”) is engaged principally in the construction aggregates business. The aggregates product line accounted for 58% of 2014 consolidated net sales and includes crushed stone, sand and gravel, and is used for construction of highways and other infrastructure projects, and in the nonresidential and residential construction industries. Aggregates products are also used in the railroad, agricultural, utility and environmental industries. These aggregates products, along with the Corporation’s aggregates-related downstream product lines, which accounted for 25% of 2014 consolidated net sales and include asphalt products, ready mixed concrete and road paving construction services, are sold and shipped from a network of more than 400 quarries, distribution facilities and plants in 26 states, Canada, the Bahamas and the Caribbean Islands. The aggregates and aggregates-related downstream product lines are reported collectively as the “Aggregates business”.

The Corporation currently conducts the Aggregates business through three reportable segments: the Mid-America Group, the Southeast Group and the West Group.

AGGREGATES BUSINESS

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, Tennessee,
Nova Scotia and the Bahamas

Arkansas, Colorado, southern Kansas,

Louisiana, western Nebraska, Nevada, Oklahoma, Texas, Utah

and Wyoming

The Corporation has a Cement segment, which was acquired July 1, 2014 and accounted for 8% of 2014 consolidated net sales. The Cement segment has production facilities located in Midlothian, Texas, south of Dallas/Fort Worth and Hunter, Texas, south of San Antonio. The cement business produces Portland and specialty cements, such as masonry and oil well cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. The high calcium limestone reserves used as a raw material are a part of owned property adjacent to each of the plants.

The Corporation has a Magnesia Specialties segment with manufacturing facilities in Manistee, Michigan and Woodville, Ohio. The Magnesia Specialties segment, which accounted for 9% of 2014 consolidated 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.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Corporation have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and in Article 10 of Regulation S-X. The Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, the interim consolidated financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods. The consolidated results of operations for the three and nine months ended September 30, 2015 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2014 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014.

Revenue Recognition Standard

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 January 1, 2018 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 consolidated results of operations.

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss

Consolidated comprehensive earnings/loss for the Corporation consist of consolidated net earnings or loss; 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 earnings and comprehensive earnings.

Comprehensive earnings attributable to Martin Marietta is as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2015		2014			2015			2014
	(Dollars in Thousands)
Net earnings attributable to Martin Marietta Materials, Inc.	$	117,544	$	53,743		$	205,607		$	91,646
Other comprehensive earnings (loss), net of tax		72		(1,140	)		(6,583	)		833
Comprehensive earnings attributable to Martin Marietta Materials, Inc.	$	117,616	$	52,603		$	199,024		$	92,479

1.	Significant Accounting Policies (continued)

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

Comprehensive earnings (loss) attributable to noncontrolling interests, consisting of net earnings or loss and adjustments for the funded status of pension and postretirement benefit plans, is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
	(Dollars in Thousands)
Net earnings (loss) attributable to noncontrolling interests	$	34	$	91	$	108	$	(1,341	)
Other comprehensive earnings, net of tax		3		2		8		4
Comprehensive earnings (loss) attributable to noncontrolling interests	$	37	$	93	$	116	$	(1,337	)

Accumulated other comprehensive loss consists of unrealized gains and losses related to the funded status of 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.

Changes in accumulated other comprehensive loss, net of tax, are as follows:

	(Dollars in Thousands)
							Unamortized
							Value of
							Terminated			Accumulated
	Pension and						Forward Starting			Other
	Postretirement			Foreign			Interest Rate			Comprehensive
	Benefit Plans			Currency			Swap			Loss
	Three Months Ended September 30, 2015
Balance at beginning of period	$	(111,663	)	$	1,219		$	(2,370	)	$	(112,814	)
Other comprehensive loss before reclassifications, net of tax		—			(1,757	)		—			(1,757	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		1,636			—			193			1,829
Other comprehensive earnings (loss), net of tax		1,636			(1,757	)		193			72
Balance at end of period	$	(110,027	)	$	(538	)	$	(2,177	)	$	(112,742	)

	Three Months Ended September 30, 2014
Balance at beginning of period	$	(44,685	)	$	5,658		$	(3,114	)	$	(42,141	)
Other comprehensive loss before reclassifications, net of tax		—			(1,466	)		—			(1,466	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		146			—			180			326
Other comprehensive earnings (loss), net of tax		146			(1,466	)		180			(1,140	)
Balance at end of period	$	(44,539	)	$	4,192		$	(2,934	)	$	(43,281	)

1.	Significant Accounting Policies (continued)

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

	(Dollars in Thousands)
							Unamortized
							Value of
							Terminated			Accumulated
	Pension and						Forward Starting			Other
	Postretirement			Foreign			Interest Rate			Comprehensive
	Benefit Plans			Currency			Swap			Loss
	Nine Months Ended September 30, 2015
Balance at beginning of period	$	(106,688	)	$	3,278		$	(2,749	)	$	(106,159	)
Other comprehensive loss before reclassifications, net of tax		(10,845	)		(3,816	)		—			(14,661	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		7,506			—			572			8,078
Other comprehensive (loss) earnings, net of tax		(3,339	)		(3,816	)		572			(6,583	)
Balance at end of period	$	(110,027	)	$	(538	)	$	(2,177	)	$	(112,742	)

	Nine Months Ended September 30, 2014
Balance at beginning of period	$	(44,549	)	$	3,902		$	(3,467	)	$	(44,114	)
Other comprehensive (loss) earnings before reclassifications, net of tax		(431	)		290			—			(141	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		441			—			533			974
Other comprehensive earnings, net of tax		10			290			533			833
Balance at end of period	$	(44,539	)	$	4,192		$	(2,934	)	$	(43,281	)

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $6,793,000 and $280,000 for the nine months ended September 30, 2015 and 2014, respectively.

1.	Significant Accounting Policies (continued)

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

Changes in net noncurrent deferred tax assets recorded in accumulated other comprehensive loss are as follows:

	(Dollars in Thousands)
	Pension and Postretirement Benefit Plans			Unamortized Value of Terminated Forward Starting Interest Rate Swap			Net Noncurrent Deferred Tax Assets

	Three Months Ended September 30, 2015
Balance at beginning of period	$	71,625		$	1,554		$	73,179
Tax effect of other comprehensive earnings		(1,042	)		(125	)		(1,167	)
Balance at end of period	$	70,583		$	1,429		$	72,012

	Three Months Ended September 30, 2014
Balance at beginning of period	$	29,287		$	2,039		$	31,326
Tax effect of other comprehensive earnings		(96	)		(120	)		(216	)
Balance at end of period	$	29,191		$	1,919		$	31,110

	Nine Months Ended September 30, 2015
Balance at beginning of period	$	68,568		$	1,799		$	70,367
Tax effect of other comprehensive earnings		2,015			(370	)		1,645
Balance at end of period	$	70,583		$	1,429		$	72,012

	Nine Months Ended September 30, 2014
Balance at beginning of period	$	29,198		$	2,269		$	31,467
Tax effect of other comprehensive earnings		(7	)		(350	)		(357	)
Balance at end of period	$	29,191		$	1,919		$	31,110

1.	Significant Accounting Policies (continued)

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

Reclassifications out of accumulated other comprehensive loss are as follows:

	Three Months Ended						Nine Months Ended						Affected line items in the consolidated
	September 30,						September 30,						statements of earnings and
	2015			2014			2015			2014			comprehensive earnings
	(Dollars in Thousands)
Pension and postretirement benefit plans
Amortization of:
Prior service credit	$	(468	)	$	(703	)	$	(1,407	)	$	(2,107	)
Actuarial loss		3,146			945			13,691			2,835
		2,678			242			12,284			728		Cost of sales; Selling, general and administrative expenses
Tax benefit		(1,042	)		(96	)		(4,778	)		(287	)	Taxes on income
	$	1,636		$	146		$	7,506		$	441

Unamortized value of terminated forward starting interest rate swap
Additional interest expense	$	318		$	300		$	942		$	883		Interest expense
Tax benefit		(125	)		(120	)		(370	)		(350	)	Taxes on income
	$	193		$	180		$	572		$	533

Earnings (Loss) per Common Share

Earnings per Common Share

The numerator for basic and diluted earnings (loss) per common share is net earnings/loss from continuing operations attributable to Martin Marietta Materials, Inc. reduced by dividends and undistributed earnings attributable to the Corporation’s unvested restricted stock awards and incentive stock awards. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating securities. 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 to be issued to employees and nonemployee members of the Corporation’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive. For the three and nine months ended September 30, 2015 and 2014, the diluted per-share computations reflect a change in the number of common shares outstanding to include the number of additional shares that would have been outstanding if the potentially dilutive common shares had been issued.

1.	Significant Accounting Policies (continued)

Earnings per Common Share (continued)

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2015		2014			2015		2014
	(In Thousands)
Net earnings from continuing operations attributable to Martin Marietta Materials, Inc.	$	117,544	$	53,812		$	205,607	$	91,786
Less: Distributed and undistributed earnings attributable to unvested awards		479		213			897		372
Basic and diluted net earnings available to common shareholders from continuing operations attributable to Martin Marietta Materials, Inc.		117,065		53,599			204,710		91,414
Basic and diluted net loss available to common shareholders from discontinued operations		—		(69	)		—		(140	)
Basic and diluted net earnings available to common shareholders attributable to Martin Marietta Materials, Inc.	$	117,065	$	53,530		$	204,710	$	91,274

Basic weighted-average common shares outstanding		66,830		67,086			67,203		53,342
Effect of dilutive employee and director awards		278		409			267		217
Diluted weighted-average common shares outstanding		67,108		67,495			67,470		53,559