Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Martin Marietta Materials, Inc. (the “Corporation” or “Martin Marietta”) is engaged principally in the construction aggregates business. The aggregates product line accounted for 56% of consolidated net sales for the six months ended June 30, 2016 (55% of full-year 2015 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 29% of consolidated net sales for the six months ended June 30, 2016 (27% of full-year 2015 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, Nova Scotia and the Bahamas. 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 accounted for 8% of consolidated net sales for the six months ended June 30, 2016 (11% of full-year 2015 consolidated net sales). The Cement segment has production facilities located in Midlothian, Texas, south of Dallas-Fort Worth and Hunter, Texas, north of San Antonio. The Cement business 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. The high calcium limestone reserves, used as a raw material, are owned by the Cement business and are 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 7% of consolidated net sales for the six months ended June 30, 2016 (7% of full-year 2015 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.

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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, 2015. In the opinion of management, the interim consolidated financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods. The consolidated results of operations for the six months ended June 30, 2016 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date but does not include all disclosures required by accounting principles generally accepted in the United States. 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, 2015.

Debt Issuance Cost, Revenue Recognition Standard, Lease Standard and Share-based Payment Standard

Debt Issuance Costs

The Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which amends the presentation of debt issuance costs in the financial statements. The ASU requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts, and does not impact the recognition and measurement guidance for debt issuance costs. The Corporation adopted ASU 2015-03 on January 1, 2016 and has retrospectively adjusted the prior periods presented, resulting in a reclassification of $3,588,000 and $4,130,000 from Other noncurrent assets to Long-term debt as of December 31, 2015 and June 30, 2015, respectively, and $533,000 from Other current assets to Current maturities of long-term debt and short-term maturities as of December 31, 2015 and June 30, 2015.

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 will not early adopt this standard. The Corporation is currently evaluating the impact the provisions of the new standard will have on its financial statements and expects to complete its evaluation by the end of 2016.

1.	Significant Accounting Policies (continued)

Lease Standard

In February 2016, the FASB issued a new accounting standard, Accounting Standards Update 2016-2 – Leases, intending to improve financial reporting of leases and to provide more transparency into off-balance sheet leasing obligations. The guidance requires virtually all leases, excluding mineral interest leases, to be recorded on the balance sheet and provides guidance on the recognition of lease expense and income. The new standard is effective January 1, 2019 and must be applied on a modified retrospective approach. The Corporation is currently evaluating the impact the new standard will have on its financial statements.

Share-based Payment Standard

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies certain aspects of accounting guidance and requirements for share-based transactions. The ASU is effective for reporting periods beginning January 1, 2017. The Corporation is evaluating the impact of the ASU on its financial statements.

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						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(Dollars in Thousands)
Net earnings attributable to Martin Marietta Materials, Inc.	$	122,052		$	81,938		$	167,047		$	88,065
Other comprehensive loss, net of tax		(2,235	)		(6,091	)		(446	)		(6,655	)
Comprehensive earnings attributable to Martin Marietta Materials, Inc.	$	119,817		$	75,847		$	166,601		$	81,410

1.	Significant Accounting Policies (continued)

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

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(Dollars in Thousands)
Net earnings attributable to noncontrolling interests	$	61	$	41	$	122	$	73
Other comprehensive earnings, net of tax		2		2		33		5
Comprehensive earnings attributable to noncontrolling interests	$	63	$	43	$	155	$	78

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) earnings, 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 June 30, 2016
Balance at beginning of period	$	(101,907	)	$	(149	)	$	(1,777	)	$	(103,833	)
Other comprehensive loss before reclassifications, net of tax		(3,736	)		(232	)		—			(3,968	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		1,529			—			204			1,733
Other comprehensive (loss) earnings, net of tax		(2,207	)		(232	)		204			(2,235	)
Balance at end of period	$	(104,114	)	$	(381	)	$	(1,573	)	$	(106,068	)

	Three Months Ended June 30, 2015
Balance at beginning of period	$	(105,151	)	$	990		$	(2,562	)	$	(106,723	)
Other comprehensive (loss) earnings before reclassifications, net of tax		(10,670	)		229			—			(10,441	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		4,158			—			192			4,350
Other comprehensive (loss) earnings, net of tax		(6,512	)		229			192			(6,091	)
Balance at end of period	$	(111,663	)	$	1,219		$	(2,370	)	$	(112,814	)

1.	Significant Accounting Policies (continued)

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

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $2,346,000 and $6,793,000 for the three months ended June 30, 2016 and 2015, respectively.

	(Dollars in Thousands)
							Unamortized
							Value of
							Terminated			Accumulated
	Pension and						Forward Starting			Other
	Postretirement			Foreign			Interest Rate			Comprehensive
	Benefit Plans			Currency			Swap			Loss
	Six Months Ended June 30, 2016
Balance at beginning of period	$	(103,380	)	$	(264	)	$	(1,978	)	$	(105,622	)
Other comprehensive loss before reclassifications, net of tax		(3,830	)		(117	)		—			(3,947	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		3,096			—			405			3,501
Other comprehensive (loss) earnings, net of tax		(734	)		(117	)		405			(446	)
Balance at end of period	$	(104,114	)	$	(381	)	$	(1,573	)	$	(106,068	)

	Six Months Ended June 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	)		(2,059	)		—			(12,904	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		5,870			—			379			6,249
Other comprehensive (loss) earnings, net of tax		(4,975	)		(2,059	)		379			(6,655	)
Balance at end of period	$	(111,663	)	$	1,219		$	(2,370	)	$	(112,814	)

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $2,405,000 and $6,904,000 for the six months ended June 30, 2016 and 2015, 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 June 30, 2016
Balance at beginning of period	$	65,523	$	1,159		$	66,682
Tax effect of other comprehensive earnings		1,408		(136	)		1,272
Balance at end of period	$	66,931	$	1,023		$	67,954

	Three Months Ended June 30, 2015
Balance at beginning of period	$	67,552	$	1,679		$	69,231
Tax effect of other comprehensive earnings		4,073		(125	)		3,948
Balance at end of period	$	71,625	$	1,554		$	73,179

	Six Months Ended June 30, 2016
Balance at beginning of period	$	66,467	$	1,290		$	67,757
Tax effect of other comprehensive earnings		464		(267	)		197
Balance at end of period	$	66,931	$	1,023		$	67,954

	Six Months Ended June 30, 2015
Balance at beginning of period	$	68,568	$	1,799		$	70,367
Tax effect of other comprehensive earnings		3,057		(245	)		2,812
Balance at end of period	$	71,625	$	1,554		$	73,179

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						Six Months Ended						Affected line items in the consolidated
	June 30,						June 30,						statements of earnings and
	2016			2015			2016			2015			comprehensive earnings
	(Dollars in Thousands)
Pension and postretirement benefit plans
Settlement charge	$	—		$	—		$	59		$	—
Amortization of:
Prior service credit		(518	)		(469	)	$	(806	)	$	(939	)
Actuarial loss		3,007			7,274			5,787			10,546
		2,489			6,805			5,040			9,607		Cost of sales; Selling, general and administrative expenses
Tax benefit		(960	)		(2,647	)		(1,944	)		(3,737	)	Taxes on income
	$	1,529		$	4,158		$	3,096		$	5,870

Unamortized value of terminated forward starting interest rate swap
Additional interest expense	$	340		$	317		$	672		$	624		Interest expense
Tax benefit		(136	)		(125	)		(267	)		(245	)	Taxes on income
	$	204		$	192		$	405		$	379

Earnings (Loss) per Common Share

1.	Significant Accounting Policies (continued)

Earnings per Common Share

The numerator for basic and diluted earnings per common share is net earnings attributable to Martin Marietta Materials, Inc. reduced by dividends and undistributed earnings attributable to certain of the Corporation’s stock-based compensation. 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 six months ended June 30, 2016 and 2015, 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.

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2016		2015			2016		2015
	(In Thousands)
Net earnings from continuing operations attributable to Martin Marietta Materials, Inc.	$	122,052	$	81,938		$	167,047	$	88,065
Less: Distributed and undistributed earnings attributable to unvested awards		519		(876	)		730		403
Basic and diluted net earnings available to common shareholders attributable to Martin Marietta Materials, Inc.	$	121,533	$	82,814		$	166,317	$	87,662

Basic weighted-average common shares outstanding		63,532		67,373			63,845		67,392
Effect of dilutive employee and director awards		270		260			246		262
Diluted weighted-average common shares outstanding		63,802		67,633			64,091		67,654