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Martin Marietta Materials, Inc. (NYSE:MLM)

Q4 2011 Earnings Conference Call

February 7, 2012 2:00 PM ET

Executives

Howard Nye – President and Chief Executive Officer

Anne Lloyd – Executive Vice President and Chief Financial Officer

Analysts

Arnie Ursaner – CJS Securities

Todd Vencil – Sterne Agee

Jack Kasprzak – BB&T Capital

Jerry Revich – Goldman Sachs

Trey Grooms – Stephens Inc.

Rodny Nacier – KeyBanc Capital Markets

Keith Hughes – SunTrust

Kathryn Thompson – Thompson Research

Adam Rudiger – Wells Fargo

Scott Levin – JP Morgan

Garik Shmois – Longbow Research

Ted Grace – Susquehanna

Bob Wetenhall – RBC Capital

Brent Thielman – D.A. Davidson

Mike Betts – Jefferies

Keith Johnson – Morgan Keegan

Operator

Good day, ladies and gentlemen, and welcome to the Martin Marietta Materials fourth quarter 2011 and full year conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to your host Howard Nye, President and CEO. Please go ahead.

Howard Nye

Good afternoon and thank you for joining Martin Marietta Materials’ quarterly earnings call. With me today is Anne Lloyd, our Executive Vice President and Chief Financial Officer. We’re please to share our full year and fourth quarter 2011 results.

Please be advised that this discussion may include forward-looking statements in connection with future events or future operating or financial performance. Forward-looking statements in this discussion are subject to a number of risks and uncertainties, which could cause actual results to differ materially from such statements. Except to the extent required by applicable law Martin Marietta undertakes no obligation publicly to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise.

Martin Marietta refers you to the legal disclaimers contained in our press release relating to our fourth quarter results and to Martin Marietta’s other filings with the SEC, which can be found on the SEC’s website.

Our fourth quarter earnings exceeded market expectations and the prior year as we continued to execute against our clearly articulated strategic objectives. Adjusted earnings per diluted share for the quarter were $0.52 excluding business development costs not factored into analyst expectations or approximately $0.14 greater than the market consensus and 58% greater than the prior year quarter’s adjusted earnings per share. Inclusive of the $0.20 per diluted share charge for these expenses our earnings per diluted share were $0.32.

Our fourth quarter results reflect a 6% increase in the average selling price for our heritage aggregates product line. This increase cast a year where we saw steady pricing growth in each quarter and confirms our previously stated view that pricing momentum is sustainable. Moreover 2011 pricing trends validate one of our fundamental beliefs that despite depression like shipment declines over the past five years our aggregates product line has and continue to retain its ability to realize the inherent value of the in place mineral reserves.

Of note, we achieved fourth quarter pricing increases in each of our reportable groups led by an almost 8% increase in our West Group. This performance reflects double digit increases in our South Texas markets driven by increasing demand for material needed in drilling and related projects in the Eagle Ford shale. There is also an element of long haul mix in this price increase.

As you may recall we developed a new rail located sales yard in South Texas principally designed to meet Eagle Ford demand. The average selling price from that sales yard reflects transportation costs however; even excluding shipments from the new sales yard this market still reported a double digit price increase. Our aggregate product line pricing continues to vary by market. Nevertheless, with few exceptions nearly every market reported growth in the fourth quarter.

Looking ahead, we anticipate our average selling price to be affected by our recent asset exchange with Lafarge North America. In that transaction we acquired operations in Denver, Colorado a truck served market with typical sales transactions completed at producing quarries. This contrast with the Mississippi river facilities we divested, which primarily represented a long haul distribution market. Accordingly, these river operations had sales prices reflecting the varying cost of transportation from a producing location to a more distant sales yard. Overall, we are forecasting pricing trends to remain steady in 2012 with the increase in our heritage aggregates product line, ranging from 2% to 4%. Pricing will continue to vary by market and increases will not be uniform throughout our business.

Our operating performance continues to benefit from our Specialty Products segment, which completed a stellar year that exceeded our expectations. This business generated new fourth quarter records for both net sales and earnings. Net sales of $51.5 million represent a 16% increase over the prior year quarter reflecting growth in both the dolomitic lime and chemicals product lines. These increased sales along with effective cost management resulted in a 600 basis point improvement in this businesses gross margin over the prior year quarter despite higher energy costs. Earnings from operations for the quarter were $16.3 million in 2011 a 55% increase over the prior year quarter.

Cost control remains an area of focus as evidenced by our fourth quarter results and recent restructuring activities. Our SG&A expenses for the quarter declined $4 million excluding a $1.6 million charge for non-recurring termination costs. These organizational changes should provide approximately $3 million of annual cost savings beginning this year. Including the non-recurring termination costs our SG&A expenses as the percent of net sales was 8.5%. As we always have we continue to evaluate SG&A expenses in order to further enhance our industry leading performance in this area.

Fourth quarter direct product cost in our heritage aggregates product line increased 1% even after absorbing an 11% increase in non-controllable energy costs. As a reminder, diesel fuel remains the single largest component of our energy expenses and the price of diesel fuel increased 27% in the fourth quarter compared with prior year quarter and 39% when comparing the full year 2011 with 2010. Lower personnel and depreciation expenses helped offset the escalation in energy costs. Overall our cost of sales increased 9.5% reflecting higher raw material expenses as well as the higher energy prices mentioned earlier.

During the quarter, we incurred $15.1 million of business development expenses, which include costs for completed transactions and the cost associated with our proposal to combine Martin Marietta with Vulcan Materials Company. As mentioned earlier, we completed an asset exchange with Lafarge North America in December. As part of the transaction we exchanged Mississippi river locations operating in a market that did not provide the best opportunity for us to achieve our desired long-term rate of return on assets. The exchange of these assets does not signal a change in strategy related to our long haul distribution network. We remain fully committed to this unparalleled network of rail and water served operations.

So this exchange transaction did offer us the unique opportunity to gain a platform position in the attractive Denver, Colorado market, including both aggregates and complementary downstream businesses. The opportunity to acquire a leading position in Denver’s attractive considering it’s higher than average population growth and for capital income as well as its ability to attract both national and multi-national businesses.

Further, the Colorado Department of Transportation’s recent authorization to initiate more than $2 billion of improvements to Northern Colorado transportation network should provide numerous opportunities for our newly acquired operations. We also acquired a ready mix concrete company in Denver to complement the operations acquired from Lafarge further enhancing our market position.

In summary, these transactions promote a clearly stated long-term objective to have a leading position in markets with attractive growth and other key demographics, which in turn enhances shareholder value. We are pleased to welcome our new Rocky Mountain division employees to the Martin Marietta family and I would also like to take this opportunity to thank our former river operation employees for years of dedicated services and I know they will be great assets to Lafarge.

The other component of business development costs relates to our proposal to combine Martin Marietta with Vulcan. On December 12, we initiated an offer to issue one half of the Martin Marietta share of common stock for each outstanding share of Vulcan’s common stock. We continue to believe the combination of our company with Vulcan provides the compelling opportunity to enhance value per shareholders of both companies. We remain committed to making this transaction a reality.

Our heritage aggregate shipments declined 1.2% for the quarter, similar to aggregates pricing volume variances differed significantly by market. Mid East Group reported a 6.6% increase in heritage aggregate shipments, this growth was particularly strong in the West Virginia and Indiana markets, which benefited from strong energy shipments and the rebuild Indy program respectively. Consistent with our expectations the Mid East Group reported incremental operating margin excluding freight and delivery revenues of 60% after adjusting for the volatile rise in energy cost. Volume growth in the Mid East Group contrasted the 6.4% heritage volume decline in the South East Group driven by continued weakness in the North Georgia and Alabama markets.

There was a 2% decline in our heritage infrastructure end-use market versus the prior year quarter as the extension of federal highway funding through March 31, 2012 has not provided the security of long-term federal funding. However, infrastructure volumes declines varied by segment and largely correlate to the strength of state budgets and the availability of alternative funding mechanisms. Of note, transportation spending in Texas remained strong partly due to the funding from the North Texas Tollway Authority. We continue to believe that underlying demand exists for infrastructure projects once long-term federal funding is resolved growth in this end-use market should quickly follow in the mini markets in which we operate.

Our heritage non-residential end-use market increased slightly from the prior year quarter. This growth was supported by our South Texas market where non-residential volume nearly doubled due to energy sector shipments to the Eagle Ford Shale. Our heritage residential end-use shipments increased 2% over the prior year quarter. And finally our heritage ChemRock/Rail end-use market declined 4%, which given the significant amount of agricultural line shipments in the prior year quarter made more challenging comparison.

Our focus on cash generation allowed us to end the year with a strong cash position. Operating cash flow of $259 million and our available sources of liquidity provided the resources to invest $155 million for organic growth capital projects as well as $92 million for three acquisitions during the year. We also maintained our dividend rate of $1.60 per common share for the year. Prudent use of cash allowed us to maintain balance sheet strength and financial flexibility. At December 31, 2011 our consolidated debt to consolidated EBITDA was 3.25 times in compliance with the limits under our debt covenants.

A variety of factors beyond our direct control continue to make it challenging to forecast future performance. Nonetheless, we are encouraged by the fact that the President continues to advocate rebuilding America’s infrastructure. We are also pleased this past Friday when the House Transportation and Infrastructure Committee passed a five year surface transportation reauthorization bill known as the American Energy and Infrastructure Jobs Act of 2012.

This much needed legislation would provide average annual funding at a level consistent with current funding. However, we believe the bills proposed before provisions would result in more dollars being available for highway spending. While we are hopeful that the Senate will act quickly to approve a multi-year bill I would remind you that the conferencing process between the house and the senate is critical to a final bill.

In our view, if this process is not successfully completed before the expiration date of the highway programs current continuing resolution it’s likely that any future action on the final bill will be delayed beyond the Presidential Election. One last note, should the conferencing process be successful and we do have a final bill or the expiration of the current continuing resolution. We would not expect the impact to be significant until 2013. Our expectation for aggregates full year volume guidance is consistent with the McGraw Hill forecast.

The previously mentioned uncertainty in the timing of long-term federal funding and the veining impact of stimulus shipments are expected to lead to a slight decline in heritage infrastructure volume. We expect double digit growth in our heritage non-residential shipments driven by increased demand from the energy sector. Heritage residential shipments are expected to increase at a higher rate compared with 2011. Finally, we expect our heritage ChemRock/ Rail volume to be consistent with 2011. Overall, we expect heritage aggregates volume to increase from 3% to 4%. As I previously mentioned, we expect overall heritage aggregates product line pricing to increase from 2% to 4%.

Our heritage aggregates direct product costs per ton is expected to decline slightly as increased production generates operating efficiencies. These expectations did not factor in significant increases in energy prices. Our SG&A expenses exclusive of the incremental expense at our new Denver operations are expected to decline slightly with benefits from our restructuring activities offsetting higher pension costs. We expect the net effect of our recently acquired Denver operations and divested river operations to be neutral to our EBITDA in 2012. We expect improvement in SG&A expenses related to the Denver operations as we integrate them into our disciplined cost structure.

Earnings from our Specialty Product segment are expected to remain consistent with the record level established in 2011. We also expect interest expense to remain flat this year. Our effective tax rate is expected to approximate 26% and our capital expenditures are forecast at $155 million. This estimate includes the remaining $35 million related to the new kiln at the Woodville, Ohio operation of our Specialty Products business.

We note that our expectation for 2012 assumes Martin Marietta on a standalone basis and does not give effect to the potential impact as a proposed combination of Martin Marietta and Vulcan Materials Company. This is a very exciting time for Martin Marietta. We remain focused on operating our business with the disciplined approach and delivering results enhancing long-term shareholder value. Thank you for your interest in Martin Marietta Materials and the operator will now give the required instructions we would be happy to address any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Arnie Ursaner from CJS Securities. Your line is open.

Arnie Ursaner – CJS Securities

Hi, good afternoon Howard, good afternoon Anne. My question relates to the 6% pricing improvement that you had in Q4. I would love to understand the factors behind it since it was higher than the effect did it include the run off of maybe some earlier lower priced highway work. And then perhaps you could expand on the sustainability in the upcoming year within the context of your 2% to 4% expectation as you highlighted.

Howard Nye

Arnie, thank you. Arnie, what we saw during the quarter is pricing moving very favorably really across our business where we saw volumes moving in a positive direction some of which we saw in South Texas related to the Eagle Ford Shale type demand pricing actually moved even better. Some of that was mix actually very little of it. Part of what I was taken by even in markets where we saw volume going down and North Texas being a good example.

We actually saw volumes down in North Texas and pricing going up. So as that come back and try to assess that Arnie I think what that means is what we said in the past is broadly correct and that is we didn’t need volume to necessarily go up, we needed volume to stay relatively flat and stabilized and with stable volumes you start to see the ability to recognize the in place reserves. And I think that’s entirely what we are seeing.

Arnie Ursaner – CJS Securities

Okay, my follow up question also relates to the margins in the West Group, which were noticeably weak given the positive revenue trend you have and some of the pricing trends. Can you highlight some of the specific factors that may have impacted the West Group and how we should think about that in the upcoming year?

Howard Nye

Sure, I think a couple of things Arnie. Number one, if you look at volume for the West Group that probably was down 1.4% for the year. So we continue to see volume going down. I think that’s one of the issues that we just recognized across the enterprise and that is you are really working a lot of fixed cost against a very low volume. I think even more of moment related to the West is really what’s happening with energy.

If you look year-on-year there are, I want to say $19.2 million of energy costs that were in there around 9.2 of that tied directly to the cost of liquid. Keep in mind that’s one of the few places that we actually have hot mix in our heritage snapshot. If you go by and you call that $19.2 million out what you will see is on a normalized basis we were probably looking at incremental margins around 80%. So I think if you really pull energy out of it, it looks much more like what you could ordinarily expect.

The other thing that I would remind you is we did have more long haul in the West this year. We added the new sales yard in Millet and we are also looking at a new yard in Kansas City. So I think between long haul and energy that addresses most of the issues to last.

Arnie Ursaner – CJS Securities

Thank you very much.

Operator

Our next question comes from Todd Vencil from Sterne Agee. Your line is open.

Todd Vencil – Sterne Agee

Hi.

Howard Nye

Hey, Todd.

Todd Vencil – Sterne Agee

Well given the (Inaudible) certainly seems like there is more of a disconnect now than previously has been between your heritage market and your consolidated for a total that we are trying to sort out for this year. You’ve got to help in bridge out or understand how your guidance on volumes for 3% to 4% heritage growth translates to how we should think about sort of the total company’s extent now?

Howard Nye

Here is what I would suggest to you I think we are going to put something out on our website when we are done today that will give you a sense of how heritage really looks going forward. I think that should help you considerably in your modeling Todd at the same time what I would suggest is coming back and looking at the acquisition activity here is directionally what I would offer to you.

Assumed that on the stone side there is going to be about 8 million tons of stone that’s added from the acquisitions that we did last year now keep in mind the acquisitions were in the Western United States so as you are putting 8 million tons in assume the types of pricing that you come to see in the West. The other thing I would encourage you to do is go back and put in around 800,000 cubic yards of ready mix and around 1.5 million tons of hot mix. I think if you adjust your models to take into account what we are going to recap for use heritage and then you put that degree of stone in, plus that degree of ready mix and as well that should get you where you need to be Todd.

Todd Vencil – Sterne Agee

That’s perfect. And then same sort of the concept thinking about price last year in the river district. How much of a given that that was most of the long haul I would assume that made the average price in that region. How much of it do you have a way for us to understand how much that sort of used the price in that region if it did?

Howard Nye

What I would tell you to do is look at that broadly along corporate averages up and down that river. I think that’s probably your safest way to look at but I think again if you do it that way what you will see is it will have a downward optical view on pricing. Simply puts pricing in the West tends to be lower.

Anne Lloyd

And Todd what we will do is recap the last five years obviously with the river movement in discontinued ops history essentially gets recapped at the same time. And we will put out on the website also some volume and pricing trends that show you that differential.

Todd Vencil – Sterne Agee

That would be great. Thanks. In the residential end market can you tell us what that was for the full year 2011 versus year-on-year?

Howard Nye

The rent market for us full year we did see, well we are seeing this year going to the year Todd to give you a sense of ’12 first as we are seeing that up 10% to 14% year-on-year. I think as we looked at res for the full year it was slightly up but I want to say it was in the single digits. There we are clearly seeing more activity as we move into ’12.

Todd Vencil – Sterne Agee

Got it. On the Woodville expansion you mentioned that $35 million of spending there. Is that generally on pace with the comments you made before.

Howard Nye

Yeah, it is. In fact from everything we can tell that project is in entirely moving along the way that we have expected to from an on time, on cost and otherwise.

Todd Vencil – Sterne Agee

Then final question on the Vulcan deal. And as part of your state desire to get the Vulcan board to come back to the table. I think the last update we had was on January I think hence that that has not happened yet can you, is there any update on that that you could give us?

Howard Nye

Alright, you know I think this is the third time I have spoken roughly since we announced our transaction or proposed transaction on December 12. And on December 12, I put a call into Birmingham and send a Birmingham and sent an email to Birmingham. And obviously we would very much like to engage in the dialogue as we sit here today we are still looking for that dialogue.

Todd Vencil – Sterne Agee

Thanks a lot.

Howard Nye

Thank you, Todd.

Operator

Our next question comes from Jack Kasprzak from BB&T. Your line is open.

Jack Kasprzak – BB&T Capital

Thanks. Good afternoon.

Howard Nye

Hi Jack.

Jack Kasprzak – BB&T Capital

Could you guys tell us your ready mix, yards and your hot mix, tons for 2011 full year?

Howard Nye

You know, what if you are looking at hot mix for us for the full year, Jack, what I would tell you is you are probably looking at around 1.4 million tons of hot mix and ready mix probably around 0.5 million cubic yards.

Jack Kasprzak – BB&T Capital

Okay, and with regard to housing, which were obviously coming off of low base and there is something’s that look better as we sit here today with regard to some activities starts and permits I guess multi-family. But are you guys seeing home builders start new subdivisions, which obviously also uses a lot of aggregate in terms of site development or we still putting out to some existing lots?

Howard Nye

Jack, I think the answer is yes. I think we are still putting housing on existing lots but we are now seeing some new subdivision work now granted it’s not a lot but it is some activity now. And over the last couple of years there has really been no activity in that. And you nailed it and that is when you start seeing activity where it’s a new subdivision we will truly be a leading indicator when that starts taking off I’m not saying it’s taking off but I’m saying there is activity Jack.

Jack Kasprzak – BB&T Capital

Howard, do you think if we got a highway bill and you said that even if happened by the end of March it probably wouldn’t affect your business till 2013 and I appreciate the lag there. But the market was down last year I think (Inaudible) is forecasting another down year this year, which is probably a good place to be without a highway bill I would say. But it was a high, getting a highway bill at a flat rate of funding strangely enough, enough to boost the market beyond, above where it’s been you know slightly down.

Howard Nye

I think if you had a highway bill that was out there in multiyear I think the answer is yes and probably would Jack. Because in our view what’s happening right now is states are simply unwilling to commit to multi-year projects and they are not willing to go forward under that basis. So I think even if we had something that was flat and obviously we would much rather see a higher bill number yet I think that’s still helpful.

Now frankly, you’ve been coming back and looking at what the house has proposed to address that for a second when you really look at what that bill has done to get rid of old redundant programs or what it’s doing to give states unlimited authority to toll in the state highways and basically putting a faster delivery time out there. Now, I clearly do believe that a new bill would start to add the volume now granted.

Even when we go back and take a look at the way stimulus worked I think you can look at the stimulus program and use that as a bit of a guide on what’s going to happen when we end up with new high way bill. And as you recall when stimulus came out you only saw around 21% of it go in 2009 and not surprisingly 2010 was a pretty big year when 43% of it went and again 2011 it’s 22% feeling a lot like 2009 as did lot of things in this industry this year as in 14% next year so not a bad blueprint to use in the back of the mind as you think about a new highway bill.

Jack Kasprzak – BB&T Capital

Yeah, okay. Great, thanks a lot.

Howard Nye

Thank you, Jack.

Operator

Our next question comes from Jerry Revich from Goldman Sachs. Your line is open.

Jerry Revich – Goldman Sachs

Hi, good afternoon.

Howard Nye

Hello Jerry.

Jerry Revich – Goldman Sachs

Well towards the Specialty Products business can you talk about the timing of the kiln start up we will get any production contribution this year?

Howard Nye

No I wish we were but we are anticipating is having that done really at year end Jerry. So we will look to have incremental tonnage as we go into ’13 that’s going to be let’s call it 275 thousand times.

Anne Lloyd

Hey Jerry, we’ve indicated that it’s probably around $22 million to $25 million that would step up in 2013.

Jerry Revich – Goldman Sachs

Perfect. And in terms of your outlook and for flat Specialty Products earnings next year despite very favorable natural gas price. Any sort of headwinds that you should be thinking about or you leaving yourself somewhere in the case natural gas prices come back or steel get softer?

Howard Nye

No, I’m sorry when steel is running at 75% like it did this year it works really well. Keep in mind nat gas doesn’t matter a lot to that business nat gas probably 27%, electricity is around 27% and coal is around 26%, 27% so you really got a covey of energy items that can affect that business. Nat gas being down helps a lot but steel running anywhere north of 70 is really the single biggest driver right now.

Anne Lloyd

And that is the issue Jerry in our forward view on natural gas is that particularly the United States is going to be pretty stable so it’s going to be steel utilization. And we are assuming that utilization runs about like it did this year, which is where you see the profitability because the business essentially is at capacity.

Howard Nye

Nice problem.

Jerry Revich – Goldman Sachs

And can you talk about the CapEx versus volume guidance stripping out the Specialty Product capacity expansion. It looks like you are actually cutting core CapEx by I don’t know what you call it 13 or so percent versus some pretty nice volume growth. Is there a difference in capital intensity between the asset swap or any other factors that are driving that?

Howard Nye

Not particularly if you go back and look at what I would tell you some growth projects this year there is probably somewhere around $63 million to $65 million. We usually have around $25 million in land that’s usually a good solid place over. And if you come back and really break it down on mobile, plant and other it’s probably around $67 million. And again that’s clearly a rate below DD&A now that’s running around $174 million a year.

But Jerry I think we can continue to do that when we are running at these types of volumes and keep in mind if you look at our CapEx profile and compare it to most in the sector we were investing in ourselves when others were trying to buy businesses at big EBITDAs and big multiples. So we feel like pulling back CapEx the way that we have right now is a) responsible but b) we believe we can do it and importantly do it safely.

Jerry Revich – Goldman Sachs

And can you quantify the G&A opportunity you see in Denver perhaps elsewhere that current facilities are operating that and hopefully what time period do you think you can get them down to level that you see across your business.

Howard Nye

You know what the operations are up and down to truck range and that’s clearly a business now we’ve had under belt now for about a month and a half. So we are going to need a little bit more time with that Jerry before I give you any more specifics on it.

Jerry Revich – Goldman Sachs

Got it. Thank you.

Howard Nye

Thank you.

Operator

Our next question comes from Trey Grooms from Stephens Inc. Your line is open.

Trey Grooms – Stephens Inc.

Good afternoon.

Howard Nye

Hi Trey.

Trey Grooms – Stephens Inc.

First off on the pricing guidance of 2% to 4% so coming off of the 6% and some of the other things in the quarter and some of the other things you’ve talked about you anticipate the year kind of looking at 2012 do you anticipate the year is going to be more kind of front end loaded as it relates to pricing or more kind of even or how do you, how do you look on it think about that given the strength that you are coming off of 4Q.

Howard Nye

You know what I wouldn’t necessarily think of it as just front end loaded. I think as we do watch some stimulus projects come out that clearly does help that. But at the same time I don’t see that I see it really being fairly uniform traits around the year. That’s how we would approach it.

Trey Grooms – Stephens Inc.

Okay, secondly Anne on the business development expenses in the quarter can you give us kind of your expectation for additional expenses as we kind of go into first quarter and beyond.

Anne Lloyd

Obviously, we expect to incur some expenses the magnitude of that will depend on how long we continue to process. So we will have to tell you that when the quarter ends.

Howard Nye

Yeah, Trey, a couple of things to keep in mind. We do have a trial that’s coming up at the end of February and in early March and as you look at the charges that went in there for last year, some of that were very discrete fees that were paid specifically to the bankers and their fees going forward are more success driven. But with that said we are not going to start a process that we are not prepared to finish.

We don’t think spending that type of money is best use of our money or best use of Vulcan’s money and obviously we very much want to sit down in a room and have a meaningful dialogue. But I think right now it’s hard to come back and really put a nail on what those costs will be.

Trey Grooms – Stephens Inc.

Okay I understand that. Okay, and then last one again it’s for Anne on the gain on the discontinued operations in the quarter could you give us some color on what all of that consisted our fleet?

Anne Lloyd

The biggest issues there and you had a write off of your asset and it’s from the river business then you got new assets from Lafarge and then you wrote off about $10 million of net goodwill that you had to recognize there and it ended up being $10 million gain on that sale.

Trey Grooms – Stephens Inc.

$10 million pretax gain okay. Thank you very much.

Howard Nye

Yes, you are seeing a tax effective numbers on the base of the financial statements.

Trey Grooms – Stephens Inc.

Right got you. Thank you.

Operator

Our next question comes from Rodny Nacier from KeyBanc Capital Markets. Your line is open.

Rodny Nacier – KeyBanc Capital Markets

Hi Howard and Anne.

Howard Nye

Hi, Rodny.

Anne Lloyd

Hi, Rodny.

Rodny Nacier – KeyBanc Capital Markets

Thanks for the update on federal transportation spending. You had mentioned a hypothetical long-term bill back in the first half of ’12 will benefit ’12 results. Should we generally anticipate a nine month lag between the finalized bill and a trickle down to aggregate demand?

Howard Nye

You know what Rodny, that’s probably not a bad way to think about it. Obviously you can certainly have seasonality to be built into that naturally anyway. But I wouldn’t persuade you from looking at it in that way.

Rodny Nacier – KeyBanc Capital Markets

Okay. And with the likely mix shift from asphalt to more concrete intensive projects, can you give out an estimate of aggregate demand for 1 billion of repaving activity versus a billion for road widening and extending?

Howard Nye

You know what, if you are building new roads, Rodny, it’s around 32,000 tons per lane mile when you are building a brand new road.

Anne Lloyd

It’s regardless really of.

Howard Nye

Yeah, that’s from the ground up. Obviously aggregate is, it’s more aggregate intensive in asphalt than in concrete if you are looking at something in the mid 90s versus something in the mid 80s related to concrete. I’m not sure you would see a remarkable shift more to concrete I suppose to asphalt under any circumstances and clearly right now where you have more repaving you will obviously see more asphalt right now. But at the same time now there are differences in cost as well and state DOT is pretty sensitive to that. So I’m not sure we will see a remarkable shift but I hope that help remind your question a little bit.

Rodny Nacier – KeyBanc Capital Markets

Yeah, you are talking about the shift in your demand or the shift in growth expanding activities versus repaving?

Howard Nye

You know what I’m not sure that it would change our demand outlook very much Rodny and that’s what I’m focused on right now.

Anne Lloyd

If you would have perhaps a better cash flow impact if you add new construction. It might not change demand it might change the nature of the demand we are just going to use front based products clean stone a little bit more in the road construction I suppose to just clean stone in the asphalt resurfacing.

Howard Nye

Primary thing we would do Rodny we would do is come back and address inventories in a very productive way and it would let us run our plants in a more wide open fashion right now, which is not where we have been to for quite a while.

Rodny Nacier – KeyBanc Capital Markets

Understood. And with the asset side can you remind me how many times we’ve gained in Denver and how many times we have divested along the Mississippi?

Howard Nye

As I said, I think if you go and take a look at what the aggregate tonnage acquired over the last part of the year would be going into the New Year it’s going to be worth around 8 million tons. I think what you will see going out at river it’s probably going to be somewhere close to 7, 7.5.

Anne Lloyd

Yeah, Rodny you will see that in page 14 of the disclosures in the press release. You will see the divested tonnage we break those out for you.

Rodny Nacier – KeyBanc Capital Markets

Okay, thank you guys.

Howard Nye

Thank you, Rodny.

Operator

Our next question comes from Keith Hughes from SunTrust. Your line is open.

Keith Hughes – SunTrust

You and the checks on your guidance for next year you talk about the energy that’s precisely necessarily South Texas business you referred to earlier in the call.

Howard Nye

You know what South Texas is clearly a big heap of it if you look at what the energy business and in that term right now what shale meant to us in 2011. We had around 4.2 million tons of material that went to shale all by itself and to give you a sense of what we saw in South Texas that we went back and looked at Eagle Ford in 2010 it was somewhere just shy of 0.5 million ton this past year somewhere just over 1 million tons.

And as where you look at what we do like it’s going to be going into 2012 that deposit all by itself we think it’s going to be around 1.7. But we also see activity in the Barnett and the Haynesville, some in the Marcella, some even up into the Bakken. So when we talk about energy shale is the big piece of that. The other piece that we believe more of as we go into ’12 then we saw in ’11 will be in wind farms as well. Keep in mind we’ve got nice presence obviously in Texas and Iowa and those are awfully big on the wind farm producing side as well.

Keith Hughes – SunTrust

So if we added all up what is energy as we end the year as a percentage of your tonnage, your total tonnage?

Howard Nye

If we looked at that if we said that the shale was around 4.8 million tons and we came back and said maybe the balance of it might be another couple or more right now you can go back and do your math on that but you probably wouldn’t be far off on that.

Keith Hughes – SunTrust

Alright, thank you.

Howard Nye

Sure.

Operator

Our next question comes from Kathryn Thompson from Thompson Research. Your line is open.

Kathryn Thompson – Thompson Research

Hi, thanks for taking my questions today. May be just wanted another limited questions we can ask about essential transaction. But with that said, what steps can you discuss from an operational stand point can you say to pave the way for potential combination with Martin and Vulcan. But in that regard, are you doing anything differently now that you can discuss?

Howard Nye

The primary thing that we are doing with our business Kathryn is we operate it with safety first and cost right behind that. And we are focused on absolutely positively running as efficiently as we can because we have a business that we are proud of it in this respect, you come through as you did in’11 watching volumes down, watching energy up and still putting up numbers that I think we are very proud out and then I believe our shareholders are proud of. Our primary focus is making sure that we do that and we do it even better in ’12 and we are obviously in a view we can do even better than that with a broader footprint. But our primary operating focus right now is keeping our eye on Martin Marietta.

Kathryn Thompson – Thompson Research

Okay, keep in mind we’ve gotten some few facts on basically the materials and building products company they benefited from milder weather in the fourth quarter particularly in December and November and that is carried into the year. To what extent do volumes help out at all in Q4 and what are the potential benefits just going into the New Year?

Howard Nye

Part of what it did is it did let us put some inventories in the ground in some parts of the country that we needed to in the fourth quarter, where often times you wouldn’t be able to. If you looked at volume trends through the fourth quarter volume is actually down in October, down in November and actually up in December. So that very much ties with what you saw Kathryn. It also tended to be relatively dry in some parts of the country as well that was helpful.

I think one of the big deltas that we saw in Q4 this year as compared to Q4 last year we still had a good agg line season but agg line volumes this year was still around 17% lighter than they were last year. I think one thing that people shouldn’t be fooled by when you have this nice warm weather in parts of the country don’t feel that you, there is a lot of D&T work that’s going on.

Keep in mind, if you go to the standard state of North Carolina is a great example. When you got to mid November the standard specification that you basically say you have a time extension on any contracts that you have with DOT through March 15 next year. So what you have is the usual remarkable demobilization of construction equipment on jobs. So even if you’ve got a week or 10 days of very nice weather contractors typically will not bring their people back from lay off, they will not demobilize their equipment, they won’t put them on the job because it’s just not a very efficient way to run. So I think there might be one or two halts Kathryn that this warmer weather will help but in large part those are anomalies not the rule right now.

Kathryn Thompson – Thompson Research

Now on the other non-res side of construction Anne as you commented earlier about residential (Inaudible) family but what is a greater driver right now of the residential multi-family or a traditional single family housing. What also I think you get some color in terms of years that you know what inning we are in terms of this multi-family build out.

Howard Nye

And what right now what I would tell you is there is more multi-family activity than there is single family activity although there are areas that we are seeing increasing single family activity. With respect to, that’s a great question on where we are at the game so I guess we are, we just finished Super Bowl so we are talking baseball terms.

Yeah, Kathryn I would tell you, we are somewhere in the middle of the game right now on that. Clearly, housing still has uptime still ahead of it until people can sell homes or get financing they are not going to build new homes and I would say, we are probably looking at five year period of time to really see that turn in some respect. And that’s where it sits, you are going to see more multi-family activity during that snapshot than you will on the single family activity side.

Kathryn Thompson – Thompson Research

Great on your CapEx can you give some commentary on contribution with the mobile equipment as meaning kind of continue bouncing on the bottom. Are you taking any difference approach on either how you utilize equipment or how you kind of outsourcing equipment for instance with fixed rental versus outright purchase or any different strategies today that you would have taken five or six years ago with managing mobile equipment.

Howard Nye

The primary thing that’s different on mobile equipment is a) you are not putting as much hours on all of it and the beautiful thing is, it is mobile so you do you have the ability to move it from operations that may not be as good to other happens that have the need. So simply making your mobile equipment mobile and feeling free to move it between districts between divisions or otherwise it’s an important piece of it. I don’t think the lease analysis or the purchase analysis as for say change I just think the need is changed.

Kathryn Thompson – Thompson Research

Okay, and finally and just a quick clarification on SG&A have you assuming flat year-over-year on a percentage basis in percentage of sales or on the dollars?

Anne Lloyd

It will be on a dollar basis for the heritage basis.

Kathryn Thompson – Thompson Research

For the heritage business? Okay, great. Thank you.

Howard Nye

Thank you, Kathryn.

Operator

Our next question comes from Adam Rudiger from Wells Fargo. Your line is open.

Adam Rudiger – Wells Fargo

Thank you. I was curious with your South East region given the river divestitures with the impact there be changed with the operating margin or would it just be a lower dollar contribution to the overall company margin.

Howard Nye

You know what you won’t see that much of a difference in the South East in large part because the volume there has just been in many respect God if you really think about what that South East is for us right now it’s North Georgia where I think in many respects we were searching for bottom throughout the year. I hope we found it on volume.

Alabama has been a very difficult market as well. Hardly enough the one market that we saw actually very steady march improvement on volumes throughout the year was actually Florida and we are actually start increased pricing in Florida throughout the year. But the balance of the markets in the South East are just at a point that the company fixed costs around 90% of what you got there right now I mean Adam I’m sorry.

Adam Rudiger – Wells Fargo

And my second question goes back to the earlier dialogue about on the highway bill, pretend we’ve got waved your magic wand you got a $15 billion six year bill how much do you think it will get back to you, how much of it circle down to an annual basis.

Howard Nye

Well that’s a nice thing to sit back.

Anne Lloyd

It’s been a while since we’ve had that kind of debate.

Howard Nye

You know what if you go.

Adam Rudiger – Wells Fargo

I will pick you another, I will pick a different number.

Howard Nye

But I mean if you go to a fully robust bill and you assume there is good solid transportation activity what I will do is take you back to a 2006 timeframe where you had good infrastructure activity, you had good commercial activity, not great but good. You had really red hot housing activity and pretty steady ChemRock and rail activity. I think if you are more normalized that you are probably into 185, 190ish volumes based on what would have been a heritage snapshot here in our rear view mirror, I think that’s probably not a bad way to look at it.

Adam Rudiger – Wells Fargo

Thank you.

Howard Nye

Sure.

Operator

Our next question comes from Scott Levin from JP Morgan. Your line is open.

Scott Levin – JP Morgan

Hey good afternoon.

Howard Nye

Hi, Scott.

Scott Levin – JP Morgan

I was keen the residential breakdown question definitely I think you said that your multi-family activity was higher than what you are seeing in single family side. If we think about normal times, what if that split tends to look at over very, very long period of time. If you get a sense of how below trends we are in the single family side right now.

Howard Nye

You can put it ordinarily you would see a much bigger component than single family than multi particularly in South East and South West. I mean right now if you take a look at the types of numbers that are out there I mean you are almost seeing something based on the pure history that we’ve seen, something that’s been three times on multi-family, the res write down I think that’s almost an inverse.

Scott Levin – JP Morgan

Got it and then not to beat Howard exactly.

Howard Nye

I will go at it.

Scott Levin – JP Morgan

It sounds like you really think if you don’t get one by the time the current extension expires don’t bank on it. Is there a realistic possibility maybe we get extended once in your view to the, one of the summer holidays to buy a little bit more time before throwing in the towel on this. If we don’t see anything by the end of March we just not expect anything or are you not expecting anything you know at that point for the rest of the year?

Howard Nye

I will tell you Scott others may disagree with me on this I guess my sense is that if we don’t have it by the time the first ER expires Presidential politics aren’t just so powerful for the rest of the year. I think in perhaps any other year than this maybe you can see what you are describing. But I think it’s the house and the senate can get it all together here over the next call at 45ish days. Realistically we are probably looking to see our year and as a practical matter that’s where we thought we would be. I mean if you go back and listen to these calls for the last couple of years, we’ve been pretty consistent saying that we thought we would probably not see any multi-year highway bill until after the election. I hope I’m wrong but I think that’s probably where we are.

Scott Levin – JP Morgan

Got it. Maybe one follow up on that you know from the point at which we got initial proposal out of the house, which again was down 30% plus. Are you encouraged by what you are seeing out of the hill and you know what surprised you pleasantly or would that be overstating things.

Howard Nye

No, I don’t think that’s overstating things. I think that’s fair and actually the different correlations who have looked at expedition spending and have really good advocates for it have a lot to do with that. I mean if you look at the dialogue that’s coming out right now, there is good dialogue coming out of the White House, there is more better dialog coming out of the house. And the senate has been very consistent on it, look at where the senate is it came out of committee with a high policy 18 to zero vote.

So we like the time of dialogue, we like the fact that we are not hearing any of that 30% cut language anymore. So I think as we look at where we sit and what we are likely to get would we like higher numbers, sure we would. Are we at least pleased that it looks like it’s staying flat? We are and are we particularly pleased with the reform provisions that we see out of the house? We are. So I don’t think your notion of feeling better about it is misplaced at all I would agree with you.

Scott Levin – JP Morgan

Understood. Thanks a lot.

Howard Nye

Thank you, Scott.

Operator

Our next question comes from Garik Shmois from Longbow Research. Your line is open.

Garik Shmois – Longbow Research

Thank you. I just have a clarification question on your placing guidance. Howard you stated in your prepared remarks that you expected pricing to be steady in 2012 if I heard you correctly just want to reconcile that with the 2% to 4% guidance. The steady commentary respect of the pricing mix was a result of the other slots and gains in the last quarter.

Howard Nye

I think what we are more saying to that we finished this year with pricing up 2.7%. So when we were saying steady we meant we should continue to see that same level of trajectory. So perhaps I needed to retain my words a little bit more and I’m sorry about that Garik but that’s what I meant to say.

Garik Shmois – Longbow Research

Okay, so thanks for clarifying that. And just switching gears to non-res you talked about your expected growth with some of the energy markets. Can you talk about what you are seeing on the lighter side of the equation of this retail if you are expecting any volume pick up in those areas?

Howard Nye

You know what Garik we are expecting some pick up in those areas this year. We started seeing some pick up in that last year and again it’s not tremendous uptick and I think as we discussed before that you should see us going to follow residential is something that feels like a nine to 18 month lag. So on some of those places where we are starting to see some residential activity I think we will see some office and retail more of what we’ve seen so far. There is people coming in and finishing office and retail projects that were started several years ago and then they walked away from it and put it on ice.

Garik Shmois – Longbow Research

Okay, and then a question just on the (Inaudible) volume performance in the quarter. Was the year-over-year drop was largely related to the decline that you mentioned ChemRock in 4Q.

Howard Nye

Yeah, it was. We saw the ChemRock/Rail piece yes I think will sit down and down 17% and we saw some of the rail business down as well.

Garik Shmois – Longbow Research

So if you hold that out would you gotten across the volumes to grow the Western Group.

Howard Nye

Yeah, I think you would have seen something positive considerably much better.

Garik Shmois – Longbow Research

Okay and then just lastly to the degree you can answer this. Can you provide an update with respect to the DOJ chase I can request and perhaps what we made expected ruling from them.

Howard Nye

You know I probably can’t give you anything on their timing what I can tell you is we did follow (Inaudible) obviously the week that we initiated our offer. We have worked as we typically do at DOJ our practice has been to work very openly, very collaboratively with them and we feel like working in that type of a process leads to a quicker more thoughtful conclusion. And that’s exactly where we are we haven’t been surprised by anything and we continue to feel very good about the process.

Garik Shmois – Longbow Research

Okay, thank you very much.

Howard Nye

Alright, thank you.

Operator

Our next question comes from Ted Grace from Susquehanna. Your line is open.

Ted Grace – Susquehanna

Hey guys how are you doing?

Howard Nye

Alright Ted, how are you?

Ted Grace – Susquehanna

Great, quick questions and you’ve been kind enough to kind of bridge the cost of sales if you will for the aggregate business for us in prior quarters. And so if we could do that in the fourth quarter and really where we are going just trying to bridge on a reported basis revenue up $21 million and as we think about, we think your current profit is down about 5.5 in the back half of one time, which is 26% decremented. I know that Howard has highlighted $19 million of higher energy cost. But I’m just wondering if he could help us reconcile pricing with the $16 million tail wind or something there kind of how you get through pricing, volume, labor, energy et cetera.

Anne Lloyd

If you look at the fourth quarter on consolidated basis growth profit you are right pricing was up about $17 million. Volume and energy cost you about $3.5 million each and the other big driver was your inventory change that cost you about $7.8 million.

Ted Grace – Susquehanna

Okay.

Anne Lloyd

And it’s on the growth profit line.

Ted Grace – Susquehanna

Okay, gross.

Anne Lloyd

Yeah.

Ted Grace – Susquehanna

Okay, and then can we do the same thing for the Specialty Product business because 82% incremental is very impressive. I couldn’t tell if Howard might have mentioned before that energy was not benefited I guess that kind of control for it the press used to say the one to help. Maybe you can just help us bridge kind of what happened in the fourth quarter especially products that will be great too.

Anne Lloyd

I don’t have that bridge we typically don’t provide that level of detail. Energy natural gas was not, it was essentially neutral in the quarter. The biggest energy issue at mag or Specialty Products is the (Inaudible) that they have to use call there but demand was up, pricing was up, but typically we did not provided that level of detail on a bridge Ted.

Ted Grace – Susquehanna

Okay, could you get an order of magnitude of what pricing did for Specialty Products or is that nothing you want to disclose?

Howard Nye

You know what Ted, Ted that is something that we don’t want to disclose at this time.

Ted Grace – Susquehanna

Well, I just wanted to ask you on the vision on Specialty Product as they assume they basically add capacity at this point.

Howard Nye

Yeah. I think that’s a very fair assumption.

Ted Grace – Susquehanna

Okay, so just trying to reconcile flat profits next year, I assume you’ve got a meaningful degree of pricing power would you get natural gas curve is not going to be a headwind for you. Trying to understand how we should think about flat profit guidance for that segment given those dynamics and as it one of those where we should anticipate shifted revenue for some reason or if you could just elaborate there it would be great.

Anne Lloyd

It’s all back to the field utilization Ted. I mean we are using field utilization for ’12 as the same as it was in ’11, which is what current indications are. If that number, if utilization is higher, you can expect higher profitability, if it’s lower you can expect lower profitability again that’s against the 2011 benchmark.

Howard Nye

So again, keep in mind Ted watch it the way it goes around 70 if it goes above 70 it does really well but if it’s below that or near it suffer.

Ted Grace – Susquehanna

Is there any pricing assumption positive pricing assumption built into that guidance flat kind of pretax contribution.

Howard Nye

We received our normal price increases in that segment. But again we don’t come back and address on the percentage basis what that is.

Ted Grace – Susquehanna

Got it, okay. Got it, thanks a lot guys let’s rock this quarter.

Howard Nye

Thanks Ted.

Operator

Our next question comes from Bob Wetenhall from RBC. Your line is open.

Bob Wetenhall – RBC Capital

Hi, thanks for the terrific color. You’ve done a great job of managing SG&A. I was just curious how much of an opportunity is there moving forward especially at times like you might be growing your revenue base. Can we keep that at the 125 range or is there any chance you have additional cost saving opportunities.

Howard Nye

Guess what we are always going to look for additional cost saving opportunities. We will leave it at that. So we continue to look at it I do think we manage SG&A better than the most in the sector and we are obviously very proud of it but at the same time 25% of your cost of goods sold is on the personnel line and that’s always going to be something in a volume challenged time. That we are going to be sensitive too again I’m proud of that and our team should be proud of that that in type of an atmosphere they can put up these type of numbers and in large part it’s great to have 6% pricing in the quarter, I won’t deny that but if you don’t have your cost profile in place none of the rest of it matters.

Anne Lloyd

And Bob we do have some pension headwind in 2012 that we are going to have to overcome obviously asset returns were not very good for 2011. So that pension increased for 12 and it’s about $9 million and about third of that goes to SG&A.

Bob Wetenhall – RBC Capital

That’s really helpful color. On the diesel cost are you guys hedging and what are diesel prices since the start of the year on average.

Howard Nye

Well you know we don’t hedge these so what I could give you a sense of when we finish the fourth quarter diesel was around $2.95 a gallon that was up 27% from the prior year quarter when he said 2.32 for the full year. And this number is very similar to fourth quarter; it’s $2.96 per gallon, so there is your 40% delta year-on-year. If you are looking for what you meant for the quarter it’s about $0.05 of share that’s diluted for the full year of $0.23 and if you are looking for total usage in Q4 it was just shy of 7 million gallons and for the full year just shy of 30 million gallons.

Bob Wetenhall – RBC Capital

That’s fine.

Howard Nye

That’s probably more than you ever wanted to know.

Bob Wetenhall – RBC Capital

No and that’s great that’s exactly what I was trying to figure out. And just in terms of your offer to combine with VMC. I was trying to get to understand better how you give out the proxy process. Because one thing VMC has been saying is that even if you’ve been able to get your nominees on the board you would have 5 out of 12 on VMC’s Board of Directors. So if that mean if you did get that then you would wait around the fall year when you get the full board on your side. Am I thinking about that correctly?

Howard Nye

I mean, I think if you are looking at a pure process I think you are thinking about it correctly and I think one of the things that we said in one of the last calls is we are not looking to start something, we are not prepared to finish. Again the process that you outlined is not the process that we want to do.

I mean what we want to do is we want to sit down with them and we want to negotiate with this current management team with that current board and find a way to bring these companies together in a very productive way that gained some media shareholder value. But through your question from a process perspective if that doesn’t occur then I don’t discrete I think you hit it.

Bob Wetenhall – RBC Capital

And you’ve prepared then to wait the extra year is what you are saying.

Howard Nye

We are prepared to do what we need to do.

Bob Wetenhall – RBC Capital

Thanks very much. Nice quarter.

Howard Nye

Thank you.

Operator

Our next question comes from Brent Thielman from D.A. Davidson. Your line is open.

Brent Thielman – D.A. Davidson

Hey, Howard; hey, Anna. Just a quick question on the South East Group. Howard you mentioned for this ongoing weakness in North Georgia and Alabama markets and obviously the diesel is having to have a broad impact. But we should say those areas that principally would keep you from getting the profitability in that group or it’s a little more Q&A.

Howard Nye

I would say that, that is very much if you look at housing and his landing in particular it is just frankly it’s almost non-existent as is commercial work there. Georgia DOT has been through its own political imaginations here over the last several years as well. It looks like a lot of that is going to get so forth dealt with the ballet bill issue that’s going to be up there in July as we go into this year. But clearly the underlying economies in North Georgia, Alabama and to a degree but not as too much in South Georgia has been the primary drivers no doubt about it.

Anne Lloyd

And Brent we are at a point at some of those litigations where either you are open or you are closed. And so if you are open you are running at probably above 80%, 85% fixed cost. It’s just a tough climate.

Brent Thielman – D.A. Davidson

Okay, great. Well thanks for all the color in the call.

Howard Nye

Thank you, Brent.

Operator

Our next question comes from Mike Betts from Jefferies. Your line is open.

Mike Betts – Jefferies

Yes, good afternoon. Just one question I guess it’s two parts for me if I could 1% increase in direct product cost 9.5% in cost of goods sold I mean these are all the detail I think three months ago two part question if I could maybe on first of the 305 in Q4 how much of that is defined into direct production cost and the second part of the question as we go into 2012 you talked about still declining direct product cost. What is that you need to close that gap you didn’t know around where will be the fuel prices. I mean obviously I’m talking with volumes roughly the same talking about 3% to 4% increase. But it’s the major difference that it caused by energy or am I missing something there? Thank you.

Howard Nye

No, you are not missing anything there. Anne will come back and address the first part of it. But from where we sit to answer your question directly one it’s something that you’ve (Inaudible) that’s your number one driver and then two coming back and having some degree of stability or normal seat related to the energy component in mind.

Mike Betts – Jefferies

Thank you and Anne.

Anne Lloyd

I will get right now.

Mike Betts – Jefferies

Well maybe I just add one more to Howard then have you expanded the asphalt that situation more of a concern. I mean significant types of that on the asphalt side.

Howard Nye

You know what I think what that’s going to asphalt typically is either going to made or otherwise depending on how the liquid is moving. I think what’s going to happen next year is you will go into the year recognize that you’ve gotten much more stable situation in liquid. You know keep in mind even when I address that $19.2 million delta in the West Group that we talked about on energy full 9 plus of that is simply related to liquid. So as you go back you have indexing in the contracts and you have the ability to capturing those issues moving to New Year. As I don’t see that being as volatile in ’12 as it was in ’11. Simply press the energy spike and the liquid spike it was so remarkable during the course of the year.

Anne Lloyd

And my total cost of goods sold for the quarter about two thirds of that are direct.

Mike Betts – Jefferies

Thank you both.

Howard Nye

Thank you, Mike.

Operator

Our next question comes from Keith Johnson from Morgan Keegan. Your line is open.

Keith Johnson – Morgan Keegan

Well good afternoon.

Howard Nye

Hey, Keith.

Keith Johnson – Morgan Keegan

Just a couple of quick questions. I guess first of all on the guidance for interest I think you guys said flat in 2012 versus 2011. It looks like in your call sort of brought down into this $13 million range after the first quarter this year. Do you expect maybe a little pick up a little bit in 2012?

Anne Lloyd

Well we had a little pick up in debt because of the cash payment that we’ve made for our acquisition that we did in the fourth quarter. And obviously we’ve got perhaps a little bit of (Inaudible) to fund the cost of project here.

Keith Johnson – Morgan Keegan

Okay and then if we look at the fourth quarter taxes I guess, of course dropped off a little bit. But that’s all swap related and what happened fourth quarter on the income tax line.

Anne Lloyd

Fourth quarter taxes are very strange discontinued ops happened but it’s really, but it’s been biggest driver for the fourth quarter was continuing now. And that has to do with the fact that your business development expenses were not deductable.

Keith Johnson – Morgan Keegan

Okay, now it’s just play out quarter-to-quarter.

Anne Lloyd

That just pay out as with the resolution that our business development activity.

Keith Johnson – Morgan Keegan

But otherwise, just running into 26% annual rate.

Anne Lloyd

That otherwise without this three other unusual advantages.

Keith Johnson – Morgan Keegan

Okay, I apologize if I missed it earlier. For 2011 can you tell me what the infrastructure heritage volume and then the non-res heritage volume as they were related to 2010?

Howard Nye

If we looked at infrastructure for the quarter was down 1.7. Non-res was up slightly. ChemRock/Rail was off around 4.5 and res was up around 2.5. If you looked at it for a full year infrastructure down around a little bit more than 5, non-res of around 3.5, ChemRock/Rail off around 1.7 and res up around 3.7.

Keith Johnson – Morgan Keegan

And then I guess just final question you’ve mentioned about the seasonality short of shifting with this asset swap. Because the portion of your business is now more to the West is that, should we just think about that particularly on the West segment as we kind of bottomed out first quarter and going forward with more of a presence in the Denver operation.

Howard Nye

Absolutely you should I mean it’s going to be. It is the winner operation and introduce some of our friends to the notion of when to (Inaudible) and that large part of that’s what you are doing with the winner operation in Colorado you are a winner in that and give you a sense that if you simply look at it from a headcount perspective.

The operations that went out to the operations that we brought it our net headcount is stuck around 463 people. And again if you are back to the notion that’s the most expensive cost that you have is the personal component of it and you are entirely right I’m back and look at that with very much with winner focus here during the balance of Q1.

Keith Johnson – Morgan Keegan

And my final question is that any portion of that fourth quarter drop off in the West in the gross margin lines because of the swap happened and that’s the fact during extension.

Howard Nye

No, I mean to the extent of that was there we just, a little bit of invoice nothing above that.

Keith Johnson – Morgan Keegan

Okay. All right, great. Thanks a lot.

Howard Nye

Alright, thank you.

Operator

I’m showing no further questions at this time. I will now turn the call back over to Howard Nye for brief closing remarks.

Howard Nye

Again, thanks for joining our fourth quarter and full year earnings call and for your interest in Martin Marietta. 2011 was a notable year from a lot of perspectives. We think the stage is set for a very exciting 2012. We look forward to discussing our first quarter 2012 results in May and updating you as appropriate on our strategic initiatives. Thank you. Thank you, very much.

Operator

Ladies and gentlemen, that does conclude today’s conference. You may all disconnect and have a wonderful day.

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