Page 123 - Martin Marietta - 2023 Proxy Statement

NOTES TO FINANCIAL STATEMENTS (Continued)

In the consolidated statements of earnings, operating lease expense, which is recognized on a straight‐line basis over the lease
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term, and the amortization offinance lease ROU assets are included in the Cost of revenues ‐ products and services or Selling,
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general and administrative expenses line items in the consolidated statements of earnings. Accretion on the liabilities for finance
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leases is included in interest expense.
Goodwill and Other Intangible Assets. Goodwill represents the excess purchase price paid for acquired businesses over the
estimated fair value of identifiable assets and liabilities. Other intangible assets represent amounts assigned principally to
contractual agreements and are either amortized ratably over the useful lives to the Company or not amortized if deemed to have
an indefinite useful life.
The Company’s reporting units, which represent the level at which goodwill is tested for impairment, are based on the operating
segments of the Building Materials business. Goodwill is assigned to the respective reporting unit(s) based on the location of
acquisitions at the time of consummation. Goodwill is tested for impairment by comparing each reporting unit’s fair value to its
carrying value, which represents a Step‐1 approach. However, prior to Step 1, the Company may perform a qualitative assessment
and evaluate macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and other
business or reporting unit‐specific events that contribute to the fair value of a reporting unit. If the Company concludes, based on
its qualitative assessment, it is more‐likely‐than‐not (i.e., a likelihood of more than 50%) that a reporting unit’s fair value is higher
than its carrying value, the Company is not required to perform anyfurther goodwill impairment testing for that reporting unit.
Otherwise, the Company proceeds to Step 1, and if a reporting unit’s fair value exceeds its carrying value, there is no impairment.
A reporting unit with a carrying value in excess of its fair value results in an impairment charge equal to the difference.
The carrying values of goodwill and other indefinite‐lived intangible assets are reviewed for impairment annually, as of October 1.
An interim review is performed between annual tests iffacts and circumstances indicate potential impairment. The carrying value
of other amortizable intangible assets is reviewed iffacts and circumstances indicate potential impairment. If a review indicates
the carrying value is impaired, a charge is recorded equal to the amount by which the carrying value exceeds the fair value.
Retirement Plans and Postretirement Benefits. The Company sponsors defined benefit retirement plans and also provides other
postretirement benefits. The Company recognizes the funded status, defined as the difference between the fair value of plan
assets and the benefit obligation, of its pension plans and other postretirement benefits as an asset or liability on the consolidated
balance sheets. Actuarial gains or losses that arise during the year are recognized as a component of accumulated other
comprehensive earnings or loss. Those amounts are amortized over the participants’ average remaining service period and
recognized as a component of net periodic benefit cost. The amount amortized is determined on a plan‐by‐plan basis using a
corridor approach and represents the excess over 10% of the greater of the projected benefit obligation or pension plan assets.

Insurance Reserves. he Company has insurance coverage with large deductibles for workers’ compensation, automobile liability,
marine liability and general liability claims, and is also self‐insured for health claims. The Company records insurance reserves
based on an actuarial‐determined analysis, which calculates development factors that are applied to total case reserves within the
insurance programs. While the Company believes the assumptions used to calculate these liabilities are appropriate, significant
differences in actual experience and/or significant changes in these assumptions may materially affect insurance costs.
Stock‐Based Compensation. The Company has stock‐based compensation plans for employees and its Board of Directors. The
Company recognizes all forms of stock‐based awards that vest as compensation expense. The compensation expense is the fair
value of the awards at the measurement date and is recognized over the requisite service period. Forfeitures are recognized as
they occur.
The fair value of restricted stock awards, incentive compensation stock awards and Board of Directors’ fees paid in the form of
common stock are based on the closing price of the Company’s common stock on the grant dates. The fair value of performance
stock awards as of the grant dates is determined using a Monte Carlo simulation methodology.
Environmental Matters. The Company records a liabilityfor an asset retirement obligation at fair value in the period in which it is
incurred. The asset retirement obligation is recorded at the acquisition date of a long‐lived tangible asset if the fair value can be
reasonably estimated. A corresponding amount is capitalized as part of the asset’s carrying amount. The fair value is affected by
management’s assumptions regarding the scope of the work, inflation rates and asset retirement dates.
Further, the Company records an accrual for other environmental remediation liabilities in the period in which it is probable that
a liability has been incurred and the appropriate amounts can be estimated reasonably. Such accruals are adjusted as further
information develops or circumstances change. Generally, these costs are not discounted to their present value or offset for
potential insurance or other claims or potential gains from future alternative uses for a site.

Annual Report ♦ Page 19