Page 177 - Martin Marietta - 2023 Proxy Statement

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The Company is a guarantor with an unconsolidated affiliate for a $15.0 million revolving line of credit agreement with Truist
Bank that has a maturity date of March 2024, of which $2.6 million was outstanding as of December 31, 2022. The affiliate has
agreed to reimburse and indemnify the Companyfor any payments and expenses the Company may incur from this agreement.
The Company holds a lien on the affiliate’s membership interest in a joint venture as collateral for payment under the revolving
line of credit.

OTHER FINANCIAL INFORMATION

Critical Accounting Policies and Estimates
The Company’s audited consolidated financial statements include certain critical estimates regarding the effect of matters that
are inherently uncertain. These estimates require management’s subjective and complex judgments. Amounts reported in the
Company’s consolidated financial statements could differ materially if management used different assumptions in making
these estimates, resulting in actual results differing from those estimates. Methodologies used and assumptions selected by
management in making these estimates, as well as the related disclosures, have been reviewed by and discussed with the
Company’s Audit Committee. Management’s determination of the critical nature of accounting estimates and judgments may
change from time to time depending on facts and circumstances that management cannot currently predict.

Impairment Review of Goodwill
Goodwill is required to be tested annually for impairment. An interim review is performed between annual tests iffacts and
circumstances indicate a potential impairment. The Company performs its impairment evaluation as of October 1, which
represents the annual evaluation date. The impairment review of goodwill is a critical accounting estimate because goodwill
represented 24% (excluding goodwill allocated to assets held for sale) of the Company’s total assets at December 31, 2022; the
review requires management to apply judgment and make key assumptions; and an impairment charge could be material to
the Company’s financial condition and results of operations.
Certain operating segments within the Building Materials business meet the aggregation criteria and are consolidated into
reportable segments for financial reporting. 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. If subsequent organizational
changes result in operations being transferred to a different reporting unit, a proportionate amount of goodwill is transferred
from the former to the new reporting unit. The Southwest Division is the most significant reporting unit and includes $1.8
billion of the Company’s goodwill. There is also $1.1 billion of goodwill in the West Division reporting unit. There is no goodwill
related to the Magnesia Specialties business.
Goodwill is tested for impairment by comparing the reporting unit’s fair value to its carrying value, which represents a Step‐1
analysis. However, prior to Step 1, the Company may perform an optional qualitative assessment, or Step 0. As part of the
qualitative assessment, the Company considers, among other things, the following events and circumstances: macroeconomic
conditions, industry and market conditions, cost factors, overall financial performance and other business or reporting unit‐
specific events. If the Company concludes 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 does not perform anyfurther goodwill impairment testing for that
reporting unit. Otherwise, it proceeds to Step 1 of its goodwill impairment analysis. If the reporting unit’s fair value exceeds its
carrying value, no further calculation is necessary. A reporting unit with a carrying value in excess of its fair value constitutes a
Step‐1 failure and results in an impairment charge. When the Company validates its conclusion by measuring fair value, it may
resume performing a qualitative assessment for a reporting unit in any subsequent period. The Company may bypass the
qualitative assessment for any reporting unit in any period and proceed directly with the quantitative calculation in Step 1. The
Company performs a Step‐1 analysis for all its reporting units every three years.
For the 2022 annual impairment evaluation, the Company performed a Step‐1 analysis for all reporting units. The fair values
were calculated using a discounted cash flow model. Key assumptions included management’s estimates of changes in average
selling price, shipment volumes and production costs as well as assumptions offuture profitability, capital requirements,
discount rates ranging from 10.0% to 10.25% and a terminal growth rate of 2.5%. The fair value of all reporting units exceeded
the carrying value. For sensitivity purposes, a 100‐basis‐point increase in the discount rate, holding all other assumptions
constant, would still result in all units passing the Step‐1 analysis.
Future profitability and capital requirements are, by their nature, estimates. Price, cost and volume assumptions were based
on various factors, including historical averages and current forecasts, external sources, and market conditions, while also

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