Page 178 - Martin Marietta - 2023 Proxy Statement

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

considering any production capacity constraints. Capital requirements included maintenance‐level needs and known efficiency‐
and capacity‐increasing investments.
A discount rate is calculated for each reporting unit that requires a Step‐1 analysis and represents its weighted average cost of
capital. The calculation of the discount rate includes the following components, which are primarily based on published sources:
equity risk premium, historical beta, risk‐free interest rate, small‐stock premium and borrowing rate.
The terminal growth rate was based on anticipated average GDP increases post‐2023.
Management believes that all assumptions used were reasonable based on historical operating results and expected future
trends. However, iffuture operating results are unfavorable as compared with forecasts, the results offuture goodwill
impairment evaluations could be negatively affected. Further, mineral reserves, which represent underlying assets producing
the reporting units’ cash flows for the aggregates product line, are depleting assets by their nature. Any potential impairment
charges from future evaluations represent a risk to the Company.

Pension Benefit Obligation and Pension Expense – Selection of Assumptions
The Company sponsors noncontributory defined benefit pension plans that cover substantially all employees and a
Supplemental Excess Retirement Plan (SERP) for certain retirees (see Note K to the consolidated financial statements). Annually,
as of December 31, management remeasures the defined benefit pension plans’ projected benefit obligation based on the
present value of the projected future benefit payments to all participants for services rendered to date, reflecting expected
future pay increases through the participants’ expected retirement dates. A discount rate assumption is selected annually
based on corporate bond rates as of the measurement date to calculate the present value of the projected benefit obligation.
Annual pension expense, referred to as net periodic benefit cost within the consolidated financial statements, (inclusive of
SERP expense) consists of several components:
 Service Cost, which represents the present value of benefits attributed to services rendered in the current year,
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measured by expected future salary levels to assumed retirement dates;
 Interest Cost, which represents one year’s additional interest on the projected benefit obligation;
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 Expected Return on Assets, which represents the expected investment return on pension plan assets; and
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 Amortization of Prior Service Cost and Actuarial Gains and Losses, which represents components that are
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recognized over time rather than immediately. Prior service cost represents credit given to employees for years of
service already accrued. At December 31, 2022, unrecognized prior service cost was $48.2 million. Management
currently expects to amortize $5.9 million of the unrecognized prior service cost in 2023. Actuarial gains and losses
arise from changes in assumptions regarding future events, a change in the benefit obligation resulting from
experience different from assumed or when actual returns on pension assets differ from expected returns. At
December 31, 2022, the unrecognized actuarial loss was $43.2 million. Pension accounting rules currently allow
companies to amortize the portion of the unrecognized actuarial loss that represents more than 10% of the greater
of the projected benefit obligation or pension plan assets, using the average remaining service life for the
amortization period. The calculation is performed on a plan‐by‐plan basis. Management currently expects to
amortize $0.4 million of the unrecognized actuarial loss in 2023.
The aforementioned components are calculated annually to determine the annual pension expense.
Management believes the selection of assumptions related to the annual pension expense and related projected benefit
obligation is a critical accounting estimate due to the high degree of volatility in the expense and obligation dependent on
selected assumptions. The key assumptions are as follows:
 The discount rate is used to present value the projected benefit obligation and represents the current rate at which
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the projected benefit obligations could be effectively settled.
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 The expected long‐term rate of return on pension plan assets is used to estimate future asset returns and should
reflect the average rate of long‐term earnings on assets invested to provide for the benefits included in the
projected benefit obligation.
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 The mortality table and mortality improvement scale represent published statistics on the expected lives of people.
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 The rate ofo increase in fuf ture compensation levelsl is used to project the pay‐related pension benefit formula and
should estimate actual future compensation levels.
Page 74 ♦ Annual Report