Page 180 - Martin Marietta - 2023 Proxy Statement

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

Estimated Effective Income Tax Rate
The Company uses the liability method to determine its provision for income taxes. Accordingly, the annual provision for
income taxes reflects estimates of the current liabilityfor income taxes, estimates of the tax effect offinancial reporting versus
tax basis differences using statutory income tax rates and management’s judgment with respect to any valuation allowances
on deferred tax assets and accruals for uncertain tax positions. The result is management’s estimate of the annual effective tax
rate (the ETR).
Income for tax purposes is determined through the application of the rules and regulations under the United States Internal
Revenue Code and the statutes of various foreign, state and local tax jurisdictions in which the Company conducts business.
Changes in the statutory tax rates and/or tax laws in these jurisdictions can have a material impact on the ETR. The effect of
these changes, if material, is recognized when the change is enacted.
As prescribed by these tax regulations, as well as generally accepted accounting principles, the manner in which revenues and
expenses are recognized for financial reporting and income tax purposes is not always the same. Therefore, these differences
between the Company’s pretax income for financial reporting purposes and the amount of taxable income for income tax
purposes are treated as either temporary or permanent, depending on their nature.
Temporary differences reflect revenues or expenses that are recognized in financial reporting in one period and taxable income
in a different period. An example of a temporary difference is the use of the straight‐line method of depreciation of machinery
and equipment for financial reporting purposes and the use of an accelerated method for income tax purposes. Temporary
differences result from differences between the financial reporting basis and tax basis of assets or liabilities and give rise to
deferred tax assets or liabilities (i.e., future tax deductions or future taxable income). Therefore, when temporary differences
occur, they are offset by a corresponding change in a deferred tax account. As such, total income tax expense as reported in
the Company’s consolidated statements of earnings is not changed by temporary differences.
The Company has deferred tax liabilities, primarilyfor right‐of‐use assets, property, plant and equipment, goodwill and other
intangibles, employee pension and postretirement benefits and partnerships and joint ventures. The deferred tax liabilities
attributable to property, plant and equipment relate to accelerated depreciation and depletion methods used for income tax
purposes as compared with the straight‐line and units‐of‐production methods used for financial reporting purposes. These
temporary differences will reverse over the remaining useful lives of the related assets. The deferred tax liabilities attributable
to goodwill arise as a result of amortizing goodwill for income tax purposes but not for financial reporting purposes. This
temporary difference reverses when goodwill is written off for financial reporting purposes, either through divestitures or an
impairment charge. The timing of such events cannot be estimated. The deferred tax liabilities attributable to employee
pension and postretirement benefits relate to deductions as plans are funded for income tax purposes compared with
deductions for financial reporting purposes based on accounting standards. The reversal of these differences depends on the
timing of the Company’s contributions to the related benefit plans as compared to the annual expense for financial reporting
purposes. The deferred tax liabilities attributable to partnerships and joint ventures relate to the difference between the tax
basis of the investments in partnerships and joint ventures when compared to the basis for financial reporting purposes. The
temporary difference reverses through differences recognized over the life of the investment or through divestiture.
The Company has deferred tax assets, primarilyfor inventories, unrecognized losses related to the funded status of the pension
and postretirement benefit plans, lease liabilities, valuation reserves, net operating loss carryforwards and tax credit
carryforwards. The deferred tax assets attributable to inventories and valuation reserves relate to the deduction of estimated
cost reserves and various period expenses for financial reporting purposes that are deductible in a later period for income tax
purposes. The reversal of these differences depends on facts and circumstances, including the timing of deduction for income
tax purposes for reserves previously established and the establishment of additional reserves for financial reporting purposes.
The deferred tax assets attributable to unvested stock‐based compensation awards relate to differences in the timing of
deductibilityfor financial reporting purposes versus income tax purposes. For financial reporting purposes, the fair value of the
awards is deducted ratably over the requisite service period. For income tax purposes, no deduction is allowed until the award
is vested or no longer subject to substantial risk offorfeiture. The Company reflects all excess tax benefits and tax deficiencies
in income tax expense as a discrete event in the period in which the award vests or settles, increasing volatility in the income
tax rate from period to period.

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