Page 186 - Martin Marietta - 2023 Proxy Statement

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

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As discussed earlier, the Company’s operations are highly dependent upon the interest rate‐sensitive construction and
steelmaking industries. Consequently, these marketplaces could experience lower levels of economic activityin an environment
of rising interest rates or escalating costs (see Business Environment section included under Item 7 – MD&A of this Form 10‐K).
Management has considered the current economic environment and its potential impact to the Company’s business. Demand
for aggregates products, particularlyin the infrastructure construction market, is affected byfederal, state and local budget
and deficit issues. Further, delays or cancellations of capital projects in the nonresidential and residential construction markets
could occur if companies and consumers are unable to obtain affordable financing for construction projects or if consumer
confidence is eroded by economic uncertainty.
Demand in the residential and nonresidential construction markets, which combined accounted for 60% of the Company's 2022
aggregates shipments, is affected by interest rates. During 2022, the Federal Reserve raised the target federal funds rate 425
basis points.

Aside from these inherent risks from within its operations, the Company’s earnings are also affected by changes in short‐term
interest rates and changes in enacted tax laws.

Variable‐Rate Borrowing Facilities
At December 31, 2022, the Company had an $800.0 million Revolving Facility and a $400.0 million Trade Receivable Facility.
Borrowings under these facilities bear interest at a variable interest rate. As of December 31, 2022, the Company did not have
any outstanding variable‐rate debt. However, anyfuture borrowings under the credit facilities or outstanding variable‐rate
debt are exposed to interest rate risk.

Pension Expense
The Company’s results of operations are affected by its pension expense. Assumptions that affect pension expense include the
discount rate and, for the qualified defined benefit pension plan only, the expected long‐term rate of return on assets.
Therefore, the Company has interest rate risk associated with these factors. The impact of hypothetical changes in these
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assumptions on the Company’s annual pension expense and accrued pension obligation is discussed in the Critical Accounting
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Policies and Estimates – Pension Expense – Selection of Assumptions section included under Item 7 – MD&A of this Form 10‐K.
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Income Tax
Any changes in enacted tax laws, rules or regulatory or judicial interpretation, or any change in the pronouncements relating
to accounting for income taxes, could materially impact the Company's effective tax rate, tax payments, financial condition and
results of operations.
Energy Costs
Energy costs, including diesel fuel, natural gas, electricity, coal, petroleum coke and liquid asphalt, represent significant
production costs of the Company. The Company may be unable to pass along increases in the costs of energy to customers in
the form of price increases for the Company’s products. The cement product line and Magnesia Specialties business each have
varying fixed‐price agreements for a portion of their future energy requirements. A hypothetical 10% change in the Company’s
energy prices in 2023 as compared with 2022, assuming constant volumes, would change 2023 energy expense by $50.0 million.

Commodity Risk

Cement is a commodity and competition is based principally on price, which is highly sensitive to changes in supply and demand.
Prices are often subject to material changes in response to relatively minor fluctuations in supply and demand, general
economic conditions and other market conditions beyond the Company’s control. Increases in the production capacity of
industry participants or increases in cement imports tend to create an oversupply of such products leading to an imbalance
between supply and demand, which can have a negative impact on product prices. There can be no assurance that product
prices will not decline in the future or that such declines will not have a material adverse effect on the Company’s business,
financial condition and results of operations. A hypothetical 10% change in sales price of the cement product line would impact
cement product line revenues by $60.2 million.

Page 82 ♦ Annual Report