Page 175 - Martin Marietta - 2024 Proxy Statement

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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
(excluding goodwill allocated to assets held for sale) represented 22% of the Company’s total assets at December 31, 2023; 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. For divestitures, goodwill is allocated on a proportional basis based on the relative fairvalues of the portion
of the reporting unit being disposed of and the portion of the reporting unit remaining.
The Southwest Division is the most significant reporting unit and includes $1.5 billion of the Company’s goodwill, excluding
amounts classified as held for sale. At December 31, 2023, the Company allocated $260.0 million of goodwill to assets held for
sale for a pending divestiture in the Southwest Division. 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 fairvalue 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 fairvalue 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 fairvalue constitutes a Step‐1 failure and
results in an impairment charge. When the Company validates its conclusion by measuring fairvalue, 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 2023 annual impairment evaluation, the Company performed a Step‐0 analysis for all reporting units and concluded that
it is more‐likely‐than‐not that each of the reporting units’ fairvalue exceeded its carrying value.
Any potential impairment charges fromfuture evaluations represent a risk to the Company.

2023 Annual Report ♦ Page 73