Page 178 - Martin Marietta - 2025 Proxy Statement

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Business Combinations – Allocation of Purchase Price

The Company’s Board of Directorsand management regularlyreviewlong-term strategicplans, including potential investments
invalue-addedacquisitionsofrelated or similarbusinesses, which would increase the Company’s market presence and/or are
related to the Company’s existing markets. When an acquisition iscompleted,the Company’sconsolidated statements of
earnings include theoperating resultsof the acquiredbusinessstarting fromthe date of acquisition, which is thedatecontrol
isobtained. The purchase price is determined basedonthe fairvalueof assets andequity interestsgiven to thesellerand any
futureobligations to thesellerasof the date of acquisition. The Companyallocatesthe purchase pricetothe fairvalues of the
tangibleand intangible assets acquiredand liabilitiesassumedas valuedatthe date of acquisition.Goodwill is recorded forthe
excessof the purchase price over thenet of the fair value of the identifiableassets acquiredand liabilitiesassumedasof the
acquisition date. The purchase price allocation is acriticalaccountingpolicy because theestimationoffair valuesof acquired
assets andassumed liabilities isjudgmental and requires various assumptions. Further, theamountsand useful lives assigned
todepreciable andamortizable assets versus amountsassignedtogoodwill and indefinite-lived intangible assets, which are
not amortized, cansignificantly affect the results of operations in theperiodof and forperiods following a business
combination.
Fairvalue isthe pricethat would be received to sell an assetorpaidtotransfera liabilityinanorderly transaction, and,
therefore, representsanexit price.Fair value measurementassumesthe highestand best useof the asset by market
participants, consideringthe useof the assetthatisphysically possible, legally permissible, and financiallyfeasible at the
measurement date. The Companyassignsthe highestlevel offairvalueavailabletoassets acquiredand liabilitiesassumed
based on the following options:
 Level 1– Quotedprices inactive markets for identical assets andliabilities
 Level 2– Observable inputs, otherthanquoted prices, forsimilarassets or liabilities inactive markets
 Level3 – Unobservableinputs,usedto value theassetorliabilitywhich includesthe useofvaluation models

Level 1 fairvaluesare used to value investments in publicly traded entities andassumedobligations forpublicly traded long-
termdebt.
Level 2fair values aretypically used to valueacquired receivables, inventories, machinery andequipment, land, buildings,
deferred incometax assets andliabilities, and accruals forpayables, asset retirementobligations,environmental remediation
and compliance obligations, and contingencies. Additionally, Level 2 fairvaluesare typically used to valueassumedcontracts
atother-than-market rates.
Level3 fairvalues areusedto value acquired mineral reservesand mineral interests produced andsoldas final products, and
separately-identifiable intangible assets. The fairvalues of mineral reservesand mineral interests aredeterminedusing an
excessearningsapproach, which requiressignificant judgment to estimate future cash flows, netof capital investments inthe
specificoperation andcontributory assetcharges. The estimate offuture cash flows isbased on availablehistorical information
and future expectations andassumptionsdeterminedbymanagement, but is inherently uncertain. Significantassumptions
usedtoestimate futurecash flows includechanges in forecasted revenues basedonsales priceand shipment volumes, EBITDA
marginand forecasted expenses inclusiveof productioncosts andcapital needs. The present valueof the projectednet cash
flows represents the fair value assigned to mineral reservesand mineral interests. The discount rate is asignificant assumption
used inthe valuation model and isbased on the required rateofreturnthata hypothetical market participant would require if
purchasingthe acquired business, with an adjustment forthe risk of theseassets notgeneratingthe projectedcash flows.
The Company valuesseparately-identifiable acquired intangible assets which may include,but arenot limited to,permits,
customer relationships, water rights andnoncompetitionagreements. The fair valuesof these assets aretypically determined
by an excess earnings method, a replacementcost methodor, in thecaseofwater rights, a market approach.

The useful lives of amortizable intangibleassetsand the remaining useful lives foracquired machinery andequipmenthavea
significant impact on earnings. The selected lives arebased on theexpected periods that theassets will provide value to the
Company following thebusinesscombination.

The Company mayadjustthe amounts recognized for abusinesscombination during a measurement period afterthe
acquisition date.Any such adjustmentsare basedonthe Company obtaining additional informationthatexisted at the
acquisition date regardingthe assets acquired or theliabilitiesassumed. Measurement-period adjustmentsare generally
recordedas increases or decreasestothe goodwill recognized in thetransaction. The measurementperiodends once the
Company hasobtainedall necessary informationthatexisted as of theacquisition date,but does notextendbeyondone year

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