What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-19 · 391 added, 395 removed, 789 unchanged (50% of the section changed)

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Martin Marietta Materials, Inc.

(the Company or Martin Marietta) is a natural resource-based building materials company.

The Company supplies aggregates (crushed stone, sand and gravel) through its network of approximately 300 quarries, mines and distribution yards in 27 states, Canada and The Bahamas.

In the western United States, Martin Marietta also provides cement and downstream products, namely ready mixed concrete, asphalt and paving services, in markets where the Company has a leading aggregates position.

Specifically, the Company has two cement plants in Texas and ready mixed concrete and asphalt operations in Texas, Colorado and Wyoming.

Asphalt operations and paving services are exclusively in Colorado.

(the Company or Martin Marietta) is a natural resource-based building materials company, with 2021 total revenues of $5.41 billion and net earnings from continuing operations attributable to Martin Marietta of $702.0 million.

These results were achieved by supplying aggregates (crushed stone, sand and gravel) through its network of approximately 350 quarries, mines and distribution yards in 28 states, Canada and The Bahamas.

Martin Marietta also provides cement and downstream products, namely ready mixed concrete, asphalt and paving services, in certain markets where the Company has a leading aggregates position.

Specifically, the Company has two cement plants in Texas and ready mixed concrete and asphalt operations in Arizona, California, Colorado, Minnesota, Texas and Wyoming.

Paving services are in California and Colorado.

The Company also has two cement plants, cement distribution terminals and ready mixed concrete operations in California that are classified as assets held for sale and reported as discontinued operations as of December 31, 2021.

The Company’s heavy-side building materials are used in infrastructure , nonresidential and residential construction projects.

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East Group and West Group.

The East Group, whose operations were previously reported in the Mid-America and Southeast Groups, consists of the East and Central Divisions.

The East Group consists of the East and Central divisions.

The West Group is comprised of the Southwest and West divisions.

The East Group provides aggregates products only.

The East Group provides aggregates and asphalt products.

The West Group provides aggregates, cement and downstream products and services.

Further, the following five states accounted for 68% of the Building Materials business 2021 total revenues:

Texas, Colorado, North Carolina, Georgia and Iowa.

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Texas, Colorado, North Carolina, Georgia and Minnesota.

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The Magnesia Specialties business produces magnesia-based chemicals products used in industrial, agricultural and environmental applications.

It also produces dolomitic lime sold primarily to customers for steel production and land stabilization.

It also produces dolomitic lime sold primarily to customers for steel production and soil stabilization.

Magnesia Specialties’ products are shipped to customers worldwide.

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The Company’s strategy includes ongoing evaluation of aggregates-led opportunities of scale in new domestic markets (i.e., platform acquisitions), expansion through acquisitions that complement existing operations (i.e., bolt-on acquisitions) and divestitures of assets that are not consistent with stated strategic goals.

The Company finances such opportunities with the goal of preserving its financial flexibility by having a leverage ratio (consolidated debt-to-consolidated earnings before interest, taxes, depreciation and amortization, or EBITDA) within a range of 2.0 times to 2.5 times within a reasonable time following the completion of a debt-financed transaction.

The Company, by purposeful design, will continue to be an aggregates-led business (aggregates product gross profit represented 68% of 2020 total consolidated gross profit) that focuses on markets with strong, underlying growth fundamentals where it can sustain or achieve a leading market position.

Driven by this intentional approach, the Company has leading positions, defined as either #1 or #2, in approximately 90% of its markets.

To that effect, the Company invested $3.1 billion in acquisitions during 2021, the largest of which was completed on October 1, 2021, providing platform positions for future growth in California and Arizona.

The Company finances such opportunities with the goal of preserving its financial flexibility by having a leverage ratio (consolidated debt-to-consolidated earnings before interest, taxes, depreciation and amortization, or EBITDA) within a range of 2.0 times to 2.5 times within a reasonable period of time following the completion of a debt-financed transaction.

The Company, by purposeful design, will continue to be an aggregates-led business (aggregates product gross profit represented 67% of 2021 total consolidated product and services gross profit) that focuses on markets with strong, underlying growth fundamentals where it can sustain or achieve a leading market position.

As part of its long-term strategic plan, the Company may also pursue strategic cement and targeted downstream opportunities.

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As a result, geography is critically important when assessing market attractiveness and growth opportunities.

Attractive geographies exhibit (a) population growth and/or population density, both of which are drivers of heavy-side building materials consumption;

Attractive geographies generally exhibit (a) population growth and/or population density, both of which are drivers of heavy-side building materials consumption;

(b) business and employment diversity, drivers of greater economic stability;

and (c) a superior state financial position, a driver of public infrastructure growth and support.

and (c) a superior state financial position, a driver of public infrastructure investment.

In order to assess population growth and density, the Company focuses on the megaregions of the United States.

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According to America 2050 , a planning and policy program of the Regional Plan Association, a majority of the nation’s population and economic growth through 2050 will occur in 11 megaregions.

The Company has a presence in most of the megaregions.

As evidence of the successful execution of SOAR, the Company’s leading positions in the Texas Triangle and Colorado’s Front Range megaregions, its growth platform in the southern portion of the Northeast megaregion and its enhanced position in the Piedmont Atlantic megaregion, primarily in the Atlanta area, are the results of acquisitions since 2011.

The Company has a meaningful presence in ten of the megaregions.

As evidence of the successful execution of SOAR, the Company’s leading positions in the Texas Triangle, Colorado’s Front Range, northern and southern California and Arizona’s Sun Corridor megaregions, its growth platform in the southern portion of the Northeast megaregion and its enhanced position in the Piedmont Atlantic megaregion, primarily in the Atlanta area, are the results of acquisitions since 2011.

The Company has a legacy presence in the southeastern portion of the Great Lakes megaregion, encompassing operations in Indiana and Ohio.

The megaregions and the Company’s key states are more fully discussed in the Building Materials Business’ Key Considerations section.

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In considering business and employment diversity, the Company focuses its geographic footprint along significant transportation corridors, particularly where land is readily available for the construction of fulfillment and/or data centers.

The retail sector values transportation corridors, as logistics and distribution are critical considerations for construction supporting that industry.

In considering business and employment diversity, the Company focuses its geographic footprint along significant transportation and commerce corridors, particularly where land is readily available for the construction of fulfillment and/or data centers.

The retail sector (both e-commerce and brick and mortar) values transportation corridors, as logistics and distribution are critical considerations for construction supporting that industry.

In addition, technology companies view these areas as attractive locations for data centers.

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The Company’s top ten revenue-generating states have been evaluated and scored a financial health rating of AA or AAA.

The Company also reviews the state’s ability to securing additional infrastructure funding and financing.

The Company also reviews the state’s ability to secure additional infrastructure funding and financing.

In line with the Company’s strategic objectives, management’s overall focus includes the following items:

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Return of cash to shareholders through both meaningful and sustainable dividends as well as share repurchases

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Achieved Industry-Leading Safety Performance:

Record company-wide Lost-Time Incident Rate (LTIR) of 0.15, the fourth consecutive year of world-class or better LTIR thresholds

Total Injury Incident Rate (TIIR) of 0.93, compared with 1.18 in 2019

Record company-wide Lost-Time Incident Rate (LTIR) of 0.17, the fifth consecutive year of world-class or better LTIR thresholds

Record company-wide total Injury Incident Rate (TIIR) of 0.84, compared with 0.93 in 2020, better than world-class TIIR thresholds

Achieved Record Financial Performance:

The Company achieved record products and services revenues, consolidated gross profit, earnings from operations, net earnings attributable to Martin Marietta, diluted earnings per share and Adjusted EBITDA (defined in Results of Operations section), driven by resilient customer demand and improved pricing and profitability across all product lines of the Building Materials business.

The Company achieved its ninth consecutive year of growth for products and services revenues, gross profit, Adjusted EBITDA and earnings per diluted share (excluding the one-time impact of the Tax Cuts and Jobs Act of 2017 (2017 Tax Act) on 2017 financial amounts).

The Company’s commitment to safety and operational excellence resulted in the following financial performance (comparisons with 2019):

• Consolidated total revenues of $4.73 billion compared with $4.74 billion

The Company achieved record products and services revenues, consolidated gross profit, adjusted net earnings attributable to Martin Marietta and Adjusted EBITDA (defined in Results of Operations section), driven by resilient customer demand and improved pricing and profitability across all product lines of the Building Materials business.

Further, 2021 capped a decade of annual growth for products and services revenues, adjusted gross profit and Adjusted EBITDA.

The Company’s commitment to safety, operational and commercial excellence resulted in the following financial performance from continuing operations (comparisons with 2020):

• Record consolidated total revenues of $5.41 billion compared with $4.73 billion, an increase of 14.5%

• Record consolidated gross profit of $1.35 billion compared with $1.25 billion, an increase of 7.6%;

2021 consolidated gross profit was burdened by $30.6 million of costs related to the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting

• Consolidated selling, general and administrative (SG&A) expenses representing 6.5% of total revenues

• Net earnings attributable to Martin Marietta of $721.0 million compared with $611.9 million, an increase of 17.8%

• Earnings per diluted share of $11.54 compared with $9.74

• Record consolidated Adjusted EBITDA of $1.39 billion

• Record operating cash flow of $1.05 billion

• Record consolidated Adjusted EBITDA from continuing operations of $1.53 billion, an increase of 9.7%

• Record operating cash flow of $1.14 billion, an increase of 8.3%

Continued Disciplined Execution Against Capital Allocation Priorities:

• Dividend increase of 4% in August 2020, resulting in total annual dividends paid of $140.3 million, or $2.24 per share

• Repurchased 0.2 million shares of common stock for $50.0 million

• Invested $3.11 billion for acquisitions, including the platform positions in California and Arizona;

issued $2.50 billion of publicly traded long-term debt with a weighted-average interest rate of 2.2% to fund acquisitions

Capital investments into operations of $423.1 million

• Net long-term debt repayment of $149 million

Quarterly dividend increase of 7% in August 2021, resulting in total annual dividends paid of $147.8 million, or $2.36 per share

BUSINESS ENVIRONMENT

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The heavy-side construction business, inclusive of much of the Company’s operations, is conducted outdoors.

Therefore, erratic weather patterns, precipitation and other weather-related conditions, including flooding, hurricanes, snowstorms, cold temperatures and droughts, can significantly affect production schedules, shipments, costs, efficiencies and profitability.

Generally, the financial results for the first and fourth quarters are subject to the impacts of

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

winter weather, while the second and third quarters can be subject to the impacts of heavy precipitation.

Therefore, erratic weather patterns, precipitation and other weather-related conditions, including flooding, hurricanes, precipitation, cold temperatures, earthquakes, droughts and wildfires, can significantly affect production schedules, shipments, costs, efficiencies and profitability.

Generally, the financial results for the first and fourth quarters are subject to the impacts of winter weather, while the second and third quarters can be subject to the impacts of heavy precipitation.

The impacts of erratic weather patterns are more fully discussed in the Building Materials Business’ Key Considerations section.

Product Lines

Aggregates are an engineered, granular material consisting of crushed stone and sand and gravel, manufactured to specific sizes, grades and chemistry for use primarily in construction applications.

The Company’s operations consist primarily of open pit quarries;

Aggregates are an engineered, granular material consisting of crushed stone, sand and gravel, manufactured to specific sizes, grades and chemistry for use primarily in construction applications.

The Company’s operations consist mostly of open pit quarries;

however, the Company is also the largest operator of underground aggregates mines in the United States, with 14 active underground mines located in the East Group.

The Company’s aggregates reserves average approximately 78 years at the 2021 annual production level.

Cement is the basic agent used to bind aggregates, sand and water in the production of ready mixed concrete.

The Company has a strategic and leading cement position in the state of Texas, with production facilities in Midlothian, Texas, south of Dallas/Fort Worth, and Hunter, Texas, north of San Antonio.

These two facilities produce Portland and specialty cements, have a combined annual capacity of approximately 4.5 million tons, and collectively operated at approximately 80% utilization in 2020.

The Midlothian plant has a permit that allows for annual capacity expansion of 0.8 million tons.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cement is the basic agent used to bind coarse aggregates , sand and water in the production of ready mixed concrete .

The Company has a strategic and leading cement position in the state of Texas, with production facilities in Midlothian, Texas, south of Dallas/Fort Worth, and Hunter, Texas, centrally located along 1-35 between San Antonio and Austin .

These two facilities produce Portland and specialty cements, have a combined annual capacity of approximately 4.

5 million tons, and collectively operated at approximately 76 % utilization for clinker production in 2021 .

The Midlothian plant has a permit that allows for annual capacity expansion of 0 .8 million ton s .

In addition to the two production facilities, the Company operates several cement distribution terminals.

Calcium carbonate in the form of limestone is the principal raw material used in the production of cement.

The Company owns more than 600 million tons of limestone reserves adjacent to its cement production plants.

Ready mixed concrete, a mixture primarily of cement, sand, aggregates and water, is measured in cubic yards and specifically batched or produced for customers’ construction projects and then transported and poured at the project site.

The aggregates used for ready mixed concrete are a washed material with limited amounts of fines (i.e., dirt and clay).

The Company operates 120 ready mix plants in Texas, Colorado and Wyoming.

The Company owns more than 600 million tons of limestone reserves adjacent to its cement production plants in Texas .

D uring 2021, the Company purchased two cement plants in California and related distribution facilities as part of the Lehigh West Region acquisition, which are classified as assets held for sale and discontinued operations as of December 31, 2021.

Ready mixed concrete, a mixture primarily of cement, sand, coarse aggregates and water, is measured in cubic yards and specifically batched or produced for customers’ construction projects and then transported and poured at the project site.

The coarse aggregates used for ready mixed concrete are a washed material with limited amounts of fines (i.e., dirt and clay).

The Company operates ready mixed concrete plants in Arizona, California, Colorado, Texas and Wyoming.

The California ready mixed concrete operations are classified as assets held for sale and discontinued operations as of December 31, 2021.

Asphalt is most commonly used in surfacing roads and parking lots and consists of liquid asphalt, or bitumen, the binding medium, and aggregates.

Similar to ready mixed concrete, each asphalt batch is produced to customer specifications.

The Company’s asphalt operations and paving services are located in Colorado.

The Company’s asphalt operations are located in Arizona, California, Colorado and Minnesota and paving services are located in California and Colorado.

Market dynamics for these downstream product lines include a highly competitive environment and lower barriers to entry compared with the Company’s upstream product lines of aggregates and cement.

End-Use Trends

According to the U.S.

Geological Survey, for the nine months ended September 30, 2020, the latest available governmental data, estimated construction aggregates consumption decreased 3% compared with the nine months ended September 30, 2019, and for the ten months ended October 31, 2020, cement consumption was essentially flat versus the comparable prior-year period.

National construction spending statistics for the twelve months ended December 31, 2020 versus the twelve months ended December 31, 2019, according to U.S.

Census Bureau:

According to the latest available data published by the U.S.

Geological Survey, for the nine months ended September 30, 2021, estimated construction aggregates consumption increased 5% compared with the nine months ended September 30, 2020, and for the ten months ended October 31, 2021, cement consumption increased 3.5% versus the comparable prior-year period.

National not seasonally adjusted construction spending statistics for the twelve months ended December 31, 2021 versus the twelve months ended December 31, 2020, according to U.S.

Census Bureau reveal:

♦ Total value of construction put in place increased 8%

♦ Public construction spending increased 5%

♦ Public construction spending decreased 4%

♦ Private nonresidential construction market spending decreased 2%

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Therefore, management does not utilize a Company backlog in managing its business .

A World-Class Organization Built for Success

The public infrastructure market accounted for 34% of the Company’s organic aggregates shipments in 2021.

Contractor capacity constraints, project delays in several markets and weather were primary factors for the 2% shipment decline to this end use.

The Company’s shipments to this end-use market remain below the most recent five-year average of 37% and ten-year average of 40%.

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The public infrastructure market accounted for 3 6 % of the Company’s aggregates shipments in 2020 .

A nticipated lower shipments in portions of North Carolina , reduced energy-sector activity and COVID-19-driven project delays were primary factors for the 1 % shipment decline to this end use .

The Company’s shipments to this end-use market remain below the most recent five-year average of 3 8 % and ten-year average of 4 3 %.

While construction spending in the public and private market sectors is affected by economic cycles , the historic level of spending on public infrastructure projects has been comparatively more stable due to the predictability of funding from federal, state and local governments, with approximately half of the funding from federal government and half from state and local governments.

The Fixing America’s Surface Transportation Act (FAST Act), signed into law on December 4, 2015, authorized $305 billion over fiscal years 2016 through 2020 and was subsequently extended for one year, providing an additional $13.6 billion to the Highway Trust Fund.

federal, state and local governments .

The Infrastructure Investments and Jobs Act ( IIJ Act ) was signed into law on November 15, 2021 and contains a five-year surface transportation reauthorization plus $ 110 billion in new funding for roads, bridges and other hard infrastructure projects.

Public construction projects, once awarded, are typically seen through to completion.

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In November 2021, 245 state and local ballot initiatives, or 89% of all infrastructure funding measures up for vote, were approved.

That set a 20-year approval rating record.

The approved infrastructure initiatives are estimated to generate nearly $14 billion in one-time and recurring revenues, with initiatives in Texas accounting for over $11 billion of this total.

The nonresidential construction market accounted for 34% of the Company’s aggregates shipments in 2020.

Following strong activity in 2019, aggregates shipments to this end use decreased 9%, reflecting reduced energy-sector activity from low oil prices and the completion of certain windfarm and a pause in some liquefied natural gas projects.

The Dodge Momentum Index, a twelve-month leading indicator of construction spending for nonresidential building compiled by McGraw-Hill Construction and where the year 2000 serves as an index basis of 100, was 134.6 in December 2020.

While down 5% compared with December 2019, the index increased 9% from November 2020 to December 2020, suggesting positive momentum in the nonresidential construction sector at the onset of 2021.

The residential construction market accounted for 24% of the Company’s aggregates shipments in 2020, and increased 6% compared with 2019.

This end use is interest rate sensitive and typically moves in direct correlation with economic cycles.

The Company’s exposure to residential construction is split between aggregates used in the construction of subdivisions (including roads, sidewalks, utilities and storm and sewage drainage), aggregates used in new single-family home construction and aggregates used in construction of multi-family units.

The approved infrastructure initiatives are estimated to generate nearly $7 billion in one-time and recurring revenues, with initiatives in Texas, the Company’s largest revenue-generating state, accounting for over $5 billion of this total.

The nonresidential construction market accounted for 35% of the Company’s organic aggregates shipments in 2021 which increased 8% over 2020, reflecting increased distribution center/warehouse projects.

This represented the strongest annual gain since 2005, suggesting positive momentum in the nonresidential construction sector at the onset of 2022.

The residential construction market accounted for 25% of the Company’s organic aggregates shipments in 2021, and increased 8% compared with 2020.

This end use typically moves in direct correlation with economic cycles.

The Company’s exposure to residential construction is split between aggregates used in the construction of subdivisions (including streets, sidewalks, utilities and storm and sewage drainage), single-family homes and multi-family units.

Construction of both subdivisions and single-family homes is nearly three times more aggregates intensive than construction of multi-family units.

Through an economic cycle, multi-family construction generally begins early in the cycle and then transitions to single-family construction.

Therefore, the timing of new subdivision starts, as well as new single-family housing permits, are strong indicators of residential volumes.

Residential housing starts of 1.4 million units for the year ended December 31, 2020 increased 7% compared with 2019, but remain below the 50-year historical annual average of 1.5 million units.

For the year ended December 31, 2020, national housing permits increased 5% versus 2019.

The Company expects continued growth in the residential market driven by undersupply, low interest rates, favorable demographics, job growth, deurbanization, land availability and efficient permitting.

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The remaining 6 % of the Company’s 2020 aggregates shipments was to the ChemRock/Rail market, which includes ballast and agricultural limestone.

For the year ended December 31, 2021, not seasonally adjusted residential housing starts increased 16% to 1.6 million units compared with 2020.

For the year ended December 31, 2021, not seasonally adjusted national housing permits increased 17% versus 2020.

The Company expects continued growth in the residential market driven by undersupply, favorable demographics driven by millennials entry into the housing market, job growth, deurbanization, land availability and efficient permitting.

The remaining 6% of the Company’s 2021 organic aggregates shipm ents was to the ChemRock/Rail market, which includes ballast and agricultural limestone.

Ballast is an aggregates product used to stabilize railroad track beds and, increasingly, concrete rail ties are being used as a substitute for wooden ties.

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Chemical-grade, high-calcium limestone is used as a desulfurization material in utility plants.

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Pricing Trends

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Pricing is determined locally and is affected by supply and demand characteristics of the local market.

On a mix-adjusted basis, which is discussed further in the Results of Operations section, 2020 aggregates pricing improved by 4.0% and 2020 cement pricing increased 3.2%.

For further information on pricing, see the discussion below in the “Financial Overview” section.

Cost Structure

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Cost of revenues also includes the cost of resale materials, freight expenses to transport materials from a producing quarry or cement plant to a distribution yard or facility and production overhead costs.

Generally, the significant components of direct production costs for the Building Materials business are (1) labor and related benefits;

G enerally, the significant components of direct production costs for the Building Materials business are (1) labor and related benefits;

(2) raw materials;

(3) depreciation, depletion and amortization (DDA);

(3) depreciation, depletion and amortization;

(4) repairs and maintenance;

A World-Class Organization Built for Success

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(5) contract services;

(6) supplies;

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Accordingly, the Company’s operating leverage can be substantial.

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Generally, when the Company invests capital in facilities and equipment, increased capacity and productivity, along with reduced labor and repair costs, can offset increased fixed depreciation costs.

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The Company is able to serve these markets with other open facilities that are in close proximity.

In certain markets, management can create production “super crews” that work on a rotating basis at various locations within a district.

In certain markets, management can create production “super crews” that work on a rotating basis at various locations.

For example, within a market, a crew may work three days per week at one quarry and the other two workdays at another quarry.

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The production of ready mixed concrete and asphalt requires the use of cement and liquid asphalt raw materials, respectively.

Therefore, fluctuations in prices for these raw materials directly affect the Company’s operating results.

Therefore, fluctuations in availability and prices for these raw materials directly affect the Company’s operating results.

Cement production is a capital-intensive operation with high fixed costs to run plants that operate continuously with the exception of maintenance shutdowns.

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In 2021 and 2020, the cement operations incurred outage costs of $23.6 million and $19.7 million, respectively.

The decrease in outage costs in 2020 compared with 2019 is primarily attributable to improved kiln reliability resulting from prior-period investments and the timing of planned kiln outages.

The increase in outage costs in 2021 compared with 2020 is primarily attributable to the timing of planned kiln outages.

The Company adjusts production levels in anticipation of planned maintenance shutdowns.

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Further, the Company’s contracts of affreightment for shipping products on its rail and waterborne distribution network typically include provisions for escalations or reductions in the amounts paid by the Company if the price of fuel moves outside a stated range.

The impact of inflation on the Company’s businesses has not been significant.

Further, historically, the Company has achieved pricing growth in periods of inflation based on its ability to increase its selling prices in a normal economic environment.

Historically, the Company has achieved pricing growth in periods of inflation based on its ability to increase its selling prices in a normal economic environment.

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The Company’s geographic footprint is primarily in attractive markets with strong, underlying growth characteristics, including population growth and/or population density and business and economic diversity, both of which generate demand for construction and the Company’s Building Materials products.

The Company has a presence in most of the megaregions of the United States, notably:

Texas Triangle, Gulf Coast, Piedmont Atlantic, Front Range and Florida, each of which is discussed below.

Additionally, Iowa is discussed below as a top five revenue-generating state and, while not part of a megaregion, is an attractive market with a diversified economy.

The Company has a meaningful presence in ten of the 11 megaregions of the United States, notably:

Texas Triangle, Gulf Coast, Piedmont Atlantic, Front Range, Florida, Arizona Sun Corridor, Northern and Southern California, each of which is discussed below.

Additionally, Iowa is discussed below as a top ten revenue-generating state and, while not part of a megaregion, is an attractive market with a diversified economy that provides stability through economic cycles.

Texas Triangle and Gulf Coast

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The Texas Triangle contains the headquarters of 53 Fortune 500 companies and represents a diverse economy, including the finance, technology, transportation and goods and services sectors.

Uniquely, Houston, which has represented over 25% of Texas’ gross domestic product (GDP) for the past nineteen years, is considered part of both the Gulf Coast and the Texas Triangle megaregions.

In addition to Houston, cities in the Gulf Coast megaregion include New Orleans and Baton Rouge, Louisiana.

Uniquely, Houston, which represents nearly 28% of Texas’ gross domestic product (GDP), is considered part of both the Gulf Coast and the Texas Triangle megaregions.

In addition to Houston, cities in the Gulf Coast megaregion include Beaumont, Texas, New Orleans and Baton Rouge, Louisiana.

The Gulf Coast megaregion’s population is expected to exceed 16 million in 2025 and 23 million in 2050.

The economy is driven by the energy, chemical and transportation sectors.

The Texas market remains one of the strongest in the United States and, according to the Bureau of Economic Analysis, as of September 30, 2020, the state’s GDP comprised 9% of the nation’s $19.1 trillion GDP.

In 2019, the latest ranking available, Forbes recognized Dallas, Fort Worth and Houston as the second, 20 th and 34 th best metros for business and careers, respectively.

The Texas market remains one of the strongest in the United States and, according to the Bureau of Economic Analysis, as of September 30, 2021, the state’s GDP comprised nearly 9% of the nation’s $23.2 trillion GDP.

Texas continues to lead the nation in population growth, and its population is estimated to increase 37% from 2020 to 2040.

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Over the ten-year period ended November 2021 and as reported by the U.S.

Bureau of Labor Statistics , the metropolitan areas of Austin, Dallas,

A World-Class Organization Built for Success

Bureau of Labor Statistics , the metropolitan areas of Austin, Dallas/Fort Worth, San Antonio and Houston have experienced employment growth of 43%, 29%, 25% and 17%, respectively.

Supported by population growth, Texas leads the country in total housing permits for the year ended December 31, 2021.

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San Antonio and Houston have experienced employment growth of 40 %, 2 7 % , 22% and 18 %, respectively.

Supported by population growth, Texas leads the country in total housing permits for the year ended December 31 , 2020 .

The state’s Department of Transportation (TxDOT) let $7.5 billion in construction projects in fiscal 2020 and has a letting budget of $9.5 billion for fiscal 2021 and $7.7 billion for fiscal 2022.

In 2019, TxDOT announced the 2020 Unified Transportation Program, identifying planned investments totaling over $77 billion of infrastructure projects over the next ten years.

The state’s Department of Transportation (TxDOT) let $ 8.3 b illion in construction projects in fiscal year 20 2 1 and has a budget of $ 15.3 b illion for fiscal year 202 2 .

In 2019 , TxDOT announced the 2020 Unified Transportation Program, identifying planned investments totaling over $ 7 4 bi llion of infrastructure projects over the next ten years .

Funding for highway construction comes from dedicated sources, including Propositions 1 and 7, as opposed to the use of general funds.

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Proposition 7 is funded by state sales and use taxes and motor vehicle sales and rental taxes and is used for non-toll roads and certain transportation-related debt .

For fiscal 2019 and 2020, these propositions provided $5.4 billion and $4.2 billion, respectively, to the state highway fund.

For fiscal years 202 1 and 202 0 , these propositions provided $ 4.2 billion and $ 3.8 b illion , respectively , to the state highway fund.

Additionally, in November 202 1 , voters approved 88 % of ballot measures that will provide an additional $ 5.1 billion of infrastructure funding.

Though the COVID-19 pandemic slowed economic advancement temporarily, construction activity is recovering, as evidenced by developers and businesses planning expansion throughout Texas.

Amazon, Hewlett Packard, Tesla and Dallas/Fort Worth International Airport have announced plans for significant new projects in Austin, Dallas/Fort Worth and Houston.

Further, continued federal regulatory approvals should contribute to increased heavy building materials consumption for large energy-sector projects over for the next several years.

Samsung , Texas Industries , Tesl a, CBRE and the Texas Medical Center have announced plans for significant new projects in or around Austin, Dallas/Fort Worth and Housto n.

In March 2021, Dallas/Fort Worth, Houston, and Austin were ranked 2 nd , 3 rd and 6 th , respectively, for total number of economic development projects for metro areas with populations exceeding one million.

Piedmont Atlantic

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however, it is facing challenges that accompany a growing population, including increased traffic congestion and inadequate infrastructure.

North Carolina continues to demonstrate strong population trends, ranking in the top ten states for population growth for the twelve months ended July 1, 2019, the last annual estimate by the U.S.

North Carolina continues to demonstrate strong population trends, ranking eleventh in states for percentage population growth for the twelve months ended July 1, 2021, the last annual estimate by the U.S.

Census Bureau.

North Carolina’s population is estimated to grow to 14 million by 2050.

North Carolina’s population is estimated to grow from approximately 10.5 million in 2010 to 14 million by 2050.

Employment growth in North Carolina has been steady and consistent.

Further, in 2019, Forbes ranked Raleigh and Charlotte as the third and seventh best cities, respectively, for business and careers.

In 2020, UPS, Grifols Therapeutics and Centene announced plans to invest more than $1.7 billion in North Carolina.

The state continues to make significant infrastructure investment, with a fiscal year 2021 overall spending schedule of $5.8 billion.

Additionally, since 2010, all transportation referendums totaling $1.8 billion have been approved by voters.

In October 2020, the state issued $700 million of Build NC Bonds to fund transportation initiatives.

The state’s 2020-2029 Statewide Transportation Improvement Program, or STIP, reflects investment of approximately $23.7 billion for approximately 1,700 projects .

In January 2021, the North Carolina Future Investment Resources for Sustainable Transportation, or NC FIRST, Commission issued an extensive report to the state’s transportation secretary, recommending an additional transportation investment need of $20 billion over the next decade.

South Carolina ranked sixth in the nation for population growth for the twelve months ended July 1, 2019.

The state’s infrastructure program is supported by Senate Bill 1258, also known as Act No.

275 and enacted in 2016, allowing up to $4.2 billion to be devoted to highway spending over a ten-year period.

South Carolina’s ten-year department of transportation (DOT) plan includes 1,000 miles of upgrades to rural roads and improvements to 140 miles of interstate highways.

To fund infrastructure needs, the state passed House Bill 3516 in June 2017, which increased the state’s gas tax $0.02 per gallon per year for six years, the state’s first gas tax increase in 30 years.

The bill is expected to generate an additional $625 million per year when fully implemented.

Further, in 2021, CNBC ranked North Carolina as the second best state for business.

During 2021, Apple, Toyota and Red Bull announced plans to invest more than $3.0 billion in North Carolina.

In January 2021, the North Carolina Future Investment Resources for Sustainable Transportation, or NC FIRST, Commission issued an extensive report to the state’s transportation secretary, projecting an additional transportation investment need of $20 billion over the next decade.

The state’s 2020-2029 Statewide Transportation Improvement Program, or STIP, reflects investment of approximately $23.7 billion for approximately 1,700 projects, including fiscal year 2022 overall spending of $6.4 billion.

In August 2021, the state authorized the North Carolina Department of Transportation to issue $300 million of Grant Anticipation Revenue Vehicle, or GARVEE, Bonds to fund transportation initiatives.

South Carolina ranked fifth in the nation for percentage population growth for the twelve months ended July 1, 2021.

Enacted in 2016, the state’s infrastructure program is supported by Senate Bill 1258, also known as Act No.

275, allowing up to $4.2 billion to be devoted to highway spending over a ten-year period.

The South Carolina Department of Transportation’s (SCDOT) fiscal year 2022 budget is $2.5 billion.

The SCDOT’s longer-term plan includes 1,000 miles of upgrades to rural roads and improvements to 140 miles of interstate highways.

To fund infrastructure needs, the state passed House Bill 3516 in June 2017, which increased the state’s gas tax $0.02 per gallon per year for six years.

During fiscal year 2021, the gas tax generated approximately $796 million for road and bridge work.

Additionally, since 2010, voters approved 78% of ballot measures for transportation funding totaling $3.6 billion.

The nonresidential market will benefit from recent announcements by businesses planning to expand their operations in South Carolina, including Continental Tire, Vigilent Labs, Nephron Pharmaceuticals Corporation and Carver Maritime, LLC.

Additionally, the South Carolina Port Authority is investing $2.8 billion for improvements through 2022.

With nearly 3% of the nation’s GDP, Georgia continues to be a top-performing state.

According to the Georgia Department of Economic Development, the state is headquarters for 18 Fortune 500 companies and has obtained $4.3 billion in expansions and new project investments since July 1, 2020, creating almost 12,000 jobs.

The nonresidential market will benefit from recent announcements by businesses planning to expand their operations in South Carolina, including BMW, DHL, Arthrex and The Keith Corporation.

With approximately 3% of the nation’s GDP, Georgia continues to be a top-performing state with headquarters for 18 Fortune 500 companies.

In December 2021, Rivian Automotive, Inc.

announced a $5 billion investment for construction of a carbon-conscious manufacturing campus just east of Atlanta.

Georgia has consistently ranked as one of the top states for employment and population growth.

metropolitan areas with populations greater than one million, Atlanta ranked 18 th in employment gains for the ten-year period ended November 2019.

Georgia’s Major Mobility Investment Program, announced in 2017 and updated in 2019, will invest $11 billion over a ten-year period in 14 highway projects.

Additionally, since 2010, Georgia voters approved more than two-thirds of ballot measures to collectively provide $8.2 billion for road and transit projects.

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Through strategic acquisitions since 2011, the Company has built a leading position to serve the Front Range of the Rocky Mountains.

Extending from the southern portion of Wyoming near Cheyenne, following Interstate 25 through Colorado into New Mexico, incorporating Santa Fe and Albuquerque, the Front Range megaregion is one of the nation’s fastest-growing megaregions.

Colorado has ranked in the top eleven states for population growth each year for the ten-year period ended 2020.

The Front Range represents 85% of Colorado’s population and is estimated to exceed 10 million residents by 2050, nearly double the 2010 population.

Through a platform and several subsequent bolt-on acquisitions since 2011, the Company has built a leading position to serve the Front Range of the Rocky Mountains.

Extending from the southern portion of Wyoming near Cheyenne, following Interstate 25 through Colorado into New Mexico, and incorporating Santa Fe and Albuquerque, the Front Range megaregion is one of the nation’s fastest-growing megaregions.

The Front Range contains approximately 85% of Colorado’s population and represented 95% of the population growth in Colorado from 2010 to 2020.

By 2050, the Front Range population is estimated to increase more than 50% over the 2010 population.

The Colorado economy includes a diverse economic base, leading to strong employment and population growth.

Denver was ranked fourth by Forbes for best cities for business and careers in 2019.

Senate Bill 17-267, enacted in 2017, includes a component focused on new lease-purchase agreements of state facilities that allocates $1.9 billion of its proceeds to Colorado DOT (CDOT) with the remainder of its proceeds to transportation and capital construction projects over a four-year period.

CDOT has a spending budget of $2.3 billion for fiscal year 2020-2021.

Senate Bill 260, enacted in 2021, includes $5.0 billion in revenue generated from increased gasoline taxes and other fees to Colorado DOT (CDOT) for state road and transit projects over a ten-year period.

For fiscal year 2021-2022, CDOT has a spending budget of $2.5 billion.

Spanning nearly the entire state, the Florida megaregion is rapidly expanding.

Florida is the country’s third-most populous state according to the Census Bureau.

Further, the state’s population is estimated to increase by more than seven million, or 32%, from 2020 to 2040.

Further, the state’s population is estimated to increase six million, or 27%, from 2020 to 2045.

The state’s GDP represents 5% of the nation’s GDP.

Florida has a $10.3 billion DOT budget for fiscal year 2021-2022 and a five-year adopted work plan of $52.9 billion through 2026.

Iowa has been a top-five Martin Marietta revenue-generating state for decades and has historically experienced a stable and steady economy.

Arizona Sun Corridor

During 2021, the Company established a presence to serve the Arizona Sun Corridor megaregion (Sun Corridor) as part of the Lehigh West Region platform acquisition.

This megaregion is comprised of five metropolitan areas, Phoenix, Tucson, Prescott, Sierra Vista-Douglas and Nogales.

The Sun Corridor is home to over 86% of Arizona’s population and is one of the nation’s fastest-growing megaregions, predicted to double its population by 2040.

Arizona ranked fifth in the nation for population growth for the ten years ended July 1, 2020.

The Arizona economy includes a diverse economic base, including aerospace, manufacturing, bioscience and technology leading to strong employment and population growth.

Arizona was ranked the seventh best state for economy by US News & World Report in 2021 based on the business environment, employment, and growth.

In addition, during June 2021, the Arizona State Transportation Board approved its five-year construction program for 2022 to 2026, which includes $5.7 billion in spending to widen highways, improve safety and preserve existing roads and bridges.

Northern and Southern California

Through the Lehigh West Region platform acquisition in 2021, the Company established positions in both the Northern and Southern California megaregions.

The Northern California megaregion encompasses San Francisco, Sacramento, San Jose and Oakland and represents one of the fastest-growing economies in the United States since 2010 driven by Silicon Valley, home to some of the world’s most valuable companies, including Apple, Alphabet and Meta Platforms (formerly Facebook).

This megaregion is home to approximately 13 million people.

The Southern California megaregion includes Los Angeles and San Diego and is home to approximately 22 million people.

In fact, Los Angeles County is the largest county in the United States and accounts for more than 10 million residents.

Key industries in this megaregion include high-technology, entertainment, aviation/aerospace and banking.

California is the nation’s most populous state.

Generating $3.35 trillion GDP in 2021, California represents the largest economy in the U.S.

and the fifth-largest economy in the world.

The state is making substantial investment in its infrastructure, as the majority of its highways are deemed to be in fair or bad condition.

The California Department of Transportation (CALTRANS) budget for fiscal year 2021-2022 is $17 billion.

In addition, Senate Bill 1 provides more than $50 billion of transportation spending through 2030, of which $3.7 billion is directed annually to highways, streets and bridges.

During 2021, CALTRANS also adopted the California Transportation Plan 2050 (CTP).

The CTP is a long-range transportation roadmap aimed to invest in repairs of current roads, improving the infrastructure for moving goods and seeking long-term sustainable funding mechanisms.

California also has 25 “Self Help” counties which raise more than $6 billion annually in transportation funding for local projects through local sales tax measures.

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Iowa has been a top and steady Martin Marietta revenue-generating state for decades and has historically experienced a stable and resilient economy.

Iowa is the nation’s largest corn- and pork-producing state and provides approximately 9% of America’s food supply.

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The state is attractive for starting and expanding businesses due to enticing tax incentives.

Facebook is in process of expanding its data center, estimated to be 3.5 million square feet when complete, and has a projected completion date in late 2022 or early 2023.

In 2020, Microsoft Corporation announced plans to build two new data centers at an estimated cost of $1 billion each, with construction expected to begin in September 2021.

Additionally, Apple plans to build a $1.3 billion data center near Des Moines, with an estimated project completion date of August 2027.

Meta Platforms (formerly Facebook) is in the process of expanding its data center, estimated to be 4.1 million square feet when completed in 2023.

During fall 2021, Microsoft Corporation began building one of two new data centers in West Des Moines.

Additionally, Apple is set to begin construction of a $1.3 billion data center near Des Moines during 2022.

Iowa is the first state to produce more than 30% of its electricity with wind power, enhancing its resilience and use of durable construction materials.

Growth markets with limited supply of indigenous stone must be served via a long-haul distribution network

Department of the Interior’s geological map of the United States depicts the possible sources of indigenous rock and illustrates its limited supply in certain areas of the United States, including the coastal areas from Virginia to Texas.

Department of the Interior identified possible sources of indigenous rock and documents its limited supply in certain areas of the United States, including the coastal areas from Virginia to Texas.

Further, certain interior United States markets may experience limited availability of locally sourced aggregates resulting from increasingly restrictive zoning, permitting and/or environmental laws and regulations.

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This is particularly true where a producing quarry serves a local market and transports products via rail, water and/or truck to be sold in other markets, the risk of a downturn in one market may be somewhat mitigated by other markets served by the location.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Product shipments are moved by rail, water and truck through the Company’s long-haul distribution network.

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The Company’s strategic focus includes expanding inland and offshore capacity and acquiring distribution yards and port locations to offload transported material.

At December 31, 2020 , the distribution network available to the Company consisted of 84 terminals.

At December 31, 2021, the distribution network available to the Company consisted of 84 aggregates yards and 16 cement terminals, of which 11 cement terminals are classified as discontinued operations.

The Company’s increased rail shipments has made it more reliant on railroad performance issues, including track congestion, crew and availability, the effects of adverse weather conditions and the ability to negotiate favorable railroad shipping contracts.

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The minimum requirements were met in 2021.

The Company’s waterborne contracts of affreightment have varying expiration dates ranging from 2023 to 2027 and generally contain renewal options.

The Company’s waterborne contracts of affreightment have

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

varying expiration dates ranging from 2023 to 2027 and generally contain renewal options.

However, there can be no assurance that such contracts can be renewed upon expiration or that terms will continue without significant increases.

The multiple transportation modes that have been developed with various rail carriers and deep-water ships provide the Company with the flexibility to effectively serve customers primarily in the Southwest and Southeast coastal markets.

Public Infrastructure, the Company’s largest end-use market, is funded through a combination of federal, state and local sources

Public Infrastructure, historically, the Company’s largest end-use market, is funded through a combination of federal, state and local sources

Transportation investments generally boost the national economy by enhancing mobility and access and by creating jobs;

priorities of many of the government’s economic plans.

Public-sector construction related to transportation infrastructure can be aggregates intensive and is funded through a combination of federal, state and local sources.

The federal highway bill, currently the FAST Act, provides annual funding for public-sector highway construction projects and includes spending authorizations, which represent the maximum financial obligation that will result from the immediate or future outlays of federal funds for highway and transit programs.

Public-sector construction related to transportation infrastructure can be aggregates intensive and funded through a combination of federal, state and local sources.

The federal highway bill, currently the IIJ Act, provides annual funding for public-sector highway construction projects and includes spending authorizations, which represent the maximum financial obligation that will result from the immediate or future outlays of federal funds for highway and transit programs.

The federal government’s surface transportation programs are funded mostly through the receipts of highway user taxes placed in the Highway Trust Fund, which is divided into the Highway Account and the Mass Transit Account.

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However, the impact of state revenue reductions on highway investment will vary depending on whether the monies come from dedicated revenue sources, such as highway user fees, or whether portions are paid for with general funds.

In addition to federal appropriations, each state funds its infrastructure investment from specifically allocated amounts collected from various user fees, typically gasoline taxes and vehicle fees.

In addition to federal appropriations, each state typically funds its infrastructure investment from specifically allocated amounts collected from various user fees, typically gasoline taxes and vehicle fees.

Over the past several years, states have assumed a significantly larger role in funding infrastructure investment, including initiating special-purpose taxes and raising gas taxes .

Management believes that financing at the state and local levels, such as bond issuances, toll roads and tax initiatives, will continue to grow and have a fundamental role in advancing infrastructure projects.

Management believes that financing at the state and local levels, such as bond issuances, toll roads, vehicle miles traveled fees and tax initiatives, will continue to grow and have a fundamental role in advancing infrastructure projects.

State infrastructure investment generally leads to increased growth opportunities for the Company.

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Federal obligations are subject to annual funding appropriations by Congress.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The need for surface transportation improvements continues to significantly outpace the amount of available funding.

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According to The Road Information Program (TRIP), a national transportation research group, vehicle travel on United States highways increased 26% from 2000 to 2019, while new lane road mileage increased only 9% over the same period.

TRIP also reports that pavement on 11 % of the nation’s major roads are in poor or mediocre condition and 27 % of the nation’s interstate bridges are in need of repair or replacement, with 3% of bridges rated poor or structurally deficient .

The 2020 TRIP report additionally state d an estimated backlog of $123 billion of improvements to the nation’s highway system exists and an increase of annual investment from $23 billion to $57 billion for the next 20 years is needed to address these improvements and meet mobility needs.

Management believes infrastructure activity for 202 1 and beyond should benefit from the FAST Act extension and its eventual successor bill , additional state and local infrastructure initiatives and the 2017 Tax Act.

TRIP also reports that 41% of the nation’s major roads are in poor or mediocre condition while 7% of the nation’s bridges are in poor/structurally deficient condition.

The 2021 TRIP report additionally stated an estimated backlog of $123 billion of improvements to the nation’s highway system exists and an increase of annual investment from $23 billion to $57 billion for the next 20 years is needed to address these improvements and meet mobility needs.

Management believes infrastructure activity for 2022 and beyond should benefit from the IIJ Act, additional state and local infrastructure initiatives and the 2017 Tax Cuts and Jobs Act.

In addition to highways and bridges, transportation infrastructure includes aviation, mass transit, and ports and waterways.

Railroad construction continues to benefit from economic growth, which ultimately generates a need for additional maintenance and improvements.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Erratic weather can significantly impact operations

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In particular, the Company’s operations in the southeastern and Gulf Coast regions of the United States and The Bahamas are at risk for hurricane activity, most notably in August, September and October, though the hurricane season formally starts and ends on June 1 and November 1, respectively.

The 2020 Atlantic hurricane season set a record with 30 named storms, of which 13 were hurricanes.

To put this in perspective, the average hurricane season has 12 named storms, of which six are hurricanes.

The Gulf Coast, eastern seaboard, The Bahamas and Nova Scotia were all impacted by storms in 2020.

Capital investment decisions driven by capital intensity of the Building Materials business and focus on land

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In either instance, the acquisition of additional property around an existing quarry typically allows the expansion of the quarry footprint and an extension of quarry life.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Magnesia Specialties Business

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The Magnesia Specialties business produces and sells dolomitic lime from its Woodville, Ohio facility.

Of 2020 total revenues, 67% were attributable to chemicals products, 32% were attributable to lime and 1% was attributable to stone.

Of 2021 total Magnesia Specialties revenues, 69% were attributable to chemicals products, 30% were attributable to lime and 1% was attributable to stone.

In 2021, 76% of the lime produced was sold to third-party customers, while the remaining 24% was used internally as a raw material for the business’ manufacturing of chemicals products.

Dolomitic lime products sold to external customers are primarily used by the steel industry, and overall, 34% of Magnesia Specialties’ 2020 total revenues related to products used in the steel industry.

Dolomitic lime products sold to external customers are primarily used by the steel industry and, overall, 34% of Magnesia Specialties’ 2021 total revenues was related to products used in the steel industry.

Accordingly, a portion of the segment’s revenues and profits is affected by production and inventory trends within the steel industry, which are guided by the rate of consumer consumption, the flow of offshore imports and other economic factors.

Steel production was adversely affected by COVID-19, notably when domestic auto manufacturers shutdown due to the pandemic.

Steel capacity utilization decreased dramatically from a high of nearly 81% in January 2020 to just below 50% in April 2020;

steel capacity utilization as of December 2020 was 74%.

Steel production was adversely affected in 2020 by COVID-19, notably when domestic auto manufacturers shutdown due to the pandemic.

Steel capacity utilization recovered in 2021, averaging 81%, and reached 84% as of December 2021.

The dolomitic lime business runs most profitably at 70% or greater steel capacity utilization.

domestic capacity utilization averaged 65% in 2020.

The chemical products business focuses on higher-margin specialty chemicals that can be produced at volumes that support efficient operations.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Total revenues of the Magnesia Specialties business in 2021 were predominantly derived from domestic customers, and no single foreign country accounted for 10% or more of the total revenues for the business.

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To help mitigate this risk, the Company has fixed -price agreements for approximately 64% of its 2022 energy needs for coal, natural gas, petroleum coke and electricity.

For 2020, the segment’s average cost per MCF (thousand cubic feet) of natural gas decreased 9% versus 2019.

For 2021, the segment’s average cost per MCF (thousand cubic feet) of natural gas increased 21% versus 2020.

Given high fixed costs, low capacity utilization can negatively affect the segment’s results of operations.

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The segment can be affected by the risks mentioned in the long-haul distribution discussion in the Building Materials Business’ Key Considerations section.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Environmental Regulation and Litigation

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New permits are generally required for opening new sites or for expansion at existing operations and can take several years to obtain.

In the area of land use, rezoning and special or conditional use permits are increasingly difficult to obtain.

Moreover, land use, rezoning and special or conditional use permits are increasingly difficult to obtain.

Once a permit is issued, the location is required to generally operate in accordance with the approved site plan.

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Dallas/Fort Worth, Texas;

Bexar County in San Antonio-New Braunfels, Texas;

Bexar County in San Antonio/New

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Braunfels, Texas;

Denver, Colorado;

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Atlanta, Georgia;

and Baltimore, Maryland.

Baltimore, Maryland ;

Los Angeles-San Bernardino Counties, California;

Los Angeles – South Coast Basin, California;

Phoenix / Mesa, Arizona;

San Diego County, California;

San Francisco Bay Area, California;

and Sacramento County, California.

Federal transportation funding has been directly tied to compliance with the Clean Air Act.

Large emitters (facilities that emit 25,000 metric tons or more per year) of greenhouse gases (GHG) must report GHG generation to comply with the EPA’s Mandatory Greenhouse Gases Reporting Rule (GHG Rule).

The Company files annual reports in accordance with the GHG Rule relating to operations at its two cement plants in Texas, as well as its Magnesia Specialties facilities in Woodville, Ohio, and Manistee, Michigan, each of which emit certain GHG, including carbon dioxide, methane and nitrous oxide.

If Congress passes legislation on GHG, these operations will likely be subject to the new program.

The Company files annual reports in accordance with the GHG Rule relating to operations at its four cement plants in Texas and California, as well as its Magnesia Specialties facilities in Woodville, Ohio, and Manistee, Michigan, each of which emit certain GHG, including carbon dioxide, methane and nitrous oxide.

If Congress passes additional legislation on GHG, these operations will likely be subject to the new program.

The Company believes that any increased operating costs or taxes related to GHG emission limitations at its cement or Woodville operations would be passed on to its customers.

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In the opinion of management, based upon currently available facts, the likelihood is remote that the ultimate outcome of any litigation or other proceedings, including those pertaining to environmental matters, relating to the Company and its subsidiaries, will have a material adverse effect on the overall results of the Company’s operations, cash flows or financial position.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

FINANCIAL OVERVIEW

In 2020, the Company achieved record products and services revenues, consolidated gross profit, consolidated earnings from operations, net earnings attributable to Martin Marietta, diluted earnings per share and consolidated Adjusted EBITDA (defined below).

The Building Materials business achieved gross margin expansion of 160 basis points, with growth across all product lines.

The Magnesia Specialties business experienced a continued decline in chemicals products sales as both domestic and international customer experienced a downturn in economic activity related to COVID-19.

In 2021, the Company achieved its tenth consecutive year of growth for products and services revenues, consolidated adjusted gross profit, Adjusted EBITDA and adjusted earnings per diluted share.

This section presents metrics for continuing operations.

Results of Operations

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As discussed in more detail, the Company’s operating results are highly dependent upon activity within the construction marketplace, economic cycles within the public and private business sectors and seasonal and other weather-related conditions.

Though the Company’s operations have been considered an essential business during stay-a-home orders in 2020, the continuation of the COVID-19 pandemic has impacted markets in which the Company operates.

Accordingly, financial results for any year presented, or year-to-year comparisons of reported results, may not be indicative of future operating results.

As permitted by the Securities and Exchange Commission (SEC) under the FAST Act Modernization and Simplification of Regulation S-K, the Company has elected to omit the discussion of the earliest period (2019) presented as it was included in its MD&A in its 2020 Form 10-K filed on February 19, 2021, incorporated by reference from Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations ” thereto.

The Company’s Building Materials business generated the majority of consolidated total revenues and earnings from operations.

The Company’s Building Materials business generated the majority of consolidated total revenues and earnings from continuing operations.

The following comparative analysis and discussion should be read within this context.

Further, sensitivity analysis and certain other data are provided to enhance the reader’s understanding of MD&A and are not intended to be indicative of management’s judgment of materiality.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company’s consolidated operating results and operating results as a percentage of total revenues are as follows:

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Interest expense

Other nonoperating (income) and expenses, net

Earnings before income tax expense

Other nonoperating income, net

Earnings from continuing operations before income tax expense

Income tax expense

Earnings from continuing operations

Earnings from discontinued operations, net of income tax expense

Consolidated net earnings

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Consolidated Adjusted EBITDA

Earnings before interest;

Earnings from continuing operations before interest;

income taxes;

depreciation, depletion and amortization;

and the earnings/loss from nonconsolidated equity affiliates (Adjusted EBITDA) is an indicator used by the Company and investors to evaluate the Company’s operating performance from period to period.

Adjusted EBITDA is not defined by generally accepted accounting

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

principles and, as such, should not be construed as an alternative to net earnings attributable to Martin Marietta , earnings from operations or operating cash flow.

However, the Company’s m anagement believes that Adjusted EBITDA may provide additional information with respect to the Company’s performance.

depreciation, depletion and amortization, the earnings/loss from nonconsolidated equity affiliates, acquisition-related expenses;

and the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting (Adjusted EBITDA) is an indicator used by the Company and investors to evaluate the Company’s operating performance from period to period.

Adjusted EBITDA is not defined by generally accepted accounting principles and, as such, should not be construed as an alternative to net earnings attributable to Martin Marietta, earnings from operations or operating cash flow.

However, the Company’s management believes that Adjusted EBITDA may provide additional information with respect to the Company’s performance.

Since Adjusted EBITDA excludes some, but not all, items that affect net earnings and may vary among companies, Adjusted EBITDA as presented by the Company may not be comparable to similarly titled measures of other companies.

The following table presents a reconciliation of net earnings attributable to Martin Marietta to consolidated Adjusted EBITDA:

The following table presents a reconciliation of net earnings from continuing operations attributable to Martin Marietta to consolidated Adjusted EBITDA:

years ended December 31

(in millions)

Net earnings attributable to Martin Marietta

Net earnings from continuing operations attributable to Martin Marietta

Interest expense, net of interest income

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nonconsolidated equity affiliates

Acquisition-related expenses

Impact of selling acquired inventory after markup

to fair value as part of acquisition accounting

Consolidated Adjusted EBITDA

Mixed-Adjusted Average Selling Price

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Mix-Adjusted Average Selling Price

Mix-adjusted average selling price (mix-adjusted ASP) is a non-GAAP measure that excludes the impacts of period-over-period product, geographic and other mix on the average selling price.

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(in millions)

West Group - aggregates:

East Group - Aggregates:

Reported average selling price

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Mix-adjusted ASP variance

West Group - Aggregates:

Reported average selling price

Adjustment for favorable impact of product, geographic and other mix

Mix-adjusted ASP

Reported average selling price variance

Mix-adjusted ASP variance

Total Aggregates:

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Mix-adjusted ASP variance

Cement - Continuing Operations:

Reported average selling price

Adjustment for unfavorable impact of product, geographic and other mix

Adjustment for favorable impact of product, geographic and other mix

Mix-adjusted ASP

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Mix-adjusted ASP variance

A World-Class Organization Built for Success

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Adjusted Ready Mixed Concrete Volume Variance

The following table presents ready mixed concrete shipment data and volume variances excluding four ready mixed concrete operations acquired in the third quarter of 2020 and excluding shipments from the Arkansas, Louisiana and eastern Texas ready mix business (ArkLaTex business) that was divested in January 2020 during the period of Martin Marietta's ownership to provide a more comparable analysis of ready mixed concrete volume variance:

years ended December 31

(in millions)

Shipments (cubic yards)

Reported ready mixed concrete shipments

ready mixed concrete shipments of acquired operations

ready mixed concrete shipments for the ArkLaTex business during

the period of Martin Marietta ownership

Adjusted ready mixed concrete shipments

Reported ready mixed concrete volume variance

Adjusted ready mixed concrete volume variance

Total Revenues

The following table presents revenues data for the Company and its reportable segments by product line for the year ended December 31, 2020 and 2019.

Prior-year segment information has been reclassified to conform to changes to the reportable segments effective January 1, 2020 and July 1, 2020 (see Note A to the audited consolidated financial statements).

The following table presents revenues data for the Company and its reportable segments by product line for each of the years ended December 31, 2021 and 2020 .

years ended December 31

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Products and services

Interproduct revenues

East Group Total

Ready mixed concrete

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Interproduct revenues

West Group Total

Products and services

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Total consolidated revenues

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A World-Class Organization Built for Success

Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table presents gross profit and gross margin data for the Company and its reportable segments by product line for the year ended December 31, 2020 and 2019.

The following table presents gross profit and gross margin data for the Company by product line for the years ended December 31, 2021 and 2020.

years ended December 31

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Total consolidated gross profit

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents a rollforward of the Company’s consolidated gross profit:

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Consolidated gross profit, prior year

Organic Aggregates:

Operational performance 1

Change in aggregates gross profit

Cement and downstream operations products and services

Change in organic aggregates gross profit

Organic cement and downstream operations products and services

Magnesia Specialties products

Acquisitions 2

Change in consolidated gross profit

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1 Inclusive of cost increases/decreases, product and geographic mix and other operating impacts.

The increase in Building Materials business gross profit in 2020 compared with 2019 is primarily attributable to increased pricing, effective cost management, and lower energy and cement maintenance costs.

The decline in gross profit in Magnesia Specialties is driven by lower sales due to the impact of COVID-19 on the U.S.

steel industry and inventory rationalization by international customers during the first portion of 2020, partially offset by cost reduction actions.

2 Inclusive of a $30.6 million charge for selling acquired inventory after markup to fair value as part of acquisition accounting.

The increase in Building Materials business gross profit in 2021 compared with 2020 is primarily attributable to increased pricing, favorable weather conditions that extended 2021 construction activity and the accretive impacts of acquisitions, partially offset by higher energy and raw material costs.

The increase in gross profit in Magnesia Specialties is driven by robust domestic and global demand, partially offset by higher energy, raw material and contract services costs.

Corporate gross profit includes intercompany royalty and rental revenue and expenses, depreciation and unallocated operational expenses excluded from the Company’s evaluation of business segment performance.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The average selling price per ton for aggregates was $ 14.

77 and $1 4.33 for 2020 and 2019 , respectively.

The average selling price per ton for aggregates was $15.08 and $14.77 for 2021 and 2020, respectively.

Aggregates average selling price increases compared to the prior year are as follows:

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Total aggregates operations 1

Organic aggregates operations

Total aggregates operations include acquisitions from the date of acquisition and divestitures through the date of disposal.

Aggregates pricing improved 2.1%, or 2.7% on a mix-adjusted basis, compared with 2020.

The East Group reported a modest increase of 1.6% resulting from more shipments of lower-priced base stone as well as the acquired Tiller operations having selling prices lower than the company average.

West Group pricing increased 3.1%, or 2.6% on a mix-adjusted basis, compared with 2020, reflecting more long-haul shipments from higher-priced distribution yards.

The following presents aggregates shipments for each reportable segment of the Building Materials business:

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Total aggregates operations include acquisitions from the date of acquisition and divestitures through the date of disposal.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Aggregates shipments sold to external customers and internal tons used in other product lines are as follows:

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Total aggregates operations 1

Organic aggregates operations

1 Total aggregates operations include acquisitions from the date of acquisition and divestitures through the date of disposal.

Aggregates pricing improved 3.1% compared with 2019, with the West Group reporting a modest increase of 1.7%, reflecting lower percentage of higher-priced commercial rail-shipped volumes in Texas that offset robust underlying pricing gains.

On a mix-adjusted basis, the West Group pricing increase was 3.9%.

Aggregates volume declined in 2020, reflecting the broad economic impact from COVID-19, lower anticipated infrastructure shipments in North Carolina and reduced energy-sector shipments resulting from completed projects that were not immediately replaced.

Aggregates volume increased in 2021, benefitting from contributions from acquired operations and robust construction activity across all three primary end-use markets.

Cement, Ready Mixed Concrete, Asphalt and Paving Services.

The Company’s cement and downstream operations, namely ready mixed concrete, asphalt and paving services, are located in the West Group.

Average selling prices for cement, ready mixed concrete and asphalt are as follows:

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Asphalt – per ton

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A World-Class Organization Built for Success

Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unit shipments for cement, ready mixed concrete and asphalt are as follows:

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Total asphalt tons

Ready mixed concrete operations include acquisitions from the date of acquisition and divestitures through the date of disposal.

Cement shipments increased 2.4% in 2020 versus prior year, reflective of strong demand in North and South Texas, partially offset by reduced energy-sector demand.

Cement pricing improved 1.0% compared with the prior year, with strength in North Texas, Houston and portions of Central Texas offset by lower sales of higher-priced oil-well specialty cement products into West Texas.

On a mix-adjusted basis, cement pricing increased 3.2%.

Cement product gross margin expanded 510 basis points driven by improved kiln reliability resulting from prior-period investments, lower fuel costs and the timing of planned kiln outages.

Ready mixed concrete pricing improved 2.0% and adjusted shipment volume increased 3.2% in 2020, after excluding shipments from ready mixed concrete operations acquired in the third quarter of 2020 and also excluding 2019 shipments from the Southwest Division’s ArkLaTex business that was divested in January 2020.

In 2020, asphalt pricing increased 2.7% and volumes improved 15.3%, attributable to strong customer demand and favorable weather compared with the prior year.

Cement shipments increased slightly in 2021 versus prior year, continuing to reflect strong demand in North and South Texas, with improving energy-sector demand.

Organic cement pricing improved 7.3%, or 5.9% on a mix-adjusted basis, compared with the prior year, reflecting favorable Texas market dynamics.

Cement product gross margin declined 600 basis points as higher energy, maintenance and raw materials costs outpaced shipment and pricing gains.

Ready mixed concrete pricing improved 1.4% and shipment volume increased 18.8% in 2021, reflecting robust demand in Texas and contributions from the Lehigh West Region operations.

In 2021, asphalt pricing increased 4.1% and volumes improved 113.3%, attributable to shipments from the acquired Tiller and Lehigh West Region operations, offset by weather-impeded shipments for the majority of the year and liquid supply disruptions in Colorado.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Magnesia Specialties.

In 2020, Magnesia Specialties reported total revenues of $242.7 million, gross profit of $85.5 million and earnings from operations of $70.7 million, representing decreases of 11%, 10% and 15%, respectively, compared with 2019.

The declines in 2020 compared with prior year are primarily attributable to lower lime and periclase shipments to the steel industry in response to COVID-19-induced shutdown of domestic auto manufacturers.

Additionally, the business experienced a continued decline in chemicals products sales as both domestic and international customers experienced a downturn in economic activity related to COVID-19.

Effective cost control contributed to product gross margin expansion of 80 basis points to 40.6%.

In 2021 , Magnesia Specialties reported total revenues of $ 298.7 million, gross profit of $ 106.5 million and earnings from operations of $ 9 0.

8 million , representing in creases of 23 %, 2 4 % and 28 %, respectively, compared with 2020 .

The increase in 2021 compared with prior year is reflective of strong domestic and global demand for chemical and lime products which rebounded from 2020 COVID-impacted levels .

Selling, General and Administrative Expenses

SG&A expenses for 2020 and 2019 were 6.5% and 6.4% of total revenues, respectively.

The $3.2 million increase in total expense reflected higher personnel costs and $6.0 million in COVID-19 related expenses primarily for cleaning and sanitizing protocols across the Company’s operations, and were partially offset by reductions in other discretionary costs.

SG&A expenses for 2021 and 2020 were 6.5% of total revenues.

The $45.1 million increase in total expense is primarily driven by incremental SG&A related to acquired operations, higher stock compensation expense and the impacts of higher salary costs.

Acquisition-Related Expenses

Acquisition-related expenses of $57.9 million were incurred in 2021, primarily associated with the Tiller and Lehigh West Region acquisitions.

Other Operating Income, Net

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These net amounts represented income of $34.3 million in 2021 and $59.8 million in 2020.

For 2021, other operating income, net included $21.6 million of nonrecurring gains on land sales and divested assets driven primarily by the sale of the Company’s former corporate headquarters land and buildings.

The 2020 amount included $69.9 million of nonrecurring gains on the sales of investment land and divested assets in Austin, Texas;

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and Augusta, Kansas.

These asset sales collectively generated net cash proceeds of $122.8 million.

These gains were recorded in the West Group.

The 2019 amount included the reversal of $6.9 million of accruals for sales tax and unclaimed property contingencies.

These asset sales collectively generated net cash proceeds of $122.8 million.

Earnings from Operations

Consolidated earnings from operations were $1.0 billion and $884.9 million in 2020 and 2019, respectively.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Consolidated earnings from operations were $973.8 million and $1.01 billion in 2021 and 2020, respectively.

Interest Expense

Interest expense was $142.7 million in 2021 and $118.1 million in 2020.

The decrease reflects lower average outstanding debt during 2020 compared with 2019 and lower interest rates on variable-rate debt.

The increase reflected higher average outstanding debt during 2021 compared with 2020, as the Company issued $2.5 billion of publicly traded debt in July 2021 to help finance acquisition activity.

Other Nonoperating (Income) and Expenses, Net

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net equity earnings from nonconsolidated investments and other miscellaneous income and expenses.

Consolidated other nonoperating income and expenses, net, was income of $2.0 million in 2020, and an expense of $7.3 million in 2019.

The 2020 amount reflected lower pension expense of $8.1 million compared with the prior year and an expense of $11.4 million to finance third-party railroad track maintenance.

2019 expense included the correction of a prior-period error that overstated equity earnings from a nonconsolidated affiliate.

The error was deemed immaterial to any previously-reported period and was corrected as an out-of-period expense of $15.7 million ($12.0 million, net of tax).

The pretax noncash adjustment was recorded in other nonoperating expenses, net, consistent with the recurring classification of equity earnings from the affiliate.

Consolidated other nonoperating income and expenses, net, was income of $24.4 million in 2021 and income of $2.0 million in 2020.

The 2021 amount reflected a $19.4 million reduction in pension expense compared with 2020.

The Company financed $7.7 million and $11.4 million of third-party railroad track maintenance expense in 2021 and 2020, respectively .

Income Tax Expense

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The Company’s estimated effective income tax rate for the years ended December 31, 2021 and 2020 was 17.9% and 18.9%, respectively.

The effective income tax rate for 2020 included a $14.2 million discrete benefit from financing third-party railroad track maintenance.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The effective income tax rate s for 2021 and 2020 included a $9.7 million and a $14.2 million discrete benefit , respectively, from financing third-party railroad track maintenance.

In exchange, the Company received a federal income tax credit and deduction.

The 2019 income tax rate reflected a discrete income tax benefit of $15.2 million related to a change in tax status of a subsidiary.

Discontinued Operations

The Company classified the cement and California ready mixed concrete businesses acquired as part of Lehigh West Region as assets held for sale and discontinued operations for 2021.

The collective businesses generated income of $0.5 million, net of expenses associated with the planned disposal, the impact of selling acquired inventory after its step up to fair value as part of acquisition accounting and income tax expense.

Net Earnings Attributable to Martin Marietta and Earnings Per Diluted Share

Net earnings attributable to Martin Marietta were $721.0 million, or $11.54 per diluted share, for 2020 and $611.9 million, or $9.74 per diluted share, for 2019.

Net earnings from continuing operations attributable to Martin Marietta were $702.0 million, or $11.22 per diluted share, for 2021 and $721.0 million, or $11.54 per diluted share, for 2020.

Liquidity and Cash Flows

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Operating cash flow is substantially derived from consolidated net earnings, before deducting depreciation, depletion and amortization, and offset by working capital requirements.

Cash provided by operations was $1.05 billion in 2020 and $966.1 million in 2019.

The primary driver of the increase in cash provided by operations in 2020 is higher earnings.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cash provided by operations was $1.14 billion in 2021 and $1.05 billion in 2020.

The primary driver of the increase in cash provided by operations in 2021 was higher earnings before noncash gains and expenses.

Depreciation, depletion and amortization expense were as follows:

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(in millions)

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Investing Activities

Net cash used for investing activities was $409.7 million in 2020 and $385.9 million in 2019.

Cash paid for property, plant and equipment additions was $359.7 million in 2020 and $393.5 million in 2019, the reduction reflecting the Company’s decision to reduce capital expenditures in light of COVID-19.

The Company paid cash of $65.1 million for acquisitions in 2020.

There were no acquisitions in 2019.

Pretax proceeds from divestitures and sales of nonoperating land and equipment were $142.3 million in 2020 and $8.4 million in 2019.

In 2020, the amount included the divestitures of investment land and assets in Austin, Texas;

Net cash used for investing activities was $3.47 billion in 2021 and $409.7 million in 2020.

The increase reflected $3.11 billion used to consummate acquisitions during 2021 versus $65.1 million for acquisitions in 2020.

Cash paid for property, plant and equipment additions was $423.1 million in 2021 and $359.7 million in 2020.

Pretax proceeds from divestitures and sales of the Company’s former headquarters land and buildings, nonoperating land and equipment were $42.8 million in 2021 and $142.3 million in 2020.

The prior-year amount included divestitures of investment land and assets in Austin, Texas;

Riverside, California;

and Augusta, Kansas.

During 2020, the Company repaid $112.3 million of loans against company-owned life insurance policies.

Financing Activities

The Company used $357.0 million and $604.1 million of cash for financing activities during 2020 and 2019, respectively.

Net repayments of long-term debt were $149.0 million in 2020 and $350.1 million in 2019.

The Company repurchased 0.2 million shares of its common stock for a total cost of $50.0 million, or $237.40 per share, in 2020 and 0.4 million shares of its common stock for a total cost of $98.2 million, or $236.04 per share, in 2019.

Net cash provided by financing activities was $2.29 billion in 2021 and net cash used was $357.0 million for 2020.

The 2021 cash provided reflected the issuance of $2.50 billion in publicly traded debt, primarily to finance acquisitions.

In 2020, the Company made net debt repayments of long-term debt of $149.0 million.

For the years ended December 31, 2021 and 2020, the Board of Directors approved total cash dividends on the Company’s common stock of $2.36 per share and $2.24 per share, respectively.

Total cash dividends paid were $147.8 million in 2021 and $140.3 million in 2020.

Cash provided by issuances of common stock, which represents the exercises of stock options, excluding the impact of shares withheld for taxes, was $2.3 million and $13.7 million in 2020 and 2019, respectively.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

In 2020, the Company repurchased 0.2 million shares of its common stock for a total cost of $50.0 million, or $237.40 per share.

Capital Structure and Resources

Long-term debt, including current maturities, was $2.63 billion at December 31, 2020, and was principally in the form of publicly-issued long-term notes and debentures.

Long-term debt, including current maturities, was $5.10 billion at December 31, 2021, and was predominantly in the form of publicly-issued long-term notes and debentures.

On July 2, 2021, the Company issued $700.0 million aggregate principal amount of 0.650% Senior Notes due 2023 (the 0.650% Senior Notes), $900.0 million aggregate principal amount of 2.400% Senior Notes due 2031 (the 2.400% Senior Notes) and $900.0 million aggregate principal amount of 3.200% Senior Notes due 2051 (the 3.200% Senior Notes), pursuant to a base indenture, dated as of May 22, 2017 (the Base Indenture), as amended and supplemented from time to time, including by the Fourth Supplemental Indenture, dated as of July 2, 2021 and, together with the Base Indenture (the Indenture) between the Company and Regions Bank, as trustee, governing these notes.

On the consolidated balance sheets, these notes are carried net of original issue discount, which will be amortized using the effective interest method over the lives of the issues.

The Company used the net proceeds of the 2.400% Senior Notes, the 3.200% Senior Notes and the 0.650% Senior Notes to pay the consideration for the acquisition of the Lehigh West Region business, and for general corporate purposes.

See Note D to the financial statements for more information on the Lehigh West Region acquisition, which was consummated on October 1, 2021.

On March 5, 2020, the Company issued $500.0 million aggregate principal amount of 2.500% Senior Notes due 2030 (the 2.500% Senior Notes).

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The Trade Receivable Facility contains a cross-default provision to the Company’s other debt agreements.

The $700.0 million five-year senior unsecured revolving facility (the Revolving Facility), which matures in December 2024, requires the Company’s ratio of consolidated net debt-to-consolidated EBITDA, as defined, for the trailing-twelve month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Company may exclude from the Ratio debt incurred in connection with certain acquisitions during the quarter or the three preceding quarters so long as the Ratio calculated without such exclusion does not exceed 3.75x.

Additionally, if there are no amounts outstanding under the Revolving Facility and the Trade Receivable Facility, consolidated debt, including debt for which the Company is a co-borrower, shall be reduced by the Company’s unrestricted cash and cash equivalents in excess of $50.0 million, such reduction not to exceed $200.0 million, for purposes of the covenant calculation.

At December 31, 2020, the Company’s ratio of consolidated net debt-to-consolidated EBITDA, as defined in the agreement governing the Revolving Facility (the Credit Agreement), for the trailing twelve-month EBITDA was 1.75 times and was calculated as follows:

Twelve-Month Period

January 1, 2020 to

(dollars in millions)

December 31, 2020

Net earnings attributable to Martin Marietta

Interest expense

Income tax expense

Depreciation, depletion and amortization expense

Stock-based compensation expense

Interest income

Consolidated EBITDA, as defined by the Company's Credit Agreement

Consolidated net debt, as defined and including debt for which the Company is a

co-borrower, at December 31, 2020

Consolidated net debt-to-consolidated EBITDA, as defined by the Company's

Credit Agreement, at December 31, 2020 for trailing twelve-month EBITDA

There were no outstanding borrowings on the Trade Receivable Facility as of December 31, 2021.

The Company has an $800.0 million five-year senior unsecured revolving facility (the Revolving Facility), which matures in December 2026.

The Revolving Facility requires the Company’s ratio of consolidated net debt-to-consolidated EBITDA, as defined, for the trailing-twelve month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

the Company may exclude from the Ratio debt incurred in connection with certain acquisitions during the quarter or the three preceding quarters so long as the Ratio calculated without such exclusion does not exceed 4.00 x.

Additionally, if there are no amounts outstanding under the Revolving Facility and the Trade Receivable Facility, consolidated debt, including debt for which the Company is a co-borrower, shall be reduced in an amount equal to the lesser of $500.0 million or the sum of the Company’s unrestricted cash and temporary investments , for purposes of the covenant calculation.

The Company was in compliance with the Ratio at December 31, 2021.

Total equity was $6.54 billion at December 31, 2021.

At that date, the Company had an accumulated other comprehensive loss of $158.4 million, primarily resulting from unrecognized actuarial losses related to pension benefits.

At that date, the Company had an accumulated other comprehensive loss of $97.6 million, primarily resulting from the unrecognized actuarial loss related to pension benefits.

Pursuant to authority granted by its Board of Directors, the Company can repurchase up to 20 million shares of common stock.

As of December 31, 2021, the Company had 13.5 million shares remaining under the repurchase authorization.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

share repurchases are at the discretion of management and were temporarily paused in March 2020 in light of the COVID-19 pandemic.

Management may resume share repurchases as circumstances dictate.

Future share repurchases are at the discretion of management.

At December 31, 2021, the Company had $258.4 million in unrestricted cash and short-term investments that are considered cash equivalents.

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The Company’s investments in bank funds generally exceed the FDIC insurance limit.

As of December 31, 2020, the Company had restricted cash of $97.1 million for the purchase of like-kind exchange replacement assets under Section 1031 of the Internal Revenue Code (Section 1031).

In January 2021, unused funds of $47.2 million were transferred to unrestricted cash and can subsequently be used for general corporate purposes.

The Company has until March 9, 2021 to utilize additional funds for like-kind exchange replacement assets.

Any remaining unused funds will be transferred to unrestricted cash at that time.

Cash on hand, along with the Company’s projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise and allow for payment of dividends for the foreseeable future.

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The CARES Act allowed the Company to defer the payment of the 6.2% employer share of Social Security taxes for the period from March 27, 2020 through December 31, 2020.

Half of the deferred obligation will be due December 31, 2021 and the remaining half will be due December 31, 2022.

There will be no interest assessed on amounts deferred.

The Company deferred payment of $27.6 million under this provision.

Half of the deferred obligation was paid December 31, 2021 and the remaining half is due December 31, 2022.

There will be no interest assessed on amounts deferred.

Contractual and Off Balance Sheet Obligations

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At December 31, 2021, the Company had a total obligation of $114.2 million related to unfunded nonqualified pension plans and expects to make contributions of $18.5 million to these plans in 2022.

At December 31, 2020, the Company had $8.4 million accrued for uncertain tax positions, including interest and correlative effects of $0.2 million.

At December 31, 2021, the Company had $5.6 million accrued for uncertain tax positions, including interest of $0.2 million.

Such liabilities may become payable if the tax positions are not sustained upon examination by a taxing authority.

In connection with normal, ongoing operations, the Company enters into market-rate leases for property, plant and equipment and royalty commitments principally associated with leased land and mineral reserves.

Additionally, the Company enters into equipment rentals to meet shorter-term, nonrecurring and intermittent needs.

At December 31, 2020, the Company had $459.0 million in operating lease obligations and $24.5 million in finance lease obligations, representing the present value of future payments.

The imputed interest on operating and finance lease obligations was $174.3 million.

Management anticipates that, in the ordinary course of business, the Company will enter into additional royalty agreements

A World-Class Organization Built for Success

Additionally, the Company

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for land and mineral reserves during 202 1 .

enters into equipment rentals to meet shorter-term, nonrecurring and intermittent needs.

At December 31, 20 2 1 , the Company had $ 433.

3 million in operating lease obligations and $ 204.4 million in finance lease obligations , representing the present value of future payments .

The Company also had $29.5 million of lease obligations classified as held for sale .

The imputed interest on operating and finance lease obligations was $ 202.6 million.

Management anticipates that, in the ordinary course of business, the Company will enter into additional royalty agreements for land and mineral reserves during 202 2 .

As permitted, short-term leases are excluded from ASC 842 requirements and future noncancelable obligations for these leases as of December 31, 20 2 1 are immaterial .

As of December 31, 2020, interest payable on the Company’s publicly traded debt through the various maturity dates was $1.35 billion.

The Company has obligations related to contracts of affreightment not accounted for as a lease and royalty agreements totaling $120.2 million and $119.7 million, respectively, as of December 31, 2020.

The Company has purchase commitments for property, plant and equipment of $102.8 million as of December 31, 2020.

The Company also has other purchase obligations related to energy and service contracts which totaled $122.4 million as of December 31, 2020.

As of December 31, 2021, future interest payable on the Company’s publicly traded debt through the various maturity dates was $2.31 billion.

The Company had obligations related to contracts of affreightment not accounted for as a lease and royalty agreements totaling $162.5 million and $145.9 million, respectively, as of December 31, 2021.

The Company had purchase commitments for property, plant and equipment of $101.7 million as of December 31, 2021.

The Company also had other purchase obligations related to energy and service contracts which totaled $194.7 million as of December 31, 2021.

Contingent Liabilities and Commitments

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An interim review is performed between annual tests if facts and circumstances indicate a potential impairment.

The impairment review of goodwill is a critical accounting estimate because goodwill represented 23% of the Company’s total assets at December 31, 2020;

The impairment review of goodwill is a critical accounting estimate because goodwill represented 24% (excluding goodwill allocated to assets held for sale) of the Company’s total assets at December 31, 2021;

the review requires management to apply judgment and make key assumptions;

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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.

Goodwill is tested for impairment by comparing the reporting unit’s fair value to its carrying value, which represents a Step-1 analysis.

Goodwill is tested for impairment by comparing

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the reporting unit’s fair value 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 .

1 unchanged sentence

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

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more-likely-than-not (i.e., a likelihood of more than 50%) that a reporting unit’s fair value is higher than its carrying value, the Company does not perform any further goodwill impairment testing for that reporting unit.

If the Company concludes it is more-likely-than-not (i.e., a likelihood of more than 50%) that a reporting unit’s fair value is higher than its carrying value, the Company does not perform any further goodwill impairment testing for that reporting unit.

Otherwise, it proceeds to Step 1 of its goodwill impairment analysis.

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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.

Therefore, the $245.9 million unrecognized actuarial loss consists of $134.7 million currently subject to amortization in 2021 and $111.2 million not subject to amortization in 2021.

Therefore, the $166.2 million unrecognized actuarial loss consisted of $46.2 million currently subject to amortization in 2022 and $120.0 million not subject to amortization in 2022.

These components are calculated annually to determine the annual pension expense.

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The mortality table and mortality improvement scale represent published statistics on the expected lives of people .

The rate of increase in future compensation levels is used to project the pay-related pension benefit formula and should estimate actual future compensation levels.

Management’s selection of the discount rate is based on an analysis that estimates the current rate of return for high-quality, fixed-income investments with maturities matching the payment of pension benefits that could be purchased to settle the obligations.

The Company selected a hypothetical portfolio of Moody’s Aa bonds, with maturities that match the benefit

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obligations, to determine the discount rate.

At December 31, 20 20 , the Company selected a discount rate assumption of 3.

1 6 %, a 53 -basis-point de crease compared with the prior-year assumption.

The rate of increase in future compensation levels is used to project the pay-related pension benefit formula and should estimate actual future compensation levels.

The Company selected a hypothetical portfolio of Moody’s Aa bonds, with maturities that match the benefit obligations, to determine the discount rate.

At December 31, 2021, the Company selected a discount rate assumption of 3.23%, a 7-basis-point increase compared with the prior-year assumption.

Of the four key assumptions, the discount rate is generally the most volatile and sensitive estimate.

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The no-collar table was used for salaried participants and the blue-collar table was used for hourly participants, both adjusted to reflect the historical experience of the Company’s participants.

The Company selected the MP-2020 and the MP-2018 scales for mortality improvement at December 31, 2020 and 2019, respectively .

The Company selected the MP-2020 scale for mortality improvement at December 31, 2021 and 2020.

Assumptions are selected on December 31 to calculate the succeeding year’s expense.

For the 2020 pension expense, assumptions selected at December 31, 2019 were as follows:

Discount rate

Rate of increase in future compensation levels

Expected long-term rate of return on assets

Average remaining service period for participants

Mortality Tables:

Mortality Improvement Scale

Using these assumptions, the pension benefit obligation as of December 31, 2019 was $977.8 million and 2020 pension expense was $36.8 million.

A change in the assumptions would have had the following impact on the December 31, 2019 pension benefit obligation and the 2020 expense:

A 25-basis-point change in the discount rate would have changed the December 31, 2019 pension benefit obligation by approximately $36.3 million.

A 25-basis-point change in the discount rate would have changed the 2020 expense by approximately $4.7 million.

A 25-basis-point change in the expected long-term rate of return on assets would have changed the 2020 expense by approximately $2.2 million.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The assumptions selected at December 31, 2021 were as follows:

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The Company made pension plan contributions of $82.8 million in 2021 and $423.3 million during the five-year period ended December 31, 2021.

Despite these contributions, the Company’s pension plans are underfunded (projected benefit obligation exceeds the fair value of plan assets) by $74.0 million at December 31, 2020.

The Company’s projected benefit obligation was $1.11 billion at December 31, 2020, an increase of $134.1 million versus the prior year, driven by the lower discount rate.

In total, the Company’s pension plans are overfunded (fair value of plan assets exceeds the projected benefit obligation) by $64.8 million at December 31, 2021.

The Company’s projected benefit obligation was $1.14 billion at

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

December 31, 20 2 1 , a n in crease of $ 23.6 million , or 2%, versus the prior year.

The Company expects to make pension plan and SERP contributions of $ 93.5 million in 202 2 , of which $ 75.0 million are voluntary .

17 unchanged sentences

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

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

10 unchanged sentences

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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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Combinations – Allocation of Purchase Price

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Level 3 fair values are used to value acquired mineral reserves and mineral interests produced and sold as final products, and separately-identifiable intangible assets.

The fair values of mineral reserves and mineral interests are determined using an excess earnings approach, which requires management to estimate future cash flows, net of capital investments in the

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

specific operation and contributory asset charges.

The fair values are determined using an excess earnings approach, which requires significant judgment to estimate future cash flows, net of capital investments in the specific operation and contributory asset charges.

The estimate of future cash flows is based on available historical information and future expectations and assumptions determined by management, but is inherently uncertain.

Key assumptions in estimating future cash flows include changes in sales price, shipment volumes and production costs as well as capital needs.

Significant assumptions used to estimate future cash flows include changes in forecasted revenues based on sales price and shipment volumes as well as forecasted expenses inclusive of production costs and capital needs.

The present value of the projected net cash flows represents the fair value assigned to mineral reserves and mineral interests.

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Any adjustments to assets acquired or liabilities assumed beyond the measurement period are recorded through earnings.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Property, Plant and Equipment

Net property, plant and equipment represented 50% of total assets at December 31, 2020.

Net property, plant and equipment represented 44% (excluding the amount allocated to assets held for sale) of total assets at December 31, 2021.

Accordingly, accounting for these assets represents a critical accounting policy.

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If a flaw in the deposit is discovered, the aggregates material may not meet the required specifications.

Although it is possible that the

A World-Class Organization Built for Success

Form 10-K ♦ Page 59

Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

aggregates material can still be used for non-specification uses, this can have an adverse effect on the Company’s ability to serve certain customers or on the Company’s profitability.

Although it is possible that the aggregates material can still be used for non-specification uses, this can have an adverse effect on the Company’s ability to serve certain customers or on the Company’s profitability.

In addition, other issues can arise that limit the Company’s ability to access reserves in a particular quarry, including geological occurrences, blasting practices and zoning issues.

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The Company typically assumes a loss factor of 25%.

However, the assumed loss factor at coastal operations is approximately 40% due to the nature of the material.

However, the assumed loss

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

factor at coastal operations is approximately 40% due to the nature of the material.

The assumed loss factor for underground operations is 35% primarily due to pillars.

13 unchanged sentences

Once a new mining area enters the production phase, all post-production stripping costs are expensed as incurred as periodic inventory production costs.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

12 unchanged sentences

the ability of the Company to face challenges, including those posed by the COVID-19 pandemic and implementation of any such related response plans;

the recent dramatic increases in COVID-19 cases in the United States and the extent that geography of outbreak primarily matches the regions in which the Company’s Building Materials business principally operates;

the fluctuations in COVID-19 cases in the United States and the extent that geography of outbreak primarily matches the regions in which the Company’s Building Materials business principally operates;

the resiliency and potential declines of the Company’s various construction end-use markets;

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the performance of the United States economy, including the impact on the economy of the COVID-19 pandemic and governmental orders restricting activities imposed to prevent further outbreak of COVID-19;

the impact of governmental orders restricting activities imposed to prevent further outbreak of COVID-19 on travel, potentially reducing state fuel tax revenues used to fund highway projects;

a decline in the commercial component of the nonresidential construction market, notably office and retail space, including a decline resulting from economic distress related to the COVID-19 pandemic;

whether the Company’s operations will continue to be treated as “essential” operations under applicable government orders restricting business activities imposed to prevent further outbreak of COVID-19 or, even if so treated, whether site-specific health and safety concerns might otherwise require certain of the Company’s operations to be halted for some period of time;

shipment declines resulting from economic events beyond the Company’s control;

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the termination, capping and/or reduction or suspension of the federal and/or state gasoline tax(es) or other revenue related to public construction;

the level and timing of federal, state or local transportation or infrastructure or public projects funding, most particularly in Texas, Colorado, North Carolina, Georgia, Iowa, Florida and Maryland;

the impact of governmental orders restricting activities imposed to prevent further outbreak of COVID-19 on travel, potentially reducing state fuel tax revenues used to fund highway projects;

the level and timing of federal, state or local transportation or infrastructure or public projects funding, most particularly in Texas, Colorado, California, North Carolina, Georgia, Minnesota Iowa, Florida, Indiana and Maryland;

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

the United States Congress’ inability to reach agreement among themselves or with the Administration on policy issues that impact the federal budget;

2 unchanged sentences

a reduction in defense spending and the subsequent impact on construction activity on or near military bases;

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

a decline in energy-related construction activity resulting from a sustained period of low global oil prices or changes in oil production patterns or capital spending in response to this decline, particularly in Texas;

increasing residential mortgage rates and other factors that could result in a slowdown in residential construction;

unfavorable weather conditions, particularly Atlantic Ocean and Gulf of Mexico hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or excessive rainfall in the markets served by the Company, any of which can significantly affect production schedules, volumes, product and/or geographic mix and profitability;

the volatility of fuel costs, particularly diesel fuel, and the impact on the cost, or the availability generally, of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Company’s Magnesia Specialties business, natural gas;

the volatility of fuel costs and energy, particularly diesel fuel, electricity, natural gas and the impact on the cost, or the availability generally, of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Company’s Magnesia Specialties business, natural gas;

continued increases in the cost of other repair and supply parts;

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transportation availability or a sustained reduction in capital investment by the railroads, notably the availability of railcars, locomotive power and the condition of rail infrastructure to move trains to supply the Company’s Texas, Colorado, Florida, Carolinas and the Gulf Coast markets, including the movement of essential dolomitic lime for magnesia chemicals to the Company’s plant in Manistee, Michigan and its customers;

increased transportation costs, including increases from higher or fluctuating passed-through energy costs or fuel surcharges, and other costs to comply with tightening regulations, as well as higher volumes of rail and water shipments (leading to reduced profit margins when compared with aggregates moved by truck);

availability of trucks and licensed drivers for transport of the Company’s materials;

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economy, including the impact of tariffs on the steel industry;

unplanned changes in costs or realignment of customers that introduce volatility to earnings, including the Magnesia Specialties business;

unplanned changes in costs or realignment of customers that introduce volatility to earnings, including that of the Magnesia Specialties business that is running at capacity;

proper functioning of information technology and automated operating systems to manage or support operations;

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the possibility that the expected synergies from acquisitions will not be realized or will not be realized within the expected time period, including achieving anticipated profitability to maintain compliance with the Company’s leverage ratio debt covenant;

changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Company’s tax rate;

changes in tax laws, the interpretation of such laws and/or administrative practices, including acquisitions and divestitures, that would increase the Company’s tax rate;

violation of the Company’s debt covenant if price and/or volumes return to previous levels of instability;

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other risk factors listed from time to time found in the Company’s filings with the SEC.

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Part II ♦ Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

24 unchanged sentences

All forward-looking statements are made as of the date of filing or publication and we assume no obligation to update any such forward-looking statements.

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Part II ♦ Item 7A – Quantitative and Qualitative Disclosures About Market Risk

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis