Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements			Page
	Statement of Responsibility and Management’s Report on Internal Control over Financial Reporting		72
	Report of Independent Registered Public Accounting Firm		74
	Consolidated Statements of Earnings – for years ended December 31, 2019, 2018, and 2017		76
	Consolidated Statements of Comprehensive Earnings – for years ended December 31,2019, 2018, and 2017		77
	Consolidated Balance Sheets – at December 31, 2019 and 2018		78
	Consolidated Statements of Cash Flows – for years ended December 31, 2019, 2018, and 2017		79
	Consolidated Statements of Total Equity – for years ended December 31, 2019, 2018, and 2017		80
	Notes to Financial Statements		81

Additional information required in response to this Item 8 is included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included as Item 7 of this Form 10-K.

Statement of Responsibility and Management’s Report on Internal Control over Financial Reporting

Management’s Statement of Responsibility

The management of Martin Marietta Materials, Inc. (the “Company” or “Martin Marietta”) is responsible for the consolidated financial statements, the related financial information contained in this Form 10-K and the establishment and maintenance of adequate internal control over financial reporting. The consolidated balance sheets for Martin Marietta, at December 31, 2019 and 2018, and the related consolidated statements of earnings, comprehensive earnings, total equity and cash flows for each of the three years in the period ended December 31, 2019, include amounts based on estimates and judgments and have been prepared in accordance with accounting principles generally accepted in the United States applied on a consistent basis.

A system of internal control over financial reporting is designed to provide reasonable assurance, in a cost-effective manner, that assets are safeguarded, transactions are executed and recorded in accordance with management’s authorization, accountability for assets is maintained and financial statements are prepared and presented fairly in accordance with accounting principles generally accepted in the United States. Internal control systems over financial reporting have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company operates in an environment that establishes an appropriate system of internal control over financial reporting and ensures that the system is maintained, assessed and monitored on a periodic basis. This internal control system includes examinations by internal audit staff and oversight by the Audit Committee of the Board of Directors.

The Company’s management recognizes its responsibility to foster a strong ethical climate. Management has issued written policy statements that document the Company’s business code of ethics. The importance of ethical behavior is regularly communicated to all employees through the distribution of the Code of Ethical Business Conduct and through ongoing education and review programs designed to create a strong commitment to ethical business practices.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

The Audit Committee of the Board of Directors, which consists of three independent, nonemployee directors, meets periodically and separately with management, the independent auditors and the internal auditors to review the activities of each. The Audit Committee meets standards established by the Securities and Exchange Commission (SEC) and the New York Stock Exchange as they relate to the composition and practices of audit committees.

Management’s Report on Internal Control over Financial Reporting

The management of Martin Marietta is responsible for establishing and maintaining adequate internal control over financial reporting. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on management’s assessment under the 2013 framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019.

The consolidated financial statements of the Company as of December 31, 2019 and 2018, and for each of the three years in the period ended December 31, 2019, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report appears on the following page.

C. Howard Nye, Chairman, President and Chief Executive Officer	James A. J. Nickolas, Senior Vice President and Chief Financial Officer

February 21, 2020

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Report of Independent Registe****red Public Accounting Firm

To the Board of Directors and Shareholders of Martin Marietta Materials, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Martin Marietta Materials, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of earnings, comprehensive earnings, total equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2019 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment - Cement and Southwest Ready Mix Division Reporting Unit

As described in Notes A and C to the consolidated financial statements, the Company’s consolidated goodwill balance was $2.4 billion as of December 31, 2019. Of the consolidated goodwill balance, $934.7 million relates to the Cement and Southwest Ready Mix Division reporting unit. The carrying values of goodwill are reviewed annually, as of October 1, for impairment by comparing the reporting unit’s fair value to its carrying value. An interim review is performed between annual tests if facts and circumstances indicate potential impairment. The goodwill impairment assessment requires management to apply judgment and make assumptions. A Step 1 impairment analysis was performed for the aforementioned reporting unit as of October 1, 2019. The fair value was calculated using a discounted cash flow model. Key assumptions included management’s estimates of changes in sales price, shipment volumes and production costs, as well as assumptions of future profitability, capital requirements, discount rate and terminal growth rate. The Cement and Southwest Ready Mix Division reporting unit’s fair value exceeded its carrying value by 35%, or $701.5 million.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Cement and Southwest Ready Mix Division reporting unit is a critical audit matter are there was significant judgment by management when developing the fair value measurement of the reporting unit. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating the audit evidence relating to management’s significant assumptions, including changes in sales price, shipment volumes, production costs, and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units. These procedures also included, among others (i) testing management’s process for developing the fair value estimate, (ii) evaluating the appropriateness of the discounted cash flow model, (iii) testing the completeness, accuracy and relevance of underlying data used in the model, and (iv) evaluating the reasonableness of management’s significant assumptions used in the model, including changes in sales price, shipment volumes, production costs, and the discount rate. Evaluating management’s assumptions related to changes in sales price, shipment volumes, and production costs involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external industry reports, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and certain significant assumptions, including the discount rate.

/s/ PricewaterhouseCoopers LLP

Raleigh, North Carolina

February 21, 2020

We have served as the Company’s auditor since 2016.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Financial Statements

Martin Marietta Materials, Inc. and Consolidated Subsidiaries Consolidated Statements of Earnings
years ended December 31 (in millions, except per share data)			2019					2018					2017
Products and services revenues			$	4,422.3				$	3,980.4				$	3,723.5
Freight revenues				316.8					263.9					242.1
Total revenues				4,739.1					4,244.3					3,965.6
Cost of revenues - products and services				3,239.1					3,009.8					2,749.5
Cost of revenues - freight				321.0					267.9					244.2
Total cost of revenues				3,560.1					3,277.7					2,993.7
Gross Profit				1,179.0					966.6					971.9
Selling, general and administrative expenses				302.7					280.6					262.1
Acquisition-related expenses, net				0.5					13.5					8.6
Other operating (income) and expenses, net				(9.1	)				(18.2	)				0.8
Earnings from Operations				884.9					690.7					700.4
Interest expense				129.3					137.1					91.5
Other nonoperating expenses and (income), net				7.3					(22.5	)				(10.0	)
Earnings before income tax expense (benefit)				748.3					576.1					618.9
Income tax expense (benefit)				136.3					105.7					(94.5	)
Consolidated net earnings				612.0					470.4					713.4
Less: Net earnings attributable to noncontrolling interests				0.1					0.4					0.1
Net Earnings Attributable to Martin Marietta			$	611.9				$	470.0				$	713.3
Net Earnings Attributable to Martin Marietta Per Common Share (see Note A)
Basic attributable to common shareholders			$	9.77				$	7.46				$	11.30
Diluted attributable to common shareholders			$	9.74				$	7.43				$	11.25
Weighted-Average Common Shares Outstanding
Basic				62.5					62.9					62.9
Diluted				62.7					63.1					63.2

The accompanying Notes to the Financial Statements are an integral part of these statements.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Martin Marietta Materials, Inc. and Consolidated Subsidiaries Consolidated Statements of Comprehensive Earnings
years ended December 31 (in millions)			2019					2018					2017
Consolidated Net Earnings			$	612.0				$	470.4				$	713.4
Other comprehensive (loss) earnings, net of tax:
Defined benefit pension and postretirement plans:
Net loss arising during period, net of tax of $(4.8), $(7.6) and $(2.6), respectively				(14.5	)				(22.9	)				(8.1	)
Amortization of prior service credit, net of tax of $(0.2), $(0.5) and $(0.5), respectively				(0.6	)				(1.5	)				(0.8	)
Amortization of actuarial loss, net of tax of $3.8, $3.2 and $5.3, respectively				11.7					9.5					8.5
Amount recognized in net periodic pension cost due to settlement, net of tax of $0.0, $0.7 and $0.0 respectively				—					2.2					—
				(3.4	)				(12.7	)				(0.4	)
Foreign currency translation gain (loss)				1.2					(2.1	)				1.2
Amortization of terminated value of forward starting interest rate swap agreements into interest expense, net of tax of $0.0, $0.2 and $0.6, respectively				—					0.3					0.8
				(2.2	)				(14.5	)				1.6
Consolidated comprehensive earnings				609.8					455.9					715.0
Less: Comprehensive earnings attributable to noncontrolling interests				0.1					0.4					0.1
Comprehensive Earnings Attributable to Martin Marietta			$	609.7				$	455.5				$	714.9

The accompanying Notes to the Financial Statements are an integral part of these statements.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Martin Marietta Materials, Inc. and Consolidated Subsidiaries Consolidated Balance Sheets
December 31 (in millions, except par value data)			2019					2018
Assets
Current Assets:
Cash and cash equivalents			$	21.0				$	44.9
Accounts receivable, net				573.7					523.3
Inventories, net				690.8					663.0
Other current assets				141.2					134.6
Total Current Assets				1,426.7					1,365.8
Property, plant and equipment, net				5,206.0					5,157.2
Goodwill				2,396.8					2,399.1
Other intangibles, net				486.8					501.3
Operating lease right-of-use assets, net				481.9					—
Other noncurrent assets				133.4					128.0
Total Assets			$	10,131.6				$	9,551.4
Liabilities and Equity
Current Liabilities:
Accounts payable			$	229.6				$	210.8
Accrued salaries, benefits and payroll taxes				56.7					51.4
Accrued insurance and other taxes				63.1					63.6
Current maturities of long-term debt				340.0					390.0
Operating lease liabilities				52.7					—
Other current liabilities				96.4					70.9
Total Current Liabilities				838.5					786.7
Long-term debt				2,433.6					2,730.4
Deferred income taxes, net				733.0					705.6
Noncurrent operating lease liabilities				433.9					—
Other noncurrent liabilities				339.3					379.3
Total Liabilities				4,778.3					4,602.0
Equity:
Common stock ($0.01 par value; 100.0 shares authorized; 62.4 and 62.5 shares outstanding at December 31, 2019 and 2018, respectively)				0.6					0.6
Preferred stock ($0.01 par value; 10.0 shares authorized; no shares outstanding)				—					—
Additional paid-in capital				3,418.8					3,396.1
Accumulated other comprehensive loss				(145.8	)				(143.6	)
Retained earnings				2,077.2					1,693.3
Total Shareholders’ Equity				5,350.8					4,946.4
Noncontrolling interests				2.5					3.0
Total Equity				5,353.3					4,949.4
Total Liabilities and Equity			$	10,131.6				$	9,551.4

The accompanying Notes to the Financial Statements are an integral part of these statements.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Martin Marietta Materials, Inc. and Consolidated Subsidiaries Consolidated Statements of Cash Flows
years ended December 31 (in millions)			2019					2018					2017
Cash Flows from Operating Activities:
Consolidated net earnings			$	612.0				$	470.4				$	713.4
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities:
Depreciation, depletion and amortization				371.5					344.0					297.2
Stock-based compensation expense				34.1					29.3					30.5
Gains on divestitures and sales of assets				(3.1	)				(39.3	)				(19.4	)
Deferred income taxes, net				29.4					85.1					(239.1	)
Noncash portion of asset and portfolio rationalization charge				—					17.0					—
Other items, net				8.6					(9.0	)				(13.4	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable, net				(50.4	)				(10.6	)				(29.3	)
Inventories, net				(27.7	)				(22.0	)				(79.0	)
Accounts payable				25.9					20.1					(17.9	)
Other assets and liabilities, net				(34.2	)				(179.9	)				14.6
Net Cash Provided by Operating Activities				966.1					705.1					657.6
Cash Flows from Investing Activities:
Additions to property, plant and equipment				(393.5	)				(376.0	)				(410.3	)
Acquisitions, net of cash acquired				—					(1,642.1	)				(12.1	)
Proceeds from divestitures and sales of assets				8.4					69.1					36.0
Payment of railcar construction advances				—					(79.4	)				(43.6	)
Reimbursement of railcar construction advances				—					79.4					43.6
Investments in life insurance contracts, net				0.6					0.8					0.3
Other investing activities, net				(1.4	)				—					—
Net Cash Used for Investing Activities				(385.9	)				(1,948.2	)				(386.1	)
Cash Flows from Financing Activities:
Borrowings of long-term debt				625.0					1,000.0					2,408.8
Repayments of long-term debt				(975.1	)				(910.1	)				(1,065.0	)
Debt issuance costs				—					(3.9	)				(2.2	)
Payments on finance lease obligations				(11.0	)				—					—
Payments on capital lease obligations				—					(3.5	)				(3.5	)
Dividends paid				(129.8	)				(116.4	)				(108.9	)
Repurchases of common stock				(98.2	)				(100.4	)				(100.0	)
Payments of deferred acquisition consideration				—					(6.7	)				(2.8	)
Purchase of the noncontrolling interest in the existing joint venture				—					(12.8	)				—
Distributions to owners of noncontrolling interest				(0.6	)				—					—
Contributions by noncontrolling interest to joint venture				—					—					0.2
Proceeds from exercise of stock options				13.7					7.3					10.1
Shares withheld for employees’ income tax obligations				(28.1	)				(11.9	)				(11.8	)
Net Cash (Used for) Provided by Financing Activities				(604.1	)				(158.4	)				1,124.9
Net (Decrease) Increase in Cash and Cash Equivalents				(23.9	)				(1,401.5	)				1,396.4
Cash and Cash Equivalents, beginning of year				44.9					1,446.4					50.0
Cash and Cash Equivalents, end of year			$	21.0				$	44.9				$	1,446.4

The accompanying Notes to the Financial Statements are an integral part of these statements.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Martin Marietta Materials, Inc. and Consolidated Subsidiaries Consolidated Statements of Total Equity
(in millions, except per share data)		Shares of Common Stock				Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive (Loss) Earnings				Retained Earnings				Total Shareholders’ Equity				Noncontrolling Interests				Total Equity
Balance at December 31, 2016			63.2			$	0.6			$	3,334.5			$	(130.7	)		$	935.7			$	4,140.1			$	2.5			$	4,142.6
Consolidated net earnings			—				—				—				—				713.3				713.3				0.1				713.4
Other comprehensive earnings			—				—				—				1.6				—				1.6				—				1.6
Dividends declared ($1.72 per common share)			—				—				—				—				(108.9	)			(108.9	)			—				(108.9	)
Issuances of common stock for stock award plans			0.2				—				14.9				—				—				14.9				—				14.9
Shares withheld for employees’ income tax obligations			—				—				(11.8	)			—				—				(11.8	)			—				(11.8	)
Repurchases of common stock			(0.5	)			—				—				—				(100.0	)			(100.0	)			—				(100.0	)
Stock-based compensation expense			—				—				30.5				—				—				30.5				—				30.5
Contribution from owners of noncontrolling interest			—				—				—				—				—				—				0.2				0.2
Balance at December 31, 2017			62.9				0.6				3,368.1				(129.1	)			1,440.1				4,679.7				2.8				4,682.5
Consolidated net earnings			—				—				—				—				470.0				470.0				0.4				470.4
Other comprehensive loss			—				—				—				(14.5	)			—				(14.5	)			—				(14.5	)
Dividends declared ($1.84 per common share)			—				—				—				—				(116.4	)			(116.4	)			—				(116.4	)
Issuances of common stock for stock award plans			0.1				—				14.2				—				—				14.2				—				14.2
Shares withheld for employees’ income tax obligations			—				—				(11.9	)			—				—				(11.9	)			—				(11.9	)
Repurchases of common stock			(0.5	)			—				—				—				(100.4	)			(100.4	)			—				(100.4	)
Stock-based compensation expense			—				—				29.3				—				—				29.3				—				29.3
Noncontrolling interest acquired in business combination			—				—				—				—				—				—				9.0				9.0
Purchase of the noncontrolling interest in the existing joint venture			—				—				(3.6	)			—				—				(3.6	)			(9.2	)			(12.8	)
Balance at December 31, 2018			62.5				0.6				3,396.1				(143.6	)			1,693.3				4,946.4				3.0				4,949.4
Consolidated net earnings			—				—				—				—				611.9				611.9				0.1				612.0
Other comprehensive loss			—				—				—				(2.2	)			—				(2.2	)			—				(2.2	)
Dividends declared ($2.06 per common share)			—				—				—				—				(129.8	)			(129.8	)			—				(129.8	)
Issuances of common stock for stock award plans			0.3				—				16.7				—				—				16.7				—				16.7
Shares withheld for employees’ income tax obligations			—				—				(28.1	)			—				—				(28.1	)			—				(28.1	)
Repurchases of common stock			(0.4	)			—				—				—				(98.2	)			(98.2	)			—				(98.2	)
Stock-based compensation expense			—				—				34.1				—				—				34.1				—				34.1
Distribution to owners of noncontrolling interest			—				—				—				—				—				—				(0.6	)			(0.6	)
Balance at December 31, 2019			62.4			$	0.6			$	3,418.8			$	(145.8	)		$	2,077.2			$	5,350.8			$	2.5			$	5,353.3

The accompanying Notes to the Financial Statements are an integral part of these statements.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Notes to Financial Statements

Note A: Accounting Policies

Organization. Martin Marietta (the “Company”) is a natural resource-based building materials company. The Company supplies aggregates (crushed stone, sand and gravel) through its network of more than 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 also has a leading aggregates position. Specifically, the Company has two cement plants and several cement distribution facilities in Texas and Louisiana, and 141 ready mixed concrete plants and seven asphalt plants in Texas, Colorado, Louisiana, Arkansas and Wyoming. Paving services are exclusively in Colorado. The Company’s heavy-side building materials are used in infrastructure, nonresidential and residential construction projects. Aggregates are also used in agricultural, utility and environmental applications and as railroad ballast. The aggregates, cement, ready mixed concrete and asphalt and paving product lines are reported collectively as the “Building Materials” business. As of December 31, 2019, the Building Materials business contains the following reportable segments: Mid-America Group, Southeast Group and West Group. The Mid-America Group operates in Indiana, Iowa, northern Kansas, Kentucky, Maryland, Minnesota, Missouri, eastern Nebraska, North Carolina, Ohio, Pennsylvania, South Carolina, Virginia, Washington and West Virginia. The Southeast Group has operations in Alabama, Florida, Georgia, southwestern South Carolina, Tennessee, Nova Scotia and the Bahamas. The West Group operates in Arkansas, Colorado, southern Kansas, Louisiana, western Nebraska, Nevada, Oklahoma, Texas, Utah and Wyoming. In addition to these operations, the Company sells to customers in New York, Delaware, New Mexico and Mississippi. The following states accounted for 72% of the Building Materials business’ 2019 total products and services revenues: Texas, Colorado, North Carolina, Georgia and Iowa.

The Company also operates a Magnesia Specialties business, which produces magnesia-based chemical products used in industrial, agricultural and environmental applications, and dolomitic lime sold primarily to customers in the steel and mining industries. Magnesia Specialties’ production facilities are located in Ohio and Michigan, and products are shipped to customers worldwide.

Basis of Presentation and Use of Estimates. The Company’s consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States (U.S. GAAP), which requires management to make certain estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets and other long-lived assets and assumptions used in the calculation of income tax expense (benefit), retirement and other postemployment benefits, stock-based compensation, the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as part of business combinations and revenue recognition for service contracts. These estimates and assumptions are based on management’s judgment. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and adjusts such estimates and assumptions when facts and circumstances dictate. Changes in credit, equity and energy markets and changes in construction activity increase the uncertainty inherent in certain estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from estimates. Changes in estimates, including those resulting from continuing changes in the economic environment, are reflected in the consolidated financial statements for the period in which the change in estimate occurs.

During the year ended December 31, 2019, the Company identified a prior-period error that overstated its earnings from a nonconsolidated equity affiliate. The overstatement was not deemed material to the current period or any previously reported periods and was therefore corrected as an out-of-period expense of $15.7 million. The pretax noncash adjustment is recorded in other nonoperating expenses, consistent with the recurring classification of equity earnings from the nonconsolidated affiliate.

Basis of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Partially-owned affiliates are either consolidated or accounted for at cost or as equity investments, depending on the level of ownership interest or the Company’s ability to exercise control over the affiliates’ operations. Intercompany balances and transactions between subsidiaries have been eliminated in consolidation.

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 81

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Revenue Recognition. Total revenues include sales of products and services provided to customers, net of discounts or allowances, if any, and include freight and delivery costs billed to customers. Revenues for product sales are recognized when control of the promised good is transferred to unaffiliated customers, typically when finished products are shipped. Revenues derived from the paving business are recognized using the percentage-of-completion method under the cost-to-cost approach. Under the cost-to-cost approach, recognized contract revenue is determined by multiplying the total estimated contract revenue by the estimated percentage of completion. Contract costs are recognized as incurred. The percentage of completion is determined on a contract-by-contract basis using project costs incurred to date as a percentage of total estimated project costs. The Company believes the cost-to-cost approach is appropriate, as the use of asphalt in a paving contract is relatively consistent with the performance of the related paving services. Paving contracts, notably with governmental entities, may contain performance bonuses based on quality specifications. Given the uncertainty of meeting the criteria until the performance obligation is completed, performance bonuses are recognized as revenues when and if determined to be achieved. Performance bonuses were not material to the Company’s consolidated results of operations for the years ended December 31, 2019, 2018 and 2017. Freight revenues reflect delivery arranged by the Company using a third party on behalf of the customer and are recognized consistently with the timing of the product revenues.

Freight and Delivery Costs. Freight and delivery costs represent pass-through transportation costs incurred and paid by the Company to third-party carriers to deliver products to customers. These costs are then billed to the customers.

Cash and Cash Equivalents. Cash equivalents are comprised of highly-liquid instruments with original maturities of three months or less from the date of purchase. The Company manages its cash and cash equivalents to ensure short-term operating cash needs are met and excess funds are managed efficiently. When operating cash is not sufficient to meet current needs, the Company borrows money under its credit facilities. The Company utilizes excess cash to either pay down credit facility borrowings or invest in money market funds, money market demand deposit accounts or offshore time deposit accounts. Money market demand deposits and offshore time deposit accounts are exposed to bank solvency risk.

Accounts Receivable. Accounts receivable are stated at cost. The Company does not typically charge interest on customer accounts receivable. The Company records an allowance for doubtful accounts, which includes a provision for probable losses based on historical write-offs and a specific reserve for accounts deemed at risk. The Company writes-off accounts receivable when it becomes probable, based upon customer facts and circumstances, that such amounts will not be collected.

Inventories Valuation. Inventories are stated at the lower of cost or net realizable value. Costs for finished products and in process inventories are determined by the first-in, first-out method. Carrying value for parts and supplies are determined by the weighted-average cost method. The Company records an allowance for finished product inventories based on an analysis of inventory on hand in excess of historical sales for a twelve-month or five-year average period and future demand. The Company also establishes an allowance for parts over five years old and supplies over one year old.

Post-production stripping costs, which represent costs of removing overburden and waste materials to access mineral deposits, are a component of inventory production costs and recognized as incurred.

Property, Plant and Equipment. Property, plant and equipment are stated at cost.

The estimated service lives for property, plant and equipment are as follows:

Class of Assets		Range of Service Lives
Buildings		5 to 20 years
Machinery & Equipment		2 to 20 years
Land Improvements		5 to 60 years

The Company begins capitalizing quarry development costs at a point when reserves are determined to be proven or probable, economically mineable and when demand supports investment in the market. Capitalization of these costs ceases when production commences. Capitalized quarry development costs are classified as land improvements and depreciated over the life of the reserves.

The Company reviews relevant facts and circumstances to determine whether to capitalize or expense pre-production stripping costs when additional pits are developed at an existing quarry. If the additional pit operates in a separate and distinct area of the quarry, these costs are capitalized as quarry development costs and depreciated over the life of the uncovered reserves. Additionally, a separate asset retirement obligation is created for additional pits when the liability is incurred. Once a pit enters the production phase, all post-production stripping costs are charged to inventory production costs as incurred.

Form 10-K ♦ Page 82		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Mineral reserves and mineral interests acquired in connection with a business combination are valued using an income approach over the life of the reserves.

Depreciation is computed based on estimated service lives using the straight-line method. Depletion of mineral reserves is calculated based on proven and probable reserves using the units-of-production method on a quarry-by-quarry basis.

Property, plant and equipment are reviewed for impairment whenever facts and circumstances indicate that the carrying amount of an asset group may not be recoverable. An impairment loss is recognized if expected future undiscounted cash flows over the estimated remaining service life of the related asset are less than the asset’s carrying value.

Repair and Maintenance Costs. Repair and maintenance costs that do not substantially extend the life of the Company’s plant and equipment are expensed as incurred.

Leases. Effective January 1, 2019, if the Company determines a contract is or contains a lease at inception of the agreement, the Company records right-of-use (ROU) assets, which represent the Company’s right to use an underlying leased asset, and lease liabilities, which represent the Company’s obligation to make lease payments arising from the lease, on the consolidated balance sheet at the present value of the future lease payments over the lease term at commencement date. The Company determines the present value of lease payments based on the implicit rate, which may be explicitly stated in the lease, if available, or may be the Company’s estimated collateralized incremental borrowing rate based on the term of the lease. Initial ROU assets also include any lease payments made at or before commencement date and any initial direct costs incurred and exclude lease incentives. Certain of the Company’s leases contain renewal and/or termination options. The Company recognizes renewal or termination options as part of its ROU assets and lease liabilities when the Company has the unilateral right to renew or terminate and it is reasonably certain these options will be exercised.

Some leases require the Company pay non-lease components, which may include taxes, maintenance, insurance and certain other expenses applicable to the leased property, and are primarily considered variable costs. The Company accounts for lease and non-lease components as a single amount, with the exception of railcar and fleet vehicle leases, for which the Company separately accounts for the lease and non-lease components.

Leases are evaluated and determined to be operating or finance leases. If a lease transfers ownership to the underlying asset by the end of the lease term; includes a purchase option that is reasonably certain to be exercised; has a lease term for the major part of the remaining economic life of the underlying asset; has a present value of the sum of the lease payments that equals or exceeds substantially all of the fair value of the underlying asset; is for an underlying asset that is of a specialized nature and is expected to have no alternative use to the lessor at the end of the lease term, the lease is a finance lease. If none of these terms exist, the lease is an operating lease.

As allowed by Accounting Standards Codification 842, Leases (ASC 842), leases with an initial lease term of one year or less are not recorded on the balance sheet. Costs for these leases are expensed as incurred.

In the consolidated statements of earnings, operating lease expense, which is recognized on a straight-line basis over the lease term, and the amortization of finance lease ROU assets are included in cost of revenues or selling, general and administrative expenses. Accretion on the liabilities for finance leases is included in interest expense.

Goodwill and Intangible Assets. Goodwill represents the excess purchase price paid for acquired businesses over the estimated fair value of identifiable assets and liabilities. Other intangibles represent amounts assigned principally to contractual agreements and are amortized ratably over periods based on related contractual terms. If an intangible asset is deemed to have an indefinite life, it is not amortized.

The Company’s reporting units, which represent the level at which goodwill is tested for impairment, are based on the operating segments of the Building Materials business. Goodwill is assigned to the respective reporting unit(s) based on the location of acquisitions at the time of consummation. Goodwill is tested for impairment by comparing each reporting unit’s fair value to its carrying value, which represents a Step 1 approach. However, prior to Step 1, the Company may perform an optional qualitative assessment and evaluate macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and other business or reporting unit-specific events. If the Company concludes it is more-likely-than-not (i.e., a likelihood of more than 50%) that a reporting unit’s fair value is higher than its carrying value, the Company does not perform any further goodwill impairment testing for that reporting unit. Otherwise, the Company proceeds to Step 1 of its goodwill impairment analysis. The Company may bypass the qualitative assessment for any reporting unit in any period and proceed directly with the quantitative calculation in Step 1. If the reporting unit’s fair value exceeds its carrying value, no further calculation is necessary. A reporting unit with a carrying value in excess of its fair value constitutes a Step 1 failure and will lead to an impairment charge.

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 83

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The carrying values of goodwill and other indefinite-lived intangible assets are reviewed annually, as of October 1, for impairment. An interim review is performed between annual tests if facts and circumstances indicate potential impairment. The carrying value of other amortizable intangibles is reviewed if facts and circumstances indicate potential impairment. If a review indicates the carrying value is impaired, a charge is recorded.

Retirement Plans and Postretirement Benefits. The Company sponsors defined benefit retirement plans and also provides other postretirement benefits. The Company recognizes the funded status, defined as the difference between the fair value of plan assets and the benefit obligation, of its pension plans and other postretirement benefits as an asset or liability on the consolidated balance sheets. Actuarial gains or losses that arise during the year are recognized as a component of accumulated other comprehensive earnings or loss. Those amounts are amortized over the participants’ average remaining service period and recognized as a component of net periodic benefit cost. The amount amortized is determined using a corridor approach and represents the excess over 10% of the greater of the projected benefit obligation or pension plan assets.

Insurance Reserves. The Company has insurance coverage with large deductibles for workers’ compensation, automobile liability, marine liability and general liability claims, and is also self-insured for health claims. The Company records insurance reserves based on an actuarial-determined analysis, which calculates development factors that are applied to total case reserves within the insurance programs. While the Company believes the assumptions used to calculate these liabilities are appropriate, significant differences in actual experience and/or significant changes in these assumptions may materially affect insurance costs.

Stock-Based Compensation. The Company has stock-based compensation plans for employees and its Board of Directors. The Company recognizes all forms of stock-based awards that vest as compensation expense. The compensation expense is the fair value of the awards at the measurement date and is recognized over the requisite service period. Forfeitures are recognized as they occur.

The fair value of restricted stock awards, incentive compensation stock awards and Board of Directors’ fees paid in the form of common stock are based on the closing price of the Company’s common stock on the awards’ respective grant dates. The fair value of performance stock awards as of the grant dates is determined by a Monte Carlo simulation methodology.

In 2019, 2018 and 2017, the Company did not issue any stock options. For stock options issued prior to 2016, the Company used the accelerated expense recognition method. The accelerated recognition method requires stock options that vest ratably to be divided into tranches. The expense for each tranche is allocated to its particular vesting period.

Environmental Matters. The Company records a liability for an asset retirement obligation at fair value in the period in which it is incurred. The asset retirement obligation is recorded at the acquisition date of a long-lived tangible asset if the fair value can be reasonably estimated. A corresponding amount is capitalized as part of the asset’s carrying amount. The fair value is affected by management’s assumptions regarding the scope of the work required, inflation rates and quarry closure dates.

Further, the Company records an accrual for other environmental remediation liabilities in the period in which it is probable that a liability has been incurred and the appropriate amounts can be estimated reasonably. Such accruals are adjusted as further information develops or circumstances change. Generally, these costs are not discounted to their present value or offset for potential insurance or other claims or potential gains from future alternative uses for a site.

Income Taxes. Deferred income taxes, net, on the consolidated balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, net of valuation allowances. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates are charged or credited to income tax expense or benefit in the period of enactment.

Uncertain Tax Positions. The Company recognizes a tax benefit when it is more-likely-than-not, based on the technical merits, that a tax position would be sustained upon examination by a taxing authority. The amount to be recognized is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. The Company’s unrecognized tax benefits are recorded in other liabilities on the consolidated balance sheets or as an offset to the deferred tax asset for tax carryforwards where available.

Form 10-K ♦ Page 84		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The Company records interest accrued in relation to unrecognized tax benefits as income tax expense. Penalties, if incurred, are recorded as operating expenses in the consolidated statements of earnings.

Sales Taxes. Sales taxes collected from customers are recorded as liabilities until remitted to taxing authorities and therefore are not reflected in the consolidated statements of earnings.

Start-Up Costs. Noncapital start-up costs for new facilities and products are charged to operations as incurred.

Warranties. The Company’s construction contracts usually contain warranty provisions covering defects in materials, design or workmanship, the majority of which cover one year after project completion. Due to the nature of its projects, including contract owner inspections of the work both during construction and prior to acceptance, the Company has not experienced material warranty costs for these short-term warranties and therefore does not believe an accrual for these costs is necessary. The ready mixed concrete product line carries a longer warranty period, for which the Company has accrued an estimate of warranty cost based on experience with the type of work and any known risks relative to the projects. These costs were not material to the Company’s consolidated results of operations for the years ended December 31, 2019, 2018 and 2017.

Consolidated Comprehensive Earnings and Accumulated Other Comprehensive Loss. Consolidated comprehensive earnings for the Company consist of consolidated net earnings, adjustments for the funded status of pension and postretirement benefit plans, foreign currency translation adjustments and the amortization of the value of terminated forward starting interest rate swap agreements into interest expense, and are presented in the Company’s consolidated statements of comprehensive earnings.

Accumulated other comprehensive loss consists of unrecognized gains and losses related to the funded status of the pension and postretirement benefit plans, foreign currency translation and the unamortized value of terminated forward starting interest rate swap agreements, and is presented on the Company’s consolidated balance sheets.

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 85

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The components of the changes in accumulated other comprehensive loss and related cumulative noncurrent deferred tax assets are as follows:

		Pension and Postretirement Benefit Plans				Foreign Currency				Unamortized Value of Terminated Forward Starting Interest Rate Swap				Total
years ended December 31 (in millions)		2019
Accumulated other comprehensive loss at beginning of period		$	(141.5	)		$	(2.1	)		$	—			$	(143.6	)
Other comprehensive (loss) earnings before reclassifications, net of tax			(14.5	)			1.2				—				(13.3	)
Amounts reclassified from accumulated other comprehensive loss, net of tax			11.1				—				—				11.1
Other comprehensive (loss) earnings, net of tax			(3.4	)			1.2				—				(2.2	)
Accumulated other comprehensive loss at end of period		$	(144.9	)		$	(0.9	)		$	—			$	(145.8	)
Cumulative noncurrent deferred tax assets at end of period		$	85.2			$	—			$	—			$	85.2
		2018
Accumulated other comprehensive loss at beginning of period		$	(128.8	)		$	—			$	(0.3	)		$	(129.1	)
Other comprehensive loss before reclassifications, net of tax			(22.9	)			(2.1	)			—				(25.0	)
Amounts reclassified from accumulated other comprehensive loss, net of tax			10.2				—				0.3				10.5
Other comprehensive (loss) earnings, net of tax			(12.7	)			(2.1	)			0.3				(14.5	)
Accumulated other comprehensive loss at end of period		$	(141.5	)		$	(2.1	)		$	—			$	(143.6	)
Cumulative noncurrent deferred tax assets at end of period		$	84.2			$	—			$	—			$	84.2
		2017
Accumulated other comprehensive loss at beginning of period		$	(128.4	)		$	(1.2	)		$	(1.1	)		$	(130.7	)
Other comprehensive (loss) earnings before reclassifications, net of tax			(8.1	)			1.2				—				(6.9	)
Amounts reclassified from accumulated other comprehensive loss, net of tax			7.7				—				0.8				8.5
Other comprehensive (loss) earnings, net of tax			(0.4	)			1.2				0.8				1.6
Accumulated other comprehensive loss at end of period		$	(128.8	)		$	—			$	(0.3	)		$	(129.1	)
Cumulative noncurrent deferred tax assets at end of period		$	79.9			$	—			$	0.2			$	80.1

Form 10-K ♦ Page 86		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Reclassifications out of accumulated other comprehensive loss are as follows:

years ended December 31 (in millions)		2019				2018				2017				Affected line items in the consolidated statements of earnings
Pension and postretirement benefit plans:
Settlement charge		$	—			$	2.9			$	—
Amortization of:
Prior service credit			(0.8	)			(2.0	)			(1.4	)
Actuarial loss			15.5				12.7				13.8
			14.7				13.6				12.4			Other nonoperating expenses and (income), net
Tax effect			(3.6	)			(3.4	)			(4.7	)		Income tax expense (benefit)
Total		$	11.1			$	10.2			$	7.7
Unamortized value of terminated forward starting interest rate swap:
Additional interest expense		$	—			$	0.5			$	1.4			Interest expense
Tax effect			—				(0.2	)			(0.6	)		Income tax expense (benefit)
Total		$	—			$	0.3			$	0.8

Earnings Per Common Share. The Company computes earnings per common share (EPS) pursuant to the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. The Company paid nonforfeitable dividend equivalents during the vesting period on its restricted stock awards and incentive stock awards made prior to 2016, which results in these being considered participating securities.

The numerator for basic and diluted earnings per common share is net earnings attributable to Martin Marietta, reduced by dividends and undistributed earnings attributable to the Company’s unvested restricted stock awards and incentive stock awards issued prior to 2016. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards issued to employees and nonemployee members of the Company’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive.

The following table reconciles the numerator and denominator for basic and diluted earnings per common share:

years ended December 31 (in millions)		2019				2018				2017
Net earnings attributable to Martin Marietta		$	611.9			$	470.0			$	713.3
Less: Distributed and undistributed earnings attributable to unvested participating securities			0.9				0.8				2.0
Basic and diluted net earnings attributable to common shareholders attributable to Martin Marietta		$	611.0			$	469.2			$	711.3
Basic weighted-average common shares outstanding			62.5				62.9				62.9
Effect of dilutive employee and director awards			0.2				0.2				0.3
Diluted weighted-average common shares outstanding			62.7				63.1				63.2

Reclassifications. Certain reclassifications were made to the comparative years’ financial statements and notes to the financial statements to conform to the December 31, 2019 presentation. Such reclassifications had no impact on the Company’s previously reported results of operations, financial position or cash flows.

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 87

Part II ♦ Item 8 – Financial Statements and Supplementary Data

New Accounting Pronouncements

Leases

Effective January 1, 2019, the Company adopted ASC 842, which applies to virtually all leases, excluding mineral interest royalty agreements. ASC 842 requires the modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application. It further states that an entity may use either 1) its effective date or 2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company used the effective date as the date of initial application. As such, financial information and disclosures required under ASC 842 are not provided for dates and periods prior to January 1, 2019.

The lease standard provides a number of practical expedients for transition accounting. The Company elected the “package of practical expedients”, which permitted the Company to not reassess its prior conclusions about lease identification, lease classification and initial direct costs. The Company elected the practical expedients pertaining to the use of hindsight and to land easements. Applying the hindsight practical expedient resulted in longer lease terms for many leases.

The adoption of ASC 842 resulted in the recognition of ROU assets and lease liabilities of $502.5 million and $501.6 million, respectively, for operating leases and $10.9 million and $12.1 million, respectively, for finance leases. The adoption did not have a material impact on the Company’s consolidated statement of earnings or consolidated statement of cash flows.

Pending Accounting Pronouncements

Credit Losses

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which is effective and will be adopted January 1, 2020. ASU 2016-13 includes a current expected credit loss (CECL) model that requires an entity to estimate credit losses expected over the life of an exposure or pool of exposures based on historical information, current information and reasonable and supportable forecasts at the time the asset is recognized and is remeasured at each reporting period. ASU 2016-13 primarily relates to the Company’s receivables, but the scope also includes retainage and contract assets related to its paving business. The Company has evaluated ASU 2016-13, and the adoption will not have a material impact on its financial position or consolidated statement of earnings and comprehensive earnings.

Note B: Revenue Recognition

Performance Obligations. Performance obligations are contractual promises to transfer or provide a distinct good or service for a stated price. The Company’s product sales agreements are single-performance obligations that are satisfied at a point in time. Performance obligations within paving service agreements are satisfied over time, primarily ranging from one day to two years. For product revenues and freight revenues, customer payment terms are generally 30 days from invoice date. Customer payments for the paving operations are based on a contractual billing schedule and are due 30 days from invoice date.

Future revenues from unsatisfied performance obligations at December 31, 2019, 2018 and 2017 were $136.1 million, $78.1 million and $67.0 million, respectively, where the remaining periods to complete these obligations ranged from three months to 12 months, two months to 22 months and one month to 23 months, respectively.

Sales Taxes. The Company is deemed to be an agent when collecting sales taxes from customers. Sales taxes collected are initially recorded as liabilities until remitted to taxing authorities and are not reflected in the consolidated statements of earnings as revenues and expenses.

Form 10-K ♦ Page 88		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Revenue by Category. The following table presents the Company’s total revenues by category for each reportable segment:

years ended December 31		Products and Services				Freight				Total
(in millions)		2019
Mid-America Group		$	1,328.8			$	117.2			$	1,446.0
Southeast Group			489.1				17.3				506.4
West Group			2,354.5				160.9				2,515.4
Total Building Materials Business			4,172.4				295.4				4,467.8
Magnesia Specialties			249.9				21.4				271.3
Total		$	4,422.3			$	316.8			$	4,739.1
		2018
Mid-America Group		$	1,133.8			$	89.4			$	1,223.2
Southeast Group			409.6				13.8				423.4
West Group			2,168.4				141.6				2,310.0
Total Building Materials Business			3,711.8				244.8				3,956.6
Magnesia Specialties			268.6				19.1				287.7
Total		$	3,980.4			$	263.9			$	4,244.3
		2017
Mid-America Group		$	982.2			$	71.1			$	1,053.3
Southeast Group			348.7				13.9				362.6
West Group			2,139.9				139.8				2,279.7
Total Building Materials Business			3,470.8				224.8				3,695.6
Magnesia Specialties			252.7				17.3				270.0
Total		$	3,723.5			$	242.1			$	3,965.6

Service revenues, which solely include the paving operations located in Colorado, were $250.6 million, $219.6 million and $245.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Contract Balances. Costs in excess of billings relate to the conditional right to consideration for completed contractual performance and are contract assets on the consolidated balance sheets. Costs in excess of billings are reclassified to accounts receivable when the right to consideration becomes unconditional. Billings in excess of costs relate to customers invoiced in advance of contractual performance and are contract liabilities on the consolidated balance sheets. The following table presents information about the Company’s contract balances:

December 31
(in millions)		2019				2018
Costs in excess of billings		$	2.8			$	2.0
Billings in excess of costs		$	7.8			$	6.7

Revenues recognized from the beginning balance of contract liabilities for the years ended December 31, 2019 and 2018 were $6.6 million and $6.8 million, respectively.

Retainage, which primarily relates to the paving services, represents amounts that have been billed to customers but payment withheld until final acceptance of the performance obligation by the customer. Included on the Company’s consolidated balance sheets, retainage was $10.2 million and $7.5 million at December 31, 2019 and 2018, respectively.

Policy Elections. When the Company arranges third-party freight to deliver products to customers, the Company has elected the delivery to be a fulfillment activity rather than a separate performance obligation. Further, the Company acts as a principal in the delivery arrangements and, as required by the revenue standard, the related revenues and costs are presented gross and are included in the consolidated statements of earnings.

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 89

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Note C: Goodwill and Other Intangible Assets

The following table shows the changes in goodwill by reportable segment and in total:

December 31		Mid- America Group				Southeast Group				West Group				Total
(in millions)		2019
Balance at beginning of period		$	431.9			$	144.2			$	1,823.0			$	2,399.1
Measurement period adjustments			(1.0	)			(0.6	)			—				(1.6	)
Goodwill allocated to assets held for sale			—				(0.2	)			—				(0.2	)
Divestitures			—				—				(0.5	)			(0.5	)
Balance at end of period		$	430.9			$	143.4			$	1,822.5			$	2,396.8
		2018
Balance at beginning of period		$	281.4			$	50.3			$	1,828.6			$	2,160.3
Acquisitions			150.5				94.8				—				245.3
Goodwill allocated to assets held for sale			—				—				(5.6	)			(5.6	)
Divestitures			—				(0.9	)			—				(0.9	)
Balance at end of period		$	431.9			$	144.2			$	1,823.0			$	2,399.1

Intangible assets subject to amortization consist of the following:

December 31		Gross Amount				Accumulated Amortization				Net Balance
(in millions)		2019
Noncompetition agreements		$	6.3			$	(6.2	)		$	0.1
Customer relationships			65.6				(30.4	)			35.2
Operating permits			459.0				(42.3	)			416.7
Use rights and other			16.7				(12.1	)			4.6
Trade names			12.8				(10.9	)			1.9
Total		$	560.4			$	(101.9	)		$	458.5
		2018
Noncompetition agreements		$	6.3			$	(6.2	)		$	0.1
Customer relationships			65.6				(25.6	)			40.0
Operating permits			459.0				(36.1	)			422.9
Use rights and other			16.7				(11.2	)			5.5
Trade names			12.8				(9.7	)			3.1
Total		$	560.4			$	(88.8	)		$	471.6

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Intangible assets deemed to have an indefinite life that are therefore not amortized consist of the following:

December 31		Building Materials Business				Magnesia Specialties				Total
(in millions)		2019
Operating permits		$	6.6			$	—			$	6.6
Use rights			19.0				—				19.0
Trade names			0.2				2.5				2.7
Total		$	25.8			$	2.5			$	28.3
		2018
Operating permits		$	6.6			$	—			$	6.6
Use rights			20.3				—				20.3
Trade names			0.3				2.5				2.8
Total		$	27.2			$	2.5			$	29.7

During 2019, the Company acquired $1.5 million of intangible assets, consisting of use rights not subject to amortization.

Total amortization expense for intangible assets for the years ended December 31, 2019, 2018 and 2017 was $13.0 million, $13.9 million and $14.2 million, respectively.

The estimated amortization expense for intangible assets for each of the next five years and thereafter is as follows:

(in millions)
2020		$	13.2
2021			12.5
2022			11.1
2023			10.6
2024			10.6
Thereafter			400.5
Total		$	458.5

Note D: Business Combinations

In April 2018, the Company acquired Bluegrass Materials Company (“Bluegrass”), the then-largest privately-held, pure-play aggregates company in the United States, for $1.6 billion. Bluegrass’ operations included 22 active sites with more than 125 years of reserves, collectively, in Georgia, South Carolina, Tennessee, Maryland, Kentucky and Pennsylvania. These operations complement the Company’s existing southeastern footprint in its Mid-America and Southeast Groups and provide a new growth platform within Maryland and Kentucky.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

The Company determined fair values of the assets acquired and liabilities assumed. As of April 2019, the measurement period is closed. The following is a summary of the estimated fair values of the assets acquired and the liabilities assumed as of the acquisition date:

(in millions)
Assets:
Cash and cash equivalents		$	1.2
Receivables			25.5
Inventory			46.6
Other current assets			1.0
Property, plant and equipment			1,519.3
Intangible assets, other than goodwill			20.2
Goodwill			243.0
Total Assets			1,856.8
Liabilities:
Accounts payable and accrued expenses			17.9
Deferred income tax liabilities, net			212.5
Noncontrolling interest			9.0
Total Liabilities			239.4
Total Consideration		$	1,617.4

Goodwill represents the excess purchase price over the fair values of assets acquired and liabilities assumed and reflects projected operating synergies from the transaction, including expected overhead savings. None of the goodwill generated by the transaction will be deductible for income tax purposes.

Total revenues and earnings from operations attributable to acquired operations included in the consolidated statements of earnings were $245.7 million and $70.5 million, respectively, for the year ended December 31, 2019, and $172.0 million and $32.4 million, respectively, for the year ended December 31, 2018.

Acquisition-related expenses, primarily related to Bluegrass, were $28.3 million and $8.6 million for the years ended December 31, 2018 and 2017, respectively. Acquisition-related expenses, net, for 2018 also include a $14.8 million gain on a required divestiture of a legacy quarry.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information summarizes the combined results of operations for the Company and Bluegrass as though the companies were combined as of January 1, 2017. Financial information for periods prior to the April 2018 acquisition date included in the pro forma earnings does not reflect any cost savings or associated costs to achieve such savings from operating efficiencies or synergies that result from the combination. Consistent with the assumed acquisition date of January 1, 2017, the pro forma financial results for the year ended December 31, 2017 include acquisition-related expenses of $28.1 million, the $14.8 million gain on the required divestiture of assets and the one-time $18.7 million increase in cost of revenues for the sale of acquired inventory marked up to fair value as part of acquisition accounting.

The pro forma information does not purport to project the future financial position or operating results of the combined company. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2017.

years ended December 31
(in millions, except for per share data)		2018				2017
Total revenues		$	4,299.7			$	4,178.6
Net earnings attributable to Martin Marietta		$	489.5			$	691.7
Diluted earnings per share		$	7.75			$	10.94

In August 2018, the Company purchased the remaining noncontrolling interest in a consolidated joint venture where the controlling interest was acquired as part of the Bluegrass acquisition.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Note E: Accounts Receivable, Net

December 31
(in millions)		2019				2018
Customer receivables		$	564.4			$	514.1
Other current receivables			14.0				12.5
			578.4				526.6
Less: Allowances			(4.7	)			(3.3	)
Total		$	573.7			$	523.3

Of the total accounts receivable, net, balances, $2.9 million and $2.5 million at December 31, 2019 and 2018, respectively, were due from unconsolidated affiliates.

Note F: Inventories, Net

December 31 (in millions)		2019				2018
Finished products		$	643.6			$	615.7
Products in process			41.9				35.6
Raw materials			32.4				31.3
Supplies and expendable parts			141.5				139.6
			859.4				822.2
Less: Allowances			(168.6	)			(159.2	)
Total		$	690.8			$	663.0

Note G: Property, Plant and Equipment, Net

December 31
(in millions)		2019				2018
Land and land improvements		$	1,135.0			$	1,089.6
Mineral reserves and interests			2,509.8				2,506.8
Buildings			163.4				162.1
Machinery and equipment			4,548.6				4,357.7
Construction in progress			258.4				178.7
Finance lease right-of-use assets			18.3				—
			8,633.5				8,294.9
Less: Accumulated depreciation, depletion and amortization			(3,427.5	)			(3,137.7	)
Total		$	5,206.0			$	5,157.2

Depreciation, depletion and amortization expense related to property, plant and equipment was $354.4 million, $326.1 million and $279.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. Depreciation, depletion and amortization expense for 2019 includes amortization of right-of-use assets from finance leases and for 2018 and 2017 includes amortization of machinery and equipment under capital leases.

Interest expense of $5.1 million, $3.0 million and $3.6 million was capitalized during 2019, 2018 and 2017, respectively.

At December 31, 2019 and 2018, $49.7 million and $56.2 million, respectively, of the Building Materials business’ property, plant and equipment, net, were located in foreign countries, namely the Bahamas and Canada.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Note H: Long-Term Debt

December 31 (in millions)		2019				2018
4.25% Senior Notes, due 2024		$	397.0			$	396.4
7% Debentures, due 2025			124.4				124.3
3.450% Senior Notes, due 2027			297.3				296.9
3.500% Senior Notes, due 2027			495.3				494.8
6.25% Senior Notes, due 2037			228.1				228.1
4.250% Senior Notes, due 2047			591.7				591.5
Floating Rate Senior Notes, due 2020, interest rate of 2.55% and 3.30% at December 31, 2019 and 2018, respectively			299.7				299.0
Floating Rate Senior Notes, due 2019, interest rate of 3.29% at December 31, 2018			—				299.2
Trade Receivable Facility, interest rate of 2.42% and 3.07% at December 31, 2019 and 2018, respectively			340.0				390.0
Other notes			0.1				0.2
Total			2,773.6				3,120.4
Less: current maturities			(340.0	)			(390.0	)
Long-term debt		$	2,433.6			$	2,730.4

The Company’s 4.25% Senior Notes due 2024, 7% Debentures due 2025, 3.450% Senior Notes due 2027, 3.500% Senior Notes due 2027, 6.25% Senior Notes due 2037, 4.250% Senior Notes due 2047 and Floating Rate Senior Notes due 2020 (collectively, the “Senior Notes”) are senior unsecured obligations of the Company, ranking equal in right of payment with the Company’s existing and future unsubordinated indebtedness. Upon a change-of-control repurchase event and a resulting below-investment-grade credit rating, the Company would be required to make an offer to repurchase all outstanding Senior Notes, with the exception of the 7% Debentures due 2025, at a price in cash equal to 101% of the principal amount of the Senior Notes, plus any accrued and unpaid interest.

The Senior Notes are carried net of original issue discount, which is being amortized by the effective interest method over the life of the issue. With the exception of the Floating Rate Senior Notes, due 2020, the Senior Notes are redeemable prior to their respective maturity dates at a make-whole redemption price. The principal amount, effective interest rate and maturity date for the Senior Notes are as follows:

		Principal Amount (in millions)				Effective Interest Rate			Maturity Date
4.25% Senior Notes		$	400.0			4.25%			July 2, 2024
7% Debentures		$	125.0			7.12%			December 1, 2025
3.450% Senior Notes		$	300.0			3.47%			June 1, 2027
3.500% Senior Notes		$	500.0			3.53%			December 15, 2027
6.25% Senior Notes		$	230.0			6.45%			May 1, 2037
4.250% Senior Notes		$	600.0			4.27%			December 15, 2047
Floating Rate Senior Notes, due 2020		$	300.0			Three-month LIBOR + 0.65%			May 22, 2020

The Company has a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, Truist Bank, as successor by merger to SunTrust Bank and formerly known as Branch Banking and Trust Company (BB&T), Deutsche Bank Securities, Inc., and Wells Fargo Bank, N.A., as Co-Syndication Agents, and the lenders party thereto (the “Credit Agreement”), which provides for a $700.0 million five-year senior unsecured revolving facility (the “Revolving Facility”). Borrowings under the Revolving Facility bear interest, at the Company’s option, at rates based upon LIBOR or a base rate, plus, for each rate, a margin determined in accordance with a ratings-based pricing grid.

The Credit Agreement requires the Company’s ratio of consolidated debt-to-consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing-twelve months (the “Ratio”) to not exceed

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

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 three preceding quarters so long as the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if no amounts are outstanding under both the Revolving Facility and the trade receivable securitization facility (discussed later), consolidated debt, including debt for which the Company is a co-borrower (see Note O), may 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. The Company was in compliance with the Ratio at December 31, 2019.

On December 5, 2019, the Company extended its Revolving Facility by one year. The Revolving Facility expires on December 5, 2024, with any outstanding principal amounts, together with interest accrued thereon, due in full on that date. Available borrowings under the Revolving Facility are reduced by any outstanding letters of credit issued by the Company under the Revolving Facility. At December 31, 2019 and 2018, the Company had $2.3 million of outstanding letters of credit issued under the Revolving Facility and $697.7 million available for borrowing under the Revolving Facility. The Company paid the bank group an upfront loan commitment fee that is being amortized over the life of the Revolving Facility. The Revolving Facility includes an annual facility fee.

The Company, through a wholly-owned special-purpose subsidiary, has a $400.0 million trade receivable securitization facility (the “Trade Receivable Facility”). On September 24, 2019, the Company extended the maturity to September 23, 2020. The Trade Receivable Facility, with Truist Bank, Regions Bank, PNC Bank, N.A., The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, and certain other lenders that may become a party to the facility from time to time, is backed by eligible trade receivables, as defined. Borrowings are limited to the lesser of the facility limit or the borrowing base, as defined. These receivables are originated by the Company and then sold or contributed to the wholly-owned special-purpose subsidiary. The Company continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned special-purpose subsidiary. Borrowings under the Trade Receivable Facility bear interest at a rate equal to one-month LIBOR plus 0.725%, subject to change in the event that this rate no longer reflects the lender’s cost of lending. The Trade Receivable Facility contains a cross-default provision to the Company’s other debt agreements.

The Company’s long-term debt maturities for the five years following December 31, 2019, and thereafter are:

(in millions)
2020		$	340.0
2021			0.1
2022			0.1
2023			—
2024			696.7
Thereafter			1,736.7
Total		$	2,773.6

The 2020 Floating Rate Notes mature on May 22, 2020. The Company has classified these obligations as noncurrent long-term debt on the consolidated balance sheet as of December 31, 2019 as it has the ability and intent to refinance the notes on a long-term basis. For the debt maturity schedule, the 2020 Floating Rate Notes are included in 2024.

The Company has a $5.0 million short-term line of credit. No amounts were outstanding under this line of credit at December 31, 2019 or 2018.

Note I: Financial Instruments

The Company’s financial instruments include temporary cash investments, accounts receivable, notes receivable, accounts payable, publicly-registered long-term notes, debentures and other long-term debt.

Temporary cash investments are placed primarily in money market funds, money market demand deposit accounts or offshore time deposit accounts with financial institutions. The Company’s cash equivalents have maturities of less than three months. Due to the short maturity of these investments, they are carried on the consolidated balance sheets at cost, which approximates fair value.

Accounts receivable are due from a large number of customers, primarily in the construction industry, and are dispersed across wide geographic and economic regions. However, accounts receivable are more heavily concentrated in certain states,

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

namely Texas, Colorado, North Carolina, Georgia and Iowa. The estimated fair values of accounts receivable approximate their carrying amounts.

Notes receivable are primarily promissory notes with customers and are not publicly traded. Management estimates that the fair value of notes receivable approximates its carrying amount.

Accounts payable represent amounts owed to suppliers and vendors. The estimated fair value of accounts payable approximates its carrying amount due to the short-term nature of the payables.

The carrying values and fair values of the Company’s long-term debt were $2.77 billion and $2.94 billion, respectively, at December 31, 2019 and $3.12 billion and $3.01 billion, respectively, at December 31, 2018. The estimated fair value of the Company’s publicly-registered long-term debt was estimated based on Level 2 of the fair value hierarchy using quoted market prices. The estimated fair values of other borrowings, which primarily represent variable-rate debt, approximate their carrying amounts as the interest rates reset periodically.

Note J: Income Taxes

The components of the Company’s income tax expense (benefit) are as follows:

years ended December 31 (in millions)		2019				2018				2017
Federal income taxes:
Current		$	83.9			$	15.3			$	129.2
Deferred			31.1				69.6				(239.3	)
Total federal income taxes			115.0				84.9				(110.1	)
State income taxes:
Current			20.5				6.0				14.8
Deferred			(1.5	)			14.1				(0.9	)
Total state income taxes			19.0				20.1				13.9
Foreign income taxes:
Current			2.8				(1.4	)			1.2
Deferred			(0.5	)			2.1				0.5
Total foreign income taxes			2.3				0.7				1.7
Income tax expense (benefit)		$	136.3			$	105.7			$	(94.5	)

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act). The 2017 Tax Act included provisions that lowered the federal statutory corporate income tax rate from 35% to 21% beginning in 2018, imposed a one-time transition tax on mandatory deemed repatriation of undistributed net earnings and changed how foreign earnings are subject to U.S. tax. U.S. GAAP generally requires the effects of a tax law change to be recorded as a component of income tax expense in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allowed companies to record provisional amounts during a measurement period of up to one year from enactment where the necessary information was not available to complete the accounting for certain income tax effects of the 2017 Tax Act.

The Company recognized, on a provisional basis, a net tax benefit of $258.1 million related to the 2017 Tax Act for the remeasurement of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017. In accordance with the provisions of SAB 118, the Company completed the accounting for the impact of the 2017 Tax Act during the year ended December 31, 2018, and as a result recognized income tax expense of $1.1 million for the transition tax on mandatory deemed repatriation of undistributed foreign earnings; income tax expense of $1.5 million for the write-off of deferred tax assets that will not be realized due to changes in the deductibility of executive compensation; and an income tax benefit of $21.5 million primarily related to the accelerated deductions for pension funding, inventory and insurance prepayments that were claimed on the Company’s 2017 income tax returns.

For the year ended December 31, 2018, the benefit related to the utilization of federal net operating loss (NOL) carryforwards, reflected in current tax expense, was $5.8 million.

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For the years ended December 31, 2019, 2018 and 2017, foreign pretax earnings were $15.1 million, $5.7 million and $10.6 million, respectively.

The Company’s effective income tax rate varied from the statutory United States income tax rate because of the following tax differences:

years ended December 31		2019				2018				2017
Statutory income tax rate			21.0	%			21.0	%			35.0	%
(Reduction) increase resulting from:
Effect of statutory depletion			(3.4	)			(3.4	)			(5.6	)
State income taxes, net of federal tax benefit			2.0				2.8				1.5
Change in tax status of subsidiary			(1.7	)			—				—
Stock based compensation			(0.5	)			(0.5	)			(1.0	)
Impact from 2017 Tax Act			—				(3.3	)			(41.7	)
Domestic production deduction			—				—				(2.2	)
Other items			0.8				1.7				(1.3	)
Effective income tax rate			18.2	%			18.3	%			(15.3	%)

The statutory depletion deduction for all years is calculated as a percentage of sales, subject to certain limitations. Due to these limitations, the impact of changes in the sales volumes and earnings may not proportionately affect the Company’s statutory depletion deduction and the corresponding impact on the effective income tax rate.

The Company recognized a net tax benefit from the change in tax status of a subsidiary from a partnership to a corporation in 2019, which reduced income tax expense and increased consolidated net earnings by $15.2 million, or $0.24 per diluted share.

The Company was entitled to receive a 9% tax deduction related to income from domestic (i.e., United States) production activities in 2017. The deduction reduced income tax expense and increased consolidated net earnings by $15.5 million, or $0.25 per diluted share, in 2017. The domestic production deduction was eliminated by the 2017 Tax Act.

The principal components of the Company’s deferred tax assets and liabilities are as follows:

December 31		Deferred Assets (Liabilities)
(in millions)		2019				2018
Deferred tax assets related to:
Inventories		$	62.6			$	52.6
Valuation and other reserves			22.3				22.4
Net operating loss carryforwards			10.5				11.0
Accumulated other comprehensive loss			85.2				84.2
Lease liability			114.7				—
Other items, net			2.9				3.0
Gross deferred tax assets			298.2				173.2
Valuation allowance on deferred tax assets			(9.0	)			(8.6	)
Total net deferred tax assets			289.2				164.6
Deferred tax liabilities related to:
Property, plant and equipment			(700.8	)			(478.3	)
Goodwill and other intangibles			(151.7	)			(170.6	)
Right-of-use assets			(112.1	)			—
Partnerships and joint ventures			(27.4	)			(204.3	)
Employee benefits			(30.2	)			(17.0	)
Total deferred tax liabilities			(1,022.2	)			(870.2	)
Deferred income taxes, net		$	(733.0	)		$	(705.6	)

The Company had $4.1 million and $3.2 million of domestic federal NOL carryforwards at December 31, 2019 and 2018, respectively. The Company had domestic state NOL carryforwards of $161.0 million and $168.1 million at December 31, 2019

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

and 2018, respectively. These carryforwards have various expiration dates through 2039. At December 31, 2019 and 2018, deferred tax assets associated with these carryforwards were $10.5 million and $11.0 million, respectively, net of the federal benefit of the state deduction, for which valuation allowances of $9.0 million and $8.6 million, respectively, were recorded. The Company also had domestic state tax credit carryforwards of $1.1 million and $1.0 million at December 31, 2019 and 2018, respectively, which have various expiration dates through 2039. At December 31, 2019 and 2018, deferred tax assets associated with these carryforwards were $0.9 million and $0.8 million, respectively, net of the federal benefit of the state deduction.

Deferred tax liabilities for property, plant and equipment result from accelerated depreciation methods being used for income tax purposes as compared with the straight-line method for financial reporting purposes. The increase in 2019 compared with 2018 was primarily driven by the impact of 100% expensing of capital expenditures for tax purposes and by the change in the tax status of a subsidiary from a partnership to a corporation. The majority of the deferred tax liabilities recorded for the Company were related to property, plant and equipment.

Deferred tax liabilities for partnerships and joint ventures relate to the difference between the tax basis in partnerships and joint ventures when compared to the basis for financial reporting purposes. The decrease in 2019 compared with 2018 was a result of the change in the tax status of a subsidiary from a partnership to a corporation, which required the write-off of the deferred tax liability on the partnership investment, and the recording of deferred tax liabilities on the assets owned by the Company.

Deferred tax liabilities related to goodwill and other intangibles reflect the cessation of goodwill amortization for financial reporting purposes, while amortization continues for income tax purposes.

The Company expects to permanently reinvest the earnings from its wholly-owned Canadian and Bahamian subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation is immaterial at December 31, 2019.

The following table summarizes the Company’s unrecognized tax benefits, excluding interest and correlative effects of $1.7 million and $0.6 million for the years ended December 31, 2019 and 2018, respectively:

years ended December 31 (in millions)		2019				2018				2017
Unrecognized tax benefits at beginning of year		$	24.1			$	22.4			$	21.8
Gross increases – tax positions in prior years			0.4				0.9				1.4
Gross decreases – tax positions in prior years			—				—				(0.7	)
Gross increases – tax positions in current year			1.8				1.8				5.0
Gross decreases – tax positions in current year			(0.8	)			(1.0	)			(0.9	)
Lapse of statute of limitations			—				—				(4.2	)
Unrecognized tax benefits at end of year		$	25.5			$	24.1			$	22.4
Amount that, if recognized, would favorably impact the effective tax rate		$	15.5			$	12.8			$	10.4

Unrecognized tax benefits are reversed as a discrete event if an examination of applicable tax returns is not initiated by a federal or state tax authority within the statute of limitations or upon effective settlement with federal or state tax authorities. Management believes its accrual for unrecognized tax benefits is sufficient to cover uncertain tax positions reviewed during audits by taxing authorities.

The Company anticipates that it is reasonably possible that its unrecognized tax benefits may decrease up to $17.1 million, excluding interest and correlative effects, during the twelve months ending December 31, 2020, due to the expiration of the statutes of limitations for the 2016 and all prior open tax years.

For the year ended December 31, 2017, $3.9 million was reversed into income upon the statute of limitations expiration for the 2010 through 2013 tax years.

The Company’s tax years subject to federal, state or foreign examinations are 2011 through 2019.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Note K: Retirement Plans, Postretirement and Postemployment Benefits

The Company sponsors defined benefit retirement plans that cover substantially all employees. Additionally, the Company provides other postretirement benefits for certain employees, including medical benefits for retirees and their spouses and retiree life insurance. Employees starting on or after January 1, 2002 are not eligible for postretirement welfare plans. The Company also provides certain benefits, such as disability benefits, to former or inactive employees after employment but before retirement.

The measurement date for the Company’s defined benefit plans, postretirement benefit plans and postemployment benefit plans is December 31.

Defined Benefit Retirement Plans. Retirement plan assets are invested in listed stocks, bonds, hedge funds, real estate and cash equivalents. Defined retirement benefits for salaried employees are based on each employee’s years of service and average compensation for a specified period of time before retirement. Defined retirement benefits for hourly employees are generally stated amounts for specified periods of service.

The Company sponsors a Supplemental Excess Retirement Plan (SERP) that generally provides for the payment of retirement benefits in excess of allowable Internal Revenue Code limits. The SERP generally provides for a lump-sum payment of vested benefits. When these benefit payments exceed the sum of the service and interest costs for the SERP during a year, the Company recognizes a pro rata portion of the SERP’s unrecognized actuarial loss as settlement expense.

The net periodic retirement benefit cost of defined benefit plans includes the following components:

years ended December 31 (in millions)		2019				2018				2017
Service cost		$	30.8			$	31.7			$	26.9
Interest cost			37.6				33.2				36.1
Expected return on assets			(47.9	)			(46.0	)			(39.8	)
Amortization of:
Prior service cost			—				0.1				0.3
Actuarial loss			16.0				12.8				14.1
Settlement charge			—				2.9				—
Net periodic benefit cost		$	36.5			$	34.7			$	37.6

The components of net periodic benefit cost, other than service cost, are included in the line item Other nonoperating expenses and (income), net, in the consolidated statements of earnings.

The expected return on assets is calculated by applying an annually selected expected rate of return assumption to the estimated fair value of the plan assets, giving consideration to contributions and benefits paid.

The Company recognized the following amounts in consolidated comprehensive earnings:

years ended December 31
(in millions)		2019				2018				2017
Actuarial loss		$	11.7			$	32.1			$	13.3
Net prior service cost			6.4				—				—
Amortization of:
Prior service cost			—				(0.1	)			(0.3	)
Actuarial loss			(16.0	)			(12.8	)			(14.1	)
Settlement charge			—				(2.9	)			—
Total		$	2.1			$	16.3			$	(1.1	)

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 99

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Accumulated other comprehensive loss includes the following amounts that have not yet been recognized in net periodic benefit cost:

December 31		2019								2018
(in millions)		Gross				Net of tax				Gross				Net of tax
Prior service cost		$	6.4			$	4.0			$	—			$	—
Actuarial loss			229.4				144.5				233.7				146.6
Total		$	235.8			$	148.5			$	233.7			$	146.6

The prior service cost and actuarial loss expected to be recognized in net periodic benefit cost during 2020 are $0.7 million (net of deferred taxes of $0.2 million) and $13.5 million (net of deferred taxes of $3.3 million), respectively. These amounts are included in accumulated other comprehensive loss at December 31, 2019.

The defined benefit plans’ change in projected benefit obligation is as follows:

years ended December 31
(in millions)		2019				2018
Net projected benefit obligation at beginning of year		$	847.9			$	879.3
Service cost			30.8				31.7
Interest cost			37.6				33.2
Actuarial loss (gain)			95.2				(54.6	)
Plan amendments			6.4				—
Gross benefits paid			(40.1	)			(41.7	)
Net projected benefit obligation at end of year		$	977.8			$	847.9

The Company’s change in plan assets, funded status and amounts recognized on the Company’s consolidated balance sheets are as follows:

years ended December 31
(in millions)		2019				2018
Fair value of plan assets at beginning of year		$	717.9			$	638.1
Actual return on plan assets, net			131.3				(40.8	)
Employer contributions			58.9				162.3
Gross benefits paid			(40.1	)			(41.7	)
Fair value of plan assets at end of year		$	868.0			$	717.9

December 31
(in millions)		2019				2018
Funded status of the plan at end of year		$	(109.8	)		$	(130.0	)
Accrued benefit cost		$	(109.8	)		$	(130.0	)

December 31
(in millions)		2019				2018
Amounts recognized on consolidated balance sheets consist of:
Current liability		$	(6.4	)		$	(9.0	)
Noncurrent liability			(103.4	)			(121.0	)
Net amount recognized at end of year		$	(109.8	)		$	(130.0	)

The accumulated benefit obligation for all defined benefit pension plans was $878.7 million and $771.9 million at December 31, 2019 and 2018, respectively.

Form 10-K ♦ Page 100		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets are as follows:

December 31
(in millions)		2019				2018
Projected benefit obligation		$	107.1			$	98.7
Accumulated benefit obligation		$	96.4			$	85.5
Fair value of plan assets		$	0.6			$	0.6

Weighted-average assumptions used to determine benefit obligations as of December 31 are:

		2019			2018
Discount rate		3.69%			4.38%
Rate of increase in future compensation levels		4.50%			4.50%

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 are:

		2019			2018			2017
Discount rate		4.38%			3.76%			4.29%
Rate of increase in future compensation levels		4.50%			4.50%			4.50%
Expected long-term rate of return on assets		6.75%			6.75%			6.75%

The expected long-term rate of return on assets is based on a building-block approach, whereby the components are weighted based on the allocation of pension plan assets.

As of December 31, 2019 and 2018, the Company estimated the remaining lives of participants in the pension plans using the Pri-2012 and RP-2014 Base tables, respectively. The no-collar table was used for salaried participants and the blue-collar table was used for hourly participants; both tables were adjusted to reflect the experience of the Company’s participants. The Company used the MP-2018 mortality improvement scale for the years 2019 and 2018.

The target allocation for 2019 and the actual pension plan asset allocation by asset class are as follows:

	Percentage of Plan Assets
		2019
		Target			December 31
Asset Class		Allocation			2019			2018
Equity securities		56%			64%			57%
Debt securities		30%			28%			32%
Hedge funds		4%			3%			6%
Real estate		10%			5%			5%
Total		100%			100%			100%

The Company’s investment strategy is for approximately 45% of equity securities, excluding hedge funds and real estate, to be invested in mid-sized to large capitalization U.S. funds, with the remaining invested in small capitalization, emerging markets and international funds. Debt securities, or fixed income investments, are invested in funds benchmarked to the Barclays U.S. Aggregate Bond Index.

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 101

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The fair values of pension plan assets by asset class and fair value hierarchy level are as follows:

	Fair Value Measurements
December 31		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Net Asset Value				Total Fair Value
(in millions)		2019
Equity securities1:
Mid-sized to large cap		$	—			$	—			$	—			$	262.5			$	262.5
Small cap, international and emerging growth funds			—				—				—				290.3				290.3
Debt securities1:
Core fixed income			—				—				—				242.9				242.9
Real estate			—				—				—				42.9				42.9
Hedge funds			—				—				—				26.4				26.4
Cash equivalents			3.0				—				—				—				3.0
Total		$	3.0			$	—			$	—			$	865.0			$	868.0
		2018
Equity securities1:
Mid-sized to large cap		$	—			$	—			$	—			$	196.5			$	196.5
Small cap, international and emerging growth funds			—				—				—				210.4				210.4
Debt securities1:
Core fixed income			—				—				—				228.2				228.2
Real estate			—				—				—				35.5				35.5
Hedge funds			—				—				—				44.4				44.4
Cash equivalents			2.9				—				—				—				2.9
Total		$	2.9			$	—			$	—			$	715.0			$	717.9

1	These investments are common collective investment trusts valued using the net asset value (NAV) unit price provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund.

Real estate investments are stated at estimated fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of real estate investments generally do not reflect transaction costs that may be incurred upon disposition of the real estate investments and do not necessarily represent the prices at which the real estate investments would be sold or repaid, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. An independent valuation consultant is employed to determine the fair value of the real estate investments. The value of hedge funds is based on the values of the sub-fund investments. In determining the fair value of each sub-fund’s investment, the hedge funds’ Board of Trustees uses the values provided by the sub-funds and any other considerations that may, in its judgment, increase or decrease such estimated value.

In 2019 and 2018, the Company made combined pension plan and SERP contributions of $58.9 million and $162.3 million, respectively. The Company currently estimates that it will contribute $60.2 million to its pension plans in 2020.

The expected benefit payments to be paid from plan assets for each of the next five years and the five-year period thereafter are as follows:

(in millions)
2020		$	43.5
2021		$	44.8
2022		$	46.2
2023		$	47.6
2024		$	50.9
Years 2025 - 2029		$	271.0

Form 10-K ♦ Page 102		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Postretirement Benefits. The net periodic postretirement benefit credit for postretirement plans includes the following components:

years ended December 31
(in millions)		2019				2018				2017
Service cost		$	0.1			$	0.1			$	0.1
Interest cost			0.6				0.5				0.7
Amortization of:
Prior service credit			(0.8	)			(2.1	)			(1.7	)
Actuarial gain			(0.5	)			(0.2	)			(0.4	)
Total net periodic benefit credit		$	(0.6	)		$	(1.7	)		$	(1.3	)

The components of net periodic benefit credit, other than service cost, are included in the line item Other nonoperating expenses and (income), net*,* in the consolidated statements of earnings.

The Company recognized the following amounts in consolidated comprehensive earnings:

years ended December 31
(in millions)		2019				2018				2017
Actuarial loss (gain)		$	1.0			$	(1.7	)		$	1.2
Net prior service credit			—				—				(3.9	)
Amortization of:
Prior service credit			0.8				2.1				1.7
Actuarial gain			0.5				0.2				0.4
Total		$	2.3			$	0.6			$	(0.6	)

Accumulated other comprehensive loss includes the following amounts that have not yet been recognized in net periodic benefit credit:

December 31		2019								2018
(in millions)		Gross				Net of tax				Gross				Net of tax
Prior service credit		$	(3.0	)		$	(1.9	)		$	(3.8	)		$	(2.4	)
Actuarial gain			(2.7	)			(1.7	)			(4.2	)			(2.7	)
Total		$	(5.7	)		$	(3.6	)		$	(8.0	)		$	(5.1	)

The prior service credit and actuarial gain expected to be recognized in net periodic benefit cost during 2020 are $0.8 million (net of deferred taxes of $0.2 million) and $0.3 million (net of deferred taxes of $0.1 million), respectively, and are included in accumulated other comprehensive loss at December 31, 2019.

The postretirement health care plans’ change in benefit obligation is as follows:

years ended December 31
(in millions)		2019				2018
Net benefit obligation at beginning of year		$	13.3			$	15.3
Service cost			0.1				0.1
Interest cost			0.6				0.5
Participants’ contributions			1.2				0.3
Actuarial loss (gain)			1.0				(1.6	)
Gross benefits paid			(3.2	)			(1.3	)
Net benefit obligation at end of year		$	13.0			$	13.3

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 103

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The postretirement health care plans’ change in plan assets, funded status and amounts recognized on the Company’s consolidated balance sheets are as follows:

years ended December 31
(in millions)		2019				2018
Fair value of plan assets at beginning of year		$	—			$	—
Employer contributions			2.0				1.0
Participants’ contributions			1.2				0.3
Gross benefits paid			(3.2	)			(1.3	)
Fair value of plan assets at end of year		$	—			$	—

December 31
(in millions)		2019				2018
Funded status of the plan at end of year		$	(13.0	)		$	(13.3	)
Accrued benefit cost		$	(13.0	)		$	(13.3	)

December 31
(in millions)		2019				2018
Amounts recognized on consolidated balance sheets consist of:
Current liability		$	(2.0	)		$	(1.0	)
Noncurrent liability			(11.0	)			(12.3	)
Net amount recognized at end of year		$	(13.0	)		$	(13.3	)

Weighted-average assumptions used to determine the postretirement benefit obligation as of December 31 are:

		2019			2018
Discount rate		3.29%			4.15%

Weighted-average assumptions used to determine net postretirement benefit credit for the years ended December 31 are:

		2019			2018			2017
Discount rate		4.15%			3.47%			3.78%

As of December 31, 2019 and 2018, the Company estimated the remaining lives of participants in the postretirement benefit plans using the Pri-2012 and RP-2014 Base tables, respectively. The no-collar table was used for salaried participants and the blue-collar table was used for hourly participants; both tables were adjusted to reflect the experience of the Company’s participants. The Company used the MP-2018 mortality improvement scale for the years 2019 and 2018.

Assumed health care cost trend rates at December 31 are:

		2019			2018
Health care cost trend rate assumed for next year		6.75%			7.0%
Rate to which the cost trend rate gradually declines		4.75%			5.0%
Year the rate reaches the ultimate rate		2028			2023

Assumed health care cost trend rates have a significant effect on the amounts reported for the Company’s health care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects:

		One Percentage Point
(in millions)		Increase				(Decrease)
Total service and interest cost components		$	—			$	—
Postretirement benefit obligation		$	0.7			$	(0.6	)

The Company estimates that it will contribute $2.0 million to its postretirement health care plans in 2020.

Form 10-K ♦ Page 104		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The total expected benefit payments to be paid by the Company, net of participant contributions, for each of the next five years and the five-year period thereafter are as follows:

(in millions)
2020		$	2.0
2021		$	1.4
2022		$	1.4
2023		$	1.3
2024		$	1.2
Years 2025 - 2029		$	4.7

Defined Contribution Plan. The Company maintains a defined contribution plan that covers substantially all employees. This plan, qualified under Section 401(a) of the Internal Revenue Code, is a retirement savings and investment plan for the Company’s salaried and hourly employees. Under certain provisions of the plan, the Company, at established rates, matches employees’ eligible contributions. The Company’s matching obligations were $17.6 million in 2019, $16.5 million in 2018 and $14.9 million in 2017.

Note L: Stock-Based Compensation

On May 19, 2016, the Company’s shareholders approved the Martin Marietta Amended and Restated Stock-Based Award Plan. The Martin Marietta Materials, Inc. Stock-Based Award Plan, as amended from time to time, along with the Amended Omnibus Securities Award Plan, originally approved in 1994 (collectively, the Plans), are still effective for awards made prior to 2017. The Company has been authorized by the Board of Directors to repurchase shares of the Company’s common stock for issuance under the stock-based award plans (see Note N).

The Company grants restricted stock awards under the Plans to a group of executive officers, key personnel and nonemployee members of the Board of Directors. The vesting of certain restricted stock awards is based on certain performance criteria over a specified period of time. The number of shares may be increased to the maximum or reduced to the minimum threshold based on the results of those criteria. In addition, certain awards are granted to individuals to encourage retention and motivate key employees. These awards generally vest if the employee is continuously employed over a specified period of time and require no payment from the employee. Awards granted to nonemployee members of the Board of Directors vest immediately.

The fair value of stock-based award grants is expensed over the vesting period. Awards to employees eligible for retirement prior to the award becoming fully vested are expensed over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. Awards granted to nonemployee members of the Board of Directors are expensed immediately.

Additionally, an incentive compensation stock plan has been adopted under the Plans whereby certain participants may elect to use up to 50% of their annual incentive compensation to acquire units representing shares of the Company’s common stock at a 20% discount to the market value on the date of the incentive compensation award. Certain executive officers are required to participate in the incentive compensation stock plan at certain minimum levels. Participants receive unrestricted shares of common stock in an amount equal to their respective units generally at the end of a 34-month period of additional employment from the date of award or at retirement beginning at age 62. All rights of ownership of the common stock convey to the participants upon the issuance of their respective shares at the end of the ownership-vesting period.

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 105

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The following table summarizes information for restricted stock awards and incentive compensation stock awards for 2019:

		Restricted Stock - Service Based								Restricted Stock - Performance Based								Incentive Compensation Stock
		Number of Awards				Weighted- Average Grant-Date Fair Value				Number of Awards				Weighted- Average Grant-Date Fair Value				Number of Awards				Weighted- Average Grant-Date Fair Value
January 1, 2019			278,147			$	158.29				151,939			$	174.74				35,376			$	206.55
Awarded			86,922			$	196.91				49,644			$	192.27				21,883			$	192.27
Distributed			(171,689	)		$	148.72				(54,424	)		$	133.73				(15,948	)		$	206.23
Forfeited			(9,441	)		$	166.51				(5,329	)		$	205.21				(1,727	)		$	205.54
Adjustment for performance			—			$	—				(17,609	)		$	133.77				—			$	—
December 31, 2019			183,939			$	185.06				124,221			$	204.21				39,584			$	198.83

The weighted-average grant-date fair value of service-based restricted stock awards granted during 2019, 2018 and 2017 was $196.91, $211.03 and $213.76, respectively. The weighted-average grant-date fair value of performance-based restricted stock awards granted during 2019, 2018 and 2017 was $192.27, $212.12 and $207.73, respectively. The weighted-average grant-date fair value of incentive compensation stock awards granted during 2019, 2018 and 2017 was $192.27, $212.12 and $208.68, respectively.

The aggregate intrinsic values for unvested restricted stock awards and unvested incentive compensation stock awards at December 31, 2019 were $86.2 million and $4.8 million, respectively, and were based on the closing price of the Company’s common stock at December 31, 2019, which was $279.64. The aggregate intrinsic values of restricted stock awards distributed during the years ended December 31, 2019, 2018 and 2017 were $49.8 million, $23.0 million and $15.8 million, respectively. The aggregate intrinsic values of incentive compensation stock awards distributed during the years ended December 31, 2019, 2018 and 2017 were $1.5 million, $1.7 million and $2.6 million, respectively. The aggregate intrinsic values for distributed awards were based on the closing prices of the Company’s common stock on the dates of distribution.

Under the Plans, prior to 2016, the Company granted options to employees to purchase its common stock at a price equal to the closing market value at the date of grant. Options become exercisable in four annual installments beginning one year after date of grant. Options granted starting in 2013 expire ten years after the grant date while outstanding options granted prior to 2013 expire eight years after the grant date.

In connection with the TXI acquisition, completed in 2014, the Company issued 821,282 Martin Marietta stock options (Replacement Options) to holders of outstanding TXI stock options at the acquisition date. The Company issued 0.7 Replacement Options for each outstanding TXI stock option, and the Replacement Option prices reflected the exchange ratio. The Replacement Options will expire on the original contractual dates when the TXI stock options were initially issued. Consistent with the terms of the Company’s other outstanding stock options, Replacement Options expire 90 days after employment is terminated.

The following table includes summary information for stock options as of December 31, 2019:

		Number of Options				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Life (years)
Outstanding at January 1, 2019			210,390			$	95.93
Exercised			(150,722	)		$	90.86
Terminated			(828	)		$	94.75
Outstanding at December 31, 2019			58,840			$	108.93				3.1
Exercisable at December 31, 2019			58,840			$	108.93				3.1

Form 10-K ♦ Page 106		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The aggregate intrinsic values of options exercised during the years ended December 31, 2019, 2018 and 2017 were $21.6 million, $12.4 million and $13.2 million, respectively, and were based on the closing prices of the Company’s common stock on the dates of exercise. The aggregate intrinsic values for options outstanding and exercisable at December 31, 2019 were $10.0 million and were based on the closing price of the Company’s common stock at December 31, 2019, which was $279.64. The excess tax benefits for stock options exercised during the years ended December 31, 2019, 2018 and 2017 were $2.0 million, $1.7 million and $3.5 million, respectively.

At December 31, 2019, there are approximately 742,000 awards available for grant under the Plans. In 2016, the Company’s shareholders approved the issuance of an additional 800,000 shares of common stock under the Plans. As part of approving the shares, the Company agreed to not issue any additional awards under the legacy TXI plan. The awards available for grant under the Plans at December 31, 2019 reflect no awards available under the legacy TXI plan.

In 1996, the Company adopted the Shareholder Value Achievement Plan to award shares of the Company’s common stock to key senior employees based on certain common stock performance criteria over a long-term period. Under the terms of this plan, 250,000 shares of common stock were reserved for issuance. Through December 31, 2019, 42,025 shares have been issued under this plan. No awards have been granted under this plan since 2000.

The Company adopted and the shareholders approved the Common Stock Purchase Plan for Directors in 1996, which provides nonemployee members of the Board of Directors the election to receive all or a portion of their total fees in the form of the Company’s common stock. Beginning in 2016, members of the Board of Directors were not required to defer any of their fees in the form of the Company’s common stock. Under the terms of this plan, 300,000 shares of common stock were reserved for issuance. Nonemployee members of the Board of Directors elected to defer portions of their fees representing 2,756, 3,105 and 2,132 shares of the Company’s common stock under this plan during 2019, 2018 and 2017, respectively.

The following table summarizes stock-based compensation expense for the years ended December 31, 2019, 2018 and 2017, unrecognized compensation cost for nonvested awards at December 31, 2019 and the weighted-average period over which unrecognized compensation cost will be recognized:

(in millions, except year data)		Stock Options				Restricted Stock				Incentive Compensation Stock				Directors’ Awards				Total
Stock-based compensation expense recognized for years ended December 31:
2019		$	0.1			$	32.6			$	0.8			$	0.6			$	34.1
2018		$	0.3			$	27.7			$	0.7			$	0.6			$	29.3
2017		$	0.7			$	28.7			$	0.7			$	0.4			$	30.5
Unrecognized compensation cost at December 31, 2019		$	—			$	22.7			$	0.5			$	—			$	23.2
Weighted-average period over which unrecognized compensation cost will be recognized						2.1 years				1.7 years

The following presents expected stock-based compensation expense in future periods for outstanding awards as of December 31, 2019:

(in millions)
2020		$	14.9
2021			7.2
2022			0.8
2023			0.3
Total		$	23.2

Stock-based compensation expense is included in selling, general and administrative expenses in the Company’s consolidated statements of earnings.

Celebrating 25 Years as a Public Company		Form 10-K ♦ Page 107

Part II ♦ Item 8 – Financial Statements and Supplementary Data

Note M: Leases

The Company has leases, primarily for equipment, railcars, fleet vehicles, office space, land and information technology equipment and software. The Company’s leases have remaining lease terms of one year to 53 years, some of which may include options to extend the leases for up to 30 years, and some of which may include options to terminate the leases within one year.

Certain of the Company’s lease agreements include payments based upon variable rates, including, but not limited, to hours used, tonnage processed and factors related to indices. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease cost are as follows:

year ended December 31 (in millions)		2019
Operating lease cost		$	80.9
Finance lease cost:
Amortization of right-of-use assets			3.4
Interest on lease liabilities			0.5
Variable lease cost			21.1
Short-term lease cost			33.0
Total lease cost		$	138.9

The Company has royalty agreements that are prescriptively excluded from the scope of ASC 842 and generally require royalty payments based on tons produced, tons sold or total sales dollars and also contain minimum payments. Royalty expense was $58.2 million for the year ended December 31, 2019.

The balance sheet classifications of operating and finance leases are as follows:

December 31 (in millions)		2019
Operating Leases:
Operating lease right-of-use assets		$	481.9
Current operating lease liabilities		$	52.7
Noncurrent operating lease liabilities			433.9
Total operating lease liabilities		$	486.6
Finance Leases:
Property, plant and equipment		$	18.3
Accumulated depreciation			(3.1	)
Property, plant and equipment, net		$	15.2
Other current liabilities		$	2.8
Other noncurrent liabilities			5.9
Total finance lease liabilities		$	8.7

Form 10-K ♦ Page 108		Celebrating 25 Years as a Public Company

Part II ♦ Item 8 – Financial Statements and Supplementary Data

The incremental borrowing rate range used was 2.1% to 5.5%. Weighted-average remaining lease terms and discount rates are as follows:

December 31		2019
Weighted-average remaining lease terms (years):
Operating leases			14.5
Finance leases			9.0
Weighted-average discount rates:
Operating leases		4.3%
Finance leases		5.2%

Future lease payments as of December 31, 2019 are as follows:

		Operating				Finance
(in millions)		Leases				Leases
2020		$	71.9			$	3.2
2021			58.9				1.9
2022			53.1				1.1
2023			49.2				0.8
2024			42.1				0.7
Thereafter			396.1				3.5
Total lease payments			671.3				11.2
Less: imputed interest			(184.7	)			(2.5	)
Present value of lease payments			486.6				8.7
Less: current lease obligations			(52.7	)			(2.8	)
Total long-term lease obligations		$	433.9			$	5.9

Leases entered into but not yet commenced as of December 31, 2019 are immaterial.

Subsequent to December 31, 2019, the Company entered into a lease for its corporate headquarters in Raleigh, North Carolina to commence in 2021. The agreement represents a 15-year lease with fixed rent payments totaling approximately $56 million over the term of the lease.

Lease disclosures for the years ended December 31, 2018 and 2017 prior to the adoption of ASC 842 are as follows:

Total lease expense for operating leases was $122.5 million and $90.7 million for the years ended December 31, 2018 and 2017, respectively. Total royalties, principally for leased properties, were $52.5 million and $51.8 million for the years ended December 31, 2018 and 2017, respectively. The Company also has capital lease obligations for machinery and equipment. Future minimum lease and royalty commitments for all noncancelable agreements and capital lease obligations as of December 31, 2018 were as follows:

(in millions)		Capital Leases				Operating Leases				Royalty Commitments
2019		$	3.7			$	106.0			$	14.6
2020			2.7				70.5				11.4
2021			1.7				60.4				10.3
2022			1.0				57.5				9.5
2023			0.7				56.5				8.1
Thereafter			3.9				318.1				66.0
Total			13.7			$	669.0			$	119.9
Less: imputed interest			(2.9	)
Present value of minimum lease payments			10.8
Less: current capital lease obligations			(3.2	)
Long-term capital lease obligations		$	7.6

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Note N: Shareholders’ Equity

The authorized capital structure of the Company includes 100.0 million shares of common stock, with a par value of $0.01 a share. At December 31, 2019, approximately 1.5 million common shares were reserved for issuance under stock-based award plans.

Pursuant to authority granted by its Board of Directors, the Company can repurchase up to 20.0 million shares of common stock. The Company repurchased 0.4 million, 0.5 million and 0.5 million shares of common stock during 2019, 2018 and 2017, respectively. At December 31, 2019, 13.7 million shares of common stock were remaining under the Company’s repurchase authorization.

Note O: Commitments and Contingencies

Legal and Administrative Proceedings. The Company is engaged in certain legal and administrative proceedings incidental to its normal business activities. In the opinion of management and counsel, based upon currently-available facts, the likelihood is remote that the ultimate outcome of any litigation and other proceedings, including those pertaining to environmental matters (see Note A), relating to the Company and its subsidiaries, will have a material adverse effect on the overall results of the Company’s operations, its cash flows or its financial position.

Asset Retirement Obligations. The Company incurs reclamation and teardown costs as part of its mining and production processes. Estimated future obligations are discounted to their present value and accreted to their projected future obligations via charges to operating expenses. Additionally, the fixed assets recorded concurrently with the liabilities are depreciated over the period until retirement activities are expected to occur. Total accretion and depreciation expenses for 2019, 2018 and 2017 were $9.1 million, $8.0 million and $8.7 million, respectively, and are included in Other operating income and expenses, net, in the consolidated statements of earnings.

The following shows the changes in the asset retirement obligations:

years ended December 31 (in millions)		2019				2018
Balance at beginning of year		$	121.8			$	109.7
Accretion expense			5.6				5.1
Liabilities incurred and liabilities assumed in business combinations			0.6				4.6
Liabilities settled			(1.2	)			(2.8	)
Revisions in estimated cash flows			17.1				5.2
Balance at end of year		$	143.9			$	121.8

Other Environmental Matters. The Company’s operations are subject to and affected by federal, state and local laws and regulations relating to the environment, health and safety and other regulatory matters. Certain of the Company’s operations may, from time to time, involve the use of substances that are classified as toxic or hazardous within the meaning of these laws and regulations. Environmental operating permits are, or may be, required for certain of the Company’s operations, and such permits are subject to modification, renewal and revocation. The Company regularly monitors and reviews its operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, risk of environmental remediation liability is inherent in the operation of the Company’s businesses, as it is with other companies engaged in similar businesses. The Company has no material provisions for environmental remediation liabilities and does not believe such liabilities will have a material adverse effect on the Company in the future.

Insurance Reserves. At December 31, 2019 and 2018, reserves of $39.9 million and $48.3 million, respectively, were recorded for insurance claims.

Letters of Credit. In the normal course of business, the Company provides certain third parties with standby letter of credit agreements guaranteeing its payment for certain insurance claims, contract performance and permit requirements. At December 31, 2019, the Company was contingently liable for $32.9 million in letters of credit.

Surety Bonds. In the normal course of business, at December 31, 2019, the Company was contingently liable for $395.1 million in surety bonds required by certain states and municipalities and their related agencies. The bonds are principally for

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

certain insurance claims, construction contracts, reclamation obligations and mining permits guaranteeing the Company’s own performance. The Company has indemnified the underwriting insurance company, Liberty Mutual, against any exposure under the surety bonds. In the Company’s past experience, no material claims have been made against these financial instruments.

Borrowing Arrangements with Affiliate. The Company is a co-borrower with an unconsolidated affiliate for a $15.5 million revolving line of credit agreement with Truist Bank, a successor by merger to Suntrust Bank and formerly known as BB&T, of which $11.3 million was outstanding as of December 31, 2019. The line of credit expires in March 2020. The affiliate has agreed to reimburse and indemnify the Company for any payments and expenses the Company may incur from this agreement. The Company holds a lien on the affiliate’s membership interest in a joint venture as collateral for payment under the revolving line of credit.

At December 31, 2019 and 2018, the Company had an interest-only $6.0 million note receivable from the unconsolidated affiliate due December 31, 2022.

Purchase Commitments. The Company had purchase commitments for property, plant and equipment of $93.4 million as of December 31, 2019. The Company also had other purchase obligations related to energy and service contracts of $82.9 million as of December 31, 2019. The Company’s contractual purchase commitments as of December 31, 2019 are as follows:

(in millions)
2020		$	140.6
2021			15.0
2022			3.0
2023			0.9
2024			0.9
Thereafter			15.9
Total		$	176.3

Capital expenditures in 2019, 2018 and 2017 that were purchase commitments as of the prior year end were $106.7 million, $79.3 million and $83.7 million, respectively.

Contracts of Affreightment and Royalty Commitments. Future minimum contracts of affreightment and royalty commitments for all noncancelable agreements as of December 31, 2019 are as follows:

(in millions)		Contracts of Affreightment				Royalty Commitments
2020		$	15.8			$	15.7
2021			16.1				11.1
2022			16.3				10.3
2023			16.6				9.2
2024			16.9				8.9
Thereafter			52.2				59.7
Total		$	133.9			$	114.9

Employees. Approximately 11% of the Company’s employees are represented by a labor union. All such employees are hourly employees. The Company maintains collective bargaining agreements relating to the union employees within the Building Materials business and Magnesia Specialties segment. 100% of the hourly employees of the Magnesia Specialties segment, located in Manistee, Michigan and Woodville, Ohio, are represented by labor unions. The Woodville collective bargaining agreement expires in June 2022. The Manistee collective bargaining agreement expires in August 2023.

Note P: Segments

The Building Materials business is comprised of divisions which represent operating segments, some of which are consolidated into reportable segments for financial reporting purposes as they meet the aggregation criteria. The Building Materials business contains three reportable segments: Mid-America Group, Southeast Group and West Group. The

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Magnesia Specialties business represents an individual operating and reportable segment. The accounting policies used for segment reporting are the same as those described in Note A.

The Chief Operating Decision Maker’s evaluation of performance and allocation of resources are based primarily on earnings from operations. Consolidated earnings from operations include total revenues less cost of revenues; selling, general and administrative expenses; acquisition-related expenses, net; other operating income and expenses, net; and exclude interest expense; other nonoperating income and expenses, net; and income tax expense (benefit). Corporate loss from operations primarily includes depreciation on capitalized interest; expenses for corporate administrative functions; acquisition-related expenses, net; and other nonrecurring and/or non-operational income and expenses excluded from the Company’s evaluation of segment performance and resource allocation. All long-term debt and related interest expense are held at Corporate.

Assets employed by segment include assets directly identified with those operations. Corporate assets consist primarily of cash and cash equivalents; property, plant and equipment for corporate operations; investments and other assets not directly identifiable with a reportable segment.

The following tables display selected financial data for the Company’s reportable segments. The acquired Bluegrass operations are reported in the Mid-America Group and Southeast Group. Total revenues, as well as the consolidated statements of earnings and comprehensive earnings, reflect the elimination of intersegment revenues.

years ended December 31 (in millions) Total revenues		2019				2018				2017
Mid-America Group		$	1,446.0			$	1,223.2			$	1,053.3
Southeast Group			506.4				423.4				362.6
West Group			2,515.4				2,310.0				2,279.7
Total Building Materials Business			4,467.8				3,956.6				3,695.6
Magnesia Specialties			271.3				287.7				270.0
Total		$	4,739.1			$	4,244.3			$	3,965.6

Gross profit
Mid-America Group		$	482.9			$	366.9			$	335.4
Southeast Group			124.1				77.2				74.6
West Group			473.6				416.2				465.6
Total Building Materials Business			1,080.6				860.3				875.6
Magnesia Specialties			95.4				98.7				89.4
Corporate			3.0				7.6				6.9
Total		$	1,179.0			$	966.6			$	971.9

Selling, general and administrative expenses
Mid-America Group		$	63.1			$	55.8			$	53.9
Southeast Group			21.6				18.7				17.1
West Group			116.3				107.6				102.7
Total Building Materials Business			201.0				182.1				173.7
Magnesia Specialties			11.3				10.0				9.5
Corporate			90.4				88.5				78.9
Total		$	302.7			$	280.6			$	262.1

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

years ended December 31 (in millions) Earnings (Loss) from operations		2019				2018				2017
Mid-America Group		$	425.9			$	319.1			$	284.8
Southeast Group			103.1				75.9				61.2
West Group			365.2				295.8				360.6
Total Building Materials Business			894.2				690.8				706.6
Magnesia Specialties			83.6				88.1				79.4
Corporate			(92.9	)			(88.2	)			(85.6	)
Total		$	884.9			$	690.7			$	700.4

Earnings from operations for the West Group for 2018 reflect an asset and portfolio rationalization charge of $18.8 million.

December 31 (in millions) Assets employed		2019				2018				2017
Mid-America Group		$	2,879.3			$	2,788.5			$	1,532.9
Southeast Group			1,442.5				1,299.5				616.3
West Group			5,320.7				4,989.6				5,014.2
Total Building Materials Business			9,642.5				9,077.6				7,163.4
Magnesia Specialties			176.2				156.1				152.3
Corporate			312.9				317.7				1,676.8
Total		$	10,131.6			$	9,551.4			$	8,992.5

years ended December 31 (in millions) Depreciation, depletion and amortization		2019				2018				2017
Mid-America Group		$	110.2			$	93.6			$	69.7
Southeast Group			47.8				41.2				30.8
West Group			183.3				180.9				169.8
Total Building Materials Business			341.3				315.7				270.3
Magnesia Specialties			10.2				10.4				10.1
Corporate			20.0				17.9				16.8
Total		$	371.5			$	344.0			$	297.2

Total property additions, including the impact of acquisitions
Mid-America Group		$	127.7			$	1,157.1			$	139.5
Southeast Group			45.3				603.1				34.6
West Group			182.6				148.1				240.8
Total Building Materials Business			355.6				1,908.3				414.9
Magnesia Specialties			20.0				12.5				11.1
Corporate			12.0				4.8				12.6
Total		$	387.6			$	1,925.6			$	438.6

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

years ended December 31 (in millions) Property additions through acquisitions		2019				2018				2017
Mid-America Group		$	—			$	980.3			$	0.1
Southeast Group			—				561.5				—
West Group			—				1.4				2.4
Total Building Materials Business			—				1,543.2				2.5
Magnesia Specialties			—				—				—
Corporate			—				—				—
Total		$	—			$	1,543.2			$	2.5

Note Q: Revenues and Gross Profit

The following tables, which are reconciled to consolidated amounts, provide total revenues and gross profit by line of business: Building Materials (further divided by product line) and Magnesia Specialties. Interproduct revenues represent sales from the aggregates product line to the ready mixed concrete and asphalt and paving product lines and sales from the cement product line to the ready mixed concrete product line. The Company’s two cold mix asphalt plants have been reclassified from the asphalt and paving product line to the aggregates product line. These operations did not represent a material amount of product revenues and gross profit. Prior year information has been reclassified to conform to the presentation of the Company’s current reportable product lines.

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

years ended December 31 (in millions) Total revenues		2019				2018				2017
Building Materials Business:
Products and services:
Aggregates		$	2,756.7			$	2,365.8			$	2,145.6
Cement			439.1				387.8				371.2
Ready Mixed Concrete			948.1				963.8				936.0
Asphalt and Paving			294.0				258.6				282.0
Less: Interproduct revenues			(265.5	)			(264.2	)			(264.0	)
Products and services			4,172.4				3,711.8				3,470.8
Freight			295.4				244.8				224.8
Total Building Materials Business			4,467.8				3,956.6				3,695.6
Magnesia Specialties:
Products and services			249.9				268.6				252.7
Freight			21.4				19.1				17.3
Total Magnesia Specialties			271.3				287.7				270.0
Consolidated total revenues		$	4,739.1			$	4,244.3			$	3,965.6
Gross profit (loss)
Building Materials Business:
Products and services:
Aggregates		$	807.9			$	608.4			$	602.3
Cement			143.4				126.2				117.0
Ready Mixed Concrete			78.8				74.2				91.6
Asphalt and Paving			50.7				51.3				62.1
Products and services			1,080.8				860.1				873.0
Freight			(0.2	)			0.2				2.6
Total Building Materials Business			1,080.6				860.3				875.6
Magnesia Specialties:
Products and services			99.4				102.9				94.1
Freight			(4.0	)			(4.2	)			(4.7	)
Total Magnesia Specialties			95.4				98.7				89.4
Corporate			3.0				7.6				6.9
Consolidated gross profit		$	1,179.0			$	966.6			$	971.9

Domestic and foreign total revenues are as follows:

years ended December 31 (in millions)		2019				2018				2017
Domestic		$	4,676.3			$	4,166.4			$	3,901.3
Foreign			62.8				77.9				64.3
Consolidated total revenues		$	4,739.1			$	4,244.3			$	3,965.6

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Part II ♦ Item 8 – Financial Statements and Supplementary Data

Note R: Supplemental Cash Flow Information

Noncash investing and financing activities are as follows:

years ended December 31
(in millions)		2019				2018				2017
Accrued liabilities for purchases of property, plant and equipment		$	54.2			$	67.0			$	61.6
Acquisition of assets through asset exchange		$	2.4			$	—			$	2.5
Remeasurement of operating lease right-of-use assets		$	2.0			$	—			$	—
Right-of-use assets obtained in exchange for new operating lease liabilities		$	45.7			$	—			$	—
Right-of-use assets obtained in exchange for new finance lease liabilities		$	0.2			$	—			$	—
Acquisition of assets through capital lease		$	—			$	1.1			$	0.8
Sale of asset to settle liability		$	—			$	—			$	0.9

Supplemental disclosures of cash flow information are as follows:

years ended December 31
(in millions)		2019				2018				2017
Cash paid for interest, net of amount capitalized		$	127.9			$	137.2			$	78.9
Cash paid for income taxes		$	101.7			$	28.9			$	155.8
Cash paid for amounts included in the measurement of lease liabilities¹:
Operating cash flows used for operating leases		$	76.1
Operating cash flows used for finance leases		$	0.5
Financing cash flows used for finance leases		$	11.0

¹	These disclosures are required by ASC 842, which was adopted on January 1, 2019.

Note S: Other Operating (Income) and Expenses, Net

Other operating income and expenses, net, are comprised generally of gains and losses on the sale of assets; asset and portfolio rationalization charges; recoveries and losses related to certain customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations. These net amounts represented income of $9.1 million in 2019, income of $18.2 million in 2018 and an expense of $0.8 million in 2017. 2019 income includes the reversal of $6.9 million of accruals for sales tax and unclaimed property contingencies. The 2018 amount reflects $18.8 million of asset and portfolio rationalization charges, offset by $7.7 million in net gains on legal settlements and $25.3 million in gains on the sale of assets, primarily excess land. The 2017 amount reflects $19.4 million of gains on the sale of assets, primarily excess land, offset by $12.7 million of nonrecurring repair costs related to certain of the Company’s leased railcars and $10.8 million of executive retirement expense.

The asset and portfolio rationalization charge relates to the Company’s Southwest ready mixed concrete operations reported in the West Group. This charge reflects the Company’s evaluation of the recoverability of certain long-lived assets, including property, plant and equipment and intangible assets, for underperforming operations in this business and a reduction in workforce. Of the total charge, $17.0 million was noncash and $1.8 million was settled in cash.

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Quarterly Performance (Unaudited) (in millions, except per share data)

		Total Revenues								Gross Profit								Consolidated Net Earnings								Net Earnings Attributable to Martin Marietta
Quarter		2019				2018				2019				20184,5				20192,3				20184,5,6,7				20192,3				20184,5,6,7
First		$	939.0			$	802.0			$	142.9			$	110.4			$	42.8			$	10.0			$	42.8			$	10.0
Second			1,279.5				1,202.4				356.9				315.9				189.5				185.5				189.5				185.4
Third			1,420.2				1,219.6				420.6				313.0				248.6				180.4				248.6				180.2
Fourth			1,100.4				1,020.3				258.6				227.3				131.1				94.5				131.0				94.4
Totals		$	4,739.1			$	4,244.3			$	1,179.0			$	966.6			$	612.0			$	470.4			$	611.9			$	470.0

Per Common Share
		Basic Earnings 1								Diluted Earnings 1
Quarter		20192,3				20184,5,6,7				20192,3				20184,5,6,7
First		$	0.68			$	0.16			$	0.68			$	0.16
Second		$	3.02			$	2.94			$	3.01			$	2.92
Third		$	3.97			$	2.86			$	3.96			$	2.85
Fourth		$	2.10			$	1.50			$	2.09			$	1.50
Full Year		$	9.77			$	7.46			$	9.74			$	7.43

1	The sum of per-share earnings by quarter may not equal earnings per share for the year due to changes in average share calculations. This is in accordance with prescribed reporting requirements.

2	Consolidated net earnings, net earnings attributable to Martin Marietta, and basic and diluted earnings per common share for the first quarter of 2019 were increased by $13.2 million, or $0.21 per basic and diluted share, due to a change in tax election for an acquired entity.

3	Consolidated net earnings, net earnings attributable to Martin Marietta, and basic and diluted earnings per common share for the second quarter of 2019 were reduced by $12.0 million, or $0.19 per basic and diluted share, due to a charge to correct a prior-period error that overstated equity earnings from a nonconsolidated affiliate.

4

Gross profit for the second quarter of 2018 was $10.2 million lower due to the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting. Consolidated net earnings, net earnings attributable to Martin Marietta, and basic and diluted earnings per common share for the second quarter of 2018 were reduced by $13.2 million, or $0.21 per basic and diluted share, as a result of acquisition-related expenses, net, primarily attributable to the acquisition of Bluegrass Materials Company, and by $7.8 million, or $0.12 per basic and diluted share, for the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting.

5

Gross profit for the third quarter of 2018 was $8.3 million lower due to the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting. Consolidated net earnings, net earnings attributable to Martin Marietta, and basic and diluted earnings per common share for the third quarter of 2018 were $5.6 million, or $0.09 per basic and diluted share, lower due to an asset and portfolio rationalization charge and $6.4 million, or $0.10 per basic and diluted share, lower due to the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting

6	Consolidated net earnings, net earnings attributable to Martin Marietta, and basic and diluted earnings per share for the third quarter ended September 30, 2018 were increased $21.2 million, or $0.34 per basic and diluted share, as a result of measurement period adjustments related to the 2017 Tax Act.

7	Consolidated net earnings, net earnings attributable to Martin Marietta, and basic and diluted earnings per common share for the fourth quarter of 2018 were $9.1 million, or $0.14 per basic and diluted share, lower due to an asset and portfolio rationalization charge.

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Part II ♦ Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure