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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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, 2021 and 2020, 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, 2021, 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.
The Audit Committee of the Board of Directors, which consists of four 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, 2021. 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, 2021.
Management has excluded certain elements of the internal control over financial reporting of Lehigh Hanson, Inc.’s West Region business (Lehigh West Region) and Tiller Corporation (Tiller) from its assessment of the Company’s internal control over financial reporting as of December 31, 2021 because these businesses were acquired by the Company in purchase business combinations during 2021. Subsequent to the acquisitions, certain elements of Lehigh West Region and Tiller’s internal control over financial reporting and related processes were integrated into the Company’s existing systems and internal control over financial reporting. Those controls that were not integrated have been excluded from management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2021. The excluded elements represent controls for $274.8 million of consolidated assets and $401.2 million of consolidated total revenues, of which $79.2 million is presented in earnings from discontinued operations, net of income tax expense, as of and for the year ended December 31, 2021.
The consolidated financial statements of the Company as of December 31, 2021 and 2020, and for each of the three years in the period ended December 31, 2021, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report appears on the following pages.
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| C. Howard Nye, Chairman, President and Chief Executive Officer | James A. J. Nickolas, Senior Vice President and Chief Financial Officer |
February 22, 2022
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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, 2021 and 2020, 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, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
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.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Lehigh Hanson, Inc.’s West Region Business (Lehigh West Region) and Tiller Corporation from its assessment of internal control over financial reporting as of December 31, 2021 because they were acquired by the Company in purchase business combinations during 2021. Subsequent to the acquisitions, certain elements of Lehigh West Region and Tiller Corporation’s internal control over financial reporting and related processes were integrated into the Company’s existing systems and internal control over financial reporting. Those controls that were not integrated have been excluded from management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2021. We have also excluded these elements of the internal control over financial reporting of Lehigh West Region and Tiller Corporation from our audit of the Company’s internal control over financial reporting. The excluded elements represent controls for $274.8 million of consolidated assets and $401.2 million of the consolidated revenues, of which $79.2 million is presented in earnings from discontinued operations, net of income tax expense, as of and for the year ended December 31, 2021.
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
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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 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.
Acquisition of Lehigh Hanson Inc.’s West Region Business – Valuation of Mineral Reserves and Intangible Assets Related to Operating Permits and Customer Relationships
As described in Note D to the consolidated financial statements, on October 1, 2021, the Company completed the acquisition of Lehigh West Region for $2.28 billion, which resulted in $332.0 million of mineral reserves and $551.0 million of intangible assets being recorded. The identifiable intangible assets were comprised of operating permits of $410.5 million ($237.0 million held for sale as of December 31, 2021) and customer relationships of $140.5 million ($27.9 million held for sale as of December 31, 2021). As disclosed by management, the fair values of acquired mineral reserves and intangible assets are determined using an excess earnings approach, which requires significant judgment to estimate future cash flows based on available historical information and future expectations, as well as significant assumptions, which include forecasted revenue based on sales price and shipment volumes and forecasted expenses inclusive of production costs and capital needs.
The principal considerations for our determination that performing procedures relating to the valuation of mineral reserves and intangible assets related to operating permits and customer relationships in the acquisition of Lehigh West Region is a critical audit matter are the significant judgment by management when developing the estimated fair values of these acquired assets, which in turn led to significant auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumption related to forecasted revenue. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
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 acquisition accounting, including controls over management’s valuation of the mineral reserves, operating permits and customer relationships and the development of the significant assumption related to forecasted revenue. These procedures also included, among others, (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair values of mineral reserves, operating permits and customer relationships. Testing management's process included evaluating the appropriateness of the excess earnings approach, testing the completeness and accuracy of data used by management, and evaluating the reasonableness of the significant assumption related to forecasted revenue. Evaluating the reasonableness of the significant assumption related to forecasted revenue involved considering the (i) past performance of the acquired business; (ii) historical growth rates of the Company; and (iii) historical results of peer companies. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the excess earnings approach.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 22, 2022
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) | 2021 | 2020 | 2019 | ||||||||||||
| Products and services revenues | $ | 5,084.7 | $ | 4,432.1 | $ | 4,422.3 | |||||||||
| Freight revenues | 329.3 | 297.8 | 316.8 | ||||||||||||
| Total Revenues | 5,414.0 | 4,729.9 | 4,739.1 | ||||||||||||
| Cost of revenues - products and services | 3,735.7 | 3,175.6 | 3,239.1 | ||||||||||||
| Cost of revenues - freight | 329.9 | 301.5 | 321.0 | ||||||||||||
| Total cost of revenues | 4,065.6 | 3,477.1 | 3,560.1 | ||||||||||||
| Gross Profit | 1,348.4 | 1,252.8 | 1,179.0 | ||||||||||||
| Selling, general and administrative expenses | 351.0 | 305.9 | 302.7 | ||||||||||||
| Acquisition-related expenses, net | 57.9 | 1.3 | 0.5 | ||||||||||||
| Other operating income, net | (34.3 | ) | (59.8 | ) | (9.1 | ) | |||||||||
| Earnings from Operations | 973.8 | 1,005.4 | 884.9 | ||||||||||||
| Interest expense | 142.7 | 118.1 | 129.3 | ||||||||||||
| Other nonoperating (income) and expenses, net | (24.4 | ) | (2.0 | ) | 7.3 | ||||||||||
| Earnings from continuing operations before income tax expense | 855.5 | 889.3 | 748.3 | ||||||||||||
| Income tax expense | 153.2 | 168.2 | 136.3 | ||||||||||||
| Earnings from continuing operations | 702.3 | 721.1 | 612.0 | ||||||||||||
| Earnings from discontinued operations, net of income tax expense | 0.5 | — | — | ||||||||||||
| Consolidated net earnings | 702.8 | 721.1 | 612.0 | ||||||||||||
| Less: Net earnings attributable to noncontrolling interests | 0.3 | 0.1 | 0.1 | ||||||||||||
| Net Earnings Attributable to Martin Marietta | $ | 702.5 | $ | 721.0 | $ | 611.9 | |||||||||
| Net Earnings Attributable to Martin Marietta Per Common Share (see Note A) | |||||||||||||||
| Basic from continuing operations attributable to common shareholders | $ | 11.25 | $ | 11.56 | $ | 9.77 | |||||||||
| Basic from discontinued operations attributable to common shareholders | 0.01 | — | — | ||||||||||||
| $ | 11.26 | $ | 11.56 | $ | 9.77 | ||||||||||
| Diluted from continuing operations attributable to common shareholders | $ | 11.21 | $ | 11.54 | $ | 9.74 | |||||||||
| Diluted from discontinued operations attributable to common shareholders | 0.01 | — | — | ||||||||||||
| $ | 11.22 | $ | 11.54 | $ | 9.74 | ||||||||||
| Weighted-Average Common Shares Outstanding | |||||||||||||||
| Basic | 62.4 | 62.3 | 62.5 | ||||||||||||
| Diluted | 62.6 | 62.4 | 62.7 |
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) | 2021 | 2020 | 2019 | ||||||||||||
| Consolidated Net Earnings | $ | 702.8 | $ | 721.1 | $ | 612.0 | |||||||||
| Other comprehensive earnings (loss), net of tax: | |||||||||||||||
| Defined benefit pension and postretirement plans: | |||||||||||||||
| Net gain (loss) arising during period, net of tax of $16.8, $(8.7) and $(4.8), respectively | 51.3 | (26.6 | ) | (14.5 | ) | ||||||||||
| Amortization of prior service credit, net of tax of $0.0, $0.0 and $(0.2), respectively | — | (0.1 | ) | (0.6 | ) | ||||||||||
| Amortization of actuarial loss, net of tax of $2.9, $3.6 and $3.8, respectively | 9.2 | 10.7 | 11.7 | ||||||||||||
| Amount recognized in net periodic pension cost due to settlement, net of tax of $0.0, $0.9 and $0.0, respectively | — | 2.8 | — | ||||||||||||
| 60.5 | (13.2 | ) | (3.4 | ) | |||||||||||
| Foreign currency translation gain | 0.3 | 0.6 | 1.2 | ||||||||||||
| 60.8 | (12.6 | ) | (2.2 | ) | |||||||||||
| Consolidated comprehensive earnings | 763.6 | 708.5 | 609.8 | ||||||||||||
| Less: Comprehensive earnings attributable to noncontrolling interests | 0.3 | 0.1 | 0.1 | ||||||||||||
| Comprehensive Earnings Attributable to Martin Marietta | $ | 763.3 | $ | 708.4 | $ | 609.7 |
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) | 2021 | 2020 | ||||||||
| Assets | ||||||||||
| Current Assets: | ||||||||||
| Cash and cash equivalents | $ | 258.4 | $ | 207.3 | ||||||
| Restricted cash | 0.5 | 97.1 | ||||||||
| Accounts receivable, net | 774.0 | 575.1 | ||||||||
| Inventories, net | 752.6 | 709.0 | ||||||||
| Current assets held for sale | 102.2 | 9.8 | ||||||||
| Other current assets | 137.9 | 70.0 | ||||||||
| Total Current Assets | 2,025.6 | 1,668.3 | ||||||||
| Property, plant and equipment, net | 6,338.0 | 5,242.3 | ||||||||
| Goodwill | 3,494.4 | 2,414.0 | ||||||||
| Other intangibles, net | 1,065.0 | 508.0 | ||||||||
| Operating lease right-of-use assets, net | 426.7 | 453.0 | ||||||||
| Noncurrent assets held for sale | 616.9 | — | ||||||||
| Other noncurrent assets | 426.4 | 295.2 | ||||||||
| Total Assets | $ | 14,393.0 | $ | 10,580.8 | ||||||
| Liabilities and Equity | ||||||||||
| Current Liabilities: | ||||||||||
| Accounts payable | $ | 356.2 | $ | 207.8 | ||||||
| Accrued salaries, benefits and payroll taxes | 86.6 | 82.6 | ||||||||
| Accrued other taxes | 58.4 | 45.4 | ||||||||
| Accrued interest | 48.0 | 18.3 | ||||||||
| Operating lease liabilities | 53.9 | 48.6 | ||||||||
| Current liabilities held for sale | 7.5 | 0.3 | ||||||||
| Other current liabilities | 142.0 | 96.3 | ||||||||
| Total Current Liabilities | 752.6 | 499.3 | ||||||||
| Long-term debt | 5,100.8 | 2,625.8 | ||||||||
| Deferred income taxes, net | 895.3 | 781.5 | ||||||||
| Noncurrent operating lease liabilities | 379.4 | 410.4 | ||||||||
| Noncurrent liabilities held for sale | 53.5 | — | ||||||||
| Other noncurrent liabilities | 673.8 | 370.5 | ||||||||
| Total Liabilities | 7,855.4 | 4,687.5 | ||||||||
| Equity: | ||||||||||
| Common stock ($0.01 par value; 100.0 shares authorized; 62.4 and 62.3 shares outstanding at December 31, 2021 and 2020, respectively) | 0.6 | 0.6 | ||||||||
| Preferred stock ($0.01 par value; 10.0 shares authorized; no shares outstanding) | — | — | ||||||||
| Additional paid-in capital | 3,470.4 | 3,440.8 | ||||||||
| Accumulated other comprehensive loss | (97.6 | ) | (158.4 | ) | ||||||
| Retained earnings | 3,161.9 | 2,607.7 | ||||||||
| Total Shareholders’ Equity | 6,535.3 | 5,890.7 | ||||||||
| Noncontrolling interests | 2.3 | 2.6 | ||||||||
| Total Equity | 6,537.6 | 5,893.3 | ||||||||
| Total Liabilities and Equity | $ | 14,393.0 | $ | 10,580.8 |
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) | 2021 | 2020 | 2019 | ||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||
| Consolidated net earnings | $ | 702.8 | $ | 721.1 | $ | 612.0 | |||||||||
| Adjustments to reconcile consolidated net earnings to net cash provided by operating activities: | |||||||||||||||
| Depreciation, depletion and amortization | 451.7 | 393.5 | 371.5 | ||||||||||||
| Stock-based compensation expense | 43.0 | 30.0 | 34.1 | ||||||||||||
| Gains on divestitures and sales of assets | (21.7 | ) | (73.0 | ) | (3.1 | ) | |||||||||
| Deferred income taxes, net | 92.2 | 43.8 | 29.4 | ||||||||||||
| Other items, net | (14.9 | ) | 2.1 | 8.6 | |||||||||||
| Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: | |||||||||||||||
| Accounts receivable, net | (194.4 | ) | 6.1 | (50.4 | ) | ||||||||||
| Inventories, net | 73.2 | (19.3 | ) | (27.7 | ) | ||||||||||
| Accounts payable | 109.8 | (34.0 | ) | 25.9 | |||||||||||
| Other assets and liabilities, net | (104.0 | ) | (20.2 | ) | (34.2 | ) | |||||||||
| Net Cash Provided by Operating Activities | 1,137.7 | 1,050.1 | 966.1 | ||||||||||||
| Cash Flows from Investing Activities: | |||||||||||||||
| Additions to property, plant and equipment | (423.1 | ) | (359.7 | ) | (393.5 | ) | |||||||||
| Acquisitions, net of cash acquired | (3,109.2 | ) | (65.1 | ) | — | ||||||||||
| Proceeds from divestitures and sales of assets | 42.8 | 142.3 | 8.4 | ||||||||||||
| Investments in life insurance contracts, net | 14.9 | (111.2 | ) | 0.6 | |||||||||||
| Other investing activities, net | — | (16.0 | ) | (1.4 | ) | ||||||||||
| Net Cash Used for Investing Activities | (3,474.6 | ) | (409.7 | ) | (385.9 | ) | |||||||||
| Cash Flows from Financing Activities: | |||||||||||||||
| Borrowings of long-term debt | 2,896.7 | 628.1 | 625.0 | ||||||||||||
| Repayments of long-term debt | (420.1 | ) | (777.1 | ) | (975.1 | ) | |||||||||
| Debt issuance costs | (7.5 | ) | (2.0 | ) | — | ||||||||||
| Payments on finance lease obligations | (11.1 | ) | (3.5 | ) | (11.0 | ) | |||||||||
| Dividends paid | (147.8 | ) | (140.3 | ) | (129.8 | ) | |||||||||
| Repurchases of common stock | — | (50.0 | ) | (98.2 | ) | ||||||||||
| Distributions to owners of noncontrolling interest | (0.6 | ) | — | (0.6 | ) | ||||||||||
| Proceeds from exercise of stock options | 1.3 | 2.3 | 13.7 | ||||||||||||
| Shares withheld for employees’ income tax obligations | (19.5 | ) | (14.5 | ) | (28.1 | ) | |||||||||
| Net Cash Provided by (Used for) Financing Activities | 2,291.4 | (357.0 | ) | (604.1 | ) | ||||||||||
| Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash | (45.5 | ) | 283.4 | (23.9 | ) | ||||||||||
| Cash, Cash Equivalents and Restricted Cash, beginning of year | 304.4 | 21.0 | 44.9 | ||||||||||||
| Cash, Cash Equivalents and Restricted Cash, end of year | $ | 258.9 | $ | 304.4 | $ | 21.0 |
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 | Retained Earnings | Total Shareholders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||
| Consolidated net earnings | — | — | — | — | 721.0 | 721.0 | 0.1 | 721.1 | ||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (12.6 | ) | — | (12.6 | ) | — | (12.6 | ) | |||||||||||||||||||||
| Dividends declared ($2.24 per common share) | — | — | — | — | (140.5 | ) | (140.5 | ) | — | (140.5 | ) | |||||||||||||||||||||
| Issuances of common stock for stock award plans | 0.1 | — | 6.8 | — | — | 6.8 | — | 6.8 | ||||||||||||||||||||||||
| Shares withheld for employees’ income tax obligations | — | — | (14.8 | ) | — | — | (14.8 | ) | — | (14.8 | ) | |||||||||||||||||||||
| Repurchases of common stock | (0.2 | ) | — | — | — | (50.0 | ) | (50.0 | ) | — | (50.0 | ) | ||||||||||||||||||||
| Stock-based compensation expense | — | — | 30.0 | — | — | 30.0 | — | 30.0 | ||||||||||||||||||||||||
| Balance at December 31, 2020 | 62.3 | 0.6 | 3,440.8 | (158.4 | ) | 2,607.7 | 5,890.7 | 2.6 | 5,893.3 | |||||||||||||||||||||||
| Consolidated net earnings | — | — | — | — | 702.5 | 702.5 | 0.3 | 702.8 | ||||||||||||||||||||||||
| Other comprehensive earnings | — | — | — | 60.8 | — | 60.8 | — | 60.8 | ||||||||||||||||||||||||
| Dividends declared ($2.36 per common share) | — | — | — | — | (148.3 | ) | (148.3 | ) | — | (148.3 | ) | |||||||||||||||||||||
| Issuances of common stock for stock award plans | 0.1 | — | 6.1 | — | — | 6.1 | — | 6.1 | ||||||||||||||||||||||||
| Shares withheld for employees’ income tax obligations | — | — | (19.5 | ) | — | — | (19.5 | ) | — | (19.5 | ) | |||||||||||||||||||||
| Stock-based compensation expense | — | — | 43.0 | — | — | 43.0 | — | 43.0 | ||||||||||||||||||||||||
| Distribution to owners of noncontrolling interest | — | — | — | — | — | — | (0.6 | ) | (0.6 | ) | ||||||||||||||||||||||
| Balance at December 31, 2021 | 62.4 | $ | 0.6 | $ | 3,470.4 | $ | (97.6 | ) | $ | 3,161.9 | $ | 6,535.3 | $ | 2.3 | $ | 6,537.6 |
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 is a natural resource-based building materials company. The Company supplies aggregates (crushed stone, sand and gravel) through its network of approximately 350 quarries, mines and distribution yards in 28 states, Canada and The Bahamas. Martin Marietta also provides cement and downstream products, namely, ready mixed concrete, asphalt and paving services, in markets where the Company also has a leading aggregates position. Specifically, the Company has two cement plants and several cement distribution facilities in Texas; ready mixed concrete plants in Arizona, Colorado and Texas; and asphalt plants in Arizona, California, Colorado and Minnesota. Paving services are located in Colorado and California. In addition, the Company also has two cement plants, cement distribution terminals and ready mixed concrete operations in California that are classified as assets held for sale and discontinued operations as of December 31, 2021. 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, 2021, the Building Materials business contains the following reportable segments: East Group and West Group. The East Group consists of the East and Central divisions and operates in Alabama, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Maryland, Minnesota, Missouri, eastern Nebraska, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, Nova Scotia and The Bahamas. The West Group is comprised of the Southwest and West divisions and operates in Arizona, Arkansas, California, Colorado, Louisiana, western Nebraska, Oklahoma, Texas, Utah, Washington and Wyoming. In addition to these states, the Company sells to customers in New York, Delaware, New Mexico and Mississippi. The following states accounted for 68% of the Building Materials business’ 2021 total revenues: Texas, Colorado, North Carolina, Georgia and Minnesota.
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 for steel production and land stabilization. Magnesia Specialties’ production facilities are located in Ohio and Michigan, and products are shipped to customers worldwide. During 2021, there were no changes to the Magnesia Specialties reportable segment.
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, 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, other intangible assets and other long-lived assets as well as assumptions used in the calculation of income tax expense, retirement and 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 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 pretax noncash adjustment was deemed immaterial to prior periods and was therefore corrected as an out-of-period expense of $15.7 million that was 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 using the cost method or the equity method, 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.
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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 achieved. Performance bonuses were not material to the Company’s consolidated results of operations for the years ended December 31, 2021, 2020 and 2019. 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, Cash Equivalents and Restricted Cash. Cash equivalents are comprised of highly-liquid instruments with original maturities of three months or less from the date of purchase.
As of December 31, 2021 and 2020, the Company had $0.5 million and $97.1 million, respectively, of restricted cash, which was invested in an account designated for the purchase of like-kind exchange replacement assets under Section 1031 of the Internal Revenue Code. The Company is restricted from utilizing the cash for purposes other than the purchase of the qualified assets for 180 days from receipt of the proceeds from the sale of the exchanged property. Any unused cash at the end of the 180 days will be transferred to unrestricted accounts of the Company and can then be used for general corporate purposes.
In connection with Accounting Standards Update (ASU) 2016-18, Statement of Cash Flows (Topic 230), the statement of cash flows reflects cash flow changes and balances for cash, cash equivalents and restricted cash on an aggregated basis.
The following table reconciles cash, cash equivalents and restricted cash as reported on the consolidated balance sheets to the aggregated amounts presented on the consolidated statements of cash flows:
| December 31 (in millions) | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 258.4 | $ | 207.3 | $ | 21.0 | ||||||
| Restricted cash | 0.5 | 97.1 | — | |||||||||
| Total cash, cash equivalents and restricted cash presented in the consolidated statements of cash flows | $ | 258.9 | $ | 304.4 | $ | 21.0 |
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 credit losses, which includes a provision for probable losses based on historical write-offs, adjusted for current conditions as deemed necessary, and a specific reserve for accounts deemed at risk. The allowance is the Company’s estimate for receivables as of the balance sheet date that ultimately will not be collected. Any changes in the allowance are reflected in earnings in the period in which the change occurs. 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. Finished products and in-process inventories are stated at the lower of cost or net realizable value using standard costs, which approximate 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 future demand and inventory on hand in excess of historical sales for a twelve-month period or an annual average for a period of up to five years. The Company also establishes an allowance for parts over five years old and supplies over a 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.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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 30 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.
Mineral reserves and mineral interests acquired in connection with a business combination are valued using an income approach for the estimated life of the reserves. The Company’s aggregates reserves average approximately 78 years, based on 2021 production levels.
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 group are less than the asset group’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. 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 leased liabilities, which represent the Company’s obligation to make lease payments. The ROU asset and lease liability are recorded 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 interest 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 are reduced by 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 to pay non-lease components, which may include taxes, maintenance, insurance and certain other expenses applicable to the leased property, and are primarily 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 either operating leases or finance leases. The lease is a finance lease if it: 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; or 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. If none of these terms exist, the lease is an operating lease.
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.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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 Other Intangible Assets. Goodwill represents the excess purchase price paid for acquired businesses over the estimated fair value of identifiable assets and liabilities. Other intangible assets represent amounts assigned principally to contractual agreements and are either amortized ratably over the useful lives to the Company or not amortized if deemed to have an indefinite useful life.
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 a qualitative assessment and evaluate macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and other business or reporting unit-specific events that contribute to the fair value of a reporting unit. If the Company concludes it is more-likely-than-not (i.e., a likelihood of more than 50%) that a reporting unit’s fair value is higher than its carrying value, the Company is not required to perform any further goodwill impairment testing for that reporting unit. Otherwise, the Company proceeds to Step 1, and if a reporting unit’s fair value exceeds its carrying value, there is no impairment. A reporting unit with a carrying value in excess of its fair value results in an impairment charge equal to the difference.
The carrying values of goodwill and other indefinite-lived intangible assets are reviewed for impairment annually, as of October 1. An interim review is performed between annual tests if facts and circumstances indicate potential impairment. The carrying value of other amortizable intangible assets 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 grant dates. The fair value of performance stock awards as of the grant dates is determined using a Monte Carlo simulation methodology.
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, inflation rates and asset retirement 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
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
income tax purposes, net of valuation allowances. The effect of changes in enacted tax rates on deferred income tax assets and liabilities is charged or credited to income tax expense 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.
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.
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 and foreign currency translation adjustments, 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 and foreign currency translation, and is presented on the Company’s consolidated balance sheets.
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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 | Total | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| years ended December 31 (in millions) | 2021 | |||||||||||
| Accumulated other comprehensive loss at beginning of period | $ | (158.1 | ) | $ | (0.3 | ) | $ | (158.4 | ) | |||
| Other comprehensive earnings before reclassifications, net of tax | 51.3 | 0.3 | 51.6 | |||||||||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | 9.2 | — | 9.2 | |||||||||
| Other comprehensive earnings, net of tax | 60.5 | 0.3 | 60.8 | |||||||||
| Accumulated other comprehensive loss at end of period | $ | (97.6 | ) | $ | — | $ | (97.6 | ) | ||||
| Cumulative noncurrent deferred tax assets at end of period | $ | 69.7 | $ | — | $ | 69.7 | ||||||
| 2020 | ||||||||||||
| Accumulated other comprehensive loss at beginning of period | $ | (144.9 | ) | $ | (0.9 | ) | $ | (145.8 | ) | |||
| Other comprehensive (loss) earnings before reclassifications, net of tax | (26.6 | ) | 0.6 | (26.0 | ) | |||||||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | 13.4 | — | 13.4 | |||||||||
| Other comprehensive (loss) earnings, net of tax | (13.2 | ) | 0.6 | (12.6 | ) | |||||||
| Accumulated other comprehensive loss at end of period | $ | (158.1 | ) | $ | (0.3 | ) | $ | (158.4 | ) | |||
| Cumulative noncurrent deferred tax assets at end of period | $ | 89.4 | $ | — | $ | 89.4 | ||||||
| 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 |
Reclassifications out of accumulated other comprehensive loss are as follows:
| years ended December 31 (in millions) | 2021 | 2020 | 2019 | Affected line items in the consolidated statements of earnings | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pension and postretirement benefit plans: | ||||||||||||||
| Settlement charge | $ | — | $ | 3.7 | $ | — | ||||||||
| Amortization of: | ||||||||||||||
| Prior service credit | — | (0.1 | ) | (0.8 | ) | |||||||||
| Actuarial loss | 12.1 | 14.3 | 15.5 | |||||||||||
| 12.1 | 17.9 | 14.7 | Other nonoperating (income) and expenses, net | |||||||||||
| Tax effect | (2.9 | ) | (4.5 | ) | (3.6 | ) | Income tax expense | |||||||
| Total | $ | 9.2 | $ | 13.4 | $ | 11.1 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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 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 participating securities. 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 from continuing operations per common share:
| years ended December 31 (in millions) | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net earnings from continuing operations attributable to Martin Marietta | $ | 702.0 | $ | 721.0 | $ | 611.9 | ||||||
| Less: distributed and undistributed earnings attributable to unvested participating securities | 0.2 | 0.6 | 0.9 | |||||||||
| Basic and diluted net earnings from continuing operations attributable to common shareholders attributable to Martin Marietta | $ | 701.8 | $ | 720.4 | $ | 611.0 | ||||||
| Basic weighted-average common shares outstanding | 62.4 | 62.3 | 62.5 | |||||||||
| Effect of dilutive employee and director awards | 0.2 | 0.1 | 0.2 | |||||||||
| Diluted weighted-average common shares outstanding | 62.6 | 62.4 | 62.7 |
Reclassifications. Certain reclassifications were made to the comparative years’ financial statements and notes to the financial statements to conform to the December 31, 2021 presentation. Such reclassifications had no impact on the Company’s previously reported results of operations, financial position or cash flows.
New Accounting Pronouncements
Credit Losses
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (ASU 2016-13), which 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 adoption of ASU 2016-13 did not have a material impact on the Company’s financial position or statement of earnings and comprehensive earnings, but the Company amended its allowance for credit losses policy for the implementation of ASU 2016-13.
Defined Benefit Plan Disclosures
Effective for the year ended December 31, 2020, the Company adopted ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (ASU 2018-14), which simplifies disclosures requirements for defined benefit plans. ASU 2018-14 requires explanations for significant gains and losses related to changes in the benefit obligation; eliminates sensitivity disclosures for a one-percent change in the assumed health care cost trend rate; and eliminates the disclosure of the estimated amounts in accumulated other comprehensive income/loss expected to be recognized in net periodic benefit costs over the next year.
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.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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, 2021, 2020 and 2019 were $153.9 million, $110.1 million and $136.1 million, respectively, where the remaining periods to complete these obligations ranged from three months to 12 months.
Sales Taxes. The Company is deemed to be an agent when collecting sales taxes from customers. Sales taxes collected are recorded as liabilities until remitted to taxing authorities and are not reflected in the consolidated statements of earnings as revenues and expenses.
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) | 2021 | |||||||||||
| East Group | $ | 2,161.6 | $ | 141.4 | $ | 2,303.0 | ||||||
| West Group | 2,648.4 | 163.9 | 2,812.3 | |||||||||
| Total Building Materials business | 4,810.0 | 305.3 | 5,115.3 | |||||||||
| Magnesia Specialties | 274.7 | 24.0 | 298.7 | |||||||||
| Total | $ | 5,084.7 | $ | 329.3 | $ | 5,414.0 | ||||||
| 2020 | ||||||||||||
| East Group | $ | 1,826.6 | $ | 122.5 | $ | 1,949.1 | ||||||
| West Group | 2,384.6 | 153.5 | 2,538.1 | |||||||||
| Total Building Materials business | 4,211.2 | 276.0 | 4,487.2 | |||||||||
| Magnesia Specialties | 220.9 | 21.8 | 242.7 | |||||||||
| Total | $ | 4,432.1 | $ | 297.8 | 4,729.9 | |||||||
| 2019 | ||||||||||||
| East Group | $ | 1,814.5 | $ | 134.5 | $ | 1,949.0 | ||||||
| West Group | 2,357.9 | 160.9 | 2,518.8 | |||||||||
| 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 |
Service revenues, which include paving operations located in California and Colorado, were $259.1 million, $287.6 million and $250.6 million for the years ended December 31, 2021, 2020 and 2019, 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) | 2021 | 2020 | ||||||
| Costs in excess of billings | $ | 4.3 | $ | 2.2 | ||||
| Billings in excess of costs | $ | 7.8 | $ | 14.0 |
Revenues recognized from the beginning balance of contract liabilities for the years ended December 31, 2021 and 2020 were $13.6 million and $6.9 million, respectively.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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 in Other current assets on the Company’s consolidated balance sheets, retainage was $10.5 million and $10.6 million at December 31, 2021 and 2020, 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.
Note C: Goodwill and Other Intangible Assets
The following table shows the changes in goodwill by reportable segment and in total:
| December 31 | East Group | West Group | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | |||||||||||
| Balance at beginning of period | $ | 572.5 | $ | 1,841.5 | $ | 2,414.0 | ||||||
| Acquisitions | 186.9 | 893.5 | 1,080.4 | |||||||||
| Balance at end of period | $ | 759.4 | $ | 2,735.0 | $ | 3,494.4 | ||||||
| 2020 | ||||||||||||
| Balance at beginning of period | $ | 574.3 | $ | 1,822.5 | $ | 2,396.8 | ||||||
| Acquisitions | — | 17.3 | 17.3 | |||||||||
| Goodwill reclassified from/(allocated to) assets held for sale | 0.1 | (0.1 | ) | — | ||||||||
| Divestitures | — | (0.1 | ) | (0.1 | ) | |||||||
| Transfer of operations from East Group to West Group | (1.9 | ) | 1.9 | — | ||||||||
| Balance at end of period | $ | 572.5 | $ | 1,841.5 | $ | 2,414.0 |
Intangible assets subject to amortization consist of the following:
| December 31 | Gross Amount | Accumulated Amortization | Net Balance | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | |||||||||||
| Noncompetition agreements | $ | 4.2 | $ | (4.1 | ) | $ | 0.1 | |||||
| Customer relationships | 425.3 | (49.2 | ) | 376.1 | ||||||||
| Operating permits | 697.3 | (56.6 | ) | 640.7 | ||||||||
| Use rights and other | 16.3 | (13.9 | ) | 2.4 | ||||||||
| Trade names | 23.3 | (13.6 | ) | 9.7 | ||||||||
| Total | $ | 1,166.4 | $ | (137.4 | ) | $ | 1,029.0 | |||||
| 2020 | ||||||||||||
| Noncompetition agreements | $ | 4.2 | $ | (4.1 | ) | $ | 0.1 | |||||
| Customer relationships | 91.3 | (35.6 | ) | 55.7 | ||||||||
| Operating permits | 460.8 | (48.4 | ) | 412.4 | ||||||||
| Use rights and other | 16.3 | (13.0 | ) | 3.3 | ||||||||
| Trade names | 12.8 | (12.3 | ) | 0.5 | ||||||||
| Total | $ | 585.4 | $ | (113.4 | ) | $ | 472.0 |
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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 as of December 31, 2021 and 2020:
| (in millions) | Building Materials Business | Magnesia Specialties | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating permits | $ | 6.6 | $ | — | $ | 6.6 | ||||||
| Use rights | 26.7 | — | 26.7 | |||||||||
| Trade names | 0.2 | 2.5 | 2.7 | |||||||||
| Total | $ | 33.5 | $ | 2.5 | $ | 36.0 |
During 2021, the Company acquired $845.9 million of intangible assets, of which $264.9 million were classified as held for sale as of December 31, 2021 (see Note D). Excluding the intangible assets classified as held for sale, acquired intangible assets consist of the following:
| (in millions, except year data) | Amount | Weighted-average amortization period | ||||
|---|---|---|---|---|---|---|
| Subject to amortization: | ||||||
| Customer relationships | $ | 334.0 | 25 years | |||
| Trade name | 10.5 | 9 years | ||||
| Operating permits | 236.5 | 40 years | ||||
| Total subject to amortization | $ | 581.0 | 31 years |
Total amortization expense for intangible assets for the years ended December 31, 2021, 2020 and 2019 was $24.0 million, $13.4 million and $13.0 million, respectively. The intangible assets classified as held for sale are not being amortized.
The estimated amortization expense for intangible assets for each of the next five years and thereafter is as follows:
| (in millions) | ||||
|---|---|---|---|---|
| 2022 | $ | 34.1 | ||
| 2023 | 33.8 | |||
| 2024 | 33.6 | |||
| 2025 | 33.4 | |||
| 2026 | 31.9 | |||
| Thereafter | 862.2 | |||
| Total | $ | 1,029.0 |
Note D: Business Combinations and Discontinued Operations
Lehigh Hanson West Region. On October 1, 2021, the Company completed the acquisition of Lehigh Hanson, Inc.’s West Region business (Lehigh West Region) for $2.28 billion in cash. The acquisition was primarily financed using proceeds from the issuance of publicly traded debt. Lehigh West Region has a portfolio of 17 active aggregates quarries, two cement plants with related distribution terminals, and targeted downstream operations in four states. These operations provide a new upstream, materials-led growth platform across several of the nation’s largest and fastest growing megaregions in California and Arizona, solidifying the Company’s position as a leading coast-to-coast aggregates producer. The acquisition is reported in the Company’s West Group.
The acquisition represents a stock transaction where the Company acquired 100% of the voting interest of the legal entities that comprise the Lehigh West Region. However, for tax purposes, the acquisition is being treated as an asset transaction. The Company determined the acquisition-date fair values of assets acquired and liabilities assumed. Although initial accounting for the business combination has been recorded, the fair values of these amounts are subject to change during the measurement period, which extends no longer than one year from consummation date depending on additional reviews, such as asset verification. Specific amounts subject to ongoing purchase accounting adjustments include, but are not limited to, inventories; property, plant and equipment; lease assets and liabilities; goodwill; intangible assets; asset retirement obligations; and other liabilities. Therefore, the measurement period remains open as of December 31, 2021.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The following is a summary of the estimated fair values of the assets acquired and the liabilities assumed as of October 1, 2021:
| (in millions) | ||||
|---|---|---|---|---|
| Assets: | ||||
| Inventories | $ | 95.5 | ||
| Property, plant and equipment1 | 859.5 | |||
| Intangible assets, other than goodwill | 551.0 | |||
| Goodwill | 989.2 | |||
| Other assets | 54.6 | |||
| Total Assets | 2,549.8 | |||
| Liabilities: | ||||
| Asset retirement obligations | 168.9 | |||
| Operating and finance lease liabilities | 57.5 | |||
| Other liabilities | 39.9 | |||
| Total Liabilities | 266.3 | |||
| Total Consideration | $ | 2,283.5 |
| 1 | Includes mineral reserves of $332.0 million. |
|---|
The acquired intangible assets consist of the following:
| (in millions, except year data) | Amount | Weighted-average amortization period | ||||
|---|---|---|---|---|---|---|
| Subject to amortization: | ||||||
| Customer relationships | $ | 112.6 | 27 years | |||
| Operating permits | 173.5 | 40 years | ||||
| Total subject to amortization | 286.1 | 35 years | ||||
| Classified as held for sale and not subject to amortization: | ||||||
| Customer relationships | 27.9 | |||||
| Operating permits | 237.0 | |||||
| Total classified as held for sale | 264.9 | |||||
| Total | $ | 551.0 |
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. The goodwill generated by the transaction is deductible for income tax purposes. The Company did not acquire any of Lehigh West Region’s cash, cash equivalents or accounts receivable nor did it assume any accounts payable, outstanding debt, or pension obligation.
The unaudited pro forma financial information summarizes the combined results of operations for the Company and Lehigh West Region as though the companies were combined as of January 1, 2020. Financial information for periods prior to the October 1, 2021 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, 2020, the pro forma financial results for the year ended December 31, 2020 include acquisition-related expenses of $46.8 million.
The unaudited pro forma financial information does not purport to project the future financial position or operating results of the combined company. The following pro forma financial information 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 as of January 1, 2020:
| years ended December 31 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (in millions, except for per share data) | 2021 | 2020 | |||||||
| Total revenues | $ | 5,755.1 | $ | 5,184.9 | |||||
| Net earnings from continuing operations attributable to Martin Marietta | $ | 737.3 | $ | 642.4 | |||||
| Diluted net earnings from continuing operations per share | $ | 11.78 | $ | 10.30 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The pro forma financial information excludes the cement and California ready mix businesses, which are classified as discontinued operations.
Southern Crushed Concrete. On July 30, 2021, the Company acquired assets of Southern Crushed Concrete (SCC). SCC is a leading producer of recycled concrete in the Houston area. Recycled concrete is principally used as a base aggregates product in infrastructure, commercial and residential construction applications. The Company acquired inventories; property, plant and equipment; intangible assets (including goodwill); and lease ROU assets. The Company assumed asset retirement obligations; lease obligations; and other liabilities. The goodwill generated by the transaction is deductible for income tax purposes. Although initial accounting for the business combination has been recorded, the fair values of these amounts are subject to change during the measurement period, which remains open as of December 31, 2021. The acquisition is reported in the Company’s West Group, but is immaterial for pro-forma financial statement disclosures.
Tiller Corporation. On April 30, 2021, the Company completed the acquisition of Tiller Corporation (Tiller), a leading aggregates and hot mix asphalt supplier in the Minneapolis/St. Paul region, one of the largest and fastest growing midwestern metropolitan areas. The Tiller acquisition complements the Company’s existing product offerings in the surrounding areas. Additionally, Tiller sells asphalt solely as a materials provider, and does not offer paving or other associated services. The Company financed the acquisition using available cash and borrowings under its credit facilities. The Company has recorded preliminary fair values of the assets acquired and liabilities assumed; however, these amounts are subject to change during the measurement period, which remains open as of December 31, 2021. The goodwill generated by the transaction is deductible for income tax purposes. The acquisition is reported in the Company’s East Group, but is immaterial for pro-forma financial statement disclosures.
Total revenues and earnings from operations attributable to all continuing operations acquired in 2021 which are included in the consolidated statement of earnings for the year ended December 31, 2021 were $338.6 million and $12.1 million, respectively. Total acquisition-related expenses, primarily related to the Lehigh West Region transaction, were $57.9 million for the year ended December 31, 2021.
Discontinued Operations. The Company’s discontinued operations are comprised of the cement and California ready mix businesses acquired as part of the Lehigh West Region transaction. The Company did not record any amortization or depreciation expense related to these businesses from the date of acquisition, October 1, 2021, through December 31, 2021, as these are classified as assets held for sale.
Discontinued operations for the year ended December 31, 2021 include the following:
| (in millions) | ||||
|---|---|---|---|---|
| Total revenues | $ | 79.2 | ||
| Earnings from operations | $ | 6.6 | ||
| Loss on sale | (6.0 | ) | ||
| Pretax earnings | 0.6 | |||
| Income tax expense | 0.1 | |||
| Net earnings | $ | 0.5 |
Total cash used for operating and investing activities for the discontinued operations was $11.9 million for the year ended December 31, 2021. For the year ended December 31, 2021, non-cash operating and investing activities related to the discontinued operations were $14.8 million and $19.7 million of right-of-use assets obtained in exchange for new finance and operating lease liabilities, respectively. Capital expenditures for the discontinued operations for the period of the Company’s ownership are immaterial.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
Assets Held for Sale. Assets and liabilities held for sale as of December 31 were as follows:
| (in millions) | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| Inventories, net | $ | 53.1 | $ | 2.3 | ||||
| Property, plant and equipment | — | 4.8 | ||||||
| Intangible assets, excluding goodwill | — | 0.2 | ||||||
| Goodwill | — | 0.5 | ||||||
| Other assets | 49.1 | 2.0 | ||||||
| Total current assets held for sale | $ | 102.2 | $ | 9.8 | ||||
| Property, plant and equipment | $ | 226.0 | $ | — | ||||
| Intangible assets, excluding goodwill | 264.9 | — | ||||||
| Operating lease right-of-use assets | 18.1 | — | ||||||
| Goodwill | 109.3 | — | ||||||
| Other assets | 4.6 | — | ||||||
| Valuation allowance for loss on sale | (6.0 | ) | — | |||||
| Total noncurrent assets held for sale | $ | 616.9 | $ | — | ||||
| Asset retirement obligations | $ | — | $ | (0.3 | ) | |||
| Lease obligations | (7.5 | ) | — | |||||
| Total current liabilities held for sale | $ | (7.5 | ) | $ | (0.3 | ) | ||
| Asset retirement obligations | $ | (31.5 | ) | $ | — | |||
| Lease obligations | (22.0 | ) | — | |||||
| Total noncurrent liabilities held for sale | $ | (53.5 | ) | $ | — |
Note E: Accounts Receivable, Net
| December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Customer receivables | $ | 767.5 | $ | 572.6 | ||||
| Other current receivables | 12.3 | 8.4 | ||||||
| Total accounts receivable | 779.8 | 581.0 | ||||||
| Less: allowance for estimated credit losses | (5.8 | ) | (5.9 | ) | ||||
| Accounts receivable, net | $ | 774.0 | $ | 575.1 |
Of the total accounts receivable, net, balances, $4.5 million and $3.9 million at December 31, 2021 and 2020, respectively, were due from unconsolidated affiliates.
Note F: Inventories, Net
| December 31 (in millions) | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| Finished products | $ | 713.3 | $ | 667.0 | ||||
| Products in process | 30.1 | 37.1 | ||||||
| Raw materials | 69.6 | 35.3 | ||||||
| Supplies and expendable parts | 153.9 | 149.9 | ||||||
| Total inventories | 966.9 | 889.3 | ||||||
| Less: allowances | (214.3 | ) | (180.3 | ) | ||||
| Inventories, net | $ | 752.6 | $ | 709.0 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
Note G: Property, Plant and Equipment, Net
| December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Land and land improvements | $ | 1,530.1 | $ | 1,231.9 | ||||
| Mineral reserves and interests | 2,924.5 | 2,529.7 | ||||||
| Buildings | 169.6 | 164.2 | ||||||
| Machinery and equipment | 5,357.7 | 4,782.0 | ||||||
| Construction in progress | 162.2 | 209.4 | ||||||
| Finance lease right-of-use assets | 225.9 | 37.8 | ||||||
| Total property, plant and equipment | 10,370.0 | 8,955.0 | ||||||
| Less: accumulated depreciation, depletion and amortization | (4,032.0 | ) | (3,712.7 | ) | ||||
| Property, plant and equipment, net | $ | 6,338.0 | $ | 5,242.3 |
Depreciation, depletion and amortization expense related to property, plant and equipment was $422.4 million, $376.3 million and $354.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. Depreciation, depletion and amortization expense includes amortization of ROU assets from finance leases.
Interest of $5.6 million, $4.2 million and $5.1 million was capitalized during 2021, 2020 and 2019, respectively.
At December 31, 2021 and 2020, $44.9 million and $46.0 million, respectively, of the Building Materials business’ property, plant and equipment, net, were located in foreign countries, namely The Bahamas and Canada.
Note H: Long-Term Debt
| December 31 (in millions) | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| 0.650% Senior Notes, due 2023 | $ | 697.4 | $ | — | ||||
| 4.25% Senior Notes, due 2024 | 398.3 | 397.6 | ||||||
| 7% Debentures, due 2025 | 124.6 | 124.5 | ||||||
| 3.450% Senior Notes, due 2027 | 297.9 | 297.6 | ||||||
| 3.500% Senior Notes, due 2027 | 496.4 | 495.8 | ||||||
| 2.500% Senior Notes, due 2030 | 491.1 | 490.1 | ||||||
| 2.400% Senior Notes, due 2031 | 891.8 | — | ||||||
| 6.25% Senior Notes, due 2037 | 228.3 | 228.2 | ||||||
| 4.250% Senior Notes, due 2047 | 592.1 | 591.9 | ||||||
| 3.200% Senior Notes, due 2051 | 882.9 | — | ||||||
| Other notes | 0.1 | 0.1 | ||||||
| Total debt | 5,100.9 | 2,625.8 | ||||||
| Less: current maturities | (0.1 | ) | — | |||||
| Long-term debt | $ | 5,100.8 | $ | 2,625.8 |
On July 2, 2021, the Company issued $700.0 million aggregate principal amount of 0.650% Senior Notes due 2023 (the 0.650% Senior Notes), $900.0 million aggregate principal amount of 2.400% Senior Notes due 2031 (the 2.400% Senior Notes) and $900.0 million aggregate principal amount of 3.200% Senior Notes due 2051 (the 3.200% Senior Notes), pursuant to a base indenture, dated as of May 22, 2017 (the Base Indenture), as amended and supplemented from time to time, including by the Fourth Supplemental Indenture, dated as of July 2, 2021 and, together with the Base Indenture (the Indenture) between the Company and Regions Bank, as trustee, governing these notes. On the consolidated balance sheets, these notes are carried net of original issue discount, which will be amortized using the effective interest method over the lives of the issues. The Company used the net proceeds of the 2.400% Senior Notes, the 3.200% Senior Notes and the 0.650% Senior Notes to pay the consideration for the acquisition of the Lehigh West Region business and for general corporate purposes. See Note D for more information on the Lehigh West Region acquisition, which was consummated on October 1, 2021.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
Prior to July 2, 2022 (the 2023 Par Call Date), the Company may redeem the 0.650% Senior Notes, at its option, at any time in whole or from time to time in part at a price equal to the greater of: (i) 100% of the principal amount of the 0.650% Senior Notes to be redeemed and (ii) the sum of the present values of the principal amount of the 0.650% Senior Notes to be redeemed and the remaining scheduled payments of interest thereon after the date of optional redemption (a 2023 Optional Redemption Date) through the 2023 Par Call Date (assuming, for this purpose, that the 0.650% Senior Notes are scheduled to mature on the 2023 Par Call Date), excluding interest, if any, accrued thereon to such 2023 Optional Redemption Date, discounted to such 2023 Optional Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the Indenture) plus 10 basis points (or 0.100%) plus, in each case, unpaid interest, if any, accrued thereon to, but excluding, such 2023 Optional Redemption Date. On or after the 2023 Par Call Date and prior to maturity, the Company may redeem the 0.650% Senior Notes at any time in whole or from time to time in part at a price equal to 100% of the principal amount of the 0.650% Senior Notes, at its option, to be redeemed, plus unpaid interest, if any, accrued thereon to, but excluding, the 2023 Optional Redemption Date.
Prior to April 15, 2031 (the 2031 Par Call Date), the Company may redeem the 2.400% Senior Notes, at its option, at any time in whole or from time to time in part at a price equal to the greater of: (i) 100% of the principal amount of the 2.400% Senior Notes to be redeemed and (ii) the sum of the present values of the principal amount of the 2.400% Senior Notes to be redeemed and the remaining scheduled payments of interest thereon after the date of optional redemption (a 2031 Optional Redemption Date) through the 2031 Par Call Date (assuming, for this purpose, that the 2.400% Senior Notes are scheduled to mature on the 2031 Par Call Date), excluding interest, if any, accrued thereon to such 2031 Optional Redemption Date, discounted to such 2031 Optional Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the Indenture) plus 15 basis points (or 0.150%) plus, in each case, unpaid interest, if any, accrued thereon to, but excluding, such 2031 Optional Redemption Date. On or after the 2031 Par Call Date and prior to maturity, the Company may redeem the 2.400% Senior Notes at any time in whole or from time to time in part at a price equal to 100% of the principal amount of the 2.400% Senior Notes, at its option, to be redeemed, plus unpaid interest, if any, accrued thereon to, but excluding, the 2031 Optional Redemption Date.
Prior to January 15, 2051 (the 2051 Par Call Date), the Company may redeem the 3.200% Senior Notes, at its option, at any time in whole or from time to time in part at a price equal to the greater of: (i) 100% of the principal amount of the 3.200% Senior Notes to be redeemed and (ii) the sum of the present values of the principal amount of the 3.200% Senior Notes to be redeemed and the remaining scheduled payments of interest thereon after the date of optional redemption (a 2051 Optional Redemption Date) through the 2051 Par Call Date (assuming, for this purpose, that the 3.200% Senior Notes are scheduled to mature on the 2051 Par Call Date), excluding interest, if any, accrued thereon to such 2051 Optional Redemption Date, discounted to such 2051 Optional Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the Indenture) plus 20 basis points (or 0.200%) plus, in each case, unpaid interest, if any, accrued thereon to, but excluding, such 2051 Optional Redemption Date. On or after the 2051 Par Call Date and prior to maturity, the Company may redeem the 3.200% Senior Notes at any time in whole or from time to time in part at a price equal to 100% of the principal amount of the 3.200% Senior Notes, at its option, to be redeemed, plus unpaid interest, if any, accrued thereon to, but excluding, the 2051 Optional Redemption Date.
On March 5, 2020, the Company issued $500.0 million aggregate principal amount of 2.500% Senior Notes due 2030 (the 2.500% Senior Notes). The 2.500% Senior Notes are carried net of original issue discount, which is being amortized by the effective interest method over the life of the issue. The 2.500% Senior Notes are redeemable prior to December 15, 2029 at their make-whole redemption price at a discount rate of the U.S. Treasury Rate plus 30 basis points, or on or after December 15, 2029 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to the date of redemption. The Company used the net proceeds for general corporate purposes, including the repayment of $300.0 million of Floating Rate Senior Notes at maturity in May 2020.
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, 2.500% Senior Notes due 2030, 6.25% Senior Notes due 2037 and 4.250% Senior Notes due 2047 (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. The Senior Notes are redeemable prior to their respective maturity dates at a make-whole redemption price. 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.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The Senior Notes and the notes issued in 2021 are carried net of original issue discount, which is being amortized by the effective interest method over the life of the issue. The principal amount, effective interest rate and maturity date for the Senior Notes and the notes issued in 2021 are as follows:
| Principal Amount (in millions) | Effective Interest Rate | Maturity Date | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 0.650% Senior Notes | $ | 700.0 | 0.78% | July 15, 2023 | |||||
| 4.25% Senior Notes | $ | 400.0 | 4.40% | July 2, 2024 | |||||
| 7% Debentures | $ | 125.0 | 7.05% | December 1, 2025 | |||||
| 3.450% Senior Notes | $ | 300.0 | 3.55% | June 1, 2027 | |||||
| 3.500% Senior Notes | $ | 500.0 | 3.60% | December 15, 2027 | |||||
| 2.500% Senior Notes | $ | 500.0 | 2.71% | March 15, 2030 | |||||
| 2.400% Senior Notes | $ | 900.0 | 2.48% | July 15, 2031 | |||||
| 6.25% Senior Notes | $ | 230.0 | 6.32% | May 1, 2037 | |||||
| 4.250% Senior Notes | $ | 600.0 | 4.32% | December 15, 2047 | |||||
| 3.200% Senior Notes | $ | 900.0 | 3.29% | July 15, 2051 |
The Company has a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, Deutsche Bank Securities, Inc., PNC Bank, Truist Bank and Wells Fargo Bank, N.A., as Syndication Agents, and the lenders party thereto (the Credit Agreement), which provides for a $800.0 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 the London Inter-bank Offered Rate (LIBOR) or a base rate, plus, for each rate, a margin determined in accordance with a ratings-based pricing grid. There were no borrowings outstanding under the Credit Agreement as of December 31, 2021 and 2020. The Credit Agreement expires on December 21, 2026, 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, 2021 and 2020, the Company had $2.6 million of outstanding letters of credit issued under the Revolving Facility and $797.4 million and $697.4 million, respectively, 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 Credit Agreement requires the Company’s ratio of consolidated net debt-to-consolidated earnings before interest, taxes, depreciation, depletion and amortization, as defined, for the trailing-twelve months (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Company may exclude from the Ratio debt incurred in connection with certain acquisitions during the quarter or three preceding quarters so long as the Ratio calculated without such exclusion does not exceed 4.00x. 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), shall be reduced in an amount equal to the lesser of $500.0 million or the sum of the Company’s unrestricted cash and temporary investments, for purposes of the covenant calculation. The Company was in compliance with the Ratio at December 31, 2021.
The Company, through a wholly-owned special-purpose subsidiary, has a $400.0 million trade receivable securitization facility (the Trade Receivable Facility). On September 22, 2021, the Company extended the maturity to September 21, 2022. The Trade Receivable Facility, with Truist Bank, Regions Bank, PNC Bank, N.A., MUFG Bank, 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 asset-backed commercial paper costs of conduit lenders plus 0.85% for borrowings funded by conduit lenders and one-month LIBOR plus 1.00%, subject to change in the event that this rate no longer reflects the lender’s cost of lending, for borrowings funded by all other lenders. The Trade Receivable Facility contains a cross-default provision to the Company’s other debt agreements. At December 31, 2021 and 2020, there were no borrowings outstanding under the Trade Receivable Facility.
| Form 10-K ♦ Page 94 | | SOAR to a Sustainable Future |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The Company’s long-term debt maturities for the five years following December 31, 2021, and thereafter are:
| (in millions) | ||||
|---|---|---|---|---|
| 2022 | $ | 0.1 | ||
| 2023 | 697.4 | |||
| 2024 | 398.2 | |||
| 2025 | 124.6 | |||
| 2026 | — | |||
| Thereafter | 3,880.6 | |||
| Total | $ | 5,100.9 |
Note I: Financial Instruments
The Company’s financial instruments include temporary cash investments, restricted cash, 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.
Restricted cash is held in a trust account with a third-party intermediary. Due to the short-term nature of this account, the fair value of restricted cash approximates its carrying 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, namely Texas, Colorado, North Carolina, Georgia and Minnesota. 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 $5.10 billion and $5.45 billion, respectively, at December 31, 2021 and $2.63 billion and $3.08 billion, respectively, at December 31, 2020. The estimated fair value of the Company’s publicly-registered long-term debt was estimated 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.
| SOAR to a Sustainable Future | | Form 10-K ♦ Page 95 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
Note J: Income Taxes
The components of the Company’s income tax expense from continuing operations are as follows:
| years ended December 31 (in millions) | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Federal income taxes: | ||||||||||||
| Current | $ | 66.3 | $ | 91.9 | $ | 83.9 | ||||||
| Deferred | 61.4 | 45.4 | 31.1 | |||||||||
| Total federal income taxes | 127.7 | 137.3 | 115.0 | |||||||||
| State income taxes: | ||||||||||||
| Current | 18.7 | 21.0 | 20.5 | |||||||||
| Deferred | 6.5 | 8.7 | (1.5 | ) | ||||||||
| Total state income taxes | 25.2 | 29.7 | 19.0 | |||||||||
| Foreign income taxes: | ||||||||||||
| Current | — | 1.2 | 2.8 | |||||||||
| Deferred | 0.3 | — | (0.5 | ) | ||||||||
| Total foreign income taxes | 0.3 | 1.2 | 2.3 | |||||||||
| Income tax expense | $ | 153.2 | $ | 168.2 | $ | 136.3 |
For the years ended December 31, 2021, 2020 and 2019, foreign pretax earnings were $7.5 million, $8.9 million and $15.1 million, respectively.
The Company’s effective income tax rate on continuing operations varied from the statutory United States income tax rate because of the following tax differences:
| years ended December 31 | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Statutory income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
| (Reduction) increase resulting from: | ||||||||||||
| Effect of statutory depletion | (3.5 | ) | (2.8 | ) | (3.4 | ) | ||||||
| State income taxes, net of federal tax benefit | 2.3 | 2.6 | 2.0 | |||||||||
| Federal tax credits | (1.4 | ) | (1.3 | ) | — | |||||||
| Change in tax status of subsidiary | — | — | (1.7 | ) | ||||||||
| Other items | (0.5 | ) | (0.6 | ) | 0.3 | |||||||
| Effective income tax rate | 17.9 | % | 18.9 | % | 18.2 | % |
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.
In 2021 and 2020, the Company financed third-party railroad track maintenance. In exchange, the Company received federal income tax credits and tax deductions.
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.
| Form 10-K ♦ Page 96 | | SOAR to a Sustainable Future |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The principal components of the Company’s deferred tax assets and liabilities are as follows:
| December 31 | Deferred Assets (Liabilities) | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Deferred tax assets related to: | ||||||||
| Inventories | $ | 100.2 | $ | 69.6 | ||||
| Valuation and other reserves | 23.3 | 34.7 | ||||||
| Net operating loss carryforwards | 2.6 | 9.0 | ||||||
| Accumulated other comprehensive loss | 69.7 | 89.4 | ||||||
| Lease liabilities | 150.1 | 105.6 | ||||||
| Other items, net | 2.2 | 2.3 | ||||||
| Gross deferred tax assets | 348.1 | 310.6 | ||||||
| Valuation allowance on deferred tax assets | (2.8 | ) | (8.1 | ) | ||||
| Total net deferred tax assets | 345.3 | 302.5 | ||||||
| Deferred tax liabilities related to: | ||||||||
| Property, plant and equipment | (840.6 | ) | (743.3 | ) | ||||
| Goodwill and other intangibles | (160.2 | ) | (154.6 | ) | ||||
| Right-of-use assets | (155.2 | ) | (111.3 | ) | ||||
| Partnerships and joint ventures | (29.1 | ) | (27.4 | ) | ||||
| Employee benefits | (55.5 | ) | (47.4 | ) | ||||
| Total deferred tax liabilities | (1,240.6 | ) | (1,084.0 | ) | ||||
| Deferred income taxes, net | $ | (895.3 | ) | $ | (781.5 | ) |
The Company had $1.3 million and $3.1 million of domestic federal net operating loss (NOL) carryforwards at December 31, 2021 and 2020, respectively. The Company had domestic state NOL carryforwards of $40.7 million and $137.1 million at December 31, 2021 and 2020, respectively. These carryforwards have various expiration dates through 2041. At December 31, 2021 and 2020, deferred tax assets associated with these carryforwards were $2.6 million and $9.0 million, respectively, net of the federal benefit of the state deduction, for which valuation allowances of $2.2 million and $8.1 million, respectively, were recorded. The reduction in state NOL carryforwards and corresponding valuation allowances in 2021 primarily resulted from the liquidation of a subsidiary and a change in North Carolina state tax law. The Company also had domestic state tax credit carryforwards of $0.9 million and $1.0 million at December 31, 2021 and 2020, respectively, which have various expiration dates through 2041. At December 31, 2021 and 2020, deferred tax assets associated with these carryforwards were $0.7 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.
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, 2021.
| SOAR to a Sustainable Future | | Form 10-K ♦ Page 97 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The following table summarizes the Company’s unrecognized tax benefits, excluding interest and correlative effects of $0.2 million, $0.2 million and $1.7 million for the years ended December 31, 2021, 2020 and 2019 respectively:
| years ended December 31 (in millions) | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unrecognized tax benefits at beginning of year | $ | 8.2 | $ | 25.5 | $ | 24.1 | ||||||
| Gross increases – tax positions in prior years | 0.5 | 0.2 | 0.4 | |||||||||
| Gross decreases – tax positions in prior years | — | — | — | |||||||||
| Gross increases – tax positions in current year | 0.1 | 0.1 | 1.8 | |||||||||
| Gross decreases – tax positions in current year | — | (0.2 | ) | (0.8 | ) | |||||||
| Lapse of statute of limitations | (3.4 | ) | (17.4 | ) | — | |||||||
| Unrecognized tax benefits at end of year | $ | 5.4 | $ | 8.2 | $ | 25.5 | ||||||
| Amount that, if recognized, would favorably impact the effective tax rate | $ | 5.5 | $ | 6.4 | $ | 15.5 |
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. For the year ended December 31, 2021, $1.6 million was reversed into income upon the statute of limitations expiration for the 2017 and all prior open tax years. For the year ended December 31, 2020, $9.7 million was reversed into income upon the statute of limitations expiration for 2016. 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 $3.1 million, excluding interest and correlative effects, during the twelve months ending December 31, 2022, due to the settlement of the 2017 tax year and the expiration of the statutes of limitations for the 2018 tax year.
The Company’s tax years subject to federal, state or foreign examinations are 2017 through 2021.
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, real estate, hedge funds, private infrastructure 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.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The net periodic retirement benefit cost of defined benefit plans includes the following components:
| years ended December 31 (in millions) | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Service cost | $ | 46.2 | $ | 39.2 | $ | 30.8 | ||||||
| Interest cost | 35.7 | 37.1 | 37.6 | |||||||||
| Expected return on assets | (70.5 | ) | (58.4 | ) | (47.9 | ) | ||||||
| Amortization of: | ||||||||||||
| Prior service cost | 0.8 | 0.7 | — | |||||||||
| Actuarial loss | 12.2 | 14.5 | 16.0 | |||||||||
| Settlement charge | — | 3.7 | — | |||||||||
| Net periodic benefit cost | $ | 24.4 | $ | 36.8 | $ | 36.5 |
The components of net periodic benefit cost, other than service cost, are included in the line item Other nonoperating (income) and expenses, net, in the consolidated statements of earnings. Based on the roles of the employees, service cost is included in Cost of revenues – products and services or Selling, general and administrative expenses line items in the consolidated statements of earnings.
The expected return on assets is calculated by applying an annually selected expected long-term rate of return assumption to the estimated fair value of the plan assets during the year, giving consideration to contributions and benefits paid.
The Company recognized the following amounts in consolidated comprehensive earnings:
| years ended December 31 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | 2019 | |||||||||
| Actuarial (gain) loss | $ | (67.5 | ) | $ | 34.7 | $ | 11.7 | |||||
| Net prior service cost | — | — | 6.4 | |||||||||
| Amortization of: | ||||||||||||
| Prior service cost | (0.8 | ) | (0.7 | ) | — | |||||||
| Actuarial loss | (12.2 | ) | (14.5 | ) | (16.0 | ) | ||||||
| Settlement charge | — | (3.7 | ) | — | ||||||||
| Total | $ | (80.5 | ) | $ | 15.8 | $ | 2.1 |
Accumulated other comprehensive loss includes the following amounts that have not yet been recognized in net periodic benefit cost:
| December 31 | 2021 | 2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
| Prior service cost | $ | 5.1 | $ | 3.0 | $ | 5.8 | $ | 3.7 | ||||||||
| Actuarial loss | 166.2 | 97.0 | 245.9 | 157.1 | ||||||||||||
| Total | $ | 171.3 | $ | 100.0 | $ | 251.7 | $ | 160.8 |
The defined benefit plans’ change in projected benefit obligation is as follows:
| years ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Net projected benefit obligation at beginning of year | $ | 1,111.9 | $ | 977.8 | ||||
| Service cost | 46.2 | 39.2 | ||||||
| Interest cost | 35.7 | 37.1 | ||||||
| Actuarial (gain) loss | (16.2 | ) | 104.0 | |||||
| Gross benefits paid | (42.1 | ) | (46.2 | ) | ||||
| Net projected benefit obligation at end of year | $ | 1,135.5 | $ | 1,111.9 |
Actuarial gains in 2021 are primarily attributable to a higher-than-expected return on pension assets. Actuarial losses in 2020 were primarily attributable to lower discount rates compared with the prior year.
| SOAR to a Sustainable Future | | Form 10-K ♦ Page 99 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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) | 2021 | 2020 | ||||||
| Fair value of plan assets at beginning of year | $ | 1,037.9 | $ | 868.0 | ||||
| Actual return on plan assets, net | 121.7 | 127.7 | ||||||
| Employer contributions | 82.8 | 88.4 | ||||||
| Gross benefits paid | (42.1 | ) | (46.2 | ) | ||||
| Fair value of plan assets at end of year | $ | 1,200.3 | $ | 1,037.9 |
| December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Funded status of the plan at end of year | $ | 64.8 | $ | (74.0 | ) | |||
| Accrued benefit credit (cost) | $ | 64.8 | $ | (74.0 | ) |
| December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Amounts recognized on consolidated balance sheets consist of: | ||||||||
| Noncurrent asset | $ | 179.2 | $ | 42.0 | ||||
| Current liability | (14.8 | ) | (7.2 | ) | ||||
| Noncurrent liability | (99.6 | ) | (108.8 | ) | ||||
| Net amount recognized at end of year | $ | 64.8 | $ | (74.0 | ) |
The accumulated benefit obligation for all defined benefit pension plans was $1.00 billion and $974.0 million at December 31, 2021 and 2020, respectively.
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) | 2021 | 2020 | ||||||
| Projected benefit obligation | $ | 115.0 | $ | 116.6 | ||||
| Accumulated benefit obligation | $ | 101.8 | $ | 99.8 | ||||
| Fair value of plan assets | $ | 0.7 | $ | 0.6 |
Weighted-average assumptions used to determine benefit obligations as of December 31 are:
| 2021 | 2020 | |||||
|---|---|---|---|---|---|---|
| Discount rate | 3.23% | 3.16% | ||||
| 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:
| 2021 | 2020 | 2019 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Discount rate | 3.16% | 3.69% | 4.38% | ||||||
| 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, 2021 and 2020, the Company estimated the remaining lives of participants in the pension plans using the Pri-2012 Base tables. The no-collar table was used for salaried participants and the blue-collar table was used for hourly
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
participants; both tables were adjusted to reflect the experience of the Company’s participants. The Company used the MP-2020 mortality improvement scale for the years 2021 and 2020.
The target allocation for 2021 and the actual pension plan asset allocation by asset class are as follows:
| Percentage of Plan Assets | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2021 | |||||||||
| Target | December 31 | ||||||||
| Asset Class | Allocation | 2021 | 2020 | ||||||
| Equity securities | 56% | 59% | 61% | ||||||
| Debt securities | 28% | 27% | 24% | ||||||
| Real estate | 10% | 7% | 8% | ||||||
| Private infrastructure | 6% | 7% | 5% | ||||||
| Hedge funds | 0% | 0% | 2% | ||||||
| Total | 100% | 100% | 100% |
The Company’s investment strategy is for equity securities, excluding real estate, to be invested in mid-sized to large capitalization U.S. funds, 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.
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) | 2021 | |||||||||||||||||||
| Equity securities1: | ||||||||||||||||||||
| Mid-sized to large cap | $ | — | $ | — | $ | — | $ | 351.6 | $ | 351.6 | ||||||||||
| Small cap, international and emerging growth funds | — | — | — | 354.5 | 354.5 | |||||||||||||||
| Debt securities1: | ||||||||||||||||||||
| Core fixed income | — | — | — | 319.3 | 319.3 | |||||||||||||||
| Real estate | — | — | — | 86.6 | 86.6 | |||||||||||||||
| Private Infrastructure | — | — | — | 78.5 | 78.5 | |||||||||||||||
| Hedge funds | — | — | — | 5.9 | 5.9 | |||||||||||||||
| Cash equivalents | 3.9 | — | — | — | 3.9 | |||||||||||||||
| Total | $ | 3.9 | $ | — | $ | — | $ | 1,196.4 | $ | 1,200.3 | ||||||||||
| 2020 | ||||||||||||||||||||
| Equity securities1: | ||||||||||||||||||||
| Mid-sized to large cap | $ | — | $ | — | $ | — | $ | 302.3 | $ | 302.3 | ||||||||||
| Small cap, international and emerging growth funds | — | — | — | 328.4 | 328.4 | |||||||||||||||
| Debt securities1: | ||||||||||||||||||||
| Core fixed income | — | — | — | 248.2 | 248.2 | |||||||||||||||
| Real estate | — | — | — | 80.4 | 80.4 | |||||||||||||||
| Private Infrastructure | — | — | — | 50.2 | 50.2 | |||||||||||||||
| Hedge funds | — | — | — | 24.9 | 24.9 | |||||||||||||||
| Cash equivalents | 3.5 | — | — | — | 3.5 | |||||||||||||||
| Total | $ | 3.5 | $ | — | $ | — | $ | 1,034.4 | $ | 1,037.9 |
| 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. Real estate investments are
| SOAR to a Sustainable Future | | Form 10-K ♦ Page 101 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
valued at NAV based on the plan’s proportionate shares of the real estate funds’ fair value as recorded by the Trustees. The funds are real estate investment trust based funds that offer participation in an actively managed, primarily core portfolio of equity real estate. The funds allocate gains, losses and expenses to investors based on the ownership percentage to determine the NAV. Private infrastructure assets represent investments in a fund that is stated at fair value. For financial assets in the fund that are actively traded in organized financial markets, fair value is based on exchange-quoted market prices. For investments in the fund for which there is no quoted market price, fair value is determined by the Trustees/General Partner based on discounted expected future cash flows prepared by third-party professionals. 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 2021 and 2020, the Company made combined pension plan and SERP contributions of $82.8 million and $88.4 million, respectively. The Company currently estimates that it will contribute $93.5 million to its pension plans in 2022.
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) | ||||
|---|---|---|---|---|
| 2022 | $ | 55.7 | ||
| 2023 | $ | 47.7 | ||
| 2024 | $ | 51.5 | ||
| 2025 | $ | 52.0 | ||
| 2026 | $ | 53.3 | ||
| Years 2027 -2031 | $ | 293.0 |
Postretirement Benefits. The net periodic postretirement benefit credit for postretirement plans includes the following components:
| years ended December 31 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | 2019 | |||||||||
| Service cost | $ | — | $ | — | $ | 0.1 | ||||||
| Interest cost | 0.3 | 0.4 | 0.6 | |||||||||
| Amortization of: | ||||||||||||
| Prior service credit | (0.8 | ) | (0.8 | ) | (0.8 | ) | ||||||
| Actuarial gain | (0.1 | ) | (0.2 | ) | (0.5 | ) | ||||||
| Total net periodic benefit credit | $ | (0.6 | ) | $ | (0.6 | ) | $ | (0.6 | ) |
The components of net periodic benefit credit, other than service cost, are included in the line item Other nonoperating (income) and expenses, net, in the consolidated statements of earnings.
The Company recognized the following amounts in consolidated comprehensive earnings:
| years ended December 31 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | 2019 | |||||||||
| Actuarial (gain) loss | $ | (0.6 | ) | $ | 0.5 | $ | 1.0 | |||||
| Amortization of: | ||||||||||||
| Prior service credit | 0.8 | 0.8 | 0.8 | |||||||||
| Actuarial gain | 0.1 | 0.2 | 0.5 | |||||||||
| Total | $ | 0.3 | $ | 1.5 | $ | 2.3 |
Accumulated other comprehensive loss includes the following amounts that have not yet been recognized in net periodic benefit credit:
| December 31 | 2021 | 2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
| Prior service credit | $ | (1.5 | ) | $ | (0.9 | ) | $ | (2.2 | ) | $ | (1.4 | ) | ||||
| Actuarial gain | (2.4 | ) | (1.4 | ) | (2.0 | ) | (1.3 | ) | ||||||||
| Total | $ | (3.9 | ) | $ | (2.3 | ) | $ | (4.2 | ) | $ | (2.7 | ) |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The postretirement health care plans’ change in benefit obligation is as follows:
| years ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Net benefit obligation at beginning of year | $ | 12.6 | $ | 13.0 | ||||
| Service cost | — | — | ||||||
| Interest cost | 0.3 | 0.4 | ||||||
| Participants’ contributions | 0.6 | 0.7 | ||||||
| Actuarial (gain) loss | (0.6 | ) | 0.5 | |||||
| Gross benefits paid | (1.5 | ) | (2.0 | ) | ||||
| Net benefit obligation at end of year | $ | 11.4 | $ | 12.6 |
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) | 2021 | 2020 | ||||||
| Fair value of plan assets at beginning of year | $ | — | $ | — | ||||
| Employer contributions | 0.9 | 1.3 | ||||||
| Participants’ contributions | 0.6 | 0.7 | ||||||
| Gross benefits paid | (1.5 | ) | (2.0 | ) | ||||
| Fair value of plan assets at end of year | $ | — | $ | — |
| December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Funded status of the plan at end of year | $ | (11.4 | ) | $ | (12.6 | ) | ||
| Accrued benefit cost | $ | (11.4 | ) | $ | (12.6 | ) |
| December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | ||||||
| Amounts recognized on consolidated balance sheets consist of: | ||||||||
| Current liability | $ | (1.2 | ) | $ | (1.3 | ) | ||
| Noncurrent liability | (10.2 | ) | (11.3 | ) | ||||
| Net amount recognized at end of year | $ | (11.4 | ) | $ | (12.6 | ) |
Weighted-average assumptions used to determine the postretirement benefit obligation as of December 31 are:
| 2021 | 2020 | |||||
|---|---|---|---|---|---|---|
| Discount rate | 3.02% | 2.48% |
Weighted-average assumptions used to determine net postretirement benefit credit for the years ended December 31 are:
| 2021 | 2020 | 2019 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Discount rate | 2.48% | 3.29% | 4.15% |
As of December 31, 2021 and 2020, the Company estimated the remaining lives of participants in the postretirement benefit plans using the Pri-2012 Base tables. 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-2020 mortality improvement scale for the years 2021 and 2020.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
Assumed health care cost trend rates at December 31 are:
| 2021 | 2020 | |||||
|---|---|---|---|---|---|---|
| Health care cost trend rate assumed for next year | 6.25% | 6.50% | ||||
| Rate to which the cost trend rate gradually declines | 4.75% | 4.75% | ||||
| Year the rate reaches the ultimate rate | 2028 | 2028 |
The Company estimates that it will contribute $1.2 million to its postretirement health care plans in 2022.
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) | ||||
|---|---|---|---|---|
| 2022 | $ | 1.2 | ||
| 2023 | $ | 1.3 | ||
| 2024 | $ | 1.3 | ||
| 2025 | $ | 1.2 | ||
| 2026 | $ | 1.1 | ||
| Years 2027 -2031 | $ | 4.2 |
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 matches employees’ eligible contributions at established rates. The Company’s matching obligations were $20.5 million in 2021, $17.9 million in 2020 and $17.6 million in 2019.
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. 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.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The following table summarizes information for restricted stock awards and incentive compensation stock awards for 2021:
| 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, 2021 | 206,981 | $ | 198.28 | 118,576 | $ | 228.15 | 42,623 | $ | 223.85 | |||||||||||||||
| Awarded | 68,393 | $ | 342.11 | 35,067 | $ | 352.52 | 18,722 | $ | 325.30 | |||||||||||||||
| Distributed | (56,710 | ) | $ | 217.49 | (67,451 | ) | $ | 219.88 | (23,317 | ) | $ | 199.79 | ||||||||||||
| Forfeited | (2,589 | ) | $ | 278.74 | (1,777 | ) | $ | 267.58 | (170 | ) | $ | 258.67 | ||||||||||||
| Adjustment for performance | — | $ | — | 33,908 | $ | 219.88 | — | $ | — | |||||||||||||||
| December 31, 2021 | 216,075 | $ | 237.80 | 118,323 | $ | 266.76 | 37,858 | $ | 288.68 |
The weighted-average grant-date fair value of service-based restricted stock awards granted during 2021, 2020 and 2019 was $342.11, $222.39 and $196.91, respectively. The weighted-average grant-date fair value of performance-based restricted stock awards granted during 2021, 2020 and 2019 was $352.52, $266.97 and $192.27, respectively. The weighted-average grant-date fair value of incentive compensation stock awards granted during 2021, 2020 and 2019 was $325.30, $258.67 and $192.27, respectively.
The aggregate intrinsic values for unvested restricted stock awards and unvested incentive compensation stock awards at December 31, 2021 were $147.3 million and $7.9 million, respectively, and were based on the closing price of the Company’s common stock at December 31, 2021, which was $440.52. The aggregate intrinsic values of restricted stock awards distributed during the years ended December 31, 2021, 2020 and 2019 were $41.1 million, $35.2 million and $49.8 million, respectively. The aggregate intrinsic values of incentive compensation stock awards distributed during the years ended December 31, 2021, 2020 and 2019 were $4.9 million, $1.7 million and $1.5 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.
Prior to 2016, under the Plans, 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.
The following table includes summary information for stock options as of December 31, 2021:
| Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (years) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Outstanding at January 1, 2021 | 31,089 | $ | 129.00 | |||||||||
| Exercised | (10,385 | ) | $ | 120.89 | ||||||||
| Terminated | (140 | ) | $ | 57.71 | ||||||||
| Outstanding at December 31, 2021 | 20,564 | $ | 133.59 | 2.6 | ||||||||
| Exercisable at December 31, 2021 | 20,564 | $ | 133.59 | 2.6 |
The aggregate intrinsic values of options exercised during the years ended December 31, 2021, 2020 and 2019 were $2.3 million, $3.3 million and $21.6 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, 2021 were $6.3 million and were based on the closing price of the Company’s common stock at December 31, 2021, which was $440.52. The excess tax benefits for stock options exercised during the years ended December 31, 2021, 2020 and 2019 were $0.4 million, $0.1 million and $2.0 million, respectively.
At December 31, 2021, there were approximately 0.5 million awards available for grant under the Plans. In 2016, the Company’s shareholders approved the issuance of an additional 0.8 million shares of common stock under the Plans. As part of approving
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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, 2021 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, 0.3 million shares of common stock were reserved for issuance. Through December 31, 2021, 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, 0.3 million shares of common stock were reserved for issuance. Nonemployee members of the Board of Directors elected to defer portions of their fees representing 1,686, 3,043 and 2,756 shares of the Company’s common stock under this plan during 2021, 2020 and 2019, respectively.
The following table summarizes stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019, unrecognized compensation cost for nonvested awards at December 31, 2021 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: | ||||||||||||||||||||
| 2021 | $ | — | $ | 41.4 | $ | 1.0 | $ | 0.6 | $ | 43.0 | ||||||||||
| 2020 | $ | — | $ | 28.5 | $ | 0.8 | $ | 0.7 | $ | 30.0 | ||||||||||
| 2019 | $ | 0.1 | $ | 32.6 | $ | 0.8 | $ | 0.6 | $ | 34.1 | ||||||||||
| Unrecognized compensation cost at December 31, 2021 | $ | — | $ | 36.9 | $ | 0.9 | $ | — | $ | 37.8 | ||||||||||
| Weighted-average period over which unrecognized compensation cost will be recognized | 2.3 years | 1.6 years |
The following presents expected stock-based compensation expense in future periods for outstanding awards as of December 31, 2021:
| (in millions) | ||||
|---|---|---|---|---|
| 2022 | $ | 21.9 | ||
| 2023 | 11.8 | |||
| 2024 | 2.4 | |||
| 2025 | 1.2 | |||
| 2026 | 0.5 | |||
| Total | $ | 37.8 |
Stock-based compensation expense is included in Selling, general and administrative expenses in the Company’s consolidated statements of earnings.
Note M: Leases
The Company has leases, primarily for equipment, railcars, fleet vehicles, office space, land, information technology equipment and software. The Company’s leases have remaining lease terms of one year to 98 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.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The components of lease cost are as follows:
| years ended December 31 (in millions) | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| Operating lease cost | $ | 72.9 | $ | 79.0 | ||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | 14.3 | 3.6 | ||||||
| Interest on lease liabilities | 3.5 | 0.6 | ||||||
| Variable lease cost | 17.9 | 16.9 | ||||||
| Short-term lease cost | 32.3 | 31.3 | ||||||
| Total lease cost | $ | 140.9 | $ | 131.4 |
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 $67.1 million, $60.8 million and $58.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The balance sheet classifications of operating and finance leases are as follows:
| December 31 (in millions) | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| Operating Leases: | ||||||||
| Operating lease right-of-use assets | $ | 426.7 | $ | 453.0 | ||||
| Current operating lease liabilities | $ | 53.9 | $ | 48.6 | ||||
| Noncurrent operating lease liabilities | 379.4 | 410.4 | ||||||
| Total operating lease liabilities | $ | 433.3 | $ | 459.0 | ||||
| Finance Leases: | ||||||||
| Property, plant and equipment | $ | 225.9 | $ | 37.8 | ||||
| Accumulated depreciation | (21.2 | ) | (6.9 | ) | ||||
| Property, plant and equipment, net | $ | 204.7 | $ | 30.9 | ||||
| Other current liabilities | $ | 13.3 | $ | 3.3 | ||||
| Other noncurrent liabilities | 191.1 | 21.2 | ||||||
| Total finance lease liabilities | $ | 204.4 | $ | 24.5 |
The incremental borrowing rate ranged from 0.4% to 6.0% and 0.7% to 6.0%, for the years ended December 31, 2021 and 2020, respectively. Weighted-average remaining lease terms and discount rates are as follows:
| December 31 | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| Weighted-average remaining lease terms (years): | ||||||||
| Operating leases | 12.6 | 13.9 | ||||||
| Finance leases | 19.5 | 14.3 | ||||||
| Weighted-average discount rates: | ||||||||
| Operating leases | 3.9% | 4.2% | ||||||
| Finance leases | 2.3% | 3.3% |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
Future lease payments as of December 31, 2021 are as follows:
| Operating | Finance | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | Leases | Leases | ||||||
| 2022 | $ | 76.1 | $ | 19.1 | ||||
| 2023 | 69.9 | 19.0 | ||||||
| 2024 | 51.9 | 18.8 | ||||||
| 2025 | 45.1 | 18.2 | ||||||
| 2026 | 38.2 | 12.3 | ||||||
| Thereafter | 311.2 | 190.0 | ||||||
| Total lease payments | 592.4 | 277.4 | ||||||
| Less: imputed interest | (141.0 | ) | (61.6 | ) | ||||
| Present value of lease payments | 451.4 | 215.8 | ||||||
| Less: leases classified as held for sale | (18.1 | ) | (11.4 | ) | ||||
| Less: current lease obligations | (53.9 | ) | (13.3 | ) | ||||
| Total long-term lease obligations | $ | 379.4 | $ | 191.1 |
The undiscounted fixed payment commitments of leases entered into but not yet commenced as of December 31, 2021 was $2.0 million.
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 per share. At December 31, 2021, approximately 1.3 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 made no share repurchases during 2021. During 2020 and 2019, the Company repurchased 0.2 million and 0.4 million shares of common stock. Future share repurchases are at the discretion of management. At December 31, 2021, 13.5 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 2021, 2020 and 2019 were $11.9 million, $14.5 million and $9.1 million, respectively, and are included in Other operating income, net, in the consolidated statements of earnings.
The following shows the changes in the asset retirement obligations:
| years ended December 31 (in millions) | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| Balance at beginning of year | $ | 153.8 | $ | 143.9 | ||||
| Accretion expense | 7.2 | 5.9 | ||||||
| Liabilities incurred and liabilities assumed in business combinations | 179.0 | 0.3 | ||||||
| Liabilities settled | (5.2 | ) | (10.3 | ) | ||||
| Revisions in estimated cash flows | 3.5 | 14.0 | ||||||
| Liabilities reclassified to held for sale | (31.5 | ) | — | |||||
| Balance at end of year | $ | 306.8 | $ | 153.8 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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, 2021 and 2020, reserves of $42.0 million and $37.7 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, 2021, the Company was contingently liable for $17.2 million in letters of credit.
Surety Bonds. At December 31, 2021, the Company was contingently liable for $419.7 million in surety bonds required by certain states and municipalities and their related agencies. The bonds are provided in the normal course of business and are principally for certain insurance claims, construction contracts, reclamation obligations and mining permits guaranteeing the Company’s own performance. The Company has indemnified the underwriting insurance company 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 $12.5 million revolving line of credit agreement with Truist Bank, of which $4.8 million was outstanding as of December 31, 2021. The line of credit matures in March 2022. 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, 2021 and 2020, the Company had a $6.0 million interest-only note receivable from the unconsolidated affiliate due December 31, 2022.
Purchase Commitments. The Company had purchase commitments for property, plant and equipment of $101.7 million as of December 31, 2021. The Company also had other purchase obligations related to energy and service contracts of $194.7 million as of December 31, 2021. The Company’s contractual purchase commitments as of December 31, 2021 are as follows:
| (in millions) | ||||
|---|---|---|---|---|
| 2022 | $ | 161.3 | ||
| 2023 | 36.5 | |||
| 2024 | 25.8 | |||
| 2025 | 8.4 | |||
| 2026 | 7.8 | |||
| Thereafter | 56.6 | |||
| Total | $ | 296.4 |
Capital expenditures in 2021, 2020 and 2019 that were purchase commitments as of the prior year end were $99.0 million, $77.0 million and $106.7 million, respectively.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
Contracts of Affreightment and Royalty Commitments. Future minimum contracts of affreightment and royalty commitments for all noncancelable agreements that are not accounted for as leases on the Company’s consolidated balance sheet as of December 31, 2021 are as follows:
| (in millions) | Contracts of Affreightment | Royalty Commitments | ||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | $ | 51.9 | $ | 22.8 | ||||
| 2023 | 28.2 | 14.3 | ||||||
| 2024 | 23.5 | 13.0 | ||||||
| 2025 | 23.8 | 11.2 | ||||||
| 2026 | 17.4 | 9.2 | ||||||
| Thereafter | 17.7 | 75.4 | ||||||
| Total | $ | 162.5 | $ | 145.9 |
Employees. Approximately 14% 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. All 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 2027.
Note P: Segments
As of December 31, 2021, the Building Materials business is comprised of four divisions that represent individual operating segments. These divisions are consolidated into two reportable segments, the East Group and the West Group, for financial reporting purposes as they meet the aggregation criteria. The 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, net; and excludes interest expense; other nonoperating income and expenses, net; and income tax expense. Corporate loss from operations primarily includes depreciation; expenses for corporate administrative functions; acquisition-related expenses, net; and other nonrecurring 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, cash equivalents and restricted cash; property, plant and equipment for corporate operations; investments and other assets not directly identifiable with a reportable segment.
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
The following tables display selected financial data for the Company’s reportable segments. Total revenues, as well as the consolidated statements of earnings and comprehensive earnings, reflect the elimination of intersegment revenues. Total revenues; gross profit; selling, general and administrative expenses and earnings from operations reflect continuing operations only.
| years ended December 31 (in millions) Total revenues | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| East Group | $ | 2,303.0 | $ | 1,949.1 | $ | 1,949.0 | ||||||
| West Group | 2,812.3 | 2,538.1 | 2,518.8 | |||||||||
| Total Building Materials business | 5,115.3 | 4,487.2 | 4,467.8 | |||||||||
| Magnesia Specialties | 298.7 | 242.7 | 271.3 | |||||||||
| Total | $ | 5,414.0 | $ | 4,729.9 | $ | 4,739.1 |
| Gross profit | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| East Group | $ | 721.6 | $ | 619.4 | $ | 605.7 | ||||||
| West Group | 518.3 | 540.4 | 474.9 | |||||||||
| Total Building Materials business | 1,239.9 | 1,159.8 | 1,080.6 | |||||||||
| Magnesia Specialties | 106.5 | 85.5 | 95.4 | |||||||||
| Corporate | 2.0 | 7.5 | 3.0 | |||||||||
| Total | $ | 1,348.4 | $ | 1,252.8 | $ | 1,179.0 |
| Selling, general and administrative expenses | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| East Group | $ | 104.6 | $ | 99.2 | $ | 84.7 | ||||||
| West Group | 142.6 | 135.7 | 116.3 | |||||||||
| Total Building Materials business | 247.2 | 234.9 | 201.0 | |||||||||
| Magnesia Specialties | 14.9 | 14.1 | 11.3 | |||||||||
| Corporate | 88.9 | 56.9 | 90.4 | |||||||||
| Total | $ | 351.0 | $ | 305.9 | $ | 302.7 |
| Earnings (Loss) from operations | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| East Group | $ | 621.7 | $ | 522.1 | $ | 527.3 | ||||||
| West Group | 385.2 | 471.3 | 366.9 | |||||||||
| Total Building Materials business | 1,006.9 | 993.4 | 894.2 | |||||||||
| Magnesia Specialties | 90.8 | 70.7 | 83.6 | |||||||||
| Corporate | (123.9 | ) | (58.7 | ) | (92.9 | ) | ||||||
| Total | $ | 973.8 | $ | 1,005.4 | $ | 884.9 |
Earnings from operations for the West Group include nonrecurring gains on sales of investment land and divested assets of $69.9 million in 2020.
| December 31 (in millions) Assets employed | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| East Group | $ | 5,009.0 | $ | 4,342.5 | $ | 4,320.6 | ||||||
| West Group | 8,264.8 | 5,355.5 | 5,321.9 | |||||||||
| Total Building Materials business | 13,273.8 | 9,698.0 | 9,642.5 | |||||||||
| Magnesia Specialties | 168.7 | 167.9 | 176.2 | |||||||||
| Corporate | 950.5 | 714.9 | 312.9 | |||||||||
| Total | $ | 14,393.0 | $ | 10,580.8 | $ | 10,131.6 |
| SOAR to a Sustainable Future | | Form 10-K ♦ Page 111 |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
| years ended December 31 (in millions) Depreciation, depletion and amortization | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| East Group | $ | 196.0 | $ | 167.9 | $ | 158.0 | ||||||
| West Group | 223.0 | 196.6 | 183.3 | |||||||||
| Total Building Materials business | 419.0 | 364.5 | 341.3 | |||||||||
| Magnesia Specialties | 12.3 | 11.5 | 10.2 | |||||||||
| Corporate | 20.4 | 17.5 | 20.0 | |||||||||
| Total | $ | 451.7 | $ | 393.5 | $ | 371.5 |
| Total property additions, including the impact of acquisitions | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| East Group | $ | 372.9 | $ | 159.0 | $ | 172.9 | ||||||
| West Group | 1,131.6 | 197.9 | 182.7 | |||||||||
| Total Building Materials business | 1,504.5 | 356.9 | 355.6 | |||||||||
| Magnesia Specialties | 8.2 | 13.5 | 20.0 | |||||||||
| Corporate | 28.8 | 16.8 | 12.0 | |||||||||
| Total | $ | 1,541.5 | $ | 387.2 | $ | 387.6 |
| Property additions through acquisitions | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| East Group | $ | 169.2 | $ | — | $ | — | ||||||
| West Group | 918.3 | 20.0 | — | |||||||||
| Total Building Materials business | 1,087.5 | 20.0 | — | |||||||||
| Magnesia Specialties | — | — | — | |||||||||
| Corporate | — | — | — | |||||||||
| Total | $ | 1,087.5 | $ | 20.0 | $ | — |
| Form 10-K ♦ Page 112 | | SOAR to a Sustainable Future |
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Part II ♦ Item 8 – Financial Statements and Supplementary Data
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. Total revenues and gross profit reflect continuing operations only.
| years ended December 31 (in millions) Total revenues | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Building Materials business: | ||||||||||||
| Products and services: | ||||||||||||
| Aggregates | $ | 3,058.5 | $ | 2,769.3 | $ | 2,756.7 | ||||||
| Cement | 494.5 | 452.5 | 439.1 | |||||||||
| Ready mixed concrete | 1,145.8 | 952.1 | 948.1 | |||||||||
| Asphalt and paving | 514.2 | 331.7 | 294.0 | |||||||||
| Less: interproduct revenues | (403.0 | ) | (294.4 | ) | (265.5 | ) | ||||||
| Products and services | 4,810.0 | 4,211.2 | 4,172.4 | |||||||||
| Freight | 305.3 | 276.0 | 295.4 | |||||||||
| Total Building Materials business | 5,115.3 | 4,487.2 | 4,467.8 | |||||||||
| Magnesia Specialties: | ||||||||||||
| Products and services | 274.7 | 220.9 | 249.9 | |||||||||
| Freight | 24.0 | 21.8 | 21.4 | |||||||||
| Total Magnesia Specialties | 298.7 | 242.7 | 271.3 | |||||||||
| Consolidated total revenues | $ | 5,414.0 | $ | 4,729.9 | $ | 4,739.1 | ||||||
| Gross profit (loss) | ||||||||||||
| Building Materials business: | ||||||||||||
| Products and services: | ||||||||||||
| Aggregates | $ | 904.8 | $ | 848.5 | $ | 807.9 | ||||||
| Cement | 157.0 | 170.9 | 143.4 | |||||||||
| Ready mixed concrete | 95.6 | 79.6 | 78.8 | |||||||||
| Asphalt and paving | 79.2 | 60.4 | 50.7 | |||||||||
| Products and services | 1,236.6 | 1,159.4 | 1,080.8 | |||||||||
| Freight | 3.3 | 0.4 | (0.2 | ) | ||||||||
| Total Building Materials business | 1,239.9 | 1,159.8 | 1,080.6 | |||||||||
| Magnesia Specialties: | ||||||||||||
| Products and services | 110.4 | 89.6 | 99.4 | |||||||||
| Freight | (3.9 | ) | (4.1 | ) | (4.0 | ) | ||||||
| Total Magnesia Specialties | 106.5 | 85.5 | 95.4 | |||||||||
| Corporate | 2.0 | 7.5 | 3.0 | |||||||||
| Consolidated gross profit | $ | 1,348.4 | $ | 1,252.8 | $ | 1,179.0 |
Domestic and foreign total revenues are as follows:
| years ended December 31 (in millions) | 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Domestic | $ | 5,338.5 | $ | 4,674.4 | $ | 4,676.3 | ||||||
| Foreign | 75.5 | 55.5 | 62.8 | |||||||||
| Consolidated total revenues | $ | 5,414.0 | $ | 4,729.9 | $ | 4,739.1 |
| SOAR to a Sustainable Future | | Form 10-K ♦ Page 113 |
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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) | 2021 | 2020 | 2019 | |||||||||
| Accrued liabilities for purchases of property, plant and equipment | $ | 92.4 | $ | 61.5 | $ | 54.2 | ||||||
| Remeasurement of operating lease right-of-use assets | $ | (12.8 | ) | $ | 2.2 | $ | 2.0 | |||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 65.6 | $ | 31.9 | $ | 45.7 | ||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 202.3 | $ | 19.4 | $ | 0.2 | ||||||
| Acquisition of assets through asset exchange | $ | — | $ | — | $ | 2.4 |
Supplemental disclosures of cash flow information are as follows:
| years ended December 31 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | 2019 | |||||||||
| Cash paid for interest, net of amount capitalized | $ | 104.9 | $ | 113.8 | $ | 127.9 | ||||||
| Cash paid for income taxes | $ | 102.9 | $ | 114.9 | $ | 101.7 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
| Operating cash flows used for operating leases | $ | 71.8 | $ | 77.7 | $ | 76.1 | ||||||
| Operating cash flows used for finance leases | $ | 3.5 | $ | 0.6 | $ | 0.5 | ||||||
| Financing cash flows used for finance leases | $ | 11.1 | $ | 3.5 | $ | 11.0 |
During the year ended December 31, 2020, the Company repaid $112.3 million of loans related to its company-owned life insurance policies. The repayments are included in the Investments in life insurance contracts, net line item in the investing activities of the consolidated statement of cash flows. The repayment increased the cash surrender value of the insurance policies, which is included in Other noncurrent assets on the consolidated balance sheets.
Note S: Other Operating Income, Net
Other operating income, net, is 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 $34.3 million, $59.8 million and $9.1 million in 2021, 2020 and 2019, respectively. For 2021, other operating income, net, included $21.6 million of nonrecurring gains on land sales and divested assets, including the Company’s former corporate headquarters. Other operating income, net for 2020 included $69.9 million of nonrecurring gains on the sales of investment land and divested assets in Austin, Texas; Riverside, California; and Augusta, Kansas. These asset sales collectively generated net cash proceeds of $122.8 million. These gains were recorded in the West Group. 2019 income included the reversal of $6.9 million of accruals for sales tax and unclaimed property contingencies.
Note T: Other Nonoperating (Income) and Expenses, Net
For the year ended December 31, 2021, other nonoperating (income) and expenses, net, included $7.7 million of third-party railroad track maintenance expense and reflected a $19.4 million reduction in pension expense compared with 2020. Other nonoperating (income) and expenses, net, for the year ended December 31, 2020 included $11.4 million of third-party railroad track maintenance expense and reflected an $8.1 million reduction in pension expense compared with 2019. For the year ended December 31, 2019, other nonoperating (income) and expenses, net, included a $15.7 million ($12.0 million net of tax) out-of-period correction of a Company-identified overstatement of the investment balance for a nonconsolidated equity affiliate.
| Form 10-K ♦ Page 114 | | SOAR to a Sustainable Future |
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Part II ♦ Item 9 – Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE