Page 60 - 2019 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
In 2019, the average selling price for the aggregates product line increased 4.2%, in line with management’s expectations.

Cost Structure
Direct production costs for the Building Materials business are components of cost of revenues incurred at the quarries,
mines, distribution yards and facilities, cement plants, ready mixed concrete plants and asphalt plants. Cost of revenues also
includes the cost of resale materials, freight expenses to transport materials from a producing quarry or cement plant to a
distribution yard or facility and production overhead costs.
Generally, the significant components of direct production costs for the Building Materials business are (1) labor and related
benefits; (2) raw materials; (3) depreciation, depletion and amortization (DDA); (4) repairs and maintenance; (5) energy;
(6) contract services; and (7) supplies. In 2019, these categories represented 91% of the Building Materials business’ total
direct production costs.
Variable costs are expenses that fluctuate with the level of
production volume, while fixed costs are expenses that do
not vary based on production or sales volume.
Accordingly, the Company’s operating leverage can be
substantial. Production is the key driver in determining the
levels of variable costs, as it affects the number of hourly
employees and related labor hours. Further, components
of energy, supplies and repairs and maintenance costs also
increase in connection with higher production volumes.

Generally, when the Company invests capital in facilities
and equipment, increased capacity and productivity, along
with reduced labor and repair costs, can offset increased
fixed depreciation costs. However, the increased
productivity and related efficiencies may not be fully
realized in a lower-demand environment, resulting in
under absorption of fixed costs.
Wage and benefit inflation and increases in labor costs
may be somewhat mitigated by enhanced productivity in
an expanding economy. Further, workforce reductions
resulting from process automation and mobile fleet right-
sizing, primarily in the aggregates operations, have
mitigated rising labor costs. During economic downturns, the Company reviews its operations and, where practical,
temporarily idles certain sites. The Company is able to serve these markets with other open facilities that are in close
proximity. In certain markets, management can create production “super crews” that work on a rotating basis at various
locations within a district. For example, within a market, a crew may work three days per week at one quarry and the

Annual Report ♦ Page 58 Celebrating 25 Years as a Public Company