Page 60 - 2019 Annual Report
P. 60

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
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