Page 65 - 2019 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The long-haul distribution network can diversify market risk for locations that engage in long-haul transportation of aggregates
products. Particularly where a producing quarry serves a local market and transports products via rail, water and/or truck to
be sold in other markets, the risk of a downturn in one market may be somewhat mitigated by other markets served by
the location.
Product shipments are moved by rail, water and truck through the Company’s long-haul distribution network. The Company’s
rail network primarily serves its Texas, Florida, Colorado and Gulf Coast markets, while the Company’s Bahamas and Nova Scotia
locations transport materials via oceangoing ships. The Company’s strategic focus includes expanding inland and offshore
capacity and acquiring distribution yards and port locations to offload transported material. At December 31, 2019, the
distribution network available to the Company consisted of 86 terminals.

The Company’s increased dependence on rail shipments has made it more reliant on railroad performance issues, including
track congestion, crew and availability, the effects of adverse weather conditions and the ability to negotiate favorable
railroad shipping contracts. Further, changes in the operating strategy of rail transportation providers can create operational
inefficiencies and increased costs from the Company’s rail network.
A portion of railcars and all ships of the Company’s long-haul distribution network are under short- and long-term leases,
some with purchase options, and contracts of affreightment. The limited availability of water and rail transportation
providers, coupled with limited distribution sites, can adversely affect lease rates for such services and ultimately the freight
rate. The Company has not purchased ships.
The Company has long-term agreements providing dedicated shipping capacity from its Bahamas and Nova Scotia operations
to its coastal ports. These contracts of affreightment are take-or-pay contracts with minimum and maximum shipping
requirements. The minimum requirements were met in 2019. The Company’s waterborne contracts of affreightment have
varying expiration dates ranging from 2023 to 2027 and generally contain renewal options. However, there can be no
assurance that such contracts can be renewed upon expiration or that terms will continue without significant increases.

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

Public Infrastructure, the Company’s largest end-use market, is funded through a combination of
federal, state and local sources.
Transportation investments generally boost the national economy by enhancing mobility and access and by creating jobs,
which is a priority of many of the government’s economic plans. Public-sector construction related to transportation
infrastructure can be aggregates intensive and is funded through a combination of federal, state and local sources. The
federal highway bill, currently the FAST Act, provides annual funding for public-sector highway construction projects and
includes spending authorizations, which represent the maximum financial obligation that will result from the immediate or
future outlays of federal funds for highway and transit programs. The federal government’s surface transportation programs
are financed mostly through the receipts of highway user taxes placed in the Highway Trust Fund, which is divided into the
Highway Account and the Mass Transit Account. Revenues credited to the Highway Trust Fund are primarily derived from a
federal gas tax, a federal tax on certain other motor fuels and interest on the accounts’ accumulated balances. Of the
currently imposed federal gas tax of $0.184 per gallon, which has been static since 1993, $0.15 is allocated to the Highway
Account of the Highway Trust Fund.
Since most states are required to balance their budgets, reductions in revenues generally require a reduction in states’
expenditures. However, the impact of state revenue reductions on highway investment will vary depending on whether the
monies come from dedicated revenue sources, such as highway user fees, or whether portions are funded with general funds.
States continue to play an expanding role in infrastructure investment. In addition to federal appropriations, each state funds
its infrastructure investment from specifically allocated amounts collected from various user fees, typically gasoline taxes and
vehicle fees. Over the past several years, states have taken on a significantly larger role in funding infrastructure investment,
including initiating special-purpose taxes and raising gas taxes. Management believes that financing at the state level, such as
bond issuances, toll roads and tax initiatives, will grow at a faster rate in the near term than federal funding. State
infrastructure investment generally leads to increased growth opportunities for the Company. The level of state public-works
spending is varied across the nation and dependent upon individual state economies. The degree to which the Company
could be affected by a reduction or slowdown in infrastructure spending varies by state. The state economies of the Building
Materials business’ ten largest revenue-generating states may disproportionately affect the Company’s financial performance.

Celebrating 25 Years as a Public Company Annual Report ♦ Page 63