Page 66 - 2019 Annual Report
P. 66

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
           Governmental appropriations and expenditures are  typically less interest rate-sensitive  than private-sector spending.
           Obligations of federal funds are a leading indicator of highway construction activity in the United States. Before a state or
           local department of transportation can solicit bids on an eligible construction project, it enters into an agreement with the
           Federal Highway Administration to obligate the federal government to pay its portion of the project cost. Federal obligations
           are subject to annual funding appropriations by Congress.

           The need for surface transportation improvements continues to significantly outpace the amount of available funding. A large
           number of roads, highways and bridges built following the establishment of the Interstate Highway System in 1956 are now
           in need of major repair or reconstruction. According  to  The  Road Information Program (TRIP), a  national  transportation
           research group, vehicle travel on United States highways increased 17% from 2000 to 2017, while new lane road mileage
           increased only 5% over the same period. TRIP also reports that 44% of the nation’s major roads are in poor or mediocre
           condition and  9%  of  the nation’s bridges are  structurally deficient.  According to the  2015  American  Association of State
           Highway and Transportation Officials’ Transportation Bottom Line Report, annual investment in the nation’s roads, highways
           and bridges needs to increase from $88 billion to $120 billion to improve conditions and meet the nation’s mobility needs.
           While state DOTs and contractors are addressing their funding and labor constraints, the Company believes that with an
           enhanced infrastructure bill, those efforts would be more rapidly addressed. However, even in the absence of an enhanced
           infrastructure bill, strong customer confidence and improving sentiment leads management to believe that infrastructure
           activity for 2020 and beyond should benefit from the FAST Act and its eventual successor bill, the Tax Cuts and Jobs Act of
           2017 (2017 Tax Act), and additional state and local infrastructure initiatives.
           In addition to highways and bridges, transportation infrastructure includes aviation, mass transit, and ports and waterways.
           Railroad construction continues  to  benefit from economic growth,  which ultimately  generates a need for  additional
           maintenance and improvements. According to the American Road & Transportation Builders Association, subway and light
           rail work is expected to benefit slightly from the FAST Act.

           Erratic weather can significantly impact operations.
           Production and shipment levels for the Building Materials
           business  correlate with  general construction activity, most of
           which occurs  outdoors and, as a result, is affected  by erratic
           weather, seasonal changes and other climate-related conditions
           which can significantly affect the business. Typically, due to a
           general slowdown in construction activity during  winter
           months, the first and fourth  quarters experience lower
           production and shipment activity. As such, temperature plays a
           significant role in the months of March and  November,
           meaningfully affecting the Company’s first- and fourth-quarter
           results, respectively, where warm and/or moderate temperatures
           in March and November allow the construction season to start
           earlier and end later, respectively.

           Excessive rainfall  jeopardizes production efficiencies, shipments
           and profitability in all markets served by the Company. In
           particular, the Company’s operations in the southeastern and
           Gulf Coast regions of the United States and the Bahamas are at
           risk for hurricane activity, most notably in August, September
           and October.  In 2019, Hurricane  Dorian and Tropical  Storm
           Imelda temporarily disrupted the Company’s operations.


           Capital investment decisions driven by capital intensity of the Building Materials business and focus on land.
           The Company’s organic  capital program is designed to  leverage  construction market growth  through investment in both
           permanent and portable facilities at the Company’s operations. Over  an economic  cycle, the Company typically invests
           organic capital at an annual level that approximates depreciation expense. At mid-cycle and through cyclical peaks, organic
           capital investment typically exceeds depreciation expense, as the Company supports current capacity needs and invests for
           future capacity growth. Conversely, at a cyclical trough, the Company may reduce levels of capital investment. Regardless of
           cycle, the Company sets a priority of investing capital to ensure safe, environmentally-sound and efficient operations, as well
           as to provide the highest quality of customer service and establish a foundation for future growth.


           Annual Report  ♦  Page 64                                            Celebrating 25 Years as a Public Company
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