Page 66 - 2019 Annual Report

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