Page 75 - 2019 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The increase in gross profit in 2019 compared with 2018 is primarily attributable to increased total revenues in the Building
Materials business, supported by strong underlying demand and pricing improvements, coupled with higher operating
leverage of fixed production costs, and the impact of reduced costs resulting from restructuring actions in 2018. Additionally,
2018 cost of revenues included the $18.7 million impact of selling acquired aggregates product line inventory after its markup
to fair value as part of acquisition accounting. The decline in gross profit in Magnesia Specialties is driven by lower sales due
to slowing lime shipments to domestic steel customers and ongoing inventory rationalization by international customers,
partially offset by cost reduction actions.

Corporate gross profit includes intercompany royalty and rental revenue and expenses, depreciation on capitalized interest
and unallocated operational expenses excluded from the Company’s evaluation of business segment performance.

Selling, General and Administrative Expenses
SG&A expenses for 2019 and 2018 were 6.4% and 6.6% of total revenues, respectively. The $22.1 million increase in total
expense is driven by higher salaries, benefits and share-based compensation costs.

Acquisition-Related Expenses, Net
The Company incurs business development and acquisition integration costs in connection with its strategic growth plan, and
at times may recognize nonrecurring transaction costs related to the acquisition (collectively “acquisition-related expenses,
net”). In 2019 and 2018, acquisition-related expenses, net, were $0.5 million and $13.5 million, respectively. These expenses
were primarily related to the Bluegrass acquisition in 2018. As part of the agreement with the U.S. Department of Justice
(DOJ), the Company divested a legacy Martin Marietta operation and a legacy Bluegrass operation. With the divestiture of the
legacy Martin Marietta operation, a pretax gain of $14.8 million was recognized and is included in acquisition-related
expenses, net, in the consolidated statements of earnings and comprehensive earnings for the year ended December 31,
2018. There was no gain or loss on the divestiture of the legacy Bluegrass operation.

Other Operating Income, Net
Other operating income, net, is comprised generally of gains and losses on the sale of assets; recoveries and losses related to
certain customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains
and losses related to asset retirement obligations. These net amounts represented income of $9.1 million in 2019 and $18.2
million in 2018. 2019 income includes the reversal of $6.9 million of accruals for sales tax and unclaimed property
contingencies. 2018 income reflects a $7.7 million net gain on legal settlements and $25.3 million gain on the sale of assets,
primarily excess land, partially offset by an asset and portfolio rationalization charge of $18.8 million. The asset and portfolio
rationalization charge relates to the Company’s Southwest ready mixed concrete operations, reported in the West Group
reportable segment, and reflects the Company’s evaluation of the recoverability of certain long-lived assets, including
property, plant and equipment and intangible assets, for underperforming operations in this business and a reduction in
headcount. Of the total charge, $17.0 million was noncash and $1.8 million was settled in cash.

Earnings from Operations
Consolidated earnings from operations were $884.9 million and $690.7 million in 2019 and 2018, respectively.

Interest Expense
Interest expense was $129.3 million in 2019 and $137.1 million in 2018. The decline in 2019 reflects lower outstanding debt,
as the Company made net debt repayments of $350.1 million.

Other Nonoperating (Income) and Expenses, Net
Other nonoperating income and expenses, net, is comprised generally of interest income; foreign currency transaction gains
and losses; pension and postretirement benefit cost, excluding service cost; net equity earnings from nonconsolidated
investments and other miscellaneous income and expenses. Consolidated other nonoperating income and expenses, net, was
expense of $7.3 million in 2019, and income of $22.5 million in 2018. 2019 expense includes the correction of a prior-period
error that overstated equity earnings from a nonconsolidated affiliate. The error was not deemed material to any previously-
reported period and was corrected as an out-of-period expense of $15.7 million ($12.0 million, net of tax). The pretax
noncash adjustment is recorded in other nonoperating expenses, net, consistent with the recurring classification of equity
earnings from the affiliate.

Celebrating 25 Years as a Public Company Annual Report ♦ Page 73