Page 89 - 2019 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Company’s leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices
that would increase the Company’s tax rate; violation of the Company’s debt covenant if price and/or volumes return to
previous levels of instability; downward pressure on the Company’s common stock price and its impact on goodwill
impairment evaluations; the possibility of a reduction of the Company’s credit rating to non-investment grade; shipment
declines resulting from economic events beyond the Company’s control; the history of both cement and ready mixed
concrete being subject to significant changes in supply, demand and price fluctuations; and other risk factors listed from time
to time found in the Company’s filings with the SEC. Further, increased highway construction funding pressures resulting
from either federal or state issues can affect profitability. If these negatively affect transportation budgets more than in the
past, construction spending could be reduced. Cement is subject to cyclical supply and demand and price fluctuations. The
Magnesia Specialties business essentially runs at capacity; therefore, any unplanned changes in costs or realignment of
customers introduce volatility to the earnings of this segment.
The Company’s principal business serves customers in construction markets. This concentration could increase the risk of
potential losses on customer receivables; however, payment bonds normally posted on public projects, together with lien
rights on private projects, mitigate the risk of uncollectible receivables. The level of demand in the Company’s end-use
markets, production levels and the management of production costs will affect the operating leverage of the Building
Materials business and, therefore, profitability. Production costs in the Building Materials business are also sensitive to
energy and raw material prices, both directly and indirectly. Diesel fuel, coal and other consumables change production costs
directly through consumption or indirectly by increased energy-related input costs, such as steel, explosives, tires and
conveyor belts. Fluctuating diesel fuel pricing also affects transportation costs, primarily through fuel surcharges in the
Company’s long-haul distribution network. The Magnesia Specialties business is sensitive to changes in domestic steel
capacity utilization as well as the absolute price and fluctuation in the cost of natural gas.
Transportation in the Company’s long-haul network, particularly the supply of rail cars and locomotive power and condition
of rail infrastructure to move trains, affects the Company’s efficient transportation of aggregates products in certain markets,
most notably Texas, Colorado, Florida, North Carolina and the Gulf Coast. In addition, availability of rail cars and locomotives
affects the Company’s movement of essential dolomitic lime for magnesia chemicals to both the Company’s plant in
Manistee, Michigan, and its customers. The availability of trucks, drivers and railcars to transport the Company’s product,
particularly in markets experiencing high growth and increased demand, is also a risk and pressures the associated costs.
All of the Company’s businesses are also subject to weather-related risks that can significantly affect production schedules
and profitability. The first and fourth quarters are most adversely affected by winter weather. Hurricane activity in the
Atlantic Ocean and Gulf Coast generally is most active during the third and fourth quarters. In fact, in September and October
2018, respectively, Hurricanes Florence and Michael generated winds, rainfall and flooding which disrupted operations in the
Carolinas, Florida and Georgia. In 2019, Hurricane Dorian and Tropical Storm Imelda temporarily disrupted the Company’s
operations in the Bahamas and Texas, respectively. However, after flood waters recede, management typically expects an
increase in construction activity as roads, homes and businesses are repaired.
Risks also include shipment declines resulting from economic events beyond the Company’s control.
In addition to the foregoing, other factors that could cause actual results to differ materially from the forward-looking
statements in this Annual Report include but are not limited to those listed above in Item 1, “Business – Competition,” Item
1A, “Risk Factors,” and “Note A: Accounting Policies” and “Note O: Commitments and Contingencies” of the “Notes to
Financial Statements” of the audited consolidated financial statements included in this Form 10-K.

Celebrating 25 Years as a Public Company Annual Report ♦ Page 87