Page 89 - 2019 Annual Report
P. 89

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
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