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I think I was wrong to call LAF a rock pit. The Cement business provided about 39% of sales and 58% of profits in 2002. They feel cement businesses can compete with one another within a 250 mile radius of the cement plant (The cement plants need to be close to a limestone source generally). Anything more than that, transportation costs become more prohibitive.

I don't think their cement business is in a moat situation like the rock pit example. They even mention in the annual report that it is highly competitive. Their competitive advantage in this area must be due to size and efficiency. Based on their profit margins, they have been competing quite well. Their clinker (intermediate product in making portland cement) capacity in Canada represented 34% of the total active capacity in that country according to a 2001 survey. They have a decent chunk of U.S. capacity too - about 13%.

They do have some substantial rock pits and concrete ready-mix plants. I was surprised that they have almost 3 times as many aggregate and concrete plants in Canada than in the U.S.

One bad thing I found was the pension liability. They are about $200 million underfunded (as of early 2003) and think they are going to start seeing a $20-25 million annual charge against earnings starting this year. I noticed they notched their expected return on pension assets down to 8.5% from 9% but that's still pretty high. The $200 million liability is significant considering their 2002 profit was about $250 million.

Still, it seems to me this might be a very good conservative investment with the 2% yield. Stock option grants are reasonable (about 1.7% of shares granted in 2002). The seem very focused on developing competitive advantage and it does appear they have been successful at this point based on their strong profit margins.

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