Page 11 - 2019 Annual Report

STATEMENT OF RESPONSIBILITY AND MANAGEMENT’S REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts
or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment ‐ Cement and Southwest Ready Mix Division Reporting Unit
As described in Notes A and C to the consolidated financial statements, the Company’s consolidated goodwill balance was $2.4
billion as of December 31, 2019. Of the consolidated goodwill balance, $934.7 million relates to the Cement and Southwest
Ready Mix Division reporting unit. The carrying values of goodwill are reviewed annually, as of October 1, for impairment by
comparing the reporting unit’s fair value to its carrying value. An interim review is performed between annual tests if facts and
circumstances indicate potential impairment. The goodwill impairment assessment requires management to apply judgment
and make assumptions. A Step 1 impairment analysis was performed for the aforementioned reporting unit as of October 1,
2019. The fair value was calculated using a discounted cash flow model. Key assumptions included management’s estimates of
changes in sales price, shipment volumes and production costs, as well as assumptions of future profitability, capital
requirements, discount rate and terminal growth rate. The Cement and Southwest Ready Mix Division reporting unit’s fair value
exceeded its carrying value by 35%, or $701.5 million.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment
of the Cement and Southwest Ready Mix Division reporting unit is a critical audit matter are there was significant judgment by
management when developing the fair value measurement of the reporting unit. This in turn led to a high degree of auditor
judgment, subjectivity and effort in performing procedures and in evaluating the audit evidence relating to management’s
significant assumptions, including changes in sales price, shipment volumes, production costs, and the discount rate. In
addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit
evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units. These
procedures also included, among others (i) testing management’s process for developing the fair value estimate, (ii) evaluating
the appropriateness of the discounted cash flow model, (iii) testing the completeness, accuracy and relevance of underlying
data used in the model, and (iv) evaluating the reasonableness of management’s significant assumptions used in the model,
including changes in sales price, shipment volumes, production costs, and the discount rate. Evaluating management’s
assumptions related to changes in sales price, shipment volumes, and production costs involved evaluating whether the
assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii)
the consistency with external industry reports, and (iii) whether these assumptions were consistent with evidence obtained in
other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the
Company’s discounted cash flow model and certain significant assumptions, including the discount rate.

/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 21, 2020

We have served as the Company’s auditor since 2016.

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