EPA —440/2-77-016
JULY 1977
GUIDANCE ECONOMIC ANALYSIS
FOR THE
CONCRETE PRODUCTS INDUSTRIES
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Analysis and Evaluation
Office of Water and Hazardous Material
Washington, D.C. 20460
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EPA-440/2-77-016
GUIDANCE ECONOMIC ANALYSIS
FOR THE
CONCRETE PRODUCTS INDUSTRIES
Report to
U.S. Environmental Protection Agency
Office of Analysis and Evaluation
Office of Water Planning and Standards
Washington, D.C. 20460
July, 1977
Contract No. 68-01-1541
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PREFACE
The attached document is a contractors' study prepared for the Office of Water
Planning and Standards of the Environmental Protection Agency ("EPA"). The
purpose of the study is to analyze the economic impact which could result from the
application of alternative effluent limitation guidelines and standards of performance
to be established under sections 304(b) and 306 of the Federal Water Pollution Control
Act, as amended.
The study supplements the technical study ("EPA Guidance Document") sup-
porting the issuance of proposed guidelines under sections 304(b) and 306. The Guid-
ance Document surveys existing and potential waste treatment control methods and
technology within particular industrial source categories and supports proposal of
certain effluent limitation guidelines and standards of performance based upon an
analysis of the feasibility of these guidelines and standards in accordance with the
requirements of sections 304(b) and 306 of the Act. Presented in the Guidance Docu-
ment are the investment and operating costs associated with various alternative
control and treatment technologies. The attached document supplements this analysis
by estimating the broader economic effects which might result from the required
application of various control methods and technologies. This study investigates the
effect of alternative approaches in terms of product price increases, effects upon
employment and the continued viability of affected plants, effects upon foreign trade
and other competitive effects.
The study has been prepared with the supervision and review of the Office of
Water Planning and Standards of the EPA. This report was submitted in fulfillment of
Contract No. BOA 68-01-1541. Task Order No. 40. This report reflects work sub-
stantially completed as of November 1976, but also includes supplementary analysis
based on additional and modified data offered in March/April 1977.
The study has not been reviewed by EPA and is not an official EPA publication.
The accompanying study shall have standing in any EPA proceeding or court pro-
ceeding only to the extent that it represents the views of the contractor who studied the
subject industry. It cannot be cited, referenced, or represented in any respect in any
such proceeding as a statement of EPA's views regarding the subject industry.
111
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TABLE OF CONTENTS
Page
List of Tables vii
EXECUTIVE SUMMARY 1
A. SCOPE OF WORK 1
B. FINDINGS 1
I. CONCRETE BLOCK AND BRICK (SIC 3271) 11
A. PRODUCTS, MARKETS AND SHIPMENTS 11
B. INDUSTRY STRUCTURE 14
C. FINANCIAL PROFILES 18
D. PRICES AND PRICING 22
E. REPRESENTATIVE PLANT CHARACTERISTICS 23
F. ECONOMIC IMPACT ON EXISTING FACILITIES DUE TO
GUIDELINES 23
G. ECONOMIC IMPACT ON NEW SOURCES DUE TO GUIDELINES 27
II. CONCRETE PRODUCTS N.E.C. (SIC 3272) 29
A. CONCRETE PIPE 31
B. PRECAST AND PRESTRESSED CONCRETE 44
III. READY-MIXED CONCRETE (SIC 3273) 51
A. PRODUCTS, MARKETS AND SHIPMENTS 51
B. INDUSTRY STRUCTURE 54
C. FINANCIAL PROFILES 58
D. PRICES AND PRICING 67
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TABLE OF CONTENTS (Continued)
Page
III. READY-MIXED CONCRETE (Continued)
E. ALTERNATIVE TREATMENT LEVELS 68
F. ECONOMIC IMPACT ON EXISTING FACILITIES DUE TO
GUIDELINES 69
G. ECONOMIC IMPACT ON NEW SOURCES DUE TO GUIDELINES 78
LIMITS OF THE ANALYSIS 79
A. AVAILABILITY AND ACCURACY OF DATA 79
B. CRITICAL ASSUMPTIONS 80
C. RANGE OF ERROR ESTIMATES 81
APPENDIX TO CHAPTER III -SUPPORTING DATA 83
VI
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LIST OF TABLES
Table No. Page
1 Industry Summary
Concrete Block and Brick: High Pressure Autoclave Curing 2
2 Industry Summary
Concrete Block and Brick: Low-Pressure Steam Curing 4
3 Industry Summary
Concrete Products N.E.C.: Concrete Pipe 5
4 Industry Summary
Concrete Products, N.E.C.: Concrete Pipe 6
5 Industry Summary
Concrete Products, N.E.C.: Precast and Prestressed Concrete 7
6 Industry Summary Ready-Mixed Concrete 9
1-1 Value of Shipments by All Manufacturing Establishments —
Concrete Brick & Block 1965-1976 12
I-2 Quantity and Value of Shipments by all Producers
Concrete Block and Brick 1972 and 1967 13
I-3 General Statistics, 1958 to 1972
Concrete Brick and Block 15
I-4 General Statistics, by Employment Size of Establishment: 1972 16
I-5 Shipments by Class by Geographic Area 17
1-6 Typical Financial Ratios 19
1-7 Balance Sheet for Representative Plant
Concrete Brick and Block, 1974 20
1-8 Income Statement for Representative Plant
Concrete Brick & Block, 1974 20
I-9 Balance Sheet for Representative Plant
Concrete Brick and Block, 1974 21
Vll
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LIST OF TABLES (Continued)
Table No. Page
1-10 Income Statement for Representative Plant
Concrete Brick & Block, 1974 21
1-11 Wholesale Price Indexes for Concrete Block and Brick 22
1-12 Financial Impact of Guidelines on Representative High
Pressure Concrete Brick & Block Plant, 1974 24
1-13 Financial Impact of Guidelines on Representative Low
Pressure Concrete Brick & Block Plant, 1974 25
11-1 Value of Shipments by all Manufacturing Establishments —
Concrete Products, N.E.C. 1967-1974 31
11-2 Quantity and Value of Shipments by all Producers —
Concrete Products, N.E.C. 1972 and 1967 32
11-3 General Statistics, 1958-1972 Concrete Products, N.E.C. 33
II-4 Shipments by Class by Geographic Area 34
II-5 General Statistics, by Employment Size of Establishment: 1972 35
II-6 Balance Sheet for Representative Concrete Sewer Pipe Plant, 1974 38
11-7 Income Statement for Representative Concrete Sewer Pipe
Plant, 1974 38
II-8 Balance Sheet for Representative Concrete Pressure Pipe
Plant, 1974 39
II-9 Income Statement for Representative Concrete Pressure Pipe
Plant, 1974 39
11-10 Wholesale Price Indexes for Reinforced Concrete Culvert Pipe 40
II-11 Financial Impact of Guidelines on Representative Concrete
Sewer Pipe Plant, 1974 41
11-12 Financial Impact of Guidelines on Representative Concrete
Pressure Pipe Plant, 1974 42
viii
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LIST OF TABLES (Continued)
Table No. Page
11-13 Balance Sheet for Representative Plant Precast and
Prestressed Concrete Products, 1974 47
11-14 Income Statement for Representative Plant Precast and
Prestressed Concrete Products, 1974 48
11-15 Financial Impact of Guidelines on Representative Precast/
Prestressed Concrete Plant, 1974 50
111-1 Ready-Mixed Concrete Production and Value of Shipments 53
111-2 Production Data for 242 Reporting Companies 55
111-3 General Statistics, 1958 to 1972 SIC 3273 -
Ready-Mixed Concrete 56
III-4 General Statistics, by Employment Size of Establishment: 1972 57
III-5 Shipments by Class by Geographic Area 58
III-6 Typical Financial Ratios 59
III-7 Balance Sheet for Representative Plant Permanent
Ready-Mixed Concrete, 1974 61
111-8 Income Statement for Representative Plant Permanent
Ready-Mixed Concrete, 1974 62
111-9 Balance Sheet for Representative Plant Permanent
Ready-Mixed Concrete, 1974 63
Ill-ID Income Statement for Representative Plant Permanent
Ready-Mixed Concrete, 1974 64
111-11 Balance Sheet for Representative Plant Permanent
Ready-Mixed Concrete, 1974 65
111-12 Income Statement for Representative Plant Permanent
Ready-Mixed Concrete, 1974 66
IX
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LIST OF TABLES (Continued)
Table No. Page
111-13 Wholesale Price Indices 67
111-14 Ready-Mixed Concrete Industry Treatment Technology, 1974 68
111-15 Cost of Compliance Alternative Treatment Levels 70
111-16 Increase in Average Total Cost Per Cubic Meter
Alternative Treatment Levels 71
111-17 Estimated Long-Run Equilibrium Price and Output Effects
of Compliance with Water Effluent Controls 72
111-18 Initial Capital Expenditure for Control Alternatives Compared
to Annual Cash Flow 74
111-19 Impact of Guidelines on Profitability of Ready-Mixed
Concrete Plants 76
III-20 Financial Impact of Guidelines on Representative
Ready-Mixed Concrete Plants 77
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EXECUTIVE SUMMARY
A. SCOPE OF WORK
The U.S. Environmental Protection Agency (EPA) is in the process of issuing
interim final effluent Guidelines for the concrete products industries and therefore has
contracted with Arthur D. Little, Inc., to analyze the economic impact of these
Guidelines for various levels of treatment. The Guidelines, appropriate technologies,
and their related costs are contained in the Technical Guidance Document for Effluent
Limitations Guidelines and Standards of Performance, the Concrete Products In-
dustries (known as the "Guidance Document") prepared by Versar Inc. of Springfield,
Virginia.
The economic impact analysis, conducted between October 1975 and November
1976 and later supplemented on the basis of additional and modified data offered in
March/April 1977, covers the following industries:
Concrete Block and Brick — SIC 3271
Concrete Products, N.E.C. — SIC 3272
Ready-Mixed Concrete — SIC 3273
It evaluates what price or financial effects could result from the implementation of
these Guidelines, how many plants would be shut down rather than be brought into
compliance, and the resultant production, employment, and community effects; and
what investments would be required by the operators to meet the regulations. It does
not evaluate the capability of the assumed treatment technology to meet the effluent
Guidelines, or the reasonableness of the investment and operating costs. All costs of
treatment have been restated in 1974 dollars by applying appropriate factors.
B. FINDINGS
1. Concrete Block and Brick — SIC 3271
The concrete block and brick industry has been subdivided into plants that use
an autoclave curing process (125 establishments) and those that cure their product
with low-pressure steam (1263 establishments).
About 90% of the autoclave curing segment treats the suspended solids, although
no plant adjusts the pH of the effluent. The total capital cost for this segment to
achieve Guideline Level C is estimated to be $170,000 (Table 1), or 4.7% of the average
annual investment. The capital requirements are about the same for Level D tech-
nology but increase substantially to $9.6 million for Level E, equivalent to 262.7% of
the average annual investment. The annualized cost for this segment, including
capital charges, is about 0.1% of sales for Levels C and D and 2.8% for Level E.
The expected price increase due to pollution control ranges from 0.2% for Level C
to 4% for Level E. No closures are anticipated for either Level C or Level D but up to 25
plants, representing 20% of the autoclave curing segment's capacity, may close. Under
those conditions, 500 employees might be affected and community effects are possible.
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TABLE 1
INDUSTRY SUMMARY
CONCRETE BLOCK AND BRICK: HIGH PRESSURE AUTOCLAVE CURING
SIC Code: 3271
Plants in Segment: 125
Percent Total Plants in Industry: 9%
Percent of Segment with Level C Treatment in Place: 0 (90% treat suspended solids)
Cost of Pollution Abatement
Capital Cost for Segment
Total Capital Cost
Total Capital Expenditures as %
of Average Annual Investment
Total Capital Expenditures as %
of Gross Book Value of Fixed Assets
Annualized Costs for Segment
Total Incremental Increase Including
Capital Charges
Total Incremental Increase Excluding
Capital Charges
Total Incremental Increase including
Capital Charges as % of Sales
Expected Price Increase
Expected % Increase Due to Pollution Control
Plant Closures
Total Closures Anticipated
% Reduction of Segment Capacity Due
to Closures
Employment
Total Employees Affected
% of Total Employees in Segment
Community Effects
Impact on Industry Growth
Balance of Trade Effects
$170,000 $156,000 $9.6 million
4.7 4.3 262.7
0.2
0.2
$180,000 $125,000
$162,000 $107,000
0.1
0.2
0.1
0.3
14.8
$4.2 million
$2.6 million
2.8
4.0
None
None
None
None
None
None
None
None
None
None
None
None
25
20
500
20
Possible
None
None
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As with the autoclave curing segment, 90% of the plants in the low-pressure
steam curing segment treat suspended solids but no plants are known to modify the
pH of the effluent. The total capital cost of pollution abatement under Level C is
estimated to be $4.7 million (Table 2), equivalent to 18.4% of average annual in-
vestment. The capital expenditures under Level D are equivalent to 6.7%. The seg-
ment would have to expend $50 million to satisfy pollution abatement Guidelines
under Level E, equivalent to 196% of the average annual investment and 15% of gross
book value of fixed assets.
The total incremental increase in annualized costs, including capital charges,
ranges up to 1.2% of sales for Level E, and could result in a 1.7% price increase. No
plant closures or other effects are anticipated under Levels C or D, but the capital
investment requirements of Level E could cause up to 10% of industry capacity (about
225 plants) to close. These closures would impact 2,000 employees and produce some
community effects, but only have a limited impact on industry growth.
2. Concrete Products, N.E.C. — SIC 3272
This industry has been subdivided into those plants that manufacture concrete
pipe (457 establishments) and those that manufacture precast and prestressed con-
crete (about 3200 establishments). The concrete pipe category has been further seg-
mented into those facilities (436), that primarily produce non-pressure pipe and have
small wastewater volumes, and those (21) that produce concrete pressure pipe and
have large wastewater volumes.
The total capital cost of pollution abatement for the non-pressure segment of the
concrete pipe industry (Table 3) is estimated to be $3 million under Level B, or 11.7%
of average annual investment. This amount increases to about $30 million under Level
C (117%). The total incremental increase in annualized costs for the segment, includ-
ing capital charges, is 0.3% of sales for Level B and 1.9% (7.6 million) for Level C.
A price increase of up to 1.5% could occur under Level C for the non-pressure
segment. Capital requirements could result in the closure of 10-20 plants, equivalent to
only about 2% of industry capacity and employment. Community effects are unlikely.
In the pressure pipe segment 85% of the plant have Level B technology in place
and thus the segment as a whole must incur a total capital cost of only $0.3 million to
achieve that Guideline level — 4.1% of average annual investment (Table 4). Capital
requirements increase to $1.7 million for Level C, equivalent to 23.3% of average
annual investment, and $7.4 million (102.8%) for Level D. The total incremental
increase in annualized costs, including capital charges for the segment, is up to 0.3% of
sales for Level C, and 2.5% for Level D. The expected price increase is 2.3% for Level
D. Plant closures are unlikely and thus probably no employees or communities will be
affected.
About 50% of the plants in the precast and prestressed concrete segment have
Level B treatment in place (Table 5). The segment as a whole must incur a total
capital cost for pollution abatement of $6.4 million under Level B and about the same
amount for Level C. Capital costs increase sharply to $108 million under Level D,
equivalent to 138.2% of the average annual investment and 8.3% of the gross book
value of fixed assets.
3
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TABLE 2
INDUSTRY SUMMARY
CONCRETE BLOCK AND BRICK: LOW-PRESSURE STEAM CURING
SIC Code: 3271
Plants in Segment: 1263
Percent Total Plants in Industry: 91
Percent of Segment with Level C Treatment in Place: 0 (90% treat suspended solids)
Cost of Pollution Abatement
Capital Cost for Segment
Total Capital Cost
Total Capital Expenditures as %
of Average Annual Investment
Total Capital Expenditures as %
of Gross Book Value of Fixed Assets
Annualized Costs for Segment
Total Incremental Increase Including
Capital Charges
Total Incremental Increase Excluding
Capital Charges
Total Incremental Increase including
Capital Charges as % of Sales
Expected Price Increase
Expected % Increase Due to Pollution Control
Plant Closures
Total Closures Anticipated
% Reduction of Segment Capacity Due
to Closures
Employment
Total Employees Affected
% of Total Employees in Segment
Community Effects
Impact on Industry Growth
Balance of Trade Effects
$4.7 million $0.9 million $50.0 million
18.4 6.7 196.1
1.4 0.3 14.9
$1.6million $1.1 million $11.2million
$1.1 million $1.0 million $3.4 million
0.2
0.3
0.1
0.4
1.2
1.7
None
None
None
None
None
None
None
None
None
None
about 225
10
2000
10
Some
Limited
None
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TABLE 3
INDUSTRY SUMMARY
CONCRETE PRODUCTS N.E.C.:
CONCRETE PIPE (SMALL WASTEWATER, NON-PRESSURE)
SIC Code: 3272
Plants in Segment: 436
Percent Total Plants in Industry: 95.4
Percent of Semgment with Level B Treatment in Place: 0
Cost of Pollution Abatement
Capital Cost for Segment
Total Capital Cost
Total Capital Expenditures as %
of Average Annual Investment
Total Capital Expenditures as %
of Gross Book Value of Fixed Assets
Annualized Costs for Segment
Total Incremental Increase Including
Capital Charges
Total Incremental Increase Excluding
Capital Charges
Total Incremental Increase including
Capital Charges as % of Sales
Expected Price Increase
Expected % Increase Due to Pollution Control
Plant Closures
Total Closures Anticipated
% Reduction of Segment Capacity Due
to Closures
Employment
Total Employees Affected
% of Total Employees in Segment
Community Effects
Impact on Industry Growth
Balance of Trade Effects
$3.0 million
11.7
0.4
$1.7 million
$1.3 million
0.3
0.3
$29.9 million
117.3
4.0
$7.6 million
$2.8 million
1.9
1.5
None
None
None
None
None
10-20
2
250
2
Unlikely
None
None
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TABLE 4
INDUSTRY SUMMARY
CONCRETE PRODUCTS, N.E.C.: CONCRETE PIPE
(LARGE WASTEWATER, PRESSURE)
SIC Code: 3272
Plants in Segment: 21
Percent Total Plants in Industry: 4.6
Percent of Segment with Level B Treatment in Place: 85
Cost of Pollution Abatement
Capital Cost for Segment
Total Capital Cost
Total Capital Expenditures as %
of Average Annual Investment
Total Capital Expenditures as %
of Gross Book Value of Fixed Assets
Annualized Costs for Segment
Total Incremental Increase Including
Capital Charges
Total Incremental Increase Excluding
Capital Charges
Total Incremental Increase including
Capital Charges as % of Sales
Expected Price Increase
Expected % Increase Due to Pollution Control
Plant Closures
Total Closures Anticipated
% Reduction of Segment Capacity Due
to Closures
Employment
Total Employees Affected
% of Total Employees in Segment
Community Effects
Impact on Industry Growth
Balance of Trade Effects
B
$0.3 million $1.7 million $7.4 million
4,1
0.2
$50,000
$20,000
Negligible
23.3
1.1
$444,000
$235,000
0.3
102.8
4.8
$3.3 million
$2.6 million
2.5
0.2
None
None
0.3
None
None
2.3
Unlikely
Probably None
None
None
None
None
None
None
None
None
None
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TABLE 5
INDUSTRY SUMMARY
CONCRETE PRODUCTS, N.E.C.: PRECAST AND PRESTRESSED CONCRETE
SIC Code: 3272
Plants in Segment: About 3200
Percent Total Plants in Industry: 100
Percent of Segment with Level B Treatment in Place: 50
Cost of Pollution Abatement
Capital Cost for Segment
Total Capital Cost
Total Capital Expenditures as %
of Average Annual Investment
Total Capital Expenditures as %
of Gross Book Value of Fixed Assets
Annualized Costs for Segment
Total Incremental Increase Including
Capital Charges
Total Incremental Increase Excluding
Capital Charges
Total Incremental Increase including
Capital Charges as % of Sales
Expected Price Increase
Expected % Increase Due to Pollution Control
Plant Closures
Total Closures Anticipated
% Reduction of Segment Capacity Due
to Closures
Employment
Total Employees Affected
% of Total Employees in Segment
Community Effects
Impact on Industry Growth
Balance of Trade Effects
B
$6.4 million $6.8 million $107.9 million
8.1 8.6 138.2
0.5 0.5 8.3
$3.2 million $8.1 million
$2.5 million $7.3 million
0.2
0.4
None
0.6
0.9
None
None
None
None
None
None
None
None
None
$43.3 million
$27.3 million
3.0
3.2
Numerous
Unknown
Unknown
Some
Some
None
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The total incremental increase in annualized cost, including capital charges, for
the segment is up to 0.6% for Level C and 3% for Level D. Price increases could amount
to less than 1% for Levels B or C and more than 3% for Level D. Because of the
considerable capital cost requirements for Level D, however, numerous but unknown
numbers of closures can be anticipated, with consequent impact on employment and
communities. It is also likely that industry growth would be affected.
3. Ready-Mixed Concrete — SIC 3273
The ready-mixed concrete industry has been segmented into those estab-
lishments that operate stationary, portable and mobile plants. Mobile ready-mixed
concrete plants have no process effluent. The technology of those in the portable
segment is similar to that of the stationary operations but little data are available on
their economic characteristics. The analysis therefore focused on the 4,896 stationary
plants. The Technical Guidance Document offers a complex combination of alterna-
tive treatment levels for the permanent ready-mixed concrete segment. These options
are summarized as four different alternatives:
— Alternative 1: A minimum of treatment Level B (pond settling
of suspended solids) plus pH adjustments for all plants. Plants
with no treatment (Level A) would be required to construct set-
tling ponds and incorporate pH adjustment (go from Level A to
Level C). All other plants, except those with runoff systems,
would be required to add pH adjustment to the treatment stream.
Those at Level B would then go to treatment Level C, those at
Level D would go to treatment Level E, and those at Level F
would go to treatment Level G.
— Alternative 2: A minimum of treatment Level D (sloped slab
system; recovery of aggregate; partial recycle of process waste-
water; no recovery of cement fines; and no pH adjustment).
Plants with no treatment (Level A) and plants at Level B (a
total of 1,584 plants) are affected; the remaining 3,312 plants are
unaffected.
— Alternative 3: A minimum of treatment Level F (mechanical
clarification system; recovery of aggregate; partial recycle of proc-
ess wastewater; no recovery of cement fines; no pH adjustment).
Plants currently with no treatment (Level A), plants at Level B,
and plants at Level D (a total of 2,352 plants out of 4,896) will be
affected.
— Alternative 4: Total recycle of process wastewater, with reuse of
aggregate and cement fines (Level I). A total of 2,496 plants will
be affected, because only those 2,400 plants with runoff systems
are currently in compliance.
The total capital cost of pollution abatement for this segment ranges from $15
million for Alternative 1 to $140 million for Alternative 4 and from 7.5% to 70% oi
average annual investment (Table 6). The total incremental increase in annualized
cost, including capital charges, for the segment as a percentage of sales ranges from
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TABLE 6
INDUSTRY SUMMARY
READY-MIXED CONCRETE
SIC Code:
Plants in Segment:
Percent Total Plants in Industry:
Percent of Segment with Alternative 1 Treatment in Place:
3273
4896 (stationary)
Unknown (100% of stationary)
49
Cost of Pollution Abatement
Capital Cost for Segment
Total Capital Cost
Total Capital Expenditures as %
of Average Annual Investment
Total Capital Expenditures as %
of Gross Book Value of Fixed Assets
Annualized Costs for Segment
Total Incremental Increase Including
Capital Charges
Total Incremental Increase Excluding
Capital Charges
Total Incremental Increase including
Capital Charges as % of Sales
Expected Price Increase
Expected % Increase Due to Pollution Control
Plant Closures
Total Closures Anticipated
% Reduction of Segment Capacity Due
to Closures
Employment
Total Employees Affected
% of Total Employees in Segment
Community Effects
Impact on Industry Growth*
Balance of Trade Effects
Alternative 1 Alternative 2 Alternative 3 Alternative 4
$15.0 million $27.4 million $86.8 million
7.5% 13.7% 43.4%
0.9 1.6 5.1
$6.4 million $7.8 million $16.3 million
$4.6 million $4.6 million $1.0 million
0.15
0.19
0.39
0.1% to 0.5 0.1% to 0.7 0.2% to 1.1
$139.3 million
70.0%
8.2
$120.9 million
$92.4 million
2.9
1.4% to 4.8
None
None
None
None
None
Up to 120
0.9%
Up to 252
3
60-120
None
None
Up to 1,032
16.1%
Up to 12,300
14
500-1000
None
None
Up to 2,040
37.6%
Up to 33,500
38
1000-2000
None
None
*Note: This industry is not expanding.
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0.2% to 2.9%, equivalent to $121 million for Alternative 4. Price increases due to
pollution control requirements are 1% or less for Alternatives 1 through 3, but could be
as high as 4.8% for Alternative 4 for specific plants under certain assumptions.
Plant closures are anticipated for each of the Alternatives 2 through 4 but are
equivalent to only 1% of segment capacity for Alternative 2 and as much as 38% for
Alternative 4. As the result of the closures under Alternative 4, up to 33,500 employees
might be affected in 1,000 to 2,000 communities. As it is not anticipated that the
industry will need to expand the number of facilities in operation in order to satisfy
future demand, no impact on industry growth is expected.
10
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I. CONCRETE BLOCK AND BRICK
(SIC 3271)
A. PRODUCTS, MARKETS AND SHIPMENTS
Concrete block and brick, as well as other decorative precast cementitious units,
are manufactured by semi-automated processes using cement, sand, and other con-
struction aggregates. The principal products include:
1. Lightweight aggregate structural block, using cinder, expanded slag or
other lightweight aggregates as an ingredient.
2. Heavyweight aggregate structural block, using conventional quarried
sand or gravel.
3. Decorative block.
4. Concrete brick.
While the sizes of both bricks and blocks can vary considerably, depending upon
the use to which they are put, most block units have an 8" x 16" face and are between
4" and 12" thick. They usually are manufactured with cavities to reduce the weight
and improve various other properties, but may be solid. Lightweight aggregate blocks
weigh 20 to 35 Ib per 8" x 8" x 16" equivalent, while heavyweight units weigh from 33 to
45 Ib. Concrete bricks are smaller than block and generally are approximately 8" x 3-
5/8"x2-1/4".
The total value of shipments of concrete brick and block by all manufacturing
establishments (Table 1-1) increased from $513 million in 1965 to $795.7 million in
1972 and to $892 million in 1973, a rate of growth (current dollars) greater than 7% per
year. Of the 1972 shipments 85% ($676.3 million) was accounted for by firms classified
under SIC 3271, while the remaining $119.4 million were shipped by firms operating
primarily in such other industry sectors as ready-mixed concrete, sand and gravel, and
precast concrete. Total shipments within SIC 3271 amounted to $855.7 million in that
Census year, the balance of non-block shipments ($179.4 million) coming from similar
products.
Table 1-2 indicates the quantity and value of concrete block and brick shipments
for 1967 and 1972. Shipments of lightweight aggregate structural block appear to be
greater in 1972 than those using heavyweight aggregates. However, industry sources
suggest that a large proportion of the undistributed value of shipments ($168.7 million)
was in the heavyweight category and that shipments of the two types of block were
roughly the same.
Industry estimates of block shipments totalled 3.75 billion units in 1973, up at an
average rate of about 3.7% per year from 1965, but then dropped in each of the two
most recent years because of the considerable slowdown in construction activity. Block
and brick are used almost exclusively as structural or non-structural walls in buildings
11
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TABLE 1-1
VALUE OF SHIPMENTS BY ALL MANUFACTURING
ESTABLISHMENTS-CONCRETE BRICK & BLOCK 1965-1976
Year $ Million
1965 513.2
1966 521.8
1967 502.1
1968 553.3
1969 581.2
1970 568.0
1971 649.1
1972 795.7
1973 892.4
1974 820.6
1975 700.0 (estimate)
1976 860.0 (projection)
Sources: U.S. Bureau of Census, Annual Surveys; and Census of Manufactures.
as part of the foundation, as a finished load-bearing wall and as the backup for a brick
veneer. Decorative units are employed as self-supporting walls, patio screens and in
miscellaneous other architectural uses. Consequently, although concrete block and
brick do compete with a wide range of cementitious and non-cementitious products,
including clay brick, the principal influence on the health and growth of the industry is
the level of construction activity. The block industry can thus expect an average real
rate of growth of 2.5% to 3% per year to 1980 — a little slower than that experienced in
the past decade.
Because most concrete block and brick are used in standard applications, little or
no technical promotion or marketing is required on the part of the manufacturer.
Exceptions to this generalization are the multi-story, load-bearing building and spe-
cialty units that feature certain styles, shapes or colors requested by the architect or
builder. In those cases, technical assistance is provided bv the manufacturer or his
representative.
Block is normally shipped direct from the manufacturer to the job site and is sold
on the basis of unit cost either f.o.b. the plant or delivered. A certain amount of
product is also distributed through building materials dealers and lumberyards and
the block manufacturer may also sell complementary products, such as sand, gravel,
masonry cement, or reinforcing steel to the mason contractor installing the block. The
industry is quite active on a national, and sometimes regional, level in general pro-
motion of its product to the architect, developer or contractor.
12
-------
TABLE 1-2
QUANTITY AND VALUE OF SHIPMENTS BY ALL PRODUCERS
CONCRETE BLOCK AND BRICK 1972 AND 1967
Product
Concrete Block and Brick, Total
Structural block:
Lightweight aggregate (cinder, expanded slag, pumice, etc.)
Heavyweight aggregate
Decorative block (such as screen block, split block, slump block,
shadowal block, etc.)
Concrete brick
Concrete block and brick, n.s.k., for companies with 10
employees or more.
Concrete block and brick, n.s.k., for companies with less
than 10 employees.
Total Product Shipments Including
Interplant Transfers
1972
Unit of Measure
Million blocks
8"x8"x16"equiv.
do
do
Million bricks
Quantity
(X)
1.814.71
833.1
90.21
420.71
(X)
(X)
Value
($MM)
795.7
354.4
220.4
29.9
22.3
107.0
61.7
1967
Quantity
(X)
(S)
567.0
63.6
479.7
(X)
(X)
Value
($MM)
502.1
265.0
114.6
14.6
15.4
57.1
35.4
(X) - Not Available
(S) - Statistically Unreliable
n.s.k. — Not Specifically Known
Source: Bureau of Census, Census of Manufactures, 1972, MC 72(2)-32D
-------
B. INDUSTRY STRUCTURE
1. Types of Firms
According to the 1972 Census (Table 1-3), approximately 1300 companies operate
about 1388 manufacturing establishments in the concrete brick and block industry.
The National Concrete Masonry Association believes that about the same number of
plants are operating today. The table also shows a decline in the number of estab-
lishments over the 1958-1972 period, resulting from larger average units as smaller
ones become uneconomic.
With a few exceptions, the majority of the firms are small, single-plant oper-
ations that are located near metropolitan or urban areas, have modest sales, and have
a low total capitalization. The few exceptions include companies who have multiple
locations or who are horizontally diversified into related industries, such as precast
concrete, ready-mixed concrete or clay brick. Little or no integration exists beyond
that.
Although most block manufacturers also sell complementary products, as noted
above, 79% of the value of shipments of this industry is in the form of concrete brick
and block.
2. Types of Plants
Only about 30% of the manufacturing establishments in this industry employ 20
or more people, so the typical operation is small. In fact, the average gross value of
fixed assets is only about $19,000 per employee and the average establishment would
employ about 16 employees. The average value of shipments of all plants in 1972 was
about $643,000, of which 89% was concrete brick and block. Table 1-4 reviews this
industry by employment size of establishment for 1972; note that nearly half of all
plants employ less than 10 people, but only 5% employ 50 or more.
Block plants are located throughout the United States (Table 1-5), with the
greatest concentration being in the populated North Central states and in the South.
Most plants have been built since World War II and use a fairly automated manufac-
turing process that includes: batch mixing of cement, water and aggregates; forming
the block in a machine which presses, rams or vibrates the moist mix into blocks; and
then curing the block with low-pressure steam in a kiln, or with high-pressure steam in
an autoclave. (See Section B-3 below.)
Both curing methods are reasonably efficient; loss rates from manufacturing
errors or process breakdowns are low for each. However, only about 8% of the plants in
this industry utilize the autoclaving process and those plants tend to be more heavily
capitalized. Although plants based on either curing process may have an annual
capacity of as much as 15 million equivalent units on a single-shift, 250-day year,
plants based on autoclave curing generally have larger capacities than kiln-based
plants.
14
-------
TABLE 1-3
GENERAL STATISTICS, 1958 TO 1972
CONCRETE BRICK AND BLOCK
Number of
Establishments
With 20
All Employees
Production Workers
Employ-
1972 Census
1971 ASM
1970 ASM
1969 ASM
1968 ASM
1967 Census
1966 ASM
1965 ASM
1964 ASM
1963 Census
1962 ASM
1961 ASM
1960 ASM
1959 ASM
Total
1,388
(NA)
(NA)
(NA)
(NA)
1,599
(NA)
(NA)
(NA)
1,841
(NA)
(NA)
(NA)
(NA)
eesof
More
416
(NA)
(NA)
(NA)
(NA)
349
(NA)
(NA)
(NA)
367
(NA)
(NA)
(NA)
(NA)
Number
(1,000)
22.8
21.3
21.9
21.0
21.2
21.1
24.4
24.7
23.5
23.8
22.3
23.2
23.9
23.5
Payroll
($MM)
196.0
159.9
151.8
152.1
146.1
130.1
137.7
133.8
121.0
119.5
110.7
110.6
111.8
106.1
Number
(1,000)
15.2
14.4
15.1
14.2
14.6
14.6
17.0
17.5
16.2
16.7
16.2
17.0
17.6
17.4
Man-
hours
(MM)
31.5
29.0
31.5
29.3
29.3
30.6
35.7
37.5
36.3
36.1
37.4
37.7
38.1
37.4
Wages
($MM)
115.0
96.6
94.2
90.1
86.5
77.0
82.5
80.3
73.4
72.7
67.4
67.0
68.1
66.4
Value
Added by Cost of
Manufac-
ture
($MM)
438.5
392.5
338.2
317.7
310.9
274.2
296.7
284.8
258.5
245.5
215.3
214.4
212.4
221.4
Materials,
fuels, etc.
($MM)
421.8
383.5
319.9
327.9
310.3
276.1
294.9
294.9
271.6
262.8
243.6
247.7
246.8
240.2
Value of
Industry
Shipments
($MM)
855.7
778.4
653.1
644.0
621.3
550.1
585.9
578.4
530.0
505.2
459.1
460.7
457.4
458.8
Capital
Expendi-
tures,
New
($MM)
46.2
40.9
36.9*
45.7*
36.5
30.5
33.3
28.0
24.3
31.1
20.5
21.2
24.8
22.9
Gross
Value of
Fixed
Assets
($MM)
(NA)
396.8
385.9
364.5
332.1
307.2
(NA)
(NA)
284.5
269.0
248.8
(NA)
(NA)
(NA)
End-of
Year
Inven-
tories
($MM)
88.6
83.7
86.0
67.0
60.5
60.8
66.3
62.1
60.5
58.0
50.0
49.3
49.8
48.7
Special-
ization
Ratio
<%)
93
(NA)
(NA)
(NA)
(NA)
92
(NA)
(NA)
(NA)
92
(NA)
(NA)
(NA)
(NA)
Coverage
Ratio
(%)
85
(NA)
(NA)
(NA)
(NA)
86
(NA)
(NA)
(NA)
84
(NA)
(NA)
(NA)
(NA)
1958 Census 1,796 336
22.8
98.1
16.4
32.9
61.3
190.4
224.3
413.7
22.8
(NA)
46.6
90
83
N.A. - Not Available
ASM — Annual Survey of Manufactures
* — Data of Limited Reliability
Source: Bureau of Census, Census of Manufactures. 1972, MC 72(2)-32D
-------
TABLE 1-4
GENERAL STATISTICS, BY EMPLOYMENT SIZE OF ESTABLISHMENT: 1972
No. of
Estab-
lish-
ments
All Employees
Number
(1,000)
Payroll
($MM)
Production Workers
Number
(1,000)
Man-hours
(MM)
Wages
($MM)
Value
Added by
Manufac-
ture
($MM)
Cost of
Materials
($MM)
Value of
Shipments
($MM)
Capital
Expendi-
tures,
($MM)
End-of-
Year
Inven-
tories
($MM)
3271- Concrete Block and Brick
Establishments, Total
Establishments with an Average of-
1 to 4 Employees
5 to 9 Employees
10 to 19 Employees
20 to 49 Employees
50 to 99 Employees
100 to 249 Employees
Estabs, Covered by Admin. Record
1,388 22 S
460
1.7
196.0
15.2
31.5
115.0
438.5
421.8
11.3
1.2
2.3
7.1
32.3
29.3
855.7
61.7
46.2
2.8
88.6
340
265
367
348
58
10
0.6
1.8
5.1
10.2
3.8
1.3
4.2
14.3
44.4
88.9
31.4
12.7
0.5
1.3
3.3
6.7
2.5
0.9
0.9
2.6
7.1
14.3
5.0
1.7
2.6
8.9
25.5
50.7
18.6
8.6
13.5
38.0
102.1
191.6
66.8
26.6
12.2
33.7
102.6
189.0
61.4
23.0
25.6
71.4
203.3
378.1
128.0
49.2
1.2
3.5
10.0
20.5
6.2
4.8
3.4
9.2
21.4
38.4
11.5
4.8
8.1
Source: Bureau of Census, Census of Manufactures, 1972, MC 72(2)-32D
-------
TABLE 1-5
SHIPMENTS BY CLASS BY GEOGRAPHIC AREA
1972
1967
Number
of Plants
Shipment
Value
($MM)
Average
Value
per Plant
($MM)
Number
of Plants
Shipment
Value
($MM)
Average
Value
per Plant
($MM)
Concrete Block and Brick:
United States
Northeast
North Central
South
West
Source: U.S. Bureau of Census, Census of Manufactures, 1972, MC 72(2)-32D.
1,388
291
474
450
173
855.7
197.5
243.8
290.3
124.0
0.62
0.68
0.51
0.65
0.72
1,599
346
557
494
202
550.1
130.8
185.8
170.5
63.0
0.34
0.38
0.33
0.35
0.31
3. Industry Segmentation
The Guidance Document has segmented the concrete brick and block industry
according to the method of curing used in the production process: low-pressure steam
and high-pressure autoclave. The conventional low-pressure steam curing plants ac-
count for 1263 of all the block plants in operation in the United States today. Industry
sources estimate that the number of autoclave plants increased from about 85 in 1960
to approximately 185 by 1969 and then declined to about 150 in 1972 and to 125
currently. However, autoclave plants tend to be larger than kiln plants (about 3
million units each versus about 2.4 million for the conventional process). Con-
sequently, they represent about 9% of the manufacturing establishments and approx-
imately 12% of U.S. production and 14% of revenues. The 125 plants also employed an
estimated 2500 people in 1975, as indicated below:
Segment
Low pressure steam curing
Autoclave
1,388 3,000 23,000 1,082
Source: Arthur D. Little, Inc., estimates.
No. of
Plants
1,263
125
Millions
of Blocks
2,640
360
No. of
Employees
20,500
2,500
1975
Revenues
($MM)
930
152
17
-------
C. FINANCIAL PROFILES
1. Industry Data
The concrete brick and block industry increased its gross value of fixed assets
from $332 million in 1968 to about $410 million in 1972, averaging over $40 million in
new capital expenditures in each of those years.
Table 1-6 shows typical financial ratios from 1972 through 1974 derived from an
analysis by Robert Morris Associates of the financial statements of a number of
concrete brick and block manufacturers. The firms in question account for a high
proportion of the total industry. For example, the 168 statements studied for 1974
account for over 70% of all sales by firms in this industry. An examination of these data
shows:
• A wide range in returns on net worth and on total assets between the top
and bottom quartiles.
• Before-tax profits on sales of 5.5% in 1974, but higher than this in prior
years.
• Average assets of $3.2 million and average sales of $4.8 million for the
168 units studied in 1974, but a wide range that is very heavily skewed
to the lower end.
As fewer companies account for a larger proportion of total sales volume, the
average size of the typical plant will increase and profit margins (barring cyclical
construction industry slowdowns) should generally improve. Also, the industry is
becoming more capital intensive, rather than labor intensive; this trend should help it
to maintain better margins when the plant is fully utilized but exposes the operator to
the risk of poorer margins in an economic downturn.
2. Financial Profile for Representative Plants
In Tables 1-7 through 1-10, we have constructed typical balance sheets and
income statements for the representative low-pressure steam curing and high-pressure
autoclave curing plants, as defined in the Guidance Document for the cost-benefit
analysis. The representative high-pressure curing plant has an annual production of
170,000 metric tons (10 million blocks) and sales of about $3.2 million. The after-tax
profit is equivalent to about 3.3% of sales and 14.9% on equity. The ratio of long-term
debt to total capital is approximately 36%; the gross profit margin is 26.9% and annual
cash flow about $400,000.
The annual production for the low-pressure steam curing plant is 60,000 metric
tons (3.5 million blocks), equivalent to a net sales volume of $1.1 million in 1974. This
representative plant had a gross profit of 31.8%, and an after-tax profit of 3.7% on net
sales and 16.7% on equity. The ratio of long-term debt to total capital is about 30%,
and the cash flow $150,000.
-------
TABLE 1-6
TYPICAL FINANCIAL RATIOS
1974 1973 1972
Asset Size 0.25-1.0 1 to 10 All Sizes 0.25-1.0 1 to 10 All Sizes 0.25-1.0 1 to 10 All Sizes
(SMillion)
Number of
Statements 78 61 168 82 53 164 75 59 165
(1) Prof it Before
Tax as % of
Co Sales 4.6 5.2 5.5 4.1 5.6 6.2 4.8 6.0 6.4
(2) %PBT/Worth
(3) %PBT/Assets
Source: Robert Morris Associates' Annual Statement Studies. These data represent the aggregation of the financial statements for companies
with varying asset sizes in the Concrete Brick and Block Industries. The ranges shown for items (2) and (3) represents the first, middle
two and fourth quartile distributions.
29.4
15.0
7.1
13.5
5.7
1.4
28.0
16.5
5.7
13.6
6.6
2.2
32.2
15.7
5.8
15.0
6.3
1.7
28.3
15.1
7.0
13.1
7.5
2.8
35.8
19.8
6.8
14.8
7.6
2.4
33.2
18.7
8.0
14.6
8.2
3.0
27.9
15.4
6.7
13.6
7.1
2.8
32.4
17.8
4.4
17.1
7.7
1.5
28.5
16.7
6.3
14.3
7.4
2.6
-------
TABLE 1-7
BALANCE SHEET FOR REPRESENTATIVE PLANT
CONCRETE BRICK AND BLOCK (HIGH-PRESSURE AUTOCLAVE CURING)
1974
2,000
1,300
Annual Production
Net Sales Volume
Total Assets
Ratio of Gross Fixed Assets to Sales
Assets
Current Assets
Gross Fixed Assets
Less Depreciation
Other
Total Assets
Liabilities
Current Liabilities
Long-Term Debt
Equity
Total Liabilities
Sources: Robert Morris Associates' Annual Statements and
Arthur D. Little, Inc., estimates.
170,000 metric tons
10 million block equivalent units
$3.2 Million (@ 32rf/unit)
$1.6 Million
0.63
SOOO's
800
700
100
1,600
550
380
670
1,600
TABLE I-8
INCOME STATEMENT FOR REPRESENTATIVE PLANT
CONCRETE BRICK & BLOCK (HIGH-PRESSURE AUTOCLAVE CURING), 1974
Net Sales (excluding delivery costs and discounts)
Less Cost of Labor 580
Cost of Materials, etc. 1,600
Repairs, Maintenance, etc. 160
Gross Profit
Less Depreciation 290
Interest 100
Sales, General & Administration 300
Profit Before Tax
Income Tax
Profit After Tax
Source: Robert Morris Associates' Annual Statements and
Arthur D. Little, Inc., estimates.
3,200
2,340
860
690
170
70
100
100.0
73.1
26.9
21.6
5.2
1.9
3.3
20
-------
TABLE 1-9
BALANCE SHEET FOR REPRESENTATIVE PLANT
CONCRETE BRICK AND BLOCK (LOW-PRESSURE STEAM CURING)
1974
Annual Production - 60,000 metric tons
- 3.5 million block equivalent units
Net Sales Volume - $1.1 million (@> 31rf/unit)
Total Assets - $0.55 Million
Ratio of Gross Fixed Assets to Sales - 0.73
Assets SOOO'i
Current Assets 300
Gross Fixed Assets 400
Less Depreciation 170 230
Other 20
Total Assets 550
Liabilities
Current Liabilities 210
Long-Term Debt 100
Equity 240
Total Liabilities 550
Sources: Robert Morris Associates' Annual Statements and
Arthur D. Little, Inc., estimates.
TABLE 1-10
INCOME STATEMENT FOR REPRESENTATIVE PLANT
CONCRETE BRICK & BLOCK (LOW-PRESSURE STEAM CURING), 1974
SOOO'i
Net Sales (excluding delivery costs and discounts) 1,100 100.0
Less Cost of Labor 200
Cost of Materials, etc. 500
Repairs, Maintenance, etc. 50 750 68.2
Groit Profit 350 31.8
Less Depreciation 110
Interest 50
Sales, General & Administration 140 300 27.3
Profit Before Tax 50 4.5
Income Tax 10 0.8
Profit After Tax 40 3.7
Source: Robert Morris Associates' Annual Statements and
Arthur D. Little, Inc., estimates.
21
-------
3. Financing
While the concrete brick and block industry is generally healthy, most capital
financing comes from internally generated funds or from privately arranged bank
loans. The cost of capital from these principal sources ranges from 7% to 10%,
depending on the credit worthiness of the borrower. Neither source should represent a
significant constraint on the financing of additional capital.
D. PRICES AND PRICING
F.o.b. concrete brick and block prices normally are set on the basis of a required
margin on the manufacturing cost but the block manufacturer frequently will quote a
delivered zone price which varies with the distance from his plant. Block normally is
not shipped more than 50 or 100 miles, because it has a high weight-to-value ratio and
the average delivery costs are 4-5 cents for a unit selling at 32 cents, f.o.b. the plant in
1974. Prices vary by region, with the lowest priced regions being in the South Atlantic
and in the Southwest.
Table 1-11 reviews recent price movements. Wholesale prices for concrete block
were 51 c-'c higher in 1974 than 1967 levels, representing an average price increase of
about lc'o per year. Block prices increased faster than the All-Commodities Price Index
from 1967 to 1972 but currently is about 6T-
TABLE 1-11
WHOLESALE PRICE INDEXES FOR CONCRETE
BLOCK AND BRICK
(1967= 100)
Year Actual Relative4
1967 100.0 100.0
1968 104.2 101.7
1969 107.9 101.3
1970 113.2 102.5
1971 118.3 103.9
1972 123.7 103.9
1973 134.0 98.9
1974 151.4 94.5
'Relative wholesale price indexes obtained by dividing the
actual annual price index by the all-commodity W.P.I.
Source: U.S. Department of Labor, Bureau of Statistics,
U.S. Industrial Outlook, 1974.
22
-------
Future price changes are going to depend very much on the rate and extent of a
recovery in construction activity. Under normal circumstances, cost increases in such
basic ingredients as fuel, cement and aggregates will result in corresponding price
increases, assuming that the competitive environment facing a particular manufac-
turer will allow him to recover such cost increments to maintain desirable margins.
Competition is largely intra-industry, and uniform price increases tend to have very
few secondary effects. A degree of inter-industry competition exists between the clay
brick/concrete block walls, gypsum and wood, and metal sandwich panel systems for
warehouse and light industrial or commercial construction. Significant price increases
for the total installed system could cause block to lose market share.
E. REPRESENTATIVE PLANT CHARACTERISTICS
The representative concrete brick and block plant that uses high-pressure auto-
clave curing is assumed to have an output of 170,000 metric tons per year and no
effluent treatment, discharging untreated effluent to municipal sewer systems or to
surface water. The Guideline levels are identified below:
A — No treatment
B — Pond settling of suspended solids
C — B plus pH adjustment with sulfuric acid
D — C plus recycle to aggregate piles and/or convection autoclaves, or
total containments
E — Mechanical evaporation of wastewater
It is estimated that 90% of the autoclave curing plants in this industry currently
achieve the level of effluent discharge with respect to suspended solids (level B) but no
plants satisfy the pH limitation required by level C or higher. The financial impact of
the Guidelines on these plants is summarized in Table 1-12.
The representative low-pressure plant has an output of 60,000 metric tons per
year. The Guidelines, recommended technologies and present levels of treatment in
the low pressure steam curing subcategory of the concrete brick and block industry are
directly equivalent to those for the high-pressure autoclave curing subcategory. The
financial impact of Guidelines is summarized in Table 1-13.
F. ECONOMIC IMPACT ON EXISTING FACILITIES DUE TO
GUIDELINES
1. High-Pressure Autoclave Curing
a. Price Effects
The total annual effluent control cost for those representative high-pressure
autoclave plants that do not presently meet the Guidelines for either suspended solids
or pH control ranges from 0.3 to 5.2% of manufacturing costs. If those plants are to
maintain their after-tax returns on sales, they must increase selling prices by 0.2%,
0.3% and 4.0% for Levels C, D, and E, respectively. It is anticipated that the price
increases required under Levels C and D would be implemented by the industry and
23
-------
TABLE 1-12
FINANCIAL IMPACT OF GUIDELINES ON
REPRESENTATIVE HIGH PRESSURE CONCRETE BRICK & BLOCK PLANT, 1974
Plant Characteristics
Annual Production 170,000 MT/yr
Manufacturing Cost $13.76/MT
Sales Revenue $18.82/MT
Average Annual Capital Investment $101,500
Average Annual Cash Flow $390,000
Financial Impact
Guideline Level AC D E
Total Capital Investment for Effluent
Control ($) 0 8,232 12,348 274,400
Total Annual Effluent Control Cost
($/MT) 0 0.04 0.06 0.72
Increase in Manufacturing Cost (%) 0 0.3 0.4 5.2
Increase in Price (%) 0 0.2 0.3 4.0
Total Investment as % of Average Annual
Cash Flow 0 2.1 3.2 70.4
Total Investment as % of Average Annual
Capital Investment 0 8.1 12.2 270.3
After-tax Return on Sales* (%) 3.4 3.3 3.3 0.9
After-tax Return on Equity* (%) 14.9 14.4 14.1 42
After-tax Return on Assets* (%) 6.3 6.0 5.9 1.8
'If price increases are not achieved
Source: Arthur D. Little, Inc., estimates, based on Guidance Document.
that they will have no effect on the supply curve or on the supply/demand equilibrium.
The 4% price increase that might be required under Level E is considerable and its
relative cost-effectiveness questionable as no change in the raw waste load parameters
is obtained. The extent to which it could be achieved would depend on the competitive
environment in which specific plants operate.
b. Financial Effects
The capital requirements needed by the individual representative plant that has
no effluent treatment, to achieve Levels C or D, are not expected to have any financial
impact. According to the Guidance Document, approximately 65% of the plants in this
subcategory already achieve Level D.
24
-------
TABLE 1-13
FINANCIAL IMPACT OF GUIDELINES ON
REPRESENTATIVE LOW PRESSURE CONCRETE BRICK & BLOCK PLANT, 1974
Plant Characteristics
Annual Production
Manufacturing Cost
Sales Revenue
Average Annual Capital Investment
Average Annual Cash Flow
Financial Impact
Guideline Level
Total Capital Investment for Effluent
Control ($)
Total Annual Effluent Control Cost
($/MT)
Increase in Manufacturing Cost (%)
Increase in Price (%)
Total Investment as % of Average Annual
Cash Flow
Total Investment as % of Average Annual
Capital Investment
After-tax Return on Sales* (%)
After-tax Return on Equity* (%)
After-tax Return on Assets* (%)
60,000 MT/yr
$12.50/MT
$18.33/MT
$33,800
$140,000
A
0
0
0
0
0
0
3.7
16.7
7.3
C
8,232
0.06
0.5
0.3
5.9
24.4
3.4
15.5
6.8
D
3,430
0.07
0.6
0.4
2.5
10.2
3.3
15.3
6.7
E
68,600
0.30
2.4
1.7
49.0
203.0
2.3
10.7
4.7
'If price increases are not achieved
Source: Arthur D. Little, Inc., estimates, based on Guidance Document.
25
-------
The total capital investment required for the representative plant not presently
achieving this level of effluent control is estimated to be $12,400. This investment is
approximately 3.2% of the average annual cash flow and 12.2% of the average capital
investment.
No capital availability problems are anticipated. Assuming the remote possi-
bility that an individual plant is not able to increase price to cover the additional
manufacturing costs, its after-tax return on equity under Level D would decline to
14.1% from the present 14.9% — only a small reduction.
The investment required by the representative plant to achieve Level E is
considerably higher ($274,000) and represents 70% of the average annual cash flow and
270% of the average annual capital investment for the representative plant. It is likely
that many of the 125 autoclave plants in the United States would be unable or
unwilling to raise such an amount and possibly as many as 25 could be forced to close.
Those plants that are required to implement Level E, and do so, but who cannot
obtain price increases to cover the 5.2% increase in manufacturing cost would face an
unacceptable reduction in their profitability; the after-tax return on equity would
Total investment by the high-pressure autoclave block sector would be $170,000
under Level C, $156,000 under Level D, and nearly $10 million under Level E.
c. Other Effects
Assuming that 25 plants, or 20% of the autoclave curing plants in the United
States, ceased production rather than implement Level E effluent controls, about 500
persons would become unemployed and some community impact could occur. The
potential loss in production under these conditions would be equivalent to only about
2.5% of the block industry's output; local shortages could occur, however.
2. Low-Pressure Steam Curing
a. Price Effects
The maximum price increase that would be required by a representative plant in
this subcategory to meet Level E of the Guidelines is 1.7%. Assuming that capital is
available to implement this level of technology, no price effects are anticipated.
b. Financial Effects
The total investment required by this subcategory would be only $4.7 million to
achieve Level C and $0.9 million to achieve Level D. However, the industry would need
to expend $50.0 million to achieve Level E, almost as much as the total annual capital
investment made by the block industry. The cost-effectiveness of this requirement, in
terms of effluent quality improvements, is questionable. No further reduction in the
pH or the amount of suspended solids is achieved. The capital investment required for
the representative plant represents 49% of the average annual cash flow for that plant,
and more than twice its annual capital investment. It is thus highly unlikely that the
industry would achieve Level E without some financial impact and possible 15-20% of
the low-pressure steam curing facilities would choose to close.
26
-------
c. Other Effects
This level of closure could cause about 2,000 people to be unemployed and reduce
the productive capacity of the industry by about 10%. Supply shortages, and direct
and indirect community impacts would thus occur.
G. ECONOMIC IMPACT ON NEW SOURCES DUE TO GUIDELINES
The capital investment required for effluent control Level D is about 0.5% of the
total investment needed for a new high-pressure autoclave curing plant and 0.4% for a
low-pressure steam curing plant. Level D effluent control is thus not expected to have
an impact on the ability of the industry to add capacity or on the likelihood that it will
do so. The incremental capital investment required under Level E, however, would be
equivalent to 8% to 10% of the initial investment required for either plant process and
would probably have a significant impact on the economic feasibility of a new facility.
It is possible that the effluent control requirements of Level E would deter investment
in new capacity by the industry.
27
-------
II. CONCRETE PRODUCTS N.E.C
(SIC 3272)
SIC 3272 (Concrete Products, not elsewhere classified) includes a wide range of
companies that manufacture diverse concrete products:
• Precast pressure and non-pressure concrete pipe,
• Precast concrete,
• Prestressed concrete, and
• Miscellaneous other products.
It is extremely difficult to characterize these sectors as one group. Each category
contains a wide variety of products; for example, precast concrete products include
roof and floor units, architectural wall panels, septic tanks, burial vaults, mis-
cellaneous garden furniture, laundry trays, etc. Moreover, few companies operate
across the spectrum, because the market environments, business methods, operating
characteristics and end uses are completely different.
The Guidance Document has chosen to segment this industry according to waste-
load parameters into concrete pipe, and precast and prestressed concrete. The in-
dustry characterization that follows adopts this format but Census data presented in
Tables II-1 through II-5 apply generally for all segments of SIC 3272; these tables will
first be reviewed.
The 1972 Census of Manufactures indicates SIC 3272 includes 3,199 firms that
operate 3,595 establishments. The total value of industry shipments (Table II-l)
increased from $1.15 billion in 1967 to $2.2 billion in 1974 and totalled $1.86 billion in
1972. Shipments of primary precast and prestressed concrete products by this and
other industries is shown below in millions of dollars for 1972:
SIC 3272 Other Industries Total
Primary Products 1775.5 89.2 1864.7
Other Products, Receipts 185.9 n.a. n.a.
Total 1961.4 n.a. n.a.
The principal secondary products shipped by industry SIC 3272 were concrete block
and brick ($24.8 million) and ready-mixed concrete ($23.9 million). The major other
industries that ship primarily precast and prestressed concrete products are those
whose main products are block and ready-mixed concrete.
29
-------
Sewer and water pipes are highly engineered products but operating conditions
play a large part in what materials are preferred by the specifying engineer. The
criteria that might benefit or limit the use of concrete pipe against other materials
(ductile iron, plastic, asbestos cement, etc.) include: soil conditions, type of fluid to be
carried, depth of lay, pressures incurred, need for cathodic protection, pipe size
required, cost, availability and personal biases.
The concrete pipe manufacturer, however, must also contend with intra-industry
competition by establishing himself in the eyes of the contractor both as a com-
petitively-priced supplier and as one who can provide the required delivery and service
throughout the project. Once a contract has been let and the order for shipment given,
the pipe manufacturer will arrange a convenient schedule that matches the antici-
pated progress of the project and will normally deliver by truck up to 150 miles and by
rail beyond that distance. Freight costs obviously are significant, especially for the
non-reinforced pipe which was a lower value per unit weight, but pipes of unusual
diameter or specifications have been known to be shipped more than 1000 miles.
The value of concrete pipe shipments by all manufacturing establishments grew
from $400.5 million in 1967 to $599.4 million in 1973, at an average annual rate of 7%
(Table II-l). However, if the apparent effects of inflation are removed, the real growth
was less than 4% per year. Table II-2 details the quantity and value of shipments by
all producers from 1967 and 1972. It is evident from this table that reinforced pipe has
a predominant share of the total market, which is estimated to have been 12.8 million
tons in 1972 for both pressure and non-pressure pipe. In fact, the American Concrete
Pipe Association (ACPA), which represents about 70% of all U.S. non-pressure pipe
production, estimates that reinforced pipe represented 74% of all 1974 production of
non-pressure pipe (13.55 million tons), non-reinforced round pipe accounted for less
than 7%, irrigation and drain tile for less than 4%, and manhole and other similar
products for about 16%. Similar estimates by the ACPA (based on a survey of its
member companies only) suggest the following proportionate production of non-pres-
sure pipe by type of pipe:
Type of Pipe Reinforced Non-Reinforced Total
Sanitary Sewer 29 39 30
Storm Sewer 50 42 49
Culvert 21 19 21
Total 100% 100% 100%
Prospects look bright for the concrete and other pipe manufacturing industries
because the nation must make considerable investments in effluent pollution control
and in fresh water supply in the near term. Consequently, it is anticipated that the
average rate of tonnage growth will be about 6% per year from 1975 to 1980 and
continue strong beyond this decade.
30
-------
TABLE 11-1
VALUE OF SHIPMENTS BY ALL MANUFACTURING
ESTABLISHMENTS-CONCRETE PRODUCTS, N.E.C. 1967-1974
($ Million)
Concrete Pipe
400.5
438.8
499.2
490.2
530.9
565.3
599.4
713.0
7.5%
Precast
341.5
428.8
445.2
557.5
622.7
536.8
678.6
774.1
12.5%
Prestressed
Other
Average Growth/Year
*Data Unreliable
Sources: U.S. Bureau of Census, Annual Surveys and Census of Manufactures.
Total
217.7
262.4
283.8
275.6
337.8
414.1
510.4
553.3
14.3%
187.8
123.1
127.4
134.1
147.7
348.5
309.2
115.6*
N/R
1147.5
1253.1
1355.6
1457.4
1639.1
1864.7
2097.6
2156.0
9.4%
Total employment and the average employment per establishment have been
growing steadily since at least 1958 (Table II-3) and amounted to 67,600 and 19,
respectively, in 1972. Only about one-quarter of the establishments employ 20 or more
people. The value added by manufacture amounted to over 60% of industry shipments.
The average annual new capital expenditures between 1968 and 1972 were $74.4
million, or about 10% of the gross value of fixed assets. The industry is geographically
dispersed throughout the United States but it is notable that the average revenues per
establishment are highest in the West (Table II-4).
A. CONCRETE PIPE
1. Products, Markets and Shipments
The basic raw materials of concrete pipe are Portland cement, aggregate, and
water. The pipe can be either reinforced or non-reinforced; for reinforced pipe, a steel
wire cage is added or the pipe is prestressed with steel wire during manufacture.
Concrete pipe is generally produced by one of six methods, three of which are
described in the Guidance Document. The diameter of non-reinforced pipe ranges
from less than 12" to 36", but the diameter of reinforced pipe is limited only by
transportation and freight costs. Pipe reinforced with conventional steel has been
manufactured in diameters as large as 204" and prestressed steel-reinforced pipe, in
even larger diameters.
31
-------
TABLE 11-2
QUANTITY AND VALUE OF SHIPMENTS
BY ALL PRODUCERS - CONCRETE PRODUCTS, N.E.C. 1972 and 1967
1972
Product
Code
3272- —
32721 —
32721 12
32721 14
32721 17
32721 21
32721 24
32721 25
32721 26
32721 27
32721 28
32721 29
32721 31
32721 32
32721 36
32721 39
32721 51
32721 98
32721 00
32722 —
32722 13
32722 17
32722 23
32722 25
32722 27
32722 28
32722 29
32722 33
32722 35
32722 41
32722 61
32722 71
32722 98
32722 00
32723 —
32723 11
32723 23
32723 25
32723 27
32723 31
32723 98
32723 00
32720 00
32720 02
Total Product Shipments Including
Interplant Transfers
Product
CONCRETE PRODUCTS, N.E.C., TOTAL
Concrete Pipe
Culvert pipe:
Reinforced:
36 Inches or more
Less than 36 Inches
Nonrelnforced
Storm sewer pipe:
Reinforced:
36 Inches or more
Less than 36 Inches
Nonrelnforced
Sanitary sewer pipe:
Reinforced:
24 Inches or more
Less than 24 Inches
Nonrelnforced:
15 Inches or more
Less than 15 Inches
Pressure pipe:
Reinforced concrete pressure pipe
Prestressed concrete cylinder pipe
Pretensloned concrete cylinder pipe
Other pressure pipe, Including reinforced concrete
cylinder pipe and prestressed concrete non-
cylinder pipe
Irrigation pipe and drain tile
Other concrete pipe (such as manholes and conduits)
Concrete pipe, n.s.k.
Precast Concrete Products
Roof and floor units:
Slabs and title
Joints and beams
Architectural wall panels
Piling, posts and poles
Cast stone (products for architectural purposes,
except architectural wall panels, such as window
sills, ashlar, coping, lintels and other trim
Prefabricated building systems, primarily concrete,
sold as complete units, and shipped In panel or
modular form
Other precast concrete construction or building
products, Including prefabricated housing com-
ponents, reinforced columns, etc.
Burial vaults and boxes:
Vaults
Boxes
Silo staves
Septic tanks
Dry-mixed concrete materials, Including prepackaged
sand, gravel and cement, mortar and cement
premlxes
Other precast concrete products, except construc-
tion or building products, Including garden furni-
ture, storage tanks, laundry trays, etc.
Precast concrete products, n.s.k.
Prestressed Concrete Products
Single tees, double tees, and channels
Piling, bearing piles, and sheet piles
Bridge beams
Joists, girders, and beams (other than bridge beams)
Solid and hollow cored slabs and panels
Other prestressed concrete products (such as arches,
columns, etc.)
Prestressed concrete products, n.s.k.
Concrete products, n.s.k., for companies with 10
employees or more.
Concrete products, n.s.k., for companies with less
than 10 employees.
1972
Unit of
Measure
1,000 s. tons
do
do
do
do
do
do
do
do
do
Mil. lln. ft.
do
do
do
1,000 s. tons.
do
Million sq. ft.
Mil. Lin. ft.
Million sq. ft.
Mil. lln. ft.
Million sq. ft.
floor area
1,000 units
do
do
do
1,000 s. tons.
Million sq. ft.
Mil. lln. ft.
do
do
Million sq. ft.
do
1,000 s. tons.
Quantity
(X)
(X)
1,689.2
1,277.1
251.7
1,626.7
1,035.3
165.3
1,430.9
484.3
71.0
237.0
1.3
2.3
2.9
(S)
492.22
2,058.3'
(X)
(X)
19.8
0.6 '
23.91
2.82
(X)
4.41
(X)
637.3
140.0
12,288.0
289.5
1,926. 52
(X)
(X)
(X)
63.5
8.1
2.61
6.91
77. 11
815.42
(X)
(X)
(X)
Value
$MM
1,864.7
565.3
59.5
47.1
8.2
62.0
39.2
6.0
58.2
18.4
3.4
9.5
33.4 v
80.9 ,
16.5 1
)
0.8 ;
13.5 ]
70.4 '
38.3 ]
536.8
35.1
6.9
108.2
7.1
18.2
.
15.7 '
|
68.6 '
64.8
8.5
23.4
34.1
51.1
38.9
56.2
414.1
94.3
31.7
51.8
29.2
118.1
45.5
•43.5
210.9
137.6
1967
Quantity
(X)
(X)
6,942.5
> »
1,203.5
(X)
(X)
(NA)
(NA)
(NA)
(NA)
. (X)
1
;> (xj
534.0
175.1
12,050.0
204.9
1,452.7
(X)
(X)
(X)
50.2
5.2
2.8
(NA)
(NA)
598.5
(X)
(X)
(X)
Value
$MM
1,147.5
400
215
96
35
52
341
47
6
71
1
19
29
5
6
4
5
7
5
0
9
4
9
8
2
44.1
7.4
17
8
17.1
27.1
21.2
30
6
217.7
55
20
35
8
36
28
32
117
70
7
1
.9
.4
.7
.6
.2
.1
.7
X — Not applicable
S - Withheld
n.s.k. — Not specified by kind
N.A. — Not available
(1) From 10 to 30 percent of this figure was estimated.
(2) From 30 to 50 percent of this figure was estimated.
Source: Bureau of Census, Census of Manufacture, 1972, MC 72(2)-32D.
32
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TABLE 11-3
GENERAL STATISTICS, 1958-1972
CONCRETE PRODUCTS, N.E.C.
Number of
Establishments
1972 Census
1971 ASM
1970 ASM
1969 ASM
1968 ASM
1967 Census
1966 ASM
1965 ASM
1964 ASM
1963 Census
1962 ASM
1961 ASM
1960 ASM
1959 ASM
Total
3,595
(NA)
(NA)
(NA)
(NA)
3,412
(NA)
(NA)
(NA)
3,451
(NA)
(NA)
(NA)
(NA)
With 20
Employ-
ees of
More
923
(NA)
(NA)
(NA)
(NA)
802
(NA)
(NA)
(NA)
716
(NA)
(NA)
(NA)
(NA)
All Employees
Number
(1.000)
67.6
65.2
62.7
58.6
56.6
56.8
60.5
58.3
54.4
52.3
49.3
47.9
48.6
47.2
Payroll
($MM)
570.2
512.7
457.6
416.5
383.7
351.1
338.5
314.2
283.5
266.7
241.8
222.9
222.4
211.8
Production Workers
Number
(1,000)
53.5
51.9
50.3
46.8
45.2
45.4
46.7
45.8
42.5
41.1
39.3
38.1
39.0
38.0
Man-
hours
(MM)
109.9
106.4
106.3
100.3
96.0
94.2
95.2
95.2
89.7
87.3
85.6
83.1
85.6
79.3
Wages
($MM)
401.0
365.8
327.8
294.7
273.0
247.9
238.1
223.8
201.7
190.9
173.4
156.3
157.5
150.9
Value
Added by
Manufac-
ture
($MM)
1,190.1
1,058.1
924.6
848.6
816.5
722.6
691.9
636.3
591.8
540.0
499.5
470.9
460.2
438.3
Cost of
Materials,
fuels, etc.
($MM)
768.4
700.1
604.9
558.8
525.1
487.9
485.0
454.4
407.4
387.4
373.5
354.9
366.6
358.6
Value of
Industry
Shipments
I$MM)
1,961.4
1,748.8
1,522.8
1,407.8
1,330.6
1,201.1
1,189.7
1,083.1
977.5
925.7
871.6
822.4
822.5
795.2
Capital
Expendi-
tures,
New
($MM)
96.2
66.3
75.7
71.8
62.1
73.8
67.9
60.5
50.8
43.5
36.8
36.3*
32.3
38.9
Gross
Value of
Fixed
Assets
($MM)
(NA)
722.2
760.5
618.7
575.0
538.3
(NA)
(NA)
438.1
402.2
379.4
(NA)
(NA)
(NA)
End-of
Year
Inven-
tories
($MM)
260.3
230.0
209.1
180.2
171.0
159.1
153.7
152.1
144.8
126.1
123.7
123.5
118.5
117.7
Special-
ization
Ratio
(%)
96
(NA)
(NA)
(NA)
(NA)
96
(NA)
(NA)
(NA)
94
(NA)
(NA)
(NA)
(NA)
Coverage
Ratio
(%)
95
(NA)
(NA)
(NA)
(NA)
94
(NA)
(NA)
(NA)
94
(NA)
(NA)
(NA)
(NA)
1958 Census 3,461
619
46.3
200.2
36.3
73.6 141.6
391.4
322.2
720.1
44.3
(NA)
110.2
94
94
N.A. - Not Available
ASM — Annual Census of Manufactures
•Data of Limited Reliability
Source: Bureau of Census, Census of Manufactures, 1972. MC 72(2)-32D
-------
TABLE 11-4
SHIPMENTS BY CLASS BY GEOGRAPHIC AREA
1972
Concrete Products, N.E.C.
United States
Northeast
North Central
South
West
Shipment
Number Value
of Plants ($ MM)
Average
Value
per Plant
($MM)
3,595
671
1,148
1,236
540
1,961.4
384.3
546.1
638.0
393.0
0.55
0.57
0.48
0.52
0.73
Number
of Plants
1967
Shipment
Value
($MM)
Average
Value
per Plant
($MM)
3,412
622
1,131
1,148
511
1,201.1
203.3
372.7
396.2
228.9
0.35
0.33
0.33
0.35
0.45
Source: U.S. Bureau of Census, Census of Manufactures, 1972, MC 72(2)-32D.
The principal uses of pipe include water pressure, sanitary sewer, storm sewer
and culvert pipes. In these applications, concrete pipe competes against a variety of
materials, including ductile iron, steel, clay, plastic and asbestos-cement pipe. Manu-
facturers of concrete pipe also produce complementary products such as manholes,
elliptical and arch pipes, irrigation pipe and drain tile. This last product is manufac-
tured by many small companies that do not make pipe.
The principal customers for concrete pipe are the federal, state and municipal
public works agencies, and utilities. Typically, a drainage or water supply project is
designed by qualified engineers who also select and specify the materials to be used.
The contract is then put out to bid and general contractors interested in making a
quotation will seek materials cost estimates from selected pipe manufacturers in the
area. The contractor will incorporate these quotations into his overall bid submission
and, if successful, will normally negotiate the precise terms of purchase from the pipe
manufacturer and arrange for orderly shipments.
The prevalence and importance of material specifications imply that a great deal
of prespecification promotion and technical sales must take place at all levels. Pres-
sure-pipe manufacturers usually have sales engineers who contact the design engineers
(employed internally or externally by the public agencies) and discuss the perform-
ance, merits and cost-effectiveness of their particular products. All concrete pipe must
be manufactured to established national standards so the preliminary promotion
required to obtain the specification is normally against competing materials — exclu-
sive specifications are uncommon.
34
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TABLE 11-5
GENERAL STATISTICS, BY EMPLOYMENT SIZE OF ESTABLISHMENT: 1972
No. of
Estab-
lish-
ments
All Employees
Number
(1,000)
Payroll
($MM)
Production Workers
Number
(1,000)
Man-hours
(MM)
Wages
($MMI
Value
Added by
Manufac-
ture
($MM)
Cost of
Materials
($MM)
Value of
Shipments
($MM)
Capital
Expendi-
tures,
($MM)
End-of-
Year
Inven-
tories
($MM)
3272- Concrete Products, NEC
Establishments, Total
Establishments with an Average of-
1 to 4 Employees
5 to 9 Employees
10 to 19 Employees
20 to 49 Employees
50 to 99 Employees
100 to 249 Employees
250 to 499 Employees
500 to 999 Employees
Estate, Covered by Admin. Record
3^95
67.6
570.2
53.5
109.9
401.0 1,190.1
786.4
1,961.4
96.2
260.3
1,479
658
535
570
235
105
11
2
1,586
2.6
4.4
7.4
17.7
16.3
14.6
4.6
(D)
4.6
19.2
34.2
57.9
146.8
140.5
130.4
41.1
(D)
33.5
2.6
3.5
5.7
13.5
12.9
11.5
3.8
(D)
4.2
4.5
7.4
11.3
28.0
26.8
24.5
7.5
(D)
7.9
14.0
24.2
38.8
99.0
99.4
92.7
32.8
(D)
24.3
51.6
76.1
122.8
302.4
296.6
257.0
83.7
(D)
80.9
34.6
48.0
71.0
198.7
197.3
177.2
59.6
(D)
53.9
86.8
123.8
191.6
495.1
488.8
432.2
143.0
(D)
134.8
4.5
14.7
9.6
26.7
13.5
19.4
7.6
(D)
7.0
11.6
14.9
21.9
65.0
66.4
59.5
21.1
(D)
18.8
D — Withheld; included with previous item underscored.
Source: Bureau of Census, Census of Manufactures, 1972, MC 72(2)-32D.
-------
2. Industry Structure
a. Types of Firms
The data presented in Tables II-3 through II-5 apply broadly to SIC 3272, but no
breakdown is available for precast or prestressed concrete pipe. The ACPA, however,
estimates that 234 companies, operating 436 plants, manufacture a non-pressure
concrete pipe. The American Concrete Pressure Pipe Association estimates that 6
other companies, operating 21 plants, also produce a pressure pipe. While all these
companies specialize in the manufacture of concrete pipe, a number of them are also
diversified horizontally into other businesses, mostly prestressed and precast concrete.
In addition, many small firms in rural areas concentrate on the production of concrete
drain tile. Little vertical integration exists.
Firms operating in this industry vary greatly in size but include about 12 public
corporations. Four of these — Ameron, Interpace, U.S. Pipe and Foundry, and the
Hydro-Conduit Division of Marcor — are nationally-based and have corporate reve-
nues exceeding $100 million. These larger companies operate a number of pipe plants
and, either through their parents or directly, are diversified into a wide range of
businesses. Other, privately-held pipe firms, such as Price Brothers, frequently also
operate more than one facility.
b. Types of Plants
Concrete pipe plants are located throughout the United States. They range in age
from 2 to 40 years, and in capacity from 5,000 to nearly 200,000 tons per year. The
technologies vary, depending on whether the pipe is reinforced or non-reinforced, and
whether the production method is vertical packerhead, vertical wet cast, drycast,
tamped, roller suspension, or centrifugal. Manufacturers purchase practically all of
their raw materials and little or no integrated operations exist except those within the
plant.
c. Industry Segmentation
The Guidance Document has segmented the concrete pipe industry according to
the quantity of wastewater volume, the non-pressure pipe plants having small waste-
water volumes and the pressure pipe plants having larger wastewater volumes. The
following characteristics profile each segment:
Segment
Small wastewater
(non-pressure pipe
and other)
Large wastewater
(pressure pipe)
1972 Shipments
Number of Number of Metric Tons
Plants Employees $ Million (OOO's)
436
21
457
12,000
2,200
14,200
434
131
565
10,600
1,025
11,625
36
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By far the most predominant segment is that producing non-pressure pipe largely
for sewer use. The 436 plants employ 85% of the workers and produce 92% of the
tonnage, but only 77% of the value of shipments. The average output per sewer pipe
plant is 24,300 metric tons. In contrast, the average output for the 21 pressure-pipe
plants, whose product is used mostly for water transmission, is 50,000 metric tons.
Total employment averages 31 per plant.
3. Financial Profiles
a. Financial Profiles for Representative Plants
The Guidance Document has selected two representative plants for the concrete
pipe industry; balance sheets and income statements for each plant are presented in
Tables II-6 through II-9. The smaller of the two plants has an annual non-pressure
(sewer) pipe production of 25,000 metric tons and a 1974 net sales volume of $1.25
million; the larger pressure-pipe plant has an annual production of 90,000 metric tons
and net revenues of $14 million.
The concrete sewer pipe plant represents total assets of $1.2 million and an after-
tax profit of 5.1% on sales. The return on equity is about 10.5%. The ratio of long-term
debt to total capital is about 32% and the annual cash flow, $163,000. For the
representative pressure-pipe plant, total assets are about $16.2 million, and after-tax
profits are 5.0% on sales. The return on equity is about 11.3%. The ratio of long-term
debt to total capital is about 28% and the annual cash flow, $1.65 million. These
profiles are fairly representative of typical plants in each subcategory.
b. Financing
The larger companies in the concrete pipe industry typically finance growth
through internal cash flow generation but will go to the bond or equity market for their
overall corporate capital needs. The cost of capital thus depends greatly on the current
corporate bond rating or on what internal capital charges are made on the operating
divisions. The latter tend to be about 2% above the corporate bond rate.
The smaller firms will also rely to some extent on their internal cash-generation
capabilities but will also utilize normal commercial banking channels to satisfy their
capital needs. In recent years, the delay of projects by the EPA has threatened the
economic viability of manufacturers with low capitalization. However, because the
future of the industry appears bright, most manufacturers should find themselves in a
competitive position in assuring their future capital needs and no significant capital
constraints are anticipated.
4. Pricing
The wholesale price index for reinforced concrete culvert pipe is shown in
Table 11-10. While prices increased by 46% from 1967 to 1974, much of that increase
was in 1973-1974 and prices have actually declined relative to the all-commodities
index. Until the last two to three years, pipe demand has grown at about the rate of
GNP growth. As government financing for water supply and effluent treatment in-
creased, demand and product prices strengthened.
37
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TABLE 11-6
BALANCE SHEET FOR REPRESENTATIVE
CONCRETE SEWER PIPE PLANT, 1974
Annual Production
Net Sales Volume
Total Assets
Ratio of Gross Fixed Assets to Sales
Assets
25,000 metric tons
$1.25 million (@ $50/metric ton)
$1.20 million
1.4
SOOO's
Current Assets
Gross Fixed Assets 1,800
Less Depreciation 1,300
Total Assets
Liabilities
Current Liabilities
Long-Term Debt
Equity
Total Liabilities
Source: Arthur D. Little, Inc., estimates based on industry data.
700
500
1,200
320
280
600
1,200
TABLE 11-7
INCOME STATEMENT FOR REPRESENTATIVE
CONCRETE SEWER PIPE PLANT, 1974
$000's
Net Sales
Less Cost of Labor 410
Cost of Materials, etc. 380
Repairs, Maintenance, etc. 93
Gross Profit
Less Depreciation 100
Interest 35
Sales, General & Administration 145
Profit Before Tax
Income Tax
Profit After Tax
Source: Arthur D. Little, Inc., estimates based on industry data.
38
1,250
883
367
100.0
70.6
29.4
280
87
24
63
22.4
7.0
1.9
5.1
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TABLE 11-8
BALANCE SHEET FOR REPRESENTATIVE
CONCRETE PRESSURE PIPE PLANT, 1974
14,000
7,000
Annual Production
Net Sales Volume
Total Assets
Ratio of Gross Fixed Assets to Sales
Assets
Current Assets
Gross Fixed Assets
Less Depreciation
Other
Total Assets
Liabilities
Current Liabilities
Long-Term Debt
Equity
Total Liabilities
Source: Arthur D. Little, Inc., estimates based on industry data.
90,000 metric tons
$14.0 million (@$155/metric ton)
$16.2 million
1.0
$000's
7,800
7,000
1,400
16,200
3,800
3,500
8,900
16,200
TABLE II-9
INCOME STATEMENT FOR REPRESENTATIVE
CONCRETE PRESSURE PIPE PLANT, 1974
Net Sales
Less Cost of Labor 5,000
Cost of Materials, etc. 4,000
Repairs, Maintenance, etc. 800
Gross Profit
Less Depreciation 950
Interest 550
Sales, General & Administration 1,500
Profit Before Tax
Income Tax
Profit After Tax
Source: Arthur D. Little, Inc., estimates based on industry data.
39
$000's
14,000
9,800
4.200
100.0
67.0
33.0
3,000
1,200
500
700
24.4
8.6
3.6
5.0
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TABLE 11-10
WHOLESALE PRICE INDEXES FOR REINFORCED
CONCRETE CULVERT PIPE
(1967 = 100)
Year Actual Relative*
1967 100.0 100.0
1968 100.3 97.3
1969 101.6 95.4
1970 103.5 93.8
1971 112.0 98.3
1972 116.0 97.4
1973 119.0 87.8
1974 143.6 89.6
"Relative wholesale price indexes obtained by dividing the
actual annual price index by the all commodity W.P.I.
Source: U.S. Department of Labor, Bureau of Statistics,
U.S. Industrial Outlook, 1974.
Because much of pipe is sold through contract bidding, prices are quoted only for
the smaller diameters. One bellwether product, a 12" concrete sewer pipe, is regularly
quoted on a delivered basis in Engineering News Record. In July 1975, for example,
this pipe was selling for $3.92/linear foot, up from $3.39 in 1974; a similar vitrified clay
pipe was quoted at $3.42, up from $2.89Ainear foot. These prices represent a 20-city
average and prices can vary considerably by region. Also, prices for the larger diame-
ters are set on the basis of manufacturing costs, required margins, order size, current
capacity utilization and the competitive environment. For custom pipes, special prices
may be developed.
5. Representative Plant Characteristics
The representative concrete sewer plant has an annual production of 25,000
metric tons. The effluent control Guideline Levels are identified below for this plant:
A — No treatment
B — Settling pits to remove suspended solids, oil and grease pit and
skimmer, and manual pH adjustment with acid
C — Mechanical evaporation of wastewater
40
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TABLE 11-11
FINANCIAL IMPACT OF GUIDELINES ON
REPRESENTATIVE CONCRETE SEWER PIPE PLANT, 1974
Plant Characteristics
Annual Production 25,000 MT/yr
Manufacturing Cost $35.32/MT
Sales Revenue $50.00/MT
Average Annual Capital Investment $58,500
Average Annual Cash Flow $150,000
Financial Impact
Guideline Level ABC
Total Capital Investment for Effluent Control ($) 0 6,860 68,600
Total Annual Effluent Control Cost ($/MT) 0 0.16 0.70
Increase in Manufacturing Cost (%) 0 0.4 2.0
Increase in Price (%) 0 0.3 1.5
Total Investment as % of Average Annual Cash Flow 0 4.6 45.7
Total Investment as % of Average Annual Capital
Investment 0 11.7 117.3
After-tax Return on Sales* (%) 5.1 4.8 4.1
After-tax Return on Equity* (%) 10.5 10.0 8.4
After-tax Return on Assets* (%) 5.3 5.0 4.2
*lf price increases are not achieved
Source: Arthur D. Little, Inc., estimates, based on Guidance Document.
It is not known how many of the approximately 436 sewer pipe plants presently achieve
Level B but the number is believed to be extremely low (5-10%). For the purposes of
this analysis it is assumed that no plants currently achieve Levels B or C. The
financial impact of the Guidelines is summarized in Table 11-11.
The representative concrete pressure-pipe plant has an annual production of
90,000 metric tons and little or no effluent treatment. The Guideline Levels are:
A — No treatment
B — Settling ponds to reduce suspended solids, oil and grease pit and
skimmer, instrumented pH control, and water quality monitoring
C — Level B plus partial recycle of wastewater
D — Mechanical evaporation of wastewater
41
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It is anticipated that plants equivalent to 80-90% of the total production of this
subcategory will have to implement Level B. The anticipated financial impact of the
proposed Guidelines is summarized in Table 11-12.
TABLE 11-12
FINANCIAL IMPACT OF GUIDELINES ON
REPRESENTATIVE CONCRETE PRESSURE PIPE PLANT, 1974
Plant Characteristics
Annual Production 90,000 MT/yr
Manufacturing Cost $108.89/MT
Sales Revenue $155,00/MT
Average Annual Capital Investment $653,500
Average Annual Cash Flow $1,650,000
Financial Impact
Guideline Level A B C D
Total Capital Investment for Effluent
Control ($) 0 137,200 171,500 686,000
Total Annual Effluent Control Cost
($/MT) 0 0.33 0.53 3.42
Increase in Manufacturing Cost (%) 0 0.3 0.5 3.1
Increase in Price (%} 0 0.2 0.3 2.3
Total Investment as % of Average Annual
Cash Flow 0 8.3 10.4 41.6
Total Investment as % of Average Annual
Capital Investment 0 21.0 26.2 1Q5.1
After-tax Return on Sales* (%) 5.0 4.9 4.8 3.7
After-tax Return on Equity* (%) 7.9 7.7 7.6 5.3
After-tax Return on Assets* (%) 4.3 4.2 4.2 3.1
If price increases are not achieved
Sources: Arthur D. Little, Inc., estimates, based on Guidance Document.
42
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6. Economic Impact on Existing Facilities Due to Guidelines
a. Concrete Sewer Pipe (small wastewater volume)
(1) Price Effects. The total annual effluent control cost for those representative
concrete sewer pipe plants that do not presently meet the Guidelines for Levels B or C
is the equivalent of 0.4% and 2.0%, respectively, of their manufacturing costs (Table
11-11). To maintain their after-tax returns on sales, these representative plants must
increase selling prices by 0.3% and 1.5%, respectively. It is anticipated that such price
increases would be implemented by the industry and that they would have no effect on
the supply curve or on the supply/demand equilibrium.
(2) Financial Effects. The total capital investment required for their representa-
tive plant to achieve Level B effluent qualities is estimated at $6,860; the required
amount for Level C is ten times as large. The total investment required by the sewer
pipe subcategory, as few plants are believed to be presently achieving Level B tech-
nology, is estimated at $3,000,000. Level C technology would require $30,000,000.
Such a capital requirement for the typical concrete sewer pipe plant to achieve
Level B represents only 4.6% of the average annual cash flow and 11.7% of average
annual capital investment. These requirements are not expected to have any financial
impact. A moderate impact could occur if sewer pipe plants were required to meet
Level C effluent limitations as the capital investment is equivalent to 45.7% of the
average annual cash flow for the representative plant and 117.3% of the average annual
capital investment. A limited number (perhaps 10-20) of the 436 plants producing
sewer pipe might choose to close rather than implement Level C technologies.
If local competitive pressures were such that plants were unable to make price
increases to cover cost increases anticipated under Level C, the after-tax return on
sales would decline from 5.1% to 4.1%, and that on equity, from 10.5% to 8.4%. The
relative attractiveness of such a lower return would be marginal. Also, the cost-
effectiveness of Level C technologies is questionable as the reduction in raw waste
loads from Level B to Level C is almost not measurable.
(3) Other Effects. No other production, employment, community, or balance of
payments, effects are anticipated unless Guideline Level C is required and a few (10-
20) plants choose to close rather than implement the technologies. An average of about
28 employees would be effected for each sewer pipe plant that closes as a result of
Level C Guidelines. Community and other effects are likely to be minimal, however.
b. Concrete Pressure Pipe (large wastewater volume)
(1) Price Effects. If the representative concrete pressure pipe plant is to re-
cover its costs and maintain its after-tax return on sales, it must make price increases
of 0.2%, 0.3% and 2.3% for Guideline Levels B, C and D respectively. (Table 11-12) It is
anticipated that the price increases required would be made by the industry and would
not have any affect on supply curve or on the supply/demand equilibrium. In the event
that one or more of the 21 concrete pressure pipe plants in the U.S. were unable to
make the 2.3% price increase estimated under Level B for the representative plant,
the cost absorption would result in a decline in the after-tax return on equity from
7.9% to 5.8% and would certainly make such facilities marginal.
43
-------
(2) Financial Effects. The total investments required under each of these three
Guideline levels range from $137,000 to $686,000 for the representative plant. Such
capital requirements are up to 41.6% of the average annual cash flow, under Level D,
and 105.1% of the average annual capital investment. The required investments for
Level D are thus fairly significant and might cause selective impacts. The cost-
effectiveness of Level D requirements, in terms of effluent quality improvements, is
questionable, as raw waste load parameter reductions are minimal.
The total investment requirements for the pressure pipe subcategory are
$237,000, $1.7 million and $7.5 million, for Levels B, C and D, respectively.
(3) Other Effects. No production, employment, community, balance of pay-
ments, or other effects are anticipated under Guideline Levels B or C. Should a plant
consider Level D capital requirements beyond its capabilities and decide to close,
significant employment, community and production effects could result. The average
employment per pressure pipe plant is over 100 personnel; the 21 plants are suf-
ficiently dispersed in the United States that the closing of one could cause product
shortages of concrete pressure pipe in the locality that it serves.
7. Economic Impact On New Sources Due to Guidelines
a. Concrete Sewer Pipe (small wastewater volume)
In order to achieve Guideline Levels B and C, the firm building a new sewer pipe
plant would have to increase its capital outlay by 0.4% and 4.0%, respectively. No
economic impact is anticipated.
b. Concrete Pressure Pipe (large wastewater volume)
The total capital investment for Guideline Level C, $171,500, is equivalent to
about 1.7% of the total capital required for a new pressure pipe plant. No economic
impact is anticipated. However, Level D capital requirements are equivalent to nearly
T"r of the total capital outlay and could have a significant impact on the profitability
of a new facility. It is also possible that Level D effluent control requirements would
deter investment in new capacity by the industry.
B. PRECAST AND PRESTRESSED CONCRETE
1. Products, Markets and Shipments
Precast and prestressed concrete products normally are manufactured by pouring
unhardened concrete into a casting bed where reinforcing steel (conventional or pre-
stressed) has been previously positioned. Precast concrete products include:
• Roof and floor units
• Architectural wall panels, frequently with exposed aggregate faces
• Piling
• Prefabricated building systems
• Burial vaults, septic tanks and miscellaneous products such as garden
furniture, parking blocks, etc.
44
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Prestressed concrete products usually are single or double tees and panels but include
solid and hollow-core slabs, bridge beams and piling.
Precast and prestressed concrete products used in construction are highly engi-
neered and precisely manufactured because they frequently must serve a structural
function in a building or civil engineering structure where accuracy and safety are
important considerations. Consequently, most manufacturers employ a design staff
whose purpose it is to develop structural products to meet specific situations as well as
to check continually on the design economies of the standard units. Standard, or "off
the shelf " items are available from design handbooks and manufacturers' brochures
and a number of proprietary systems are available through licensees. While archi-
tectural products are seldom used in a load-bearing capacity, design aesthetics are
very important and quality control is required to maintain the conformity between one
panel and the next.
Precast and prestressed concrete construction products compete against: ready-
mixed concrete; structural steel; steel, glass and aluminum curtain walls; and clay
brick and other masonry products. Despite this breadth of competition, the industry
was extremely successful in achieving a healthy rate of growth through 1974 and
increasing its share of the new-building and civil engineering structures markets. Since
1974, however, sales and profits have decreased because of the decline in construction
market activity.
The design of a project is always carried out by architects and engineers, either
independent firms or those employed by developers or building owners. Thus, con-
crete-products manufacturers must offer design assistance at the product selection
and specification stage and a high level of service both during and after the construc-
tion stage. Many concrete-products manufacturers also operate contracting firms that
install the units they manufacture although a few companies are backing off from this
integrated responsibility and focusing on the production and marketing of their
products.
The value of precast concrete shipments increased from $341.5 million in 1967 to
$678.6 million in 1973 (Table II-l). Over the same period, prestressed concrete prod-
ucts enjoyed a faster rate of growth, from $217.7 million to $510.4 million. Future
growth for both products will not be as spectacular, because the industry is reaching
maturity and because overall construction activity will be at a lower level. However,
real growth of precast concrete products could still be 6% per year or better, and that
for prestressed concrete better than 10%.
2. Industry Structure
a. Types of Firms
The precise number of firms in the precast and prestressed concrete industry is
not known but, according to Bureau of Census data, could total more than 3,000. The
number of plants they operate is close to or exceeds that number. However, the
majority of precasters are extremely small, local operations that manufacture mis-
cellaneous rion-construction products such as burial vaults, garden furniture, septic
tanks, etc. Many of these latter products are not steel-reinforced.
45
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Production of the more specialized structural and architectural products used in
building and civil engineering construction is concentrated in the hands of far fewer
companies; about 500 companies operate 600-700 prestressing and/or precasting
plants. As previously mentioned, few of these companies are diversified outside their
major businesses although a number do also operate ready-mixed concrete operations,
pipe plants and block plants or are part of larger corporations that have other business
interests.
Architectural precast/prestressed products normally are sold f.o.b. the plant with
freight a trade-off item. In contrast, suppliers of structural products frequently operate
their own transportation equipment and installation crews as profit centers. A few
companies are vertically integrated into cement or aggregates manufacture and/or
horizontally integrated into the production of other concrete products, but integration
is generally low.
6. Types of Plants
Plants range in age up to 50 years and in capacity from 1,500 to over 500,000 tons
per year, the largest of these being prestressing operations. The level of technology is
extremely simple for some precast concrete products; it ranges in sophistication from
simple hand casting to highly capital-intensive operations for prestressed concrete
beams and columns. For example, a new plant with a capacity of about 100,000 tons,
and plant sales of $6 million, would require a capital investment in excess of $6
million. However, many plants are built with provisions for a wide'range of products
that are not necessarily manufactured on a continuous basis; thus capacity utilization
frequently is low. However, the manufacture of solid or cored floor and roof slabs can
involve a continuous process, because these products tend to be more standardized,
commodity units.
c. Industry Segmentation
The Guidance Document does not further segment the precast and prestressed
concrete sector.
3. Financial Profiles
a. Financial Profile for Representative Plant
Tables 11-13 and 11-14 present average pro forma balance sheets and income
statements for a prestressed and architectural precast concrete products plant with an
annual production of 23,000 metric tons in 1974. The industry experienced significant
variability in financial performance in the early 1970's, with excellent years in 1972
and 1973 followed by two unprofitable years. The financial statements presented
average the three years ending mid-1975 and are based on industry association data.
Assuming an f.o.b. value of $88 per metric ton, the net revenues for this facility
were about $2 million. It is estimated that freight and installation would account for
20-25% of the installed value for those companies providing the services; thus the gross
sales volume was about $2.5 million. The representative plant had total assets of $1.77
million in 1974 and a ratio of gross fixed assets to net sales of 0.75. The plant operated
on a gross margin of 33.8% and an after-tax profit of 3.6% in that year. The annual cash
flow was about $250,000, while the return on total assets was about 4.0%, and that on
equity, 14.2%.
46
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TABLE 11-13
BALANCE SHEET FOR REPRESENTATIVE PLANT
PRECAST AND PRESTRESSED CONCRETE PRODUCTS, 1974
Annual Production - 23,000 metric tons
Net Sales Volume - $2.00 million (f.o.b. price @$88/metric ton)
Total Assets _ $1.77 million
Ratio of Gross Fixed Assets to Net Sales - 0.75
Assets $000's
Current Assets 810
Gross Fixed Assets 1,500
Less Depreciation 610 890
Other 70
Total Assets 1,770
Liabilities
Current Liabilities 690
Long-Term Debt 580
Equity 500
Total Liabilities 1,770
Source: Arthur D. Little, Inc., estimates, based on industry data
Because of the wide range of products and company sizes in this industry, a
complete spectrum of financial performance and capitalization exists. The financial
statements presented for the representative plant are believed to be fairly typical for
the average operation manufacturing precast and prestressed concrete building
products.
b. Financing
With the exception of 1975, which was an extremely poor year for the industry,
internally generated funds usually have been adequate to finance most routine capital
needs. Privately held corporations and proprietorships would otherwise seek com-
mercial bank financing at about 1% over the Prime Rate; public companies or their
subsidiaries would rely exclusively on internal capital funding. Financing additional
capital assets is not expected to present a constraint for this industry under normal
conditions, because its prospects appear excellent once the anticipated construction
recovery materializes in late 1976 and 1977.
47
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TABLE 11-14
INCOME STATEMENT FOR REPRESENTATIVE PLANT
PRECAST AND PRESTRESSED CONCRETE PRODUCTS, 1974
$000's
Net Sales 2,000 100.0
Less Cost of Labor 550
Cost of Materials, etc. 700
Repairs, Maintenance, etc. 74 1,324 66.2
Gross Profit 676 33.8
Less Depreciation 180
Interest 80
Sales, General & Administration 320 580 29.0
Profit Before Tax 96 4.8
Income Tax 25 1.2
Profit After Tax 71 3.6
Source: Arthur D. Little, Inc., estimates, based on industry data.
4. Prices and Pricing
Precast and prestressed concrete products used in building or civil engineering
construction normally are quoted on a delivered price basis and frequently are bid to
the contractor. Thus, standard price lists do not exist and the manufacturer in essence
becomes a construction subcontractor and prepares a quotation which takes into
account the product customization required, the competitiveness of the marketplace,
the level of activity in his plant, the distance of the project from his plant, and who his
competitors are likely to be. He examines his costs, and allows for overhead expenses
and a desired profit margin in arriving at a calculated price. He then must judge
whether he will win the contract at the price and, if not, whether he is prepared to
reduce his margin.
For standard products such as burial vaults, garden furniture, parking blocks,
etc., standard prices exist and are listed by the manufacturer.
5. Representative Plant Characteristics
The representative plant manufacturing precast or prestressed concrete products
has an annual production of 23,000 metric tons and has little or no effluent control
treatment in place. Effluent control Guideline levels are identified below:
A — No treatment
B — Settling ponds for removal of suspended solids plus pH adjustment
48
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C — Mechanical clarification systems plus additional settling tanks, plus
pH adjustment prior to discharge
D — Mechanical evaporation of wastewater
In order to meet Level B, about half the plants in this segment would have to install
settling ponds for the removal of solids and adjust pH. Table 11-15 summarizes the
anticipated financial impact of the Guidelines on the representative plant.
6. Economic Impact On Existing Facilities Due to Guidelines
a. Price Effects
The representative precast/prestressed concrete plant would have to make price
increases ranging from 0.4% to 3.2% to cover the incremental annual effluent control
costs of Guideline Levels B through D, respectively (Table 11-15). It is anticipated
that price increases required under Levels B and C would be made by the industry and
would have no effect on the supply curve or the supply/demand equilibrium. However,
a 3.2^ price increase under Level D could be difficult to achieve for those plants
already marginally profitable or in highly-competitive areas. Assuming that those
plants are able to raise the capital but then are unable to achieve price increases to
cover increased costs, their after-tax return on sales would decline from 3.6% to 1.3%,
and after-tax return on equity, from 14.2% to 5.1%. These profitability levels would
almost certainly be unacceptable to the individual investor.
b. Financial Effects
The capital requirements needed by the individual representative plant pres-
ently having no effluent treatment amounts to $15,000 to $16,000 to achieve Levels B
or C. No financial impact is expected. However, the $137,000 required for Level D
represents 68.6% of the average annual cash flow and 146.7% of the average annual
capital investment. Both proportions will probably prove burdensome to a great
number of the industry and many plants may close. Examination of the raw waste load
reductions anticipated under Level D make questionable the cost-effectiveness of this
level of technology over Levels B or C. It is thus unlikely that permit writers will
require Level D technologies or effluent quality levels.
The total investment required by the industry for either Levels B or C is approx-.
imately $6.5 million. The capital outlay is considerably greater ($107.9 million) for
Level D.
c. Other Effects
Unless Level D technologies are required, no production, employment, commu-
nity, advance of payments or other effects are anticipated. These effects under
Level D are unknown but would probably be considerable under normal economic
conditions.
7. Economic Impact On New Sources Due to Guidelines
The total incremental capital investment for effluent control under Levels B and
C is a maximum $16,000 for the representative plant. This is about 0.7% of total
capital required for a new precast or prestressed concrete products facility. No eco-
nomic impact is anticipated. The capital investment for effluent control needed under
Level D, however, is approximately 6% of the total capital outlay required by a new
source and might make marginal the economic feasibility of such an operation.
49
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TABLE 11-15
FINANCIAL IMPACT OF GUIDELINES ON
REPRESENTATIVE PRECAST/PRESTRESSED CONCRETE PLANT, 1974
Plant Characteristics
Annual Production
Manufacturing Cost
Sales Revenue
Average Annual Capital Investment
Average Annual Cash Flow
Financial Impact
Guideline Level
Total Capital Investment for Effluent
Control ($)
Total Annual Effluent Control Cost
($/MT)
Increase in Manufacturing Cost (%)
Increase in Price (%)
Total Investment as % of Average Annual
Cash Flow
Total Investment as % of Average Annual
Capital Investment
After-tax Return on Sales* (%)
After-tax Return on Equity* (%}
After-tax Return on Assets* (%)
23,000 MT/yr
$61.16/MT
$88.00/MT
$93,500
$200,000
0
0
0
0
0
0
3.6
14.2
4.0
15,092
0.33
0.5
0.4
7.5
16.1
3.3
13.1
3.7
15,915
0.83
1.4
0.9
8.0
17.0
2.9
11.4
3.2
137,200
2.68
4.4
3.2
68.6
146.7
1.3
5.1
1.4
If price increases are not achieved
Source: Arthur D. Little, Inc., estimates, based on the Guidance Document.
50
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READY-MIXED CONCRETE (SIC 3273)
A. PRODUCTS, MARKETS AND SHIPMENTS
The ready-mixed concrete industry (SIC 3273) consists of companies manufac-
turing a concrete batch and delivering it to the user in a plastic and unhardened state.
The raw materials used for the ready-mixed concrete are similar to those used for all
types of concrete — coarse and fine aggregate, cement and water. The following
description of the various types of equipment and plants is reproduced from the
Guidance Document:
"The batching and mixing equipment used at ready-mixed concrete plants
ranges in size and complexity from small portable mixers to automated
permanent plants with central mixers capable of producing several hundred
cubic meters of concrete per hour. The three general classifications of plants
are:
(1) Permanent — This type of plant uses ready-mixed trucks which
deliver various types of concrete to numerous customers. The
concrete may be mixed in central mixers and hauled in agitator
trucks or may be dry batched into mixer trucks and mixed in the
truck on the way to the job.
(2) Portable — This is the type of plant used on large highway and
airport paving jobs. The concrete may be produced in a central
mixer and hauled in agitator trucks or it may be dry batched into
trucks and hauled to a portable mixer at the construction site. The
latter is the older method.
(3) Mobile — The mobile concrete plant utilizes trucks capable of
measuring and mixing the aggregate, cement, and water at the job
site. The raw materials are transported separately on the mobile
truck, proportioned and mixed in the truck-mounted mixer at the
job site. Mobile ready-mixed concrete is primarily used for small
jobs that can be economically serviced without returning to the
base plant after each job.
The permanent ready-mixed concrete plant may operate either as a dry
batch plant or a central mixer plant. In a dry batch plant, the mix of
aggregate and cement are weighed and transferred in a dry state to the
ready-mixed trucks along with a proportioned amount of water, then mixed
in the truck. This type of operation is found in approximately three-fourths
of the plants in the permanent segment of the ready-mixed industry. The
other one-fourth of these plants uses a central mixer with an average
capacity of 4 cu m (5 cu yd)."
51
-------
Purchasers and users of ready-mixed concrete favor the product because: it
reduces the investment they would otherwise have to make in mixing and batching
equipment; it eliminates the need to set aside valuable space at the construction site
for such mixing; it adds convenience to the construction process, because the product
can be ordered and received when needed without operating a mixing plant only part
of the time; and it allows for mobile delivery to the exact point of use at the project
without double handling.
According to the National Ready Mixed Concrete Association (NRMCA), whose
members represent about one-quarter of the firms in the United States and 60-70% of
the shipments, the end-use breakdown of ready-mixed concrete in 1970 was:
Residential, including apartments — 29%
Industrial and commercial building — 38%
Public works and transportation — 16%
Public buildings — 9%
Agricultural — 4%
Miscellaneous — 4%
These varied end uses require a wide variety of performance characteristics on
the part of ready-mixed concrete. These characteristics can be achieved by: increasing
the cement proportions to obtain higher ultimate strengths; using special cements to
provide a sulfate-resisting concrete, a white concrete or other such features; adding
chemical additives to reduce cement or water quantities; using lightweight, instead of
regular density, aggregates to minimize the total weight of concrete in its hardened
state; etc. Despite these variations, a standard concrete batch would be designed to
achieve a 3000-psi strength and to use Type II Portland cement.
The physical distribution of ready-mixed concrete is severely limited both by its
product characteristics (shipping radii are limited by the practical hardening time of
the mix) and its high weight-to-value ratio. Consequently, permanent ready-mixed-
concrete plants are located in or around urban and metropolitan areas, while the rural
and more remote regions are mostly served by mobile units or portable equipment. The
operator of a permanent plant will sometimes offer the potential user a limited amount
of pre-sales service but usually also controls the quality of his product by frequently
making and testing concrete cylinders.
A contractor or builder wishing to use concrete on a project first must decide
whether it is more economic and convenient to purchase ready-mixed concrete or to
batch his own on the site. If the decision is to purchase the concrete, he may opt for a
mobile plant but he is very much more likely to select one or more of the local
permanent plant operators to supply his needs for that project. His selection will
depend on a number of factors, including: his past relationship with that operator; the
quoted delivered price; and the capability of that operator to supply his needs in a
timely fashion. If the user selects a mobile plant, he may set up and operate it himself
or subcontract this task to another company. These other companies may or may not
be operators of permanent plants.
52
-------
The value of shipments of ready-mixed concrete by all manufacturing estab-
lishments, as reported by the Bureau of Census, increased from $2.33 billion in 1967 to
$4.01 billion in 1974, at an annual rate of 8.0% (Table III-l). Eliminating the effects of
inflation on the value of shipments, however, the apparent real rate of growth in this
period was only 1.5% per year. The apparent volume of shipments increased from 124.5
million cubic meters (162.4 million cubic yards) in 1967 to about 159.4 million cubic
meters (208.5 million cubic yards) in 1972 but has decreased steadily since then to
151.4 million cubic meters (198 million cubic yards) in 1973. Estimated shipments
totalled $4.01 billion and $3.75 billion, respectively, in 1974 and 1975. The future long-
term real growth in ready-mixed concrete sales will be about parallel to that of
construction activity — approximately 2.5% per year from 1975 to 1980. The industry
presently has excess practical capacity so capacity additions probably will not be
required before 1980, except to replace obsolete plants or to satisfy regional growth.
TABLE 111-1
READY-MIXED CONCRETE PRODUCTION AND VALUE OF SHIPMENTS
Year
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975 (estimate)
Quantity Consumed
Millions Cu. Yds.
113.0
123.5
117.3
133.1
140.4
142.8
144.7
150.8
153.8
162.4
158.8*
160.6*
160.0*
160.0
208.5
198.3**
179.8**
150.0
Value of Shipments
Millions of Dollars
1466.8
1645.8
1645.8
1702.9
1755.8
1970.7
1981.2
2154.9
2165.9
2330.5
2338.6
2470.7
2617.3
2826.8
3578.8
3783.7
4167.2
3748.8
Price
$ Per Cu. Yd.
12.99
13.32
14.03
12.79
12.50
13.79
13.69
13.99
14.08
14.35
14.73
15.38
16.35
17.67
18.27**
19.52**
22.28**
25.00
Source: Census of Manufactures, 1972, Annual Survey of Manufactures, various years, except
'Derived by eliminating the effects of inflation
**Derived from National Ready Mixed Concrete Association, 1974 Industry Data Survey
53
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B. INDUSTRY STRUCTURE
1. Types of Firms
The Bureau of Census reports in the 1972 Census of Manufactures that 3,978
firms operated 4,915 establishments classified under SIC 3273, ready-mixed concrete.
The NRMCA, on the other hand, estimates that 5,122 companies are involved in the
production of ready-mixed concrete and that these companies operated between 7500
and 9500 plants. There is no ready explanation for these apparent discrepancies. One
possibility is that SIC 3273 may cover only stationary plants while the portable units
are included as part of the operations of the highway and other contractors who
principally own and operate them. However, the NRMCA also maintains that its data
referred principally to stationary plants, although they may include a (limited) num-
ber of portable and mobile plants that are also owned by the stationary plant oper-
ators. Further discrepancies appear when one examines the average production per
plant, the number of plants per company, and the apparent distribution of firm size.
It is not necessary, for this analysis, to attempt to resolve the discrepancies
because of the nature of the markets served by each plant type and the low anticipated
economic impact. Because the majority of all economic impact analyses rely heavily
on the consistency, depth and coverage of Census data, this analysis does likewise.
However, alternative data are utilized if these are clearly more accurate or if they
supplement, and appear consistent with information published by the Bureau of
Census.
In 1972, shipments of ready-mixed concrete by all industries totalled $3.58 billion
of which $3.49 billion (98%) was by firms in SIC 3273. These latter firms also shipped
an additional $557 million of secondary products — mainly sand, gravel, concrete
block and other concrete products.
The typical firm supplying ready-mixed concrete will be a proprietorship oper-
ating one or more plants and a number of mixer trucks in an urban or metropolitan
market. Firms range in size up to multi-million dollar operations and more than a few
are part of widely diversified national corporations. While the level of integration is
limited — only 280 of the 4,915 establishments are associated with a mine or
quarry — the level of diversification can be fairly broad for those public companies.
For example, some of the largest companies may operate stone quarries or sand and
gravel pits, manufacture concrete block or precast units or even supply asphaltic
concretes.
Table III-2 shows 1974 data supplied by the NRMCA on the production and
value for 242 reporting member companies that represent approximately 25^
membership and over 20% of U.S. shipments. This table indicates that:
• The 242 reporting companies operate an average of 3.84 plants, each of
which, in turn, produces an average of 35,510 cubic meters (46,449 cubic
yards) annually.
• The average sales volume for each company is $4 million.
54
-------
• The average sales volume for each plant is slightly over $1 million.
• Half of the companies had a total production (all plants) of less than
75,000 cubic meters (100,000 cubic yards).
It should be pointed out, however, that the above data are not necessarily
indicative of a statistical distribution of all plants in the industry or even of all
companies belonging to the NRMCA. For example, it is believed that more than 50%
of plants in the industry produce less than 19,000 cubic meters (25,000 cubic yards) per
year. Thus net sales per plant would be less than $750,000 for more than half the
operators; these are not fully represented in Table III-2.
TABLE 111-2
PRODUCTION DATA FOR 242 REPORTING COMPANIES
1974
Production
(Cu. Yds.)
0
10,000
25,000
50,000
100,000
250,000
500,000
1,000,000
Total
9,999
- 24,999
- 49,999
- 99,999
- 249,999
- 499,999
- 999,999
— and over
No. of
Reporting
Companies
6
31
55
52
66
14
8
10
242
Cu. Yds.
Sold by
Reporting
Companies
37,404
569,769
1,988,568
3,678,188
10,752,749
5,020,804
4,801,173
16,349,412
43,198,067
Total Net
Sales of
Reporting
Companies
($)
1,125,236
13,762,924
46,209,075
83,790,507
233,347,618
112,760,531
104,988,529
366,466,597
962,451,017
Total
Plants of
Reporting
Companies
7
37
81
109
233
78
68
317
930
Average
Annual
Production
Per Plant
(Cu. Yds.)
5,343
15,399
24,550
33,744
46,149
64,369
70,605
51,575
46,449
Source: National Ready Mixed Concrete Association, 1974 Industry Data Survey
2. Types of Plants
Table ITJ-3 presents general statistics for SIC 3273 for the years 1958 through
1972. In 1972, 73% of the establishments had fewer than 20 employees and the average
establishment had: 17 employees, gross value of fixed assets of about $325,000, annual
capital expenditures of $50,000, shipments of $825,000, and value-added of $357,000.
(Note that new capital expenditures increased sharply in 1972, in response to a
significant growth in demand.)
Table III-4 shows similar data by employment size of establishment for 1972 and
whether the establishment is associated with a mine or quarry. Those that are so
associated tend to be larger operations and with a higher value-added ratio. Stationary
ready-mixed plants are distributed throughout the United States approximately ac-
cording to population and level of construction activity (Table III-5). While a few
plants date from the 1930's, most stationary units are considerably newer.
55
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TABLE 111-3
GENERAL STATISTICS, 1958 TO 1972
SIC 3273 - READY-MIXED CONCRETE
Number of
Establishments
1972 Census
1971 ASM
1970 ASM
1969 ASM
1968 ASM
1967 Census
1966 ASM
1965 ASM
1964 ASM
1963 Census
1962 ASM
1961 ASM
1960 ASM
1959 ASM
Total
4,915
(NA)
(NA)
(NA)
(NA)
4,760
(NA)
(NA)
(NA)
4,621
(NA)
(NA)
(NA)
(NA)
With 20
Cmploy-
ees of
More
1,328
(NA)
(NA)
(NA)
(NA)
1.150
(NA)
(NA)
(NA)
1,021
(NA)
(NA)
(NA)
(NA)
All Employees
Number
(1,000)
85.7
76.7
76.4
74.9
73.1
74.5
75.4
76.2
72.3
71.5
66.7
65.3
64.8
67.6
Payroll
($MM)
809.3
655.3
598.6
562.3
521.9
508.8
487.9
465.6
431.8
410.5
381.7
360.8
344.5
345.1
Production Workers
Number
(1,000)
56.9
54.8
53.5
49.0
48.3
49.2
49.9
50.2
46.8
46.1
48.0
45.8
46.8
48.0
Man-
hours
(MM)
114.4
106.1
107.4
102.7
98.2
100.7
101.4
102.4
97.4
96.2
99.2
96.3
96.9
96.2
Wages
($MM)
497.4
426.2
391.3
352.6
319.0
308.6
295.4
279.2
259.0
245.0
245.3
228.5
214.3
215.1
Value
Added by
Manufac-
ture
($MM)
1,756.7
1,422.7
1,275.6
1,320.6
1,206.2
1,155.5
1,051.3
1,066.7
996.6
982.0
786.5
751.6
770.8
770.2
Cost of
Materials,
fuels, etc.
($MM)
2,291.8
1,849.9
1,653.3
1,613.8
1,570.1
1,529.2
1,483.8
1,447.4
1,319.7
1,308.0
1,160.3
1,137.2
1,101.1
1,134.5
Value of
Industry
Shipments
($MM)
4,050.9
3,279.8
2,944.1
2,925.3
2,764.6
2,684.2
2,527.8
2,511.5
2,310.3
2,292.5
1,953.7
1,889.3
1,869.1
1,903.0
Capital
Expendi-
tures,
New
($MM)
247.8
135.4
149.7
140.4
115.6
136.9
143.8
135.6
105.7*
106.0
91.5
75.9
70.3
83.1
Gross
Value of
Fixed
Assets
($MM)
(NA)
1,590.4
1,653.9
1,526.7
1,464.0
1,367.4
(NA)
(NA)
1,043.3
975.8
895.7
(NA)
(NA)
(NA)
End -of
Year
Inven-
tories
($MM)
116.1
103.2
115.4
107.2
96.0
87.0
76.2
70.1
71.9
64.5
60.8
62.6
63.7
63.5
Special-
ization
Ratio
(%)
93
(NA)
(NA)
(NA)
(NA)
93
(NA)
(NA)
(NA)
92
(NA)
(NA)
(NA)
(NA)
Coverage
Ratio
(%)
98
(NA)
(NA)
(NA)
(NA)
98
(NA)
(NA)
(NA)
98
(NA)
(NA)
(NA)
(NA)
1958 Census 3,657
949
62.1
303.1
44.2
88.4 202.0
679.4
1,008.8
1,687.2
71.6
(NA)
60.4
92
97
ASM — Annual Survey of Manufacture
N.A. -Not Available
*Date of limited reliability.
Source: Bureau of Census, Census of Manufactures, 1972, MC 72(2)-32D.
-------
3273- Ready-Mixed Concrete
Establishments, Total
Establishments with an Average of-
1 to 4 Employees
5 to 9 Employees
10 to 19 Employees
20 to 49 Employees
50 to 99 Employees
100 to 249 Employees
250 to 499 Employees
500 to 999 Employees
Estabs, Covered by Admin. Record
3273-02 Without a Mine or Quarry
Establishments, Total
Establishments with an Average of-
1 to 4 Employees
5 to 9 Employees
10 to 19 Employees
20 to 49 Employees
50 to 99 Employees
100 to 249 Employees
250 to 499 Employees
500 to 999 Employees
Estabs, Covered by Admin. Record
3273-11 With a Mine or Quarry
Establishments, Total
Establishments with an Average of-
1 to 4 Employees
5 to 9 Employees
10 to 19 Employees
20 to 49 Employees
50 to 99 Employees
100 to 249 Employees
250 to 499 Employees
500 to 999 Employees
TABLE 111-4
GENERAL STATISTICS, BY EMPLOYMENT SIZE OF ESTABLISHMENT:
1972
No. of
Estab-
lish-
ments
All Employees
Number
(1.000)
Payroll
($MM)
Production Workers
Number
(1,000)
Man-hours
(MM)
Wages
($MM)
Value
Added by
Manufac-
ture
($MM)
Cost of
Materials
($MM)
Value of
Shipments
($MM)
Capital
Expendi-
tures,
($MM)
End-of-
Year
Inven-
tories
($MM)
4,915
4,635
280
85.7
74.3
11.4
809.3
56.9
114.4
497.4 1,756.7
2,291.8
4,050.9
686.1
48.8
98.0
414.3 1^08.6
2,073.8
3384.6
123.2
8.1
16.4
83.1
248.1
218.0
466.3
247.8
206.8
41.0
116.1
1,397
1,027
1,163
1,030
213
73
10
2
1,366
2.9
6.9
16.0
30.7
14.3
10.3
4.7
(D)
5.1
24.3
58.5
146.3
298.1
137.2
97.7
47.3
(D)
40.1
2.4
4.7
10.8
19.6
9.6
6.8
3.0
(D)
3.8
4.1
9.2
21.4
39.7
19.8
13.8
6.3
(D)
6.8
16.1
37.2
90.5
174.8
87.3
61.1
30.4
(D)
25.2
91.8
149.0
335.5
620.3
286.1
183.4
90.6
(D)
109.0
126.0
209.1
433.3
823.0
363.4
231.9
1O5.1
(D)
135.3
217.7
358.1
768.9
1,442.6
649.5
416.6
197.5
(D)
244.3
8.1
17.2
47.2
90.3
37.3
29.6
18.2
(D)
11.5
5.8
9.2
18.1
36.7
19.0
20.5
6.9
(D)
8.6
101.2
1,390
996
1,079
933
175
54
7
1
1,366
2.9
6.7
14.8
27.7
11.7
7.4
3.0
(D)
5.1
24.0
56.5
134.0
267.8
107.1
66.5
30.3
(D)
40.1
2.4
4.5
10.0
17.6
7.9
4.8
1.7
(D)
3.8
4.0
8.9
19.8
35.6
16.2
9.7
3.8
(D)
6.8
15.9
35.7
82.8
155.1
67.9
40.4
16.4
(D)
25.2
89.9
144.0
307.6
557.0
230.2
126.7
53.3
(D)
109.0
123.1
204.9
410.5
770.3
312.3
179.5
73.3
(D)
135.3
212.9
348.8
718.3
1,326.8
542.3
307.5
128.1
(D)
244.3
7.9
16.4
43.6
78.8
29.9
18.9
11.3
(D)
11.5
5.6
9.0
17.1
33.3
15.2
17.2
3.4
(D)
8.6
14.9
7
31
84
97
38
19
3
1
(Z)
0.2
1.2
2.9
2.5
2.9
1.6
(D)
0.2
2.0
12.3
30.2
30.1
31.2
17.0
(D)
(Z)
0.2
0.8
2.0
1.8
2.0
1.2
(D)
(Z)
0.3
1.6
4.1
3.5
4.2
2.6
(D)
0.2
1.4
7.7
19.8
19.4
20.7
14.1
(D)
1.9
5.1
27.9
63.3
55.9
56.7
37.4
(D)
2.9
4.2
22.8
52.7
51.2
52.3
31.8
(D)
4.9
9.3
50.7
115.8
107.2
109.1
69.4
(D)
0.1
0.8
3.6
11.5
7.4
10.7
6.9
(D)
0.2
0.2
1.0
3.4
3.8
3.3
3.0
(D)
(D) — Withheld; included with previous underscored item
(Z) — Statistically insignificant
Source: Bureau of Census, Census of Manufactures,. 1972; MC 72(2)-32D.
-------
TABLE 111-5
SHIPMENTS BY CLASS BY GEOGRAPHIC AREA
1972
Average
Shipment Value
Number Value per Plant
of Plants ($ MM) ($ MM)
Ready-Mixed Concrete:
United States
Northeast
North Central
South
West
4,915
639
1,699
1,619
958
4,050.9
609.4
1,056.6
1,542.9
842.0
0.82
0.95
0.62
0.95
0.88
1967
Average
Shipment Value
Number Value per Plant
of Plants ($MM) ($ MM)
4.760
658
1,661
1,475
966
2,684.2
489.5
818.2
844.9
531.6
0.56
0.74
0.49
0.57
0.55
Source: U.S. Bureau of Census, Census of Manufactures, 1972, MC 72(2)-32D.
3. Industry Segmentation
The Guidance Document has segmented the ready-mixed concrete industry into
five categories: 3 sizes of permanent plants; mobile plants; and portable plants.
Because mobile plants have no wastewater, an economic impact analysis of effluent
guidelines would be irrelevant. Permanent plants are used predominately in urban
areas or where long-term market demand is sufficient to sustain a unit. Portable plants
are basically similar in process technology and equipment but lack permanent founda-
tions. Process effluents are also comparable, as are financial and operating character-
istics. However, portable units tend to have a more protected market and operate more
profitably. Hence, the analysis focuses on the three sizes of permanent plants.
C. FINANCIAL PROFILES
The ready-mixed concrete industry has a gross value of fixed assets of approx-
imately $1.6 billion, up from $1.46 billion in 1968. New capital expenditures have
averaged $158 million (about 10% of the gross value) annually over the same period.
Table III-6 shows typical financial ratios for 1972 to 1974 derived from an analysis
undertaken by Robert Morris Associates of the financial statements of a number of
ready-mixed concrete producers. The statements analyzed are exhibited by asset size.
From these data it can be seen that before-tax profit as a percentage of sales is not too
healthy and has declined considerably for those companies with assets between $0.25
million and $1 million. The returns on net worth and total assets are reasonably
attractive but these, too, have declined since 1972 and are extremely low for all but the
top quartile of the statements analyzed.
58
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TABLE 111-6
TYPICAL FINANCIAL RATIOS
1974 1973 1972
Asset Size 0.25-1.0 1 to 10 All Sizes 0.25-1.0 1 to 10 All Sizes 0.25-1.0 1 to 10 All Sizes
($Million)
Number of
Statements 39 54 114 32 56 106 49 41 102
(1) Prof it Before
Tax as % of
Sales 1.7 2.2 4.0 3.0 4.7 5.9 3.5 4.5 5.3
(2) %PBT/Worth
(3) %PBT/Assets
Source: Robert Morris Associates' Annual Statement Studies. These data represent the aggregation of the financial statements for companies
with varying assets sizes in the Ready-Mixed Concrete Industry. The ranges shown for items (2) and (3) represent the first, middle
two and fourth quartile distributions.
30.0
12.4
0.8
9.7
3.5
0.3
20.4
11.2
1.2
7.4
3.5
0.5
23.7
13.4
3.6
9.3
4.2
0.8
26.5
14.4
7.1
10.6
6.2
2.7
31.0
16.8
10.2
11.3
7.7
2.9
28.1
16.8
8.5
11.1
7.4
3.0
35.7
16.2
4.0
13.3
4.8
1.5
36.0
19.4
6.3
13.6
5.6
2.8
35.7
19.1
6.2
14.0
5.9
2.3
-------
The fixed assets of the typical permanent plant have a market value of less than
$0.5 million and a debt-to-equity ratio of about 0.40. Fixed costs are about 20-30% of
net sales revenues, with variable costs of at least 70%. A new plant with a capacity of
39,300 cubic meters (52,000 cubic yards) would require an investment of $0.5 million.
Despite the occasional excellent year, the ready-mixed concrete industry cannot
be considered as being generally profitable and many small plants are only marginal
operations. Margins can be expected to improve as the construction industry comes
out of the current recession but intra-industry price competition dampens the oppor-
tunity for stable profits.
1. Financial Profiles for Representative Plants
In Tables III-7 through 111-12, we have constructed typical balance sheets and
income statements as of 1974 for the representative permanent ready-mixed concrete
plants selected by the technical contractor for the cost-benefit analysis.
For the smallest plant, annual production totals 18,900 cubic meters (25,000
cubic yards) and sales volume is $600,000. After-tax income is about 1.4% of net sales,
and the annual cash flow is about $31,000. The return on total assets is 3.2%; on equity
For the mid-sized permanent plant, annual production totals 39,300 cubic meters
(52,000 cubic yards) and sales volume is $1.2 million. A plant of this size and type had
a before-tax profit of about 1.7% of net sales and a tax liability of 0.3% in 1974. The
annual cash flow is approximately $66,000, while the return on assets is 3.0% and
return on equity is 8%. The largest representative plant selected has an annual
production of 75,000 cubic meters (99,000 cubic yards) and net sales of $2.2 million.
The annual cash flow totals $129,000 while the after-tax return on net sales is about
1.7%, that on total assets 3% and that on equity 8%.
It should be emphasized that, while extremely low, these returns reflect a poor
year for the industry and that financial performance is typically stronger, as Table III-
6 showed.
2. Financing
The majority of firms in this industry are proprietorships or closely held public
companies. Therefore, external financing is limited to private placements, bank loans
or the extension of credit by machinery suppliers. Many ready-mixed operators are
thus undercapitalized and could have difficulty in raising sufficient funds for other
than routine replacement investments. Since most firms also operate two or more
plants within the same geographic area, non-productive investments, such as for
effluent controls, might cause them to consolidate operations into fewer, larger facil-
ities. This decision, however, will be made with many other factors in mind, such as
the competitive environment, freight costs, land availability and the size and extent of
the required investment at each location. The cost of capital for most operators would
be approximately 1% over the Prime Rate.
60
-------
TABLE 111-7
BALANCE SHEET FOR REPRESENTATIVE PLANT
PERMANENT READY-MIXED CONCRETE, 1974
Annual Production
Net Sales Volume
Total Assets
Ratio of Gross Fixed Assets to Net Sales
Assets
Current Assets
Gross Fixed Assets 200
Less Depreciation 80
Other
Total Assets
Liabilities
Current Liabilities
Long-Term Debt
Equity
Total Liabilities
Sources: Robert Morris Associates' Annual Statement Studies and
Arthur D. Little, Inc., estimates.
18,900 cubic meters
25,000 cubic yards
$600,000 @ $24/cubic yard, delivered,
3000 psi)
$250,000
0.35
SOOO's
110
120
20
250
80
70
100
250
61
-------
TABLE 111-8
INCOME STATEMENT FOR REPRESENTATIVE PLANT
PERMANENT READY-MIXED CONCRETE, 1974
$000's
Net Sales (18,900 cubic meters) 600 100.0
Less Cost of Labor 110
Cost of Materials, etc. 300
Repairs, Maintenance, etc. 25 435 72.5
Gross Prof it 165 27.5
Less Depreciation 23
Interest 17
Sales, General & Administration 115 155 25.8
Profit Before Tax 10 1.7
Income Tax 2 0.3
Profit After Tax 8 1.4
Sources: Robert Morris Associates' Annual Statement Studies and
Arthur D. Little, Inc., estimates.
62
-------
TABLE 111-9
BALANCE SHEET FOR REPRESENTATIVE PLANT
PERMANENT READY-MIXED CONCRETE, 1974
470
190
Annual Production
Net Sales Volume
Total Assets
Ratio of Gross Fixed Assets to Net Sales
Assets
Current Assets
Gross Fixed Assets
Less Depreciation
Other
Total Assets
Liabilities
Current Liabilities
Long-Term Debt
Equity
Total Liabilities
Sources: Robert Morris Associates' Annual Statement Studies and
Arthur D. Little, Inc., estimates.
39,300 cubic meters
52,000 cubic yards
$1.2 Million (@$23/cubic yard, delivered,
3000 psi)
$0.53 Million
0.40
$000's
200
280
50
530
180
150
200
530
63
-------
TABLE 111-10
INCOME STATEMENT FOR REPRESENTATIVE PLANT
PERMANENT READY-MIXED CONCRETE, 1974
$000's %
Net Sales (39,300 cubic meters) 1,200 100.0
Less Cost of Labor 230
Cost of Materials, etc. 570
Repairs, Maintenance, etc. 50 850 71.2
Gross Profit 350 28.8
Less Depreciation 50
Interest 30
Sales, General & Administration 240 330 27.1
Profit Before Tax 20 1.7
Income Tax 4 0.3
Profit After Tax 16 1.4
Sources: Robert Morris Associates' Annual Statement Studies and
Arthur D. Little, Inc., estimates.
64
-------
TABLE 111-11
BALANCE SHEET FOR REPRESENTATIVE PLANT
PERMANENT READY-MIXED CONCRETE, 1974
1,130
500
Annual Production
Net Sales Volume
Total Assets
Ratio of Gross Fixed Assets to Net Sales
Assets
Current Assets
Gross Fixed Assets
Less Depreciation
Other
Total Assets
Liabilities
Current Liabilities
Long-Term Debt
Equity
Total Liabilities
Sources: Robert Morris Associates' Annual Statement Studies and
Arthur D. Little, Inc., estimates.
75,000 cubic meters
99,000 cubic yards
$2.2 Million (@ $22/cubic yard, delivered
3000 psi)
$1.30 Million
0.50
$000's
530
630
140
1,300
500
310
490
1,300
65
-------
TABLE 111-12
INCOME STATEMENT FOR REPRESENTATIVE PLANT
PERMANENT READY-MIXED CONCRETE, 1974
$000's %
Net Sales (75,000 cubic meters) 2,200 100.0
Less Cost of Labor 440
Cost of Materials, etc. 1,150
Repairs, Maintenance, etc. 110 1,700 77.3
Gross Profit 500 22.7
Less Depreciation 90
Interest 90
Sales, General & Administration 270 450 20.5
Profit Before Tax 50 2.2
Income Tax 11 0.5
Profit After Tax 39 1.7
Sources: Robert Morris Associates' Annual Statement Studies and
Arthur D. Little, Inc., estimates.
66
-------
D. PRICES AND PRICING
1. Price Determination
Prices of ready-mixed concrete are quoted on a delivered basis and the cost and
time of delivery from the producing plant to the construction site are significant
factors in the service performance and competitiveness of the supplier. Thus, although
each supplier attempts to achieve at least a target margin, price competition on a job-
by-job basis frequently exists. However, this competition is somewhat lessened by the
frequent personal supplier-purchaser relationships that are important in doing busi-
ness in this industry.
2. Historic Prices
The average delivered price in the United States for 3,000 pounds per square inch
ready-mixed concrete was $26.37 per cubic yard in mid-1975, up from about $23 at a
similar period in 1974. The wholesale price index (Table 111-13) increased from 100.0
in 1967 to 153.3 in 1974, at an average annual rate of 6.3%. Much of this increase took
place between 1973 and 1974. However, the wholesale price of ready-mixed concrete
dropped in each year from 1972 through 1974 relative to the All Commodities Whole-
sale Price Index and represented 95.7 of that index in 1974. This latter fact helps to
explain the poor profitability discussed earlier, although the WPI increased, relatively,
in 1975.
TABLE 111-13
WHOLESALE PRICE INDICES
(1967=100)
Ready-Mixed Concrete
Year Actual Relative*
1967 100.0 100.0
1968 102.6 100.1
1969 107.2 100.7
1970 113.6 102.9
1971 122.7 107.7
1972 127.9 107.4
1973 133.0 98.2
1974 153.3 95.7
1975 (est.) 171.5 98.1
'Relative wholesale price indexes obtained by dividing the
actual annual price index by the all commodity W.P.I.
Source: U.S. Department of Labor, Bureau of Statistics,
U.S. Industrial Outlook, 1974.
61
-------
E. ALTERNATIVE TREATMENT LEVELS
The Guidance Document describes the various current and potential treatment
levels for three plant sizes — 18,900, 39,300, and 75,000 cubic meters per year, i.e.:
Level A: — No treatment.
Level B: — Pond settling of suspended solids; no aggregate recovery; no pH
adjustment.
Level C: — Same as Level B plus pH adjustment.
Level D: — Sloped slab system; recovery of aggregate; partial recycle of processed
wastewater; no recovery of cement fines; no pH adjustment
Level E: — Same as Level D plus pH adjustment.
Level F: — Mechanical clarification system (e.g., Jaddair Redi-Wash), recovery of
aggregate; partial recycle of process wastewater; no recovery of cement
fines; no pH adjustment.
Level G: — Same as Level F plus pH adjustment.
Level H: — Same as Level F plus mechanical evaporation of excess wastewater.
Level I: — Total recycle of wastewater with recovery and reuse of aggregates and
cement.
The effluent Guidelines studied do not call for the control of runoff. Plants at
Level A or B could implement Levels C through I; those at Level D could implement
Levels E through I; plants at Level F could go to Levels G, H or I. All plants currently
without runoff systems will incur costs to achieve Level I.
Table 111-14 shows the treatment technology employed by the ready-mixed con-
crete industry as of 1974 as described in the Guidance Document.
TABLE 111-14
READY-MIXED CONCRETE INDUSTRY TREATMENT TECHNOLOGY, 1974
Treatment Level Number of Plants Percent of Total
A 480 9.8
B 1,104 22.6
D 768 15.7
F 144 2.9
Runoff System 2,400 49.0
4,896 100.0
68
-------
Almost half of the ready-mixed concrete plants already have runoff systems in
place. They would not incur any additional expense as a result of any treatment within
each level studied. The distribution of treatment level size category was the same for
each of the three sizes in the Guidance Document.
The alternative treatment levels analyzed in this study are as follows:
— Alternative 1: A minimum of treatment Level B (pond settling
of suspended solids) plus pH adjustments for all plants. Plants
with no treatment (Level A) would be required to construct set-
tling ponds and incorporate pH adjustment (go from Level A to
Level C). All other plants, except those with runoff systems,
would be required to add pH adjustment to the treatment stream.
Those at Level B would then go to treatment Level C, those at
Level D would go to treatment Level E, and those at Level F
would go to treatment Level G.
— Alternative 2: A minimum of treatment Level D (sloped slab
system; recovery of aggregate; partial recycle of process waste-
water; no recovery of cement fines; and no pH adjustment).
Plants with no treatment (Level A) and plants at Level B (a
total of 1,584 plants) are affected; the remaining 3,312 plants are
unaffected.
— Alternative 3: A minimum of treatment Level F (mechanical
clarification system; recovery of aggregate; partial recycle of proc-
ess wastewater; no recovery of cement fines; no pH adjustment).
Plants currently with no treatment (Level A), plants at Level B,
and plants at Level D (a total of 2,352 plants out of 4,896) will be
affected.
— Alternative 4: Total recycle of process wastewater, with reuse of
aggregate and cement fines (Level I). A total of 2,496 plants will
be affected, because only those 2,400 plants with runoff systems
are currently in compliance.
F. ECONOMIC IMPACT ON EXISTING FACILITIES
DUE TO GUIDELINES
1. Permanent Plants
a. Cost of Compliance
The cost of compliance escalates rapidly for progressively stringent treatment
levels (Table III-15). The total annual cost for Alternative 2 is 20% higher than that of
Alternative 1; the total for Alternative 3 is more than twice that of Alternative l;and
the total for Alternative 5 is 19 times more than that for Alternative 1.
For each alternative the cost of compliance varies significantly according to
current plant size and current level of treatment (Appendix A, Tables A-l through A-
4). The increase in cost of production (change in average total cost) for each com-
bination of plant size and current treatment is shown in Table 111-16.
69
-------
TABLE 111-15
COST OF COMPLIANCE
ALTERNATIVE TREATMENT LEVELS
($000)
Capital Expenditure Operating Total Annual
Total Annual! zed* Cost Cost
Alternative 1 15,030 1,710 4,640 6,350
Alternative 2 27,420 3,280 4,550 7,830
Alternatives 86,760 15,230 1,030 16,260
Alternative 4 139,290 28,450 92,440 120,880
*Based on the assumption of a 10% cost of capital to the industry.
Source: Derived from Appendix Tables A-1, A-2, A-3 and A-4.
b. Price and Output Effects
Prices in the ready-mixed concrete industry vary by size of plant. In 1974,
according to industry data, the average price per cubic meter of concrete was $29.14
while the price was $32.07 for the 18,900 Cu.M. size category, $30.39 for the 39,300
Cu.M. size category and $29.03 for the 75,000 Cu.M. size category. The explanation for
this could be that different size plants generally do not compete in the same markets.
For purposes of this analysis, the assumption is made that the price differential by size
will continue.
Water effluent treatment methods used by ready-mixed concrete plants differ
considerably (Table 111-14). Since as many as one-half of the plants in each size
category currently have runoff systems, the price impact of any of the alternative
Guidelines could be as low as zero; that is, no increase. In certain markets, where the
supply/demand balance is tight, the price impact could be equal to the weighted
average cost increase for each size category or the highest cost measure. This scenario
would materialize if current treatment levels vary by market region and competing
plants generally have the same treatment train in place.
Table 111-17 depicts the potential long-run increases (in 1974 dollars) that could
occur for each alternative treatment level. For Alternative 1, price impacts are min-
imal, at a maximum increase of 0.5%. The price impact of Alternative 2 is similar to
Alternative 1, with a maximum level of 0.6% to 0.7% for each size category. Under
Alternative 3, the price impact is still small, with the small plant price increase at a
maximum level of 1.1%. Under Alternative 4, the price impact would be more sub-
stantial, at maximum levels of 4%-5% and an overall average level of l%-2%.
In general, for each alternative treatment level, plants currently with no control
(Level A) incur the greatest cost per size of plant and require the greatest increase in
price to recover the cost of installing pollution control equipment and to finance the
capital investment. If the plants currently with no water pollution control (Level A)
70
-------
TABLE 111-16
INCREASE IN AVERAGE TOTAL COST PER CUBIC METER
ALTERNATIVE TREATMENT LEVELS
($1974)
Effluent Level
Current
A
B
0
F
Runoff
Proposed
C
C
E
G
Same
Weighted Average
Effluent Level
Current Proposed
A D
B D
Others Same
Weighted Average
ALTERNATIVE 1
Size Category (Cu.M.)
18,900
0.19
0.08
0.03
0.03
39,300
0.15
0.03
0.02
0.03
75,000
0.15
0.03
0.02
0.02
0.04
0.03
ALTERNATIVE 2
0.22
0.10
0.18
0.06
0.04 0.03
ALTERNATIVE 3
0.03
0.17
0.05
0.03
Total
0.03
0.03
Effluent Level
Current
A
B
D
Others
Weighted
Proposed
F
F
F
Same
Average
Effluent Level
Current
A
B
D
F
Others
Proposed
I
I
I
I
Same
Weighted Average
0.36
0.25
0.15
0.27
0.15
0.08
0.12 0.08
ALTERNATIVE 4
1.55
1.43
1.33
1.19
0.72
1.29
1.16
1.08
0.98
0.58
Source: Derived from Appendix Tables A-1, A-2, A-3, and A-4.
0.22
0.10
0.03
0.05
1.20
0.88
0.63
0.56
0.48
0.06
0.47
71
-------
TABLE 111-17
ESTIMATED LONG-RUN EQUILIBRIUM PRICE AND OUTPUT EFFECTS
OF COMPLIANCE WITH WATER EFFLUENT CONTROLS
1974 Alternative 1 Alternative 2 Alternative 3 Alternative 4
Price Compliance Cost Decline in Compliance Cost
Plant Size1 Cu.M. $/Cu.M. % of Price Output/Plant4 $/Cu.M. % of Price
($)
18,900 Cu.M. 32.07
Highest Cost2 0.19 0.5 95 Cu.M. 0.22 0.7
Average Cost3 0.04 0.1 19 0.04 0.1
No. Plants = 1,224
39,300 Cu.M. 30.39
Highest Cost2 0.15 0.5 197 Cu.M. 0.18 0.6
Average Cost3 0.03 0.1 39 0.03 0.1
No. Plants = 1,224
75,000 Cu.M. 29.03
Highest Cost2 0.14 0.5 375 Cu.M. 0.17 0.6
Average Cost2 0.02 0.1 75 0.03 0.1
No. Plants = 2,448
Avaragt - All
Sizes 29.14 0.3 0.1 0.03 0.1
Decline in Compliance Cost Decline in Compliance Cost Decline in
Output/Plant4 $/Cu.M. % of Price Output/Plant4 $/Cu.M. % of Price Output/Plant4
132 Cu.M. 0.36 1.1 208 Cu.M. 1.55 4.8 907 Cu.M.
19 0.12 0.3 57 0.72 2.2 416
235 Cu.M. 0.27 0.9 354 Cu.M. 1.29 4.2 1668 Cu.M.
39 0.08 0.3 57 0.58 1.9 747
450 Cu.M. 0.22 0.8 600 Cu.M. 1.20 4.1 3075 Cu.M.
75 0.05 0.2 150 0.41 1.4 1050
0.06 0.2 0.47 1.7
1 Annual Production.
2. Change in long-run equilibrium price is equal to highest change in total cost within the subgroup.
3. Change in long-run equilibrium price is equal to the weighted average change in total cost for the entire category.
4. Based upon an estimated price elasticity of 1.00.
Source: Derived from Appendix Tables A-1, A-2, A-3 and A-4.
-------
compete substantially with plants with higher levels of control, the former may not be
able to increase prices to cover the cost of pollution control. Thus, the average impact
for each size category may be more representative of the price impact that will prevail.
As c result, some of the smaller plants with no pollution control equipment currently
in place will incur a proportionately greater cost, given the magnitude of any price
increase they can hope to attain, and will suffer reduced margins. The actual price
impact that occurs — zero, average impact, or highest — will depend upon economic
conditions and specifically on the demand for ready-mixed concrete at the local level.
A microeconomic model of the ready-mixed concrete industry indicates that the
price elasticity of demand is such that a 1% increase in price will result in a corre-
sponding reduction in the level of demand. This means that quantity demanded will
decline in the same proportion as the price increase. An illustration of the output
reduction for each plant that would have occurred had the price impacts taken place in
1974 is also shown in Table EI-17. Note that what will occur as a result of a price
increase will be a reduction in the demand level prevailing when the price increases
occur.
c. Financial Effects
The potential price increases resulting from the alternative treatment levels
range from no increase, to that equivalent to the change in average total cost for the
high-impact plant category (plants currently with no treatment). Whether or not price
increases occur, price increases in a competitive industry like ready-mixed concrete
probably will follow cost increases. As a consequence, some plants may have difficulty
generating sufficient funds to purchase the required capital equipment.
Ready-mixed concrete plants are relatively small business enterprises. It would
be unlikely that all of them could obtain external financing for the cost of pollution
control expenditures. It was important, therefore, to determine whether they can meet
the capital investment outlays out of cash flow. Hence, the capital investment that
must be made to comply with the Guidelines was compared to annual cash flow for
each category of water effluent discharge for each size plant (Table III-18). Within
each size of plant for each alternative studied, the producer with no treatment in place
incurs the highest relative investment as a percentage of cash flow. As the treatment
alternatives become more stringent, the required initial investment is a larger portion
of cash flow. The cash flow requirements of Alternatives 1 and 2 do not appear very
severe, at a maximum of 16% of cash flow for Alternative 1 and 33% for Alternative 2.
Under Alternative 3, small and medium-sized plants and large plants with no treat-
ment (Level A) may experience difficulty devoting 50% or more of annual cash flow to
pollution control investment. Under Alternative 4, plants with treatment levels below
Level F (partial recycle) could have difficulty paying for pollution control equipment
out of cash flow.
Another way of examining the impact of alternative treatment levels is to exam-
ine the change in profitability that would occur under each alternative. If the price
increase corresponds to the highest cost increase for any plant within a size category,
then all plants will maintain or increase profitability. If price increases do not occur,
profitability will decline for all ready-mixed concrete plants that must incur some
73
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TABLE 111-18
INITIAL CAPITAL EXPENDITURE FOR CONTROL ALTERNATIVES
COMPARED TO ANNUAL CASH FLOW
Effluent Level
Size Category Cu.M.
Current
A
B
D
F
Runoff
A
B
Others
A
B
D
Others
A
B
D
F
Others
Proposed
C
C
E
G
Same
D
D
Same
F
F
F
Same
I
I
I
I
Same
($000)
5.1
2.7
2.7
2.7
-
10.1
7.6
-
26.4
24.0
16.4
-
37.1
34.6
27.0
10.7
—
18,900
% Cash
18
9
9
9
0
35
26
-
gi
83
57
-
128
ng
93
37
—
39,300
Flow ($000)
Alternative 1
9.2
4.1
4.1
4.1
-
Alternative 2
17.3
12.2
-
Alternative 3
41.2
36.1
23.9
-
Alternative 4
55.5
52.4
40.2
16.3
—
% Cash Flow
4
6
6
6
0
26
18
-
62
55
36
-
84
79
61
25
—
75,000
($000)
15.7
6.1
6.1
6.1
-
30.3
20.6
-
60.6
50.9
30.3
-
84.8
75.1
60.6
24.2
—
% Cash Flow
12
5
5
5
0
23
16
0
47
sg
23
0
66
58
47
19
0
Annual Cash Flow
($ 000) 29.0 66.0
Source: Appendix Tables A-1 through A-4; Arthur D. Little, Inc., estimates.
129.0
74
-------
costs to come into compliance. The average reduction in profitability for each plant
size if no price increases occur is shown in Table 111-19 part A.
Under each alternative, if the price increase is equal to the change in long-run
average total cost, then some plants will face a reduction in profits while others will
have an increase in profits. The factor which determines the impact on profits, under
this scenario, is the current treatment in place. Plants with no treatment will have the
highest costs and the incremental price increase will be less than the highest change in
cost. These plants could face the profit reductions indicated in Table 111-19 B. Plants
with some treatment in place may enjoy price increases greater than their change in
long-run average cost and thus their profits will increase. This does not necessarily
mean that some firms will have lower profit levels than others as a result of the
regulations because plants which will incur the lowest cost of compliance are already
incurring costs associated with equipment in place. (In fact current market prices may
reflect the cost of treatment in place.) In all cases, plants currently with runoff systems
wll enjoy increased profits as a result of any price increase.
If no price increase occurs, all plants that are affected by an alternative will face a
decrease in profits, and under Alternative 4, profitability would be substantially
eliminated.
As mentioned above, the price increase scenario that materializes will differ by
market area according to the supply/demand balance and the current treatment levels
prevalent in an area.
d. Conclusions
Table 111-20 summarizes the impact of different guideline effluent levels on the
ready-mix concrete industry. On average, the impact of treatment Alternative 1 is
small for each size group of ready-mixed plants. Price effects are small (0.1%-0.5%)
and, in view of annual cash flow, capital investment costs are not overly burdensome.
The impact of treatment Alternative 2 is moderate. It would be associated with
small prive increases (0.1%-0.7%), but capital investment would require up to one-
third of a year's cash flow. Plant shutdowns would only be likely in an area where
small, marginal plants without any treatment (up to 120 plants) compete with plants
that have some treatment in place. Employment and community effects are minimal.
Although treatment Alternative 3 would be associated with small price increases
(0.2%-1.1%), the capital investment required is sufficiently large to present problems
to some ready-mixed plants. Plant closures could occur if plants currently with no
treatment (Level A) or small and medium-sized plants are unable to obtain external
financing for the pollution control equipment (up to 1032 plants). Employment effects
could be significant (up to 12,300 persons, or 15% of the industry) and community
supply effects could occur in up to 1000 communities when demand is strong.
Alternative 4 could bring about price increases of from 1.4% to 4.8%. Plants of all
sizes currently with no treatment or at treatment Levels B or D could shut down if
unable to obtain external financing. In addition, if price increases are equal to the
average change in total cost for each size category, the reduced profitability for small
75
-------
TABLE 111-19
IMPACT OF GUIDELINES ON PROFITABILITY OF
READY-MIXED CONCRETE PLANTS
(all dollars in thousands)
A. Without Price Increase (Average Decline in Profit)
Guidelines Control Level
Plant Size
18,900 Cu.M.
$ Decline in Profit
% of Average
39,300 Cu.M.
$ Decline in Profit
% of Average
75,000 Cu.M.
$ Decline in Profit
% of Average
Industry Average
$ Decline in Profit
% of Average
B. With Price Increase
Plant Size
18, 900 Cu.M.
$ Decline in Profit
% of Average
39,300 Cu.M.
$ Decline in Profit
% of Average
75,000 Cu.M.
$ Decline in Profit
% of Average
Industry Average
$ Decline in Profit
% of Average
Hvcrdije
Profit
$ 8.01
$16.0
$39.0
$25.5
(Maximum Decline
Average
Profit
$ 8.0
$16.0
$39.0
$25.5
A
$-0.4
-5%
$-0.5
-3%
$-0.9
-2%
$0.6
-3%
in Profit)*
A
$-1.5
-14%
$-2.5
-15%
$-4.7
-12%
$-3.4
-13%
B
$-0.4
-5%
$-1.1
-7%
$-1.1
-3%
$0.8
-3%
Guidelines
B
$-1.8
-22%
$-3.9
-24%
$-5.5
-14%
$-4.2
-16%
C
$-1.1
-14%
$-1.6
-10%
$-2.1
-5%
$-1.7
-7%
Control Level
C
$-2.3
-31%
$-3.9
-17%
$-6.7
-17%
$-4.9
-19%
D
$- 7.1
-88%
$-12.1
-76%
$-16.1
-41%
$-12.8
-50%
D
$- 8.1
-100%
$-15.6
-60%
$-33.3
-60%
$-22.6
-89%
'Average decline in profit is zero.
76
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TABLE 111-20
FINANCIAL IMPACT OF GUIDELINES ON
REPRESENTATIVE READY-MIXED CONCRETE PLANTS
Plant Characteristics
Average Production 52,050 MT
Mfg. Cost $29.77 MT
Average Sales Revenue $1.55 Million
Average Annual Capital Investment $77,500
Average Annual Cash Flow $88,300
($ Millions)
Financial Impact of Effluent Control
Capital Investment
Total Annualized Cost
Increase in Mfg. Cost
Increase in Price
Investment % Cash Flow
Investment % Annual Investment
After-tax Return on Sales* (%)
After-tax Return on Equity* (%)
After-tax Return on Assets* (%)
B
$15.0 $27.4 $86.8 $139.3
6.4
0.1
0.1
3.5%
4.0%
1.6%
7.8
2.9
7.8
0.1
0.1
6.3%
7.3%
1.6%
7.7
2.9
16.3
0.2
0.2
20.1%
4.3%
1.5%
7.4
2.8
120.9
1.6
1.7
32.2%
36.7%
0.8%
4.0
1.5
*lf price increases are not achieved.
Source: Arthur D. Little, Inc., estimates, based on the Guidance Document.
77
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and medium-sized firms will also cause plant closures. Up to 2,040 plants, representing
38% of capacity, could shut down either because the pollution control investment
could not be recovered or because they cannot obtain external financing. Up to 38% of
industry employment could be effected if these closures occur, and community im-
pacts could be significant.
2. Portable Plants
As discussed previously, few data are available on the portable ready-mixed
plant subcategory. It is not known how many plants are in operation, whether these
plants are operated primarily as captive operations of highway and building con-
tractors or are part of the services offered by a conventional ready-mixed concrete
company, or what the financial profile would be. Portable operations can be used
exclusively by one project or be located temporarily to serve many projects or custom-
ers. Such operations tend to be more profitable than permanent facilities, because
they have protected markets and negotiated prices; they typically do not have to
compete against other suppliers once they are established. On the other hand, they
incur an additional capital requirement for each relocation and setup, which might
occur every two to five years and may involve an additional $25,000. Selling prices are
slightly higher than for permanent facilities because the operators will generally
amortize these setup costs.
The economic tradeoff between permanent and portable facilities depends
greatly on distance and travel time. A potential customer for the ready-mixed concrete
will generally negotiate with the suppliers and establish a selling price, also involving
cost escalation clauses. It is thus evident that the economic impact of Guidelines on
the final user will be insignificant, because the purchased concrete will represent an
extremely small part of the total construction cost for the project (e.g., highway, power
station, dam, etc.).
However, the initial capital expenditures to meet Alternative 1 Guidelines (say
$9,200 for a 39,300-cubic-meter plant) could represent as much as 40% of the relocation
and setup costs, because these effluent control costs must be incurred after each move.
The effect of a shorter amortization time would be to about triple the annualized
capital expenditures but only increase the incremental cost per cubic meter by $0.06
for a portable plant with a 39,300-cubic-meter output. The price impact would be to
increase manufacturing costs by 0.8%, as opposed to 0.5% for the permanent plant of
the same size and current effluent control status. Such a differential impact is consid-
ered negligible.
G. ECONOMIC IMPACT ON NEW SOURCES DUE TO GUIDELINES
The incremental investment required for the ready-mixed concrete industry will
be equivalent to less than 2% of the total capital expenditures for a new plant.
Consequently, no economic impact is anticipated.
78
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LIMITS OF THE ANALYSIS
A. AVAILABILITY AND ACCURACY OF DATA
Data on the industry sectors analyzed in this report are generally available only
in a broad, descriptive format. Whatever detailed information is available tends to
agglomerate the operations and characteristics of the full spectrum of types and sizes
of firms and plants without differentiating among the specific characteristics of indi-
vidual operations. For example, detailed data on the operations of plants in relation to
their size, process technology, age, product mix, etc., are not available and had to be
developed by making assumptions based on the specialized knowledge of analysts,
industry contacts, available texts, and published data.
Financial information concerned with the investments, operating costs, and
returns was not available for individual plants but was developed for "representative"
plants from a variety of sources, including previous studies done by the contractor,
information obtained from operating firms, published financial performance data such
as that of the Internal Revenue Service, and of Robert Morris Associates. Throughout
the study, an effort was made to evaluate these data and other information used and to
update these materials wherever possible. Contacts with informed sources in both
industry and government were continually made to help insure that data and informa-
tion used were as reliable and as representative as possible.
Water pollution control costs were furnished by EPA, Effluent Guidelines Divi-
sion. These data were developed for representative plants in each industry sector; in
some cases, it was necessary to adapt these costs to the type and sizes of plants used in
the analysis and to make adjustments to be consistent with the most recent financial
data available. In addition, it was necessary to make specific assumptions regarding
the current status of effluent disposal and treatment in each industry sector. These
latter assumptions were mainly provided in the Guidance Document but were also
supplied through individual contacts in the industry.
Our evaluation of control costs and technologies contained within the Guidance
Document was limited to:
• the appropriateness of cost parameters (unit conversion factors, cost of
capital, useful service life, and the like),
• tests of reasonableness for one of the subcategories (permanent-ready-
mixed concrete) and,
• the general appropriateness of proposed treatment methods, taking into
consideration the level of production technologies presently being
employed.
We did not make a detailed analysis of capital or operating costs or whether the
proposed technologies would achieve the degree of effluent control intended.
79
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B. CRITICAL ASSUMPTIONS
The economic impact analysis required a series of assumptions where data either
were not available or where the analysis had to be kept within reasonable limits. These
assumptions fall into six general categories.
1. Industry Structure
The analysis relied heavily on the 1972 Census of Manufactures and subsequent
Annual Surveys to provide the most recent and complete data on specific industry
sectors. While the level of detail available in the census is considerably greater than in
the Annual Surveys, the format and coverage are not directly useful for an economic
impact analysis. Also, it can be expected that certain characteristics, especially cost
and financial ratios, have changed in the intervening years. The concrete industry
trade associations provide better-than average data on their respective industries,
based on surveys of their memberships. These data supplemented our analysis.
2. Price Assumptions
Wherever possible, weighted average prices, reflecting an implied product mix in
the industry, were used in the analysis. In addition, although product prices are
generally available in historical series, considerable regional variation can occur,
reflecting the competitive environment existing within an industry and among
industries.
3. Current State of Wastewater Treatment
Data on wastewater treatment in the industry were obtained from the Guidance
Document and were considered to be reasonably correct at the time they were pre-
pared. However, many plants and companies undoubtedly have improved their own
operating performance in the intervening period in response to state and local require-
ments or in anticipation of Federal legislation. We made contacts with individual
companies where there were only a limited number of plants in an industry, but this
was not possible (or necessary, given the anticipated low economic impact of the
Guidelines) in non-concentrated industries.
4. Representative Model Plants
No single plant can be considered representative of the wide spectrum of types
and sizes that constitutes most of the industry sectors analyzed. We believe, however,
that the segmentation by product line and plant size adequately represented most of
the plants in the industries.
5. "Shutdown" Decisions
The most difficult issue to analyze is the likelihood of plant closure. The general
purpose of such an analysis is to examine the profitability of the representative plants
before and after the imposition of effluent Guidelines, to determine the profitability of
the forced closures that would result, and to calculate the price changes required to
cover the added control costs.
80
-------
Such an analysis requires assumptions about a number of factors, not the least of
which are the characteristics of individual firms and the personalities of their manage-
ment. Large, multi-industry, publicly-held firms such as those active in the concrete
pipe industry tend to make shutdown decisions based on objective business analysis,
such as effects on profitability or importance of a product line to overall corporate
strategy. Such a firm would likely have specific criteria for each of its operating
facilities. A private owner, however, tends to have a greater subjective commitment to
staying in business, even if profitability is substantially reduced. This commitment
may be sentimental, e.g., to a facility which has been operated by the family for
generations, or specifically economic, e.g., the business may be a particular family's
sole or primary source of income. Furthermore, the privately-held firm considers the
magnitude of cash flow as the important issue, rather than profitability ratios. The
management of such firms is not likely to perform a discounted cash flow analysis as
part of its shutdown decision making. In addition, the costs and sources of financing
and the alternatives available for the redeployment of assets enter into the equation.
C. RANGE OF ERROR ESTIMATES
The estimated data error ranges will vary by industry sector. In general, they will
fall into the following ranges for the critical assumptions made:
Industry Structure ±10%
Price Assumptions ± 5%
Current Status of Treatment ±20%
Representative Model Plants ±10%
"Shutdown" Decisions ±20%
81
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APPENDIX TO CHAPTER
SUPPORTING DATA
83
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TABLE A-1
COST OF COMPLIANCE WITH EFFLUENT CONTROL GUIDELINES
FOR READY-MIXED CONCRETE PRODUCERS
($)
Plant Type
18,900 Cu.M.
A —C (120)
B C (276)
D^E (192)
F-~G ( 36)
Runoff (600)
(1224)
Weighted Average
39,300 Cu.M.
A—C (120)
B—C
D—-E
F G
Runoff
(276)
(192)
( 35)
(600)
(1224)
Weighted Average
75,000 Cu.M.
A^C (240)
B C (552)
D—E (384)
F-~G ( 72)
Runoff (1200)
(2448)
Weighted Average
Overall Weighted
Average
Alternative 1
Capital Expenditure
Total
5,090
2,660
2,660
2,660
1,590
9,200
4,040
4,120
4,120
2,600
15,700
6,100
6,100
6,100
Annualized
610
320
320
320
190
1,090
490
490
490
310
1,850
720
720
720
4,050
3,070
450
350
Operating
Costs
2,890
1,180
290
320
560
4,960
820
300
560
730
8,740
1,170
530
650
1,220
940
Annual
Cost*
3,500
1,500
610
640
750
6,050
1,300
780
1,230
1,010
10,590
1,890
1,250
1,370
1,690
1,290
Cost/Cubic
Meter
0.19
0.08
0.03
0.03
0.04
0.15
0.03
0.02
0.03
0.03
0.14
0.03
0.02
0.02
0.02
0.03
"Includes a return on investment.
Source: Derived from the Guidelines Document, adjusted to mid-1974 prices.
85
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TABLE A-2
COST OF COMPLIANCE WITH EFFLUENT CONTROL GUIDELINES
FOR READY-MIXED CONCRETE PRODUCERS
($)
Alternative 2
Plant Type
1 8,900 Cu.M.
A — D (120)
B D (276)
Other (828)
Weighted Average
39,300 Cu.M.
A— D (120)
B D (276)
Other (828)
Weighted Average
75,000 Cu.M.
A^D (240)
B -D (522)
Other (1656)
Weighted Average
Overall Weighted
Average
Capital
Total
10,050
7,610
_
2,700
17,320
12,230
—
4,450
30,270
20,590
—
7,620
5,600
Expenditure
Annualized
1,200
900
—
320
2,060
1,440
—
530
3,630
2,470
—
910
670
Operating
Costs
2,950
930
—
500
4,790
1,090
—
720
9,100
1,540
—
1,240
930
Annual
Cost*
4,150
1,840
—
820
6,850
2,530
—
1,250
12,730
4,010
—
2,150
1,600
Cost/Cubic
Meter
0.22
0.10
-
0.04
0.18
0.06
-
0.03
0.17
0.05
—
0.03
0.03
* Includes a return on investment.
Source: Derived from the Guidelines Document, adjusted to mid-1974 prices.
-------
TABLE A-3
COST OF COMPLIANCE WITH EFFLUENT CONTROL GUIDELINES
FOR READY-MIXED CONCRETE PRODUCERS
($)
Alternative 3
Capital Expenditure
Total Annual ized
26,400 4,300
23,950 4,010
16,350 3,110
Operating
Costs
2,660
640
-290
Annual
Cost*
6,960
4,650
2,820
Cost/Cubic
Meter
0.36
0.25
0.15
10,570
1,820
15,940
2,760
360
41,170
36,090
23,860
6,700
6,090
4,610
4,190
50
610
10,900
6,140
4,000
0.27
0.15
0.08
Plant Type
18,900 Cu.M.
A F (120)
B F (276)
D--F (192)
Other (636)
Weighted Average
39,300 Cu.M.
A--F (120)
B F (276)
D F (192)
Other" (636)
Weighted Average
75,000 Cu.M.
A — F (240)
B F (552)
D-^F (384)
Other (636)
Weighted Average
Overall Weighted
Average
"Includes a return on investment.
Source: Derived from the Guidelines Document, adjusted to mid-1974 prices.
320
2,180
3,090
0.12
0.08
60,550
50,860
30,280
22,182
17,720
9,870
8,720
6,300
3,930
3,110
6,670
-910
-2,450
60
210
16,540
7,810
3,850
3,990
3,320
0.22
0.10
0.05
0.05
0.06
87
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TABLE A-4
COST OF COMPLIANCE WITH EFFLUENT CONTROL GUIDELINES
FOR READY-MIXED CONCRETE PRODUCERS
($)
Plant Type
18,900 Cu.M.
A--: U20)
B 1 (276)
D 1 (192)
F—I ( 36)
Other (600)
Weighted Average
39,300 Cu.M.
A ! (120)
B ~~! (276)
D ! (192)
F-—I ( 36)
Other (600)
Weighted Average
75,000 Cu.M.
A 1 (240)
B 1 (552)
D__l (384)
F 1 ( 72)
Other (1200)
Weighted Average
Overall Weighted
Average
Alternative 4
Capital Expenditure
Total
37,060
34,610
27,010
10,660
1 6,000
55,520
52,440
40,200
16,350
26,840
84,770
75,080
60,550
24,220
Annualizec
6,060
5,760
4,870
1,760
2,710
11,010
10,790
9,320
4,710
5,120
16,830
15,680
14,730
6,960
35,480
28,450
*lncludesa return on investment.
7,710
5,810
Operating
Costs
23,320
21,300
20,290
20,650
10,880
39,270
35,130
34,470
35,080
18,220
57,920
50,340
32,700
35,150
23,210
18,880
Annual
Cost*
29,380
27,060
25,160
22,410
13,590
50,280
45,920
43,790
39,790
23,330
74,750
66,020
47,430
42,110
30,920
24,690
Cost/Cubic
Meter
1.55
1.43
1.33
1.19
OJ2
1.29
1.16
1.08
0.98
O58
1.00
0.88
0.63
0.56
0.47
Source: Derived from the Guidelines Document, adjusted to mid-1974 prices.
88
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TABLE A-5
CHANGE IN PROFITABILITY* OF READY-MIXED CONCRETE PLANTS
IF AVERAGE PRICE INCREASES OCCUR
Size Category (Cu.M.)
Effluent Level
Current Proposed
18,900
39,300
75,000
A
B
D
F
Runoff
A
B
Others
A
B
D
Others
A
B
D
F
Others
C
C
E
G
Same
D
D
Same
F
F
F
Same
I
I
Same
($000) % Change** ($000) % Change ($000) % Change
-1.5
-0.4
-0.9
-0.9
0.4
-1.8
-0.6
0.4
-2.3
-1.3
-0.3
1.2
-8.1
-6.9
-5.9
-5.5
7.0
14
5
- 1
1
5
22
7
5
- 31
- 16
- 4
15
-100
- 86
75
- 57
88
- 2.5
0.0
0.2
0.0
0.6
- 3.9
- 0.6
0.6
- 3.9
- 1.4
0.0
1.6
-14.6
-11.9
- 6.3
- 4.2
11.9
-15
0
1
0
4
-24
- 4
4
-24
9
0
10
-91
-74
-64
-51
74
- 4.7
0.3
0.0
0.0
0.3
- 4.5
- 0.8
0.8
6.7
- 2.0
0.0
2.0
-33.3
-18.5
- 8.7
- 2.9
16.2
-12
- 1
0
0
1
-14
- 2
2
-17
- 5
0
5
-60
-47
-23
-15
41
1974 Annual Profit
After Tax ($000)
8.0
16.0
39.0
"Change in Profit After Tax, from an accounting standpoint, equal to 0.52 X (Change in Revenue —
Change in Operating Costs), without deduction for interest charge.
"Percent change of average profit in plant size category.
Source: Appendix Tables A-1 through A-4 and Arthur D. Little, Inc., estimates.
89
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TABLE A-6
DEMAND EQUATION USING THE EXOGENOUS VARIABLE
GROSS NATIONAL PRODUCT
Variable Coefficient t-statistic
Est. Price - 13.1359 2.55
GNP 0.192316 11.38
Constant 198.400 2.94
Statistics
R2 0.93
Durbin-Watson Statistic 3.7
% Standard Error 5.3%
Number of Observations 14
F-statistic (2, 11) 73.6
Method:
Two-Stage Least Squares
Other exogenous variables used for estimated price:
Raw material cost
Wage rate
All statistics are significant at the 95% confidence interval.
Source: Arthur D. Little, Inc.
90
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TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1. REPORT NO.
EPA 440/2-77-016
3. RECIPIENT'S ACCESSION-NO.
4. TITLE ANDSUBTITLE
5.
Guidance Economic Analysis for the
Concrete Products Industries
6. P.ERF-nRMING ORGANIZATION CODE
7. AUTHOR(S)
8. PERFORMING ORGANIZATION REPORT NO.
EPA 440/2-77-016
"•OTflfcB
Water Economics Branch
401 M Street, S.W.
Washington, D.C. 20460
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
13. TYPE OF REPORT AND PERIOD COVERED
Office of Water Planning & Standards
401 M Street, S.W.
Washington, D.C. 20460
14. SPONSORING AGENCY CODE
700/01
15. SUPPLEMENTARY NOTES
16. ABSTRACT
This study is to analyze the econoomic impact which could result from the appli-
cation of alternative effluent limitation guidelines and standards of performance
to be established under sections 304(b) and 306 of the Federal Water Pollution
Control Act, (FWPCA) as amended. The Guidance Document surveys existing and
potential waste treatment control methods and technology within particular in-
dustrial sources categories and supports proposal of certain effluent limitation
guidelines and standards of performance based upon an analysis of the feasibility
of these guidelines and standards in accordance with the requirements of sections
304(b) and 306 of the Act. Presented are the investment and operating costs
associated with various alternative control and treatment technologies. The
document supplements this analysis by estimating the broader economic effects
which might result from the required application of various control methods
and technologies. This study investigates the effect of alternative approaches
in terms of product price increases, effects upon employment and the continued
viability of affected plants, effects upon foreign trade and other competitive
effects.
7.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b.IDENTIFIERS/OPEN ENDED TERMS
COS AT I Field/Group
8. DISTRIBUTION STATEMENT
RELEASE TO PUBLIC
21.
PAGES
22. PRICE
EPA Form 2220-1 (9-73)
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