Annual Statements Open main menu

EAGLE MATERIALS INC - Quarter Report: 2021 September (Form 10-Q)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended

September 30, 2021

Commission File Number 1-12984

 

img28599891_0.jpg 

EAGLE MATERIALS INC.

(Exact name of registrant as specified in its charter)

 

Delaware (State of Incorporation)

75-2520779 (I.R.S. Employer Identification No.)

5960 Berkshire Lane, Suite 900, Dallas, Texas 75225 (Address of principal executive offices)

(214) 432-2000 (Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock (par value $.01 per share)

 

EXP

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes No

As of October 26, 2021, the number of outstanding shares of common stock was:

 

Class

 

Outstanding Shares

Common Stock, $.01 Par Value

 

40,673,931

 

 

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION (unaudited)

 

 

 

 

 

Page

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Earnings for the Three and Six Months Ended September 30, 2021 and 2020

 

1

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Earnings for the Three and Six Months Ended September 30, 2021 and 2020

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2021, and March 31, 2021

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three and Six Months Ended September 30, 2021 and 2020

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended September 30, 2021 and 2020

 

5

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

39

 

 

 

 

 

Item 1a.

 

Risk Factors

 

39

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

Item 4.

 

Mine Safety Information

 

39

 

 

 

 

 

Item 6.

 

Exhibits

 

40

 

 

 

 

 

SIGNATURES

 

41

 

 

 

 


 

EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands, except share and per share data)

 

Revenue

 

$

509,694

 

 

$

447,684

 

 

$

985,464

 

 

$

874,673

 

Cost of Goods Sold

 

 

354,353

 

 

 

324,835

 

 

 

703,612

 

 

 

649,527

 

Gross Profit

 

 

155,341

 

 

 

122,849

 

 

 

281,852

 

 

 

225,146

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

8,260

 

 

 

10,577

 

 

 

16,230

 

 

 

18,373

 

Corporate General and Administrative Expense

 

 

(10,667

)

 

 

(11,109

)

 

 

(20,135

)

 

 

(28,898

)

Premium Paid on Early Retirement of Senior Notes

 

 

(8,407

)

 

 

 

 

 

(8,407

)

 

 

 

Gain on Sale of Businesses

 

 

 

 

 

 

 

 

 

 

 

51,973

 

Other Non-Operating Income (Loss)

 

 

(944

)

 

 

(90

)

 

 

2,734

 

 

 

(399

)

Interest Expense, net

 

 

(12,268

)

 

 

(12,556

)

 

 

(19,240

)

 

 

(26,597

)

Earnings from Continuing Operations before Income Taxes

 

 

131,315

 

 

 

109,671

 

 

 

253,034

 

 

 

239,598

 

Income Taxes

 

 

(29,190

)

 

 

(19,800

)

 

 

(55,582

)

 

 

(52,636

)

Earnings from Continuing Operations

 

 

102,125

 

 

 

89,871

 

 

 

197,452

 

 

 

186,962

 

Earnings from Discontinued Operations, net of Income Taxes

 

 

 

 

 

6,163

 

 

 

 

 

 

5,278

 

Net Earnings

 

$

102,125

 

 

$

96,034

 

 

$

197,452

 

 

$

192,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

2.48

 

 

$

2.17

 

 

$

4.74

 

 

$

4.51

 

Discontinued Operations

 

 

 

 

 

0.15

 

 

 

 

 

 

0.13

 

Net Earnings

 

$

2.48

 

 

$

2.32

 

 

$

4.74

 

 

$

4.64

 

DILUTED EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

2.46

 

 

$

2.16

 

 

$

4.70

 

 

$

4.49

 

Discontinued Operations

 

 

 

 

 

0.15

 

 

 

 

 

 

0.13

 

Net Earnings

 

$

2.46

 

 

$

2.31

 

 

$

4.70

 

 

$

4.62

 

AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

41,222,161

 

 

 

41,450,013

 

 

 

41,623,187

 

 

 

41,430,511

 

Diluted

 

 

41,594,733

 

 

 

41,649,319

 

 

 

42,013,847

 

 

 

41,606,401

 

CASH DIVIDENDS PER SHARE

 

$

0.25

 

 

$

 

 

$

0.25

 

 

$

0.10

 

See notes to unaudited consolidated financial statements.

 

 

1


 

EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (unaudited)

 

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Net Earnings

 

$

102,125

 

 

$

96,034

 

 

$

197,452

 

 

$

192,240

 

Net Actuarial Change in Defined Benefit Plans

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of Net Actuarial Loss

 

 

36

 

 

 

34

 

 

 

72

 

 

 

67

 

Tax Expense

 

 

(9

)

 

 

(8

)

 

 

(18

)

 

 

(16

)

Comprehensive Earnings

 

$

102,152

 

 

$

96,060

 

 

$

197,506

 

 

$

192,291

 

 

See notes to unaudited consolidated financial statements.

 

 

2


 

EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)

 

 

 

September 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

45,214

 

 

$

263,520

 

Restricted Cash

 

 

 

 

 

5,000

 

Accounts and Notes Receivable, net

 

 

196,664

 

 

 

147,133

 

Inventories

 

 

203,745

 

 

 

235,749

 

Income Tax Receivable

 

 

17,954

 

 

 

2,838

 

Prepaid and Other Assets

 

 

8,534

 

 

 

7,449

 

Total Current Assets

 

 

472,111

 

 

 

661,689

 

Property, Plant, and Equipment, net

 

 

1,629,133

 

 

 

1,659,100

 

Notes Receivable

 

 

8,485

 

 

 

8,419

 

Investment in Joint Venture

 

 

77,628

 

 

 

75,399

 

Operating Lease Right-of-Use Assets

 

 

25,127

 

 

 

25,811

 

Goodwill and Intangible Assets, net

 

 

390,107

 

 

 

392,315

 

Other Assets

 

 

17,237

 

 

 

15,948

 

 

 

$

2,619,828

 

 

$

2,838,681

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts Payable

 

$

101,293

 

 

$

84,171

 

Accrued Liabilities

 

 

80,324

 

 

 

78,840

 

Operating Lease Liabilities

 

 

7,028

 

 

 

6,343

 

Total Current Liabilities

 

 

188,645

 

 

 

169,354

 

Long-term Debt

 

 

812,632

 

 

 

1,008,616

 

Noncurrent Operating Lease Liabilities

 

 

31,683

 

 

 

34,444

 

Other Long-term Liabilities

 

 

45,278

 

 

 

41,291

 

Deferred Income Taxes

 

 

234,281

 

 

 

225,986

 

Total Liabilities

 

 

1,312,519

 

 

 

1,479,691

 

Stockholders’ Equity

 

 

 

 

 

 

Preferred Stock, Par Value $0.01; Authorized 5,000,000 Shares; None Issued

 

 

 

 

 

 

Common Stock, Par Value $0.01; Authorized 100,000,000 Shares;
   Issued and Outstanding
40,913,931 and 42,370,878 Shares, respectively

 

 

409

 

 

 

424

 

Capital in Excess of Par Value

 

 

 

 

 

62,497

 

Accumulated Other Comprehensive Losses

 

 

(3,386

)

 

 

(3,440

)

Retained Earnings

 

 

1,310,286

 

 

 

1,299,509

 

Total Stockholders’ Equity

 

 

1,307,309

 

 

 

1,358,990

 

 

 

$

2,619,828

 

 

$

2,838,681

 

 

See notes to the unaudited consolidated financial statements.

 

3


 

EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net Earnings

 

$

197,452

 

 

$

192,240

 

Adjustments to Reconcile Net Earnings to Net Cash Provided
by Operating Activities, Net of Effect of Non-Cash Activity

 

 

 

 

 

 

Depreciation, Depletion and Amortization

 

 

64,284

 

 

 

64,199

 

Write-off of Debt Issuance Costs

 

 

6,101

 

 

 

 

Deferred Income Tax Provision

 

 

8,295

 

 

 

41,779

 

Stock Compensation Expense

 

 

6,376

 

 

 

8,275

 

Gain on Sale of Subsidiaries

 

 

 

 

 

(61,203

)

Equity in Earnings of Unconsolidated Joint Venture

 

 

(16,230

)

 

 

(18,373

)

Distributions from Joint Venture

 

 

14,000

 

 

 

18,000

 

Changes in Operating Assets and Liabilities

 

 

 

 

 

 

Accounts and Notes Receivable

 

 

(49,597

)

 

 

(27,746

)

Inventories

 

 

32,004

 

 

 

38,645

 

Accounts Payable and Accrued Liabilities

 

 

16,776

 

 

 

5,998

 

Other Assets

 

 

(2,883

)

 

 

(3,179

)

Income Taxes Payable (Receivable)

 

 

(15,116

)

 

 

99,742

 

Net Cash Provided by Operating Activities

 

 

261,462

 

 

 

358,377

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Additions to Property, Plant, and Equipment

 

 

(26,777

)

 

 

(40,676

)

Proceeds from Sale of Businesses

 

 

 

 

 

91,022

 

Net Cash Provided by (Used in) Investing Activities

 

 

(26,777

)

 

 

50,346

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Increase (Decrease) in Credit Facility

 

 

75,000

 

 

 

(315,000

)

Proceeds from 2.500% Senior Unsecured Notes

 

 

743,692

 

 

 

 

Repayment of 4.500% Senior Unsecured Notes

 

 

(350,000

)

 

 

 

Repayment of Term Loan

 

 

(665,000

)

 

 

 

Dividends Paid to Stockholders

 

 

(10,547

)

 

 

(4,163

)

Purchase and Retirement of Common Stock

 

 

(247,845

)

 

 

 

Proceeds from Stock Option Exercises

 

 

14,460

 

 

 

498

 

Premium Paid on Early Retirement of Senior Notes

 

 

(8,407

)

 

 

 

Payment of Debt Issuance Costs

 

 

(7,985

)

 

 

(1,718

)

Shares Redeemed to Settle Employee Taxes on Stock Compensation

 

 

(1,359

)

 

 

(1,130

)

Net Cash Used in Financing Activities

 

 

(457,991

)

 

 

(321,513

)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

 

(223,306

)

 

 

87,210

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

 

268,520

 

 

 

118,648

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD

 

$

45,214

 

 

$

205,858

 

 

See notes to the unaudited consolidated financial statements.

 

 

4


 

EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

 

 

 

Common
Stock

 

 

Capital in
Excess of
Par Value

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Losses

 

 

Total

 

 

 

(dollars in thousands)

 

Balance at March 31, 2020

 

$

416

 

 

$

10,943

 

 

$

960,065

 

 

$

(3,581

)

 

$

967,843

 

Net Earnings

 

 

 

 

 

 

 

 

96,206

 

 

 

 

 

 

96,206

 

Stock Compensation Expense

 

 

2

 

 

 

4,758

 

 

 

 

 

 

 

 

 

4,760

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(1,130

)

 

 

 

 

 

 

 

 

(1,130

)

Sale of Business with Unfunded Pension Liability

 

 

 

 

 

 

 

 

 

 

 

254

 

 

 

254

 

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

25

 

Balance at June 30, 2020

 

$

418

 

 

$

14,571

 

 

$

1,056,271

 

 

$

(3,302

)

 

$

1,067,958

 

Net Earnings

 

 

 

 

 

 

 

 

96,034

 

 

 

 

 

 

96,034

 

Stock Compensation Expense

 

 

 

 

 

3,515

 

 

 

 

 

 

 

 

 

3,515

 

Stock Option Exercise

 

 

 

 

 

498

 

 

 

 

 

 

 

 

 

498

 

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

26

 

Balance at September 30, 2020

 

$

418

 

 

$

18,584

 

 

$

1,152,305

 

 

$

(3,276

)

 

$

1,168,031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock

 

 

Capital in
Excess of
Par Value

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Losses

 

 

Total

 

 

 

(dollars in thousands)

 

Balance at March 31, 2021

 

$

424

 

 

$

62,497

 

 

$

1,299,509

 

 

$

(3,440

)

 

$

1,358,990

 

Net Earnings

 

 

 

 

 

 

 

 

95,327

 

 

 

 

 

 

95,327

 

Stock Compensation Expense

 

 

1

 

 

 

2,455

 

 

 

 

 

 

 

 

 

2,456

 

Stock Option Exercises and Restricted Share Issuances

 

 

 

 

 

8,222

 

 

 

 

 

 

 

 

 

8,222

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(1,214

)

 

 

 

 

 

 

 

 

(1,214

)

Purchase and Retirement of Common Stock

 

 

(4

)

 

 

(61,925

)

 

 

 

 

 

 

 

 

(61,929

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(10,547

)

 

 

 

 

 

(10,547

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

27

 

Balance at June 30, 2021

 

$

421

 

 

$

10,035

 

 

$

1,384,289

 

 

$

(3,413

)

 

$

1,391,332

 

Net Earnings

 

 

 

 

 

 

 

 

102,125

 

 

 

 

 

 

102,125

 

Stock Compensation Expense

 

 

 

 

 

3,920

 

 

 

 

 

 

 

 

 

3,920

 

Stock Option Exercises and Restricted Share Issuances

 

 

 

 

 

6,238

 

 

 

 

 

 

 

 

 

6,238

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(145

)

 

 

 

 

 

 

 

 

(145

)

Purchase and Retirement of Common Stock

 

 

(12

)

 

 

(20,048

)

 

 

(165,856

)

 

 

 

 

 

(185,916

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(10,272

)

 

 

 

 

 

(10,272

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

27

 

Balance at September 30, 2021

 

$

409

 

 

$

 

 

$

1,310,286

 

 

$

(3,386

)

 

$

1,307,309

 

 

See notes to the unaudited consolidated financial statements.

 

 

5


 

Eagle Materials Inc. and Subsidiaries
N
otes to Consolidated Financial Statements

 

(A) BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements as of and for the three- and six-month periods ended September 30, 2021 include the accounts of Eagle Materials Inc. and its majority-owned subsidiaries (collectively, the Company, us, or we) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 21, 2021.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. In our opinion, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the information in the following unaudited consolidated financial statements of the Company have been included. The results of operations for interim periods are not necessarily indicative of the results for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes, eliminates certain exceptions within existing income tax guidance, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. We adopted this ASU on April 1, 2021 on a prospective basis. The adoption of this guidance did not have a material effect on our consolidated financial statements.

(B) SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows:

 

 

For the Six Months Ended September 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

(dollars in thousands)

 

Cash Payments:

 

 

 

 

 

 

Interest

 

$

10,634

 

 

$

24,897

 

Income Taxes

 

 

54,581

 

 

 

23,200

 

Operating Cash Flows used for Operating Leases

 

 

3,987

 

 

 

6,127

 

 

 

 

6


 

(C) Discontinued Operations and Other Dispositions

Discontinued Operations

On September 18, 2020, we sold our Oil and Gas Proppants business (the Proppants Business) to Smart Sand, Inc., a Delaware corporation (the Purchaser), pursuant to an Equity Purchase and Sale Agreement (the Purchase Agreement) between the Company and the Purchaser. The sale of this business excluded certain assets, namely real property and equipment in south Texas, real property in Illinois, and certain other assets. The purchase price (the Purchase Price) paid by the Purchaser for the acquisition of the Proppants Business was $2.0 million paid in shares of common stock of the Purchaser. Shares representing $0.3 million of the Purchase Price are being held in escrow as a source of recovery for any indemnification claims by the Purchaser. The sale resulted in a gain of approximately $9.2 million.

In connection with the execution of the Purchase Agreement, we also entered into a Loan and Security Agreement, dated September 18, 2020 (the Loan and Security Agreement), by and among the Company, as lender; the Purchaser, as borrower; and other parties thereto. Pursuant to the Loan and Security Agreement, the Company would loan the Purchaser up to $5.0 million for working capital and operating, maintenance, and administrative expenses of the Proppants Business during the one-year period following the closing. At closing, the Company deposited the $5.0 million into an escrow account. There were no borrowings made under the Loan and Security Agreement, which expired on September 18, 2021. Upon expiration, the $5.0 million held in escrow was returned to the Company.

The sale of the Proppants Business, which was previously disclosed as a reportable segment, was determined to meet the discontinued operations accounting criteria. Certain expenses, which were previously included in the Oil and Gas Proppants operating segment, do not qualify for classification within discontinued operations and have been reclassified from the operating segment to continuing operations. These expenses primarily relate to lease agreements not included in the sale of the Proppants Business.

The following is a summary of operating results included in Earnings (Loss) from Discontinued Operations for the three and six months ended September 30, 2020.

 

 

 

For the Three Months
Ended September 30,

 

 

For the Six Months
Ended September 30,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Revenue

 

$

14

 

 

$

1,045

 

Cost of Goods Sold

 

 

1,065

 

 

 

3,415

 

Gross Profit

 

 

(1,051

)

 

 

(2,370

)

Other Non-Operating Income

 

 

44

 

 

 

226

 

Gain on Sale of Discontinued Operations

 

 

9,230

 

 

 

9,230

 

Earnings (Loss) from Discontinued Operations

 

 

8,223

 

 

 

7,086

 

Income Tax (Expense) Benefit

 

 

(2,060

)

 

 

(1,808

)

Net Earnings (Loss) from Discontinued Operations

 

$

6,163

 

 

$

5,278

 

The significant components of our Consolidated Statements of Cash Flows for discontinued operations for the six months ended September 30, 2020 are as follows:

 

 

For the Six Months Ended
September 30, 2020

 

 

 

(dollars in thousands)

 

Depreciation and Amortization

 

$

221

 

Gain on Sale

 

 

(9,230

)

Net Change in Inventory

 

 

 

Capital Expenditures

 

 

 

 

 

 

7


 

Other Dispositions

On April 17, 2020, we sold our Western Aggregates LLC (Western) and Mathews Readymix LLC (Mathews) businesses to Teichert, Inc. for an aggregate purchase price of approximately $93.5 million, subject to certain post-closing adjustments. This sale resulted in a gain of approximately $52.0 million. Western and Mathews were part of our Concrete and Aggregates operating segment, and their results of operations were included in our financial statements for the period from April 1, 2020 through April 17, 2020.

Revenue and Operating Earnings from Western and Mathews, collectively, were approximately $1.7 million and $0.1 million, respectively, for the six months ended September 30, 2020.

(D) REVENUE

We earn Revenue primarily from the sale of products, which include cement, concrete, aggregates, gypsum wallboard and recycled paperboard. The vast majority of Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard are originated by purchase orders from our customers, who are primarily third-party contractors and suppliers. Revenue from our Recycled Paperboard segment is generated primarily through long-term supply agreements that mature between 2023 and 2025. We invoice customers upon shipment, and our collection terms range from 30-75 days. Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard not related to long-term supply agreements is recognized upon shipment of the related products to customers, which is when title and ownership are transferred, and the customer is obligated to pay.

Revenue from sales under our long-term supply agreements is also recognized upon transfer of control to the customer, which generally occurs at the time the product is shipped from the production facility or terminal location. Our long-term supply agreements with customers define, among other commitments, the volume of product that we must provide and the volume that the customer must purchase by the end of the defined periods. Pricing structures under our agreements are generally market-based, but are subject to certain contractual adjustments. Shortfall amounts, if applicable under these arrangements, are constrained and not recognized as Revenue until an agreement is reached with the customer and, therefore, are not subject to the risk of reversal.

The Company offers certain of its customers, including those with long-term supply agreements, rebates and incentives, which we treat as variable consideration. We adjust the amount of Revenue recognized for the variable consideration using the most likely amount method based on past history and projected volumes in the rebate and incentive period. Any amounts billed to customers for taxes are excluded from Revenue.

The Company has elected to treat freight and delivery charges we pay for the delivery of goods to our customers as a fulfilment activity rather than a separate performance obligation. When we arrange for a third party to deliver products to customers, fees for shipping and handling that are billed to the customer are recorded as Revenue, while costs we incur for shipping and handling are recorded as expenses and included in Cost of Goods Sold.

Other Non-Operating Income includes lease and rental income, asset sale income, non-inventoried aggregates sales income, distribution center income, and trucking income, as well as other miscellaneous revenue items and costs that have not been allocated to a business segment.

See Footnote (N) to the Unaudited Consolidated Financial Statements for disaggregation of revenue by segment.

 

 

8


 

(E) ACCOUNTS AND NOTES RECEIVABLE

Accounts Receivable have been shown net of the allowance for doubtful accounts of $7.0 million and $8.1 million at September 30, 2021 and March 31, 2021, respectively. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral from our customers. The allowance for non-collection of receivables is based upon analysis of economic trends in the construction industry, detailed analysis of the expected collectability of accounts receivable that are past due, and the expected collectability of overall receivables. We have no significant credit risk concentration among our diversified customer base.

We had Notes Receivable totaling approximately $8.5 million at September 30, 2021, none of which was classified as current. We lend funds to certain companies in the ordinary course of business, and the notes bear interest, on average, at 3.1%. Remaining unpaid amounts, plus accrued interest, mature in fiscal 2025. The notes are collateralized by certain assets of the borrowers, namely property and equipment, and are generally payable monthly. We monitor the credit risk of each borrower by assessing the timeliness of payments, credit history, credit metrics, and our ongoing interactions with each borrower.

(F) INVENTORIES

Inventories are stated at the lower of average cost (including applicable material, labor, depreciation, and plant overhead) or net realizable value. Raw Materials and Materials-in-Progress include clinker, which is an intermediary product before it is ground into cement powder. Quantities of Raw Materials and Materials-in-Progress, Aggregates and Coal inventories, are based on measured volumes, subject to estimation based on the size and location of the inventory piles, and converted to tonnage using standard inventory density factors. Inventories consist of the following:

 

 

 

September 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

 

 

(dollars in thousands)

 

Raw Materials and Materials-in-Progress

 

$

69,143

 

 

$

92,696

 

Finished Cement

 

 

25,628

 

 

 

34,362

 

Aggregates

 

 

2,996

 

 

 

2,933

 

Gypsum Wallboard

 

 

5,136

 

 

 

4,177

 

Paperboard

 

 

4,468

 

 

 

5,031

 

Repair Parts and Supplies

 

 

87,385

 

 

 

86,750

 

Fuel and Coal

 

 

8,989

 

 

 

9,800

 

 

 

$

203,745

 

 

$

235,749

 

 

(G) ACCRUED EXPENSES

Accrued Expenses consist of the following:

 

 

 

September 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

 

 

(dollars in thousands)

 

Payroll and Incentive Compensation

 

$

26,571

 

 

$

32,336

 

Benefits

 

 

18,321

 

 

 

14,979

 

Interest

 

 

4,688

 

 

 

3,089

 

Property Taxes

 

 

10,539

 

 

 

6,683

 

Power and Fuel

 

 

2,720

 

 

 

2,350

 

Freight

 

 

1,950

 

 

 

1,575

 

Legal and Professional

 

 

5,520

 

 

 

9,511

 

Sales and Use Tax

 

 

1,642

 

 

 

1,265

 

Other

 

 

8,373

 

 

 

7,052

 

 

 

$

80,324

 

 

$

78,840

 

 

 

 

9


 

(H) LEASES

We lease certain real estate, buildings, and equipment. Certain of these leases contain escalations of rent over the term of the lease, as well as options for us to extend the term of the lease at the end of the original term. These extensions range from periods of one year to twenty years. Our lease agreements do not contain material residual value guarantees or material restrictive covenants. In calculating the present value of future minimum lease payments, we use the rate implicit in the lease if it can be determined. Otherwise, we use our incremental borrowing rate in effect at the commencement of the lease to determine the present value of the future minimum lease payments. Additionally, we lease certain equipment under short-term leases with initial terms of less than twelve months, which are not recorded on the balance sheet.

Lease expense for our operating and short-term leases is as follows:

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Operating Lease Cost

 

$

1,566

 

 

$

1,767

 

 

$

3,080

 

 

$

3,563

 

Short-term Lease Cost

 

 

309

 

 

 

857

 

 

 

811

 

 

 

1,607

 

Total Lease Cost

 

$

1,875

 

 

$

2,624

 

 

$

3,891

 

 

$

5,170

 

 

The Right-of-Use Assets and Lease Liabilities are reflected on our Balance Sheet as follows:

 

 

 

September 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

 

 

(dollars in thousands)

 

Operating Leases:

 

 

 

 

 

 

Operating Lease Right-of-Use Assets

 

$

25,127

 

 

$

25,811

 

 

 

 

 

 

 

 

Current Operating Lease Liabilities

 

$

7,028

 

 

$

6,343

 

Noncurrent Operating Lease Liabilities

 

 

31,683

 

 

 

34,444

 

Total Operating Lease Liabilities

 

$

38,711

 

 

$

40,787

 

 

 

Future payments for operating leases are as follows (dollars in thousands):

Fiscal Year

 

Amount

 

2022 (remaining six months)

 

$

4,103

 

2023

 

 

7,829

 

2024

 

 

5,949

 

2025

 

 

5,589

 

2026

 

 

4,118

 

Thereafter

 

 

20,377

 

Total Lease Payments

 

$

47,965

 

Less: Imputed Interest

 

 

(9,254

)

Present Value of Lease Liabilities

 

$

38,711

 

 

 

 

 

Weighted-Average Remaining Lease Term (in years)

 

 

10.2

 

Weighted-Average Discount Rate

 

 

3.79

%

 

 

 

 

 

 

10


 

(I) Share-BASED EMPLOYEE COMPENSATION

On August 7, 2013, our stockholders approved the Eagle Materials Inc. Amended and Restated Incentive Plan (the Plan), which increased the shares we are authorized to issue as awards by 3,000,000 (1,500,000 of which may be stock awards). Under the terms of the Plan, we can issue equity awards, including stock options, restricted stock units (RSUs), restricted stock, and stock appreciation rights, to employees of the Company and members of the Board of Directors. The Compensation Committee of our Board of Directors specifies the terms for grants of equity awards under the Plan.

Long-Term Compensation Plans

OPTIONS

In May 2021, the Compensation Committee of the Board of Directors approved the granting to certain officers and key employees an aggregate of 4,293 performance-vesting stock options that will be earned only if certain performance conditions are satisfied (the Fiscal 2022 Employee Performance Stock Option Grant). The performance criteria for the Fiscal 2022 Employee Performance Stock Option Grant are based upon the achievement of certain levels of return on equity (as defined in the option agreements), ranging from 10.0% to 20.0%, for the fiscal year ending March 31, 2022. All stock options will be earned if the return on equity is 20.0% or greater, and the percentage of shares earned will be reduced proportionately to approximately 66.7% if the return on equity is 10.0%. If the Company does not achieve a return on equity of at least 10.0%, all granted stock options will be forfeited. Following any such reduction, restrictions on the earned stock options will lapse and the earned options will vest ratably over four years, with the initial fourth vesting promptly following the determination date, and the remaining options vesting on March 31, 2023 through 2025. The stock options have a term of ten years from the grant date. The Compensation Committee also approved the granting of 3,578 time-vesting stock options to the same officers and key employees, which vest ratably over four years (the Fiscal 2022 Employee Time-Vesting Stock Option Grant).

In August 2021, we granted 3,445 options to members of the Board of Directors (the Fiscal 2022 Board of Directors Stock Option Grant). Options granted under the Fiscal 2022 Board of Directors Stock Option Grant vest immediately and can be exercised from the date of the grant until their expiration on the tenth anniversary of the date of the grant.

The Fiscal 2022 Employee Performance Stock Option Grant, the Fiscal 2022 Employee Time-Vesting Stock Option Grant, and the Fiscal 2022 Board of Directors Stock Option Grant were valued at their grant date using the Black-Scholes option pricing model. The weighted-average assumptions used in the Black-Scholes model to value the option awards in fiscal 2022 are as follows:

 

 

Fiscal 2022

 

Dividend Yield

 

 

0.8

%

Expected Volatility

 

 

38.4

%

Risk Free Interest Rate

 

 

1.0

%

Expected Life

 

6.0 years

 

 

Stock option expense for all outstanding stock option awards totaled approximately $1.0 million and $1.7 million for the three and six months ended September 30, 2021 and 2020, respectively, and $1.1 million and $2.8 million for the three and six months ended September 30, 2020, respectively. At September 30, 2021, there was approximately $5.4 million of unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted-average period of 2.1 years.

 

 

 

11


 

The following table represents stock option activity for the six months ended September 30, 2021:

 

 

 

Number
of Shares

 

 

Weighted-
Average
Exercise
Price

 

Outstanding Options at March 31, 2021

 

 

708,501

 

 

$

83.85

 

Granted

 

 

11,316

 

 

$

140.42

 

Exercised

 

 

(172,057

)

 

$

85.01

 

Cancelled

 

 

(15,390

)

 

$

76.63

 

Outstanding Options at September 30, 2021

 

 

532,370

 

 

$

84.89

 

Options Exercisable at September 30, 2021

 

 

273,827

 

 

 

 

Weighted-Average Fair Value of Options Granted
During the Year

 

$

49.18

 

 

 

 

 

The following table summarizes information about stock options outstanding at September 30, 2021:

 

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of Exercise Prices

 

Number of
Shares
Outstanding

 

 

Weighted-
Average
Remaining
Contractual
Life (in years)

 

 

Weighted-
Average
Exercise
Price

 

 

Number of
Shares
Outstanding

 

 

Weighted-
Average
Exercise
Price

 

$33.69 - $37.34

 

 

12,373

 

 

 

0.71

 

 

$

34.52

 

 

 

12,373

 

 

$

34.52

 

$59.32 - $81.56

 

 

191,982

 

 

 

7.42

 

 

$

64.48

 

 

 

61,760

 

 

$

72.20

 

$87.34 - $93.03

 

 

164,458

 

 

 

7.07

 

 

$

91.36

 

 

 

80,785

 

 

$

91.14

 

$99.37 - $139.25

 

 

163,557

 

 

 

6.52

 

 

$

106.16

 

 

 

118,909

 

 

$

104.40

 

 

 

 

532,370

 

 

 

6.88

 

 

$

84.89

 

 

 

273,827

 

 

$

90.07

 

 

 

At September 30, 2021, the aggregate intrinsic value for both of the outstanding and exercisable options was approximately $24.7 million and $11.3 million, respectively. The total intrinsic value of options exercised during the six months ended September 30, 2021 was approximately $10.7 million.

RESTRICTED STOCK

In May 2021, the Compensation Committee approved the granting to certain officers and key employees an aggregate of 52,577 shares of performance-vesting restricted stock that will be earned if certain performance conditions are satisfied (the Fiscal 2022 Employee Restricted Stock Performance Award). The performance criteria for the Fiscal 2022 Employee Restricted Stock Performance Award are based upon the achievement of certain levels of return on equity (as defined in the award agreement), ranging from 10.0% to 20.0%, for the fiscal year ending March 31, 2022. All restricted shares will be earned if the return on equity is 20.0% or greater, and the percentage of shares earned will be reduced proportionately to approximately 66.7% if the return on equity is 10.0%. If the Company does not achieve a return on equity of at least 10.0%, all awards will be forfeited. Following any such reduction, restrictions on the earned shares will lapse ratably over four years, with the initial fourth lapsing promptly following the determination date, and the remaining restrictions lapsing on March 31, 2023 through 2025. The Compensation Committee also approved the granting of 43,816 shares of time-vesting restricted stock to the same officers and key employees, which vest ratably over four years (the Fiscal 2022 Employee Restricted Stock Time-Vesting Award). The Fiscal 2022 Employee Restricted Stock Performance Award and the Fiscal 2022 Employee Restricted Stock Time-Vesting Award were valued at the closing price of the stock on the grant date and are being expensed over a four-year period.

 

 

12


 

In August 2021, we granted 15,720 shares of restricted stock to members of the Board of Directors (the Fiscal 2022 Board of Directors Restricted Stock Award). Restrictions on these shares will lapse six months after the grant date. The Fiscal 2022 Board of Directors Restricted Stock Award was valued at the closing price of the stock on the grant date and is being expensed over a six-month period.

The fair value of restricted stock is based on the stock price on the grant date. The following table summarizes the activity for nonvested restricted shares during the six months ended September 30, 2021:

 

 

 

Number of Shares

 

 

Weighted-Average Grant Date Fair Value

 

Nonvested Restricted Stock March 31, 2021

 

 

267,090

 

 

$

62.56

 

Granted

 

 

112,113

 

 

$

139.79

 

Vested

 

 

(23,685

)

 

$

56.43

 

Forfeited

 

 

(5,218

)

 

$

75.10

 

Nonvested Restricted Stock at September 30, 2021

 

 

350,300

 

 

$

84.71

 

 

Expense related to restricted shares was approximately $2.9 million and $4.7 million for the three and six months ended September 30, 2021, respectively, and $2.4 million and $5.4 million for the three and six months ended September 30, 2020, respectively. At September 30, 2021, there was approximately $23.8 million of unearned compensation from restricted stock, which will be recognized over a weighted-average period of 2.5 years.

The number of shares available for future grants of stock options, restricted stock units, stock appreciation rights, and restricted stock under the Plan was 3,378,618 at September 30, 2021.

(J) COMPUTATION OF EARNINGS PER SHARE

The calculation of basic and diluted common shares outstanding is as follows:

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Weighted-Average Shares of Common Stock Outstanding

 

 

41,222,161

 

 

 

41,450,013

 

 

 

41,623,187

 

 

 

41,430,511

 

Effect of Dilutive Shares

 

 

 

 

 

 

 

 

 

 

 

 

Assumed Exercise of Outstanding Dilutive Options

 

 

560,876

 

 

 

414,338

 

 

 

606,876

 

 

 

272,513

 

Less Shares Repurchased from Proceeds of Assumed Exercised Options

 

 

(365,887

)

 

 

(320,410

)

 

 

(395,516

)

 

 

(191,050

)

Restricted Stock Units

 

 

177,583

 

 

 

105,378

 

 

 

179,300

 

 

 

94,427

 

Weighted-Average Common Stock and Dilutive Securities Outstanding

 

 

41,594,733

 

 

 

41,649,319

 

 

 

42,013,847

 

 

 

41,606,401

 

Shares Excluded Due to Anti-dilution Effects

 

 

3,578

 

 

 

795,382

 

 

 

2,684

 

 

 

929,990

 

 

(K) PENSION AND EMPLOYEE BENEFIT PLANS

We sponsor several defined benefit pension plans and defined contribution plans, which together cover substantially all our employees. Benefits paid under the defined benefit plans covering certain hourly employees were historically based on years of service and the employee’s qualifying compensation over the last few years of employment. Over the last several years, these plans have been frozen to new participants and new benefits, with the last plan becoming frozen during fiscal 2020. Our pension plans are all fully funded, with plan assets exceeding the benefit obligation at March 31, 2021. Due to the frozen status, and the current funding, of the plans, our expected pension expense for fiscal 2022 is less than $0.1 million for the fiscal year.

 

 

13


 

(L) INCOME TAXES

Income Taxes for the interim periods presented have been included in the accompanying financial statements on the basis of an estimated annual effective tax rate. In addition to the amount of tax resulting from applying the estimated annual effective tax rate to pre-tax income, we will include, when appropriate, certain items treated as discrete events to arrive at an estimated overall tax amount. The effective tax rate for the six months ended September 30, 2021 was approximately 22%, which was consistent with the effective tax rate of 22% for the six months ended September 30, 2020. The effective tax rate was higher than the U.S. Statutory rate of 21% mainly due to state income taxes, partially offset by a benefit recognized related to percentage depletion.

(M) LONG-TERM DEBT

Long-term Debt at September 30, 2021 was as follows:

 

 

September 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

 

 

(dollars in thousands)

 

Revolving Credit Facility

 

$

75,000

 

 

$

 

2.500% Senior Unsecured Notes Due 2031

 

 

750,000

 

 

 

 

4.500% Senior Unsecured Notes Due 2026

 

 

 

 

 

350,000

 

Term Loan

 

 

 

 

 

665,000

 

Total Debt

 

 

825,000

 

 

 

1,015,000

 

Less: Unamortized Discounts and Debt Issuance Costs

 

 

(12,368

)

 

 

(6,384

)

Long-term Debt

 

$

812,632

 

 

$

1,008,616

 

 

Revolving Credit Facility

On July 1, 2021, we terminated our previous revolving credit facility and entered into an unsecured $750.0 million revolving credit facility (the Revolving Credit Facility), which terminates on July 1, 2026. The Revolving Credit Facility also provides the Company the option to increase the borrowing capacity by up to $375.0 million (for a total borrowing capacity of $1,125 million), provided that the existing lenders, or new lenders, agree to such increase. The Revolving Credit Facility includes a $40.0 million letter of credit facility and a swingline loan sub-facility of $25.0 million.

The Revolving Credit Facility contains customary covenants for an unsecured investment-grade facility, including covenants that restrict the Company’s and/or its subsidiaries’ ability to incur additional debt; encumber assets; merge with or transfer or sell assets to other persons; and enter into certain affiliate transactions. The Revolving Credit Facility also requires the Company to maintain at the end of each fiscal quarter a Leverage Ratio of 3.50:1.00 or less and an Interest Coverage Ratio (both ratios, as defined in the Revolving Credit Facility) equal to or greater than 2.50 to 1.00 (collectively, the Financial Covenants).

At the Company’s option, principal amounts outstanding under the Revolving Credit Facility bear interest at a variable rate equal to either (i) the Adjusted LIBO Rate (as defined in the Revolving Credit Facility) plus an agreed spread (ranging from 100 to 162.5 basis points, which is established based on the Company's credit rating); or (ii) an Alternate Base Rate (as defined in the Revolving Credit Facility), which is the highest of (a) the Prime Rate (as defined in the Revolving Credit Facility) in effect on any applicable day, (b) the NYFRB Rate (as defined in the Revolving Credit Facility) in effect on any applicable day, plus ½ of 1%, and (c) the Adjusted LIBO Rate for a one-month interest period on any applicable day, or if such day is not a business day, the immediately preceding business day, plus 1.0%, in each case plus an agreed upon spread (ranging from 0 to 62.5 basis points) which is established quarterly based on the Company's credit rating. The Company is also required to pay a facility fee on unused available borrowings under the Revolving Credit Facility ranging from 9 to 22.5 basis points which is established based on the Company's then credit rating.

 

 

14


 

The Company pays each lender a participation fee with respect to such lender’s participations in letters of credit, which fee accrues at the same Applicable Rate (as defined in the Revolving Credit Facility) used to determine the interest rate applicable to Eurodollar Revolving Loans (as defined in the Revolving Credit Facility) plus a fronting fee for each letter of credit issued by the issuing bank in an amount equal to 12.5 basis points per annum on the daily maximum amount then available to be drawn under such letter of credit. The Company also pays each issuing bank such bank’s standard fees with respect to issuance, amendment or extensions of letters of credit and other processing fees, and other standard costs and charges relating to such issuing bank’s letters of credit from time to time.

There was $75.0 million of outstanding borrowings under the Revolving Credit Facility, plus $5.0 million outstanding letters of credit as of September 30, 2021, leaving us with $670.0 million of available borrowings under the Revolving Credit Facility, net of the outstanding letters of credit. We were in compliance with all Financial Covenants on September 30, 2021; therefore, all $670.0 million is available for future borrowings.

2.500% Senior Unsecured Notes Due 2031

On July 1, 2021, we issued $750.0 million aggregate principal amount of 2.500% senior notes due July 2031 (the 2.500% Senior Unsecured Notes). The 2.500% Senior Unsecured Notes are senior unsecured obligations of the Company and are not guaranteed by any of our subsidiaries. The 2.500% Senior Unsecured Notes were issued net of original issue discount of $6.3 million and have an effective interest rate of approximately 2.6%. The original issue discount is being amortized by the effective interest method over the ten-year term of the notes. The 2.500% Senior Unsecured Notes are redeemable prior to April 1, 2031 at a redemption price equal to 100% of the aggregate principal amount of the 2.500% Senior Unsecured Notes being redeemed, plus the present value of remaining scheduled payments of principal and interest from the applicable redemption date to April 1, 2031, discounted to the redemption date on a semi-annual basis at the Treasury rate plus 20 basis points. The 2.500% Senior Unsecured Notes are redeemable on or after April 1, 2031 at a redemption price equal to 100% of the aggregate principal amount of the 2.500% Senior Unsecured Notes being redeemed, plus accrued and unpaid interest to, but excluding, the applicable redemption date. If we experience certain change of control triggering events, we would be required to offer to repurchase the 2.500% Senior Unsecured Notes at a purchase price equal to 101% of the aggregate principal amount of the 2.500% Senior Unsecured Notes being repurchased, plus accrued and unpaid interest to, but excluding, the applicable redemption date. The indenture governing the 2.500% Senior Unsecured Notes contains certain covenants that limit our ability to create or permit to exist certain liens; enter into sale and leaseback transactions; and consolidate, merge, or transfer all or substantially all of our assets, and provides for certain events of default that, if any occurred, would permit or require the principal of and accrued interest on the 2.500% Senior Unsecured Notes to become or be declared due and payable.

Retirement of Debt

In connection with the issuance of the 2.500% Senior Unsecured Notes on July 1, 2021, we repaid all outstanding amounts under and terminated our $665.0 million term loan credit agreement (the Term Loan Facility). The Term Loan Facility was used to pay a portion of the purchase price for the Kosmos Acquisition and fees and expenses incurred in connection with the Kosmos Acquisition in March 2020. Additionally, on July 19, 2021, (the first business day following the redemption date), we redeemed and paid in full all outstanding amounts due under the $350.0 million aggregate principal amount of 4.500% senior notes (4.500% Senior Unsecured Notes) due August 2026, using proceeds from the 2.500% Senior Unsecured Notes, the Revolving Credit Facility and cash on hand. The 4.500% Senior Unsecured Notes redemption price included all of the outstanding principal and accrued interest through the redemption date of July 17, 2021, as well as an early termination premium of approximately $8.4 million. In connection with the termination and repayment of the Term Loan Facility and the redemption of the 4.500% Senior Unsecured Notes, we expensed approximately $6.1 million of related debt issuance costs in July 2021.

 

 

15


 

(N) SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activities that earn revenue, incur expenses, and prepare separate financial information that is evaluated regularly by our chief operating decision maker in order to allocate resources and assess performance. On September 18, 2020, we sold our Oil and Gas Proppants business, which had been reported as an operating segment. The Oil and Gas Proppants business was determined to meet the discontinued operations accounting criteria; therefore, this segment is no longer separately reported in our reportable segment footnote for any of the periods presented. Certain expenses of the Oil and Gas Proppants business that related to assets not included in the sale, namely real property and equipment in south Texas, real property in Illinois, and certain other assets, are included in Other when reconciling segment operating earnings to consolidated operating earnings. See Footnote (C) for more information about the sale of the Oil and Gas Proppants business.

Our business is organized into two sectors within which there are four reportable business segments. The Heavy Materials sector includes the Cement and Concrete and Aggregates segments. The Light Materials sector includes the Gypsum Wallboard and Recycled Paperboard segments.

Our primary products are commodities that are essential in commercial and residential construction; public construction projects; and projects to build, expand, and repair roads and highways. Demand for our products is generally cyclical and seasonal, depending on economic and geographic conditions. We distribute our products across many United States markets, which provides us with regional economic diversification. Our operations are conducted in the U.S. and include the mining of limestone for the manufacture, production, distribution, and sale of portland cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; and the mining and sale of aggregates (crushed stone, sand, and gravel).

We operate eight modern cement plants (one of which is operated through a joint venture located in Buda, Texas), one slag grinding facility, and 29 cement distribution terminals. Our cement companies focus on the U.S. heartland and operate as an integrated network selling product primarily in California, Colorado, Illinois, Indiana, Iowa, Kentucky, Missouri, Nebraska, Nevada, Ohio, Oklahoma, and Texas. We operate 26 readymix concrete batch plants and three aggregates processing plants in markets that are complementary to our cement network. On April 17, 2020, we sold our Concrete and Aggregates companies in northern California. See Footnote (C) for more information about the sale.

We operate five gypsum wallboard plants and a recycled paperboard mill. We distribute gypsum wallboard and recycled paperboard throughout the continental U.S., with the exception of the Northeast.

We account for intersegment sales at market prices. For segment reporting purposes only, we proportionately consolidate our 50% share of the Joint Venture Revenue and Operating Earnings, consistent with the way management reports the segments within the Company for making operating decisions and assessing performance.

 

 

16


 

The following table sets forth certain financial information relating to our operations by segment. We do not allocate interest or taxes at the segment level; these costs are disclosed at the consolidated company level.

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

288,324

 

 

$

278,062

 

 

$

558,579

 

 

$

539,473

 

Concrete and Aggregates

 

 

52,750

 

 

 

46,300

 

 

 

97,504

 

 

 

90,490

 

Gypsum Wallboard

 

 

172,985

 

 

 

131,210

 

 

 

339,252

 

 

 

261,360

 

Paperboard

 

 

47,798

 

 

 

46,071

 

 

 

91,065

 

 

 

82,815

 

 

 

 

561,857

 

 

 

501,643

 

 

 

1,086,400

 

 

 

974,138

 

Less: Intersegment Revenue

 

 

(25,237

)

 

 

(26,766

)

 

 

(51,319

)

 

 

(46,972

)

Less: Joint Venture Revenue

 

 

(26,926

)

 

 

(27,193

)

 

 

(49,617

)

 

 

(52,493

)

 

 

$

509,694

 

 

$

447,684

 

 

$

985,464

 

 

$

874,673

 

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Intersegment Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

5,223

 

 

$

6,267

 

 

$

13,056

 

 

$

12,298

 

Concrete and Aggregates

 

 

 

 

 

 

 

 

 

 

 

106

 

Paperboard

 

 

20,014

 

 

 

20,499

 

 

 

38,263

 

 

 

34,568

 

 

 

$

25,237

 

 

$

26,766

 

 

$

51,319

 

 

$

46,972

 

Cement Sales Volume (M tons)

 

 

 

 

 

 

 

 

 

 

 

 

Wholly Owned

 

 

1,983

 

 

 

1,947

 

 

 

3,835

 

 

 

3,813

 

Joint Venture

 

 

215

 

 

 

233

 

 

 

399

 

 

 

452

 

 

 

 

2,198

 

 

 

2,180

 

 

 

4,234

 

 

 

4,265

 

 

 

 

17


 

 

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Operating Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

88,750

 

 

$

79,913

 

 

$

151,297

 

 

$

140,368

 

Concrete and Aggregates

 

 

7,539

 

 

 

5,255

 

 

 

12,883

 

 

 

10,673

 

Gypsum Wallboard

 

 

66,331

 

 

 

37,606

 

 

 

129,584

 

 

 

78,931

 

Paperboard

 

 

981

 

 

 

10,652

 

 

 

4,318

 

 

 

13,547

 

Sub-Total

 

 

163,601

 

 

 

133,426

 

 

 

298,082

 

 

 

243,519

 

Corporate General and Administrative Expense

 

 

(10,667

)

 

 

(11,109

)

 

 

(20,135

)

 

 

(28,898

)

Early Retirement of Senior Notes

 

 

(8,407

)

 

 

 

 

 

(8,407

)

 

 

 

Gain on Sale of Businesses

 

 

 

 

 

 

 

 

 

 

 

51,973

 

Other Non-Operating Income (Loss)

 

 

(944

)

 

 

(90

)

 

 

2,734

 

 

 

(399

)

Earnings Before Interest and Income Taxes

 

 

143,583

 

 

 

122,227

 

 

 

272,274

 

 

 

266,195

 

Interest Expense, net

 

 

(12,268

)

 

 

(12,556

)

 

 

(19,240

)

 

 

(26,597

)

Earnings from Continuing Operations Before Income Taxes

 

$

131,315

 

 

$

109,671

 

 

$

253,034

 

 

$

239,598

 

Cement Operating Earnings -

 

 

 

 

 

 

 

 

 

 

 

 

Wholly Owned

 

$

80,490

 

 

$

69,336

 

 

$

135,067

 

 

$

121,995

 

Joint Venture

 

 

8,260

 

 

 

10,577

 

 

 

16,230

 

 

 

18,373

 

 

 

$

88,750

 

 

$

79,913

 

 

$

151,297

 

 

$

140,368

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

6,976

 

 

$

7,909

 

 

$

14,943

 

 

$

18,257

 

Concrete and Aggregates

 

 

527

 

 

 

41

 

 

 

1,073

 

 

 

1,302

 

Gypsum Wallboard

 

 

6,345

 

 

 

4,070

 

 

 

8,039

 

 

 

10,582

 

Paperboard

 

 

375

 

 

 

2,665

 

 

 

1,492

 

 

 

10,535

 

Corporate and Other

 

 

619

 

 

 

 

 

 

1,230

 

 

 

 

 

 

$

14,842

 

 

$

14,685

 

 

$

26,777

 

 

$

40,676

 

Depreciation, Depletion, and Amortization

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

20,019

 

 

$

19,258

 

 

$

39,550

 

 

$

38,501

 

Concrete and Aggregates

 

 

2,470

 

 

 

2,698

 

 

 

5,048

 

 

 

5,419

 

Gypsum Wallboard

 

 

5,484

 

 

 

5,661

 

 

 

10,880

 

 

 

10,861

 

Paperboard

 

 

3,663

 

 

 

3,344

 

 

 

7,331

 

 

 

6,696

 

Corporate and Other

 

 

704

 

 

 

1,201

 

 

 

1,475

 

 

 

2,501

 

 

 

$

32,340

 

 

$

32,162

 

 

$

64,284

 

 

$

63,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures

 

$

 

 

$

 

 

$

 

 

$

 

Depreciation, Depletion, and Amortization

 

$

 

 

$

100

 

 

$

 

 

$

221

 

 

 

 

September 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

 

 

(dollars in thousands)

 

Identifiable Assets

 

 

 

 

 

 

Cement

 

$

1,889,037

 

 

$

1,898,930

 

Concrete and Aggregates

 

 

93,550

 

 

 

88,410

 

Gypsum Wallboard

 

 

366,276

 

 

 

366,352

 

Paperboard

 

 

185,641

 

 

 

186,156

 

Other, net

 

 

85,324

 

 

 

298,833

 

 

 

$

2,619,828

 

 

$

2,838,681

 

 

 

18


 

 

Segment operating earnings, including the proportionately consolidated 50% interest in the revenue and expenses of the Joint Venture, represent Revenue, less direct operating expenses, segment Depreciation, and segment Selling, General, and Administrative expenses. We account for intersegment sales at market prices. Corporate assets consist primarily of cash and cash equivalents, general office assets, and miscellaneous other assets.

The basis used to disclose Identifiable Assets; Capital Expenditures; and Depreciation, Depletion, and Amortization conforms with the equity method, and is similar to how we disclose these accounts in our Unaudited Consolidated Balance Sheets and Unaudited Consolidated Statements of Earnings.

The segment breakdown of Goodwill is as follows:

 

 

 

September 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

 

 

(dollars in thousands)

 

Cement

 

$

203,342

 

 

$

203,342

 

Concrete and Aggregates

 

 

1,639

 

 

 

1,639

 

Gypsum Wallboard

 

 

116,618

 

 

 

116,618

 

Paperboard

 

 

7,538

 

 

 

7,538

 

 

 

$

329,137

 

 

$

329,137

 

 

Summarized financial information for the Joint Venture that is not consolidated is set out below. This summarized financial information includes the total amount for the Joint Venture and not our 50% interest in those amounts:

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Revenue

 

$

53,852

 

 

$

54,387

 

 

$

99,234

 

 

$

104,987

 

Gross Margin

 

$

17,776

 

 

$

23,004

 

 

$

34,609

 

 

$

39,769

 

Earnings Before Income Taxes

 

$

16,519

 

 

$

21,154

 

 

$

32,459

 

 

$

36,745

 

 

 

 

September 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

 

 

(dollars in thousands)

 

Current Assets

 

$

68,028

 

 

$

66,871

 

Noncurrent Assets

 

$

110,571

 

 

$

107,617

 

Current Liabilities

 

$

17,586

 

 

$

16,390

 

 

(O) INTEREST EXPENSE

The following components are included in Interest Expense, net:

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Interest Income

 

$

(13

)

 

$

(40

)

 

$

(38

)

 

$

(40

)

Interest Expense

 

 

5,425

 

 

 

11,672

 

 

 

11,551

 

 

 

24,692

 

Other Expenses

 

 

6,856

 

 

 

924

 

 

 

7,727

 

 

 

1,945

 

Interest Expense, net

 

$

12,268

 

 

$

12,556

 

 

$

19,240

 

 

$

26,597

 

 

 

 

19


 

Interest Income includes interest earned on investments of excess cash. Components of Interest Expense include interest associated with the Revolving Credit Facility, Term Loan, Senior Unsecured Notes, and commitment fees based on the unused portion of the Revolving Credit Facility. Other Expenses include amortization of debt issuance costs and Revolving Credit Facility costs. Other Expenses for the three and six months ended September 30, 2021 also include approximately $6.1 million for the write-off of debt issuance costs related to the Term Loan and 4.500% Senior Unsecured Notes, which were repaid and redeemed in July 2021.

(P) COMMITMENTS AND CONTINGENCIES

We have certain deductible limits under our workers’ compensation and liability insurance policies for which reserves are established based on the undiscounted estimated costs of known and anticipated claims. We have entered into standby letter of credit agreements relating to workers’ compensation, auto, and general liability self-insurance. At September 30, 2021, we had contingent liabilities under these outstanding letters of credit of approximately $5.0 million.

In the ordinary course of business, we execute contracts involving indemnifications that are both standard in the industry and specific to a transaction, such as the sale of a business. These indemnifications may include claims relating to any of the following: environmental and tax matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier, and other commercial contractual relationships; construction contracts and financial matters. While the maximum amount to which the Company may be exposed under such agreements cannot be estimated, management believes these indemnifications will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows. We currently have no outstanding guarantees.

We are currently contingently liable for performance under $26.1 million in performance bonds required by certain states and municipalities, and their related agencies. The bonds are principally for certain reclamation obligations and mining permits. We have indemnified the underwriting insurance company against any exposure under the performance bonds. In our past experience, no material claims have been made against these financial instruments.

(Q) FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of our long-term debt has been estimated based upon our current incremental borrowing rates for similar types of borrowing arrangements. The fair value of our 2.500% Senior Unsecured Notes at September 30, 2021 is as follows:

 

 

 

Fair Value

 

 

 

(dollars in thousands)

 

2.500% Senior Unsecured Notes Due 2031

 

$

744,768

 

The estimated fair value of our long-term debt was based on quoted prices of similar debt instruments with similar terms that are publicly traded (level 2 input). The carrying values of Cash and Cash Equivalents, Accounts Receivable, Notes Receivable, Accounts Payable, and Accrued Liabilities approximate their fair values at September 30, 2021, due to the short-term maturities of these assets and liabilities. The fair value of our Revolving Credit Facility also approximates the carrying value at September 30, 2021.

 

20


 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE SUMMARY

We are a leading supplier of heavy construction materials and light building materials in the United States. Our primary products are commodities that are essential in commercial and residential construction; public construction projects; and projects to build, expand, and repair roads and highways. Demand for our products is generally cyclical and seasonal, depending on economic and geographic conditions. We distribute our products throughout most of the United States, except the Northeast, which provides us with regional economic diversification. However, general economic downturns or localized downturns in the regions where we have operations may have a material adverse effect on our business, financial condition, and results of operations.

Our business is organized into two sectors: Heavy Materials, which includes the Cement and Concrete and Aggregates segments; and Light Materials, which includes the Gypsum Wallboard and Recycled Paperboard segments. Financial results and other information for the three and six months ended September 30, 2021 and 2020, respectively, are presented on a consolidated basis and by these business segments – Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard.

We conduct one of our cement operations through a joint venture, Texas Lehigh Cement Company LP, which is located in Buda, Texas (the Joint Venture). We own a 50% interest in the Joint Venture and account for our interest under the equity method of accounting. We proportionately consolidate our 50% share of the Joint Venture’s Revenue and Operating Earnings in the presentation of our Cement segment, which is the way management organizes the segments within the Company for making operating decisions and assessing performance.

All our business activities are conducted in the United States. These activities include the mining of limestone for the manufacture, production, distribution, and sale of portland cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; and the mining and sale of aggregates (crushed stone, sand, and gravel).

On September 18, 2020, we sold our Oil and Gas Proppants business, which had previously been reported as a separate operating segment. Because the sale of the Oil and Gas Proppants business was determined to meet the accounting criteria for discontinued operations, this segment is no longer separately reported in our reportable segment footnote for any of the periods presented. See Footnote (C) in the Unaudited Consolidated Financial Statements for more information about the sale of the Oil and Gas Proppants business.

On April 17, 2020, we sold our Western Aggregates LLC (Western) and Mathews Readymix LLC (Mathews) businesses for an aggregate purchase price of $93.5 million, resulting in a gain of $52.0 million. Western and Mathews were part of our Concrete and Aggregates operating segment, and their results of operations were included in our financial statements for the period from April 1, 2020 through April 17, 2020.

MARKET CONDITIONS AND OUTLOOK

In the first half of fiscal 2022, strong underlying market conditions continued to support construction activity in our markets. While supply chain disruptions are having an impact on our customers in the near term, we believe demand for our products is still strong. Additionally, if the proposed federal infrastructure program is passed, investment in roads, bridges, and other infrastructure will increase further throughout the country.

 

 

21


 

Energy and freight costs increased in all of our businesses during the fiscal second quarter, and we anticipate further increases throughout the remainder of fiscal 2022. We have forward purchase contracts for approximately 50% of our natural gas needs for the remainder of the fiscal year. Several factors are contributing to higher freight costs: limited availability of trucking and rail service, and congestion on the shipping routes, all of which have constrained capacity.

Cement and Concrete and Aggregates markets are affected by infrastructure spending, residential construction, industrial construction activity, and weather. The Portland Cement Association estimates that in calendar 2021 cement consumption will increase approximately 2% over 2020. Despite underlying market demand, our organic Cement sales volume growth is expected to be limited in fiscal 2022 because our integrated cement sales network, which stretches across the U.S. heartland, is operating at high utilization levels.

Our primary Gypsum Wallboard sales network stretches across the southern half of the United States, consistent with our facility network. Wallboard demand is heavily influenced by new residential housing construction, as well as repair and remodeling activity. Residential housing starts increased, on a seasonally adjusted basis, approximately 7% in during the first nine months of calendar 2021, compared with 2020. Repair and remodel activity is expected to remain consistent throughout the rest of the year, but may be negatively affected by further delays in the supply chain.

Our Recycled Paperboard business sells paper primarily into the gypsum wallboard market, and demand for paper generally follows the demand for gypsum wallboard. The primary raw material used to produce paperboard is Old Carboard Containers (OCC). Prices for OCC significantly increased during the first six months of fiscal 2022. Although current customer contracts for gypsum liner include price escalators that partially offset and compensate for changes in raw material fiber prices, these increases will not be realized until future quarters, which will likely result in higher material costs in our Gypsum Wallboard segment in the period that these price increases are realized.

RESULTS OF OPERATIONS

THREE MONTHS ENDED september 30, 2021 Compared WITH THREE MONTHS ENDED september 30, 2020

 

 

 

For the Three Months Ended September 30,

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

 

 

(dollars in thousands, except per share)

 

 

 

 

Revenue

 

$

509,694

 

 

$

447,684

 

 

 

14

%

Cost of Goods Sold

 

 

(354,353

)

 

 

(324,835

)

 

 

9

%

Gross Profit

 

 

155,341

 

 

 

122,849

 

 

 

26

%

Equity in Earnings of Unconsolidated Joint Venture

 

 

8,260

 

 

 

10,577

 

 

 

(22

)%

Corporate General and Administrative

 

 

(10,667

)

 

 

(11,109

)

 

 

(4

)%

Premium Paid on Early Retirement of Senior Notes

 

 

(8,407

)

 

 

 

 

 

 

Other Non-Operating Income (Loss)

 

 

(944

)

 

 

(90

)

 

 

949

%

Interest Expense, net

 

 

(12,268

)

 

 

(12,556

)

 

 

(2

)%

Earnings from Continuing Operations Before Income Taxes

 

 

131,315

 

 

 

109,671

 

 

 

20

%

Income Tax Expense

 

 

(29,190

)

 

 

(19,800

)

 

 

47

%

Net Earnings from Continuing Operations

 

 

102,125

 

 

 

89,871

 

 

 

14

%

Net Earnings from Discontinued Operations

 

$

 

 

$

6,163

 

 

 

-100

%

Net Earnings

 

$

102,125

 

 

$

96,034

 

 

 

6

%

Diluted Earnings per Share from Continuing Operations

 

$

2.46

 

 

$

2.16

 

 

 

14

%

 

 

22


 

REVENUE

Revenue increased by $62.0 million, or 14%, to $509.7 million for the three months ended September 30, 2021. The increase in Revenue was due to higher gross sales prices and Sales Volume, which positively affected Revenue by approximately $49.2 million and $12.8 million, respectively.

COST OF GOODS SOLD

Cost of Goods Sold increased by $29.6 million, or 9%, to $354.4 million for the three months ended September 30, 2021. The increase was due to higher Sales Volume and increased operating costs of $10.0 million and $19.6 million, respectively. The increase in operating costs was primarily related to our Gypsum Wallboard and Recycled Paperboard segments, which are discussed further in the segment analysis.

GROSS PROFIT

Gross Profit increased 26% to $155.3 million during the three months ended September 30, 2021. The improvement was primarily due to higher gross sales prices and Sales Volume, partially offset by increased operating costs. The gross margin increased to 30% from 27%, mainly because of higher gross sales prices, partially offset by an increase in operating costs.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE

Equity in Earnings of our Unconsolidated Joint Venture decreased $2.3 million, or 22%, for the three months ended September 30, 2021. The decrease was primarily due to lower Sales Volume and increased operating costs, which adversely affected earnings by approximately $0.8 million and $3.3 million, respectively. This was partially offset by higher gross sales prices of $1.8 million.

CORPORATE GENERAL AND ADMINISTRATIVE

Corporate General and Administrative expenses declined by approximately $0.4 million, or 4%, for the three months ended September 30, 2021. The decrease was primarily due to lower professional fees incurred in fiscal 2021 of approximately $2.4 million. The prior year fees related primarily to the sale of Mathews Readymix and Western Aggregates, as well as the preparation for the sale of the Oil and Gas Proppants business. The lower fees were partially offset by higher salary and incentive compensation of $1.1 million and insurance expense of $0.5 million.

PREMIUM PAID ON EARLY RETIREMENT OF SENIOR NOTES

In July 2021, the Company redeemed and retired its 4.500% Senior Unsecured Notes due in 2026 prior to the maturity date. As a result of the early retirement, the Company paid a premium of $8.4 million. See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.

OTHER NON-OPERATING INCOME (LOSS)

Other Non-Operating Income (Loss) consists of a variety of items that are unrelated to segment operations and include non-inventoried Aggregates income, asset sales, and other miscellaneous income and cost items.

 

 

23


 

INTEREST EXPENSE, NET

Interest Expense, net decreased by approximately $0.3 million, or 2%, during the three months ended September 30, 2021. The decrease was primarily due to lower interest on borrowings under our Revolving Credit Facility and Term Loan of approximately $2.6 million and $5.1 million, respectively. Interest Expense related to our Revolving Credit Facility was lower because our average outstanding borrowings under the Revolving Credit Facility were less in the fiscal 2022 quarter at approximately $75.0 million, compared with average borrowings of approximately $350.0 million during the second quarter of fiscal 2021. Interest Expense on our Term Loan declined because we repaid the loan on July 1, 2021. The lower interest amounts were partially offset by higher interest expense on our public notes and loan amortization expense, which increased by $1.4 million and $5.9 million, respectively. Interest on our public notes was higher because our public notes outstanding increased to $750.0 million from $350.0 million, while loan amortization expense increased as a result of our $6.1 million write-off of debt issuance costs related to our 4.500% Unsecured Senior Notes Due in 2026 and our Term Loan in July 2021. See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Earnings Before Income Taxes increased to $131.3 million during the three months ended September 30, 2021, primarily as a result of higher Gross Profit and lower Corporate General and Administrative expenses and Interest Expense. This was partially offset by higher Premium Paid on Early Retirement of Senior Notes and lower Equity in Earnings of Unconsolidated Joint Venture.

INCOME TAX EXPENSE

Income Tax Expense was $29.2 million for the three months ended September 30, 2021, compared with $19.8 million for the three months ended September 30, 2020. The effective tax rate increased to 22% from 18% in the prior-year period. The increase in the effective tax rate for the three months ended September 30, 2021 was primarily due to the reversal of an uncertain tax position that was recorded during the three months ended September 30, 2020.

NET EARNINGS FROM CONTINUING OPERATIONS AND DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS

Net Earnings from Continuing Operations increased 14% to $102.1 million for the three months ended September 30, 2021. Diluted Earnings per Share from Continuing Operations increased 14% to $2.46 per share.

NET EARNINGS FROM DISCONTINUED OPERATIONS

Net Earnings from Discontinued Operations declined $6.2 million during the three months ended September 30, 2021. The Oil and Gas Proppants business was sold in September 2020, and there was no activity related to this business during fiscal 2022.

NET EARNINGS

Net Earnings increased 6% to $102.1 million for the three months ended September 30, 2021, as discussed above.

 

 

 

 

24


 

RESULTS OF OPERATIONS

six MONTHS ENDED september 30, 2021 Compared WITH six MONTHS ENDED september 30, 2020

 

 

 

For the Six Months Ended September 30,

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

 

 

(dollars in thousands, except per share)

 

 

 

 

Revenue

 

$

985,464

 

 

$

874,673

 

 

 

13

%

Cost of Goods Sold

 

 

(703,612

)

 

 

(649,527

)

 

 

8

%

Gross Profit

 

 

281,852

 

 

 

225,146

 

 

 

25

%

Equity in Earnings of Unconsolidated Joint Venture

 

 

16,230

 

 

 

18,373

 

 

 

(12

)%

Corporate General and Administrative

 

 

(20,135

)

 

 

(28,898

)

 

 

(30

)%

Premium Paid on Early Retirement of Senior Notes

 

 

(8,407

)

 

 

 

 

 

 

Gain on Sale of Businesses

 

 

 

 

 

51,973

 

 

 

(100

)%

Other Non-Operating Income (Loss)

 

 

2,734

 

 

 

(399

)

 

 

(785

)%

Interest Expense, net

 

 

(19,240

)

 

 

(26,597

)

 

 

(28

)%

Earnings from Continuing Operations Before Income Taxes

 

 

253,034

 

 

 

239,598

 

 

 

6

%

Income Tax Expense

 

 

(55,582

)

 

 

(52,636

)

 

 

6

%

Net Earnings from Continuing Operations

 

 

197,452

 

 

 

186,962

 

 

 

6

%

Net Earnings from Discontinued Operations

 

$

 

 

$

5,278

 

 

 

-100

%

Net Earnings

 

$

197,452

 

 

$

192,240

 

 

 

3

%

Diluted Earnings per Share from Continuing Operations

 

$

4.70

 

 

$

4.49

 

 

 

5

%

REVENUE

Revenue increased by $110.8 million, or 13%, to $985.5 million for the six months ended September 30, 2021. The increase in Revenue was due to higher gross sales prices and Sales Volume, which positively affected Revenue by approximately $89.1 million and $21.7 million, respectively.

COST OF GOODS SOLD

Cost of Goods Sold increased by $54.1 million, or 8%, to $703.6 million for the six months ended September 30, 2021. The increase was due to higher Sales Volume and increased operating costs of $16.1 million and $38.0 million, respectively. The increase in operating costs was primarily related to our Cement and Gypsum Wallboard segments, which are discussed further in the segment analysis.

GROSS PROFIT

Gross Profit increased 25% to $281.9 million during the six months ended September 30, 2021. The improvement was mainly due to higher gross sales prices and Sales Volume, partially offset by increased operating costs. The gross margin increased to 29% from 26%, primarily because of higher gross sales prices, partially offset by an increase in operating costs.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE

Equity in Earnings of our Unconsolidated Joint Venture decreased $2.2 million, or 12%, for the six months ended September 30, 2021. The decrease was primarily due to lower Sales Volume and higher operating costs, which reduced earnings by $2.2 million and $3.3 million, respectively. This was partially offset by higher net sales prices, which raised earnings by approximately $3.3 million. The increase in operating costs was due primarily to maintenance and energy, which reduced earnings by approximately $1.7 million and $0.5 million, respectively.

 

 

25


 

CORPORATE GENERAL AND ADMINISTRATIVE

Corporate General and Administrative expenses declined by approximately $8.8 million, or 30%, for the six months ended September 30, 2021. The decrease was primarily due to lower professional and transaction fees incurred in fiscal 2021 of approximately $4.6 million and $4.8 million, respectively. The professional fees related primarily to our strategic portfolio review in the prior year, and the transaction fees mostly related to the prior year sale of Mathews Readymix and Western Aggregates, as well as preparation for the sale of the Oil and Gas Proppants business. The decrease was partially offset by an increase of $0.9 million in insurance expense.

EARLY RETIREMENT OF SENIOR NOTES

In July 2021, the Company redeemed and retired its 4.500% Senior Unsecured Notes due in 2026 prior to the maturity date. As a result of the early retirement, the Company paid a premium of $8.4 million. See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.

GAIN ON SALE OF BUSINESSES

On April 17, 2020 we sold Western and Mathews for approximately $93.5 million. See Footnote (C) to the Unaudited Consolidated Financial Statements for more information regarding the sale.

OTHER NON-OPERATING INCOME (LOSS)

Other Non-Operating Income (Loss) consists of a variety of items that are unrelated to segment operations and include non-inventoried Aggregates income, asset sales, and other miscellaneous income and cost items. The increase in Other Non-Operating Income (Loss) was primarily due to the sale of land that resulted in a gain of approximately $1.7 million.

INTEREST EXPENSE, NET

Interest Expense, net decreased by approximately $7.4 million, or 28%, during the six months ended September 30, 2021. The decrease was primarily due to lower interest on borrowings under our Revolving Credit Facility and Term Loan of approximately $7.1 million and $7.4 million, respectively. Interest Expense related to our Revolving Credit Facility was lower because our average outstanding borrowings under the Revolving Credit Facility were significantly less in the first half of fiscal 2022 at approximately $75.0 million, compared with average borrowings of approximately $400.0 million during fiscal 2021. Interest Expense on our Term Loan declined due to lower average interest rates and because we repaid the loan on July 1, 2021. The lower interest amounts were partially offset by higher interest expense on our public notes and loan amortization expense, which increased by $1.4 million and $5.7 million, respectively. Interest on our public notes was higher because our public notes outstanding increased to $750.0 million from $350.0 million in July 2021. Loan amortization expense increased as a result of our $6.1 million write-off of debt issuance costs related to our 4.500% Unsecured Senior Notes Due in 2026 and our Term Loan in July 2021. See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Earnings Before Income Taxes increased to $253.0 million during the six months ended September 30, 2021, primarily as a result of higher Gross Profit and Other Non-Operating Income (Loss), as well as lower Corporate General and Administrative expenses and Interest Expense than the prior-year period. This was partially offset by lower Gross Equity in Earnings of Unconsolidated Joint Venture and Gain on Sale of Business.

 

 

26


 

INCOME TAX EXPENSE

Income Tax Expense was $55.6 million for the six months ended September 30, 2021, compared with $52.6 million for the six months ended September 30, 2020. The effective tax rate remained consistent at 22% for both periods.

NET EARNINGS FROM CONTINUING OPERATIONS AND DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS

Net Earnings from Continuing Operations increased 6% to $197.5 million for the six months ended September 30, 2021. Diluted Earnings per Share from Continuing Operations increased 5% to $4.70 per share.

NET EARNINGS FROM DISCONTINUED OPERATIONS

Net Earnings from Discontinued Operations declined $5.3 million during the six months ended September 30, 2021. The Oil and Gas Proppants business was sold in September 2020, and there was no activity related to this business during fiscal 2022.

NET EARNINGS

Net Earnings increased 3% to $197.5 million for the six months ended September 30, 2021, as discussed above.

Three and six MONTHS ENDED september 30, 2021 vs. three and six MONTHS ENDED september 30, 2020 BY SEGMENT

The following presents results within our two business sectors for the three and six months ended September 30, 2021 and 2020. Revenue and operating results are organized by sector and discussed by individual business segment within each respective business sector.

 

 

 

27


 

Heavy Materials

CEMENT (1)

 

 

For the Three Months Ended September 30,

 

 

 

 

 

For the Six Months Ended September 30,

 

 

 

 

 

 

2021

 

 

2020

 

 

Percentage Change

 

 

2021

 

 

2020

 

 

Percentage Change

 

 

 

(in thousands, except per ton information)

 

 

 

 

 

(in thousands, except per ton information)

 

 

 

 

Gross Revenue, including Intersegment and Joint Venture

 

$

288,324

 

 

$

278,062

 

 

 

4

%

 

$

558,579

 

 

$

539,473

 

 

 

4

%

Less Intersegment Revenue

 

 

(5,223

)

 

 

(6,267

)

 

 

(17

)%

 

 

(13,056

)

 

 

(12,298

)

 

 

6

%

Less Joint Venture Revenue

 

 

(26,926

)

 

 

(27,193

)

 

 

(1

)%

 

 

(49,617

)

 

 

(52,493

)

 

 

(5

)%

Gross Revenue, as reported

 

$

256,175

 

 

$

244,602

 

 

 

5

%

 

$

495,906

 

 

$

474,682

 

 

 

4

%

Freight and Delivery Costs billed to Customers

 

 

(19,610

)

 

 

(18,850

)

 

 

4

%

 

 

(38,652

)

 

 

(35,819

)

 

 

8

%

Net Revenue

 

$

236,565

 

 

$

225,752

 

 

 

5

%

 

$

457,254

 

 

$

438,863

 

 

 

4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (M Tons)

 

 

2,198

 

 

 

2,180

 

 

 

1

%

 

 

4,234

 

 

 

4,265

 

 

 

(1

)%

Average Net Sales Price, per ton (2)

 

$

117.78

 

 

$

111.59

 

 

 

6

%

 

$

117.09

 

 

$

110.38

 

 

 

6

%

Operating Margin, per ton

 

$

40.38

 

 

$

36.66

 

 

 

10

%

 

$

35.73

 

 

$

32.91

 

 

 

9

%

Operating Earnings

 

$

88,750

 

 

$

79,913

 

 

 

11

%

 

$

151,297

 

 

$

140,368

 

 

 

8

%

(1) Total of wholly owned subsidiaries and proportionately consolidated 50% interest of the Joint Venture’s results.

(2) Net of freight per ton, including Joint Venture.

Three months ended September 30, 2021

Cement Revenue was $288.3 million, a 4% increase, for the three months ended September 30, 2021. The increase was primarily due to higher gross sales prices and Sales Volume, which improved Cement Revenue by approximately $8.9 million and $1.3 million, respectively.

Cement Operating Earnings increased by 11% to $88.8 million for the three months ended September 30, 2021. The increase was due to higher gross sales prices and Sales Volume, which positively affected Operating Earnings by approximately $8.9 million and $0.5 million, respectively. This was partially offset by increased operating costs, which negatively affected Operating Earnings by $0.5 million. The increase in operating costs was primarily due to higher energy and purchased raw materials costs of approximately $3.2 million and $1.8 million, respectively. These increases were partially offset by lower maintenance costs of $4.3 million. The decrease in maintenance expense was due to the shifting of certain maintenance outages in fiscal 2021 to the second and third quarters because of the uncertainty of the impact of the COVID-19 pandemic. During the current fiscal year, we performed maintenance outages during the first quarter for all our plants. The Operating Margin increased to 31%, primarily due to higher gross sales prices, partially offset by increased operating costs.

Six months ended September 30, 2021

Cement Revenue was $558.6 million, a 4% increase, for the six months ended September 30, 2021. The increase was primarily due to higher gross sales prices, which improved Cement Revenue by approximately $21.8 million. This was partially offset by lower Sales Volume, which reduced Revenue by $2.7 million.

Cement Operating Earnings increased by 8% to $151.3 million for the six months ended September 30, 2021. The improvement was due to higher gross sales prices, which positively affected Operating Earnings by approximately $21.8 million. This was partially offset by lower Sales Volume and increased operating costs, which negatively affected Operating Earnings by $1.5 million and $9.4 million, respectively. The increase in operating costs was primarily due to higher maintenance and energy costs of approximately $6.7 million and $5.5 million, respectively. These increases were partially offset by a reduction of $3.7 million of costs at Kosmos Cement related to the recording of acquired inventory at fair value in the first quarter of fiscal 2021. The increase in maintenance expense was due to the shifting of certain maintenance outages in fiscal 2021 to the second and third quarters because of the uncertainty of the impact of the COVID-19 pandemic. During the current fiscal year, we performed maintenance outages during the first quarter for all our plants. The Operating Margin increased to 27% because of higher gross sales prices, partially offset by the increase in operating costs.

 

28


 

CONCRETE AND AGGREGATES

 

 

 

For the Three Months Ended September 30,

 

 

 

 

 

For the Six Months Ended September 30,

 

 

 

 

 

 

2021

 

 

2020

 

 

Percentage Change

 

 

2021

 

 

2020

 

 

Percentage Change

 

 

 

(in thousands, except net sales prices)

 

 

 

 

 

(in thousands, except net sales prices)

 

 

 

 

Gross Revenue, including intersegment

 

$

52,750

 

 

$

46,300

 

 

 

14

%

 

$

97,504

 

 

$

90,490

 

 

 

8

%

Less intersegment Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(106

)

 

 

(100

)%

Gross Revenue, as reported

 

$

52,750

 

 

$

46,300

 

 

 

14

%

 

$

97,504

 

 

$

90,384

 

 

 

8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M Cubic Yards of Concrete

 

 

398

 

 

 

357

 

 

 

11

%

 

 

746

 

 

 

705

 

 

 

6

%

M Tons of Aggregate

 

 

481

 

 

 

475

 

 

 

1

%

 

 

842

 

 

 

950

 

 

 

(11

)%

Average Net Sales Price -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concrete - Per Cubic Yard

 

$

120.15

 

 

$

116.55

 

 

 

3

%

 

$

119.23

 

 

$

115.10

 

 

 

4

%

Aggregates - Per Ton

 

$

10.40

 

 

$

10.02

 

 

 

4

%

 

$

10.20

 

 

$

9.90

 

 

 

3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings

 

$

7,539

 

 

$

5,255

 

 

 

43

%

 

$

12,883

 

 

$

10,673

 

 

 

21

%

Three months ended September 30, 2021

Concrete and Aggregates Revenue increased 14% to $52.8 million for the three months ended September 30, 2021. The improvement was mainly due to higher gross sales prices and Sales Volume, primarily for Concrete, which increased Revenue by $1.6 million and $4.9 million, respectively.

Operating Earnings increased 43% to approximately $7.5 million. The increase was a result of higher gross sales prices and Sales Volume of approximately $1.6 million and $0.4 million, respectively, and lower operating costs of approximately $0.2 million.

Six months ended September 30, 2021

Concrete and Aggregates Revenue increased 8% to $97.5 million for the six months ended September 30, 2021. The improvement was mainly due to higher gross sales prices and Sales Volume, primarily for Concrete, which increased Revenue by $3.5 million and $4.6 million, respectively. This was partially offset by lower Sales Volume in Aggregates, which reduced Revenue by $1.1 million.

Operating Earnings increased 21% to approximately $12.9 million. The increase was a result of higher gross sales prices and Sales Volume of approximately $3.5 million and $0.3 million, respectively. This was partially offset by higher operating costs of approximately $1.6 million. The increase in operating costs was primarily due to higher delivery costs of approximately $1.6 million.

 

 

 

29


 

Light Materials

GYPSUM WALLBOARD

 

 

 

For the Three Months Ended September 30,

 

 

 

 

 

For the Six Months Ended September 30,

 

 

 

 

 

 

2021

 

 

2020

 

 

Percentage Change

 

 

2021

 

 

2020

 

 

Percentage Change

 

 

 

(in thousands, except per MSF information)

 

 

 

 

 

(in thousands, except per MSF information)

 

 

 

 

Gross Revenue, as reported

 

$

172,985

 

 

$

131,210

 

 

 

32

%

 

$

339,252

 

 

$

261,360

 

 

 

30

%

Freight and Delivery Costs billed to Customers

 

 

(32,463

)

 

 

(27,977

)

 

 

16

%

 

 

(63,785

)

 

 

(55,099

)

 

 

16

%

Net Revenue

 

$

140,522

 

 

$

103,233

 

 

 

36

%

 

$

275,467

 

 

$

206,261

 

 

 

34

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (MMSF)

 

 

736

 

 

 

720

 

 

 

2

%

 

 

1,499

 

 

 

1,424

 

 

 

5

%

Average Net Sales Price, per MSF (1)

 

$

190.93

 

 

$

143.41

 

 

 

33

%

 

$

183.73

 

 

$

144.83

 

 

 

27

%

Freight, per MSF

 

$

44.11

 

 

$

38.86

 

 

 

14

%

 

$

42.55

 

 

$

38.69

 

 

 

10

%

Operating Margin, per MSF

 

$

90.12

 

 

$

52.23

 

 

 

73

%

 

$

86.45

 

 

$

55.43

 

 

 

56

%

Operating Earnings

 

$

66,331

 

 

$

37,606

 

 

 

76

%

 

$

129,584

 

 

$

78,931

 

 

 

64

%

(1) Net of freight per MSF.

Three months ended September 30, 2021

Gypsum Wallboard Revenue increased 32% to $173.0 million for the three months ended September 30, 2021. The improvement was due to higher gross sales prices and Sales Volume, which contributed approximately $38.9 million and $2.9 million, respectively. Our market share remained relatively consistent during the three months ended September 30, 2021.

Operating Earnings increased 76% to $66.3 million, primarily because of higher gross sales prices and Sales Volume. The increase in gross sales prices and Sales Volume positively affected Operating Earnings by approximately $38.9 million and $0.8 million, respectively. This was partially offset by higher operating costs, which adversely affected Operating Earnings by approximately $11.0 million. The higher operating costs were primarily related to freight, energy, and raw material costs, which reduced Operating Earnings by approximately $3.9 million, $3.1 million, and $2.6 million, respectively. The Operating Margin increased to 38% for the three months ended September 30, 2021, primarily because of higher gross sales prices, partly offset by higher operating costs. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.

Six months ended September 30, 2021

Gypsum Wallboard Revenue increased 30% to $339.3 million for the six months ended September 30, 2021. The increase was due to higher gross sales prices and Sales Volume, which contributed approximately $64.1 million and $13.8 million, respectively. Our market share remained relatively consistent during the six months ended September 30, 2021.

Operating Earnings increased 64% to $129.6 million, primarily because of higher gross sales prices and Sales Volume. The increase in gross sales prices and Sales Volume positively affected Operating Earnings by approximately $64.1 million and $4.2 million, respectively. This was partially offset by higher operating costs, which adversely affected Operating Earnings by approximately $17.6 million. The higher operating costs were primarily related to freight, energy, and raw material costs which reduced Operating Earnings by approximately $5.8 million, $5.1 million, and $5.2 million, respectively. The Operating Margin increased to 38% for the six months ended September 30, 2021, primarily because of higher gross sales prices, partly offset by higher operating costs. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.

 

 

30


 

RECYCLED PAPERBOARD

 

 

 

For the Three Months Ended September 30,

 

 

 

 

 

For the Six Months Ended September 30,

 

 

 

 

 

 

2021

 

 

2020

 

 

Percentage Change

 

 

2021

 

 

2020

 

 

Percentage Change

 

 

 

(in thousands, except per ton information)

 

 

 

 

 

(in thousands, except per ton information)

 

 

 

 

Gross Revenue, including intersegment

 

$

47,798

 

 

$

46,071

 

 

 

4

%

 

$

91,065

 

 

$

82,815

 

 

 

10

%

Less intersegment Revenue

 

 

(20,014

)

 

 

(20,499

)

 

 

(2

)%

 

 

(38,263

)

 

 

(34,568

)

 

 

11

%

Gross Revenue, as reported

 

$

27,784

 

 

$

25,572

 

 

 

9

%

 

$

52,802

 

 

$

48,247

 

 

 

9

%

Freight and Delivery Costs billed to Customers

 

 

(2,123

)

 

 

(1,352

)

 

 

57

%

 

 

(3,571

)

 

 

(2,685

)

 

 

33

%

Net Revenue

 

$

25,661

 

 

$

24,220

 

 

 

6

%

 

$

49,231

 

 

$

45,562

 

 

 

8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (M Tons)

 

 

87

 

 

 

87

 

 

 

0

%

 

 

171

 

 

 

164

 

 

 

4

%

Average Net Sales Price, per ton (1)

 

$

524.54

 

 

$

513.11

 

 

 

2

%

 

$

511.76

 

 

$

489.13

 

 

 

5

%

Freight, per ton

 

$

24.40

 

 

$

15.54

 

 

 

57

%

 

$

20.88

 

 

$

16.37

 

 

 

28

%

Operating Margin, per ton

 

$

11.28

 

 

$

122.44

 

 

 

(91

)%

 

$

25.25

 

 

$

82.60

 

 

 

(69

)%

Operating Earnings

 

$

981

 

 

$

10,652

 

 

 

(91

)%

 

$

4,318

 

 

$

13,547

 

 

 

(68

)%

(1) Net of freight per ton.

Three months ended September 30, 2021

Recycled Paperboard Revenue increased 4% to $47.8 million during the three months ended September 30, 2021. The increase was primarily due to higher gross sales prices, which positively affected Revenue by $1.7 million. Higher gross sales prices were related to the pricing provisions in our long-term sales agreements.

Operating Earnings decreased 91% to $1.0 million, primarily because of higher operating costs, which reduced Operating Earnings by approximately $11.4 million. This was partially offset by higher gross sales prices, which increased Operating Earnings by $1.7 million. The increase in operating costs was primarily related to higher input costs, namely fiber, and energy, which lowered Operating Earnings by approximately $10.3 million and $1.0 million, respectively. The Operating Margin declined to 2% because of increased operating costs, partially offset by higher gross sales prices. Although the Company has certain pricing provisions in its long-term sales agreements, prices are only adjusted at certain times throughout the year so the timing of price adjustments is not always in the same period as the change in costs.

Six months ended September 30, 2021

Recycled Paperboard Revenue increased 10% to $91.1 million during the six months ended September 30, 2021. The increase was due to higher gross sales prices and Sales Volume, which positively affected Revenue by $4.7 million and $3.6 million, respectively. Higher gross sales prices were related to the pricing provisions in our long-term sales agreements.

Operating Earnings decreased 68% to $4.3 million, primarily because of higher operating costs, which adversely affected Operating Earnings by $14.4 million. This was partially offset by higher gross sales prices and Sales Volume, which positively affected Operating Earnings by approximately $4.6 million and $0.6 million, respectively. These increases were partially offset by higher operating costs. The increase in operating costs was mainly related to higher input costs, namely fiber, and energy, which lowered Operating Earnings by approximately $12.0 million and $1.7 million, respectively. The Operating Margin decreased to 5% primarily because of higher operating costs, partially offset by increased gross sales prices. Although the Company has certain pricing provisions in its long-term sales agreements, prices are only adjusted at certain times throughout the year so the timing of price adjustments is not always in the same period as the change in costs.

 

 

31


 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare our financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

Information regarding our Critical Accounting Policies can be found in our Annual Report. The three critical accounting policies that we believe either require the use of the most judgment, or the selection or application of alternative accounting policies, and are material to our financial statements, are those relating to long-lived assets, goodwill, and business combinations. Management has discussed the development and selection of these Critical Accounting Policies and estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm. In addition, Note (A) to the financial statements in our Annual Report contains a summary of our significant accounting policies.

Recent Accounting Pronouncements

Refer to Footnote (A) in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for information regarding recently issued accounting pronouncements that may affect our financial statements.

LIQUIDITY AND CAPITAL RESOURCES

We believe at this time that we have access to sufficient financial resources from our liquidity sources to fund our business and operations, including contractual obligations, capital expenditures, and debt service obligations for at least the next twelve months. We will continue to monitor the potential impact of future COVID-19 outbreaks, or similar disruptions to the economy, and on our operations, as well as any other economic impacts related to changing fiscal policy or economic conditions. Please see the Debt Financing Activities section below for a discussion of our revolving credit facility and the amount of borrowings available to us in the next twelve-month period.

 

32


 

Cash Flow

The following table provides a summary of our cash flows:

 

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Net Cash Provided by Operating Activities

 

$

261,462

 

 

$

358,377

 

Investing Activities

 

 

 

 

 

 

Additions to Property, Plant, and Equipment

 

 

(26,777

)

 

 

(40,676

)

Proceeds from Sale of Businesses

 

 

 

 

 

91,022

 

Net Cash Provided by (Used in) Investing Activities

 

 

(26,777

)

 

 

50,346

 

Financing Activities

 

 

 

 

 

 

Increase (Decrease) in Credit Facility

 

 

75,000

 

 

 

(315,000

)

Proceeds from 2.500% Senior Unsecured Notes

 

 

743,692

 

 

 

 

Repayment of 4.500% Senior Unsecured Notes

 

 

(350,000

)

 

 

 

Repayment of Term Loan

 

 

(665,000

)

 

 

 

Dividends Paid to Stockholders

 

 

(10,547

)

 

 

(4,163

)

Purchase and Retirement of Common Stock

 

 

(247,845

)

 

 

 

Proceeds from Stock Option Exercises

 

 

14,460

 

 

 

498

 

Premium Paid on Early Retirement of Senior Notes

 

 

(8,407

)

 

 

 

Payment of Debt Issuance Costs

 

 

(7,985

)

 

 

(1,718

)

Shares Redeemed to Settle Employee Taxes on Stock Compensation

 

 

(1,359

)

 

 

(1,130

)

Net Cash Used in Financing Activities

 

 

(457,991

)

 

 

(321,513

)

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

 

$

(223,306

)

 

$

87,210

 

 

Net Cash Provided by Operating Activities decreased by $96.9 million to $261.5 million during the six months ended September 30, 2021. This decrease was primarily attributable to changes in working capital of $132.3 million and lower dividends from our Unconsolidated Joint Venture of $4.0 million. This was partially offset by higher Net Earnings, adjusted for non-cash charges, of approximately $39.4 million. The decline related to the changes in working capital was primarily due to approximately $100.0 million of Income Tax Receivables at March 31, 2020 being applied during the six months ended September 30, 2020.

Working capital decreased by $208.8 million to $283.5 million at September 30, 2021, because of lower Cash and Inventories of approximately $218.3 million and $32.0 million, respectively, and higher Accounts Payable and Accrued Liabilities of $18.6 million. This was partially offset by increased Accounts Receivable and Income Tax Receivable of approximately $49.6 million and $15.2 million, respectively. The reduction in Cash was due to the redemption and repayment of our 4.500% Senior Unsecured Notes due 2026 and Term Loan in July 2021. The reduction in inventory was due to our normal sales cycle where we build inventory in the winter months to meet demand in the spring and summer.

The increase in Accounts Receivable at September 30, 2021, was primarily related to higher Revenue during the three months ended September 30, 2021, compared with the three months ended March 31, 2021. As a percentage of quarterly sales generated for the respective quarter, Accounts Receivable was approximately 39% at September 30, 2021 and 43% at March 31, 2021. Management measures the change in Accounts Receivable by monitoring the days sales outstanding on a monthly basis to determine if any deterioration has occurred in the collectability of the Accounts Receivable. No significant deterioration in the collectability of our Accounts Receivable was identified at September 30, 2021. Notes Receivable are monitored on an individual basis, and no significant deterioration in the collectability of our Notes Receivable was identified at September 30, 2021.

 

33


 

Our Inventory balance at September 30, 2021 declined by approximately $32.0 million from our balance at March 31, 2021. Within Inventory, raw materials and materials-in-progress decreased by approximately $23.6 million and finished cement decreased by approximately $8.8 million. The decline in raw materials and materials-in-progress and finished cement is consistent with our business cycle; we generally build up clinker inventory over the winter months to meet the demand for cement in the spring and summer. The largest individual balance in our Inventory is our repair parts. These parts are necessary given the size and complexity of our manufacturing plants, as well as the age of certain of our plants, which creates the need to stock a high level of repair parts inventory. We believe all of these repair parts are necessary, and we perform semi-annual analyses to identify obsolete parts. We have less than one year’s sales of all product inventories, and our inventories have a low risk of obsolescence because our products are basic construction materials.

Net Cash Used in Investing Activities during the six months ended September 30, 2021 was approximately $26.8 million, compared with Net Cash Provided by Investing Activities of $50.3 million during the same period in 2020, a decrease of approximately $77.1 million. The decrease was primarily related to the $91.0 million of cash received for the sale of businesses in fiscal 2021, and a reduction of $13.9 million in capital spending in fiscal 2022 compared with fiscal 2021. The reduction in capital spending was mainly related to lower capital spending in our Cement and Recycled Paperboard businesses.

Net Cash Used in Financing Activities was approximately $458.0 million during the six months ended September 30, 2021, compared with $321.5 million during the six months ended September 30, 2020. During the first six months of fiscal 2022, we had $247.8 million of share repurchases and retirements, and increased Dividends Paid to Shareholders of $6.3 million, and Debt Issuance costs of $6.3 million. This was partially offset by an increase of $14.0 million of cash received from the exercise of stock options and a reduction in net borrowings of $118.7 million compared with fiscal 2021.

Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 38.7% and 37.4%, respectively, at September 30, 2021, compared with 42.8% and 35.6%, respectively, at March 31, 2021.

Debt Financing Activities

Below is a summary of the Company’s outstanding debt facilities at September 30, 2021:

 

Maturity

 Revolving Credit Facility

 

July 2026

 2.500% Senior Unsecured Notes

 

July 2031

See Footnote (M) to the Unaudited Consolidated Financial Statements for further details on the Company’s debt facilities, including interest rate, and financial and other covenants and restrictions.

The borrowing capacity of our Revolving Credit Facility is $750.0 million until July 1, 2026. The Revolving Credit Facility also includes a swingline loan sublimit of $25.0 million, and a $40.0 million letter of credit facility. At September 30, 2021 we had $75.0 million outstanding under the Revolving Credit Facility and $5.0 million of outstanding letters of credit. We are contingently liable for performance under $26.1 million in performance bonds relating primarily to our mining operations. We do not have any off-balance sheet debt, or any outstanding debt guarantees.

Other than the Revolving Credit Facility, we have no additional source of committed external financing in place. Should the Revolving Credit Facility be terminated, no assurance can be given as to our ability to secure a new source of financing. Consequently, if any balance were outstanding on the Revolving Credit Facility at the time of termination, and an alternative source of financing could not be secured, it would have a material adverse impact on our business.

 

34


 

We believe that our cash flow from operations and available borrowings under our Revolving Credit Facility, as well as cash on hand, should be sufficient to meet our currently anticipated operating needs, capital expenditures, and dividend and debt service requirements for at least the next 12 months. However, our future liquidity and capital requirements may vary depending on a number of factors, including market conditions in the construction industry, our ability to maintain compliance with covenants in our Revolving Credit Facility, the level of competition, and general and economic factors beyond our control, such as COVID-19 or similar pandemics. These and other developments could reduce our cash flow or require that we seek additional sources of funding. We cannot predict what effect these factors will have on our future liquidity.

As market conditions warrant, the Company may from time to time seek to purchase or repay its outstanding debt securities or loans, including the 2.500% Senior Unsecured Notes, and borrowings under the Revolving Credit Facility, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new debt. The amounts involved in any such purchase transactions, individually or in aggregate, may be material.

We have approximately $38.7 million of lease liabilities at September 30, 2021 that have an average remaining life of approximately 10.2 years.

Dividends

Dividends paid were $10.5 million and $4.2 million for the six months ended September 30, 2021 and 2020, respectively. On May 19, 2021, we announced the reinstatement of our quarterly dividend that was suspended in fiscal 2021. Each quarterly dividend payment is subject to review and approval by our Board of Directors, who will continue to evaluate our dividend payment amount on a quarterly basis.

Share Repurchases

During the six months ended September 30, 2021, our share repurchases were as follows:

Period

 

Total Number of
Shares Purchased

 

 

Average Price Paid
Per Share

 

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

 

 

Maximum Number
of Shares that May
Yet be Purchased
Under the Plans
or Programs

 

April 1 through April 30, 2021

 

 

 

 

$

 

 

 

 

 

 

 

May 1 through May 31, 2021

 

 

110,000

 

 

 

143.77

 

 

 

110,000

 

 

 

 

June 1 through June 30, 2021

 

 

315,500

 

 

 

146.16

 

 

 

315,500

 

 

 

 

Quarter 1 Totals

 

 

425,500

 

 

$

145.54

 

 

 

425,500

 

 

 

 

July 1 through July 31, 2021

 

 

298,044

 

 

$

137.82

 

 

 

298,044

 

 

 

 

August 1 through August 31, 2021

 

 

509,402

 

 

 

150.19

 

 

 

509,402

 

 

 

 

September 1 through September 30, 2021

 

 

470,000

 

 

 

145.39

 

 

 

470,000

 

 

 

 

Quarter 2 Totals

 

 

1,277,446

 

 

$

145.54

 

 

 

1,277,446

 

 

 

 

Year-to-Date Totals

 

 

1,702,946

 

 

$

145.54

 

 

 

1,702,946

 

 

 

5,602,703

 

On April 18, 2019, the Board of Directors authorized us to repurchase an additional 10.0 million shares. This authorization brought the cumulative total of Common Stock our Board has approved for repurchase in the open market to 48.4 million shares since we became publicly held in April 1994. Through September 30, 2021, we have repurchased approximately 42.8 million shares.

 

 

35


 

Share repurchases may be made from time to time in the open market or in privately negotiated transactions. The timing and amount of any share repurchases are determined by management, based on its evaluation of market and economic conditions and other factors. In some cases, repurchases may be made pursuant to plans, programs, or directions established from time to time by the Company’s management, including plans intended to comply with the safe-harbor provided by Rule 10b5-1.

During the six months ended September 30, 2021, the Company withheld from employees 8,973 shares of stock upon the vesting of Restricted Shares that were granted under the Plan. We withheld these shares to satisfy the employees’ statutory tax withholding requirements, which is required once the Restricted Shares or Restricted Shares Units are vested.

Capital Expenditures

The following table details capital expenditures by category:

 

 

 

For the Six Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Land and Quarries

 

$

1,378

 

 

$

5,125

 

Plants

 

 

22,480

 

 

 

29,200

 

Buildings, Machinery, and Equipment

 

 

2,919

 

 

 

6,351

 

Total Capital Expenditures

 

$

26,777

 

 

$

40,676

 

Capital expenditures for fiscal 2021 are expected to range from $90.0 million to $100.0 million and will be allocated across both Heavy Materials and Light Materials sectors. These estimated capital expenditures will include maintenance capital expenditures and improvements, as well as other safety and regulatory projects.

 

 

36


 

FORWARD LOOKING STATEMENTS

Certain matters discussed in this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates or expectations. These statements are not historical facts or guarantees of future performance but instead represent only the Company’s belief at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside the Company’s control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Company’s actual performance include the following: the cyclical and seasonal nature of the Company’s businesses; public infrastructure expenditures; adverse weather conditions; the fact that our products are commodities and that prices for our products are subject to material fluctuation due to market conditions and other factors beyond our control; availability of raw materials; changes in the costs of energy, including, without limitation, natural gas, coal and oil, and the nature of our obligations to counterparties under energy supply contracts, such as those related to market conditions (such as fluctuations in spot market prices), governmental orders and other matters; changes in the cost and availability of transportation; unexpected operational difficulties, including unexpected maintenance costs, equipment downtime and interruption of production; material nonpayment or non-performance by any of our key customers; fluctuations in or changes in the nature of activity in the oil and gas industry; inability to timely execute announced capacity expansions; difficulties and delays in the development of new business lines; governmental regulation and changes in governmental and public policy (including, without limitation, climate change and other environmental regulation); possible outcomes of pending or future litigation or arbitration proceedings; changes in economic conditions specific to any one or more of the Company’s markets; adverse impact of severe weather conditions (such as winter storms, tornados and hurricanes) and their effects on our facilities, operations and contractual arrangements with third parties; competition; cyber-attacks or data security breaches; announced increases in capacity in the gypsum wallboard and cement industries; changes in the demand for residential housing construction or commercial construction or construction projects undertaken by state or local governments; risks related to pursuit of acquisitions, joint ventures and other transactions or the execution or implementation of such transactions, including the integration of operations acquired by the Company; general economic conditions; and interest rates. For example, increases in interest rates, decreases in demand for construction materials or increases in the cost of energy (including, without limitation, natural gas, coal and oil) and the cost of our raw materials could affect the revenue and operating earnings of our operations. In addition, changes in national or regional economic conditions and levels of infrastructure and construction spending could also adversely affect the Company’s result of operations. Finally, any forward-looking statements made by the Company are subject to the risks and impacts associated with natural disasters, pandemics or other unforeseen events, including, without limitation, the COVID-19 pandemic and responses thereto designed to contain its spread and mitigate its public health effects, as well as their impact on economic conditions, capital and financial markets. These and other factors are described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021. All forward-looking statements made herein are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed herein will increase with the passage of time. The Company undertakes no duty to update any forward-looking statement to reflect future events or changes in the Company’s expectations.

 

 

 

37


 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuations in interest rates on our Revolving Credit Facility. We have occasionally utilized derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage the debt outstanding that is subject to changes in interest rates. We have a $750.0 million Revolving Credit Facility at September 30, 2021, under which borrowings bear interest at a variable rate. A hypothetical 100 basis point increase in interest rates on the $75.0 million of borrowings under the Revolving Credit Facility at September 30, 2021 would increase interest expense by approximately $0.8 million on an annual basis. At present, we do not utilize derivative financial instruments.

We are subject to commodity risk with respect to price changes principally in coal, coke, natural gas, and power. We attempt to limit our exposure to changes in commodity prices by entering into contracts or increasing our use of alternative fuels.

Item 4. Controls and Procedures

We have established a system of disclosure controls and procedures that are designed to ensure that information relating to the Company, which is required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (Exchange Act), is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), in a timely fashion. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed as of the end of the period covered by this quarterly report. This evaluation was performed under the supervision and with the participation of management, including our CEO and CFO. Based upon that evaluation, our CEO and CFO have concluded that these disclosure controls and procedures were effective.

 

38


 

PART II. OTHER INFORMATION

 

From time to time, we have been and may in the future become involved in litigation or other legal proceedings in the ordinary course of our business activities or in connection with transactions or activities undertaken by us, including claims related to worker safety, worker health, environmental matters, commercial contracts, land use rights, taxes, and permits. While the outcome of these proceedings cannot be predicted with certainty, in the opinion of management (based on currently available facts), we do not believe that the ultimate outcome of any currently pending legal proceeding will have a material effect on our consolidated financial condition, results of operations, or liquidity.

For additional information regarding claims and other contingent liabilities to which we may be subject, see Footnote (P) in the Unaudited Consolidated Financial Statements.

Item 1A. Risk Factors

For information regarding factors that could impact our results of operations, financial condition, and liquidity, see Part 1. Item 1A. Risk Factors in our Form 10-K for the fiscal year ended March 31, 2021, filed with the Securities and Exchange Commission on May 21, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The disclosure required under this Item is included in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” of this Quarterly Report on Form 10-Q under the heading “Share Repurchases” and is incorporated herein by reference.

Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503 (a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-Q.

 

39


 

Item 6. Exhibits

 

10.1

 

Eagle Materials Inc. Director Compensation Summary. (1)

10.2

 

Form of Director Restricted Stock Agreement. (1)

10.3*

 

Form of Director Stock Option Agreement. (1)

10.4

 

Credit Agreement, dated July 1, 2021, among the Company, the lenders identified therein, and JPMorgan Chase Bank, N.A. as the administrative agent, issuing bank and swingline lender thereunder (filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 1, 2021 and incorporated herein by reference).

31.1*

 

Certification of the Chief Executive Officer of Eagle Materials Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

31.2*

 

Certification of the Chief Financial Officer of Eagle Materials Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

32.1*

 

Certification of the Chief Executive Officer of Eagle Materials Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

 

Certification of the Chief Financial Officer of Eagle Materials Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

95*

 

Mine Safety Disclosure.

101.INS*

 

Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

Cover Page Interactive Data File – (formatted as Inline XBRL and Contained in Exhibit 101).

 

* Filed herewith.

(1) Management contract, compensatory plan, or arrangement.

 

 

40


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

EAGLE MATERIALS INC.

 

 

Registrant

 

 

October 28, 2021

 

/s/ MICHAEL R. HAACK

 

 

Michael R. Haack

President and Chief Executive Officer

(principal executive officer)

 

 

October 28, 2021

 

/s/ D. CRAIG KESLER

 

 

D. Craig Kesler

Executive Vice President – Finance and

Administration and Chief Financial Officer

(principal financial officer)

 

October 28, 2021

 

/s/ WILLIAM R. DEVLIN

 

 

William R. Devlin

Senior Vice President – Controller and

Chief Accounting Officer

(principal accounting officer)

 

 

41