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EXP Eagle Materials

Filed: 28 Jan 21, 4:41pm

 

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

December 31, 2020

Commission File Number 1-12984

 

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 January 25, 2021, the number of outstanding shares of common stock was:

 

Class

 

Outstanding Shares

Common Stock, $.01 Par Value

 

42,001,634

 

 

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION (unaudited)

 

 

 

 

 

Page

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Earnings (Loss) for the Three and Nine Months Ended December 31, 2020 and 2019

 

1

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Earnings (Loss) for the Three and Nine Months Ended December 31, 2020 and 2019

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2020, and March 31, 2020

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2020 and 2019

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended December 31, 2020 and 2019

 

5

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

24

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

39

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

40

 

 

 

 

 

Item 1a.

 

Risk Factors

 

40

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

 

Item 4.

 

Mine Safety Information

 

42

 

 

 

 

 

Item 6.

 

Exhibits

 

42

 

 

 

 

 

SIGNATURES

 

43

 

 

 

 


 

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

 

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

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

 

Revenue

 

$

404,667

 

 

$

342,904

 

 

$

1,279,340

 

 

$

1,098,838

 

Cost of Goods Sold

 

 

291,288

 

 

 

249,701

 

 

 

940,815

 

 

 

818,521

 

Gross Profit

 

 

113,379

 

 

 

93,203

 

 

 

338,525

 

 

 

280,317

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

10,083

 

 

 

10,700

 

 

 

28,456

 

 

 

32,489

 

Corporate General and Administrative Expense

 

 

(11,327

)

 

 

(13,794

)

 

 

(40,225

)

 

 

(48,506

)

Gain on Sale of Businesses

 

 

 

 

 

 

 

 

51,973

 

 

 

 

Impairment Losses

 

 

 

 

 

(25,131

)

 

 

 

 

 

(25,131

)

Other Non-Operating Income

 

 

2,297

 

 

 

722

 

 

 

1,898

 

 

 

1,445

 

Interest Expense, Net

 

 

(9,360

)

 

 

(9,543

)

 

 

(35,957

)

 

 

(28,526

)

Earnings from Continuing Operations before Income Taxes

 

 

105,072

 

 

 

56,157

 

 

 

344,670

 

 

 

212,088

 

Income Taxes

 

 

(23,879

)

 

 

(12,683

)

 

 

(76,515

)

 

 

(50,217

)

Earnings from Continuing Operations

 

 

81,193

 

 

 

43,474

 

 

 

268,155

 

 

 

161,871

 

Earnings (Loss) from Discontinued Operations, net of Income Taxes

 

 

 

 

 

(158,106

)

 

 

5,278

 

 

 

(163,406

)

Net Earnings (Loss)

 

$

81,193

 

 

$

(114,632

)

 

$

273,433

 

 

$

(1,535

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

1.96

 

 

$

1.05

 

 

$

6.47

 

 

$

3.83

 

Discontinued Operations

 

 

 

 

 

(3.82

)

 

 

0.13

 

 

 

(3.87

)

Net Earnings

 

$

1.96

 

 

$

(2.77

)

 

$

6.60

 

 

$

(0.04

)

DILUTED EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

1.94

 

 

$

1.04

 

 

$

6.43

 

 

$

3.81

 

Discontinued Operations

 

 

 

 

 

(3.80

)

 

 

0.13

 

 

 

(3.85

)

Net Earnings

 

$

1.94

 

 

$

(2.76

)

 

$

6.56

 

 

$

(0.04

)

AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

41,494,149

 

 

 

41,314,289

 

 

 

41,451,801

 

 

 

42,246,329

 

Diluted

 

 

41,834,590

 

 

 

41,615,495

 

 

 

41,682,541

 

 

 

42,527,360

 

CASH DIVIDENDS PER SHARE

 

$

 

 

$

0.10

 

 

$

0.10

 

 

$

0.30

 

 

See notes to unaudited consolidated financial statements.

 

1


 

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

 

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Net Earnings (Loss)

 

$

81,193

 

 

$

(114,632

)

 

$

273,433

 

 

$

(1,535

)

Net Actuarial Change in Defined Benefit Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial loss

 

 

34

 

 

 

43

 

 

 

101

 

 

 

131

 

Tax expense

 

 

(9

)

 

 

(10

)

 

 

(25

)

 

 

(30

)

Comprehensive Earnings (Loss)

 

$

81,218

 

 

$

(114,599

)

 

$

273,509

 

 

$

(1,434

)

 

See notes to unaudited consolidated financial statements.

 

2


 

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

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets -

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

142,784

 

 

$

118,648

 

Restricted Cash

 

 

5,000

 

 

 

 

Accounts and Notes Receivable, net

 

 

142,467

 

 

 

145,808

 

Inventories

 

 

228,667

 

 

 

272,121

 

Income Tax Receivable

 

 

1,900

 

 

 

128,413

 

Prepaid and Other Assets

 

 

7,740

 

 

 

6,135

 

Current Assets of Discontinued Operations

 

 

 

 

 

7,092

 

Total Current Assets

 

 

528,558

 

 

 

678,217

 

Property, Plant, and Equipment, net

 

 

1,680,646

 

 

 

1,756,417

 

Notes Receivable

 

 

8,353

 

 

 

9,139

 

Investment in Joint Venture

 

 

74,914

 

 

 

73,958

 

Operating Lease Right-of-Use Assets

 

 

26,927

 

 

 

29,483

 

Goodwill and Intangible Assets, net

 

 

393,454

 

 

 

396,463

 

Other Assets

 

 

12,186

 

 

 

10,604

 

Assets of Discontinued Operations

 

 

 

 

 

6,739

 

 

 

$

2,725,038

 

 

$

2,961,020

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities -

 

 

 

 

 

 

 

 

Accounts Payable

 

$

71,596

 

 

$

84,183

 

Accrued Liabilities

 

 

84,914

 

 

 

70,442

 

Operating Lease Liabilities

 

 

6,551

 

 

 

6,585

 

Current Liabilities of Discontinued Operations

 

 

 

 

 

8,487

 

Total Current Liabilities

 

 

163,061

 

 

 

169,697

 

Long-term Debt

 

 

1,008,345

 

 

 

1,567,315

 

Noncurrent Operating Lease Liabilities

 

 

35,896

 

 

 

40,239

 

Other Long-term Liabilities

 

 

41,495

 

 

 

33,832

 

Deferred Income Taxes

 

 

215,059

 

 

 

166,667

 

Liabilities of Discontinued Operations

 

 

 

 

 

15,427

 

Total Liabilities

 

 

1,463,856

 

 

 

1,993,177

 

Stockholders’ Equity –

 

 

 

 

 

 

 

 

Preferred Stock, Par Value $0.01; Authorized 5,000,000 Shares; NaNne Issued

 

 

 

 

 

 

Common Stock, Par Value $0.01; Authorized 100,000,000 Shares;

   Issued and Outstanding 41,939,310 and 41,649,041 Shares, respectively

 

 

419

 

 

 

416

 

Capital in Excess of Par Value

 

 

30,516

 

 

 

10,943

 

Accumulated Other Comprehensive Losses

 

 

(3,251

)

 

 

(3,581

)

Retained Earnings

 

 

1,233,498

 

 

 

960,065

 

Total Stockholders’ Equity

 

 

1,261,182

 

 

 

967,843

 

 

 

$

2,725,038

 

 

$

2,961,020

 

 

See notes to the unaudited consolidated financial statements.

 

3


 

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

 

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net Earnings (Loss)

 

$

273,433

 

 

$

(1,535

)

Adjustments to Reconcile Net Earnings (Loss) to Net Cash Provided

by Operating Activities, Net of Effect of Non-Cash Activity -

 

 

 

 

 

 

 

 

Depreciation, Depletion and Amortization

 

 

96,279

 

 

 

84,944

 

Impairment Losses

 

 

 

 

 

224,267

 

Deferred Income Tax Provision

 

 

48,392

 

 

 

(40,396

)

Stock Compensation Expense

 

 

12,057

 

 

 

16,407

 

Gain on Sale of Subsidiaries

 

 

(61,203

)

 

 

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

(28,456

)

 

 

(32,489

)

Distributions from Joint Venture

 

 

27,500

 

 

 

25,500

 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

 

 

Accounts and Notes Receivable

 

 

6,859

 

 

 

(12,171

)

Inventories

 

 

37,084

 

 

 

36,595

 

Accounts Payable and Accrued Liabilities

 

 

5,572

 

 

 

(10,006

)

Other Assets

 

 

(2,013

)

 

 

4,003

 

Income Taxes Payable (Receivable)

 

 

126,513

 

 

 

25,500

 

Net Cash Provided by Operating Activities

 

 

542,017

 

 

 

320,619

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to Property, Plant, and Equipment

 

 

(45,541

)

 

 

(84,056

)

Acquisition Spending

 

 

 

 

 

(30,424

)

Proceeds from Sale of Businesses

 

 

91,022

 

 

 

 

Net Cash Provided by (Used in) Investing Activities

 

 

45,481

 

 

 

(114,480

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Increase (Decrease) in Credit Facility

 

 

(560,000

)

 

 

275,000

 

Repayment of Private Placement Unsecured Notes

 

 

 

 

 

(36,500

)

Dividends Paid to Stockholders

 

 

(4,163

)

 

 

(13,131

)

Purchase and Retirement of Common Stock

 

 

 

 

 

(313,887

)

Proceeds from Stock Option Exercises

 

 

8,649

 

 

 

2,996

 

Payment of Debt Issuance Costs

 

 

(1,718

)

 

 

 

Shares Redeemed to Settle Employee Taxes on Stock Compensation

 

 

(1,130

)

 

 

(2,963

)

Net Cash Used in Financing Activities

 

 

(558,362

)

 

 

(88,485

)

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

 

29,136

 

 

 

117,654

 

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

 

 

118,648

 

 

 

8,601

 

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

 

$

147,784

 

 

$

126,255

 

 

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, 2019

 

$

451

 

 

$

 

 

$

1,212,352

 

 

$

(3,316

)

 

$

1,209,487

 

Net Earnings

 

 

 

 

 

 

 

 

41,304

 

 

 

 

 

 

41,304

 

Stock Option Exercises and Restricted Share Vesting

 

 

 

 

 

396

 

 

 

 

 

 

 

 

 

396

 

Purchase and Retirement of Common Stock

 

 

(23

)

 

 

(7,748

)

 

 

(190,584

)

 

 

 

 

 

(198,355

)

Dividends to Stockholders

 

 

 

 

 

 

 

 

(4,316

)

 

 

 

 

 

(4,316

)

Stock Compensation Expense

 

 

1

 

 

 

8,218

 

 

 

 

 

 

 

 

 

8,219

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(866

)

 

 

 

 

 

 

 

 

(866

)

Cumulative Effect of Change in Accounting for Leases

 

 

 

 

 

 

 

 

(636

)

 

 

 

 

 

(636

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

Balance at June 30, 2019

 

$

429

 

 

$

 

 

$

1,058,120

 

 

$

(3,283

)

 

$

1,055,266

 

Net Earnings

 

 

 

 

 

 

 

 

71,793

 

 

 

 

 

 

71,793

 

Stock Option Exercises and Restricted Share Vesting

 

 

 

 

 

1,371

 

 

 

 

 

 

 

 

 

1,371

 

Purchase and Retirement of Common Stock

 

 

(13

)

 

 

(366

)

 

 

(115,153

)

 

 

 

 

 

(115,532

)

Dividends to Stockholders

 

 

 

 

 

 

 

 

(4,163

)

 

 

 

 

 

(4,163

)

Stock Compensation Expense

 

 

 

 

 

3,918

 

 

 

 

 

 

 

 

 

3,918

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(1,933

)

 

 

 

 

 

 

 

 

(1,933

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

35

 

Balance at September 30, 2019

 

$

416

 

 

$

2,990

 

 

$

1,010,597

 

 

$

(3,248

)

 

$

1,010,755

 

Net Loss

 

 

 

 

 

 

 

 

(114,632

)

 

 

 

 

 

(114,632

)

Stock Option Exercises and Restricted Share Vesting

 

 

 

 

 

1,229

 

 

 

 

 

 

 

 

 

1,229

 

Dividends to Stockholders

 

 

 

 

 

 

 

 

(4,164

)

 

 

 

 

 

(4,164

)

Stock Compensation Expense

 

 

 

 

 

4,270

 

 

 

 

 

 

 

 

 

4,270

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(164

)

 

 

 

 

 

 

 

 

(164

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

Balance at December 31, 2019

 

$

416

 

 

$

8,325

 

 

$

891,801

 

 

$

(3,215

)

 

$

897,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 Exercises and Restricted Share Vesting

 

 

 

 

 

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

 

Net Earnings

 

 

 

 

 

 

 

 

81,193

 

 

 

 

 

 

81,193

 

Stock Compensation Expense

 

 

 

 

 

3,782

 

 

 

 

 

 

 

 

 

3,782

 

Stock Option Exercises and Restricted Share Vesting

 

 

1

 

 

 

8,150

 

 

 

 

 

 

 

 

 

8,151

 

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

25

 

Balance at December 31, 2020

 

$

419

 

 

$

30,516

 

 

$

1,233,498

 

 

$

(3,251

)

 

$

1,261,182

 

 

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 nine-month periods ended December 31, 2020 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 22, 2020.

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.

We have been deemed an essential business with respect to the COVID-19 pandemic. While we have not yet experienced a material impact on our operations or financial position from this pandemic, there may be future effects on our business, both directly and indirectly, including with respect to customers, manufacturing operations, employees, suppliers, and the building materials and construction markets in general.

Recent Accounting Pronouncements

RECENTLY ADOPTED

In June 2016, the FASB issued ASU 2016-13, which is an update on the measurement of credit losses on financial instruments, which requires entities to use a forward-looking approach based on expected losses, rather than the incurred losses model to estimate credit losses on certain types of financial instruments, including Accounts and Notes Receivable. The application of the forward-looking model may result in earlier recognition of allowances for losses than the incurred losses model. The adoption of this standard on April 1, 2020 did not have a material effect on our consolidated financial statements and disclosures.

PENDING ADOPTION

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. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We do not expect the adoption of this standard will have a material impact on our consolidated financial statements.

 

 

6


 

(B) SUPPLEMENTAL CASH FLOW INFORMATION  

Supplemental cash flow information is as follows:

 

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Cash Payments:

 

 

 

 

 

 

 

 

Interest

 

$

30,107

 

 

$

25,490

 

Income Taxes

 

 

30,816

 

 

 

20,046

 

Operating Cash Flows used for Operating Leases

 

 

8,691

 

 

 

11,562

 

 

 

 

 

 

 

 

 

 

Non-Cash Financing Activities:

 

 

 

 

 

 

 

 

Property and Equipment Purchases Included in Accrued Liabilities

 

$

 

 

$

2,675

 

 

(C) DISCONTINUED OPERATIONS AND OTHER DISPOSITIONS

Discontinued Operations

On May 30, 2019, the Company announced it was actively pursuing alternatives for its Oil and Gas Proppants business. 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. The shares delivered to the Company by the Purchaser are not registered under federal or state securities laws, and must be held at least six months, and possibly longer, before they can be sold. The shares were valued at the date of sale, and at December 31, 2020, using Level 1 inputs at the quoted market price of the shares, less a discount for the required holding period. The shares are classified as Other Assets in our Consolidated Balance Sheet at December 31, 2020. 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.

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 will 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. The Company has deposited the $5.0 million into an escrow account. Up to 50% of the amounts outstanding under the Loan and Security Agreement may be repaid by the Purchaser in shares of the Purchaser’s common stock. Borrowings under the Loan and Security Agreement will bear interest at a fixed rate of 6.00% per annum during the one-year period following the closing. Any amounts outstanding after the one-year period will bear interest at a fixed rate of 8.00% per annum and will mature on September 18, 2024. There were 0 outstanding borrowings at December 31, 2020. The $5.0 million in the escrow account at December 31, 2020 is classified as Restricted Cash on the Consolidated Balance Sheet.

The sale of the Oil and Gas Proppants business, which was previously disclosed as a reportable segment, was determined to meet the discontinued operations accounting criteria. The sale resulted in a gain of approximately $9.2 million, which is included in Earnings (Loss) from Discontinued Operations on the Unaudited Consolidated Statement of Earnings. 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.

 

7


 

The following is a summary of operating results included in Earnings (Loss) from Discontinued Operations for the three and nine months ended December 31, 2020 and 2019.

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Revenue

 

$

 

 

$

7,345

 

 

$

1,045

 

 

$

36,534

 

Cost of Goods Sold

 

 

 

 

 

13,034

 

 

 

3,415

 

 

 

49,502

 

Gross Profit

 

 

 

 

 

(5,689

)

 

 

(2,370

)

 

 

(12,968

)

Other Non-Operating Income

 

 

 

 

 

103

 

 

 

226

 

 

 

522

 

Gain on Sale of Discontinued Operations

 

 

 

 

 

 

 

 

9,230

 

 

 

 

Impairment Losses

 

 

 

 

 

(199,136

)

 

 

 

 

 

(199,136

)

Earnings (Loss) from Discontinued Operations

 

 

 

 

 

(204,722

)

 

 

7,086

 

 

 

(211,582

)

Income Tax (Expense) Benefit

 

 

 

 

 

46,616

 

 

 

(1,808

)

 

 

48,176

 

Net Earnings (Loss) from Discontinued Operations

 

$

 

 

$

(158,106

)

 

$

5,278

 

 

$

(163,406

)

 

The significant components of our Consolidated Statements of Cash Flows for discontinued operations for the nine months ended December 31, 2020 and 2019 are as follows:

 

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Depreciation and Amortization

 

$

221

 

 

$

11,087

 

Gain on Sale

 

 

(9,230

)

 

 

 

Impairment Losses

 

 

 

 

 

199,136

 

Net Change in Inventory

 

 

 

 

 

2,028

 

Capital Expenditures

 

 

 

 

 

151

 

 

The following is a summary of assets and liabilities attributable to discontinued operations, which were included in our balance sheet at March 31, 2020:

 

 

 

March 31,

 

 

 

2020

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

Accounts and Notes Receivable

 

$

9,019

 

Allowance for Doubtful Accounts

 

 

(3,041

)

Inventories

 

 

387

 

Prepaid and Other Assets

 

 

727

 

Total Current Assets

 

 

7,092

 

Property, Plant, and Equipment, net

 

 

5,692

 

Operating Lease Right-of-Use Assets

 

 

1,047

 

Total Noncurrent Assets

 

 

6,739

 

 

 

$

13,831

 

 

 

 

 

 

LIABILITIES

 

 

 

 

Accounts Payable

 

$

2,014

 

Accrued Liabilities

 

 

2,851

 

Operating Lease Liabilities

 

 

3,622

 

Total Current Liabilities

 

 

8,487

 

Noncurrent Operating Lease Liabilities

 

 

9,570

 

Other Long-term Liabilities

 

 

5,857

 

Total Noncurrent Liabilities

 

 

15,427

 

 

 

$

23,914

 

 


 

8


 

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.  

At the date of sale, assets and liabilities included on our balance sheet related to Western and Mathews were approximately $43.8 million and $2.3 million, respectively.

Revenue and Operating Earnings from Western and Mathews, collectively, for the three and nine months ended December 31, 2020 and 2019 were as follows:

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Revenue

 

$

 

 

$

7,872

 

 

$

1,692

 

 

$

25,248

 

Operating Earnings

 

$

 

 

$

1,167

 

 

$

142

 

 

$

3,680

 

 

(D) ACQUISITION

Kosmos Acquisition

On March 6, 2020, we acquired the assets of Kosmos Cement Company (Kosmos), a joint venture between CEMEX S.A.B. de C.V. and Buzzi Unicem S.p.A. (the Kosmos Acquisition). The Kosmos Acquisition included (i) a cement plant located in Louisville, Kentucky, (ii) a limestone quarry located in Battletown, Kentucky, (iii) cement distribution terminals located in Indianapolis, Indiana; Cincinnati, Ohio; Pittsburgh, Pennsylvania; Charleston, West Virginia; Ceredo, West Virginia; Mt. Vernon, Indiana; and Lexington, Kentucky, and (iv) certain other properties and assets used by Kosmos in connection with the foregoing (collectively, the Kosmos Business). We assumed certain liabilities and obligations of Kosmos relating to the Kosmos Business, including contractual obligations, reclamation obligations, and various other liabilities arising out of or relating to the Kosmos Business. The Kosmos Business is included in the Cement segment of our Heavy Materials sector.

Purchase Price: The purchase price of the Kosmos Acquisition was approximately $669 million. We funded the payment of the Kosmos Acquisition primarily through a Term Loan borrowing with the remainder paid using cash on hand. See Footnote (N) for a description of the loan terms.

Recording of Assets Acquired and Liabilities Assumed: The Kosmos Acquisition was accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company engaged a third party to perform appraisal valuation services to support the Company’s preliminary estimate of the fair value of certain assets acquired in the Kosmos Acquisition.

The preparation of the valuation of the assets acquired and liabilities assumed in the Kosmos Acquisition requires the use of significant assumptions and estimates. Critical estimates with respect to the valuation of property, plant, and equipment include, but are not limited to, replacement cost, condition, and estimated remaining useful lives of property and equipment. Critical estimates related to intangible and other assets include future expected cash flows, including projected revenues and expenses, customer attrition, and applicable discount rates. These estimates are based on assumptions that we believe to be reasonable. However, actual results may differ from these estimates.

 

9


 

The following table summarizes the allocation of the purchase price to assets acquired and liabilities assumed as of December 31, 2020:

 

 

 

 

 

 

 

 

(dollars in thousands)

 

Inventories

 

$

28,568

 

Property, Plant, and Equipment

 

 

476,698

 

Intangible Assets

 

 

38,300

 

Lease Right-of-Use Assets

 

 

4,478

 

Lease Obligations

 

 

(4,478

)

Long-term Liabilities

 

 

(3,756

)

Total Net Assets

 

 

539,810

 

Goodwill

 

 

129,127

 

Total Estimated Purchase Price

 

$

668,937

 

 

During the quarter ended June 30, 2020, we completed the valuation of inventories, intangible assets, lease right-of-use assets, and lease obligations, and during the quarter ended December 31, 2020, we finalized the valuation of our asset retirement obligation. These final values, which are disclosed in the above table, resulted in minor changes from the amounts disclosed in our fiscal 2020 Form 10-K.

Goodwill represents the excess purchase price over the fair values of assets acquired and liabilities assumed. Goodwill was generated by the availability of co-product sales and the opportunity associated with the expansion of our Cement business to the eastern region of the United States. All of the Goodwill generated by the transaction will be deductible for income tax purposes.

The following table is a summary of the fair value estimates of the identifiable intangible assets (dollars in thousands) and their weighted-average useful lives:

 

 

 

Weighted-Average Life

 

 

Estimated Fair Value

 

Permits

 

 

20

 

 

$

1,500

 

Customer Relationships

 

 

15

 

 

 

35,300

 

Trade Name and Technology

 

 

10

 

 

 

1,500

 

Total Intangible Assets

 

 

 

 

 

$

38,300

 

 

Actual and pro forma impact of Kosmos Acquisition: The following table presents the Revenue and Operating Earnings related to the Kosmos Acquisition that has been included in our Consolidated Statement of Earnings for the three and nine months ended December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

Revenue

 

$

45,407

 

 

$

142,980

 

Operating Earnings

 

$

13,316

 

 

$

38,286

 

 

Operating Earnings shown above for the three and nine months ended December 31, 2020 was affected by approximately $5.4 million and $16.1 million, respectively, related to depreciation and amortization. Additionally, Operating Earnings for the nine months ended December 31, 2020 was affected by approximately $3.7 million, related to the recording of acquired inventory at fair value. There was no effect on the quarter ended December 31, 2020, as all of the acquired inventory was sold in the fiscal first quarter.

 

10


 

The unaudited pro forma results presented below include the effects of the Kosmos Acquisition as if it had been consummated as of April 1, 2019. The pro forma results include estimates for depreciation from fair value adjustments to acquired Property and Equipment, amortization for acquired Intangible Assets, the Inventory step-up to fair value, and interest expense associated with debt used to fund the Kosmos Acquisition. To better reflect the combined operating results, approximately $5.6 million of material nonrecurring charges directly related to the Kosmos Acquisition have been excluded from pro forma Net Income.

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

December 31, 2019

 

 

 

Unaudited

 

 

 

(dollars in thousands, except per share data)

 

Revenue

 

$

393,336

 

 

$

1,225,314

 

Net Earnings from Continuing Operations

 

$

49,495

 

 

$

183,498

 

Earnings Per Share from Continuing Operations – basic

 

$

1.20

 

 

$

4.34

 

Earnings Per Share from Continuing Operations – diluted

 

$

1.20

 

 

$

4.31

 

 

The pro forma results do not include any anticipated synergies or other expected benefits from the Kosmos Acquisition. Accordingly, the unaudited pro forma results are not necessarily indicative of either future results of operations or results that might have been achieved had the Kosmos Acquisition been consummated as of April 1, 2019.

(E) 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 is 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 maturing 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 that is 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 we must provide and the volume 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.

 

11


 

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

(F) ACCOUNTS AND NOTES RECEIVABLE

Accounts and Notes Receivable have been shown net of the allowance for doubtful accounts of $8.2 million and $9.3 million (net of allowance for doubtful accounts related to discontinued operations) at December 31, 2020 and March 31, 2020, 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 $8.4 million at December 31, 2020, which is classified as long-term on the balance sheet. We lend funds to certain companies in the ordinary course of business, and the notes bear interest, on average, at 3.6%. Remaining unpaid amounts, plus accrued interest, mature in 2026. The notes are collateralized by certain assets of the borrower, 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.

 

(G) 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:

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Raw Materials and Materials-in-Progress

 

$

75,710

 

 

$

110,558

 

Finished Cement

 

 

34,916

 

 

 

43,538

 

Aggregates

 

 

3,072

 

 

 

8,416

 

Gypsum Wallboard

 

 

4,540

 

 

 

4,211

 

Paperboard

 

 

6,986

 

 

 

5,715

 

Repair Parts and Supplies

 

 

92,119

 

 

 

88,094

 

Fuel and Coal

 

 

11,324

 

 

 

11,589

 

 

 

$

228,667

 

 

$

272,121

 

 

 


 

12


 

(H) ACCRUED EXPENSES

Accrued Expenses consist of the following:

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Payroll and Incentive Compensation

 

$

33,101

 

 

$

24,904

 

Benefits

 

 

16,151

 

 

 

12,447

 

Interest

 

 

7,841

 

 

 

4,080

 

Property Taxes

 

 

4,675

 

 

 

5,110

 

Power and Fuel

 

 

1,959

 

 

 

1,353

 

Freight

 

 

2,167

 

 

 

529

 

Legal and Professional

 

 

11,828

 

 

 

16,096

 

Sales and Use Tax

 

 

1,067

 

 

 

1,085

 

Other

 

 

6,125

 

 

 

4,838

 

 

 

$

84,914

 

 

$

70,442

 

 

(I) 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 included in continuing operations is as follows:

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Operating Lease Cost

 

$

1,642

 

 

$

2,410

 

 

$

5,205

 

 

$

6,418

 

Short-term Lease Cost

 

 

418

 

 

 

149

 

 

 

2,025

 

 

 

1,068

 

Total Lease Cost

 

$

2,060

 

 

$

2,559

 

 

$

7,230

 

 

$

7,486

 

 

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

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Operating Leases:

 

 

 

 

 

 

 

 

Operating Lease Right-of-Use Assets

 

$

26,927

 

 

$

29,483

 

 

 

 

 

 

 

 

 

 

Current Operating Lease Liabilities

 

$

6,551

 

 

$

6,585

 

Noncurrent Operating Lease Liabilities

 

 

35,896

 

 

 

40,239

 

Total Operating Lease Liabilities

 

$

42,447

 

 

$

46,824

 

 

 

13


 

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

 

Fiscal Year

 

Amount

 

2021 (remaining three months)

 

$

2,050

 

2022

 

 

7,556

 

2023

 

 

6,969

 

2024

 

 

6,007

 

2025

 

 

5,651

 

Thereafter

 

 

24,585

 

Total Lease Payments

 

$

52,818

 

Less: Imputed Interest

 

 

(10,371

)

Present Value of Lease Liabilities

 

$

42,447

 

 

 

 

 

 

Weighted-Average Remaining Lease Term (in years)

 

 

10.5

 

Weighted-Average Discount Rate

 

 

3.79

%

 

 

(J) 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. Awards that were already outstanding prior to the approval of the Plan on August 7, 2013 remained outstanding. 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 2020, the Compensation Committee of the Board of Directors approved the granting to certain officers and key employees an aggregate of 96,476 performance vesting stock options that will be earned only if certain performance conditions are satisfied (the Fiscal 2021 Employee Performance Stock Option Grant). The performance criteria for the Fiscal 2021 Employee Performance Stock Option Grant is 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, 2021. 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, 2022 through 2024. The stock options have a term of ten years from the date of grant. The Compensation Committee also approved the granting of 80,396 time-vesting stock options to the same officers and key employees, which vest ratably over four years (the Fiscal 2021 Employee Time-Vesting Stock Option Grant).  

The weighted-average assumptions used in the Black-Scholes model to value the option awards in fiscal 2021 are as follows:  

 

 

 

2021

 

Dividend Yield

 

 

 

Expected Volatility

 

 

37.9

%

Risk Free Interest Rate

 

 

0.5

%

Expected Life

 

6.0 years

 

 

 

14


 

Stock option expense for all outstanding stock option awards totaled approximately $1.1 million and $3.9 million for the three and nine months ended December 31, 2020, respectively, and $1.2 million and $3.5 million for the three and nine months ended December 31, 2019, respectively. At December 31, 2020, there was approximately $7.7  million of unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted-average period of 2.5 years.

The following table represents stock option activity for the nine months ended December 31, 2020:

 

 

 

Number

of Shares

 

 

Weighted-

Average

Exercise

Price

 

Outstanding Options at March 31, 2020

 

 

1,160,091

 

 

$

80.36

 

Granted

 

 

178,946

 

 

$

60.20

 

Exercised

 

 

(166,887

)

 

$

55.42

 

Cancelled

 

 

(15,094

)

 

$

92.51

 

Options Outstanding at December 31, 2020

 

 

1,157,056

 

 

$

80.68

 

Options Exercisable at December 31, 2020

 

 

747,796

 

 

 

 

 

Weighted-Average Fair Value of Options Granted

During the Year

 

$

22.04

 

 

 

 

 

 

The following table summarizes information about stock options outstanding at December 31, 2020:

 

 

 

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

 

$23.17 - $29.84

 

 

18,931

 

 

 

0.59

 

 

$

23.21

 

 

 

18,931

 

 

$

23.21

 

$33.43 - $37.34

 

 

37,456

 

 

 

1.45

 

 

$

34.21

 

 

 

37,456

 

 

$

34.21

 

$53.22 - $77.67

 

 

377,009

 

 

 

6.91

 

 

$

66.82

 

 

 

185,657

 

 

$

72.92

 

$79.73 - $106.24

 

 

723,660

 

 

 

6.03

 

 

$

91.81

 

 

 

505,752

 

 

$

89.71

 

 

 

 

1,157,056

 

 

 

6.08

 

 

$

80.68

 

 

 

747,796

 

 

$

81.08

 

 

At December 31, 2020, the aggregate intrinsic value for both of the outstanding and exercisable options was approximately $24.5 million and $15.4 million, respectively. The total intrinsic value of options exercised during the nine months ended December 31, 2020 was approximately $6.3 million.

RESTRICTED STOCK

In May 2020, the Compensation Committee approved the granting to certain officers and key employees an aggregate of 82,722 shares of performance vesting restricted stock that will be earned if certain performance conditions are satisfied (the Fiscal 2021 Employee Restricted Stock Performance Award). The performance criteria for the Fiscal 2021 Employee Restricted Stock Performance Award is 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, 2021. 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, 2022 through 2024. The Compensation Committee also approved the granting of 68,936 shares of time-vesting restricted stock to the same officers and key employees, which vest ratably over four years (the Fiscal 2021 Employee Restricted Stock Time-Vesting Award). The Fiscal 2020 Employee Restricted Stock Performance Award and the Fiscal 2021 Employee Restricted Stock Time-Vesting Award were valued at the closing price of the stock on the date of grant and are being expensed over a four-year period.

 

15


 

In August 2020, we granted 26,064 shares of restricted stock to members of the Board of Directors (the Board of Directors Fiscal 2021 Restricted Stock Award). Restrictions on these shares will lapse six months after the date of grant. The Board of Directors Fiscal 2021 Restricted Stock Award was valued at the closing price of the stock at the date of the grant and was expensed over a six-month period.

The fair value of restricted stock is based on the stock price at the date of grant. The following table summarizes the activity for nonvested restricted shares during the nine months ended December 31, 2020:

 

 

 

Number of Shares

 

 

Weighted-Average Grant Date Fair Value

 

Nonvested Restricted Stock March 31, 2020

 

 

233,120

 

 

$

75.35

 

Granted

 

 

178,373

 

 

$

63.63

 

Vested

 

 

(50,378

)

 

$

66.13

 

Forfeited

 

 

(9,127

)

 

$

71.46

 

Nonvested Restricted Stock at December 31, 2020

 

 

351,988

 

 

$

68.73

 

Expense related to restricted shares was approximately $2.8 million and $8.2 million for the three and nine months ended December 31, 2020, respectively, and $3.1 million and $12.9 million for the three and nine months ended December 31, 2019, respectively. At December 31, 2020, there was approximately $14.7 million of unearned compensation from restricted stock, which will be recognized over a weighted-average period of 2.2 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 3,458,865 at December 31, 2020.

 

(K) COMPUTATION OF EARNINGS PER SHARE

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

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Weighted-Average Shares of Common Stock Outstanding

 

 

41,494,149

 

 

 

41,314,289

 

 

 

41,451,801

 

 

 

42,246,329

 

Effect of Dilutive Shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assumed Exercise of Outstanding Dilutive Options

 

 

807,584

 

 

 

717,028

 

 

 

450,870

 

 

 

705,692

 

Less Shares Repurchased from Proceeds of Assumed Exercised Options

 

 

(650,819

)

 

 

(548,643

)

 

 

(344,307

)

 

 

(549,954

)

Restricted Stock Units

 

 

183,676

 

 

 

132,821

 

 

 

124,177

 

 

 

125,293

 

Weighted-Average Common Stock and Dilutive Securities Outstanding

 

 

41,834,590

 

 

 

41,615,495

 

 

 

41,682,541

 

 

 

42,527,360

 

Shares Excluded Due to Anti-dilution Effects

 

 

413,656

 

 

 

655,889

 

 

 

757,879

 

 

 

657,964

 

 

 

 


 

16


 

(L) 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 are based on years of service and the employee’s qualifying compensation over the last few years of employment.

The following table shows the components of net periodic (benefit) cost for our plans:

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Service Cost - Benefits Earned During the Period

 

$

 

 

$

85

 

 

$

 

 

$

255

 

Interest Cost of Projected Benefit Obligation

 

 

304

 

 

 

338

 

 

 

912

 

 

 

1,013

 

Expected Return on Plan Assets

 

 

(355

)

 

 

(426

)

 

 

(1,065

)

 

 

(1,279

)

Recognized Net Actuarial Loss

 

 

34

 

 

 

43

 

 

 

101

 

 

 

131

 

Net Periodic Pension (Benefit) Cost

 

$

(17

)

 

$

40

 

 

$

(52

)

 

$

120

 

 

(M) 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 nine months ended December 31, 2020 was approximately 22%, which was lower than the tax rate of 24% for the nine months ended December 31, 2019. The effective tax rate is higher than the U.S. Statutory rate of 21% primarily due to state income taxes, partially offset by a benefit recognized related to the reversal of all of our uncertain tax positions. The reversal of all of our uncertain tax position was the result of new regulations issued by the U.S. Department of Treasury relating to the interest limitation under IRC section 163(j).

(N) LONG-TERM DEBT

Long-term Debt consists of the following:

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Revolving Credit Facility

 

$

 

 

$

560,000

 

4.500% Senior Unsecured Notes Due 2026

 

 

350,000

 

 

 

350,000

 

Term Loan

 

 

665,000

 

 

 

665,000

 

Total Debt

 

 

1,015,000

 

 

 

1,575,000

 

Less: Debt Origination Costs

 

 

(6,655

)

 

 

(7,685

)

Long-term Debt

 

$

1,008,345

 

 

$

1,567,315

 

 

Credit Facility

On January 13, 2021 we amended our revolving credit facility (the Revolving Credit Facility) to extend the maturity date with respect to certain lender commitments thereunder from August 2, 2021 to August 2, 2022. The borrowing capacity under the Revolving Credit Facility is $750.0 million, and as a result of this amendment, all lender commitments under the Revolving Credit Facility now mature on August 2, 2022. The Revolving Credit Facility also includes a swingline loan sublimit of $25.0 million.

 

17


 

Borrowings under the Revolving Credit Facility are guaranteed by all of the Company’s material subsidiaries.  The debt under the Revolving Credit Facility is not rated by ratings agencies.  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 150 to 250 basis points, which is established quarterly based on the Company's then Leverage Ratio (as defined in the Revolving Credit Facility); 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), (b) the NYFRB (as defined in the Revolving Credit Facility) plus ½ of 1%, and (c) the Adjusted LIBO Rate for a one-month interest period on such day, plus 1.0%, in each case plus an agreed upon spread ranging from 50 to 150 basis points, which is established quarterly based on the Company's then Leverage Ratio. In the case of loans bearing interest at a rate based on the Alternate Base Rate, interest payments are payable quarterly. In the case of loans bearing interest at a rate based on the Adjusted LIBO Rate, interest is payable at the end of the relevant Interest Period (as defined in the Revolving Credit Facility) for such borrowing unless such Interest Period is for more than three months duration, in which case such interest is payable at intervals of three months duration after the first day of such Interest Period, which can be up to six months at the option of the Company. The Company is also required to pay a commitment fee on unused available borrowings under the Revolving Credit Facility ranging from 20 to 40 basis points, which is established quarterly based on the Company's then Leverage Ratio. The Revolving Credit Facility contains customary covenants that restrict the Company’s and its Restricted Subsidiaries’ ability to incur additional debt; encumber assets; merge with or transfer or sell assets to other persons; make or enter into certain investments, loans, or guaranties; enter into certain swap agreements; enter into affiliate transactions or restrictive transactions; make restricted payments; prepay subordinated indebtedness; and enter into sale and leaseback arrangements. The Revolving Credit Facility also requires the Company to maintain at the end of each fiscal quarter a Leverage Ratio of 4.50:1.00 or less and an Interest Coverage Ratio (as defined in the Revolving Credit Facility) equal to or greater than 2.50 to 1.00.

We were in compliance with all financial ratios and tests at December 31, 2020. We did not have any borrowings outstanding under the Revolving Credit Facility at December 31, 2020. We had $745.0 million of available borrowings under the Revolving Credit Facility, net of the outstanding letters of credit, at December 31, 2020, all of which was available for future borrowings based on our current Leverage Ratio.

The Revolving Credit Facility has a $40.0 million letter of credit facility. 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 one-time letter of credit fee to the issuing bank of such letters of credit in an amount equal to 0.125% of the initial stated amount. At December 31, 2020, we had $5.0 million of outstanding letters of credit. We previously provided an irrevocable stand-by letter of credit for any borrowings made by our Joint Venture under its credit facility; however, this credit facility was terminated and the letter of credit cancelled in July 2020.

Term Loan

We have a term loan credit agreement (the Term Loan Agreement) establishing a $665.0 million term loan facility which we 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, which matures on August 2, 2022.

Borrowings under the Term Loan Agreement bear interest, at our option, at a variable rate equal to either (i) the Alternate Base Rate (as defined in the Term Loan Agreement and consistent with the Revolving Credit Facility), plus an agreed spread (ranging from 50 to 150 basis points), or (ii) the Adjusted LIBO Rate (as defined in the Term Loan Agreement) plus an agreed spread (ranging from 150 to 250 basis points), which is established quarterly based on the Company's then Leverage Ratio (as defined in the Term Loan Agreement and consistent with the Revolving Credit Facility). The Company must also maintain a Leverage Ratio and Interest Coverage Ratio consistent with the Revolving Credit Facility.

 

18


 

4.500% Senior Unsecured Notes Due 2026

On August 2, 2016, the Company issued $350.0 million aggregate principal amount of 4.500% senior notes (Senior Unsecured Notes) due August 2026. Interest on the Senior Unsecured Notes is payable semiannually on February 1 and August 1 of each year until all of the outstanding notes are paid. The Senior Unsecured Notes rank equal to existing and future senior indebtedness, including the Revolving Credit Facility and the Term Loan. Prior to August 1, 2021, we may redeem some or all of the Senior Unsecured Notes at a price equal to 100% of the principal amount, plus a “make-whole” premium. Beginning August 1, 2021, we may redeem some or all of the Senior Unsecured Notes at the redemption prices set forth below (expressed as a percentage of the principal amount being redeemed):

 

 

 

Percentage

 

2021

 

 

102.25

%

2022

 

 

101.50

%

2023

 

 

100.75

%

2024 and thereafter

 

 

100.00

%

 

The Senior Unsecured Notes contain covenants that limit our ability and/or our guarantor subsidiaries' 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. The Company’s Senior Unsecured Notes are fully, unconditionally, jointly, and severally guaranteed by each of our subsidiaries that are guarantors under the Revolving Credit Facility and Term Loan Agreement.

 

Other Information

We previously leased one of our cement plants from the City of Sugar Creek, Missouri. The city of Sugar Creek issued industrial revenue bonds to partly finance improvements to the cement plant. The lease payments due to the City of Sugar Creek under the cement plant lease, which was entered into upon the sale of the industrial revenue bonds, were equal in amount to the payments required to be made by the City of Sugar Creek to the holders of the industrial revenue bonds. Because we held all outstanding industrial revenue bonds, no debt was reflected on our financial statements in connection with our lease of the cement plant. Upon expiration of the lease in December 2020, we exercised our option and purchased the cement plant for a nominal amount.

 

(O) 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.

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 across many United States markets, which provides us with regional economic diversification.

 

19


 

Our remaining businesses are organized into 2 sectors within which there are 4 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 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 8 modern cement plants (1 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 Colorado, Illinois, Indiana, Iowa, Kentucky, Missouri, Nebraska, Nevada, Ohio, Oklahoma, and Texas. We operate 20 readymix concrete batch plants and 3 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 5 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.

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 December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Revenue -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

234,092

 

 

$

183,031

 

 

$

773,565

 

 

$

605,357

 

Concrete and Aggregates

 

 

43,530

 

 

 

47,147

 

 

 

134,020

 

 

 

142,896

 

Gypsum Wallboard

 

 

135,658

 

 

 

125,070

 

 

 

397,018

 

 

 

380,454

 

Paperboard

 

 

39,602

 

 

 

37,813

 

 

 

122,417

 

 

 

122,360

 

 

 

 

452,882

 

 

 

393,061

 

 

 

1,427,020

 

 

 

1,251,067

 

Less: Intersegment Revenue

 

 

(21,105

)

 

 

(21,775

)

 

 

(68,077

)

 

 

(66,454

)

Less: Joint Venture Revenue

 

 

(27,110

)

 

 

(28,382

)

 

 

(79,603

)

 

 

(85,775

)

 

 

$

404,667

 

 

$

342,904

 

 

$

1,279,340

 

 

$

1,098,838

 

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Intersegment Revenue -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

5,241

 

 

$

6,174

 

 

$

17,539

 

 

$

17,130

 

Concrete and Aggregates

 

 

 

 

 

350

 

 

 

106

 

 

 

1,134

 

Paperboard

 

 

15,864

 

 

 

15,251

 

 

 

50,432

 

 

 

48,190

 

 

 

$

21,105

 

 

$

21,775

 

 

$

68,077

 

 

$

66,454

 

Cement Sales Volume (M tons) -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly Owned

 

 

1,616

 

 

 

1,199

 

 

 

5,429

 

 

 

4,046

 

Joint Venture

 

 

226

 

 

 

240

 

 

 

678

 

 

 

721

 

 

 

 

1,842

 

 

 

1,439

 

 

 

6,107

 

 

 

4,767

 

 

20


 

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Operating Earnings -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

70,434

 

 

$

54,180

 

 

$

210,802

 

 

$

156,827

 

Concrete and Aggregates

 

 

5,075

 

 

 

3,334

 

 

 

15,748

 

 

 

15,023

 

Gypsum Wallboard

 

 

40,792

 

 

 

38,484

 

 

 

119,723

 

 

 

114,872

 

Paperboard

 

 

7,161

 

 

 

9,021

 

 

 

20,708

 

 

 

29,060

 

Other

 

 

 

 

 

(1,116

)

 

 

 

 

 

(2,976

)

Sub-Total

 

 

123,462

 

 

 

103,903

 

 

 

366,981

 

 

 

312,806

 

Corporate General and Administrative Expense

 

 

(11,327

)

 

 

(13,794

)

 

 

(40,225

)

 

 

(48,506

)

Gain on Sale of Businesses

 

 

 

 

 

 

 

 

51,973

 

 

 

 

Impairment Losses

 

 

 

 

 

(25,131

)

 

 

 

 

 

(25,131

)

Other Non-Operating Income

 

 

2,297

 

 

 

722

 

 

 

1,898

 

 

 

1,445

 

Earnings Before Interest and Income Taxes

 

 

114,432

 

 

 

65,700

 

 

 

380,627

 

 

 

240,614

 

Interest Expense, net

 

 

(9,360

)

 

 

(9,543

)

 

 

(35,957

)

 

 

(28,526

)

Earnings from Continuing Operations Before Income Taxes

 

$

105,072

 

 

$

56,157

 

 

$

344,670

 

 

$

212,088

 

Cement Operating Earnings -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly Owned

 

$

60,351

 

 

$

43,480

 

 

$

182,346

 

 

$

124,338

 

Joint Venture

 

 

10,083

 

 

 

10,700

 

 

 

28,456

 

 

 

32,489

 

 

 

$

70,434

 

 

$

54,180

 

 

$

210,802

 

 

$

156,827

 

Capital Expenditures -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

2,510

 

 

$

7,379

 

 

$

20,767

 

 

$

26,125

 

Concrete and Aggregates

 

 

1,631

 

 

 

3,233

 

 

 

2,933

 

 

 

9,324

 

Gypsum Wallboard

 

 

491

 

 

 

273

 

 

 

11,073

 

 

 

8,647

 

Paperboard

 

 

233

 

 

 

12,885

 

 

 

10,768

 

 

 

42,484

 

 

 

$

4,865

 

 

$

23,770

 

 

$

45,541

 

 

$

86,580

 

Depreciation, Depletion, and Amortization -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

19,337

 

 

$

14,189

 

 

$

57,838

 

 

$

42,275

 

Concrete and Aggregates

 

 

2,691

 

 

 

3,105

 

 

 

8,110

 

 

 

8,050

 

Gypsum Wallboard

 

 

5,340

 

 

 

5,050

 

 

 

16,201

 

 

 

15,149

 

Paperboard

 

 

3,509

 

 

 

2,244

 

 

 

10,205

 

 

 

6,610

 

Corporate and Other

 

 

1,203

 

 

 

578

 

 

 

3,704

 

 

 

1,773

 

 

 

$

32,080

 

 

$

25,166

 

 

$

96,058

 

 

$

73,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures

 

$

 

 

$

86

 

 

$

 

 

$

151

 

Depreciation, Depletion, and Amortization

 

$

 

 

$

3,445

 

 

$

221

 

 

$

11,087

 

 

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Identifiable Assets

 

 

 

 

 

 

 

 

Cement

 

$

1,907,191

 

 

$

1,980,306

 

Concrete and Aggregates

 

 

99,495

 

 

 

136,041

 

Gypsum Wallboard

 

 

358,530

 

 

 

375,946

 

Paperboard

 

 

190,024

 

 

 

183,288

 

Assets of Discontinued Operations

 

 

 

 

 

13,831

 

Other, net

 

 

169,798

 

 

 

271,608

 

 

 

$

2,725,038

 

 

$

2,961,020

 

 

The Capital Expenditures for the nine months ended December 31, 2019 disclosed above differs from the Capital Expenditures on the Unaudited Consolidated Statement of Cash Flows, as it includes $2.7 million of capital expenditures that were accrued at December 31, 2019 and therefore not included in the Statement of Cash Flows. See Footnote (B) for more information.

 

21


 

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:

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Cement

 

$

203,342

 

 

$

205,797

 

Concrete and Aggregates

 

 

1,639

 

 

 

1,639

 

Gypsum Wallboard

 

 

116,618

 

 

 

116,618

 

Paperboard

 

 

7,538

 

 

 

7,538

 

 

 

$

329,137

 

 

$

331,592

 

 

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

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Revenue

 

$

54,220

 

 

$

56,767

 

 

$

159,207

 

 

$

172,385

 

Gross Margin

 

$

22,045

 

 

$

22,749

 

 

$

61,814

 

 

$

68,806

 

Earnings Before Income Taxes

 

$

21,920

 

 

$

21,402

 

 

$

58,665

 

 

$

64,979

 

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Current Assets

 

$

68,449

 

 

$

77,331

 

Non-Current Assets

 

$

107,211

 

 

$

93,093

 

Current Liabilities

 

$

16,883

 

 

$

17,197

 

 

(P) INTEREST EXPENSE

The following components are included in Interest Expense, net:

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Interest Income

 

$

(13

)

 

$

(12

)

 

$

(53

)

 

$

(23

)

Interest Expense

 

 

8,449

 

 

 

9,250

 

 

 

33,141

 

 

 

27,682

 

Other Expenses

 

 

924

 

 

 

305

 

 

 

2,869

 

 

 

867

 

Interest Expense, net

 

$

9,360

 

 

$

9,543

 

 

$

35,957

 

 

$

28,526

 

 

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, Private Placement Unsecured Notes (which were repaid in October 2019), 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.

 

22


 

(Q) 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 December 31, 2020, 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 standard in the industry and indemnifications 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 0 outstanding guarantees.

We are currently contingently liable for performance under $23.6 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.

(R) 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 Senior Unsecured Notes at December 31, 2020 is as follows:

 

 

 

Fair Value

 

 

 

(dollars in thousands)

 

4.500% Senior Unsecured Notes Due 2026

 

$

363,564

 

 

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, restricted cash, cash equivalents, accounts and notes receivable, accounts payable, and accrued liabilities approximate their fair values at December 31, 2020, due to the short-term maturities of these assets and liabilities. The fair value of our Term Loan also approximates its carrying value at December 31, 2020.

 

 

23


 

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 across many United States markets, which provides us with regional economic diversification.

On September 18, 2020, we sold our Oil and Gas Proppants business, which had been reported as an operating segment, resulting in a gain of approximately $9.2 million. Because the sale of the Oil and Gas Proppants business was determined to meet the discontinued operations accounting criteria, 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.

Our remaining businesses are 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 nine months ended December 31, 2020 and 2019, 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, 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).

Demand for our products is generally cyclical and seasonal, depending on economic conditions and geographic locations. 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.

On August 2, 2019, we acquired the assets of a readymix concrete and aggregates business in Northern Nevada (the ConAgg Acquisition). The purchase price (Purchase Price) of the ConAgg Acquisition was approximately $30.4 million. The Purchase Price and expenses incurred in connection with the ConAgg Acquisition were funded through operating cash flows and borrowings under our Revolving Credit Facility. The ConAgg Acquisition’s assets and operating results are included in our Concrete and Aggregates segment reporting from August 2, 2019 through March 31, 2020, and for the nine months ended December 31, 2020.

 

24


 

On March 6, 2020, we acquired the assets of Kosmos Cement Company (Kosmos), a joint venture between CEMEX S.A.B. de C.V. and Buzzi Unicem S.p.A. for approximately $669 million (the Kosmos Acquisition). The Kosmos Acquisition included (i) a cement plant located in Louisville, Kentucky, (ii) a limestone quarry located in Battletown, Kentucky, (iii) cement distribution terminals located in Indianapolis, Indiana; Cincinnati, Ohio; Pittsburgh, Pennsylvania; Charleston, West Virginia; Ceredo, West Virginia; Mt. Vernon, Indiana; and Lexington, Kentucky, and (iv) certain other properties and assets used by Kosmos in connection with the foregoing (collectively, the Kosmos Business). We also assumed certain liabilities and obligations of Kosmos relating to the Kosmos Business, including contractual obligations, reclamation obligations, and various other liabilities and obligations arising out of or relating to the Kosmos Business. We funded the payment of the purchase price and expenses incurred in connection with the transaction through a combination of cash on hand and a syndicated term loan facility. The Kosmos Business’ assets and operating results are included in our Cement segment reporting from March 6, 2020 through March 31, 2020, and for the nine months ended December 31, 2020.

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.

As previously announced on May 30, 2019, the Company plans to separate its Heavy Materials and Light Materials businesses into two independent, publicly traded corporations by means of a tax-free spin-off to Eagle shareholders. We remain committed to the separation and continue to make preparations to ensure that the two businesses are well-positioned for the separation, although the timing of the separation remains uncertain given the effects of the COVID-19 pandemic. 

MARKET CONDITIONS AND OUTLOOK

To date, we have not been materially affected by the extraordinary and wide-ranging actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the spread of COVID-19. 

Our third quarter results reflected another strong quarter for Eagle. Our end markets have remained resilient despite the COVID-related uncertainty. Our regional construction markets continued to outperform the national average, and sales volume performance in both of our major business lines continued to remain strong – our wallboard shipments were up 9%, and our organic cement sales volume was flat.  

For the short term, we are well positioned to manage our cost structure and meet our customer needs.  Our substantial raw material reserves support our low-cost producer position and during the early summer, we implemented cement price increases across all of our markets. We also implemented a wallboard price increase in November 2020 and have recently implemented another price increase in early January 2021. 

For the intermediate term, we continue to closely monitor the disruptions caused by the COVID-19 pandemic, including the new cases reaching record highs both nationally and in many states in January 2021, new strains of the virus, the timing and effectiveness of the current vaccination campaign, and any responses designed to contain its spread and their possible impact on our business and our customers.  While recent economic data has been more constructive than many expected earlier this year, the extent to which the spread of COVID-19 will impact the national and local economies in which we operate, and ultimately our businesses, will depend on numerous factors, which are highly uncertain and difficult to predict; therefore, we continue to prepare for a broad range of economic outcomes. 

 

25


 

RESULTS OF OPERATIONS

THREE MONTHS ENDED December 31, 2020 Compared WITH THREE MONTHS ENDED December 31, 2019

 

 

 

For the Three Months Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

 

(dollars in thousands, except per share)

 

 

 

 

 

Revenue

 

$

404,667

 

 

$

342,904

 

 

 

18

%

Cost of Goods Sold

 

 

(291,288

)

 

 

(249,701

)

 

 

17

%

Gross Profit

 

 

113,379

 

 

 

93,203

 

 

 

22

%

Equity in Earnings of Unconsolidated Joint Venture

 

 

10,083

 

 

 

10,700

 

 

 

(6

)%

Corporate General and Administrative

 

 

(11,327

)

 

 

(13,794

)

 

 

(18

)%

Impairment Losses

 

 

 

 

 

(25,131

)

 

 

(100

)%

Other Non-Operating Income

 

 

2,297

 

 

 

722

 

 

 

218

%

Interest Expense, net

 

 

(9,360

)

 

 

(9,543

)

 

 

(2

)%

Earnings from Continuing Operations Before Income Taxes

 

 

105,072

 

 

 

56,157

 

 

 

87

%

Income Tax Expense

 

 

(23,879

)

 

 

(12,683

)

 

 

88

%

Net Earnings from Continuing Operations

 

 

81,193

 

 

 

43,474

 

 

 

87

%

Net Earnings (Loss) from Discontinued Operations

 

$

 

 

$

(158,106

)

 

 

100

%

Net Earnings

 

$

81,193

 

 

$

(114,632

)

 

 

171

%

Diluted Earnings per Share from Continuing Operations

 

$

1.94

 

 

$

1.04

 

 

 

87

%

 

REVENUE

Revenue increased by $61.8 million, or 18%, to $404.7 million for the three months ended December 31, 2020. The Kosmos Acquisition contributed $45.4 million of Revenue for the three months ended December 31, 2020, while Western and Mathews contributed $7.9 million of Revenue for the three months ended December 31, 2019. Excluding the acquisition and dispositions, Revenue improved by $24.3 million, or 7%. The increase was due to higher gross sales prices and Sales Volume, which positively affected Revenue by approximately $7.7 million and $16.6 million, respectively.

COST OF GOODS SOLD

Cost of Goods Sold increased by $41.6 million, or 17%, to $291.3 million for the three months ended December 31, 2020. The Kosmos Acquisition contributed $32.1 million to Cost of Goods Sold for the three months ended December 31, 2020, while Western and Mathews contributed $6.7 million to Cost of Goods Sold for the three months ended December 31, 2019. Excluding the acquisition and dispositions, Cost of Goods Sold increased by $16.2 million, or 7%. The increase in Cost of Goods Sold was due to Sales Volume and operating costs of approximately $10.5 million and $5.7 million, respectively. The increase in operating costs was primarily related to our Cement and Recycled Paperboard segments. See discussion of individual operating segments below.

GROSS PROFIT

Gross Profit increased 22% to $113.4 million during the three months ended December 31, 2020. Excluding the acquisition and dispositions, Gross Profit rose by $8.1 million, or 9%. The improvement in Gross Profit was primarily due to higher gross sales prices and Sales Volume, partially offset by increased operating costs. The gross margin percentage increased to 28% from 27%, primarily because of higher gross sales prices, partially offset by increased operating costs.

 

26


 

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE

Equity in Earnings of our Unconsolidated Joint Venture decreased $0.6 million, or 6%, for the three months ended December 31, 2020. The decline was primarily due to lower Sales Volume and increased operating costs, which adversely affected earnings by approximately $0.7 million and $0.4 million, respectively, partially offset by higher net sales prices, which increased operating earnings by approximately $0.5 million.

CORPORATE GENERAL AND ADMINISTRATIVE

Corporate General and Administrative Expense declined by approximately $2.5 million, or 18%, for the three months ended December 31, 2020. The decrease was primarily because of lower legal and professional expenses of approximately $3.6 million, partially offset by higher salary and incentive compensation of $1.0 million. The lower legal and professional fees related to amounts spent in the prior fiscal year in connection with our strategic portfolio review, as well as costs incurred related to the Kosmos Acquisition and the sale of Western and Mathews. The increase in salary and incentive compensation costs were primarily due to higher earnings during the fiscal year.

IMPAIRMENT LOSSES

Impairment Losses for the three months ended December 31, 2019 relate to certain assets of our Oil and Gas Proppants business that were impaired during the quarter ended December 31, 2019, but were not included in the sale of the business in September 2020. These impairment charges primarily relate to real estate and right-of-use assets.

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.

INTEREST EXPENSE, NET

Interest Expense, net decreased by approximately $0.1 million, or 2%, during the three months ended December 31, 2020. The decrease in Interest Expense, net was primarily due to lower interest on borrowings under our Revolving Credit Facility of approximately $4.8 million. This decrease was partially offset by an increase in interest on our Term Loan and amortization of related debt issuances costs of $4.0 million and $0.7 million, respectively. The increase in debt issuance costs was related to the issuance of the Term Loan in March 2020 and the amendment of both the Revolving Credit Facility and the Term Loan in April 2020. The lower interest expense on our Revolving Credit Facility was due to our repaying all outstanding amounts during the three months ended December 31, 2020.

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Earnings from Continuing Operations Before Income Taxes increased to $105.1 million during the three months ended December 31, 2020, primarily as a result of higher Gross Profit and Other Non-operating Income, and lower Corporate General and Administrative Expense. This was partially offset by lower Equity in Earnings of Unconsolidated Joint Venture.

INCOME TAX EXPENSE

Income Tax Expense was $23.9 million for the three months ended December 31, 2020 compared with Income Tax Expense of $12.7 million for the three months ended December 31, 2019. The effective tax rate was flat from the prior period at 23%.

 

27


 

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

Net Earnings from Continuing Operations increased 87% to $81.2 million for the three months ended December 31, 2020. Diluted Earnings per Share from Continuing Operations also increased 87% to $1.94 per share.

NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS

There was no Net Earnings from Discontinued Operations during the three months ended December 31, 2020, compared with a Net Loss from Discontinued Operations of $158.1 million for the three months ended December 31, 2019. The Net Loss from Discontinued Operations in fiscal 2020 was primarily related to the impairment of the operating facilities, quarries, and certain lease right-of-use assets.

NET EARNINGS

Net Earnings increased 171% to $81.2 million for the three months ended December 31, 2020.

Nine MONTHS ENDED December 31, 2020 Compared WITH nine MONTHS ENDED December 31, 2019

 

 

 

For the Nine Months Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

 

(dollars in thousands, except per share)

 

 

 

 

 

Revenue

 

$

1,279,340

 

 

$

1,098,838

 

 

 

16

%

Cost of Goods Sold

 

 

(940,815

)

 

 

(818,521

)

 

 

15

%

Gross Profit

 

 

338,525

 

 

 

280,317

 

 

 

21

%

Equity in Earnings of Unconsolidated Joint Venture

 

 

28,456

 

 

 

32,489

 

 

 

(12

)%

Corporate General and Administrative

 

 

(40,225

)

 

 

(48,506

)

 

 

(17

)%

Gain on Sale of Businesses

 

 

51,973

 

 

 

 

 

 

 

Impairment Losses

 

 

 

 

 

(25,131

)

 

 

(100

)%

Other Non-Operating Income

 

 

1,898

 

 

 

1,445

 

 

 

31

%

Interest Expense, net

 

 

(35,957

)

 

 

(28,526

)

 

 

26

%

Earnings from Continuing Operations Before Income Taxes

 

 

344,670

 

 

 

212,088

 

 

 

63

%

Income Tax Expense

 

 

(76,515

)

 

 

(50,217

)

 

 

52

%

Net Earnings from Continuing Operations

 

 

268,155

 

 

 

161,871

 

 

 

66

%

Net Earnings (Loss) from Discontinued Operations

 

$

5,278

 

 

$

(163,406

)

 

 

103

%

Net Earnings

 

$

273,433

 

 

$

(1,535

)

 

 

17913

%

Diluted Earnings per Share from Continuing Operations

 

$

6.43

 

 

$

3.81

 

 

 

69

%

REVENUE

Revenue increased by $180.5 million, or 16%, to $1,279.3 million for the nine months ended December 31, 2020. The Kosmos Acquisition and ConAgg Acquisition contributed $154.8 million of Revenue for the nine months ended December 31, 2020, while Western and Mathews contributed $25.2 million of Revenue for the nine months ended December 31, 2019. Excluding the acquisitions and dispositions, Revenue improved by $50.9 million, or 5%. The increase was due to higher Sales Volume and gross sales prices, which positively affected Revenue by approximately $36.9 million and $14.0 million, respectively.

 

28


 

COST OF GOODS SOLD

Cost of Goods Sold increased by $122.3 million, or 15%, to $940.8 million for the nine months ended December 31, 2020. The Kosmos and ConAgg Acquisitions contributed $115.4 million of Cost of Goods Sold for the nine months ended December 31, 2020, while Western and Mathews contributed $21.5 million of Cost of Goods Sold for the nine months ended December 31, 2019. Excluding the acquisitions and dispositions, Cost of Goods Sold increased by $28.4 million, or 4%. The increase in Cost of Goods Sold was due to higher Sales Volume and operating costs of $23.4 million and $5.0 million. The increase in operating costs were primarily in the Concrete and Recycled Paperboard segments. See discussion of individual operating segments below.

GROSS PROFIT

Gross Profit increased 21% to $338.5 million during the nine months ended December 31, 2020. Excluding the acquisitions and dispositions, Gross Profit increased by $22.5 million, or 8%. The increase in Gross Profit was primarily related to higher gross sales prices and increased Sales Volume, partially offset by higher operating expenses. The gross margin percentage increased to 27% from 26%, primarily because of higher gross sales prices, partially offset by higher operating expenses.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE

Equity in Earnings of our Unconsolidated Joint Venture decreased $4.0 million, or 12%, for the nine months ended December 31, 2020. The decline was primarily due to lower net sales prices and Sales Volume, which adversely affected earnings by approximately $0.8 million and $2.3 million, respectively, as well as increased operating costs, which decreased operating earnings by approximately $1.0 million. The increase in operating costs was primarily related to maintenance, which increased by approximately $1.1 million.  

CORPORATE GENERAL AND ADMINISTRATIVE

Corporate General and Administrative Expense declined by approximately $8.3 million, or 17%, for the nine months ended December 31, 2020. The decrease was primarily because of lower salary and incentive compensation costs of approximately $4.2 million and legal and professional costs of $4.1 million. The lower salary and incentive compensation costs were primarily due to the acceleration of stock compensation costs of $5.3 million upon the retirement of our Chief Executive Officer in the first quarter of fiscal 2020, while the lower legal and professional fees related to higher amounts spent in the prior year in connection with our strategic portfolio review. The lower fees were partially offset by increased professional costs associated with the Kosmos Acquisition, and the sales of Mathews and Western, and our Oil and Gas Proppants business.

IMPAIRMENT LOSSES

Impairment Losses for the nine months ended December 31, 2019 relate to certain assets of our Oil and Gas Proppants business that were impaired during the quarter ended December 31, 2019, but were not included in the sale of the business in September 2020. These impairment charges primarily relate to real estate and right-of-use assets.

GAIN ON SALE OF BUSINESSES

On April 17, 2020 we sold Western and Mathews for approximately $93.5 million resulting in a gain on sale of approximately $52.0 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.

 

29


 

INTEREST EXPENSE, NET

Interest Expense, net increased by approximately $7.5 million, or 26%, during the nine months ended December 31, 2020. The increase in Interest Expense, net was primarily due to higher interest on borrowings under our Term Loan of approximately $13.6 million and amortization of related debt issuance costs of $2.0 million. These increases were partially offset by lower interest on our Revolving Credit Facility of approximately $7.1 million and our Unsecured Private Placement Notes, which were paid in full in fiscal 2020, of $1.1 million. The higher debt issuance costs were related to the issuance of the Term Loan in March 2020 and the amendment of both the Revolving Credit Facility and the Term Loan in April 2020. The lower interest expense on our Revolving Credit Facility was due to reducing the balance throughout fiscal 2021, before repaying the remaining balance during the current quarter.

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Earnings from Continuing Operations Before Income Taxes increased to $344.7 million during the nine months ended December 31, 2020, primarily as a result of higher Gross Profit and Gain on Sale of Businesses, and lower Corporate General and Administrative Expense. This was partially offset by lower Equity in Earnings of Unconsolidated Joint Venture and increased Interest Expense, net.

INCOME TAX EXPENSE

Income Tax Expense for the nine months ended December 31, 2020 increased to $76.5 million from $50.2 million for the nine months ended December 31, 2019. The effective tax rate decreased to 22% from 24% in the prior-year period. The decrease in the effective tax rate was primarily due to a benefit recognized in the current year related to the reversal of all of our uncertain tax positions during the nine months ended December 31, 2020.

 

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

Net Earnings from Continuing Operations increased 66% to $268.2 million for the nine months ended December 31, 2020. Diluted Earnings per Share increased 69% to $6.43 per share.

NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS

Net Earnings from Discontinued Operations increased to $5.3 million during the nine months ended December 30, 2020, compared with a Net Loss from Discontinued Operations of $163.4 million for the nine months ended December 31, 2019. The improvement was due primarily to the impairment of the operating facilities, quarries and certain lease right-of-use assets of the Oil and Gas Proppants business during fiscal 2020, and the recording of a $9.2 million gain on sale in September 2020.

NET EARNINGS

Net Earnings increased to $273.4 million for the nine months ended December 31, 2020.

THREE and Nine MONTHS ENDED December 31, 2020 COMPARED WITH Three and Nine months ended December 31, 2019 BY SEGMENT

The following presents results within our two business sectors for the three and nine months ended December 31, 2020 and 2019. Revenue and operating results are organized by sector and discussed by individual business segment within each respective business sector.

 

30


 

Heavy Materials

CEMENT (1)

 

 

 

For the Three Months Ended December 31,

 

 

 

 

 

 

For the Nine Months Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Percentage Change

 

 

2020

 

 

2019

 

 

Percentage Change

 

 

 

(in thousands, except per ton information)

 

 

 

 

 

 

(in thousands, except per ton information)

 

 

 

 

 

Gross Revenue, including Intersegment and Joint Venture

 

$

234,092

 

 

$

183,031

 

 

 

28

%

 

$

773,565

 

 

$

605,357

 

 

 

28

%

Less Intersegment Revenue

 

 

(5,241

)

 

 

(6,174

)

 

 

(15

)%

 

 

(17,539

)

 

 

(17,130

)

 

 

2

%

Less Joint Venture Revenue

 

 

(27,110

)

 

 

(28,382

)

 

 

(4

)%

 

 

(79,603

)

 

 

(85,775

)

 

 

(7

)%

Gross Revenue, as reported

 

$

201,741

 

 

$

148,475

 

 

 

36

%

 

$

676,423

 

 

$

502,452

 

 

 

35

%

Freight and Delivery Costs Billed to Customers

 

 

(15,077

)

 

 

(11,063

)

 

 

36

%

 

 

(50,896

)

 

 

(39,434

)

 

 

29

%

Net Revenue

 

$

186,664

 

 

$

137,412

 

 

 

36

%

 

$

625,527

 

 

$

463,018

 

 

 

35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (M Tons)

 

 

1,842

 

 

 

1,439

 

 

 

28

%

 

 

6,107

 

 

 

4,767

 

 

 

28

%

Average Net Sales Price, per ton (2)

 

$

111.91

 

 

$

110.09

 

 

 

2

%

 

$

110.84

 

 

$

109.69

 

 

 

1

%

Operating Margin, per ton

 

$

38.24

 

 

$

37.65

 

 

 

2

%

 

$

34.52

 

 

$

32.90

 

 

 

5

%

Operating Earnings

 

$

70,434

 

 

$

54,180

 

 

 

30

%

 

$

210,802

 

 

$

156,827

 

 

 

34

%

(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 December 31, 2020

Cement Revenue was $234.1 million, a 28% increase, for the three months ended December 31, 2020. Organic Cement Revenue, which excludes the Kosmos Acquisition, increased approximately $5.7 million, primarily related to higher gross sales prices.

Cement Operating Earnings increased 30% to $70.4 million for the three months ended December 31, 2020. Excluding $13.3 million of Operating Earnings related to the Kosmos Acquisition, Operating Earnings increased $2.9 million, or 5%. The improvement was due to higher gross sales prices, which increased Operating Earnings by $6.6 million. This was partially offset by higher operating costs, which negatively affected Operating Earnings by approximately $3.9 million. The increase in operating costs was primarily due to higher maintenance costs of $1.5 million and raw materials of $1.5 million. The operating margin remained consistent at 30% during the quarter.

Nine months ended December 31, 2020

Cement Revenue was $773.6 million, a 28% increase, for the nine months ended December 31, 2020. Organic Cement Revenue increased approximately $28.0 million, and was primarily due to higher gross sales prices and Sales Volume, which improved Cement Revenue by approximately $15.9 million and $12.1 million, respectively.

Cement Operating Earnings increased 34% to $210.8 million for the nine months ended December 31, 2020. Excluding $38.3 million of Operating Earnings related to the Kosmos Acquisition, Operating Earnings increased $15.7 million, or 10%. The increase was due to higher gross sales prices and Sales Volume, which positively affected Operating Earnings by approximately $15.9 million and $1.5 million, respectively. This was partially offset by higher operating costs, which reduced Operating Earnings by $1.5 million. The increase in operating costs was primarily increased maintenance costs of $6.6 million, partially offset by lower energy costs of $5.2 million. The operating margin increased to 27% from 26%, primarily because of higher gross sales prices.

 

31


 

CONCRETE AND AGGREGATES

 

 

 

For the Three Months Ended December 31,

 

 

 

 

 

 

For the Nine Months Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Percentage Change

 

 

2020

 

 

2019

 

 

Percentage Change

 

 

 

(in thousands, except net sales prices)

 

 

 

 

 

 

(in thousands, except net sales prices)

 

 

 

 

 

Gross Revenue, including Intersegment

 

$

43,530

 

 

$

47,147

 

 

 

(8

)%

 

$

134,020

 

 

$

142,896

 

 

 

(6

)%

Less Intersegment Revenue

 

 

 

 

 

(350

)

 

 

(100

)%

 

 

(106

)

 

 

(1,134

)

 

 

(91

)%

Gross Revenue, as reported

 

$

43,530

 

 

$

46,797

 

 

 

(7

)%

 

$

133,914

 

 

$

141,762

 

 

 

(6

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M Cubic Yards of Concrete

 

 

327

 

 

 

357

 

 

 

(8

)%

 

 

1,032

 

 

 

1,095

 

 

 

(6

)%

M Tons of Aggregate

 

 

583

 

 

 

749

 

 

 

(22

)%

 

 

1,533

 

 

 

2,608

 

 

 

(41

)%

Average Net Sales Price:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concrete, per cubic yard

 

$

116.88

 

 

$

112.96

 

 

 

3

%

 

$

115.66

 

 

$

108.17

 

 

 

7

%

Aggregates, per ton

 

$

8.96

 

 

$

9.20

 

 

 

(3

)%

 

$

9.54

 

 

$

9.36

 

 

 

2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings

 

$

5,075

 

 

$

3,334

 

 

 

52

%

 

$

15,748

 

 

$

15,023

 

 

 

5

%

 

Three months ended December 31, 2020

Concrete and Aggregates Revenue decreased 8% to $43.5 million for the three months ended December 31, 2020. Excluding Revenue related to Western and Mathews in fiscal 2020, Revenue increased $4.3 million, or 11%. The primary reason for the increase in Revenue was higher gross sales prices and Sales Volume, which positively affected Revenue by $0.5 million and $3.8 million, respectively.

Operating Earnings increased 52% to approximately $5.1 million. Excluding Operating Earnings related to Western and Mathews in fiscal 2020, Operating Earnings increased $2.9 million, or 76%. The increase was a result of higher concrete sales prices and organic Sales Volume, as well as lower operating costs, which positively affected Operating Earnings by $0.5 million, $1.2 million, and $1.3 million, respectively. The decrease in operating costs was primarily due to improved operating efficiencies and lower diesel fuel costs.

Nine months ended December 31, 2020

Concrete and Aggregates Revenue decreased 6% to $134 million for the nine months ended December 31, 2020. Excluding Revenue related to the ConAgg Acquisition and Western and Mathews for the first quarter of fiscal 2021, as well as Western and Mathews in fiscal 2020, Revenue increased $5.3 million, or 4%. The increase in Revenue was primarily related to higher gross sales prices, which positively affected Revenue by $6.4 million. This was partially offset by lower Sales Volume, which reduced Revenue by $1.1 million.

Operating Earnings increased 5% to approximately $15.7 million. Excluding Operating Earnings related to the ConAgg Acquisition and Western and Mathews for the first quarter of fiscal 2021, and Western and Mathews in fiscal 2020, Operating Earnings increased $3.5 million, or 31%. The improvement was due to higher gross sales prices, which positively affected Operating Earnings by $6.4 million, partially offset by higher operating costs, which negatively impacted Operating Earnings by approximately $2.9 million. The increase in operating costs was primarily because of higher cost of materials of approximately $3.0 million, partially offset by lower delivery costs of $0.9 million.

 

32


 

Light Materials

GYPSUM WALLBOARD

 

 

 

For the Three Months Ended December 31,

 

 

 

 

 

 

For the Nine Months Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Percentage Change

 

 

2020

 

 

2019

 

 

Percentage Change

 

 

 

(in thousands, except per MSF information)

 

 

 

 

 

 

(in thousands, except per MSF information)

 

 

 

 

 

Gross Revenue, as reported

 

$

135,658

 

 

$

125,070

 

 

 

8

%

 

$

397,018

 

 

$

380,454

 

 

 

4

%

Freight and Delivery Costs Billed to Customers

 

 

(28,235

)

 

 

(27,030

)

 

 

4

%

 

 

(83,334

)

 

 

(81,941

)

 

 

2

%

Net Revenue

 

$

107,423

 

 

$

98,040

 

 

 

10

%

 

$

313,684

 

 

$

298,513

 

 

 

5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (MMSF)

 

 

727

 

 

 

669

 

 

 

9

%

 

 

2,151

 

 

 

2,010

 

 

 

7

%

Average Net Sales Price, per MSF (1)

 

$

147.87

 

 

$

146.46

 

 

 

1

%

 

$

145.86

 

 

$

148.51

 

 

 

(2

)%

Freight, per MSF

 

$

38.84

 

 

$

40.40

 

 

 

(4

)%

 

$

38.74

 

 

$

40.77

 

 

 

(5

)%

Operating Margin, per MSF

 

$

56.11

 

 

$

57.52

 

 

 

(2

)%

 

$

55.66

 

 

$

57.15

 

 

 

(3

)%

Operating Earnings

 

$

40,792

 

 

$

38,484

 

 

 

6

%

 

$

119,723

 

 

$

114,872

 

 

 

4

%

 

(1) Net of freight per MSF.

Three months ended December 31, 2020

Gypsum Wallboard Revenue increased 8% to $135.7 million for the three months ended December 31, 2020, primarily related to a 9% increase in Sales Volume. The higher Sales Volume positively affected Revenue by approximately $10.6 million, while gross sales prices were relatively flat. Our market share increased slightly during the three months ended December 31, 2020, due to the strength in our regional markets compared to the national average.

Operating Earnings increased 6% to $40.8 million, primarily because of higher Sales Volume, which positively affected Operating Earnings by $3.3 million. The increase was partially offset by higher operating costs that negatively affected Operating Earnings by approximately $1.1 million. The higher operating costs were primarily due to input costs, which increased operating costs by $2.0 million. The increase was offset by lower freight expense of $1.0 million. The operating margin declined 1% to 30% for the three months ended December 31, 2020, primarily because of 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.

Nine months ended December 31, 2020

Gypsum Wallboard Revenue increased 4% to $397.0 million for the nine months ended December 31, 2020, primarily related to a 7% increase in Sales Volume. The higher Sales Volume positively affected Revenue by approximately $26.7 million, partially offset by lower gross sales prices, which adversely affected Revenue by $10.0 million. Our market share increased slightly during the nine months ended December 31, 2020, due to the strength in our regional markets compared to the national average.

Operating Earnings increased 4% to $119.7 million, primarily due to higher Sales Volume and lower operating costs, which positively affected Operating Earnings by $8.1 million and $6.7 million, respectively. This was partially offset by lower gross sales prices that negatively affected Operating Earnings by approximately $10.0 million. The lower operating costs were primarily related to freight, energy, and maintenance, which reduced operating costs by approximately $4.4 million, $1.2 million, and $1.3 million, respectively. The operating margin remained consistent at 30% for the nine months ended December 31, 2020, with lower gross sales prices being offset by lower 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.

 

33


 

RECYCLED PAPERBOARD

 

 

 

For the Three Months Ended December 31,

 

 

 

 

 

 

For the Nine Months Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Percentage Change

 

 

2020

 

 

2019

 

 

Percentage Change

 

 

 

(in thousands, except per ton information)

 

 

 

 

 

 

(in thousands, except per ton information)

 

 

 

 

 

Gross Revenue, including Intersegment

 

$

39,602

 

 

$

37,813

 

 

 

5

%

 

$

122,417

 

 

$

122,360

 

 

 

 

Less Intersegment Revenue

 

 

(15,864

)

 

 

(15,251

)

 

 

4

%

 

 

(50,432

)

 

 

(48,190

)

 

 

5

%

Gross Revenue, as reported

 

$

23,738

 

 

$

22,562

 

 

 

5

%

 

$

71,985

 

 

$

74,170

 

 

 

(3

)%

Freight and Delivery Costs Billed to Customers

 

 

(1,361

)

 

 

(1,073

)

 

 

27

%

 

 

(4,046

)

 

 

(3,407

)

 

 

19

%

Net Revenue

 

$

22,377

 

 

$

21,489

 

 

 

4

%

 

$

67,939

 

 

$

70,763

 

 

 

(4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (M Tons)

 

 

79

 

 

 

80

 

 

 

(1

)%

 

 

243

 

 

 

247

 

 

 

(2

)%

Average Net Sales Price, per ton (1)

 

$

484.92

 

 

$

460.65

 

 

 

5

%

 

$

487.76

 

 

$

482.34

 

 

 

1

%

Freight, per ton

 

$

17.23

 

 

$

13.41

 

 

 

28

%

 

$

16.65

 

 

$

13.79

 

 

 

21

%

Operating Margin, per ton

 

$

90.65

 

 

$

112.76

 

 

 

(20

)%

 

$

85.22

 

 

$

117.65

 

 

 

(28

)%

Operating Earnings

 

$

7,161

 

 

$

9,021

 

 

 

(21

)%

 

$

20,708

 

 

$

29,060

 

 

 

(29

)%

 

(1) Net of freight per ton.

Three months ended December 31, 2020

Recycled Paperboard Revenue increased 5% to $39.6 million during the three months ended December 31, 2020. The increase in Revenue was due to higher gross sales prices, which positively affected Revenue by $2.2 million, partially offset by decreased Sales Volume, which lowered Revenue by $0.4 million. Higher gross sales prices were due to the pricing provisions in our long-term sales agreements.

Operating Earnings decreased 21% to $7.2 million, primarily because of the higher operating expenses, which negatively affected Operating Earnings by $4.0 million, partially offset by higher gross sales prices of $2.2 million. The increase in operating costs was primarily due to input costs and depreciation, which increased approximately $2.9 million and $1.3 million, respectively, partially offset by lower energy costs of $0.3 million. Operating margin decreased to 18% from 24%, primarily because of higher operating costs, partially offset by higher gross sales prices.

Nine months ended December 31, 2020

Recycled Paperboard Revenue was flat at $122.4 million during the nine months ended December 31, 2020, with higher gross sales prices increasing Revenue by $2.0 million and lower Sales Volume reducing Revenue by the same amount. Higher gross sales prices were due to the pricing provisions in our long-term sales agreements.

Operating Earnings declined 29% to $20.7 million, primarily related to an increase in operating costs and a decrease in Sales Volume, which adversely affected Operating Earnings by approximately $9.9 million and $0.5 million, respectively. This was partially offset by increased gross sales prices of $2.0 million. The increase in operating costs was primarily due to operating inefficiencies in April and May related to the start-up of the paper mill after the completion of the project to enhance and expand the mill, as well as higher input costs, namely fiber and depreciation, which lowered Operating Earnings by approximately $2.1 million, $6.0 million and $3.7, respectively. This was partially offset by lower energy costs of approximately $1.7 million. Operating margin decreased to 17% from 24%, primarily because of higher operating costs and lower gross sales prices.

 


 

34


 

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

Notwithstanding the anticipated challenges associated with COVID-19, we believe at this time 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. We will continue to monitor the impact of COVID-19 on the economy, and on our operations and future liquidity needs, as a continued worldwide disruption of economic activity could materially affect our future access to these sources of liquidity. Please see the Debt Financing Activities section for a discussion of our cash position, credit facility, and the amount of borrowings available to us in the next twelve-month period.

Cash Flow

The following table provides a summary of our cash flows:

 

 

 

For the Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Net Cash Provided by Operating Activities

 

$

542,017

 

 

$

320,619

 

Investing Activities:

 

 

 

 

 

 

 

 

Additions to Property, Plant, and Equipment

 

 

(45,541

)

 

 

(84,056

)

Acquisition Spending

 

 

 

 

 

(30,424

)

Proceeds from Sale of Businesses

 

 

91,022

 

 

 

 

Net Cash Provided by (Used in) Investing Activities

 

 

45,481

 

 

 

(114,480

)

Financing Activities:

 

 

 

 

 

 

 

 

Increase (Decrease) in Credit Facility

 

 

(560,000

)

 

 

275,000

 

Repayment of Private Placement Senior Unsecured Notes

 

 

 

 

 

(36,500

)

Dividends Paid to Stockholders

 

 

(4,163

)

 

 

(13,131

)

Purchase and Retirement of Common Stock

 

 

 

 

 

(313,887

)

Proceeds from Stock Option Exercises

 

 

8,649

 

 

 

2,996

 

Payment of Debt Issuance Costs

 

 

(1,718

)

 

 

 

Shares Redeemed to Settle Employee Taxes on Stock Compensation

 

 

(1,130

)

 

 

(2,963

)

Net Cash Provided by (Used in) Financing Activities

 

 

(558,362

)

 

 

(88,485

)

Net Increase in Cash, Cash Equivalents, and Restricted Cash

 

$

29,136

 

 

$

117,654

 

 

35


 

 

Net Cash Provided by Operating Activities increased by $221.4 million to $542.0 million during the nine months ended December 31, 2020. This increase was primarily attributable to higher Net Earnings after adjustments for non-cash charges and Gain on Sale of Businesses, higher dividends from our Joint Venture, and a reduction in the change of working capital, which increased cash flows by approximately $89.3 million, $2.0 million, and $130.1 million, respectively. The change in working capital was primarily due to receiving income tax refunds of approximately $126.5 million that were included in receivables at March 31, 2020. Net Cash Provided by Operating Activities was also positively affected by $45.0 million from the reduction of deferred tax liabilities related to the sale of the Oil and Gas Proppants business.

Working capital declined by $143.0 million to $365.5 million at December 31, 2020, primarily because of lower Accounts and Notes Receivable, Inventories, and Income Tax Receivables of approximately $3.3 million, $43.4 million and $126.5 million, respectively. This was partially offset by higher Cash and Restricted Cash of approximately $24.5 million and $5.0 million, respectively. The reduction in Inventory was due to increased Revenue and the seasonal nature of our business. The decrease in Income Tax Receivables and increase in Cash was due primarily to receiving our income tax refund during July 2020.

The decrease in Accounts and Notes Receivable at December 31, 2020, was primarily due to improved collection efforts that reduced our overall days sales outstanding. As a percentage of quarterly sales generated for the respective quarter, Accounts Receivable was approximately 35% at December 31, 2020 and 48% at March 31, 2020. 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 December 31, 2020. Notes Receivable are monitored on an individual basis, and no significant deterioration in the collectability of our Notes Receivable was identified at December 31, 2020. We are closely monitoring the impact of COVID-19 on our customers’ ability to pay their outstanding balances.

Our Inventory balance at December 31, 2020 declined by approximately $43.4 million from our balance at March 31, 2020. Within Inventory, raw materials and materials-in-progress, finished cement, and aggregates decreased approximately $34.8 million, $8.6 million, and $5.1 million, respectively. The decline in raw materials and materials-in-progress and cement is consistent with our business cycle: we generally build up clinker inventory over the winter months to meet the demand in the spring and summer. The reduction in aggregates inventory was primarily due to the sale of Western, which had approximately $5.1 million of aggregate inventory at the date of sale. This was partially offset by an increase of $4.0 million in repair parts. The increase in repair parts is primarily due to the build-up of inventory necessary for our scheduled outages over the next several months. 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 Provided by Investing Activities during the nine months ended December 31, 2020 was approximately $45.5 million, compared with Net Cash Used in Investing Activities of $114.5 million during the same period in 2019, an increase of approximately $160.0 million. The increase was primarily due to the $91.0 million of cash received for the sale of businesses, and reductions in capital spending and acquisition spending of $38.6 million and $30.4 million, respectively. The decrease in capital spending was due to our focus on limiting capital expenditures to critical maintenance and safety and regulatory projects as we manage our cash flow in response to COVID-19.

 

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Net Cash Used in Financing Activities was approximately $558.4 million during the nine months ended December 31, 2020, compared with $88.5 million in the similar period in fiscal 2020. The $469.9 million increase was primarily due to the $560.0 million reduction in net borrowings compared with the $238.5 million increase in net borrowings in fiscal 2020, as well as a $313.9 million reduction in repurchase and retirement of common stock.

Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 44.6% and 40.9%, respectively, at December 31, 2020, compared with 61.7% and 60.0%, respectively, at March 31, 2020.

Debt Financing Activities

Below is a summary of the Company’s debt facilities at December 31, 2020:

 

 

Maturity

Revolving Credit Facility

 

August 2022

4.500% Senior Unsecured Notes

 

August 2026

Term Loan

 

August 2022

 

See Footnote (N) 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 or our Revolving Credit Facility is $750.0 million. The Revolving Credit Facility also includes a swingline loan sublimit of $25.0 million, and a $40.0 million letter of credit facility. At December 31, 2020 we had $5.0 million of outstanding letters of credit. We previously provided an irrevocable stand-by letter of credit for any borrowings made by our Joint Venture under its credit facility; however, this credit facility was terminated and the letter of credit cancelled in July 2020. We are contingently liable for performance under $23.6 million in performance bonds relating primarily to our mining operations. We do not have any off-balance-sheet debt, or any outstanding debt guarantees.

We did not have any borrowings outstanding under the Revolving Credit Facility at December 31, 2020. We had $745.0 million of available borrowings under the Revolving Credit Facility, net of outstanding letters of credit, at December 31, 2020, all of which was available for future borrowings based on our current Leverage Ratio.

In addition to the Revolving Credit Facility, we have $142.8 million of cash on hand at December 31, 2020, giving us total liquidity of approximately $887.8 million (cash on hand plus Revolving Credit Facility availability).

Other than the Revolving Credit Facility, we have no other 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. Our Revolving Credit Facility is not rated by the rating agencies.

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 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 the continuing impact COVID-19. 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. See Market Conditions and Outlook section above for further discussion of the possible effects of COVID-19 on our business.

 

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As market conditions warrant, the Company may from time to time seek to purchase or repay its outstanding debt securities or loans, including the Term Loan, 4.500% 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.

During December 2020 we exercised our option and purchased the cement plant at Sugar Creek for a nominal amount. We also have approximately $42.4 million of lease liabilities at December 31, 2020 that have an average remaining life of approximately 10.5 years.

Dividends

Dividends paid were $4.2 million and $13.1 million, respectively, for the nine months ended December 31, 2020 and 2019. On April 13, 2020, we announced the suspension of future quarterly dividends.

Share Repurchases

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 December 31, 2020, we have repurchased approximately 41.1 million shares.

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 nine months ended December 31, 2020, the Company withheld from employees 36,099 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 Nine Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Land and Quarries

 

$

5,306

 

 

$

4,507

 

Plants

 

 

30,026

 

 

 

71,688

 

Buildings, Machinery, and Equipment

 

 

10,209

 

 

 

10,536

 

Total Capital Expenditures

 

$

45,541

 

 

$

86,731

 

 

Capital expenditures for fiscal 2021 are expected to range from $55.0 million to $65.0 million and will be allocated across the Heavy and Light Materials sectors. These estimated capital expenditures are limited to critical maintenance and safety and regulatory projects as we manage our cash flow in response to the COVID-19 pandemic.

The capital expenditures for the nine months ended December 31, 2019 disclosed above differs from the capital expenditures on the Unaudited Consolidated Statement of Cash Flows. It includes $2.7 million of capital expenditures that were accrued at September 30, 2019 and therefore not included in the Statement of Cash Flows.

 

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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 and Term Loan. 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 and an outstanding Term Loan at December 31, 2020, under which borrowings bear interest at a variable rate. A hypothetical 100 basis point increase in interest rates on the $665.0 million of borrowings under the Revolving Credit Facility and Term Loan at December 31, 2020 would increase interest expense by approximately $6.7 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 and Chief Financial Officer, 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.

 

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PART II. OTHER INFORMATION

 

We are party to certain legal actions arising from the ordinary course of business. In addition, our operations and properties are subject to extensive and changing federal, state, and local laws; regulations and ordinances governing the protection of the environment; as well as laws relating to worker health and workplace safety. We carefully consider these potential liabilities and the requirements mandated by such laws and regulations and have procedures in place at all of our operating units to monitor compliance. Any matters which are identified as potential exposures under these laws and regulations are carefully reviewed by management to determine our potential liability.

Item 1A. Risk Factors

For additional 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, 2020, filed with the Securities and Exchange Commission on May 22, 2020.

The COVID-19 pandemic has caused severe disruptions in the U.S. and global economies.  Although the extent of its impact continues to be highly uncertain, we believe the pandemic could have a material adverse effect on our business, operations, financial condition and results of operations.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide.  On March 13, 2020, the United States declared a national emergency arising from the COVID-19 pandemic, and several states and municipalities declared public health emergencies.  Since the time of these initial declarations, international, federal, state, and local public health and governmental authorities have taken extraordinary and wide-ranging measures to contain and combat the outbreak and spread of COVID-19, including quarantines, “shelter-in-place” orders, and mandates and recommendations for individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.  Some of these measures have now been lifted or modified, but others have been extended or remain in place.  In addition, it is possible that the election of a new President and the resulting change of administrations in January 2021 may result in the implementation of new measures to combat the pandemic, the nature and effects of which are difficult to predict at the present time. Despite all of the measures implemented so far, COVID-19 has continued to spread, with the number of new cases reaching new highs both on a nationwide basis and in many states during January 2021.

To date, we have not been materially affected by governmental orders requiring businesses to curtail or cease normal operations.  We are continuing to operate as an essential business in virtually all of the markets we serve.  There can be no assurance, however, that new restrictions will not be adopted that would limit or restrict the scope of our operations. In addition, the COVID-19 pandemic and responses thereto designed to contain its spread and mitigate its public health effects could have a negative impact on several areas affecting our business, including the following:

 

The COVID-19 pandemic has resulted in adverse macroeconomic conditions that have the potential to affect demand for our products in the principal markets in which we operate.  For example, the pandemic and responses thereto have resulted in significant job losses and substantial decreases in consumer confidence in many of the markets in which we operate. Consequently, it is likely that the COVID-19 pandemic will negatively affect demand for our products in current or future periods.

 

The pandemic is likely to have a significant effect on state and local government revenues and construction budgets, and may result in delays, cancellations or curtailment of construction projects.

 

The pandemic could result in delays in collecting on certain of our accounts receivable from our customers.

 

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The pandemic could result in increased costs associated with compliance with new government regulations or restrictions, such as quarantines or social distancing mandates or new workplace safety measures, which may affect our operations in one or more of the markets in which we operate.

 

The pandemic has resulted, and may continue to result, in fluctuations in equity market prices (including that of our Common Stock), interest rates and credit spreads, which may limit our ability to raise or deploy capital and implement our future plans, including our planned separation of our Heavy Materials and Light Materials businesses.

 

Finally, the pandemic may have other negative impacts on our operations, supply chain, transportation networks and customers, which we may not be able to anticipate or respond to effectively.

We are continuing to monitor the COVID-19 pandemic and its likely effects. The timing of these effects is not expected to be uniform, with some effects having a short-term impact and others likely to be felt for a number of years.  In general, the extent to which the COVID-19 pandemic will ultimately impact our business, operations, financial condition and results of operations will depend on numerous factors, which are highly uncertain, rapidly changing and cannot be predicted. These factors include:

 

the duration and scope of the outbreak;

 

the timing of, and progress made in the current vaccination campaign, including the effectiveness of the campaign in limiting the spread of the virus;

 

governmental, business and individual actions that have been and may be taken in response to the outbreak, including any new measures that may be implemented by the new administration;

 

the effect of the outbreak on our customers, suppliers, supply chain, and other business partners;

 

our ability during the outbreak to continue to carry out our manufacturing operations in an efficient manner, while taking measures to protect the health and well-being of our employees;

 

the willingness and ability of our customers to order and pay for our products during and following the outbreak; and

 

the impact of the outbreak on the financial markets and economic activity generally.

The above uncertainties surrounding the COVID-19 pandemic also make it more challenging for our management to estimate the future performance of our business and develop strategies to generate growth or achieve our objectives for fiscal 2021 and future periods.

One key area we continue to closely monitor is the effect of the COVID-19 pandemic on our manufacturing operations.  Although we are taking precautions to ensure the safety of our employees, in the event we suffer an outbreak at one of our manufacturing facilities, we may be forced to suspend operations at such facility until the health conditions improve. Any such reduction in our production capacity could render us unable to continue to produce our construction products or satisfy order placed by our customers.  

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.

 

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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.

Item 6. Exhibits

 10.1

 

Amendment No. 5 to Third Amended and Restated Credit Agreement, dated as of January 13, 2021, by and among Eagle Materials Inc., as the Borrower, the Lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent, Issuing Bank and Swingline Lender thereunder, as consented to by the subsidiary guarantors listed on the signature pages thereto (filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission (“the Commission”) on January 13, 2021, and incorporated herein by reference).

10.2*

 

Amended and Restated Eagle Materials Inc. Employee Severance Plan and Summary Plan Description. (1)

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 or compensatory plan or arrangement.

 

 

42


 

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

 

 

January 28, 2021

 

/s/ MICHAEL R. HAACK

 

 

Michael R. Haack

President and Chief Executive Officer

(principal executive officer)

 

 

January 28, 2021

 

/s/ D. CRAIG KESLER

 

 

D. Craig Kesler

Executive Vice President – Finance and

Administration and Chief Financial Officer

(principal financial officer)

 

January 28, 2021

  

/s/ WILLIAM R. DEVLIN

 

  

William R. Devlin

Senior Vice President – Controller and

Chief Accounting Officer

(principal accounting officer)

 

 

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