Continental Building Products Earnings 2019-06-30

CBPX 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Document

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As filed with the Securities and Exchange Commission on August 2, 2019

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 June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number: 001-36293



CONTINENTAL BUILDING PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware							61-1718923
(State or other jurisdiction of incorporation)							(I.R.S Employer Identification No.)
12950 Worldgate Drive	,	Suite 700	,	Herndon	,	VA	20170
(Address of principal executive offices)							(Zip Code)
(703)							480-3800
(Registrant's telephone number, including the area code)



Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol (s)	Name of Exchange on Which Registered
Common Stock, $0.001 par value per share	CBPX	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 x 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 x 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 x

As of August 1, 2019, the registrant had outstanding 34,688,206 shares of the registrant’s common stock, which amount excludes 9,851,553 shares of common stock held by the registrant as treasury shares.

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Table of Contents to Second Quarter 2019 Form 10-Q



Part I - Financial Information		3
Item 1.	Financial Statements	3
	Consolidated Statements of Operations	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Balance Sheets	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statement of Equity	7
	Notes to the Unaudited Consolidated Financial Statements	8
	1. Background and Nature of Operations	8
	2. Significant Accounting Policies	8
	3. Trade Receivables, Net	9
	4. Inventories, Net	10
	5. Property, Plant and Equipment, Net	10
	6. Customer Relationships and Other Intangibles, Net	10
	7. Investment in Seven Hills	11
	8. Accrued and Other Liabilities	11
	9. Debt	12
	10. Derivative Instruments	13
	11. Leases	14
	12. Treasury Stock	15
	13. Share-Based Compensation	16
	14. Accumulated Other Comprehensive Loss	16
	15. Income Taxes	16
	16. Earnings Per Share	16
	17. Commitments and Contingencies	17
	18. Segment Reporting	18
	19. Fair Value Disclosures	19
	20. Buchanan Plant Outage	21
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
	Overview	22
	Results of Operations	24
	Liquidity and Capital Resources	26
	Critical Accounting Policies and Estimates	26
	Forward-Looking Statements	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II - Other Information		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
	Signatures	32

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Continental Building Products, Inc.

Consolidated Statements of Operations

(unaudited)



	For the Three Months Ended						For the Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(in thousands, except share data and per share amounts)
Net sales	$	124,206		$	139,268		$	246,238		$	256,070
Cost of goods sold	95,970			98,263			186,756			184,879
Gross profit	28,236			41,005			59,482			71,191
Selling and administrative expense	9,118			10,445			18,771			19,869
Loss on intangible asset impairment	2,911			—			2,911			—
Gain from insurance recoveries, net	—			—			1,513			—
Gain from business interruption insurance	3,238			—			3,238			—
Operating income	19,445			30,560			42,551			51,322
Other expense, net	(66		)	(87		)	(102		)	(227		)
Interest expense, net	(2,395		)	(2,694		)	(4,887		)	(5,414		)
Income before losses from equity method investment and provision for income taxes	16,984			27,779			37,562			45,681
Losses from equity method investment	(367		)	(391		)	(412		)	(755		)
Income before provision for income taxes	16,617			27,388			37,150			44,926
Provision for income taxes	(3,769		)	(5,493		)	(8,376		)	(9,385		)
Net income	$	12,848		$	21,895		$	28,774		$	35,541

Net income per share:
Basic	$	0.37		$	0.59		$	0.82		$	0.96
Diluted	$	0.37		$	0.59		$	0.82		$	0.95
Weighted average shares outstanding:
Basic	34,804,588			36,879,774			35,025,208			37,154,750
Diluted	34,870,525			37,027,997			35,109,165			37,314,947

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)



	For the Three Months Ended						For the Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(in thousands)
Net income	$	12,848		$	21,895		$	28,774		$	35,541
Foreign currency translation adjustment	305			(313		)	629			(795		)
Derivative instrument adjustments, net of taxes	(1,662		)	452			(2,040		)	1,498
Other comprehensive (loss)/income	(1,357		)	139			(1,411		)	703
Comprehensive income	$	11,491		$	22,034		$	27,363		$	36,244

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Balance Sheets



	June 30, 2019			December 31, 2018
	(unaudited)
	(in thousands)
Assets:
Cash and cash equivalents	$	110,612		$	102,633
Trade receivables, net	39,926			38,454
Inventories, net	33,938			32,225
Prepaid and other current assets	6,742			19,805
Total current assets	191,218			193,117
Property, plant and equipment, net	284,413			288,368
Customer relationships and other intangibles, net	56,051			62,680
Goodwill	119,945			119,945
Equity method investment	7,263			7,975
Operating lease - right of use assets	840			—
Debt issuance costs	206			296
Total Assets	$	659,936		$	672,381
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable	$	31,650		$	48,060
Accrued and other liabilities	9,137			12,815
Debt, current portion	1,709			1,669
Operating lease liabilities, current portion	629			—
Total current liabilities	43,125			62,544
Deferred taxes and other long-term liabilities	19,175			20,204
Debt, non-current portion	261,014			261,886
Operating lease liabilities, non-current portion	834			—
Total Liabilities	324,148			344,634
Shareholders' Equity:
Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,539,759 and 44,472,214 shares issued and 34,688,206 and 35,401,868 shares outstanding as of June 30, 2019 and December 31, 2018, respectively	44			44
Additional paid-in capital	328,216			327,515
Less: Treasury stock	(229,073		)	(209,050		)
Accumulated other comprehensive loss	(4,802		)	(3,391		)
Accumulated earnings	241,403			212,629
Total Shareholders' Equity	335,788			327,747
Total Liabilities and Shareholders' Equity	$	659,936		$	672,381

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Cash Flows

(unaudited)



	For the Six Months Ended
	June 30, 2019			June 30, 2018
	(in thousands)
Cash flows from operating activities:
Net income	$	28,774		$	35,541
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	21,091			21,386
Amortization of debt issuance costs and debt discount	616			629
Gain from insurance recoveries, net	(1,513		)	—
Loss on intangible asset impairment	2,911			—
Losses from equity method investment	412			755
Amortization of deferred gain on terminated swaps	(579		)	(317		)
Share-based compensation	1,144			1,611
Change in assets and liabilities:
Trade receivables	(1,492		)	(4,647		)
Inventories	(1,614		)	(2,896		)
Prepaid expenses and other current assets	12,989			4,369
Accounts payable	(16,320		)	(2,078		)
Accrued and other current liabilities	(4,753		)	(955		)
Other long-term liabilities	(116		)	(622		)
Net cash provided by operating activities	41,550			52,776
Cash flows from investing activities:
Payments for property, plant and equipment	(12,346		)	(13,006		)
Payments for intangible assets	(1,019		)	(790		)
Proceeds from insurance recoveries	1,589			—
Capital contributions to equity method investment	(90		)	(438		)
Distributions from equity method investment	390			78
Net cash used in investing activities	(11,476		)	(14,156		)
Cash flows from financing activities:
Proceeds from exercise of stock options	118			11
Tax withholdings on share-based compensation	(1,165		)	(547		)
Principal payments for debt	(1,358		)	(1,358		)
Payments to repurchase common stock	(20,023		)	(24,562		)
Net cash used in financing activities	(22,428		)	(26,456		)
Effect of foreign exchange rates on cash and cash equivalents	333			(320		)
Net change in cash and cash equivalents	7,979			11,844
Cash, beginning of period	102,633			72,521
Cash, end of period	$	110,612		$	84,365

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)



										Accumulated Other Comprehensive Loss
	Common Stock				Additional Paid-In Capital		Treasury Stock						Accumulated Earnings		Total Equity
	Shares		Amount		Additional Paid-In Capital		Treasury Stock						Accumulated Earnings		Total Equity
	(in thousands, except share data)
Balance as of December 31, 2017	37,532,959		$	44	$	325,391	$	(143,357	)	$	(2,649	)	$	138,597	$	318,026
Net income	—		—		—		—			—			13,646		13,646
Other comprehensive income, net of tax	—		—		—		—			564			—		564
Purchase of treasury shares	(530,600	)	—		—		(14,550		)	—			—		(14,550		)
Stock option exercise	781		—		11		—			—			—		11
Stock-based compensation	85,838		—		213		—			—			—		213
Balance as of March 31, 2018	37,088,978		$	44	$	325,615	$	(157,907	)	$	(2,085	)	$	152,243	$	317,910
Net income	—		—		—		—			—			21,895		21,895
Other comprehensive income, net of tax	—		—		—		—			139			—		139
Purchase of treasury shares	(344,908	)	—		—		(10,012		)	—			—		(10,012		)
Stock option exercise	2,706		—		—		—			—			—		—
Stock-based compensation	2,103		—		979		—			—			—		979
Balance as of June 30, 2018	36,748,879		$	44	$	326,594	$	(167,919	)	$	(1,946	)	$	174,138	$	330,911



										Accumulated Other Comprehensive Loss
	Common Stock				Additional Paid-In Capital		Treasury Stock						Accumulated Earnings		Total Equity
	Shares		Amount		Additional Paid-In Capital		Treasury Stock						Accumulated Earnings		Total Equity
	(in thousands, except share data)
Balance as of December 31, 2018	35,401,868		$	44	$	327,515	$	(209,050	)	$	(3,391	)	$	212,629	$	327,747
Net income	—		—		—		—			—			15,926		15,926
Other comprehensive loss, net of tax	—		—		—		—			(54		)	—		(54		)
Purchase of treasury shares	(191,907	)	—		—		(5,005		)	—			—		(5,005		)
Stock option exercise	6,500		—		118		—			—			—		118
Stock-based compensation	58,571		—		35		—			—			—		35
Balance as of March 31, 2019	35,275,032		$	44	$	327,668	$	(214,055	)	$	(3,445	)	$	228,555	$	338,767
Net income	—		—		—		—			—			12,848		12,848
Other comprehensive loss, net of tax	—		—		—		—			(1,357		)	—		(1,357		)
Purchase of treasury shares	(589,300	)	—		—		(15,018		)	—			—		(15,018		)
Stock option exercise	—		—		—		—			—			—		—
Stock-based compensation	2,474		—		548		—			—			—		548
Balance as of June 30, 2019	34,688,206		$	44	$	328,216	$	(229,073	)	$	(4,802	)	$	241,403	$	335,788

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Notes to the Unaudited Consolidated Financial Statements

1. BACKGROUND AND NATURE OF OPERATIONS

Description of Business

Continental Building Products, Inc. (the "Company") is a Delaware corporation. The Company manufactures gypsum wallboard related products for commercial and residential buildings and houses. The Company operates a network of three highly efficient wallboard facilities, all located in the eastern United States, and produces joint compound at one plant in the United States and at another plant in Canada.

2. SIGNIFICANT ACCOUNTING POLICIES


(a)	Basis of Presentation

The accompanying consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.


(b)	Basis of Presentation for Interim Periods

Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. Management believes that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position of the Company and the results of operations and cash flows for the periods presented.

The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Seasonal changes and other conditions can affect the sales volumes of the Company's products. Therefore, the financial results for any interim period do not necessarily indicate the expected results for the year.

The financial statements should be read in conjunction with Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company's Annual Report on Form 10-K for the fiscal year then ended (the "2018 10-K"). The Company has continued to follow the accounting policies set forth in those financial statements.


(c)	Supplemental Cash Flow Disclosure



Table 2.1: Certain Cash Transactions and Other Activity
	For the Six Months Ended,
	June 30, 2019		June 30, 2018
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash outflows	$	307	$	299
Other activity:
Acquisition of property, plant and equipment included in liabilities	$	2,960	$	3,657

(d) Recent Accounting Pronouncements

Accounting Standards Recently Adopted

The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-02, "Leases.", as of January 1, 2019. The Company elected the transition package of practical expedients permitted within ASU 2016-02, which among other things, allowed the Company to carryforward the historical lease classification. In addition, the Company elected the comparative period practical expedient, which allowed the Company to implement the guidance as of the effective date without having to adjust the comparative financial statements. Instead, under this expedient, companies recognize the cumulative effect adjustment in equity. The Company also made an accounting policy election that leases with an initial term of 12 months or less will not be recorded on the balance sheet and will result in the recognition of those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. The adoption of the standard resulted in recognition of approximately $1.0 million in right of use assets and $1.7 million in lease liabilities for

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operating leases on the Company's Consolidated Balance Sheet, with no impact to its retained earnings, Consolidated Statement of Operations and Consolidated Statement of Cash Flows.

The Company adopted ASU 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities," as of January 1, 2019. This ASU expands an entity's ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments." This ASU is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurements (Topic 820), Changes to the Disclosure Requirements for Fair Value Measurement." This ASU eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." This ASU requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.

(e) Reclassifications

Certain reclassifications of prior year information were made to conform to the 2019 presentation. These reclassifications had no material impact on the Company's Consolidated Financial Statements.

3. TRADE RECEIVABLES, NET



Table 3: Details of Trade Receivables, Net
	June 30, 2019			December 31, 2018
	(in thousands)
Trade receivables, gross	$	40,773		$	39,426
Allowance for cash discounts and doubtful accounts	(847		)	(972		)
Trade receivables, net	$	39,926		$	38,454

Trade receivables are recorded net of credit memos issued during the normal course of business.

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4. INVENTORIES, NET



Table 4: Details of Inventories, Net
	June 30, 2019		December 31, 2018
	(in thousands)
Finished products	$	7,937	$	6,700
Raw materials	18,525		18,388
Supplies and other	7,476		7,137
Inventories, net	$	33,938	$	32,225

5. PROPERTY, PLANT AND EQUIPMENT, NET



Table 5: Details of Property, Plant and Equipment, Net
	June 30, 2019			December 31, 2018
	(in thousands)
Land	$	13,186		$	13,185
Buildings	120,411			118,076
Plant machinery	311,739			292,219
Mobile equipment	15,551			15,163
Construction in progress	13,622			23,566
Property, plant and equipment, at cost	474,509			462,209
Accumulated depreciation	(190,096		)	(173,841		)
Property, plant and equipment, net	$	284,413		$	288,368

Depreciation expense was $8.3 million and $16.5 million for the three and six months ended June 30, 2019, respectively, compared to $8.3 million and $16.3 million for the three and six months ended June 30, 2018, respectively.

6. CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLES, NET



Table 6.1: Details of Customer Relationships and Other Intangibles, Net
	June 30, 2019							December 31, 2018
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(in thousands)
Customer relationships	$	116,435	$	(69,668	)	$	46,767	$	116,180	$	(65,738	)	$	50,442
Purchased software	8,987		(5,837		)	3,150		8,225		(5,507		)	2,718
Trademarks	10,038		(3,904		)	6,134		14,772		(5,252		)	9,520
Total	$	135,460	$	(79,409	)	$	56,051	$	139,177	$	(76,497	)	$	62,680

Amortization expense was $2.3 million and $4.6 million for the three and six months ended June 30, 2019, respectively, compared to $2.5 million and $5.1 million for the three and six months ended June, 2018, respectively. During three months ended June 30, 2019, the Company recognized a non-cash impairment loss of $2.9 million related to two trademarks, which the company discontinued the use of in the branding of its products in the current quarter.

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Table 6.2: Details of Future Amortization Expense of Customer Relationships and Other Intangibles
	As of June 30, 2019
	(in thousands)
July 1, 2019 through December 31, 2019	$	4,627
2020	8,354
2021	7,491
2022	6,724
2023	5,794
Thereafter	23,061
Total	$	56,051

7. INVESTMENT IN SEVEN HILLS

The Company is a party with an unaffiliated third party to a paperboard liner venture named Seven Hills Paperboard, LLC ("Seven Hills") that, pursuant to a paper supply agreement, provides the Company with a continuous supply of high-quality recycled paperboard liner to meet its ongoing production requirements.

The Company has evaluated the characteristics of its investment and determined that Seven Hills is a variable interest entity, but that it does not have the power to direct the principal activities most impacting the economic performance of Seven Hills, and is thus not the primary beneficiary. As such, the Company accounts for this investment in Seven Hills under the equity method of accounting.

Paperboard liner purchased from Seven Hills was $11.8 million and $25.3 million for the three and six months ended June 30, 2019, respectively, compared to $12.9 million and $25.1 million for the three and six months ended June, 2018, respectively. As of June 30, 2019, the Company had certain purchase commitments for paper totaling $37.9 million through 2022.

8. ACCRUED AND OTHER LIABILITIES



Table 8: Details of Accrued and Other Liabilities
	June 30, 2019		December 31, 2018
	(in thousands)
Employee-related costs	$	4,438	$	10,768
Property taxes	1,164		82
Income tax	286		—
Other taxes	552		351
Other	2,697		1,614
Accrued and other liabilities	$	9,137	$	12,815

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9. DEBT



Table 9.1: Details of Debt
	June 30, 2019			December 31, 2018
	(in thousands)
Amended and Restated Credit Agreement (1)	$	251,299		$	252,658
Industrial revenue bonds (2)	16,200			16,200
Less: Original issue discount (net of amortization)	(1,159		)	(1,285		)
Less: Debt issuance costs	(3,617		)	(4,018		)
Total debt	262,723			263,555
Less: Current portion of long-term debt	(1,709		)	(1,669		)
Long-term debt	$	261,014		$	261,886


(1)	As of June 30, 2019 and December 31, 2018, the Amended and Restated Credit Agreement, as amended, had a maturity date of August 18, 2023 and an interest rate of LIBOR (with a 0.75% floor) plus 2.00%.


(2)	As of June 30, 2019 and December 31, 2018, Industrial revenue bonds had a maturity date of December 1, 2025 and an interest rate of LIBOR plus 1.50% less an approximate 20 percent reduction in the rate related to the tax-free interest income to the bond holders.

On August 18, 2016, the Company, Continental Building Products Operating Company, LLC and Continental Building Products Canada Inc. and the lenders party thereto and Credit Suisse, as Administrative Agent, entered into an Amended and Restated Credit Agreement amending and restating the Company's existing first lien credit agreement (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement provides for a $275 million senior secured first lien term loan facility (the "Term Loan") and a $75.0 million senior secured revolving credit facility (the "Revolver"), which mature on August 18, 2023 and August 18, 2021, respectively. The interest rate under the Amended and Restated Credit Agreement was a spread over LIBOR of 2.75% and floor of 0.75%.

On February 21, 2017, the Company repriced its Term Loan lowering its interest rate by 25 basis points to LIBOR plus 2.50%. Subsequently, on December 6, 2017, the Company further repriced its Term Loan lowering its interest rate by an additional 25 basis points to LIBOR plus 2.25% and allowing for a further reduction in the interest rate to LIBOR plus 2.00% based on the attainment of a total leverage ratio of 1.1 or better. All other terms and conditions under the Amended and Restated Credit Agreement remained the same.

During both the six months ended June 30, 2019 and 2018, the Company made $1.4 million of scheduled mandatory principal payments. Because the Company attained a total leverage ratio of less than 1.1 to 1 during the fourth quarter of 2018, the interest rate was further reduced pursuant to the terms of the Amended and Restated Credit Agreement to LIBOR plus 2.00% as of December 31, 2018. As of June 30, 2019, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was 4.9%.

In December 2018, the Company completed a financing of industrial revenue bonds due December 1, 2025 with a total commitment of $28 million. The bonds were issued by the County of Campbell, Kentucky and Putnam County Development Authority, pursuant to a trust indenture between the issuers and Huntington National Bank, as trustee. Proceeds of the bonds are loaned by the issuers to the Company under a loan agreement, whereby the Company is obligated to make loan payments to the issuers sufficient to pay all debt service and expenses related to the bonds. The Company's obligations under the loan agreement and related note bear interest at a fluctuating rate based on LIBOR plus 1.50% less an approximate 20 percent reduction in the rate related to the tax-free interest income to the bond holders. The loan agreement contains restrictions and covenants on our operations that are consistent with those contained in the Amended and Restated Credit Agreement mentioned below.

There were no amounts outstanding under the Revolver as of June 30, 2019 or December 31, 2018. Interest under the Revolver is floating, based on LIBOR plus 2.25%. In addition, the Company pays a facility fee of 50 basis points per annum on the total capacity under the Revolver. Availability under the Revolver as of June 30, 2019, based on draws and outstanding letters of credit and absence of violations of covenants, was $73.6 million.

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Table 9.2: Details of Future Minimum Principal Payments Due
	Amount Due
	(in thousands)
July 1, 2019 through December 31, 2019	$	1,357
2020	5,326
2021	6,196
2022	6,196
2023	245,074
Thereafter	3,350
Total Payments	$	267,499

Under the terms of the Amended and Restated Credit Agreement, the Company is required to comply with certain covenants, including among others, the limitation of indebtedness, limitation on liens, and limitations on certain cash distributions. One single financial covenant governs all of the Company's debt and only applies if the outstanding borrowings of the Revolver plus outstanding letters of credit are greater than $22.5 million as of the end of the quarter. The financial covenant is a total leverage ratio calculation, in which total debt less outstanding cash is divided by adjusted earnings before interest, taxes, depreciation and amortization. As the sum of outstanding borrowings under the Revolver and outstanding letters of credit were less than $22.5 million at June 30, 2019, the total leverage ratio of no greater than 5.0 under the financial covenant was not applicable at June 30, 2019. The Company was in compliance with all applicable covenants under the Amended and Restated Credit Agreement and the loan agreement related to the industrial revenue bonds as of June 30, 2019.

10. DERIVATIVE INSTRUMENTS

Commodity Derivative Instruments

As of June 30, 2019, the Company had 3.6 million mmBTUs (millions of British Thermal Units) in aggregate notional amount outstanding natural gas swap contracts to manage commodity price exposures. All of these contracts mature by June 30, 2020. The Company elected to designate these derivative instruments as cash flow hedges in accordance with ASC 815-20, "Derivatives – Hedging". No ineffectiveness was recorded on these contracts during the three and six months ended June 30, 2019 and 2018.

Interest Rate Derivative Instrument

In September 2016, the Company entered into interest rate swap agreements for a combined notional amount of $100.0 million with a term of four years, which hedged the floating LIBOR on a portion of the term loan under the Amended and Restated Credit Agreement to an average fixed rate of 1.323% and LIBOR floor of 0.75%. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes.

On March 29, 2018, the Company terminated its interest rate swap agreements that were previously designated as a cash flow hedge and received $3.2 million in cash, the fair value of the swap on the termination date. The unrealized gain at termination remains in accumulated other comprehensive income and will be amortized into interest expense over the life of the original hedged instrument. During three and six months ended June 30, 2019, $0.2 million and $0.5 million of unrealized gain, net of tax was amortized into interest expense, compared to $0.2 million for both three and six months ended June 30, 2018. Also on March 29, 2018, the Company entered into new interest rate swap agreements for a combined notional amount of $100.0 million, which expire on September 30, 2020 and hedge the floating LIBOR on a portion of the Term Loan to an average fixed rate of 2.46% and LIBOR floor of 0.75%. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes. No ineffectiveness was recorded on these contracts during the three and six months ended June 30, 2019 and 2018.

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Table 10.1: Details of Derivatives Fair Value
	June 30, 2019		December 31, 2018
	(in thousands)
Assets
Interest rate swap	$	—	$	86
Commodity hedges	—		61
Total assets	$	—	$	147
Liabilities
Interest rate swap	$	786	$	—
Commodity hedges	1,210		105
Total liabilities	$	1,996	$	105



Table 10.2: Gains/(losses) on Derivatives
	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2019			2018		2019			2018			2019			2018		2019			2018
	Gain/(loss) recognized in AOCI on derivatives (effective portion), net of tax					Gain/(loss) reclassified from AOCI into income (effective portion), net of tax						Gain/(loss) recognized in AOCI on derivatives (effective portion), net of tax					Gain/(loss) reclassified from AOCI into income (effective portion), net of tax
	(in thousands)
Interest rate swap	$	(372	)	$	297	$	292		$	139		$	(533	)	$	1,268	$	595		$	209
Commodity hedges	(1,019		)	197		(21		)	(97		)	(977		)	245		(65		)	(194		)
Total	$	(1,391	)	$	494	$	271		$	42		$	(1,510	)	$	1,513	$	530		$	15

Counterparty Risk

The Company is exposed to credit losses in the event of nonperformance by the counterparties to the Company's derivative instruments. As of June 30, 2019, the Company's derivatives were in a $2.0 million net liability position and recorded in Other current liabilities. All of the Company's counterparties have investment grade credit ratings; accordingly, the Company anticipates that the counterparties will be able to fully satisfy their obligations under the contracts. The Company's agreements outline the conditions upon which it or the counterparties are required to post collateral. As of June 30, 2019, the Company had no collateral posted with its counterparties related to the derivatives.

11. LEASES

The Company leases certain buildings and equipment. The Company's facility and equipment leases may provide for escalations of rent or rent abatements and payment of pro rata portions of building operating expenses. Certain building leases also include options to renew, with renewal terms that can extend the lease term up to 5 years. The exercise of lease renewal options is at the Company's sole discretion.



Table 11.1: Components of lease expense
	For the Three Months Ended,				For the Six Months Ended,
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(in thousands)
Operating lease cost	$	100	$	99	$	201	$	198
Short term lease cost	564		711		1,075		1,446
Total lease cost	$	664	$	810	$	1,276	$	1,644

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Table 11.2: Maturities of lease liabilities
	Operating leases
	(in thousands)
July 1, 2019 through December 31, 2019	$	311
2020	637
2021	600
2022	—
2023	—
Total lease payments	$	1,548
Less imputed interest	(85		)
Present value of lease liabilities	$	1,463



Table 11.3: Details of lease term and discount rate
	As of June 30, 2019
Weighted-average remaining lease term:
Operating leases	3 years
Weighted-average discount rate:
Operating leases	4.52	%

12. TREASURY STOCK

On November 4, 2015, the Company announced that the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $50 million of its common stock, at such times and prices as determined by management as market conditions warrant, through December 31, 2016. Pursuant to this authorization, the Company has repurchased shares of its common stock in the open market and in private transactions.

Since the initial authorization, the Company' Board of Directors has expanded and extended the stock repurchase program. The most recent authorization on February 21, 2018 expanded the program to a total of $300 million and also extended the expiration date to December 31, 2019. As of June 30, 2019, there was approximately $111.0 million of capacity remaining under this repurchase authorization.

All repurchased shares are held in treasury, reducing the number of shares of common stock outstanding and used in the Company's earnings per share calculation.



Table 12: Details of Treasury Stock Activity
	June 30, 2019					June 30, 2018
	Shares	Amount (1)		Average Share Price (1)		Shares	Amount (1)		Average Share Price (1)
	(in thousands, except share data)
For the Three Months Ended:
Beginning Balance	9,262,253	$	214,055	$	23.11	7,319,417	$	157,907	$	21.57
Repurchases on open market	589,300	15,018		25.48		344,908	10,012		29.03
Ending Balance	9,851,553	$	229,073	$	23.25	7,664,325	$	167,919	$	21.91

For the Six Months Ended:
Beginning Balance	9,070,346	$	209,050	$	23.05	6,788,817	$	143,357	$	21.12
Repurchases on open market	781,207	20,023		25.63		875,508	24,562		28.05
Ending Balance	9,851,553	$	229,073

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$23.77	35	$825

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-08-01	Earnings, Exhibits
8-K	2019-05-20	Regulation FD
8-K	2019-05-02	Earnings, Exhibits
8-K	2019-05-01	Amend Bylaw, Shareholder Vote, Exhibits
8-K	2019-02-21	Earnings, Exhibits
8-K	2018-11-08	Earnings, Exhibits
8-K	2018-08-02	Earnings, Exhibits
8-K	2018-05-03	Earnings, Exhibits
8-K	2018-05-02	Shareholder Vote
8-K	2018-02-22	Earnings, Other Events, Exhibits
8-K	2018-02-21	Amend Bylaw, Exhibits

CRH	CRH Public	27,570
USG	USG	6,058
EXP	Eagle Materials	3,611
CPAC	Cementos Pacasmayo Saa	3,569
LOMA	Loma Negra Compania Industrial Argentina Sociedad Anonima	3,028
USCR	US Concrete	647
FRTA	Forterra	385
CUO	Continental Materials	28
CCCL	China Ceramics	4
CX	Cemex	0

EX-31.1	exhibit3112019q210q.htm
EX-31.2	exhibit3122019q210q.htm
EX-32.1	exhibit3212019q210q.htm