Company Quick10K Filing
Eagle Materials
Price88.72 EPS1
Shares43 P/E89
MCap3,814 P/FCF16
Net Debt918 EBIT134
TEV4,732 TEV/EBIT35
TTM 2019-09-30, in MM, except price, ratios
10-K 2020-03-31 Filed 2020-05-22
10-Q 2019-12-31 Filed 2020-02-04
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-07-31
10-K 2019-03-31 Filed 2019-05-23
10-Q 2018-12-31 Filed 2019-01-29
10-Q 2018-09-30 Filed 2018-10-30
10-Q 2018-06-30 Filed 2018-07-30
10-K 2018-03-31 Filed 2018-05-23
10-Q 2017-12-31 Filed 2018-01-31
10-Q 2017-09-30 Filed 2017-10-25
10-Q 2017-06-30 Filed 2017-07-28
10-K 2017-03-31 Filed 2017-05-24
10-Q 2016-12-31 Filed 2017-01-24
10-Q 2016-09-30 Filed 2016-10-24
10-Q 2016-06-30 Filed 2016-07-26
10-K 2016-03-31 Filed 2016-05-25
10-Q 2015-12-31 Filed 2016-01-29
10-Q 2015-09-30 Filed 2015-10-27
10-Q 2015-06-30 Filed 2015-08-04
10-K 2015-03-31 Filed 2015-05-22
10-Q 2014-12-31 Filed 2015-02-04
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-08
10-K 2014-03-31 Filed 2014-05-23
10-Q 2013-12-31 Filed 2014-02-07
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-08
10-K 2013-03-31 Filed 2013-05-24
10-Q 2012-12-31 Filed 2013-02-08
10-Q 2012-09-30 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-08
10-K 2012-03-31 Filed 2012-05-25
10-Q 2011-12-31 Filed 2012-02-09
10-Q 2011-09-30 Filed 2011-11-04
10-Q 2011-06-30 Filed 2011-08-05
10-K 2011-03-31 Filed 2011-05-26
10-Q 2010-12-31 Filed 2011-02-04
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-K 2010-03-31 Filed 2010-05-28
10-Q 2009-12-31 Filed 2010-02-08
8-K 2020-05-19
8-K 2020-05-14
8-K 2020-05-14
8-K 2020-04-17
8-K 2020-04-15
8-K 2020-04-09
8-K 2020-03-06
8-K 2020-02-11
8-K 2020-02-04
8-K 2019-12-20
8-K 2019-11-25
8-K 2019-10-31
8-K 2019-09-10
8-K 2019-08-06
8-K 2019-07-30
8-K 2019-06-19
8-K 2019-05-30
8-K 2019-05-24
8-K 2019-05-21
8-K 2019-05-16
8-K 2019-05-13
8-K 2019-04-18
8-K 2019-03-01
8-K 2019-01-29
8-K 2018-11-17
8-K 2018-10-30
8-K 2018-08-08
8-K 2018-08-02
8-K 2018-07-30
8-K 2018-05-17
8-K 2018-05-15
8-K 2018-05-08
8-K 2018-01-31

EXP 10K Annual Report

Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
EX-10 exp-ex10_1016.htm
EX-21 exp-ex21_7.htm
EX-23.1 exp-ex231_8.htm
EX-31.1 exp-ex311_6.htm
EX-31.2 exp-ex312_9.htm
EX-32.1 exp-ex321_10.htm
EX-32.2 exp-ex322_11.htm
EX-95 exp-ex95_713.htm

Eagle Materials Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
0.50.40.20.1-0.1-0.22012201420172020
Rev, G Profit, Net Income
0.50.30.1-0.1-0.3-0.52012201420172020
Ops, Inv, Fin

exp-10k_20200331.htm
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT

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

For the Fiscal Year Ended

March 31, 2020

Commission File No. 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)

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

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES      NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   YES      NO

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 (§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       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 emerging growth company. See definition 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 Act). YES      NO

The aggregate market value of the voting stock held by nonaffiliates of the Company at September 30, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $3.7 billion.

As of May 18, 2020, the number of outstanding shares of common stock was:

 

Class

 

Outstanding Shares

Common Stock, $.01 Par Value

 

41,616,959

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders of Eagle Materials Inc. to be held on August 5, 2020 are incorporated by reference in Part III of this Report.

 


 

TABLE OF CONTENTS

 

 

 

 

 

PAGE

 

 

 

PART I

 

 

 

 

 

Item 1.

 

Business

 

1

 

 

Overview

 

1

 

 

Employees

 

4

 

 

Industry Segment Information

 

4

 

 

Where You Can Find More Information

 

23

Item 1A.

 

Risk Factors

 

24

Item 1B.

 

Unresolved Staff Comments

 

38

Item 2.

 

Properties

 

38

Item 3.

 

Legal Proceedings

 

39

Item 4.

 

Mine Safety Disclosures

 

39

 

 

 

PART II

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

40

Item 6.

 

Selected Financial Data

 

42

Item 7.

 

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

 

42

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

65

Item 8.

 

Financial Statements and Supplementary Data

 

66

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

130

Item 9A.

 

Controls and Procedures

 

130

Item 9B.

 

Other Information

 

132

 

 

 

PART III

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

133

Item 11.

 

Executive Compensation

 

133

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

133

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

134

Item 14.

 

Principal Accounting Fees and Services

 

134

 

 

 

PART IV

 

 

 

 

 

Item 15.

 

Exhibits, Financial Statement Schedules

 

135

 

 

 

 

 

INDEX TO EXHIBITS

 

136

 

 

 

SIGNATURES

 

142

 


PART I

ITEM 1. Business

Overview

Eagle Materials Inc., through its subsidiaries, (the Company, which may be referred to as we, our, or us) is 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. We also produce sand used in hydraulic fracturing as part of our Oil and Gas Proppants sector. As previously announced, we are pursuing alternatives for our Oil and Gas Proppants business, which contributed approximately 3% of fiscal 2020 revenue.

The Company was founded in 1963 as a building materials subsidiary of Centex Corporation (Centex). It operated as a public company under the name Centex Construction Products, Inc. from April 19, 1994 to January 30, 2004, at which time Centex completed a tax-free distribution of its shares to its shareholders, and the company was renamed Eagle Materials Inc. (NYSE: EXP).

Eagle Materials Inc. benefits from several competitive strengths that have enabled the Company to deliver consistently strong operating results and profitable growth. These advantages include:

Integrated plant network with a broad and diversified geographic reach - our plants are located near both raw material reserves and customers in high-growth U.S. markets, providing regional diversification and reducing exposure to regional construction cycles;

Low-cost producer position - which we maintain through cycles;

Capacity flexibility - enabling us to operate at high utilization levels generally, quickly position for downturns, and efficiently ramp up for demand rebounds;

Strong raw material reserves - between 20-50 years of raw-material reserves for each of our cement and wallboard facilities, providing uninterrupted supply of low-cost materials;

Proven management - Our current management team has significant and valuable experience, with an average industry experience of over 20 years, spanning several business cycles. Management’s conservative balance sheet strategy focuses on maintaining prudent levels of leverage and liquidity through the business cycle, to protect the balance sheet through downturns and enable us to take advantage of growth opportunities, whether organic or through acquisitions;

These strengths form the basis of the Company’s strategy to protect and advance its competitive position and continue to deliver profitable growth.

 

 

 

1

 


 

Strategy

We rigorously pursue four overarching strategic objectives that consistently differentiate us from our competitors and contribute to our margin performance and growth: being a low-cost producer in all our markets, maintaining a decentralized operating structure, operating solely in the United States in regionally diverse and attractive markets, and achieving profitable growth through both strategic acquisitions and the organic development of our asset network.

Continuously innovate to advance our low-cost producer position

Our goal and the bedrock of our strategy, is to be a low-cost producer in each of the markets in which we compete. We have right-sized capacity to service the markets we cover, and we focus diligently on reducing costs and making our operations more efficient to manage free cash flow though the economic cycle. Maintaining our low-cost position provides meaningful competitive, financial, and environmental benefits. The products we make are basic necessities, and competition is often based largely on price, with consistent quality and customer service also being important considerations. Thus, being a low-cost producer is a competitive advantage and can lead to higher margins, better returns and stronger free cash flow generation. Being a low-cost producer is not only key to our commercial success, it also fully aligns with and advances our commitment to sustainable environmental practices. To maintain our low-cost producer position, we are always innovating our production processes with the aim of using fewer resources to make the same commodities. We regularly invest in technologies at our facilities to control emissions and to modify the fuels that we burn.

Maintain decentralized operating structure

The Company operates through a decentralized structure: operations are managed separately, and products are branded and marketed by our individual companies. This regional-market strategy provides several benefits, including increased familiarity with our customers, higher brand recognition, and lower transportation costs, which is a meaningful advantage in the construction materials industry. We view our cement plant system and our wallboard plant system as discrete integrated networks, allowing us to ship products and minimize freight costs. The impact of regional construction cycles on our businesses is mitigated to some degree by our geographic diversification and integrated network of plants.

Operate in regionally diverse and attractive markets

Demand for our products depends on construction activity which tends to correlate with population growth. While the Company’s markets include most of the United States, approximately 80% of our total revenue is generated in ten states: California, Colorado, Illinois, Missouri, Nebraska, Nevada, Ohio, Oklahoma, Texas, and Wyoming. Population growth, which is a major driver of construction products and building materials demand, is expected to grow approximately 28% between the 2010 census and 2040 for these ten states, compared to 23% population growth for the United States as a whole, according to the latest update in December 2018 by the Weldon Cooper Center at the University of Virginia. In our Light Materials sector, we have located operations primarily in the southern part of the United States, known as the Sun Belt. According to the same study, population in the Sun Belt is expected to grow by approximately 38% between the 2010 census and 2040.

 

 

2


 

Achieve profitable growth through acquisition and organic development

We seek to grow the Company through acquisitions and the organic development of our asset network. Since 2012, we have expanded the Heavy Materials sector principally through acquisitions, with total investments of approximately $1.9 billion, including our recent purchase of Kosmos Cement Company. These investments have more than doubled our U.S. cement capacity, making us the largest independent U.S. cement producer.

These acquisitions have expanded our geographic footprint so that we now have a contiguous, integrated cement system from California to western Pennsylvania and south to Texas. We have completed additional bolt-on acquisitions, which also contribute to our expanded geographic footprint. 

The Company will continue to proactively pursue acquisition opportunities that further our growth across the Heavy Materials sector. Our free cash flow enables us to consider acquisitions and organic growth opportunities that align with our return on investment profitability objectives.

When an otherwise attractive potential acquisition or investment in organic growth does not meet our return requirements, our practice is to return cash to shareholders. Since becoming a public company in 1994, our share count is down approximately 40%, and we have returned approximately $2.1 billion to our shareholders, through a combination of share repurchases and dividends.

Planned Separation of Heavy Materials and Light Materials Businesses

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, although the timing is uncertain.  We continue preparations to ensure that the two businesses are well-positioned for the separation when the markets recover from the effects of the COVID-19 pandemic.  

RECENT DEVELOPMENTS

Acquisitions

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 acquisition included a (i) 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 and obligations arising out of or relating to the Kosmos Business after the transaction closed. The Kosmos Business is included in our Heavy Materials Sector, in the Cement segment.

On August 2, 2019, we acquired the assets of a readymix concrete and aggregates business (the ConAgg Acquisition). The purchase price of the ConAgg Acquisition was approximately $30.4 million. The ConAgg Acquisition is included in our Heavy Materials sector, in the Concrete and Aggregates segment.

See Footnote (B) to the Audited Consolidated Financial Statements for more information regarding these acquisitions.

 

 

3


 

Divestiture

On April 17, 2020 we sold our Western Aggregates and Mathews Readymix operations for $93.5 million to Teichert, Inc. a California-based construction company. These operations were included in our Concrete and Aggregates segment. See Footnote (C) to the Audited Consolidated Financial Statements for more information regarding the sale.

Oil and Gas Proppants

As previously announced, we are pursuing alternatives for the assets and business included in the Oil and Gas Proppants sector. In March 2020, we completed the sale of our Wildcat Minerals distribution business. We are continuing to explore alternatives for the remaining assets included in our Oil and Gas Proppants business. Although we have pursued for some time the possible sale or disposition of our remaining Oil and Gas Proppants business to third parties, we are also considering a full curtailment of operations or closure of our Oil and Gas Proppants facilities. There can be no assurance that we will be able to effect a sale of this business or realize significant proceeds from a sale or other disposition transaction.

EMPLOYEES

As of March 31, 2020, the Company had approximately 2,400 employees, of which approximately 800 were employed under collective bargaining agreements and various supplemental agreements with local unions.

Industry Segment Information

Our business is organized into three sectors: Heavy Materials, which includes the Cement and Concrete and Aggregates segments; Light Materials, which includes the Gypsum Wallboard and Recycled Paperboard segments; and Oil and Gas Proppants, which are used in oil and gas extraction.

 

Sector

Primary End Markets

Business Segments

Heavy Materials

Infrastructure

Cement

 

Commercial and

Residential construction

Concrete and

Aggregates

Light Materials

Residential construction

Gypsum Wallboard

 

 

Recycled Paperboard

Oil and Gas Proppants

Oil and Gas

Extraction

Frac Sand

 

For information about the financial results of our business segments, including revenue, average net sales prices, sales volume and operating earnings, please see pages 45-52.

Heavy Materials

Our Heavy Materials sector provides cement and concrete and aggregates for use in infrastructure, commercial, and residential construction. This sector comprises the Cement and Concrete and Aggregates segments. Demand has been strong for these construction products over the last several years. Cement consumption in the United States, as estimated by the PCA, was approximately 109.8 million short tons in calendar 2019, compared with 106.1 million short tons in calendar 2018, and imported cement consumption was 16% of total sales in calendar 2019 compared with 15% in calendar 2018.

 

 

4


 

Cement

Cement is the basic binding agent for concrete, a primary construction material. The principal sources of demand for cement are public infrastructure, commercial construction and residential construction, with public infrastructure accounting for nearly 50% of cement demand. Because of its low-value-to-weight ratio, the relative cost of transporting cement on land is high and limits the geographic area in which each producer can market its products profitably. Management believes shipments by truck are generally limited to a 150-mile radius from each plant and approximately 300 miles by rail and further by barge. Therefore, the U.S. cement industry comprises numerous regional markets rather than a single national market. Cement consumption is affected by the time of year and prevalent weather conditions. Cement sales are generally greatest from spring through the middle of autumn.

The manufacturing process for portland cement primarily involves four main steps, as shown in the graphic below:

 

 

We also produce and market other cementitious products, including slag cement and fly ash. Slag granules are obtained from a steel company and ground in our grinding facility. Slag is used in concrete mix designs to improve the durability of concrete and reduce future maintenance costs. Fly ash is a by-product of a coal-fired power plant and acts as an extender of cement in concrete.

Cement Plants

We operate eight modern cement plants (one of which is operated through a joint venture); and one slag grinding facility. The acquisition of Kosmos increased our clinker capacity to 6.9 million tons, which is approximately 6% of total U.S. clinker capacity (clinker is the intermediary product before it is ground into cement powder). All of our cement plants use dry-process technology, and approximately 80% of our clinker capacity is produced from preheater or preheater/pre-calciner kilns, which are generally more energy-efficient kiln types. In addition to production facilities, we also operate 29 cement storage and distribution terminals.

Our cement companies focus on the U.S. heartland and operate as an integrated network selling product primarily in California, Colorado, Illinois, Indiana, Iowa, Kentucky, Missouri, Nebraska, Nevada, Ohio, Oklahoma, and Texas. Our joint venture includes a minority interest in an import terminal in Houston, Texas, from which we can purchase up to 495,000 short tons annually. Our slag facility is located near Chicago, Illinois and has 500,000 tons annual grinding capacity.


 

 

5


 

The following table sets forth information regarding our cement plants at March 31, 2020 (tons are in thousands of short tons):

Plant Location

 

Owned or

Leased

Reserves

 

Rated Annual

Clinker

Capacity (1)

 

 

Annual

Grinding

Capacity

 

 

Manufacturing

Process

 

Number

of Kilns

 

Kiln

Dedication

Date

 

Estimated

Minimum

Limestone

Reserves (2)

 

 

Estimated

Minimum

Limestone

Reserves

(Years) (3)

 

 

Fiscal

2020

Tons

Mined

 

Buda, TX

 

Owned

 

 

1,300

 

(4)

 

1,435

 

 

Dry – 4 Stage Preheater/

Pre-calciner

 

1

 

1983

 

 

222,660

 

 

50+

 

 

 

1,880

 

LaSalle, IL

 

Owned

 

 

1,000

 

 

 

1,100

 

 

Dry – 5 Stage Preheater/Pre-calciner

 

1

 

2006

 

 

43,530

 

 

 

38

 

 

 

1,206

 

Sugar Creek, MO

 

Owned

 

 

1,000

 

 

 

1,300

 

 

Dry – 5 Stage Preheater/Pre-calciner

 

1

 

2002

 

 

123,400

 

 

50+

 

 

 

1,115

 

 

 

Leased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,740

 

 

 

 

 

 

 

 

 

Laramie, WY

 

Owned

 

 

650

 

 

 

800

 

 

Dry – 2 Stage Preheater

 

1

 

1988

 

 

116,920

 

 

50+

 

 

 

1,285

 

 

 

Leased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dry – Long Dry Kiln

 

1

 

1996

 

 

 

 

 

 

 

 

 

 

 

 

Tulsa, OK

 

Owned

 

 

650

 

 

 

900

 

 

Dry – Long Dry Kiln

 

1

 

1961

 

 

49,375

 

 

50+

 

 

 

910

 

 

 

Leased

 

 

 

 

 

 

 

 

 

Dry Long Dry Kiln

 

1

 

1964

 

 

4,450

 

 

 

 

 

 

 

 

 

Fernley, NV

 

Owned

 

 

500

 

 

 

550

 

 

Dry – Long Dry Kiln

 

1

 

1964

 

 

13,980

 

 

50+

 

 

 

506

 

 

 

Leased

 

 

 

 

 

 

 

 

 

Dry – 1 Stage Preheater

 

1

 

1969

 

 

68,650

 

 

 

 

 

 

 

 

 

Louisville, KY (5)

 

Owned

 

 

1,700

 

 

 

2,000

 

 

Dry - 4 Stage Preheater/Pre-calciner

 

1

 

 

 

 

114,000

 

 

50+

 

 

 

65

 

Fairborn, OH

 

Owned

 

 

730

 

 

 

980

 

 

Dry – 4 Stage Preheater

 

1

 

1974

 

 

24,760

 

 

 

29

 

 

 

1,010

 

 

 

Leased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,100

 

 

 

 

 

 

 

 

 

Total-Gross

 

 

 

 

7,530

 

 

 

9,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total-Net (6)

 

 

 

 

6,880

 

 

 

8,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

One short ton equals 2,000 pounds.

(2)

All limestone reserves are considered to be probable under the definition provided by Industry Guide 7.

(3)

Years of limestone reserves calculated using annual rated capacity.

(4)

The amount shown represents 100% of plant capacity and production. This plant is owned by a separate limited partnership in which the Company has a 50% interest.

(5)

Plant was purchased on March 6, 2020.

(6)

Net of partner’s 50% interest in the Buda, Texas plant.

All of our cement subsidiaries are wholly owned except the Buda, Texas plant (the Joint Venture), which is owned by Texas Lehigh Cement Company LP, a limited partnership joint venture owned 50% by us and 50% by Lehigh Cement Company LLC, a subsidiary of Heidelberg Cement AG.

Our cement production, including our 50% share of the cement Joint Venture production, totaled 5.4 million short tons in fiscal 2020 and 4.9 million short tons in fiscal 2019. Total net cement sales, including our 50% share of cement sales from the Joint Venture, were 5.9 million and 5.3 million short tons in fiscal 2020 and fiscal 2019, respectively.

Demand, Sales, and Distribution

The principal sources of demand for cement and slag are infrastructure, commercial construction, and residential construction, with public works infrastructure comprising nearly 50% of total demand. Cement consumption in the U.S. increased approximately 3% during calendar 2019 from calendar 2018, and the Portland Cement Association forecasts cement consumption will increase another approximately 2% in calendar 2020. Demand for cement is seasonal, particularly in northern states where inclement winter weather often affects construction activity. Cement sales are generally greatest from spring through the middle of autumn. Demand for slag has increased as the availability of fly ash has decreased due to the conversion of power plants from coal to natural gas.

 

 

6


 

Because of cement’s low value-to-weight ratio, the relative cost of transporting cement on land is high and limits the geographic area in which each company can market its products profitably. The low value-to-weight ratio generally limits shipments by truck to a 150-mile radius of each plant and up to 300 miles by rail and further barge. Consequently, the U.S. cement industry is made up of regional markets rather than a single national selling market. No single cement company has a distribution of plants extensive enough to serve all geographic areas, so profitability is sensitive to shifts in the balance between regional supply and demand.

Environmental and zoning regulations have made it increasingly difficult for the U.S. cement industry to expand existing facilities and to build new cement facilities. Although we cannot predict which policies will be adopted in the future by federal, state, and local governmental bodies, we anticipate that future restrictions will likely continue to make zoning and permitting of new capacity additions difficult. This could potentially enhance the value of our existing facilities. Furthermore, cost-efficient alternatives to cement are currently limited, and the availability of some alternatives is diminishing. For example, the availability of fly ash, a cement replacement, has decreased as a result of the conversion of power plants from coal to natural gas and other forms of energy.

The difficulty in adding cement capacity, coupled with limited alternatives, leads to high U.S. cement manufacturing utilization rates, as well as the need for imported cement when demand levels are high.  Cement imports into the U.S. occur primarily to supplement domestic cement production or to supply a particular region. Cement is typically imported into deep water ports along the coast or on the Great Lakes, or transported on the Mississippi River system near major population centers. Our position in the U.S. heartland, away from import terminals, insulates us from coastal imports, given the expense of transporting cement from deep water ports into the heartland regions. This geographic position further enhances the value of our plant network.  

The Portland Cement Association estimates that imports represented approximately 16% of cement used in the U.S. during calendar 2019, compared with 15% in calendar 2018. The PCA also estimates that imports will represent approximately 16% of calendar 2020 consumption. Based on the normal distribution of cement into the market, we believe that no less than approximately 5% to 10% of the total consumption will consistently be served by imported cement.

 

 

7


 

The following table sets forth information regarding the geographic areas served by each of our cement and slag plants and the location of our distribution terminals in each area. We have a total of 29 cement storage and distribution terminals that are strategically located to extend the sales areas of our plants.

 

Plant Location

 

Type of Plant

 

Operating Company Name

 

Principal Geographic Areas

 

Distribution Terminals (1)

Buda, Texas

 

Cement

 

Texas Lehigh Cement Company LP

 

Texas and western

Louisiana

 

Corpus Christi, Texas; Houston, Texas;

Roanoke (Fort Worth), Texas; Waco,

Texas; Houston Cement Company

(Joint Venture), Houston, Texas

LaSalle, Illinois

 

Cement

 

Illinois Cement Company

 

Illinois, Michigan and

southern Wisconsin

 

Hartland, Wisconsin;

Ottawa, Illinois

Sugar Creek, Missouri

 

Cement

 

Central Plains Cement Company

 

Western Missouri, eastern

Kansas, eastern Nebraska

and Iowa

 

Sugar Creek, Missouri; Iola, Kansas;

Wichita, Kansas; Omaha, Nebraska;

Altoona, Iowa; Springfield, Missouri

Tulsa, Oklahoma

 

Cement

 

Central Plains Cement Company

 

Oklahoma, western

Arkansas and southern

Missouri

 

Oklahoma City, Oklahoma

Laramie, Wyoming

 

Cement

 

Mountain Cement Company

 

Wyoming, Utah, Colorado

and western Nebraska

 

Salt Lake City, Utah; Denver, Colorado;

North Platte, Nebraska

Fernley, Nevada

 

Cement

 

Nevada Cement Company

 

Northern Nevada and

northern California

 

Sacramento, California

Louisville, Kentucky

 

Cement

 

Kosmos Cement Company

 

Kentucky, Ohio, Indiana, West Virginia, eastern Illinois, western Pennsylvania and northern Tennessee

 

Indianapolis, Indiana; Ceredo, West Virginia;

Lexington, Kentucky (2); Cincinnati, Ohio;

Pittsburgh, Pennsylvania;

Charleston, West Virginia;

Mount Vernon, Indiana (2)

Fairborn, Ohio

 

Cement

 

Fairborn Cement Company

 

Ohio, eastern Indiana and

northern Kentucky

 

Columbus, Ohio

Chicago, Illinois

 

Slag

 

Skyway Cement Company

 

Illinois, Pennsylvania,

Iowa, Ohio, Minnesota,

Missouri and Kansas

 

Kansas City, Missouri; Etna, Pennsylvania;

Fairfield, Ohio (2)

(1)

Each of the above distribution terminals are capable of handling both cement and slag.

(2)

This facility is being leased.

We are leasing the terminal in Fairfield, Ohio under an initial term of four years, with two one-year options, which expire in fiscal 2025. The terminal in Lexington, Kentucky is being leased under an initial term of five years and will be up for renewal in fiscal 2024. The terminal in Mt. Vernon, Indiana is leased through fiscal 2031, and contains options that will allow the renewal of this lease for an additional twenty years.

Cement and slag are distributed directly to our customers mostly through customer pickups, and also by common carriers from our plants or distribution terminals. We transport cement, slag, and fly ash by truck, barge, and rail to our storage and distribution terminals.

No single customer accounted for more than 10% of our Cement segment sales during fiscal 2020. We do not typically enter into long-term sales contracts or have a significant level of order backlog. Cement and slag are generally sold to companies in private industry that contract with state and local entities for infrastructure and other public works projects.

Raw Materials and Fuel Supplies

The principal raw material used in the production of portland cement is calcium carbonate in the form of limestone. Limestone is obtained primarily through mining and extraction operations conducted at quarries that we own or lease, and that are located in close proximity to our plants. We believe that the estimated recoverable limestone reserves we own or lease will permit each of our plants to operate at our present production capacity for at least 25 years. We are actively seeking additional limestone reserves

 

 

8


 

close to our plants and believe we will be able to acquire more reserves in the future. Other raw materials used in substantially smaller quantities than limestone are sand, clay, iron ore, and gypsum. These materials are readily available and can be obtained either from Company-owned or leased reserves or can be purchased from outside suppliers.

We utilize coal, petroleum coke, natural gas, and alternative fuels to fuel our cement plants. The cost of fuel decreased in fiscal 2020, compared with fiscal 2019, due to lower coal and petroleum coke costs. The Tulsa plant burns fuel-quality wastes, as well as coal and petroleum coke, and the Sugar Creek plant burns alternative fuels and petroleum coke. When we acquired Sugar Creek and Tulsa in late 2012, both plants had existing alternative fuels programs managed by a company that supplied alternative fuels and materials to the cement plants. In keeping with our commitment to sustainability and cost management, we continue to use these alternative fuels and materials programs at the Sugar Creek and Tulsa plants.

We have a long-term agreement with a steel manufacturer to supply granules necessary for grinding slag. This agreement requires us to purchase up to 550,000 tons of granules, which meet certain specifications, made available by the steel manufacturer each year. Electric power is also a major cost component in the manufacturing process for both cement and slag, and we have sought to diminish overall power costs by adopting interruptible power supply agreements at certain locations. These agreements may expose us to some production interruptions during periods of power curtailment. Historically, we have not had many production interruptions under these agreements.

Environmental Matters

Our cement operations are subject to numerous federal, state, and local laws and regulations pertaining to health, safety, and the environment. Some of these laws, such as the federal Clean Air Act and the federal Clean Water Act (and analogous state laws) impose environmental-permitting requirements and govern the nature and amount of emissions that may be generated when conducting particular operations. Some laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (and analogous state laws) impose obligations to clean up or remediate spills of hazardous materials into the environment. Other laws require us to reclaim certain land upon completion of extraction and mining operations in our quarries. We believe that we have obtained all the material environmental permits that are necessary to conduct our operations. We further believe that we are conducting our operations in substantial compliance with these permits. In addition, none of our manufacturing sites is listed as a CERCLA Superfund site.

The following seven environmental issues involving the cement manufacturing industry deserve special mention.

The first environmental issue involves cement kiln dust or CKD.  The U.S. Environmental Protection Agency (EPA) has been evaluating the regulatory status of CKD under the Resource Conservation and Recovery Act (RCRA) for several years.  In 1999, the EPA proposed a rule that would allow states to regulate properly managed CKD as a non-hazardous waste under state laws and regulations governing solid waste.  In contrast, CKD that was not properly managed would be treated as a hazardous waste under RCRA.  In 2002, the EPA confirmed its intention to continue to exempt properly managed CKD from the hazardous waste requirements of RCRA.  The agency announced that it would collect additional data over the next three to five years to determine if the states’ regulation of CKD is effective.  To date, the EPA still has not completed its 1999 proposal to exempt properly managed CKD waste and establish protective CKD management standards.  It is uncertain whether or when this proposal will be finalized.  Nevertheless, in the interim, many state environmental agencies have been using the EPA’s 1999 proposed CKD management standards as general industry guidelines.  

 

 

9


 

Currently, substantially all CKD produced in connection with our ongoing operations is recycled, and therefore such CKD is not viewed as a waste under RCRA.  However, CKD was historically collected and stored on-site at our Illinois, Nevada, Missouri, Oklahoma and Wyoming cement plants and at a former plant site in Corpus Christi, Texas, which is no longer producing cement.  If either the EPA or the states decide to reclassify or impose new management standards on this CKD at some point in the future, we could incur additional costs to comply with those requirements with respect to our historically collected CKD.  CKD that comes in contact with water might produce a leachate with an alkalinity high enough to be classified as hazardous and might also leach certain hazardous trace metals therein.  

The second environmental issue involves the historical disposal of refractory brick containing chromium.  Such refractory brick was formerly used widely in the cement industry to line cement kilns.  We currently use a small amount of refractory brick containing chromium, all of which is properly disposed under applicable federal and state laws.  Except for such chromium containing refractory, we crush substantially all of our refractory brick and use the crushed material as raw feed in the kiln.  

The third environmental issue involves the potential regulation of our emission of greenhouse gases (GHGs), including carbon dioxide.  The consequences of GHG emission reduction regulations for our cement operations will likely be significant because (1) the cement manufacturing process requires the combustion of large amounts of fuel to generate very high kiln temperatures; and (2) the production of carbon dioxide is a byproduct of the calcination process, whereby carbon dioxide is removed from calcium carbonate to produce calcium oxide.  In the future, it is possible that the EPA will propose performance standards for GHG emissions for the cement manufacturing sector, as it recently has done for the electric generating sector through the Affordable Clean Energy (ACE) rule, 84 Fed. Reg. 32,520 (Jul. 8, 2019).  Further, several states have individually implemented or are presently considering measures to reduce emissions of GHGs, primarily through the planned development of GHG inventories or registries, or regional GHG cap and trade programs.  It is not possible at this time to predict how any future legislation that may be enacted or final EPA regulations that may be adopted to address GHG emissions would impact our business.  However, any imposition of raw materials or production limitations, fuel-use or carbon taxes, or emission limitations or reductions could have a significant impact on the cement manufacturing industry and a material adverse effect on us and our results of operations.

The fourth environmental issue is the EPA’s National Emissions Standards for Hazardous Air Pollutants for Portland cement plants (PC NESHAP), which requires cement plants to meet certain emission and operating standards addressing specific hazardous air pollutants (HAP).  Pursuant to CAA Sections 112(d) and (f), the EPA determined on July 25, 2018, that no revisions to the HAP regulations are necessary to address residual risk from HAP emissions from Portland cement plants, nor to account for developments in practices, process or control technologies.  This determination has been challenged by environmental groups in the D.C. Circuit and the litigation is being held in abeyance while the EPA considers the environmental groups’ administrative petition for reconsideration of the determination.  In the future, EPA is required by the CAA to review whether new developments in practices, process or control technologies require further revisions to the PC NESHAP.

The fifth environmental issue is the EPA’s promulgation pursuant to Section 129 of the CAA of revised regulations for Commercial and Industrial Solid Waste Incineration (CISWI) units.  The EPA has approved several states’ implementation plans under this rule, including plans submitted by Colorado and Oklahoma, and has proposed a federal plan that would apply in states that have not submitted and received approval for a state plan has.  Compared to the PC NESHAP, the CISWI regulations contain requirements across a broader range of pollutants, and the requirement for dioxin/furans for existing and new sources is somewhat more stringent.

 

 

10


 

The sixth environmental issue is a revision to the National Emission Standards for Hazardous Air Pollutants for hazardous waste combustors (HWC NESHAP).  The Tulsa, Oklahoma cement facility utilizes hazardous waste as fuel and is required to meet the emission and operating standards of the HWC NESHAP.  This facility has demonstrated and remains in compliance with all of the requirements of the current HWC NESHAP.  In 2009, EPA agreed to revise the HWC NESHAP to resolve litigation over the rule, but has not indicated when it will issue a proposed rule amending the regulations.  It is not possible to predict at this time the stringency or impact of revised HWC NESHAP regulations or timing required for compliance.  

The seventh environmental issue is the EPA’s ongoing review and implementation of the national ambient air quality standards (NAAQS) for ozone.  Nonattainment designations in or surrounding our areas of operations could have a material impact on our consolidated financial results.  The CAA requires the EPA to review, and if necessary, revise the NAAQS every five years.  Accordingly, the EPA is in the process of reviewing the ozone NAAQS, and is scheduled to complete this review in 2020.

We believe that our current procedures and practices in our operations, including those for handling and managing hazardous materials, are consistent with industry standards and are in substantial compliance with applicable environmental laws and regulations.  Nevertheless, because of the complexity of our operations and the environmental laws to which we are subject, there can be no assurance that past or future operations will not result in violations, remediation costs, or other liabilities or claims.  Moreover, we cannot predict what environmental laws will be enacted or adopted in the future or how such future environmental laws or regulations will be administered or interpreted.  Compliance with more stringent environmental laws, or stricter interpretation of existing environmental laws, could necessitate significant capital outlays.

In fiscal 2020, we had $1.9 million of capital expenditures related to compliance with environmental regulations applicable to our cement operations. We anticipate spending $1.4 million during fiscal 2021.

Concrete and Aggregates

Readymix concrete is a versatile, low-cost building material used in almost all construction. The production of readymix concrete involves mixing cement, sand, gravel or crushed stone and water to form concrete, which is then sold and distributed to numerous construction contractors. Concrete is produced in batch plants and transported to customers’ job sites in mixer trucks.

The aggregates business consists of mining, extracting, producing, and selling crushed stone, sand, and gravel. Construction aggregates of suitable characteristics are employed in virtually all types of construction, including the production of readymix concrete, flexible base, and asphaltic mixes used in highway construction and maintenance.

On April 17, 2020 we sold Western Aggregates LLC and Mathews Readymix LLC, our readymix and aggregates companies in Northern California for approximately $93.5 million.  See Footnote (C) to the Audited Consolidated Financial Statements for more information regarding the sale. Information regarding these entities is included in the tables below as we owned them during fiscal 2020.

 

 

11


 

Concrete and Aggregates Plants

During August 2019, we acquired a small concrete and aggregate business in Northern Nevada. During fiscal 2020, we produced and distributed readymix concrete from company-owned sites in Austin, Texas; the greater Kansas City area; Northern Nevada; and north of Sacramento, California. The following table sets forth information regarding these operations.

 

Location

 

Number of Plants

 

 

Number of Trucks

 

Central Texas

 

 

7

 

 

 

85

 

Kansas City Area

 

 

8

 

 

 

83

 

Northern Nevada

 

 

8

 

 

 

61

 

Northern California (1)

 

 

3

 

 

 

26

 

Total

 

 

26

 

 

 

255

 

(1)

These facilities were sold on April 17, 2020.

We conduct aggregate operations near our concrete facilities. Aggregates are obtained principally by mining and extracting from quarries owned or leased by the Company. The following table sets forth certain information regarding these aggregate facilities.

 

Location

 

Owned or Leased

 

Types

of Aggregates

 

Estimated Annual

Production Capacity

(Thousand tons)

 

 

Estimated Minimum

Reserves

(Thousand Tons) (2)

 

 

 

Estimated Minimum

Reserves (Years)

 

Fiscal 2020

Tons Mined

(Thousand Tons)

 

Central Texas

 

Owned

 

Limestone and Gravel

 

 

3,000

 

 

 

4,300

 

 

 

20+

 

 

1,830

 

 

 

Leased

 

 

 

 

 

 

 

 

63,400

 

 

 

 

 

 

 

 

Kansas City Area

 

Owned

 

Limestone

 

 

700

 

 

 

57,000

 

(3)

 

50+

 

 

 

Northern Nevada

 

Owned

 

Limestone

 

 

570

 

 

 

32,000

 

 

 

50+

 

 

500

 

 

 

Leased

 

 

 

 

 

 

 

 

14,000

 

 

 

 

 

 

 

 

Northern California (1)

 

Owned

 

Sand and Gravel

 

 

4,000

 

 

 

910,900

 

 

 

100+

 

1680

 

 

(1)

These facilities were sold on April 17, 2020.

(2)  All reserves are considered to be probable under the definition of Industry Guide 7.

(3)

Includes reserves located in our underground mine that we believe can be economically used for aggregate supply.

Our total net aggregate sales were 3.3 million tons in fiscal 2020 and 3.2 million tons in fiscal 2019. Total aggregates production was 4.1 million tons in fiscal 2020 and 3.4 million tons in fiscal 2019. During fiscal 2020, approximately 50% of aggregate sales and 40% of aggregates production, related to our northern California business. A portion of our total aggregates production is used internally by our readymix concrete operations in Texas, northern Nevada, and northern California.

Demand, Sales, and Distribution

Demand for readymix concrete and aggregates largely depends on local levels of construction activity. Construction activity is also subject to weather conditions, the availability of financing at reasonable rates, and overall fluctuations in local economies, and therefore tends to be cyclical. We sell readymix concrete to numerous contractors and other customers in each plant’s marketing area. Our batch plants in Austin, Texas, the greater Kansas City area, northern California, and northern Nevada are strategically located to serve each marketing area. Concrete is delivered from the batch plants primarily by company-owned trucks.

 

 

12


 

We sell aggregates to building contractors and other customers engaged in a wide variety of construction activities. Aggregates are delivered from our aggregate plants by common carriers and customer pick-up. No customer accounted for more than 10% of fiscal 2020 segment revenue.

The concrete and aggregates industry is highly fragmented, with numerous participants operating in each local area. Because the cost of transporting concrete and aggregates is very high relative to product values, producers of concrete and aggregates typically can profitably sell their products only in areas within 50 miles of their production facilities. Barriers to entry in each industry are low, except with respect to environmental permitting requirements for new aggregates production facilities and zoning of land to permit mining and extraction of aggregates.

Raw Materials and Fuel Supplies

We obtain cement and aggregates for our concrete businesses from related companies, including our Joint Venture, as outlined below:

 

 

 

Percentage of Internally Supplied

 

Location

 

Cement

 

 

Aggregates

 

Central Texas

 

 

5

%

 

 

45

%

Kansas City Area

 

 

100

%

 

 

 

Northern Nevada

 

 

100

%

 

 

95

%

Northern California (1)

 

 

100

%

 

 

70

%

 

(1)

These facilities were sold on April 17, 2020.

We obtain the balance of our cement and aggregates requirements from multiple outside sources in each of these areas.

We mine and extract limestone, sand, and gravel, the principal raw materials used in the production of aggregates, from quarries owned or leased by us and located near our plants. On average, our aggregate reserves exceed 20 years based on normalized production levels and in many cases much greater.

Environmental Matters

The concrete and aggregates industry is subject to environmental regulations similar to those governing our Cement operations. (See pages 9-11.)

In fiscal 2020, we had $0.2 million of capital expenditures related to compliance with environmental regulations applicable to our Concrete and Aggregates operations. We do not anticipate any such expenditures in fiscal 2021.

Light Materials

Our Light Materials sector produces gypsum wallboard, which is used in residential and commercial buildings, and recycled paperboard, which is used primarily in the manufacture of gypsum wallboard. The sector comprises the Gypsum Wallboard and Recycled Paperboard segments. Operations in this sector are concentrated in the Sun Belt of the United States, where the population is projected to grow approximately 38% between 2010 and 2040, according to the latest update in December 2018 by the Weldon Cooper Center at the University of Virginia. Population growth is a key long-term driver of demand for gypsum wallboard and recycled paperboard.


 

 

13


 

Gypsum Wallboard

 

Gypsum wallboard is used to finish the interior walls and ceilings in residential, commercial, and industrial structures. Our gypsum wallboard products are marketed under the name American Gypsum.

The gypsum wallboard manufacturing process involves four main steps, as shown in the graphic below.

 

 

 

 

 

 

 

 

 

Gypsum Wallboard Plants

We own and operate five gypsum wallboard plants, outlined in the table below. We anticipate running all of our facilities at the level required to meet customer demand, up to maximum capacity. Our gypsum wallboard is distributed in the geographic markets nearest to our production facilities.

The following table sets forth certain information regarding our gypsum wallboard plants.

 

Location

 

Owned or Leased

Reserves (1)

 

Approximate Annual

Gypsum Wallboard

Capacity (MMSF) (2)

 

 

Estimated

Minimum Gypsum

Reserves

(Thousand Tons) (3)

 

 

 

Estimated

Minimum Gypsum

Reserves

(Years) (4)

 

 

 

Fiscal 2020

Tons Mined

(Thousand Tons)

 

Albuquerque, New Mexico

 

Owned

 

 

425

 

 

 

10,490

 

(5)

 

50+

 

(5)

 

 

465

 

 

 

Leased

 

 

 

 

 

 

54,300

 

(5)

 

 

 

 

 

 

 

 

 

Bernalillo, New Mexico

 

 

 

 

550

 

 

 

 

 

(5)

 

50+

 

(5)

 

 

 

 

Gypsum, Colorado

 

Owned

 

 

700

 

 

 

30,660

 

 

 

 

44

 

 

 

 

470