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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT

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

For the Quarterly Period Ended

December 31, 2023

Commission File Number 1-12984

 

img30469998_0.jpg 

EAGLE MATERIALS INC.

(Exact name of registrant as specified in its charter)

 

Delaware (State of Incorporation)

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

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

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock (par value $.01 per share)

 

EXP

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes NO

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

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

Yes No

As of January 23, 2024, the number of outstanding shares of common stock was:

 

Class

Outstanding Shares

Common Stock, $.01 Par Value

34,450,244

 

 

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION (unaudited)

 

 

 

 

Page

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Earnings for the Three and Nine Months Ended December 31, 2023 and 2022

 

1

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended December 31, 2023 and 2022

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2023, and March 31, 2023

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three and Nine Months Ended December 31, 2023 and 2022

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended December 31, 2023 and 2022

 

5

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

35

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

36

 

 

 

 

 

Item 1a.

 

Risk Factors

 

36

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

 

 

 

 

Item 4.

 

Mine Safety Information

 

36

 

 

 

 

 

Item 5.

 

Other Information

 

36

 

 

 

 

 

Item 6.

 

Exhibits

 

37

 

 

 

 

 

SIGNATURES

 

38

 

 

 

 


 

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

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

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

 

Revenue

 

$

558,833

 

 

$

511,487

 

 

$

1,782,590

 

 

$

1,677,942

 

Cost of Goods Sold

 

 

378,205

 

 

 

352,717

 

 

 

1,216,949

 

 

 

1,174,067

 

Gross Profit

 

 

180,628

 

 

 

158,770

 

 

 

565,641

 

 

 

503,875

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

9,285

 

 

 

11,377

 

 

 

22,790

 

 

 

23,631

 

Corporate General and Administrative Expense

 

 

(14,201

)

 

 

(12,497

)

 

 

(42,456

)

 

 

(37,944

)

Other Non-Operating Income (Loss)

 

 

1,019

 

 

 

2,210

 

 

 

2,837

 

 

 

911

 

Interest Expense, net

 

 

(10,128

)

 

 

(8,932

)

 

 

(32,571

)

 

 

(24,842

)

Earnings before Income Taxes

 

 

166,603

 

 

 

150,928

 

 

 

516,241

 

 

 

465,631

 

Income Taxes

 

 

(37,465

)

 

 

(33,744

)

 

 

(115,701

)

 

 

(104,447

)

Net Earnings

 

 

129,138

 

 

 

117,184

 

 

 

400,540

 

 

 

361,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

3.75

 

 

$

3.23

 

 

$

11.47

 

 

$

9.72

 

Diluted

 

$

3.72

 

 

$

3.20

 

 

$

11.38

 

 

$

9.66

 

AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34,466,141

 

 

 

36,336,056

 

 

 

34,931,378

 

 

 

37,149,927

 

Diluted

 

 

34,749,721

 

 

 

36,605,982

 

 

 

35,201,658

 

 

 

37,395,586

 

CASH DIVIDENDS PER SHARE

 

$

0.25

 

 

$

0.25

 

 

$

0.75

 

 

$

0.75

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

1


 

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

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Net Earnings

 

$

129,138

 

 

$

117,184

 

 

$

400,540

 

 

$

361,184

 

Net Actuarial Change in Defined Benefit Plans

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of Net Actuarial Loss

 

 

63

 

 

 

30

 

 

 

189

 

 

 

90

 

Tax Expense

 

 

(15

)

 

 

(7

)

 

 

(45

)

 

 

(20

)

Comprehensive Earnings

 

$

129,186

 

 

$

117,207

 

 

$

400,684

 

 

$

361,254

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

2


 

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

 

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

48,912

 

 

$

15,242

 

Accounts and Notes Receivable, net

 

 

192,982

 

 

 

195,052

 

Inventories

 

 

333,828

 

 

 

291,882

 

Income Tax Receivable

 

 

2,917

 

 

 

16,267

 

Prepaid and Other Assets

 

 

9,092

 

 

 

3,060

 

Total Current Assets

 

 

587,731

 

 

 

521,503

 

Property, Plant, and Equipment, net

 

 

1,667,915

 

 

 

1,662,061

 

Notes Receivable

 

 

 

 

 

7,382

 

Investment in Joint Venture

 

 

104,822

 

 

 

89,111

 

Operating Lease Right-of-Use Assets

 

 

20,670

 

 

 

20,759

 

Goodwill and Intangible Assets, net

 

 

488,088

 

 

 

466,043

 

Other Assets

 

 

21,114

 

 

 

14,143

 

Total Assets

 

$

2,890,340

 

 

$

2,781,002

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts Payable

 

$

117,270

 

 

$

110,408

 

Accrued Liabilities

 

 

88,178

 

 

 

86,472

 

Income Tax Payable

 

 

1,848

 

 

 

 

Operating Lease Liabilities

 

 

8,217

 

 

 

6,009

 

Current Portion of Long-term Debt

 

 

10,000

 

 

 

10,000

 

Total Current Liabilities

 

 

225,513

 

 

 

212,889

 

Long-term Debt

 

 

1,022,482

 

 

 

1,079,032

 

Noncurrent Operating Lease Liabilities

 

 

20,685

 

 

 

24,940

 

Other Long-term Liabilities

 

 

42,331

 

 

 

41,603

 

Deferred Income Taxes

 

 

246,168

 

 

 

236,844

 

Total Liabilities

 

 

1,557,179

 

 

 

1,595,308

 

Stockholders’ Equity

 

 

 

 

 

 

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

 

 

 

 

 

 

Common Stock, Par Value $0.01; Authorized 100,000,000 Shares;
   Issued and Outstanding
34,474,435 and 35,768,376 Shares, respectively

 

 

345

 

 

 

358

 

Capital in Excess of Par Value

 

 

 

 

 

 

Accumulated Other Comprehensive Losses

 

 

(3,403

)

 

 

(3,547

)

Retained Earnings

 

 

1,336,219

 

 

 

1,188,883

 

Total Stockholders’ Equity

 

 

1,333,161

 

 

 

1,185,694

 

Total Liabilities and Stockholders’ Equity

 

$

2,890,340

 

 

$

2,781,002

 

See Notes to Unaudited Consolidated Financial Statements.

 

3


 

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

 

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net Earnings

 

$

400,540

 

 

$

361,184

 

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

 

 

 

 

 

 

Depreciation, Depletion, and Amortization

 

 

111,347

 

 

 

103,689

 

Deferred Income Tax Provision

 

 

9,324

 

 

 

7,227

 

Stock Compensation Expense

 

 

15,356

 

 

 

13,636

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

(22,790

)

 

 

(23,631

)

Distributions from Joint Venture

 

 

7,000

 

 

 

19,000

 

Changes in Operating Assets and Liabilities

 

 

 

 

 

 

Accounts and Notes Receivable

 

 

9,452

 

 

 

9,300

 

Inventories

 

 

(27,137

)

 

 

(3,219

)

Accounts Payable and Accrued Liabilities

 

 

3,278

 

 

 

(13,959

)

Other Assets

 

 

(19,428

)

 

 

4,411

 

Income Taxes Payable (Receivable)

 

 

13,607

 

 

 

2,473

 

Net Cash Provided by Operating Activities

 

 

500,549

 

 

 

480,111

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Additions to Property, Plant, and Equipment

 

 

(87,848

)

 

 

(60,951

)

Acquisition Spending

 

 

(55,053

)

 

 

(158,451

)

Net Cash Used in Investing Activities

 

 

(142,901

)

 

 

(219,402

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Borrowings Under Revolving Credit Facility

 

 

222,000

 

 

 

200,000

 

Repayment of Borrowings Under Revolving Credit Facility

 

 

(272,000

)

 

 

(70,000

)

Repayment of Term Loan

 

 

(7,500

)

 

 

(5,000

)

Dividends Paid to Stockholders

 

 

(26,692

)

 

 

(28,421

)

Purchase and Retirement of Common Stock

 

 

(248,852

)

 

 

(313,898

)

Proceeds from Stock Option Exercises

 

 

11,560

 

 

 

840

 

Payment of Debt Issuance Costs

 

 

 

 

 

(903

)

Shares Redeemed to Settle Employee Taxes on Stock Compensation

 

 

(2,494

)

 

 

(1,806

)

Net Cash Used in Financing Activities

 

 

(323,978

)

 

 

(219,188

)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

33,670

 

 

 

41,521

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

15,242

 

 

 

19,416

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

48,912

 

 

$

60,937

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

4


 

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

 

 

Common
Stock

 

 

Capital in
Excess of
Par Value

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Losses

 

 

Total

 

 

 

(dollars in thousands)

 

Balance at March 31, 2022

 

$

387

 

 

$

 

 

$

1,136,344

 

 

$

(3,175

)

 

$

1,133,556

 

Net Earnings

 

 

 

 

 

 

 

 

105,005

 

 

 

 

 

 

105,005

 

Stock Compensation Expense

 

 

 

 

 

5,146

 

 

 

 

 

 

 

 

 

5,146

 

Stock Option Exercises and Restricted Share Issuances

 

 

1

 

 

 

666

 

 

 

 

 

 

 

 

 

667

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(1,497

)

 

 

 

 

 

 

 

 

(1,497

)

Purchase and Retirement of Common Stock

 

 

(8

)

 

 

(4,315

)

 

 

(105,289

)

 

 

 

 

 

(109,612

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(9,507

)

 

 

 

 

 

(9,507

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

Balance at June 30, 2022

 

$

380

 

 

$

 

 

$

1,126,553

 

 

$

(3,152

)

 

$

1,123,781

 

Net Earnings

 

 

 

 

 

 

 

 

138,995

 

 

 

 

 

 

138,995

 

Stock Compensation Expense

 

 

 

 

 

4,402

 

 

 

 

 

 

 

 

 

4,402

 

Stock Option Exercise and Restricted Share Issuances

 

 

 

 

 

68

 

 

 

 

 

 

 

 

 

68

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(309

)

 

 

 

 

 

 

 

 

(309

)

Purchase and Retirement of Common Stock

 

 

(9

)

 

 

(4,161

)

 

 

(96,616

)

 

 

 

 

 

(100,786

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(9,471

)

 

 

 

 

 

(9,471

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

24

 

Balance at September 30, 2022

 

$

371

 

 

$

 

 

$

1,159,461

 

 

$

(3,128

)

 

$

1,156,704

 

Net Earnings

 

 

 

 

 

 

 

 

117,184

 

 

 

 

 

 

117,184

 

Stock Compensation Expense

 

 

 

 

 

4,088

 

 

 

 

 

 

 

 

 

4,088

 

Stock Option Exercise and Restricted Share Issuances

 

 

 

 

 

105

 

 

 

 

 

 

 

 

 

105

 

Purchase and Retirement of Common Stock

 

 

(9

)

 

 

(4,193

)

 

 

(99,298

)

 

 

 

 

 

(103,500

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(9,090

)

 

 

 

 

 

(9,090

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

Balance at December 31, 2022

 

$

362

 

 

$

 

 

$

1,168,257

 

 

$

(3,105

)

 

$

1,165,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock

 

 

Capital in
Excess of
Par Value

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Losses

 

 

Total

 

 

 

(dollars in thousands)

 

Balance at March 31, 2023

 

$

358

 

 

$

 

 

$

1,188,883

 

 

$

(3,547

)

 

$

1,185,694

 

Net Earnings

 

 

 

 

 

 

 

 

120,849

 

 

 

 

 

 

120,849

 

Stock Compensation Expense

 

 

 

 

 

6,457

 

 

 

 

 

 

 

 

 

6,457

 

Stock Option Exercises and Restricted Share Issuances

 

 

2

 

 

 

10,383

 

 

 

 

 

 

 

 

 

10,385

 

Shares Redeemed to Settle Employee Taxes

 

 

(1

)

 

 

(1,359

)

 

 

 

 

 

 

 

 

(1,360

)

Purchase and Retirement of Common Stock

 

 

(5

)

 

 

(15,481

)

 

 

(59,313

)

 

 

 

 

 

(74,799

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(8,863

)

 

 

 

 

 

(8,863

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

48

 

Balance at June 30, 2023

 

$

354

 

 

$

 

 

$

1,241,556

 

 

$

(3,499

)

 

$

1,238,411

 

Net Earnings

 

 

 

 

 

 

 

 

150,553

 

 

 

 

 

 

150,553

 

Stock Compensation Expense

 

 

 

 

 

4,542

 

 

 

 

 

 

 

 

 

4,542

 

Stock Option Exercise and Restricted Share Issuances

 

 

 

 

 

1,084

 

 

 

 

 

 

 

 

 

1,084

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(1,134

)

 

 

 

 

 

 

 

 

(1,134

)

Purchase and Retirement of Common Stock

 

 

(4

)

 

 

(4,492

)

 

 

(73,541

)

 

 

 

 

 

(78,037

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(8,833

)

 

 

 

 

 

(8,833

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

48

 

Balance at September 30, 2023

 

$

350

 

 

$

 

 

$

1,309,735

 

 

$

(3,451

)

 

$

1,306,634

 

Net Earnings

 

 

 

 

 

 

 

 

129,138

 

 

 

 

 

 

129,138

 

Stock Compensation Expense

 

 

 

 

 

4,357

 

 

 

 

 

 

 

 

 

4,357

 

Stock Option Exercise and Restricted Share Issuances

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

91

 

Purchase and Retirement of Common Stock

 

 

(5

)

 

 

(4,448

)

 

 

(94,051

)

 

 

 

 

 

(98,504

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(8,603

)

 

 

 

 

 

(8,603

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

48

 

Balance at December 31, 2023

 

$

345

 

 

$

 

 

$

1,336,219

 

 

$

(3,403

)

 

$

1,333,161

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

5


 

 

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

 

(A) BASIS OF PRESENTATION

The accompanying Unaudited Consolidated Financial Statements as of and for the three and nine months ended December 31, 2023, include the accounts of Eagle Materials Inc. and its majority-owned subsidiaries (collectively, the Company, us, or we) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 19, 2023.

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

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

Recent Accounting Pronouncements

There have been no recent accounting pronouncements that are expected to materially affect the Company.

(B) SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows:

 

 

For the Nine Months Ended December 31,

 

 

 

 

2023

 

 

 

2022

 

 

 

(dollars in thousands)

 

Cash Payments

 

 

 

 

 

 

Interest

 

$

38,797

 

 

$

26,526

 

Income Taxes

 

 

92,718

 

 

 

94,793

 

Operating Cash Flows Used for Operating Leases

 

 

7,016

 

 

 

6,360

 

 

 

 

 

 

 

 

Non-Cash Financing Activities

 

 

 

 

 

 

Excise Tax on Share Repurchases

 

$

3,227

 

 

$

 

Right-of-Use Assets Acquired for Capitalized Operating Leases

 

 

6,018

 

 

 

 

 

 

6


 

 

(C) ACQUISITION

On May 3, 2023, we purchased the assets of a cement import terminal in Stockton, California (the Stockton Terminal Acquisition), which was accounted for under the acquisition method. The purchase price of the Stockton Terminal Acquisition was approximately $55.1 million. The purchase price was funded through borrowings under our revolving credit facility. Operations related to the Stockton Terminal Acquisition are included in the Cement business in our segment reporting from May 3, 2023, through December 31, 2023.

The following table summarizes the allocation of the purchase price to the fair value of assets acquired and liabilities assumed (based on Level 3 inputs) as of December 31, 2023:

 

 

 

 

 

 

Fair Value

 

Inventory

 

$

14,809

 

Prepaid and Other Current Assets

 

 

179

 

Property, Plant, and Equipment

 

 

12,737

 

Lease Right-of-Use Assets

 

 

1,646

 

Intangible Assets

 

 

16,100

 

Lease Obligations

 

 

(1,646

)

Other Long-term Liabilities

 

 

(630

)

Goodwill

 

 

11,858

 

Total Purchase Price

 

$

55,053

 

The estimated useful lives assigned to Property, Plant, and Equipment range from 5 to 30 years, while the estimated useful lives assigned to Intangible Assets range from 2 to 15 years. All goodwill generated from the Stockton Terminal Acquisition is deductible for income tax purposes.

The following table presents the Revenue and Operating Loss related to the Stockton Terminal Acquisition that has been included in our Consolidated Statement of Earnings from May 3, 2023, through December 31, 2023.

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

December 31, 2023

 

 

 

(dollars in thousands)

 

Revenue

 

$

11,247

 

 

$

32,529

 

Operating Loss

 

$

(56

)

 

$

(2,106

)

Operating Earnings shown above for the three months ended December 31, 2023 were affected by approximately $0.7 million related to depreciation and amortization. Operating Loss for the nine months ended December 31, 2023, was affected by approximately $1.9 million and $3.9 million related to depreciation and amortization and the recording of acquired inventories at fair value, respectively.

 

(D) REVENUE

We earn Revenue primarily from the sale of products, which include cement, concrete, aggregates, gypsum wallboard, and recycled paperboard. The vast majority of Revenue from the sale of concrete, aggregates, and gypsum wallboard is originated by purchase orders from our customers, who are mostly third-party contractors and suppliers. Revenue from the sale of cement is recognized at the point-of-sale to customers under sales orders. Revenue from our Recycled Paperboard segment is generated mainly through long-term supply agreements. These agreements do not have a stated maturity date, but may be terminated by either party with a two to three-year notice period. We invoice customers upon shipment, and our collection terms range from 30 to 75 days. Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard not related to long-term supply agreements is recognized upon shipment of the related products to customers, which is when title and ownership are transferred, and the customer is obligated to pay.

 

7


 

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

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

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

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

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

(E) ACCOUNTS AND NOTES RECEIVABLE

Accounts Receivable are shown net of the allowance for credit losses totaling $7.0 million and $6.9 million at December 31, 2023, and March 31, 2023, respectively. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral from our customers. The allowance for credit losses is based upon an analysis of economic trends in the construction industry, detailed analysis of the expected collectability of accounts receivable that are past due, and the expected collectability of overall receivables. We have no significant credit risk concentration among our diversified customer base.

(F) INVENTORIES

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

 

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

Raw Materials and Materials-in-Progress

 

$

104,465

 

 

$

96,880

 

Finished Cement

 

 

55,480

 

 

 

46,364

 

Aggregates

 

 

10,580

 

 

 

8,309

 

Gypsum Wallboard

 

 

7,183

 

 

 

4,244

 

Recycled Paperboard

 

 

13,471

 

 

 

8,651

 

Repair Parts and Supplies

 

 

123,555

 

 

 

112,885

 

Fuel and Coal

 

 

19,094

 

 

 

14,549

 

 

 

$

333,828

 

 

$

291,882

 

 

 

8


 

(G) ACCRUED EXPENSES

Accrued Expenses consist of the following:

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

Payroll and Incentive Compensation

 

$

39,703

 

 

$

32,742

 

Benefits

 

 

17,073

 

 

 

16,130

 

Dividends

 

 

8,793

 

 

 

9,186

 

Interest

 

 

1,297

 

 

 

7,163

 

Property Taxes

 

 

5,817

 

 

 

6,671

 

Power and Fuel

 

 

3,479

 

 

 

3,051

 

Freight

 

 

4,643

 

 

 

1,663

 

Legal and Professional

 

 

2,083

 

 

 

1,691

 

Sales and Use Tax

 

 

1,160

 

 

 

1,452

 

Other

 

 

4,130

 

 

 

6,723

 

 

 

$

88,178

 

 

$

86,472

 

 

(H) LEASES

We lease certain real estate, buildings, and equipment. Certain of these leases contain escalations of rent over the term of the lease, as well as options for us to extend the term of the lease at the end of the original term. These extensions range from periods of 1 to 20 years. Our lease agreements do not contain material residual value guarantees or material restrictive covenants. In calculating the present value of future minimum lease payments, we use the rate implicit in the lease if it can be determined. Otherwise, we use our incremental borrowing rate in effect at the commencement of the lease to determine the present value of the future minimum lease payments. Additionally, we lease certain equipment under short-term leases with initial terms of less than 12 months, which are not recorded on the balance sheet.

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

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Operating Lease Cost

 

$

1,921

 

 

$

1,953

 

 

$

6,148

 

 

$

5,351

 

Short-term Lease Cost

 

 

187

 

 

 

135

 

 

 

601

 

 

 

410

 

Total Lease Cost

 

$

2,108

 

 

$

2,088

 

 

$

6,749

 

 

$

5,761

 

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

 

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

Operating Leases

 

 

 

 

 

 

Operating Lease Right-of-Use Assets

 

$

20,670

 

 

$

20,759

 

 

 

 

 

 

 

 

Current Operating Lease Liabilities

 

$

8,217

 

 

$

6,009

 

Noncurrent Operating Lease Liabilities

 

 

20,685

 

 

 

24,940

 

Total Operating Lease Liabilities

 

$

28,902

 

 

$

30,949

 

 

 

9


 

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

Fiscal Year

 

Amount

 

2024 (remaining three months)

 

$

2,269

 

2025

 

 

8,653

 

2026

 

 

4,776

 

2027

 

 

3,606

 

2028

 

 

2,735

 

Thereafter

 

 

13,664

 

Total Lease Payments

 

$

35,703

 

Less: Imputed Interest

 

 

(6,801

)

Present Value of Lease Liabilities

 

$

28,902

 

 

 

 

 

Weighted-Average Remaining Lease Term (in years)

 

 

9.3

 

Weighted-Average Discount Rate

 

 

4.17

%

 

(I) Share-BASED EMPLOYEE COMPENSATION

On August 3, 2023, our stockholders approved the Eagle Materials Inc. 2023 Equity Incentive Plan (the 2023 Plan), which reserves 1,425,000 shares for future grants of stock awards. Under the terms of the 2023 Plan, we can issue equity awards, including stock options, restricted stock units, restricted stock, and stock appreciation rights, to employees of the Company, members of the Board of Directors, consultants, independent contractors, and agents of the Company. The Compensation Committee of our Board of Directors specifies grant terms for awards under the Plan.

Long-Term Compensation Plans

OPTIONS

In May 2023, under the 2013 Amended and Restated Incentive Plan (the Prior Plan), the Compensation Committee of the Board of Directors approved the granting to certain officers and key employees an aggregate of 2,296 performance-vesting stock options that will be earned only if certain performance conditions are satisfied (the Fiscal 2024 Employee Performance Stock Option Award). The performance criteria for the Fiscal 2024 Employee Performance Stock Option Award are based upon the achievement of certain levels of return on equity (as defined in the option agreements), ranging from 10.0% to 20.0%, for the performance periods described in the table below. All stock options in each performance period will be earned if the return on equity is 20.0% or greater. If the return on equity is less than 20% but at least 10% in any performance period, the amount of stock options earned in such period will be reduced proportionately using straight-line interpolation, such that approximately 66.7% of the amount of stock options granted will be earned if the return on equity is 10.0%. If the Company does not achieve a return on equity of at least 10.0% during any performance period, all stock option awards for that performance period will be forfeited. The stock option performance periods are as follows:

 

 

Options

 

 

Performance Period

 

Vesting Date

One-Year Performance Shares

 

 

574

 

 

April 1, 2023 to March 31, 2024

 

May 2024

Two-Year Performance Shares

 

 

574

 

 

April 1, 2023 to March 31, 2025

 

May 2025

Three-Year Performance Shares

 

 

1,148

 

 

April 1, 2023 to March 31, 2026

 

May 2026

The stock options have a term of 10 years from the grant date. The Compensation Committee also approved the granting of 1,914 time-vesting stock options to the same officers and key employees, which vest ratably over three years (the Fiscal 2024 Employee Time-Vesting Stock Option Award).

In August 2023, under the 2023 Plan, the Compensation Committee granted 1,348 options to members of the Board of Directors (the Fiscal 2024 Board of Directors Stock Option Award). Options granted under the Fiscal 2024 Board of Directors Stock Option Award vest one year after the grant date, and can be exercised from the date of vesting until their expiration on the tenth anniversary of the grant date.

 

 

10


 

The Fiscal 2024 Employee Performance Stock Option Award, the Fiscal 2024 Employee Time-Vesting Stock Option Award, and the Fiscal 2024 Board of Directors Stock Option Award were valued at their grant date using the Black-Scholes option pricing model. The weighted-average assumptions used in the Black-Scholes model to value the option awards for fiscal 2024 are as follows:

 

 

 

 

Dividend Yield

 

 

0.8

%

Expected Volatility

 

 

38.8

%

Risk-Free Interest Rate

 

 

3.7

%

Expected Life

 

6.0 years

 

In addition to the stock options described above, we issue stock options to certain employees from time to time. Any options issued are valued using the Black-Scholes options pricing model on the grant date and expensed over the vesting period.

Stock option expense for all outstanding stock option awards totaled approximately $0.5 million and $1.5 million for the three and nine months ended December 31, 2023, respectively, and $0.8 million and $2.7 million for the three and nine months ended December 31, 2022, respectively. At December 31, 2023, there was approximately $2.2 million of unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted-average period of 1.9 years.

The following table represents stock option activity for the nine months ended December 31, 2023:

 

 

Number
of Shares

 

 

Weighted-
Average
Exercise
Price

 

Outstanding Options at March 31, 2023

 

 

436,949

 

 

$

89.69

 

Granted

 

 

5,558

 

 

$

172.62

 

Exercised

 

 

(131,099

)

 

$

88.17

 

Cancelled

 

 

(1,000

)

 

$

73.37

 

Outstanding Options at December 31, 2023

 

 

310,408

 

 

$

91.86

 

Options Exercisable at December 31, 2023

 

 

215,822

 

 

 

 

Weighted-Average Fair Value of Options Granted
During the Year

 

$

69.84

 

 

 

 

The following table summarizes information about stock options outstanding at December 31, 2023:

 

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of Exercise Prices

 

Number of
Shares
Outstanding

 

 

Weighted-
Average
Remaining
Contractual
Life (in years)

 

 

Weighted-
Average
Exercise
Price

 

 

Number of
Shares
Outstanding

 

 

Weighted-
Average
Exercise
Price

 

$59.32 - $81.28

 

 

113,490

 

 

 

5.91

 

 

$

62.49

 

 

 

71,086

 

 

$

63.67

 

$87.37 - $106.24

 

 

125,721

 

 

 

4.60

 

 

$

95.77

 

 

 

122,005

 

 

$

95.72

 

$118.27 - $166.75

 

 

71,197

 

 

 

8.34

 

 

$

131.77

 

 

 

22,731

 

 

$

130.79

 

 

 

 

310,408

 

 

 

5.94

 

 

$

91.86

 

 

 

215,822

 

 

$

88.86

 

 

At December 31, 2023, the aggregate intrinsic value of the outstanding and exercisable options was approximately $34.4 million and $24.6 million, respectively. The total intrinsic value of options exercised during the nine months ended December 31, 2023, was approximately $10.6 million.

RESTRICTED STOCK

In May 2023, under the Prior Plan, the Compensation Committee approved the granting to certain officers and key employees an aggregate of 45,693 shares of performance-vesting restricted stock that will be earned if certain performance conditions are satisfied (the Fiscal 2024 Employee Restricted Stock Performance Award). The performance criteria for the Fiscal 2024 Employee Restricted Stock Performance Award are based upon the

 

11


 

achievement of certain levels of return on equity (as defined in the award agreement), ranging from 10.0% to 20.0%, for the performance periods described in the table below. All restricted shares in each performance period will be earned if the return on equity is 20.0% or greater. If the return on equity is less than 20% but at least 10% in any performance period, the amount of shares earned in such period will be reduced proportionately using straight-line interpolation, such that approximately 66.7% of the amount of shares issued will be earned if the return on equity is 10.0%. If the Company does not achieve a return on equity of at least 10.0% during any performance period, all awards for that performance period will be forfeited. The restricted share performance periods are as follows:

 

 

Shares

 

 

Performance Period

 

Vesting Date

One-Year Performance Shares

 

 

11,424

 

 

April 1, 2023 to March 31, 2024

 

May 2024

Two-Year Performance Shares

 

 

11,424

 

 

April 1, 2023 to March 31, 2025

 

May 2025

Three-Year Performance Shares

 

 

22,845

 

 

April 1, 2023 to March 31, 2026

 

May 2026

The Compensation Committee also approved the granting of 38,072 shares of time-vesting restricted stock to the same officers and key employees, which vest ratably over three years (the Fiscal 2024 Employee Restricted Stock Time-Vesting Award). The Fiscal 2024 Employee Restricted Stock Performance Award and the Fiscal 2024 Employee Restricted Stock Time-Vesting Award were valued at the closing price of the stock on the grant date and are being expensed over a three-year period.

In August 2023, under the 2023 Plan, we granted 10,755 shares of restricted stock to members of the Board of Directors (the Fiscal 2024 Board of Directors Restricted Stock Award). Restrictions on these shares will lapse one year after the grant date. The Fiscal 2024 Board of Directors Restricted Stock Award was valued at the closing price of the stock on the grant date, and is being expensed over a one-year period.

In addition to the restricted stock described above, from time to time we issue restricted stock to certain employees. These awards are valued at the closing price of the stock on the grant date and expensed over the vesting period.

The fair value of restricted stock is based on the stock price on the grant date. The following table summarizes the activity for nonvested restricted shares during the nine months ended December 31, 2023:

 

 

Number of Shares

 

 

Weighted-Average Grant Date Fair Value

 

Nonvested Restricted Stock at March 31, 2023

 

 

219,084

 

 

$

96.54

 

Granted

 

 

97,257

 

 

$

169.62

 

Vested

 

 

(35,958

)

 

$

146.24

 

Forfeited

 

 

(3,000

)

 

$

139.03

 

Nonvested Restricted Stock at December 31, 2023

 

 

277,383

 

 

$

125.10

 

Expense related to restricted shares was approximately $4.0 million and $13.8 million for the three and nine months ended December 31, 2023, respectively, and $3.3 million and $11.0 million for the three and nine months ended December 31, 2022, respectively. At December 31, 2023, there was approximately $21.5 million of unearned compensation from restricted stock, which will be recognized over a weighted-average period of 1.7 years.

The number of shares available for future grants of stock options, restricted stock units, stock appreciation rights, and restricted stock under the 2023 Plan was 1,411,804 at December 31, 2023.

 

12


 

(J) COMPUTATION OF EARNINGS PER SHARE

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

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Weighted-Average Shares of Common Stock Outstanding

 

 

34,466,141

 

 

 

36,336,056

 

 

 

34,931,378

 

 

 

37,149,927

 

Effect of Dilutive Shares

 

 

 

 

 

 

 

 

 

 

 

 

Assumed Exercise of Outstanding Dilutive Options

 

 

305,842

 

 

 

424,949

 

 

 

312,723

 

 

 

424,642

 

Less Shares Repurchased from Proceeds of Assumed Exercised Options

 

 

(169,413

)

 

 

(294,478

)

 

 

(170,910

)

 

 

(305,741

)

Restricted Stock Units

 

 

147,151

 

 

 

139,455

 

 

 

128,467

 

 

 

126,758

 

Weighted-Average Common Stock and Dilutive Securities Outstanding

 

 

34,749,721

 

 

 

36,605,982

 

 

 

35,201,658

 

 

 

37,395,586

 

Shares Excluded Due to Anti-Dilution Effects

 

 

5,558

 

 

 

66,802

 

 

 

22,145

 

 

 

46,736

 

 

(K) PENSION AND EMPLOYEE BENEFIT PLANS

We sponsor several single-employer defined benefit plans and defined contribution plans, which together cover substantially all our employees. Benefits paid under the single-employer defined benefit plans covering certain hourly employees were historically based on years of service and the employee’s qualifying compensation over the last few years of employment. Over the last several years, these plans have been frozen to new participants and new benefits, with the last plan becoming frozen during fiscal 2020. Our defined benefit plans are all fully funded, with plan assets exceeding the benefit obligation at March 31, 2023. Due to the frozen status and current funding of the single-employer pension plans, our expected pension expense for fiscal 2024 is less than $0.2 million.

(L) INCOME TAXES

Income Taxes for the interim periods presented have been included in the accompanying financial statements on the basis of an estimated annual effective tax rate. In addition to the amount of tax resulting from applying the estimated annual effective tax rate to pre-tax income, we will include, when appropriate, certain items treated as discrete events to arrive at an estimated overall tax amount. The effective tax rate for the nine months ended December 31, 2023, was approximately 22%, which was consistent with the effective tax rate for the nine months ended December 31, 2022. The effective tax rate was higher than the U.S. Statutory rate of 21% mainly because of state income taxes, partially offset by a benefit recognized related to percentage depletion.

(M) LONG-TERM DEBT

Long-term Debt at December 31, 2023 is as follows:

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

Revolving Credit Facility

 

$

107,000

 

 

$

157,000

 

2.500% Senior Unsecured Notes Due 2031

 

 

750,000

 

 

 

750,000

 

Term Loan

 

 

185,000

 

 

 

192,500

 

Total Debt

 

 

1,042,000

 

 

 

1,099,500

 

Less: Current Portion of Long-term Debt

 

 

(10,000

)

 

 

(10,000

)

Less: Unamortized Discounts and Debt Issuance Costs

 

 

(9,518

)

 

 

(10,468

)

Long-term Debt

 

$

1,022,482

 

 

$

1,079,032

 

Revolving Credit Facility

We have an unsecured $750.0 million revolving credit facility (the Revolving Credit Facility). The Revolving Credit Facility includes a separate $200.0 million term loan facility (the Term Loan) and also provides the Company the option to increase the borrowing capacity by up to $375.0 million (for a total borrowing capacity of $1,125.0

 

13


 

million), provided the existing lenders, or new lenders, agree to such increase. The Revolving Credit Facility includes a $40.0 million letter of credit facility and a swingline loan sub-facility of $25.0 million, and expires on May 5, 2027.

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

At the Company’s option, outstanding loans under the Revolving Credit Facility bear interest, at a variable rate equal to either (i) the adjusted term SOFR rate (secured overnight financing rate), plus 10 basis points, plus an agreed spread (ranging from 100 to 162.5 basis points, which is established based on the Company's credit rating); (ii) in respect of any Revolving Loans (until such time as the then-existing Benchmark (as defined in the Revolving Credit Facility) is replaced in accordance with the Revolving Credit Facility), the adjusted daily simple SOFR rate, plus 10 basis points, plus an agreed spread (ranging from 100 to 162.5 basis points, which is established based on the Company's credit rating) or (iii) an Alternate Base Rate (as defined in the Revolving Credit Facility), which is the highest of (a) the Prime Rate (as defined in the Revolving Credit Facility) in effect on any applicable day, (b) the NYFRB Rate (as defined in the Revolving Credit Facility) in effect on any applicable day, plus ½ of 1%, and (c) the Adjusted Term SOFR (as defined in the Revolving Credit Facility) for a one month interest period on any applicable day, or if such day is not a business day, the immediately preceding business day, plus 1.0%, in each case plus an agreed upon spread (ranging from 0 to 62.5 basis points), which is established quarterly based on the Company's credit rating. The Company is also required to pay a facility fee on unused available borrowings under the Revolving Credit Facility ranging from 9 to 22.5 basis points, which is established based on the Company's then credit rating.

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

There were $107.0 million of outstanding borrowings under the Revolving Credit Facility, plus $8.3 million outstanding letters of credit as of December 31, 2023, resulting in $634.7 million of available borrowings under the Revolving Credit Facility, net of the outstanding letters of credit. We were in compliance with all Financial Covenants on December 31, 2023; therefore, the entire $634.7 million is available for future borrowings.

Term Loan

On May 5, 2022, we borrowed the $200.0 million Term Loan under the Revolving Credit Facility, and used these proceeds to, among other things, pay down a portion of the Revolving Credit Facility. The Term Loan requires quarterly principal payments of $2.5 million, with any unpaid amounts due upon maturity on May 5, 2027. At the Company’s option, principal amounts outstanding under the Term Loan bear interest as set forth in the Revolving Credit Facility (but not, for the avoidance of doubt, at a daily simple SOFR rate unless and until such time as the then-existing Benchmark (as defined in the Revolving Credit Facility) is replaced in accordance with the Revolving Credit Facility).

 

14


 

2.500% Senior Unsecured Notes Due 2031

On July 1, 2021, we issued $750.0 million aggregate principal amount of 2.500% senior notes due July 2031 (the 2.500% Senior Unsecured Notes). The 2.500% Senior Unsecured Notes are senior unsecured obligations of the Company and are not guaranteed by any of our subsidiaries. The 2.500% Senior Unsecured Notes were issued net of original issue discount of $6.3 million and have an effective interest rate of approximately 2.6%. The original issue discount is being amortized by the effective interest method over the 10-year term of the notes. The 2.500% Senior Unsecured Notes are redeemable prior to April 1, 2031, at a redemption price equal to 100% of the aggregate principal amount of the 2.500% Senior Unsecured Notes being redeemed, plus the present value of remaining scheduled payments of principal and interest from the applicable redemption date to April 1, 2031, discounted to the redemption date on a semi-annual basis at the Treasury rate plus 20 basis points. The 2.500% Senior Unsecured Notes are redeemable on or after April 1, 2031, at a redemption price equal to 100% of the aggregate principal amount of the 2.500% Senior Unsecured Notes being redeemed, plus accrued and unpaid interest to, but excluding, the applicable redemption date. If we experience certain change of control triggering events, we would be required to offer to repurchase the 2.500% Senior Unsecured Notes at a purchase price equal to 101% of the aggregate principal amount of the 2.500% Senior Unsecured Notes being repurchased, plus accrued and unpaid interest to, but excluding, the applicable redemption date. The indenture governing the 2.500% Senior Unsecured Notes contains certain covenants that limit our ability to create or permit to exist certain liens; enter into sale and leaseback transactions; and consolidate, merge, or transfer all or substantially all of our assets, and provides for certain events of default that, if any occurred, would permit or require the principal of and accrued interest on the 2.500% Senior Unsecured Notes to become or be declared due and payable.

 

(N) SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activities that earn revenue, incur expenses, and prepare separate financial information that is evaluated regularly by our chief operating decision maker in order to allocate resources and assess performance.

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

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

We operate eight modern cement plants (one of which is operated through a joint venture located in Buda, Texas), one slag grinding facility, and over 30 cement distribution terminals. Our cement companies focus on the U.S. heartland and operate as an integrated network selling product primarily in California, Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, Missouri, Nebraska, Nevada, Ohio, Oklahoma, Tennessee, and Texas. We operate over 25 readymix concrete batch plants and five aggregates processing plants in markets that are complementary to our cement network.

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

 

15


 

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

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

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

308,654

 

 

$

256,313

 

 

$

998,437

 

 

$

860,289

 

Concrete and Aggregates

 

 

61,186

 

 

 

55,176

 

 

 

201,526

 

 

 

186,407

 

Gypsum Wallboard

 

 

200,969

 

 

 

212,016

 

 

 

629,299

 

 

 

652,981

 

Recycled Paperboard

 

 

47,053

 

 

 

47,774

 

 

 

135,397

 

 

 

155,520

 

 

 

 

617,862

 

 

 

571,279

 

 

 

1,964,659

 

 

 

1,855,197

 

Less: Intersegment Revenue

 

 

(32,346

)

 

 

(32,172

)

 

 

(99,356

)

 

 

(98,190

)

Less: Joint Venture Revenue

 

 

(26,683

)

 

 

(27,620

)

 

 

(82,713

)

 

 

(79,065

)

 

 

$

558,833

 

 

$

511,487

 

 

$

1,782,590

 

 

$

1,677,942

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Intersegment Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

7,804

 

 

$

7,719

 

 

$

27,192

 

 

$

26,371

 

Concrete and Aggregates

 

 

3,414

 

 

 

 

 

 

10,235

 

 

 

 

Recycled Paperboard

 

 

21,128

 

 

 

24,453

 

 

 

61,929

 

 

 

71,819

 

 

 

$

32,346

 

 

$

32,172

 

 

$

99,356

 

 

$

98,190

 

Cement Sales Volume (M tons)

 

 

 

 

 

 

 

 

 

 

 

 

Wholly Owned

 

 

1,663

 

 

 

1,527

 

 

 

5,470

 

 

 

5,313

 

Joint Venture

 

 

161

 

 

 

172

 

 

 

496

 

 

 

524

 

 

 

 

1,824

 

 

 

1,699

 

 

 

5,966

 

 

 

5,837

 

 

 

16


 

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Operating Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

105,566

 

 

$

72,315

 

 

$

301,056

 

 

$

233,442

 

Concrete and Aggregates

 

 

1,760

 

 

 

2,692

 

 

 

13,434

 

 

 

15,700

 

Gypsum Wallboard

 

 

75,063

 

 

 

87,335

 

 

 

251,625

 

 

 

261,164

 

Recycled Paperboard

 

 

7,524

 

 

 

7,805

 

 

 

22,316

 

 

 

17,200

 

Sub-Total

 

 

189,913

 

 

 

170,147

 

 

 

588,431

 

 

 

527,506

 

Corporate General and Administrative Expense

 

 

(14,201

)

 

 

(12,497

)

 

 

(42,456

)

 

 

(37,944

)

Other Non-Operating Income (Loss)

 

 

1,019

 

 

 

2,210

 

 

 

2,837

 

 

 

911

 

Earnings Before Interest and Income Taxes

 

 

176,731

 

 

 

159,860

 

 

 

548,812

 

 

 

490,473

 

Interest Expense, net

 

 

(10,128

)

 

 

(8,932

)

 

 

(32,571

)

 

 

(24,842

)

Earnings Before Income Taxes

 

$

166,603

 

 

$

150,928

 

 

$

516,241

 

 

$

465,631

 

Cement Operating Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Wholly Owned

 

$

96,281

 

 

$

60,938

 

 

$

278,266

 

 

$

209,811

 

Joint Venture

 

 

9,285

 

 

 

11,377

 

 

 

22,790

 

 

 

23,631

 

 

 

$

105,566

 

 

$

72,315

 

 

$

301,056

 

 

$

233,442

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

11,571

 

 

$

7,278

 

 

$

38,288

 

 

$

21,157

 

Concrete and Aggregates

 

 

1,207

 

 

 

2,128

 

 

 

10,281

 

 

 

16,468

 

Gypsum Wallboard

 

 

7,386

 

 

 

7,307

 

 

 

23,866

 

 

 

19,777

 

Recycled Paperboard

 

 

1,868

 

 

 

463

 

 

 

7,733

 

 

 

2,318

 

Corporate and Other

 

 

403

 

 

 

526

 

 

 

7,680

 

 

 

1,231

 

 

 

$

22,435

 

 

$

17,702

 

 

$

87,848

 

 

$

60,951

 

Depreciation, Depletion, and Amortization

 

 

 

 

 

 

 

 

 

 

 

 

Cement

 

$

22,514

 

 

$

20,582

 

 

$

66,380

 

 

$

60,893

 

Concrete and Aggregates

 

 

4,857

 

 

 

4,402

 

 

 

14,850

 

 

 

12,954

 

Gypsum Wallboard

 

 

5,611

 

 

 

5,387

 

 

 

16,620

 

 

 

16,539

 

Recycled Paperboard

 

 

3,694

 

 

 

3,738

 

 

 

11,121

 

 

 

11,197

 

Corporate and Other

 

 

792

 

 

 

706

 

 

 

2,376

 

 

 

2,106

 

 

 

$

37,468

 

 

$

34,815

 

 

$

111,347

 

 

$

103,689

 

 

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

Identifiable Assets

 

 

 

 

 

 

Cement

 

$

1,997,649

 

 

$

1,905,227

 

Concrete and Aggregates

 

 

229,998

 

 

 

234,767

 

Gypsum Wallboard

 

 

412,092

 

 

 

421,425

 

Recycled Paperboard

 

 

168,120

 

 

 

163,797

 

Other, net

 

 

82,481

 

 

 

55,786

 

 

 

$

2,890,340

 

 

$

2,781,002

 

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

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

 

 

17


 

The segment breakdown of Goodwill is as follows:

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

Cement

 

$

227,669

 

 

$

215,781

 

Concrete and Aggregates

 

 

40,774

 

 

 

40,774

 

Gypsum Wallboard

 

 

116,618

 

 

 

116,618

 

Recycled Paperboard

 

 

7,538

 

 

 

7,538

 

 

 

$

392,599

 

 

$

380,711

 

The increase in Goodwill in the Cement segment is related to the Stockton Terminal Acquisition. The purchase price allocation is still in progress, and may affect the recorded balance of Goodwill when completed.

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

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Revenue

 

$

53,366

 

 

$

55,240

 

 

$

165,426

 

 

$

158,129

 

Gross Margin

 

$

19,465

 

 

$

24,716

 

 

$

51,512

 

 

$

52,718

 

Earnings Before Income Taxes

 

$

18,711

 

 

$

22,754

 

 

$

45,925

 

 

$

47,262

 

 

 

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2023

 

 

 

(dollars in thousands)

 

Current Assets

 

$

104,158

 

 

$

88,562

 

Noncurrent Assets

 

$

150,950

 

 

$

124,503

 

Current Liabilities

 

$

40,621

 

 

$

29,434

 

 

(O) INTEREST EXPENSE

The following components are included in Interest Expense, net:

 

 

 

For the Three Months Ended December 31,

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Interest Income

 

$

(150

)

 

$

(163

)

 

$

(523

)

 

$

(245

)

Interest Expense

 

 

9,804

 

 

 

8,621

 

 

 

31,671

 

 

 

23,676

 

Other Expenses

 

 

474

 

 

 

474

 

 

 

1,423

 

 

 

1,411

 

Interest Expense, net

 

$

10,128

 

 

$

8,932

 

 

$

32,571

 

 

$

24,842

 

 

Interest Income includes interest earned on investments of excess cash. Components of Interest Expense include interest associated with the Revolving Credit Facility, Term Loan, Senior Unsecured Notes, and commitment fees based on the unused portion of the Revolving Credit Facility. Other Expenses include amortization of debt issuance costs and Revolving Credit Facility costs.

 

 

18


 

(P) COMMITMENTS AND CONTINGENCIES

We have certain deductible limits under our workers’ compensation and liability insurance policies for which reserves are established based on the undiscounted estimated costs of known and anticipated claims. We have entered into standby letter of credit agreements relating to workers’ compensation, auto, and general liability self-insurance. At December 31, 2023, we had contingent liabilities under these outstanding letters of credit of approximately $8.3 million.

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

We are currently contingently liable for performance under $29.3 million in performance bonds required by certain states and municipalities, and their related agencies. The bonds are principally for certain reclamation obligations and mining permits. We have indemnified the underwriting insurance company against any exposure under the performance bonds. In our experience, no material claims have been made against these financial instruments.

(Q) FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of our long-term debt has been determined using market transactions (Level 1 inputs). The fair value of our 2.500% Senior Unsecured Notes at December 31, 2023, is as follows:

 

 

Fair Value

 

 

 

(dollars in thousands)

 

2.500% Senior Unsecured Notes Due 2031

 

$

631,000

 

The carrying values of Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and Accrued Liabilities approximate their fair values at December 31, 2023, due to the short-term maturities of these assets and liabilities. The fair value of our Revolving Credit Facility and Term Loan also approximates the carrying value at December 31, 2023.

 

 

19


 

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

EXECUTIVE SUMMARY

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

Our business is organized into two sectors: Heavy Materials, which includes the Cement and Concrete and Aggregates segments; and Light Materials, which includes the Gypsum Wallboard and Recycled Paperboard segments. Financial results and other information for the three and nine months ended December 31, 2023 and 2022, are presented on a consolidated basis and by these business segments – Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard.

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

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

In April 2023, we assumed operation of our quarry in Battletown, Kentucky (Battletown Aggregates). Our Battletown quarry is primarily used to supply our Kosmos Cement plant with limestone; however, beginning in April 2023, we started selling a portion of the mined materials as aggregates. Battletown Aggregates is included in our Heavy Materials sector, in the Concrete and Aggregates business segment.

On May 3, 2023, we finalized the Stockton Terminal Acquisition. The purchase price of the Stockton Terminal Acquisition was approximately $55.1 million. The Stockton Terminal Acquisition is included in our Heavy Materials sector, in the Cement business segment. See Footnote (B) in the Unaudited Consolidated Financial Statements for more information regarding the Stockton Terminal Acquisition.

MARKET CONDITIONS AND OUTLOOK

During the first nine months of fiscal 2024, our end markets generally remained stable despite shifting economic conditions brought on by US monetary policy in response to inflation. Construction activity in most of our regional markets continued to be steady. Sales Volume in our Cement business, excluding volume related to the Stockton Acquisition, remained relatively flat for the first nine months of fiscal 2024. Sales Volume in our Gypsum Wallboard business declined 4% over the same time period. The decline in Sales Volume in Gypsum Wallboard was due to the slowdown in residential construction. Despite this decline, our overall sales volume remains historically strong.

 

20


 

 

Demand Outlook

The principal end-use market of Cement is public infrastructure (i.e. roads, bridges, and highways). Our Cement business remains in a near sold-out position, and several factors indicate cement demand will remain strong. First, the Inflation Reduction and Infrastructure Investment and Jobs Acts have resulted in increased federal funding for public construction and repair projects. At the same time, state budget allocations for additional infrastructure projects remain high. Finally, passage of the CHIPS and Science Act is leading to growth in heavy industrial and manufacturing projects. Despite underlying growth in demand, our ability to increase Cement sales volume from our existing facilities is limited, because our integrated cement sales network, which stretches across the U.S. heartland, is operating at high utilization levels.

The principal end use for Gypsum Wallboard is residential housing, consisting of new construction (both single-family and multi-family homes) as well as repair and remodel. Our Gypsum Wallboard shipments and orders, while down 4% for the first nine months of fiscal 2024, were down only 1% for the quarter ended December 31, 2023, both compared to similar periods in the prior year, and remain historically strong. Residential construction activity continued at a healthier pace than expected as the market continues to balance affordability challenges related primarily to higher interest rates with chronic supply shortages and resultant demand for new homebuilding. Our Recycled Paperboard business sells paper primarily into the gypsum wallboard market, and demand for our paper generally follows the demand for gypsum wallboard.

Cost Outlook

We are well-positioned to manage our cost structure and meet our customers’ needs during the remainder of the fiscal year. Our substantial raw material reserves for our Cement, Aggregates, and Gypsum Wallboard businesses, and their proximity to our respective manufacturing facilities, support our low-cost producer position across all our business segments.

Energy and freight costs increased in all our businesses during fiscal 2023. In the first nine months of fiscal 2024, our natural gas costs have declined and freight costs have stabilized compared with the prior year; however, our solid fuel costs, which are the primary energy costs in manufacturing cement, continue to increase in fiscal 2024 compared with fiscal 2023. Our maintenance costs have increased during fiscal 2024 from fiscal 2023 due to the inflation in repair parts and contractor services, and we expect these amounts to remain elevated.

The primary raw material used to produce recycled paperboard is old corrugated containers (OCC). Prices for OCC stabilized toward the end of fiscal 2023. OCC prices increased during the first nine months of fiscal 2024, and we anticipate OCC pricing to remain relatively stable in the near term. Our current customer contracts for gypsum liner include price adjustments that partially compensate for changes in raw material fiber prices. However, because these price adjustments are not realized until future quarters, costs in our Gypsum Wallboard segment are likely to be adjusted in the period that these price changes are realized.

 

 

21


 

RESULTS OF OPERATIONS

THREE MONTHS ENDED december 31, 2023 Compared WITH THREE MONTHS ENDED december 31, 2022

 

 

 

For the Three Months Ended December 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

 

 

(dollars in thousands, except per share)

 

 

 

 

Revenue

 

$

558,833

 

 

$

511,487

 

 

 

9

%

Cost of Goods Sold

 

 

(378,205

)

 

 

(352,717

)

 

 

7

%

Gross Profit

 

 

180,628

 

 

 

158,770

 

 

 

14

%

Equity in Earnings of Unconsolidated Joint Venture

 

 

9,285

 

 

 

11,377

 

 

 

(18

)%

Corporate General and Administrative Expense

 

 

(14,201

)

 

 

(12,497

)

 

 

14

%

Other Non-Operating Income

 

 

1,019

 

 

 

2,210

 

 

 

(54

)%

Interest Expense, net

 

 

(10,128

)

 

 

(8,932

)

 

 

13

%

Earnings Before Income Taxes

 

 

166,603

 

 

 

150,928

 

 

 

10

%

Income Tax Expense

 

 

(37,465

)

 

 

(33,744

)

 

 

11

%

Net Earnings

 

$

129,138

 

 

$

117,184

 

 

 

10

%

Diluted Earnings per Share

 

$

3.72

 

 

$

3.20

 

 

 

16

%

REVENUE

Revenue increased by $47.3 million, or 9%, to $558.3 million for the three months ended December 31, 2023. Battletown Aggregates and the Stockton Terminal Acquisition contributed $2.0 million and $11.2 million of Revenue, respectively, during the three months ended December 31, 2023. Excluding Battletown Aggregates and the Stockton Terminal Acquisition, Revenue increased by $34.1 million. This was due to higher gross sales prices and Sales Volume, which positively affected Revenue by $26.0 million and $8.1 million, respectively.

COST OF GOODS SOLD

Cost of Goods Sold increased by $25.5 million, or 7%, to $378.2 million for the three months ended December 31, 2023. Battletown Aggregates and the Stockton Terminal Acquisition contributed $2.6 million and $11.3 million of Cost of Goods Sold, respectively, during the three months ended December 31, 2023. Excluding Battletown Aggregates and the Stockton Terminal Acquisition, Cost of Goods Sold increased by $11.6 million, or 3%. The increase was due to higher Sales Volume and increased operating costs of $4.1 million and $7.5 million, respectively. Higher operating costs were primarily related to our Cement and Concrete and Aggregates businesses and are discussed further in the segment analysis.

GROSS PROFIT

Gross Profit increased 14% to $180.6 million during the three months ended December 31, 2023. The increase was primarily related to higher gross sales prices and Sales Volume, partially offset by increased operating costs. The gross margin expanded to 32%, with higher gross sales prices being partially offset by a rise in operating costs.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE

Equity in Earnings of our Unconsolidated Joint Venture decreased $2.1 million, or 18%, for the three months ended December 31, 2023. The decrease was primarily due to higher operating expense and lower Sales Volume, which reduced earnings by approximately $2.2 million and $0.8 million, respectively. This was partially offset by higher gross sales prices, which increased earnings by $0.9 million. The increase in operating expense was due primarily to freight, energy, and maintenance costs of $0.8 million, $0.6 million, and $0.4 million, respectively.

 

22


 

CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE

Corporate General and Administrative Expense increased by approximately $1.7 million, or 14%, for the three months ended December 31, 2023. The increase was primarily due to higher salary and incentive compensation, information technology upgrades, and legal and professional expenses of $0.4 million, $0.9 million, and $0.3 million, respectively. The increase in incentive compensation was due to higher earnings compared with the prior year.

OTHER NON-OPERATING INCOME

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

INTEREST EXPENSE, NET

Interest Expense, net increased by approximately $1.2 million, or 13%, during the three months ended December 31, 2023. This was primarily due to higher interest on our revolving credit facility, which was mostly related to higher interest rates on our borrowings.

EARNINGS BEFORE INCOME TAXES

Earnings Before Income Taxes increased to $166.6 million during the three months ended December 31, 2023, primarily because of higher Gross Profit. This was partially offset by higher Corporate General and Administrative Expense and Interest Expense as well as lower Equity in Earnings of Unconsolidated Joint Venture.

INCOME TAX EXPENSE

Income Tax Expense was $37.5 million for the three months ended December 31, 2023, compared with $33.7 million for the three months ended December 31, 2022. The effective tax rate of 22% remained consistent with the prior-year period.

NET EARNINGS

Net Earnings increased 10% to $129.1 million for the three months ended December 31, 2023, as discussed above.

 

 

23


 

RESULTS OF OPERATIONS

NINE MONTHS ENDED DECember 31, 2023 Compared WITH Nine MONTHS ENDED DECember 31, 2022

 

 

For the Nine Months Ended December 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

 

 

(dollars in thousands, except per share)

 

 

 

 

Revenue

 

$

1,782,590

 

 

$

1,677,942

 

 

 

6

%

Cost of Goods Sold

 

 

(1,216,949

)

 

 

(1,174,067

)

 

 

4

%

Gross Profit

 

 

565,641

 

 

 

503,875

 

 

 

12

%

Equity in Earnings of Unconsolidated Joint Venture

 

 

22,790

 

 

 

23,631

 

 

 

(4

)%

Corporate General and Administrative Expense

 

 

(42,456

)

 

 

(37,944

)

 

 

12

%

Other Non-Operating Income

 

 

2,837

 

 

 

911

 

 

 

211

%

Interest Expense, net

 

 

(32,571

)

 

 

(24,842

)

 

 

31

%

Earnings Before Income Taxes

 

 

516,241

 

 

 

465,631

 

 

 

11

%

Income Tax Expense

 

 

(115,701

)

 

 

(104,447

)

 

 

11

%

Net Earnings

 

$

400,540

 

 

$

361,184

 

 

 

11

%

Diluted Earnings per Share

 

$

11.38

 

 

$

9.66

 

 

 

18

%

REVENUE

Revenue increased by $104.7 million, or 6%, to $1,782.6 million for the nine months ended December 31, 2023. Battletown Aggregates and the Stockton Terminal Acquisition contributed $6.2 million and $32.5 million of Revenue, respectively, during the nine months ended December 31, 2023. Excluding Battletown Aggregates and the Stockton Terminal Acquisition, Revenue increased by $66.0 million, or 4%. This was due to higher gross sales prices, which positively affected Revenue by $120.4 million, partially offset by lower Sales Volume, which adversely affected Revenue by approximately $54.4 million.

COST OF GOODS SOLD

Cost of Goods Sold increased by $42.8 million, or 4%, to $1,216.9 million for the nine months ended December 31, 2023. Battletown Aggregates and the Stockton Terminal Acquisition contributed $6.9 million and $34.6 million of Cost of Goods Sold, respectively, during the nine months ended December 31, 2023. Excluding Battletown Aggregates and the Stockton Terminal Acquisition, Cost of Goods Sold increased by $1.3 million. The increase was due to higher operating costs of $42.6 million, partially offset by lower Sales Volume of $41.3 million. Higher operating costs were primarily related to our Cement and Concrete and Aggregates businesses and are discussed further in the segment analysis.

GROSS PROFIT

Gross Profit increased 12% to $565.6 million during the nine months ended December 31, 2023. The increase was primarily related to higher gross sales prices, partially offset by lower Sales Volume and increased operating costs. The gross margin expanded to 32%, with higher gross sales prices being partially offset by a rise in operating costs.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE

Equity in Earnings of our Unconsolidated Joint Venture decreased $0.8 million, or 4%, for the nine months ended December 31, 2023. The decrease was primarily due to higher operating expense and lower Sales Volume, which adversely affected earnings by $8.0 million and $1.5 million, respectively. This was partially offset by higher gross sales prices, which increased earnings by approximately $8.7 million. The increase in operating expense was primarily related to extended equipment downtime that reduced production and resulted in higher maintenance cost of approximately $2.8 million, as well as purchased cement, freight, and energy costs which reduced operating earnings by $1.3 million, $1.2 million, and $0.8 million, respectively.

 

24


 

CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE

Corporate General and Administrative Expense increased by approximately $4.6 million, or 12%, for the nine months ended December 31, 2023. The increase was primarily due to higher salary and incentive compensation, information technology upgrades, and legal and professional expenses of $1.7 million, $1.4 million, and $1.4 million, respectively. The increase in incentive compensation was due to higher earnings compared with the prior year, while the increase in legal and professional expense was primarily related to the Stockton Acquisition.

OTHER NON-OPERATING INCOME

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

INTEREST EXPENSE, NET

Interest Expense, net increased by approximately $7.8 million, or 31%, during the nine months ended December 31, 2023. This was primarily due to approximately $7.9 million of higher interest on our revolving credit facility, which was related to increased average outstanding borrowings and higher interest rates, partially offset by increased interest income on cash deposits.

EARNINGS BEFORE INCOME TAXES

Earnings Before Income Taxes increased to $516.2 million during the nine months ended December 31, 2023, primarily because of higher Gross Profit. This was partially offset by higher Corporate General and Administrative Expense and Interest Expense as well as lower Equity in Earnings of Unconsolidated Joint Venture.

INCOME TAX EXPENSE

Income Tax Expense was $115.7 million for the nine months ended December 31, 2023, compared with $104.4 million for the nine months ended December 31, 2022. The effective tax rate of 22% remained consistent with the prior-year period.

NET EARNINGS

Net Earnings increased 11% to $400.5 million for the nine months ended December 31, 2023, as discussed above.

Three AND NINE MONTHS ENDED December 31, 2023 vs. three AND nine MONTHS ENDED december 31, 2022 BY SEGMENT

The following presents results within our two business sectors for the three and nine months ended December 31, 2023, and 2022. Revenue and operating results are organized by sector and discussed by individual business segments.

 

25


 

 

Heavy Materials

CEMENT (1)

 

 

For the Three Months Ended December 31,

 

 

 

 

 

For the Nine Months Ended December 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

Percentage Change

 

 

2023

 

 

2022

 

 

Percentage Change

 

 

 

(in thousands, except per ton information)

 

 

 

 

 

(in thousands, except per ton information)

 

 

 

 

Revenue, including Intersegment and Joint Venture

 

$

308,654

 

 

$

256,313

 

 

 

20

%

 

$

998,437

 

 

$

860,289

 

 

 

16

%

Less Intersegment Revenue

 

 

(7,804

)

 

 

(7,719

)

 

 

1

%

 

 

(27,192

)

 

 

(26,371

)

 

 

3

%

Less Joint Venture Revenue

 

 

(26,683

)

 

 

(27,620

)

 

 

(3

)%

 

 

(82,713

)

 

 

(79,065

)

 

 

5

%

Revenue

 

$

274,167

 

 

$

220,974

 

 

 

24

%

 

$

888,532

 

 

$

754,853

 

 

 

18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (M Tons)

 

 

1,824

 

 

 

1,699

 

 

 

7

%

 

 

5,966

 

 

 

5,837

 

 

 

2

%

Freight and Delivery Costs billed to Customers

 

$

(16,944

)

 

$

(12,910

)

 

 

31

%

 

$

(52,344

)

 

$

(48,922

)

 

 

7

%

Average Net Sales Price, per ton (2)

 

$

151.32

 

 

$

134.36

 

 

 

13

%

 

$

150.20

 

 

$

131.44

 

 

 

14

%

Operating Margin, per ton

 

$

57.88

 

 

$

42.56

 

 

 

36

%

 

$

50.46

 

 

$

39.99

 

 

 

26

%

Operating Earnings

 

$

105,566

 

 

$

72,315

 

 

 

46

%

 

$

301,056

 

 

$

233,442

 

 

 

29

%

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

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

Three months ended December 31, 2023

Cement Revenue was $308.7 million, a 20% increase, for the three months ended December 31, 2023. Excluding Intersegment Revenue and the Stockton Terminal Acquisition, Revenue increased $41.1 million, or 17%, for the three months ended December 31, 2023. The increase was primarily due to higher gross sales prices and Sales Volume, which improved Cement Revenue by approximately $34.6 million and $6.5 million, respectively.

Cement Operating Earnings increased by $33.3 million to $105.6 million for the three months ended December 31, 2023. Excluding the Stockton Terminal Acquisition, Operating Earnings increased by $33.4 million. The increase was due to higher gross sales prices and Sales Volume of $34.5 million and $1.5 million, respectively. This was partially offset by higher operating costs of $2.7 million. Higher operating costs were primarily due to increased energy costs of approximately $2.4 million. The Operating Margin increased to 34% from 28%, as a result of higher gross sales prices, partially offset by higher operating expenses.

Nine months ended December 31, 2023

Cement Revenue was $998.4 million, a 16% increase, for the nine months ended December 31, 2023. Excluding Intersegment Revenue and the Stockton Terminal Acquisition, Revenue increased $104.8 million, or 13%, for the nine months ended December 31, 2023. The increase was primarily due to higher gross sales prices, which improved Cement Revenue by approximately $120.2 million, partially offset by lower Sales Volume from legacy cement plants of $15.4 million.

Cement Operating Earnings increased by $67.7 million to $301.1 million for the nine months ended December 31, 2023. Excluding the Stockton Terminal Acquisition, Operating Earnings increased by $69.8 million, or 30%. The increase was due to higher gross sales prices of $120.2 million. This was partially offset by lower Sales Volume and higher operating costs of $4.3 million and $46.1 million, respectively. Higher operating costs were primarily due to increased maintenance, purchased raw materials, energy, and fixed costs of approximately $24.0 million, $11.6 million, $3.8 million, and $2.8 million, respectively. The Operating Margin increased to 30% from 27%, as a result of higher gross sales prices, partially offset by higher operating expenses.

 

 

 

26


 

CONCRETE AND AGGREGATES

 

 

 

For the Three Months Ended
December 31,

 

 

 

 

 

For the Nine Months Ended
December 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

Percentage Change

 

 

2023

 

 

2022

 

 

Percentage Change

 

 

 

(in thousands, except net sales prices)

 

 

 

 

 

(in thousands, except net sales prices)

 

 

 

 

Revenue, including Intersegment

 

$

61,186

 

 

$

55,176

 

 

 

11

%

 

$

201,526

 

 

$

186,407

 

 

 

8

%

Less Intersegment Revenue

 

 

(3,414

)

 

 

 

 

 

 

 

 

(10,235

)

 

 

 

 

 

 

Revenue

 

$

57,772

 

 

$

55,176

 

 

 

5

%

 

$

191,291

 

 

$

186,407

 

 

 

3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M Cubic Yards of Concrete

 

 

308

 

 

 

353

 

 

 

(13

)%

 

 

1,055

 

 

 

1,210

 

 

 

(13

)%

M Tons of Aggregate

 

 

1,034

 

 

 

626

 

 

 

65

%

 

 

3,362

 

 

 

2,333

 

 

 

44

%

Average Net Sales Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concrete - Per Cubic Yard

 

$

149.54

 

 

$

134.42

 

 

 

11

%

 

$

145.29

 

 

$

132.46

 

 

 

10

%

Aggregates - Per Ton

 

$

11.18

 

 

$

11.70

 

 

 

(4

)%

 

$

11.20

 

 

$

11.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings

 

$

1,760

 

 

$

2,692

 

 

 

(35

)%

 

$

13,434

 

 

$

15,700

 

 

 

(14

)%

 

Three months ended December 31, 2023

Concrete and Aggregates Revenue increased 11% to $61.2 million for the three months ended December 31, 2023. Excluding Intersegment Revenue and Battletown Aggregates, Revenue increased $0.6 million. The increase was due to higher gross sales prices in Concrete of $4.7 million and higher Sales Volume in Aggregates of $2.1 million. This was partially offset by lower Sales Volume in Concrete, which reduced Revenue by $6.2 million.

Operating Earnings were approximately $1.8 million, a 35% decrease. Excluding Battletown Aggregates, Operating Earnings were $2.3 million, a decrease of $0.4 million. The decrease in Operating Earnings was due to higher operating costs of $5.6 million. This was partially offset by higher gross sales prices and Sales Volume of $4.7 million and $0.5 million, respectively. The increase in operating costs was primarily due to higher cost of materials of approximately $5.7 million.

Nine months ended December 31, 2023

Concrete and Aggregates Revenue was $201.5 million for the nine months ended December 31, 2023. Excluding Intersegment Revenue and Battletown Aggregates, Revenue declined $1.3 million. The decrease was due to lower Sales Volume, primarily in Concrete, which reduced Revenue by $17.2 million. This was partially offset by higher gross sales prices of $15.9 million.

Operating Earnings were approximately $13.4 million, a 14% decrease. Excluding Battletown Aggregates, Operating Earnings were $14.1 million, a decrease of $1.6 million. The decline in Operating Earnings was due to higher operating costs of $17.8 million. This was partially offset by higher gross sales prices and Sales Volume of $15.9 million and $0.3 million, respectively. The increase in operating costs was primarily due to higher cost of materials, maintenance, and fixed costs of approximately $13.6 million, $2.5 million, and $2.0 million, respectively. This was partially offset by the impact of recording acquired inventories at fair value of $1.2 million in the first quarter of fiscal 2022.

 

 

 

27


 

Light Materials

GYPSUM WALLBOARD

 

 

For the Three Months Ended
December 31,

 

 

 

 

 

For the Nine Months Ended
December 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

Percentage Change

 

 

2023

 

 

2022

 

 

Percentage Change

 

 

 

(in thousands, except per MSF information)

 

 

 

 

 

(in thousands, except per MSF information)

 

 

 

 

Revenue

 

$

200,969

 

 

$

212,016

 

 

 

(5

)%

 

$

629,299

 

 

$

652,981

 

 

 

(4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (MMSF)

 

 

722

 

 

 

728

 

 

 

(1

)%

 

 

2,218

 

 

 

2,309

 

 

 

(4

)%

Freight and Delivery Costs billed to Customers

 

$

(36,569

)

 

$

(38,238

)

 

 

(4

)%

 

$

(112,979

)

 

$

(121,778

)

 

 

(7

)%

Average Net Sales Price, per MSF (1)

 

$

227.78

 

 

$

238.51

 

 

 

(4

)%

 

$

232.79

 

 

$

230.01

 

 

 

1

%

Freight, per MSF

 

$

50.65

 

 

$

52.52

 

 

 

(4

)%

 

$

50.94

 

 

$

52.74

 

 

 

(3

)%

Operating Margin, per MSF

 

$

103.97

 

 

$

119.97

 

 

 

(13

)%

 

$

113.45

 

 

$

113.11

 

 

 

 

Operating Earnings

 

$

75,063

 

 

$

87,335

 

 

 

(14

)%

 

$

251,625

 

 

$

261,164

 

 

 

(4

)%

(1) Net of freight per MSF.

Three months ended December 31, 2023

Gypsum Wallboard Revenue was $201.0 million, a 5% decrease, for the three months ended December 31, 2023. The decrease was primarily due to lower gross sales prices and Sales Volume, which reduced Revenue by $9.3 million and $1.7 million, respectively. Our market share remained relatively consistent during the three months ended December 31, 2023.

Operating Earnings decreased 14% to $75.1 million, primarily because of lower gross sales prices and Sales Volume, as well as higher operating costs. The decline in gross sales prices and Sales Volume negatively affected Operating Earnings by approximately $9.3 million and $0.7 million, respectively, while the higher operating costs decreased Operating Earnings by approximately $2.3 million. The increase in operating costs was primarily related to maintenance, input costs, and wage expense $1.8 million, $0.4 million, and $1.1 million, respectively, partially offset by lower energy costs of $1.3 million. Operating Margin decreased to 37% for the three months ended December 31, 2023, primarily because of higher operating costs and lower gross sales prices. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.

Nine months ended December 31, 2023

Gypsum Wallboard Revenue was $629.3 million, a 4% decrease, for the nine months ended December 31, 2023. The decrease was primarily due to lower Sales Volume, which reduced Revenue by $25.7 million, partially offset by higher gross sales prices, which increased Revenue by $2.1 million. Our market share remained relatively consistent during the nine months ended December 31, 2023.

Operating Earnings decreased 4% to $251.6 million, primarily because of lower Sales Volume and higher operating costs of $10.3 million and $1.3 million, respectively. This was partially offset by higher gross sales prices, which increased Operating Earnings by approximately $2.1 million. Operating Margin remained consistent at 40% for the nine months ended December 31, 2023, primarily because higher gross sales prices offset the increase in operating expenses. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.

 

 

 

28


 

RECYCLED PAPERBOARD

 

 

For the Three Months Ended December 31,

 

 

 

 

 

For the Nine Months Ended December 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

Percentage Change

 

 

2023

 

 

2022

 

 

Percentage Change

 

 

 

(in thousands, except per ton information)

 

 

 

 

 

(in thousands, except per ton information)

 

 

 

 

Revenue, including Intersegment

 

$

47,053

 

 

$

47,774

 

 

 

(2

)%

 

$

135,397

 

 

$

155,520

 

 

 

(13

)%

Less Intersegment Revenue

 

 

(21,128

)

 

 

(24,453

)

 

 

(14

)%

 

 

(61,929

)

 

 

(71,819

)

 

 

(14

)%

Revenue

 

$

25,925

 

 

$

23,321

 

 

 

11

%

 

$

73,468

 

 

$

83,701

 

 

 

(12

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (M Tons)

 

 

84

 

 

 

77

 

 

 

9

%

 

 

247

 

 

 

246

 

 

 

 

Freight and Delivery Costs billed to Customers

 

$

(3

)

 

$

(2,007

)

 

 

(100

)%

 

$

(608

)

 

$

(7,025

)

 

 

(91

)%

Average Net Sales Price, per ton (1)

 

$

559.49

 

 

$

594.93

 

 

 

(6

)%

 

$

546.21

 

 

$

603.73

 

 

 

(10

)%

Operating Margin, per ton

 

$

89.57

 

 

$

101.36

 

 

 

(12

)%

 

$

90.35

 

 

$

69.92

 

 

 

29

%

Operating Earnings

 

$

7,524

 

 

$

7,805

 

 

 

(4

)%

 

$

22,316

 

 

$

17,200

 

 

 

30

%

(1) Net of freight per ton.

Three months ended December 31, 2023

Recycled Paperboard Revenue decreased 2% to $47.1 million during the three months ended December 31, 2023. The decrease was primarily due to lower gross sales prices which reduced Revenue by $4.5 million, partially offset by higher Sales Volume of $3.8 million. Lower gross sales prices were related to the pricing provisions in our long-term sales agreements.

Operating Earnings decreased 4% to $7.5 million, primarily because of lower gross sales prices, which reduced Operating Earnings by $4.5 million. This was partially offset by lower operating expense and higher Sales Volume, which increased Operating Earnings by approximately $3.6 million and $0.6 million, respectively. The decrease in operating expense was primarily related to lower input costs, namely fiber and freight, which improved Operating Earnings by approximately $1.4 million and $2.0 million, respectively. Operating Margin remained consistent at 16% because of lower operating costs, partially offset by lower gross sales prices. Although we have certain pricing provisions in our long-term sales agreements, prices are only adjusted at certain times throughout the year, so price adjustments are not always reflected in the same period as the change in costs.

Nine months ended December 31, 2023

Recycled Paperboard Revenue decreased 13% to $135.4 million during the nine months ended December 31, 2023. The decrease was primarily due to lower gross sales prices, which reduced Revenue by $20.6 million, partially offset by higher Sales Volume of $0.5 million. Lower gross sales prices were related to the pricing provisions in our long-term sales agreements.

Operating Earnings increased 30% to $22.3 million, primarily because of lower operating expenses, which increased Operating Earnings by $25.7 million. This was partially offset by lower gross sales prices, which reduced Operating Earnings by approximately $20.6 million. The decrease in operating expense was primarily related to lower input costs, namely fiber and freight, which lowered Operating Earnings by approximately $21.0 million and $6.4 million, respectively. This was partially offset by higher fixed costs of $1.8 million. The Operating Margin increased to 16% because of lower operating costs, partially offset by lower gross sales prices. Although we have certain pricing provisions in our long-term sales agreements, prices are only adjusted at certain times throughout the year, so price adjustments are not always reflected in the same period as the change in costs.

 

 

29


 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

Recent Accounting Pronouncements

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

LIQUIDITY AND CAPITAL RESOURCES

We believe at this time that we have access to sufficient financial resources from our liquidity sources to fund our business and operations, including contractual obligations, capital expenditures, and debt service obligations for at least the next twelve months. We regularly monitor any potential disruptions to the economy, and to our operations, particularly changing fiscal policy or economic conditions affecting our industries. Please see the Debt Financing Activities section below for a discussion of our revolving credit facility and the amount of borrowings available to us in the next twelve-month period.

Cash Flow

The following table provides a summary of our cash flows:

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Net Cash Provided by Operating Activities

 

$

500,549

 

 

$

480,111

 

Investing Activities

 

 

 

 

 

 

Additions to Property, Plant, and Equipment

 

 

(87,848

)

 

 

(60,951

)

Acquisition Spending

 

 

(55,053

)

 

 

(158,451

)

Net Cash Used in Investing Activities

 

 

(142,901

)

 

 

(219,402

)

Financing Activities

 

 

 

 

 

 

Increase (Decrease) in Revolving Credit Facility

 

 

(50,000

)

 

 

200,000

 

Repayment of Term Loan and Term Loan Credit Agreement

 

 

(7,500

)

 

 

(75,000

)

Dividends Paid to Stockholders

 

 

(26,692

)

 

 

(28,421

)

Purchase and Retirement of Common Stock

 

 

(248,852

)

 

 

(313,898

)

Proceeds from Stock Option Exercises

 

 

11,560

 

 

 

840

 

Payment of Debt Issuance Costs

 

 

 

 

 

(903

)

Shares Redeemed to Settle Employee Taxes on Stock Compensation

 

 

(2,494

)

 

 

(1,806

)

Net Cash Used in Financing Activities

 

 

(323,978

)

 

 

(219,188

)

Net Increase in Cash and Cash Equivalents

 

$

33,670

 

 

$

41,521

 

 

 

30


 

Net Cash Provided by Operating Activities increased by $20.4 million to $500.5 million during the nine months ended December 31, 2023. This increase was primarily attributable to higher Net Earnings, adjusted for non-cash charges of approximately $51.6 million. This was partially offset by changes in working capital of $19.2 million and lower dividends from our Unconsolidated Joint Venture of $12.0 million.

Working capital increased by $53.6 million to $362.2 million at December 31, 2023, compared with March 31, 2023. The increase was due to higher Cash, Inventories, Prepaid and Other Assets of $33.7 million, $41.9 million, and $6.0 million, respectively. This was partially offset by lower Accounts and Notes Receivable, net and Income Tax Receivable of $2.1 million and $13.3 million, respectively, and higher Income Tax Payable and Accounts Payable and Accrued Liabilities of $2.0 million and $8.6 million, respectively. The increase in Inventory was due primarily to the Stockton Terminal Acquisition and the increase in repair parts as we prepare for annual outages in our Cement business. The Stockton Terminal Acquisition in May 2023 increased working capital by approximately $4.1 million at December 31, 2023.

The decrease in Accounts Receivable at December 31, 2023, was primarily related to increased collection efforts during the third fiscal quarter. As a percentage of quarterly sales generated for the respective quarter, Accounts Receivable was approximately 35% at December 31, 2023, and 41% at March 31, 2023. Management measures the change in Accounts Receivable by monitoring the days sales outstanding on a monthly basis to determine if any deterioration has occurred in the collectability of the Accounts Receivable. No significant deterioration in the collectability of our Accounts Receivable was identified at December 31, 2023.

Our Inventory balance at December 31, 2023, increased by approximately $41.9 million from our balance at March 31, 2023. Excluding the Stockton Terminal Acquisition, our Inventory balance increased by $32.7 million. Within Inventory, Raw Materials and Materials-in-Progress, Aggregates, Recycled Paperboard, Repair Parts, and Fuel and Coal increased by approximately $7.6 million, $2.3 million, $4.8 million, $10.7 million, and $4.6 million, respectively. The increase in Raw Materials and Materials-in-Progress and relatively flat balance in Finished Cement is consistent with our business cycle; we generally build up clinker inventory over the winter months to meet the demand for cement in the spring and summer. The increase in repair parts inventory was primarily due to preparing for the expected maintenance outages in the fiscal fourth quarter. The largest individual balance in our Inventory is our repair parts. These parts are necessary given the size and complexity of our manufacturing plants, as well as the age of certain of our plants, which creates the need to stock a high level of repair parts inventory. We believe all of these repair parts are necessary, and we perform semi-annual analyses to identify obsolete parts. We have less than one year’s sales of all product inventories, and our inventories have a low risk of obsolescence because our products are basic construction materials.

Net Cash Used in Investing Activities during the nine months ended December 31, 2023, was approximately $142.9 million, compared with $219.4 million during the same period in 2022. The $76.5 million decrease was primarily related to the lower purchase price for the Stockton Terminal Acquisition in May 2023, compared with the acquisition completed in the nine months ended December 31, 2022, partially offset by higher capital expenditures in the current fiscal year.

Net Cash Used in Financing Activities was approximately $324.0 million during the nine months ended December 31, 2023, compared with $219.2 million during the nine months ended December 31, 2022. The $104.8 million increase was primarily related to reduced borrowings of $182.5 million, partially offset by lower Purchase and Retirement of Common Stock of $65.0 million and increased Proceeds from Stock Option Exercises of $10.8 million.

Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 43.9% and 42.7%, respectively, at December 31, 2023, compared with 48.1% and 47.8%, respectively, at March 31, 2023.

 

31


 

Debt Financing Activities

Below is a summary of the Company’s outstanding debt facilities at December 31, 2023:

 

Maturity

 Revolving Credit Facility

 

May 2027

 Term Loan

 

May 2027

 2.500% Senior Unsecured Notes

 

July 2031

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

The revolving borrowing capacity of our Revolving Credit Facility is $750.0 million (any revolving loans borrowed under the Revolving Credit Facility, as applicable, the Revolving Loans). The Revolving Credit Facility also includes a swingline loan sublimit of $25.0 million, and a $40.0 million letter of credit facility. At December 31, 2023 we had $107.0 million outstanding of Revolving Loans under the Revolving Credit Facility and $8.3 million of outstanding letters of credit, resulting in $634.7 million of available borrowings under the Revolving Credit Facility, net of the outstanding letters of credit. We are contingently liable for performance under $29.3 million in performance bonds relating primarily to our mining operations. We do not have any off-balance sheet debt, or any outstanding debt guarantees.

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

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

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

We have approximately $28.9 million of lease liabilities at December 31, 2023, that have an average remaining life of approximately 9.3 years.

Dividends

Dividends paid were $26.7 million and $28.4 million for the nine months ended December 31, 2023 and 2022, respectively. Each quarterly dividend payment is subject to review and approval by our Board of Directors, who will continue to evaluate our dividend payment amount on a quarterly basis.

 

32


 

Share Repurchases

During the nine months ended December 31, 2023, our share repurchases were as follows:

Period

 

Total Number of
Shares Purchased

 

 

Average Price Paid
Per Share

 

 

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

 

 

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

 

April 1 through April 30, 2023

 

 

234,000

 

 

$

143.73

 

 

 

234,000

 

 

 

 

May 1 through May 31, 2023

 

 

145,000

 

 

 

155.99

 

 

 

145,000

 

 

 

 

June 1 through June 30, 2023

 

 

105,000

 

 

 

161.65

 

 

 

105,000

 

 

 

 

Quarter 1 Totals

 

 

484,000

 

 

$

154.54

 

 

 

484,000

 

 

 

 

July 1 through July 31, 2023

 

 

10,000

 

 

$

184.80

 

 

 

10,000

 

 

 

 

August 1 through August 31, 2023

 

 

157,500

 

 

 

181.29

 

 

 

157,500

 

 

 

 

September 1 through September 30, 2023

 

 

265,000

 

 

 

176.84

 

 

 

265,000

 

 

 

 

Quarter 2 Totals

 

 

432,500

 

 

$

178.64

 

 

 

432,500

 

 

 

 

October 1 through October 31, 2023

 

 

177,500

 

 

$

163.67

 

 

 

177,500

 

 

 

 

November 1 through November 30, 2023

 

 

220,000

 

 

$

176.22

 

 

 

220,000

 

 

 

 

December 1 through December 31, 2023

 

 

161,000

 

 

$

184.53

 

 

 

161,000

 

 

 

 

Quarter 3 Totals

 

 

558,500

 

 

$

174.63

 

 

 

558,500

 

 

 

 

Year-to-Date Totals

 

 

1,475,000

 

 

$

168.71

 

 

 

1,475,000

 

 

 

6,272,204

 

On May 17, 2022, the Board of Directors authorized us to repurchase an additional 7.5 million shares. This authorization brought the cumulative total of Common Stock our Board has approved for repurchase in the open market to 55.9 million shares since we became publicly held in April 1994. Through December 31, 2023, we have repurchased approximately 49.6 million shares.

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

During the nine months ended December 31, 2023, the Company withheld from employees 14,572 shares of stock upon the vesting of Restricted Shares that were granted under the Plan. We withheld these shares to satisfy the employees’ statutory tax withholding requirements, which is necessary once the Restricted Shares or Restricted Share Units are vested.

Capital Expenditures

The following table details capital expenditures by category:

 

 

For the Nine Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Land and Quarries

 

$

5,761

 

 

$

11,178

 

Plants

 

 

42,354

 

 

 

33,650

 

Buildings, Machinery, and Equipment

 

 

39,733

 

 

 

16,123

 

Total Capital Expenditures

 

$

87,848

 

 

$

60,951

 

Capital expenditures for fiscal 2024 are expected to range from $125.0 million to $140.0 million and will be allocated across both Heavy Materials and Light Materials sectors. These estimated capital expenditures will include maintenance capital expenditures and improvements, as well as other safety and regulatory projects.

 

 

33


 

FORWARD LOOKING STATEMENTS

Certain matters discussed in this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates or expectations. These statements are not historical facts or guarantees of future performance but instead represent only the Company’s belief at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside the Company’s control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Company’s actual performance include the following: the cyclical and seasonal nature of the Company’s businesses; public infrastructure expenditures; adverse weather conditions; the fact that our products are commodities and that prices for our products are subject to material fluctuation due to market conditions and other factors beyond our control; availability of raw materials; changes in the costs of energy, including, without limitation, natural gas, coal and oil, and the nature of our obligations to counterparties under energy supply contracts, such as those related to market conditions (such as fluctuations in spot market prices), governmental orders and other matters; changes in the cost and availability of transportation; unexpected operational difficulties, including unexpected maintenance costs, equipment downtime and interruption of production; material nonpayment or non-performance by any of our key customers; fluctuations in or changes in the nature of activity in the oil and gas industry; inability to timely execute announced capacity expansions; difficulties and delays in the development of new business lines; governmental regulation and changes in governmental and public policy (including, without limitation, climate change and other environmental regulation); possible outcomes of pending or future litigation or arbitration proceedings; changes in economic conditions specific to any one or more of the Company’s markets; adverse impact of severe weather conditions (such as winter storms, tornados and hurricanes) and their effects on our facilities, operations and contractual arrangements with third parties; competition; cyber-attacks or data security breaches; announced increases in capacity in the gypsum wallboard and cement industries; changes in the demand for residential housing construction or commercial construction or construction projects undertaken by state or local governments; risks related to pursuit of acquisitions, joint ventures and other transactions or the execution or implementation of such transactions, including the integration of operations acquired by the Company; general economic conditions; and interest rates. For example, increases in interest rates, decreases in demand for construction materials or increases in the cost of energy (including, without limitation, natural gas, coal and oil) and the cost of our raw materials can expected to adversely affect the revenue and operating earnings of our operations. In addition, changes in national or regional economic conditions and levels of infrastructure and construction spending could also adversely affect the Company’s result of operations. Finally, any forward-looking statements made by the Company are subject to the risks and impacts associated with natural disasters, the outbreak, escalation, or resurgence of health emergencies, pandemics or other unforeseen events, including, without limitation, the COVID-19 pandemic and responses thereto designed to contain its spread and mitigate its public health effects, as well as their impact on our operations or on economic conditions, capital and financial markets. These and other factors are described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023. All forward-looking statements made herein are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed herein will increase with the passage of time. The Company undertakes no duty to update any forward-looking statement to reflect future events or changes in the Company’s expectations.

 

 

 

34


 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuations in interest rates on our Revolving Credit Facility. We have occasionally utilized derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage the debt outstanding that is subject to changes in interest rates. We had a $750.0 million Revolving Credit Facility at December 31, 2023, under which borrowings bear interest at a variable rate. A hypothetical 100 basis point increase in interest rates on the $107.0 million of borrowings under the Revolving Credit Facility and the $185.0 million of borrowings under the Term Loan at December 31, 2023, would increase interest expense by approximately $2.9 million on an annual basis. At present, we do not utilize derivative financial instruments.

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

Item 4. Controls and Procedures

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

 

35


 

PART II. OTHER INFORMATION

 

In addition to the legal matters described in Part 1, Item 3 "Legal Proceedings" of our Form 10-K for the fiscal year ended March 31, 2023, from time to time, we have been and may in the future become involved in litigation or other legal proceedings in the ordinary course of our business activities or in connection with transactions or activities undertaken by us, including claims related to worker safety, worker health, environmental matters, commercial contracts, land use rights, taxes, and permits. While the outcome of these proceedings cannot be predicted with certainty, in the opinion of management (based on currently available facts), we do not believe that the ultimate outcome of any currently pending legal proceeding will have a material effect on our consolidated financial condition, results of operations, or liquidity.

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

Item 1A. Risk Factors

For information regarding factors that could impact our results of operations, financial condition, and liquidity, see Part 1. Item 1A. Risk Factors in our Form 10-K for the fiscal year ended March 31, 2023, filed with the Securities and Exchange Commission on May 19, 2023.

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

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

Item 4. Mine Safety Disclosures

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

Item 5. Other Information

None of the Company's directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement, or a non-Rule 10b5-1 trading arrangement during the Company's fiscal third quarter ended December 31, 2023, except as follows: On December 6, 2023, Michael R. Haack, President and Chief Executive Officer, adopted a Rule 10b5-1 trading arrangement intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 10,000 shares of the Company’s common stock and the exercise of up to 21,700 stock options and the sale of the underlying shares, subject to certain conditions. Trades may occur under Mr. Haack’s plan during the period from (a) the later of March 6, 2024, or the third trading day after the filing of the Company’s Form 10-Q for the quarter ended December 31, 2023, through (b) March 5, 2025.

 

36


 

Item 6. Exhibits

31.1*

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

31.2*

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

32.1*

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

32.2*

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

95*

Mine Safety Disclosure.

101.INS*

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

101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

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

* Filed herewith.

 

 

 

37


 

SIGNATURES

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

 

 

EAGLE MATERIALS INC.

 

 

Registrant

 

 

January 25, 2024

 

/s/ MICHAEL R. HAACK

 

 

Michael R. Haack

President and Chief Executive Officer

(principal executive officer)

 

 

January 25, 2024

 

/s/ D. CRAIG KESLER

 

 

D. Craig Kesler

Executive Vice President – Finance and

Administration and Chief Financial Officer

(principal financial officer)

January 25, 2024

/s/ WILLIAM R. DEVLIN

William R. Devlin

Senior Vice President – Controller and

Chief Accounting Officer

(principal accounting officer)

 

 

38