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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended
Commission File Number
(Exact name of registrant as specified in its charter)
(
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
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Trading Symbol(s) |
|
Name of each exchange on which registered |
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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.
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).
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.
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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Emerging growth company |
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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 24, 2023, the number of outstanding shares of common stock was:
|
Class |
|
Outstanding Shares |
|
Common Stock, $.01 Par Value |
|
|
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION (unaudited)
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Page |
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Item 1. |
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Consolidated Financial Statements |
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Consolidated Statements of Earnings for the Three and Nine Months Ended December 31, 2022 and 2021 |
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1 |
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Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended December 31, 2022 and 2021 |
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2 |
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Consolidated Balance Sheets as of December 31, 2022, and March 31, 202 2 |
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3 |
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Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2022 and 2021 |
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4 |
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5 |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
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Item 3. |
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37 |
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Item 4. |
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37 |
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Item 1. |
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38 |
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Item 1a. |
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38 |
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Item 2. |
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38 |
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Item 4. |
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38 |
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Item 6. |
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39 |
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40 |
|||
EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
|
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For the Three Months Ended December 31, |
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For the Nine Months Ended December 31, |
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||||||||||
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2022 |
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2021 |
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2022 |
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2021 |
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||||
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(dollars in thousands, except share and per share data) |
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|||||||||||||
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of Goods Sold |
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Gross Profit |
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Equity in Earnings of Unconsolidated Joint Venture |
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Corporate General and Administrative Expense |
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(
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) |
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(
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) |
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(
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) |
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(
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) |
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Loss on Early Retirement of Senior Notes |
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(
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) |
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Other Nonoperating Income |
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Interest Expense, net |
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(
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) |
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(
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) |
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(
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) |
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(
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) |
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Earnings Before Income Taxes |
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Income Taxes |
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(
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) |
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(
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) |
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(
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) |
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(
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) |
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Net Earnings |
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||||
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EARNINGS PER SHARE |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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AVERAGE SHARES OUTSTANDING |
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||||
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Basic |
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Diluted |
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CASH DIVIDENDS PER SHARE |
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$ |
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$ |
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$ |
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$ |
|
|
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, |
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For the Nine Months Ended December 31, |
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||||||||||
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2022 |
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2021 |
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2022 |
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2021 |
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(dollars in thousands) |
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|||||||||||||
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Net Earnings |
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$ |
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$ |
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$ |
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$ |
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Net Actuarial Change in Defined Benefit Plans |
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||||
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Amortization of Net Actuarial Loss |
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Tax Expense |
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(
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) |
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(
|
) |
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(
|
) |
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(
|
) |
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Comprehensive Earnings |
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$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See Notes to Unaudited Consolidated Financial Statements.
2
EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
|
|
|
December 31, |
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|
March 31, |
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||
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2022 |
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2022 |
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||
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(dollars in thousands) |
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|||||
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ASSETS |
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||
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Current Assets |
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||
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Cash and Cash Equivalents |
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$ |
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$ |
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Accounts and Notes Receivable, net |
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Inventories |
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Income Tax Receivable |
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Prepaid and Other Assets |
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Total Current Assets |
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Property, Plant, and Equipment, net |
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Notes Receivable |
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Investment in Joint Venture |
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Operating Lease Right-of-Use Assets |
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Goodwill and Intangible Assets, net |
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Other Assets |
|
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|
Total Assets |
|
$ |
|
|
|
$ |
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
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||
|
Current Liabilities |
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|
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||
|
Accounts Payable |
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$ |
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$ |
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|
Accrued Liabilities |
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Operating Lease Liabilities |
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Income Taxes Payable |
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|
Current Portion of Long-term Debt |
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|
Total Current Liabilities |
|
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|
Long-term Debt |
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Noncurrent Operating Lease Liabilities |
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Other Long-term Liabilities |
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Deferred Income Taxes |
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Total Liabilities |
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|
Stockholders’ Equity |
|
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||
|
Preferred Stock, Par Value $
|
|
|
|
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|
Common Stock, Par Value $
|
|
|
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|
Capital in Excess of Par Value |
|
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Accumulated Other Comprehensive Losses |
|
|
(
|
) |
|
|
(
|
) |
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
|
|
|
$ |
|
|
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, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
|
Net Earnings |
|
$ |
|
|
|
$ |
|
|
|
Adjustments to Reconcile Net Earnings to Net Cash Provided
|
|
|
|
|
|
|
||
|
Depreciation, Depletion, and Amortization |
|
|
|
|
|
|
|
|
|
Write-off of Debt Issuance Costs |
|
|
|
|
|
|
|
|
|
Deferred Income Tax Provision |
|
|
|
|
|
|
|
|
|
Stock Compensation Expense |
|
|
|
|
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|
|
|
|
Equity in Earnings of Unconsolidated Joint Venture |
|
|
(
|
) |
|
|
(
|
) |
|
Distributions from Joint Venture |
|
|
|
|
|
|
|
|
|
Changes in Operating Assets and Liabilities |
|
|
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|
|
|
||
|
Accounts and Notes Receivable |
|
|
|
|
|
|
(
|
) |
|
Inventories |
|
|
(
|
) |
|
|
|
|
|
Accounts Payable and Accrued Liabilities |
|
|
(
|
) |
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
(
|
) |
|
Income Taxes Payable (Receivable) |
|
|
|
|
|
|
(
|
) |
|
Net Cash Provided by Operating Activities |
|
|
|
|
|
|
|
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|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
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|
|
||
|
Additions to Property, Plant, and Equipment |
|
|
(
|
) |
|
|
(
|
) |
|
Acquisition Spending |
|
|
(
|
) |
|
|
|
|
|
Net Cash Used in Investing Activities |
|
|
(
|
) |
|
|
(
|
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
|
Borrowings Under Revolving Credit Facility |
|
|
|
|
|
|
|
|
|
Repayment of Borrowings Under Revolving Credit Facility |
|
|
(
|
) |
|
|
|
|
|
Proceeds from 2.500% Senior Unsecured Notes |
|
|
|
|
|
|
|
|
|
Repayment of 4.500% Senior Unsecured Notes |
|
|
|
|
|
|
(
|
) |
|
Repayment of Term Loan and Term Loan Credit Agreement |
|
|
(
|
) |
|
|
(
|
) |
|
Dividends Paid to Stockholders |
|
|
(
|
) |
|
|
(
|
) |
|
Purchase and Retirement of Common Stock |
|
|
(
|
) |
|
|
(
|
) |
|
Proceeds from Stock Option Exercises |
|
|
|
|
|
|
|
|
|
Loss on Early Retirement of Senior Notes |
|
|
|
|
|
|
(
|
) |
|
Payment of Debt Issuance Costs |
|
|
(
|
) |
|
|
(
|
) |
|
Shares Redeemed to Settle Employee Taxes on Stock Compensation |
|
|
(
|
) |
|
|
(
|
) |
|
Net Cash Used in Financing Activities |
|
|
(
|
) |
|
|
(
|
) |
|
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
|
|
|
|
|
|
(
|
) |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
|
|
|
$ |
|
|
See Notes to Unaudited Consolidated Financial Statements.
4
EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
|
|
|
Common
|
|
|
Capital in
|
|
|
Retained
|
|
|
Accumulated
|
|
|
Total |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
Balance at March 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Net Earnings |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Stock Compensation Expense |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock Option Exercises and Restricted Share Issuances |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Shares Redeemed to Settle Employee Taxes |
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Purchase and Retirement of Common Stock |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Dividends to Shareholders |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Unfunded Pension Liability, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Net Earnings |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Stock Compensation Expense |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock Option Exercise and Restricted Share Issuances |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Shares Redeemed to Settle Employee Taxes |
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Purchase and Retirement of Common Stock |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Dividends to Shareholders |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Unfunded Pension Liability, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Net Earnings |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Stock Compensation Expense |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock Option Exercise and Restricted Share Issuances |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Purchase and Retirement of Common Stock |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Dividends to Shareholders |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Unfunded Pension Liability, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
Common
|
|
|
Capital in
|
|
|
Retained
|
|
|
Accumulated
|
|
|
Total |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
Balance at March 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Net Earnings |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Stock Compensation Expense |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock Option Exercises and Restricted Share Issuances |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Shares Redeemed to Settle Employee Taxes |
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Purchase and Retirement of Common Stock |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Dividends to Shareholders |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Unfunded Pension Liability, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Net Earnings |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Stock Compensation Expense |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock Option Exercise and Restricted Share Issuances |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Shares Redeemed to Settle Employee Taxes |
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Purchase and Retirement of Common Stock |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Dividends to Shareholders |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Unfunded Pension Liability, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Net Earnings |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Stock Compensation Expense |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock Option Exercise and Restricted Share Issuances |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Purchase and Retirement of Common Stock |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Dividends to Shareholders |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Unfunded Pension Liability, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2022 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
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 , 2022, 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 20, 2022.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. In our opinion, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the information in the following Unaudited Consolidated Financial Statements of the Company have been included. The results of operations for interim periods are not necessarily indicative of the results for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
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, |
|
|||||
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
|
(dollars in thousands) |
|
|||||
|
Cash Payments |
|
|
|
|
|
|
||
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
Income Taxes |
|
|
|
|
|
|
|
|
|
Operating Cash Flows Used for Operating Leases |
|
|
|
|
|
|
|
|
6
(C) ACQUISITIONS
ConAgg Acquisition
On April 22, 2022, we purchased the assets of a readymix concrete and aggregates business (the ConAgg Acquisition). The purchase price of the ConAgg Acquisition was approximately $
The following table summarizes the allocation of the Purchase Price to assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
Working Capital |
|
$ |
|
|
|
Property, Plant, and Equipment |
|
|
|
|
|
Intangible Assets |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Total Purchase Price |
|
$ |
|
|
The estimated useful lives assigned to Property, Plant, and Equipment range from
The following table presents the Revenue and Operating Earnings related to the ConAgg Acquisition that has been included in our Consolidated Statement of Earnings from April 22, 2022, through December 31 , 2022.
|
|
|
|
|
|
|
|
||
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||
|
|
|
December 31, 2022 |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||
|
Revenue |
|
$ |
|
|
|
$ |
|
|
|
Operating Earnings |
|
$ |
(
|
) |
|
$ |
|
|
Operating Earnings shown above for the three and nine months ended
December 31
, 2022, include approximately $
Terminal Acquisition
On September 16, 2022, we acquired a cement distribution terminal located in Nashville, Tennessee (the Terminal Acquisition). The purchase price of the Terminal Acquisition was approximately $
7
The following table summarizes the preliminary allocation of the Purchase Price of the Terminal Acquisition to the assets acquired and liabilities assumed as of December 31 , 2022:
|
|
|
|
|
|
|
|
|
Estimated Fair Value |
|
|
|
Working Capital |
|
$ |
|
|
|
Property, Plant, and Equipment |
|
|
|
|
|
Intangible Assets |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Total Purchase Price |
|
$ |
|
|
The estimated useful lives assigned to Property, Plant, and Equipment range from
(D) REVENUE
We earn Revenue primarily from the sale of products, which include cement, concrete, aggregates, gypsum wallboard, and recycled paperboard. The vast majority of Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard is originated by purchase orders from our customers, who are mostly third-party contractors and suppliers. Revenue from our Recycled Paperboard segment is generated mainly through long-term supply agreements that mature in
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 that are billed to the customer are recorded as Revenue, while costs we incur for shipping and handling are recorded as expenses and included in Cost of Goods Sold.
Other Non-Operating Income includes lease and rental income, asset sale income, non-inventoried aggregates sales income, distribution center income, and trucking income, as well as other miscellaneous revenue items and costs that have not been allocated to a business segment.
8
(E) ACCOUNTS AND NOTES RECEIVABLE
Accounts Receivable are shown net of the allowance for doubtful accounts totaling $
We had Notes Receivable totaling approximately $
(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.
|
|
|
December 31, |
|
|
March 31, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Raw Materials and Materials-in-Progress |
|
$ |
|
|
|
$ |
|
|
|
Finished Cement |
|
|
|
|
|
|
|
|
|
Aggregates |
|
|
|
|
|
|
|
|
|
Gypsum Wallboard |
|
|
|
|
|
|
|
|
|
Paperboard |
|
|
|
|
|
|
|
|
|
Repair Parts and Supplies |
|
|
|
|
|
|
|
|
|
Fuel and Coal |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
(G) ACCRUED EXPENSES
Accrued Expenses consist of the following:
|
|
|
December 31, |
|
|
March 31, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Payroll and Incentive Compensation |
|
$ |
|
|
|
$ |
|
|
|
Benefits |
|
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Property Taxes |
|
|
|
|
|
|
|
|
|
Power and Fuel |
|
|
|
|
|
|
|
|
|
Freight |
|
|
|
|
|
|
|
|
|
Legal and Professional |
|
|
|
|
|
|
|
|
|
Sales and Use Tax |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
9
(H) LEASES
We lease certain real estate, buildings, and equipment. Certain of these leases contain escalations of rent over the term of the lease, as well as options for us to extend the term of the lease at the end of the original term. These extensions range from periods of
to
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, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Operating Lease Cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Short-term Lease Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lease Cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The Right-of-Use Assets and Lease Liabilities are reflected on our Balance Sheet as follows:
|
|
|
December 31, |
|
|
March 31, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Operating Leases |
|
|
|
|
|
|
||
|
Operating Lease Right-of-Use Assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||
|
Current Operating Lease Liabilities |
|
$ |
|
|
|
$ |
|
|
|
Noncurrent Operating Lease Liabilities |
|
|
|
|
|
|
|
|
|
Total Operating Lease Liabilities |
|
$ |
|
|
|
$ |
|
|
Future payments for operating leases are as follows (dollars in thousands):
|
Fiscal Year |
|
Amount |
|
|
|
2023 (remaining three months) |
|
$ |
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total Lease Payments |
|
$ |
|
|
|
Less: Imputed Interest |
|
|
(
|
) |
|
Present Value of Lease Liabilities |
|
$ |
|
|
|
|
|
|
|
|
|
Weighted-Average Remaining Lease Term (in years) |
|
|
|
|
|
Weighted-Average Discount Rate |
|
|
|
% |
(I) S hare -BASED EMPLOYEE COMPENSATION
On August 7, 2013, our stockholders approved the Eagle Materials Inc. Amended and Restated Incentive Plan (the Plan), which increased the shares we are authorized to issue as awards by
10
Long-Term Compensation Plans
OPTIONS
In May 2022, the Compensation Committee of the Board of Directors approved the granting to certain officers and key employees an aggregate of
In August 2022, we granted
The Fiscal 2023 Employee Performance Stock Option Award, the Fiscal 2023 Employee Time-Vesting Stock Option Award, and the Fiscal 2023 Board of Directors Stock Option Award were valued at their grant date using the Black-Scholes option pricing model.
|
|
|
|
|
|
|
Dividend Yield |
|
|
|
% |
|
Expected Volatility |
|
|
|
% |
|
Risk-Free Interest Rate |
|
|
|
% |
|
Expected Life |
|
|
|
|
In addition to the stock options grants described above, from time to time we issue stock options to certain employees. Any options issued are valued using the Black-Scholes options pricing model on the grant date and are expensed over the vesting period.
Stock option expense for all outstanding stock option awards totaled approximately $
11
The following table represents stock option activity for the nine months ended December 31 , 2022:
|
|
|
Number
|
|
|
Weighted-
|
|
||
|
Outstanding Options at March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
|
Exercised |
|
|
(
|
) |
|
$ |
|
|
|
Cancelled |
|
|
(
|
) |
|
$ |
|
|
|
Outstanding Options at December 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Options Exercisable at December 31, 2022 |
|
|
|
|
|
|
|
|
|
Weighted-Average Fair Value of Options Granted
|
|
$ |
|
|
|
|
|
|
The following table summarizes information about stock options outstanding at December 31, 2022:
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||||||
|
Range of Exercise Prices |
|
Number of
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
Number of
|
|
|
Weighted-
|
|
|||||
|
$
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
At
December 31
, 2022, the aggregate intrinsic value for the outstanding and exercisable options was approximately $
RESTRICTED STOCK
In May 2022, the Compensation Committee approved the granting to certain officers and key employees an aggregate of
In August 2022, we granted
12
In addition to the restricted stock grants 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 are expensed over the vesting period.
The fair value of restricted stock is based on the stock price on the grant date.
|
|
|
Number of Shares |
|
|
Weighted-Average Grant Date Fair Value |
|
||
|
Nonvested Restricted Stock at March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
|
Vested |
|
|
(
|
) |
|
$ |
|
|
|
Forfeited |
|
|
(
|
) |
|
$ |
|
|
|
Nonvested Restricted Stock at December 31, 2022 |
|
|
|
|
|
$ |
|
|
Expense related to restricted shares was approximately $
The number of shares available for future grants of stock options, restricted stock units, stock appreciation rights, and restricted stock under the Plan was
(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, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Weighted-Average Shares of Common Stock Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Assumed Exercise of Outstanding Dilutive Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Less Shares Repurchased from Proceeds of Assumed Exercised Options |
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|
(
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) |
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(
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) |
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(
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) |
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(
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) |
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Restricted Stock Units |
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Weighted-Average Common Stock and Dilutive Securities Outstanding |
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Shares Excluded Due to Anti-dilution Effects |
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|
(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. These plans have been frozen to new participants and new benefits within the last few years, 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, 2022. Due to the frozen status and current funding of the single-employer pension plans, our expected pension expense for fiscal 2023 is less than $
13
(L) INCOME TAXES
Income Taxes for the interim periods presented have been included in the accompanying financial statements on the basis of an estimated annual effective tax rate. In addition to the amount of tax resulting from applying the estimated annual effective tax rate to pre-tax income, we will include, when appropriate, certain items treated as discrete events to arrive at an estimated overall tax amount. The effective tax rate for the nine months ended
December 31
, 2022, was approximately
(M) LONG-TERM DEBT
Long-term Debt at December 31 , 2022 was as follows:
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December 31, |
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March 31, |
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2022 |
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|
2022 |
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||
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(dollars in thousands) |
|
|||||
|
Revolving Credit Facility |
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$ |
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|
$ |
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|
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|
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Term Loan |
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Total Debt |
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|
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|
|
Less: Current Portion of Long-term Debt |
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|
(
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) |
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|
|
Less: Unamortized Discounts and Debt Issuance Costs |
|
|
(
|
) |
|
|
(
|
) |
|
Long-term Debt |
|
$ |
|
|
|
$ |
|
|
Revolving Credit Facility
We have an unsecured $
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
14
The Company pays each lender a participation fee with respect to such lender’s participations in letters of credit, which fee accrues at the same Applicable Rate (as defined in the Revolving Credit Facility) used to determine the interest rate applicable to Eurodollar Revolving Loans (as defined in the Revolving Credit Facility) plus a fronting fee for each letter of credit issued by the issuing bank in an amount equal to
There was $
Term Loan
On May 5, 2022, we borrowed the $
15
2.500% Senior Unsecured Notes Due 2031
On July 1, 2021, we issued $
Retirement of Debt
In connection with the issuance of the 2.500% Senior Unsecured Notes on
(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
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,
16
production, distribution, and sale of portland cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; and the mining and sale of aggregates (crushed stone, sand, and gravel).
We operate
We operate
We account for intersegment sales at market prices. For segment reporting purposes only, we proportionately consolidate our
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.
|
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For the Three Months Ended December 31, |
|
|
For the Nine Months Ended December 31, |
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2022 |
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2021 |
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2022 |
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2021 |
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||||
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(dollars in thousands) |
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|||||||||||||
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Revenue |
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||||
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Cement |
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$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Concrete and Aggregates |
|
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|
|
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Gypsum Wallboard |
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|
|
|
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|
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Paperboard |
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Less: Intersegment Revenue |
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(
|
) |
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|
(
|
) |
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(
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) |
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(
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) |
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Less: Joint Venture Revenue |
|
|
(
|
) |
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(
|
) |
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|
(
|
) |
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|
(
|
) |
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|
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$ |
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$ |
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$ |
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$ |
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For the Three Months Ended December 31, |
|
|
For the Nine Months Ended December 31, |
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2022 |
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2021 |
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2022 |
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2021 |
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||||
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(dollars in thousands) |
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|||||||||||||
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Intersegment Revenue |
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|
||||
|
Cement |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Paperboard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cement Sales Volume (M tons) |
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||||
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Wholly Owned |
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Joint Venture |
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17
|
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For the Three Months Ended December 31, |
|
|
For the Nine Months Ended December 31, |
|
||||||||||
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2022 |
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2021 |
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2022 |
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2021 |
|
||||
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(dollars in thousands) |
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|
(dollars in thousands) |
|
||||||||||
|
Operating Earnings |
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|
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|
||||
|
Cement |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Concrete and Aggregates |
|
|
|
|
|
|
|
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|
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|
Gypsum Wallboard |
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|
|
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|
|
|
|
|
|
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Paperboard |
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Sub-Total |
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|
|
|
|
|
|
Corporate General and Administrative Expense |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Loss on Early Retirement of Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
Other Nonoperating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Interest and Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, net |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Earnings Before Income Taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cement Operating Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Wholly Owned |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Joint Venture |
|
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|
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|
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|
|
|
|
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$ |
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|
$ |
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$ |
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$ |
|
|
|
Capital Expenditures |
|
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|
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|
|
|
||||
|
Cement |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Concrete and Aggregates |
|
|
|
|
|
|
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|
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|
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|
Gypsum Wallboard |
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Paperboard |
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Corporate and Other |
|
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|
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|
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$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Depreciation, Depletion, and Amortization |
|
|
|
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|
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|
|
|
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|
||||
|
Cement |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Concrete and Aggregates |
|
|
|
|
|
|
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|
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Gypsum Wallboard |
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Paperboard |
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Corporate and Other |
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|
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|
|
|
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|
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|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
December 31, |
|
|
March 31, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Identifiable Assets |
|
|
|
|
|
|
||
|
Cement |
|
$ |
|
|
|
$ |
|
|
|
Concrete and Aggregates |
|
|
|
|
|
|
|
|
|
Gypsum Wallboard |
|
|
|
|
|
|
|
|
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Paperboard |
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|
|
|
|
|
|
|
|
Other, net |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
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.
18
The segment breakdown of Goodwill is as follows:
|
|
|
December 31, |
|
|
March 31, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Cement |
|
$ |
|
|
|
$ |
|
|
|
Concrete and Aggregates |
|
|
|
|
|
|
|
|
|
Gypsum Wallboard |
|
|
|
|
|
|
|
|
|
Paperboard |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The increases in Goodwill in the Cement and Concrete and Aggregates segments were related to the Terminal Acquisition and ConAgg Acquisition, respectively. The purchase price allocation for the Terminal Acquisition is still in progress, and may affect the recorded balance of Goodwill when completed.
Summarized financial information for the Unconsolidated Joint Venture is set out below. This summarized financial information includes the total amounts 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, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
(dollars in thousands) |
|
|
(dollars in thousands) |
|
||||||||||
|
Revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Gross Margin |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Earnings Before Income Taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
December 31, |
|
|
March 31, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Current Assets |
|
$ |
|
|
|
$ |
|
|
|
Noncurrent Assets |
|
$ |
|
|
|
$ |
|
|
|
Current Liabilities |
|
$ |
|
|
|
$ |
|
|
(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, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
(dollars in thousands) |
|
|
(dollars in thousands) |
|
||||||||||
|
Interest Income |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest Income includes interest earned on investments of 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.
19
(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
, 2022, we had contingent liabilities under these outstanding letters of credit of approximately $
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
We are currently contingently liable for performance under $
(Q) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of our long-term debt has been estimated based upon our current incremental borrowing rates for similar types of borrowing arrangements. The fair value of our 2.500% Senior Unsecured Notes at December 31 , 2022, is as follows:
|
|
|
Fair Value |
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
$ |
|
|
The estimated fair value of our long-term debt was based on quoted prices of similar debt instruments with similar terms that are publicly traded (level 1 input). The carrying values of Cash and Cash Equivalents, Accounts Receivable, Notes Receivable, Accounts Payable, and Accrued Liabilities approximate their fair values at December 31 , 2022, 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 , 2022.
20
I TEM 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, 2022 and 2021, are presented on a consolidated basis and by these business segments – Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard.
We conduct one of our cement operations through a joint venture, Texas Lehigh Cement Company LP, which is located in Buda, Texas (the Joint Venture). We own a 50% interest in the Joint Venture and account for our interest under the equity method of accounting. We proportionately consolidate our 50% share of the Joint Venture’s Revenue and Operating Earnings in the presentation of our Cement segment, which is the way management organizes the segments within the Company for making operating decisions and assessing performance.
All our business activities are conducted in the United States. These activities include the mining of limestone for the manufacture, production, distribution, and sale of portland cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; and the mining and sale of aggregates (crushed stone, sand, and gravel).
On April 22, 2022, we completed the ConAgg Acquisition. The purchase price of the ConAgg Acquisition was approximately $120.2 million. The ConAgg Acquisition is included in our Heavy Materials sector, in the Concrete and Aggregates business segment.
On September 16, 2022, we acquired a cement distribution terminal located in Nashville, Tennessee (the Terminal Acquisition). The purchase price of the Terminal Acquisition was approximately $39.5 million. The Terminal Acquisition is included in our Heavy Materials sector, in the Cement business segment.
See Footnote (C) in the Unaudited Consolidated Financial Statements for more information regarding the ConAgg Acquisition and the Terminal Acquisition.
MARKET CONDITIONS AND OUTLOOK
During the first nine months of fiscal 2023, our end markets generally remained resilient despite external challenges, such as transportation disruptions, supply chain constraints, and increasing interest rates and inflation. Construction activity in most of our regional markets continued to outpace the national average, and demand in our largest business lines remained strong during the three months ended December 31, 2022, notwithstanding difficult weather conditions which affected our Cement sales volumes.
21
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. We expect demand for cement to remain strong given the recovery in private non-residential construction; increased federal funding from the Infrastructure Investment and Jobs Act for infrastructure construction and repair projects during the latter half of this fiscal year and into calendar 2023; and continued high state budget allocations for additional infrastructure projects. Despite underlying demand growth, our ability to achieve further Cement sales volume growth from our existing facilities is limited, because our integrated cement sales network 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. Gypsum Wallboard shipments and orders currently remain steady, and we expect home construction backlogs to support demand in the near term. We recognize tighter U.S. fiscal policy, which has resulted in higher mortgage rates, will likely have some adverse impact on residential construction activity in the future; however, the magnitude and duration remains unclear at this time. 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 believe we are well-positioned to manage our cost structure and meet our customers’ needs during the remainder of the fiscal year, despite rising inflation and increased transportation costs. 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 2022, as well as the first nine months of fiscal 2023. While natural gas costs have recently declined and freight costs have stabilized, we expect solid fuel and electricity costs, which are the primary energy costs in manufacturing cement, to increase in fiscal 2024.
The primary raw material used to produce paperboard is OCC. Prices for OCC significantly increased during the prior year, but have recently declined. 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, material costs in our Gypsum Wallboard segment are likely to be lower in the period that these price adjustments are realized.
22
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2022, Compared WITH THREE MONTHS ENDED DECEMBER 31, 2021
|
|
|
For the Three Months Ended December 31, |
|
|
|
|
||||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
|
|
|
(dollars in thousands, except per share) |
|
|
|
|
||||||
|
Revenue |
|
$ |
511,487 |
|
|
$ |
462,941 |
|
|
|
10 |
% |
|
Cost of Goods Sold |
|
|
(352,717 |
) |
|
|
(324,355 |
) |
|
|
9 |
% |
|
Gross Profit |
|
|
158,770 |
|
|
|
138,586 |
|
|
|
15 |
% |
|
Equity in Earnings of Unconsolidated Joint Venture |
|
|
11,377 |
|
|
|
8,555 |
|
|
|
33 |
% |
|
Corporate General and Administrative Expense |
|
|
(12,497 |
) |
|
|
(12,851 |
) |
|
|
(3 |
)% |
|
Other Nonoperating Income |
|
|
2,210 |
|
|
|
3,207 |
|
|
|
(31 |
)% |
|
Interest Expense, net |
|
|
(8,932 |
) |
|
|
(5,651 |
) |
|
|
58 |
% |
|
Earnings Before Income Taxes |
|
|
150,928 |
|
|
|
131,846 |
|
|
|
14 |
% |
|
Income Tax Expense |
|
|
(33,744 |
) |
|
|
(29,367 |
) |
|
|
15 |
% |
|
Net Earnings |
|
$ |
117,184 |
|
|
$ |
102,479 |
|
|
|
14 |
% |
|
Diluted Earnings per Share |
|
$ |
3.20 |
|
|
$ |
2.53 |
|
|
|
26 |
% |
REVENUE
Revenue increased by $48.6 million, or 10%, to $511.5 million for the three months ended December 31, 2022. The ConAgg Acquisition contributed $9.8 million of Revenue during the three months ended December 31, 2022. Excluding the ConAgg Acquisition, Revenue improved by $38.8 million, or 8%, largely because of higher gross sales prices of approximately $65.1 million, partially offset by lower Sales Volume of $26.3 million.
COST OF GOODS SOLD
Cost of Goods Sold increased by $28.3 million, or 9%, to $352.7 million for the three months ended December 31, 2022. The ConAgg Acquisition contributed $10.1 million of Cost of Goods Sold during the three months ended December 31, 2022. Excluding the ConAgg Acquisition, Cost of Goods Sold increased by $18.2 million, or 6%. The increase was due to higher operating costs of $38.0 million, partially offset by lower Sales Volume of $19.8 million. Higher operating costs were primarily related to our Cement and Gypsum Wallboard segments, which are discussed further in the segment analysis.
GROSS PROFIT
Gross Profit increased 15% to $158.8 million during the three months ended December 31, 2022. The improvement was primarily related to higher gross sales prices, partially offset by lower Sale Volume and higher operating costs. The gross margin increased to 31%, with higher gross sales prices being partially offset by an increase in operating costs.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE
Equity in Earnings of our Unconsolidated Joint Venture increased $2.8 million, or 33%, for the three months ended December 31, 2022. The increase was primarily due to higher to gross sales prices, which contributed $5.7 million to earnings. This was partially offset by lower Sales Volume and increased operating costs, which adversely affected earnings by approximately $1.7 million and $1.2 million, respectively. The increase in operating costs was primarily related to higher maintenance costs, which reduced operating earnings by $1.0 million.
23
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE
Corporate General and Administrative Expense declined by approximately $0.4 million, or 3%, for the three months ended December 31, 2022. The decrease was primarily due to lower insurance costs of approximately $0.6 million, partially offset by higher salary and incentive compensation expenses of $0.3 million. The increase in salary and incentive compensation was due to higher earnings in the third quarter of fiscal 2023.
OTHER NONOPERATING INCOME
Other Nonoperating 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 $3.2 million, or 58%, during the three months ended December 31, 2022. The increase was primarily due to $3.6 million of interest expense in the current-year quarter related to higher interest rates and average balance outstanding under our Revolving Credit Facility. This was partially offset by higher interest income of $0.2 million. See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.
EARNINGS BEFORE INCOME TAXES
Earnings Before Income Taxes increased to $150.9 million during the three months ended December 31, 2022, primarily because of higher Gross Profit and Equity in Earnings of Unconsolidated Joint Venture. The increase was partially offset by higher Interest Expense, net and lower Other Nonoperating Income.
INCOME TAX EXPENSE
Income Tax Expense was $33.7 million for the three months ended December 31, 2022, compared with $29.4 million for the three months ended December 31, 2021. The effective tax rate remained flat at 22%.
NET EARNINGS
Net Earnings increased 14% to $117.2 million for the three months ended December 31, 2022, as shown in the table above.
24
RESULTS OF OPERATIONS
Nine MONTHS ENDED DECEMBER 31, 2022, Compared WITH Nine MONTHS ENDED DECEMBER 31, 2021
|
|
|
For the Nine Months Ended December 31, |
|
|
|
|
||||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
|
|
|
(dollars in thousands, except per share) |
|
|
|
|
||||||
|
Revenue |
|
$ |
1,677,942 |
|
|
$ |
1,448,405 |
|
|
|
16 |
% |
|
Cost of Goods Sold |
|
|
(1,174,067 |
) |
|
|
(1,027,967 |
) |
|
|
14 |
% |
|
Gross Profit |
|
|
503,875 |
|
|
|
420,438 |
|
|
|
20 |
% |
|
Equity in Earnings of Unconsolidated Joint Venture |
|
|
23,631 |
|
|
|
24,785 |
|
|
|
(5 |
)% |
|
Corporate General and Administrative Expense |
|
|
(37,944 |
) |
|
|
(32,986 |
) |
|
|
15 |
% |
|
Loss on Early Retirement of Senior Notes |
|
|
— |
|
|
|
(8,407 |
) |
|
|
(100 |
)% |
|
Other Nonoperating Income |
|
|
911 |
|
|
|
5,941 |
|
|
|
(85 |
)% |
|
Interest Expense, net |
|
|
(24,842 |
) |
|
|
(24,891 |
) |
|
|
(0 |
)% |
|
Earnings Before Income Taxes |
|
|
465,631 |
|
|
|
384,880 |
|
|
|
21 |
% |
|
Income Tax Expense |
|
|
(104,447 |
) |
|
|
(84,949 |
) |
|
|
23 |
% |
|
Net Earnings |
|
$ |
361,184 |
|
|
$ |
299,931 |
|
|
|
20 |
% |
|
Diluted Earnings per Share |
|
$ |
9.66 |
|
|
$ |
7.23 |
|
|
|
34 |
% |
REVENUE
Revenue increased by $229.5 million, or 16%, to $1,677.9 million for the nine months ended December 31, 2022. The ConAgg Acquisition contributed $34.7 million of Revenue during the nine months ended December 31, 2022. Excluding the ConAgg Acquisition, Revenue improved by $194.8 million, or 13%, largely because of higher gross sales prices, which positively affected Revenue by $211.4 million. The increase was partially offset by lower Sales Volume, which negatively affected Revenue by $16.6 million.
COST OF GOODS SOLD
Cost of Goods Sold increased by $146.1 million, or 14%, to $1,174.1 million for the nine months ended December 31, 2022. The ConAgg Acquisition contributed $33.4 million of Cost of Goods Sold during the nine months ended December 31, 2022. Excluding the ConAgg Acquisition, Cost of Goods Sold increased by $112.7 million, or 11%. The increase was due to higher operating costs of $128.9 million, partially offset by lower Sales Volume of $16.2 million. Higher operating costs were primarily related to our Cement and Gypsum Wallboard segments, which are discussed further in the segment analysis.
GROSS PROFIT
Gross Profit increased 20% to $503.9 million during the nine months ended December 31, 2022. The improvement was primarily related to higher gross sales prices and Sales Volume, partially offset by increased operating costs. The gross margin increased to 30%, with higher gross sales prices being partially offset by an increase in operating costs.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE
Equity in Earnings of our Unconsolidated Joint Venture declined $1.2 million, or 5%, for the nine months ended December 31, 2022. The decrease was primarily due to lower Sales Volume and increased operating costs, which adversely affected earnings by approximately $3.7 million and $10.4 million, respectively. This was partially offset by higher gross sales prices, which contributed $12.9 million to earnings. The increase in operating costs was related to higher maintenance, energy, and purchased cement costs, which reduced operating earnings by $1.0 million, $0.4 million, and $5.5 million, respectively. Additionally, extended equipment downtime in the fiscal second quarter reduced cement production, which increased operating costs by $2.3 million.
25
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE
Corporate General and Administrative Expense increased by approximately $4.9 million, or 15%, for the nine months ended December 31, 2022. The increase was primarily due to higher incentive compensation, information and technology upgrades, and legal and professional expenses of $3.0 million, $0.9 million, and $0.4 million, respectively. The increase in incentive compensation was mostly due to executive retirements during the first quarter of fiscal 2023, while the increase in legal and professional expenses was primarily related to the Terminal Acquisition.
LOSS ON EARLY RETIREMENT OF SENIOR NOTES
In July 2021, the Company redeemed and retired its 4.500% Senior Unsecured Notes due in 2026 prior to the maturity date. As a result of the early retirement, the Company paid a premium of $8.4 million. See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.
OTHER NONOPERATING INCOME
Other Nonoperating 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 was relatively flat during the nine months ended December 31, 2022. Interest Expense related to our Revolving Credit Facility increased $9.3 million, due to increased borrowings and higher interest rates. This was offset by prior year interest expense related to loan amortization costs of $7.0 million, which included the write off of approximately $6.1 million of debt issue costs related to our 4.500% Unsecured Senior Notes due in 2026 and the Term Loan Credit Agreement, and $2.2 million of interest expense related to our Term Loan, which was repaid in July 2021. See Footnote (M) to the Unaudited Consolidated Financial Statements for more information.
EARNINGS BEFORE INCOME TAXES
Earnings Before Income Taxes increased to $465.6 million during the nine months ended December 31, 2022, primarily because of higher Gross Profit. This was partially offset by higher Corporate General and Administrative Expense and lower Equity in Earnings of Unconsolidated Joint Venture and Other Nonoperating Income.
INCOME TAX EXPENSE
Income Tax Expense was $104.4 million for the nine months ended December 31, 2022, compared with $84.9 million for the nine months ended December 31, 2021. The effective tax rate remained consistent with the prior-year period at 22%.
NET EARNINGS
Net Earnings increased 20% to $361.2 million for the nine months ended December 31, 2022, as shown in the table above.
26
Three AND Nine MONTHS ENDED DECEMBER 31, 2022 vs. three AND Nine MONTHS ENDED DECEMBER 31, 2021 BY SEGMENT
The following presents results within our two business sectors for the three and nine months ended December 31, 2022, and 2021. Revenue and operating results are organized by sector and discussed by individual business segment within each respective business sector.
Heavy Materials
CEMENT (1)
|
|
|
For the Three Months Ended December 31, |
|
|
|
|
|
For the Nine Months Ended December 31, |
|
|
|
|
||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Percentage Change |
|
|
2022 |
|
|
2021 |
|
|
Percentage Change |
|
||||||
|
|
|
(in thousands, except per ton information) |
|
|
|
|
|
(in thousands, except per ton information) |
|
|
|
|
||||||||||||
|
Gross Revenue, including Intersegment and Joint Venture |
|
$ |
256,313 |
|
|
$ |
261,155 |
|
|
|
(2 |
)% |
|
$ |
860,289 |
|
|
$ |
819,734 |
|
|
|
5 |
% |
|
Less Intersegment Revenue |
|
|
(7,719 |
) |
|
|
(5,301 |
) |
|
|
46 |
% |
|
|
(26,371 |
) |
|
|
(18,357 |
) |
|
|
44 |
% |
|
Less Joint Venture Revenue |
|
|
(27,620 |
) |
|
|
(27,406 |
) |
|
|
1 |
% |
|
|
(79,065 |
) |
|
|
(77,023 |
) |
|
|
3 |
% |
|
Gross Revenue, as reported |
|
$ |
220,974 |
|
|
$ |
228,448 |
|
|
|
(3 |
)% |
|
$ |
754,853 |
|
|
$ |
724,354 |
|
|
|
4 |
% |
|
Freight and Delivery Costs billed to Customers |
|
|
(12,910 |
) |
|
|
(12,849 |
) |
|
|
— |
|
|
|
(48,922 |
) |
|
|
(51,501 |
) |
|
|
(5 |
)% |
|
Net Revenue |
|
$ |
208,064 |
|
|
$ |
215,599 |
|
|
|
(3 |
)% |
|
$ |
705,931 |
|
|
$ |
672,853 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Sales Volume (M Tons) |
|
|
1,699 |
|
|
|
1,963 |
|
|
|
(13 |
)% |
|
|
5,837 |
|
|
|
6,197 |
|
|
|
(6 |
)% |
|
Average Net Sales Price, per ton (2) |
|
$ |
134.36 |
|
|
$ |
118.44 |
|
|
|
13 |
% |
|
$ |
131.44 |
|
|
$ |
117.49 |
|
|
|
12 |
% |
|
Operating Margin, per ton |
|
$ |
42.56 |
|
|
$ |
40.67 |
|
|
|
5 |
% |
|
$ |
39.99 |
|
|
$ |
37.30 |
|
|
|
7 |
% |
|
Operating Earnings |
|
$ |
72,315 |
|
|
$ |
79,836 |
|
|
|
(9 |
)% |
|
$ |
233,442 |
|
|
$ |
231,133 |
|
|
|
1 |
% |
(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, 2022
Cement Revenue was $256.3 million, a 2% decrease, for the three months ended December 31, 2022. The decline was primarily due to lower Sale Volume, which reduced Cement Revenue by approximately $32.0 million, partially offset by higher gross sales prices, which increased Revenue by $27.1 million.
Cement Operating Earnings decreased $7.5 million to $72.3 million for the three months ended December 31, 2022. The decline was due to lower Sales Volume of $10.7 million and higher operating costs of $23.9 million. This was partially offset by higher gross sales prices, which increased Operating Earnings by $27.1 million. Cement Sales Volume was affected by lower cement inventory levels compared with the prior-year period as well as difficult weather conditions during this quarter. The increase in operating costs was primarily due to higher energy and maintenance costs of approximately $10.7 million and $6.5 million, respectively. Operating Margin declined to 28% primarily because of higher operating costs, partially offset by higher gross sales prices.
Nine months ended December 31, 2022
Cement Revenue was $860.3 million, a 5% increase, for the nine months ended December 31, 2022. The increase was primarily due to higher gross sales prices, which improved Cement Revenue by approximately $78.8 million, partially offset by lower Sales Volume, which reduced Revenue by $38.2 million.
Cement Operating Earnings increased $2.3 million to $233.4 million for the nine months ended December 31, 2022. The increase was due to higher gross sales prices of $78.8 million. This was partially offset by lower Sales Volume of $13.6 million and higher operating costs of $62.9 million. Most of the decline in Sales Volume was in the fiscal third quarter, and was primarily due to factors described above. The increase in operating costs was primarily due to higher energy and maintenance costs of approximately $37.4 million and $21.3 million, respectively. Operating Margin decreased to 27%, primarily because of higher operating costs, partially offset by higher gross sales prices.
27
CONCRETE AND AGGREGATES
|
|
|
For the Three Months Ended December 31, |
|
|
|
|
|
For the Nine Months Ended December 31, |
|
|
|
|
||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Percentage Change |
|
|
2022 |
|
|
2021 |
|
|
Percentage Change |
|
||||||
|
|
|
(in thousands, except net sales prices) |
|
|
|
|
|
(in thousands, except net sales prices) |
|
|
|
|
||||||||||||
|
Gross Revenue, as reported |
|
$ |
55,176 |
|
|
$ |
42,384 |
|
|
|
30 |
% |
|
$ |
186,407 |
|
|
$ |
139,888 |
|
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Sales Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
M Cubic Yards of Concrete |
|
|
353 |
|
|
|
317 |
|
|
|
11 |
% |
|
|
1,210 |
|
|
|
1,063 |
|
|
|
14 |
% |
|
M Tons of Aggregate |
|
|
626 |
|
|
|
341 |
|
|
|
84 |
% |
|
|
2,333 |
|
|
|
1,183 |
|
|
|
97 |
% |
|
Average Net Sales Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Concrete - Per Cubic Yard |
|
$ |
134.42 |
|
|
$ |
122.36 |
|
|
|
10 |
% |
|
$ |
132.46 |
|
|
$ |
120.17 |
|
|
|
10 |
% |
|
Aggregates - Per Ton |
|
$ |
11.70 |
|
|
$ |
10.38 |
|
|
|
13 |
% |
|
$ |
11.21 |
|
|
$ |
10.25 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Operating Earnings |
|
$ |
2,692 |
|
|
$ |
4,115 |
|
|
|
(35 |
)% |
|
$ |
15,700 |
|
|
$ |
16,998 |
|
|
|
(8 |
)% |
Three months ended December 31, 2022
Concrete and Aggregates Revenue increased 30% to $55.2 million for the three months ended December 31, 2022. The ConAgg Acquisition contributed $9.8 million of Revenue during the three months ended December 31, 2022. Excluding the ConAgg Acquisition, Revenue increased by $3.0 million, or 7%. The increase was due to higher gross sales prices, which improved Revenue by $3.8 million, partially offset by lower Sales Volume, primarily in Concrete, of $0.8 million.
Operating Earnings decreased 35% to approximately $2.7 million. Segment results above include $4.4 million of depreciation and amortization, of which $2.1 million is related to the ConAgg Acquisition. Excluding the ConAgg Acquisition, Operating Earnings were $3.0 million. The decrease in Operating Earnings was due to increased operating costs and lower Sales Volume of $4.8 million and $0.1 million, respectively. This was partially offset by higher gross sales prices of $3.8 million. The increase in operating costs was primarily due to higher expenses for materials, maintenance, and delivery of approximately $3.3 million, $1.2 million, and $0.4 million, respectively.
Nine months ended December 31, 2022
Concrete and Aggregates Revenue increased 33% to $186.4 million for the nine months ended December 31, 2022. The ConAgg Acquisition contributed $34.7 million of Revenue during the nine months ended December 31, 2022. Excluding the ConAgg Acquisition, Revenue was up 9% or $11.8 million. The increase was due to higher gross sales prices and Sales Volume in Aggregates, of $12.9 million and $1.1 million, respectively, partially offset by lower Sales Volume in Concrete of $2.2 million.
Operating Earnings decreased 8% to approximately $15.7 million. Excluding the ConAgg Acquisition, Operating Earnings decreased by $2.6 million to $14.4 million. The decline in Operating Earnings was due to increased operating costs of $15.7 million. This was partially offset by higher gross sales prices of $12.9 million. The increase in operating costs was primarily due to higher expenses for materials, maintenance, and delivery of approximately $9.1 million, $3.2 million, and $3.2 million, respectively.
28
Light Materials
GYPSUM WALLBOARD
|
|
|
For the Three Months Ended December 31, |
|
|
|
|
|
For the Nine Months Ended December 31, |
|
|
|
|
||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Percentage Change |
|
|
2022 |
|
|
2021 |
|
|
Percentage Change |
|
||||||
|
|
|
(in thousands, except per MSF information) |
|
|
|
|
|
(in thousands, except per MSF information) |
|
|
|
|
||||||||||||
|
Gross Revenue, as reported |
|
$ |
212,016 |
|
|
$ |
163,584 |
|
|
|
30 |
% |
|
$ |
652,981 |
|
|
$ |
502,836 |
|
|
|
30 |
% |
|
Freight and Delivery Costs billed to Customers |
|
|
(38,238 |
) |
|
|
(30,642 |
) |
|
|
25 |
% |
|
|
(121,778 |
) |
|
|
(94,427 |
) |
|
|
29 |
% |
|
Net Revenue |
|
$ |
173,778 |
|
|
$ |
132,942 |
|
|
|
31 |
% |
|
$ |
531,203 |
|
|
$ |
408,409 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Sales Volume (MMSF) |
|
|
728 |
|
|
|
695 |
|
|
|
5 |
% |
|
|
2,309 |
|
|
|
2,194 |
|
|
|
5 |
% |
|
Average Net Sales Price, per MSF (1) |
|
$ |
238.51 |
|
|
$ |
191.41 |
|
|
|
25 |
% |
|
$ |
230.01 |
|
|
$ |
186.16 |
|
|
|
24 |
% |
|
Freight, per MSF |
|
$ |
52.52 |
|
|
$ |
44.09 |
|
|
|
19 |
% |
|
$ |
52.74 |
|
|
$ |
43.04 |
|
|
|
23 |
% |
|
Operating Margin, per MSF |
|
$ |
119.97 |
|
|
$ |
87.54 |
|
|
|
37 |
% |
|
$ |
113.11 |
|
|
$ |
86.79 |
|
|
|
30 |
% |
|
Operating Earnings |
|
$ |
87,335 |
|
|
$ |
60,841 |
|
|
|
44 |
% |
|
$ |
261,164 |
|
|
$ |
190,425 |
|
|
|
37 |
% |
(1) Net of freight per MSF.
Three months ended December 31, 2022
Gypsum Wallboard Revenue was up 30% to $212.0 million for the three months ended December 31, 2022. The increase was due to higher gross sales prices and Sales Volume, which contributed approximately $40.7 million and $7.7 million, respectively. Our market share remained relatively consistent during the three months ended December 31, 2022.
Operating Earnings increased 44% to $87.3 million, primarily because of higher gross sales prices and Sales Volume of approximately $40.7 million and $2.9 million, respectively. This was partially offset by higher operating costs of approximately $17.1 million. The higher operating costs were primarily related to freight, energy, and raw materials, which reduced Operating Earnings by approximately $6.3 million, $1.3 million, and $5.6 million, respectively. Operating Margin increased to 41%, primarily because of higher gross sales prices, partly offset by higher operating costs. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.
Nine months ended December 31, 2022
Gypsum Wallboard Revenue increased 30% to $653.0 million for the nine months ended December 31, 2022. The increase was due to higher gross sales prices and Sales Volume, which contributed approximately $123.8 million and $26.4 million, respectively. Our market share remained relatively consistent during the nine months ended December 31, 2022.
Operating Earnings increased 37% to $261.2 million, primarily because of higher gross sales prices and Sales Volume of approximately $123.8 million and $10.0 million, respectively. This was partially offset by higher operating costs of approximately $63.0 million. The higher operating costs were primarily related to freight, energy, and raw materials, which reduced Operating Earnings by approximately $22.9 million, $10.9 million, and $22.3 million, respectively. Operating Margin increased to 40%, primarily because of higher gross sales prices, partly offset by higher operating costs. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.
29
RECYCLED PAPERBOARD
|
|
|
For the Three Months Ended December 31, |
|
|
|
|
|
For the Nine Months Ended December 31, |
|
|
|
|
||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Percentage Change |
|
|
2022 |
|
|
2021 |
|
|
Percentage Change |
|
||||||
|
|
|
(in thousands, except per ton information) |
|
|
|
|
|
(in thousands, except per ton information) |
|
|
|
|
||||||||||||
|
Gross Revenue, including intersegment |
|
$ |
47,774 |
|
|
$ |
49,763 |
|
|
|
(4 |
)% |
|
$ |
155,520 |
|
|
$ |
140,828 |
|
|
|
10 |
% |
|
Less intersegment Revenue |
|
|
(24,453 |
) |
|
|
(21,238 |
) |
|
|
15 |
% |
|
|
(71,819 |
) |
|
|
(59,501 |
) |
|
|
21 |
% |
|
Gross Revenue, as reported |
|
$ |
23,321 |
|
|
$ |
28,525 |
|
|
|
(18 |
)% |
|
$ |
83,701 |
|
|
$ |
81,327 |
|
|
|
3 |
% |
|
Freight and Delivery Costs billed to Customers |
|
|
(2,007 |
) |
|
|
(2,120 |
) |
|
|
(5 |
)% |
|
|
(7,025 |
) |
|
|
(5,691 |
) |
|
|
23 |
% |
|
Net Revenue |
|
$ |
21,314 |
|
|
$ |
26,405 |
|
|
|
(19 |
)% |
|
$ |
76,676 |
|
|
$ |
75,636 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Sales Volume (M Tons) |
|
|
77 |
|
|
|
81 |
|
|
|
(5 |
)% |
|
|
246 |
|
|
|
252 |
|
|
|
(2 |
)% |
|
Average Net Sales Price, per ton (1) |
|
$ |
594.93 |
|
|
$ |
585.54 |
|
|
|
2 |
% |
|
$ |
603.73 |
|
|
$ |
535.55 |
|
|
|
13 |
% |
|
Freight, per ton |
|
$ |
26.06 |
|
|
$ |
26.17 |
|
|
|
— |
|
|
$ |
28.56 |
|
|
$ |
22.58 |
|
|
|
26 |
% |
|
Operating Margin, per ton |
|
$ |
101.36 |
|
|
$ |
29.00 |
|
|
|
250 |
% |
|
$ |
69.92 |
|
|
$ |
26.46 |
|
|
|
164 |
% |
|
Operating Earnings |
|
$ |
7,805 |
|
|
$ |
2,349 |
|
|
|
232 |
% |
|
$ |
17,200 |
|
|
$ |
6,667 |
|
|
|
158 |
% |
(1) Net of freight per ton.
Three months ended December 31, 2022
Recycled Paperboard Revenue decreased 4% to $47.8 million during the three months ended December 31, 2022. The decrease was primarily due to lower Sales Volume, which negatively affected Revenue by $2.7 million. This was partially offset by higher gross sales prices, which positively affected Revenue by $0.7 million. Higher gross sales prices were related to the pricing provisions in our long-term sales agreements.
Operating Earnings increased 232% to $7.8 million, primarily because of higher gross sales prices and lower operating costs of $0.7 million and $4.8 million, respectively. This was partially offset by lower Sales Volume, of $0.1 million. The decrease in operating costs was primarily related to lower fiber costs of $9.0 million. This was partially offset by higher input costs, namely energy, chemicals, maintenance, and freight, which lowered Operating Earnings by approximately $1.3 million, $1.1 million, $0.6 million, and $0.6 million, respectively. Operating Margin increased to 16% because of higher gross sales prices and lower operating costs. Although the Company has certain pricing provisions in its 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, 2022
Recycled Paperboard Revenue increased 10% to $155.5 million during the nine months ended December 31, 2022. The increase was primarily due to higher gross sales prices, which positively affected Revenue by $18.3 million, partially offset by lower Sales Volume of $3.6 million. Higher gross sales prices were related to the pricing provisions in our long-term sales agreements.
Operating Earnings increased 158% to $17.2 million, primarily because of higher gross sales prices, of $18.3 million. This was partially offset by higher operating costs and lower Sales Volume, which reduced Operating Earnings by approximately $7.4 million and $0.2 million, respectively. The increase in operating costs was primarily related to higher input costs, namely energy, chemicals, as well as freight and maintenance, which lowered Operating Earnings by approximately $5.1 million, $3.2 million, $3.5 million and $0.8 million, respectively. This was partially offset by lower fiber costs of $6.6 million. Operating Margin increased to 11% because of higher gross sales prices, partially offset by higher operating costs. Although the Company has certain pricing provisions in its 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.
30
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.
31
Cash Flow
The following table provides a summary of our cash flows:
|
|
|
For the Nine Months Ended December 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Net Cash Provided by Operating Activities |
|
$ |
480,111 |
|
|
$ |
428,878 |
|
|
Investing Activities |
|
|
|
|
|
|
||
|
Additions to Property, Plant, and Equipment |
|
|
(60,951 |
) |
|
|
(55,188 |
) |
|
Acquisition Spending |
|
|
(158,451 |
) |
|
|
— |
|
|
Net Cash Used in Investing Activities |
|
|
(219,402 |
) |
|
|
(55,188 |
) |
|
Financing Activities |
|
|
|
|
|
|
||
|
Borrowings Under Revolving Credit Facility |
|
|
200,000 |
|
|
|
100,000 |
|
|
Repayment of Borrowings Under Revolving Credit Facility |
|
|
(70,000 |
) |
|
|
— |
|
|
Proceeds from 2.500% Senior Unsecured Notes |
|
|
— |
|
|
|
743,692 |
|
|
Repayment of 4.500% Senior Unsecured Notes |
|
|
— |
|
|
|
(350,000 |
) |
|
Repayment of Term Loan and Term Loan Credit Agreement |
|
|
(5,000 |
) |
|
|
(665,000 |
) |
|
Dividends Paid to Stockholders |
|
|
(28,421 |
) |
|
|
(20,538 |
) |
|
Purchase and Retirement of Common Stock |
|
|
(313,898 |
) |
|
|
(435,975 |
) |
|
Proceeds from Stock Option Exercises |
|
|
840 |
|
|
|
20,754 |
|
|
Loss on Early Retirement of Senior Notes |
|
|
— |
|
|
|
(8,407 |
) |
|
Payment of Debt Issuance Costs |
|
|
(903 |
) |
|
|
(7,985 |
) |
|
Shares Redeemed to Settle Employee Taxes on Stock Compensation |
|
|
(1,806 |
) |
|
|
(1,359 |
) |
|
Net Cash Used in Financing Activities |
|
|
(219,188 |
) |
|
|
(624,818 |
) |
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
$ |
41,521 |
|
|
$ |
(251,128 |
) |
Net Cash Provided by Operating Activities increased by $51.2 million to $480.1 million during the nine months ended December 31, 2022. This increase was primarily attributable to higher Net Earnings, adjusted for noncash charges, of approximately $61.1 million. This was partially offset by changes in working capital of $8.1 million and lower dividends from our Unconsolidated Joint Venture of $1.8 million.
Working capital increased by $47.9 million to $283.0 million at December 31, 2022, compared with March 31, 2022. The increase was due to higher Cash and Cash Equivalents and Inventories of approximately $41.5 million and $10.5 million, respectively, as well as lower Accounts Payable and Accrued Liabilities of $10.1 million. This was partially offset by lower Accounts and Notes Receivable, net, and Current Portion of Long-term Debt of $3.8 million and $10.0 million, respectively. The increase in inventory was due to our normal sales cycle in which we build inventory in the winter months to meet demand in the spring and summer. The ConAgg Acquisition in April 2022 increased working capital by approximately $2.7 million at December 31, 2022.
The $3.8 million decline in Accounts Receivable was primarily related to increased collection efforts during the three months ended December 31, 2022. As a percentage of quarterly sales generated for the respective quarter, Accounts Receivable was approximately 34% at December 31, 2022, and 43% at March 31, 2022. Accounts Receivable related to the ConAgg Acquisition at December 31, 2022, was approximately $4.8 million. 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, 2022. Notes Receivable are monitored on an individual basis, and no significant deterioration in the collectability of our Notes Receivable was identified at December 31, 2022.
32
Our Inventory balance at December 31, 2022, increased by approximately $10.5 million from our balance at March 31, 2022. Excluding the ConAgg Acquisition, whose inventory consists mostly of Aggregates, our Inventory balance increased by $7.2 million. Within Inventory, Repair Parts and Gypsum Wallboard Inventory increased by $14.8 million and $3.3 million, respectively. These increases were partially offset by lower Raw Materials and Materials-in-Progress of approximately $9.2 million and Finished Cement Inventory, of approximately $3.2 million. The decline in Raw Materials and Materials-in-Progress and Finished Cement is consistent with our business cycle; we generally build up clinker inventory over the winter months to meet the demand for cement in the spring and summer. The increase in Repair Parts inventory was primarily due to the build-up of inventory necessary for our scheduled outages over the next several months. The largest individual balance in our Inventory is our repair parts. These parts are necessary given the size and complexity of our manufacturing plants, as well as the age of certain of our plants, which creates the need to stock a high level of Repair Parts Inventory. We believe all of these repair parts are necessary, and we perform semi-annual analyses to identify obsolete parts. We have less than one year’s sales of all product inventories, and our inventories have a low risk of obsolescence because our products are basic construction materials.
Net Cash Used in Investing Activities during the nine months ended December 31, 2022, was approximately $219.4 million, compared with $55.2 million during the same period in 2021, an increase of approximately $164.2 million. The increase was primarily related to the Acquisition Spending of $158.5 million for the ConAgg Acquisition and the Terminal Acquisition in fiscal 2023. The remaining increase was primarily due to the purchase of reserves for our Concrete and Aggregates business.
Net Cash Used In Financing Activities was approximately $219.2 million during the nine months ended December 31, 2022, compared with $624.8 million during the nine months ended December 31, 2021. The $405.6 million decrease was primarily related to higher borrowings, net of repayments, of $296.3 million and lower amounts paid for early termination of debt, debt issuance costs, and share repurchases of $8.4 million, $7.1 million, and $122.1 million, respectively. This was partially offset by increases in Dividends Paid to Shareholders of $7.9 million and lower proceeds from exercise of stock options of $20.0 million.
Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 48.0% and 46.5%, respectively, at December 31, 2022, compared with 45.6% and 45.1%, respectively, at March 31, 2022.
Debt Financing Activities
Below is a summary of the Company’s outstanding debt facilities at December 31, 2022:
|
|
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 borrowing capacity of our Revolving Credit Facility is $750.0 million until May 5, 2027. 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, 2022, we had $130.0 million outstanding under the Revolving Credit Facility and $6.4 million of outstanding letters of credit, leaving us with $613.6 million of available borrowings under the Revolving Credit Facility, net of the outstanding letters of credit. We are contingently liable for performance under $26.9 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
33
termination, and an alternative source of financing could not be secured, it could 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 COVID-19 or similar pandemics. These and other developments could reduce our cash flow or require that we seek additional sources of funding. We cannot predict what effect these factors will have on our future liquidity.
As market conditions warrant, the Company may from time to time seek to purchase or repay its outstanding debt securities or loans, including the 2.500% Senior Unsecured Notes, 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 we make 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 had approximately $31.4 million of lease liabilities at December 31, 2022, that have an average remaining life of approximately 10.4 years.
Dividends
Dividends paid were $28.4 million and $20.5 million for the nine months ended December 31, 2022 and 2021, respectively. On May 19, 2021, we announced the reinstatement of our quarterly dividend which had been suspended in fiscal 2021. Each quarterly dividend payment is subject to review and approval by our Board of Directors, who will continue to evaluate our dividend payment amount on a quarterly basis.
Share Repurchases
During the three and nine months ended December 31, 2022, our share repurchases were as follows:
|
Period |
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Total Number of
|
|
|
Maximum Number
|
|
||||
|
April 1 through April 30, 2022 |
|
|
296,000 |
|
|
$ |
124.41 |
|
|
|
296,000 |
|
|
|
|
|
|
May 1 through May 31, 2022 |
|
|
294,000 |
|
|
|
124.72 |
|
|
|
294,000 |
|
|
|
|
|
|
June 1 through June 30, 2022 |
|
|
294,000 |
|
|
|
121.86 |
|
|
|
294,000 |
|
|
|
|
|
|
Quarter 1 Totals |
|
|
884,000 |
|
|
$ |
124.00 |
|
|
|
884,000 |
|
|
|
|
|
|
July 1 through July 31, 2022 |
|
|
280,000 |
|
|
$ |
115.46 |
|
|
|
280,000 |
|
|
|
|
|
|
August 1 through August 31, 2022 |
|
|
308,000 |
|
|
|
128.93 |
|
|
|
308,000 |
|
|
|
|
|
|
September 1 through September 30, 2022 |
|
|
252,000 |
|
|
|
114.08 |
|
|
|
252,000 |
|
|
|
|
|
|
Quarter 2 Totals |
|
|
840,000 |
|
|
$ |
119.98 |
|
|
|
840,000 |
|
|
|
|
|
|
October 1 through October 31, 2022 |
|
|
276,000 |
|
|
$ |
113.96 |
|
|
|
276,000 |
|
|
|
|
|
|
November 1 through November 30, 2022 |
|
|
265,813 |
|
|
$ |
128.15 |
|
|
|
265,813 |
|
|
|
|
|
|
December 1 through December 31, 2022 |
|
|
281,975 |
|
|
$ |
134.71 |
|
|
|
281,975 |
|
|
|
|
|
|
Quarter 3 Totals |
|
|
823,788 |
|
|
$ |
125.64 |
|
|
|
823,788 |
|
|
|
|
|
|
Year-to-Date Totals |
|
|
2,547,788 |
|
|
$ |
123.20 |
|
|
|
2,547,788 |
|
|
|
8,275,204 |
|
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, 2022, we have repurchased approximately 47.6 million shares.
34
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.
The Inflation Reduction Act of 2022 added a provision imposing a 1% excise tax on the fair value of stock repurchases by companies beginning January 1, 2023. We do not expect taxes due on future repurchases of our shares to have a material effect on our business.
During the nine months ended December 31, 2022, the Company withheld from employees 13,317 shares of stock upon the vesting of Restricted Shares that were granted under the Plan. We withheld these shares to satisfy the employees’ statutory tax withholding requirements, which is required once the Restricted Shares or Restricted Share Units are vested.
Capital Expenditures
The following table details capital expenditures by category:
|
|
|
For the Nine Months Ended December 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Land and Quarries |
|
$ |
11,178 |
|
|
$ |
5,306 |
|
|
Plants |
|
|
33,650 |
|
|
|
30,026 |
|
|
Buildings, Machinery, and Equipment |
|
|
16,123 |
|
|
|
10,209 |
|
|
Total Capital Expenditures |
|
$ |
60,951 |
|
|
$ |
45,541 |
|
Capital expenditures for fiscal 2023 are expected to range from $90.0 million to $100.0 million and will be allocated across both Heavy Materials and Light Materials sectors. These estimated capital expenditures will include maintenance capital expenditures and improvements, as well as other safety and regulatory projects.
35
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, electricity, 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; 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) on our facilities, operations and contractual arrangements with third parties; 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; the availability of acquisitions or other growth opportunities that meet our financial return standards and fit our strategic focus; 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, electricity, natural gas, coal and oil) and the cost of our raw materials could affect the revenue and operating earnings of our operations. In addition, changes in national or regional economic conditions and levels of infrastructure and construction spending could also adversely affect the Company’s result of operations. Finally, any forward-looking statements made by the Company are subject to the risks and impacts associated with natural disasters, pandemics or other unforeseen events, including, without limitation, any resurgence of the COVID-19 pandemic and responses thereto designed to contain its spread and mitigate its public health effects, as well as their impact on economic conditions, capital and financial markets. These and other factors are described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022. 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.
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Ite m 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, 2022, under which borrowings bear interest at a variable rate. A hypothetical 100 basis point increase in interest rates on the $130.0 million of borrowings under the Revolving Credit Facility and the $195.0 million of borrowings under the Term Loan at December 31, 2022, would increase interest expense by approximately $3.5 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.
Ite m 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.
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P ART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
I tem 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, 2022, filed with the Securities and Exchange Commission on May 20, 2022.
Item 2. Unregis tered 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. Min e 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.
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Item 6. Exhibits
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3.1 |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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95* |
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101.INS* |
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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. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
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Cover Page Interactive Data File – (formatted as Inline XBRL and Contained in Exhibit 101). |
* Filed herewith.
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SIGNAT URES
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.
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EAGLE MATERIALS INC. |
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Registrant |
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January 26, 2023 |
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/s/ MICHAEL R. HAACK |
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Michael R. Haack President and Chief Executive Officer (principal executive officer) |
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January 26, 2023 |
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/s/ D. CRAIG KESLER |
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D. Craig Kesler Executive Vice President – Finance and Administration and Chief Financial Officer (principal financial officer) |
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January 26, 2023 |
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/s/ WILLIAM R. DEVLIN |
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William R. Devlin Senior Vice President – Controller and Chief Accounting Officer (principal accounting officer) |
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