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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT

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

For the Quarterly Period Ended

June 30, 2020

Commission File Number 1-12984

 

EAGLE MATERIALS INC.

(Exact name of registrant as specified in its charter)

 

Delaware (State of Incorporation)

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

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

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock (par value $.01 per share)

 

EXP

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES      NO  

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

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

Yes      No  

As of July 27, 2020, the number of outstanding shares of common stock was:

 

Class

 

Outstanding Shares

Common Stock, $.01 Par Value

 

41,756,684

 

 

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION (unaudited)

 

 

 

 

 

Page

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Earnings for the Three Months Ended June 30, 2020 and 2019

 

1

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Earnings for the Three Months Ended June 30, 2020 and 2019

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2020, and March 31, 2020

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2020 and 2019

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders' Equity for the Three Months Ended June 30, 2020 and 2019

 

5

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

26

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

39

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

40

 

 

 

 

 

Item 1a.

 

Risk Factors

 

40

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

 

Item 4.

 

Mine Safety Information

 

41

 

 

 

 

 

Item 6.

 

Exhibits

 

42

 

 

 

 

 

SIGNATURES

 

43

 

 

 

 


 

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

 

 

 

 

For the Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

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

 

Revenue

 

$

428,020

 

 

$

370,597

 

Cost of Goods Sold

 

 

327,041

 

 

 

295,268

 

Gross Profit

 

 

100,979

 

 

 

75,329

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

7,796

 

 

 

9,432

 

Corporate General and Administrative Expense

 

 

(17,789

)

 

 

(21,254

)

Gain on Sale of Businesses

 

 

51,973

 

 

 

 

Other Non-Operating Income (Loss)

 

 

(127

)

 

 

200

 

Interest Expense, Net

 

 

(14,041

)

 

 

(8,846

)

Earnings before Income Taxes

 

 

128,791

 

 

 

54,861

 

Income Taxes

 

 

(32,585

)

 

 

(13,557

)

Net Earnings

 

$

96,206

 

 

$

41,304

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE

 

 

 

 

 

 

 

 

Basic

 

$

2.32

 

 

$

0.94

 

Diluted

 

$

2.31

 

 

$

0.94

 

AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

 

Basic

 

 

41,410,794

 

 

 

43,870,222

 

Diluted

 

 

41,563,268

 

 

 

44,150,211

 

CASH DIVIDENDS PER SHARE

 

$

0.10

 

 

$

0.10

 

 

See notes to unaudited consolidated financial statements.


 

1


 

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

 

 

 

 

For the Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Net Earnings

 

$

96,206

 

 

$

41,304

 

Net Actuarial Change in Defined Benefit Plans:

 

 

 

 

 

 

 

 

Amortization of net actuarial loss

 

 

33

 

 

 

43

 

Tax expense

 

 

(8

)

 

 

(10

)

Comprehensive Earnings

 

$

96,231

 

 

$

41,337

 

 

See notes to unaudited consolidated financial statements.


 

2


 

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

 

 

 

June 30,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets -

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

199,441

 

 

$

118,648

 

Accounts and Notes Receivable, net

 

 

194,564

 

 

 

151,786

 

Inventories

 

 

243,125

 

 

 

272,508

 

Income Tax Receivable

 

 

123,709

 

 

 

128,413

 

Prepaid and Other Assets

 

 

10,754

 

 

 

6,862

 

Total Current Assets

 

 

771,593

 

 

 

678,217

 

Property, Plant, and Equipment, net

 

 

1,726,363

 

 

 

1,762,109

 

Notes Receivable

 

 

9,068

 

 

 

9,139

 

Investment in Joint Venture

 

 

72,254

 

 

 

73,958

 

Operating Lease Right-of-Use Assets

 

 

29,904

 

 

 

30,530

 

Goodwill and Intangible Assets, net

 

 

395,673

 

 

 

396,463

 

Other Assets

 

 

10,309

 

 

 

10,604

 

 

 

$

3,015,164

 

 

$

2,961,020

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities -

 

 

 

 

 

 

 

 

Accounts Payable

 

$

81,985

 

 

$

86,197

 

Accrued Liabilities

 

 

75,482

 

 

 

73,293

 

Income Taxes Payable

 

 

32,130

 

 

 

 

Operating Lease Liabilities

 

 

10,436

 

 

 

10,207

 

Total Current Liabilities

 

 

200,033

 

 

 

169,697

 

Long-term Debt

 

 

1,492,088

 

 

 

1,567,315

 

Noncurrent Operating Lease Liabilities

 

 

47,478

 

 

 

49,809

 

Other Long-term Liabilities

 

 

44,667

 

 

 

39,689

 

Deferred Income Taxes

 

 

162,940

 

 

 

166,667

 

Total Liabilities

 

 

1,947,206

 

 

 

1,993,177

 

Stockholders’ Equity –

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

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

   Issued and Outstanding 41,756,684 and 41,649,041 Shares, respectively

 

 

418

 

 

 

416

 

Capital in Excess of Par Value

 

 

14,571

 

 

 

10,943

 

Accumulated Other Comprehensive Losses

 

 

(3,302

)

 

 

(3,581

)

Retained Earnings

 

 

1,056,271

 

 

 

960,065

 

Total Stockholders’ Equity

 

 

1,067,958

 

 

 

967,843

 

 

 

$

3,015,164

 

 

$

2,961,020

 

 

See notes to the unaudited consolidated financial statements.

 

3


 

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

 

 

 

For the Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net Earnings

 

$

96,206

 

 

$

41,304

 

Adjustments to Reconcile Net Earnings to Net Cash Provided

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

 

 

 

 

 

 

 

 

Depreciation, Depletion and Amortization

 

 

31,937

 

 

 

27,960

 

Deferred Income Tax Provision

 

 

(3,736

)

 

 

3,687

 

Stock Compensation Expense

 

 

4,760

 

 

 

8,219

 

Gain on Sale of Subsidiaries

 

 

(51,973

)

 

 

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

(7,796

)

 

 

(9,432

)

Distributions from Joint Venture

 

 

9,500

 

 

 

3,000

 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

 

 

Accounts and Notes Receivable

 

 

(45,878

)

 

 

(45,431

)

Inventories

 

 

23,091

 

 

 

11,582

 

Accounts Payable and Accrued Liabilities

 

 

4,398

 

 

 

(6,071

)

Other Assets

 

 

(2,030

)

 

 

6,486

 

Income Taxes Payable (Receivable)

 

 

36,834

 

 

 

9,394

 

Net Cash Provided by Operating Activities

 

 

95,313

 

 

 

50,698

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to Property, Plant, and Equipment

 

 

(25,991

)

 

 

(21,813

)

Proceeds from Sale of Businesses

 

 

93,482

 

 

 

 

Net Cash Provided by (Used in) Investing Activities

 

 

67,491

 

 

 

(21,813

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Increase (Decrease) in Credit Facility

 

 

(75,000

)

 

 

185,000

 

Dividends Paid to Stockholders

 

 

(4,163

)

 

 

(4,499

)

Purchase and Retirement of Common Stock

 

 

 

 

 

(198,355

)

Proceeds from Stock Option Exercises

 

 

 

 

 

396

 

Payment of Debt Issuance Costs

 

 

(1,718

)

 

 

 

Shares Redeemed to Settle Employee Taxes on Stock Compensation

 

 

(1,130

)

 

 

(866

)

Net Cash Used in Financing Activities

 

 

(82,011

)

 

 

(18,324

)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

80,793

 

 

 

10,561

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

 

118,648

 

 

 

8,601

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

199,441

 

 

$

19,162

 

 

See notes to the unaudited consolidated financial statements.


 

4


 

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

 

 

 

Common

Stock

 

 

Capital in

Excess of

Par Value

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Losses

 

 

Total

 

 

 

(dollars in thousands)

 

Balance at March 31, 2019

 

$

451

 

 

$

 

 

$

1,212,352

 

 

$

(3,316

)

 

$

1,209,487

 

Net Earnings

 

 

 

 

 

 

 

 

41,304

 

 

 

 

 

 

41,304

 

Stock Option Exercises and Restricted Share Vesting

 

 

 

 

 

396

 

 

 

 

 

 

 

 

 

396

 

Purchase and Retirement of Common Stock

 

 

(23

)

 

 

(7,748

)

 

 

(190,584

)

 

 

 

 

 

(198,355

)

Dividends to Stockholders

 

 

 

 

 

 

 

 

(4,316

)

 

 

 

 

 

(4,316

)

Stock Compensation Expense

 

 

1

 

 

 

8,218

 

 

 

 

 

 

 

 

 

8,219

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(866

)

 

 

 

 

 

 

 

 

(866

)

Cumulative Effect of Change in Accounting for Leases

 

 

 

 

 

 

 

 

(636

)

 

 

 

 

 

(636

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

Balance at June 30, 2019

 

$

429

 

 

$

 

 

$

1,058,120

 

 

$

(3,283

)

 

$

1,055,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

 

 

Capital in

Excess of

Par Value

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Losses

 

 

Total

 

 

 

(dollars in thousands)

 

Balance at March 31, 2020

 

$

416

 

 

$

10,943

 

 

$

960,065

 

 

$

(3,581

)

 

$

967,843

 

Net Earnings

 

 

 

 

 

 

 

 

96,206

 

 

 

 

 

 

96,206

 

Stock Compensation Expense

 

 

2

 

 

 

4,758

 

 

 

 

 

 

 

 

 

4,760

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(1,130

)

 

 

 

 

 

 

 

 

(1,130

)

Sale of Business with Unfunded Pension Liability

 

 

 

 

 

 

 

 

 

 

 

254

 

 

 

254

 

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

25

 

Balance at June 30, 2020

 

$

418

 

 

 

14,571

 

 

$

1,056,271

 

 

$

(3,302

)

 

$

1,067,958

 

 

See notes to the unaudited consolidated financial statements.


 

5


 

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

 

(A) BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements as of and for the three-month period ended June 30, 2020 include the accounts of Eagle Materials Inc. and its majority-owned subsidiaries (collectively, the Company, us, or we) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 22, 2020.

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

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

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

Recent Accounting Pronouncements

RECENTLY ADOPTED

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

PENDING ADOPTION

In December 2019, the FASB issued ASU 2019-12 which simplifies the accounting for income taxes, eliminates certain exceptions within existing income tax guidance, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We do not expect the adoption of this standard will have a material impact to our consolidated financial statements.

 

 

6


 

(B) SUPPLEMENTAL CASH FLOW INFORMATION  

Supplemental cash flow information is as follows:

 

 

 

For the Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Cash Payments:

 

 

 

 

 

 

 

 

Interest

 

$

9,562

 

 

$

5,241

 

Income Taxes

 

 

 

 

 

90

 

Operating Cash Flows used for Operating Leases

 

 

3,195

 

 

 

3,961

 

 

 

 

 

 

 

 

 

 

Non-Cash Financing Activities:

 

 

 

 

 

 

 

 

Property and Equipment Purchases Included in Accrued Liabilities

 

$

 

 

$

3,675

 

 

(C) ACQUISITION

Kosmos Acquisition

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

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

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

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

The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Kosmos Acquisition. These values are subject to change during the measurement period as we perform additional reviews of the property and equipment, and the asset retirement obligation.

 

7


 

The following table summarizes the provisional allocation of the purchase price to assets acquired and liabilities assumed as of June 30, 2020:

 

 

 

 

 

 

 

 

(dollars in thousands)

 

Inventories

 

$

28,568

 

Property, Plant, and Equipment

 

 

476,942

 

Intangible Assets

 

 

38,300

 

Lease Right-of-Use Assets

 

 

4,478

 

Lease Obligations

 

 

(4,478

)

Long-term Liabilities

 

 

(4,000

)

Total Net Assets

 

 

539,810

 

Goodwill

 

 

129,127

 

Total Estimated Purchase Price

 

$

668,937

 

 

During the quarter ended June 30, 2020, we completed the valuation of inventories, intangible assets, lease right-of-use assets, and lease obligations. These final values, which are disclosed in the above table, resulted in increases of $0.2 million, $2.8 million, $0.6 million and $0.6 million, respectively, from the amounts disclosed in our fiscal 2020 Form 10-K. We also revised our estimates for property, plant and equipment, which resulted in a reduction of $0.5 million; however, this value is still preliminary.

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

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

 

 

 

Weighted-Average Life

 

 

Estimated Fair Value

 

Permits

 

 

20

 

 

 

1,500

 

Customer Relationships

 

 

15

 

 

 

35,300

 

Trade Name and Technology

 

 

10

 

 

 

1,500

 

Total Intangible Assets

 

 

 

 

 

$

38,300

 

 

Actual and pro forma impact of Kosmos Acquisition: The following table presents the net sales and Operating Earnings related to the Kosmos Acquisition that has been included in our Consolidated Statement of Earnings for the three months ended June 30, 2020:

 

 

 

 

 

 

 

For the Three Months Ended

June 30, 2020

 

 

 

(dollars in thousands)

 

Revenue

 

$

47,555

 

Operating Earnings

 

$

10,552

 

 

Operating Earnings shown above for the three months ended June 30, 2020 was affected by approximately $5.3 million related to depreciation and amortization and $3.7 million related to the recording of acquired inventory at fair value.

 

8


 

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

 

 

 

For the Three Months Ended

June 30, 2019

 

 

 

Unaudited

 

 

 

(dollars in thousands, except per share data)

 

Revenue

 

$

399,766

 

Net Income

 

$

36,569

 

Earnings per share – basic

 

$

0.83

 

Earnings per share – diluted

 

$

0.83

 

 

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

(D) SALE OF BUSINESSES

On April 17, 2020, we sold our Western Aggregates LLC (Western) and Mathews Readymix LLC (Mathews) businesses to Teichert, Inc. for an aggregate purchase price of approximately $93.5 million, subject to certain post-closing adjustments. This sale resulted in a gain of approximately $52.0 million. Western and Mathews were part of our Concrete and Aggregates operating segment, and their results of operations were included in our financial statements for the period from April 1, 2020 through April 17, 2020.  

At the date of sale, assets and liabilities included on our balance sheet related to Western and Mathews were approximately $43.8 million and $2.3 million, respectively. Revenue and Operating Earnings from Western and Mathews, collectively, were approximately $1.7 million and $0.1 million, respectively, for the three months ended June 30, 2020, and $7.8 million and $1.0 million, respectively, for the three months ended June 30, 2019.

(E) REVENUE

We earn Revenue primarily from the sale of products, which include cement, concrete, aggregates, gypsum wallboard, recycled paperboard, and frac sand. The vast majority of Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard are originated by purchase orders from our customers, who are primarily third-party contractors and suppliers. Revenue from our Recycled Paperboard and Oil and Gas Proppants segments is generated primarily through long-term supply agreements that mature between 2020 and 2025. We invoice customers upon shipment, and our collection terms range from 30-65 days. Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard that is not related to long-term supply agreements is recognized upon shipment of the related products to customers, which is when title and ownership are transferred, and the customer is obligated to pay.  

Revenue from sales under our long-term supply agreements is also recognized upon transfer of control to the customer, which generally occurs at the time the product is shipped from the production facility or terminal location. Our long-term supply agreements with customers define, among other commitments, the volume of product 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. Historically, the pricing and volume requirements under certain of these contracts have been renegotiated during volatile market conditions. Shortfall amounts, if applicable under these arrangements, are

 

9


 

constrained and not recognized as Revenue until an agreement is reached with the customer and, therefore, are not subject to the risk of reversal. 

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

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

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

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

(F) ACCOUNTS AND NOTES RECEIVABLE

Accounts and Notes Receivable have been shown net of the allowance for doubtful accounts of $9.9 million and $12.4 million at June 30, 2020 and March 31, 2020, respectively. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral from our customers. The allowance for non-collection of receivables is based upon analysis of economic trends in the construction industry, detailed analysis of the expected collectability of accounts receivable that are past due, and the expected collectability of overall receivables. We have no significant credit risk concentration among our diversified customer base.

We had Notes Receivable totaling approximately $9.7 million at June 30, 2020, of which approximately $0.7 million has been classified as current and presented with Accounts Receivable on the balance sheet. We lend funds to certain companies in the ordinary course of business, and the notes bear interest, on average, at 3.6%. Remaining unpaid amounts, plus accrued interest, mature in fiscal 2025 and 2026. The notes are collateralized by certain assets of the borrowers, namely property and equipment, and are generally payable monthly. We monitor the credit risk of each borrower by assessing the timeliness of payments, credit history, credit metrics, and our ongoing interactions with each borrower.

 

 

10


 

(G) INVENTORIES

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

 

 

 

June 30,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Raw Materials and Materials-in-Progress

 

$

96,084

 

 

$

110,558

 

Finished Cement

 

 

33,590

 

 

 

43,538

 

Aggregates

 

 

3,562

 

 

 

8,416

 

Gypsum Wallboard

 

 

4,088

 

 

 

4,211

 

Paperboard

 

 

5,424

 

 

 

5,715

 

Frac Sand

 

 

467

 

 

 

386

 

Repair Parts and Supplies

 

 

87,791

 

 

 

88,095

 

Fuel and Coal

 

 

12,119

 

 

 

11,589

 

 

 

$

243,125

 

 

$

272,508

 

 

(H) ACCRUED EXPENSES

Accrued Expenses consist of the following:

 

 

 

June 30,

 

 

March 31,

 

 

 

2020

 

 

2020

 

 

 

(dollars in thousands)

 

Payroll and Incentive Compensation

 

$

16,376