10-Q
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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, 2022

Commission File Number 1-12984

 

https://cdn.kscope.io/719673d78c92bae160ce88b90d4763a7-img29520529_0.jpg 

EAGLE MATERIALS INC.

(Exact name of registrant as specified in its charter)

 

Delaware (State of Incorporation)

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

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

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock (par value $.01 per share)

 

EXP

 

New York Stock Exchange

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

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

Yes No

As of July 24, 2022, the number of outstanding shares of common stock was:

 

Class

 

Outstanding Shares

Common Stock, $.01 Par Value

 

37,684,704

 

 

 


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, 2022 and 2021

 

1

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Earnings for the Three Months Ended June 30, 2022 and 2021

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2022, and March 31, 2022

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2022 and 2021

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders' Equity for the Three Months Ended June 30, 2022 and 2021

 

5

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

33

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

33

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

34

 

 

 

 

 

Item 1a.

 

Risk Factors

 

34

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

 

 

Item 4.

 

Mine Safety Information

 

34

 

 

 

 

 

Item 6.

 

Exhibits

 

35

 

 

 

 

 

SIGNATURES

 

36

 

 

 

 


 

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

 

 

 

For the Three Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

 

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

 

Revenue

 

$

561,387

 

 

$

475,770

 

Cost of Goods Sold

 

 

410,521

 

 

 

349,259

 

Gross Profit

 

 

150,866

 

 

 

126,511

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

5,098

 

 

 

7,970

 

Corporate General and Administrative Expense

 

 

(11,820

)

 

 

(9,468

)

Other Non-Operating Income (Expense)

 

 

(635

)

 

 

3,678

 

Interest Expense, net

 

 

(7,330

)

 

 

(6,972

)

Earnings before Income Taxes

 

 

136,179

 

 

 

121,719

 

Income Taxes

 

 

(31,174

)

 

 

(26,392

)

Net Earnings

 

$

105,005

 

 

$

95,327

 

 

 

 

 

 

 

 

EARNINGS PER SHARE

 

 

 

 

 

 

Basic

 

$

2.76

 

 

$

2.27

 

Diluted

 

 

2.75

 

 

 

2.25

 

AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

Basic

 

 

37,982,580

 

 

 

42,028,619

 

Diluted

 

 

38,222,949

 

 

 

42,437,366

 

CASH DIVIDENDS PER SHARE

 

$

0.25

 

 

$

 

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,

 

 

 

2022

 

 

2021

 

 

 

(dollars in thousands)

 

Net Earnings

 

$

105,005

 

 

$

95,327

 

Net Actuarial Change in Defined Benefit Plans

 

 

 

 

 

 

Amortization of Net Actuarial Loss

 

 

30

 

 

 

36

 

Tax Expense

 

 

(7

)

 

 

(9

)

Comprehensive Earnings

 

$

105,028

 

 

$

95,354

 

See notes to unaudited consolidated financial statements.

 

 

2


 

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

 

 

 

June 30,

 

 

March 31,

 

 

 

2022

 

 

2022

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

68,281

 

 

$

19,416

 

Accounts and Notes Receivable, net

 

 

234,704

 

 

 

176,276

 

Inventories

 

 

233,543

 

 

 

236,661

 

Income Tax Receivable

 

 

2,610

 

 

 

7,202

 

Prepaid and Other Assets

 

 

8,001

 

 

 

3,172

 

Total Current Assets

 

 

547,139

 

 

 

442,727

 

Property, Plant, and Equipment, net

 

 

1,638,164

 

 

 

1,616,539

 

Notes Receivable

 

 

8,466

 

 

 

8,485

 

Investment in Joint Venture

 

 

81,235

 

 

 

80,637

 

Operating Lease Right-of-Use Assets

 

 

22,960

 

 

 

23,856

 

Goodwill and Intangible Assets, net

 

 

455,824

 

 

 

387,898

 

Other Assets

 

 

17,071

 

 

 

19,510

 

Total Assets

 

$

2,770,859

 

 

$

2,579,652

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts Payable

 

$

108,578

 

 

$

113,679

 

Accrued Liabilities

 

 

88,280

 

 

 

86,754

 

Income Tax Payable

 

 

24,999

 

 

 

 

Operating Lease Liabilities

 

 

6,778

 

 

 

7,118

 

Total Current Liabilities

 

 

228,635

 

 

 

207,551

 

Long-term Debt

 

 

1,119,582

 

 

 

938,265

 

Noncurrent Operating Lease Liabilities

 

 

28,074

 

 

 

29,212

 

Other Long-term Liabilities

 

 

35,871

 

 

 

38,699

 

Deferred Income Taxes

 

 

234,916

 

 

 

232,369

 

Total Liabilities

 

 

1,647,078

 

 

 

1,446,096

 

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
37,894,704 and 38,710,929 Shares, respectively

 

 

380

 

 

 

387

 

Capital in Excess of Par Value

 

 

 

 

 

 

Accumulated Other Comprehensive Losses

 

 

(3,152

)

 

 

(3,175

)

Retained Earnings

 

 

1,126,553

 

 

 

1,136,344

 

Total Stockholders’ Equity

 

 

1,123,781

 

 

 

1,133,556

 

 

 

$

2,770,859

 

 

$

2,579,652

 

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,

 

 

 

2022

 

 

2021

 

 

 

(dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net Earnings

 

$

105,005

 

 

$

95,327

 

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

 

 

 

 

 

 

Depreciation, Depletion, and Amortization

 

 

34,229

 

 

 

31,944

 

Deferred Income Tax Provision

 

 

2,547

 

 

 

1,799

 

Stock Compensation Expense

 

 

5,146

 

 

 

2,456

 

Equity in Earnings of Unconsolidated Joint Venture

 

 

(5,098

)

 

 

(7,970

)

Distributions from Joint Venture

 

 

4,500

 

 

 

7,000

 

Changes in Operating Assets and Liabilities

 

 

 

 

 

 

Accounts and Notes Receivable

 

 

(51,478

)

 

 

(40,344

)

Inventories

 

 

9,085

 

 

 

18,697

 

Accounts Payable and Accrued Liabilities

 

 

(6,389

)

 

 

(2,938

)

Other Assets

 

 

(1,109

)

 

 

(8,704

)

Income Taxes Payable (Receivable)

 

 

28,364

 

 

 

13,854

 

Net Cash Provided by Operating Activities

 

 

124,802

 

 

 

111,121

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Additions to Property, Plant, and Equipment

 

 

(14,914

)

 

 

(11,935

)

Acquisition Spending

 

 

(121,162

)

 

 

 

Net Cash Used in Investing Activities

 

 

(136,076

)

 

 

(11,935

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Increase (Decrease) in Credit Facility

 

 

(19,000

)

 

 

 

Term Loan

 

 

200,000

 

 

 

 

Dividends Paid to Stockholders

 

 

(9,642

)

 

 

 

Purchase and Retirement of Common Stock

 

 

(109,612

)

 

 

(61,929

)

Proceeds from Stock Option Exercises

 

 

667

 

 

 

8,222

 

Payment of Debt Issuance Costs

 

 

(777

)

 

 

(1,243

)

Shares Redeemed to Settle Employee Taxes on Stock Compensation

 

 

(1,497

)

 

 

(1,214

)

Net Cash Provided by (Used in) Financing Activities

 

 

60,139

 

 

 

(56,164

)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

48,865

 

 

 

43,022

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

19,416

 

 

 

268,520

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

68,281

 

 

$

311,542

 

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, 2021

 

$

424

 

 

$

62,497

 

 

$

1,299,509

 

 

$

(3,440

)

 

$

1,358,990

 

Net Earnings

 

 

 

 

 

 

 

 

95,327

 

 

 

 

 

 

95,327

 

Stock Compensation Expense

 

 

1

 

 

 

2,455

 

 

 

 

 

 

 

 

 

2,456

 

Stock Option Exercises and Restricted Share Issuances

 

 

 

 

 

8,222

 

 

 

 

 

 

 

 

 

8,222

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(1,214

)

 

 

 

 

 

 

 

 

(1,214

)

Purchase and Retirement of Common Stock

 

 

(4

)

 

 

(61,925

)

 

 

 

 

 

 

 

 

(61,929

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(10,547

)

 

 

 

 

 

(10,547

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

27

 

Balance at June 30, 2021

 

$

421

 

 

$

10,035

 

 

$

1,384,289

 

 

$

(3,413

)

 

$

1,391,332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock

 

 

Capital in
Excess of
Par Value

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Losses

 

 

Total

 

 

 

(dollars in thousands)

 

Balance at March 31, 2022

 

$

387

 

 

$

 

 

$

1,136,344

 

 

$

(3,175

)

 

$

1,133,556

 

Net Earnings

 

 

 

 

 

 

 

 

105,005

 

 

 

 

 

 

105,005

 

Stock Compensation Expense

 

 

 

 

 

5,146

 

 

 

 

 

 

 

 

 

5,146

 

Stock Option Exercises and Restricted Share Issuances

 

 

1

 

 

 

666

 

 

 

 

 

 

 

 

 

667

 

Shares Redeemed to Settle Employee Taxes

 

 

 

 

 

(1,497

)

 

 

 

 

 

 

 

 

(1,497

)

Purchase and Retirement of Common Stock

 

 

(8

)

 

 

(4,315

)

 

 

(105,289

)

 

 

 

 

 

(109,612

)

Dividends to Shareholders

 

 

 

 

 

 

 

 

(9,507

)

 

 

 

 

 

(9,507

)

Unfunded Pension Liability, net of tax

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

Balance at June 30, 2022

 

$

380

 

 

$

 

 

$

1,126,553

 

 

$

(3,152

)

 

$

1,123,781

 

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, 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 Three Months Ended June 30,

 

 

 

 

2022

 

 

 

2021

 

 

 

(dollars in thousands)

 

Cash Payments

 

 

 

 

 

 

Interest

 

$

1,005

 

 

$

2,945

 

Income Taxes

 

 

271

 

 

 

10,010

 

Operating Cash Flows Used for Operating Leases

 

 

2,135

 

 

 

2,030

 

 

 

 

6


 

 

 

(C) ACQUISITION

On April 22, 2022, we purchased the assets of a readymix concrete and aggregates business (the ConAgg Acquisition). The purchase price (Purchase Price) of the ConAgg Acquisition was approximately $121.2 million. The purchase price allocation has not yet been finalized. The Purchase Price and expenses incurred in connection with the ConAgg Acquisition were funded through borrowings under our revolving credit facility. Operations related to the ConAgg Acquisition are included in the Concrete and Aggregates business in our segment reporting from April 22, 2022 through June 30, 2022.

The following table summarizes the preliminary allocation of the Purchase Price to assets acquired and liabilities assumed as of June 30, 2022:

 

 

 

 

 

 

Estimated Fair Value

 

Working Capital

 

$

12,130

 

Property, Plant, and Equipment

 

 

39,489

 

Intangible Assets

 

 

30,800

 

Goodwill

 

 

38,743

 

Total Estimated Purchase Price

 

$

121,162

 

 

The estimated useful lives assigned to Property, Plant, and Equipment range from 5 to 30 years, while the estimated useful lives assigned to Intangible Assets range from 2 to 15 years.

The following table presents the Revenue and Operating Loss related to the ConAgg Acquisition that has been included in our Consolidated Statement of Earnings from April 22, 2022 through June 30, 2022.

 

 

 

 

 

 

 

(dollars in thousands)

 

Revenue

 

$

11,030

 

Operating Loss

 

$

(107

)

 

Included in Operating Loss shown above is approximately $2.0 million and $1.2 million related to depreciation and amortization and the recording of acquired inventories at fair value, respectively.

(D) REVENUE

We earn Revenue primarily from the sale of products, which include cement, concrete, aggregates, gypsum wallboard, and recycled paperboard. The vast majority of Revenue from the sale of 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 2025. We invoice customers upon shipment, and our collection terms range from 30-75 days. Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard not related to long-term supply agreements is recognized upon shipment of the related products to customers, which is when title and ownership are transferred, and the customer is obligated to pay.

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.

 

7


 

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

(E) ACCOUNTS AND NOTES RECEIVABLE

Accounts Receivable are shown net of the allowance for doubtful accounts totaling $6.7 million at both June 30, 2022 and March 31, 2022. 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 $8.5 million at June 30, 2022, none of which was classified as current. We lend funds to certain companies in the ordinary course of business, and the notes bear interest, on average, at 3.1%. Remaining unpaid amounts, plus accrued interest, mature in fiscal 2025. 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.

(F) INVENTORIES

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

 

 

 

June 30,

 

 

March 31,

 

 

 

2022

 

 

2022

 

 

 

(dollars in thousands)

 

Raw Materials and Materials-in-Progress

 

$

77,652

 

 

$

81,308

 

Finished Cement

 

 

34,653

 

 

 

38,769

 

Aggregates

 

 

7,436

 

 

 

3,558

 

Gypsum Wallboard

 

 

3,665

 

 

 

3,452

 

Paperboard

 

 

5,051

 

 

 

7,462

 

Repair Parts and Supplies

 

 

92,123

 

 

 

91,593

 

Fuel and Coal

 

 

12,963

 

 

 

10,519

 

 

 

$

233,543

 

 

$

236,661

 

 

 

8


 

(G) ACCRUED EXPENSES

Accrued Expenses consist of the following:

 

 

 

June 30,

 

 

March 31,

 

 

 

2022

 

 

2022

 

 

 

(dollars in thousands)

 

Payroll and Incentive Compensation

 

$

26,564

 

 

$

37,262

 

Benefits

 

 

14,922

 

 

 

14,894

 

Dividends

 

 

9,559

 

 

 

9,756

 

Interest

 

 

10,928

 

 

 

5,052