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) |
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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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Non-accelerated filer |
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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 October 24, 2023, the number of outstanding shares of common stock was:
Class |
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Outstanding Shares |
Common Stock, $.01 Par Value |
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION (unaudited)
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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 Six Months Ended September 30, 2023 and 2022 |
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1 |
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Consolidated Statements of Comprehensive Earnings for the Three and Six Months Ended September 30, 2023 and 2022 |
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2 |
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Consolidated Balance Sheets as of September 30, 2023, and March 31, 2023 |
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3 |
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Consolidated Statements of Cash Flows for the Three and Six Months Ended September 30, 2023 and 2022 |
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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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20 |
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Item 3. |
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35 |
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Item 4. |
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35 |
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Item 1. |
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36 |
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Item 1a. |
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36 |
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Item 2. |
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36 |
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Item 4. |
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36 |
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Item 5. |
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36 |
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Item 6. |
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37 |
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38 |
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EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
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For the Three Months Ended September 30, |
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For the Six Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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(dollars in thousands, except share and per share data) |
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Revenue |
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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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Other Non-Operating Income (Loss) |
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Interest Expense, net |
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Earnings before Income Taxes |
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Income Taxes |
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Net Earnings |
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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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Diluted |
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AVERAGE SHARES OUTSTANDING |
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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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$ |
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See Notes to Unaudited Consolidated Financial Statements.
1
EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (unaudited)
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For the Three Months Ended September 30, |
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For the Six Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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(dollars in thousands) |
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Net Earnings |
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$ |
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$ |
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Net Actuarial Change in Defined Benefit Plans |
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Amortization of Net Actuarial Loss |
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Tax Expense |
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Comprehensive Earnings |
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$ |
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$ |
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$ |
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$ |
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See Notes to Unaudited Consolidated Financial Statements.
2
EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
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September 30, |
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March 31, |
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2023 |
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2023 |
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(dollars in thousands) |
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ASSETS |
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Current Assets |
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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 |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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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 |
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Retained Earnings |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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See Notes to Unaudited Consolidated Financial Statements.
3
EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
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For the Six Months Ended September 30, |
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2023 |
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2022 |
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(dollars in thousands) |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net Earnings |
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$ |
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$ |
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Adjustments to Reconcile Net Earnings to Net Cash Provided |
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Depreciation, Depletion, and Amortization |
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Deferred Income Tax Provision |
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Stock Compensation Expense |
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Equity in Earnings of Unconsolidated Joint Venture |
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Distributions from Joint Venture |
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Changes in Operating Assets and Liabilities |
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Accounts and Notes Receivable |
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Inventories |
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Accounts Payable and Accrued Liabilities |
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Other Assets |
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Income Taxes Payable (Receivable) |
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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 |
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Acquisition Spending |
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Net Cash Used in Investing Activities |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Increase in Credit Facility |
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Repayment of Term Loan |
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Dividends Paid to Stockholders |
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Purchase and Retirement of Common Stock |
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Proceeds from Stock Option Exercises |
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Payment of Debt Issuance Costs |
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Shares Redeemed to Settle Employee Taxes on Stock Compensation |
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Net Cash Used in Financing Activities |
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
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$ |
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$ |
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See Notes to Unaudited Consolidated Financial Statements.
4
EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
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Common |
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Capital in |
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Retained |
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Accumulated |
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Total |
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(dollars in thousands) |
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Balance at March 31, 2022 |
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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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— |
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— |
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Stock Compensation Expense |
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— |
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— |
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— |
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Stock Option Exercises and Restricted Share Issuances |
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— |
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— |
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Shares Redeemed to Settle Employee Taxes |
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— |
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— |
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— |
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Purchase and Retirement of Common Stock |
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— |
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Dividends to Shareholders |
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— |
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— |
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— |
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Unfunded Pension Liability, net of tax |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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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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— |
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Stock Compensation Expense |
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— |
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— |
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Stock Option Exercise and Restricted Share Issuances |
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— |
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— |
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— |
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Shares Redeemed to Settle Employee Taxes |
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— |
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— |
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( |
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Purchase and Retirement of Common Stock |
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— |
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Dividends to Shareholders |
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— |
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— |
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— |
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Unfunded Pension Liability, net of tax |
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— |
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— |
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— |
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Balance at September 30, 2022 |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
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Common |
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Capital in |
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Retained |
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Accumulated |
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Total |
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(dollars in thousands) |
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Balance at March 31, 2023 |
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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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— |
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— |
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Stock Compensation Expense |
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— |
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— |
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— |
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Stock Option Exercises and Restricted Share Issuances |
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— |
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— |
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Shares Redeemed to Settle Employee 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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Purchase and Retirement of Common Stock |
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( |
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( |
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( |
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— |
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( |
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Dividends to Shareholders |
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— |
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— |
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( |
) |
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— |
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( |
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Unfunded Pension Liability, net of tax |
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— |
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— |
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— |
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Balance at June 30, 2023 |
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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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— |
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— |
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Stock Compensation Expense |
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— |
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— |
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— |
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Stock Option Exercise and Restricted Share Issuances |
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— |
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— |
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— |
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Shares Redeemed to Settle Employee 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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Purchase and Retirement of Common Stock |
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( |
) |
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( |
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( |
) |
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— |
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( |
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Dividends to Shareholders |
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— |
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— |
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( |
) |
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— |
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( |
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Unfunded Pension Liability, net of tax |
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— |
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— |
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— |
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Balance at September 30, 2023 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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|||
See Notes to Unaudited Consolidated Financial Statements.
5
Eagle Materials Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(A) BASIS OF PRESENTATION
The accompanying Unaudited Consolidated Financial Statements as of and for the three and six months ended September 30, 2023, include the accounts of Eagle Materials Inc. and its majority-owned subsidiaries (collectively, the Company, us, or we) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 19, 2023.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. In our opinion, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the information in the following unaudited consolidated financial statements of the Company have been included. The results of operations for interim periods are not necessarily indicative of the results for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements that are expected to materially affect the Company.
(B) SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
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For the Six Months Ended September 30, |
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2023 |
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2022 |
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(dollars in thousands) |
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|||||
Cash Payments |
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|
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Interest |
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$ |
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$ |
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||
Income Taxes |
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Operating Cash Flows Used for Operating Leases |
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Non-Cash Financing Activities |
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Excise Tax on Share Repurchases |
|
$ |
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$ |
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||
Right-of-Use Assets Acquired for Capitalized Operating Leases |
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||
6
(C) ACQUISITION
On May 3, 2023, we purchased the assets of a cement import terminal in Stockton, California (the Stockton Terminal Acquisition), which was accounted for under the acquisition method. The purchase price of the Stockton Terminal Acquisition was approximately $
The following table summarizes the preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed (based on Level 3 inputs) as of September 30, 2023:
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Fair Value |
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Inventory |
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$ |
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|
Prepaid and Other Current Assets |
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Property, Plant, and Equipment |
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Lease Right-of-Use Assets |
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Intangible Assets |
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Lease Obligations |
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( |
) |
Other Long-term Liabilities |
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( |
) |
Goodwill |
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Total Estimated Purchase Price |
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$ |
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|
The estimated useful lives assigned to Property, Plant, and Equipment range from
The following table presents the Revenue and Operating Loss related to the Stockton Terminal Acquisition that has been included in our Consolidated Statement of Earnings from May 3, 2023, through September 30, 2023.
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For the Three Months Ended |
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For the Six Months Ended |
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||
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September 30, 2023 |
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|||||
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(dollars in thousands) |
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|||||
Revenue |
|
$ |
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|
$ |
|
||
Operating Loss |
|
$ |
( |
) |
|
$ |
( |
) |
Operating Loss shown above for the three months ended September 30, 2023 was affected by approximately $
(D) REVENUE
We earn Revenue primarily from the sale of products, which include cement, concrete, aggregates, gypsum wallboard, and recycled paperboard. The vast majority of Revenue from the sale of concrete, aggregates, and gypsum wallboard is originated by purchase orders from our customers, who are mostly third-party contractors and suppliers. Revenue from the sale of cement is recognized at the point-of-sale to customers under sales orders. Revenue from our Recycled Paperboard segment is generated mainly through long-term supply agreements. These agreements do not have a stated maturity date, but may be terminated by either party with a to
7
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.
The Company offers certain of its customers, including those with long-term supply agreements, rebates and incentives, which we treat as variable consideration. We adjust the amount of Revenue recognized for the variable consideration using the most likely amount method based on past history and projected volumes in the rebate and incentive period. Any amounts billed to customers for taxes are excluded from Revenue.
The Company has elected to treat freight and delivery charges we pay for the delivery of goods to our customers as a fulfillment activity rather than a separate performance obligation. When we arrange for a third party to deliver products to customers, fees for shipping and handling billed to the customer are recorded as Revenue, while costs we incur for shipping and handling are recorded as expenses and included in Cost of Goods Sold.
Other Non-Operating Income includes lease and rental income, asset sale income, non-inventoried aggregates sales income, distribution center income, and trucking income, as well as other miscellaneous revenue items and costs that have not been allocated to a business segment.
(E) ACCOUNTS AND NOTES RECEIVABLE
Accounts Receivable are shown net of the allowance for credit losses totaling $
(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.
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September 30, |
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March 31, |
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2023 |
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|
2023 |
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||
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(dollars in thousands) |
|
|||||
Raw Materials and Materials-in-Progress |
|
$ |
|
|
$ |
|
||
Finished Cement |
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Aggregates |
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Gypsum Wallboard |
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Recycled Paperboard |
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Repair Parts and Supplies |
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Fuel and Coal |
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||
|
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$ |
|
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$ |
|
||
8
(G) ACCRUED EXPENSES
Accrued Expenses consist of the following:
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September 30, |
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March 31, |
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2023 |
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|
2023 |
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||
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(dollars in thousands) |
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|||||
Payroll and Incentive Compensation |
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$ |
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|
$ |
|
||
Benefits |
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Dividends |
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Interest |
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Property Taxes |
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Power and Fuel |
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Freight |
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Legal and Professional |
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Sales and Use Tax |
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Other |
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$ |
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$ |
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(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:
|
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For the Three Months Ended September 30, |
|
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For the Six Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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(dollars in thousands) |
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|||||||||||||
Operating Lease Cost |
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$ |
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$ |
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$ |
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$ |
|
||||
Short-term Lease Cost |
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Total Lease Cost |
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$ |
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$ |
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$ |
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$ |
|
||||
The Right-of-Use Assets and Lease Liabilities are reflected on our Balance Sheet as follows:
|
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September 30, |
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March 31, |
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|
2023 |
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2023 |
|
||
|
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(dollars in thousands) |
|
|||||
Operating Leases |
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|
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|
||
Operating Lease Right-of-Use Assets |
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$ |
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|
$ |
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||
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|
||
Current Operating Lease Liabilities |
|
$ |
|
|
$ |
|
||
Noncurrent Operating Lease Liabilities |
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|
|
|
|
||
Total Operating Lease Liabilities |
|
$ |
|
|
$ |
|
||
9
Future payments for operating leases are as follows (dollars in thousands):
Fiscal Year |
|
Amount |
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|
2024 (remaining six months) |
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$ |
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2025 |
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2026 |
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2027 |
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2028 |
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Thereafter |
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Total Lease Payments |
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$ |
|
|
Less: Imputed Interest |
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|
( |
) |
Present Value of Lease Liabilities |
|
$ |
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|
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|
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Weighted-Average Remaining Lease Term (in years) |
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Weighted-Average Discount Rate |
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% |
|
(I) Share-BASED EMPLOYEE COMPENSATION
On August 3, 2023, our stockholders approved the Eagle Materials Inc. 2023 Equity Incentive Plan (the 2023 Plan), which reserves
Long-Term Compensation Plans
OPTIONS
In May 2023, under the 2013 amended and restated incentive plan (the Prior Plan), the Compensation Committee of the Board of Directors approved the granting to certain officers and key employees an aggregate of
|
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Options |
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Performance Period |
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Vesting Date |
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One-Year Performance Shares |
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|||
Two-Year Performance Shares |
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Three-Year Performance Shares |
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|
|||
The stock options have a term of
In August 2023, under the 2023 Plan, the Compensation Committee granted
10
The Fiscal 2024 Employee Performance Stock Option Award, the Fiscal 2024 Employee Time-Vesting Stock Option Award, and the Fiscal 2024 Board of Directors Stock Option Award were valued at their grant date using the Black-Scholes option pricing model.
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Dividend Yield |
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% |
|
Expected Volatility |
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% |
|
Risk-Free Interest Rate |
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% |
|
Expected Life |
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||
In addition to the stock options described above, we issue stock options to certain employees from time to time. Any options issued are valued using the Black-Scholes options pricing model on the grant date, and expensed over the vesting period.
Stock option expense for all outstanding stock option awards totaled approximately $
The following table represents stock option activity for the six months ended September 30, 2023:
|
|
Number |
|
|
Weighted- |
|
||
Outstanding Options at March 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
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|
$ |
|
||
Exercised |
|
|
( |
) |
|
$ |
|
|
Cancelled |
|
|
( |
) |
|
$ |
|
|
Outstanding Options at September 30, 2023 |
|
|
|
|
$ |
|
||
Options Exercisable at September 30, 2023 |
|
|
|
|
|
|
||
Weighted-Average Fair Value of Options Granted |
|
$ |
|
|
|
|
||
The following table summarizes information about stock options outstanding at September 30, 2023:
|
|
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||||||
Range of Exercise Prices |
|
Number of |
|
|
Weighted- |
|
|
Weighted- |
|
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Number of |
|
|
Weighted- |
|
|||||
$ |
|
|
|
|
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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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|
$ |
|
|||||
At September 30, 2023, the aggregate intrinsic value of the outstanding and exercisable options was approximately $
RESTRICTED STOCK
In May 2023, under the Prior Plan, the Compensation Committee approved the granting to certain officers and key employees an aggregate of
11
|
|
Shares |
|
|
Performance Period |
|
Vesting Date |
|
One-Year Performance Shares |
|
|
|
|
|
|||
Two-Year Performance Shares |
|
|
|
|
|
|||
Three-Year Performance Shares |
|
|
|
|
|
|||
The Compensation Committee also approved the granting of
In August 2023, under the 2023 Plan, we granted
In addition to the restricted stock described above, from time to time we issue restricted stock to certain employees. These awards are valued at the closing price of the stock on the grant date and expensed over the vesting period.
The fair value of restricted stock is based on the stock price on the grant date.
|
|
Number of Shares |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Nonvested Restricted Stock at March 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Nonvested Restricted Stock at September 30, 2023 |
|
|
|
|
$ |
|
||
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 2023 Plan was
12
(J) COMPUTATION OF EARNINGS PER SHARE
The calculation of basic and diluted common shares outstanding is as follows:
|
|
For the Three Months Ended September 30, |
|
|
For the Six Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Weighted-Average Shares of Common Stock Outstanding |
|
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|
||||
Effect of Dilutive Shares |
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||||
Assumed Exercise of Outstanding Dilutive Options |
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|
||||
Less Shares Repurchased from Proceeds of Assumed Exercised Options |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
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. Over the last several years, these plans have been frozen to new participants and new benefits, with the last plan becoming frozen during fiscal 2020. Our defined benefit plans are all fully funded, with plan assets exceeding the benefit obligation at March 31, 2023. Due to the frozen status and current funding of the single-employer pension plans, our expected pension expense for fiscal 2024 is less than $
(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 three months ended September 30, 2023, was approximately
(M) LONG-TERM DEBT
Long-term Debt at September 30, 2023 is as follows:
|
|
September 30, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
|
|
(dollars in thousands) |
|
|||||
Revolving Credit Facility |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
Term Loan |
|
|
|
|
|
|
||
Total Debt |
|
|
|
|
|
|
||
Less: Current Portion of Long-term Debt |
|
|
( |
) |
|
|
( |
) |
Less: Unamortized Discounts and Debt Issuance Costs |
|
|
( |
) |
|
|
( |
) |
Long-term Debt |
|
$ |
|
|
$ |
|
||
Revolving Credit Facility
We have an unsecured $
13
million), provided the existing lenders, or new lenders, agree to such increase. The Revolving Credit Facility includes a $
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
At the Company’s option, outstanding loans under the Revolving Credit Facility bear interest, at a variable rate equal to either (i) the adjusted term SOFR rate (secured overnight financing rate), plus 10 basis points, plus an agreed spread (ranging from
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 were $
Term Loan
On May 5, 2022, we borrowed the $
14
2.500% Senior Unsecured Notes Due 2031
On July 1, 2021, we issued $
(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, production, distribution, and sale of portland cement, including portland limestone cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; and the mining and sale of aggregates (crushed stone, sand, and gravel).
We operate
We operate
15
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.
|
|
For the Three Months Ended September 30, |
|
|
For the Six Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Concrete and Aggregates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gypsum Wallboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycled Paperboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
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|
||||
Less: Intersegment Revenue |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Less: Joint Venture Revenue |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
For the Three Months Ended September 30, |
|
|
For the Six Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Intersegment Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Concrete and Aggregates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycled Paperboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cement Sales Volume (M tons) |
|
|
|
|
|
|
|
|
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|
||||
Wholly Owned |
|
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|
||||
Joint Venture |
|
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|
||||
|
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|
|
|
|
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|
|
|
||||
16
|
|
For the Three Months Ended September 30, |
|
|
For the Six Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(dollars in thousands) |
|
|
(dollars in thousands) |
|
||||||||||
Operating Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Concrete and Aggregates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gypsum Wallboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycled Paperboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sub-Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate General and Administrative Expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other Non-Operating Income (Loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Earnings Before Interest and Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Earnings Before Income Taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cement Operating Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Wholly Owned |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Joint Venture |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Concrete and Aggregates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gypsum Wallboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycled Paperboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Depreciation, Depletion, and Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Concrete and Aggregates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gypsum Wallboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycled Paperboard |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
September 30, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
|
|
(dollars in thousands) |
|
|||||
Identifiable Assets |
|
|
|
|
|
|
||
Cement |
|
$ |
|
|
$ |
|
||
Concrete and Aggregates |
|
|
|
|
|
|
||
Gypsum Wallboard |
|
|
|
|
|
|
||
Recycled Paperboard |
|
|
|
|
|
|
||
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.
17
The segment breakdown of Goodwill is as follows:
|
|
September 30, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
|
|
(dollars in thousands) |
|
|||||
Cement |
|
$ |
|
|
$ |
|
||
Concrete and Aggregates |
|
|
|
|
|
|
||
Gypsum Wallboard |
|
|
|
|
|
|
||
Recycled Paperboard |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
The increase in Goodwill in the Cement segment is related to the Stockton Terminal Acquisition. The purchase price allocation is still in progress, and may affect the recorded balance of Goodwill when completed.
Summarized financial information for the Joint Venture that is not consolidated is set out below. This summarized financial information includes the total amount for the Joint Venture and not our 50% interest in those amounts:
|
|
For the Three Months Ended September 30, |
|
|
For the Six Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(dollars in thousands) |
|
|
(dollars in thousands) |
|
||||||||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Gross Margin |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Earnings Before Income Taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
September 30, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
|
|
(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 September 30, |
|
|
For the Six Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(dollars in thousands) |
|
|
(dollars in thousands) |
|
||||||||||
Interest Income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Expense, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest Income includes interest earned on investments of excess cash. Components of Interest Expense include interest associated with the Revolving Credit Facility, Term Loan, Senior Unsecured Notes, and commitment fees based on the unused portion of the Revolving Credit Facility. Other Expenses include amortization of debt issuance costs and Revolving Credit Facility costs.
18
(P) COMMITMENTS AND CONTINGENCIES
We have certain deductible limits under our workers’ compensation and liability insurance policies for which reserves are established based on the undiscounted estimated costs of known and anticipated claims. We have entered into standby letter of credit agreements relating to workers’ compensation, auto, and general liability self-insurance. At September 30, 2023, 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 determined using market transactions (level 1 inputs). The fair value of our 2.500% Senior Unsecured Notes at September 30, 2023, is as follows:
|
|
Fair Value |
|
|
|
|
(dollars in thousands) |
|
|
|
$ |
|
||
The carrying values of Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and Accrued Liabilities approximate their fair values at September 30, 2023, due to the short-term maturities of these assets and liabilities. The fair value of our Revolving Credit Facility and Term Loan also approximates the carrying value at September 30, 2023.
19
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE SUMMARY
We are a leading manufacturer of heavy construction materials and light building materials in the United States. Our primary products, Portland Cement and Gypsum Wallboard, are commodities that are essential in commercial and residential construction; public construction projects; and projects to build, expand, and repair roads and highways. Demand for our products is generally cyclical and seasonal, depending on economic and geographic conditions. We distribute our products throughout most of the United States, except the Northeast, which provides us with regional economic diversification. However, general economic downturns or localized downturns in the regions where we have operations may have a material adverse effect on our business, financial condition, and results of operations.
Our business is organized into two sectors: Heavy Materials, which includes the Cement and Concrete and Aggregates segments; and Light Materials, which includes the Gypsum Wallboard and Recycled Paperboard segments. Financial results and other information for the three and six months ended September 30, 2023 and 2022, are presented on a consolidated basis and by these business segments – Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard.
We conduct one of our cement operations through a joint venture, Texas Lehigh Cement Company LP, which is located in Buda, Texas (the Joint Venture). We own a 50% interest in the Joint Venture and account for our interest under the equity method of accounting. We proportionately consolidate our 50% share of the Joint Venture’s Revenue and Operating Earnings in the presentation of our Cement segment, which is the way management organizes the segments within the Company for making operating decisions and assessing performance.
All our business activities are conducted in the United States. These activities include the mining of limestone for the manufacture, production, distribution, and sale of portland cement, including portland limestone cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; and the mining and sale of aggregates (crushed stone, sand, and gravel).
In April 2023, we assumed operation of our quarry in Battletown, Kentucky (Battletown Aggregates). Our Battletown quarry is primarily used to supply our Kosmos Cement plant with limestone; however, beginning in April 2023 we also began selling a portion of the mined materials as aggregates. Battletown Aggregates is included in our Heavy Materials sector, in the Concrete and Aggregates business segment.
On May 3, 2023, we finalized the Stockton Terminal Acquisition. The purchase price of the Stockton Terminal Acquisition was approximately $55.1 million. The Stockton Terminal Acquisition is included in our Heavy Materials sector, in the Cement business segment. See Footnote (B) in the Unaudited Consolidated Financial Statements for more information regarding the Stockton Terminal Acquisition.
MARKET CONDITIONS AND OUTLOOK
During the first half of fiscal 2024, our end markets generally remained resilient despite higher interest rates and persistent inflation. Construction activity in most of our regional markets continued to outpace the national average. During the first half of fiscal 2024, Sales Volume in our Cement business, excluding volume related to the Stockton Acquisition, declined 5%, as did Sales Volume in our Gypsum Wallboard business. The decline in Sales Volume in our Cement business during the first half of fiscal 2024 was due mostly to weather conditions, while the decline in Sales Volume in Gypsum Wallboard was due to the slow down in residential construction. Despite the declines, our overall sales volume remains historically strong.
20
Demand Outlook
The principal end-use market of Cement is public infrastructure (i.e. roads, bridges, and highways). Our Cement business remains in a near sold-out position. We expect demand for cement to remain strong with increased federal funding from the Infrastructure Investments and Jobs Act for public construction and repair projects; continued high allocations from state budgets for additional infrastructure projects; and growth in heavy industrial projects. Despite underlying growth in demand, our ability to increase Cement sales volume from our existing facilities is limited, because our integrated cement sales network, which stretches across the U.S. heartland, is operating at high utilization levels.
The principal end use for Gypsum Wallboard is residential housing, consisting of new construction (both single-family and multi-family homes) as well as repair and remodel. Our Gypsum Wallboard shipments and orders, while down 5% for the first six months of fiscal 2024, compared with the prior year, remain historically strong. Residential construction activity remains resilient as the market balances affordability challenges related primarily to higher interest rates with chronic supply shortages and strong demand. Our Recycled Paperboard business sells paper primarily into the gypsum wallboard market, and demand for our paper generally follows the demand for gypsum wallboard.
Cost Outlook
We are well-positioned to manage our cost structure and meet our customers’ needs during the second half of the fiscal year. Our substantial raw material reserves for our Cement, Aggregates, and Gypsum Wallboard businesses, and their proximity to our respective manufacturing facilities, support our low-cost producer position across all our business segments.
Energy and freight costs increased in all our businesses during fiscal 2023. While natural gas costs have recently declined and freight costs have stabilized, solid fuel costs, which are the primary energy costs in manufacturing cement, continue to increase in fiscal 2024 compared with fiscal 2023.
The primary raw material used to produce recycled paperboard is old corrugated containers (OCC). Prices for OCC stabilized toward the end of fiscal 2023. OCC prices increased slightly during the first half of fiscal 2024, and we anticipate OCC pricing to remain relatively stable in the near term. Our current customer contracts for gypsum liner include price adjustments that partially compensate for changes in raw material fiber prices. However, because these price adjustments are not realized until future quarters, costs in our Gypsum Wallboard segment are likely to be adjusted in the period that these price changes are realized.
21
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2023 Compared WITH THREE MONTHS ENDED SEPTEMBER 30, 2022
|
|
For the Three Months Ended September 30, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
|
|
(dollars in thousands, except per share) |
|
|
|
|
||||||
Revenue |
|
$ |
622,236 |
|
|
$ |
605,068 |
|
|
|
3 |
% |
Cost of Goods Sold |
|
|
(413,218 |
) |
|
|
(410,829 |
) |
|
|
1 |
% |
Gross Profit |
|
|
209,018 |
|
|
|
194,239 |
|
|
|
8 |
% |
Equity in Earnings of Unconsolidated Joint Venture |
|
|
10,346 |
|
|
|
7,156 |
|
|
|
45 |
% |
Corporate General and Administrative Expense |
|
|
(16,576 |
) |
|
|
(13,627 |
) |
|
|
22 |
% |
Other Non-Operating Loss |
|
|
1,605 |
|
|
|
(664 |
) |
|
|
(342 |
)% |
Interest Expense, net |
|
|
(10,204 |
) |
|
|
(8,580 |
) |
|
|
19 |
% |
Earnings Before Income Taxes |
|
|
194,189 |
|
|
|
178,524 |
|
|
|
9 |
% |
Income Tax Expense |
|
|
(43,636 |
) |
|
|
(39,529 |
) |
|
|
10 |
% |
Net Earnings |
|
$ |
150,553 |
|
|
$ |
138,995 |
|
|
|
8 |
% |
Diluted Earnings per Share |
|
$ |
4.26 |
|
|
$ |
3.72 |
|
|
|
15 |
% |
REVENUE
Revenue increased by $17.1 million, or 3%, to $622.2 million for the three months ended September 30, 2023. Battletown Aggregates and the Stockton Terminal Acquisition contributed $2.4 million and $13.0 million of Revenue, respectively, during the three months ended September 30, 2023. Excluding Battletown Aggregates and the Stockton Terminal Acquisition, Revenue increased by $1.7 million. This was due to higher gross sales prices, which positively affected Revenue by $43.3 million, partially offset by lower Sales Volume, which adversely affected Revenue by approximately $41.6 million.
COST OF GOODS SOLD
Cost of Goods Sold increased by $2.4 million, or 1%, to $413.2 million for the three months ended September 30, 2023. Battletown Aggregates and the Stockton Terminal Acquisition contributed $2.7 million and $13.2 million of Cost of Goods Sold, respectively, during the three months ended September 30, 2023. Excluding Battletown Aggregates and the Stockton Terminal Acquisition, Cost of Goods Sold decreased by $13.5 million, or 3%. The decline was due to lower Sales Volume of $30.2 million, partially offset by higher operating costs of $16.7 million. Higher operating costs were primarily related to our Cement and Concrete and Aggregates businesses and are discussed further in the segment analysis.
GROSS PROFIT
Gross Profit increased 8% to $209.0 million during the three months ended September 30, 2023. The increase was primarily related to higher gross sales prices, partially offset by lower Sales Volume and increased operating costs. The gross margin expanded to 34%, with higher gross sales prices being partially offset by a rise in operating costs.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE
Equity in Earnings of our Unconsolidated Joint Venture increased $3.1 million, or 45%, for the three months ended September 30, 2023. The increase was primarily due to higher gross sales prices and Sales Volume, which increased earnings by approximately $2.9 million and $0.2 million, respectively, while operating costs remained relatively flat.
22
CORPORATE GENERAL AND ADMINISTRATIVE
Corporate General and Administrative expenses increased by approximately $3.0 million, or 22%, for the three months ended September 30, 2023. The increase was primarily due to higher salary and incentive compensation, information technology upgrades, and legal and professional expenses of $0.7 million, $0.9 million, and $0.7 million, respectively. The increase in incentive compensation was due to higher earnings compared with the prior year.
OTHER NON-OPERATING INCOME
Other Non-Operating Income consists of a variety of items that are unrelated to segment operations and include non-inventoried Aggregates income, asset sales, and other miscellaneous income and cost items.
INTEREST EXPENSE, NET
Interest Expense, net increased by approximately $1.6 million, or 19%, during the three months ended September 30, 2023. This was primarily due to higher interest on our revolving credit facility, which was mostly related to higher interest rates on our borrowings.
EARNINGS BEFORE INCOME TAXES
Earnings Before Income Taxes increased to $194.2 million during the three months ended September 30, 2023, primarily because of higher Gross Profit and Equity in Earnings of Unconsolidated Joint Venture. This was partially offset by higher Corporate General and Administrative Expense and Interest Expense.
INCOME TAX EXPENSE
Income Tax Expense was $43.6 million for the three months ended September 30, 2023, compared with $39.5 million for the three months ended September 30, 2022. The effective tax rate increased to 23% from 22% in the prior-year period. The increase was primarily due to state income taxes.
NET EARNINGS
Net Earnings increased 8% to $150.6 million for the three months ended September 30, 2023, as discussed above.
23
RESULTS OF OPERATIONS
Six MONTHS ENDED September 30, 2023 Compared WITH Six MONTHS ENDED September 30, 2022
|
|
For the Six Months Ended September 30, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
|
|
(dollars in thousands, except per share) |
|
|
|
|
||||||
Revenue |
|
$ |
1,223,757 |
|
|
$ |
1,166,455 |
|
|
|
5 |
% |
Cost of Goods Sold |
|
|
(838,744 |
) |
|
|
(821,350 |
) |
|
|
2 |
% |
Gross Profit |
|
|
385,013 |
|
|
|
345,105 |
|
|
|
12 |
% |
Equity in Earnings of Unconsolidated Joint Venture |
|
|
13,505 |
|
|
|
12,254 |
|
|
|
10 |
% |
Corporate General and Administrative Expense |
|
|
(28,255 |
) |
|
|
(25,447 |
) |
|
|
11 |
% |
Other Non-Operating Income (Loss) |
|
|
1,818 |
|
|
|
(1,299 |
) |
|
|
(240 |
)% |
Interest Expense, net |
|
|
(22,443 |
) |
|
|
(15,910 |
) |
|
|
41 |
% |
Earnings Before Income Taxes |
|
|
349,638 |
|
|
|
314,703 |
|
|
|
11 |
% |
Income Tax Expense |
|
|
(78,236 |
) |
|
|
(70,703 |
) |
|
|
11 |
% |
Net Earnings |
|
$ |
271,402 |
|
|
$ |
244,000 |
|
|
|
11 |
% |
Diluted Earnings per Share |
|
$ |
7.66 |
|
|
$ |
6.46 |
|
|
|
19 |
% |
REVENUE
Revenue increased by $57.4 million, or 5%, to $1,223.7 million for the six months ended September 30, 2023. Battletown Aggregates and the Stockton Terminal Acquisition contributed $4.1 million and $19.5 million of Revenue, respectively, during the six months ended September 30, 2023. Excluding Battletown Aggregates and the Stockton Terminal Acquisition, Revenue increased by $33.8 million, or 3%. This was due to higher gross sales prices, which positively affected Revenue by $91.7 million, partially offset by lower Sales Volume, which adversely affected Revenue by approximately $57.9 million.
COST OF GOODS SOLD
Cost of Goods Sold increased by $17.3 million, or 2%, to $838.7 million for the six months ended September 30, 2023. Battletown Aggregates and the Stockton Terminal Acquisition contributed $4.2 million and $21.5 million of Cost of Goods Sold, respectively, during the six months ended September 30, 2023. Excluding Battletown Aggregates and the Stockton Terminal Acquisition, Cost of Goods Sold decreased by $8.4 million, or 1%. The decline was due to lower Sales Volume of $42.7 million, partially offset by higher operating costs of $34.3 million. Higher operating costs were primarily related to our Cement and Concrete and Aggregates businesses and are discussed further in the segment analysis.
GROSS PROFIT
Gross Profit increased 12% to $385.0 million during the six months ended September 30, 2023. The increase was primarily related to higher gross sales prices, partially offset by lower Sales Volume and increased operating costs. The gross margin expanded to 31%, with higher gross sales prices being partially offset by a rise in operating costs.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE
Equity in Earnings of our Unconsolidated Joint Venture increased $1.2 million, or 10%, for the six months ended September 30, 2023. The increase was primarily due to higher gross sales prices, which positively affected earnings by $7.1 million. This was partially offset by higher operating costs and lower Sales Volume, which adversely affected earnings by approximately $5.2 million and $0.6 million, respectively. The increase in operating costs was primarily related to extended equipment downtime that reduced production and resulted in higher maintenance expenses of approximately $2.8 million, as well as purchased cement costs which reduced operating earnings $1.0 million.
24
CORPORATE GENERAL AND ADMINISTRATIVE
Corporate General and Administrative expenses increased by approximately $2.9 million, or 11%, for the six months ended September 30, 2023. The increase was primarily due to higher salary and incentive compensation, information technology upgrades, and legal and professional expenses of $1.5 million, $0.9 million, and $0.5 million, respectively. The increase in incentive compensation was due to higher earnings compared with the prior year, while the increase in legal and professional expense was primarily related to the Stockton Acquisition.
OTHER NON-OPERATING INCOME
Other Non-Operating Income consists of a variety of items that are unrelated to segment operations and include non-inventoried Aggregates income, asset sales, and other miscellaneous income and cost items.
INTEREST EXPENSE, NET
Interest Expense, net increased by approximately $6.5 million, or 41%, during the six months ended September 30, 2023. This was primarily due to approximately $6.9 million of higher interest on our revolving credit facility, which was related to increased average outstanding borrowings and higher interest rates, partially offset by increased interest income on cash deposits.
EARNINGS BEFORE INCOME TAXES
Earnings Before Income Taxes increased to $349.6 million during the six months ended September 30, 2023, primarily because of higher Gross Profit and Equity in Earnings of Unconsolidated Joint Venture. This was partially offset by higher Corporate General and Administrative Expense and Interest Expense.
INCOME TAX EXPENSE
Income Tax Expense was $78.2 million for the six months ended September 30, 2023, compared with $70.7 million for the six months ended September 30, 2022. The effective tax rate of 22% remained consistent with the prior-year period.
NET EARNINGS
Net Earnings increased 11% to $271.4 million for the six months ended September 30, 2023, as discussed above.
Three AND SIX MONTHS ENDED SEPTEMBER 30, 2023 vs. three AND SIX MONTHS ENDED sEPTEMBER 30, 2022 BY SEGMENT
The following presents results within our two business sectors for the three and six months ended September 30, 2023, and 2022. Revenue and operating results are organized by sector and discussed by individual business segments.
25
Heavy Materials
CEMENT (1)
|
|
For the Three Months Ended September 30, |
|
|
|
|
|
For the Six Months Ended September 30, |
|
|
|
|
||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Percentage Change |
|
|
2023 |
|
|
2022 |
|
|
Percentage Change |
|
||||||
|
|
(in thousands, except per ton information) |
|
|
|
|
|
(in thousands, except per ton information) |
|
|
|
|
||||||||||||
Revenue, including Intersegment and Joint Venture |
|
$ |
360,751 |
|
|
$ |
319,460 |
|
|
|
13 |
% |
|
$ |
689,783 |
|
|
$ |
603,976 |
|
|
|
14 |
% |
Less Intersegment Revenue |
|
|
(9,251 |
) |
|
|
(12,361 |
) |
|
|
(25 |
)% |
|
|
(19,388 |
) |
|
|
(18,652 |
) |
|
|
4 |
% |
Less Joint Venture Revenue |
|
|
(28,907 |
) |
|
|
(25,130 |
) |
|
|
15 |
% |
|
|
(56,030 |
) |
|
|
(51,445 |
) |
|
|
9 |
% |
Revenue |
|
$ |
322,593 |
|
|
$ |
281,969 |
|
|
|
14 |
% |
|
$ |
614,365 |
|
|
$ |
533,879 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sales Volume (M Tons) |
|
|
2,129 |
|
|
|
2,145 |
|
|
|
(1 |
)% |
|
|
4,142 |
|
|
|
4,138 |
|
|
|
— |
|
Freight and Delivery Costs billed to Customers |
|
$ |
(17,872 |
) |
|
$ |
(18,737 |
) |
|
|
(5 |
)% |
|
$ |
(35,400 |
) |
|
$ |
(36,012 |
) |
|
|
(2 |
)% |
Average Net Sales Price, per ton (2) |
|
$ |
151.99 |
|
|
$ |
132.50 |
|
|
|
15 |
% |
|
$ |
149.70 |
|
|
$ |
130.24 |
|
|
|
15 |
% |
Operating Margin, per ton |
|
$ |
57.04 |
|
|
$ |
46.05 |
|
|
|
24 |
% |
|
$ |
47.20 |
|
|
$ |
38.94 |
|
|
|
21 |
% |
Operating Earnings |
|
$ |
121,429 |
|
|
$ |
98,779 |
|
|
|
23 |
% |
|
$ |
195,490 |
|
|
$ |
161,127 |
|
|
|
21 |
% |
(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 September 30, 2023
Cement Revenue was $360.8 million, a 13% increase, for the three months ended September 30, 2023. Excluding Intersegment Revenue and the Stockton Terminal Acquisition, Revenue increased $31.4 million, or 10%, for the three months ended September 30, 2023. The increase was primarily due to higher gross sales prices, which improved Cement Revenue by approximately $46.9 million, partially offset by lower Sales Volume from legacy cement plants of $15.5 million.
Cement Operating Earnings increased by $22.6 million to $121.4 million for the three months ended September 30, 2023. Excluding the Stockton Terminal Acquisition, Operating Earnings increased by $22.8 million, or 23%. The increase was due to higher gross sales prices of $46.9 million. This was partially offset by lower Sales Volume and higher operating costs of $5.1 million and $19.0 million, respectively. Higher operating costs were primarily due to increased maintenance, fuel, purchased raw materials, and fixed costs, which includes depreciation, of approximately $5.9 million, $4.5 million, $2.8 million, and $4.1 million, respectively. The Operating Margin increased to 34% from 31%, as a result of higher gross sales prices, partially offset by the higher operating expenses.
Six months ended September 30, 2023
Cement Revenue was $689.8 million, a 14% increase, for the six months ended September 30, 2023. Excluding Intersegment Revenue and the Stockton Terminal Acquisition, Revenue increased $65.5 million, or 11%, for the six months ended September 30, 2023. The increase was primarily due to higher gross sales prices, which improved Cement Revenue by approximately $87.2 million, partially offset by lower Sales Volume from legacy cement plants of $21.7 million.
Cement Operating Earnings increased by $34.4 million to $195.5 million for the six months ended September 30, 2023. Excluding the Stockton Terminal Acquisition, Operating Earnings increased by $36.4 million, or 23%. The increase was due to higher gross sales prices of $87.2 million. This was partially offset by lower Sales Volume and higher operating costs of $12.4 million and $38.4 million, respectively. Higher operating costs were primarily due to increased maintenance, purchased raw materials, and energy expenses of approximately $24.4 million, $6.2 million, and $3.5 million, respectively. The Operating Margin increased to 28% from 27%, as a result of higher gross sales prices, partially offset by higher operating expenses.
26
CONCRETE AND AGGREGATES
|
|
For the Three Months Ended |
|
|
|
|
|
For the Six Months Ended |
|
|
|
|
||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Percentage Change |
|
|
2023 |
|
|
2022 |
|
|
Percentage Change |
|
||||||
|
|
(in thousands, except net sales prices) |
|
|
|
|
|
(in thousands, except net sales prices) |
|
|
|
|
||||||||||||
Revenue, including Intersegment |
|
$ |
69,887 |
|
|
$ |
69,613 |
|
|
|
0 |
% |
|
$ |
140,340 |
|
|
$ |
131,231 |
|
|
|
7 |
% |
Less Intersegment Revenue |
|
|
(3,783 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,821 |
) |
|
|
— |
|
|
|
— |
|
Revenue |
|
$ |
66,104 |
|
|
$ |
69,613 |
|
|
|
(5 |
)% |
|
$ |
133,519 |
|
|
$ |
131,231 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sales Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
M Cubic Yards of Concrete |
|
|
362 |
|
|
|
451 |
|
|
|
(20 |
)% |
|
|
747 |
|
|
|
857 |
|
|
|
(13 |
)% |
M Tons of Aggregate |
|
|
1,171 |
|
|
|
912 |
|
|
|
28 |
% |
|
|
2,328 |
|
|
|
1,707 |
|
|
|
36 |
% |
Average Net Sales Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Concrete - Per Cubic Yard |
|
$ |
145.39 |
|
|
$ |
134.28 |
|
|
|
8 |
% |
|
$ |
143.55 |
|
|
$ |
131.65 |
|
|
|
9 |
% |
Aggregates - Per Ton |
|
$ |
11.15 |
|
|
$ |
10.87 |
|
|
|
3 |
% |
|
$ |
11.21 |
|
|
$ |
11.05 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating Earnings |
|
$ |
4,640 |
|
|
$ |
7,276 |
|
|
|
(36 |
)% |
|
$ |
11,674 |
|
|
$ |
13,008 |
|
|
|
(10 |
)% |
Three months ended September 30, 2023
Concrete and Aggregates Revenue remained relatively flat at $69.9 million for the three months ended September 30, 2023. Excluding Intersegment Revenue and Battletown Aggregates, Revenue declined $5.8 million. The decline was due to lower Sales Volume, primarily in Concrete, which reduced Revenue by $12.0 million. This was partially offset by higher gross sales prices of $6.2 million.
Operating Earnings were approximately $4.6 million, a 36% decrease. Excluding Battletown Aggregates, Operating Earnings were $5.0 million. The decrease in Operating Earnings was due to lower Sales Volume and higher operating costs of $0.5 million and $8.0 million, respectively. This was partially offset by higher gross selling prices of $6.2 million. The increase in operating costs was primarily due to higher cost of materials and maintenance expenses of approximately $3.7 million and $2.3 million, respectively.
Six months ended September 30, 2023
Concrete and Aggregates Revenue was $140.3 million for the six months ended September 30, 2023. Excluding Intersegment Revenue and Battletown Aggregates, Revenue declined $1.8 million. The decrease was due to lower Sales Volume, primarily in Concrete, which reduced Revenue by $13.1 million. This was partially offset by higher gross sales prices of $11.3 million.
Operating Earnings were approximately $11.7 million, a 10% decrease. Excluding Battletown Aggregates, Operating Earnings decreased to $1.2 million. The decline in Operating Earnings was due to lower Sales Volume and higher operating costs of $0.3 million and $12.2 million, respectively. This was partially offset by higher gross selling prices of $11.3 million. The increase in operating costs was primarily due to higher materials and maintenance expenses of approximately $7.1 million, $5.5 million, respectively. This was partially offset by the impact of recording acquired inventories at fair value of $1.2 million in the first quarter of fiscal 2022.
27
Light Materials
GYPSUM WALLBOARD
|
|
For the Three Months Ended |
|
|
|
|
|
For the Six Months Ended |
|
|
|
|
||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Percentage Change |
|
|
2023 |
|
|
2022 |
|
|
Percentage Change |
|
||||||
|
|
(in thousands, except per MSF information) |
|
|
|
|
|
(in thousands, except per MSF information) |
|
|
|
|
||||||||||||
Revenue |
|
$ |
209,233 |
|
|
$ |
224,638 |
|
|
|
(7 |
)% |
|
$ |
428,330 |
|
|
$ |
440,965 |
|
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sales Volume (MMSF) |
|
|
733 |
|
|
|
783 |
|
|
|
(6 |
)% |
|
|
1,496 |
|
|
|
1,581 |
|
|
|
(5 |
)% |
Freight and Delivery Costs billed to Customers |
|
$ |
(37,802 |
) |
|
$ |
(41,535 |
) |
|
|
(9 |
)% |
|
$ |
(76,410 |
) |
|
$ |
(83,540 |
) |
|
|
(9 |
)% |
Average Net Sales Price, per MSF (1) |
|
$ |
233.69 |
|
|
$ |
233.70 |
|
|
|
— |
|
|
$ |
235.20 |
|
|
$ |
226.07 |
|
|
|
4 |
% |
Freight, per MSF |
|
$ |
51.57 |
|
|
$ |
53.05 |
|
|
|
(3 |
)% |
|
$ |
51.08 |
|
|
$ |
52.84 |
|
|
|
(3 |
)% |
Operating Margin, per MSF |
|
$ |
116.92 |
|
|
$ |
114.64 |
|
|
|
2 |
% |
|
$ |
118.02 |
|
|
$ |
109.95 |
|
|
|
7 |
% |
Operating Earnings |
|
$ |
85,705 |
|
|
$ |
89,761 |
|
|
|
(5 |
)% |
|
$ |
176,562 |
|
|
$ |
173,829 |
|
|
|
2 |
% |
(1) Net of freight per MSF.
Three months ended September 30, 2023
Gypsum Wallboard Revenue was $209.2 million, a 7% decrease for the three months ended September 30, 2023. The decrease was primarily due to lower gross sales prices and Sales Volume, which reduced Revenue by $1.1 million, and $14.3 million, respectively. Our market share remained relatively consistent during the three months ended September 30, 2023.
Operating Earnings decreased 5% to $85.7 million, primarily because of lower gross sales prices and Sales Volume, partially offset by lower operating costs. The decline in gross sales prices and Sales Volume negatively affected Operating Earnings by approximately $1.1 million and $5.7 million, respectively. This was partially offset by lower operating costs, which increased Operating Earnings by approximately $2.7 million. Lower operating costs were primarily related to freight, energy and purchased raw materials, which increased Operating Earnings by approximately $1.1 million, $3.0 million and $2.0 million, respectively. This was partially offset by higher maintenance of $0.9 million and wage expense of $1.9 million. Operating Margin increased to 40% for the three months ended September 30, 2023, primarily because of lower operating costs, partly offset by lower gross sales prices. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.
Six months ended September 30, 2023
Gypsum Wallboard Revenue was $428.3 million, a 3% decrease for the six months ended September 30, 2023. The decrease was primarily due to lower Sales Volume, which reduced Revenue by $23.7 million, partially offset by higher gross sales prices, which increased Revenue by $11.1 million. Our market share remained relatively consistent during the three months ended September 30, 2023.
Operating Earnings increased 2% to $176.6 million, primarily because of higher gross sales prices and lower operating costs of $11.1 million and $1.0 million, respectively. This was partially offset by lower Sales Volume, which adversely affected Operating Earnings by approximately $9.3 million. Lower operating costs were primarily related to energy, which increased Operating Earnings by approximately $8.1 million. This was partially offset by higher maintenance of $2.5 million and fixed costs of $4.8 million. Operating Margin increased to 41% for the six months ended September 30, 2023, primarily because of higher gross sales prices and lower operating expenses. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.
28
RECYCLED PAPERBOARD
|
|
For the Three Months Ended September 30, |
|
|
|
|
|
For the Six Months Ended September 30, |
|
|
|
|
||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Percentage Change |
|
|
2023 |
|
|
2022 |
|
|
Percentage Change |
|
||||||
|
|
(in thousands, except per ton information) |
|
|
|
|
|
(in thousands, except per ton information) |
|
|
|
|
||||||||||||
Revenue, including intersegment |
|
$ |
43,016 |
|
|
$ |
53,673 |
|
|
|
(20 |
)% |
|
$ |
88,344 |
|
|
$ |
107,746 |
|
|
|
(18 |
)% |
Less intersegment Revenue |
|
|
(18,710 |
) |
|
|
(24,825 |
) |
|
|
(25 |
)% |
|
|
(40,801 |
) |
|
|
(47,366 |
) |
|
|
(14 |
)% |
Revenue |
|
$ |
24,306 |
|
|
$ |
28,848 |
|
|
|
(16 |
)% |
|
$ |
47,543 |
|
|
$ |
60,380 |
|
|
|
(21 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sales Volume (M Tons) |
|
|
80 |
|
|
|
85 |
|
|
|
(6 |
)% |
|
|
163 |
|
|
|
169 |
|
|
|
(4 |
)% |
Freight and Delivery Costs billed to Customers |
|
$ |
(6 |
) |
|
$ |
(2,469 |
) |
|
|
(100 |
)% |
|
$ |
(605 |
) |
|
$ |
(5,018 |
) |
|
|
(88 |
)% |
Average Net Sales Price, per ton (1) |
|
$ |
542.28 |
|
|
$ |
603.62 |
|
|
|
(10 |
)% |
|
$ |
539.35 |
|
|
$ |
607.73 |
|
|
|
(11 |
)% |
Freight, per ton |
|
$ |
0.08 |
|
|
$ |
29.05 |
|
|
|
(100 |
)% |
|
$ |
3.71 |
|
|
$ |
29.69 |
|
|
|
(87 |
)% |
Operating Margin, per ton |
|
$ |
94.88 |
|
|
$ |
65.64 |
|
|
|
45 |
% |
|
$ |
90.75 |
|
|
$ |
55.59 |
|
|
|
63 |
% |
Operating Earnings |
|
$ |
7,590 |
|
|
$ |
5,579 |
|
|
|
36 |
% |
|
$ |
14,792 |
|
|
$ |
9,395 |
|
|
|
57 |
% |
(1) Net of freight per ton.
Three months ended September 30, 2023
Recycled Paperboard Revenue decreased 20% to $43.0 million during the three months ended September 30, 2023. The decrease was primarily due to lower gross sales prices and Sales Volume, which reduced Revenue by $7.2 million and $3.5 million, respectively. Lower gross sales prices were related to the pricing provisions in our long-term sales agreements.
Operating Earnings increased 36% to $7.6 million, primarily because of lower operating expenses, which increased Operating Earnings by $9.5 million. This was partially offset by lower gross sales prices and Sales Volume, which reduced Operating Earnings by approximately $7.2 million and $0.3 million, respectively. The decrease in operating costs was primarily related to lower input costs, namely fiber, and freight, which improved Operating Earnings by approximately $8.0 million, and $2.4 million, respectively. This was partially offset by higher fixed costs of $1.0 million. The Operating Margin increased to 18% because of lower operating costs, partially offset by lower gross sales prices. 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.
Six months ended September 30, 2023
Recycled Paperboard Revenue decreased 18% to $88.3 million during the six months ended September 30, 2023. The decrease was primarily due to lower gross sales prices and Sales Volume, which reduced Revenue by $15.3 million and $4.1 million, respectively. Lower gross sales prices were related to the pricing provisions in our long-term sales agreements.
Operating Earnings increased 57% to $14.8 million, primarily because of lower operating expenses, which increased Operating Earnings by $21.1 million. This was partially offset by lower gross sales prices and Sales Volume, which reduced Operating Earnings by approximately $15.3 million and $0.4 million, respectively. The decrease in operating costs was primarily related to lower input costs, namely fiber, and freight, which lowered Operating Earnings by approximately $18.4 million, and $4.4 million, respectively. This was partially offset by higher fixed costs of $1.5 million. The Operating Margin increased to 17% because of lower operating costs, partially offset by lower gross sales prices. 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.
29
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare our financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.
Information regarding our Critical Accounting Policies can be found in our Annual Report. The three Critical Accounting Policies that we believe either require the use of the most judgment, or the selection or application of alternative accounting policies, and are material to our financial statements, are those related to long-lived assets, goodwill, and business combinations. Management has discussed the development and selection of these Critical Accounting Policies and estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm. In addition, Note (A) to the financial statements in our Annual Report contains a summary of our significant accounting policies.
Recent Accounting Pronouncements
Refer to Footnote (A) in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for information regarding recently issued accounting pronouncements that may affect our financial statements.
LIQUIDITY AND CAPITAL RESOURCES
We believe at this time that we have access to sufficient financial resources from our liquidity sources to fund our business and operations, including contractual obligations, capital expenditures, and debt service obligations for at least the next twelve months. We regularly monitor any potential disruptions to the economy, and to our operations, particularly changing fiscal policy or economic conditions affecting our industries. Please see the Debt Financing Activities section below for a discussion of our revolving credit facility and the amount of borrowings available to us in the next twelve-month period.
Cash Flow
The following table provides a summary of our cash flows:
|
|
For the Six Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(dollars in thousands) |
|
|||||
Net Cash Provided by Operating Activities |
|
$ |
312,839 |
|
|
$ |
300,445 |
|
Investing Activities |
|
|
|
|
|
|
||
Additions to Property, Plant, and Equipment |
|
|
(65,453 |
) |
|
|
(43,249 |
) |
Acquisition Spending |
|
|
(55,053 |
) |
|
|
(158,451 |
) |
Net Cash Used in Investing Activities |
|
|
(120,506 |
) |
|
|
(201,700 |
) |
Financing Activities |
|
|
|
|
|
|
||
Increase in Credit Facility |
|
|
5,000 |
|
|
|
200,000 |
|
Repayment of Term Loan and Term Loan Credit Agreement |
|
|
(5,000 |
) |
|
|
(2,500 |
) |
Dividends Paid to Stockholders |
|
|
(17,908 |
) |
|
|
(19,149 |
) |
Purchase and Retirement of Common Stock |
|
|
(151,321 |
) |
|
|
(210,398 |
) |
Proceeds from Stock Option Exercises |
|
|
11,469 |
|
|
|
735 |
|
Payment of Debt Issuance Costs |
|
|
— |
|
|
|
(903 |
) |
Shares Redeemed to Settle Employee Taxes on Stock Compensation |
|
|
(2,494 |
) |
|
|
(1,806 |
) |
Net Cash Used in Financing Activities |
|
|
(160,254 |
) |
|
|
(34,021 |
) |
Net Increase in Cash and Cash Equivalents |
|
$ |
32,079 |
|
|
$ |
64,724 |
|
30
Net Cash Provided by Operating Activities increased by $12.4 million to $312.8 million during the six months ended September 30, 2023. This increase was primarily attributable to higher Net Earnings, adjusted for non-cash charges of approximately $33.3 million. This was partially offset by changes in working capital of $15.9 million and lower dividends from our Unconsolidated Joint Venture of $5.0 million.
Working capital increased by $78.7 million to $387.3 million at September 30, 2023, compared with March 31, 2023. The increase was due to higher Cash, Accounts and Notes Receivable, net, Inventories, Prepaid and Other Assets of $32.1 million, $49.7 million, $9.5 million, and $7.0 million, respectively. This was partially offset by lower Income Tax Receivable of $8.2 million and higher Income Tax Payable and Accounts Payable and Accrued Liabilities of $2.0 million and $7.6 million, respectively. The increase in inventory was due primarily to the Stockton Terminal Acquisition. The Stockton Terminal Acquisition in May 2023 increased working capital by approximately $3.0 million at September 30, 2023.
The increase in Accounts Receivable at September 30, 2023, was primarily related to higher Revenue during the three months ended September 30, 2023, compared with the three months ended March 31, 2023. As a percentage of quarterly sales generated for the respective quarter, Accounts Receivable was approximately 39% at September 30, 2023 and 41% at March 31, 2023. Management measures the change in Accounts Receivable by monitoring the days sales outstanding on a monthly basis to determine if any deterioration has occurred in the collectability of the Accounts Receivable. No significant deterioration in the collectability of our Accounts Receivable was identified at September 30, 2023.
Our Inventory balance at September 30, 2023, increased by approximately $9.5 million from our balance at March 31, 2023. Excluding the Stockton Terminal Acquisition, our Inventory balance increased by $2.8 million. Within Inventory, Aggregates, Recycled Paperboard, Repair Parts and Fuel and Coal increased by approximately $2.1 million, $3.3 million, $3.1 million, and $4.1 million, respectively. This was partially offset by Finished Cement, which declined $4.4 million. The relatively flat balance in Raw Materials and Materials-in-Progress and decline in Finished Cement is consistent with our business cycle; we generally build up clinker inventory over the winter months to meet the demand for cement in the spring and summer. The decrease in repair parts inventory was primarily due to completing most of our scheduled outages during the quarter. The largest individual balance in our Inventory is our repair parts. These parts are necessary given the size and complexity of our manufacturing plants, as well as the age of certain of our plants, which creates the need to stock a high level of repair parts inventory. We believe all of these repair parts are necessary, and we perform semi-annual analyses to identify obsolete parts. We have less than one year’s sales of all product inventories, and our inventories have a low risk of obsolescence because our products are basic construction materials.
Net Cash Used in Investing Activities during the six months ended September 30, 2023, was approximately $120.5 million, compared with $201.7 million during the same period in 2022. The $81.2 million decrease was primarily related to the lower purchase price for the Stockton Terminal Acquisition in May 2023, compared with the acquisition completed in the six months ended September 30, 2022, partially offset by higher capital expenditures.
Net Cash Used in Financing Activities was approximately $160.3 million during the six months ended September 30, 2023, compared with $34.0 million during the six months ended September 30, 2022. The $126.3 million increase was primarily related to reduced borrowings of $197.5 million, partially offset by lower Purchase and Retirement of Common Stock of $59.1 million and increased Proceeds from Stock Option Exercises of $10.8 million.
Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 45.7% and 44.6%, respectively, at September 30, 2023, compared with 48.1% and 47.8%, respectively, at March 31, 2023.
31
Debt Financing Activities
Below is a summary of the Company’s outstanding debt facilities at September 30, 2023:
|
Maturity |
|
Revolving Credit Facility |
|
May 2027 |
Term Loan |
|
May 2027 |
2.500% Senior Unsecured Notes |
|
July 2031 |
See Footnote (M) to the Unaudited Consolidated Financial Statements for further details on the Company’s debt facilities, including interest rate, and financial and other covenants and restrictions.
The revolving borrowing capacity of our Revolving Credit Facility is $750.0 million (any revolving loans borrowed under the Revolving Credit Facility, as applicable, the Revolving Loans). The Revolving Credit Facility also includes a swingline loan sublimit of $25.0 million, and a $40.0 million letter of credit facility. At September 30, 2023 we had $162.0 million outstanding of Revolving Loans under the Revolving Credit Facility and $8.3 million of outstanding letters of credit, resulting in $579.7 million of available borrowings under the Revolving Credit Facility, net of the outstanding letters of credit. We are contingently liable for performance under $29.0 million in performance bonds relating primarily to our mining operations. We do not have any off-balance sheet debt, or any outstanding debt guarantees.
Other than the Revolving Credit Facility, we have no additional source of committed external financing in place. Should the Revolving Credit Facility be terminated, no assurance can be given as to our ability to secure a new source of financing. Consequently, if any balance were outstanding on the Revolving Credit Facility at the time of termination, and an alternative source of financing could not be secured, it would have a material adverse impact on our business.
We believe that our cash flow from operations and available borrowings under our Revolving Credit Facility, as well as cash on hand, should be sufficient to meet our currently anticipated operating needs, capital expenditures, and dividend and debt service requirements for at least the next 12 months. However, our future liquidity and capital requirements may vary depending on a number of factors, including market conditions in the construction industry, our ability to maintain compliance with covenants in our Revolving Credit Facility, the level of competition, and general and economic factors beyond our control, such as supply chain constraints and inflation. These and other developments could reduce our cash flow or require that we seek additional sources of funding. We cannot predict what effect these factors will have on our future liquidity. See Market Conditions and Outlook section above for further discussion of the possible effects on our business.
As market conditions warrant, the Company may from time to time seek to purchase or repay its outstanding debt securities or loans, including the 2.500% Senior Unsecured Notes, Term Loan, and borrowings under the Revolving Credit Facility, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new debt. The amounts involved in any such purchase transactions, individually or in aggregate, may be material.
We have approximately $30.9 million of lease liabilities at September 30, 2023, that have an average remaining life of approximately 9.1 years.
Dividends
Dividends paid were $17.7 million and $19.1 million for the six months ended September 30, 2023 and 2022, respectively. Each quarterly dividend payment is subject to review and approval by our Board of Directors, who will continue to evaluate our dividend payment amount on a quarterly basis.
32
Share Repurchases
During the six months ended September 30, 2023, our share repurchases were as follows:
Period |
|
Total Number of |
|
|
Average Price Paid |
|
|
Total Number of |
|
|
Maximum Number |
|
||||
April 1 through April 30, 2023 |
|
|
234,000 |
|
|
$ |
143.73 |
|
|
|
234,000 |
|
|
|
|
|
May 1 through May 31, 2023 |
|
|
145,000 |
|
|
|
155.99 |
|
|
|
145,000 |
|
|
|
|
|
June 1 through June 30, 2023 |
|
|
105,000 |
|
|
|
161.65 |
|
|
|
105,000 |
|
|
|
|
|
Quarter 1 Totals |
|
|
484,000 |
|
|
$ |
154.54 |
|
|
|
484,000 |
|
|
|
|
|
July 1 through July 31, 2023 |
|
|
10,000 |
|
|
$ |
184.80 |
|
|
|
10,000 |
|
|
|
|
|
August 1 through August 31, 2023 |
|
|
157,500 |
|
|
|
181.29 |
|
|
|
157,500 |
|
|
|
|
|
September 1 through September 30, 2023 |
|
|
265,000 |
|
|
|
176.84 |
|
|
|
265,000 |
|
|
|
|
|
Quarter 2 Totals |
|
|
432,500 |
|
|
$ |
178.64 |
|
|
|
432,500 |
|
|
|
|
|
Year-to-Date Totals |
|
|
916,500 |
|
|
$ |
165.11 |
|
|
|
916,500 |
|
|
|
6,830,704 |
|
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 September 30, 2023, we have repurchased approximately 49.1 million shares.
Share repurchases may be made from time to time in the open market or in privately negotiated transactions. The timing and amount of any share repurchases are determined by management, based on its evaluation of market and economic conditions and other factors. In some cases, repurchases may be made pursuant to plans, programs, or directions established from time to time by the Company’s management, including plans intended to comply with the safe harbor provided by Rule 10b5-1.
During the six months ended September 30, 2023, the Company withheld from employees 14,572 shares of stock upon the vesting of Restricted Shares that were granted under the Plan. We withheld these shares to satisfy the employees’ statutory tax withholding requirements, which is necessary once the Restricted Shares or Restricted Share Units are vested.
Capital Expenditures
The following table details capital expenditures by category:
|
|
For the Six Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(dollars in thousands) |
|
|||||
Land and Quarries |
|
$ |
5,504 |
|
|
$ |
10,157 |
|
Plants |
|
|
29,628 |
|
|
|
21,944 |
|
Buildings, Machinery, and Equipment |
|
|
30,321 |
|
|
|
11,148 |
|
Total Capital Expenditures |
|
$ |
65,453 |
|
|
$ |
43,249 |
|
Capital expenditures for fiscal 2024 are expected to range from $145.0 million to $165.0 million and will be allocated across both Heavy Materials and Light Materials sectors. These estimated capital expenditures will include maintenance capital expenditures and improvements, as well as other safety and regulatory projects.
33
FORWARD LOOKING STATEMENTS
Certain matters discussed in this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates or expectations. These statements are not historical facts or guarantees of future performance but instead represent only the Company’s belief at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside the Company’s control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Company’s actual performance include the following: the cyclical and seasonal nature of the Company’s businesses; public infrastructure expenditures; adverse weather conditions; the fact that our products are commodities and that prices for our products are subject to material fluctuation due to market conditions and other factors beyond our control; availability of raw materials; changes in the costs of energy, including, without limitation, natural gas, coal and oil, and the nature of our obligations to counterparties under energy supply contracts, such as those related to market conditions (such as fluctuations in spot market prices), governmental orders and other matters; changes in the cost and availability of transportation; unexpected operational difficulties, including unexpected maintenance costs, equipment downtime and interruption of production; material nonpayment or non-performance by any of our key customers; fluctuations in or changes in the nature of activity in the oil and gas industry; inability to timely execute announced capacity expansions; difficulties and delays in the development of new business lines; governmental regulation and changes in governmental and public policy (including, without limitation, climate change and other environmental regulation); possible outcomes of pending or future litigation or arbitration proceedings; changes in economic conditions specific to any one or more of the Company’s markets; adverse impact of severe weather conditions (such as winter storms, tornados and hurricanes) and their effects on our facilities, operations and contractual arrangements with third parties; competition; cyber-attacks or data security breaches; announced increases in capacity in the gypsum wallboard and cement industries; changes in the demand for residential housing construction or commercial construction or construction projects undertaken by state or local governments; risks related to pursuit of acquisitions, joint ventures and other transactions or the execution or implementation of such transactions, including the integration of operations acquired by the Company; general economic conditions; and interest rates. For example, increases in interest rates, decreases in demand for construction materials or increases in the cost of energy (including, without limitation, natural gas, coal and oil) and the cost of our raw materials can expected to adversely affect the revenue and operating earnings of our operations. In addition, changes in national or regional economic conditions and levels of infrastructure and construction spending could also adversely affect the Company’s result of operations. Finally, any forward-looking statements made by the Company are subject to the risks and impacts associated with natural disasters, the outbreak, escalation, or resurgence of health emergencies, pandemics or other unforeseen events, including, without limitation, the COVID-19 pandemic and responses thereto designed to contain its spread and mitigate its public health effects, as well as their impact on our operations or on economic conditions, capital and financial markets. These and other factors are described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023. All forward-looking statements made herein are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed herein will increase with the passage of time. The Company undertakes no duty to update any forward-looking statement to reflect future events or changes in the Company’s expectations.
34
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks related to fluctuations in interest rates on our Revolving Credit Facility. We have occasionally utilized derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage the debt outstanding that is subject to changes in interest rates. We had a $750.0 million Revolving Credit Facility at September 30, 2023, under which borrowings bear interest at a variable rate. A hypothetical 100 basis point increase in interest rates on the $162.0 million of borrowings under the Revolving Credit Facility and the $187.5 million of borrowings under the Term Loan at September 30, 2023, 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.
Item 4. Controls and Procedures
We have established a system of disclosure controls and procedures that are designed to ensure that information relating to the Company, which is required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (Exchange Act), is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), in a timely fashion. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed as of the end of the period covered by this quarterly report. This evaluation was performed under the supervision and with the participation of management, including our CEO and CFO. Based upon that evaluation, our CEO and CFO have concluded that these disclosure controls and procedures were effective.
35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In addition to the legal matters described in Part 1, Item 3 "Legal Proceedings" of our Form 10-K for the fiscal year ended March 31, 2023, from time to time, we have been and may in the future become involved in litigation or other legal proceedings in the ordinary course of our business activities or in connection with transactions or activities undertaken by us, including claims related to worker safety, worker health, environmental matters, commercial contracts, land use rights, taxes, and permits. While the outcome of these proceedings cannot be predicted with certainty, in the opinion of management (based on currently available facts), we do not believe that the ultimate outcome of any currently pending legal proceeding will have a material effect on our consolidated financial condition, results of operations, or liquidity.
For additional information regarding claims and other contingent liabilities to which we may be subject, see Footnote (P) in the Unaudited Consolidated Financial Statements.
Item 1A. Risk Factors
For information regarding factors that could impact our results of operations, financial condition, and liquidity, see Part 1. Item 1A. Risk Factors in our Form 10-K for the fiscal year ended March 31, 2023, filed with the Securities and Exchange Commission on May 19, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The disclosure required under this Item is included in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” of this Quarterly Report on Form 10-Q under the heading “Share Repurchases” and is incorporated herein by reference.
Item 4. Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503 (a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-Q.
Item 5. Other Information
None of the Company's directors or officers
36
Item 6. Exhibits
10.1* |
|
|
10.2* |
|
|
10.3* |
|
|
31.1* |
|
|
31.2* |
|
|
32.1* |
|
|
32.2* |
|
|
95* |
|
|
101.INS* |
|
Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
|
Cover Page Interactive Data File – (formatted as Inline XBRL and Contained in Exhibit 101). |
* Filed herewith.
(1) Management contract, compensatory plan, or arrangement.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
EAGLE MATERIALS INC. |
|
|
Registrant |
|
|
|
October 26, 2023 |
|
/s/ MICHAEL R. HAACK |
|
|
Michael R. Haack President and Chief Executive Officer (principal executive officer) |
|
|
|
October 26, 2023 |
|
/s/ D. CRAIG KESLER |
|
|
D. Craig Kesler Executive Vice President – Finance and Administration and Chief Financial Officer (principal financial officer) |
October 26, 2023 |
|
/s/ WILLIAM R. DEVLIN |
|
|
William R. Devlin Senior Vice President – Controller and Chief Accounting Officer (principal accounting officer) |
38
Exhibit 10.1
EAGLE MATERIALS INC.
Non-Employee Directors -- Compensation Summary
Effective August 2023 to July 2024
On an annual basis, each non-employee director of Eagle Materials Inc. (the “Company”) may select one of the following compensation packages for his or her performance of director services during the next 12 months:
(1) total annual compensation valued at $230,000, of which $105,000 is paid in cash and the remainder is provided in the form of an equity grant valued at $125,000; or
(2) an equity grant valued at $261,500.
The grant date value of the equity grant under either alternative is allocated between restricted stock and options to purchase common stock of the Company, par value $0.01 (“Common Stock”) (based upon the recommendation of the Compensation Committee) with respect to each non-employee director.
In accordance with the terms of the Eagle Materials Inc. 2023 Equity Incentive Plan, the exercise price of the stock options is set at the closing price of the Common Stock on the New York Stock Exchange (“NYSE”) on the date of grant. The number of option shares granted is determined as of the date of the grant by using the Black-Scholes method. All options granted to directors in August 2023 have a ten-year term but are subject to vesting requirements, with the options becoming fully vested (exercisable) on the earliest to occur of (i) the one-year anniversary of the date of grant; (ii) the next annual meeting of the Company’s stockholders, which is at least 50 weeks after the immediately preceding year’s annual meeting; (iii) the recipient’s retirement from the Board in accordance with the Company’s director retirement policy, or earlier under such terms and conditions as approved by the Compensation Committee; (iv) the recipient’s disability as determined by the Compensation Committee; or (v) the recipient’s death.
The number of shares of restricted stock is determined as of the date of grant using the closing price of the Common Stock on the NYSE on the date of grant. The restricted stock granted to directors in August 2023 is subject to vesting requirements, with the shares becoming fully vested (unrestricted) on the earliest to occur of (i) the one-year anniversary of the date of grant; (ii) the next annual meeting of the Company’s stockholders, which is at least 50 weeks after the immediately preceding year’s annual meeting; (iii) the recipient’s retirement from the Board in accordance with the Company’s director retirement policy, or earlier under such terms and conditions as approved by the Compensation Committee; (iv) the recipient’s disability as determined by the Compensation Committee; or (v) the recipient’s death. During the restriction period the director will have the right to vote the shares. In addition, upon the vesting of the underlying shares, the director will also be entitled to accrued cash dividends with
respect to such shares that were paid to holders of Common Stock during the restriction period.
Non-employee directors who chair committees of the Board of Directors receive additional annual compensation. The chairs of the Audit Committee, Compensation Committee and Governance Committee each receive a fee of $20,000 per year. The Chairman of the Board of Directors receives a fee of $125,000 per year. Chairpersons who choose compensation package alternative one (part equity and part cash) receive this additional compensation in the form of cash. Chairpersons who choose compensation package alternative two (all equity) receive this additional compensation in the form of equity, in which case a 30% premium is added to such fees when valuing the equity to be received by such chairperson.
In certain prior years, equity grants were in some cases made in the form of restricted stock units (“RSUs”). In the case of non-employee directors who hold unvested RSUs (which currently only includes Mr. Nicolais), these directors will receive dividend equivalent units as and when the Company issues a cash dividend on the Common Stock, in accordance with the terms of the RSUs.
All directors are reimbursed for reasonable expenses of attending meetings.
Exhibit 10.2
EAGLE MATERIALS INC.
2023 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AGREEMENT
Eagle Materials Inc., a Delaware corporation (the “Company”), and ____________ (the “Grantee”) hereby enter into this Restricted Stock Award Agreement (this “Agreement”) in order to set forth the terms and conditions of the Company’s award (the “Award”) to the Grantee of certain shares of Common Stock of the Company granted to the Grantee on August 7, 2023 (the “Award Date”).
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS AND, ACCORDINGLY, MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED, ENCUMBERED, OR IN ANY MANNER DISPOSED OF EXCEPT IN CONFORMITY WITH THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES. A COPY OF SUCH AGREEMENT IS MAINTAINED AT THE ISSUER’S PRINCIPAL CORPORATE OFFICES.
2
[Signature page follows]
3
EAGLE MATERIALS INC.
|
|
By: |
|
|
|
|
|
|
|
Name: |
Michael R. Haack |
|
|
|
|
|
|
Its: |
President and CEO |
|
|
|
|
|
|
Address: |
5960 Berkshire Ln., Suite 900 Dallas, Texas 75225 |
The Grantee acknowledges receipt of a copy of the Plan, represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the Award subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Agreement and the Plan in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement, and fully understands all provisions of this Agreement and the Plan. The Grantee further agrees to notify the Company upon any change in the address for notice indicated in this Agreement.
GRANTEE
|
|
Signed: |
_____________________________________ |
|
|
|
|
|
|
Name: |
|
|
|
|
|
|
|
Address: |
|
4
Exhibit 10.3
EAGLE MATERIALS INC.
2023 EQUITY INCENTIVE PLAN
NON-QUALIFIED DIRECTOR STOCK OPTION AGREEMENT
This option agreement (the “Option Agreement” or “Agreement”) entered into between EAGLE MATERIALS INC., a Delaware corporation (the “Company”), and ____________ (the “Optionee”), a director of the Company, with respect to a right (the “Option”) awarded to the Optionee under the Eagle Materials Inc. 2023 Equity Incentive Plan (the “Plan”), on August 7, 2023 (the “Award Date”) to purchase from the Company up to but not exceeding in the aggregate _________ shares of Common Stock (as defined in the Plan) at a price of $190.97 per share (the “Exercise Price”), such number of shares and such price per share being subject to adjustment as provided in the Plan, and further subject to the following terms and conditions:
This Option is subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Company’s Compensation Committee (“Committee”) and are in effect on the date hereof. Except as defined herein, capitalized terms shall have the same meanings ascribed to them under the Plan. For purposes of this Option Agreement:
(a) “Disability” shall mean a disability of the Optionee as determined by the Committee.
(b) “Retirement” shall mean termination of service on the Board at the Company’s mandatory retirement age in accordance with the Company’s director retirement policy or earlier on such terms and conditions as approved by the Committee.
(a) Exercisability. The shares of Common Stock covered by this Option (“Option Shares”) shall vest and become exercisable upon the earliest of (i) the one-year anniversary of the Award Date; (ii) the next annual meeting of the Company’s stockholders, which is at least 50 weeks after the immediately preceding year’s annual meeting; (iii) the Optionee’s Retirement; (iv) the Optionee’s Disability; or (v) the Optionee’s death (as applicable, the “Vesting Date”). Vested Options may be exercised in whole or in part (at any time or from time to time, except as otherwise provided herein) until expiration of the Option pursuant to the terms of this Agreement or the Plan.
1
(c) Capital Adjustments and Corporate Events. If, from time to time during the term of the Option prior to its exercise, there is any capital adjustment affecting the outstanding Common Stock as a class without the Company’s receipt of consideration, the Option Shares and other applicable terms of this Option shall be adjusted in accordance with the provisions of Section 5.7 of the Plan. Any and all new, substituted or additional securities to which the Optionee may be entitled by reason of this Option because of a capital adjustment shall be immediately subject to the Vesting Schedule and other terms set forth herein (as may be modified pursuant to this Agreement) and included thereafter as Option Shares for purposes of this Agreement.
The Option hereby granted shall terminate and be of no force and effect with respect to any Option Shares not previously purchased by the Optionee at the earliest time specified below:
Subject to the limitations set forth herein and in the Plan, this Option may be exercised by notice provided to the Company as set forth in Section 5. The payment of the Exercise Price for the Option Shares being purchased pursuant to the Option shall be made (a) in cash, by check or cash equivalent, (b) by tender to the Company, or attestation to the ownership, of Common Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such Common Stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the Exercise Price, (c) by delivery of a properly executed notice together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System), (d) by withholding Option Shares equal to the Exercise Price multiplied by the number of Options exercised divided by the Fair Market Value at the time of exercise, rounded up to the nearest whole share, (e) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (f) by any combination thereof. Notwithstanding the foregoing, if the Exercise Price of the outstanding portion of the Option is less than the Fair Market Value of a share of Common Stock on the day the Option would otherwise
2
expire as provided in Section 3(a), then the Option shall be automatically exercised in full pursuant to clause (d) above immediately prior to its expiration.
If the Optionee desires to pay the purchase price for the Option Shares by tendering Common Stock using the method of attestation, the Optionee may, subject to any such conditions and in compliance with any such procedures as the Committee may adopt, do so by attesting to the ownership of Common Stock of the requisite value, in which case the Company shall issue or otherwise deliver to the Optionee upon such exercise a number of Option Shares equal to the result obtained by dividing (a) the excess of the aggregate Fair Market Value of the total number shares of Common Stock subject to the Option for which the Option (or portion thereof) is being exercised over the purchase price payable in respect of such exercise by (b) the Fair Market Value per share of Common Stock subject to the Option, and the Optionee may retain the shares of Common Stock the ownership of which is attested.
Notwithstanding anything to the contrary contained herein, the Optionee agrees that he will not exercise the Option granted pursuant hereto, and the Company will not be obligated to issue any Option Shares pursuant to this Option Agreement, if the exercise of the Option or the issuance of such shares would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any stock exchange or transaction quotation system. The Optionee agrees that, unless the options and shares covered by the Plan have been registered pursuant to the Securities Act of 1933, as amended (the “Act”), the Company may, at its election, require the Optionee to give a representation in writing in form and substance satisfactory to the Company to the effect that he is acquiring such shares for his own account for investment and not with a view to, or for sale in connection with, the distribution of such shares or any part thereof.
If any law or regulation requires the Company to take any action with respect to the shares specified in such notice, the time for delivery thereof, which would otherwise be as promptly as reasonably practicable, shall be postponed for the period of time necessary to take such action.
Notice of exercise of the Option must be made in the following manner, using such forms as the Company may from time to time provide:
3
Notwithstanding the foregoing, in the event that the address of the Company is changed prior to the date of any exercise of this Option, notice of exercise shall instead be made pursuant to the foregoing provisions at the Company’s current address.
Any other notices provided for in this Agreement or in the Plan shall be given in writing or by such electronic means, as permitted by the Committee, and shall be deemed effectively delivered or given upon receipt or, in the case of notices delivered by the Company to the Optionee, five days after deposit in the United States mail, postage prepaid, addressed to the Optionee at the address specified at the end of this Agreement or at such other address as the Optionee hereafter designates by written notice to the Company.
Except as otherwise permitted by the Committee, the rights of the Optionee under the Plan and this Agreement are personal; no assignment or transfer of the Optionee’s rights under and interest in this Option may be made by the Optionee otherwise than by will, by beneficiary designation, by the laws of descent and distribution or by a qualified domestic relations order; and this Option is exercisable during his lifetime only by the Optionee, except as otherwise provided in this Agreement.
After the death of the Optionee, exercise of the Option shall be permitted only by the Optionee’s designated beneficiary or, in the absence of a designated beneficiary, the Optionee’s executor or the personal representative of the Optionee’s estate (or by his assignee, in the event of a permitted assignment) and only to the extent that the Option was exercisable on the date of the Optionee’s death.
Certificates representing the Common Stock issued pursuant to the exercise of the Option will bear all legends required by law and necessary or advisable to effectuate the provisions of the Plan and this Option. The Company may place a “stop transfer” order against shares of the Common Stock issued pursuant to the exercise of this Option until all restrictions and conditions set forth in the Plan or this Agreement and in the legends referred to in this Section 7 have been complied with.
The Optionee shall have no rights of a shareholder with respect to shares of Common Stock subject to the Option unless and until such time as the Option has been exercised and ownership of such shares of Common Stock has been transferred to the Optionee.
This Agreement shall bind and inure to the benefit of and be enforceable by the Optionee, the Company and their respective permitted successors and assigns (including personal representatives, heirs and legatees), except that the Optionee may not assign any rights or obligations under this Agreement except to the extent and in the manner expressly permitted herein.
4
No provision of this Option Agreement shall confer any right upon the Optionee to continued service with the Company.
This Option Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Texas.
This Agreement cannot be modified, altered or amended except by an agreement, in writing, signed by both the Company and the Optionee.
EAGLE MATERIALS INC.
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Michael R. Haack |
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President and CEO |
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Address: |
5960 Berkshire Ln., Suite 900 |
The Optionee hereby accepts the foregoing Option Agreement, subject to the terms and provisions of the Plan and administrative interpretations thereof referred to above.
OPTIONEE:
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Signed: |
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5
Exhibit 31.1
Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael R. Haack, certify that:
1. I have reviewed this report on Form 10-Q of Eagle Materials Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: October 26, 2023
By |
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/s/ Michael R. Haack |
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Michael R. Haack President and Chief Executive Officer |
Exhibit 31.2
Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, D. Craig Kesler, certify that:
1. I have reviewed this report on Form 10-Q of Eagle Materials Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: October 26, 2023
By |
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/s/ D. Craig Kesler |
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D. Craig Kesler Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Eagle Materials Inc. and subsidiaries (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael R. Haack, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
Dated: October 26, 2023
By |
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/s/ Michael R. Haack |
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Michael R. Haack President and Chief Executive Officer |
Exhibit 32.2
Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Eagle Materials Inc. and subsidiaries (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, D. Craig Kesler, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
Dated: October 26, 2023
By |
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/s/ D. Craig Kesler |
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D. Craig Kesler Chief Financial Officer (Principal Financial Officer) |
Exhibit 95
MINE SAFETY DISCLOSURE
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act contains reporting requirements regarding mine safety. The operation of our quarries is subject to regulation by the federal Mine Safety and Health Administration, or MSHA, under the Federal Mine Safety and Health Act of 1977, or the Mine Act. Set forth below is the required information regarding certain mining safety and health matters for the three-month period ended September 30, 2023 for our facilities. In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the quarry, (ii) the number of citations issued will vary from inspector-to-inspector and mine-to-mine, and (iii) citations and orders can be contested and appealed, and in that process, may be reduced in severity and amount, and are sometimes dismissed. |
Mine or Operating Name/MSHA |
Section 104 S&S Citations |
Section 104(b) Orders |
Section 104(d) Citations and Orders |
Section 110(b)(2) Violations |
Section 107(a) Orders |
Total Dollar Value of MSHA Assessments Proposed |
Total Number of Mining Related Fatalities |
Received Notice of Pattern of Violations Under Section 104(e) |
Received Notice of Potential to Have Pattern Under Section 104(e) |
Legal Actions Pending as of Last Day of Period |
Legal Actions Initiated During Period |
Legal Actions Resolved During Period |
3D Concrete LLC Lander, NV (2602434) |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
3D Concrete LLC Lyon, Nevada (2602412) |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
American Gypsum Company LLC Albuquerque, NM (2900181) |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
American Gypsum Company LLC |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
American Gypsum Company LLC |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
Battletown Quarry2 Battletown, KY (1500040) |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
Centex Materials LLC |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
Central Plains Cement Company LLC |
5 |
1 |
0 |
0 |
0 |
$25,350 |
0 |
no |
no |
0 |
0 |
1(1) |
Central Plains Cement Company LLC, Tulsa, OK (3400026) |
24 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
Fairborn Cement Company LLC |
1 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
Illinois Cement Company LLC |
2 |
0 |
0 |
0 |
0 |
$14,976 |
0 |
no |
no |
0 |
0 |
0 |
Kosmos Cement Company LLC Jefferson, KY (1504469) |
0 |
0 |
0 |
0 |
0 |
$ 461 |
0 |
no |
no |
0 |
0 |
0 |
Mountain Cement Company LLC |
1 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
Nevada Cement Company LLC |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
Seguin Sand Guadalupe, TX (4105665) |
0 |
0 |
0 |
0 |
0 |
$ 0 |
0 |
no |
no |
0 |
0 |
0 |
Texas Lehigh Cement Company LP Buda, TX (4102781) |
4 |
0 |
0 |
0 |
0 |
$10,355 |
0 |
no |
no |
2(1) |
1(1) |
0 |