EAGLE MATERIALS INC.

(EXP)
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EAGLE MATERIALS INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

01/27/2022 | 04:38pm EDT

EXECUTIVE SUMMARY


We are a leading supplier of heavy construction materials and light building
materials in the United States. 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. However, general economic downturns or localized downturns in
the regions where we have operations may have a material adverse effect on our
business, financial condition, and results of operations.

Our business is organized into two sectors: Heavy Materials, which includes the
Cement and Concrete and Aggregates segments; and Light Materials, which includes
the Gypsum Wallboard and Recycled Paperboard segments. Financial results and
other information for the three and nine months ended December 31, 2021 and
2020, are presented on a consolidated basis and by these business segments -
Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard.

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

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

On September 18, 2020, we sold our Oil and Gas Proppants business, which had
previously been reported as a separate operating segment. Because the sale of
the Oil and Gas Proppants business was determined to meet the accounting
criteria for discontinued operations, this segment is no longer separately
reported in our reportable segment footnote for any of the periods presented.
See Footnote (C) in the Unaudited Consolidated Financial Statements for more
information about the sale of the Oil and Gas Proppants business.

On April 17, 2020, we sold two of our businesses, Western Aggregates LLC
(Western) and Mathews Readymix LLC (Mathews), for an aggregate purchase price of
$93.5 million, resulting in a gain of $52.0 million. Western and Mathews were
part of our Concrete and Aggregates operating segment, and their results of
operations were included in our financial statements for the period from April
1, 2020 through April 17, 2020.

MARKET CONDITIONS AND OUTLOOK


Strong underlying market conditions in calendar 2021 supported construction
activity in our markets, despite supply chain disruptions during the latter half
of the calendar year, which adversely affected some of our customers. We believe
demand for our products will remain strong in calendar 2022, supported in part
by the passage of the Infrastructure Investment and Jobs Act in November 2021.





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Energy and freight costs increased in all of our businesses during the fiscal
third quarter, and we anticipate further increases throughout the remainder of
fiscal 2022. Regarding energy, we have forward purchase contracts for
approximately 50% of our natural gas needs for the remainder of the fiscal year.
For freight, several factors are contributing to higher costs, including:
limited availability of trucking and rail service, and congestion on the
shipping routes, all of which have constrained capacity.

Cement and Concrete and Aggregates markets are affected by infrastructure spending, residential construction, private non-residential construction activity, and weather. Despite underlying increases in market demand, our organic Cement sales volume growth is expected to be limited in fiscal 2022 because our integrated cement sales network, which stretches across the U.S. heartland, is operating at high utilization levels.


Our primary Gypsum Wallboard sales network stretches across the southern half of
the United States, consistent with our facility network. Wallboard demand is
heavily influenced by new residential housing construction, as well as repair
and remodeling activity. Residential housing starts increased, on a seasonally
adjusted basis, approximately 3% in calendar 2021, compared with 2020. Repair
and remodel activity is expected to remain strong throughout the rest of the
fiscal year, but may be negatively affected by further delays in the supply
chain.

Our Recycled Paperboard business sells paper primarily into the gypsum wallboard
market, and demand for paper generally follows the demand for gypsum wallboard.
The primary raw material used to produce paperboard is Old Corrugated Containers
(OCC). Prices for OCC significantly increased during the first nine months of
fiscal 2022. Our current customer contracts for gypsum liner include price
escalators that partially compensate for changes in raw material fiber prices.
However, because these price escalations are not realized until future quarters,
material costs in our Gypsum Wallboard segment are likely to be higher in the
period that these price increases are realized.

RESULTS OF OPERATIONS


THREE MONTHS ENDED DECember 31, 2021 Compared WITH THREE MONTHS ENDED DECember
31, 2020



                                               For the Three Months Ended
                                                      December 31,
                                                     2021               2020         Change
                                              (dollars in thousands, except
                                                       per share)
Revenue                                      $    462,941       $    404,667             14 %
Cost of Goods Sold                               (324,355 )         (291,288 )           11 %
Gross Profit                                      138,586            113,379             22 %
Equity in Earnings of Unconsolidated Joint
Venture                                             8,555             10,083            (15 )%
Corporate General and Administrative              (12,851 )          (11,327 )           13 %
Other Non-Operating Income                          3,207              2,297             40 %
Interest Expense, net                              (5,651 )           (9,360 )          (40 )%
Earnings from Continuing Operations Before
Income Taxes                                      131,846            105,072             25 %
Income Tax Expense                                (29,367 )          (23,879 )           23 %
Net Earnings from Continuing Operations           102,479             81,193             26 %

Net Earnings from Discontinued Operations $ - $ -

              -
Net Earnings                                 $    102,479       $     81,193             26 %
Diluted Earnings per Share from Continuing
Operations                                   $       2.53       $       1.94             30 %






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REVENUE

Revenue increased by $58.3 million, or 14%, to $462.9 million for the three months ended December 31, 2021. The increase in Revenue was due to higher gross sales prices and Sales Volume, which positively affected Revenue by approximately $52.1 million and $6.2 million, respectively.

COST OF GOODS SOLD


Cost of Goods Sold increased by $33.1 million, or 11%, to $324.4 million for the
three months ended December 31, 2021. The increase was due to higher Sales
Volume and increased operating costs of $3.8 million and $29.3 million,
respectively. Higher operating costs were primarily related to our Gypsum
Wallboard and Recycled Paperboard segments, which are discussed further in the
segment analysis.

GROSS PROFIT

Gross Profit increased 22% to $138.6 million during the three months ended
December 31, 2021. The improvement was primarily related to higher gross sales
prices and Sales Volume, partially offset by increased operating costs. The
gross margin increased to 30% from 28%, mainly because of higher gross sales
prices, partially offset by an increase in operating costs.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE


Equity in Earnings of our Unconsolidated Joint Venture declined $1.5 million, or
15%, for the three months ended December 31, 2021. The decrease was primarily
due to lower Sales Volume and increased operating costs, which adversely
affected earnings by approximately $0.5 million and $2.6 million, respectively.
This was partially offset by higher gross sales prices of $1.6 million. The
increase in operating costs was due primarily to maintenance and purchased
cement, which reduced operating earnings by $0.6 million and $2.3 million,
respectively.

CORPORATE GENERAL AND ADMINISTRATIVE


Corporate General and Administrative expenses increased by approximately $1.6
million, or 13%, for the three months ended December 31, 2021. The increase was
primarily due to higher professional fees and insurance expenses of $1.1 million
and $0.5 million, respectively.

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.





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INTEREST EXPENSE, NET


Interest Expense, net decreased by approximately $3.7 million, or 40%, during
the three months ended December 31, 2021. The decrease was primarily due to
lower interest on borrowings under our Revolving Credit Facility and Term Loan
of approximately $0.3 million and $4.0 million, respectively. Interest Expense
related to our Revolving Credit Facility was lower because our average
outstanding borrowings under the Revolving Credit Facility were less in the
fiscal 2022 third quarter, compared with the same period in fiscal 2021.
Interest Expense on our Term Loan declined because we repaid the loan on July 1,
2021. The lower interest amounts were partially offset by higher interest
expense on our public notes, which increased by $0.8 million. Interest on our
public notes was higher because our public notes outstanding increased to $750.0
million from $350.0 million. See Footnote (M) to the Unaudited Consolidated
Financial Statements for more information.

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES


Earnings From Continuing Operations Before Income Taxes increased to $131.8
million during the three months ended December 31, 2021, primarily as a result
of higher Gross Profit and lower Interest Expense. This was partially offset by
higher Corporate General and Administrative Expenses and lower Equity in
Earnings of Unconsolidated Joint Venture.

INCOME TAX EXPENSE


Income Tax Expense was $29.4 million for the three months ended December 31,
2021, compared with $23.9 million for the three months ended December 31, 2020.
The effective tax rate decreased to 22% from 23% in the prior-year period. The
decrease in the effective tax rate for the three months ended December 31, 2021
was primarily due to the benefit received from the exercise of employee stock
options during the quarter.

NET EARNINGS FROM CONTINUING OPERATIONS AND DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS


Net Earnings from Continuing Operations increased 26% to $102.5 million for the
three months ended December 31, 2021. Diluted Earnings per Share from Continuing
Operations increased 30% to $2.53 per share.

NET EARNINGS FROM DISCONTINUED OPERATIONS

The Oil and Gas Proppants business was sold in September 2020, and there was no activity related to this business during fiscal 2022.

NET EARNINGS

Net Earnings increased 26% to $102.5 million for the three months ended December 31, 2021, as discussed above.









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RESULTS OF OPERATIONS


Nine MONTHS ENDED DECember 31, 2021 Compared WITH NINE MONTHS ENDED December 31,
2020



                                                For the Nine Months Ended
                                                       December 31,
                                                      2021               2020         Change
                                              (dollars in thousands, except
                                                        per share)
Revenue                                      $   1,448,405       $  1,279,340             13 %
Cost of Goods Sold                              (1,027,967 )         (940,815 )            9 %
Gross Profit                                       420,438            338,525             24 %
Equity in Earnings of Unconsolidated Joint
Venture                                             24,785             28,456            (13 )%
Corporate General and Administrative               (32,986 )          (40,225 )          (18 )%
Premium Paid on Early Retirement of Senior
Notes                                               (8,407 )                -              -
Gain on Sale of Businesses                               -             51,973           (100 )%
Other Non-Operating Income                           5,941              1,898            213 %
Interest Expense, net                              (24,891 )          (35,957 )          (31 )%
Earnings from Continuing Operations Before
Income Taxes                                       384,880            344,670             12 %
Income Tax Expense                                 (84,949 )          (76,515 )           11 %
Net Earnings from Continuing Operations            299,931            268,155             12 %
Net Earnings from Discontinued Operations    $           -       $      5,278           (100 )%
Net Earnings                                 $     299,931       $    273,433             10 %
Diluted Earnings per Share from Continuing
Operations                                   $        7.23       $       6.43             12 %


REVENUE

Revenue increased by $169.1 million, or 13%, to $1,448.4 million for the nine
months ended December 31, 2021. The increase in Revenue was due to higher gross
sales prices and Sales Volume, which positively affected Revenue by
approximately $141.2 million and $27.9 million, respectively.

COST OF GOODS SOLD


Cost of Goods Sold increased by $87.2 million, or 9%, to $1,028.0 million for
the nine months ended December 31, 2021. The increase was due to higher Sales
Volume and operating costs of $20.4 million and $66.7 million, respectively. The
increase in operating costs was primarily related to our Gypsum Wallboard and
Recycled Paperboard segments, which are discussed further in the segment
analysis.

GROSS PROFIT

Gross Profit increased 24% to $420.4 million during the nine months ended December 31, 2021. The improvement was mainly due to higher gross sales prices and Sales Volume, partially offset by increased operating costs. The gross margin increased to 29% from 26%, primarily because of higher gross sales prices, partially offset by an increase in operating costs.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE


Equity in Earnings of our Unconsolidated Joint Venture decreased $3.7 million,
or 13%, for the nine months ended December 31, 2021. The decrease was primarily
due to lower Sales Volume and higher operating costs, which reduced earnings by
$2.7 million and $5.9 million, respectively. This was partially offset by higher
net sales prices, which raised earnings by approximately $4.9 million. The
increase in operating costs was due primarily to maintenance, energy, and
purchased cement, which reduced earnings by approximately $2.3 million, $0.6
million, and $2.3 million, respectively.





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CORPORATE GENERAL AND ADMINISTRATIVE


Corporate General and Administrative expenses declined by approximately $7.2
million, or 18%, for the nine months ended December 31, 2021. The decrease was
primarily due to lower professional and transaction fees incurred in fiscal 2021
of approximately $5.1 million and $3.4 million, respectively. The professional
fees related primarily to our strategic portfolio review in the prior year, and
the transaction fees mostly related to the prior year sale of Mathews Readymix
and Western Aggregates, as well as preparation for the sale of the Oil and Gas
Proppants business. The decrease was partially offset by an increase of $1.4
million in insurance expense.

EARLY RETIREMENT OF SENIOR NOTES


In July 2021, the Company redeemed and retired its 4.500% Senior Unsecured Notes
due in 2026 prior to the maturity date. As a result of the early retirement, the
Company paid a premium of $8.4 million. See Footnote (M) to the Unaudited
Consolidated Financial Statements for more information.

GAIN ON SALE OF BUSINESSES


On April 17, 2020 we sold Western and Mathews for approximately $93.5 million.
See Footnote (C) to the Unaudited Consolidated Financial Statements for more
information regarding the sale.

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. The increase in Other
Non-Operating Income was primarily due to the current year sale of land that
resulted in a gain of approximately $1.7 million.

INTEREST EXPENSE, NET


Interest Expense, net decreased by approximately $11.1 million, or 31%, during
the nine months ended December 31, 2021. The decrease was primarily due to lower
interest on borrowings under our Revolving Credit Facility and Term Loan of
approximately $7.1 million and $11.4 million, respectively. Interest Expense
related to our Revolving Credit Facility was lower because our average
outstanding borrowings under the Revolving Credit Facility were significantly
less in the first nine months of fiscal 2022, compared with average borrowings
during the same period in fiscal 2021. Interest Expense on our Term Loan
declined because of lower average interest rates and because we repaid the loan
on July 1, 2021. The lower interest amounts were partially offset by higher
interest expense on our public notes and loan amortization expense, which
increased by $2.2 million and $5.5 million, respectively. Interest on our public
notes was higher because our public notes outstanding increased to $750.0
million from $350.0 million in July 2021. Loan amortization expense increased as
a result of our $6.1 million write-off of debt issuance costs related to our
4.500% Unsecured Senior Notes Due in 2026 and our Term Loan in July 2021. See
Footnote (M) to the Unaudited Consolidated Financial Statements for more
information.

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES


Earnings From Continuing Operations Before Income Taxes increased to $384.9
million during the nine months ended December 31, 2021, primarily as a result of
higher Gross Profit and Other Non-Operating Income, as well as lower Corporate
General and Administrative expenses and Interest Expense than the prior-year
period. This was partially offset by lower Gross Equity in Earnings of
Unconsolidated Joint Venture and Gain on Sale of Business, as well as the
Premium Paid on Early Retirement of Senior Notes.





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INCOME TAX EXPENSE

Income Tax Expense was $84.9 million for the nine months ended December 31, 2021, compared with $76.5 million for the nine months ended December 31, 2020. The effective tax rate remained consistent at 22% for both periods.

NET EARNINGS FROM CONTINUING OPERATIONS AND DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS


Net Earnings from Continuing Operations increased 12% to $299.9 million for the
nine months ended December 31, 2021. Diluted Earnings per Share from Continuing
Operations increased 12% to $7.23 per share.

NET EARNINGS FROM DISCONTINUED OPERATIONS


Net Earnings from Discontinued Operations declined $5.3 million during the nine
months ended December 31, 2021. The Oil and Gas Proppants business was sold in
September 2020, and there was no activity related to this business during fiscal
2022.

NET EARNINGS

Net Earnings increased 10% to $299.9 million for the nine months ended December 31, 2021, as discussed above.

Three and NINE MONTHS ENDED DECember 31, 2021 vs. three and NINE MONTHS ENDED DECember 31, 2020 BY SEGMENT


The following presents results within our two business sectors for the three and
nine months ended December 31, 2021 and 2020. Revenue and operating results are
organized by sector and discussed by individual business segment within each
respective business sector.







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Heavy Materials

CEMENT (1)

                                For the Three Months Ended                                    For the Nine Months Ended
                                       December 31,                                                 December 31,
                                     2021                2020      Percentage Change              2021                2020      Percentage Change
                               (in thousands, except per ton                                (in thousands, except per ton
                                       information)                                                 information)
Gross Revenue, including
Intersegment and Joint
Venture                       $   261,155         $   234,092                      12 %    $   819,734         $   773,565                       6 %
Less Intersegment Revenue          (5,301 )            (5,241 )                     1 %        (18,357 )           (17,539 )                     5 %
Less Joint Venture Revenue        (27,406 )           (27,110 )                     1 %        (77,023 )           (79,603 )                    (3 )%
Gross Revenue, as reported    $   228,448         $   201,741                      13 %    $   724,354         $   676,423                       7 %
Freight and Delivery Costs
billed to Customers               (12,849 )           (15,077 )                   (15 )%       (51,501 )           (50,896 )                     1 %
Net Revenue                   $   215,599         $   186,664                      16 %    $   672,853         $   625,527                       8 %

Sales Volume (M Tons)               1,963               1,842                       7 %          6,197               6,107                       1 %
Average Net Sales Price,
per ton (2)                   $    118.44         $    111.91                       6 %    $    117.49         $    110.84                       6 %
Operating Margin, per ton     $     40.67         $     38.24                       6 %    $     37.30         $     34.52                       8 %
Operating Earnings            $    79,836         $    70,434                      13 %    $   231,133         $   210,802                      10 %

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

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

Three months ended December 31, 2021


Cement Revenue was $261.2 million, a 12% increase, for the three months ended
December 31, 2021. The increase was primarily due to higher gross sales prices
and Sales Volume, which improved Cement Revenue by approximately $11.8 million
and $15.3 million, respectively.

Cement Operating Earnings increased by 13% to $79.8 million for the three months
ended December 31, 2021. The increase was due to higher gross sales prices and
Sales Volume, which positively affected Operating Earnings by approximately
$11.8 million and $4.4 million, respectively. This was partially offset by
increased operating costs, which negatively affected Operating Earnings by $6.9
million. The increase in operating costs was primarily due to higher energy and
maintenance costs of approximately $3.4 million and $5.4 million, respectively.
These increases were partially offset by lower fixed costs of $1.6 million. The
Operating Margin increased to 31%, primarily because of higher gross sales
prices, partially offset by increased operating costs.

Nine months ended December 31, 2021


Cement Revenue was $819.7 million, a 6% increase, for the nine months ended
December 31, 2021. The increase was primarily due to higher gross sales prices
and Sales Volume, which improved Cement Revenue by approximately $33.7 million
and $12.4 million, respectively.

Cement Operating Earnings increased by 10% to $231.1 million for the nine months
ended December 31, 2021. The improvement was due to higher gross sales prices
and Sales Volume, which positively affected Operating Earnings by approximately
$33.7 million and $2.5 million, respectively. This was partially offset by
increased operating costs, which negatively affected Operating Earnings by $15.8
million. The increase in operating costs was primarily due to higher maintenance
and energy costs of approximately $12.1 million and $6.6 million, respectively.
These increases were partially offset by a cost reduction of $3.7 million at
Kosmos Cement related to the recording of acquired inventory at fair value in
the first quarter of fiscal 2021. The Operating Margin increased to 28% because
of higher gross sales prices, partially offset by the increase in operating
costs.



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CONCRETE AND AGGREGATES



                               For the Three Months Ended                                   For the Nine Months Ended
                                      December 31,                                                December 31,
                                                                                                                              Percentage
                                    2021               2020      Percentage Change              2021                2020        Change
                                (in thousands, except net                                (in thousands, except net sales
                                      sales prices)                                                  prices)
Gross Revenue, including
intersegment                  $   42,384         $   43,530                      (3 )%   $   139,888         $   134,020                 4 %
Less intersegment Revenue              -                  -                       -                -                (106 )            (100 )%
Gross Revenue, as reported    $   42,384         $   43,530                      (3 )%   $   139,888         $   133,914                 4 %

Sales Volume
M Cubic Yards of Concrete            317                327                      (3 )%         1,063               1,032                 3 %
M Tons of Aggregate                  341                583                     (42 )%         1,183               1,533               (23 )%
Average Net Sales Price
Concrete - Per Cubic Yard     $   122.36         $   116.88                       5 %    $    120.17         $    115.66                 4 %
Aggregates - Per Ton          $    10.38         $     8.96                      16 %    $     10.25         $      9.54                 7 %

Operating Earnings            $    4,115         $    5,075                     (19 )%   $    16,998         $    15,748                 8 %

Three months ended December 31, 2021


Concrete and Aggregates Revenue decreased 3% to $42.4 million for the three
months ended December 31, 2021. The decline was mainly due to lower Sales
Volume, primarily for Aggregates, which reduced Revenue by $3.3 million. This
was partially offset by higher average gross selling prices, which increased
Revenue by $2.2 million.

Operating Earnings decreased 19% to approximately $4.1 million. The decrease was
a result of lower Sales Volume and higher operating costs of approximately $0.5
million and $2.7 million, respectively, partially offset by higher average net
sales prices of $2.2 million. The increase in operating costs was primarily due
to higher cost of materials and delivery costs of approximately $0.5 million and
$1.4 million, respectively.

Nine months ended December 31, 2021


Concrete and Aggregates Revenue increased 4% to $139.9 million for the nine
months ended December 31, 2021. The improvement was mainly due to higher gross
sales prices and Sales Volume, primarily for Concrete, which increased Revenue
by $5.6 million and $3.6 million, respectively. This was partially offset by
lower Sales Volume in Aggregates, which reduced Revenue by $3.3 million.

Operating Earnings increased 8% to approximately $17.0 million. The increase was
a result of higher gross sales prices of approximately $5.7 million. This was
partially offset by lower Sale Volume and higher operating costs of
approximately $0.2 million and $4.2 million, respectively. The increase in
operating costs was primarily due to higher cost of materials and delivery costs
of approximately $0.9 million and $3.4 million, respectively.







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Light Materials

GYPSUM WALLBOARD



                                For the Three Months Ended                                    For the Nine Months Ended
                                       December 31,                                                 December 31,
                                     2021                2020      Percentage Change              2021                2020      Percentage Change
                               (in thousands, except per MSF                                (in thousands, except per MSF
                                       information)                                                 information)
Gross Revenue, as reported    $   163,584         $   135,658                      21 %    $   502,836         $   397,018                      27 %
Freight and Delivery Costs
billed to Customers               (30,642 )           (28,235 )                     9 %        (94,427 )           (83,334 )                    13 %
Net Revenue                   $   132,942         $   107,423                      24 %    $   408,409         $   313,684                      30 %

Sales Volume (MMSF)                   695                 727                      (4 )%         2,194               2,151                       2 %
Average Net Sales Price,
per MSF (1)                   $    191.41         $    147.87                      29 %    $    186.16         $    145.86                      28 %
Freight, per MSF              $     44.09         $     38.84                      14 %    $     43.04         $     38.74                      11 %
Operating Margin, per MSF     $     87.54         $     56.11                      56 %    $     86.79         $     55.66                      56 %
Operating Earnings            $    60,841         $    40,792                      49 %    $   190,425         $   119,723                      59 %


(1) Net of freight per MSF.

Three months ended December 31, 2021


Gypsum Wallboard Revenue increased 21% to $163.6 million for the three months
ended December 31, 2021. The improvement was due to higher gross sales prices,
which added approximately $33.9 million of Revenue. This was partially offset by
lower Sales Volume, which reduced Revenue by approximately $6.0 million. Our
market share remained relatively consistent during the three months ended
December 31, 2021.

Operating Earnings increased 49% to $60.8 million, primarily because of higher
gross sales prices. The increase in gross sales prices positively affected
Operating Earnings by approximately $33.9 million. This was partially offset by
lower Sales Volume and higher operating costs, which adversely affected
Operating Earnings by approximately $1.8 million and $12.1 million,
respectively. The higher operating costs were primarily related to freight,
energy, and raw material costs, which reduced Operating Earnings by
approximately $3.6 million, $3.5 million, and $4.4 million, respectively. The
Operating Margin increased to 37% for the three months ended December 31, 2021,
primarily because of higher gross sales prices, partly offset by higher
operating costs. Fixed costs are not a significant portion of the overall cost
of wallboard; therefore, changes in utilization have a relatively minor impact
on our operating cost per unit.

Nine months ended December 31, 2021


Gypsum Wallboard Revenue increased 27% to $502.8 million for the nine months
ended December 31, 2021. The increase was due to higher gross sales prices and
Sales Volume, which contributed approximately $97.9 million and $7.9 million,
respectively. Our market share remained relatively consistent during the nine
months ended December 31, 2021.

Operating Earnings increased 59% to $190.4 million, primarily because of higher
gross sales prices and Sales Volume. The increase in gross sales prices and
Sales Volume positively affected Operating Earnings by approximately $97.9
million and $2.4 million, respectively. This was partially offset by higher
operating costs, which adversely affected Operating Earnings by approximately
$29.6 million. The higher operating costs were primarily related to freight,
energy, and raw material costs which reduced Operating Earnings by approximately
$9.4 million, $8.6 million, and $7.8 million, respectively. The Operating Margin
increased to 38% for the nine months ended December 31, 2021, primarily because
of higher gross sales prices, partly offset by higher operating costs. Fixed
costs are not a significant portion of the overall cost of wallboard; therefore,
changes in utilization have a relatively minor impact on our operating cost per
unit.





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RECYCLED PAPERBOARD



                                For the Three Months Ended                                    For the Nine Months Ended
                                       December 31,                                                 December 31,
                                     2021                2020      Percentage Change              2021                2020      Percentage Change
                               (in thousands, except per ton                                (in thousands, except per ton
                                       information)                                                 information)
Gross Revenue, including
intersegment                  $    49,763         $    39,602                      26 %    $   140,828         $   122,417                      15 %
Less intersegment Revenue         (21,238 )           (15,864 )                    34 %        (59,501 )           (50,432 )                    18 %
Gross Revenue, as reported    $    28,525         $    23,738                      20 %    $    81,327         $    71,985                      13 %
Freight and Delivery Costs
billed to Customers                (2,120 )            (1,361 )                    56 %         (5,691 )            (4,046 )                    41 %
Net Revenue                   $    26,405         $    22,377                      18 %    $    75,636         $    67,939                      11 %

Sales Volume (M Tons)                  81                  79                       3 %            252                 243                       4 %
Average Net Sales Price,
per ton (1)                   $    585.54         $    484.92                      21 %    $    535.55         $    487.76                      10 %
Freight, per ton              $     26.17         $     17.23                      52 %    $     22.58         $     16.65                      36 %
Operating Margin, per ton     $     29.00         $     90.65                     (68 )%   $     26.46         $     85.22                     (69 )%
Operating Earnings            $     2,349         $     7,161                     (67 )%   $     6,667         $    20,708                     (68 )%


(1) Net of freight per ton.

Three months ended December 31, 2021


Recycled Paperboard Revenue increased 26% to $49.8 million during the three
months ended December 31, 2021. The increase was primarily due to higher gross
sales prices and Sales Volume, which positively affected Revenue by $8.9 million
and $1.3 million, respectively. Higher gross sales prices were related to the
pricing provisions in our long-term sales agreements.

Operating Earnings decreased 67% to $2.3 million, primarily because of higher
operating costs, which reduced Operating Earnings by approximately $13.9
million. This was partially offset by higher gross sales prices and Sales
Volume, which increased Operating Earnings by $8.9 million and $0.2 million,
respectively. The increase in operating costs was primarily related to higher
input costs, namely fiber and energy, which lowered Operating Earnings by
approximately $11.2 million and $1.4 million, respectively. The Operating Margin
declined to 5% because of increased operating costs, partially offset by higher
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 the timing of price adjustments is not always in the same period as
the change in costs.

Nine months ended December 31, 2021

Recycled Paperboard Revenue increased 15% to $140.8 million during the nine months ended December 31, 2021. The increase was due to higher gross sales prices and Sales Volume, which positively affected Revenue by $13.5 million and $4.9 million, respectively. Higher gross sales prices were related to the pricing provisions in our long-term sales agreements.


Operating Earnings decreased 68% to $6.7 million, primarily because of higher
operating costs, which adversely affected Operating Earnings by $28.4 million.
This was partially offset by higher gross sales prices and Sales Volume, which
positively affected Operating Earnings by approximately $13.5 million and $0.8
million, respectively. The increase in operating costs was mainly related to
higher input costs, namely fiber, and energy, which lowered Operating Earnings
by approximately $24.7 million and $3.0 million, respectively. The Operating
Margin decreased to 5% primarily because of higher operating costs, partially
offset by increased 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 the timing of price adjustments is not
always in the same period as the change in costs.





                                       31
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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
reflected and 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 relating 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 will continue to monitor the potential
impact of future COVID-19 outbreaks, or similar disruptions to the economy, and
on our operations, as well as any other economic impacts related to changing
fiscal policy or economic conditions. 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.



                                       32

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Cash Flow

The following table provides a summary of our cash flows:



                                                        For the Nine Months Ended December 31,
                                                                    2021                      2020
                                                                (dollars in thousands)
Net Cash Provided by Operating Activities            $           428,878       $           542,017
Investing Activities
Additions to Property, Plant, and Equipment                      (55,188 )                 (45,541 )
Proceeds from Sale of Businesses                                       -                    91,022
Net Cash Provided by (Used in) Investing
Activities                                                       (55,188 )                  45,481
Financing Activities
Increase (Decrease) in Credit Facility                           100,000                  (560,000 )
Proceeds from 2.500% Senior Unsecured Notes                      743,692                         -
Repayment of 4.500% Senior Unsecured Notes                      (350,000 )                       -
Repayment of Term Loan                                          (665,000 )                       -
Dividends Paid to Stockholders                                   (20,538 )                  (4,163 )
Purchase and Retirement of Common Stock                         (435,975 )                       -
Proceeds from Stock Option Exercises                              20,754                     8,649
Premium Paid on Early Retirement of Senior Notes                  (8,407 )                       -
Payment of Debt Issuance Costs                                    (7,985 )                  (1,718 )
Shares Redeemed to Settle Employee Taxes on Stock
Compensation                                                      (1,359 )                  (1,130 )
Net Cash Provided by (Used in) Financing
Activities                                                      (624,818 )                (558,362 )
Net Increase (Decrease) in Cash, Cash Equivalents,
and Restricted Cash                                  $          (251,128 )     $            29,136




Net Cash Provided by Operating Activities decreased by $113.2 million to $428.9
million during the nine months ended December 31, 2021. This decrease was
primarily attributable to changes in working capital of $166.9 million and lower
dividends from our Unconsolidated Joint Venture of $6.7 million. This was
partially offset by higher Net Earnings, adjusted for non-cash charges, of
approximately $60.5 million. The decline related to the changes in working
capital was primarily due to approximately $130.0 million of Income Tax
Receivables at March 31, 2020 being applied during the nine months ended
December 31, 2020.

Working capital decreased by $270.6 million to $221.7 million at December 31,
2021, because of lower Cash and Inventories of approximately $246.1 million and
$23.7 million, respectively, and higher Accounts Payable and Accrued Liabilities
of $23.7 million. This was partially offset by increased Accounts Receivable and
Income Tax Receivable of approximately $23.6 million and $6.1 million,
respectively. The reduction in Cash was due to the redemption and repayment of
our 4.500% Senior Unsecured Notes due 2026 and Term Loan in July 2021. The
reduction in inventory was due to our normal sales cycle where we build
inventory in the winter months to meet demand in the spring and summer.

The increase in Accounts Receivable at December 31, 2021, was primarily related
to higher Revenue during the three months ended December 31, 2021, compared with
the three months ended March 31, 2021. As a percentage of quarterly sales
generated for the respective quarter, Accounts Receivable was approximately 37%
at December 31, 2021 and 43% at March 31, 2021. Management measures the change
in Accounts Receivable by monitoring the days sales outstanding on a monthly
basis to determine if any deterioration has occurred in the collectability of
the Accounts Receivable. No significant deterioration in the collectability of
our Accounts Receivable was identified at December 31, 2021. Notes Receivable
are monitored on an individual basis, and no significant deterioration in the
collectability of our Notes Receivable was identified at December 31, 2021.



                                       33

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Our Inventory balance at December 31, 2021 declined by approximately $23.7
million from our balance at March 31, 2021. Within Inventory, raw materials and
materials-in-progress decreased by approximately $29.6 million and finished
cement decreased by approximately $2.3 million. The decline in raw materials and
materials-in-progress and finished cement is consistent with our business cycle;
we generally build up clinker inventory over the winter months to meet the
demand for cement in the spring and summer. This was partially offset by
increases in Gypsum Wallboard, Recycled Paperboard, and Repair Parts inventories
of $2.0 million, $2.3 million, and $3.7 million, respectively. The increases in
repair parts inventory is primarily due to the build-up of inventory necessary
for our scheduled outages over the next several months. The largest individual
balance in our Inventory is our repair parts. These parts are necessary given
the size and complexity of our manufacturing plants, as well as the age of
certain of our plants, which creates the need to stock a high level of repair
parts inventory. We believe all of these repair parts are necessary, and we
perform semi-annual analyses to identify obsolete parts. We have less than one
year's sales of all product inventories, and our inventories have a low risk of
obsolescence because our products are basic construction materials.

Net Cash Used in Investing Activities during the nine months ended December 31,
2021 was approximately $55.2 million, compared with Net Cash Provided by
Investing Activities of $45.5 million during the same period in 2020, a decrease
of approximately $100.7 million. The decrease was primarily related to the $91.0
million of cash received for the sale of businesses in fiscal 2021, and an
increase of $9.7 million in capital spending in fiscal 2022 compared with fiscal
2021. The increase in capital spending was mainly related to higher spending in
our Cement and Gypsum Wallboard businesses, partially offset by lower spending
in our Recycled Paperboard business.

Net Cash Used in Financing Activities was approximately $624.8 million during
the nine months ended December 31, 2021, compared with $558.4 million during the
nine months ended December 31, 2020. During the first nine months of fiscal
2022, we had $436.0 million of share repurchases and retirements, increased
Dividends Paid to Shareholders of $16.3 million, and Debt Issuance costs of $6.3
million. This was partially offset by an increase of $12.2 million of cash
received from the exercise of stock options and a reduction in net borrowings of
$388.7 million compared with fiscal 2021.

Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 41.0%
and 40.5%, respectively, at December 31, 2021, compared with 42.8% and 35.6%,
respectively, at March 31, 2021.

Debt Financing Activities


Below is a summary of the Company's outstanding debt facilities at December 31,
2021:

                                  Maturity
 Revolving Credit Facility       July 2026

2.500% Senior Unsecured Notes July 2031



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

The borrowing capacity of our Revolving Credit Facility is $750.0 million until
July 1, 2026. The Revolving Credit Facility also includes a swingline loan
sublimit of $25.0 million, and a $40.0 million letter of credit facility. At
December 31, 2021 we had $100.0 million outstanding under the Revolving Credit
Facility and $5.0 million of outstanding letters of credit. We are contingently
liable for performance under $25.9 million in performance bonds relating
primarily to our mining operations. We do not have any off-balance sheet debt,
or any outstanding debt guarantees.

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



                                       34
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We believe that our cash flow from operations and available borrowings under our
Revolving Credit Facility, as well as cash on hand, should be sufficient to meet
our currently anticipated operating needs, capital expenditures, and dividend
and debt service requirements for at least the next 12 months. However, our
future liquidity and capital requirements may vary depending on a number of
factors, including market conditions in the construction industry, our ability
to maintain compliance with covenants in our Revolving Credit Facility, the
level of competition, and general and economic factors beyond our control, such
as COVID-19 or similar pandemics. These and other developments could reduce our
cash flow or require that we seek additional sources of funding. We cannot
predict what effect these factors will have on our future liquidity.

As market conditions warrant, the Company may from time to time seek to purchase
or repay its outstanding debt securities or loans, including the 2.500% Senior
Unsecured Notes, 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 $37.0 million of lease liabilities at December 31, 2021 that have an average remaining life of approximately 10.2 years.

Dividends


Dividends paid were $20.5 million and $4.2 million for the nine months ended
December 31, 2021 and 2020, respectively. On May 19, 2021, we announced the
reinstatement of our quarterly dividend that was suspended in fiscal 2021. Each
quarterly dividend payment is subject to review and approval by our Board of
Directors, who will continue to evaluate our dividend payment amount on a
quarterly basis.

Share Repurchases


During the nine months ended December 31, 2021, our share repurchases were as
follows:

                                                                          Total Number          Maximum
                                                                                    of           Number
                                                                                Shares        of Shares
                                                                             Purchased         that May
                                                                            as Part of           Yet be
                                         Total Number                         Publicly        Purchased
                                                   of         Average        Announced        Under the
                                               Shares      Price Paid            Plans            Plans
Period                                      Purchased       Per Share      or Programs      or Programs
April 1 through April 30, 2021                      -     $         -                -
May 1 through May 31, 2021                    110,000          143.77          110,000
June 1 through June 30, 2021                  315,500          146.16          315,500
Quarter 1 Totals                              425,500     $    145.54          425,500
July 1 through July 31, 2021                  298,044     $    137.82          298,044
August 1 through August 31, 2021              509,402          150.19       

509,402

September 1 through September 30, 2021 470,000 145.39

470,000

Quarter 2 Totals                            1,277,446     $    145.54       

1,277,446

October 1 through October 31, 2021            278,000     $    138.51       

278,000

November 1 through November 30, 2021 451,500 158.87

451,500

December 1 through December 31, 2021 484,000 160.94

   484,000
Quarter 3 Totals                            1,213,500     $    155.03        1,213,500
Year-to-Date Totals                         2,916,446     $    149.49        2,916,446        4,389,203


On April 18, 2019, the Board of Directors authorized us to repurchase an
additional 10.0 million shares. This authorization brought the cumulative total
of Common Stock our Board has approved for repurchase in the open market to 48.4
million shares since we became publicly held in April 1994. Through December 31,
2021, we have repurchased approximately 44.0 million shares.





                                       35
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Share repurchases may be made from time to time in the open market or in
privately negotiated transactions. The timing and amount of any share
repurchases are determined by management, based on its evaluation of market and
economic conditions and other factors. In some cases, repurchases may be made
pursuant to plans, programs, or directions established from time to time by the
Company's management, including plans intended to comply with the safe-harbor
provided by Rule 10b5-1.

During the nine months ended December 31, 2021, the Company withheld from
employees 8,973 shares of stock upon the vesting of Restricted Shares that were
granted under the Plan. We withheld these shares to satisfy the employees'
statutory tax withholding requirements, which is required once the Restricted
Shares or Restricted Shares Units are vested.

Capital Expenditures

The following table details capital expenditures by category:



                                          For the Nine Months Ended December 31,
                                                     2021                        2020
                                                  (dollars in thousands)
Land and Quarries                     $            14,034         $             5,306
Plants                                             28,660                      30,026
Buildings, Machinery, and Equipment                12,494                      10,209
Total Capital Expenditures            $            55,188         $            45,541


Capital expenditures for fiscal 2022 are expected to range from $80.0 million to
$90.0 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.





                                       36
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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 could affect the
revenue and operating earnings of our operations. In addition, changes in
national or regional economic conditions and levels of infrastructure and
construction spending could also adversely affect the Company's result of
operations. Finally, any forward-looking statements made by the Company are
subject to the risks and impacts associated with natural disasters, pandemics or
other unforeseen events, including, without limitation, the COVID-19 pandemic
and responses thereto designed to contain its spread and mitigate its public
health effects, as well as their impact on economic conditions, capital and
financial markets. These and other factors are described in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2021. 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.







                                       37

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