EAGLE MATERIALS INC. EXECUTIVE SUMMARY
We are a leading supplier of heavy construction materials and light building materials inthe 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 across manyUnited States markets, which provides us with regional economic diversification. OnSeptember 18, 2020 , we sold our Oil and Gas Proppants business, which had been reported as an operating segment, resulting in a gain of approximately$9.2 million . Because the sale of the Oil and Gas Proppants business was determined to meet the discontinued operations accounting criteria, 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. Our remaining businesses are 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 endedDecember 31, 2020 and 2019, respectively, 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 inBuda, 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 inthe United States . These activities include the mining of limestone for the manufacture, 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). Demand for our products is generally cyclical and seasonal, depending on economic conditions and geographic locations. We distribute our products throughout most ofthe 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. OnAugust 2, 2019 , we acquired the assets of a readymix concrete and aggregates business inNorthern Nevada (the ConAgg Acquisition). The purchase price (Purchase Price) of the ConAgg Acquisition was approximately$30.4 million . The Purchase Price and expenses incurred in connection with the ConAgg Acquisition were funded through operating cash flows and borrowings under our Revolving Credit Facility. The ConAgg Acquisition's assets and operating results are included in our Concrete and Aggregates segment reporting fromAugust 2, 2019 throughMarch 31, 2020 , and for the nine months endedDecember 31, 2020 . 24 -------------------------------------------------------------------------------- OnMarch 6, 2020 , we acquired the assets ofKosmos Cement Company (Kosmos), a joint venture between CEMEX S.A.B. de C.V. and Buzzi Unicem S.p.A. for approximately$669 million (the Kosmos Acquisition). The Kosmos Acquisition included (i) a cement plant located inLouisville, Kentucky , (ii) a limestone quarry located inBattletown, Kentucky , (iii) cement distribution terminals located inIndianapolis, Indiana ;Cincinnati, Ohio ;Pittsburgh, Pennsylvania ;Charleston, West Virginia ;Ceredo, West Virginia ;Mt. Vernon, Indiana ; andLexington, Kentucky , and (iv) certain other properties and assets used by Kosmos in connection with the foregoing (collectively, the Kosmos Business). We also assumed certain liabilities and obligations of Kosmos relating to the Kosmos Business, including contractual obligations, reclamation obligations, and various other liabilities and obligations arising out of or relating to the Kosmos Business. We funded the payment of the purchase price and expenses incurred in connection with the transaction through a combination of cash on hand and a syndicated term loan facility. The Kosmos Business' assets and operating results are included in our Cement segment reporting fromMarch 6, 2020 throughMarch 31, 2020 , and for the nine months endedDecember 31, 2020 . OnApril 17, 2020 , we sold ourWestern Aggregates LLC (Western) andMathews Readymix LLC (Mathews) businesses 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 fromApril 1, 2020 throughApril 17, 2020 . As previously announced onMay 30, 2019 , the Company plans to separate its Heavy Materials and Light Materials businesses into two independent, publicly traded corporations by means of a tax-free spin-off to Eagle shareholders. We remain committed to the separation and continue to make preparations to ensure that the two businesses are well-positioned for the separation, although the timing of the separation remains uncertain given the effects of the COVID-19 pandemic.
MARKET CONDITIONS AND OUTLOOK
To date, we have not been materially affected by the extraordinary and wide-ranging actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the spread of COVID-19.
Our third quarter results reflected another strong quarter for Eagle. Our end markets have remained resilient despite the COVID-related uncertainty. Our regional construction markets continued to outperform the national average, and sales volume performance in both of our major business lines continued to remain strong - our wallboard shipments were up 9%, and our organic cement sales volume was flat. For the short term, we are well positioned to manage our cost structure and meet our customer needs. Our substantial raw material reserves support our low-cost producer position and during the early summer, we implemented cement price increases across all of our markets. We also implemented a wallboard price increase inNovember 2020 and have recently implemented another price increase in earlyJanuary 2021 . For the intermediate term, we continue to closely monitor the disruptions caused by the COVID-19 pandemic, including the new cases reaching record highs both nationally and in many states inJanuary 2021 , new strains of the virus, the timing and effectiveness of the current vaccination campaign, and any responses designed to contain its spread and their possible impact on our business and our customers. While recent economic data has been more constructive than many expected earlier this year, the extent to which the spread of COVID-19 will impact the national and local economies in which we operate, and ultimately our businesses, will depend on numerous factors, which are highly uncertain and difficult to predict; therefore, we continue to prepare for a broad range of economic outcomes. 25
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RESULTS OF OPERATIONS
THREE MONTHS ENDEDDecember 31, 2020 Compared WITH THREE MONTHS ENDEDDecember 31, 2019 For the Three Months Ended December 31, 2020 2019 Change (dollars in thousands, except per share) Revenue$ 404,667 $ 342,904 18 % Cost of Goods Sold (291,288 ) (249,701 ) 17 % Gross Profit 113,379 93,203 22 % Equity in Earnings of Unconsolidated Joint Venture 10,083 10,700 (6 )% Corporate General and Administrative (11,327 ) (13,794 ) (18 )% Impairment Losses - (25,131 ) (100 )% Other Non-Operating Income 2,297 722 218 % Interest Expense, net (9,360 ) (9,543 ) (2 )% Earnings from Continuing Operations Before Income Taxes 105,072 56,157 87 % Income Tax Expense (23,879 ) (12,683 ) 88 % Net Earnings from Continuing Operations 81,193 43,474 87 % Net Earnings (Loss) from Discontinued Operations $ -$ (158,106 ) 100 % Net Earnings$ 81,193 $ (114,632 ) 171 % Diluted Earnings per Share from Continuing Operations$ 1.94 $ 1.04 87 % REVENUE Revenue increased by$61.8 million , or 18%, to$404.7 million for the three months endedDecember 31, 2020 . The Kosmos Acquisition contributed$45.4 million of Revenue for the three months endedDecember 31, 2020 , while Western and Mathews contributed$7.9 million of Revenue for the three months endedDecember 31, 2019 . Excluding the acquisition and dispositions, Revenue improved by$24.3 million , or 7%. The increase was due to higher gross sales prices and Sales Volume, which positively affected Revenue by approximately$7.7 million and$16.6 million , respectively.
COST OF GOODS SOLD
Cost of Goods Sold increased by$41.6 million , or 17%, to$291.3 million for the three months endedDecember 31, 2020 . The Kosmos Acquisition contributed$32.1 million to Cost of Goods Sold for the three months endedDecember 31, 2020 , while Western and Mathews contributed$6.7 million to Cost of Goods Sold for the three months endedDecember 31, 2019 . Excluding the acquisition and dispositions, Cost of Goods Sold increased by$16.2 million , or 7%. The increase in Cost of Goods Sold was due to Sales Volume and operating costs of approximately$10.5 million and$5.7 million , respectively. The increase in operating costs was primarily related to our Cement and Recycled Paperboard segments. See discussion of individual operating segments below.
GROSS PROFIT
Gross Profit increased 22% to$113.4 million during the three months endedDecember 31, 2020 . Excluding the acquisition and dispositions, Gross Profit rose by$8.1 million , or 9%. The improvement in Gross Profit was primarily due to higher gross sales prices and Sales Volume, partially offset by increased operating costs. The gross margin percentage increased to 28% from 27%, primarily because of higher gross sales prices, partially offset by increased operating costs. 26
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EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE
Equity in Earnings of our Unconsolidated Joint Venture decreased$0.6 million , or 6%, for the three months endedDecember 31, 2020 . The decline was primarily due to lower Sales Volume and increased operating costs, which adversely affected earnings by approximately$0.7 million and$0.4 million , respectively, partially offset by higher net sales prices, which increased operating earnings by approximately$0.5 million .
CORPORATE GENERAL AND ADMINISTRATIVE
Corporate General and Administrative Expense declined by approximately$2.5 million , or 18%, for the three months endedDecember 31, 2020 . The decrease was primarily because of lower legal and professional expenses of approximately$3.6 million , partially offset by higher salary and incentive compensation of$1.0 million . The lower legal and professional fees related to amounts spent in the prior fiscal year in connection with our strategic portfolio review, as well as costs incurred related to the Kosmos Acquisition and the sale of Western and Mathews. The increase in salary and incentive compensation costs were primarily due to higher earnings during the fiscal year.
IMPAIRMENT LOSSES
Impairment Losses for the three months endedDecember 31, 2019 relate to certain assets of our Oil and Gas Proppants business that were impaired during the quarter endedDecember 31, 2019 , but were not included in the sale of the business inSeptember 2020 . These impairment charges primarily relate to real estate and right-of-use assets.
OTHER NON-OPERATING INCOME (LOSS)
Other Non-Operating Income (Loss) 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 decreased by approximately$0.1 million , or 2%, during the three months endedDecember 31, 2020 . The decrease in Interest Expense, net was primarily due to lower interest on borrowings under our Revolving Credit Facility of approximately$4.8 million . This decrease was partially offset by an increase in interest on our Term Loan and amortization of related debt issuances costs of$4.0 million and$0.7 million , respectively. The increase in debt issuance costs was related to the issuance of the Term Loan inMarch 2020 and the amendment of both the Revolving Credit Facility and the Term Loan inApril 2020 . The lower interest expense on our Revolving Credit Facility was due to our repaying all outstanding amounts during the three months endedDecember 31, 2020 .
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Earnings from Continuing Operations Before Income Taxes increased to$105.1 million during the three months endedDecember 31, 2020 , primarily as a result of higher Gross Profit and Other Non-operating Income, and lower Corporate General and Administrative Expense. This was partially offset by lower Equity in Earnings of Unconsolidated Joint Venture.
INCOME TAX EXPENSE
Income Tax Expense was$23.9 million for the three months endedDecember 31, 2020 compared with Income Tax Expense of$12.7 million for the three months endedDecember 31, 2019 . The effective tax rate was flat from the prior period at 23%. 27
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NET EARNINGS FROM CONTINUING OPERATIONS AND DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Net Earnings from Continuing Operations increased 87% to$81.2 million for the three months endedDecember 31, 2020 . Diluted Earnings per Share from Continuing Operations also increased 87% to$1.94 per share.
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS
There was no Net Earnings from Discontinued Operations during the three months endedDecember 31, 2020 , compared with a Net Loss from Discontinued Operations of$158.1 million for the three months endedDecember 31, 2019 . The Net Loss from Discontinued Operations in fiscal 2020 was primarily related to the impairment of the operating facilities, quarries, and certain lease right-of-use assets. NET EARNINGS
Net Earnings increased 171% to
Nine MONTHS ENDEDDecember 31, 2020 Compared WITH nine MONTHS ENDEDDecember 31, 2019 For the Nine Months Ended December 31, 2020 2019 Change (dollars in thousands, except per share) Revenue$ 1,279,340 $ 1,098,838 16 % Cost of Goods Sold (940,815 ) (818,521 ) 15 % Gross Profit 338,525 280,317 21 % Equity in Earnings of Unconsolidated Joint Venture 28,456 32,489 (12 )% Corporate General and Administrative (40,225 ) (48,506 ) (17 )% Gain on Sale of Businesses 51,973 - - Impairment Losses - (25,131 ) (100 )% Other Non-Operating Income 1,898 1,445 31 % Interest Expense, net (35,957 ) (28,526 ) 26 % Earnings from Continuing Operations Before Income Taxes 344,670 212,088 63 % Income Tax Expense (76,515 ) (50,217 ) 52 % Net Earnings from Continuing Operations 268,155 161,871 66 % Net Earnings (Loss) from Discontinued Operations$ 5,278 $ (163,406 ) 103 % Net Earnings$ 273,433 $ (1,535 ) 17913 % Diluted Earnings per Share from Continuing Operations$ 6.43 $ 3.81 69 % REVENUE Revenue increased by$180.5 million , or 16%, to$1,279.3 million for the nine months endedDecember 31, 2020 . The Kosmos Acquisition and ConAgg Acquisition contributed$154.8 million of Revenue for the nine months endedDecember 31, 2020 , while Western and Mathews contributed$25.2 million of Revenue for the nine months endedDecember 31, 2019 . Excluding the acquisitions and dispositions, Revenue improved by$50.9 million , or 5%. The increase was due to higher Sales Volume and gross sales prices, which positively affected Revenue by approximately$36.9 million and$14.0 million , respectively. 28 --------------------------------------------------------------------------------
COST OF GOODS SOLD
Cost of Goods Sold increased by$122.3 million , or 15%, to$940.8 million for the nine months endedDecember 31, 2020 . The Kosmos and ConAgg Acquisitions contributed$115.4 million of Cost of Goods Sold for the nine months endedDecember 31, 2020 , while Western and Mathews contributed$21.5 million of Cost of Goods Sold for the nine months endedDecember 31, 2019 . Excluding the acquisitions and dispositions, Cost of Goods Sold increased by$28.4 million , or 4%. The increase in Cost of Goods Sold was due to higher Sales Volume and operating costs of$23.4 million and$5.0 million . The increase in operating costs were primarily in the Concrete and Recycled Paperboard segments. See discussion of individual operating segments below.
GROSS PROFIT
Gross Profit increased 21% to$338.5 million during the nine months endedDecember 31, 2020 . Excluding the acquisitions and dispositions, Gross Profit increased by$22.5 million , or 8%. The increase in Gross Profit was primarily related to higher gross sales prices and increased Sales Volume, partially offset by higher operating expenses. The gross margin percentage increased to 27% from 26%, primarily because of higher gross sales prices, partially offset by higher operating expenses.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE
Equity in Earnings of our Unconsolidated Joint Venture decreased$4.0 million , or 12%, for the nine months endedDecember 31, 2020 . The decline was primarily due to lower net sales prices and Sales Volume, which adversely affected earnings by approximately$0.8 million and$2.3 million , respectively, as well as increased operating costs, which decreased operating earnings by approximately$1.0 million . The increase in operating costs was primarily related to maintenance, which increased by approximately$1.1 million .
CORPORATE GENERAL AND ADMINISTRATIVE
Corporate General and Administrative Expense declined by approximately$8.3 million , or 17%, for the nine months endedDecember 31, 2020 . The decrease was primarily because of lower salary and incentive compensation costs of approximately$4.2 million and legal and professional costs of$4.1 million . The lower salary and incentive compensation costs were primarily due to the acceleration of stock compensation costs of$5.3 million upon the retirement of our Chief Executive Officer in the first quarter of fiscal 2020, while the lower legal and professional fees related to higher amounts spent in the prior year in connection with our strategic portfolio review. The lower fees were partially offset by increased professional costs associated with the Kosmos Acquisition, and the sales of Mathews and Western, and our Oil and Gas Proppants business.
IMPAIRMENT LOSSES
Impairment Losses for the nine months endedDecember 31, 2019 relate to certain assets of our Oil and Gas Proppants business that were impaired during the quarter endedDecember 31, 2019 , but were not included in the sale of the business inSeptember 2020 . These impairment charges primarily relate to real estate and right-of-use assets.
GAIN ON SALE OF BUSINESSES
OnApril 17, 2020 we sold Western and Mathews for approximately$93.5 million resulting in a gain on sale of approximately$52.0 million . See Footnote (C) to the Unaudited Consolidated Financial Statements for more information regarding the sale.
OTHER NON-OPERATING INCOME (LOSS)
Other Non-Operating Income (Loss) 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 increased by approximately$7.5 million , or 26%, during the nine months endedDecember 31, 2020 . The increase in Interest Expense, net was primarily due to higher interest on borrowings under our Term Loan of approximately$13.6 million and amortization of related debt issuance costs of$2.0 million . These increases were partially offset by lower interest on our Revolving Credit Facility of approximately$7.1 million and our Unsecured Private Placement Notes, which were paid in full in fiscal 2020, of$1.1 million . The higher debt issuance costs were related to the issuance of the Term Loan inMarch 2020 and the amendment of both the Revolving Credit Facility and the Term Loan inApril 2020 . The lower interest expense on our Revolving Credit Facility was due to reducing the balance throughout fiscal 2021, before repaying the remaining balance during the current quarter.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Earnings from Continuing Operations Before Income Taxes increased to$344.7 million during the nine months endedDecember 31, 2020 , primarily as a result of higher Gross Profit and Gain on Sale of Businesses, and lower Corporate General and Administrative Expense. This was partially offset by lower Equity in Earnings of Unconsolidated Joint Venture and increased Interest Expense, net.
INCOME TAX EXPENSE
Income Tax Expense for the nine months endedDecember 31, 2020 increased to$76.5 million from$50.2 million for the nine months endedDecember 31, 2019 . The effective tax rate decreased to 22% from 24% in the prior-year period. The decrease in the effective tax rate was primarily due to a benefit recognized in the current year related to the reversal of all of our uncertain tax positions during the nine months endedDecember 31, 2020 .
NET EARNINGS FROM CONTINUING OPERATIONS AND DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Net Earnings from Continuing Operations increased 66% to$268.2 million for the nine months endedDecember 31, 2020 . Diluted Earnings per Share increased 69% to$6.43 per share.
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS
Net Earnings from Discontinued Operations increased to$5.3 million during the nine months endedDecember 30, 2020 , compared with a Net Loss from Discontinued Operations of$163.4 million for the nine months endedDecember 31, 2019 . The improvement was due primarily to the impairment of the operating facilities, quarries and certain lease right-of-use assets of the Oil and Gas Proppants business during fiscal 2020, and the recording of a$9.2 million gain on sale inSeptember 2020 . NET EARNINGS
Net Earnings increased to
THREE and Nine MONTHS ENDED
The following presents results within our two business sectors for the three and nine months endedDecember 31, 2020 and 2019. Revenue and operating results are organized by sector and discussed by individual business segment within each respective business sector. 30
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Heavy Materials
CEMENT (1)
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in thousands, except per ton (in thousands, except per ton
information) information)
Gross Revenue, including
Intersegment and Joint
Venture $ 234,092 $ 183,031 28 % $ 773,565 $ 605,357 28 %
Less Intersegment Revenue (5,241 ) (6,174 ) (15 )% (17,539 ) (17,130 ) 2 %
Less Joint Venture Revenue (27,110 ) (28,382 ) (4 )% (79,603 ) (85,775 ) (7 )%
Gross Revenue, as reported $ 201,741 $ 148,475 36 % $ 676,423 $ 502,452 35 %
Freight and Delivery Costs
Billed to Customers (15,077 ) (11,063 ) 36 % (50,896 ) (39,434 ) 29 %
Net Revenue $ 186,664 $ 137,412 36 % $ 625,527 $ 463,018 35 %
Sales Volume (M Tons) 1,842 1,439 28 % 6,107 4,767 28 %
Average Net Sales Price , per
ton (2) $ 111.91 $ 110.09 2 % $ 110.84 $ 109.69 1 %
Operating Margin, per ton $ 38.24 $ 37.65 2 % $ 34.52 $ 32.90 5 %
Operating Earnings $ 70,434 $ 54,180 30 % $ 210,802 $ 156,827 34 %
(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
Cement Revenue was$234.1 million , a 28% increase, for the three months endedDecember 31, 2020 . Organic Cement Revenue, which excludes the Kosmos Acquisition, increased approximately$5.7 million , primarily related to higher gross sales prices. Cement Operating Earnings increased 30% to$70.4 million for the three months endedDecember 31, 2020 . Excluding$13.3 million of Operating Earnings related to the Kosmos Acquisition, Operating Earnings increased$2.9 million , or 5%. The improvement was due to higher gross sales prices, which increased Operating Earnings by$6.6 million . This was partially offset by higher operating costs, which negatively affected Operating Earnings by approximately$3.9 million . The increase in operating costs was primarily due to higher maintenance costs of$1.5 million and raw materials of$1.5 million . The operating margin remained consistent at 30% during the quarter.
Nine months ended
Cement Revenue was$773.6 million , a 28% increase, for the nine months endedDecember 31, 2020 . Organic Cement Revenue increased approximately$28.0 million , and was primarily due to higher gross sales prices and Sales Volume, which improved Cement Revenue by approximately$15.9 million and$12.1 million , respectively. Cement Operating Earnings increased 34% to$210.8 million for the nine months endedDecember 31, 2020 . Excluding$38.3 million of Operating Earnings related to the Kosmos Acquisition, Operating Earnings increased$15.7 million , or 10%. The increase was due to higher gross sales prices and Sales Volume, which positively affected Operating Earnings by approximately$15.9 million and$1.5 million , respectively. This was partially offset by higher operating costs, which reduced Operating Earnings by$1.5 million . The increase in operating costs was primarily increased maintenance costs of$6.6 million , partially offset by lower energy costs of$5.2 million . The operating margin increased to 27% from 26%, primarily because of higher gross sales prices. 31 -------------------------------------------------------------------------------- CONCRETE AND AGGREGATES For the Three Months Ended For the Nine Months Ended December 31, December 31, Percentage 2020 2019 Change 2020 2019 Percentage Change (in thousands, except net (in thousands, except net sales sales prices) prices) Gross Revenue, including Intersegment$ 43,530 $ 47,147 (8 )%$ 134,020 $ 142,896 (6 )% Less Intersegment Revenue - (350 ) (100 )% (106 ) (1,134 ) (91 )% Gross Revenue, as reported$ 43,530 $ 46,797 (7 )%$ 133,914 $ 141,762 (6 )% Sales Volume: M Cubic Yards of Concrete 327 357 (8 )% 1,032 1,095 (6 )% M Tons of Aggregate 583 749 (22 )% 1,533 2,608 (41 )% AverageNet Sales Price : Concrete, per cubic yard$ 116.88 $ 112.96 3 %$ 115.66 $ 108.17 7 % Aggregates, per ton$ 8.96 $ 9.20 (3 )%$ 9.54 $ 9.36 2 % Operating Earnings$ 5,075 $ 3,334 52 %$ 15,748 $ 15,023 5 %
Three months ended
Concrete and Aggregates Revenue decreased 8% to$43.5 million for the three months endedDecember 31, 2020 . Excluding Revenue related to Western and Mathews in fiscal 2020, Revenue increased$4.3 million , or 11%. The primary reason for the increase in Revenue was higher gross sales prices and Sales Volume, which positively affected Revenue by$0.5 million and$3.8 million , respectively. Operating Earnings increased 52% to approximately$5.1 million . Excluding Operating Earnings related to Western and Mathews in fiscal 2020, Operating Earnings increased$2.9 million , or 76%. The increase was a result of higher concrete sales prices and organic Sales Volume, as well as lower operating costs, which positively affected Operating Earnings by$0.5 million ,$1.2 million , and$1.3 million , respectively. The decrease in operating costs was primarily due to improved operating efficiencies and lower diesel fuel costs.
Nine months ended
Concrete and Aggregates Revenue decreased 6% to$134 million for the nine months endedDecember 31, 2020 . Excluding Revenue related to the ConAgg Acquisition and Western and Mathews for the first quarter of fiscal 2021, as well as Western and Mathews in fiscal 2020, Revenue increased$5.3 million , or 4%. The increase in Revenue was primarily related to higher gross sales prices, which positively affected Revenue by$6.4 million . This was partially offset by lower Sales Volume, which reduced Revenue by$1.1 million . Operating Earnings increased 5% to approximately$15.7 million . Excluding Operating Earnings related to the ConAgg Acquisition and Western and Mathews for the first quarter of fiscal 2021, and Western and Mathews in fiscal 2020, Operating Earnings increased$3.5 million , or 31%. The improvement was due to higher gross sales prices, which positively affected Operating Earnings by$6.4 million , partially offset by higher operating costs, which negatively impacted Operating Earnings by approximately$2.9 million . The increase in operating costs was primarily because of higher cost of materials of approximately$3.0 million , partially offset by lower delivery costs of$0.9 million . 32 --------------------------------------------------------------------------------
Light Materials
GYPSUM WALLBOARD
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in thousands, except per MSF (in thousands, except per MSF
information) information)
Gross Revenue, as reported $ 135,658 $ 125,070 8 % $ 397,018 $ 380,454 4 %
Freight and Delivery Costs
Billed to Customers (28,235 ) (27,030 ) 4 % (83,334 ) (81,941 ) 2 %
Net Revenue $ 107,423 $ 98,040 10 % $ 313,684 $ 298,513 5 %
Sales Volume (MMSF) 727 669 9 % 2,151 2,010 7 %
Average Net Sales Price , per
MSF (1) $ 147.87 $ 146.46 1 % $ 145.86 $ 148.51 (2 )%
Freight, per MSF $ 38.84 $ 40.40 (4 )% $ 38.74 $ 40.77 (5 )%
Operating Margin, per MSF $ 56.11 $ 57.52 (2 )% $ 55.66 $ 57.15 (3 )%
Operating Earnings $ 40,792 $ 38,484 6 % $ 119,723 $ 114,872 4 %
(1) Net of freight per MSF.
Three months ended
Gypsum Wallboard Revenue increased 8% to$135.7 million for the three months endedDecember 31, 2020 , primarily related to a 9% increase in Sales Volume. The higher Sales Volume positively affected Revenue by approximately$10.6 million , while gross sales prices were relatively flat. Our market share increased slightly during the three months endedDecember 31, 2020 , due to the strength in our regional markets compared to the national average. Operating Earnings increased 6% to$40.8 million , primarily because of higher Sales Volume, which positively affected Operating Earnings by$3.3 million . The increase was partially offset by higher operating costs that negatively affected Operating Earnings by approximately$1.1 million . The higher operating costs were primarily due to input costs, which increased operating costs by$2.0 million . The increase was offset by lower freight expense of$1.0 million . The operating margin declined 1% to 30% for the three months endedDecember 31, 2020 , primarily because of 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
Gypsum Wallboard Revenue increased 4% to$397.0 million for the nine months endedDecember 31, 2020 , primarily related to a 7% increase in Sales Volume. The higher Sales Volume positively affected Revenue by approximately$26.7 million , partially offset by lower gross sales prices, which adversely affected Revenue by$10.0 million . Our market share increased slightly during the nine months endedDecember 31, 2020 , due to the strength in our regional markets compared to the national average. Operating Earnings increased 4% to$119.7 million , primarily due to higher Sales Volume and lower operating costs, which positively affected Operating Earnings by$8.1 million and$6.7 million , respectively. This was partially offset by lower gross sales prices that negatively affected Operating Earnings by approximately$10.0 million . The lower operating costs were primarily related to freight, energy, and maintenance, which reduced operating costs by approximately$4.4 million ,$1.2 million , and$1.3 million , respectively. The operating margin remained consistent at 30% for the nine months endedDecember 31, 2020 , with lower gross sales prices being offset by lower 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. 33
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RECYCLED PAPERBOARD
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in thousands, except per ton (in thousands, except per ton
information) information)
Gross Revenue, including
Intersegment $ 39,602 $ 37,813 5 % $ 122,417 $ 122,360 -
Less Intersegment Revenue (15,864 ) (15,251 ) 4 % (50,432 ) (48,190 ) 5 %
Gross Revenue, as reported $ 23,738 $ 22,562 5 % $ 71,985 $ 74,170 (3 )%
Freight and Delivery Costs
Billed to Customers (1,361 ) (1,073 ) 27 % (4,046 ) (3,407 ) 19 %
Net Revenue $ 22,377 $ 21,489 4 % $ 67,939 $ 70,763 (4 )%
Sales Volume (M Tons) 79 80 (1 )% 243 247 (2 )%
Average Net Sales Price , per
ton (1) $ 484.92 $ 460.65 5 % $ 487.76 $ 482.34 1 %
Freight, per ton $ 17.23 $ 13.41 28 % $ 16.65 $ 13.79 21 %
Operating Margin, per ton $ 90.65 $ 112.76 (20 )% $ 85.22 $ 117.65 (28 )%
Operating Earnings $ 7,161 $ 9,021 (21 )% $ 20,708 $ 29,060 (29 )%
(1) Net of freight per ton.
Three months ended
Recycled Paperboard Revenue increased 5% to$39.6 million during the three months endedDecember 31, 2020 . The increase in Revenue was due to higher gross sales prices, which positively affected Revenue by$2.2 million , partially offset by decreased Sales Volume, which lowered Revenue by$0.4 million . Higher gross sales prices were due to the pricing provisions in our long-term sales agreements. Operating Earnings decreased 21% to$7.2 million , primarily because of the higher operating expenses, which negatively affected Operating Earnings by$4.0 million , partially offset by higher gross sales prices of$2.2 million . The increase in operating costs was primarily due to input costs and depreciation, which increased approximately$2.9 million and$1.3 million , respectively, partially offset by lower energy costs of$0.3 million . Operating margin decreased to 18% from 24%, primarily because of higher operating costs, partially offset by higher gross sales prices.
Nine months ended
Recycled Paperboard Revenue was flat at$122.4 million during the nine months endedDecember 31, 2020 , with higher gross sales prices increasing Revenue by$2.0 million and lower Sales Volume reducing Revenue by the same amount. Higher gross sales prices were due to the pricing provisions in our long-term sales agreements. Operating Earnings declined 29% to$20.7 million , primarily related to an increase in operating costs and a decrease in Sales Volume, which adversely affected Operating Earnings by approximately$9.9 million and$0.5 million , respectively. This was partially offset by increased gross sales prices of$2.0 million . The increase in operating costs was primarily due to operating inefficiencies in April and May related to the start-up of the paper mill after the completion of the project to enhance and expand the mill, as well as higher input costs, namely fiber and depreciation, which lowered Operating Earnings by approximately$2.1 million ,$6.0 million and$3.7 , respectively. This was partially offset by lower energy costs of approximately$1.7 million . Operating margin decreased to 17% from 24%, primarily because of higher operating costs and lower gross sales prices. 34
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted inthe 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
Notwithstanding the anticipated challenges associated with COVID-19, we believe at this time 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. We will continue to monitor the impact of COVID-19 on the economy, and on our operations and future liquidity needs, as a continued worldwide disruption of economic activity could materially affect our future access to these sources of liquidity. Please see the Debt Financing Activities section for a discussion of our cash position, 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 Nine Months Ended December 31,
2020 2019
(dollars in thousands)
Net Cash Provided by Operating Activities $ 542,017 $ 320,619
Investing Activities:
Additions to Property, Plant, and Equipment (45,541 ) (84,056 )
Acquisition Spending - (30,424 )
Proceeds from Sale of Businesses 91,022 -
Net Cash Provided by (Used in) Investing
Activities 45,481 (114,480 )
Financing Activities:
Increase (Decrease) in Credit Facility (560,000 ) 275,000
Repayment of Private Placement Senior Unsecured
Notes - (36,500 )
Dividends Paid to Stockholders (4,163 ) (13,131 )
Purchase and Retirement of Common Stock - (313,887 )
Proceeds from Stock Option Exercises 8,649 2,996
Payment of Debt Issuance Costs (1,718 ) -
Shares Redeemed to Settle Employee Taxes on Stock
Compensation (1,130 ) (2,963 )
Net Cash Provided by (Used in) Financing
Activities (558,362 ) (88,485 )
Net Increase in Cash, Cash Equivalents, and
Restricted Cash $ 29,136 $ 117,654
35
-------------------------------------------------------------------------------- Net Cash Provided by Operating Activities increased by$221.4 million to$542.0 million during the nine months endedDecember 31, 2020 . This increase was primarily attributable to higher Net Earnings after adjustments for non-cash charges and Gain on Sale of Businesses, higher dividends from our Joint Venture, and a reduction in the change of working capital, which increased cash flows by approximately$89.3 million ,$2.0 million , and$130.1 million , respectively. The change in working capital was primarily due to receiving income tax refunds of approximately$126.5 million that were included in receivables atMarch 31, 2020 . Net Cash Provided by Operating Activities was also positively affected by$45.0 million from the reduction of deferred tax liabilities related to the sale of the Oil and Gas Proppants business. Working capital declined by$143.0 million to$365.5 million atDecember 31, 2020 , primarily because of lower Accounts and Notes Receivable, Inventories, and Income Tax Receivables of approximately$3.3 million ,$43.4 million and$126.5 million , respectively. This was partially offset by higher Cash and Restricted Cash of approximately$24.5 million and$5.0 million , respectively. The reduction in Inventory was due to increased Revenue and the seasonal nature of our business. The decrease in Income Tax Receivables and increase in Cash was due primarily to receiving our income tax refund duringJuly 2020 . The decrease in Accounts and Notes Receivable atDecember 31, 2020 , was primarily due to improved collection efforts that reduced our overall days sales outstanding. As a percentage of quarterly sales generated for the respective quarter, Accounts Receivable was approximately 35% atDecember 31, 2020 and 48% atMarch 31, 2020 . 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 atDecember 31, 2020 . Notes Receivable are monitored on an individual basis, and no significant deterioration in the collectability of our Notes Receivable was identified atDecember 31, 2020 . We are closely monitoring the impact of COVID-19 on our customers' ability to pay their outstanding balances. Our Inventory balance atDecember 31, 2020 declined by approximately$43.4 million from our balance atMarch 31, 2020 . Within Inventory, raw materials and materials-in-progress, finished cement, and aggregates decreased approximately$34.8 million ,$8.6 million , and$5.1 million , respectively. The decline in raw materials and materials-in-progress and cement is consistent with our business cycle: we generally build up clinker inventory over the winter months to meet the demand in the spring and summer. The reduction in aggregates inventory was primarily due to the sale of Western, which had approximately$5.1 million of aggregate inventory at the date of sale. This was partially offset by an increase of$4.0 million in repair parts. The increase in repair parts 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 Provided by Investing Activities during the nine months endedDecember 31, 2020 was approximately$45.5 million , compared withNet Cash Used in Investing Activities of$114.5 million during the same period in 2019, an increase of approximately$160.0 million . The increase was primarily due to the$91.0 million of cash received for the sale of businesses, and reductions in capital spending and acquisition spending of$38.6 million and$30.4 million , respectively. The decrease in capital spending was due to our focus on limiting capital expenditures to critical maintenance and safety and regulatory projects as we manage our cash flow in response to COVID-19. 36 --------------------------------------------------------------------------------Net Cash Used in Financing Activities was approximately$558.4 million during the nine months endedDecember 31, 2020 , compared with$88.5 million in the similar period in fiscal 2020. The$469.9 million increase was primarily due to the$560.0 million reduction in net borrowings compared with the$238.5 million increase in net borrowings in fiscal 2020, as well as a$313.9 million reduction in repurchase and retirement of common stock. Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 44.6% and 40.9%, respectively, atDecember 31, 2020 , compared with 61.7% and 60.0%, respectively, atMarch 31, 2020 .
Debt Financing Activities
Below is a summary of the Company's debt facilities at
Maturity
Revolving Credit Facility August 2022
4.500% Senior Unsecured Notes August 2026
Term Loan August 2022
See Footnote (N) 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 or our Revolving Credit Facility is $750.0 million . 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, 2020 we
had $5.0 million of outstanding letters of credit. We previously provided an
irrevocable stand-by letter of credit for any borrowings made by our Joint
Venture under its credit facility; however, this credit facility was terminated
and the letter of credit cancelled in July 2020 . We are contingently liable for
performance under $23.6 million in performance bonds relating primarily to our
mining operations. We do not have any off-balance-sheet debt, or any outstanding
debt guarantees.
We did not have any borrowings outstanding under the Revolving Credit Facility
at December 31, 2020 . We had $745.0 million of available borrowings under the
Revolving Credit Facility, net of outstanding letters of credit, at December 31,
2020 , all of which was available for future borrowings based on our current
Leverage Ratio.
In addition to the Revolving Credit Facility, we have $142.8 million of cash on
hand at December 31, 2020 , giving us total liquidity of approximately $887.8
million (cash on hand plus Revolving Credit Facility availability).
Other than the Revolving Credit Facility, we have no other 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. Our Revolving
Credit Facility is not rated by the rating agencies.
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 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 the
continuing impact COVID-19. 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 of COVID-19 on our business.
37
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As market conditions warrant, the Company may from time to time seek to purchase
or repay its outstanding debt securities or loans, including the Term Loan,
4.500% 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.
During December 2020 we exercised our option and purchased the cement plant at
Sugar Creek for a nominal amount. We also have approximately $42.4 million of
lease liabilities at December 31, 2020 that have an average remaining life of
approximately 10.5 years.
Dividends
Dividends paid were $4.2 million and $13.1 million , respectively, for the nine
months ended December 31, 2020 and 2019. On April 13, 2020 , we announced the
suspension of future quarterly dividends.
Share Repurchases
OnApril 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 inApril 1994 . ThroughDecember 31, 2020 , we have repurchased approximately 41.1 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 nine months endedDecember 31, 2020 , the Company withheld from employees 36,099 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,
2020 2019
(dollars in thousands)
Land and Quarries $ 5,306 $ 4,507
Plants 30,026 71,688
Buildings, Machinery, and Equipment 10,209 10,536
Total Capital Expenditures $ 45,541 $ 86,731
Capital expenditures for fiscal 2021 are expected to range from $55.0 million to
$65.0 million and will be allocated across the Heavy and Light Materials
sectors. These estimated capital expenditures are limited to critical
maintenance and safety and regulatory projects as we manage our cash flow in
response to the COVID-19 pandemic.
The capital expenditures for the nine months ended December 31, 2019 disclosed
above differs from the capital expenditures on the Unaudited Consolidated
Statement of Cash Flows. It includes $2.7 million of capital expenditures that
were accrued at September 30, 2019 and therefore not included in the Statement
of Cash Flows.
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