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 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. OnSeptember 18, 2020 , we sold our Oil and Gas Proppants business, which had previously been reported as a separate operating segment, for a purchase price of$2.0 million , which was paid in Smart Sand common stock. For financial reporting purposes, the sale resulted in a gain of approximately$9.2 million . 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 Footnotes (C) and (I) in the Audited Consolidated Financial Statements for more information about the sale of the Oil and Gas Proppants business. Our current 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 fiscal years endedMarch 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 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, 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). OnAugust 2, 2019 , we acquired the assets of a readymix concrete and aggregates business in northernNevada (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. 36
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The ConAgg Acquisition's assets and operating results are included in our
Concrete and Aggregates segment reporting from
OnMarch 6, 2020 , we completed the acquisition (the Kosmos Acquisition) of the assets ofKosmos Cement Company (a joint venture between CEMEX S.A.B. de C.V. and Buzzi Unicem S.p.A.) (Kosmos), which 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) for a purchase price of approximately$669 million . 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 after the closing of the transaction. 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 all of fiscal 2021. 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 fiscal 2020 and 2019, and fromApril 1, 2020 throughApril 17, 2020 . MARKET CONDITIONS AND OUTLOOK Our financial results in fiscal 2021 were not 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. Nevertheless, the future course of the COVID-19 pandemic is difficult to predict, and the extent to which the COVID-19 pandemic will ultimately impact our business, operations, financial condition and results of operations will depend on numerous factors, which are highly uncertain, rapidly changing and cannot be predicted. Our fiscal 2021 results were strong, with increased operating earnings in all segments except Recycled Paperboard. Our end markets remained resilient despite the uncertainty related to COVID-19. Our regional construction markets continued to generally outperform the national average, and sales volume in both major business lines remained strong - our Gypsum Wallboard shipments were up 6%, and our organic Cement sales volume increased 1%. We are well positioned to manage our cost structure and meet our customers' needs during the upcoming fiscal year. Our substantial raw material reserves support our low-cost producer position and the integration of the Kosmos Acquisition during fiscal 2021 expanded our Cement sales footprint in the central part ofthe United States . We expect our cost of freight will increase in fiscal 2022, as the continued demand for construction and construction products increases. On the demand side, the passage of the latest stimulus bill inMarch 2021 provided states with additional funds to compensate for lower tax collections due to COVID-related shutdowns, and the new administration's proposed new infrastructure program, if passed, will increase investment in roads, bridges and other infrastructure throughout the country. Our integrated cement sales network stretches across theU.S. heartland and is operating at high utilization levels; therefore, organic cement sales volume growth will be limited. The PCA is estimating cement consumption will increase in calendar 2021 over 2020 by approximately 2%. In addition to 37
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weather, cement and concrete and aggregates markets are affected by infrastructure spending, residential construction, and industrial construction activity.
Our primary Gypsum Wallboard sales network stretches across the southern half ofthe 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 7% in calendar 2020 from 2019, and are expected to remain strong throughout the remainder of calendar 2021. Our Recycled Paperboard business primarily sells paper 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 OCC. We expect OCC prices to increase during the fiscal first quarter of 2022, then remain consistent for the rest of the fiscal year. Additionally, the PSO has requested an increase in electric rates that, if approved, would significantly increase our power costs in fiscal 2022. Although current gypsum liner customer contracts include price escalators that partially offset and compensate for changes in raw material fiber prices, these increases likely will adversely affect our Gypsum Wallboard operations by increasing the cost of paper. DuringFebruary 2021 , Winter Storm Uri adversely affected the operations of several of our cement plants, as well as our Gypsum Wallboard and Recycled Paperboard businesses. The impact of the storm increased costs, principally for natural gas and electric power, in the affected businesses during the fourth quarter of fiscal 2021. In addition, in regions affected by the storm, construction activities experienced significant reductions for the duration of the storm. We are engaged in discussions with contractual counterparties regarding the responsibility for certain charges and obligations arising as a result of the storm, and therefore it is not possible at the present time to make a final determination of the storm's impact on our financial results, or potential impact on costs in future periods.
Results of Operations
Fiscal Year 2021 Compared with Fiscal Year 2020
For the Years Ended March 31,
Percentage
2021 2020 Change
(in thousands, except per share)
Revenue $ 1,622,642 $ 1,404,033 16 %
Cost of Goods Sold (1,214,287 ) (1,061,367 ) 14 %
Gross Profit 408,355 342,666 19 %
Equity in Earnings of Unconsolidated Joint
Venture 37,441 42,585 (12 )%
Corporate General and Administrative (49,511 ) (65,410 ) (24 )%
Gain on Sale of Businesses 51,973 - -
Impairment Losses - (25,131 ) (100 )%
Other Non-Operating Income (Loss) 20,274 (594 ) (3513 )%
Interest Expense, net (44,420 ) (38,421 ) 16 %
Earnings from Continuing Operations Before
Income Taxes 424,112 255,695 66 %
Income Tax Expense (89,946 ) (24,504 ) 267 %
Net Earnings From Continuing Operations 334,166 231,191 45 %
Net Earnings (Loss) from Discontinued
Operations 5,278 (160,297 ) (103 )%
Net Earnings $ 339,444 $ 70,894 379 %
Diluted Earnings per Share from Continuing
Operations $ 7.99 $ 5.47 46 %
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Revenue
Revenue increased in fiscal 2021 by$218.6 million , or 16%, to$1,622.6 million . The Kosmos and ConAgg Acquisitions contributed approximately$177.7 million of Revenue in fiscal 2021, while Western and Mathews contributed approximately$30.7 million of Revenue in fiscal 2020. Excluding the acquisitions and dispositions, Revenue increased approximately$71.6 million , or 5%, primarily due to higher gross sales prices and Sales Volume of approximately$45.3 million and$26.3 million , respectively. All of our segments contributed to the higher gross sales prices, while the increase in Sales Volume primarily related to the Cement and Gypsum Wallboard segments. See individual segment disclosure on pages 42-45 for more information. Cost of Goods Sold Cost of Goods Sold increased by$152.9 million , or 14%, to$1,214.3 million in fiscal 2021. The Kosmos and ConAgg Acquisitions contributed$136.1 million of Cost of Goods Sold for fiscal 2021, while Western and Mathews contributed approximately$27.3 million of Cost of Goods Sold in fiscal 2020. Excluding the acquisitions and dispositions, Cost of Goods Sold increased by$44.1 million , or 4%. The increase in Cost of Goods Sold was due to higher Sales Volume and operating costs of$28.5 million and$15.6 million , respectively. The increase in the operating costs related primarily to our Cement and Recycled Paperboard segments and is discussed further on pages 42-45.
Gross Profit
Gross Profit increased by 19% to$408.4 million in fiscal 2021. Excluding the acquisitions and dispositions, Gross Profit increased by$27.5 million , or 9%. The increase in Gross Profit was mainly because of higher gross sales prices and Sales Volume, partially offset by higher operating costs, as noted above. The gross margin increased to 25% in fiscal 2021 from 24% in fiscal 2020.
Equity in Earnings of Unconsolidated Joint Venture
Equity in Earnings of Unconsolidated Joint Venture decreased by$5.2 million , or 12%. The decline was mostly due to lower gross sales prices and Sales Volume of approximately$0.3 million and$3.3 million , respectively, as well as increased operating costs of$1.6 million . The increase in operating costs was due primarily to maintenance and fuel, which increased by approximately$0.9 million and$0.4 million , respectively.
Corporate General and Administrative
Corporate General and Administrative expenses decreased by approximately$15.9 million , or 24%, to$49.5 million in fiscal 2021. The decrease was due primarily to a reduction of legal and professional fees, acquisition-related expenses, and stock compensation costs, which contributed approximately$9.5 million ,$2.8 million , and$4.9 million , respectively. The lower legal and professional fees related to higher amounts spent in the prior fiscal year in connection with our strategic portfolio review, while the lower acquisition-related expenses were due to expenses incurred in fiscal 2020 related to the Kosmos and ConAgg Acquisitions, partially offset by amounts incurred in fiscal 2021 related to the sales of Western, Mathews and our Oil and Gas Proppants businesses. The decline in stock compensation costs was 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, which was partially offset by higher salary and incentive compensation expense of approximately$0.8 million in fiscal 2021. 39
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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 Audited Consolidated Financial Statements for more information regarding this sale. IMPAIRMENT LOSSES Impairment Losses in fiscal 2020 related to certain assets of the Oil and Gas Proppants business that were impaired, but were not included in the sale of the business inSeptember 2020 . These impairment charges related primarily to real estate and lease right-of-use assets.
Other non-operating Income (LOSS)
Other Non-Operating Income was$20.3 million in fiscal 2021, compared with Other Non-Operating Loss of$0.6 million in fiscal 2020. Other Non-Operating Income (Loss) consists of a variety of items that are non-segment operating in nature, including lease and rental income, investment income, non-inventoried Aggregates income, asset sales, and other miscellaneous income and cost items, such as large non-routine sales of excess raw materials or energy.
Interest Expense, Net
Interest Expense, net increased by approximately$6.0 million , or 16%, during fiscal 2021. The increase in Interest Expense, net was mostly due to higher interest on borrowings under our Term Loan of approximately$15.3 million and amortization of related debt issuance costs of$2.4 million . These increases were partially offset by lower interest on our Revolving Credit Facility of approximately$10.5 million and our Unsecured Private Placement Notes of$1.1 million , which were paid in full in fiscal 2020. The higher debt issuance costs were related to the issuance of the Term Loan inMarch 2020 and the amendments of both the Revolving Credit Facility inApril 2020 and the Term LoanMarch 2021 . The lower interest expense on our Revolving Credit Facility was due to reducing the balance throughout the first two quarters of fiscal 2021, before repaying the remaining balance inNovember 2020 .
Earnings from continuing operations Before Income Taxes
Earnings from Continuing Operations Before Income Taxes increased to$424.1 million during fiscal 2021, primarily due to 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 fiscal 2021 increased to$89.9 million from$24.5 million for fiscal 2020. The effective tax rate increased to 21% from 10% in the prior-year period. The increase in the effective tax rate was mainly due to the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allowed a five-year carryback of net operating losses generated between 2018 and 2021. InMarch 2020 we recorded a one-time discrete benefit of$31.7 million related to the carryback and utilization of net operating losses in prior years at a higher rate than the current statutory rate. 40
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Net Earnings from continuing operations and Diluted Earnings per Share from continuing operations
Net Earnings from Continuing Operations increased 45% in fiscal 2021 to$334.2 million . Diluted Earnings per Share in fiscal 2021 were$7.99 , compared with$5.47 for fiscal 2020.
Net Earnings (Loss) from Discontinued Operations
Net Earnings (Loss) from Discontinued Operations increased to$5.3 million during fiscal 2021, compared with a Net Loss from Discontinued Operations of$160.3 million for fiscal 2020. 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, as well as the recording of a$9.2 million gain on sale of the business inSeptember 2020 .
net earnings
Net Earnings increased 379% to
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FISCAL YEAR 2021 vs FISCAL YEAR 2020 Results by Segment
The following presents results within our two business sectors in fiscal 2021
and fiscal 2020. Revenue and operating results are organized by sector and
discussed by individual business segment within each respective business sector.
Heavy Materials
Cement (1)
For the Years Ended March 31,
2021 2020 Percentage Change
(in thousands, except per ton
information)
Gross Revenue, including Intersegment and
Joint Venture $ 944,556 $ 752,002 26 %
Less Intersegment Revenue $ (20,862 ) $ (21,499 ) (3 )%
Less Joint Venture Revenue $ (105,191 ) $ (113,536 ) (7 )%
Gross Revenue, as reported $ 818,503 $ 616,967 33 %
Freight and Delivery Costs billed to
Customers (68,725 ) (47,009 ) 46 %
Net Revenue $ 749,778 $ 569,958 32 %
Sales Volume (M Tons) 7,466 5,931 26 %
Average Net Sales Price, per ton (2) $ 111.19 $ 109.96 1 %
Operating Margin, per ton $ 31.34 $ 30.57 2 %
Operating Earnings $ 233,957 $ 181,330 29 %
(1) Total of wholly owned subsidiaries and proportionately consolidated 50%
interest of the Joint Venture's results.
(2) Net of freight per ton, including the Joint Venture.
Cement Revenue was$944.6 million for fiscal 2021, a 26% increase over fiscal 2020. Organic Cement Revenue increased approximately$25.6 million , primarily due to higher gross sales prices and Sales Volume, which improved Cement Revenue by approximately$19.6 million and$6.0 million , respectively. Cement Operating Earnings increased 29% to$234.0 million for fiscal 2021. Excluding the Kosmos Acquisition, Operating Earnings increased$11.8 million , or 6%. The increase was due to higher gross sales prices and Sales Volume, which positively affected Operating Earnings by approximately$19.6 million and$0.4 million , respectively. This was partially offset by higher operating costs, which reduced Operating Earnings by$8.2 million . The increase in operating costs was mostly due to increased lease and rental expense and purchased raw materials of approximately$2.7 million and$5.2 million , respectively. The Operating Margin increased to 25% from 24%, primarily because of higher gross sales prices. Operating Earnings during the fourth quarter were adversely affected by a severe winter storm duringFebruary 2021 . This storm had a significant impact onTexas and the broader southernUnited States . Our cement facilities inTexas ,Missouri andOklahoma were forced to curtail production and energy prices spiked during this time period. We estimate the storm's impact was approximately$6.0 million in additional cement costs during the fiscal fourth quarter. 42
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Concrete and Aggregates
For the Years Ended March 31,
2021 2020 Percentage Change
(in thousands, except net sales
prices)
Gross Revenue, including Intersegment $ 168,829 $ 182,775 (8 )%
Less Intersegment Revenue (106 ) (1,502 ) (93 )%
Gross Revenue, as reported $ 168,723 $ 181,273 (7 )%
Sales Volume -
M Cubic Yards of Concrete 1,300 1,388 (6 )%
M Tons of Aggregate 1,956 3,313 (41 )%
Average Net Sales Price -
Concrete - Per Cubic Yard $ 115.59 $ 109.28 6 %
Aggregates - Per Ton $ 9.51 $ 9.39 1 %
Operating Earnings $ 19,054 $ 17,558 9 %
Concrete and Aggregates Revenue decreased 8% to $168.8 million for fiscal 2021.
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 $8.0 million , or 5%. The increase in Revenue was primarily
related to higher gross sales prices, which positively affected Revenue by $8.7
million . This was partially offset by lower Sales Volume in Concrete, which
reduced Revenue by $0.7 million .
Operating Earnings increased 9% to approximately $19.1 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 $4.1 million , or 29%. The improvement was due to
higher gross sales prices, which positively affected Operating Earnings by $8.7
million , partially offset by higher operating costs, which negatively affected
Operating Earnings by approximately $4.6 million . The increase in operating
costs was primarily due to higher cost of materials of approximately $3.5
million .
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Light Materials
Gypsum Wallboard
For the Years Ended March 31,
2021 2020 Percentage Change
(in thousands, except per MMSF
information)
Gross Revenue, as reported $ 539,009 $ 508,145 6 %
Freight and Delivery Costs billed to Customers (111,537 ) (109,400 ) 2 %
Net Revenue $ 427,472 $ 398,745 7 %
Sales Volume (MMSF) 2,857 2,694 6 %
Average Net Sales Price, per MMSF (1) $ 149.62 $ 148.03 1 %
Freight, per MMSF $ 39.04 $ 40.61 (4 )%
Operating Margin, per MMSF $ 58.57 $ 57.39 2 %
Operating Earnings $ 167,336 $ 154,614 8 %
(1) Net of freight per MSF
Gypsum Wallboard Revenue increased 6% to $539.0 million in fiscal 2021,
primarily because of a 6% increase in Sales Volume. The increase in Sales Volume
positively affected Revenue by approximately $30.8 million , while gross sales
prices were relatively flat year over year. Our market share increased 60 basis
points in fiscal 2021 because our regional markets outperformed the national
average.
Operating Earnings increased 8% to $167.3 million for fiscal 2021. This increase
was primarily due to higher Sales Volume and lower operating costs of
approximately $9.4 million and $3.2 million , respectively. The lower operating
costs were primarily related to lower freight costs of approximately $4.5
million , which was partially offset by higher paper costs of approximately $2.0
million . During fiscal 2021, Gypsum Wallboard Operating Margin increased to 31%
from 30% in fiscal 2020, primarily because of lower operating costs. Fixed costs
are not a significant part of the overall cost of wallboard; therefore, changes
in volume have a relatively minor impact on our operating cost per unit.
Operating Earnings during the fourth quarter were adversely affected by a severe
winter storm during February 2021 . Shipments of gypsum wallboard were
significantly affected by the extreme winter conditions. We estimate that the
storm negatively impacted fourth quarter gypsum wallboard operating earnings by
approximately $2.8 million , primarily due to lower sales volume.
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Recycled Paperboard
For the Years Ended March 31,
2021 2020 Percentage Change
(in thousands, except per ton
information)
Gross Revenue, including Intersegment $ 163,507 $ 159,963 2 %
Less intersegment Revenue (67,100 ) (62,315 ) 8 %
Gross Revenue, as reported $ 96,407 $ 97,648 (1 )%
Freight and Delivery Costs billed to Customers (5,534 ) (4,665 ) 19 %
Net Revenue $ 90,873 $ 92,983 (2 )%
Sales Volume (M Tons) 325 326 (0 )%
Average Net Sales Price, per ton (1) $ 486.15 $ 476.20 2 %
Freight, per ton $ 17.03 $ 14.31 19 %
Operating Margin, per ton $ 78.30 $ 107.30 (27 )%
Operating Earnings $ 25,449 $ 34,979 (27 )%
(1) Net of freight per ton.
Recycled Paperboard Revenue increased 2% to $163.5 million for fiscal 2021 as
higher gross sales prices positively affected Revenue by approximately $4.1
million . The increase in gross sales prices, which was due to the
price-adjustment provisions in our long-term sales agreements, was partially
offset by lower Sales Volume that reduced Revenue by $0.6 million .
Operating Earnings decreased 27% to $25.4 million for fiscal 2021, primarily due
to an increase in operating costs, which adversely affected Operating Earnings
by approximately $13.5 million , but partially offset by increased gross sales
prices of approximately $4.1 million . The increase in operating costs was
primarily due to operating inefficiencies throughout the year related to the
start-up of the paper mill after the completion of the project to enhance and
expand the papermill's capacity, and the difficulty of having contractors on
site during the COVID-19 pandemic. These inefficiencies reduced Operating
Earnings by approximately $2.1 million . Also contributing to the in operating
costs were higher input costs, namely fiber and higher depreciation, which
reduced Operating Earnings by $8.8 million and $5.0 million , respectively. The
cost increases were partially offset by lower repair and maintenance expenses of
$1.5 million and lower energy expenses of $0.6 million . During fiscal 2021,
Operating Margin decreased to 16% from 22% in fiscal 2020, primarily due to the
higher operating costs, partially offset by increased gross sales prices.
Operating Earnings during the fourth quarter were adversely affected by a severe
winter storm during February 2021 . Our papermill was forced to curtail
production during the week of the storm, and also experienced higher energy
costs during the shutdown. We estimate that the storm impacted fourth quarter
operating earnings by approximately $3.2 million , mostly due to higher costs and
lower production levels.
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Fiscal Year 2020 Compared with Fiscal Year 2019
Please see our Form 10-K for fiscal year 2020 for the discussion of our Results of Operations and results of Revenue and Operating Earnings by segment for fiscal 2020 compared with fiscal 2019. Our 2020 Form 10-K can be found on the investor page of our website, at www.eaglematerials.com.
CRITical Accounting Policies
Certain of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters. Although our accounting policies are in compliance with generally accepted accounting principles, a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. Listed below are those policies that we believe are critical and require the use of complex judgment in their application.
Impairment of Long-Lived Assets
We assess our long-lived assets, including mining and related assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or group of assets, may not be recoverable. Long-lived assets, or groups of assets, are evaluated for impairment at the lowest level for which cash flows are largely independent of the cash flows of other assets. We assess recoverability of assets, or group of assets, by comparing the carrying amount of an asset, or group of assets, to the future undiscounted net cash flows that we expect the asset, or group of assets, to generate. These impairment evaluations are significantly affected by estimates of future revenue, costs and expenses, and other factors. If the carrying value of the assets, or group of assets, exceeds the undiscounted cash flows, then an impairment is indicated. If such assets, or group of assets, are considered to be impaired, the impairment is recognized as the amount by which the carrying amount of the asset, or group of assets, exceeds the fair value of the asset, or group of assets.Goodwill We annually assessGoodwill for impairment in the fourth quarter of our fiscal year, or more frequently when indicators of impairment exist. Impairment testing forGoodwill is done at the reporting unit, which is consistent with our reportable segments.Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. Prior to performing the Step 1 quantitative analysis, we may, at our discretion, perform an optional qualitative analysis, or we may choose to proceed directly to the Step 1 quantitative analysis. The qualitative analysis considers the impact of the following events and circumstances on the reporting unit being tested: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other relevant entity-specific events. If, as a result of this qualitative analysis, we conclude that it is more likely than not (a likelihood of greater than 50%) that the fair value of the reporting unit exceeds its carrying value, then an impairment does not exist and the quantitative Step 1 analysis is not required. If we are unable to conclude that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, then we proceed to the quantitative Step 1 analysis. Step 1 of the quantitative test for impairment compares the fair value of the reporting unit to its carrying value. If the carrying value exceeds the fair value, then an impairment is indicated. If facts and circumstances related to our business change in subsequent years, we may choose to perform a quantitative analysis in those future years. If we perform a Step 1 analysis, and the carrying value of the reporting unit exceeds its fair value, then an impairment charge equal to the difference, not to exceed the total amount ofGoodwill , is recorded. 46
-------------------------------------------------------------------------------- The fair values of the reporting units are estimated by using both the market and income approaches. The market approach considers market factors and certain multiples in comparison to similar companies, while the income approach uses discounted cash flows to determine the estimated fair values of the reporting units. Key assumptions in the model included estimated average net sales prices, sales volumes, and the estimated weighted average cost of capital specific to each industry. We also perform an overall comparison of all reporting units to our market capitalization in order to test the reasonableness of our fair value calculations. Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. The most important assumption underlying our estimates is the projection of construction spending in theU.S. over the next several years. Actual results may differ materially from those estimates. Changes in market conditions, market trends, interest rates or other factors outside of our control, such as the COVID-19 pandemic, could cause us to change key assumptions and our judgment about a reporting unit's prospects. Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results. Either situation could result in a meaningfully different estimate of the fair value of our reporting units, and a consequent future impairment charge. The segment breakdown ofGoodwill atMarch 31, 2021 and 2020, was as follows: For the Years Ended March 31, 2021 2020 (dollars in thousands) Cement$ 203,342 $ 205,797 Concrete and Aggregates 1,639 1,639 Gypsum Wallboard 116,618 116,618 Paperboard 7,538 7,538 329,137 331,592
The reduction in
Business Combinations
The acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date fair values.Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed. The purchase price allocation is a critical accounting policy because the estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions. Further, the amounts and useful lives assigned to depreciable and amortizable assets versus amounts assigned toGoodwill , which is not amortized, can significantly affect the results of operations in the period of and for periods subsequent to a business combination. Although independent appraisals may be used to assist in the determination of the fair values of certain assets and liabilities, the appraised values are usually based on significant estimates provided by management, such as forecasted revenue or profit, and the replacement cost and useful lives of the acquired property, plant, and equipment. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and therefore represents an exit price. A fair value measurement assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, 47
-------------------------------------------------------------------------------- legally permissible, and financially feasible at the measurement date. We assign the highest level of fair value available to assets acquired and liabilities assumed based on the following options:
Level 1 - Quoted prices in active markets for identical assets and liabilities.
Level 2 - Observable inputs, other than quoted prices, for similar assets or liabilities in active markets.
Level 3 - Unobservable inputs, which includes the use of valuation models.
Level 2 fair values are typically used to value acquired receivables, inventories, machinery and equipment, land, buildings, deferred income tax assets and liabilities, and accruals for payables, asset retirement obligations, and contingencies.
Level 3 inputs are used to estimate the fair value of acquired mineral reserves, mineral interests and separately identifiable intangible assets.
In determining the fair value of property, plant, and equipment, replacement cost, adjusted for the age and condition of the acquired machinery and equipment, is used. The replacement cost is based on estimates of current cost to construct similar machinery and equipment and is compared to amounts paid for similar assets in market transactions for consistency. In determining the fair value of intangible assets, an income approach is generally used and may incorporate the use of a discounted cash flow method. In applying the discounted cash flow analysis, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate based on an estimated weighted average cost of capital for the building materials industry. These cash flow projections are based on management's estimates of economic and market conditions including revenue growth rates, operating margins, capital expenditures, customer attrition rates, and working capital requirements. While we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair values of assets acquired and liabilities assumed are recorded on a retroactive basis as of the acquisition date, with the corresponding offset toGoodwill . Any adjustments subsequent to the conclusion of the measurement period will be recorded to our Consolidated Statements of Earnings.
LIQUIDITY AND CAPITAL RESOURCES
We believe 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 on 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
for a discussion of our credit facility and the amount of borrowings available
to us in the next twelve-month period.
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Cash Flow
The following table provides a summary of our Cash Flows:
For the Fiscal Years Ended March 31,
2021 2020
(dollars in thousands)
Net Cash Provided by Operating Activities $ 643,073 $ 399,301
Investing Activities:
Additions to Property, Plant, and Equipment (53,933 ) (132,119 )
Acquisition Spending - (699,361 )
Proceeds from Sale of Businesses 91,022 -
Proceeds from Sales of Property, Plant, and Equipment - 400
Net Cash Provided by (Used in) Investing Activities 37,089 (831,080 )
Financing Activities:
Increase (Decrease) in Revolving Credit Facility (560,000 ) 250,000
Repayment of Private Placement Senior Unsecured Notes - (36,500 )
Issuance of Term Loan - 665,000
Dividends Paid to Stockholders (4,163 ) (17,142 )
Purchase and Retirement of Common Stock - (313,887 )
Proceeds from Stock Option Exercises 40,455 3,298
Shares Redeemed to Settle Employee Taxes on Stock
Compensation (4,186 ) (4,063 )
Payment of Debt Issuance Costs (2,396 ) (4,880 )
Net Cash Provided by (Used in) Financing Activities (530,290 ) 541,826
Net Increase in Cash, Cash Equivalents and Restricted Cash
$ 149,872 $ 110,047
Cash Flows from Operating Activities increased by$243.8 million to$643.1 million for fiscal 2021. The increase was largely attributable to higher dividends from our Joint Venture and an increase of cash flows from the change in working capital of approximately$2.5 million and$258.7 million , respectively. This was partially offset by the decrease in Net Earnings after adjustment for non-cash charges and Gain on Sale of Business, of$17.4 million . The change in working capital was primarily due to receiving income tax refunds of$125.6 million and a$30.0 million reduction in inventory in fiscal 2021. Net Cash Provided by Operating Activities was also positively affected by$45 million from the reduction of deferred tax liabilities related to the sale of the Oil and Gas Proppants business. Working capital decreased by$16.2 million to$492.3 million atMarch 31, 2021 , primarily because of lower Inventories and Income Tax Receivable of$36.4 million and$125.6 million , respectively, as well as higher Accounts Payable and Accrued Liabilities of$8.4 million . This was partially offset by higher Cash and Restricted Cash of$144.9 million and$5.0 million , respectively. The decrease in Income Tax Receivable was due to our income tax refund received inJuly 2020 . The decrease in Accounts and Notes Receivable atMarch 31, 2021 , was primarily due to improved collection efforts that reduced our overall days outstanding. As a percentage of quarterly sales generated in the fiscal fourth quarters, Accounts Receivable was 43% atMarch 31, 2021 , and 48% atMarch 31, 2020 . Management measures the change in Accounts Receivable by monitoring the day's sales outstanding monthly 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 atMarch 31, 2021 . Notes Receivable are monitored on an individual basis, and no significant deterioration in the collectability of Notes Receivable was identified atMarch 31, 2021 . We are closely monitoring the impact of COVID-19, and other related impacts, on our customers' ability to pay their outstanding balances. 49
-------------------------------------------------------------------------------- Our inventory balance declined by approximately$36.4 million , or 13%, atMarch 31, 2021 . Within Inventories, raw materials and materials in process, finished cement, and aggregates decreased by approximately$17.9 million ,$9.1 million , and$5.5 million , respectively. The decreases in raw materials and materials in process and finished cement were mostly due to timing, as well as some disruption in production during Winter Storm Uri inFebruary 2021 . The reduction in aggregates inventory was due primarily to the sale of Western, which had approximately$5.1 million of aggregate inventory at the date of sale. We have less than one year's sales of all product inventories, and our inventories have a low risk of obsolescence given that they are basic construction materials. The largest individual balance in our inventory is repair parts. The size and complexity of our manufacturing plants, as well as the age of certain of our plants, 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. Net Cash Provided by Investing Activities during fiscal 2021 was approximately$37.1 million , compared withNet Cash Used in Investing Activities of$831.1 million in fiscal 2020, an increase of approximately$868.2 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$78.2 million and$699.4 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 managed our cash flow in response to COVID-19, while the reduction in acquisition spending was due to the ConAgg and Kosmos Acquisitions in fiscal 2020.Net Cash Used in Financing Activities was approximately$530.3 million during fiscal 2021, compared with Net Cash Provided by Financing Activities of$541.8 million in fiscal 2020. The$1,072.1 million increase was primarily related to the$560.0 million reduction in the Revolving Credit Facility in fiscal 2021, compared with the$878.5 million increase in net borrowings in fiscal 2020, as well as a$313.9 million reduction in repurchase and retirement of common stock in fiscal 2021. This was partially offset by an increase of$37.2 million of proceeds from stock option exercises.
Our debt-to-capitalization ratio and net-debt-to-capitalization ratio was 42.8%
and 35.6%, respectively, at
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Debt Financing Activities
Below is a summary of the Company's debt maturities at
Maturity
Revolving Credit Facility August 2023
4.500% Senior Unsecured Notes August 2026
Term Loan August 2023
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 March 31, 2021 , we
had $4.3 million of outstanding letters of credit. We are contingently liable
for performance under $24.3 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 March 31, 2021 . We had $745.7 million of available borrowings under the
Revolving Credit Facility, net of outstanding letters of credit, at March 31,
2021 , all of which was available for future borrowings based on our current
Leverage Ratio.
In addition to the Revolving Credit Facility, we had
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. 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 new
economic challenges due to potential future COVID-19 outbreaks. These and other
developments could reduce our cash flow or require that we seek additional
sources of funding. We cannot predict what effect these factors will have on our
future liquidity. See Market Conditions and Outlook section above for further
discussion of the possible effects on our business.
As market conditions warrant, the Company may from time to time seek to purchase
or repay its outstanding debt securities or loans, including the 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.
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Our Senior Unsecured Notes are rated by Moody's Investor Service (Moody's) and
Standard and Poor's Global Ratings (S&P). The ratings are typically monitored by
stockholders, creditors, or suppliers, and they serve as indicators of the
Company's viability. Below is a summary of the ratings published by the agencies
as of the date indicated:
Moody's S&P
Corporate/Family Rating Baa2 BBB-
Outlook Stable Negative
Guaranteed Senior Notes Baa2 BBB-
Date of Latest Report August 2020 June 2020
During December 2020 , we exercised our option and purchased the cement plant at
Sugar Creek for a nominal amount. We also have approximately $40.8 million of
lease liabilities at March 31, 2021 , that have an average remaining life of
approximately 10.5 years.
Cash Used for Share Repurchases and Stock Repurchase Program
See table under Item 5. "Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of
OnApril 18, 2019 , the Board of Directors authorized the Company to repurchase up to an additional 10,000,000 shares, for a total outstanding authorization, as of that date, of 10,724,758 shares. During fiscal years 2020 and 2019, we spent approximately$313.9 million and$272.0 million , respectively, on share repurchases. We did not repurchase any shares during fiscal 2021. AtMarch 31, 2021 , we have authorization to repurchase an additional 7,305,649 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 repurchases of shares will be determined by the Company's 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 to comply with the safe harbor provided by Rule 10b5-1. Capital Expenditures The following table shows Capital Expenditures in fiscal years 2021 and 2020: For the Fiscal Years Ended March 31, 2021 2020 (dollars in thousands) Land and Quarries $ 5,353 $ 9,940 Plants 38,768 98,948 Buildings, Machinery and Equipment 9,812 23,231 Total Capital Expenditures $ 53,933 $ 132,119 Capital expenditures for fiscal 2022 are expected to range from$80 million to$100 million and to be allocated across the 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.
Contractual and Other Obligations
We have certain Contractual Obligations arising from indebtedness, operating
leases, and purchase obligations. Future payments due, aggregated by type of
contractual obligation, are set forth as follows:
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Payments Due by Period
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
(dollars in thousands)Revolving Credit Facility (1) $ - $ - $
- $ - $ - Senior Unsecured Notes 350,000 - - - 350,000 Term Loan 665,000 - 665,000 - - Commitment Fees on Revolving Credit Facility (2) 2,610 1,119 1,491 - - Interest on Senior Unsecured Notes 84,000 15,750 31,500 31,500 5,250 Interest on Term Loan (3) 21,650 9,150 12,500 - - Operating Leases 50,769 7,556 12,976 9,821 20,416 Purchase Obligations (4) 84,601 61,140 23,461 - - Total$ 1,258,630 $ 94,715 $ 746,928 $ 41,321 $ 375,666
(1) The Revolving Credit Facility expires in
borrowings outstanding at
(2) The commitment fee is calculated at .15% of the total available borrowings
under the Revolving Credit Facility.
(3) Interest is estimated by using the rate at
no payments will be made until the Term Loan matures on
(4) Purchase obligations are non-cancelable agreements to purchase coal, natural
gas, slag, and synthetic gypsum; to pay royalty amounts; and to fund capital
expenditure commitments.
Based on our current actuarial estimates, we do not anticipate making contributions to our defined benefit plans for fiscal year 2022.
Dividends
Dividends paid in fiscal years 2021 and 2020 were$4.2 million and$17.1 million , respectively. After payment of the dividend inMay 2020 , the Company suspended future dividends. OnMay 19, 2021 , the Board of Directors announced the reinstatement of our quarterly dividend, and declared a$0.25 dividend to shareholders, to be paidJuly 2021 .
Inflation and Changing Prices
The Consumer Price Index rose approximately 1.4% in calendar 2020, 2.3% in 2019,
and 1.9% in 2018. Prices of materials and services, with the exception of energy
and transportation freight, have remained relatively stable over the three-year
period. During calendar 2020, the Consumer Price Index for electricity and
natural gas increased approximately 2.2% and 4.1%, respectively, while the
Consumer Price Index for transportation decreased approximately 3.5%. The
increase in energy prices did not have a material effect on our manufacturing
businesses for the fiscal year, but they had more of an impact on our fiscal
fourth quarter due to increases related to Winter Storm Uri. Freight costs were
relatively stable in fiscal 2021, but are expected to increase approximately 5%
in fiscal 2022. The ability to increase sales prices to cover future increases
varies with the level of activity in the construction industry: the number,
size, and strength of competitors; and the availability of products to supply a
local market.
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General Outlook
See "Market Conditions and Outlook" within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 37-38.
Recent Accounting Pronouncements
Refer to Footnote (A) to the Audited Consolidated Financial Statements for information regarding recently issued accounting pronouncements that may affect our financial statements.
Forward-Looking Statements Certain information included in this report or in other materials we have filed or will file with theSEC (including our periodic reports on Forms 10-K, 10-Q, and 8-K), as well as information included in oral statements or other written statements made or to be made by us (including press releases and presentations and statements made on our web site and in other material released to the public), contains or may 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 Litigation Reform Act of 1995. Forward-looking statements may be identified by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates, or other expectations regarding future events. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "may," "can," "could," "might," "will," and similar expressions identify forward-looking statements, including statements related to expected operating and performing results, planned transactions, plans, and objectives of management, future developments, or conditions in the industries in which we participate, including future prices for our products, audits, and legal proceedings to which we are a party, and other trends, developments, and uncertainties that may affect our business in the future. We specifically disclaim any duty to update any of the information set forth in this report, including any forward-looking statements. Forward-looking statements are made based on our current expectations and beliefs concerning future events and, therefore, involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees, and our actual results could differ materially from those expressed or implied in the forward-looking statements. See Item 1A. - Risk Factors for a more detailed discussion of specific risks and uncertainties that could cause future events to differ from our current expectations and beliefs.
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