Eagle Materials(EXP) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION (unaudited) This section presents the unaudited consolidated financial statements and management's discussion and analysis for Eagle Materials Inc Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements of Eagle Materials Inc. and its subsidiaries, including statements of earnings, comprehensive earnings, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Consolidated Statements of Earnings This section provides a summary of the company's financial performance, detailing revenues, gross profit, net earnings, and earnings per share for the specified periods Consolidated Statements of Earnings (Three Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :--------------------------------- | :--------------- | :--------------- | :--------- | | Revenue | $511,487 | $462,941 | 10.5% | | Gross Profit | $158,770 | $138,586 | 14.6% | | Net Earnings | $117,184 | $102,479 | 14.4% | | Basic EPS | $3.23 | $2.56 | 26.2% | | Diluted EPS | $3.20 | $2.53 | 26.5% | | Cash Dividends Per Share | $0.25 | $0.25 | 0.0% | Consolidated Statements of Earnings (Nine Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :--------------------------------- | :--------------- | :--------------- | :--------- | | Revenue | $1,677,942 | $1,448,405 | 15.8% | | Gross Profit | $503,875 | $420,438 | 19.9% | | Net Earnings | $361,184 | $299,931 | 20.4% | | Basic EPS | $9.72 | $7.30 | 33.2% | | Diluted EPS | $9.66 | $7.23 | 33.6% | | Cash Dividends Per Share | $0.75 | $0.50 | 50.0% | Consolidated Statements of Comprehensive Earnings This section presents the company's comprehensive earnings, including net earnings and other comprehensive income components for the specified periods Consolidated Statements of Comprehensive Earnings (Three Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :----------- | :--------------- | :--------------- | :--------- | | Net Earnings | $117,184 | $102,479 | 14.4% | | Comprehensive Earnings | $117,207 | $102,506 | 14.3% | Consolidated Statements of Comprehensive Earnings (Nine Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :----------- | :--------------- | :--------------- | :--------- | | Net Earnings | $361,184 | $299,931 | 20.4% | | Comprehensive Earnings | $361,254 | $300,012 | 20.4% | Consolidated Balance Sheets This section details the company's financial position, outlining assets, liabilities, and stockholders' equity at specific reporting dates Consolidated Balance Sheets (as of December 31, 2022, and March 31, 2022) | Asset/Liability/Equity | Dec 31, 2022 (thousands) | Mar 31, 2022 (thousands) | Change (%) | | :--------------------------------- | :----------------------- | :----------------------- | :--------- | | ASSETS | | | | | Cash and Cash Equivalents | $60,937 | $19,416 | 213.8% | | Accounts and Notes Receivable, net | $172,543 | $176,276 | -2.1% | | Inventories | $247,155 | $236,661 | 4.4% | | Total Current Assets | $491,278 | $442,727 | 11.0% | | Property, Plant, and Equipment, net | $1,641,638 | $1,616,539 | 1.5% | | Goodwill and Intangible Assets, net | $467,703 | $387,898 | 20.6% | | Total Assets | $2,730,170 | $2,579,652 | 5.8% | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | Accounts Payable | $106,571 | $113,679 | -6.3% | | Accrued Liabilities | $83,759 | $86,754 | -3.4% | | Total Current Liabilities | $208,300 | $207,551 | 0.4% | | Long-term Debt | $1,054,215 | $938,265 | 12.4% | | Total Liabilities | $1,564,656 | $1,446,096 | 8.2% | | Total Stockholders' Equity | $1,165,514 | $1,133,556 | 2.8% | | Total Liabilities and Stockholders' Equity | $2,730,170 | $2,579,652 | 5.8% | Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities for the specified periods Consolidated Statements of Cash Flows (Nine Months Ended December 31) | Cash Flow Activity | 2022 (thousands) | 2021 (thousands) | Change (thousands) | | :--------------------------------- | :--------------- | :--------------- | :----------------- | | Net Cash Provided by Operating Activities | $480,111 | $428,878 | $51,233 | | Net Cash Used in Investing Activities | $(219,402) | $(55,188) | $(164,214) | | Net Cash Used in Financing Activities | $(219,188) | $(624,818) | $405,630 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $41,521 | $(251,128) | $292,649 | | Cash and Cash Equivalents at End of Period | $60,937 | $17,392 | $43,545 | Consolidated Statements of Stockholders' Equity This section outlines changes in the company's stockholders' equity, including net earnings, dividends, and share repurchases - Total Stockholders' Equity increased from $1,133,556 thousand at March 31, 2022, to $1,165,514 thousand at December 31, 2022. This increase was primarily driven by Net Earnings of $361,184 thousand for the nine months ended December 31, 2022, partially offset by $28,421 thousand in dividends paid and $313,898 thousand in common stock repurchases[12][13][14][15] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements, covering accounting policies and specific financial line items (A) BASIS OF PRESENTATION This note describes the accounting principles and rules followed in preparing the interim consolidated financial statements - The accompanying Unaudited Consolidated Financial Statements are prepared by the Company in accordance with SEC rules and regulations, condensing or omitting certain disclosures normally included in GAAP financial statements[16][17] - All adjustments are normal recurring adjustments, and interim results are not indicative of full-year results[17] - No recent accounting pronouncements are expected to materially affect the Company[19] (B) SUPPLEMENTAL CASH FLOW INFORMATION This note provides additional details on non-cash investing and financing activities and other cash flow related disclosures Supplemental Cash Flow Information (Nine Months Ended December 31) | Cash Payments | 2022 (thousands) | 2021 (thousands) | Change (thousands) | | :-------------- | :--------------- | :--------------- | :----------------- | | Interest | $26,526 | $11,143 | $15,383 | | Income Taxes | $94,793 | $70,502 | $24,291 | | Operating Leases | $6,360 | $6,082 | $278 | (C) ACQUISITIONS This note details the company's recent business acquisitions, including purchase prices, funding sources, and their financial contributions - On April 22, 2022, Eagle Materials Inc. completed the ConAgg Acquisition, purchasing a readymix concrete and aggregates business for approximately $120.2 million, funded through its revolving credit facility[22] - This acquisition contributed $34.7 million in Revenue and $1.3 million in Operating Earnings for the nine months ended December 31, 2022[25] - On September 16, 2022, the company acquired a cement distribution terminal in Nashville, Tennessee (Terminal Acquisition) for approximately $39.5 million, also funded by the revolving credit facility[26] - The purchase price allocation for the Terminal Acquisition is preliminary[28] (D) REVENUE This note describes the company's revenue recognition policies and primary sources of revenue from product sales - Revenue is primarily generated from the sale of cement, concrete, aggregates, gypsum wallboard, and recycled paperboard[29] - Revenue recognition generally occurs upon shipment or transfer of control to customers, with adjustments for rebates and incentives using the most likely amount method[30][31] - Freight and delivery charges billed to customers are recorded as revenue, while costs incurred are included in Cost of Goods Sold[32] (E) ACCOUNTS AND NOTES RECEIVABLE This note provides information on the composition of accounts and notes receivable, including the allowance for doubtful accounts - Accounts Receivable are presented net of an allowance for doubtful accounts, which was $6.9 million at December 31, 2022, and $6.7 million at March 31, 2022[35] - The allowance is based on economic trends and expected collectability[35] - Notes Receivable totaled approximately $8.6 million at December 31, 2022, bearing interest at LIBOR plus 3% (approx. 6.8%)[36] (F) INVENTORIES This note details the valuation methods and composition of the company's inventory, including raw materials and finished goods - Inventories are valued at the lower of average cost or net realizable value, including material, labor, depreciation, and plant overhead[37] - Raw Materials and Materials-in-Progress include clinker[37] - Quantities are estimated based on measured volumes and standard density factors[37] Inventory Composition (thousands) | Inventory Type | Dec 31, 2022 | Mar 31, 2022 | | :-------------------------- | :----------- | :----------- | | Raw Materials and Materials-in-Progress | $72,114 | $81,308 | | Finished Cement | $35,617 | $38,769 | | Aggregates | $7,329 | $3,558 | | Gypsum Wallboard | $6,778 | $3,452 | | Paperboard | $8,091 | $7,462 | | Repair Parts and Supplies | $106,426 | $91,593 | | Fuel and Coal | $10,800 | $10,519 | | Total Inventories | $247,155 | $236,661 | (G) ACCRUED EXPENSES This note provides a breakdown of various accrued liabilities, such as payroll, benefits, and taxes, at specific reporting dates Accrued Expenses (thousands) | Accrued Expense Type | Dec 31, 2022 | Mar 31, 2022 | | :-------------------------- | :----------- | :----------- | | Payroll and Incentive Compensation | $34,760 | $37,262 | | Benefits | $16,466 | $14,894 | | Dividends | $9,288 | $9,756 | | Interest | $2,201 | $5,052 | | Property Taxes | $6,315 | $6,514 | | Power and Fuel | $4,269 | $2,877 | | Freight | $1,882 | $1,172 | | Legal and Professional | $1,637 | $989 | | Sales and Use Tax | $1,362 | $1,509 | | Other | $5,579 | $6,729 | | Total Accrued Expenses | $83,759 | $86,754 | (H) LEASES This note outlines the company's leasing arrangements, including lease terms, expenses, and related right-of-use assets and liabilities - The Company leases real estate, buildings, and equipment, with lease terms ranging from one to 20 years for extensions[39] - Lease expense for operating and short-term leases totaled $2.1 million for the three months and $5.8 million for the nine months ended December 31, 2022[40] - Operating Lease Right-of-Use Assets were $20.7 million and Total Operating Lease Liabilities were $31.4 million as of December 31, 2022[40] (I) SHARE-BASED EMPLOYEE COMPENSATION This note describes the company's share-based compensation plans, including stock options and restricted stock, and their associated expenses - The Company grants performance-vesting and time-vesting stock options and restricted stock to officers, key employees, and Board members under the Amended and Restated Incentive Plan[41][42] - Stock option expense was $0.8 million for the three months and $2.7 million for the nine months ended December 31, 2022[45] - Restricted stock expense was $3.3 million for the three months and $11.0 million for the nine months ended December 31, 2022[48][51] Stock Option Activity (Nine Months Ended December 31, 2022) | Metric | Number of Shares | Weighted Average Exercise Price | | :-------------------------- | :--------------- | :------------------------------ | | Outstanding Options at March 31, 2022 | 456,849 | $83.81 | | Granted | 56,621 | $125.90 | | Exercised | (19,241) | $67.74 | | Cancelled | (3,178) | $109.15 | | Outstanding Options at December 31, 2022 | 491,051 | $89.13 | | Options Exercisable at December 31, 2022 | 299,948 | | | Weighted-Average Fair Value of Options Granted During the Year | | $48.36 | Nonvested Restricted Stock Activity (Nine Months Ended December 31, 2022) | Metric | Number of Shares | Weighted-Average Grant Date Fair Value | | :-------------------------- | :--------------- | :------------------------------------- | | Nonvested Restricted Stock at March 31, 2022 | 258,779 | $85.34 | | Granted | 111,230 | $126.23 | | Vested | (55,467) | $108.98 | | Forfeited | (3,247) | $124.82 | | Nonvested Restricted Stock at December 31, 2022 | 311,295 | $98.31 | (J) COMPUTATION OF EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share, including weighted-average shares outstanding Weighted-Average Shares Outstanding (Three Months Ended December 31) | Metric | 2022 | 2021 | | :--------------------------------- | :--------- | :--------- | | Weighted-Average Shares of Common Stock Outstanding | 36,336,056 | 40,049,456 | | Weighted-Average Common Stock and Dilutive Securities Outstanding | 36,605,982 | 40,458,049 | | Shares Excluded Due to Anti-dilution Effects | 66,802 | 7,528 | Weighted-Average Shares Outstanding (Nine Months Ended December 31) | Metric | 2022 | 2021 | | :--------------------------------- | :--------- | :--------- | | Weighted-Average Shares of Common Stock Outstanding | 37,149,927 | 41,096,702 | | Weighted-Average Common Stock and Dilutive Securities Outstanding | 37,395,586 | 41,493,339 | | Shares Excluded Due to Anti-dilution Effects | 48,736 | 4,298 | (K) PENSION AND EMPLOYEE BENEFIT PLANS This note provides information on the company's defined benefit and defined contribution pension plans and their funding status - The Company sponsors single-employer defined benefit and defined contribution plans covering substantially all employees[54] - Defined benefit plans have been frozen to new participants and benefits, with the last plan frozen in fiscal 2020[54] - All defined benefit plans are fully funded, with plan assets exceeding benefit obligations as of March 31, 2022, resulting in expected pension expense of less than $0.1 million for fiscal 2023[54] (L) INCOME TAXES This note explains the company's effective income tax rate and the factors contributing to its deviation from the statutory rate - The effective tax rate for the nine months ended December 31, 2022, was approximately 22%, consistent with the prior-year period[56] - This rate was slightly higher than the U.S. Statutory rate of 21% primarily due to state income taxes, partially offset by a recognized benefit related to percentage depletion[56] (M) LONG-TERM DEBT This note details the company's long-term debt instruments, including revolving credit facilities, term loans, and senior unsecured notes Long-term Debt (thousands) | Debt Type | Dec 31, 2022 | Mar 31, 2022 | | :-------------------------- | :----------- | :----------- | | Revolving Credit Facility | $130,000 | $200,000 | | 2.500% Senior Unsecured Notes Due 2031 | $750,000 | $750,000 | | Term Loan | $195,000 | — | | Total Debt | $1,075,000 | $950,000 | | Less: Current Portion of Long-term Debt | $(10,000) | — | | Less: Unamortized Discounts and Debt Issuance Costs | $(10,785) | $(11,735) | | Long-term Debt | $1,054,215 | $938,265 | - The Company has an unsecured $750.0 million revolving credit facility, amended on May 5, 2022, which includes a $200.0 million term loan facility and expires on May 5, 2027[58][59] - As of December 31, 2022, $130.0 million was outstanding under the Revolving Credit Facility, with $613.6 million available for future borrowings[63] - The Company was in compliance with all financial covenants[63] - On July 1, 2021, the Company issued $750.0 million of 2.500% Senior Unsecured Notes due July 2031[65] - In July 2021, the Company repaid its $665.0 million term loan credit agreement and redeemed $350.0 million of 4.500% Senior Unsecured Notes due August 2026, incurring an early termination premium of approximately $8.4 million and expensing $6.1 million in debt issuance costs[66] (N) SEGMENT INFORMATION This note provides financial data by operating segment, including revenue, operating earnings, and goodwill for Heavy Materials and Light Materials - The Company operates in two sectors: Heavy Materials (Cement, Concrete and Aggregates) and Light Materials (Gypsum Wallboard, Recycled Paperboard)[68][69] - Products are commodities essential for construction, with demand being cyclical and seasonal[70][71] - Operations are primarily in the U.S., excluding the Northeast, providing regional economic diversification[72] Segment Revenue (thousands) | Segment | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cement | $256,313 | $261,155 | $860,289 | $819,734 | | Concrete and Aggregates | $55,176 | $42,384 | $186,407 | $139,888 | | Gypsum Wallboard | $212,016 | $163,584 | $652,981 | $502,836 | | Paperboard | $47,774 | $49,763 | $155,520 | $140,828 | | Less: Intersegment Revenue | $(32,172) | $(26,539) | $(98,190) | $(77,858) | | Less: Joint Venture Revenue | $(27,620) | $(27,406) | $(79,065) | $(77,023) | | Total Revenue | $511,487 | $462,941 | $1,677,942 | $1,448,405 | Segment Operating Earnings (thousands) | Segment | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cement | $72,315 | $79,836 | $233,442 | $231,133 | | Concrete and Aggregates | $2,692 | $4,115 | $15,700 | $16,998 | | Gypsum Wallboard | $87,335 | $60,841 | $261,164 | $190,425 | | Paperboard | $7,805 | $2,349 | $17,200 | $6,667 | | Sub-Total | $170,147 | $147,141 | $527,506 | $445,223 | Goodwill by Segment (thousands) | Segment | Dec 31, 2022 | Mar 31, 2022 | | :-------------------- | :----------- | :----------- | | Cement | $215,781 | $203,342 | | Concrete and Aggregates | $40,774 | $1,639 | | Gypsum Wallboard | $116,618 | $116,618 | | Paperboard | $7,538 | $7,538 | | Total Goodwill | $380,711 | $329,137 | (O) INTEREST EXPENSE This note details the components of net interest expense and explains the factors influencing its changes over periods Interest Expense, net (thousands) | Component | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest Income | $(163) | $0 | $(245) | $(38) | | Interest Expense | $8,621 | $4,959 | $23,676 | $16,511 | | Other Expenses | $474 | $692 | $1,411 | $8,418 | | Interest Expense, net | $8,932 | $5,651 | $24,842 | $24,891 | - Interest Expense, net increased by $3.2 million (58%) for the three months ended December 31, 2022, primarily due to higher interest rates and average outstanding balance under the Revolving Credit Facility[80] - For the nine months, Interest Expense, net was relatively flat, with increased Revolving Credit Facility interest offset by prior year loan amortization and debt issuance costs[80] (P) COMMITMENTS AND CONTINGENCIES This note outlines the company's various financial commitments, contingent liabilities, and legal proceedings - The Company has deductible limits under insurance policies and standby letter of credit agreements totaling approximately $6.4 million at December 31, 2022[82] - It is also contingently liable for $26.9 million in performance bonds[83] - Management believes these indemnifications and legal proceedings will not have a material adverse effect on its financial position, results of operations, or cash flows[84] (Q) FAIR VALUE OF FINANCIAL INSTRUMENTS This note provides information on the fair value measurements of the company's financial instruments, including debt and short-term assets - The fair value of the 2.500% Senior Unsecured Notes Due 2031 was estimated at $588.3 million as of December 31, 2022, based on quoted prices of similar publicly traded debt instruments[85] - The carrying values of short-term assets and liabilities, as well as the Revolving Credit Facility and Term Loan, approximate their fair values due to short-term maturities[85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, including an executive summary, market outlook, detailed analysis of consolidated and segment-level performance, critical accounting policies, and a discussion of liquidity and capital resources EXECUTIVE SUMMARY This section provides an overview of Eagle Materials Inc.'s business, its market position, and key strategic acquisitions - Eagle Materials Inc. is a leading manufacturer of heavy (Cement, Concrete and Aggregates) and light (Gypsum Wallboard, Recycled Paperboard) construction materials in the U.S[86][87] - Demand is cyclical and seasonal, with regional economic diversification[87] - The Company completed the ConAgg Acquisition ($120.2 million) in April 2022 and the Terminal Acquisition ($39.5 million) in September 2022[90][91] MARKET CONDITIONS AND OUTLOOK This section discusses current market trends and future expectations for demand and costs across the company's product segments Demand Outlook This section assesses expected demand for cement, gypsum wallboard, and recycled paperboard, considering economic factors and infrastructure spending - Cement demand is expected to remain strong due to recovery in private non-residential construction, increased federal funding from the Infrastructure Investment and Jobs Act, and high state budget allocations[94] - However, the Company's ability to achieve further Cement sales volume growth is limited by high utilization levels[94] - Gypsum Wallboard and Recycled Paperboard demand is supported by home construction backlogs, but tighter U.S. fiscal policy and higher mortgage rates may adversely impact residential construction[95] Cost Outlook This section forecasts trends in key operating costs, including energy, freight, and raw materials, and the company's mitigation strategies - The Company is well-positioned to manage its cost structure due to substantial raw material reserves and proximity to manufacturing facilities[96] - Energy and freight costs increased in fiscal 2022 and the first nine months of fiscal 2023[97] - While natural gas costs have declined and freight stabilized, solid fuel and electricity costs are expected to increase in fiscal 2024[98] - OCC prices have recently declined, and gypsum liner contracts include price adjustments that will partially compensate for fiber price changes in future quarters[98] RESULTS OF OPERATIONS This section analyzes the company's consolidated financial performance, detailing revenue, gross profit, and net earnings for the reporting periods THREE MONTHS ENDED DECEMBER 31, 2022, COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 2021 This section compares the company's consolidated financial results for the three-month periods, highlighting key changes in revenue, profit, and expenses Consolidated Financial Performance (Three Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :--------------------------------- | :--------------- | :--------------- | :--------- | | Revenue | $511,487 | $462,941 | 10% | | Cost of Goods Sold | $(352,717) | $(324,355) | 9% | | Gross Profit | $158,770 | $138,586 | 15% | | Equity in Earnings of Unconsolidated Joint Venture | $11,377 | $8,555 | 33% | | Corporate General and Administrative Expense | $(12,497) | $(12,851) | (3)% | | Other Nonoperating Income | $2,210 | $3,207 | (31)% | | Interest Expense, net | $(8,932) | $(5,651) | 58% | | Earnings Before Income Taxes | $150,928 | $131,846 | 14% | | Income Tax Expense | $(33,744) | $(29,367) | 15% | | Net Earnings | $117,184 | $102,479 | 14% | | Diluted Earnings per Share | $3.20 | $2.53 | 26% | - Revenue increased by $48.6 million (10%), with $9.8 million from the ConAgg Acquisition and the remainder from higher gross sales prices, partially offset by lower sales volume[101] - Gross Profit increased 15% to $158.8 million, with gross margin rising to 31%[103] - Equity in Earnings of Unconsolidated Joint Venture increased 33% due to higher gross sales prices, despite lower sales volume and higher operating costs[104] - Interest Expense, net, rose 58% to $8.9 million, primarily due to higher interest rates and average outstanding balance under the Revolving Credit Facility[107] - Net Earnings increased 14% to $117.2 million[110] NINE MONTHS ENDED DECEMBER 31, 2022, COMPARED WITH NINE MONTHS ENDED DECEMBER 31, 2021 This section compares the company's consolidated financial results for the nine-month periods, detailing changes in revenue, profit, and expenses Consolidated Financial Performance (Nine Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :--------------------------------- | :--------------- | :--------------- | :--------- | | Revenue | $1,677,942 | $1,448,405 | 16% | | Cost of Goods Sold | $(1,174,067) | $(1,027,967) | 14% | | Gross Profit | $503,875 | $420,438 | 20% | | Equity in Earnings of Unconsolidated Joint Venture | $23,631 | $24,785 | (5)% | | Corporate General and Administrative Expense | $(37,944) | $(32,986) | 15% | | Loss on Early Retirement of Senior Notes | $0 | $(8,407) | (100)% | | Other Nonoperating Income | $911 | $5,941 | (85)% | | Interest Expense, net | $(24,842) | $(24,891) | (0)% | | Earnings Before Income Taxes | $465,631 | $384,880 | 21% | | Income Tax Expense | $(104,447) | $(84,949) | 23% | | Net Earnings | $361,184 | $299,931 | 20% | | Diluted Earnings per Share | $9.66 | $7.23 | 34% | - Revenue increased by $229.5 million (16%), with $34.7 million from the ConAgg Acquisition and the remainder primarily from higher gross sales prices[113] - Gross Profit increased 20% to $503.9 million, with gross margin rising to 30%[115] - Equity in Earnings of Unconsolidated Joint Venture declined 5% due to lower sales volume and increased operating costs, partially offset by higher gross sales prices[116] - Corporate General and Administrative Expense increased 15% due to higher incentive compensation, IT upgrades, and legal/professional expenses[118] - Net Earnings increased 20% to $361.2 million[124] THREE AND NINE MONTHS ENDED DECEMBER 31, 2022 vs. THREE AND NINE MONTHS ENDED DECEMBER 31, 2021 BY SEGMENT This section provides a detailed segment-level analysis of financial performance for both Heavy Materials and Light Materials over the three and nine-month periods Heavy Materials This section analyzes the performance of the Cement, Concrete, and Aggregates segments, including revenue, sales volume, and operating earnings CEMENT This section details the Cement segment's revenue, sales volume, average net sales price, and operating earnings performance Cement Segment Performance (Three Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | | Gross Revenue | $256,313 | $261,155 | (2)% | | Sales Volume (M Tons) | 1,699 | 1,963 | (13)% | | Average Net Sales Price, per ton | $134.42 | $118.44 | 13% | | Operating Earnings | $72,315 | $79,836 | (9)% | Cement Segment Performance (Nine Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | | Gross Revenue | $860,289 | $819,734 | 5% | | Sales Volume (M Tons) | 5,837 | 6,197 | (6)% | | Average Net Sales Price, per ton | $131.44 | $117.49 | 12% | | Operating Earnings | $233,442 | $231,133 | 1% | - For the three months, Cement Revenue decreased 2% due to lower sales volume (-$32.0 million), partially offset by higher gross sales prices (+$27.1 million)[129] - Operating Earnings declined 9% due to lower sales volume and higher operating costs (energy, maintenance), partially offset by higher prices[130] - For the nine months, Revenue increased 5% due to higher gross sales prices (+$78.8 million), partially offset by lower sales volume (-$38.2 million)[131] - Operating Earnings increased 1% due to higher prices, offset by lower sales volume and higher operating costs[132] CONCRETE AND AGGREGATES This section details the Concrete and Aggregates segment's revenue, sales volume, average net sales price, and operating earnings performance Concrete and Aggregates Segment Performance (Three Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | | Gross Revenue | $55,176 | $42,384 | 30% | | M Cubic Yards of Concrete Sales Volume | 353 | 317 | 11% | | M Tons of Aggregate Sales Volume | 626 | 341 | 84% | | Average Net Sales Price (Concrete - Per Cubic Yard) | $134.42 | $122.36 | 10% | | Average Net Sales Price (Aggregates - Per Ton) | $11.70 | $10.38 | 13% | | Operating Earnings | $2,692 | $4,115 | (35)% | Concrete and Aggregates Segment Performance (Nine Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | | Gross Revenue | $186,407 | $139,888 | 33% | | M Cubic Yards of Concrete Sales Volume | 1,210 | 1,063 | 14% | | M Tons of Aggregate Sales Volume | 2,333 | 1,183 | 97% | | Average Net Sales Price (Concrete - Per Cubic Yard) | $132.46 | $120.17 | 10% | | Average Net Sales Price (Aggregates - Per Ton) | $11.21 | $10.25 | 9% | | Operating Earnings | $15,700 | $16,998 | (8)% | - For the three months, Revenue increased 30% to $55.2 million, with the ConAgg Acquisition contributing $9.8 million[135] - Excluding the acquisition, revenue increased 7% due to higher gross sales prices[135] - Operating Earnings decreased 35% to $2.7 million, impacted by increased operating costs (materials, maintenance, delivery) and lower sales volume[136] - For the nine months, Revenue increased 33% to $186.4 million, with ConAgg contributing $34.7 million[137] - Operating Earnings decreased 8% to $15.7 million, primarily due to increased operating costs[138] Light Materials This section analyzes the performance of the Gypsum Wallboard and Recycled Paperboard segments, including revenue, sales volume, and operating earnings GYPSUM WALLBOARD This section details the Gypsum Wallboard segment's revenue, sales volume, average net sales price, and operating earnings performance Gypsum Wallboard Segment Performance (Three Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | | Gross Revenue | $212,016 | $163,584 | 30% | | Sales Volume (MMSF) | 728 | 695 | 5% | | Average Net Sales Price, per MSF | $238.51 | $191.41 | 25% | | Operating Earnings | $87,335 | $60,841 | 44% | Gypsum Wallboard Segment Performance (Nine Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | | Gross Revenue | $652,981 | $502,836 | 30% | | Sales Volume (MMSF) | 2,309 | 2,194 | 5% | | Average Net Sales Price, per MSF | $230.01 | $186.16 | 24% | | Operating Earnings | $261,164 | $190,425 | 37% | - For the three months, Gypsum Wallboard Revenue increased 30% to $212.0 million, driven by higher gross sales prices (+$40.7 million) and sales volume (+$7.7 million)[141] - Operating Earnings increased 44% to $87.3 million, primarily due to higher prices and volume, partially offset by increased operating costs (freight, energy, raw materials)[142] - For the nine months, Revenue increased 30% to $653.0 million, and Operating Earnings increased 37% to $261.2 million, with similar drivers[143][144] RECYCLED PAPERBOARD This section details the Recycled Paperboard segment's revenue, sales volume, average net sales price, and operating earnings performance Recycled Paperboard Segment Performance (Three Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | | Gross Revenue | $47,774 | $49,763 | (4)% | | Sales Volume (M Tons) | 77 | 81 | (5)% | | Average Net Sales Price, per ton | $594.93 | $585.54 | 2% | | Operating Earnings | $7,805 | $2,349 | 232% | Recycled Paperboard Segment Performance (Nine Months Ended December 31) | Metric | 2022 (thousands) | 2021 (thousands) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | | Gross Revenue | $155,520 | $140,828 | 10% | | Sales Volume (M Tons) | 246 | 252 | (2)% | | Average Net Sales Price, per ton | $603.73 | $535.55 | 13% | | Operating Earnings | $17,200 | $6,667 | 158% | - For the three months, Recycled Paperboard Revenue decreased 4% to $47.8 million due to lower sales volume, partially offset by higher gross sales prices[147] - Operating Earnings increased 232% to $7.8 million, driven by higher prices and significantly lower fiber costs, despite increased other input costs[148] - For the nine months, Revenue increased 10% to $155.5 million, and Operating Earnings increased 158% to $17.2 million, with similar drivers[149][150] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section discusses the significant judgments and estimates involved in the company's financial reporting, particularly for long-lived assets, goodwill, and business combinations - The preparation of financial statements requires significant judgments and estimates[152] - Critical accounting policies, material to the financial statements, include those related to long-lived assets, goodwill, and business combinations[153] - Management reviews these policies and estimates with the Audit Committee and independent registered public accounting firm[153] LIQUIDITY AND CAPITAL RESOURCES This section evaluates the company's ability to generate and manage cash, covering cash flow, debt, dividends, share repurchases, and capital expenditures - The Company believes it has sufficient financial resources from liquidity sources to fund operations, contractual obligations, capital expenditures, and debt service for at least the next twelve months[155] - It monitors potential economic disruptions and market conditions[168] Cash Flow This section analyzes the company's cash flows from operating, investing, and financing activities, and changes in working capital Summary of Cash Flows (Nine Months Ended December 31) | Cash Flow Activity | 2022 (thousands) | 2021 (thousands) | | :--------------------------------- | :--------------- | :--------------- | | Net Cash Provided by Operating Activities | $480,111 | $428,878 | | Net Cash Used in Investing Activities | $(219,402) | $(55,188) | | Net Cash Used in Financing Activities | $(219,188) | $(624,818) | | Net Increase (Decrease) in Cash and Cash Equivalents | $41,521 | $(251,128) | - Net Cash Provided by Operating Activities increased by $51.2 million to $480.1 million for the nine months ended December 31, 2022, primarily due to higher Net Earnings[156] - Net Cash Used in Investing Activities increased by $164.2 million to $219.4 million, mainly due to $158.5 million in acquisition spending[161] - Net Cash Used in Financing Activities decreased by $405.6 million to $219.2 million, driven by higher net borrowings and lower debt termination/share repurchase costs[162] - Working capital increased by $47.9 million to $283.0 million at December 31, 2022, primarily due to higher cash and inventories[157] - Inventory increased by $10.5 million, with repair parts and gypsum wallboard increasing, while raw materials and finished cement decreased consistent with the business cycle[160] Debt Financing Activities This section details the company's outstanding debt facilities, borrowing capacity, and compliance with financial covenants - The Company's outstanding debt facilities at December 31, 2022, include a Revolving Credit Facility (maturity May 2027), a Term Loan (maturity May 2027), and 2.500% Senior Unsecured Notes (maturity July 2031)[164] - The Revolving Credit Facility has a $750.0 million borrowing capacity, with $613.6 million available at December 31, 2022[165] - The Company has no off-balance sheet debt or outstanding debt guarantees[165] Dividends This section provides information on dividends paid and the company's dividend policy - Dividends paid were $28.4 million for the nine months ended December 31, 2022, compared to $20.5 million in the prior year[171] - The Company reinstated its quarterly dividend on May 19, 2021, with the Board of Directors reviewing the payment amount quarterly[171] Share Repurchases This section outlines the company's share repurchase programs, including authorized amounts and shares purchased Share Repurchase Activity (Year-to-Date Totals as of December 31, 2022) | Metric | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------- | :------------------------------- | :--------------------------- | | Year-to-Date Totals | 2,547,788 | $123.20 | | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | 8,275,204 | | - The Board of Directors authorized an additional 7.5 million shares for repurchase on May 17, 2022, bringing the cumulative total authorized to 55.9 million shares since April 1994[172] - As of December 31, 2022, approximately 47.6 million shares have been repurchased[172] - The 1% excise tax on stock repurchases, effective January 1, 2023, is not expected to materially affect the business[174] Capital Expenditures This section details the company's investments in property, plant, and equipment, and projected capital spending Capital Expenditures by Category (Nine Months Ended December 31) | Category | 2022 (thousands) | 2021 (thousands) | | :-------------------------- | :--------------- | :--------------- | | Land and Quarries | $11,178 | $5,306 | | Plants | $33,650 | $30,026 | | Buildings, Machinery, and Equipment | $16,123 | $10,209 | | Total Capital Expenditures | $60,951 | $45,541 | - Total capital expenditures for the nine months ended December 31, 2022, were $60.9 million, an increase from $45.5 million in the prior year[176] - Fiscal 2023 capital expenditures are projected to range from $90.0 million to $100.0 million, allocated across both Heavy Materials and Light Materials sectors for maintenance, improvements, safety, and regulatory projects[176] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the Company's exposure to market risks, primarily related to fluctuations in interest rates on its variable-rate debt and commodity price changes for key inputs like coal, natural gas, and power - The Company is exposed to market risks from interest rate fluctuations on its Revolving Credit Facility and Term Loan[180] - A hypothetical 100 basis point increase in interest rates on the $325.0 million combined borrowings at December 31, 2022, would increase annual interest expense by approximately $3.5 million[180] - The Company also faces commodity risk from price changes in coal, coke, natural gas, and power, which it attempts to mitigate through contracts or alternative fuels[181] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures, as evaluated by management, including the CEO and CFO, at the end of the reporting period - The Company's disclosure controls and procedures, designed to ensure timely and accurate reporting of information required by the Exchange Act, were evaluated by management, including the CEO and CFO, and concluded to be effective as of December 31, 2022[182] PART II. OTHER INFORMATION This section provides additional disclosures on legal proceedings, risk factors, equity sales, mine safety, and exhibits Item 1. Legal Proceedings This section addresses the Company's involvement in legal proceedings and management's assessment of their potential impact on the financial condition - The Company is involved in various legal proceedings in the ordinary course of business, including claims related to worker safety, environmental matters, and commercial contracts[184] - Management believes that the ultimate outcome of any currently pending legal proceeding will not have a material adverse effect on the Company's consolidated financial condition, results of operations, or liquidity[184] Item 1A. Risk Factors This section refers readers to the Company's latest annual report for a comprehensive discussion of factors that could impact its financial results - For information regarding factors that could impact the Company's results of operations, financial condition, and liquidity, readers are referred to Part 1, Item 1A. Risk Factors in the Annual Report on Form 10-K for the fiscal year ended March 31, 2022[186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that the required disclosure regarding unregistered sales of equity securities and use of proceeds is incorporated by reference from another part of the report - The disclosure required under this Item is included in the 'Share Repurchases' heading within 'Management's Discussion and Analysis of Results of Operations and Financial Condition' of this Quarterly Report on Form 10-Q and is incorporated by reference[187] Item 4. Mine Safety Information This section states that information concerning mine safety violations and regulatory matters is provided in an exhibit - Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-Q[188] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate bylaws, certifications, mine safety disclosures, and XBRL-related documents - The exhibits filed with this Form 10-Q include the Company's Second Amended and Restated Bylaws, certifications from the CEO and CFO (pursuant to Rules 13a-14, 15d-14, and 18 U.S.C. Section 1350), Mine Safety Disclosure, and various Inline XBRL documents[189][190] SIGNATURES This section contains the official signatures of the Company's principal executive, financial, and accounting officers, certifying the report - The report is duly signed on January 26, 2023, by Michael R. Haack (President and Chief Executive Officer), D. Craig Kesler (Executive Vice President – Finance and Administration and Chief Financial Officer), and William R. Devlin (Senior Vice President – Controller and Chief Accounting Officer)[193]