Eagle Materials Inc. and Subsidiaries
Consolidated Statements of Earnings
(dollars in thousands, except share data)
(unaudited)
|
|
For the Three Months
Ended September 30,
|
|
|
For the Six Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
332,658
|
|
|
$
|
328,988
|
|
|
$
|
630,162
|
|
|
$
|
613,951
|
|
Cost of Goods Sold
|
|
|
241,448
|
|
|
|
284,694
|
|
|
|
466,997
|
|
|
|
508,560
|
|
Gross Profit
|
|
|
91,210
|
|
|
|
44,294
|
|
|
|
163,165
|
|
|
|
105,391
|
|
Equity in Earnings of Unconsolidated Joint Venture
|
|
|
12,147
|
|
|
|
11,680
|
|
|
|
20,127
|
|
|
|
19,510
|
|
Corporate General and Administrative
|
|
|
(8,832
|
)
|
|
|
(9,364
|
)
|
|
|
(18,665
|
)
|
|
|
(18,355
|
)
|
Other Income
|
|
|
504
|
|
|
|
572
|
|
|
|
1,579
|
|
|
|
1,007
|
|
Interest Expense, Net
|
|
|
(5,656
|
)
|
|
|
(4,342
|
)
|
|
|
(9,557
|
)
|
|
|
(8,828
|
)
|
Earnings Before Income Taxes
|
|
|
89,373
|
|
|
|
42,840
|
|
|
|
156,649
|
|
|
|
98,725
|
|
Income Tax Expense
|
|
|
(29,136
|
)
|
|
|
(13,021
|
)
|
|
|
(51,068
|
)
|
|
|
(31,144
|
)
|
Net Earnings
|
|
$
|
60,237
|
|
|
$
|
29,819
|
|
|
$
|
105,581
|
|
|
$
|
67,581
|
|
EARNINGS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.26
|
|
|
$
|
0.60
|
|
|
$
|
2.20
|
|
|
$
|
1.36
|
|
Diluted
|
|
$
|
1.25
|
|
|
$
|
0.59
|
|
|
$
|
2.18
|
|
|
$
|
1.34
|
|
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
47,809,476
|
|
|
|
49,828,189
|
|
|
|
47,911,276
|
|
|
|
49,797,972
|
|
Diluted
|
|
|
48,229,485
|
|
|
|
50,470,151
|
|
|
|
48,375,116
|
|
|
|
50,460,947
|
|
CASH DIVIDENDS PER SHARE:
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
See notes to unaudited consolidated financial statements.
1
Eagle Materials Inc. and Subsidiaries
Consolidated Statements of Comprehensive Earnings
(unaudited – dollars in thousands)
|
|
For the Three Months
Ended September 30,
|
|
|
For the Six Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net Earnings
|
|
$
|
60,237
|
|
|
$
|
29,819
|
|
|
$
|
105,581
|
|
|
$
|
67,581
|
|
Change in Funded Status of Defined Benefit Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Net Actuarial Loss
|
|
|
500
|
|
|
|
508
|
|
|
|
1,000
|
|
|
|
1,016
|
|
Tax Expense
|
|
|
(188
|
)
|
|
|
(188
|
)
|
|
|
(376
|
)
|
|
|
(376
|
)
|
Comprehensive Earnings
|
|
$
|
60,549
|
|
|
$
|
30,139
|
|
|
$
|
106,205
|
|
|
$
|
68,221
|
|
See notes to unaudited consolidated financial statements.
2
Eagle Materials Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets -
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
54,506
|
|
|
$
|
5,391
|
|
Accounts and Notes Receivable
|
|
|
155,241
|
|
|
|
120,221
|
|
Inventories
|
|
|
217,582
|
|
|
|
243,595
|
|
Income Tax Receivable
|
|
|
1,046
|
|
|
|
5,623
|
|
Prepaid and Other Assets
|
|
|
6,761
|
|
|
|
5,173
|
|
Total Current Assets
|
|
|
435,136
|
|
|
|
380,003
|
|
Property, Plant and Equipment -
|
|
|
2,089,499
|
|
|
|
2,072,776
|
|
Less: Accumulated Depreciation
|
|
|
(855,148
|
)
|
|
|
(817,465
|
)
|
Property, Plant and Equipment, net
|
|
|
1,234,351
|
|
|
|
1,255,311
|
|
Notes Receivable
|
|
|
1,158
|
|
|
|
2,672
|
|
Investment in Joint Venture
|
|
|
47,852
|
|
|
|
49,465
|
|
Goodwill and Intangible Assets
|
|
|
162,506
|
|
|
|
165,827
|
|
Other Assets
|
|
|
27,132
|
|
|
|
30,357
|
|
|
|
$
|
1,908,135
|
|
|
$
|
1,883,635
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities -
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
62,481
|
|
|
$
|
66,614
|
|
Accrued Liabilities
|
|
|
53,793
|
|
|
|
45,975
|
|
Current Portion of Long-term Debt
|
|
|
8,000
|
|
|
|
8,000
|
|
Total Current Liabilities
|
|
|
124,274
|
|
|
|
120,589
|
|
Long-term Debt
|
|
|
461,182
|
|
|
|
499,714
|
|
Other Long-term Liabilities
|
|
|
59,922
|
|
|
|
61,122
|
|
Deferred Income Taxes
|
|
|
164,027
|
|
|
|
161,679
|
|
Total Liabilities
|
|
|
809,405
|
|
|
|
843,104
|
|
Stockholders’ Equity -
|
|
|
|
|
|
|
|
|
Preferred Stock, Par Value $0.01; Authorized 5,000,000 Shares; None Issued
|
|
|
—
|
|
|
|
—
|
|
Common Stock, Par Value $0.01; Authorized 100,000,000 Shares; Issued and Outstanding 48,223,617 and 48,526,843 Shares, respectively
|
|
|
482
|
|
|
|
485
|
|
Capital in Excess of Par Value
|
|
|
130,638
|
|
|
|
168,969
|
|
Accumulated Other Comprehensive Losses
|
|
|
(10,785
|
)
|
|
|
(11,409
|
)
|
Retained Earnings
|
|
|
978,395
|
|
|
|
882,486
|
|
Total Stockholders’ Equity
|
|
|
1,098,730
|
|
|
|
1,040,531
|
|
|
|
$
|
1,908,135
|
|
|
$
|
1,883,635
|
|
See notes to the unaudited consolidated financial statements.
3
Eagle Materials Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited – dollars in thousands)
|
|
For the Six Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$
|
105,581
|
|
|
$
|
67,581
|
|
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities -
|
|
|
|
|
|
|
|
|
Depreciation, Depletion and Amortization
|
|
|
45,249
|
|
|
|
49,034
|
|
Impairment of Intangible Assets
|
|
|
—
|
|
|
|
28,354
|
|
Inventory Adjustment to Net Realizable Value
|
|
|
8,492
|
|
|
|
9,382
|
|
Deferred Income Tax Provision
|
|
|
2,125
|
|
|
|
(18,413
|
)
|
Stock Compensation Expense
|
|
|
6,158
|
|
|
|
8,330
|
|
Excess Tax Benefits from Share Based Payment Arrangements
|
|
|
(5,494
|
)
|
|
|
(2,494
|
)
|
Equity in Earnings of Unconsolidated Joint Venture
|
|
|
(20,127
|
)
|
|
|
(19,510
|
)
|
Distributions from Joint Venture
|
|
|
21,750
|
|
|
|
17,250
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Accounts and Notes Receivable
|
|
|
(33,506
|
)
|
|
|
(39,379
|
)
|
Inventories
|
|
|
17,521
|
|
|
|
3,806
|
|
Accounts Payable and Accrued Liabilities
|
|
|
3,337
|
|
|
|
(1,536
|
)
|
Other Assets
|
|
|
(1,005
|
)
|
|
|
534
|
|
Income Taxes Payable
|
|
|
10,071
|
|
|
|
4,650
|
|
Net Cash Provided by Operating Activities
|
|
|
160,152
|
|
|
|
107,589
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment Additions
|
|
|
(18,231
|
)
|
|
|
(55,869
|
)
|
Acquisition Spending
|
|
|
—
|
|
|
|
(32,427
|
)
|
Net Cash Used in Investing Activities
|
|
|
(18,231
|
)
|
|
|
(88,296
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repayment of Credit Facility
|
|
|
(382,000
|
)
|
|
|
(3,000
|
)
|
Issuance of Long-term Debt
|
|
|
350,000
|
|
|
|
—
|
|
Payment of Debt Issuance Costs
|
|
|
(6,637
|
)
|
|
|
—
|
|
Dividends Paid to Stockholders
|
|
|
(9,677
|
)
|
|
|
(10,061
|
)
|
Shares Redeemed to Settle Employee Taxes on Stock Compensation
|
|
|
(2,965
|
)
|
|
|
(1,728
|
)
|
Purchase and Retirement of Common Stock
|
|
|
(60,013
|
)
|
|
|
(10,744
|
)
|
Proceeds from Stock Option Exercises
|
|
|
12,992
|
|
|
|
2,580
|
|
Excess Tax Benefits from Share Based Payment Arrangements
|
|
|
5,494
|
|
|
|
2,494
|
|
Net Cash Used in Financing Activities
|
|
|
(92,806
|
)
|
|
|
(20,459
|
)
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
49,115
|
|
|
|
(1,166
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
5,391
|
|
|
|
7,514
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
54,506
|
|
|
$
|
6,348
|
|
See notes to the unaudited consolidated financial statements.
4
Eagle Materials Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 2016
(A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of and for the three and six month periods ended September 30, 2016 include the accounts of Eagle Materials Inc. (“Eagle” or “Parent”) and its majority-owned subsidiaries (collectively, the “Company”, “us” or “we”) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 25, 2016.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. In our opinion, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the information in the following unaudited consolidated financial statements of the Company have been included. The results of operations for interim periods are not necessarily indicative of the results for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The standard will be effective for us in the first quarter of fiscal 2019.
We will adopt the new standard using the modified retrospective approach, which requires the standard be applied only to the most current period presented, with the cumulative effect of initially applying the standard recognized at the date of initial application.
We are currently evaluating the impact of this ASU
.
In March 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which provides for simplification of certain aspects of employee share-based payment accounting, including income taxes, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard will be effective for us in the first quarter of fiscal 2018 and will be applied either prospectively, retrospectively or using a modified retrospective transition approach depending on the area covered in this update. We are currently assessing the impact of the ASU on our consolidated financial statements and disclosures
.
In February 2016, the FASB issued ASU 2016-02, “Leases”, which supersedes existing lease guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. The standard will be effective for us in the first quarter of fiscal 2020, and we will adopt using the modified retrospective approach. We are currently assessing the impact of the ASU on our consolidated financial statements and disclosures, as well as our internal lease accounting processes.
5
(B) PENDING ACQUISITION
On September 11, 2016, Eagle Materials Inc. (the “Company”) and Cemex Construction Materials Atlantic, LLC (the “Seller”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) pursuant to which the Company will acquire (the “Fairborn Acquisition”) (i) a cement plant located in Fairborn, Ohio, (ii) a cement distribution terminal located in Columbus, Ohio, and (iii) certain other properties and assets used by the Seller in connection with the foregoing (collectively, the “Fairborn Business”).
The purchase price (the “Purchase Price”) to be paid by the Company in the Fairborn Acquisition is $400.0 million in cash, subject to a customary post-closing inventory adjustment. In addition, the Company will assume certain liabilities and obligations of the Seller relating to the Fairborn Business, including contractual obligations, reclamation obligations and various other liabilities and obligations arising out of or relating to the Fairborn Business after the closing of the Fairborn Acquisition. The Company expects to fund the payment of the Purchase Price and expenses incurred in connection with the Fairborn Acquisition through a combination of cash on hand and borrowings under the Company’s existing bank credit facility. The Fairborn Acquisition is expected to close in the fourth quarter of calendar 2016, or shortly thereafter.
(C) CASH FLOW INFORMATION—SUPPLEMENTAL
Cash payments made for interest were $6.8 million and $8.2 million for the six months ended September 30, 2016 and 2015, respectively. Net payments made for federal and state income taxes during the six months ended September 30, 2016 and 2015, were $39.3 million and $43.8 million, respectively.
(D) ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable have been shown net of the allowance for doubtful accounts of $11.0 million and $10.2 million at September 30, 2016 and March 31, 2016, respectively. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral from our customers. The allowance for non-collection of receivables is based upon analysis of economic trends in the construction industry, detailed analysis of the expected collectability of accounts receivable that are past due and the expected collectability of overall receivables. We have no significant credit risk concentration among our diversified customer base.
We had notes receivable totaling approximately $4.7 million at September 30, 2016, of which approximately $3.5 million has been classified as current and presented with accounts receivable on the balance sheet. We lend funds to certain companies in the ordinary course of business, and the notes bear interest, on average, at LIBOR plus 3.5%. Remaining unpaid amounts, plus accrued interest, mature on various dates between 2017 and 2019. The notes are collateralized by certain assets of the borrowers, namely property and equipment, and are generally payable monthly. We monitor the credit risk of each borrower by focusing on the timeliness of payments, review of credit history and credit metrics and interaction with the borrowers.
6
(
E
) STOCKHOLDERS’ EQUITY
A summary of changes in stockholders’ equity follows:
|
|
For the Six Months
Ended September 30, 2016
|
|
|
|
(dollars in thousands)
|
|
Common Stock –
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
485
|
|
Purchase and Retirement of Common Stock
|
|
|
(9
|
)
|
Issuance of Restricted Stock
|
|
|
1
|
|
Stock Option Exercises
|
|
|
5
|
|
Balance at End of Period
|
|
|
482
|
|
Capital in Excess of Par Value –
|
|
|
|
|
Balance at Beginning of Period
|
|
|
168,969
|
|
Stock Compensation Expense
|
|
|
6,157
|
|
Shares Redeemed to Settle Employee Taxes
|
|
|
(2,965
|
)
|
Stock Option Exercises
|
|
|
18,481
|
|
Purchase and Retirement of Common Stock
|
|
|
(60,004
|
)
|
Balance at End of Period
|
|
|
130,638
|
|
Retained Earnings –
|
|
|
|
|
Balance at Beginning of Period
|
|
|
882,486
|
|
Dividends Declared to Stockholders
|
|
|
(9,672
|
)
|
Net Earnings
|
|
|
105,581
|
|
Balance at End of Period
|
|
|
978,395
|
|
Accumulated Other Comprehensive Loss -
|
|
|
|
|
Balance at Beginning of Period
|
|
|
(11,409
|
)
|
Change in Funded Status of Pension Plan, net of tax
|
|
|
624
|
|
Balance at End of Period
|
|
|
(10,785
|
)
|
Total Stockholders’ Equity
|
|
$
|
1,098,730
|
|
We repurchased 263,800 shares at an average price of $79.15 during the three months ended September 30, 2016. At September 30, 2016, we have authorization to purchase an additional 4,817,200 shares.
7
(F) INVENTORIES
Inventories are stated at the lower of average cost (including applicable material, labor, depreciation, and plant overhead) or market, and consist of the following:
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
March 31,
2016
|
|
|
|
(dollars in thousands)
|
|
Raw Materials and Material-in-Progress
|
|
$
|
104,759
|
|
|
$
|
119,060
|
|
Finished Cement
|
|
|
17,096
|
|
|
|
21,834
|
|
Gypsum Wallboard
|
|
|
5,939
|
|
|
|
5,839
|
|
Frac Sand
|
|
|
3,375
|
|
|
|
5,501
|
|
Aggregates
|
|
|
8,387
|
|
|
|
10,660
|
|
Paperboard
|
|
|
3,647
|
|
|
|
7,575
|
|
Repair Parts and Supplies
|
|
|
68,777
|
|
|
|
68,155
|
|
Fuel and Coal
|
|
|
5,602
|
|
|
|
4,971
|
|
|
|
$
|
217,582
|
|
|
$
|
243,595
|
|
During the three months ended September 30, 2016 we wrote down approximately $7.7 million and $0.8 million of raw materials and materials-in-process and frac sand, respectively. During the three months ended September 30, 2015 we wrote down approximately $9.4 million of raw materials and materials-in-process. These inventories related to our Oil and Gas Proppants segment.
(G) ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
March 31,
2016
|
|
|
|
(dollars in thousands)
|
|
Payroll and Incentive Compensation
|
|
$
|
19,155
|
|
|
$
|
19,956
|
|
Benefits
|
|
|
12,028
|
|
|
|
10,663
|
|
Interest
|
|
|
6,202
|
|
|
|
3,373
|
|
Property Taxes
|
|
|
6,799
|
|
|
|
4,186
|
|
Power and Fuel
|
|
|
1,543
|
|
|
|
1,390
|
|
Sales and Use Tax
|
|
|
857
|
|
|
|
1,486
|
|
Legal
|
|
|
2,357
|
|
|
|
549
|
|
Other
|
|
|
4,852
|
|
|
|
4,372
|
|
|
|
$
|
53,793
|
|
|
$
|
45,975
|
|
(H) S
hare
-BASED EMPLOYEE COMPENSATION
On August 7, 2013 our stockholders approved the Eagle Materials Inc. Amended and Restated Incentive Plan (the “Plan”), which increased the shares we are authorized to issue as awards by 3,000,000 (1,500,000 of which may be stock awards). Under the terms of the Plan, we can issue equity awards, including stock options, restricted stock units (“RSUs”), restricted stock and stock appreciation rights to employees of the Company and members of the Board of Directors. Awards that were already outstanding prior to the approval of the Plan on August 7, 2013 remain outstanding. The Compensation Committee of our Board of Directors specifies the terms for grants of equity awards under the Plan.
8
Long-Term Compensation Plans -
Options.
In May 2016, the Compensation Committee approved the granting of an aggregate of 91,074 performance vesting stock options pursuant to the Plan to certain officers and key employees that will be earned if certain performance conditions are satisfied (the “Fiscal 2017 Employee Performance Stock Option Grant”). The performance criterion for the Fiscal 2017 Employee Performance Stock Option Grant is based upon the achievement of certain levels of return on equity (as defined in the option agreements), ranging from 11.0% to 18.0%, for the fiscal year ending March 31, 2017. All stock options will be earned if the return on equity is 18.0% or greater, and the percentage of shares earned will be reduced proportionately to approximately 66.7% if the return on equity is 11.0%. If the Company does not achieve a return on equity of at least 11.0%, all stock options granted will be forfeited. Following any such reduction, restrictions on the earned stock options will lapse ratably over four years, with the first fourth lapsing promptly following the determination date, and the remaining restrictions lapsing on March 31, 2018 through 2020. The stock options have a term of ten years from the date of grant. The Compensation Committee also approved the granting of 75,896 time vesting stock options to the same officers and key employees, which vest ratably over four years (the “Fiscal 2017 Employee Time Vesting Stock Option Grant). In August 2016, we granted 17,894 options to members of the Board of Directors (the “Fiscal 2017 Board of Directors Stock Option Grant”). Options granted under the Fiscal 2017 Board of Directors Stock Option Grant vest immediately and can be exercised from the date of grant until their expiration on the tenth anniversary of the date of grant. The Fiscal 2017 Employee Performance Stock Option Grant, Fiscal 2017 Employee Time Vesting Stock Option Grant and the Fiscal 2017 Board of Directors Stock Option Grant were valued at the grant date using the Black-Scholes option pricing model.
The weighted-average assumptions used in the Black-Scholes model to value the option awards in fiscal 2017 are as follows:
|
|
Fiscal 2017
|
Dividend Yield
|
|
|
1.3%
|
Expected Volatility
|
|
|
36.5%
|
Risk Free Interest Rate
|
|
|
1.4%
|
Expected Life
|
|
|
6.0 years
|
Stock option expense for all outstanding stock option awards totaled approximately $1.8 million and $3.0 million for the three and six months ended September 30, 2016, respectively and approximately $2.1 million and $4.2 million for the three and six months ended September 30, 2015, respectively. At September 30, 2016, there was approximately $9.1 million of unrecognized compensation cost related to outstanding stock options, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.7 years.
The following table represents stock option activity for the six months ended September 30, 2016:
|
|
Number
of
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
Outstanding Options at Beginning of Period
|
|
|
1,817,763
|
|
|
$
|
53.03
|
|
Granted
|
|
|
192,364
|
|
|
$
|
76.29
|
|
Exercised
|
|
|
(432,264
|
)
|
|
$
|
32.92
|
|
Cancelled
|
|
|
(18,662
|
)
|
|
$
|
69.82
|
|
Outstanding Options at End of Period
|
|
|
1,559,201
|
|
|
$
|
61.27
|
|
Options Exercisable at End of Period
|
|
|
1,043,635
|
|
|
$
|
53.01
|
|
Weighted-Average Fair Value of Options Granted during the Period
|
|
$
|
24.56
|
|
|
|
|
|
9
The following table summarizes information about stock options outstanding at
September
30
, 201
6
:
|
|
Outstanding Options
|
|
|
Exercisable Options
|
|
Range of Exercise Prices
|
|
Number of
Shares
Outstanding
|
|
|
Weighted -
Average
Remaining
Contractual
Life
|
|
|
Weighted -
Average
Exercise
Price
|
|
|
Number of
Shares
Outstanding
|
|
|
Weighted -
Average
Exercise
Price
|
|
$23.17 – $ 30.74
|
|
|
279,429
|
|
|
|
3.75
|
|
|
$
|
25.91
|
|
|
|
278,429
|
|
|
$
|
25.90
|
|
$33.08 – $ 37.95
|
|
|
254,876
|
|
|
|
5.71
|
|
|
$
|
33.92
|
|
|
|
248,876
|
|
|
$
|
33.87
|
|
$53.22 – $ 74.10
|
|
|
451,080
|
|
|
|
8.05
|
|
|
$
|
69.99
|
|
|
|
232,467
|
|
|
$
|
67.18
|
|
$79.73 – $ 93.56
|
|
|
573,816
|
|
|
|
8.30
|
|
|
$
|
83.79
|
|
|
|
283,863
|
|
|
$
|
84.79
|
|
|
|
|
1,559,201
|
|
|
|
6.99
|
|
|
$
|
53.01
|
|
|
|
1,043,635
|
|
|
$
|
53.01
|
|
At September 30, 2016, the aggregate intrinsic value for outstanding and exercisable options was approximately $25.0 million and $25.3 million, respectively. The total intrinsic value of options exercised during the six months ended September 30, 2016 was approximately $18.4 million.
Restricted Stock.
In May 2016, the Compensation Committee approved the granting of an aggregate of 63,029 shares of performance vesting restricted stock to certain officers and key employees that will be earned if certain performance conditions are satisfied (the “Fiscal 2017 Employee Restricted Stock Performance Award”). The performance criterion for the Fiscal 2017 Employee Restricted Stock Performance Award is based upon the achievement of certain levels of return on equity (as defined in the award agreement), ranging from 11.0% to 18.0%, for the fiscal year ending March 31, 2017. All restricted shares will be earned if the return on equity is 18.0% or greater, and the percentage of shares earned will be reduced proportionately to approximately 66.7% if the return on equity is 11.0%. If the Company does not achieve a return on equity of at least 11.0%, all awards will be forfeited. Following any such reduction, restrictions on the earned shares will lapse ratably over four years, with the first fourth lapsing promptly following the determination date, and the remaining restrictions lapsing on March 31, 2018 through 2020. The Compensation Committee also approved the granting of 52,527 shares of time vesting restricted stock to the same officers and key employees, which vest ratably over four years (the “Fiscal 2017 Employee Restricted Stock Time Vesting Award). Both of the Fiscal 2017 Employee Restricted Stock Performance Award and the Fiscal 2017 Employee Restricted Stock Time Vesting Award were valued at the closing price of the stock on the date of grant, and are being expensed over a four year period. In August 2016, we awarded 11,173 shares of restricted stock to members of the Board of Directors (the “Board of Directors Fiscal 2017 Restricted Stock Award”). Awards issued under the Board of Directors Fiscal 2017 Restricted Stock Award do not fully vest until the retirement of each director, in accordance with our director retirement policy.
Expense related to restricted shares was approximately $1.8 million and $3.2 million for the three and six months ended September 30, 2016, respectively, and approximately $1.9 million and $4.2 million for the three and six months ended September 30, 2015, respectively. At September 30, 2016, there was approximately $19.4 million of unearned compensation from restricted stock, net of estimated forfeitures, which will be recognized over a weighted-average period of 3.0 years.
The number of shares available for future grants of stock options, restricted stock units, stock appreciation rights and restricted stock under the Plan was 4,323,126 at September 30, 2016.
10
(I
)
COMPUTATION OF EARNINGS PER SHARE
The calculation of basic and diluted common shares outstanding is as follows:
|
|
For the Three Months
Ended September 30,
|
|
|
For the Six Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Weighted-Average Shares of Common Stock Outstanding
|
|
|
47,809,476
|
|
|
|
49,828,189
|
|
|
|
47,911,276
|
|
|
|
49,797,972
|
|
Common Equivalent Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Exercise of Outstanding Dilutive Options
|
|
|
864,378
|
|
|
|
1,278,908
|
|
|
|
951,783
|
|
|
|
1,303,636
|
|
Less: Shares Repurchased from Assumed Proceeds of Assumed Exercised Options
|
|
|
(600,322
|
)
|
|
|
(866,236
|
)
|
|
|
(657,730
|
)
|
|
|
(871,354
|
)
|
Restricted Shares
|
|
|
155,953
|
|
|
|
229,290
|
|
|
|
169,787
|
|
|
|
230,693
|
|
Weighted-Average Common and Common Equivalent Shares Outstanding
|
|
|
48,229,485
|
|
|
|
50,470,151
|
|
|
|
48,375,116
|
|
|
|
50,460,947
|
|
Shares Excluded Due to Anti-dilution Effects
|
|
|
646,593
|
|
|
|
596,973
|
|
|
|
669,406
|
|
|
|
527,330
|
|
(J) PENSION AND EMPLOYEE BENEFIT PLANS
We sponsor several defined benefit and defined contribution pension plans which together cover substantially all our employees. Benefits paid under the defined benefit plans covering certain hourly employees are based on years of service and the employee’s qualifying compensation over the last few years of employment.
The following table shows the components of net periodic cost for our plans:
|
|
For the Three Months Ended
September 30,
|
|
|
For the Six Months ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(dollars in thousands)
|
|
|
|
(dollars in thousands)
|
|
Service Cost – Benefits Earned During the Period
|
|
$
|
221
|
|
|
$
|
231
|
|
|
$
|
443
|
|
|
$
|
488
|
|
Interest Cost of Benefit Obligations
|
|
|
398
|
|
|
|
381
|
|
|
|
797
|
|
|
|
758
|
|
Expected Return on Plan Assets
|
|
|
(415
|
)
|
|
|
(430
|
)
|
|
|
(831
|
)
|
|
|
(869
|
)
|
Recognized Net Actuarial Loss
|
|
|
426
|
|
|
|
432
|
|
|
|
851
|
|
|
|
859
|
|
Amortization of Prior-Service Cost
|
|
|
74
|
|
|
|
75
|
|
|
|
149
|
|
|
|
150
|
|
Net Periodic Pension Cost
|
|
$
|
704
|
|
|
$
|
689
|
|
|
$
|
1,409
|
|
|
$
|
1,386
|
|
(K) INCOME TAXES
Income taxes for the interim period presented have been included in the accompanying financial statements on the basis of an estimated annual effective tax rate. In addition to the amount of tax resulting from applying the estimated annual effective tax rate to pre-tax income, we will, when appropriate, include certain items treated as discrete events to arrive at an estimated overall tax amount. The effective tax rate for the six months ended September 30, 2016 was approximately 33%, which was relatively consistent with the effective tax rate of 32% for the six months ended September 30, 2015.
11
(L) LONG-TERM DEBT
Long-term debt consists of the following:
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
March 31,
2016
|
|
|
|
(dollars in thousands)
|
|
Credit Facility
|
|
$
|
—
|
|
|
$
|
382,000
|
|
4.500% Senior Unsecured Notes Due 2026
|
|
|
350,000
|
|
|
|
—
|
|
Private Placement Senior Unsecured Notes
|
|
|
125,714
|
|
|
|
125,714
|
|
Total Debt
|
|
|
475,714
|
|
|
|
507,714
|
|
Less: Current Portion of Long-term Debt
|
|
|
(8,000
|
)
|
|
|
(8,000
|
)
|
Less: Debt Origination Costs
|
|
|
(6,532
|
)
|
|
|
—
|
|
Total Long-term Debt
|
|
$
|
461,182
|
|
|
$
|
499,714
|
|
Credit Facility –
We have a $500.0 million revolving credit facility (the “Credit Facility”), including a swingline loan sublimit of $25.0 million, which originally was scheduled to expire on October 30, 2019, but was amended in August 2016 to extend the expiration date to August 2, 2021. Borrowings under the Credit Facility are guaranteed by substantially all of the Company’s subsidiaries. At the option of the Company, outstanding principal amounts on the Credit Facility bear interest at a variable rate equal to (i) The London Interbank Offered Rate (“LIBOR”) for the selected period, plus an applicable rate (ranging from 100 to 225 basis points), which is to be established quarterly based upon the Company’s ratio of consolidated EBITDA, defined as earnings before interest, taxes, depreciation and amortization, to the Company’s consolidated indebtedness (the “Leverage Ratio”), or (ii) an alternative base rate which is the higher of (a) the prime rate or (b) the federal funds rate plus
1
⁄
2
% per annum plus an applicable rate (ranging from 0 to 125 basis points). Interest payments are payable, in the case of loans bearing interest at a rate based on the federal funds rate, quarterly, or in the case of loans bearing interest at a rate based on LIBOR, at the end of the applicable interest period. The Company is also required to pay a commitment fee on unused available borrowings under the Credit Facility ranging from 10 to 35 basis points depending upon the Leverage Ratio. The Credit Facility contains customary covenants that restrict our ability to incur additional debt, encumber our assets, sell assets, make or enter into certain investments, loans or guaranties and enter into sale and leaseback arrangements. The Credit Facility also requires us to maintain a consolidated indebtedness ratio (calculated as consolidated indebtedness to consolidated earnings before interest, taxes, depreciation, amortization, certain transaction-related deductions and other non-cash deductions) of 3.5:1.0 or less and an interest coverage ratio (consolidated earnings before interest, taxes, depreciation, amortization, certain transaction-related deductions and other non-cash deductions to consolidated interest expense) of at least 2.5:1.0. There were no borrowings outstanding at September 30, 2016. Based on our Leverage Ratio, we had $489.3 million of available borrowings, net of the outstanding letters of credit, at September 30, 2016.
The Credit Facility has a $50.0 million letter of credit facility. Under the letter of credit facility, the Company pays a fee at a per annum rate equal to the applicable margin for Eurodollar loans in effect from time to time plus a one-time letter of credit fee in an amount equal to 0.125% of the initial stated amount. At September 30, 2016, we had $10.7 million of letters of credit outstanding.
4.500% Senior Unsecured Notes Due 2026 –
On August 2, 2016, the Company issued $350.0 million aggregate principal amount of 4.500% senior notes ("Senior Unsecured Notes") due August 2026. Interest on the Senior Unsecured Notes is payable semiannually on February 2 and August 2 of each year until all of the outstanding notes are paid. The Senior Unsecured Notes rank equal to existing and future senior indebtedness, including the Credit Facility and the Private Placement Senior Unsecured Notes. Prior to August 1, 2019, we may redeem up to 40% of the original aggregate principal amount of the Senior Unsecured Notes with the proceeds of certain equity offerings at a redemption price of 104.5% of the principal amount of the notes. Prior to August 1, 2021, we may redeem some or all of the Senior Unsecured
12
Notes at a price equal to 100% of the principal amount, plus a “make-whole” premium.
Beginning on August 1, 2021, we may redeem some or all
of the Senior Unsecured Notes
a
t
the redemption prices set forth below (expressed as a percentage of the principal amount being redeemed):
|
|
Percentage
|
2021
|
|
|
102.25%
|
2022
|
|
|
101.50%
|
2023
|
|
|
100.75%
|
2024 and thereafter
|
|
|
100.00%
|
The Senior Unsecured Notes contain covenants that limit our ability and/or our guarantor subsidiaries' ability to create or permit to exist certain liens; enter into sale and leaseback transactions; and consolidate, merge, or transfer all or substantially all of our assets. The Company’s Senior Unsecured Notes are fully and unconditionally and jointly and severally guaranteed by each of our subsidiaries that is a guarantor under the Credit Facility and Private Placement Senior Unsecured Notes. See Footnote (P) to the Unaudited Consolidated Financial Statements for more information on the guarantors of the Senior Public Notes.
Private Placement Senior Unsecured Notes -
We entered into a Note Purchase Agreement on November 15, 2005 (the “2005 Note Purchase Agreement”) in connection with our sale of $200 million of senior, unsecured notes, designated as Series 2005A Senior Notes (the “Series 2005A Senior Unsecured Notes”) in a private placement transaction. The Series 2005A Senior Unsecured Notes, which are guaranteed by substantially all of our subsidiaries, were sold at par and issued in three tranches. At September 30, 2016, the amount outstanding for the remaining tranche is as follows:
|
|
Principal
|
|
|
Maturity Date
|
|
|
Interest Rate
|
|
Tranche C
|
|
$
|
57.2 million
|
|
|
|
November 15, 2017
|
|
|
|
5.48%
|
|
Interest for this tranche of Series 2005A Senior Unsecured Notes is payable semi-annually on May 15 and November 15 of each year until all principal is paid.
We also entered into an additional Note Purchase Agreement on October 2, 2007 (the “2007 Note Purchase Agreement”) in connection with our sale of $200 million of senior unsecured notes, designated as Series 2007A Senior Notes (the “Series 2007A Senior Unsecured Notes” and together with the Series 2005A Senior Unsecured Notes, the “Private Placement Senior Unsecured Notes”) in a private placement transaction. The Series 2007A Senior Unsecured Notes, which are guaranteed by substantially all of our subsidiaries, were sold at par and issued in four tranches. At September 30, 2016, the amounts outstanding for each of the remaining tranches were as follows:
|
|
Principal
|
|
|
Maturity Date
|
|
|
Interest Rate
|
|
Tranche B
|
|
$
|
8.0 million
|
|
|
|
October 2, 2016
|
|
|
|
6.27%
|
|
Tranche C
|
|
$
|
24.0 million
|
|
|
|
October 2, 2017
|
|
|
|
6.36%
|
|
Tranche D
|
|
$
|
36.5 million
|
|
|
|
October 2, 2019
|
|
|
|
6.48%
|
|
Interest for each tranche of Notes is payable semi-annually April 2 and October 2 of each year until all principal is paid for the respective tranche. During October 2016, the $8.0 million outstanding under Tranche B of the Series 2007A Senior Unsecured Notes matured, and the related notes were repaid and cancelled at that time.
Our obligations under the 2005 Note Purchase Agreement and 2007 Note Purchase Agreement (together, the “Private Placement Note Purchase Agreements”) and the Private Placement Senior Unsecured Notes are equal in right of payment with all other senior, unsecured indebtedness of the Company, including our indebtedness under the Credit Facility and Senior Unsecured Notes. The Private Placement Note Purchase Agreements contain
13
customary
restrictive covenants, including
, but not limited to,
covenants that place limits on our ability to encumber our assets, to incur additional debt, to sell assets, or to merge or consolidate with third parties
.
The Private Placement Note Purchase Agreements require us to maintain a Consolidated Debt to Consolidated EBITDA (calculated as consolidated indebtedness to consolidated earnings before interest, taxes, depreciation, depletion, amortization, certain transaction related deductions and other non-cash charges) ratio of 3.50 to 1.00 or less. The 2007 Note Purchase Agreement requires us to maintain an interest coverage ratio (Consolidated EBITDA to Consolidated Interest Expense (calculated as consolidated EBITDA, as defined above, to consolidated interest expense)) of at least 2.50:1.00. In addition, the 2007 Note Purchase Agreement requires the Company to ensure that at all times either (i) Consolidated Total Assets equal at least 80% of the consolidated total assets of the Company and its Subsidiaries, determined in accordance with GAAP, or (ii) consolidated total revenues of the Company and its Restricted Subsidiaries for the period of four consecutive fiscal quarters most recently ended equals at least 80% of the consolidated total revenues of the Company and its Subsidiaries during such period. We were in compliance with all financial ratios and tests at September 30, 2016.
Pursuant to a Subsidiary Guaranty Agreement, substantially all of our subsidiaries have guaranteed the punctual payment of all principal, interest, and Make-Whole Amounts (as defined in the Private Placement Note Purchase Agreements) on the Private Placement Senior Unsecured Notes and the other payment and performance obligations of the Company contained in the Private Placement Senior Unsecured Notes and in the Private Placement Note Purchase Agreements. We are permitted, at our option and without penalty, to prepay from time to time at least 10% of the original aggregate principal amount of the Private Placement Senior Unsecured Notes at 100% of the principal amount to be prepaid, together with interest accrued on such amount to be prepaid to the date of payment, plus a Make-Whole Amount. The Make-Whole Amount is computed by discounting the remaining scheduled payments of interest and principal of the Private Placement Senior Unsecured Notes being prepaid at a discount rate equal to the sum of 50 basis points and the yield to maturity of U.S. treasury securities having a maturity equal to the remaining average life of the Private Placement Senior Unsecured Notes being prepaid.
We lease one of our cement plants from the city of Sugar Creek, Missouri. The city of Sugar Creek issued industrial revenue bonds to partly finance improvements to the cement plant. The lease payments due to the city of Sugar Creek under the cement plant lease, which was entered into upon the sale of the industrial revenue bonds, are equal in amount to the payments required to be made by the city of Sugar Creek to the holders of the industrial revenue bonds. Because we are the holder of all of the outstanding industrial revenue bonds, no debt is reflected on our financial statements in connection with our lease of the cement plant. At the conclusion of the lease in fiscal 2021, we have the option to purchase the cement plant for a nominal amount.
(M) SEGMENT INFORMATION
Operating segments are defined as components of an enterprise that engage in business activities that earn revenues, incur expenses and prepare separate financial information that is evaluated regularly by our chief operating decision maker in order to allocate resources and assess performance.
We operate in five business segments: Cement, Gypsum Wallboard, Recycled Paperboard, Oil and Gas Proppants and Concrete and Aggregates. These operations are conducted in the U.S. and include the mining of limestone and the manufacture, production, distribution and sale of Portland cement and slag (basic construction materials which are the essential binding ingredient in concrete), the grinding the mining of gypsum and 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) and sand used in hydraulic fracturing (“frac sand”). The products that we manufacture, distribute and sell are basic materials used with broad application as construction products, building materials, and basic materials used for oil and natural gas extraction. Our construction products are used in residential, industrial, commercial and infrastructure construction and include cement, slag, concrete and
14
aggregates. Our building materi
als are sold into similar markets and include gypsum wallboard. Our basic materials used for oil and natural gas extraction include frac sand and oil well cement.
We operate six cement plants, one slag grinding facility, sixteen cement distribution terminals, five gypsum wallboard plants, including the plant idled in Bernalillo, N.M., a gypsum wallboard distribution center, a recycled paperboard mill, seventeen readymix concrete batch plant locations, four aggregates processing plant locations, two frac sand processing facilities, including the mine idled in Utica, Illinois, three frac sand drying facilities, including the facility idled in Corpus Christi, Texas, and six frac sand trans-load locations. The principal markets for our cement products are Texas, northern Illinois (including Chicago), the central plains, the Rocky Mountains, northern Nevada, and northern California. Gypsum wallboard and recycled paperboard are distributed throughout the continental U.S, with the exception of the northeast. Concrete and aggregates are sold to local readymix producers and paving contractors in the Austin, Texas area, north of Sacramento, California and the greater Kansas City, Missouri area, while frac sand is currently sold into shale deposit zones across the United States.
We conduct one of our six cement plant operations, Texas Lehigh Cement Company LP in Buda, Texas, through a Joint Venture. For segment reporting purposes only, we proportionately consolidate our 50% share of the Joint Venture’s revenues and operating earnings, which is consistent with the way management reports the segments within the Company for making operating decisions and assessing performance.
We account for intersegment sales at market prices. The following table sets forth certain financial information relating to our operations by segment:
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
Revenues -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement
|
|
$
|
166,811
|
|
|
$
|
164,790
|
|
|
$
|
311,603
|
|
|
$
|
292,966
|
|
Gypsum Wallboard
|
|
|
122,923
|
|
|
|
119,701
|
|
|
|
236,185
|
|
|
|
234,753
|
|
Paperboard
|
|
|
44,459
|
|
|
|
39,145
|
|
|
|
87,274
|
|
|
|
74,463
|
|
Oil and Gas Proppants
|
|
|
6,631
|
|
|
|
18,307
|
|
|
|
11,727
|
|
|
|
41,132
|
|
Concrete and Aggregates
|
|
|
39,140
|
|
|
|
36,671
|
|
|
|
73,891
|
|
|
|
65,203
|
|
Sub-total
|
|
|
379,964
|
|
|
|
378,614
|
|
|
|
720,680
|
|
|
|
708,517
|
|
Less: Intersegment Revenues
|
|
|
(20,331
|
)
|
|
|
(20,090
|
)
|
|
|
(38,655
|
)
|
|
|
(38,019
|
)
|
Net Revenues, including Joint Venture
|
|
|
359,633
|
|
|
|
358,524
|
|
|
|
682,025
|
|
|
|
670,498
|
|
Less: Joint Venture
|
|
|
(26,975
|
)
|
|
|
(29,536
|
)
|
|
|
(51,863
|
)
|
|
|
(56,547
|
)
|
Net Revenues
|
|
$
|
332,658
|
|
|
$
|
328,988
|
|
|
$
|
630,162
|
|
|
$
|
613,951
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
Intersegment Revenues -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement
|
|
$
|
4,536
|
|
|
$
|
4,232
|
|
|
$
|
8,071
|
|
|
$
|
7,358
|
|
Paperboard
|
|
|
15,452
|
|
|
|
15,596
|
|
|
|
29,958
|
|
|
|
30,147
|
|
Concrete and Aggregates
|
|
|
343
|
|
|
|
262
|
|
|
|
626
|
|
|
|
514
|
|
|
|
$
|
20,331
|
|
|
$
|
20,090
|
|
|
$
|
38,655
|
|
|
$
|
38,019
|
|
Cement Sales Volume (in thousands of tons) -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly –owned Operations
|
|
|
1,200
|
|
|
|
1,248
|
|
|
|
2,233
|
|
|
|
2,239
|
|
Joint Venture
|
|
|
242
|
|
|
|
236
|
|
|
|
460
|
|
|
|
448
|
|
|
|
|
1,442
|
|
|
|
1,484
|
|
|
|
2,693
|
|
|
|
2,687
|
|
15
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
Operating Earnings -
|
|
|
|
|
|
|
|
|
Cement
|
|
$
|
50,716
|
|
|
$
|
48,577
|
|
|
$
|
82,316
|
|
|
$
|
74,290
|
|
Gypsum Wallboard
|
|
|
41,698
|
|
|
|
40,002
|
|
|
|
81,034
|
|
|
|
80,896
|
|
Paperboard
|
|
|
10,220
|
|
|
|
8,138
|
|
|
|
21,447
|
|
|
|
14,168
|
|
Oil and Gas Proppants
|
|
|
(4,090
|
)
|
|
|
(44,600
|
)
|
|
|
(10,002
|
)
|
|
|
(50,236
|
)
|
Concrete and Aggregates
|
|
|
4,813
|
|
|
|
3,857
|
|
|
|
8,497
|
|
|
|
5,783
|
|
Other, net
|
|
|
504
|
|
|
|
572
|
|
|
|
1,579
|
|
|
|
1,007
|
|
Sub-total
|
|
|
103,861
|
|
|
|
56,546
|
|
|
|
184,871
|
|
|
|
125,908
|
|
Corporate General and Administrative
|
|
|
(8,832
|
)
|
|
|
(9,364
|
)
|
|
|
(18,665
|
)
|
|
|
(18,355
|
)
|
Earnings Before Interest and Income Taxes
|
|
|
95,029
|
|
|
|
47,182
|
|
|
|
166,206
|
|
|
|
107,553
|
|
Interest Expense, net
|
|
|
(5,656
|
)
|
|
|
(4,342
|
)
|
|
|
(9,557
|
)
|
|
|
(8,828
|
)
|
Earnings Before Income Taxes
|
|
$
|
89,373
|
|
|
$
|
42,840
|
|
|
$
|
156,649
|
|
|
$
|
98,725
|
|
Cement Operating Earnings -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly–owned Operations
|
|
$
|
38,569
|
|
|
$
|
36,897
|
|
|
$
|
62,189
|
|
|
$
|
54,780
|
|
Joint Venture
|
|
|
12,147
|
|
|
|
11,680
|
|
|
|
20,127
|
|
|
|
19,510
|
|
|
|
$
|
50,716
|
|
|
$
|
48,577
|
|
|
$
|
82,316
|
|
|
$
|
74,290
|
|
Capital Expenditures -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement
|
|
$
|
5,009
|
|
|
$
|
5,349
|
|
|
$
|
10,254
|
|
|
$
|
13,499
|
|
Gypsum Wallboard
|
|
|
2,097
|
|
|
|
203
|
|
|
|
3,425
|
|
|
|
1,700
|
|
Paperboard
|
|
|
400
|
|
|
|
2,424
|
|
|
|
1,704
|
|
|
|
3,268
|
|
Oil and Gas Proppants
|
|
|
8
|
|
|
|
16,744
|
|
|
|
65
|
|
|
|
32,711
|
|
Concrete and Aggregates
|
|
|
1,506
|
|
|
|
4,027
|
|
|
|
2,550
|
|
|
|
4,691
|
|
Other
|
|
|
233
|
|
|
|
—
|
|
|
|
233
|
|
|
|
—
|
|
|
|
$
|
9,253
|
|
|
$
|
28,747
|
|
|
$
|
18,231
|
|
|
$
|
55,869
|
|
Depreciation, Depletion and Amortization -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement
|
|
$
|
8,784
|
|
|
$
|
8,629
|
|
|
$
|
17,395
|
|
|
$
|
16,495
|
|
Gypsum Wallboard
|
|
|
4,768
|
|
|
|
4,819
|
|
|
|
9,530
|
|
|
|
9,605
|
|
Paperboard
|
|
|
2,106
|
|
|
|
2,063
|
|
|
|
4,206
|
|
|
|
4,116
|
|
Oil and Gas Proppants
|
|
|
4,261
|
|
|
|
7,205
|
|
|
|
9,445
|
|
|
|
14,764
|
|
Concrete and Aggregates
|
|
|
1,920
|
|
|
|
1,565
|
|
|
|
3,669
|
|
|
|
3,070
|
|
Other, net
|
|
|
547
|
|
|
|
489
|
|
|
|
1,004
|
|
|
|
984
|
|
|
|
$
|
22,386
|
|
|
$
|
24,770
|
|
|
$
|
45,249
|
|
|
$
|
49,034
|
|
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
March 31,
2016
|
|
|
|
(dollars in thousands)
|
|
Identifiable Assets -
|
|
|
|
|
|
|
|
|
Cement
|
|
$
|
833,219
|
|
|
$
|
819,994
|
|
Gypsum Wallboard
|
|
|
378,905
|
|
|
|
392,523
|
|
Paperboard
|
|
|
123,124
|
|
|
|
127,371
|
|
Oil and Gas Proppants
|
|
|
390,915
|
|
|
|
409,497
|
|
Concrete and Aggregates
|
|
|
109,683
|
|
|
|
106,634
|
|
Corporate and Other
|
|
|
72,289
|
|
|
|
27,616
|
|
|
|
$
|
1,908,135
|
|
|
$
|
1,883,635
|
|
16
Segment operating earnings, including the proportionately consolidated 50% interest in the revenues and expenses of the Joint Venture, represent revenues, less direct operating expenses, segment depreciation, and segment selling, general and administrative
expenses. Corporate assets consist primarily of cash and cash equivalents, general office assets, miscellaneous other assets and unrecognized tax benefits. The segment breakdown of goodwill is as follows:
|
|
As of
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
(dollars in thousands)
|
|
Cement
|
|
$
|
9,729
|
|
|
$
|
9,729
|
|
Gypsum Wallboard
|
|
|
116,618
|
|
|
|
116,618
|
|
Paperboard
|
|
|
7,538
|
|
|
|
7,538
|
|
|
|
$
|
133,885
|
|
|
$
|
133,885
|
|
Summarized financial information for the Joint Venture that is not consolidated is set out below (this summarized financial information includes the total amount for the Joint Venture and not our 50% interest in those amounts):
|
|
For the Three Months
Ended September 30,
|
|
|
For the Six Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
Revenues
|
|
$
|
55,558
|
|
|
$
|
59,071
|
|
|
$
|
105,334
|
|
|
$
|
113,094
|
|
Gross Margin
|
|
$
|
25,588
|
|
|
$
|
25,193
|
|
|
$
|
42,925
|
|
|
$
|
42,204
|
|
Earnings Before Income Taxes
|
|
$
|
24,294
|
|
|
$
|
23,360
|
|
|
$
|
40,254
|
|
|
$
|
39,020
|
|
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
March 31,
2016
|
|
|
|
(dollars in thousands)
|
|
Current Assets
|
|
$
|
69,699
|
|
|
$
|
70,491
|
|
Non-Current Assets
|
|
$
|
39,969
|
|
|
$
|
41,464
|
|
Current Liabilities
|
|
$
|
16,649
|
|
|
$
|
15,964
|
|
(N) INTEREST EXPENSE
The following components are included in interest expense, net:
|
|
For the Three Months
Ended September 30,
|
|
|
For the Six Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
Interest (Income)
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
$
|
(2
|
)
|
Interest Expense
|
|
|
5,348
|
|
|
|
4,160
|
|
|
|
9,096
|
|
|
|
8,456
|
|
Other Expenses
|
|
|
312
|
|
|
|
183
|
|
|
|
465
|
|
|
|
374
|
|
Interest Expense, net
|
|
$
|
5,656
|
|
|
$
|
4,342
|
|
|
$
|
9,557
|
|
|
$
|
8,828
|
|
Interest income includes interest on investments of excess cash. Components of interest expense include interest associated with the Private Placement Senior Unsecured Notes, the Credit Facility, the Senior Unsecured Notes and commitment fees based on the unused portion of the Credit Facility. Other expenses include amortization of debt issuance costs, and credit facility costs.
17
(O) COMMITMENTS AND CONTINGENCIES
We have certain deductible limits under our workers’ compensation and liability insurance policies for which reserves are established based on the undiscounted estimated costs of known and anticipated claims. We have entered into standby letter of credit agreements relating to workers’ compensation and auto and general liability self-insurance. At September 30, 2016, we had contingent liabilities under these outstanding letters of credit of approximately $10.7 million.
In the ordinary course of business, we execute contracts involving indemnifications that are standard in the industry and indemnifications specific to a transaction such as sale of a business. These indemnifications may include claims relating to any of the following: environmental and tax matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier, and other commercial contractual relationships; construction contracts and financial matters. While the maximum amount to which the Company may be exposed under such agreements cannot be estimated, it is the opinion of management that these indemnifications are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. We currently have no outstanding guarantees.
We are currently contingently liable for performance under $17.6 million in performance bonds required by certain states and municipalities, and their related agencies. The bonds are principally for certain reclamation obligations and mining permits. We have indemnified the underwriting insurance company against any exposure under the performance bonds. In our past experience, no material claims have been made against these financial instruments.
EPA Notice of Violation
On October 5, 2010, Region IX of the EPA issued a Notice of Violation and Finding of Violation (“NOV”) alleging violations by our subsidiary, Nevada Cement Company (“NCC”), of the Clean Air Act (“CAA”). The NOV alleges that NCC made certain physical changes to its facility in the 1990s without first obtaining permits required by the Prevention of Significant Deterioration requirements and Title V permit requirements of the CAA. The EPA also alleges that NCC has failed to submit to the EPA since 2002 certain reports required by the National Emissions Standard for Hazardous Air Pollutants General Provisions and the Portland Cement Manufacturing Industry Standards. On March 12, 2014, the EPA Region IX issued a second NOV to NCC. The second NOV is materially similar to the 2010 NOV except that it alleges violations of the new source performance standards (“NSPS”) for Portland cement plants. The NOVs state that the EPA may seek penalties although it does not propose or assess any specific level of penalties or specify what relief the EPA will seek for the alleged violations. NCC believes it has meritorious defenses to the allegations in the NOVs. The EPA and NCC remain in discussions regarding a resolution of the alleged violations. If a negotiated settlement cannot be reached, NCC intends to vigorously defend these matters in any enforcement action that may be pursued by the EPA. As a part of a settlement, or should NCC fail in its defense in any enforcement action, NCC could be required to make substantial capital expenditures to modify its facility and incur increased operating costs. NCC could also be required to pay significant civil penalties. Additionally, an enforcement action could take many years to resolve the underlying issues alleged in the NOV. We are currently unable to determine the final outcome of this matter or the impact of an unfavorable determination upon our financial position or results of operations.
Domestic Wallboard Antitrust Litigation
Since late December 2012, several purported class action lawsuits were filed in various United States District Courts, including the Eastern District of Pennsylvania, Western District of North Carolina and the Northern District of Illinois, against the Company’s subsidiary, American Gypsum Company LLC (“American Gypsum”), alleging that the defendant wallboard manufacturers conspired to fix the price for drywall sold in the United States in violation of federal antitrust laws and, in some cases related provisions of state law. The complaints allege that the defendant wallboard manufacturers conspired to increase prices through the announcement and implementation of coordinated price increases, output restrictions, and other restraints of trade,
18
including the elimination of individual “job quote” pricing.
In addition to American Gypsum, the defendants in these lawsuits include CertainTeed Corp., USG Corporation
and United States Gypsum (together “USG”)
, New NGC, Inc., Lafarge North America
(“Lafarge”)
, Temple Inland Inc.
(“TIN”)
and PABCO Building Products
LLC. On April 8, 2013, the Judicial Panel on Multidistrict Litigation
(“JP
ML”)
transferred and consolidated all related cases to the Eastern District of Pennsylvania for coordinated pretrial proceedings.
On June 24, 2013, the direct and indirect purchaser plaintiffs filed consolidated amended class action complaints. The direct purchasers’ complaint added the Company as a defendant. The plaintiffs in the consolidated class action lawsuits bring claims on behalf of purported classes of direct or indirect purchasers of wallboard from January 1, 2012 to the present for unspecified monetary damages (including treble damages) and in some cases injunctive relief. On July 29, 2013, the Company and American Gypsum answered the complaints, denying all allegations that they conspired to increase the price of drywall and asserting affirmative defenses to the plaintiffs’ claims.
In 2014, USG and TIN entered into agreements with counsel representing the direct and indirect purchaser classes pursuant to which they agreed to settle all claims against them. On August 20, 2015, the court entered orders finally approving USG and TIN’s settlements with the direct and indirect purchaser plaintiffs. Initial discovery in this litigation is complete. Following completion of the initial discovery, the Company and remaining co-defendants moved for summary judgement. On February 18, 2016, the court denied the Company’s motion for summary judgement. On June 16, 2016, Lafarge entered into an agreement with counsel for the direct purchaser class under which it agreed to settle all claims against it. The court entered an order preliminarily approving this settlement on July 18, 2016. On July 28, 2016, Lafarge entered into an agreement with counsel representing the indirect purchaser class under which it agreed to settle all claims against it. Indirect purchaser plaintiffs filed a motion for preliminary approval of this settlement in September 2016. On July 14, 2016, the Company’s motion for permission to appeal the summary judgement decision to the U.S. Court of Appeals for the Third Circuit was denied. Direct purchaser plaintiffs and indirect purchaser plaintiffs filed their motions for class certification on August 3, 2016 and October 12, 2016, respectively. Class certification proceedings are ongoing. We are unable to estimate the amount of any reasonably possible loss or range of reasonably possible losses. We deny the allegations in these lawsuits and will vigorously defend ourselves against these claims.
On March 17, 2015, a group of homebuilders filed a complaint against the defendants, including American Gypsum, based upon the same conduct alleged in the consolidated class action complaints. On March 24, 2015, the JPML transferred this action to the multidistrict litigation already pending in the Eastern District of Pennsylvania. Following the transfer, the homebuilder plaintiffs filed two amended complaints, on December 14, 2015 and March 25, 2016. Discovery in this lawsuit is ongoing.
In June 2015, American Gypsum and an employee received grand jury subpoenas from the United States District Court for the Western District of North Carolina seeking information regarding an investigation of the gypsum drywall industry by the Antitrust Division of the Department of Justice. We believe the investigation, although a separate proceeding, is related to the same subject matter at issue in the litigation described above and we intend to fully cooperate with government officials. Given its preliminary nature, we are currently unable to determine the ultimate outcome of such investigation.
19
(P) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of our long-term debt has been estimated based upon our current incremental borrowing rates for similar types of borrowing arrangements. The fair value of our Senior Notes at September 30, 2016 is as follows:
|
|
Fair Value
|
|
|
(dollars in thousands)
|
Series 2005A Tranche C
|
|
|
58,814
|
Series 2007A Tranche B
|
|
|
8,002
|
Series 2007A Tranche C
|
|
|
24,813
|
Series 2007A Tranche D
|
|
|
39,730
|
4.5% Senior Unsecured Notes Due 2026
|
|
|
356,195
|
The estimated fair value of our long-term debt was based on quoted prices of similar debt instruments with similar terms that are publicly traded (level 2 input). The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities approximate their fair values at September 30, 2016 due to the short-term maturities of these assets and liabilities. There were no borrowings under our Credit Facility at September 30, 2016.
(Q) FINANCIAL STATEMENTS FOR GUARANTORS OF THE 4.500% SENIOR UNSECURED NOTES
On August 2, 2016, the Company completed a public offering of its Senior Unsecured Notes. The Senior Unsecured Notes are senior unsecured obligations of the Company and were offered under the Company’s existing shelf registration statement filed with the Securities and Exchange Commission.
The Senior Unsecured Notes are guaranteed by all of the Company’s wholly-owned subsidiaries, and all guarantees are full and unconditional and are joint and several. The following unaudited condensed consolidating financial statements present separately the earnings and comprehensive earnings, financial position and cash flows of the parent issuer (Eagle Materials Inc.) and the guarantors (all wholly-owned subsidiaries of Eagle Materials Inc.) on a combined basis with eliminating entries (dollars in thousands)
.
Condensed Consolidating Statement of Earnings and Comprehensive Earnings
For the Three Months Ended September 30, 2016
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
|
$
|
—
|
|
|
$
|
332,658
|
|
|
$
|
—
|
|
|
$
|
332,658
|
|
Cost of Goods Sold
|
|
—
|
|
|
|
241,448
|
|
|
|
—
|
|
|
|
241,448
|
|
Gross Profit
|
|
—
|
|
|
|
91,210
|
|
|
|
—
|
|
|
|
91,210
|
|
Equity in Earnings of Unconsolidated Joint Venture
|
|
12,147
|
|
|
|
12,147
|
|
|
|
(12,147
|
)
|
|
|
12,147
|
|
Equity in Earnings of Subsidiaries
|
|
61,469
|
|
|
|
—
|
|
|
|
(61,469
|
)
|
|
|
—
|
|
Corporate General and Administrative Expenses
|
|
(7,497
|
)
|
|
|
(1,335
|
)
|
|
|
—
|
|
|
|
(8,832
|
)
|
Other Income (Loss)
|
|
(137
|
)
|
|
|
641
|
|
|
|
—
|
|
|
|
504
|
|
Interest Expense, net
|
|
(12,354
|
)
|
|
|
6,698
|
|
|
|
—
|
|
|
|
(5,656
|
)
|
Earnings before Income Taxes
|
|
53,628
|
|
|
|
109,361
|
|
|
|
(73,616
|
)
|
|
|
89,373
|
|
Income Taxes
|
|
6,609
|
|
|
|
(35,745
|
)
|
|
|
—
|
|
|
|
(29,136
|
)
|
Net Earnings
|
$
|
60,237
|
|
|
$
|
73,616
|
|
|
$
|
(73,616
|
)
|
|
$
|
60,237
|
|
Net Earnings
|
$
|
60,237
|
|
|
$
|
73,616
|
|
|
$
|
(73,616
|
)
|
|
$
|
60,237
|
|
Net Actuarial Change in Benefit Plans, net of tax
|
|
312
|
|
|
|
312
|
|
|
|
(312
|
)
|
|
|
312
|
|
Comprehensive Earnings
|
$
|
60,549
|
|
|
$
|
73,928
|
|
|
$
|
(73,928
|
)
|
|
$
|
60,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Condensed Consolidating Statement of Earnings and Comprehensive Earnings
For the Three Months Ended September 30, 2015
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
|
$
|
—
|
|
|
$
|
328,988
|
|
|
$
|
—
|
|
|
$
|
328,988
|
|
Cost of Goods Sold
|
|
—
|
|
|
|
284,694
|
|
|
|
—
|
|
|
|
284,694
|
|
Gross Profit
|
|
—
|
|
|
|
44,294
|
|
|
|
—
|
|
|
|
44,294
|
|
Equity in Earnings of Unconsolidated Joint Venture
|
|
11,680
|
|
|
|
11,680
|
|
|
|
(11,680
|
)
|
|
|
11,680
|
|
Equity in Earnings of Subsidiaries
|
|
30,255
|
|
|
|
—
|
|
|
|
(30,255
|
)
|
|
|
—
|
|
Corporate General and Administrative Expenses
|
|
(8,040
|
)
|
|
|
(1,324
|
)
|
|
|
—
|
|
|
|
(9,364
|
)
|
Other Income (Loss)
|
|
(173
|
)
|
|
|
745
|
|
|
|
—
|
|
|
|
572
|
|
Interest Expense, net
|
|
(9,268
|
)
|
|
|
4,926
|
|
|
|
—
|
|
|
|
(4,342
|
)
|
Earnings before Income Taxes
|
|
24,454
|
|
|
|
60,321
|
|
|
|
(41,935
|
)
|
|
|
42,840
|
|
Income Taxes
|
|
5,365
|
|
|
|
(18,386
|
)
|
|
|
—
|
|
|
|
(13,021
|
)
|
Net Earnings
|
$
|
29,819
|
|
|
$
|
41,935
|
|
|
$
|
(41,935
|
)
|
|
$
|
29,819
|
|
Net Earnings
|
$
|
29,819
|
|
|
$
|
41,935
|
|
|
$
|
(41,935
|
)
|
|
$
|
29,819
|
|
Net Actuarial Change in Benefit Plans, net of tax
|
|
320
|
|
|
|
312
|
|
|
|
(312
|
)
|
|
|
320
|
|
Comprehensive Earnings
|
$
|
30,139
|
|
|
$
|
42,247
|
|
|
$
|
(42,247
|
)
|
|
$
|
30,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Earnings and Comprehensive Earnings
For the Six Months Ended September 30, 2016
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
|
$
|
—
|
|
|
$
|
630,162
|
|
|
$
|
—
|
|
|
$
|
630,162
|
|
Cost of Goods Sold
|
|
—
|
|
|
|
466,997
|
|
|
|
—
|
|
|
|
466,997
|
|
Gross Profit
|
|
—
|
|
|
|
163,165
|
|
|
|
—
|
|
|
|
163,165
|
|
Equity in Earnings of Unconsolidated Joint Venture
|
|
20,127
|
|
|
|
20,127
|
|
|
|
(20,127
|
)
|
|
|
20,127
|
|
Equity in Earnings of Subsidiaries
|
|
111,172
|
|
|
|
—
|
|
|
|
(111,172
|
)
|
|
|
—
|
|
Corporate General and Administrative Expenses
|
|
(15,728
|
)
|
|
|
(2,937
|
)
|
|
|
—
|
|
|
|
(18,665
|
)
|
Other Income (Loss)
|
|
(214
|
)
|
|
|
1,793
|
|
|
|
—
|
|
|
|
1,579
|
|
Interest Expense, net
|
|
(22,365
|
)
|
|
|
12,808
|
|
|
|
—
|
|
|
|
(9,557
|
)
|
Earnings before Income Taxes
|
|
92,992
|
|
|
|
194,956
|
|
|
|
(131,299
|
)
|
|
|
156,649
|
|
Income Taxes
|
|
12,589
|
|
|
|
(63,657
|
)
|
|
|
—
|
|
|
|
(51,068
|
)
|
Net Earnings
|
$
|
105,581
|
|
|
$
|
131,299
|
|
|
$
|
(131,299
|
)
|
|
$
|
105,581
|
|
Net Earnings
|
$
|
105,581
|
|
|
$
|
131,299
|
|
|
$
|
(131,299
|
)
|
|
$
|
105,581
|
|
Net Actuarial Change in Benefit Plans, net of tax
|
|
624
|
|
|
|
624
|
|
|
|
(624
|
)
|
|
|
624
|
|
Comprehensive Earnings
|
$
|
106,205
|
|
|
$
|
131,923
|
|
|
$
|
(131,923
|
)
|
|
$
|
106,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Earnings and Comprehensive Earnings
For the Six Months Ended September 30, 2015
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
|
$
|
—
|
|
|
$
|
613,951
|
|
|
$
|
—
|
|
|
$
|
613,951
|
|
Cost of Goods Sold
|
|
—
|
|
|
|
508,560
|
|
|
|
—
|
|
|
|
508,560
|
|
Gross Profit
|
|
—
|
|
|
|
105,391
|
|
|
|
—
|
|
|
|
105,391
|
|
Equity in Earnings of Unconsolidated Joint Venture
|
|
19,510
|
|
|
|
19,510
|
|
|
|
(19,510
|
)
|
|
|
19,510
|
|
Equity in Earnings of Subsidiaries
|
|
71,701
|
|
|
|
—
|
|
|
|
(71,701
|
)
|
|
|
—
|
|
Corporate General and Administrative Expenses
|
|
(15,731
|
)
|
|
|
(2,624
|
)
|
|
|
—
|
|
|
|
(18,355
|
)
|
Other Income (Loss)
|
|
(306
|
)
|
|
|
1,313
|
|
|
|
—
|
|
|
|
1,007
|
|
Interest Expense, net
|
|
(18,484
|
)
|
|
|
9,656
|
|
|
|
—
|
|
|
|
(8,828
|
)
|
Earnings before Income Taxes
|
|
56,690
|
|
|
|
133,246
|
|
|
|
(91,211
|
)
|
|
|
98,725
|
|
Income Taxes
|
|
10,891
|
|
|
|
(42,035
|
)
|
|
|
—
|
|
|
|
(31,144
|
)
|
Net Earnings
|
$
|
67,581
|
|
|
$
|
91,211
|
|
|
$
|
(91,211
|
)
|
|
$
|
67,581
|
|
Net Earnings
|
$
|
67,581
|
|
|
$
|
91,211
|
|
|
$
|
(91,211
|
)
|
|
$
|
67,581
|
|
Net Actuarial Change in Benefit Plans, net of tax
|
|
640
|
|
|
|
640
|
|
|
|
(640
|
)
|
|
|
640
|
|
Comprehensive Earnings
|
$
|
68,221
|
|
|
$
|
91,851
|
|
|
$
|
(91,851
|
)
|
|
$
|
68,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Condensed Consolidating Balance Sheet
At September 30, 2016
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
52,524
|
|
|
$
|
1,982
|
|
|
$
|
—
|
|
|
$
|
54,506
|
|
Accounts and Notes Receivable
|
|
562
|
|
|
|
154,679
|
|
|
|
—
|
|
|
|
155,241
|
|
Inventories
|
|
—
|
|
|
|
217,582
|
|
|
|
—
|
|
|
|
217,582
|
|
Income Tax Receivable
|
|
55,316
|
|
|
|
—
|
|
|
|
(54,270
|
)
|
|
|
1,046
|
|
Prepaid and Other Current Assets
|
|
4,273
|
|
|
|
2,488
|
|
|
|
—
|
|
|
|
6,761
|
|
Total Current Assets
|
|
112,675
|
|
|
|
376,731
|
|
|
|
(54,270
|
)
|
|
|
435,136
|
|
Property, Plant and Equipment -
|
|
2,846
|
|
|
|
2,086,653
|
|
|
|
—
|
|
|
|
2,089,499
|
|
Less: Accumulated Depreciation
|
|
(870
|
)
|
|
|
(854,278
|
)
|
|
|
—
|
|
|
|
(855,148
|
)
|
Property, Plant and Equipment, net
|
|
1,976
|
|
|
|
1,232,375
|
|
|
|
—
|
|
|
|
1,234,351
|
|
Notes Receivable
|
|
—
|
|
|
|
1,158
|
|
|
|
—
|
|
|
|
1,158
|
|
Deferred Income Taxes
|
|
3,799
|
|
|
|
—
|
|
|
|
(3,799
|
)
|
|
|
—
|
|
Investment in Joint Venture
|
|
42
|
|
|
|
47,810
|
|
|
|
—
|
|
|
|
47,852
|
|
Investments in Subsidiaries and Receivables from Affiliates
|
|
4,297,977
|
|
|
|
2,830,083
|
|
|
|
(7,128,060
|
)
|
|
|
—
|
|
Goodwill and Intangible Assets, net
|
|
—
|
|
|
|
162,506
|
|
|
|
—
|
|
|
|
162,506
|
|
Other Assets
|
|
5,979
|
|
|
|
21,153
|
|
|
|
—
|
|
|
|
27,132
|
|
|
$
|
4,422,448
|
|
|
$
|
4,671,816
|
|
|
$
|
(7,186,129
|
)
|
|
$
|
1,908,135
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
$
|
6,183
|
|
|
$
|
56,298
|
|
|
$
|
—
|
|
|
$
|
62,481
|
|
Accrued Liabilities
|
|
18,047
|
|
|
|
35,746
|
|
|
|
—
|
|
|
|
53,793
|
|
Income Tax Payable
|
|
—
|
|
|
|
54,270
|
|
|
|
(54,270
|
)
|
|
|
—
|
|
Current Portion of Long-term Debt
|
|
8,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,000
|
|
Total Current Liabilities
|
|
32,230
|
|
|
|
146,314
|
|
|
|
(54,270
|
)
|
|
|
124,274
|
|
Long-term Debt
|
|
461,182
|
|
|
|
—
|
|
|
|
—
|
|
|
|
461,182
|
|
Other Long-term Liabilities
|
|
223
|
|
|
|
59,699
|
|
|
|
—
|
|
|
|
59,922
|
|
Payables to Affiliates
|
|
2,830,083
|
|
|
|
2,122,882
|
|
|
|
(4,952,965
|
)
|
|
|
—
|
|
Deferred Income Taxes
|
|
—
|
|
|
|
167,826
|
|
|
|
(3,799
|
)
|
|
|
164,027
|
|
Total Liabilities
|
|
3,323,718
|
|
|
|
2,496,721
|
|
|
|
(5,011,034
|
)
|
|
|
809,405
|
|
Total Stockholders’ Equity
|
|
1,098,730
|
|
|
|
2,175,095
|
|
|
|
(2,175,095
|
)
|
|
|
1,098,730
|
|
|
$
|
4,422,448
|
|
|
$
|
4,671,816
|
|
|
$
|
(7,186,129
|
)
|
|
$
|
1,908,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Condensed Consolidating Balance Sheet
At March 31, 2016
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
3,507
|
|
|
$
|
1,884
|
|
|
$
|
—
|
|
|
$
|
5,391
|
|
Accounts and Notes Receivable
|
|
324
|
|
|
|
119,897
|
|
|
|
—
|
|
|
|
120,221
|
|
Inventories
|
|
—
|
|
|
|
243,595
|
|
|
|
—
|
|
|
|
243,595
|
|
Income Tax Receivable
|
|
—
|
|
|
|
6,731
|
|
|
|
(1,108
|
)
|
|
|
5,623
|
|
Prepaid and Other Current Assets
|
|
1,365
|
|
|
|
3,808
|
|
|
|
—
|
|
|
|
5,173
|
|
Total Current Assets
|
|
5,196
|
|
|
|
375,915
|
|
|
|
(1,108
|
)
|
|
|
380,003
|
|
Property, Plant and Equipment -
|
|
2,612
|
|
|
|
2,070,164
|
|
|
|
—
|
|
|
|
2,072,776
|
|
Less: Accumulated Depreciation
|
|
(814
|
)
|
|
|
(816,651
|
)
|
|
|
—
|
|
|
|
(817,465
|
)
|
Property, Plant and Equipment, net
|
|
1,798
|
|
|
|
1,253,513
|
|
|
|
—
|
|
|
|
1,255,311
|
|
Notes Receivable
|
|
—
|
|
|
|
2,672
|
|
|
|
—
|
|
|
|
2,672
|
|
Deferred Income Taxes
|
|
3,375
|
|
|
|
—
|
|
|
|
(3,375
|
)
|
|
|
—
|
|
Investment in Joint Venture
|
|
33
|
|
|
|
49,432
|
|
|
|
—
|
|
|
|
49,465
|
|
Investments in Subsidiaries and Receivables from Affiliates
|
|
4,085,806
|
|
|
|
2,529,480
|
|
|
|
(6,615,286
|
)
|
|
|
—
|
|
Goodwill and Intangible Assets, net
|
|
—
|
|
|
|
165,827
|
|
|
|
—
|
|
|
|
165,827
|
|
Other Assets
|
|
5,557
|
|
|
|
24,800
|
|
|
|
—
|
|
|
|
30,357
|
|
|
$
|
4,101,765
|
|
|
$
|
4,401,639
|
|
|
$
|
(6,619,769
|
)
|
|
$
|
1,883,635
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
$
|
6,968
|
|
|
$
|
59,646
|
|
|
$
|
—
|
|
|
$
|
66,614
|
|
Accrued Liabilities
|
|
15,708
|
|
|
|
30,267
|
|
|
|
—
|
|
|
|
45,975
|
|
Income Tax Payable
|
|
1,108
|
|
|
|
—
|
|
|
|
(1,108
|
)
|
|
|
—
|
|
Current Portion of Long-term Debt
|
|
8,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,000
|
|
Total Current Liabilities
|
|
31,784
|
|
|
|
89,913
|
|
|
|
(1,108
|
)
|
|
|
120,589
|
|
Long-term Debt
|
|
499,714
|
|
|
|
—
|
|
|
|
—
|
|
|
|
499,714
|
|
Other Long-term Liabilities
|
|
256
|
|
|
|
60,866
|
|
|
|
—
|
|
|
|
61,122
|
|
Payables to Affiliates
|
|
2,529,480
|
|
|
|
2,042,633
|
|
|
|
(4,572,113
|
)
|
|
|
—
|
|
Deferred Income Taxes
|
|
—
|
|
|
|
165,054
|
|
|
|
(3,375
|
)
|
|
|
161,679
|
|
Total Liabilities
|
|
3,061,234
|
|
|
|
2,358,466
|
|
|
|
(4,576,596
|
)
|
|
|
843,104
|
|
Total Stockholders’ Equity
|
|
1,040,531
|
|
|
|
2,043,173
|
|
|
|
(2,043,173
|
)
|
|
|
1,040,531
|
|
|
$
|
4,101,765
|
|
|
$
|
4,401,639
|
|
|
$
|
(6,619,769
|
)
|
|
$
|
1,883,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Condensed Consolidating Statement of Cash Flows
Six Months ended September 30, 2016
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
$
|
(78,298
|
)
|
|
$
|
238,450
|
|
|
$
|
—
|
|
|
$
|
160,152
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Property, Plant and Equipment
|
|
(233
|
)
|
|
|
(17,998
|
)
|
|
|
—
|
|
|
|
(18,231
|
)
|
Net Cash Used in Investing Activities
|
|
(233
|
)
|
|
|
(17,998
|
)
|
|
|
—
|
|
|
|
(18,231
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Long-term Debt
|
|
(32,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(32,000
|
)
|
Payment of Debt Issuance Costs
|
|
(6,637
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,637
|
)
|
Dividends Paid to Stockholders
|
|
(9,677
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,677
|
)
|
Purchase and Retirement of Common Stock
|
|
(60,013
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(60,013
|
)
|
Proceeds from Stock Option Exercises
|
|
12,992
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,992
|
|
Shares Redeemed to Settle Employee Taxes on Stock Compensation
|
|
(2,965
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,965
|
)
|
Excess Tax Benefits from Share Based Payment Arrangements
|
|
5,494
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,494
|
|
Intra-entity Activity, net
|
|
220,354
|
|
|
|
(220,354
|
)
|
|
|
—
|
|
|
|
—
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
127,548
|
|
|
|
(220,354
|
)
|
|
|
—
|
|
|
|
(92,806
|
)
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
49,017
|
|
|
|
98
|
|
|
|
—
|
|
|
|
49,115
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
3,507
|
|
|
|
1,884
|
|
|
|
—
|
|
|
|
5,391
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
52,524
|
|
|
$
|
1,982
|
|
|
$
|
—
|
|
|
$
|
54,506
|
|
Condensed Consolidating Statement of Cash Flows
Six Months ended September 30, 2015
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
$
|
(73,242)
|
|
|
$
|
180,831
|
|
|
$
|
—
|
|
|
$
|
107,589
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Property, Plant and Equipment
|
|
—
|
|
|
|
(55,869
|
)
|
|
|
—
|
|
|
|
(55,869
|
)
|
Acquisition Spending
|
|
|
|
|
|
(32,427
|
)
|
|
|
|
|
|
|
(32,427
|
)
|
Net Cash Used in Investing Activities
|
|
—
|
|
|
|
(88,296
|
)
|
|
|
—
|
|
|
|
(88,296
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of Credit Facility
|
|
(3,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,000
|
)
|
Dividends Paid to Stockholders
|
|
(10,061
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,061
|
)
|
Shares Redeemed to Settle Employee Taxes on Stock Compensation
|
|
(1,728
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,728
|
)
|
Purchase and Retirement of Common Stock
|
|
(10,744
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,744
|
)
|
Proceed from Stock Option Exercises
|
|
2,580
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,580
|
|
Excess Tax Benefits from Share Based Payment Arrangements
|
|
2,494
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,494
|
|
Intra-entity Activity, net
|
|
93,382
|
|
|
|
(93,382
|
)
|
|
|
—
|
|
|
|
—
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
72,923
|
|
|
|
(93,382
|
)
|
|
|
—
|
|
|
|
(20,459
|
)
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
(319
|
)
|
|
|
(847
|
)
|
|
|
—
|
|
|
|
(1,166
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
3,644
|
|
|
|
3,870
|
|
|
|
—
|
|
|
|
7,514
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
3,325
|
|
|
$
|
3,023
|
|
|
$
|
—
|
|
|
$
|
6,348
|
|
24
Ite
m 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
EXECUTIVE SUMMARY
Eagle Materials Inc. is a diversified producer of basic building products used in residential, industrial, commercial and infrastructure construction. Information presented for the three and six months ended September 30, 2016 and 2015, respectively, reflects the Company’s business segments, consisting of Cement, Gypsum Wallboard, Recycled Paperboard, Oil and Gas Proppants and Concrete and Aggregates. These operations are conducted in the U.S. and include the mining of limestone and the manufacture, production, distribution and sale of Portland cement (a basic construction material which is the essential binding ingredient in concrete) as well as specialty oil well cement; the grinding of slag; the mining of gypsum and 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, the mining and sale of aggregates (crushed stone, sand and gravel) and the mining and sale of sand used in hydraulic fracturing (“frac sand”). The products that we manufacture, distribute and sell are basic materials with broad application as construction products, building materials and basic materials used for oil and natural gas extraction. Our construction products are used in residential, industrial, commercial and infrastructure construction and include cement, slag, concrete and aggregates. Our building materials are sold into similar markets and include gypsum wallboard. Our basic materials used for oil and gas extraction include frac sand and oil well cement. Certain information for each of Concrete and Aggregates is broken out separately in the segment discussions.
We operate in cyclical commodity businesses that are affected by changes in market conditions and the overall construction environment. Our operations, depending on each business segment, range from local in nature to national businesses. We have operations in a variety of geographic markets, which subject us to the economic conditions in those geographic markets as well as economic conditions in the national market. General economic downturns or localized downturns in the regions where we have operations may have a material adverse effect on our business, financial condition and results of operations. Our cement and slag companies focus on the U.S. heartland in Texas, Oklahoma, Missouri, Colorado, Wyoming and Nevada, as well as the Chicago, Illinois metropolitan area. Due to the low value-to-weight ratio of cement, it is usually shipped within a 150 mile radius of the plants by truck and up to 300 miles by rail. Concrete and aggregates are even more regional as our operations serve the areas immediately surrounding Austin, Texas, north of Sacramento, California and the greater Kansas City, Missouri area, while frac sand is currently sold into shale deposit zones across the United States. Cement, concrete and aggregates and frac sand demand may fluctuate more widely because local and regional markets and economies may be more sensitive to changes than the national markets. Our Wallboard and Paperboard operations are more national in scope and shipments are made throughout most of the continental United States, except for the northeast.
On July 10, 2015, we completed the acquisition of a 600,000 ton per year Granulated Ground Blast Furnace Slag (“Slag”) plant in South Chicago (the “Skyway Plant”) from Holcim (US) Inc. (the “Skyway Acquisition”). Among other applications, slag is used in connection with Portland cement to make lower permeability concrete. The Skyway facility purchases its primary raw material, Slag, pursuant to a long-term supply agreement with a third party.
The purchase price (the “Skyway Purchase Price”) for the Skyway Acquisition was approximately $29.9 million, net of $2.5 million which will be refunded by the seller. We received $1.5 million of the expected refund in January 2016, and we expect to receive the remaining $1.0 million in January 2017. We funded the payment of the Skyway Purchase Price and expenses incurred in connection with the Skyway Acquisition through operating cash flow. We also assumed certain liabilities, including contractual obligations, related to the Skyway Plant.
On September 11, 2016, Eagle Materials Inc. (the “Company”) and Cemex Construction Materials Atlantic, LLC (the “Seller”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) pursuant to which the Company will acquire (the “Fairborn Acquisition”) (i) a cement plant located in Fairborn, Ohio, (ii) a cement distribution terminal located in Columbus, Ohio, and (iii) certain other properties and assets used by the Seller in connection with the foregoing (collectively, the “Fairborn Business”).
25
The purchase price (the “Purchase Price”) to be paid by the Company in the
Fairborn Acquisition
is $400
.0
million in cash, subject to a customary post-closing inventory adjustment. In addition, the Company will assume certain liabilities and obligations of the Seller relating to the
Fairborn
Business, including contractual obligations, reclamation obligations and various other liabilities and obligations arising out of or relating to the
Fairborn
Business after the closing of the
Fairborn Acquisition
. The Company expects to fund the payment o
f the Purchase Price and expenses incurred in connection with the
Fairborn Acquisition
through a combination of cash on hand and borrowings under the Company’s existing bank credit facility.
T
he
Fairborn
Acquisition is expected to close in the fourth quart
er of
calendar
2016 or
shortly thereafter
.
We conduct one of our cement operations through a joint venture, Texas Lehigh Cement Company LP, which is located in Buda, Texas (the “Joint Venture”). We own a 50% interest in the Joint Venture and account for our interest under the equity method of accounting. We proportionately consolidate our 50% share of the Joint Venture’s revenues 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.
RESULTS OF OPERATIONS
Consolidated Results
|
|
For the Three Months Ended
September 30,
|
|
|
|
|
|
|
For the Six Months Ended
September 30,
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
(In thousands except per share)
|
|
|
|
|
|
|
(In thousands except per share)
|
|
|
|
|
|
Revenues
|
|
$
|
332,658
|
|
|
$
|
328,988
|
|
|
|
1%
|
|
|
$
|
630,162
|
|
|
$
|
613,951
|
|
|
|
3%
|
|
Cost of Goods Sold
|
|
|
(241,448
|
)
|
|
|
(284,694
|
)
|
|
|
(15%)
|
|
|
|
(466,997
|
)
|
|
|
(508,560
|
)
|
|
|
(8%)
|
|
Gross Profit
|
|
|
91,210
|
|
|
|
44,294
|
|
|
|
106%
|
|
|
|
163,165
|
|
|
|
105,391
|
|
|
|
55%
|
|
Equity in Earnings of Unconsolidated Joint Venture
|
|
|
12,147
|
|
|
|
11,680
|
|
|
|
4%
|
|
|
|
20,127
|
|
|
|
19,510
|
|
|
|
3%
|
|
Corporate General and Administrative
|
|
|
(8,832
|
)
|
|
|
(9,364
|
)
|
|
|
(6%)
|
|
|
|
(18,665
|
)
|
|
|
(18,355
|
)
|
|
|
2%
|
|
Other Income
|
|
|
504
|
|
|
|
572
|
|
|
|
(12%)
|
|
|
|
1,579
|
|
|
|
1,007
|
|
|
|
57%
|
|
Interest Expense, net
|
|
|
(5,656
|
)
|
|
|
(4,342
|
)
|
|
|
30%
|
|
|
|
(9,557
|
)
|
|
|
(8,828
|
)
|
|
|
8%
|
|
Earnings Before Income Taxes
|
|
|
89,373
|
|
|
|
42,840
|
|
|
|
109%
|
|
|
|
156,649
|
|
|
|
98,725
|
|
|
|
59%
|
|
Income Tax Expense
|
|
|
(29,136
|
)
|
|
|
(13,021
|
)
|
|
|
124%
|
|
|
|
(51,068
|
)
|
|
|
(31,144
|
)
|
|
|
63%
|
|
Net Earnings
|
|
$
|
60,237
|
|
|
$
|
29,819
|
|
|
|
102%
|
|
|
$
|
105,581
|
|
|
$
|
67,581
|
|
|
|
56%
|
|
Diluted Earnings per Share
|
|
$
|
1.25
|
|
|
$
|
0.59
|
|
|
|
112%
|
|
|
$
|
2.18
|
|
|
$
|
1.34
|
|
|
|
63%
|
|
Revenues.
Revenues were $332.7 million and $329.0 million for the three months ended September 30, 2016 and 2015, respectively. Revenues increased in all of our segments except our oil and gas proppants segment. The increase in revenues for the three months ended September 30, 2016 was due primarily to increased average net sales prices in all segments except gypsum wallboard and recycled paperboard, which were down approximately 2% and 1%, respectively, compared to the three months ended September 30, 2015. The increase in revenues for the three months ended September 30, 2016, compared to September 30, 2015 was partially offset by decreased sales volumes in our cement, concrete and oil and gas proppants segments. The increase in average net sales prices positively impacted net revenue by approximately $4.7 million during the quarter ended September 30, 2016, compared to September 30, 2015, partially offset by $0.2 million reduction in revenue from lower sales volumes.
Revenues were $630.2 million and $614.0 million for the six months ended September 30, 2016 and 2015, respectively. Revenues from the Skyway Acquisition positively impacted revenues by approximately $9.9 million. Net revenues from our legacy businesses increased approximately 1% during the six months ended September 30, 2016, compared to the six months ended September 30, 2015. Revenues increased in all of our segments except our oil and gas proppants segment. The increase in revenues for the six months ended September 30, 2016 was due primarily to increased average net sales prices in all segments except gypsum
26
wallboard and recycled paperboard, which were down approximately 3% and 1%,
respectively
, compared
to
the six months ended September 30, 201
6
,
and increased sales volumes in all segments except our oil and gas
proppants
segment.
Excluding revenues from the
Skyway Acquisition
, increased net sales prices and sales volumes positively impacted net revenue during the quarter ended September 30, 201
6
,
by approximately $
2.3
million and $
4.0
million, respectively.
Cost of Goods Sold.
Cost of goods sold was $241.4 million and $284.7 million during the three months ended September 30, 2016 and 2015, respectively. The decrease in cost of goods sold for the three months ended September 30, 2016, compared to the three months ended September 30, 2015, was primarily related to an impairment charge of $28.4 million and a write-down of $9.4 million in raw sand inventory values in our oil and gas proppants segment during the three months ended September 30, 2015. The remaining decrease in cost of goods sold was related to decreased sales volumes, primarily in our oil and gas proppants business, which decreased cost of goods sold by approximately $8.3 million, partially offset by an increase in operating costs of approximately $3.7 million. The increase in operating costs in the three months ended September 30, 2016, compared to September 30, 2015, was primarily related to our cement business and was approximately $6.1 million, partially offset by decreased operating costs in our gypsum wallboard business of approximately $2.5 million.
Cost of goods sold was $467.0 million and $508.6 million during the six months ended September 30, 2016 and 2015, respectively. The decrease in cost of goods sold for the six months ended September 30, 2016, compared to the six months ended September 30, 2015, was primarily related an impairment charge of $28.4 million and a write-down of $9.4 million in raw sand inventory values in our oil and gas proppants segment during the six months ended September 30, 2015. The remaining $2.9 million decrease in cost of goods sold was related to decreased sales volumes, which decreased cost of sales by approximately $10.7 million, partially offset by increased operating cost and cost of goods sold from the Skyway Acquisition of approximately $2.4 million and $5.4 million, respectively. Operating costs for the six months ended September 30, 2016, compared to September 30, 2015, increased for our cement business by approximately $10.2 million, partially offset by decreased operating costs in our gypsum wallboard and recycled paperboard businesses of approximately $4.0 million and $3.1 million, respectively.
Gross Profit.
Gross profit was $91.2 million and $44.3 million during the three months ended September 30, 2016 and 2015, respectively. The increase in gross profit was primarily related an impairment charge of $28.4 million and a write-down of $9.4 million in raw sand inventory values in our oil and gas proppants segment during the three months ended September 30, 2015. The remaining increase in gross profit was due primarily to increased average net sales prices and lower cost of goods sold related to lower sales volumes, as noted above. The gross margin for the three months ended September 30, 2016 increased to 27%, compared to 13% for the three months ended September 30, 2015. Excluding the $28.4 million impairment of customer contract intangibles and the write-down of $9.4 million in raw sand inventory during the three months ended September 30, 2015, the gross margin for the three months ended September 30, 2015 would have been approximately 25%. The increase in the gross margin to 27% for the three months ended September 30, 2016, compared to the adjusted gross margin of 25% for the three months ended September 30, 2015 is due primarily to the increase in average net sales prices.
Gross profit was $163.2 million and $105.4 million during the six months ended September 30, 2016 and 2015, respectively. The increase in gross profit was primarily related an impairment charge of $28.4 million and a write-down of $9.4 million in raw sand inventory values in our oil and gas proppants segment during the six months ended September 30, 2015. The remaining increase in gross profit was due primarily to increased average net sales prices and lower cost of goods sold related to lower sales volumes, as noted above. The gross margin for the six months ended September 30, 2016 increased to 26%, compared to 17% for the six months ended September 30, 2015. Excluding the $28.4 million impairment of customer contract intangibles and the write-down of $9.4 million in raw sand inventory during the three months ended September 30, 2015, the gross margin for the six months ended September 30, 2015 would have been approximately 23%. The increase in the gross margin to 26% for the six months ended September 30, 2016, compared to the adjusted gross margin of 23% for
27
the six months ended September
30, 2015 is due primarily to the increase in average net sales prices
and the Skyway Acquisition
.
Equity in Earnings of Joint Venture.
Equity in earnings of our unconsolidated joint venture increased $0.5 million, or 4%, for the three months ended September 30, 2016, compared to the similar period in 2015. The increase is primarily due to a 3% increase in sales volumes and a decrease in operating costs, partially offset by an 11% decrease in average net sales price. The impact of the increase in sales volumes and decrease in operating costs on equity in earnings of our unconsolidated joint venture during the three months ended September 30, 2016, compared to the three months ended September 30, 2015, was approximately $0.3 million and $3.4 million, respectively, partially offset by a decrease in average net sales price of approximately $3.3 million. The decrease in operating costs was primarily due to a decrease in fuel and power and purchased cement of approximately $0.8 million and $2.8 million, respectively, while the decrease in the average net sales prices was due to a reduction in oil well cement sales.
Equity in earnings of our unconsolidated joint venture increased $0.6 million, or 3%, for the six months ended September 30, 2016, compared to the similar period in 2015. The increase is primarily due to a 3% increase in sales volumes and a decrease in operating costs, partially offset by an 11% decrease in average net sales price. The impact of the increase in sales volumes and decrease in operating costs on equity in earnings of our unconsolidated joint venture during the six months ended September 30, 2016, compared to the six months ended September 30, 2015, was approximately $0.5 million and $6.3 million, respectively, partially offset by a decrease in average net sales price of approximately $6.2 million. The decrease in operating costs was primarily due to a decrease in maintenance, fuel and power and purchased cement costs of approximately $0.6 million, $1.1 million and $4.3 million, respectively, while the decrease in the average net sales prices was due to a reduction in oil well cement sales.
Corporate General and Administrative.
Corporate general and administrative expenses decreased 6% for the three months ended September 30, 2016, compared to the similar periods in 2015. The approximately $0.6 million decrease in corporate general and administrative expenses for the three months ended September 30, 2016, compared to 2015, is due primarily to a decrease of approximately $0.8 million in stock and incentive compensation, partially offset by increased legal expenses of approximately $0.5 million during the three months ended September 30, 2016, compared to the three months ended September 30, 2015. The decrease in stock and incentive compensation is due primarily to the vesting of grants issued in the prior year, while the increase in legal expense is due primarily to the Fairborn Acquisition.
Corporate general and administrative expenses increased 2% for the six months ended September 30, 2016, compared to the similar periods in 2015. The approximately $0.3 million increase in corporate general and administrative expenses for the six months ended September 30, 2016, compared to 2015, is due primarily due to increased legal expenses of approximately $1.2 million during the six months ended September 30, 2016, compared to the similar period in 2015, partially offset by a decrease in stock and incentive compensation of approximately $0.9 million. The increase in legal expenses is due primarily to the domestic wallboard antitrust litigation and the Fairborn Acquisition, while the decrease in stock and incentive compensation is due to the vesting of grants issued in prior years.
Other Income.
Other income consists of a variety of items that are non-segment operating in nature and includes non-inventoried aggregates income, gypsum wallboard distribution center income, asset sales and other miscellaneous income and cost items.
Interest Expense, Net.
Interest expense, net, increased approximately $1.4 million and $0.8 million during the three and six months ended September 30, 2016, respectively, compared to the three and six months ended September 30, 2015. The increase in interest expense, net for both of the three and six months ended September 30, 2016, compared to the similar three and six months in the prior fiscal year, is due primarily to our issuance of $350.0 million of 4.5% senior notes during August 2016. The proceeds from this debt issuance were used to repay the outstanding balance under our Credit Facility, which currently has a lower interest rate. We expect our
28
interest expense to increase over the next two quarter
s
of fiscal 2017, as we expect to use bor
rowings under the Credit Facility to fund the
Fairborn Acquisition
, which is expected to close in the fourth quarter of calendar 2016, or shortly thereafter. See Footnote (B) to the Unaudited Consolidated Financial Statements for more information regardin
g the
Fairborn Acquisition
.
Earnings Before Income Taxes.
Earnings before income taxes were $89.4 million and $42.8 million during the three months ended September 30, 2016 and 2015, respectively. The increase was primarily due to an approximately $46.9 million increase in gross profit, a $0.4 million increase in equity in earnings of unconsolidated joint venture, an increase in interest expense, net of approximately $0.4 million and a decrease of approximately $0.6 million in corporate general and administrative expenses.
Earnings before income taxes were $156.6 million and $98.7 million during the six months ended September 30, 2016 and 2015, respectively. The increase was primarily due to an approximately $57.8 million increase in gross profit, a $0.6 million increase in equity in earnings of unconsolidated joint venture, an increase in interest expense, net of approximately $0.8 million and an increase of approximately $0.3 million in corporate general and administrative expenses.
Income Taxes.
Income tax expense was $51.1 million and $31.1 million for the six months ended September 30, 2016 and 2015, respectively. The estimated effective tax rate for fiscal 2017 was approximately 33%, which is relatively consistent with the tax rate for fiscal 2016.
Net Earnings and Diluted Earnings per Share.
Net earnings for the quarter ended September 30, 2016 of approximately $60.2 million increased 102% compared to net earnings for the quarter ended September 30, 2015 of approximately $29.8 million; while net earnings for the six months ended September 30, 2016 of $105.6 million increased 56% compared to net earnings for the six months ended September 30, 2015 of $67.6 million. Diluted earnings per share for the three and six months ended September 30, 2016 were $1.25 and $2.18, respectively, compared to diluted earnings per share of $0.59 and $1.34 for the three and six months ended September 30, 2015.
29
The following table highlights certain operating information related
to our f
ive
business segments:
|
|
For the Three Months
Ended September 30,
|
|
|
|
|
|
For the Six Months
Ended September 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
|
(In thousands except per unit)
|
|
|
Change
|
|
|
(In thousands except per unit)
|
|
|
Change
|
Revenues
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement
(2)
|
|
$
|
166,811
|
|
|
$
|
164,790
|
|
|
|
1%
|
|
|
$
|
311,603
|
|
|
$
|
292,966
|
|
|
|
6%
|
Gypsum Wallboard
|
|
|
122,923
|
|
|
|
119,701
|
|
|
|
3%
|
|
|
|
236,185
|
|
|
|
234,753
|
|
|
|
1%
|
Recycled Paperboard
|
|
|
44,459
|
|
|
|
39,145
|
|
|
|
14%
|
|
|
|
87,274
|
|
|
|
74,463
|
|
|
|
17%
|
Oil and Gas Proppants
|
|
|
6,631
|
|
|
|
18,307
|
|
|
|
(64%)
|
|
|
|
11,727
|
|
|
|
41,132
|
|
|
|
(71%)
|
Concrete and Aggregates
|
|
|
39,140
|
|
|
|
36,671
|
|
|
|
7%
|
|
|
|
73,891
|
|
|
|
65,203
|
|
|
|
13%
|
Gross Revenues
|
|
|
379,964
|
|
|
|
378,614
|
|
|
|
—
|
|
|
|
720,680
|
|
|
|
708,517
|
|
|
|
2%
|
Less: Intersegment Revenues
|
|
|
(20,331
|
)
|
|
|
(20,090
|
)
|
|
|
1%
|
|
|
|
(37,851
|
)
|
|
|
(38,019
|
)
|
|
|
—
|
Less: Joint Venture Revenues
|
|
|
(26,975
|
)
|
|
|
(29,536
|
)
|
|
|
(9%)
|
|
|
|
(52,667
|
)
|
|
|
(56,547
|
)
|
|
|
(7%)
|
|
|
$
|
332,658
|
|
|
$
|
328,988
|
|
|
|
1%
|
|
|
$
|
630,162
|
|
|
$
|
613,951
|
|
|
|
3%
|
Sales Volume
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement (M Tons)
(2)
|
|
|
1,442
|
|
|
|
1,484
|
|
|
|
(3%)
|
|
|
|
2,693
|
|
|
|
2,687
|
|
|
|
—
|
Gypsum Wallboard (MMSF)
|
|
|
650
|
|
|
|
619
|
|
|
|
5%
|
|
|
|
1,237
|
|
|
|
1,196
|
|
|
|
3%
|
Recycled Paperboard (M Tons)
|
|
|
86
|
|
|
|
75
|
|
|
|
15%
|
|
|
|
169
|
|
|
|
144
|
|
|
|
17%
|
Concrete (M Yards)
|
|
|
315
|
|
|
|
324
|
|
|
|
(3%)
|
|
|
|
602
|
|
|
|
573
|
|
|
|
5%
|
Aggregates (M Tons)
|
|
|
1,027
|
|
|
|
764
|
|
|
|
34%
|
|
|
|
1,971
|
|
|
|
1,431
|
|
|
|
38%
|
Frac Sand (M Tons)
|
|
|
111
|
|
|
|
203
|
|
|
|
(45%)
|
|
|
|
185
|
|
|
|
434
|
|
|
|
(57%)
|
Average Net Sales Prices
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement
(2)
|
|
$
|
99.95
|
|
|
$
|
97.21
|
|
|
|
3%
|
|
|
$
|
100.27
|
|
|
$
|
97.74
|
|
|
|
3%
|
Gypsum Wallboard
|
|
|
154.41
|
|
|
|
157.88
|
|
|
|
(2%)
|
|
|
|
155.97
|
|
|
|
160.57
|
|
|
|
(3%)
|
Recycled Paperboard
|
|
|
501.84
|
|
|
|
505.12
|
|
|
|
(1%)
|
|
|
|
500.41
|
|
|
|
504.49
|
|
|
|
(1%)
|
Concrete
|
|
|
95.00
|
|
|
|
92.07
|
|
|
|
3%
|
|
|
|
93.92
|
|
|
|
92.06
|
|
|
|
2%
|
Aggregates
|
|
|
8.64
|
|
|
|
8.50
|
|
|
|
2%
|
|
|
|
8.48
|
|
|
|
8.24
|
|
|
|
3%
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement
(2)
|
|
$
|
50,716
|
|
|
$
|
48,577
|
|
|
|
4%
|
|
|
$
|
82,316
|
|
|
$
|
74,290
|
|
|
|
11%
|
Gypsum Wallboard
|
|
|
41,698
|
|
|
|
40,002
|
|
|
|
4%
|
|
|
|
81,034
|
|
|
|
80,896
|
|
|
|
—
|
Recycled Paperboard
|
|
|
10,220
|
|
|
|
8,138
|
|
|
|
26%
|
|
|
|
21,447
|
|
|
|
14,168
|
|
|
|
51%
|
Oil and Gas Proppants
|
|
|
(4,090
|
)
|
|
|
(44,600
|
)
|
|
|
91%
|
|
|
|
(10,002
|
)
|
|
|
(50,236
|
)
|
|
|
80%
|
Concrete and Aggregates
|
|
|
4,813
|
|
|
|
3,857
|
|
|
|
25%
|
|
|
|
8,497
|
|
|
|
5,783
|
|
|
|
47%
|
Other, net
|
|
|
504
|
|
|
|
572
|
|
|
|
(12%)
|
|
|
|
1,579
|
|
|
|
1,007
|
|
|
|
57%
|
Net Operating Earnings
|
|
$
|
103,861
|
|
|
$
|
56,546
|
|
|
|
84%
|
|
|
$
|
184,872
|
|
|
$
|
125,908
|
|
|
|
47%
|
(1)
|
Gross revenue, before freight and delivery costs.
|
(2)
|
Includes proportionate share of our Joint Venture.
|
(3)
|
Net of freight and delivery costs.
|
Cement Operations.
Cement revenues were $166.8 million for the three months ended September 30, 2016, which is a 1% increase over revenues of $164.8 million for the three months ended September 30, 2015. The increase in revenue during the three months ended September 30, 2016, compared to the three months ended September 30, 2015, is primarily due to a 3% increase in average net sales price, partially offset by a 3% decrease in sales volumes. The decrease in sales volumes during the three months ended September 30, 2016, compared to the three months ended September 30, 2015, was primarily due to above average rainfall in our Midwestern markets. The increase in average net sales price during the three months ended September 30, 2016, compared to the three months ended September 30, 2015, positively impacted cement revenues by approximately $6.0 million, partially offset by the reduction in sales volumes which reduced revenues by approximately $4.0 million.
Cement operating earnings increased 4% to $50.7 million from $48.6 million for the three months ended September 30, 2016 and 2015, respectively. The increase in operating earnings was due primarily to increased average net sales prices, which positively impacted operating earnings by approximately $6.0 million, partially
30
offset by
reduced sales volumes of approximately $1.1 million and in
creased operating costs of
approximately $
2.7
million
.
The increase in operating costs in the
three months ended
September
30,
201
6
, compared to
September
30, 201
5
,
is primarily related
to
maintenance
and distribution and transfer freight
, which negatively impacted operating margin
by approximately $
0.8
million
and $1.6 million, respectively
.
The operating margin increased to
30
% for the
second
quarter of fiscal 201
7
,
compared to
2
9
% for the
second
quarter of fiscal 201
6
, primarily due to increased sales
average net sales prices
.
Cement revenues were $311.6 million for the six months ended September 30, 2016, which is a 6% increase over revenues of $293.0 million for the six months ended September 30, 2015. Approximately $9.9 million of the increase in revenues for the six months ended September 30, 2016, compared to the six months ended September 30, 2015, was related to the Skyway Acquisition. The remaining increase in revenue during the six months ended September 30, 2016, compared to the six months ended September 30, 2015, is primarily due to a 3% increase in average net sales prices and increased sales volume. The increase in average net sales prices and sales volume during the six months ended September 30, 2016, compared to the six months ended September 30, 2015 positively impacted cement revenues by approximately $7.1 million and $1.6 million, respectively.
Cement operating earnings increased 11% to $82.3 million from $74.3 million for the six months ended September 30, 2016 and 2015, respectively. Approximately $4.4 million of the increase in operating earnings for the six months ended September 30, 2016, compared to the six months ended September 30, 2015, was related to the Skyway Acquisition. The remaining increase in operating earnings was due primarily to increased average net sales prices, which positively impacted operating earnings by approximately $7.1 million, partially offset by decreased sales volumes and increased operating costs of approximately $0.4 million and $3.9 million. The increase in operating costs in the six months ended September 30, 2016, compared to September 30, 2015, is primarily related to increased maintenance and other purchased raw materials costs, which adversely impacted operating earnings by approximately $2.2 million and $0.5 million, respectively. The operating margin increased to 26% for the six months ended September 30, 2016, compared to 25% for the six months ended September 30, 2015, primarily due to increased sales prices.
Gypsum Wallboard Operations.
Sales revenues increased 3% to $122.9 million for the three months ended September 30, 2016, from $119.7 million for the three months ended September 30, 2015, primarily due to a 5% increase in sales volumes, partially offset by a 2% decrease in average net sales price. The increase in sales volumes positively impacted revenues by approximately $6.0 million, while the decrease in average net sales price negatively impacted revenue by an approximately $2.8 million. The increased sales volumes are primarily due to increased construction activity in fiscal 2017, compared to fiscal 2016. Our market share was essentially unchanged during the last year.
Operating earnings increased to $41.7 million for the three months ended September 30, 2016, compared to $40.0 million for the three months ended September 30, 2015, primarily due to the increase in our sales volumes and reduced operating costs, which positively impacted operating earnings by approximately $2.0 million and $2.5 million, respectively, partially offset by reduced average net sales prices, which adversely impacted operating earnings by approximately $2.8 million. The decrease in operating costs during the three months ended September 30, 2016, compared to the three months ended September 30, 2015, was primarily due to reduced freight, natural gas and maintenance costs, which positively impacted operating earnings by $0.6 million, $0.2 million and $1.0 million, respectively. Our operating margin increased to 34% for the three months ended September 30, 2016, compared to 33% for the three months ended September 30, 2015, primarily due to the decrease in operating costs. Fixed costs are not a significant part of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.
Sales revenues increased 1% to $236.2 million for the six months ended September 30, 2016, from $234.8 million for the six months ended September 30, 2015, primarily due to a 3% increase in sales volumes. The increase in sales volumes positively impacted revenues by approximately $8.0 million, partially offset by a decline in average net sales prices, which adversely impacted revenues by approximately $6.6 million. The
31
increased sales volumes are primarily due to increased construction activity in fiscal 201
7
, compared to fiscal 201
6
. Our market share was essentially unchanged during the
last year.
Operating earnings increased to $81.0 million for the six months ended September 30, 2016, compared to $80.9 million for the six months ended September 30, 2015, primarily due to the increase in our sales volumes and reduced operating costs, which positively impacted operating earnings by approximately $2.8 million and $3.9 million, respectively, partially offset by reduced average net sales prices, which adversely impacted operating earnings by approximately $6.6 million. The decrease in operating costs during the six months ended September 30, 2016, compared to the six months ended September 30, 2015, was primarily due to reduced freight, natural gas and maintenance costs, which positively impacted operating earnings by $0.9 million, $1.0 million and $1.2 million, respectively. Our operating margin remained consistent at 34% for both of the six months ended September 30, 2016 and 2015. Fixed costs are not a significant part of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.
Recycled Paperboard Operations.
Revenues increased 14% to $44.4 million during the three months ended September 30, 2016, compared to $39.1 million for the three months ended September 30, 2015. The increase in revenues during the quarter ended September 30, 2016, compared to September 30, 2015, is due primarily to the 15% increase in sales volumes, which positively impacted revenue by approximately $5.6 million, partially offset by a 1% reduction in average net sales prices, which adversely impacted revenues by approximately $0.3 million. The increase in sales volumes is primarily due to the increase in demand for gypsum liner due to both improving demand for gypsum wallboard and an increase in demand from certain customers.
Operating earnings increased to $10.2 million for the second quarter of fiscal 2017, compared to $8.1 million for the second quarter of fiscal 2016. The increase in operating earnings is primarily due to increased sales volumes and decreased operating costs, which positively impacted operating earnings by approximately $1.1 million and $1.1 million, respectively, partially offset by decreased average net sales prices, which adversely impacted operating earnings by approximately $0.1 million. The decrease in operating costs is primarily related to decreased recycled fiber and energy costs, which positively impacted operating earnings by approximately $0.8 million and $0.6 million, partially offset by an increase in repair and maintenance costs, which adversely impacted operating earnings by approximately $0.7 million. The increase in sales volume was the primary reason operating margin increased to 23% during the second quarter of fiscal 2017, compared to 21% during the second quarter of fiscal 2016.
Revenues increased 17% to $87.3 million during the six months ended September 30, 2016, compared to $74.5 million for the six months ended September 30, 2015. The increase in revenues during the six months ended September 30, 2016, compared to the six months ended September 30, 2015, is due primarily to the 17% increase in sales volume, which positively impacted revenue by approximately $12.9 million partially offset by a 1% reduction in average net sales prices, which adversely impacted revenues by approximately $0.1 million. The increase in sales volumes is primarily due to the increase in demand for gypsum liner due to both improving demand for gypsum wallboard and an increase in demand from certain customers.
Operating earnings increased to $21.4 million for the six months ended September 30, 2016, compared to $14.2 million for the six months ended September 30, 2015. The increase in operating earnings is primarily due to increased sales volumes and reduced operating costs, which positively impacted operating earnings by approximately $2.5 million and $4.8 million, respectively, partially offset by decreased average net sales prices, which adversely impacted operating earnings by $0.1 million. The decrease in operating costs is primarily related to a decrease in recycled fiber, energy and repair and maintenance costs, which positively impacted operating earnings by approximately $0.9 million, $1.9 million and $1.5 million, respectively, partially offset by increased chemical costs of approximately $0.7 million. The increase in sales volumes and decrease in operating cost was the primary reason operating margin increased to 25% during the six months ended September 30, 2016, compared to 19% during the six months ended September 30, 2015.
32
Oil and Gas Proppants
.
Revenues for our oil and gas proppants segment
decreased
to
approximately
$
6.6
million during the three months ended
September
30
, 201
6
, compared to $
18.3
million during the three months ended
September
30
, 201
5
.
The decrease in sales revenue for the three months ended September 30, 2016, compared to September 30, 2015, was due to a decrease in both average net sales prices and sales volumes. The decrease in average net sales prices and sales
volumes during the three months ended September 30, 2016, compared to the three months ended September 30, 2015, adversely impacted revenues by approximately $3.4 million and $8.3 million, respectively
.
Operating loss for the three months ended September 30, 2016 was approximately $4.1 million, compared to an operating loss of approximately $44.6 million during the three months ended September 30, 2015. Operating loss for the quarter ended September 30, 2016 was primarily due to the continued decline in the oil and gas industry, which negatively impacted sales volumes. The decrease in operating loss during the three months ended September 30, 2016, compared to the three months ended September 30, 2015, is due primarily to the recognition of an impairment charge of $28.4 million of intangible assets (customer contracts) associated with the CRS Acquisition and a write-down of $9.4 million in raw sand inventory values associated primarily with downward revaluation of raw sand inventory during the three months ended September 30, 2015. Operating loss for the three months ended September 30, 2016 includes a write-down of finished and raw sand inventories at our Corpus Christi location of approximately $8.5 million. This write-down is based upon the current sales price of proppants in the associated shale basin. From time to time, we have sales contracts with drilling companies that specify the purchase of a certain amount of tonnage at stated sales prices. During the quarter ended September 30, 2016, sales contracts with two of our customers expired, or were terminated. These customers had not purchased their contractually required amounts at the time the contracts expired or were terminated. During the quarter ended September 30, 2016, we entered into settlement agreements with such customers in connection with their failure to purchase the required amounts and received settlement payments of approximately $8.8 million in exchange for releasing our claims against such customers. These payments were recorded in our income statement as a reduction of cost of sales.
Revenues for our oil and gas proppants segment decreased to $11.7 million during the six months ended September 30, 2016, compared to $41.1 million during the six months ended September 30, 2015. The decrease in sales revenue for the six months ended September 30, 2016, compared to September 30, 2015, was due to a decrease in both average net sales prices and sales volumes. The decrease in average net sales prices and sales volumes during the six months ended September 30, 2016, compared to the six months ended September 30, 2015, adversely impacted revenues by approximately $5.8 million and $23.6 million, respectively.
Operating loss for the six months ended September 30, 2016 was approximately $10.0 million, compared to operating loss of approximately $50.2 million during the six months ended September 30, 2015. Operating loss for the quarter ended September 30, 2016 was primarily due to the continued decline in the oil and gas industry, which negatively impacted sales volumes. The decrease in operating loss during the six months ended September 30, 2016, compared to the six months ended September 30, 2015, is due primarily to the recognition of an impairment charge of $28.4 million of intangible assets (customer contracts) generated from the CRS Acquisition and a write-down of $9.4 million in raw sand inventory values associated primarily with downward revaluation of raw sand inventory during the six months ended September 30, 2015. Operating loss for the six months ended September 30, 2016 includes the write-off of a customer contract valued at approximately $1.3 million and a write-down of finished and raw sand inventories at our Corpus Christi location of approximately $8.5 million. The write-down of finished and raw sand inventories is based upon the current sales price of proppants in the associated shale basin. From time to time, we have sales contracts with drilling companies that specified the purchase of a certain amount of tonnage at stated sales prices. During the six months ended September 30, 2016, sales contracts with two of our customers expired, or were terminated. These customers had not purchased their contractually required amounts at the time the contracts expired or were terminated. During the six months ended September 30, 2016, we entered into settlement agreements with such customers in connection with their failure to purchase the required amounts and received settlement payments of approximately $8.8 million in exchange for releasing our claims against such customers. We also recognized $2.0 million related to the forfeiture of a
33
customer prepayment upon the expiration of the related contract
.
These payments
and forfeiture
were
recorded
in our income statement as a reduction of cost of sales.
Concrete and Aggregates Operations.
Concrete and aggregates revenues increased 7% to $39.1 million for the three months ended September 30, 2016, compared to $36.7 million for the three months ended September 30, 2015. The primary reason for the increase in revenue for the three months ended September 30, 2016, compared to the three months ended September 30 2015, was the 3% and 2% increase in average net sales prices for concrete and aggregates, respectively, which positively impacted revenues by approximately $0.9 million. The increase in sales volumes by our aggregates business was partially offset by lower sales volumes in our concrete during the second quarter of fiscal 2017, compared to the second quarter of fiscal 2016, and positively impacted revenues by approximately $1.5 million.
Operating earnings increased 25% to approximately $4.8 million for the three months ended September 30, 2016, compared to $3.9 million for the three months ended September 30, 2015. Operating earnings were positively impacted by increased average net sales prices and sales volumes, which positively impacted operating earnings by approximately $0.9 million and $0.1 million, respectively, partially offset by increased operating costs of approximately $0.1 million during the three months ended September 30, 2016, compared to the three months ended September 30, 2015.
Concrete and aggregates revenues increased 13% to $73.9 million for the six months ended September 30, 2016, compared to $65.2 million for the six months ended September 30, 2015. The primary reason for the increase in revenue for the six months ended September 30, 2016, compared to the six months ended September 30, 2015, was the 2% and 3% increase in average net sales prices for concrete and aggregates, respectively, which positively impacted revenues by approximately $1.4 million and the 5% and 38% increase in sales volumes for concrete and aggregates, respectively, which positively impacted revenues by approximately $7.3 million.
Operating earnings increased 47% to approximately $8.5 million for the six months ended September 30, 2016, compared to $5.8 million for the six months ended September 30, 2015. Operating earnings were positively impacted by increased average net sales prices and sales volumes, which positively impacted operating earnings by approximately $1.3 million and $0.6 million, respectively. Operating earnings were also positively impacted by a decrease in operating costs, which positively impacted operating earnings by approximately $0.8 million. The decrease in operating costs during the six months ended September 30, 2016, compared to the six months ended September 30, 2015, was primarily related to purchased materials, which positively impacted operating earnings by approximately $0.4 million.
GENERAL OUTLOOK
The drivers of construction products demand continue to improve incrementally, supporting the notion that a cyclic recovery is underway. The recovery continues to hinge on the pace of growth in the U.S. economy. In December 2015, the Fixing America’s Surface Transportation Act, or “FAST Act” was signed into law. This is the first significant transportation act enacted in ten years. The FAST Act is legislation to improve the nation’s surface transportation infrastructure, including roads, bridges, transit systems and rail transportation network over a five year period. Increased infrastructure spending in the future should positively impact both our cement and concrete and aggregates businesses.
Our cement sales network stretches across the central U.S., both east to west and north to south. While we anticipate construction grade cement consumption to continue to increase during calendar 2016, each region will increase at a different pace. Cement markets are affected by infrastructure spending, industrial construction and residential building activity. We expect volume and pricing improvements to vary in each of our cement markets.
34
We expect aggregate volumes to continue to increase during the remainder of fiscal 2017, while concrete volumes are expected
to remain relatively consistent throughout the rest of the fiscal year as compared to the prior year.
Wallboard demand is heavily influenced by new residential housing construction as well as repair and remodeling. Most forecasts point to a continued pick-up in demand in both of these areas throughout calendar 2016. Industry shipments of gypsum wallboard were approximately 22.0 billion square feet in calendar 2015, and have improved by approximately 12% through September 30, 2016 on a year-to-date basis.
We anticipate increased demand for gypsum wallboard to positively impact our recycled paperboard business as sales of higher priced gypsum paper are expected to continue to increase throughout the remainder of fiscal 2017, both in gross tons and as a percentage of total sales volumes.
The decline in oil and gas rig count and well completion activity has adversely impacted oil and gas activity, leading to reduced demand and pricing for proppants. In connection with the reduction in demand and pricing, during fiscal 2017, we reduced the value of our sand inventories by approximately $8.5 million. We anticipate that these conditions will persist throughout calendar 2016 and into calendar 2017; however, we remain focused on strengthening our low-cost position and continuing to improve our low delivered cost position to targeted shale plays.
We will continue to consider the impact reduced oil prices and rig counts have on the operating performance of our oil and gas proppants business and, if necessary, determine whether these trends indicate additional impairment in the value of the tangible and intangible assets of this business. If market conditions continue to deteriorate, both in terms of oil pricing and reduced rig counts, we will perform impairment tests to determine if any actual impairment has occurred.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare our financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.
Information regarding our “Critical Accounting Policies and Estimates” can be found in our Annual Report. The five critical accounting policies that we believe either require the use of the most judgment, or the selection or application of alternative accounting policies, and are material to our financial statements, are those relating to long-lived assets, goodwill, environmental liabilities, accounts receivable and income taxes. Management has discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm. In addition, Note (A) to the financial statements in our Annual Report contains a summary of our significant accounting policies.
Recent Accounting Pronouncements
Refer to Note (A) in the Notes to Unaudited Consolidated Financial Statements of the Form 10-Q for information regarding recently issued accounting pronouncements that may affect our financial statements.
35
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow.
The following table provides a summary of our cash flows:
|
|
For the Six Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(dollars in thousands)
|
Net Cash Provided by Operating Activities
|
|
$
|
160,152
|
|
|
$
|
107,589
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
(18,231
|
)
|
|
|
(55,869
|
)
|
Acquisition Spending
|
|
|
—
|
|
|
|
(32,427
|
)
|
Net Cash Used in Investing Activities
|
|
|
(18,231
|
)
|
|
|
(88,296
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Repayment of Credit Facility
|
|
|
(382,000
|
)
|
|
|
(3,000
|
)
|
Issuance of Long-term Debt
|
|
|
350,000
|
|
|
|
—
|
|
Payment of Debt Issuance Costs
|
|
|
(6,637
|
)
|
|
|
—
|
|
Dividends Paid
|
|
|
(9,677
|
)
|
|
|
(10,061
|
)
|
Shares Repurchased to Settle Employee Taxes on Stock Compensation
|
|
|
(2,965
|
)
|
|
|
(1,728
|
)
|
Purchase and Retirement of Common Stock
|
|
|
(60,013
|
)
|
|
|
(10,744
|
)
|
Proceeds from Stock Option Exercises
|
|
|
12,992
|
|
|
|
2,580
|
|
Excess Tax Benefits from Share Based Payment Arrangements
|
|
|
5,494
|
|
|
|
2,494
|
|
Net Cash Used In Financing Activities
|
|
|
(92,806
|
)
|
|
|
(20,459
|
)
|
Net Increase (Decrease) in Cash
|
|
$
|
49,115
|
|
|
$
|
(1,166
|
)
|
Cash flows from operating activities increased to $160.2 million during the six months ended September 30, 2016, compared to $107.6 million during the similar period in 2015. This increase was primarily attributable to increased net earnings and distributions from Joint Venture, and an increase in cash from changes in working capital, which positively impacted cash flows from operations by approximately $9.7 million, $4.5 million and $28.3 million, respectively. The increase in cash flows from increased net earnings is shown net of the $28.4 million non-cash impairment expense recognized during the six months ended September 30, 2015. The increase in cash flows from changes in working capital are primarily due to changes in inventory, accounts receivable and income taxes payable, which increased cash flows by approximately $13.0 million, $5.9 million and $5.4 million, respectively.
Working capital increased to $310.9 million at September 30, 2016, compared to $259.4 million at March 31, 2016, primarily due to the increased cash and accounts and notes receivable and decreased accounts payable of approximately $49.1 million, $35.0 million and $4.1 million, respectively, partially offset by decreased inventory and income taxes payable and increased accrued liabilities of approximately $26.0 million, $4.6 million and $7.8 million, respectively. The increase in cash is due to improved operating earnings during the three months ended September 30, 2016, as well as the issuance of $350 million in long-term debt and the related repayment of outstanding amounts under the Credit Facility. The increase in accounts receivable is due primarily to the increase in revenues during the six months ended September 30, 2016, compared to the six months ended September 30, 2015. The changes in accounts payable and accrued liabilities are primarily due to timing of payments.
The increase in accounts and notes receivable at September 30, 2016, compared to March 31, 2016, is primarily due to increased sales revenue during the three months ended September 30, 2016, compared to the three months ended March 31, 2016. As a percentage of quarterly sales generated in the quarter then ended, accounts receivable were approximately 47% at September 30, 2016 and 48% at March 31, 2016. Management measures the change in accounts receivable by monitoring the days sales outstanding on a monthly basis to determine if any deterioration has occurred in the collectability of the accounts receivable. No significant deterioration in the collectability of our accounts receivable in our construction products and building materials
36
businesses
was identified at
September
30
, 201
6.
Notes receivable are monitored on an individual basis, and no sig
nificant deterioration in the collectability of notes receivable was identified at
September
30
, 201
6
.
Our inventory balance at September 30, 2016 declined approximately $26.0 million from our inventory balance at March 31, 2016. Within our inventory, raw materials and materials-in-progress, finished cement and frac sand decreased approximately $14.3 million, $4.7 million and $2.1 million, respectively. Included in the decrease in raw materials and materials-in-progress and frac sand inventory is a write-down of approximately $7.7 million and $0.8 million, respectively, of frac sand at our Corpus Christi location. This write-down is based on the current sales price of proppants in the associated shale basin, which was lower than the value of our inventory. The decline in finished cement is consistent with our business cycle as we generally build inventory over the winter to meet the demand in the spring and summer. The largest individual balance in our inventory is our repair parts. These parts are necessary given the size and complexity of our manufacturing plants, as well as the age of certain of our plants, which creates the need to stock a high level of repair parts inventory. We believe all of these repair parts are necessary and we perform semi-annual analyses to identify obsolete parts. We have less than one year’s sales of all product inventories, and our inventories have a low risk of obsolescence due to our products being basic construction materials.
Net cash used in investing activities during the six months ended September 30, 2016 was approximately $18.2 million, compared to net cash used in investing activities of approximately $88.3 million during the similar period in 2015, a decrease of $70.1 million. The decrease in cash used in investing activities for the six months ended September 30, 2016, compared to the six months ended September 30, 2015, is primarily due to $32.4 million for the Skyway Acquisition, and capital expenditures to complete certain projects in our oil and gas proppants segment during the six months ended September 30, 2015. We anticipate spending between $30.0 million and $35.0 million on sustaining capital expenditures for all of our businesses during fiscal 2017.
Net cash used in financing activities was approximately $92.8 million during the six months ended September 30, 2016, compared to net cash used in financing activities of approximately $20.5 million during the similar period in 2016. This $72.3 million increase in net cash used in financing activities is primarily due to the repurchase and retirement of common stock and the repayment of long term debt, net of new borrowings, which increased net cash used in financing by $49.3 million and $36.0 million, partially offset by increased proceeds from stock option exercises of approximately $10.4 million. Our debt-to-capitalization ratio and net-debt-to-capitalization ratio was 30.0% and 27.4%, respectively, at September 30, 2016, compared to 32.8% and 32.6%, respectively, at March 31, 2016.
Debt Financing Activities.
Bank Credit Facility
We have a $500.0 million revolving credit facility (the “Credit Facility”), including a swingline loan sublimit of $25.0 million, which originally was scheduled to expire on October 30, 2019, but was amended in August 2016 to extend the expiration date to August 2, 2021. Borrowings under the Credit Facility are guaranteed by substantially all of the Company’s subsidiaries. At the option of the Company, outstanding principal amounts on the Credit Facility bear interest at a variable rate equal to (i) The London Interbank Offered Rate (“LIBOR”) for the selected period, plus an applicable rate (ranging from 100 to 225 basis points), which is to be established quarterly based upon the Company’s ratio of consolidated EBITDA, defined as earnings before interest, taxes, depreciation and amortization, to the Company’s consolidated indebtedness (the “Leverage Ratio”), or (ii) an alternative base rate which is the higher of (a) the prime rate or (b) the federal funds rate plus
1
⁄
2
% per annum plus an applicable rate (ranging from 0 to 125 basis points). Interest payments are payable, in the case of loans bearing interest at a rate based on the federal funds rate, quarterly, or in the case of loans bearing interest at a rate based on LIBOR, at the end of the applicable interest period. The Company is also required to pay a commitment fee on unused available borrowings under the Credit Facility ranging from 10 to 35 basis points depending upon the Leverage Ratio. The Credit Facility contains customary covenants that restrict our ability to incur additional debt, encumber our assets, sell assets, make or enter into certain investments, loans or
37
guaranties and enter into sale and leaseback arrangements. The Credit F
acility also requires us to maintain a consolidated indebtedness ratio (calculated as consolidated indebtedness to consolidated earnings before interest, taxes, depreciation, amortization, certain transaction-related deductions and other non-cash deduction
s) of 3.5:1.0 or less and an interest coverage ratio (consolidated earnings before interest, taxes, depreciation, amortization, certain transaction-related deductions and other non-cash deductions to consolidated interest expense) of at least 2.5:1.0. The
re were no borrowings outstanding at September 30, 2016. Based on our Leverage Ratio, we had $
489.3 million
of available borrowings, net of the outstanding letters of credit, at September 30, 2016.
The Credit Facility has a $50.0 million letter of credit facility. Under the letter of credit facility, the Company pays a fee at a per annum rate equal to the applicable margin for Eurodollar loans in effect from time to time plus a one-time letter of credit fee in an amount equal to 0.125% of the initial stated amount. At September 30, 2016, we had $10.7 million of letters of credit outstanding.
4.500% Senior Unsecured Notes Due 2026 –
On August 2, 2016, the Company issued $350.0 million aggregate principal amount of 4.500% senior notes ("Senior Unsecured Notes") due August 2026. Interest on the Senior Unsecured Notes is payable semiannually on February 2 and August 2 of each year until all of the outstanding notes are paid. The Senior Unsecured Notes rank equal to existing and future senior indebtedness, including the Credit Facility and the Private Placement Senior Unsecured Notes. Prior to August 1, 2019, we may redeem up to 40% of the original aggregate principal amount of the Senior Unsecured Notes with the proceeds of certain equity offerings at a redemption price of 104.5% of the principal amount of the notes. Prior to August 1, 2021, we may redeem some or all of the Senior Unsecured Notes at a price equal to 100% of the principal amount, plus a “make-whole” premium. Beginning on August 1, 2021, we may redeem some or all of the Senior Unsecured Notes at the redemption prices set forth below (expressed as a percentage of the principal amount being redeemed):
|
|
Percentage
|
|
2021
|
|
|
102.25
|
%
|
2022
|
|
|
101.50
|
%
|
2023
|
|
|
100.75
|
%
|
2024 and thereafter
|
|
|
100.00
|
%
|
The Senior Unsecured Notes contain covenants that limit our ability and/or our guarantor subsidiaries' ability to create or permit to exist certain liens; enter into sale and leaseback transactions; and consolidate, merge, or transfer all or substantially all of our assets. The Company’s Senior Unsecured Notes are fully and unconditionally and jointly and severally guaranteed by each of our subsidiaries that is a guarantor under the Credit Facility and Private Placement Senior Unsecured Notes. See Footnote (P) to the Unaudited Consolidated Financial Statements for more information on the guarantors of the Senior Public Notes.
Private Placement Senior Unsecured Notes –
We entered into a Note Purchase Agreement on November 15, 2005 (the “2005 Note Purchase Agreement”) in connection with our sale of $200.0 million of senior unsecured notes, designated as Series 2005A Senior Notes (the “Series 2005A Senior Notes”) in a private placement transaction. The Series 2005A Senior Notes, which are guaranteed by substantially all of our subsidiaries, were sold at par and issued in three tranches. At September 30, 2016, the amount outstanding for the remaining tranche was as follows:
|
|
Principal
|
|
|
Maturity Date
|
|
|
Interest Rate
|
|
Tranche C
|
|
$
|
57.2 million
|
|
|
|
November 15, 2017
|
|
|
|
5.48
|
%
|
Interest for this tranche of Series 2005A Senior Notes is payable semi-annually on May 15 and November 15 of each year until all principal is paid.
38
We also entered into an additional Note Purchase Agreement on October 2, 2007 (the “2007 Note Purchase Agreement”) in connection with our sale of $200.0 million of senior unsecured notes, designated as Series 2007A Senior Notes (the “Series 2007A Senior No
tes” and together with the Series 2005A Senior Notes, the “Private Placement Senior
Unsecured
Notes”) in a private placement transaction. The Series 2007A Senior Notes, which are guaranteed by substantially all of our subsidiaries, were sold at par and iss
ued in four tranches on October 2, 2007. At
September
30, 2016, the amounts outstanding for each of the remaining tranches are as follows:
|
|
Principal
|
|
|
Maturity Date
|
|
|
Interest Rate
|
|
Tranche B
|
|
$
|
8.0 million
|
|
|
|
October 2, 2016
|
|
|
|
6.27
|
%
|
Tranche C
|
|
$
|
24.0 million
|
|
|
|
October 2, 2017
|
|
|
|
6.36
|
%
|
Tranche D
|
|
$
|
36.5 million
|
|
|
|
October 2, 2019
|
|
|
|
6.48
|
%
|
Interest for each tranche of Series 2007A Senior Notes is payable semi-annually on April 2 and October 2 of each year until all principal is paid for the respective tranche. During October 2016, the $8.0 million outstanding under Tranche B of the Series 2007A Senior Unsecured Notes matured, and the related notes were repaid and cancelled at that time.
Our obligations under the 2005 Note Purchase Agreement and 2007 Note Purchase Agreement (together, the “Private Placement Note Purchase Agreements”) and the Private Placement Senior Unsecured Notes are equal in right of payment with all other senior, unsecured indebtedness of the Company, including our indebtedness under the Credit Facility and Senior Unsecured Notes. The Private Placement Note Purchase Agreements contain customary restrictive covenants, including, but not limited to, covenants that place limits on our ability to encumber our assets, to incur additional debt, to sell assets, or to merge or consolidate with third parties.
The Private Placement Note Purchase Agreements require us to maintain a Consolidated Debt to Consolidated EBITDA (calculated as consolidated indebtedness to consolidated earnings before interest, taxes, depreciation, depletion, amortization, certain transaction related deductions and other non-cash charges) ratio of 3.50 to 1.00 or less. The 2007 Note Purchase Agreement requires us to maintain an interest coverage ratio (Consolidated EBITDA to Consolidated Interest Expense (calculated as consolidated EBITDA, as defined above, to consolidated interest expense)) of at least 2.50:1.00. In addition, the 2007 Note Purchase Agreement requires the Company to ensure that at all times either (i) Consolidated Total Assets equal at least 80% of the consolidated total assets of the Company and its Subsidiaries, determined in accordance with GAAP, or (ii) consolidated total revenues of the Company and its Restricted Subsidiaries for the period of four consecutive fiscal quarters most recently ended equals at least 80% of the consolidated total revenues of the Company and its Subsidiaries during such period. We were in compliance with all financial ratios and tests at September 30, 2016.
Pursuant to a Subsidiary Guaranty Agreement, substantially all of our subsidiaries have guaranteed the punctual payment of all principal, interest, and Make-Whole Amounts (as defined in the Private Placement Note Purchase Agreements) on the Private Placement Senior Unsecured Notes and the other payment and performance obligations of the Company contained in the Senior Notes and in the Private Placement Note Purchase Agreements. We are permitted, at our option and without penalty, to prepay from time to time at least 10% of the original aggregate principal amount of the Private Placement Senior Unsecured Notes at 100% of the principal amount to be prepaid, together with interest accrued on such amount to be prepaid to the date of payment, plus a Make-Whole Amount. The Make-Whole Amount is computed by discounting the remaining scheduled payments of interest and principal of the Private Placement Senior Unsecured Notes being prepaid at a discount rate equal to the sum of 50 basis points and the yield to maturity of U.S. treasury securities having a maturity equal to the remaining average life of the Private Placement Senior Unsecured Notes being prepaid.
We lease one of our cement plants from the city of Sugar Creek, Missouri. The city of Sugar Creek issued industrial revenue bonds to partly finance improvements to the cement plant. The lease payments due to the city of Sugar Creek under the cement plant lease, which was entered into upon the sale of the industrial revenue bonds, are equal in amount to the payments required to be made by the city of Sugar Creek to the holders of the industrial revenue bonds. Because we are the holder of all of the outstanding industrial revenue bonds, no debt is
39
reflected on our fin
ancial statements in connection with our lease of the cement plant. At the conclusion of the lease in fiscal 2021, we have the option to purchase the cement plant for a nominal amount.
Other than the Credit Facility, we have no other source of committed external financing in place. In the event the Credit Facility should 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 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 us. None of our debt is rated by the rating agencies.
We do not have any off balance sheet debt, except for approximately $50.0 million of operating leases, which have an average remaining term of approximately fifteen years. Also, we have no outstanding debt guarantees. We have available under the Credit Facility a $50.0 million Letter of Credit Facility. At September 30, 2016, we had $10.7 million of letters of credit outstanding that renew annually. We are contingently liable for performance under $17.6 million in performance bonds relating primarily to our mining operations.
We believe that our cash flow from operations and available borrowings under our Credit Facility should be sufficient to meet our currently anticipated operating needs, capital expenditures and dividend and debt service requirements for at least the next twelve 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 Credit Facility, the level of competition and general and economic factors beyond our control. These and other developments could reduce our cash flow or require that we seek additional sources of funding. We cannot predict what effect these factors will have on our future liquidity.
As market conditions warrant, the Company may from time to time seek to purchase or repay its outstanding debt securities or loans, including the Private Placement Senior Unsecured Notes, Senior Unsecured Notes and borrowings under the 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 the aggregate, may be material. Any such purchases of the notes offered hereby may be with respect to a substantial amount of such notes, with an attendant reduction in the trading liquidity of such notes.
Dividends.
Dividends paid were $9.7 million and $10.1 million for the six month periods ended September 30, 2016 and 2015, respectively. Each quarterly dividend payment is subject to review and approval by our Board of Directors, who will continue to evaluate our dividend payment amount on a quarterly basis.
Share Repurchases.
|
|
Common Stock
|
|
|
|
Shares
Purchased
|
|
|
Average Price
Paid Per Share
|
|
April 1 through April 30, 2016
|
|
|
230,000
|
|
|
$
|
69.80
|
|
May 1 through May 31, 2016
|
|
|
30,000
|
|
|
|
77.57
|
|
June 1 through June 30, 2016
|
|
|
265,000
|
|
|
|
78.32
|
|
Quarter 1 Totals
|
|
|
525,000
|
|
|
$
|
74.55
|
|
July 1 through July 31, 2016
|
|
|
233,100
|
|
|
|
78.83
|
|
August 1 through August 31, 2016
|
|
|
30,700
|
|
|
|
81.51
|
|
September 1 through September 30, 2016
|
|
|
—
|
|
|
|
—
|
|
Quarter 2 Totals
|
|
|
263,800
|
|
|
|
79.15
|
|
Year-to-Date Totals
|
|
|
788,800
|
|
|
$
|
76.08
|
|
40
On August 10, 2015, the Board of Directors authorized the Company to repurchase up to an additional 6,782,700 shares, for a total outstanding authorization of
7
,
5
00,000 shares. We
re
purchased
263,800
shares at an average price of $
79.15
during the three months ended September 30, 201
6
.
At September 30, 2016
we have authorization to purchase an additional
4,817,200
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 management, based on its evaluation of market and economic conditions and other factors. In some cases, repurchases may be made pursuant to plans, programs or directions established from time to time by the Company’s management, including plans intended to comply with the safe-harbor provided by Rule 10b5-1.
During the six months ended September 30, 2016, 47,128 shares of stock were withheld from employees upon the vesting of Restricted Shares that were granted under the Plan. These shares were withheld by us to satisfy the employees’ minimum statutory tax withholding, which is required once the Restricted Shares or Restricted Shares Units are vested.
Capital Expenditures.
The following table compares capital expenditures:
|
|
|
|
For the Six Months
Ended September 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(dollars in thousands)
|
|
Land and Quarries
|
|
|
|
$
|
1,224
|
|
|
$
|
7,555
|
|
Plants
|
|
|
|
|
13,375
|
|
|
|
32,541
|
|
Buildings, Machinery and Equipment
|
|
|
|
|
3,632
|
|
|
|
15,773
|
|
Total Capital Expenditures
|
|
|
|
$
|
18,231
|
|
|
$
|
55,869
|
|
We anticipate sustaining capital expenditures will be approximately $30.0 to $35.0 million for fiscal 2017. Total capital expenditures for fiscal 2017, including sustaining capital expenditures, are expected to be approximately $55.0 million to $65.0 million. Additionally, we anticipate spending approximately $400.0 million to complete the Fairborn Acquisition during the fiscal third quarter, or shortly thereafter. Historically, we have financed such expenditures with cash from operations and borrowings under our revolving credit facility.