| SIGNIFICANT ACCOUNTING POLICIES | (A) Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Eagle Materials Inc. and its majority-owned subsidiaries (the Company), which may be referred to as we, our, or us. All intercompany balances and transactions have been eliminated. The Company is a holding company whose assets consist of its investments in its subsidiaries, joint venture, intercompany balances, and holdings of cash and cash equivalents. The businesses of the consolidated group are conducted through the Company’s subsidiaries. The Company conducts one of its cement plant operations through a joint venture, Texas Lehigh Cement Company L.P., which is located in Buda, Texas (the Joint Venture). Our investment in the Joint Venture is accounted for using the equity method of accounting, and those results have been included for the same period as our March 31 fiscal year end. On September 18, 2020, we sold our Oil and Gas Proppants business, which had been previously reported as a separate operating segment, for a purchase price of $ 2.0 million. The sale resulted in a gain of approximately $ 9.2 million. Because the sale of the Oil and Gas Proppants business was determined to meet the accounting criteria for discontinued operations, this segment is no longer separately reported in our reportable segment footnote for any of the periods presented. See Footnote (C) for more information about the sale of the Oil and Gas Proppants business. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash Equivalents include short-term, highly liquid investments with original maturities of three months or less and are recorded at cost, which approximates market value. Restricted Cash Restricted Cash is comprised of cash reserved by contractual agreement for a specific use. Restricted Cash is generally held in an escrow account and distributed under the terms of the contract or agreement. Restricted Cash is included with Cash and Cash Equivalents on the Consolidated Statement of Cash Flows. Accounts and Notes Receivable Accounts and Notes Receivable have been shown net of the allowance for doubtful accounts of $ 6.7 million and $ 8.1 million at March 31, 2022 and 2021, 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 on our assessment of the collectability of outstanding accounts receivable, and includes a provision for probable losses based on historical write-offs, adjusted for current economic trends in the construction industry, and a specific reserve for accounts deemed at risk. We have no significant credit risk concentration among our diversified customer base. Bad debt expense was approximately $ 0.3 million, $ 0.7 million, and $ 3.4 million for the fiscal years ended March 31, 2022, 2021, and 2020, respectively. Write-offs of accounts receivable were approximately $ 1.6 million, $ 1.2 million, and $ 0.3 million for the fiscal years ended March 31, 2022, 2021, and 2020, respectively. We had Notes Receivable totaling approximately $ 8.4 million at March 31, 2022, of which no ne was classified as current. We lend funds to certain companies in the ordinary course of business, and the notes bear interest, on average, at 3.5 %. Remaining unpaid amounts, plus accrued interest, mature in fiscal 2025 . The notes are collateralized by certain assets of the borrowers, namely property and equipment. We monitor the credit risk of each borrower by focusing on the timeliness of payments, review of credit history, credit metrics, and interaction with the borrowers. Inventories Inventories are stated at the lower of average cost (including applicable material, labor, depreciation, and plant overhead) or net realizable value. Raw Materials and Materials-in-Progress include clinker, which is an intermediary product before it is ground into cement powder. Quantities of Raw Materials and Materials-in-Progress, Aggregates and coal inventories, are based on measured volumes, subject to estimation based on the size and location of the inventory piles, and then converted to tonnage using standard inventory density factors. Inventories consist of the following:
March 31,
2022 2021
(dollars in thousands)
Raw Materials and Materials-in-Progress $ 81,308 $ 92,696
Finished Cement 38,769 34,362
Aggregates 3,558 2,933
Gypsum Wallboard 3,452 4,177
Paperboard 7,462 5,031
Repair Parts and Supplies 91,593 86,750
Fuel and Coal 10,519 9,800
$ 236,661 $ 235,749 Property, Plant, and Equipment Property, Plant, and Equipment are stated at cost. Major renewals and improvements are capitalized and depreciated. Annual maintenance is expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of depreciable assets and totaled $ 122.4 million, $ 120.7 million, and $ 109.5 million, for the fiscal years ended March 31, 2022, 2021, and 2020, respectively. Raw material deposits are depleted as such deposits are extracted for production utilizing the units-of-production method. Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts and any resulting gains or losses are recognized at such time. The estimated useful lives of the related assets are as follows:
Plants 20 to 30 years
Buildings 20 to 40 years
Machinery and Equipment 3 to 25 years Maintenance and repair expenses are included in each segment’s costs and expenses. We incurred $ 147.8 million, $ 137.2 million, and $ 127.0 million of maintenance and repair expenses in the fiscal years ended March 31, 2022, 2021, and 2020, respectively, which is included in Cost of Goods Sold on the Consolidated Statement of Earnings. We periodically evaluate whether current events or circumstances indicate that the carrying value of our depreciable assets may not be recoverable. See Impairment or Disposal of Long-lived and Intangible Assets below for more information about the impairments. Goodwill and Intangible Assets Goodwill We annually assess Goodwill in the fourth quarter of our fiscal year, or more frequently when indicators of impairment exist. Impairment testing for Goodwill is done at the reporting unit, which is consistent with the reportable segment. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. Prior to performing the Step 1 quantitative test, we may, at our discretion, perform an optional qualitative analysis, or we may choose to proceed directly to the Step 1 quantitative test. The qualitative analysis considers the impact of the following events and circumstances on the reporting unit being tested: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other relevant entity-specific events. If, as a result of this qualitative analysis, we conclude that it is more likely than not (a likelihood of greater than 50 %) that the fair value of the reporting unit exceeds its carrying value, then an impairment does not exist and the quantitative Step 1 test is not required. If we are unable to conclude that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, then we proceed to the quantitative Step 1 test. Step 1 of the quantitative test for impairment compares the fair value of the reporting unit to its carrying value. If the carrying value exceeds the fair value, then an impairment is indicated. If facts and circumstances related to our business change in subsequent years, we may choose to perform a quantitative analysis in those future years. If we perform a Step 1 test and the carrying value of the reporting unit exceeds its fair value, then an impairment charge equal to the difference, not to exceed the total amount of Goodwill, is recorded. The fair values of the reporting units are estimated by using both the market and income approaches. The market approach considers market factors and certain multiples in comparison to similar companies, while the income approach uses discounted cash flows to determine the estimated fair values of the reporting units. We also perform an overall comparison of all reporting units to our market capitalization in order to test the reasonableness of our fair value calculations. We performed qualitative assessments on all of our reporting units in the fourth quarter of fiscal 2022. As a result of these qualitative assessments, we determined that it was not more likely than not that an impairment existed; therefore, we did not perform a Step 1 quantitative test in fiscal 2022. We performed a quantitative Step 1 impairment test on our all of our reporting units with Goodwill during the fourth quarter of fiscal 2021. We estimated the reporting unit’s fair value using a discounted cash flow model as well as a market analysis. Key assumptions in the model included estimated average net sales prices, sales volumes, and the estimated weighted average cost of capital specific to each industry. Based on the results of the Step 1 impairment analysis, we concluded that the fair values of the reporting units substantially exceeded their carrying values, and therefore no impairment was recognized. Goodwill and Intangible Assets Goodwill and Intangible Assets at March 31, 2022 and 2021, consist of the following:
March 31, 2022
Amortization Cost Additions Accumulated Net
(dollars in thousands)
Goodwill and Intangible Assets:
Customer Contracts and Relationships 15 years $ 108,610 $ — $ ( 69,866 ) $ 38,744
Permits 25 - 40 years 30,410 — ( 11,629 ) 18,781
Trade Name 15 years 1,500 — ( 264 ) 1,236
Goodwill 329,137 — — 329,137
Total Goodwill and Intangible Assets $ 469,657 $ — $ ( 81,759 ) $ 387,898
March 31, 2021
Amortization Cost Additions Accumulated Net
(dollars in thousands)
Goodwill and Intangible Assets:
Customer Contracts and Relationships 15 years $ 108,610 $ — $ ( 66,445 ) $ 42,165
Permits 25 - 40 years 30,410 — ( 10,759 ) 19,651
Trade Name 15 years 1,500 — ( 138 ) 1,362
Goodwill 329,137 — — 329,137
Total Goodwill and Intangible Assets $ 469,657 $ — $ ( 77,342 ) $ 392,315 Amortization expense of intangibles was $ 4.4 million, $ 4.5 million, and $ 2.5 million for the fiscal years ended March 31, 2022, 2021, and 2020, respectively. Amortization expense is expected to be approximately $ 4.4 million for each of fiscal years 2023 through 2026, and $ 4.3 million in fiscal 2027. Impairment or Disposal of Long-Lived and Intangible Assets We assess our long-lived assets, including mining and related assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or group of assets, may not be recoverable. Long-lived assets, or group of assets, are evaluated for impairment at the lowest level for which cash flows are largely independent of the cash flows of other assts. We assess recoverability of assets, or group of assets, by comparing the carrying amount of an asset, or group of assets, to the future undiscounted net cash flows that we expect the asset, or group of assets, to generate. These impairment evaluations are significantly affected by estimates of future revenue, costs and expenses, and other factors. If the carrying value of the assets, or group of assets, exceeds the undiscounted cash flows, then an impairment is indicated. If such assets, or group of assets, are considered to be impaired, the impairment is recognized as the amount by which the carrying amount of the asset, or group of assets, exceeds the fair value of the asset, or group of assets. Any assets held for sale are reflected at the lower of their carrying amount or fair value less cost to sell. There were no indicators of impairment related to our long-lived assets during fiscal 2022. During fiscal 2020, declining sales prices, sales volumes and operating losses led to the impairment of long-lived assets in our Oil and Gas Proppants business of $ 224.3 million, which primarily related to property, plant, and equipment, but also included impairment of lease right-of-use assets. On September 18, 2020, we sold the Oil and Gas Proppants business, and determined that the sale of this business met the discontinued operations accounting criteria. See Footnote (C) for more information about the sale of the Oil and Gas Proppants business, and the discontinued operations accounting disclosures. As part of the sale of the Oil and Gas Proppants business, there were certain assets that were included in this operating segment and not included in the sale. Because these assets were not included in the sale, any expenses related to these assets were not included in discontinued operations. Impairment charges related to these assets in fiscal 2020 are included in continuing operations on the Consolidated Statement of Earnings and are summarized below:
For the Year Ended
2020
(dollars in thousands)
Property, Equipment, and Real Estate $ 11,213
Lease Right-of-Use Assets 13,918
$ 25,131 Other Assets Other Assets are primarily composed of financing costs related to our Revolving Credit Facility, deferred expenses, and deposits. Income Taxes We account for Income Taxes using the asset and liability method. The effect on deferred taxes of a change in tax rates is recognized in earnings in the period that includes the enactment date. We recognize deferred taxes for the differences between financial statement carrying amounts and the tax bases of existing assets and liabilities by applying enacted statutory tax rates for future years. In addition, we recognize future tax benefits to the extent that such benefits are more likely than not to be realized. See Footnote (J) for more information. Stock Repurchases Shares repurchased by the Company are considered retired and available for future issuance. When shares are repurchased, the Company first reduces Capital in Excess or Par Value, and if there is no balance in this account, the purchases are recorded as a reduction of Retained Earnings. On May 17, 2022, the Board of Directors authorized the Company to repurchase an additional 7,5 00,000 shares. During fiscal years 2022 and 2020, we repurchased 3,982,657 and 3,574,109 shares, respectively, at average prices of $ 148.08 and $ 87.82 , respectively. We did not repurchase any shares during the fiscal year ended March 31, 2021. After the authorization on May 17, 2022, we have authorization to repurchase an additional 10,822,992 shares. Revenue Recognition We earn Revenue primarily from the sale of products, which include cement, concrete, aggregates, gypsum wallboard, and recycled paperboard. The majority of Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard is originated by purchase orders from our customers, who are mainly third-party contractors and suppliers. Revenue from our Recycled Paperboard segment is generated primarily through long-term supply agreements that mature between calendar years 2023 and 2025 . We invoice customers upon shipment, and our collection terms range from 30 to 75 days. Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard that is not related to long-term supply agreements is recognized upon shipment of the related products to customers, which is when title and ownership are transferred, and the customer is obligated to pay. Revenue from sales under our long-term supply agreements is also recognized upon transfer of control to the customer, which generally occurs at the time the product is shipped from the production facility. Our long-term supply agreements with customers define, among other commitments, the volume of product that we must provide and the volume that the customer must purchase by the end of the defined periods. Pricing structures under our agreements are generally market-based, but are subject to certain contractual adjustments. Shortfall amounts, if applicable under these arrangements, are constrained and not recognized as Revenue until agreement is reached with the customer and there is no risk of reversal. The Company offers certain of its customers, including those with long-term supply agreements, rebates and incentives, which we treat as variable consideration. We adjust the amount of revenue recognized for the variable consideration using the most likely amount method based on past history and projected volumes in the rebate and incentive period. Any amounts billed to customers for taxes are excluded from Revenue. The Company has elected to treat freight and delivery charges we pay for the delivery of goods to our customers as a fulfilment activity rather than a separate performance obligation. When we arrange for a third party to deliver products to customers, fees for shipping and handling billed to the customer are recorded as Revenue, while costs incurred for shipping and handling are recorded as expenses and included in Cost of Goods Sold. Approximately $ 199.1 million, $ 177.5 million, and $ 168.1 million of freight for the fiscal years ended March 31, 2022, 2021, and 2020, respectively, were included in both Revenue and Cost of Goods Sold in our Consolidated Statement of Earnings. Other Non-Operating Income includes lease and rental income, asset sale income, non-inventoried aggregates sales income, and trucking income, as well as other miscellaneous revenue items and costs that have not been allocated to a business segment. See Footnote (I) for disaggregation of Revenue by segment. Comprehensive Income/Losses As of March 31, 2022, we have an Accumulated Other Comprehensive Loss of $ 3.2 million, which is net of income taxes of $ 1.0 million, in connection with recognizing the difference between the fair value of the pension assets and the projected benefit obligation. Consolidated Cash Flows – Supplemental Disclosures Supplemental cash flow information is as follows:
For the Years Ended March 31,
2022 2021 2020
(dollars in thousands)
Cash Payments:
Interest $ 21,298 $ 42,343 $ 37,610
Income Taxes 86,407 32,870 20,046
Operating Cash Flows Used for Operating Leases 8,141 10,741 14,926
Non-Cash Financing Activities:
Right-of-use Assets Obtained for Capitalized Operating Lease Liabilities $ 2,598 $ 272 $ 621 Selling, General, and Administrative Expenses Selling, General, and Administrative Expenses of the operating units are included in Cost of Goods Sold on the Consolidated Statements of Earnings. Corporate General and Administrative (Corporate G&A) Expenses include administration, financial, legal, employee benefits, and other corporate activities, and are shown separately in the Consolidated Statements of Earnings. Corporate G&A also includes stock compensation expense. See Footnote (L) for more information. Total Selling, General, and Administrative Expenses for each of the periods are summarized as follows:
For the Years Ended March 31,
2022 2021 2020
(dollars in thousands)
Operating Units Selling, G&A $ 56,561 $ 56,309 $ 57,077
Corporate G&A 46,801 49,511 65,410
$ 103,362 $ 105,820 $ 122,487 The increase in Corporate General and Administrative Expenses during fiscal 2020, compared with fiscal 2022 and 2021, is primarily due to business development costs related to our portfolio review, acquisitions, and the acceleration of stock compensation costs upon the retirement of our Chief Executive Officer during the year. Earnings Per Share
For the Years Ended March 31,
2022 2021 2020
Weighted-Average Shares of Common Stock Outstanding 40,547,048 41,543,067 42,021,892
Effect of Dilutive Shares:
Assumed Exercise of Outstanding Dilutive Options 539,309 570,325 623,779
Less Shares Repurchased from Proceeds of Assumed Exercised Options ( 343,917 ) ( 429,815 ) ( 481,853 )
Restricted Stock Units 187,272 143,132 121,525
Weighted-Average Common Stock and Dilutive Securities Outstanding 40,929,712 41,826,709 42,285,343 The line Less Shares Repurchased from Proceeds of Assumed Exercised Options includes unearned compensation related to outstanding stock options. There were 6,053 ; 569,431 ; and 475,082 stock options at an average exercise price of $ 139.80 per share, $ 89.11 per share, and $ 95.46 per share, respectively, that were excluded from the computation of diluted earnings per share for the fiscal years ended March 31, 2022, 2021, and 2020, because such inclusion would have been anti-dilutive. Share-Based Compensation All share-based compensation is valued at the grant date and expensed over the requisite service period, which is generally identical to the vesting period of the award. Forfeitures of share-based awards are recognized in the period in which they occur. Fair Value Measures Certain assets and liabilities are required to be recorded or disclosed at fair value. The estimated fair values of those assets and liabilities have been determined using market information and valuation methodologies. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations, or cash flows. There are three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices for identical assets and liabilities in active markets; Level 2 – Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs. Recent Accounting Pronouncements RECENTLY ADOPTED In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes, eliminates certain exceptions within existing income tax guidance, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. We adopted this standard on April 1, 2021. The adoption of this standard did not have a material impact on our consolidated financial statements. PENDING ADOPTION None. |
