Add
EXP to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| EXP > SEC Filings for EXP > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
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 month periods ended September 30, 2009 and 2008, respectively, reflects the Company's four business segments, consisting of Gypsum Wallboard, Cement, Recycled Paperboard and Concrete and Aggregates. Certain information for each of Concrete and Aggregates is broken out separately in the segment discussions.
We operate in cyclical commodity businesses that are directly related to 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 each such geographic market as well as the national market. General economic downturns or localized downturns in the regions where we have operations generally have a material adverse effect on our business, financial condition and results of operations. Our Wallboard and Paperboard operations are more national in scope and shipments are made throughout the continental U.S. Our Cement companies are located in geographic areas west of the Mississippi river and the Chicago, Illinois metropolitan area. Due to the low value-to-weight ratio of cement, cement is usually shipped within a 150 mile radius of the plants by truck and up to 400 miles by rail; though the price of diesel fuel may impact the truck shipping radius. Concrete and Aggregates are even more regional as those operations serve the areas immediately surrounding Austin, Texas and north of Sacramento, California. Cement, concrete and aggregates demand may fluctuate more widely because local and regional markets and economies may be more sensitive to changes than the national markets.
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 For the Six Months
Ended September 30, Ended September 30,
2009 2008 Change 2009 2008 Change
(In thousands except per share) (In thousands except per share)
Revenues (1) $ 165,197 $ 219,804 (25 )% $ 321,453 $ 440,647 (27 )%
Operating Costs (1) 137,255 184,516 (26 )% 266,392 382,381 (30 )%
Operating Profit 27,942 35,288 (21 )% 55,061 58,266 (6 )%
Corporate General and Administrative 4,851 4,915 (1 )% 9,144 8,970 2 %
Interest Expense, net 5,601 8,129 (31 )% 11,234 16,120 (30 )%
Earnings Before Income Taxes 17,490 22,244 (21 )% 34,683 33,176 5 %
Income Taxes 5,296 6,599 (20 )% 10,569 9,701 10 %
Net Earnings $ 12,194 $ 15,645 (22 )% $ 24,114 $ 23,475 3 %
Diluted Earnings per Share $ 0.28 $ 0.36 (22 )% $ 0.55 $ 0.54 2 %
|
(1) Total of wholly-owned subsidiaries and proportionately consolidated 50% interest in the Joint Venture's results.
Net Revenues. Net revenues decreased by 25% and 27% for the three and six month periods ended September 30, 2009, respectively, as compared to the similar periods in 2008. The decrease during the three month period ended September 30, 2009 was due primarily to decreases in both sales prices and sales volumes for nearly all of our businesses, as compared to the similar quarter in 2008. The decrease in net revenues for the six months ended September 30, 2009 was also due to decreased sales volumes and sales prices for all of our business except gypsum wallboard, which had a slight increase in average sales price. The decreased sales volumes have contributed to the decreased average sales prices in all of our businesses, and are related to the continued downturn in the residential and commercial construction sectors, which have been disproportionately impacted by the decline in overall economic activity in the U.S. over the last two years.
Other Income. Included in net revenues are other income, which 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.
Operating Costs. Operating costs decreased 26% and 30% for the three and six month periods ended September 30, 2009, respectively, as compared to 2008. The primary reason for the decline in both the fiscal quarter and year to date costs is the reduction in production volumes for all of our segments, coupled with lower costs of certain critical operating supplies, such as natural gas, fiber and freight. The declines in natural gas and freight costs positively impacted the earnings of our gypsum wallboard and paperboard segments, while the decline in fiber costs positively impacted the paperboard segment.
Operating Profits. Operating profit decreased 21% to $27.9 million for the quarter ended September 30, 2009, as compared to the same period in 2008, primarily due to lower net revenues and average net sales prices as described above. Operating profits declined 6% to $55.1 million for the six month period as compared to the similar period in 2008. The decline was primarily due to lower revenues during the first and second fiscal quarters of 2010 as compared to fiscal 2009, offset slightly by lower operating expenses during the first quarter of fiscal 2010.
Corporate General and Administrative. Corporate general and administrative expenses were relatively flat for the three and six month periods ended September 20, 2009, as compared to the similar period in 2008. Corporate general and administrative expenses are expected to decline during the second half of fiscal 2009, as the RSUs granted during August 2008 fully vested during August 2009.
Interest Expense, Net. Net interest expense decreased 31% and 30% during the three and six month periods ended September 30, 2009, respectively. The decrease in expense is related primarily to our repurchase of $100 million in private placement debt during February 2009, resulting in lower average borrowings during fiscal 2010, as compared to fiscal 2009. Additionally, interest rates for our revolving line of credit and unrecognized tax benefits were lower during the three and six month periods ended September 30, 2009 as compared to the rates during the similar periods in 2008.
Income Taxes. As of September 30, 2009 the estimated tax rate for fiscal 2010 was 31%, as compared to 29% for fiscal 2009. The expected tax rate for the full fiscal year is expected to be 31%, as compared to 33% for fiscal 2009.
Net Earnings and Diluted Earnings per Share. Pre-tax earnings for the quarter of $17.5 million decreased 21% from last year's pre-tax earnings of $22.2 million; while pre-tax earnings for the six month period ended September 30, 2009 increased 5% from last year's pre-tax earnings of $33.2 million. Net earnings of $12.2 million and diluted earnings per share of $0.28 for the second quarter of fiscal 2010 both declined 22%, as compared to the second quarter of fiscal 2009. Net earnings of $24.1 million for the six month period ended September 30, 2009 increased 3%, as compared to the six month period ended September 30, 2008, while diluted earnings per share were relatively flat for the current six month period as compared to the same six month period of the prior fiscal year.
The following table highlights certain operating information related to our four business segments:
For the Three Months For the Six Months
Ended September 30, Ended September 30,
2009 2008 Percentage 2009 2008 Percentage
(In thousands except per unit) Change (In thousands except per unit) Change
Revenues (1)
Gypsum Wallboard $ 56,720 $ 74,583 (24 )% $ 113,642 $ 155,981 (27 )%
Cement (2) 72,857 85,741 (15 )% 134,957 172,050 (22 )%
Recycled Paperboard 21,491 34,800 (38 )% 44,027 68,600 (36 )%
Concrete and Aggregates 14,130 21,341 (34 )% 28,740 40,277 (29 )%
Other, net - 3,339 (100 )% 87 3,739 (98 )%
Gross Revenues $ 165,198 $ 219,804 (25 )% $ 321,453 $ 440,647 (27 )%
Sales Volume
Gypsum Wallboard (MMSF) 469 556 (16 )% 914 1,202 (24 )%
Cement (M Tons) (2) 790 830 (5 )% 1,442 1,665 (13 )%
Recycled Paperboard (M Tons) 52 67 (22 )% 108 134 (19 )%
Concrete (M Yards) 128 180 (29 )% 285 357 (20 )%
Aggregates (M Tons) 883 1,302 (32 )% 1,460 2,100 (30 )%
Average Net Sales Prices (3)
Gypsum Wallboard $ 92.71 $ 98.37 (6 )% $ 96.26 $ 93.48 3 %
Cement (2) 85.99 97.12 (11 )% 87.29 97.32 (10 )%
Recycled Paperboard 415.84 505.83 (18 )% 407.60 502.22 (19 )%
Concrete 67.82 73.24 (7 )% 68.16 73.76 (8 )%
Aggregates 6.18 6.21 - 6.39 6.61 (3 )%
Operating Earnings
Gypsum Wallboard $ 1,332 $ (1,340 ) - $ 4,740 $ (6,728 ) -
Cement (2) 22,045 27,083 (19 )% 39,126 49,723 (21 )%
Recycled Paperboard 4,369 4,844 (10 )% 9,402 8,057 17 %
Concrete and Aggregates 280 1,362 (79 )% 1,790 3,475 (48 )%
Other, net (84 ) 3,339 (103 )% 3 3,739 (100 )%
Net Operating Earnings $ 27,942 $ 35,288 (21 )% $ 55,061 $ 58,266 (6 )%
|
(1) Gross revenue, before freight and delivery costs.
(2) Includes proportionate share of our Joint Venture.
(3) Net of freight and delivery costs.
Gypsum Wallboard Operations. The decrease in revenues during the three and six month periods ended September 30, 2009, as compared to the similar periods in 2008, is due primarily to the 16% and 24% decrease in sales volume, respectively. The decline in sales volume is primarily due to low demand for residential and commercial construction. Residential and commercial demand normally comprises approximately 70% of the demand for gypsum wallboard, and sharp declines in demand have reduced the consumption of gypsum wallboard by approximately 50% since its peak in 2006. In addition to the decline in sales volume for the second quarter of fiscal 2010, the average net sales price decreased 6% as compared to the second quarter of fiscal 2009. The six month fiscal 2010 average net sales price is slightly higher than the fiscal 2009 six month average, due to decreased transportation costs. Operating earnings for gypsum wallboard increased during the three and six month periods of fiscal 2010, as compared to fiscal 2009, primarily due to lower operating expenses, namely natural gas, power and other raw materials.
Cement Operations. Revenues decreased during the three and six month periods ended September 30, 2009, as compared to the similar periods in 2008, primarily due to the lower sales volumes and lower average sales prices. The decrease in sales volumes was more pronounced in the Mountain and Texas markets, offset slightly by increased volume in the Illinois market. The declines in the Mountain and Texas markets included both manufactured and purchased cement. Purchased cement sales declined to approximately 15,000 tons and 42,000 tons during the three and six month periods ended September 30, 2009, respectively, as compared to approximately 134,000 tons and 301,000 tons during the three and six month periods ended September 30, 2008, respectively. The decline in average sales prices during the three and six month periods was consistent across all markets and primarily due to the decline in demand in our markets. Operating earnings declined during the second quarter and year to date in fiscal 2010, as compared to the similar periods in fiscal 2009. These declines are due primarily to decreases in the sales volumes and average sales prices, partially offset by reduced operating expenses, namely parts, supplies and outside services, fuel and electricity.
Recycled Paperboard Operations. Net revenues declined 38% and 36% during the three and six month periods ended September 30, 2009 as compared to the similar periods in 2008, primarily due to the 22% and 19% decline in sales volume and the 18% and 19% decline in average sales price for the three and six month periods, respectively. The decline in sales volume is primarily due to reduced residential and commercial construction, which has adversely impacted demand for gypsum paper, resulting in gypsum paper representing only 54% and 52% of total sales volume during the during the three and six month periods ending September 30, 2009 as compared to 64% and 65% of total sales volume during the similar periods of fiscal 2009. The decrease in the mix of higher priced gypsum paper also had an adverse impact on the average selling price during the three and six month periods ended September 30, 2009, as compared to September 30, 2008. Despite the reduction in net revenues, operating earnings grew by 17% for the six months ended September 30, 2009 as compared to fiscal 2008, primarily due to decreases in our primary operating expenses, namely fiber, natural gas, electricity and chemicals. For the three months ended September 30, 2009, operating earnings were down 10%. On a per ton basis, operating costs decreased approximately 30% during fiscal 2010 as compared to fiscal 2009. The decline in natural gas is due primarily to higher than normal expense during fiscal 2009, while the decline in fiber expense is due primarily to the reduced world-wide demand for recycled fiber.
Concrete and Aggregates Operations. The decline in sales volumes during the three and six month periods of fiscal 2010, as compared to similar periods in fiscal 2009, was the primary reason for the decline in revenue for both concrete and aggregates. The decline in sales volumes negatively impacted the average net sales prices during these same periods, resulting in average net sales price declines for both concrete and aggregates, as compared to the similar periods ended September 30, 2008. The decrease in revenues and average net sales prices were the primary reason for the decline in operating earnings during the three and six month periods ended September 30, 2009 as compared to the similar periods in 2008.
GENERAL OUTLOOK
The United States government continues to look for ways to assist the country in recovering from the recession that began in December 2007. These actions include Congressional passage of The American Recovery and Reinvestment Act of 2009, a stimulus package with spending of up to $787 billion. A portion of the stimulus package is for infrastructure projects; however, most of the impact of the stimulus bill on the construction industry is not expected to be realized until calendar 2010. Although we anticipate the administration will continue to address the current financial crisis throughout the remainder of calendar 2009, there can be no assurance as to the actual impact that these legislative initiatives, or any other similar governmental programs, will have on our business, financial condition or results of operations.
The U.S. wallboard industry continues to be adversely impacted by the current downturn in the residential and commercial construction markets, resulting in industry capacity utilization declining to approximately 50%. The reduction in capacity utilization continues to negatively impact gypsum wallboard pricing, which is expected to remain depressed throughout fiscal 2010. Wallboard consumption during the first nine months of calendar 2009, as reported by the Gypsum Association, decreased approximately 30% from the same period in calendar year 2008, and consumption for calendar 2009 is expected to be approximately 25% below total consumption for calendar 2008.
We anticipate gypsum paper sales as a percentage of our total paper sales to continue to decline throughout the remainder of fiscal 2010. Lower total sales volumes of gypsum paper are expected to continue throughout fiscal 2010, but we continue to seek opportunities for sales in new markets as well as supplying product to the containerboard market. The cost of two of our major operating expenses, electricity and natural gas, declined during the three and six month periods of fiscal 2010, and due to worldwide recession, we do not expect significant increases in these costs until the fourth quarter of fiscal 2010. Fiber, another of our major operating costs, has experienced an increase throughout the first six months of fiscal 2010, rebounding from the historical lows in the last two quarters of fiscal 2009. As the generation of Old Cardboard Containers ("OCC") continues to decline in the slumping economy and the presence of export demand for OCC remains steady, the price of fiber is anticipated to continue to rise throughout much of fiscal 2010. We closely monitor the price and consumption of fiber, electricity and natural gas as these costs comprise a significant portion of our total production costs.
Cement demand in all U.S. regions continues to be impacted by decreasing residential housing construction, the softening commercial construction market and state government budget deficits, which will hinder cement consumption during the remainder of calendar 2009. Cement consumption in the US declined approximately 30% in first eight months of calendar 2009 to approximately 48 million short tons, as compared to consumption of approximately 69 million short tons during the first eight months of calendar 2008. The U.S. cement industry continues to reduce imports of foreign cement with imports declining to approximately 9% of total consumption during the first eight months of calendar 2009, as compared to approximately 19% of total consumption in the first eight months of calendar 2008. The United States government has included increased infrastructure spending as part of the stimulus package passed during the first quarter of calendar 2009; however, the effects of these expenditures are not expected to meaningfully impact the cement industry until calendar 2010. We expect the contraction in cement consumption to impact all of the markets served by our cement plants throughout the remainder of calendar 2009.
Similarly, we expect concrete and aggregate sales volumes to be depressed throughout the remainder of calendar 2009 in both of our markets as both residential and infrastructure spending remain soft, and any impact from the stimulus bill most likely will not be realized until calendar 2010.
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 four 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 and accounts receivable. 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
Effective with the quarter ended September 30, 2009, we adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 105, "Generally Accepted Accounting Principles" (ASC 105). ASC 105 establishes the FASB Accounting Standards Codification ("Codification") as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States. The FASB will make all future changes to guidance in the Codification by issuing Accounting Standards Updates. The Codification also provides that rules and interpretive releases of the U. S. Securities and Exchange Commission (SEC) issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants. The Codification does not create any new GAAP standards but incorporates existing accounting and reporting standards into a new topical structure so that users can more easily access authoritative accounting guidance. Therefore, we have updated all references to authoritative standards to be consistent with those set forth in the Codification. The adoption of ASC 105 had no impact on our consolidated financial position, results of operations or cash flows.
In May 2009, the FASB issued guidance on subsequent events, which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance was adopted effective for the first fiscal quarter of 2010 and did not have a material impact on our financial statements.
In April 2009, the FASB issued guidance on interim disclosures about fair value of financial instruments, which requires quarterly disclosure of information about the fair value of financial instruments. The guidance was adopted effective for the first fiscal quarter of 2010 and did not have a material impact on our financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow.
The following table provides a summary of our cash flows:
For the Six Months
Ended September 30,
2009 2008
(dollars in thousands)
Net Cash Provided by Operating Activities $ 59,045 $ 20,860
Investing Activities:
Capital Expenditures (9,864 ) (11,035 )
Proceeds from Sale of Property, Plant and Equipment - 3,996
Net Cash Used in Investing Activities (9,864 ) (7,039 )
Financing Activities:
Excess Tax Benefits from Share Based Payment Arrangements 197 517
Increase (Decrease) in Notes Payable (55,000 ) -
Dividends Paid (8,715 ) (17,378 )
Proceeds from Stock Option Exercises 950 1,098
Net Cash Provided by (Used in) Financing Activities (62,568 ) (15,763 )
Net Decrease in Cash $ (13,387 ) $ (1,942 )
|
Cash flow from operating activities increased by $38.2 million during the six month period ended September 30, 2009, as compared to the similar period in 2008, primarily due to increases in cash flows from changes in operating assets . . .
|
|