UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended

December 31, 2019

Commission File Number 1-12984

EAGLE MATERIALS INC.

(Exact name of registrant as specified in its charter)

Delaware (State of Incorporation)

75-2520779 (I.R.S. Employer Identification No.)

5960 Berkshire Lane, Suite 900, Dallas, Texas 75225 (Address of principal executive offices)

(214) 432-2000 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock (par value $.01 per share)	EXP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES  ☒    NO  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes  ☐    No  ☒

As of January 26, 2020, the number of outstanding shares of common stock was:

Class	Outstanding Shares
Common Stock, $.01 Par Value	41,643,970

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION (unaudited)

		Page
Item 1.	Consolidated Financial Statements
	Consolidated Statements of Earnings for the Three and Nine Months Ended December 31, 2019 and 2018	1
	Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended December 31, 2019 and 2018	2
	Consolidated Balance Sheets as of December 31, 2019, and March 31, 2019	3
	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2019 and 2018	4
	Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended December 31, 2019 and 2018	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1a.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 4.	Mine Safety Information	55
Item 6.	Exhibits	56
SIGNATURES		57

EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (unaudited)

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2019			2018			2019			2018
	(dollars in thousands, except share and per share data)
Revenue	$	350,249		$	333,285		$	1,135,372		$	1,108,540
Cost of Goods Sold		262,735			252,864			868,023			838,554
Gross Profit		87,514			80,421			267,349			269,986
Equity in Earnings of Unconsolidated Joint Venture		10,700			9,507			32,489			28,931
Corporate General and Administrative Expense		(13,794	)		(9,408	)		(48,506	)		(27,333	)
Impairment Losses		(224,267	)		—			(224,267	)		—
Litigation Settlements and Losses		—			—			—			(1,800	)
Other Non-Operating Income		825			1,292			1,967			2,291
Interest Expense, Net		(9,543	)		(7,294	)		(28,526	)		(20,743	)
Earnings (Loss) before Income Taxes		(148,565	)		74,518			506			251,332
Income Tax Benefit (Expense)		33,933			(16,803	)		(2,041	)		(54,675	)
Net Earnings (Loss)		(114,632	)		57,715			(1,535	)		196,657
EARNINGS (LOSS) PER SHARE
Basic	$	(2.77	)	$	1.25		$	(0.04	)	$	4.18
Diluted	$	(2.77	)	$	1.24		$	(0.04	)	$	4.15
AVERAGE SHARES OUTSTANDING
Basic		41,314,289			46,275,198			42,246,329			47,059,408
Diluted		41,314,289			46,495,994			42,246,329			47,403,271
CASH DIVIDENDS PER SHARE	$	0.10		$	0.10		$	0.30		$	0.30

See notes to unaudited consolidated financial statements.

1

EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS) (unaudited)

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2019			2018			2019			2018
	(dollars in thousands)
Net Earnings (Loss)	$	(114,632	)	$	57,715		$	(1,535	)	$	196,657
Net Actuarial Change in Defined Benefit Plans:
Amortization of net actuarial loss		43			73			131			219
Tax expense		(10	)		(17	)		(30	)		(51	)
Comprehensive Earnings (Loss)	$	(114,599	)	$	57,771		$	(1,434	)	$	196,825

See notes to unaudited consolidated financial statements.

2

EAGLE MATERIALS INC. AND SUBSDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)

	December 31,			March 31,
	2019			2019
	(dollars in thousands)
ASSETS
Current Assets -
Cash and Cash Equivalents	$	126,255		$	8,601
Accounts and Notes Receivable, net		140,283			128,722
Inventories		234,264			275,194
Income Tax Receivable		—			5,480
Prepaid and Other Assets		6,997			9,624
Total Current Assets		507,799			427,621
Property, Plant, and Equipment, net		1,269,733			1,426,939
Notes Receivable		9,192			2,898
Investment in Joint Venture		71,862			64,873
Operating Lease Right-of-Use Assets		29,346			—
Goodwill and Intangible Assets, net		230,099			229,115
Other Assets		12,194			17,717
	$	2,130,225		$	2,169,163
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities -
Accounts Payable	$	65,035		$	80,884
Accrued Liabilities		67,670			61,949
Income Taxes Payable		20,020			—
Operating Lease Liabilities		10,601			—
Current Portion of Long-term Debt		—			36,500
Total Current Liabilities		163,326			179,333
Long-term Debt		930,594			655,092
Noncurrent Operating Lease Liabilities		51,939			—
Other Long-term Liabilities		36,648			34,492
Deferred Income Taxes		50,391			90,759
Total Liabilities		1,232,898			959,676
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 41,643,970 and 45,117,393 Shares, respectively		416			451
Capital in Excess of Par Value		8,325			—
Accumulated Other Comprehensive Losses		(3,215	)		(3,316	)
Retained Earnings		891,801			1,212,352
Total Stockholders’ Equity		897,327			1,209,487
	$	2,130,225		$	2,169,163

See notes to the unaudited consolidated financial statements.

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EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	For the Nine Months Ended December 31,
	2019			2018
	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss)	$	(1,535	)	$	196,657
Adjustments to Reconcile Net Earnings (Loss) to Net Cash Provided by Operating Activities, Net of Effect of Non-Cash Activity -
Depreciation, Depletion, and Amortization		84,944			91,961
Impairment Losses		224,267			—
Deferred Income Tax Provision		(40,396	)		14,552
Stock Compensation Expense		16,407			11,609
Equity in Earnings of Unconsolidated Joint Venture		(32,489	)		(28,931	)
Distributions from Joint Venture		25,500			27,500
Changes in Operating Assets and Liabilities:
Accounts and Notes Receivable		(12,171	)		4,905
Inventories		36,595			6,899
Accounts Payable and Accrued Liabilities		(10,006	)		(34,964	)
Other Assets		4,003			(1,524	)
Income Taxes Payable (Receivable)		25,500			5,436
Net Cash Provided by Operating Activities		320,619			294,100
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant, and Equipment		(84,056	)		(126,446	)
Acquisition Spending		(30,424	)		—
Proceeds from Sale of Property, Plant, and Equipment		—			2,281
Net Cash Used in Investing Activities		(114,480	)		(124,165	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Credit Facility		275,000			5,000
Repayment of Private Placement Senior Unsecured Notes		(36,500	)		—
Dividends Paid to Stockholders		(13,131	)		(14,293	)
Purchase and Retirement of Common Stock		(313,887	)		(191,800	)
Proceeds from Stock Option Exercises		2,996			1,992
Shares Redeemed to Settle Employee Taxes on Stock Compensation		(2,963	)		(1,842	)
Net Cash Used in Financing Activities		(88,485	)		(200,943	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		117,654			(31,008	)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		8,601			48,068
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	126,255		$	17,060

See notes to the unaudited consolidated financial statements.

4

EAGLE MATERIALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

	Common Stock			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Losses			Total
	(dollars in thousands)
Balance at March 31, 2018	$	483		$	122,379		$	1,298,840		$	(4,012	)	$	1,417,690
Net Earnings		—			—			66,339			—			66,339
Stock Option Exercises and Restricted Share Vesting		—			1,992			—			—			1,992
Purchase and Retirement of Common Stock		(5	)		(52,339	)		—			—			(52,344	)
Dividends to Stockholders		—			—			(4,791	)		—			(4,791	)
Stock Compensation Expense		1			3,492			—			—			3,493
Shares Redeemed to Settle Employee Taxes		—			(956	)		—			—			(956	)
Unfunded Pension Liability, net of tax		—			—			—			56			56
Balance at June 30, 2018	$	479		$	74,568		$	1,360,388		$	(3,956	)	$	1,431,479
Net Earnings		—			—			72,603			—			72,603
Purchase and Retirement of Common Stock		(7	)		(70,053	)		—			—			(70,060	)
Dividends to Stockholders		—			—			(4,712	)		—			(4,712	)
Stock Compensation Expense		—			4,066			—			—			4,066
Shares Redeemed to Settle Employee Taxes		—			(829	)		—			—			(829	)
Unfunded Pension Liability, net of tax		—			—			—			56			56
Balance at September 30, 2018	$	472		$	7,752		$	1,428,279		$	(3,900	)	$	1,432,603
Net Earnings		—			—			57,715			—			57,715
Purchase and Retirement of Common Stock		(10	)		(11,745	)		(57,641	)		—			(69,396	)
Dividends to Stockholders		—			—			(4,634	)		—			(4,634	)
Stock Compensation Expense		—			4,050			—			—			4,050
Shares Redeemed to Settle Employee Taxes		—			(57	)		—			—			(57	)
Unfunded Pension Liability, net of tax		—			—			—			56			56
Balance at December 31, 2018	$	462		$	—		$	1,423,719		$	(3,844	)	$	1,420,337
	Common Stock			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Losses			Total
	(dollars in thousands)
Balance at March 31, 2019	$	451		$	—		$	1,212,352		$	(3,316	)	$	1,209,487
Net Earnings		—			—			41,304			—			41,304
Stock Option Exercises and Restricted Share Vesting		—			396			—			—			396
Purchase and Retirement of Common Stock		(23	)		(7,748	)		(190,584	)		—			(198,355	)
Dividends to Stockholders		—			—			(4,316	)		—			(4,316	)
Stock Compensation Expense		1			8,218			—			—			8,219
Shares Redeemed to Settle Employee Taxes		—			(866	)		—			—			(866	)
Cumulative Effect of Change in Accounting for Leases		—			—			(636	)		—			(636	)
Unfunded Pension Liability, net of tax		—			—			—			33			33
Balance at June 30, 2019	$	429		$	—		$	1,058,120		$	(3,283	)	$	1,055,266
Net Earnings		—			—			71,793			—			71,793
Stock Option Exercises and Restricted Share Vesting		—			1,371			—			—			1,371
Purchase and Retirement of Common Stock		(13	)		(366	)		(115,153	)		—			(115,532	)
Dividends to Stockholders		—			—			(4,163	)		—			(4,163	)
Stock Compensation Expense		—			3,918			—			—			3,918
Shares Redeemed to Settle Employee Taxes		—			(1,933	)		—			—			(1,933	)
Unfunded Pension Liability, net of tax		—			—			—			35			35
Balance at September 30, 2019	$	416		$	2,990		$	1,010,597		$	(3,248	)	$	1,010,755
Net Loss		—			—			(114,632	)		—			(114,632	)
Stock Option Exercises and Restricted Share Vesting		—			1,229			—			—			1,229
Dividends to Stockholders		—			—			(4,164	)		—			(4,164	)
Stock Compensation Expense		—			4,270			—			—			4,270
Shares Redeemed to Settle Employee Taxes		—			(164	)		—			—			(164	)
Unfunded Pension Liability, net of tax		—			—			—			33			33
Balance at December 31, 2019	$	416		$	8,325		$	891,801		$	(3,215	)	$	897,327

See notes to the unaudited consolidated financial statements.

5

Eagle Materials Inc. and Subsidiaries
Notes to Consolidated Financial Statements

(A) BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements as of and for the three- and nine-month periods ended December 31, 2019 include the accounts of Eagle Materials Inc. 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 23, 2019.

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

RECENTLY ADOPTED

In February 2016, the Financial Accounting Standards Board (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. We adopted the standard on April 1, 2019 using the modified retrospective approach. We also elected the package of practical expedients permitted under the transition guidance which, among other things, allowed us to maintain the historic lease classification for leases in effect at the date of adoption, and to not separate lease components from nonlease components for all leases in effect at the date of adoption. Upon adoption, we recorded a right-of-use asset of approximately $66.7 million, and operating lease liabilities of approximately $71.1 million. See Footnote (J) for more information.

PENDING ADOPTION

In June 2016, the FASB issued an update on the measurement of credit losses on financial instruments, which requires entities to use a forward-looking approach based on expected losses rather than the current model of incurred losses to estimate credit losses on certain types of financial instruments, including Accounts and Notes Receivable. The application of the forward-looking model may result in earlier recognition of allowances for losses than the current method. This guidance becomes effective for us on April 1, 2020, with early adoption permitted. We are currently assessing the impact of the new standard, but we do not expect the adoption will have a material effect on our consolidated financial statements and disclosures.

6

(B) ACQUISITIONS

On August 2, 2019, we acquired the assets of a readymix concrete and aggregates business (the ConAgg Acquisition). The purchase price (Purchase Price) of the ConAgg Acquisition was approximately $30.4 million. The purchase price allocation has not yet been finalized. The Purchase Price and expenses incurred in connection with the ConAgg Acquisition were funded through operating cash flows and borrowings under our bank credit facility. Operations related to the ConAgg Acquisition are included in the Concrete and Aggregates business in our segment reporting from August 2, 2019 through December 31, 2019.

Pending Acquisition

On November 25, 2019, we entered into an agreement (the Kosmos Acquisition) with Kosmos Cement Company (a joint venture between CEMEX S.A.B. de C.V. and Buzzi Unicem S.p.A.) (Kosmos) to purchase (i) a cement plant located in Louisville, Kentucky, (ii) a limestone quarry located in Battletown, Kentucky, (iii) cement distribution terminals located in Indianapolis, Indiana; Cincinnati, Ohio; Pittsburgh, Pennsylvania; Charleston, West Virginia; Ceredo, West Virginia; Mt. Vernon, Indiana; and Lexington, Kentucky, and (iv) certain other properties and assets used by Kosmos in connection with the foregoing (collectively, the Kosmos Business). We will assume certain liabilities and obligations of Kosmos relating to the Kosmos Business, including contractual obligations, reclamation obligations, and various other liabilities and obligations arising out of or relating to the Kosmos Business after the closing of the transaction.  

The purchase price (Kosmos Purchase Price) to be paid in the transaction is $665 million in cash, subject to a customary post-closing inventory adjustment. We expect to fund the Purchase Price and expenses incurred in connection with the transaction through a combination of cash on hand and a syndicated term loan facility. The transaction is expected to close in the fourth quarter of fiscal 2020 following the satisfaction of customary closing conditions. The Kosmos Business will be included in the Cement business in our segment reporting.  

(C) IMPAIRMENT OF LONG-LIVED ASSETS

We assess our long-lived assets, including mining and related assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or group of assets, may not be recoverable. We evaluate long-lived assets or groups of assets, for impairment at the lowest level for which cash flows are largely independent of the cash flows of other assets. When impairment indicators are identified, we first 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.

During the second half of calendar year 2019, our Oil and Gas Proppants financial results have been negatively affected by a combination of low demand for our products and the increased use of in-basin sand instead of northern white frac sand. Faced with these dynamics, in connection with the preparation of our financial statements for the three and nine months ended December 31, 2019, we concluded that the reduction in sales volumes and operating losses were other than temporary and that long-lived asset impairment indicators were present in our Oil and Gas Proppants segment.   

Prior to performing recoverability tests to determine whether an impairment was present, we grouped the long-lived assets of the segment into the lowest level at which cash flows are generated, which is considered the operating facility or distribution level. We included the value of our lease right-of-use assets that support the operating facilities within the value of the operating facility prior to performing our recoverability tests. We then performed recoverability tests on each group of assets using probability-weighted estimates of forecasted

7

undiscounted cash flows over the remaining estimated life of each asset group based on a variety of scenarios. Based on these forecasts, we concluded that the carrying values exceeded the undiscounted cash flows for our New Auburn, Wisconsin and Utica, Illinois operating facilities and several distribution facilities related to these operating facilities, indicating impairment.  

For those impaired asset groups, we calculated the estimated fair value of the operating facilities in New Auburn, Wisconsin, Utica, Illinois and related distribution terminals, using a discounted cash flow model (Level 3), which utilized a weighted-average cost of capital determined from relevant market comparisons and adjusted for specific risks. We compared the results of the discounted cash flow model to other recent market information about the value of similar assets, noting the amounts to be consistent. The analysis resulted in an impairment loss of approximately $216.8 million.  

The following is a summary of impact of the impairment on the net book value of the long-lived assets:

	Net Book Value Before Impairment		Impairment			Net Book Value After Impairment
	(dollars in thousands)
Operating Facilities	$	170,324	$	(164,449	)	$	5,875
Transload Locations		23,254		(21,805	)		1,449
Real Estate		1,427		(1,377	)		50
Lease Right-of-Use Assets		32,834		(29,146	)		3,688
	$	227,839	$	(216,777	)	$	11,062

We continue to be subject to volatility in the energy markets. We will continue to assess the remaining long-lived assets for impairment, as necessary, when facts and circumstance indicate an impairment might be present. Additionally, we are actively pursuing alternatives for this business. If this results in an alternative use or disposal of the business, additional losses may be incurred.

In addition to the impairment of the operating facilities and transload facilities, we also assessed other current and long-term assets for impairment. As part of this analysis, we wrote down certain Inventories, Prepaid and Other Current Assets, Accounts and Note Receivable and Other Assets.

The following is a summary of Impairment Losses recognized during the three months ended December 31, 2019, by line item:

	(dollars in thousands)
Property, Equipment, and Real Estate	$	187,631
Lease Right-of-Use Assets		29,146
Inventories		6,256
Accounts and Notes Receivable		617
Prepaid and Other Assets		617
	$	224,267

The above Impairment Loss has been presented as a single line item on our Unaudited Consolidated Statement of Earnings (Loss) for the three and nine months ended December 31, 2019.  Additionally, this loss has not been included in the segment disclosure of Operating Earnings (Loss) for the Oil and Gas Proppants business, as disclosed in Footnote (P).

8

(D) SUPPLEMENTAL CASH FLOW INFORMATION  

Supplemental cash flow information is as follows:

	For the Nine Months Ended December 31,
	2019		2018
	(dollars in thousands)
Cash Payments:
Interest	$	25,490	$	17,826
Income Taxes		20,046		35,222
Operating Cash Flows used for Operating Leases		11,562		—
Non Cash Financing Activities:
Property and Equipment Purchases Included in Accrued Liabilities	$	2,675	$	—

(E) REVENUE

We earn Revenue primarily from the sale of products, which include cement, concrete, aggregates, gypsum wallboard, recycled paperboard, and frac sand. The vast majority of Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard is originated by purchase orders from our customers, who are primarily third-party contractors and suppliers. Revenue from our Recycled Paperboard and Oil and Gas Proppants segments is generated primarily through long-term supply agreements that mature between 2019 and 2025. We also earn Revenue from transload services and storage; we recognize Revenue from these services when the product is transferred from the rail car to the truck or silo, or from the silo to the railcar or truck. We invoice customers upon shipment, and our collection terms range from 30-65 days. We recognize Revenue from the sale of cement, concrete, aggregates, and gypsum wallboard that is not related to long-term supply agreements 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 or transload location. 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. Historically, the pricing and volume requirements under certain of these contracts have been renegotiated during volatile market conditions. Shortfall amounts, if applicable under these arrangements, are constrained and not recognized as Revenue until an agreement is reached with the customer and not subject to the risk of reversal. During the nine months ended December 31, 2019, we recognized $1.6 million of Revenue related to shortfall provisions in our contracts.

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 that are billed to the customer are recorded as Revenue, while costs we incur for shipping and handling are recorded as expenses and included in Cost of Goods Sold.

Other Non-Operating Income includes lease and rental income, asset-sale income, non-inventoried aggregates sales income, distribution-center income, and trucking income, as well as other miscellaneous revenue items and costs that have not been allocated to a business segment.

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See Footnote (P) to the Unaudited Consolidated Financial Statements for disaggregation of Revenue by segment.

(F) ACCOUNTS AND NOTES RECEIVABLE

Accounts and Notes Receivable have been shown net of the allowance for doubtful accounts of $12.3 million and $9.9 million at December 31, 2019 and March 31, 2019, 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 $9.9 million at December 31, 2019, of which approximately $0.8 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 currently bear interest, on average, at 4.75%. Remaining unpaid amounts, plus accrued interest, mature in fiscal 2025. 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 assessing the timeliness of payments, credit history, credit metrics, and our ongoing interactions with each borrower.

(G) STOCKHOLDERS’ EQUITY

During the nine months ended December 31, 2019, we repurchased 3,574,109 shares at an average price of $87.82. At December 31, 2019, we have authorization to purchase an additional 7,305,649 shares.

(H) INVENTORIES

Inventories are stated at the lower of average cost (including applicable material, labor, depreciation, and plant overhead) or net realizable value, and consist of the following:

	December 31,		March 31,
	2019		2019
	(dollars in thousands)
Raw Materials and Materials-in-Progress	$	93,865	$	125,828
Finished Cement		24,673		27,826
Aggregates		7,588		7,351
Gypsum Wallboard		4,881		7,124
Paperboard		11,638		15,660
Frac Sand		529		2,557
Repair Parts and Supplies		81,445		80,676
Fuel and Coal		9,645		8,172
	$	234,264	$	275,194

During the nine months ended December 31, 2019, we wrote down approximately $3.3 million, $1.7 million, and $1.3 million of Raw Materials and Materials-in-Progress, Frac Sand, and Repair Parts and Supplies. These inventories related to the impairment of our Oil and Gas Proppants segment described in Footnote (C).

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(I) ACCRUED EXPENSES

Accrued Expenses consist of the following:

	December 31,		March 31,
	2019		2019
	(dollars in thousands)
Payroll and Incentive Compensation	$	27,548	$	26,225
Benefits		13,272		12,673
Interest		6,606		3,852
Property Taxes		4,745		5,058
Power and Fuel		1,635		1,644
Litigation Settlements		—		1,900
Sales and Use Tax		1,130		2,167
Legal and Professional		5,870		—
Other		6,864		8,430
	$	67,670	$	61,949

(J) LEASES

We lease certain real estate, buildings, and equipment, including rail cars. Certain of these leases contain escalations of rent over the term of the lease, as well as options for us to extend the term of the lease at the end of the original term. These extensions range from periods of one year to twenty years. Our lease agreements do not contain material residual value guarantees or material restrictive covenants. In calculating the present value of future minimum lease payments, we use the rate implicit in the lease if it can be determined. Otherwise, we use our incremental borrowing rate in effect at the commencement of the lease to determine the present value of the future minimum lease payments. Additionally, we lease certain equipment under short-term leases with initial terms of less than twelve months. These short-term equipment leases are not recorded on the balance sheet.

Lease expense for our operating and short-term leases is as follows:

	For the Three Months Ended December 31, 2019		For the Nine Months Ended December 31, 2019
	(dollars in thousands)
Operating Lease Cost	$	3,730	$	11,639
Short-term Lease Cost		228		1,310
Total Lease Cost	$	3,958	$	12,949

The Right-of-Use Assets and Lease Liabilities are reflected on our Balance Sheet as follows:

	For the Nine Months Ended December 31, 2019
	(dollars in thousands)
Operating Leases:
Operating Lease Right-of-Use Assets	$	29,346
Current Operating Lease Liabilities	$	10,601
Noncurrent Operating Lease Liabilities		51,939
Total Operating Lease Liabilities	$	62,540

During the quarter ended December 31, 2019, we recognized a $29.1 million impairment related to Right-of-Use assets used by our Oil and Gas Proppants business. See Footnote (C) for additional information about the impairment loss.

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Future payments for operating leases are as follows:

	Amount
Fiscal Year	(dollars in thousands)
2020 (remaining three months)	$	3,318
2021		11,931
2022		10,618
2023		10,131
2024		8,585
Thereafter		30,945
Total Lease Payments	$	75,528
Less: Imputed Interest		(12,988	)
Present Value of Lease Liabilities	$	62,540
Weighted Average Remaining Lease Term (in years)		9.2
Weighted Average Discount Rate		3.75	%

As disclosed in our March 31, 2019 Form 10-K, future minimum lease payments were as follows:

	Amount
Fiscal Year	(dollars in thousands)
2020	$	14,613
2021		11,487
2022		9,979
2023		9,784
2024		8,347
Thereafter		24,793
Total Lease Payments	$	79,003

(K) Share-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.

Long-Term Compensation Plans

OPTIONS

In May 2019, the Compensation Committee of the Board of Directors approved the granting of an aggregate of 100,849 performance-vesting stock options (the Fiscal 2020 Employee Performance Stock Option Grant) to certain officers and key employees that will be earned only if certain performance conditions are satisfied. The performance criteria for the Fiscal 2020 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 10.0% to 20.0%, for the fiscal year ending March 31, 2020. All stock options will be earned if the return on equity is 20.0% or greater, and the percentage of shares earned will be reduced proportionately to approximately 66.7% if the return on equity is 10.0%. If the Company does not achieve a return on equity of at least 10.0%, 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 initial fourth lapsing promptly following the determination date, and the remaining restrictions lapsing on March 31, 2021 through 2023. The stock options have a term of ten years from the date of grant. The Compensation Committee also approved a grant to the same officers and key employees of 84,043

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time-vesting stock options, which vest ratably over four years (the Fiscal 2020 Employee Time-Vesting Stock Option Grant).  

The weighted average assumptions used in the Black-Scholes model to value the option awards in fiscal 2020 are as follows:  

Dividend Yield		1.3	%
Expected Volatility		31.4	%
Risk Free Interest Rate		2.32	%
Expected Life	6.0 years

Stock option expense for all outstanding stock option awards totaled approximately $1.2 million and $3.5 million for the three and nine months ended December 31, 2019, respectively, and $0.9 million and $3.0 million for the three and nine months ended December 31, 2018, respectively. At December 31, 2019, there was approximately $8.4 million of unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted average period of 2.6 years.

The following table represents stock option activity for the nine months ended December 31, 2019:

	Number of Shares			Weighted Average Exercise Price
Outstanding Options at Beginning of Year		1,042,925		$	76.88
Granted		184,892		$	91.58
Exercised		(57,255	)	$	87.99
Cancelled		(7,883	)	$	102.69
Outstanding Options at December 31, 2019		1,162,679		$	80.25
Options Exercisable at December 31, 2019		732,860		$	73.27
Weighted Average Fair Value of Options Granted During the Year				$	27.37

The following table summarizes information about stock options outstanding at December 31, 2019:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number of Shares Outstanding		Weighted Average Exercise Price
$23.17 - $29.84		65,912		1.60	$	23.27		65,912	$	23.27
$33.43 - $37.34		57,728		2.46	$	34.03		57,728	$	34.03
$53.22 - $77.67		272,834		5.53	$	72.22		201,712	$	71.84
$79.73 - $106.24		766,205		6.99	$	91.49		407,508	$	87.63
		1,162,679		6.12	$	80.25		732,860	$	73.27

At December 31, 2019, the aggregate intrinsic values for the outstanding and exercisable options were approximately $15.3 million and $13.8 million, respectively. The total intrinsic value of options exercised during the nine months ended December 31, 2019 was approximately $2.0 million.

RESTRICTED STOCK

In May 2019, the Compensation Committee approved the granting of an aggregate of 51,112 shares of performance vesting restricted stock to certain officers and key employees (the Fiscal 2020 Employee Restricted Stock Performance Award) that will be earned only if certain performance conditions are satisfied. The performance criteria for the Fiscal 2020 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 10.0% to 20.0%, for the fiscal year ending March 31, 2020. All restricted shares will be earned if the return on equity is 20.0% or greater, and the percentage of shares earned will be reduced proportionately to approximately 66.7% if the return on equity is 10.0%. If the Company does not achieve a return on equity of at least 10.0%, all awards will be forfeited. Following any such reduction, restrictions on the earned shares will lapse ratably over four years,

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with the initial fourth lapsing promptly following the determination date, and the remaining restrictions lapsing on March 31, 2021 through 2023. The Compensation Committee also approved a grant to the same officers and key employees of 42,591 shares of time-vesting restricted stock (the Fiscal 2020 Employee Restricted Stock Time-Vesting Award), which vest ratably over four years. The Fiscal 2020 Employee Restricted Stock Performance Award and the Fiscal 2020 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 2019, we granted to members of the Board of Directors 24,589 shares of restricted stock which vest six months after the grant date (the Board of Directors Fiscal 2020 Restricted Stock Award). The Board of Directors Fiscal 2020 Restricted Stock Award was valued at the closing price of the stock at the date of the grant and is being expensed over a six-month period.

The fair value of restricted stock is based on the stock price at the date of grant. The following table summarizes the activity for nonvested restricted shares during the nine months ended December 31, 2019:

	Number of Shares			Weighted Average Grant Date Fair Value
Restricted Stock Beginning of Year		300,115		$	78.94
Granted		118,292		$	90.08
Vested		(83,307	)	$	95.01
Forfeited		(15,940	)	$	58.64
Nonvested Restricted Stock at December 31, 2019		319,160

Expense related to restricted shares was approximately $3.1 million and $12.9 million for the three and nine months ended December 31, 2019, respectively, and $3.1 million and $8.6 million for the three and nine months ended December 31, 2018, respectively. At December 31, 2019, there was approximately $15.4 million of unearned compensation from restricted stock, which will be recognized over a weighted average period of 2.1 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 3,758,359 at December 31, 2019.

(L) COMPUTATION OF EARNINGS PER SHARE

The calculation of basic and diluted common shares outstanding is as follows:

	For the Three Months Ended December 31,					For the Nine Months Ended December 31,
	2019		2018			2019		2018
Weighted Average Shares of Common Stock Outstanding		41,314,289		46,275,198			42,246,329		47,059,408
Effect of Dilutive Shares:
Assumed Exercise of Outstanding Dilutive Options		—		268,283			—		629,968
Less Shares Repurchased from Proceeds of Assumed Exercised Options		—		(171,402	)		—		(442,898	)
Restricted Stock Units		—		123,915			—		156,793
Weighted Average Common Stock and Dilutive Securities Outstanding		41,314,289		46,495,994			42,246,329		47,403,271
Shares Excluded Due to Anti-dilution Effects		655,889		756,035			657,964		360,976

There are no dilutive instruments for the three and nine month periods ended December 31, 2019, as the inclusion of these instruments would be anti-dilutive. Of the shares excluded due to anti-dilution effects, 301,206 shares and 281,031 shares would have been considered dilutive if not for the net loss position for the three and nine months ended December 31, 2019, respectively.

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(M) PENSION AND EMPLOYEE BENEFIT PLANS

We sponsor several defined benefit pension plans and defined contribution 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 December 31,						For the Nine Months Ended December 31,
	2019			2018			2019			2018
	(dollars in thousands)
Service Cost - Benefits Earned During the Period	$	85		$	100		$	255		$	300
Interest Cost of Projected Benefit Obligation		338			337			1,013			1,011
Expected Return on Plan Assets		(426	)		(463	)		(1,279	)		(1,389	)
Recognized Net Actuarial Loss		43			58			131			174
Amortization of Prior-Service Cost		—			15			—			45
Net Periodic Pension Cost	$	40		$	47		$	120		$	141

(N) INCOME TAXES  

Income Taxes for the interim periods 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 include, when appropriate, certain items treated as discrete events to arrive at an estimated overall tax amount. The effective tax rate for the nine months ended December 31, 2019 was approximately 403%, which was higher than the tax rate of 22% for the nine months ended December 31, 2018. The increase in the effective tax rate was primarily due to the impairment, discrete expense related to the limitation on the deduction for certain officer compensation, and State income taxes.

(O) LONG-TERM DEBT

Long-term Debt consists of the following:

	December 31,			March 31,
	2019			2019
	(dollars in thousands)
Bank Credit Facility	$	585,000		$	310,000
4.500% Senior Unsecured Notes Due 2026		350,000			350,000
Private Placement Senior Unsecured Notes		—			36,500
Total Debt		935,000			696,500
Less: Current Portion of Long-term Debt		—			(36,500	)
Less: Debt Origination Costs		(4,406	)		(4,908	)
Long-term Debt	$	930,594		$	655,092

Credit Facility

We have a revolving credit facility (as amended as described below, the Amended Credit Facility) that terminates on August 2, 2021. During May 2019, we exercised our option to expand the revolving credit facility and increased the borrowing capacity from $500.0 million to $750.0 million. The Amended Credit Facility also includes a swingline loan sublimit of $25.0 million, which terminates on August 2, 2021. On December 20, 2019, we amended the revolving credit facility, which, among other things, primarily (i) modified the interest rates with respect to outstanding borrowings; (ii) allowed for the consummation of the Kosmos Acquisition; (iii) permitted the incurrence of additional indebtedness necessary to consummate the Kosmos Acquisition; (iv) modified the financial covenants to increase maximum leverage permitted under the Amended Credit Facility; and (v) made other changes, namely the selection of an alternate benchmark rate to replace the London Interbank Offered Rate (LIBOR). Borrowings under the Amended Credit Facility are guaranteed by substantially all of the Company's

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subsidiaries. The debt under the Amended Credit Facility is not rated by ratings agencies.  At our option, outstanding principal amounts on the Amended Credit Facility bear interest at a variable rate equal to either (i) the LIBOR plus an agreed margin (ranging from 125 to 200 basis points), which is to be established quarterly based on 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 alternate base rate, which is the highest of (a) the prime rate, (b) the federal funds rate plus ½% per annum, or (c) one month LIBOR plus 1.0%, in each case plus an agreed margin (ranging from 25 to 100 basis points). In the case of loans bearing interest at a rate based on the alternate base rate, interest payments are payable quarterly. In the case of loans bearing interest at a rate based on LIBOR, interest is payable at the end of the LIBOR advance periods, which can be up to six months at the option of the Company. The Company is also required to pay a commitment fee on unused available borrowings under the Amended Credit Facility ranging from 15 to 30 basis points depending upon the Leverage Ratio. The Amended 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 Amended 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 4.0:1.0 or less for fiscal quarters ended between December 31, 2019 and June 30, 2020; 3.75:1.0 for fiscal quarters ended between September 30, 2020 through December 31, 2020; and 3.5:1.0 for fiscal quarters after December 31, 2020. The Amended Credit Facility also requires us to maintain 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. We were in compliance with all financial ratios and tests at December 31, 2019. We had $585.0 million of borrowings outstanding under the Amended Credit Facility at December 31, 2019. We had $158.1 million of available borrowings under the Amended Credit Facility, net of the outstanding letters of credit, at December 31, 2019, all of which is available for future borrowings based on our current leverage ratio.

The Amended Credit Facility has a $40.0 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 December 31, 2019, we had $6.9 million of outstanding letters of credit .

Term Loan Agreement

On December 20, 2019, we entered into a Credit Agreement (the Term Loan Agreement) establishing a $665.0 million term loan facility which, subject to the satisfaction of certain customary conditions, may be used to pay the Kosmos Purchase Price and fees and expenses incurred in connection with the Kosmos Acquisition. As of December 31, 2019, there has been no borrowing under the Term Loan Agreement. The commitments for the Term Loan Agreement terminate on the earlier of (a) the fifth business day following March 31, 2020, in the event that the term loans under the Term Loan Agreement have not been funded on or prior to such date and (b) the valid termination of the asset purchase agreement without the occurrence of the consummation of the Kosmos Acquisition. The term loan would mature on August 2, 2021.

Borrowings under the Term Loan Agreement will bear interest, at our option, at a floating rate per annum equal to either the alternate base rate (consistent with the Amended Credit Facility), plus a margin between 25 and 100 basis points, or based on the adjusted LIBOR plus a margin between 125 and 200 basis points, depending on the ratio of our consolidated indebtedness to consolidated EBITDA (consistent with the Amended Credit Facility). We must also maintain a ratio of consolidated indebtedness to consolidated EBITDA consistent with the Amended Credit Facility.

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

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February 1 and August 1 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 Amended Credit Facility and the Term Loan Agreement. 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 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, unconditionally, jointly, and severally guaranteed by each of our subsidiaries that are guarantors under the Amended Credit Facility. See Footnote (T) for more information on the guarantors of the Senior Public Notes.

Private Placement Senior Unsecured Notes  

On October 2, 2019, we paid $36.5 million to retire the remaining notes due under the Private Placement Senior Unsecured Notes.

Other Information

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 hold all outstanding industrial revenue bonds, no debt is reflected on our financial statements in connection with our lease of the cement plant. Upon expiration of the lease in fiscal 2021, we have the option to purchase the cement plant for a nominal amount.

(P) SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activities that earn revenue, 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 are a leading supplier of heavy construction materials, light building materials, and materials used for oil and natural gas extraction in the United States. Our products are commodities that are essential in commercial and residential construction; public construction projects; projects to build, expand, and repair roads and highways; and in oil and natural gas extraction.

Our business is organized into three sectors, within which there are five reportable business segments. The Heavy Materials sector includes the Cement and Concrete and Aggregates segments. The Light Materials sector includes the Gypsum Wallboard and Recycled Paperboard segments. The Oil and Gas Proppants segment produces frac sand used in oil and gas extraction.

Our operations are conducted in the U.S. and include the mining of limestone for the manufacture, production, distribution, and sale of portland cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard

17

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).

We operate seven modern cement plants (one of which is operated through a joint venture located in Buda, Texas), one slag grinding facility, and 19 cement distribution terminals. Our cement companies focus on the U.S. heartland and operate as an integrated network selling product primarily in California, Colorado, Illinois, Iowa, Missouri, Nebraska, Nevada, Ohio, Oklahoma, and Texas. We operate 25 readymix concrete batch plants and five aggregates processing plants in markets that are complementary to our cement network.

We operate five gypsum wallboard plants and a recycled paperboard mill. We distribute gypsum wallboard and recycled paperboard throughout the continental U.S., with the exception of the Northeast.

Our Oil and Gas Proppants business owns two frac sand processing facilities, four frac sand drying facilities, and five frac sand trans-load locations. Frac sand is currently sold into shale deposits across the United States.

We account for intersegment sales at market prices. For segment reporting purposes only, we proportionately consolidate our 50% share of the Joint Venture’s Revenue and Operating Earnings, consistent with the way management reports the segments within the Company for making operating decisions and assessing performance.

The following table sets forth certain financial information relating to our operations by segment. We do not allocate interest or taxes at the segment level; these costs are disclosed at the consolidated company level. 

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2019			2018			2019			2018
	(dollars in thousands)
Revenue -
Cement	$	183,031		$	163,732		$	605,357		$	543,681
Concrete and Aggregates		47,147			30,841			142,895			111,425
Gypsum Wallboard		125,070			130,954			380,454			402,978
Paperboard		37,813			39,638			122,360			126,048
Oil and Gas Proppants		7,345			14,100			36,535			65,266
		400,406			379,265			1,287,601			1,249,398
Less: Intersegment Revenue		(21,775	)		(20,611	)		(66,454	)		(62,746	)
Less: Joint Venture Revenue		(28,382	)		(25,369	)		(85,775	)		(78,112	)
	$	350,249		$	333,285		$	1,135,372		$	1,108,540

	For the Three Months Ended December 31,				For the Nine Months Ended December 31,
	2019		2018		2019		2018
	(dollars in thousands)
Intersegment Revenue -
Cement	$	6,174	$	3,518	$	17,130	$	11,769
Concrete and Aggregates		350		346		1,134		1,178
Paperboard		15,251		16,747		48,190		49,799
	$	21,775	$	20,611	$	66,454	$	62,746
Cement Sales Volume (M tons) -
Wholly Owned		1,199		1,126		4,046		3,740
Joint Venture		240		218		721		672
		1,439		1,344		4,767		4,412

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	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2019			2018			2019			2018
	(dollars in thousands)
Operating Earnings (Loss) -
Cement	$	54,180		$	47,197		$	156,827		$	142,078
Concrete and Aggregates		3,334			1,037			15,023			10,621
Gypsum Wallboard		38,484			43,543			114,872			139,694
Paperboard		9,021			7,475			29,060			26,078
Oil and Gas Proppants		(6,805	)		(9,324	)		(15,944	)		(19,554	)
Sub-Total		98,214			89,928			299,838			298,917
Corporate General and Administrative Expense		(13,794	)		(9,408	)		(48,506	)		(27,333	)
Impairment Losses		(224,267	)		—			(224,267	)		—
Litigation Settlements and Losses		—			—			—			(1,800	)
Other Non-Operating Income		825			1,292			1,967			2,291
Earnings (Loss) Before Interest and Income Taxes		(139,022	)		81,812			29,032			272,075
Interest Expense, net		(9,543	)		(7,294	)		(28,526	)		(20,743	)
Earnings (Loss) Before Income Taxes	$	(148,565	)	$	74,518		$	506		$	251,332
Cement Operating Earnings -
Wholly Owned	$	43,480		$	37,690		$	124,338		$	113,147
Joint Ventures		10,700			9,507			32,489			28,931
	$	54,180		$	47,197		$	156,827		$	142,078
Capital Expenditures -
Cement	$	7,379		$	17,691		$	26,125		$	51,524
Concrete and Aggregates		3,233			2,263			9,324			4,786
Gypsum Wallboard		273			2,054			8,647			8,533
Paperboard		12,885			1,486			42,484			7,896
Oil and Gas Proppants		86			5,818			151			48,684
Corporate and Other		—			3,690			—			5,023
	$	23,856		$	33,002		$	86,731		$	126,446
Depreciation, Depletion, and Amortization -
Cement	$	14,189		$	13,242		$	42,275		$	38,909
Concrete and Aggregates		3,105			2,049			8,050			6,154
Gypsum Wallboard		5,050			4,978			15,149			15,009
Paperboard		2,244			2,150			6,610			6,387
Oil and Gas Proppants		3,445			6,964			11,087			24,403
Corporate and Other		578			402			1,773			1,099
	$	28,611		$	29,785		$	84,944		$	91,961

	December 31,		March 31,
	2019		2019
	(dollars in thousands)
Identifiable Assets
Cement	$	1,282,081	$	1,289,468
Concrete and Aggregates		139,769		95,084
Gypsum Wallboard		367,833		372,206
Paperboard		169,508		138,614
Oil and Gas Proppants		18,029		236,357
Corporate and Other, net		153,005		37,434
	$	2,130,225	$	2,169,163

19

The Capital Expenditures for the nine months ended December 31, 2019 disclosed above differ from the Capital Expenditures on the Unaudited Consolidated Statement of Cash Flows. The Capital Expenditures disclosed above includes $2.7 million of capital expenditures that were accrued at December 31, 2019 and therefore is not included in the Statement of Cash Flows. See Footnote (D) for more information.

Segment Operating Earnings, including the proportionately consolidated 50% interest in the revenue and expenses of the Joint Venture, represent Revenue, less direct operating expenses, segment Depreciation, Depletion and Amortization, and segment Selling, General and Administrative expenses. We account for intersegment sales at market prices. Corporate and Other, net consists primarily of cash and cash equivalents, general office assets, and miscellaneous other assets.

The basis used to disclose Identifiable Assets; Capital Expenditures; and Depreciation, Depletion, and Amortization conforms with the equity method, and is similar to how we disclose these accounts in our Unaudited Consolidated Balance Sheets and Unaudited Consolidated Statements of Earnings

The segment breakdown of Goodwill is as follows:

	December 31,		March 31,
	2019		2019
	(dollars in thousands)
Cement	$	74,214	$	74,214
Gypsum Wallboard		116,618		116,618
Paperboard		7,538		7,538
Concrete and Aggregates		1,639		—
	$	200,009	$	198,370

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 December 31,				For the Nine Months Ended December 31,
	2019		2018		2019		2018
	(dollars in thousands)
Revenue	$	56,767	$	51,411	$	172,385	$	158,922
Gross Margin	$	22,749	$	20,178	$	68,806	$	62,196
Earnings Before Income Taxes	$	21,402	$	19,013	$	64,979	$	57,862

	December 31,		March 31,
	2019		2019
	(dollars in thousands)
Current Assets	$	80,108	$	71,688
Non-Current Assets	$	88,242	$	81,007
Current Liabilities	$	19,190	$	19,309

20

(Q) INTEREST EXPENSE

The following components are included in Interest Expense, net:

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2019			2018			2019			2018
	(dollars in thousands)
Interest Income		(12	)	$	(7	)		(23	)	$	(119	)
Interest Expense		9,250			7,022			27,682			20,024
Other Expenses		305			279			867			838
Interest Expense, net	$	9,543		$	7,294		$	28,526		$	20,743

Interest Income includes interest on investments of excess cash. Components of Interest Expense include interest associated with the Amended Credit Facility, Senior Unsecured Notes, Private Placement Senior Unsecured Notes, and commitment fees based on the unused portion of the Amended Credit Facility. Other Expenses include amortization of debt issuance costs and credit facility costs.

(R) COMMITMENTS AND CONTINGENCIES

We have certain deductible limits under our workers’ compensation and liability insurance policies for which we establish reserves 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 December 31, 2019, we had contingent liabilities under these outstanding letters of credit of approximately $6.9 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 the 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, management believes these indemnifications will not 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 $28.7 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.

(S) 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 Unsecured Notes at December 31, 2019 is as follows:

	Fair Value
	(dollars in thousands)
4.500% Senior Unsecured Notes Due 2026	$	366,909

The estimated fair values were 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, Restricted Cash, Accounts and Notes Receivable, Accounts Payable, and Accrued Liabilities approximate their fair values at December 31, 2019 due to the short-term maturities of these assets and liabilities. The fair value of our Amended Credit Facility also approximates its carrying value at December 31, 2019.

21

(T) 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 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 December 31, 2019	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	350,249		$	—		$	350,249
Cost of Goods Sold		—			262,735			—			262,735
Gross Profit		—			87,514			—			87,514
Equity in Earnings of Unconsolidated Joint Venture		10,700			10,700			(10,700	)		10,700
Equity in Earnings of Subsidiaries		(88,687	)		—			88,687			—
Corporate General and Administrative Expenses		(13,359	)		(435	)		—			(13,794	)
Impairment Losses		—			(224,267	)		—			(224,267	)
Other Non-Operating Income		118			707			—			825
Interest Expense, net		(9,532	)		(11	)		—			(9,543	)
Earnings before Income Taxes		(100,760	)		(125,792	)		77,987			(148,565	)
Income Taxes		(13,872	)		47,805			—			33,933
Net Earnings	$	(114,632	)	$	(77,987	)	$	77,987		$	(114,632	)
Net Earnings	$	(114,632	)	$	(77,987	)	$	77,987		$	(114,632	)
Net Actuarial Change in Benefit Plans, net of tax		33			33			(33	)		33
Comprehensive Earnings	$	(114,599	)	$	(77,954	)	$	77,954		$	(114,599	)
Condensed Consolidating Statement of Earnings and Comprehensive Earnings For the Three Months Ended December 31, 2018	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	333,285		$	—		$	333,285
Cost of Goods Sold		—			252,864			—			252,864
Gross Profit		—			80,421			—			80,421
Equity in Earnings of Unconsolidated Joint Venture		9,507			9,507			(9,507	)		9,507
Equity in Earnings of Subsidiaries		61,946			—			(61,946	)		—
Corporate General and Administrative Expenses		(8,863	)		(545	)		—			(9,408	)
Other Non-Operating Income		(43	)		1,335			—			1,292
Interest Expense, net		(7,282	)		(12	)		—			(7,294	)
Earnings before Income Taxes		55,265			90,706			(71,453	)		74,518
Income Taxes		2,450			(19,253	)		—			(16,803	)
Net Earnings	$	57,715		$	71,453		$	(71,453	)	$	57,715
Net Earnings	$	57,715		$	71,453		$	(71,453	)		57,715
Net Actuarial Change in Benefit Plans, net of tax		56			56			(56	)		56
Comprehensive Earnings	$	57,771		$	71,509		$	(71,509	)	$	57,771

22

Condensed Consolidating Statement of Earnings and Comprehensive Earnings For the Nine Months Ended December 31, 2019	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	1,135,372		$	—		$	1,135,372
Cost of Goods Sold		—			868,023			—			868,023
Gross Profit		—			267,349			—			267,349
Equity in Earnings of Unconsolidated Joint Venture		32,489			32,489			(32,489	)		32,489
Equity in Earnings of Subsidiaries		47,036			—			(47,036	)		—
Corporate General and Administrative Expenses		(47,285	)		(1,221	)		—			(48,506	)
Impairment Losses		—			(224,267	)		—			(224,267	)
Other Non-Operating Income		525			1,442			—			1,967
Interest Expense, net		(28,490	)		(36	)		—			(28,526	)
Earnings before Income Taxes		4,275			75,756			(79,525	)		506
Income Taxes		(5,810	)		3,769			—			(2,041	)
Net Earnings	$	(1,535	)	$	79,525		$	(79,525	)	$	(1,535	)
Net Earnings	$	(1,535	)	$	79,525		$	(79,525	)	$	(1,535	)
Net Actuarial Change in Benefit Plans, net of tax		101			101			(101	)		101
Comprehensive Earnings	$	(1,434	)	$	79,626		$	(79,626	)	$	(1,434	)
Condensed Consolidating Statement of Earnings and Comprehensive Earnings For the Nine Months Ended December 31, 2018	Parent			Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	1,108,540		$	—		$	1,108,540
Cost of Goods Sold		—			838,554			—			838,554
Gross Profit		—			269,986			—			269,986
Equity in Earnings of Unconsolidated Joint Venture		28,931			28,931			(28,931	)		28,931
Equity in Earnings of Subsidiaries		204,234			—			(204,234	)		—
Corporate General and Administrative Expenses		(24,682	)		(2,651	)		—			(27,333	)
Legal Settlements		—			(1,800	)		—			(1,800	)
Other Non-Operating Income		(262	)		2,553			—			2,291
Interest Expense, net		(20,706	)		(37	)		—			(20,743	)
Earnings before Income Taxes		187,515			296,982			(233,165	)		251,332
Income Taxes		9,142			(63,817	)		—			(54,675	)
Net Earnings	$	196,657		$	233,165		$	(233,165	)	$	196,657
Net Earnings	$	196,657		$	233,165		$	(233,165	)		196,657
Net Actuarial Change in Benefit Plans, net of tax		168			168			(168	)		168
Comprehensive Earnings	$	196,825		$	233,333		$	(233,333	)	$	196,825

23

Condensed Consolidating Balance Sheet At December 31, 2019	Parent		Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets -
Cash and Cash Equivalents	$	124,084	$	2,171		$	—		$	126,255
Accounts and Notes Receivable		439		139,844			—			140,283
Inventories		—		234,264			—			234,264
Prepaid and Other Current Assets		1,371		5,626			—			6,997
Total Current Assets		125,894		381,905			—			507,799
Property, Plant, and Equipment, net		6,884		1,262,849			—			1,269,733
Notes Receivable		—		9,192			—			9,192
Investment in Joint Venture		70		71,792			—			71,862
Investments in Subsidiaries and Receivables from Affiliates		2,074,575		322,106			(2,396,681	)		—
Operating Lease Right-of-Use Assets		9,975		19,371			—			29,346
Goodwill and Intangible Assets, net		—		230,099			—			230,099
Other Assets		5,844		6,350			—			12,194
	$	2,223,242	$	2,303,664		$	(2,396,681	)	$	2,130,225
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities-
Accounts Payable	$	6,572	$	58,463		$	—		$	65,035
Accrued Liabilities		27,114		40,556			—			67,670
Income Taxes Payable		20,020		—			—			20,020
Operating Lease Liabilities		1,162		9,439			—			10,601
Total Current Liabilities		54,868		108,458			—			163,326
Long-term Debt		930,594		—			—			930,594
Noncurrent Lease Liabilities		12,538		39,401			—			51,939
Other Long-term Liabilities		—		36,648			—			36,648
Payables to Affiliates		322,106		6,010,080			(6,332,186	)		—
Deferred Income Taxes		5,809		44,582			—			50,391
Total Liabilities		1,325,915		6,239,169			(6,332,186	)		1,232,898
Total Stockholders’ Equity		897,327		(3,935,505	)		3,935,505			897,327
	$	2,223,242	$	2,303,664		$	(2,396,681	)	$	2,130,225

24

Condensed Consolidating Balance Sheet At March 31, 2019	Parent		Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets -
Cash and Cash Equivalents	$	5,779	$	2,822		$	—		$	8,601
Accounts and Notes Receivable		437		128,285			—			128,722
Inventories		—		275,194			—			275,194
Income Tax Receivables		5,480		—			—			5,480
Prepaid and Other Current Assets		1,472		8,152			—			9,624
Total Current Assets		13,168		414,453			—			427,621
Property, Plant, and Equipment, net		7,756		1,419,183			—			1,426,939
Notes Receivable		—		2,898			—			2,898
Investment in Joint Venture		70		64,803			—			64,873
Investments in Subsidiaries and Receivables from Affiliates		2,322,334		406,726			(2,729,060	)		—
Goodwill and Intangible Assets, net		—		229,115			—			229,115
Other Assets		4,571		13,146			—			17,717
	$	2,347,899	$	2,550,324		$	(2,729,060	)	$	2,169,163
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities-
Accounts Payable	$	5,520	$	75,364		$	—		$	80,884
Accrued Liabilities		22,470		39,479			—			61,949
Current Portion of Long-term Debt		36,500		—			—			36,500
Total Current Liabilities		64,490		114,843			—			179,333
Long-term Debt		655,092		—			—			655,092
Other Long-term Liabilities		3,303		31,189			—			34,492
Payables to Affiliates		406,726		5,730,093			(6,136,819	)		—
Deferred Income Taxes		8,801		81,958			—			90,759
Total Liabilities		1,138,412		5,958,083			(6,136,819	)		959,676
Total Stockholders’ Equity		1,209,487		(3,407,759	)		3,407,759			1,209,487
	$	2,347,899	$	2,550,324		$	(2,729,060	)	$	2,169,163

Condensed Consolidating Statement of Cash Flows For the Nine Months Ended December 31, 2019	Parent			Guarantor Subsidiaries			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net Cash Provided by (Used in) Operating Activities	$	(32,804	)	$	353,423		$	—	$	320,619
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant, and Equipment		—			(84,056	)		—		(84,056	)
Acquisition Spending		—			(30,424	)		—		(30,424	)
Net Cash Used in Investing Activities		—			(114,480	)		—		(114,480	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Credit Facility		275,000			—			—		275,000
Repayment of Private Placement Senior Unsecured Notes		(36,500	)							(36,500	)
Dividends Paid to Stockholders		(13,131	)		—			—		(13,131	)
Purchase and Retirement of Common Stock		(313,887	)		—			—		(313,887	)
Proceeds from Stock Option Exercises		2,996			—			—		2,996
Shares Redeemed to Settle Employee Taxes on    Stock Compensation		(2,963	)		—			—		(2,963	)
Intra-entity Activity, net		239,594			(239,594	)		—		—
Net Cash Provided by (Used in) Financing Activities		151,109			(239,594	)		—		(88,485	)
NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		118,305			(651	)		—		117,654
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		5,779			2,822			—		8,601
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	124,084		$	2,171		$	—	$	126,255

25

Condensed Consolidating Statement of Cash Flows For the Nine Months Ended December 31, 2018	Parent			Guarantor Subsidiaries			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net Cash Provided by (Used in) Operating Activities	$	(68,752	)	$	362,852		$	—	$	294,100
CASH FLOWS FROM INVESTING ACTIVITIES
Property, Plant, and Equipment Additions		(5,023	)		(121,423	)		—		(126,446	)
Proceeds from Sale of Property, Plant, and Equipment		—			2,281					2,281
Net Cash Used in Investing Activities		(5,023	)		(119,142	)		—		(124,165	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Credit Facility		5,000			—			—		5,000
Dividends Paid to Stockholders		(14,293	)		—			—		(14,293	)
Purchase and Retirement of Common Stock		(191,800	)		—			—		(191,800	)
Proceeds from Stock Option Exercises		1,992			—			—		1,992
Shares Redeemed to Settle Employee Taxes on    Stock Compensation		(1,842	)		—			—		(1,842	)
Intra-entity Activity, net		245,683			(245,683	)		—		—
Net Cash Provided by (Used in) Financing Activities		44,740			(245,683	)		—		(200,943	)
NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		(29,035	)		(1,973	)		—		(31,008	)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		44,537			3,531			—		48,068
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	15,502		$	1,558		$	—	$	17,060

26

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE SUMMARY

Eagle Materials Inc. is a leading supplier of heavy construction materials, light building materials, and materials used for oil and natural gas extraction in the United States. Our products are used in commercial and residential construction; public construction projects; projects to build, expand, and repair roads and highways; and in oil and natural gas extraction.

Our business is organized into three sectors: Heavy Materials, which includes the Cement and Concrete and Aggregates segments; Light Materials, which includes the Gypsum Wallboard and Recycled Paperboard segments; and Oil and Gas Proppants, which are used in oil and natural gas extraction. Financial results and other information for the three and nine months ended December 31, 2019 and 2018, are presented on a consolidated basis and by these business segments – Cement, Concrete and Aggregates, Gypsum Wallboard, Recycled Paperboard, and Oil and Gas Proppants.

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 Revenue and Operating Earnings in the presentation of our Cement segment, which is the way management organizes the segments within the Company for making operating decisions and assessing performance.

Our business activities are all conducted in the U.S. These activities include the mining of limestone for the manufacture, production, distribution, and sale of portland cement (a basic construction material that is the essential binding ingredient in concrete); the grinding and sale of slag; the mining of gypsum for the manufacture and sale of gypsum wallboard; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; the mining and sale of aggregates (crushed stone, sand, and gravel); and the mining and sale of sand used in hydraulic fracturing (frac sand).

Demand for our products is generally cyclical and seasonal, depending on economic and geographic conditions. We distribute our products throughout most of the United States, except the Northeast, which provides us with regional economic diversification. However, general economic downturns or localized downturns in the regions where we have operations may have a material adverse effect on our business, financial condition, and results of operations.

On August 2, 2019, we acquired the assets of a readymix concrete and aggregates business (the ConAgg Acquisition). The purchase price (Purchase Price) of the ConAgg Acquisition was approximately $30.4 million. The purchase price allocation has not yet been finalized. The Purchase Price and expenses incurred in connection with the ConAgg Acquisition were funded through operating cash flows and borrowings under our bank credit facility. The ConAgg Acquisition’s assets and operating results are included in the Concrete and Aggregates business in our segment reporting from August 2, 2019 through December 31, 2019.

On November 25, 2019, we entered into an agreement with Kosmos Cement Company (a joint venture between CEMEX S.A.B. de C.V. and Buzzi Unicem S.p.A.) (Kosmos) to purchase (i) a cement plant located in Louisville, Kentucky, (ii) a limestone quarry located in Battletown, Kentucky, (iii) cement distribution terminals located in Indianapolis, Indiana; Cincinnati, Ohio; Pittsburgh, Pennsylvania; Charleston, West Virginia; Ceredo, West Virginia; Mt. Vernon, Indiana; and Lexington, Kentucky, and (iv) certain other properties and assets used by Kosmos in connection with the foregoing (collectively, the Kosmos Business). We will assume certain liabilities and obligations of Kosmos relating to the Kosmos Business, including contractual obligations, reclamation obligations and various other liabilities and obligations arising out of or relating to the Kosmos Business after the closing of the transaction.  

27

The purchase price to be paid in the transaction is $665 million in cash, subject to a customary post-closing inventory adjustment. We expect to fund the purchase price and expenses incurred in connection with the transaction through a combination of cash on hand and a syndicated term loan facility. The transaction is expected to close in the fourth quarter of fiscal 2020 following the satisfaction of customary closing conditions. The Kosmos Business will be included in the Cement business in our segment reporting.  

As previously announced on May 30, 2019, the Company plans to separate its Heavy Materials and Light Materials businesses into two independent, publicly traded corporations by means of a tax-free spin-off to Eagle shareholders. The separation is expected to be completed in the summer of calendar 2020. The Company also continues to pursue alternatives for its Oil and Gas Proppants business.

MARKET CONDITIONS AND OUTLOOK

The outlook for the remainder of our fiscal year 2020 is positive. Demand for our products continues to be supported by several favorable market dynamics, including ongoing jobs growth, high consumer confidence, and low interest rates. We believe these factors should continue to positively affect both our Heavy Materials sector, which comprises the Cement, Concrete and Aggregates segments, and our Light Materials sector, comprising the Gypsum Wallboard and Recycled Paperboard segments.

Our integrated cement sales network stretches across the heartland of America. The Portland Cement Association is estimating cement consumption will increase in calendar 2019 over 2018 by approximately 2%. Although we experienced favorable weather during the latter half of calendar 2019, adverse weather during the winter and spring of calendar 2020 could reduce demand for cement and concrete and aggregates. In addition to weather, cement and concrete and aggregates markets are affected by infrastructure spending, residential home building, and industrial construction activity. We anticipate closing the Kosmos Acquisition during the fourth quarter of fiscal 2020, which will further expand our footprint in the US heartland.

Our primary Gypsum Wallboard sales network stretches across the southern half of the United States, consistent with our facility network. Wallboard demand is heavily influenced by new residential housing construction, as well as repair and remodeling activity. We expect demand for the first half of calendar 2020 to be similar to demand in the same prior-year period. Our Recycled Paperboard business primarily sells paper into the gypsum wallboard market, and demand for paper generally follows the demand for gypsum wallboard. The primary raw material used to produce paperboard business is OCC. We expect OCC prices in the first half of calendar 2020 to increase slightly compared with prices in the latter part of calendar 2019. We anticipate that demand for recycled paper products will remain strong in for the remainder of fiscal 2020 based on projected housing starts and wallboard demand. We expect to complete the upgrade of our paper machine in the spring of 2020, which should improve efficiency and reduce costs in fiscal 2021.

During the second half of calendar year 2019, our Oil and Gas Proppants financial results have been negatively affected by a combination of low demand for our products and the increased use of in-basin sand instead of northern white frac sand. Faced with these market conditions, we recorded long-lived asset and other asset impairments of approximately $224.3 million during the quarter ended December 31, 2019. See Footnote (C) to the Consolidated Unaudited Financial Statements for more information about the impairment. We are actively pursuing alternatives for our Oil and Gas Proppants business. If this results in an alternative use or disposition of this business, additional losses may be incurred.

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RESULTS OF OPERATIONS

THREE MONTHS ENDED december 31, 2019 Compared WITH 2018

	For the Three Months Ended December 31,
	2019			2018			Change
	(in thousands, except per share)
Revenue	$	350,249		$	333,285			5	%
Cost of Goods Sold		(262,735	)		(252,864	)		4	%
Gross Profit		87,514			80,421			9	%
Equity in Earnings of Unconsolidated Joint Venture		10,700			9,507			13	%
Corporate General and Administrative		(13,794	)		(9,408	)		47	%
Impairment Losses		(224,267	)		—			—
Other Non-Operating Income		825			1,292			(36	)%
Interest Expense, net		(9,543	)		(7,294	)		31	%
Earnings Before Income Taxes		(148,565	)		74,518			(299	)%
Income Tax Benefit (Expense)		33,933			(16,803	)		(302	)%
Net Earnings (Loss)	$	(114,632	)	$	57,715			(299	)%
Diluted Earnings (Loss) per Share	$	(2.77	)	$	1.24			(323	)%

REVENUE

Revenue increased by $16.9 million, or 5%, to $350.2 million for the three months ended December 31, 2019. Approximately $9.4 million of the increase was due to the ConAgg Acquisition. The remaining increase in Revenue was due to higher Sales Volume, which added $13.3 million to Revenue, partially offset by decreased gross sales prices, which adversely affected Revenue by approximately $5.8 million.

COST OF GOODS SOLD

Cost of Goods Sold increased by $9.8 million, or 4%, to $262.7 million for the three months ended December 31, 2019. Approximately $9.3 million of the increase was due to the ConAgg Acquisition. The remaining increase was primarily related to higher Sales Volume, which added $3.1 million to Cost of Goods Sold, partially offset by lower operating costs of approximately $2.6 million. The reduction in operating costs was primarily related to our Gypsum Wallboard and Recycled Paperboard segments, which are discussed further in our analysis of operating results by segment.

GROSS PROFIT

Gross Profit increased 9% to $87.5 million during the three months ended December 31, 2019. The increase was primarily due to higher Sales Volume and lower operating costs, partially offset by lower gross sales prices. The gross margin increased to 25% from 24%, primarily because of increased Sales Volume in our Cement, Gypsum Wallboard and Recycled Paperboard segments, which have higher margins than our Concrete and Aggregates and Oil and Gas Proppants segments.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE

Equity in Earnings of our Unconsolidated Joint Venture increased $1.2 million, or 13%, for the three months ended December 31, 2019. The increase was primarily due to higher Sales Volume, while average gross sales prices and operating costs were relatively flat.

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CORPORATE GENERAL AND ADMINISTRATIVE

Corporate General and Administrative expenses increased by approximately $4.4 million for the three months ended December 31, 2019. The increase was due primarily to professional costs incurred in connection with the Kosmos Acquisition and our strategic portfolio review, which contributed approximately $1.9 million and $1.5 million, respectively, to the increase.

IMPAIRMENT LOSSES

Impairment Losses were approximately $224.3 million and related to our Oil and Gas Proppants segment. The charges included a $187.6 million impairment of property and equipment, a $29.1 million impairment of right-of-use lease assets, and a $7.6 million impairment of other current assets, primarily inventories. The Impairment Losses have not been included in our Oil and Gas Proppants segment Operating Earnings.

OTHER NON-OPERATING INCOME

Other Non-Operating Income consists of a variety of items that are unrelated to segment operations and include non-inventoried aggregates income, asset sales, and other miscellaneous income and cost items.

INTEREST EXPENSE, NET

Interest Expense, net increased by approximately $2.2 million, or 31%, during the three months ended December 31, 2019. The increase in Interest Expense, net was due primarily to higher interest on borrowings under our Amended Credit Facility. The increase in our Amended Credit Facility was related to the repurchase of approximately 3.6 million shares of our common stock during the first nine months of fiscal 2020.

EARNINGS (LOSS) BEFORE INCOME TAXES

Loss Before Income Taxes was $148.6 million during the three months ended December 31, 2019, primarily as a result of Impairment Losses, and higher Interest Expense and Corporate General and Administrative Expense. This was partially offset by higher Gross Profit and Equity in Earnings of Joint Venture.  

INCOME TAX BENEFIT (EXPENSE)

An Income Tax Benefit of $33.9 million was recorded for the three months ended December 31, 2019, compared with Income Tax Expense of $16.8 million for the three months ended December 31, 2018. The effective tax rate of both the income tax benefit and income tax expense was 23%.

NET EARNINGS (LOSS) AND DILUTED EARNINGS (LOSS) PER SHARE

A Net Loss $114.6 million was recorded for the three months ended December 31, 2019, compared with Net Earnings of $57.7 million in the prior-year period. Diluted Earnings (Loss) per Share decreased 323% to a loss of $2.77 per share.

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nine MONTHS ENDED december 31, 2019 Compared WITH 2018

	For the Nine Months Ended December 31,
	2019			2018			Change
	(in thousands, except per share)
Revenue	$	1,135,372		$	1,108,540			2	%
Cost of Goods Sold		(868,023	)		(838,554	)		4	%
Gross Profit		267,349			269,986			(1	)%
Equity in Earnings of Unconsolidated Joint Venture		32,489			28,931			12	%
Corporate General and Administrative		(48,506	)		(27,333	)		77	%
Impairment Losses		(224,267	)		—			—
Litigation Settlements and Losses		—			(1,800	)		—
Other Non-Operating Income		1,967			2,291			(14	)%
Interest Expense, net		(28,526	)		(20,743	)		38	%
Earnings Before Income Taxes		506			251,332			(100	)%
Income Tax Expense		(2,041	)		(54,675	)		(96	)%
Net Earnings (Loss)	$	(1,535	)	$	196,657			(101	)%
Diluted Earnings (Loss) per Share	$	(0.04	)	$	4.15			(101	)%

REVENUE

Revenue increased by $26.9 million, or 2%, to $1,135.4 million for the nine months ended December 31, 2019. Excluding $17.8 million of Revenue from the ConAgg Acquisition, Revenue increased $9.1 million. The higher Revenue was due to increased Sales Volume of $46.8 million, partially offset by lower gross sales prices of approximately $37.7 million.

COST OF GOODS SOLD

Cost of Goods Sold increased by $29.4 million, or 4%, to $868.0 million for the nine months ended December 31, 2019. Approximately $16.5 million of the increase was related to the ConAgg Acquisition. The remaining amount was primarily due to higher Sales Volume, which increased Cost of Goods Sold by approximately $30.9 million, partially offset by lower operating costs, which reduced Cost of Goods Sold by approximately $18.0 million. The reduction in operating costs was primarily related to our Recycled Paperboard and Oil and Gas Proppants segments, which are discussed further in our analysis of operating results by segment.

GROSS PROFIT

Gross Profit decreased 1% to $267.4 million during the nine months ended December 31, 2019. The decline was primarily due to lower gross sales prices, partially offset by higher Sales Volume and lower operating costs. The gross margin remained flat at 24%, primarily because lower gross sales prices offset the impact of lower operating expenses.  

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE

Equity in Earnings of our Unconsolidated Joint Venture increased $3.6 million, or 12%, for the nine months ended December 31, 2019. The increase was primarily due to higher Sales Volume, higher gross sales prices, and lower operating costs, which increased earnings by approximately $2.8 million, $0.2 million, and $0.6 million respectively. The reduction in operating costs was primarily because of lower raw materials, energy, terminal, and fixed costs, which declined by approximately $0.6 million, $0.7 million, $0.5 million and $0.6 million, respectively. These reductions were partially offset by increased purchased cement costs of approximately $1.6 million.  

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CORPORATE GENERAL AND ADMINISTRATIVE

Corporate General and Administrative expenses increased by approximately $21.2 million for the nine months ended December 31, 2019. The increase was due primarily to professional costs incurred in connection with our strategic portfolio review, legal expense, acquisition-related expenses, and the acceleration of stock compensation costs upon the retirement of our Chief Executive Officer during the first quarter of fiscal 2020, which contributed approximately $10.1 million, $1.3 million, $1.9 million, and $5.3 million, respectively, to the increase. The accelerated vesting of all earned but unvested shares of restricted stock held by our Chief Executive Officer was consistent with the terms of the Company’s incentive plan documents and was approved by the Board of Directors.  

IMPAIRMENT LOSSES

Impairment Losses were approximately $224.3 million and related to our Oil and Gas Proppants segment. The charges included a $187.6 million impairment of property and equipment, a $29.1 million impairment of right-of-use lease assets, and a $7.6 million impairment of other current assets, primarily inventories. The Impairment Losses have not been included in our Oil and Gas Proppants segment Operating Earnings.

LITIGATION SETTLEMENTS AND LOSSES

Litigation Settlements and Losses relate to third-party property damage that occurred several years ago in our Recycled Paperboard business. This amount was paid during the three months ended June 30, 2019.

OTHER NON-OPERATING INCOME

Other Non-Operating Income consists of a variety of items that are unrelated to segment operations and include non-inventoried aggregates income, asset sales, and other miscellaneous income and cost items.

INTEREST EXPENSE, NET

Interest Expense, net increased by approximately $7.8 million, or 38%, during the nine months ended December 31, 2019. The increase in Interest Expense, net was due primarily to higher interest on borrowings under our Amended Credit Facility. The increase in our Amended Credit Facility was due to the repurchase of approximately 3.6 million shares of our common stock during the first nine months of fiscal 2020.

EARNINGS BEFORE INCOME TAXES

Earnings Before Income Taxes declined to $0.5 million during the nine months ended December 31, 2019, primarily as a result of lower Gross Profit, higher Corporate General and Administrative, and Interest Expense and Impairment Losses. This was partially offset by lower Litigation Settlements and Losses and higher Equity in Earnings of Unconsolidated Joint Venture.

INCOME TAX EXPENSE

Income Tax Expense for the nine months ended December 31, 2019 decreased to $2.0 million from $54.7 million for the nine months ended December 31, 2018. The effective tax rate increased to 403% from 22% in the prior-year period. The increase in effective tax rate was primarily due to the impairment, discrete income tax expense related to the limitation on the deduction for certain officer compensation, and state income taxes.

NET EARNINGS (LOSS) AND DILUTED EARNINGS (LOSS) PER SHARE

Net Earnings (Loss) declined 101% to a Net Loss of $1.5 million for the nine months ended December 31, 2019. Diluted Earnings (Loss) per Share declined 101% to a loss of $0.04 per share.

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THREE and nine MONTHS ENDED december 31, 2019 COMPARED WITH 2018 BY SEGMENT

The following presents results within our three business sectors for the three and nine months ended December 31, 2019 and 2018. Revenue and operating results are organized by sector and discussed by individual business segment within each respective business sector.

Heavy Materials

CEMENT ⁽¹⁾

	For the Three Months Ended December 31,									For the Nine Months Ended December 31,
	2019			2018			Percentage Change			2019			2018			Percentage Change
	(in thousands, except per ton information)									(in thousands, except per ton information)
Gross Revenue, including Intersegment and Joint Venture	$	183,031		$	163,732			12	%	$	605,357		$	543,681			11	%
Less Intersegment Revenue		(6,174	)		(3,518	)		75	%		(17,130	)		(11,769	)		46	%
Less Joint Venture Revenue		(28,382	)		(25,369	)		12	%		(85,775	)		(78,112	)		10	%
Gross Revenue, as reported	$	148,475		$	134,845			10	%	$	502,452		$	453,800			11	%
Freight and Delivery Costs billed to Customers		(11,063	)		(10,288	)		8	%		(39,434	)		(36,423	)		8	%
Net Revenue	$	137,412		$	124,557			10	%	$	463,018		$	417,377			11	%
Sales Volume (M Tons)		1,439			1,344			7	%		4,767			4,412			8	%
Average Net Sales Price, per ton (2)	$	110.09		$	107.54			2	%	$	109.69		$	107.94			2	%
Operating Margin, per ton	$	37.65		$	35.12			7	%	$	32.90		$	32.20			2	%
Operating Earnings	$	54,180		$	47,197			15	%	$	156,827		$	142,078			10	%

^{(1) Total of wholly owned subsidiaries and proportionately consolidated 50% interest of the Joint Venture’s results.}

^{(2) Net of freight per ton, including Joint Venture.}

Three months ended December 31, 2019

Cement Revenue for the three months ended December 31, 2019 was $183.0 million, a 12% increase over the prior-year period. The increase was primarily due to higher Sales Volume and gross sales prices, which improved Cement Revenue by approximately $14.0 million and $5.3 million, respectively.  

Cement Operating Earnings increased by 15% to $54.2 million for the three months ended December 31, 2019. The increase was due primarily to higher Sales Volume and gross sales prices, which positively affected Operating Earnings by approximately $3.5 million and $5.3 million, respectively. This was partially offset by increased operating costs of approximately $1.8 million. The increase in operating costs was due primarily to higher fixed costs, freight, and purchased raw materials of approximately $1.5 million, $0.8 million, and $1.2 million, respectively. These increases were partially offset by lower maintenance costs of approximately $2.2 million. The Operating Margin, as percentage of gross revenue, increased to 30% from 29%, primarily because of increased gross sales prices, partially offset by increased operating costs.

Nine months ended December 31, 2019

Cement Revenue for the nine months ended December 31, 2019 was $605.4 million, an 11% increase over the prior-year period. The increase was primarily due to higher Sales Volume and gross sales prices, which improved Cement Revenue by approximately $48.2 million and $13.5 million, respectively.  

Cement Operating Earnings increased by 10% to $156.8 million for the nine months ended December 31, 2019. The increase was due primarily to higher Sales Volume and gross sales prices, which increased Operating Earnings by approximately $11.4 million and $13.5 million, respectively. This was partially offset by increased operating costs of approximately $10.0 million. The increase in operating costs was due primarily to higher fixed costs and freight of approximately $6.6 million and $3.0 million. The Operating Margin, as a percentage of gross revenue, remained flat at 26%, with increased gross sales prices being offset by higher operating costs.

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CONCRETE AND AGGREGATES

	For the Three Months Ended December 31,									For the Nine Months Ended December 31,
	2019			2018			Percentage Change			2019			2018			Percentage Change
	(in thousands, except net sales prices)									(in thousands, except net sales prices)
Gross Revenue, including intersegment	$	47,147		$	30,841			53	%	$	142,896		$	111,425			28	%
Less Intersegment Revenue		(350	)		(346	)		1	%		(1,134	)		(1,178	)		(4	)%
Gross Revenue, as reported	$	46,797		$	30,495			53	%	$	141,762		$	110,247			29	%
Sales Volume -
M Cubic Yards of Concrete		357			237			51	%		1,095			846			29	%
M Tons of Aggregate		749			747			0	%		2,608			2,616			(0	)%
Average Net Sales Price -
Concrete - Per Cubic Yard	$	112.96		$	102.94			10	%	$	108.17		$	102.72			5	%
Aggregates - Per Ton	$	9.20		$	8.68			6	%	$	9.36		$	9.30			1	%
Operating Earnings	$	3,334		$	1,037			222	%	$	15,023		$	10,621			41	%

Three months ended December 31, 2019

Concrete and Aggregates Revenue increased 53% to $47.1 million for the three months ended December 31, 2019. Revenue from the ConAgg Acquisition contributed $9.4 million to the increase. The remaining increase in Revenue was due to higher Sales Volume and gross sale prices, primarily for Concrete, which increased Revenue by approximately $5.1 million and $1.8 million, respectively.

Operating Earnings increased 222% to approximately $3.3 million. Excluding the ConAgg Acquisition, Operating Earnings increased approximately $2.2 million, or 212%. This was a result of higher Sales Volume and gross sales prices in our Concrete business, which increased Operating Earnings by approximately $1.5 million and $1.8 million, respectively. This increase was partially offset by higher operating costs of $1.0 million. Higher operating costs were primarily related to increased cost of materials of approximately $1.7 million, partially offset by lower delivery and administrative costs of $0.2 million and $0.4 million, respectively.

Nine months ended December 31, 2019

Concrete and Aggregates Revenue for the nine months ended December 31, 2019 increased 28% to $142.9 million. Revenue from the ConAgg Acquisition contributed $17.8 million to the increase. The remaining increase in Revenue was due to higher Sales Volume and gross sale prices, primarily related to Concrete, which increased Revenue by approximately $11.2 million and $2.5 million, respectively.

Operating Earnings increased 41% to approximately $15.0 million. Excluding the ConAgg Acquisition, Operating Earnings increased approximately $3.1 million, or 29%. This was a result of higher Sales Volume and gross sales prices, primarily related to our Concrete business, which increased Operating Earnings by approximately $0.9 million and $2.5 million, respectively. This increase was partially offset by higher operating costs of approximately $0.2 million.

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Light Materials

GYPSUM WALLBOARD

	For the Three Months Ended December 31,									For the Nine Months Ended December 31,
	2019			2018			Percentage Change			2019			2018			Percentage Change
	(in thousands, except per MMSF information)									(in thousands, except per MMSF information)
Gross Revenue, as reported	$	125,070		$	130,954			(4	)%	$	380,454		$	402,978			(6	)%
Freight and Delivery Costs billed to Customers		(27,030	)		(26,708	)		1	%		(81,941	)		(80,952	)		1	%
Net Revenue	$	98,040		$	104,246			(6	)%	$	298,513		$	322,026			(7	)%
Sales Volume (MMSF)		669			653			2	%		2,010			1,992			1	%
Average Net Sales Price, per MMSF (1)	$	146.46		$	159.38			(8	)%	$	148.51		$	161.63			(8	)%
Freight, per MMSF	$	40.40		$	40.90			(1	)%	$	40.77		$	40.64			0	%
Operating Margin, per MMSF	$	57.52		$	66.68			(14	)%	$	57.15		$	70.13			(19	)%
Operating Earnings	$	38,484		$	43,543			(12	)%	$	114,872		$	139,694			(18	)%

^{(1) Net of freight per MMSF.}

Three months ended December 31, 2019

Gypsum Wallboard Revenue decreased 4% to $125.1 million for the three months ended December 31, 2019, primarily because of a decline in gross sales prices, which negatively affected Revenue by approximately $9.1 million. This was partially offset by higher Sales Volume, which increased Revenue by approximately $3.2 million. Our market share was essentially unchanged over the last year.

Operating Earnings decreased 12% to $38.5 million, primarily due to the decline in gross sales prices, which negatively affected Operating Earnings by approximately $9.1 million. This was partially offset by higher Sales Volume and lower operating costs, which increased Operating Earnings by approximately $1.1 million and $3.0 million, respectively. The lower operating costs were primarily related to paper and energy, which reduced operating costs by approximately $1.8 million and $0.9 million, respectively. The Operating Margin, as a percentage of gross revenue, declined to 31% for the three months ended December 31, 2019, primarily related to the lower gross sales prices, partially offset by lower operating costs. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.

Nine months ended December 31, 2019

Gypsum Wallboard Revenue decreased 6% to $380.5 million for the nine months ended December 31, 2019, primarily because of a decline in gross sales prices, which negatively affected Revenue by approximately $26.1 million. This was partially offset by increased Sales Volume, which increased Revenue by approximately $3.6 million. Our market share was essentially unchanged over the last year.

Operating Earnings declined 18% to approximately $114.9 million. A decrease in gross sales prices negatively affected Operating Earnings by approximately $26.1 million. This was partially offset by higher Sales Volume, which increased Operating Earnings by approximately $1.3 million, while operating costs were flat. The Operating Margin, as a percentage of gross revenue, for the nine months ended December 31, 2019 declined to 30% primarily because of lower gross sales prices. Fixed costs are not a significant portion of the overall cost of wallboard; therefore, changes in utilization have a relatively minor impact on our operating cost per unit.

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RECYCLED PAPERBOARD

	For the Three Months Ended December 31,									For the Nine Months Ended December 31,
	2019			2018			Percentage Change			2019			2018			Percentage Change
	(in thousands, except per ton information)									(in thousands, except per ton information)
Gross Revenue, including intersegment	$	37,813		$	39,638			(5	)%	$	122,360		$	126,048			(3	)%
Less Intersegment Revenue		(15,251	)		(16,747	)		(9	)%		(48,190	)		(49,799	)		(3	)%
Gross Revenue, as reported	$	22,562		$	22,891			(1	)%	$	74,170		$	76,249			(3	)%
Freight and Delivery Costs billed to Customers		(1,073	)		(1,172	)		(8	)%		(3,407	)		(3,797	)		(10	)%
Net Revenue	$	21,489		$	21,719			(1	)%	$	70,763		$	72,452			(2	)%
Sales Volume (M Tons)		80			74			8	%		247			235			5	%
Average Net Sales Price, per ton (1)	$	460.65		$	519.29			(11	)%	$	482.34		$	520.02			(7	)%
Freight, per ton	$	13.41		$	15.84			(15	)%	$	13.79		$	16.16			(15	)%
Operating Margin, per ton	$	112.76		$	101.01			12	%	$	117.65		$	110.97			6	%
Operating Earnings	$	9,021		$	7,475			21	%	$	29,060		$	26,078			11	%

^{(1) Net of freight per ton.}

Three months ended December 31, 2019

Recycled Paperboard Revenue decreased 5% to $37.8 million during the three months ended December 31, 2019. The decline was due to lower gross sales prices, which adversely affected Revenue by $4.8 million. This was offset by higher Sales Volume, which increased Revenue by $3.0 million. The decrease in gross sales prices was due to the pricing provisions in our long-term sales agreements.

Operating Earnings improved 21% to $9.0 million, primarily due to higher Sales Volume and lower operating costs, which increased Operating Earnings by $0.5 million and $5.8 million, respectively. This was partially offset by the decline in gross sales prices, which adversely affected Operating Earnings by approximately $4.8 million. The decrease in operating costs was primarily related to lower input costs, which positively affected Operating Earnings by approximately $6.1 million. In connection with the planned expansion at our paper mill, we had an extended outage during the quarter to install new operating equipment. This outage reduced production during the quarter and led to increased costs of approximately $1.5 million. Operating Margin, as a percentage of gross revenue, increased to 24% from 19%, primarily because of lower operating costs, partially offset by lower gross sales prices.

Nine months ended December 31, 2019

Recycled Paperboard Revenue decreased 3% to $122.4 million for the nine months ended December 31, 2019. The decline was due to lower gross sales prices, which adversely affected Revenue by $9.8 million. This was offset by higher Sales Volume, which increased Revenue by $6.2 million. The decrease in gross sales prices was due to the pricing provisions in our long-term sales agreements.

Operating Earnings improved 11% to $29.1 million, primarily due to higher Sales Volume and lower operating costs, which increased Operating Earnings by $1.2 million and $11.6 million, respectively. This was partially offset by the decline in gross sales prices, which adversely affected Operating Earnings by approximately $9.8 million. The decrease in operating costs was primarily related to lower input costs, which positively affected Operating Earnings by approximately $11.9 million. In connection with the planned expansion at our paper mill, we had an extended outage during the quarter to install new operating equipment. This outage reduced production during the quarter and led to increased costs of approximately $1.5 million. Operating Margin, as a percentage of gross revenue, increased to 24% from 21%, primarily because of lower operating costs, partially offset by lower gross sales prices.

36

OIL AND GAS PROPPANTS

	For the Three Months Ended December 31,									For the Nine Months Ended December 31,
	2019			2018			Percentage Change			2019			2018			Percentage Change
	(in thousands, except net sales prices)									(in thousands, except net sales prices)
Gross Revenue, as reported	$	7,345		$	14,100			(48	)%	$	36,534		$	65,266			(44	)%
Sales Volume (M Tons)		200			365			(45	)%		963			1,129			(15	)%
Average Net Sales Price, per ton (1)	$	23.60		$	24.58			(4	)%	$	25.47		$	37.13			(31	)%
Operating Loss	$	(6,805	)	$	(9,324	)		(27	)%	$	(15,944	)	$	(19,554	)		(18	)%

^{(1) Net of freight per ton.}

Three months ended December 31, 2019

Revenue from our Oil and Gas Proppants segment declined 48% to approximately $7.3 million during the three months ended December 31, 2019. The decline was due to lower gross sales prices and Sales Volume, which adversely affected Revenue by approximately $0.4 million and $6.4 million, respectively.

Operating Loss for the quarter decreased 27% to approximately $6.8 million. The decrease was primarily due to lower operating costs, which reduced Operating Loss by $2.9 million. This was partially offset by lower gross sales prices, which increased Operating Loss by $0.4 million. The lower operating costs were primarily related to decreases in contract mining, delivery, and depreciation and depletion costs of approximately $0.4 million, $0.3 million, and $3.5 million, respectively, partially offset by higher fixed costs of $1.7 million.

Nine months ended December 31, 2019

Revenue from our Oil and Gas Proppants segment declined 44% to approximately $36.5 million during the nine months ended December 31, 2019. The decline was due to lower gross sales prices and Sales Volume, which adversely affected Revenue by approximately $19.1 million and $9.7 million, respectively.

Operating Loss declined 18% to approximately $15.9 million. The decline was a result of lower operating costs, which reduced Operating Loss by approximately $16.5 million. This decrease was partially offset by lower gross sales prices of approximately $12.9 million. Lower operating costs were primarily related to decreases in contract mining and depreciation and depletion of approximately $7.2 million and $12.5 million, respectively, partially offset by higher fixed costs of $3.9 million.

During the three months ended December 31, 2019, we recognized an Impairment Loss of approximately $224.3 million related to the property and equipment, inventory, prepaid and current assets, and right of use lease assets. The Impairment Loss is not included in the Operating Loss disclosed above. See Footnote (C) of the Notes to Unaudited Consolidated Financial Statements for more discussion of the Impairment Loss.

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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” can be found in our Annual Report. The four critical accounting policies that we believe require either 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, income taxes, and business combinations. 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.

IMPAIRMENT OF LONG-LIVED ASSETS

During the three months ended December 31, 2019, we recognized an Impairment Loss of approximately $224.3 million related to the property and equipment, inventory, prepaid and current assets, and right-of-use lease assets. See Footnote (C) of the Notes to Unaudited Consolidated Financial Statements of the Form 10-Q for more discussion of the Impairment Loss.

Recent Accounting Pronouncements

Refer to Footnote (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.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

The following table provides a summary of our cash flows:

	For the Nine Months Ended December 31,
	2019			2018
	(dollars in thousands)
Net Cash Provided by Operating Activities	$	320,619		$	294,100
Investing Activities:
Additions to Property, Plant, and Equipment		(84,056	)		(126,446	)
Acquisition Spending		(30,424	)		—
Proceeds from Sale of Property, Plant, and Equipment		—			2,281
Net Cash Used in Investing Activities		(114,480	)		(124,165	)
Financing Activities:
Increase in Credit Facility		275,000			5,000
Repayment of Unsecured Private Placement Senior Notes		(36,500	)		—
Dividends Paid to Stockholders		(13,131	)		(14,293	)
Purchase and Retirement of Common Stock		(313,887	)		(191,800	)
Proceeds from Stock Option Exercises		2,996			1,992
Shares Redeemed to Settle Employee Taxes on Stock Compensation		(2,963	)		(1,842	)
Net Cash Provided by (Used in) Financing Activities		(88,485	)		(200,943	)
Net Increase(Decrease)  in Cash, Cash Equivalents, and Restricted Cash	$	117,654		$	(31,008	)

Cash flows from operating activities increased by $26.5 million to $320.6 million during the nine months ended December 31, 2019. This was primarily attributable to increased cash flow from changes in working capital of

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$63.1 million, partially offset by lower Net Earnings, including non-cash adjustments of approximately $34.6 million and dividends from our Joint Venture of $2.0 million.

Working capital at December 31, 2019 increased by $96.2 million to $344.5 million. The increase was primarily due to higher Cash and Accounts and Notes Receivable of approximately $117.7 million and $11.6 million, respectively, and decreased Accounts Payable and Current Portion of Long-term Debt of approximately $15.9 million and $36.5 million, respectively. This was partially offset by increased Accrued Liabilities, Income Tax Payable, and Operating Lease Liabilities of approximately $5.8 million, $20.0 million and $10.6 million, respectively, and decreased Inventory and Income Tax Receivables of approximately $40.9 million and $5.5 million, respectively. The increase in Accounts and Notes Receivable was primarily because of higher Revenue during the quarter. The reduction in Inventory was due to increased shipments and also the seasonal nature of our business. The increase in Operating Lease Liabilities was because of the adoption of the new accounting standards requiring the recognition of right-of-use assets and liabilities related to leases on the balance sheet. The reduction in Current Portion of Long-term Debt was due to our payment of the final tranche of the Private Placement Unsecured Notes. The changes in Accounts Payable, Accrued Liabilities and Income Tax Receivable and Payable are due primarily to timing.

The increase in Accounts and Notes Receivable at December 31, 2019 was primarily related to higher Revenue during the three months ended December 31, 2019 as compared with the three months ended March 31, 2019. As a percentage of quarterly sales generated for the respective quarter, Accounts Receivable was approximately 40% at December 31, 2019 and 45% at March 31, 2019. 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 was identified at December 31, 2019. Notes Receivable are monitored on an individual basis, and no significant deterioration in the collectability of our Notes Receivable was identified at December 31, 2019.

Our Inventory balance at December 31, 2019 declined by approximately $40.9 million from our balance at March 31, 2019. Within Inventory, raw materials and materials-in-progress, finished cement, and recycled paperboard decreased approximately $28.6 million, $3.1 million, and $4.1 million, respectively. These declines do not include the write off of frac sand inventories discussed in Footnote (C) Impairment Losses, which totaled approximately $6.3 million. The decrease in raw materials and materials-in-progress and finished cement is consistent with our business cycle: we generally build up clinker inventory during the winter to meet 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 nine months ended December 31, 2019 was approximately $114.5 million, compared with $124.2 million in fiscal 2019, a decrease of approximately $9.7 million. The decrease was primarily related to reduced capital spending of approximately $42.3 million. This was partially offset by the ConAgg Acquisition, which increased Net Cash Used in Investing Activities by $30.4 million, and by lower proceeds from sales of fixed assets of $2.2 million. The decline in capital spending was primarily due to lower capital spending in our Cement and Oil and Gas Proppants businesses of $25.4 million and $48.5 million, respectively. This was partially offset by higher spending in our Recycled Paperboard business of $34.6 million. The decrease in capital spending in our Oil and Gas Proppants segment was due to the completion of build-out of our Utica, Illinois facility, which was completed in June 2018. The increase in capital spending in our Recycled Paperboard segment was related to expanding our paper machine, which is expected to improve efficiency and increase output. We anticipate spending approximately $15.0 million more on this project before its expected completion in the spring of 2020.

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Net Cash Used in Financing Activities was approximately $88.5 million during the nine months ended December 31, 2019, compared with $200.9 million in fiscal 2019. The $112.4 million decrease was primarily because of a $233.5 million net increase in borrowings, partially offset by a $122.1 million increase in the repurchase and retirement of common stock.

Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 50.9% and 47.3%, respectively, at December 31, 2019, compared with 36.4% and 36.1%, respectively, at March 31, 2019.

Debt Financing Activities

BANK CREDIT FACILITY

We have a revolving credit facility (as amended as described below, the Amended Credit Facility) that terminates on August 2, 2021. During May 2019, we exercised our option to expand the revolving credit facility and increased the borrowing capacity from $500.0 million to $750.0 million. The Amended Credit Facility also includes a swingline loan sublimit of $25.0 million, which terminates on August 2, 2021. On December 20, 2019, we amended the revolving credit facility, which, among other things, primarily (i) modified the interest rates with respect to outstanding borrowings; (ii) allowed for the consummation of the Kosmos Acquisition; (iii) permitted the incurrence of additional indebtedness necessary to consummate the Kosmos Acquisition; (iv) modified the financial covenants to increase maximum leverage permitted under the Amended Credit Facility; and (v) made other changes, namely the selection of an alternate benchmark rate to replace the London Interbank Offered Rate (LIBOR). Borrowings under the Amended Credit Facility are guaranteed by substantially all of the Company's subsidiaries. The debt under the Amended Credit Facility is not rated by ratings agencies.  At our option, outstanding principal amounts on the Amended Credit Facility bear interest at a variable rate equal to either (i) The LIBOR plus an agreed margin (ranging from 125 to 200 basis points), which is to be established quarterly based on 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 alternate base rate, which is the highest of (a) the prime rate, (b) the federal funds rate plus ½% per annum, or (c) one month LIBOR plus 1.0%, in each case plus an agreed margin (ranging from 25 to 100 basis points). In the case of loans bearing interest at a rate based on the alternate base rate, interest payments are payable quarterly. In the case of loans bearing interest at a rate based on LIBOR, interest is payable at the end of the LIBOR advance periods, which can be up to six months at the option of the Company. The Company is also required to pay a commitment fee on unused available borrowings under the Amended Credit Facility ranging from 15 to 30 basis points depending upon the Leverage Ratio. The Amended 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 Amended 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 4.0:1.0 or less for fiscal quarters ended between December 31, 2019 and June 30, 2020; 3.75:1.0 for fiscal quarters ended between September 30, 2020 through December 31, 2020; and 3.5:1.0 for fiscal quarters after December 31, 2020. The Amended Credit Facility also requires us to maintain 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. We were in compliance with all financial ratios and tests at December 31, 2019. We had $585.0 million of borrowings outstanding under the Amended Credit Facility at December 31, 2019. We had $158.1 million of available borrowings under the Amended Credit Facility, net of the outstanding letters of credit, at December 31, 2019, all of which was available for future borrowings based on our current leverage ratio.

The Amended Credit Facility has a $40.0 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

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time plus a one-time letter of credit fee in an amount equal to 0.125% of the initial stated amount. At December 31, 2019, we had $6.9 million of outstanding letters of credit.

Term Loan Agreement

On December 20, 2019, we entered into a Credit Agreement (the Term Loan Agreement) establishing a $665.0 million term loan facility which, subject to the satisfaction of certain customary conditions, may be used to pay the Kosmos Purchase Price and fees and expenses incurred in connection with the Kosmos Acquisition. As of December 31, 2019, there has been no borrowing under the Term Loan Agreement. The commitments for the Term Loan Agreement terminate on the earlier of (a) the fifth business day following March 31, 2020, in the event that the term loans under the Term Loan Agreement have not been funded on or prior to such date and (b) the valid termination of the asset purchase agreement without the occurrence of the consummation of the Kosmos Acquisition. The term loan would mature on August 2, 2021.

Borrowings under the Term Loan Agreement will bear interest, at our option, at a floating rate per annum equal to either the alternate base rate (consistent with the Amended Credit Facility), plus a margin between 25 and 100 basis points, or based on the adjusted LIBOR plus a margin between 125 and 200 basis points, depending on the ratio of our consolidated indebtedness to consolidated EBITDA (consistent with the Amended Credit Facility). We must also maintain a ratio of consolidated indebtedness to consolidated EBITDA consistent with the Amended Credit Facility.

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 semi-annually on February 1 and August 1 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 Amended Credit Facility and the Term Loan Agreement. 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 Amended Credit Facility. See Footnote (T) to the Unaudited Consolidated Financial Statements for more information on the guarantors of the Senior Public Notes.

PRIVATE PLACEMENT UNSECURED NOTES  

On October 2, 2019, we paid $36.5 million to retire the remaining notes due under the Private Placement Senior Unsecured Notes.

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OTHER INFORMATION

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 hold all outstanding industrial revenue bonds, no debt is reflected on our financial statements in connection with our lease of the cement plant. At the expiration of the lease in fiscal 2021, we have the option to purchase the cement plant for a nominal amount.

We had approximately $62.5 million of lease liabilities at December 31, 2019 with an average remaining life of approximately 9.2 years. We do not have any off-balance sheet debt, or any outstanding debt guarantees. We have available under the Amended Credit Facility a $40.0 million Letter of Credit Facility. At December 31, 2019, we had $6.9 million of letters of credit outstanding that renew annually. We are contingently liable for performance under $28.7 million in performance bonds relating primarily to our mining operations.

Other than the Amended Credit Facility, we have no other source of committed external financing in place. Should the Credit Facility be terminated, no assurance can be given as to our ability to secure a new source of financing. Consequently, if any balance were outstanding on the Amended Credit Facility at the time of termination, and an alternative source of financing could not be secured, it would have a material adverse impact on our business. Our Amended Credit Facility is not rated by the rating agencies.

We believe that our cash flow from operations and available borrowings under our Amended 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 12 months. However, our future liquidity and capital requirements may vary depending on a number of factors, including market conditions in the construction industry, our ability to maintain compliance with covenants in our Amended 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, 4.500% Senior Unsecured Notes and borrowings under the Amended Credit Facility, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new debt. The amounts involved in any such purchase transactions, individually or in aggregate, may be material. 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 $13.1 million and $14.3 million, respectively, for the nine months ended December 31, 2019 and 2018. 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.

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Share Repurchases

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
April 1 through April 30, 2019		364,200	$	87.47		364,200
May 1 through May 31, 2019		965,880		89.28		965,880
June 1 through June 30, 2019		909,793		88.22		909,793
Quarter 1 Totals		2,239,873	$	88.56		2,239,873
July 1 through July 31, 2019		1,022,000	$	87.46		1,022,000
August 1 through August 31, 2019		312,236		83.75		312,236
September 1 through September 30, 2019		—		—		—
Quarter 2 Totals		1,334,236	$	86.59		1,334,236
October 1 through October 31, 2019		—	$	—		—
November 1 through November 30, 2019		—		—		—
December 1 through December 31, 2019		—		—		—
Quarter 3 Totals		—	$	-		—
Year-to-Date Totals		3,574,109	$	87.82		3,574,109		7,305,649

On April 18, 2019, the Board of Directors authorized us to repurchase an additional 10.0 million shares. Including this authorization, our Board of Directors has approved the repurchase in the open market of a cumulative total of 48.4 million shares of our Common Stock since we became publicly held in April 1994. We have repurchased approximately 41.1 million shares from April 1994 through December 31, 2019. We currently have authorization to repurchase an additional 7,305,649 shares.

Share repurchases may be made from time to time in the open market or in privately negotiated transactions. The timing and amount of any repurchases of shares will be determined by 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 nine months ended December 31, 2019, the Company withheld from employees 58,921 shares of stock upon the vesting of Restricted Shares that were granted under the Plan. We withheld these shares to satisfy the employees’ statutory tax withholding requirements, which is required once the Restricted Shares or Restricted Shares Units are vested.  

Capital Expenditures

The following table compares capital expenditures:

	For the Nine Months Ended December 31,
	2019		2018
	(dollars in thousands)
Land and Quarries	$	4,507	$	1,672
Plants		71,688		85,491
Buildings, Machinery, and Equipment		10,536		39,283
Total Capital Expenditures	$	86,731	$	126,446

Capital expenditures for fiscal 2020 are expected to range from $120.0 million to $130.0 million and to be allocated across the Heavy and Light Materials sectors. Identified projects include a $70.0 million investment to expand and enhance our papermill, which has been sold out for several years. This project will enable the facility to increase line speeds which in turn increases output, and to replace the high-cost raw materials with a low-cost, more sustainable alternative. We expect the project to be completed by late spring 2020 and to increase our paper capacity by approximately 70,000 tons. Additionally, we anticipate spending approximately $665 million to complete the Kosmos Acquisition during the fiscal fourth quarter.

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The capital expenditures for the nine months ended December 31, 2019 disclosed above differs from the capital expenditures on the Unaudited Consolidated Statement of Cash Flows. It includes $2.7 million of capital expenditures that were accrued at December 31, 2019 and therefore are not included in the Statement of Cash Flows. See Footnote (D) of the Unaudited Consolidated Financial Statements for more information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuations in interest rates on our Amended Credit Facility. From time to time we have utilized derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage the debt outstanding that is subject to changes in interest rates. As of December 31, 2019, we have a $750.0 million Amended Credit Facility, under which borrowings bear interest at a variable rate. A hypothetical 100 basis point increase in interest rates on the $585.0 million of borrowings outstanding at December 31, 2019 would increase interest expense by approximately $5.9 million on an annual basis. At present, we do not utilize derivative financial instruments.

We are subject to commodity risk with respect to price changes principally in coal, coke, natural gas, and power. We attempt to limit our exposure to changes in commodity prices by entering into contracts or increasing our use of alternative fuels.

Item 4. Controls and Procedures

We have established a system of disclosure controls and procedures designed to ensure that information relating to the Company, which is required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (Exchange Act), is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a timely fashion. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed as of the end of the period covered by this quarterly report. This evaluation was performed under the supervision and with the participation of management, including our CEO and CFO. Based upon that evaluation, our CEO and CFO have concluded that these disclosure controls and procedures were effective.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Our operations and properties are subject to extensive and changing federal, state, and local laws; regulations and ordinances governing the protection of the environment; as well as laws relating to worker health and workplace safety. We carefully consider the requirements mandated by such laws and regulations and have procedures in place at all of our operating units to monitor compliance. Any matters which are identified as potential exposures under these laws and regulations are carefully reviewed by management to determine our potential liability.

Item 1A. Risk Factors

We are affected by the level of demand in the construction industry.

Demand for our construction products and building materials is directly related to the level of activity in the construction industry, which includes residential, commercial and infrastructure construction. While the most recent downturn in residential and commercial construction, which began in calendar 2007, materially affected our business, certain economic fundamentals began improving in calendar 2012, and have continued to improve; however, the rate and sustainability of such improvement remains uncertain. Infrastructure spending continues to be adversely affected by several factors, including the budget constraints currently being experienced by federal, state and local governments. Any decrease in the amount of government funds available for such projects or any decrease in construction activity in general (including any weakness in residential or commercial construction) could have a material adverse effect on our business, financial condition, and results of operations.

Our business is seasonal in nature, and this causes our quarterly results to vary significantly.

A majority of our business is seasonal with peak revenue and profits occurring primarily in the months of April through November when the weather in our markets is more suitable for construction activity. Quarterly results have varied significantly in the past and are likely to vary significantly in the future. Such variations could have a negative impact on the price of our common stock.

We are subject to the risk of unfavorable weather conditions, particularly during peak construction periods, as well as other unexpected operational difficulties.

Unfavorable weather conditions, such as snow, cold weather, hurricanes, tropical storms, and heavy or sustained rainfall, can reduce construction activity and adversely affect demand for construction products. Such weather conditions can also increase our costs, reduce our production, or impede our ability to transport our products in an efficient and cost-effective manner. Similarly, operational difficulties, such as business interruption due to required maintenance, capital improvement projects, or loss of power, can increase our costs and reduce our production. In particular, the occurrence of unfavorable weather conditions and other unexpected operational difficulties during peak construction periods could adversely affect operating earnings and cash flow and could have a disproportionate impact on our results of operations for the full year.

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We and our customers participate in cyclical industries and regional markets, which are subject to industry downturns.

A majority of our revenue is from customers who are in industries and businesses that are cyclical in nature and subject to changes in general economic conditions. For example, many of our customers operate in the construction industry, which is affected by a variety of factors, such as general economic conditions, changes in interest rates, demographic and population shifts, levels of infrastructure spending, and other factors beyond our control. In addition, since our operations are in a variety of geographic markets, our businesses are subject to differing economic conditions in each such geographic market. Economic downturns in the industries to which we sell our products or localized downturns in the regions where we have operations generally have an adverse effect on demand for our products and negatively affect the collectability of our receivables. In general, any downturns in these industries or regions could have a material adverse effect on our business, financial condition, and results of operations.

Many of our products are commodities, which are subject to significant changes in supply and demand and price fluctuations.

Many of the products sold by us are commodities, and competition among manufacturers is based largely on price. Prices are often subject to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions, and other market conditions beyond our control. Increases in the production capacity of industry participants for products such as gypsum wallboard, frac sand, or cement or increases in cement imports tend to create an oversupply of such products leading to an imbalance between supply and demand, which can have a negative impact on product prices. Currently, there continues to be significant excess nameplate capacity in the gypsum wallboard industry in the United States. There can be no assurance that prices for products sold by us will not decline in the future or that such declines will not have a material adverse effect on our business, financial condition, and results of operations.

The proposed separation of our Heavy Materials and Light Materials businesses into two independent, publicly traded corporations is subject to various risks and uncertainties, and may not be completed on the terms or timeline currently contemplated, if at all.

On May 30, 2019, we announced our plan to separate our Heavy Materials and Light Materials businesses into two independent, publicly traded corporations by means of a tax-free spin-off to our shareholders. The separation, which is expected to be completed in the summer of calendar 2020, is subject to final approval of our Board of Directors. In addition, unanticipated developments, including possible delays in obtaining the necessary tax opinion, regulatory approvals or clearances and uncertainty of the financial markets, could delay or prevent the completion of the proposed separation or cause the proposed separation to occur on terms or conditions that are different from those currently expected. As a result, we cannot assure that we will be able to complete the proposed separation on the terms or the timeline that we announced, if at all.

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The proposed separation of our Heavy Materials and Light Materials businesses may not achieve some or all of the anticipated benefits.

Executing the proposed separation will require us to incur costs, as well as time and attention from our senior management and key employees, which could distract them from operating our business, disrupt operations, and result in the loss of business opportunities, which could adversely affect our business, financial condition, and results of operations. We may also experience increased difficulties in attracting, retaining and motivating key employees during the pendency of the separation and following its completion, which could harm our businesses.

Even if the proposed separation is completed, we may not realize some or all of the anticipated benefits from the separation and the separation may in fact adversely affect our business. As independent, publicly traded companies, both companies will be smaller, less diversified companies with a narrower business focus and may be more vulnerable to changing market conditions and competitive pressures, which could materially and adversely affect their respective businesses, financial condition and results of operations. There can be no assurance that the combined value of the common stock of the two publicly traded companies following the completion of the proposed separation will be equal to or greater than what the value of our common stock would have been had the proposed separation not occurred.

Our Cement business is capital intensive, resulting in significant fixed and semi-fixed costs. Therefore, our earnings are sensitive to changes in volume.

Due to the high levels of fixed capital required to produce cement, our profitability is susceptible to significant changes in volume. We believe that our current cash balance, along with our projected internal cash flows and our available financing resources will provide sufficient cash to support our currently anticipated operating and capital needs. However, if we are unable to generate sufficient cash to purchase and maintain the property and machinery necessary to operate our cement business, we may be required to reduce or delay planned capital expenditures or incur additional debt. In addition, given the level of fixed and semi-fixed costs within our Cement business and at our cement production facilities, decreases in volume could have an adverse effect on our financial condition, results of operations, and liquidity.

Our Oil and Gas Proppants business and financial performance depends on the level of activity in the oil and natural gas industries.

Our operations that produce frac sand are materially dependent on the levels of activity in oil and natural gas exploration, development, and production. More specifically, the demand for the frac sand we produce is closely related to the number of oil and natural gas wells completed in geological formations where sand-based proppants are used in fracture treatments. These activity levels are affected by both short- and long-term trends in oil and natural gas prices. In recent years, oil and natural gas prices and, therefore, the level of exploration, development, and production activity, have experienced significant fluctuations. Worldwide economic, political and military events, including war, terrorist activity, events in the Middle East, and initiatives by the Organization of the Petroleum Exporting Countries, have contributed, and are likely to continue to contribute, to price volatility. Additionally, warmer than normal winters in North America and other weather patterns may adversely affect the short-term demand for natural gas and, therefore, demand for our products. Reduction in demand for natural gas to generate electricity could also adversely affect the demand for frac sand. A prolonged reduction in oil and natural gas prices would generally depress the level of oil and natural gas exploration, development, production and well completion activity, and would result in a corresponding decline in the demand for the frac sand we produce. In addition, any future decreases in the rate at which oil and natural gas reserves are discovered or developed, whether due to increased governmental regulation, limitations on exploration and drilling activity or other factors, could have material adverse effect on our Oil and Gas Proppants business, even in a stronger oil and natural gas price environment.

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We may be adversely affected by decreases or shifts in demand for frac sand or the development of either effective alternative proppants or new processes to replace hydraulic fracturing.

Frac sand is a proppant used in the completion and re-completion of oil and natural gas wells through hydraulic fracturing. Frac sand is the most commonly used proppant and is less expensive than ceramic proppant, which is also used in hydraulic fracturing to stimulate and maintain oil and natural gas production. A significant shift in demand from frac sand to other proppants, such as ceramic proppants, or a shift in demand from higher-margin frac sand to lower-margin frac sand, could have a material adverse effect on our Oil and Gas Proppants business. The development and use of new technology for effective alternative proppants, or new technologies allowing for improved placement of proppants at reduced volumes, or the development of new processes to replace hydraulic fracturing altogether could also cause a decline in demand for the frac sand we produce and could have a material adverse effect on our Oil and Gas Proppants business. Similarly, the continued presence of lower cost in-basin frac sand could continue to adversely affect our Oil and Gas Proppants business.

Any material nonpayment or nonperformance by any of our key customers could have a material adverse effect on our business and results of operations.

Any material nonpayment or nonperformance by any of our key customers could have a material adverse effect on our revenue and cash flows, in particular with respect to our Oil and Gas Proppants business. Our contracts with our customers provide for different potential remedies to us in the event a customer fails to purchase the minimum contracted amount of product in a given period. If we were to pursue legal remedies in the event that a customer failed to purchase the minimum contracted amount of product under a fixed-volume contract or failed to satisfy the take-or-pay commitment under a take-or-pay contract, we may receive significantly less in a judgment or settlement of any claimed breach than we would have received had the customer fully performed under the contract. In the event of any customer’s breach, we may also choose to renegotiate any disputed contract on less favorable terms (including with respect to price and volume) for us to preserve the relationship with that customer.

Volatility and disruption of financial markets could affect access to credit.

Difficult economic conditions can cause a contraction in the availability, and increase the cost, of credit in the marketplace. A number of our customers or suppliers have been and may continue to be adversely affected by unsettled conditions in capital and credit markets, which in some cases have made it more difficult or costly for them to finance their business operations. These unsettled conditions have the potential to reduce the sources of liquidity for the Company and our customers.

Our and our customers’ operations are subject to extensive governmental regulation, including environmental laws, which can be costly and burdensome.

Our operations and those of our customers are subject to and affected by federal, state, and local laws and regulations with respect to such matters as land usage, street and highway usage, noise level, and health and safety and environmental matters.  In many instances, various certificates, permits, or licenses are required in order for us or our customers to conduct business or carry out construction and related operations.  For example, certain of our waste-burning cement kilns are subject to the Standards of Performance for New Sources and Emissions Guidelines for Existing Sources for Commercial/Industrial Solid Waste Incinerators (the CISWI Rule).  Although we believe that we are in compliance in all material respects with applicable regulatory requirements, there can be no assurance that we will not incur material costs or liabilities in connection with regulatory requirements or that demand for our products will not be adversely affected by regulatory issues affecting our customers.  In addition, future developments, such as the discovery of new facts or conditions, the enactment or adoption of new or stricter laws or regulations, or stricter interpretations of existing laws or regulations, may impose new liabilities on us, require additional investment by us, or prevent us from opening, expanding, or modifying plants or facilities, any of which could have a material adverse effect on our financial condition or results of operations.  For example, we are subject to the National Emissions Standards for Hazardous Air

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Pollutants, or NESHAP, for Portland cement plants (PC NESHAP).  In the future, the EPA may propose to further strengthen the emission limitations applicable under the PC NESHAP to reflect future technological developments, as a result of its periodic reviews of the limitations mandated by the Clean Air Act.  Further, out of the 16 states where we have operations, 10 states contain at least one “area” that was designated as being in nonattainment for the 2015 ozone National Ambient Air Quality Standards (NAAQS) (California, Colorado, Illinois, Missouri, Nevada, New Mexico, Ohio, Texas, Utah, and Wisconsin).  We may be required to meet new control requirements in these states requiring significant capital expenditures for compliance.

Climate change and climate change legislation or regulations may adversely affect our business.

A number of governmental bodies have finalized, proposed, or are contemplating legislative and regulatory changes in response to the potential effects of climate change. Such legislation or regulation has and potentially could include provisions for a “cap and trade” system of allowances and credits or a carbon tax, among other provisions. Any future laws or regulations addressing GHG emissions would likely have a negative impact on our business or results of operations, whether through the imposition of raw material or production limitations, fuel-use, or carbon taxes emission limitations or reductions, or otherwise.

Other potential effects of climate change include physical effects such as disruption in production and product distribution as a result of major storm events and shifts in regional weather patterns and intensities. Production and shipment levels for our businesses correlate with general construction activity, most of which occurs outdoors and, as a result, is affected by erratic weather patterns, seasonal changes, and other unusual or unexpected weather-related conditions, which can significantly affect our businesses. There is also a potential for climate change legislation and regulation to adversely affect the cost of purchased energy and electricity.

The effects of climate change on our operations are highly uncertain and difficult to estimate. However, because a chemical reaction inherent to the manufacture of portland cement releases carbon dioxide, a GHG, cement kiln operations may be disproportionately affected by future regulation of GHGs. Climate change and legislation and regulation concerning GHGs could have a material adverse effect on our financial condition, results of operations, and liquidity.

Silica-related legislation, health issues and litigation could have a material adverse effect on our business, reputation or results of operations.

The inhalation of respirable crystalline silica is associated with the lung disease silicosis. There is evidence of an association between crystalline silica exposure or silicosis and lung cancer and a possible association with other diseases, including immune system disorders such as scleroderma. These health risks have been, and may continue to be, a significant issue confronting the frac sand industry and related transloading operations. Concerns over silicosis and other potential adverse health effects, as well as concerns regarding potential liability from the use or handling of frac sand, may have the effect of discouraging our customers’ use of our frac sand. The actual or perceived health risks of mining, processing, and handling frac sand could materially and adversely affect frac sand producers and those who transload frac sand, including us, through reduced use of frac sand, the threat of product liability or employee lawsuits, increased scrutiny by federal, state and local regulatory authorities of us and our customers. We are currently subject to laws and regulations relating to human exposure to crystalline silica. Several federal and state regulatory authorities, including MSHA and OSHA, may continue to propose and implement changes in their regulations regarding workplace exposure to crystalline silica, such as permissible exposure limits and required controls and personal protective equipment. We may not be able to comply with any new laws and regulations that are adopted and required modifications or cessation of operations at our affected operations could have a material adverse effect on those businesses. 

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We may incur significant costs in connection with pending and future litigation.

We are, or may become, party to various lawsuits, claims, investigations, and proceedings, including but not limited to personal injury, environmental, antitrust, tax, asbestos, property entitlements and land use, intellectual property, commercial, contract, product liability, health and safety, and employment matters. The outcome of pending or future lawsuits, claims, investigations, or proceedings is often difficult to predict and could be adverse and material in amount. Development in these proceedings can lead to changes in management’s estimates of liabilities associated with these proceedings including the judge’s rulings or judgments, settlements, or changes in applicable law. A future adverse ruling, settlement, or unfavorable development could result in charges that could have a material adverse effect on our results of operations and cash flows in a particular period. In addition, the defense of these lawsuits, claims, investigations, and proceedings may divert our management’s attention, and we may incur significant costs in defending these matters. See Part II Item 1. Legal Proceedings of this report.

Our results of operations are subject to significant changes in the cost and availability of fuel, energy and other raw materials.

Major cost components in each of our businesses are the costs of fuel, energy, and raw materials. Significant increases in the costs of fuel, energy, or raw materials, or substantial decreases in their availability could materially and adversely affect our sales and operating profits. Prices for fuel, energy, or raw materials used in connection with our businesses could change significantly in a short period of time for reasons outside our control. Prices for fuel and electrical power, which are significant components of the costs associated with our Gypsum Wallboard and Cement businesses, have fluctuated significantly in recent years and may increase in the future. In the event of large or rapid increases in prices, we may not be able to pass the increases through to our customers in full, which would reduce our operating margin.

Changes in the cost or availability of raw materials supplied by third parties may adversely affect our operating and financial performance.

We generally maintain our own reserves of limestone, gypsum, aggregates, and other materials that we use to manufacture our products. However, we obtain certain raw materials used to manufacture our products, such as synthetic gypsum and slag granules, from third parties who produce such materials as by-products of industrial processes. While we try to secure our needed supply of such materials through long-term contracts, those contracts may not be sufficient to meet our needs, or we may be unable to renew or replace existing contracts when they expire or are terminated in the future. Should our existing suppliers cease operations or reduce or eliminate production of these by-products, our costs to procure these materials may increase significantly, or we may be obliged to procure alternatives to replace these materials, which may not be available on commercially reasonable terms or at all. Any such development may adversely affect our operations and financial condition.

We may become subject to significant cleanup, remediation, and other liabilities under applicable environmental laws.

Our operations are subject to state, federal, and local environmental laws and regulations, which impose liability for cleanup or remediation of environmental pollution and hazardous waste arising from past acts. These laws and regulations also require pollution control and prevention, site restoration and operating permits, and/or approvals to conduct certain of our operations or expand or modify our facilities. Certain of our operations may from time to time involve the use of substances that are classified as toxic or hazardous substances within the meaning of these laws and regulations. We are unable to estimate accurately the impact on our business or results of operations of any such law or regulation at this time. Risk of environmental liability (including the incurrence of fines, penalties, other sanctions, or litigation liability) is inherent in the operation of our businesses. As a result, it is possible that environmental liabilities and compliance with environmental regulations could have a material adverse effect on our operations in the future.

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Significant changes in the cost and availability of transportation could adversely affect our business, financial condition, and results of operations.

Some of the raw materials used in our manufacturing processes, such as coal or coke, are transported to our facilities by truck or rail. In addition, transportation logistics play an important part in allowing us to supply products to our customers, whether by truck, rail, or barge. For example, we deliver gypsum wallboard to many areas of the United States, and the transportation costs associated with the delivery of our wallboard products represent a significant portion of the variable cost of our Gypsum Wallboard segment. Significant increases in the cost of fuel or energy can result in material increases in the cost of transportation, which could materially and adversely affect our operating profits. In addition, reductions in the availability of certain modes of transportation, such as rail or trucking, could limit our ability to deliver product and therefore materially and adversely affect our operating profits.

Our debt agreements contain restrictive covenants and require us to meet certain financial ratios and tests, which limit our flexibility and could give rise to a default if we are unable to remain in compliance.

Our Amended Credit Facility and Senior Unsecured Notes, among other things, covenants that limit our ability to finance future operations or capital needs or to engage in other business activities, including but not limited to our ability to:

• incur additional indebtedness;

• sell assets or make other fundamental changes;

• engage in mergers and acquisitions;

• pay dividends and make other restricted payments;

• make investments, loans, advances or guarantees;

• encumber our assets or those of our restricted subsidiaries;

• enter into transactions with our affiliates.

In addition, these agreements require us to meet and maintain certain financial ratios and tests, which may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. Events beyond our control, including the changes in general business and economic conditions, may impair our ability to comply with these covenants or meet those financial ratios and tests. A breach of any of these covenants or failure to maintain the required ratios and meet the required tests may result in an event of default under these agreements. This may allow the lenders under these agreements to declare all amounts outstanding to be immediately due and payable, terminate any commitments to extend further credit to us, and pursue other remedies available to them under the applicable agreements. If this occurs, our indebtedness may be accelerated, and we may not be able to refinance the accelerated indebtedness on favorable terms, or at all, or repay the accelerated indebtedness. In general, the occurrence of any event of default under these agreements could have a material adverse effect on our financial condition or results of operations.

We have incurred substantial indebtedness, which could adversely affect our business, limit our ability to plan for or respond to changes in our business, and reduce our profitability.

Our future ability to satisfy our debt obligations is subject, to some extent, to financial, market, competitive, legislative, regulatory, and other factors that are beyond our control. Our substantial debt obligations could have negative consequences to our business, and, in particular, could impede, restrict, or delay the implementation of our business strategy or prevent us from entering into transactions that would otherwise benefit our business. For example:

• we may be required to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development efforts, capital expenditures, or strategic acquisitions;

• we may not be able to generate sufficient cash flow to meet our substantial debt service obligations or to fund our other liquidity needs. If this occurs, we may have to take actions such as selling assets, selling equity, or

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reducing or delaying capital expenditures, strategic acquisitions, investments and joint ventures, or restructuring our debt;

• as a result of the amount of our outstanding indebtedness and the restrictive covenants to which we are subject, if we determine that we require additional financing to fund future working capital, capital investments, or other business activities, we may not be able to obtain such financing on commercially reasonable terms, or at all; and

• our flexibility in planning for, or reacting to, changes in our business and industry may be limited, thereby placing us at a competitive disadvantage compared with our competitors that have less indebtedness.

Our production facilities may experience unexpected equipment failures, catastrophic events, and scheduled maintenance.

Interruptions in our production capabilities may cause our productivity and results of operations to decline significantly during the affected period. Our manufacturing processes are dependent upon critical pieces of equipment. Such equipment may, on occasion, be out of service as a result of unanticipated events such as fires, explosions, violent weather conditions, or unexpected operational difficulties. We also have periodically scheduled shut-downs to perform maintenance on our facilities. Any significant interruption in production capability may require us to make significant capital expenditures to remedy problems or damage as well as cause us to lose revenue and profits due to lost production time, which could have a material adverse effect on our results of operations and financial condition.

Increases in interest rates and inflation could adversely affect our business and demand for our products, which would have a negative effect on our results of operations.

Our business is significantly affected by the movement of interest rates. Interest rates have a direct impact on the level of residential, commercial, and infrastructure construction activity by impacting the cost of borrowed funds to builders. Higher interest rates could result in decreased demand for our products, which would have a material adverse effect on our business and results of operations. In addition, increases in interest rates could result in higher interest expense related to borrowings under our Amended Credit Facility. Inflation can result in higher interest rates. With inflation, the costs of capital increase, and the purchasing power of our cash resources can decline. Current or future efforts by the government to stimulate the economy may increase the risk of significant inflation, which could have a direct and indirect adverse impact on our business and results of operations.

Any new business opportunities we may elect to pursue will be subject to the risks typically associated with the early stages of business development or product line expansion.

We are continuing to pursue opportunities which are natural extensions of our existing core businesses and which allow us to leverage our core competencies, existing infrastructure, and customer relationships. Our likelihood of success in pursuing and realizing these opportunities must be considered in light of the expenses, difficulties, and delays frequently encountered in connection with the early phases of business development or product line expansion, including the difficulties involved in obtaining permits; planning and constructing new facilities; transporting and storing products; establishing, maintaining, or expanding customer relationships; as well as navigating the regulatory environment in which we operate. There can be no assurance that we will be successful in the pursuit and realization of these opportunities.

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Our operations are dependent on our rights and ability to mine our properties and on our having renewed or received the required permits and approvals from governmental authorities and other third parties.

We hold numerous governmental, environmental, mining, and other permits, water rights, and approvals authorizing operations at many of our facilities. A decision by a governmental agency or other third parties to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility. Expansion of our existing operations is also predicated on securing the necessary environmental or other permits, water rights, or approvals, which we may not receive in a timely manner or at all.

Title to, and the area of, mineral properties and water rights may also be disputed. Mineral properties sometimes contain claims or transfer histories that examiners cannot verify. A successful claim that we do not have title to one or more of our properties or lack appropriate water rights could cause us to lose any rights to explore, develop, and extract any minerals on that property, without compensation for our prior expenditures relating to such property. Our business may suffer a material adverse effect in the event one or more of our properties are determined to have title deficiencies.

In some instances, we have received access rights or easements from third parties, which allow for a more efficient operation than would exist without the access or easement. A third party could take action to suspend the access or easement, and any such action could be materially adverse to our results of operations or financial conditions.

A cyber-attack or data security breach affecting our information technology systems may negatively affect our businesses, financial condition, and operating results.

We use information technology systems to collect, store, and transmit the data needed to operate our businesses, including our confidential and proprietary information. Although we have implemented industry-standard security safeguards and policies to prevent unauthorized access or disclosure of such information, we cannot prevent all cyber-attacks or data security breaches. If such an attack or breach occurs, our businesses could be negatively affected, and we could incur additional costs in remediating the attack or breach and suffer reputational harm due to the theft or disclosure of our confidential information.

We may pursue acquisitions, joint ventures and other transactions that are intended to complement or expand our businesses. We may not be able to complete proposed transactions, and even if completed, the transactions may involve a number of risks that may result in a material adverse effect on our business, financial condition, operating results, and cash flows.

As business conditions warrant and our financial resources permit, we may pursue opportunities to acquire businesses or technologies and to form joint ventures that we believe could complement, enhance, or expand our current businesses or product lines or that might otherwise offer us growth opportunities. We may have difficulty identifying appropriate opportunities, or if we do identify opportunities, we may not be successful in completing transactions for a number of reasons. Any transactions that we are able to identify and complete may involve one or more of a number of risks, including:

• the diversion of management’s attention from our existing businesses to integrate the operations and personnel of the acquired business or joint venture;

• possible adverse effects on our operating results during the integration process;

• failure of the acquired business or joint venture to achieve expected operational, profitability, and investment return objectives;

• the incurrence of significant charges, such as impairment of goodwill or intangible assets, asset devaluation, or restructuring charges;

• the assumption of unanticipated liabilities and costs for which indemnification is unavailable or inadequate;

• unforeseen difficulties encountered in operating in new geographic areas; and

• the inability to achieve other intended objectives of the transaction.

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In addition, we may not be able to successfully or profitably integrate, operate, maintain, and manage our newly acquired operations or their employees. We may not be able to maintain uniform standards, controls, procedures, and policies, which may lead to operational inefficiencies. In addition, future acquisitions may result in dilutive issuances of equity securities or the incurrence of additional indebtedness.

The anticipated benefits of the acquisition of the Kosmos Business may not be realized fully or at all and may take longer to realize than expected.

The acquisition of the Kosmos Business involves the integration of an independently operated business into our business operations.  The integration process may be complex, costly and time-consuming, which could adversely affect our businesses, financial results and financial condition.  Our management team will be required to devote significant attention and resources to the integration process.  Even if the integration is successful, it may not result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we expect to realize or these benefits may not be achieved within a reasonable period of time.

The acquisition of the Kosmos Business may not be consummated on the proposed terms, within the expected timeframe, or at all.

Completion of the acquisition of the Kosmos Business is subject to the satisfaction of various conditions.  All of these conditions may not be satisfied, and the acquisition may not be completed on the proposed terms, within the expected timeframe, or at all.  If we are unable to complete the proposed transaction, it will have incurred substantial expenses and diverted significant management time and resources from its ongoing business without the intended benefit.  For more information about the acquisition of the Kosmos Business, see Footnote (B) of the Notes to Consolidated Financial Statements.

We will incur significant one-time transaction costs in connection with the acquisition of the Kosmos Business.

We expect to incur significant one-time integration costs in connection with the acquisition of the Kosmos Business, including legal, financing, accounting and financial advisory fees and expenses, which are currently estimated to be approximately $10 million.  

Our bylaws include a forum selection clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any internal corporate claims within the meaning of the Delaware General Corporation Law (DGCL), (ii) any derivative action or proceeding brought on our behalf, (iii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or employees to us or to our stockholders, or (iv) any action asserting a claim arising pursuant to any provision of the DGCL, will be a state or federal court located within the State of Delaware in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. This forum selection provision in our bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our bylaws, a court could rule that such a provision is inapplicable or unenforceable.

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This report includes various forward-looking statements, which are not facts or guarantees of future performance and which are subject to significant risks and uncertainties.

This report and other materials we have filed or will file with the SEC, as well as information included in oral statements or other written statements made or to be made by us contain or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates, or other expectations regarding future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “may,” “can,” “could,” “might,” “will,” and similar expressions identify forward-looking statements, including statements related to expected operating and performing results, planned transactions, plans, and objectives of management, future developments, or conditions in the industries in which we participate, including future prices for our products, audits, and legal proceedings to which we are a party, and other trends, developments, and uncertainties that may affect our business in the future.

Forward-looking statements are not historical facts or guarantees of future performance but instead represent only our beliefs at the time the statements were made regarding future events, which are subject to significant risks, uncertainties, and other factors, many of which are outside of our control. Any or all of the forward-looking statements made by us may turn out to be materially inaccurate. This can occur as a result of incorrect assumptions, changes in facts and circumstances, or the effects of known risks and uncertainties. Many of the risks and uncertainties mentioned in this report or other reports filed by us with the SEC, including those discussed in the risk factor section of this report, will be important in determining whether these forward-looking statements prove to be accurate. Consequently, neither our stockholders nor any other person should place undue reliance on our forward-looking statements and should recognize that actual results may differ materially from those that may be anticipated by us.

All forward-looking statements made in this report are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this report will increase with the passage of time. We undertake no obligation, and disclaim any duty, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in our expectations, or otherwise.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The disclosure required under this Item is included in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” of this Quarterly Report on Form 10-Q under the heading “Share Repurchases” and is incorporated herein by reference.

Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503 (a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-Q.

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Item 6. Exhibits

10.1	Amendment No. 3 to Third Amended and Restated Credit Agreement, dated as of December 20, 2019, by and among Eagle Materials Inc., as the Borrower, the Lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent, Issuing Bank and Swingline Lender thereunder (filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission (“the Commission”) on December 20, 2019, and incorporated herein by reference).
10.2	Credit Agreement, dated as of December 20, 2019, among Eagle Materials Inc., the Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Goldman Sachs Bank USA, Bank of America, N.A., PNC Bank, National Association, Wells Fargo Bank, N.A. and Truist Bank , as Co-Syndication Agents, and JPMorgan Chase Bank, N.A. and Goldman Sachs Bank USA, as Joint Bookrunners and Joint Lead Arrangers (filed as Exhibit 10.2 to the Current Report on Form 8-K filed with the Commission on December 20, 2019, and incorporated herein by reference).
10.3*	Asset Purchase Agreement between Eagle Materials Inc. and Kosmos Cement Company, dated as of November 25, 2019.
31.1*	Certification of the Chief Executive Officer of Eagle Materials Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of the Chief Financial Officer of Eagle Materials Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.
32.1*	Certification of the Chief Executive Officer of Eagle Materials Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of the Chief Financial Officer of Eagle Materials Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95*	Mine Safety Disclosure
101.INS*	Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File – (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

⁽¹⁾ Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EAGLE MATERIALS INC.
	Registrant
February 4, 2020	/s/ MICHAEL R. HAACK
	Michael R. Haack President and Chief Executive Officer (principal executive officer)
February 4, 2020	/s/ D. CRAIG KESLER
	D. Craig Kesler Executive Vice President – Finance and Administration and Chief Financial Officer (principal financial officer)

February 4, 2020	/s/ WILLIAM R. DEVLIN
	William R. Devlin Senior Vice President – Controller and Chief Accounting Officer (principal accounting officer)

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