# EAGLE MATERIALS INC (EXP) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from EAGLE MATERIALS INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/918646/000095017024063523/exp-20240331.htm
Accession: 0000950170-24-063523
Filing date: 2024-05-22
Report date: 2024-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EXP/
All MD&A years: /company/EXP/mda/
Previous year: /company/EXP/mda/fy2023/ (FY 2023)
Next year: /company/EXP/mda/fy2025/ (FY 2025)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

executive summary

We are a leading manufacturer of heavy construction materials and light building materials in the United States. Our primary products, portland cement and gypsum wallboard, are commodities that are essential in commercial and residential construction; public construction projects to build, expand, and repair roads and highways; and repair and remodel activities. 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.

Our business is organized into two sectors: Heavy Materials, which includes the Cement and Concrete and Aggregates segments; and Light Materials, which includes the Gypsum Wallboard and Recycled Paperboard segments. Financial results and other information for the fiscal years ended March 31, 2024 and 2023, are presented on a consolidated basis and by business segment.

We conduct one of our cement operations through a Joint Venture, Texas Lehigh Cement Company LP, which is located in Buda, Texas. 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 financial information with respect to the segments within the Company for making operating decisions and assessing performance.

All our business activities are conducted in the United States. These activities include the mining of limestone for the manufacture, production, distribution, and sale of portland cement, including portland limestone 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; and the mining and sale of aggregates (crushed stone, sand, and gravel).

In April 2023, we assumed operation of our quarry in Battletown, Kentucky. Our Battletown quarry was primarily used to supply our Kosmos Cement plant with limestone. However, beginning in April 2023, we started selling a portion of the mined materials as aggregates under the name Battletown Materials. Battletown Materials is included in our Heavy Materials sector, in the Concrete and Aggregates business segment.

On May 3, 2023, we finalized the Stockton Terminal Acquisition. The purchase price of the Stockton Terminal Acquisition was approximately $55.1 million. The Stockton Terminal Acquisition is included in our Heavy Materials sector, in the Cement business segment, in fiscal 2024. See Footnote (B) in the Audited Consolidated Financial Statements for more information regarding the Stockton Terminal Acquisition.

47

MARKET CONDITIONS AND OUTLOOK

Our fiscal 2024 results were generally strong, and we achieved record Revenue of $2.3 billion and record Net Earnings and Earnings per Share of $477.6 million and $13.61 per share, respectively. Our end markets generally remained resilient despite continued inflation and higher interest rates. Although sales volume for both Cement (excluding the Stockton Terminal Acquisition) and Gypsum Wallboard declined from fiscal 2023, the decline in volume was relatively small and demand was still historically strong.

Demand Outlook

The principal end-use market for Cement is public infrastructure (i.e. roads, bridges, and highways) with residential and nonresidential construction being secondary. Our Cement business continues to maintain a nearly sold-out position. We expect demand for cement to remain strong given increased federal funding from the Infrastructure Investment and Jobs Act for public construction and repair projects during calendar 2024; continued high allocations from state budgets for additional infrastructure projects; and growth in heavy industrial projects. Despite underlying demand growth, our ability to achieve further Cement sales volume growth from our existing facilities is limited, because our integrated cement sales network is operating at high utilization levels.

The principal end use for Gypsum Wallboard is residential housing, consisting of both new construction (single-family and multi-family homes) as well as repair and remodel. Gypsum Wallboard orders and shipments remain resilient and we expect the strength of the U.S. consumer and continued limited supply of existing homes inventory to support residential construction, even with the uptick in mortgage rates. We believe our geographical footprint across the U.S. heartland and fast-growing sunbelt region puts us in a good position to capitalize on these market dynamics. Our Recycled Paperboard business sells paper primarily into the gypsum wallboard market, and demand for our paper generally follows the demand for gypsum wallboard.

Cost Outlook

We believe we are well-positioned to manage our cost structure and meet our customers’ needs during the next fiscal year. Our substantial raw material reserves for our Cement, Aggregates, and Gypsum Wallboard businesses, and their proximity to our respective manufacturing facilities, support our low-cost producer position across all our business segments.

Energy, primarily solid fuel costs, increased in all our businesses, but primarily Cement, during fiscal 2024. We anticipate certain of these costs will decline in fiscal 2025, but will remain higher than fiscal 2023 amounts. We are also expecting increases in freight and delivery costs in fiscal 2025 compared with fiscal 2024.

The primary raw material used to produce paperboard is OCC. Prices for OCC increased during the second half of fiscal 2024. Fiber prices are subject to change upon short notice due to several factors, including supply of OCC and demand for OCC from both domestic and international companies. Our current customer contracts for gypsum liner include price adjustments that partially compensate for changes in raw material fiber prices. However, because these price adjustments are not realized until future quarters, material costs in our Gypsum Wallboard segment are likely to fluctuate until the effects of these price adjustments are realized.

Maintenance costs were up 21% in fiscal 2024 and we expect continued inflation for maintenance as equipment and contractor costs remain high.

48

Results of Operations

Fiscal Year 2024 Compared with Fiscal Year 2023

[[GREPCENT_TABLE]]
[["","","For the Years Ended March 31,"],["","","2024","","","2023","","","Percentage Change"],["","","(in thousands, except per share)"],["Revenue","","$","2,259,297","","","$","2,148,069","","","","5","%"],["Cost of Goods Sold","","","(1,573,976",")","","","(1,508,803",")","","","4","%"],["Gross Profit","","","685,321","","","","639,266","","","","7","%"],["Equity in Earnings of Unconsolidated Joint Venture","","","31,581","","","","35,474","","","","(11",")%"],["Corporate General and Administrative","","","(59,795",")","","","(53,630",")","","","11","%"],["Other Nonoperating Income","","","3,087","","","","2,654","","","","16","%"],["Interest Expense, net","","","(42,257",")","","","(35,171",")","","","20","%"],["Earnings Before Income Taxes","","","617,937","","","","588,593","","","","5","%"],["Income Tax Expense","","","(140,298",")","","","(127,053",")","","","10","%"],["Net Earnings","","$","477,639","","","$","461,540","","","","3","%"],["Diluted Earnings per Share","","$","13.61","","","$","12.46","","","","9","%"]]
[[/GREPCENT_TABLE]]

Revenue

Revenue increased in fiscal 2024 by $111.2 million, or 5%, to $2,259.3 million. Battletown Materials and the Stockton Terminal Acquisition contributed $7.2 million and $39.3 million of Revenue, respectively, during fiscal 2024. Excluding Revenue from Battletown Materials and the Stockton Terminal Acquisition, Revenue increased $64.7 million, or 3%. This increase was due to higher gross sales prices of approximately $123.9 million, partially offset by lower Sales Volume of $59.2 million. The higher gross sales prices were primarily due to Cement and Concrete and Aggregates, while lower Sales Volumes primarily related to all segments except Recycled Paperboard. See the disclosure in the Fiscal Year 2024 vs Fiscal Year 2023 Results by Segment section for more information.

Cost of Goods Sold

Cost of Goods Sold increased by $65.2 million, or 4%, to $1,574.0 million in fiscal 2024. Battletown Materials and the Stockton Terminal Acquisition contributed $8.1 million and $41.8 million of Cost of Goods Sold, respectively, during fiscal 2024. Excluding Battletown Materials and the Stockton Terminal Acquisition, Cost of Goods Sold increased $15.3 million, or 1%. The increase in Cost of Goods Sold was due to higher operating costs of $61.5 million, partially offset by lower Sales Volume of $46.2 million. Operating costs increased in all of our businesses, except Recycled Paperboard and Aggregates, as discussed in the Fiscal Year 2024 vs Fiscal Year 2023 Results by Segment section.

Gross Profit

Gross Profit increased by 7% to $685.3 million in fiscal 2024. The increase in Gross Profit was mainly due to higher gross sales prices, partially offset by higher operating costs, as noted above. We expanded our Gross Profit margin to 30.3% in fiscal 2024.

49

Equity in Earnings of Unconsolidated Joint Venture

Equity in Earnings of Unconsolidated Joint Venture decreased by $3.9 million, or 11%. The decline was mostly due to higher operating costs and lower Sales Volume of $9.3 million and $2.8 million, respectively. This was partially offset by higher gross sales prices of approximately $8.2 million. The higher operating costs were due primarily to increased maintenance, energy, freight, and purchased cement costs, which reduced operating earnings by approximately $3.6 million, $1.4 million, $0.6 million, and $2.8 million, respectively.

Corporate General and Administrative

Corporate General and Administrative expenses increased by approximately $6.2 million, or 11%, to $59.8 million in fiscal 2024. The increase was due primarily to higher salary and incentive compensation, legal and professional fees, and information and technology upgrades of approximately $2.7 million, $1.9 million, and $1.5 million, respectively. The increase in salary and incentive compensation was mostly due to increased earnings during the year, while the increase in legal and professional expense was primarily due to the Stockton Terminal Acquisition.

Other nonoperating Income

Other Nonoperating Income was $3.1 million in fiscal 2024 compared with $2.7 million in fiscal 2023. Other Nonoperating Income consists of a variety of items that are nonsegment operating in nature, including lease and rental income, investment income, asset sales, and other miscellaneous income and cost items, such as large nonroutine sales of excess raw materials or energy.

Interest Expense, Net

Interest Expense, net increased by approximately $7.1 million, or 20%, during fiscal 2024. The increase was primarily related to higher interest expense on our Revolving Credit Facility, including the Term Loan, of approximately $7.7 million. The increase in interest on our Revolving Credit Facility was related to increased average outstanding borrowings and higher interest rates, partially offset by increased interest income on cash deposits.

Earnings Before Income Taxes

Earnings Before Income Taxes increased to $617.9 million during fiscal 2024, primarily because of higher Gross Profit. This was partially offset by higher Corporate General and Administrative expenses and Interest Expense, as well as lower Equity in Earnings of Joint Venture.

Income Tax Expense

Income Tax Expense for fiscal 2024 increased to $140.3 million from $127.1 million for fiscal 2023. The effective tax rate was 23%, compared with 22% in the prior fiscal year.

Net Earnings and Diluted Earnings per Share

Net Earnings increased 3% in fiscal 2024 to $477.6 million. Diluted Earnings per Share in fiscal 2024 was $13.61 compared with $12.46 for fiscal 2023.

50

FISCAL YEAR 2024 vs FISCAL YEAR 2023 Results by Segment

The following presents results within our two business sectors in fiscal 2024 and fiscal 2023. Revenue and operating results are organized by sector and discussed by individual business segment within each respective business sector.

Heavy Materials

Cement (1)

[[GREPCENT_TABLE]]
[["","","For the Years Ended March 31,"],["","","2024","","","2023","","","Percentage Change"],["","","(in thousands, except per ton information)"],["Revenue, including Intersegment and Joint Venture","","$","1,226,017","","","$","1,074,070","","","","14","%"],["Less Intersegment Revenue","","$","(35,363",")","","$","(32,915",")","","","7","%"],["Less Joint Venture Revenue","","$","(112,736",")","","$","(113,518",")","","","(1",")%"],["Revenue","","$","1,077,918","","","$","927,637","","","","16","%"],["Sales Volume (M Tons)","","","7,289","","","","7,133","","","","2","%"],["Freight and Delivery Costs billed to Customers","","$","(70,823",")","","$","(60,288",")","","","17","%"],["Average Net Sales Price, per ton (2)","","$","150.99","","","$","134.36","","","","12","%"],["Operating Margin, per ton","","$","46.42","","","$","39.08","","","","19","%"],["Operating Earnings","","$","338,349","","","$","278,762","","","","21","%"]]
[[/GREPCENT_TABLE]]

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

(2)
Net of freight, including the Joint Venture.

Cement Revenue was $1,226.0 million for fiscal 2024, a 14% increase over fiscal 2023. Excluding the Intersegment Revenue and the Revenue and Sales Volume from the Stockton Terminal Acquisition, Cement Revenue increased by approximately $110.1 million, primarily as a result of higher gross sales prices, which improved Cement Revenue by approximately $132.9 million, partially offset by lower Sales Volume, which reduced Revenue by $22.8 million.

Cement Operating Earnings increased 21% to $338.3 million for fiscal 2024. Excluding the Stockton Terminal Acquisition, Operating Earnings increased $62.0 million, or 22%, in fiscal 2024. The increase was due to higher gross sales prices, which positively affected Operating Earnings by approximately $132.9 million. This was partially offset by lower Sales Volume and higher operating expenses, which reduced Operating Earnings by $6.5 million and $64.4 million, respectively. The rise in operating expenses was mostly due to maintenance, energy, and purchased raw materials costs of approximately $29.9 million, $6.5 million and $14.4 million, respectively. The Operating Margin increased to 28%, primarily due to higher gross sales prices, partially offset by increased operating costs.

51

Concrete and Aggregates

[[GREPCENT_TABLE]]
[["","","For the Years Ended March 31,"],["","","2024","","","2023","","","Percentage Change"],["","","(in thousands, except net sales prices)"],["Revenue, including Intersegment","","$","252,952","","","$","239,516","","","","6","%"],["Less Intersegment Revenue","","","(12,940",")","","","\u2014","","","","\u2014"],["Revenue","","$","240,012","","","$","239,516","","","","\u2014"],["Sales Volume"],["M Cubic Yards of Concrete","","","1,328","","","","1,545","","","","(14",")%"],["M Tons of Aggregate","","","4,064","","","","2,909","","","","40","%"],["Average Net Sales Price"],["Concrete - Per Cubic Yard","","$","145.98","","","$","133.34","","","","9","%"],["Aggregates - Per Ton","","$","11.26","","","$","11.53","","","","(2",")%"],["Operating Earnings","","$","12,401","","","$","18,259","","","","(32",")%"]]
[[/GREPCENT_TABLE]]

Concrete and Aggregates Revenue increased 6% to $253.0 million for fiscal 2024. Excluding Battletown Materials and Intersegment Revenue, Revenue decreased 3% to $232.8 million. The decrease in Revenue was primarily related to lower Sales Volume in Concrete, which negatively affected Revenue by $28.9 million. This was partially offset by higher gross sales prices and Sales Volume for Aggregates of $18.6 million and $3.6 million, respectively.

Operating Earnings decreased 32% to approximately $12.4 million. Excluding Battletown Materials, Operating Earnings were $13.2 million, a decrease of $5.1 million. The decline in Operating Earnings was due to higher operating expenses of $23.8 million. This was partially offset by higher gross sales prices and Sales Volume of $18.6 million and $0.3 million, respectively. The increase in operating expenses was primarily due to higher cost of materials, maintenance, and delivery of approximately $17.7 million, $2.4 million, and $3.1 million, respectively.

52

Light Materials

Gypsum Wallboard

[[GREPCENT_TABLE]]
[["","","For the Years Ended March 31,"],["","","2024","","","2023","","","Percentage Change"],["","","(in thousands, except per MMSF information)"],["Revenue","","$","839,530","","","$","872,471","","","","(4",")%"],["Sales Volume (MMSF)","","","2,965","","","","3,065","","","","(3",")%"],["Freight and Delivery Costs billed to Customers","","$","(149,441",")","","$","(160,536",")","","","(7",")%"],["Average Net Sales Price, per MSF (1)","","$","232.75","","","$","232.31","","","","\u2014"],["Freight, per MSF","","$","50.40","","","$","52.38","","","","(4",")%"],["Operating Margin, per MSF","","$","112.83","","","$","115.01","","","","(2",")%"],["Operating Earnings","","$","334,536","","","$","352,499","","","","(5",")%"]]
[[/GREPCENT_TABLE]]

(1)
Net of freight per MSF.

Gypsum Wallboard Revenue decreased 4% to $839.5 million in fiscal 2024. The decrease was due to lower gross sales prices and Sales Volume, which reduced Revenue by $4.5 million and $28.5 million, respectively. Our market share remained relatively flat in fiscal 2024 compared with fiscal 2023.

Operating Earnings decreased 5% to $334.5 million for fiscal 2024. The decrease was primarily related to lower gross sales prices and Sales Volume of approximately $4.5 million and $11.5 million, respectively, as well as higher operating expenses of $2.0 million. During fiscal 2024, Gypsum Wallboard Operating Margin remained flat at 40%. Fixed costs are not a significant part of the overall cost of wallboard; therefore, changes in volume have a relatively minor impact on our operating cost per unit.

53

Recycled Paperboard

[[GREPCENT_TABLE]]
[["","","For the Years Ended March 31,"],["","","2024","","","2023","","","Percentage Change"],["","","(in thousands, except per ton information)"],["Revenue, including Intersegment","","$","184,188","","","$","201,280","","","","(8",")%"],["Less Intersegment Revenue","","","(82,351",")","","","(92,835",")","","","(11",")%"],["Revenue","","$","101,837","","","$","108,445","","","","(6",")%"],["Sales Volume (M Tons)","","","333","","","","326","","","","2","%"],["Average Net Sales Price, per ton (1)","","$","551.72","","","$","590.67","","","","(7",")%"],["Operating Margin, per ton","","$","94.94","","","$","77.36","","","","23","%"],["Operating Earnings","","$","31,616","","","$","25,220","","","","25","%"]]
[[/GREPCENT_TABLE]]

(1)
Net of freight per ton.

Recycled Paperboard Revenue, including intersegment Revenue, declined 8% to $184.2 million for fiscal 2024, as lower gross sales prices negatively affected Revenue by approximately $21.3 million, partially offset by higher Sales Volume of $4.2 million. The decrease in gross sales prices was due to the price adjustment provisions in our long-term sales agreements.

Operating Earnings increased 25% to $31.6 million for fiscal 2024, primarily related to higher Sales Volume and lower operating expenses of $0.6 million and $27.1 million, respectively. This was partially offset by lower gross sales prices of $21.3 million. The decrease in operating expenses was primarily related to lower input costs, namely raw materials, energy, and freight, which increased Operating Earnings by $16.9 million, $3.7 million, and $8.1 million, respectively. This was partially offset by higher chemical expenses of $1.3 million. During fiscal 2024, Operating Margin increased to 17% from 13% in fiscal 2023, primarily because of lower operating expenses, partially offset by lower gross sales prices.

54

Fiscal Year 2023 Compared with Fiscal Year 2022

Please see our Form 10-K for fiscal year 2023 for the discussion of our Results of Operations and results of Revenue and Operating Earnings by segment for fiscal 2023 compared with fiscal 2022. Our 2023 Form 10-K can be found on the investor page of our website, at eaglematerials.com.

CRITICAL Accounting Policies

Certain of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters. Although our accounting policies are in compliance with generally accepted accounting principles, a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. Listed below are those policies that we believe are critical and require the use of complex judgment in their application.

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. Long-lived assets, or groups of assets, are evaluated for impairment at the lowest level for which cash flows are largely independent of the cash flows of other assets. We assess recoverability of assets, or groups 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 groups of assets, exceeds the undiscounted cash flows, then an impairment is indicated. If such assets, or groups 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.

Goodwill

We annually assess Goodwill for impairment in the fourth quarter of our fiscal year, or more frequently when indicators of impairment exist. Impairment testing for Goodwill is done at the reporting unit, which is consistent with our reportable segments.

Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. Prior to performing the Step 1 quantitative test, we may, at our discretion, perform an optional qualitative analysis, or we may choose to proceed directly to the Step 1 quantitative analysis. The qualitative test considers the impact of the following events and circumstances on the reporting unit being tested: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other relevant entity-specific events. If, as a result of this qualitative analysis, we conclude that it is more likely than not (a likelihood of greater than 50%) that the fair value of the reporting unit exceeds its carrying value, then an impairment does not exist and the quantitative Step 1 test is not required. If we are unable to conclude that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, then we proceed to the quantitative Step 1 test.

Step 1 of the quantitative test for impairment compares the fair value of the reporting unit to its carrying value. If the carrying value exceeds the fair value, then an impairment is indicated. If facts and circumstances related to our business change in subsequent years, we may choose to perform a quantitative analysis in those future years. If we perform a Step 1 test, and the carrying value of the

55

reporting unit exceeds its fair value, then an impairment charge equal to the difference, not to exceed the total amount of Goodwill, is recorded.

The fair values of the reporting units are estimated by using both the market and income approaches. The market approach considers market factors and certain multiples in comparison to similar companies, while the income approach uses discounted cash flows to determine the estimated fair values of the reporting units. Key assumptions in the model include estimated average net sales prices, sales volume, and the estimated weighted average cost of capital specific to each industry. We also perform an overall comparison of all reporting units to our market capitalization in order to test the reasonableness of our fair value calculations.

Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. The most important assumption underlying our estimates is the projection of construction spending in the U.S. over the next several years. Actual results may differ materially from those estimates. Changes in market conditions, market trends, interest rates, or other factors outside of our control, such as a worldwide pandemic, could cause us to change key assumptions and our judgment about a reporting unit’s prospects. Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results. Either situation could result in a meaningfully different estimate of the fair value of our reporting units, and a consequent future impairment charge.

The segment breakdown of Goodwill at March 31, 2024 and 2023, was as follows:

[[GREPCENT_TABLE]]
[["","","2024","","","2023"],["","","(dollars in thousands)"],["Cement","","$","227,639","","","$","215,781"],["Concrete and Aggregates","","","40,774","","","","40,774"],["Gypsum Wallboard","","","116,618","","","","116,618"],["Paperboard","","","7,538","","","","7,538"],["","","$","392,569","","","$","380,711"]]
[[/GREPCENT_TABLE]]

Business Combinations

The acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed. The purchase price allocation is a critical accounting policy because the estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions. Further, the amounts and useful lives assigned to depreciable and amortizable assets versus amounts assigned to Goodwill, which is not amortized, can significantly affect the results of operations in the period of and for periods subsequent to a business combination. Although independent appraisals may be used to assist in the determination of the fair values of certain assets and liabilities, the appraised values are usually based on significant estimates provided by management, such as forecasted revenue or profit, and the replacement cost and useful lives of the acquired property, plant, and equipment.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and therefore represents an exit price. A fair value measurement assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible, and financially feasible at the measurement date. We assign the highest level of fair value available to assets acquired and liabilities assumed based on the following options:

56

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs, other than quoted prices, for similar assets or liabilities in active markets.

Level 3 – Unobservable inputs, which includes the use of valuation models.

Level 2 fair values are typically used to value acquired receivables, inventories, machinery and equipment, land, buildings, deferred income tax assets and liabilities, and accruals for payables, asset retirement obligations, and contingencies.

Level 3 inputs are used to estimate the fair value of acquired mineral reserves, mineral interests, and separately identifiable intangible assets.

In determining the fair value of property, plant, and equipment, replacement cost, adjusted for the age and condition of the acquired machinery and equipment, is used. The replacement cost is based on estimates of current cost to construct similar machinery and equipment and is compared to amounts paid for similar assets in market transactions for consistency.

In determining the fair value of intangible assets, an income approach is generally used and may incorporate the use of a discounted cash flow method. In applying the discounted cash flow analysis, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate based on an estimated weighted average cost of capital for the building materials industry. These cash flow projections are based on management’s estimates of economic and market conditions including revenue growth rates, operating margins, capital expenditures, customer attrition rates, and working capital requirements.

While we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair values of assets acquired and liabilities assumed are recorded on a retroactive basis as of the acquisition date, with the corresponding offset to Goodwill. Any adjustments subsequent to the conclusion of the measurement period will be recorded to our Consolidated Statements of Earnings.

LIQUIDITY AND CAPITAL RESOURCES

We believe that we have access at the present time to sufficient financial resources from our liquidity sources to fund our business and operations, including contractual obligations, capital expenditures, and debt service obligations, for at least the next twelve months. In the long term, we intend to rely on our existing financial resources, together with borrowings under existing and future credit facilities and potential offerings of our securities in private or public markets. We regularly monitor any potential disruptions to the economy, and to our operations, particularly changing fiscal policy or economic conditions affecting our industries. Please see the Debt Financing Activities section below for a discussion of our revolving credit facility and the amount of borrowings available to us in the next twelve-month period.

57

Cash Flow

The following table provides a summary of our Cash Flows:

[[GREPCENT_TABLE]]
[["","","For the Fiscal Years Ended March 31,"],["","","2024","","","2023"],["","","(dollars in thousands)"],["Net Cash Provided by Operating Activities","","$","563,938","","","$","541,726"],["Investing Activities:"],["Additions to Property, Plant, and Equipment","","","(120,305",")","","","(110,143",")"],["Acquisition Spending","","","(55,053",")","","","(158,451",")"],["Net Cash Used in Investing Activities","","","(175,358",")","","","(268,594",")"],["Financing Activities:"],["Borrowings Under Revolving Credit Facility","","","13,000","","","","200,000"],["Repayment of Borrowings Under Revolving Credit Facility","","","\u2014","","","","(43,000",")"],["Repayment of Term Loan","","","(10,000",")","","","(7,500",")"],["Dividends Paid to Stockholders","","","(35,298",")","","","(37,496",")"],["Purchase and Retirement of Common Stock","","","(343,274",")","","","(387,717",")"],["Proceeds from Stock Option Exercises","","","17,098","","","","5,418"],["Payment of Debt Issuance Costs","","","\u2014","","","","(903",")"],["Shares Redeemed to Settle Employee Taxes on Stock Compensation","","","(10,423",")","","","(6,108",")"],["Net Cash Used in Financing Activities","","","(368,897",")","","","(277,306",")"],["Net Increase (Decrease) in Cash and Cash Equivalents","","$","19,683","","","$","(4,174",")"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities increased by $22.2 million to $563.9 million for fiscal 2024. The increase was largely attributable to higher Net Earnings, adjusted for non-cash charges of $37.4 million and changes in Working Capital of $4.8 million, partially offset by lower dividends from our Unconsolidated Joint Venture of $20.0 million.

Working Capital increased by $79.7 million to $388.3 million at March 31, 2024, primarily because of higher Accounts Receivable, Inventories, and Cash of $7.9 million, $82.0 million, and $19.7 million, respectively. This was partially offset by an increase in Accounts Payable and Accrued Liabilities of $16.8 million and $7.8 million, respectively.

The increase in Accounts and Notes Receivable at March 31, 2024, was primarily due to higher Revenue during the quarter ended March 31, 2024, compared with March 31, 2023. As a percentage of quarterly sales generated in the fiscal fourth quarters, Accounts Receivable was 43% at March 31, 2024, and 41% at March 31, 2023. Management measures the change in Accounts Receivable by monitoring the day’s sales outstanding monthly 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 March 31, 2024.

Our Inventory balance at March 31, 2024, increased approximately $82.0 million from our balance at March 31, 2023. Within Inventories, raw materials and materials-in-progress, finished cement, recycled paperboard, repair parts inventory, and fuel and coal increased by approximately $25.9 million, $25.0 million, $5.6 million, $14.6 million, and $6.1 million, respectively. The increases in raw materials and materials-in-progress, finished cement, and fuel and coal were mostly due to timing. Additionally, the Stockton Terminal Acquisition contributed $8.7 million of the increase in finished cement at March 31, 2024. The increase in repair parts was primarily due to the timing of outages in our Cement business, most of which occurred in April 2024, as well as overall increases in the cost of repair parts. We have less than one year’s sales of all product inventories, and our inventories have a low risk of obsolescence given that they are basic construction materials. The largest individual balance in our inventory is repair parts. The size and complexity of our manufacturing plants, as well as the age of certain of our plants, creates

58

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.

Net Cash Used in Investing Activities in fiscal 2024 was approximately $175.4 million compared with $268.6 million in fiscal 2023, a decrease of approximately $93.2 million. This was primarily due to $103.4 million less in acquisition spending in fiscal 2024 compared with fiscal 2023. The decrease in acquisition spending was partially offset by an increase of $10.2 million in capital spending. The increase in capital spending was mainly due to higher spending in our Cement and Recycled Paperboard segments, partially offset by reduced spending in our Concrete and Aggregates segment.

Net Cash Used in Financing Activities was approximately $368.9 million during fiscal 2024, compared with $277.3 million in fiscal 2023. The $91.6 million increase was primarily due to $144.0 million lower cash received from net borrowings under the Revolving Credit Facility. This was partially offset by lower Purchases and Retirement of Common Stock of $44.4 million, respectively.

Our debt-to-capitalization ratio and net debt-to-capitalization ratio were 45.7% and 44.9%, respectively, at March 31, 2024, compared with 48.1% and 47.8%, respectively, at March 31, 2023.

Debt Financing Activities

Below is a summary of the Company’s outstanding debt facilities at March 31, 2024:

[[GREPCENT_TABLE]]
[["","Maturity"],["Revolving Credit Facility","","May 2027"],["Term Loan","","May 2027"],["2.500% Senior Unsecured Notes","","July 2031"]]
[[/GREPCENT_TABLE]]

See Footnote (F) to the Audited Consolidated Financial Statements for further details on the Company's debt facilities, including interest rate, and financial and other covenants and restrictions.

The revolving borrowing capacity of our Revolving Credit Facility is $750.0 million (any revolving loans borrowed under the Revolving Credit Facility, as applicable, the Revolving Loans). The Revolving Credit Facility also includes a swingline loan sublimit of $25.0 million, and a $40.0 million letter of credit facility. At March 31, 2024, we had $170.0 million outstanding of Revolving Loans under the Revolving Credit Facility and $8.3 million of outstanding letters of credit, leaving us with $571.7 million of available borrowings under the Revolving Credit Facility, net of outstanding letters of credit. We are contingently liable for performance under $29.3 million in performance bonds relating primarily to our mining operations. We do not have any off-balance-sheet debt or any outstanding debt guarantees as of March 31, 2024.

Other than the Revolving Credit Facility, we have no additional source of committed external financing in place. Should the Revolving 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 Revolving 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.

We believe that our cash flow from operations and available borrowings under our Revolving Credit Facility, as well as cash on hand, should be sufficient to meet our currently anticipated operating needs, capital expenditures, 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 Revolving Credit Facility, the level of competition, and general and economic factors beyond our control, such as supply chain constraints and inflation. 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

59

liquidity. See Market Conditions and Outlook section above for further discussion of the possible effects on our business.

As market conditions warrant, the Company may from time to time seek to purchase or repay its outstanding debt securities or loans, including the 2.500% Senior Unsecured Notes, the Term Loan, and any Revolving Credit Loans, in each case, 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.

Our Senior Unsecured Notes are rated by Moody’s Investor Service (Moody’s) and Standard and Poor’s Global Ratings (S&P). The ratings are typically monitored by stockholders, creditors, or suppliers, and they serve as indicators of the Company’s viability. Below is a summary of the ratings published by the agencies as of the date indicated:

[[GREPCENT_TABLE]]
[["","","Moody's","","S&P"],["Corporate/Family Rating","","Baa2","","BBB"],["Outlook","","Stable","","Stable"],["Guaranteed Senior Notes","","Baa2","","BBB"],["Date of Latest Report","","January 2024","","June 2023"]]
[[/GREPCENT_TABLE]]

We also have approximately $26.9 million of lease liabilities at March 31, 2024, that have an average remaining life of approximately 9.6 years.

Cash Used for Share Repurchases and Stock Repurchase Program

See table under Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities” for additional information.

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 the Company’s 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 to comply with the safe harbor provided by Rule 10b5-1.

Capital Expenditures

The following table shows Capital Expenditures in fiscal years 2024 and 2023:

[[GREPCENT_TABLE]]
[["","","For the Fiscal Years Ended March 31,"],["","","2024","","","2023"],["","","(dollars in thousands)"],["Land and Quarries","","$","6,760","","","$","14,325"],["Plants","","","63,744","","","","64,720"],["Buildings, Machinery and Equipment","","","49,801","","","","31,098"],["Total Capital Expenditures","","$","120,305","","","$","110,143"]]
[[/GREPCENT_TABLE]]

Capital expenditures for fiscal 2025 are expected to range from $310.0 million to $340.0 million and to be allocated primarily to the Heavy Materials sector. These estimated capital expenditures will include the expansion and modernization of our Mountain Cement facility in Wyoming, as well as maintenance capital expenditures and improvements, and other safety and regulatory projects.

60

Dividends

Dividends paid in fiscal years 2024, 2023, and 2022 were $35.3 million, $37.5 million, and $30.8 million, respectively.

Contractual and Other Obligations

We have certain Contractual Obligations arising from indebtedness, operating leases, and purchase obligations. Future payments due, aggregated by type of contractual obligation, are set forth as follows:

[[GREPCENT_TABLE]]
[["","","Payments Due by Period"],["","","Total","","","Less than 1 year","","","1-3 years","","","3-5 years","","","More than 5 years"],["","","(dollars in thousands)"],["Revolving Credit Facility (1)","","","170,000","","","$","\u2014","","","$","170,000","","","$","\u2014","","","$","\u2014"],["Term Loan (2)","","","182,500","","","","10,000","","","","172,500","","","","\u2014","","","","\u2014"],["Senior Unsecured Notes","","","750,000","","","","\u2014","","","","\u2014","","","","\u2014","","","","750,000"],["Interest and Commitment Fees on Credit Facility (3)","","","20,531","","","","10,418","","","","10,011","","","","102","","","","\u2014"],["Interest on Term Loan (4)","","","35,454","","","","11,920","","","","21,831","","","","1,703","","","","\u2014"],["Interest on Senior Unsecured Notes","","","135,938","","","","18,750","","","","37,500","","","","37,500","","","","42,188"],["Operating Leases","","","33,487","","","","8,650","","","","8,404","","","","5,427","","","","11,006"],["Purchase Obligations (5)(6)","","","142,019","","","","99,733","","","","36,710","","","","5,576","","","","\u2014"],["Total","","$","1,469,929","","","$","159,471","","","$","456,956","","","$","50,308","","","$","803,194"]]
[[/GREPCENT_TABLE]]

(1) The Revolving Credit Facility expires in May 2027.

(2) The Term Loan facility expires in May 2027.

(3) We estimate the future cash flows for interest and commitment fees by assuming a level repayment of the Revolving Credit Facility over its remaining term. Actual amounts paid, as well as the payment time periods, will likely differ from this estimate.

(4) The future cash flows for interest on the Term Loan were calculated using the same estimated interest rates as the Revolving Credit Facility.

(5) Purchase obligations are noncancelable agreements to purchase coal, natural gas, slag, and synthetic gypsum, and to fund capital expenditure commitments.

(6) The above table does not include any future amounts for the expansion and modernization of our cement plant in Wyoming and related distribution facilities, as we are not currently contractually obligated to make such payments. We expect to spend approximately $430.0 million over the next two years on this project.

Based on our current actuarial estimates, we do not anticipate making contributions to our defined benefit plans for fiscal year 2025.

Inflation and Changing Prices

The Consumer Price Index rose approximately 3.5% in fiscal 2024, 5.0% in fiscal 2023, and 8.5% in fiscal 2022. Prices of all materials and services increased again this year compared with the previous year, with much of the increase related to electricity and transportation. During fiscal 2024, the Consumer Price Index for electricity and transportation increased 5.0% and 10.7%, respectively, while natural gas decreased 3.5%. The increase in electricity and transportation resulted in higher costs for our manufacturing businesses during fiscal 2024, and we expect these increases to continue throughout calendar 2024. We have some protection from increasing natural gas costs in fiscal 2025 as we have forward purchase contracts for approximately 30.0% of our anticipated natural gas usage. Freight costs are expected to rise in fiscal 2025 by approximately 3.0% to 5.0%. Our ability to increase sales prices to cover higher costs in the future varies with the level of activity in the construction industry: the number, size, and strength of competitors, as well as the availability of products to supply a local market.

61

General Outlook

See “Market Conditions and Outlook” within Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Recent Accounting Pronouncements

Refer to Footnote (A) to the Audited Consolidated Financial Statements for information regarding recently issued accounting pronouncements that may affect our financial statements.

Forward-Looking Statements

Certain matters discussed in this report contain forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates, or expectations. These statements are not historical facts or guarantees of future performance but instead represent only the Company’s belief at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside the Company’s control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Company’s actual performance include the following: the cyclical and seasonal nature of the Company’s businesses; public infrastructure expenditures; adverse weather conditions; the fact that our products are commodities and that prices for our products are subject to material fluctuation due to market conditions and other factors beyond our control; availability of raw materials; changes in the costs of energy, including, without limitation, electricity, natural gas, coal and oil, and the nature of our obligations to counterparties under energy supply contracts, such as those related to market conditions (such as fluctuations in spot market prices), governmental orders, and other matters; changes in the cost and availability of transportation; unexpected operational difficulties, including unexpected maintenance costs, equipment downtime, and interruption of production; material nonpayment or nonperformance by any of our key customers; consolidation of customers; inability to timely execute announced capacity expansions; difficulties and delays in the development of new business lines; governmental regulation and changes in governmental and public policy (including, without limitation, climate change and other environmental regulation); possible outcomes of pending or future litigation or arbitration proceedings; insurance coverage; changes in economic conditions specific to any one or more of the Company’s markets; adverse impact of severe weather conditions (such as winter storms, tornadoes, and hurricanes) and their effects on our facilities, operations, and contractual arrangements with third parties; competition; alternative products and new product technologies; cyber-attacks or data security breaches; announced increases in capacity in the gypsum wallboard and cement industries; changes in the demand for residential housing construction or commercial construction or construction projects undertaken by state or local governments; the availability of acquisitions or other growth opportunities that meet our financial return standards and fit our strategic focus; risks related to pursuit of acquisitions, joint ventures, and other transactions or the execution or implementation of such transactions, including the integration of operations acquired by the Company; general economic conditions; and interest rates. For example, increases in interest rates, decreases in demand for construction materials, or increases in the cost of energy (including, without limitation, electricity, natural gas, coal and oil) and the cost of our raw materials could affect the revenue and operating earnings of our operations. In addition, changes in national or regional economic conditions and levels of infrastructure and construction spending could also adversely affect the Company’s result of operations. Finally, any forward-looking statements made by the Company are subject to the risks and

62

impacts associated with natural disasters, the outbreak, escalation, or resurgence of public health emergencies, pandemics, or other unforeseen events, and governmental measures in reaction thereto, as well as their impact on our operations or on economic conditions, capital and financial markets. All forward-looking statements made herein are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed herein will increase with the passage of time. The Company undertakes no duty to update any forward-looking statement to reflect future events or changes in the Company’s expectations.