Eagle Materials Inc (EXP) 銘柄情報

Wow no one is investing here!!! This is a good one.

Nice huge dip here

News: $EXP Eagle Materials Announces Strategic Portfolio Review

Announces Preliminary Fourth Quarter Financial Results Board Authorizes Repurchase of an Additional 10 Million Shares Mike Nicolais to Assume Role of Board Chairman; Current Chairman Rick Stewart to Remain as Director Eagle Materials Inc. (NYSE: EXP) (“Eagle...

Got this from https://marketwirenews.com/news-releases/eagle-materials-announces-strategic-portfolio-review-8023254.html

Eagle Materials Updates on Q3 Earnings Release
http://marketexclusive.com/eagle-materials-updates-on-q3-earnings-release/1312/

$EXP recent news/filings

bearish optionable 59.69

## source: finance.yahoo.com

Thu, 17 Dec 2015 17:45:00 GMT ~ 4 Bargain Stocks That Are Misunderstood By The Market


read full: http://www.forbes.com/sites/wallaceforbes/2015/12/17/4-bargain-stocks-that-are-misunderstood-by-the-market/?utm_campaign=yahootix&partner=yahootix
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Tue, 08 Dec 2015 18:16:38 GMT ~ EAGLE MATERIALS INC Financials


read full: http://finance.yahoo.com/q/is?s=exp
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Tue, 01 Dec 2015 17:02:43 GMT ~ Eagle Materials, Inc. – Value Analysis (NYSE:EXP) : December 1, 2015


read full: http://www.capitalcube.com/blog/index.php/eagle-materials-inc-value-analysis-nyseexp-december-1-2015/
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Fri, 27 Nov 2015 14:39:46 GMT ~ Eagle Materials, Inc. breached its 50 day moving average in a Bearish Manner : November 27, 2015


read full: http://www.capitalcube.com/blog/index.php/eagle-materials-inc-breached-its-50-day-moving-average-in-a-bearish-manner-november-27-2015/
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Fri, 27 Nov 2015 11:35:06 GMT ~ Should You Buy Eagle Materials, Inc. (EXP)?


read full: http://www.insidermonkey.com/blog/should-you-buy-eagle-materials-inc-exp-390318/
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$EXP charts

basic chart ## source: stockcharts.com



basic chart ## source: stockscores.com



big daily chart ## source: stockcharts.com



big weekly chart ## source: stockcharts.com



$EXP company information

## source: otcmarkets.com

Link: http://www.otcmarkets.com/stock/EXP/company-info
Ticker: $EXP
OTC Market Place: Not Available
CIK code: 0000918646
Company name: Eagle Materials, Inc.
Incorporated In: DE, USA

$EXP share structure

## source: otcmarkets.com

Market Value: $3,063,355,569 a/o Dec 16, 2015
Shares Outstanding: 50,046,652 a/o Oct 27, 2015
Float: Not Available
Authorized Shares: Not Available
Par Value: 0.001

$EXP extra dd links

Company name: Eagle Materials, Inc.
## STOCK DETAILS ##
After Hours Quote (nasdaq.com): http://www.nasdaq.com/symbol/EXP/after-hours
Option Chain (nasdaq.com): http://www.nasdaq.com/symbol/EXP/option-chain
Historical Prices (yahoo.com): http://finance.yahoo.com/q/hp?s=EXP+Historical+Prices
Company Profile (yahoo.com): http://finance.yahoo.com/q/pr?s=EXP+Profile
Industry (yahoo.com): http://finance.yahoo.com/q/in?s=EXP+Industry

## COMPANY NEWS ##
Market Stream (nasdaq.com): http://www.nasdaq.com/symbol/EXP/stream
Latest news (otcmarkets.com): http://www.otcmarkets.com/stock/EXP/news - http://finance.yahoo.com/q/h?s=EXP+Headlines

## STOCK ANALYSIS ##
Analyst Research (nasdaq.com): http://www.nasdaq.com/symbol/EXP/analyst-research
Guru Analysis (nasdaq.com): http://www.nasdaq.com/symbol/EXP/guru-analysis
Stock Report (nasdaq.com): http://www.nasdaq.com/symbol/EXP/stock-report
Competitors (nasdaq.com): http://www.nasdaq.com/symbol/EXP/competitors
Stock Consultant (nasdaq.com): http://www.nasdaq.com/symbol/EXP/stock-consultant
Stock Comparison (nasdaq.com): http://www.nasdaq.com/symbol/EXP/stock-comparison
Investopedia (investopedia.com): http://www.investopedia.com/markets/stocks/EXP/?wa=0
Research Reports (otcmarkets.com): http://www.otcmarkets.com/stock/EXP/research
Basic Tech. Analysis (yahoo.com): http://finance.yahoo.com/q/ta?s=EXP+Basic+Tech.+Analysis
Barchart (barchart.com): http://www.barchart.com/quotes/stocks/EXP
DTCC (dtcc.com): http://search2.dtcc.com/?q=Eagle+Materials%2C+Inc.&x=10&y=8&sp_p=all&sp_f=ISO-8859-1
Spoke company information (spoke.com): http://www.spoke.com/search?utf8=%E2%9C%93&q=Eagle+Materials%2C+Inc.
Corporation WIKI (corporationwiki.com): http://www.corporationwiki.com/search/results?term=Eagle+Materials%2C+Inc.&x=0&y=0

## FUNDAMENTALS ##
Call Transcripts (nasdaq.com): http://www.nasdaq.com/symbol/EXP/call-transcripts
Annual Report (companyspotlight.com): http://www.companyspotlight.com/library/companies/keyword/EXP
Income Statement (nasdaq.com): http://www.nasdaq.com/symbol/EXP/financials?query=income-statement
Revenue/EPS (nasdaq.com): http://www.nasdaq.com/symbol/EXP/revenue-eps
SEC Filings (nasdaq.com): http://www.nasdaq.com/symbol/EXP/sec-filings
Edgar filings (sec.gov): http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000918646&owner=exclude&count=40
Latest filings (otcmarkets.com): http://www.otcmarkets.com/stock/EXP/filings
Latest financials (otcmarkets.com): http://www.otcmarkets.com/stock/EXP/financials
Short Interest (nasdaq.com): http://www.nasdaq.com/symbol/EXP/short-interest
Dividend History (nasdaq.com): http://www.nasdaq.com/symbol/EXP/dividend-history
RegSho (regsho.com): http://www.regsho.com/tools/symbol_stats.php?sym=EXP&search=search
OTC Short Report (otcshortreport.com): http://otcshortreport.com/index.php?index=EXP
Short Sales (otcmarkets.com): http://www.otcmarkets.com/stock/EXP/short-sales
Key Statistics (yahoo.com): http://finance.yahoo.com/q/ks?s=EXP+Key+Statistics
Insider Roster (yahoo.com): http://finance.yahoo.com/q/ir?s=EXP+Insider+Roster
Income Statement (yahoo.com): http://finance.yahoo.com/q/is?s=EXP
Balance Sheet (yahoo.com): http://finance.yahoo.com/q/bs?s=EXP
Cash Flow (yahoo.com): http://finance.yahoo.com/q/cf?s=EXP+Cash+Flow&annual

## HOLDINGS ##
Major holdings (cnbc.com): http://data.cnbc.com/quotes/EXP/tab/8.1
Insider transactions (yahoo.com): http://finance.yahoo.com/q/it?s=EXP+Insider+Transactions
Insider transactions (secform4.com): http://www.secform4.com/insider-trading/EXP.htm
Insider transactions (insidercrow.com): http://www.insidercow.com/history/company.jsp?company=EXP
Ownership Summary (nasdaq.com): http://www.nasdaq.com/symbol/EXP/ownership-summary
Institutional Holdings (nasdaq.com): http://www.nasdaq.com/symbol/EXP/institutional-holdings
Insiders (SEC Form 4) (nasdaq.com): http://www.nasdaq.com/symbol/EXP/insider-trades
Insider Disclosure (otcmarkets.com): http://www.otcmarkets.com/stock/EXP/insider-transactions

## SOCIAL MEDIA AND OTHER VARIOUS SOURCES ##
PST (pennystocktweets.com): http://www.pennystocktweets.com/stocks/profile/EXP
Market Watch (marketwatch.com): http://www.marketwatch.com/investing/stock/EXP
Bloomberg (bloomberg.com): http://www.bloomberg.com/quote/EXP:US
Morningstar (morningstar.com): http://quotes.morningstar.com/stock/s?t=EXP
Bussinessweek (businessweek.com): http://investing.businessweek.com/research/stocks/snapshot/snapshot_article.asp?ticker=EXP



$EXP DD Notes ~ http://www.ddnotesmaker.com/EXP

Sold my EXP calls awhile back, was nervous about market tanking...shoulda kept those options...

BOT 5 Call of EXP May 18 '13 $72.50 @ 1.20, underlying price $65.88...

EXP chart

http://stockcharts.com/h-sc/ui?s=EXP&p=D&b=5&g=0&id=p88672939830

looks like time to buy EXP was @ opening this morning!!!

looks like time to buy EXP was @ opening this morning!!!

BOT 8 Call of EXP May 18 '13 $72.50 @ .65, underlying price $62.80...

BOT 2 Call of EXP May 18 '13 $67.50 @ 2.90, underlying price $65.37...

~ $EXP ~ Earnings posted, pending or coming soon! In Charts and Links Below!

~ $EXP ~ Earnings expected on Thursday *
This Week In Earnings: Earnings are coming or are already posted! This is what the charts look like! If you play the earnings these posts can be very helpful to you!
Want more like this? Search Keyword: MACMONEY >>> http://tinyurl.com/MACMONEY <<<
One or more of many earnings sites has alerted this security has or will be posting earnings on or around the day of this message.








http://stockcharts.com/h-sc/ui?s=EXP&p=D&b=3&g=0&id=p88783918276&a=237480049




http://stockcharts.com/h-sc/ui?s=EXP&p=W&b=3&g=0&id=p54550695994



~ Barchart: http://barchart.com/quotes/stocks/EXP?
~ OTC Markets: http://www.otcmarkets.com/stock/EXP/company-info
~ Google Finance: http://www.google.com/finance?q=EXP
~ Google Fin Options: hhttp://www.google.com/finance/option_chain?q=EXP#
~ Yahoo! Finance ~ Stats: http://finance.yahoo.com/q/ks?s=EXP+Key+Statistics
~ Yahoo! Finance ~ Profile: http://finance.yahoo.com/q/pr?s=EXP
Finviz: http://finviz.com/quote.ashx?t=EXP
~ BusyStock: http://busystock.com/i.php?s=EXP&v=2
~ CandlestickChart: http://www.candlestickchart.com/cgi/chart.cgi?symbol=EXP&exchange=US
~ Investorshub Trades: http://ih.advfn.com/p.php?pid=trades&symbol=EXP
~ Investorshub Board Search: http://investorshub.advfn.com/boards/getboards.aspx?searchstr=EXP
~ Investorshub PostStream Search: http://investorshub.advfn.com/boards/poststream.aspx?ticker=EXP
~ Investorshub Goodies Search: http://investorshub.advfn.com/boards/msgsearchbyboard.aspx?boardID=18582&srchyr=2011&SearchStr=EXP
~ Investorshub Message Search: http://investorshub.advfn.com/boards/msgsearch.aspx?SearchStr=EXP
~ MarketWatch: http://www.marketwatch.com/investing/stock/EXP/profile
~ E-Zone Chart: http://www.windchart.com/ezone/signals/?symbol=EXP
~ 5-Min Wind: http://www.windchart.com/stockta/analysis?symbol=EXP
~ 10-Min Wind: http://www.windchart.com/stockta/analysis?symbol=EXP&size=l&frequency=10&color=g
~ 30-Min Wind: http://www.windchart.com/stockta/analysis?symbol=EXP&size=l&frequency=30&color=g
~ 60-Min Wind: http://www.windchart.com/stockta/analysis?symbol=EXP&size=l&frequency=60&color=g


http://investorshub.advfn.com/boards/post_prvt.aspx?user=251916

*If the earnings date is in error please ignore error. I do my best.

Reason for abandonment of cement plant expansion plans....

As I mentioned in #msg-49959903, I was surprised last year when EXP decided to derail their Mountain (and subsequently Nevada) cement expansion plans despite the fact that they had received permits to do so. In Wednesday’s Q&A at the BB&T Conference, Steven Rawley explained why the decision was made....So we permitted the plant and it had the ability to go ahead and that happened about three years ago, and you have a time constraint as to when you can start construction once you have the permit to construct. We asked for an extension, got an extension, which gave us another year. That was about to run out in March and the market just isn’t ready. It’s – Northern Nevada market is weak, Northern California market is very weak, and this is a large investment and we just thought the timing wasn’t right to put this kind of money into a new cement plant.

And in addition to that, while we might have been able to start a – the construction at a very slow pace, we also had kind of a ruling from the EPA as to whether we had to follow under an existing plant regulation or new plant regulation as far as this rule that was promulgated last August, which is for hazardous air pollution, it’s called the NESHAP Rule. The levels to apply for a new plant are much lower than those for an existing plant. And we were a little bit concerned about new capital investment to make sure we met those more stringent standards.

And in fact, as we reviewed the new standards to build a new plant, really became convinced that there probably is never going to be another cement plant built in the United States after that rule was promulgated. So we just said it’s just not worth the risk.

No relief in the foreseeable future (i.e. for the next 6 months). That is the take home message from the 2011 Q2 EXP CC (Oct 28, 2010)...

Reducing costs is EXP’s primary focus at this time. But unit costs are inexorably rising due to fixed costs in the face of decreasing volume.... Nevertheless, EXP’s financial position continues to improve due to positive cash flow and judicious capital spending.

There might be an upcoming problem with receivables, for the industry in general if not for EXP in particular...

Selected quotes:Demand for building materials and construction products remains at historic low levels. In fact, it has continued to deteriorate, albeit at a much slower rate...

Based on the current pace of wallboard shipments, we do not expect sales opportunities to increase significantly in the remainder of fiscal 2011...

We do anticipate strong, continuing paper revenues, because our paper mill remains sold out for the year....

Cement is not near as volatile. While we don’t go down as rapidly ..., we also don’t go up as rapidly. But the deterioration continues...

So I am not sure where we are going, but we clearly know that structurally there is an issue with Wallboard capacity in the U.S. We understand that. We know that there is a problem, and that problem is irrespective of anyone’s view on a housing recovery. Even the most robust view of a housing recovery right now still leaves us with a lot of excess wallboard capacity, and primarily East of the Mississippi. So with that said, that means there is going to be a highly competitive marketplace for many years to come, both in the Wallboard business as well as the Wallboard distribution business. We can’t control the market, but we can control costs, and we are going to continue to drive costs down. So regardless of what happens, we know we are the most competitive player in the industry.

...as you go downstream. There are more and more people requiring maybe a little bit of help as far as receivable. And that’s something in this environment we really send the bird dogs out and watch it very closely. We try to be – we try to understand the marketplace and our customers and understand what’s available. But it doesn’t take too much if you’re not watching it to get in big trouble in receivables in this kind of environment. So that’s something we’re very cognizant of and we watch very closely.

Near Term Growth: nothing to get excited about ... that is my take home message from Rowley’s presentation at the Morgan Keegan Conf on 9/14/2010.

The primary drivers behind growth at EXP are governmental and non-residential construction for cement (e.g. highways, wind farms, oil wells). Whereas for wallboard, the primary, but not exclusive driver is residential home building. Overall, growth is expected to be driven by increases in public construction in 2010, and then helped by a residential recovery in 2011 and 2012.

Rowley believes that EXP’s cement plants will not be fully utilized until 2012. One of the factors putting the brakes on cement recoveries are state budgets. State fiscal conditions are expected to worsen. Only the most critical State supported infrastructure projects are currently proceeding forward. Commercial non-residential demand is also expected to be a drag on cement utilization in 2010 and 2011, with a recovery in this sector not coming until the 2012 to 2014 time frame. On the other hand, oil-well cement demand should be sustained and is highly profitable for Eagle.

Wallboard utilization at EXP will depend upon the housing recovery in the West and South Mid-Atlantic regions. Rowley believes that the Western U.S., where EXP has its greatest wallboard capacity, can eventually regain health through a moderate housing market recovery alone (i.e. without the need for major capacity reductions).

With respect to near term earnings projections, Rowley made the following statement (which I interpret as a downward bias): So, while you had that housing tax credit, there was a little surge in demand for wallboard, a little surge in home sales, and we were able to get some price increases from very low levels to where the industry was really well below cash costs. And we were still making a little money, but we were not making a lot. With those two price increases, we got very profitable again. However, once the tax credit went away, and demand slipped in wallboard, a part of those increases have been given back.

IRS Dispute Update....

<In the 8/6/2010 10-Q, EXP gave an update on the status of the IRS Dispute... This dispute represents a substantial sum of money (approximately $3/share when state tax consequences are also considered; i.e. 10% of the current stock price). It was first reported in the Q3 2007 10-Q of 2/6/2007 when the IRS challenged depreciation deductions EXP claimed with respect to acquisition of Republic in November 2000.>In June 2010, we received a Notice of Deficiency (“Notice”) (commonly referred to as a “90 Day Letter”) of $71.5 million of taxes and penalties for the fiscal years ended March 31, 2001 through 2006, inclusive, related to the IRS audit of the Republic Asset Acquisition. The Notice was in substantial agreement with our financial accruals including interest. The total amount related to the Notice, including interest, was approximately $98.7 million, of which $75 million had previously been deposited with the IRS. We deposited the remaining $23.7 million with the IRS in July 2010 and asked the IRS to apply all $98.7 million of deposits to the payment of the tax, penalties and interest. We intend to file refund claims with the IRS to recover all $98.7 million and, in the event those refund claims are denied, we intend to file a lawsuit in Federal District Court to recover the requested refunds.

In the event we reach a settlement with the IRS through negotiation or in the courts, we will reverse any accrued interest and penalties in excess of the negotiated settlement through the Consolidated Statement of Earnings. In the event we are unable to negotiate a settlement, we believe we have a substantial basis for our tax position, and intend to vigorously contest the proposed adjustment in court. At this time, we are unable to predict with certainty the ultimate outcome or how much of the amounts paid for tax, interest, and penalties to the IRS and state taxing authorities will be recovered, if any.

Near term expectation: Lower revenue but higher margins.... That’s my take home message for the upcoming quarter based upon the 2011 Q1 CC (of July 22)

The central question for the industry is: will there be a sustained wallboard price increase so that industry cash costs can be covered or will there be a price war in an effort to utilize excess capacity and reduce costs?

EXP apparently prefers avoiding a price war; i.e. (from the 7/22/10 CC):<Rowley in prepared remarks> Because of our low variable cost position and our low fixed cost in relation to total operating cost, pricing is more of a priority for us than volume in this business environment.

In the Q&A:

<Q – John Baugh>: Hello, good afternoon. Could you talk a little bit about maybe market share of wallboard within the territories that you participate or what do you think you gain share or held share, because it would seem that your overall numbers were higher than the industry?
<A – Steven Rowley>: Yeah. I’m not – if you look at, if you look at the market at least for us, yeah, we may have slightly gained a little bit of share and we’re a little over 10% for the quarter. I still think that we have the ability and our plants are really set up that our market share should be a couple percentage higher than that, that that would fit within our structure of our system to be able to service customers within a reasonable radius around the, around our plants, and – but in this environment we think it’s best to be a little cautious as we go to the marketplace.Other relevant comments during the CC: <Rowley in prepared remarks> Wallboard sales opportunities are not expected to increase significantly in calendar 2010.

<Q – Trey Grooms>: Okay. And then Steve, what’s your perspective on the August increase at this point?
<A – Steven Rowley>: Even with these most recent price increases that we have, many of our wallboard competitors still have negative cash flow. All eight wallboard manufacturers are out with price increase letter and I cannot think of a better reason or better incentive for further price increases than negative cash flow.

<Q – Kathryn Thompson>: Hi, thanks. And just following up on the Wallboard price increase question, you had 14% sequential pricing, which implied there’s additional pricing coming to flow through Q2. Could you clarify or make sure that we’re understanding that there’s additional price increasing going through? And also, could you clarify how receptive your customers by segment have been on the price increase and the timing for those price increases by segment or type of customer?
<A – Steven Rowley>: Okay, so, you know, obviously price increases in this environment are difficult. However, at the same time, selling a product below your cash costs to produce is just as difficult, if not more difficult. So you have some, some customers who just don’t want to hear price increase. You have other customers that realize this is not tenable, if you continue to sell below cost, you’re going to run out of business and when things turn, they’ll be in a world of hurt. So you could get mixed feelings when you go through that process, but in reality, over the long haul, you have to be able to at least cover your costs when you go to market. So that’s the – that’s the real impetus for further price increases.

<Q – Todd Vencil>: .. should we think about the September quarter in volumes and cement and wallboard being kind of similar to the June quarter, or is it sort of tailing off? Or is it growing?
<A – Steven Rowley>: Typically, this is our strongest quarter. It is typically the strongest quarter in the construction cycle, with winter being equally as important. So you would anticipate this to be a little stronger quarter.

“Bouncing along a kind of a soft bottom”...

At the June 17 Longbow Conference, both EXP and USG projected a gradual, but relatively sustained recovery that won’t accelerate before 2012.

EXP argued that substantial profitability will not occur until industry-wide wallboard capacity is reduced; USG argued that demand, not capacity reduction, will drive profitability. Regardless, both note that there is no appetite for capacity reduction in the industry.

In the absence of meaningful capacity reductions, Rowley believes that wallboard prices will be increased to the point that industry cash costs are realized but there will not be a meaningful return on investment industry-wide in the near future.

Other items of note:

From EXP presentation:

Rowley believes that EXP is positioned in some of the earliest housing recovery markets in the U.S. In particular, he believes that wallboard margins in the Western U.S. can eventually regain health through a moderate housing market recovery alone. In the East, it will be significantly more challenging.

Pozzolan permitting is finished (see #msg-42854938); EXP is putting the infrastructure in place to start mining the deposit. In addition to their own requirements, EXP expects to be selling pozzolan, a natural high-performing and low-cost extender of cement and concrete applications.

EXP is open to the idea of making new investments.

From USG presentation:

Every 100,000 housing start, up or down, equates to approximately 840 million feet of industry demand.

Regarding idled capacity: If you look at history, the last three recessions that we’ve had in the industry, very few, if any, idled capacity comes back. And the reason it’s idled is because it’s old, it’s inefficient and the longer it sits, the more expensive it is to bring back. I mean, you’re talking seven to eight figures to bring idle capacity back and you really have to have confidence that the demand is sustainable, that the pricing’s going to stay at a level that you can make money, because a lot of this idle capacity probably had costs 140 or $150 a 1,000. So our thesis is we don’t expect a lot of it to come back and the reason you’ll see manufacturers that call it idled, they just have resisted to take the full write-off. There’s sometimes cleanup and things that they said ‘you know, we’ll do at a later date.

Getting a cement permit is not easy....

Thus, I was surprised when it was announced in the Q4 CC on April 26, 2010, that EXP pulled its Mountain Cement expansion permit last September .... The stated rationale was that ...the operational improvements that Mountain Cement achieved produced the majority of the cost savings associated with our plant modernization project. Therefore, we’ve effectively eliminated the need for the large capital project. The current plant is now well positioned for improved profitability when the market returns. However, the modernization included cost savings that cannot be gained from operational improvements; notably, reducing electricity and heat consumption by nearly a third. With the cancellation of the expansion plan, I’m wondering if the long-term market projection has changed, if new plants by competitors have filled the gap, or if EXP is committing to their historical model of using low margin imported cement to fill the gap when demand is high so that during a cycle nadir the high margin local production is not idled. All of these possibilities suggest that growth for Mountain Cement is capped for the foreseeable future.

The original announcement of plans to modernize the Mountain Cement plant and increase production to 1.1M tons was made on January 25, 2006. In the 2006 Q3 CC the anticipated capital expenditure of approximately $120M was justified by “strong market conditions in the Mountain region including increased oil and gas exploration”....

As explained in the January 26, 2006 8K, the modernization was designed to 1) expand capacity by 60% to 1.1M tons, 2) reduce heat consumption by approximately 40% to 2.6 mmbtu per ton, 3) reduce electricity consumption by approximately 35% to 105 kwh per ton, 4) reduce manpower and SG&A costs by approximately 40%, and 5) reduce maintenance unit costs by approximately 40%. Presumably, most of these outcomes would have resulted from replacing the current 2 stage preheater and long dry kiln with a 5 stage pre-heater, pre-calciner, and single kiln.

The construction permit had been submitted before March 21, 2007 (per the 8K of that date). The engineering was finished by July 31, 2007 (per the Q1 2008 CC), and the state (Wy) had deemed the application complete by January 1, 2008 (per the Q3 2008 CC).

The first foreshadow of a change of heart regarding the Mountain Cement expansion that I can document was in the May 27 2009 10K, i.e. Cement production is capital-intensive and involves high initial fixed costs. We previously announced plans to modernize and expand our Nevada Cement and Mountain Cement facilities, which are our oldest and least efficient plants. Due to the current conditions in the Mountain and Nevada markets, we do not expect to begin significant construction activity on these plants during 2009. Once significant construction is begun, we expect it will take between 18 and 24 months to complete.

Wallboard pricing....

In his prepared remarks, Steven Rowley noted that “the U.S. wallboard industry capacity utilization remained about the same this past quarter, at around 50% and the downward trend in pricing continued during January and February. However, in March, American Gypsum was successful in implementing a wallboard price increase and they have announced plans for another price increase in May.”

That wallboard prices might rise in the face of inadequate capacity closure is remarkable; it is surprising to find that many think it might be sustainable.... To quote Steven Rowley from the Apr 26 Q4 CC:It’s somewhat amazing in very difficult periods that you would see price increase when sales opportunities are still fairly, fairly low relative to 50% capacity utilization. But what happens over periods, a long period of declining demand, you naturally go through a lot of competitive territorial tactics that tend to result in core business decisions or after a prolonged period of these financial distress, business decisions tend to change. And American Gypsum did land a majority of this announced March 15 price increase, and they plan on doing the same thing for May price increase.
....
Wallboard pricing is up dramatically. And we are anticipating further improvement in wallboard pricing next month. ... Price improvements simply remain more important than increased sales volume. It simply makes no sense to continue to sell products at today’s low prices and continue to take the credit risk.

<Q – Joshua Borstein>: Can you discuss a little why you think the market price increase was so successful? And are there any different dynamics at play right now that didn’t exist previously?
<A – Steven Rowley>: I think one dynamic is that not only did the manufacturers announce a price increase, so did the gypsum specialty dealers, the distribution companies. They also at the same time announced a price increase, whereas in the past, we had not had the downstream distributors fully supporting a wallboard price increase. It was very difficult to realize one. But the combination of both manufacturers and the distribution companies announcing price increases. That really was what the difference was this time.”

<Q – Trey Grooms>: Could you go into a little detail about where you expect that improvement to come from? Is that mostly from residential or kind of – if you could just give us some thoughts on your expectations for the end markets there that’s behind this?
<A – Steven Rowley>: That would be mostly repair and remodel improvement and residential improvement.
<Q – Trey Grooms>: Okay. And so would that be – and you’re expecting commercial, I guess, a continued drag there?
<A – Steven Rowley>: It will be a drag and a drag for some time, because it takes a while for wallboard to go into a commercial building. Until we start building them, we’ve got about a 12 to 18-month lag before we see wallboards go into a project.Investors can get a real-time sense of wallboard pricing changes in the news releases cataloged by Marjam Supply Co; see: http://www.marjam.com/news

Who will mothball wallboard capacity next?

It seems likely to me that the major capacity cuts will need to be made by USG. Primarily, because USG is the largest domestic supplier, no other company can have a meaningful difference without totally abandoning the business. And, USG, by far, has the worst EBITA margin in the industry. Thus, I think it will be forced to blink first in a stand-off.

Steve Rowley addressed this question tangentially in the Feb 23 Wells Fargo Presentation...

“The picture is simple to depict. [Wallboard] demand is half what it was at the peak, while capacity remains about the same.”<Q>: Why do you think the industry has been reluctant to cut capacity, if there is such an over supply? It’s been going on for several years now.
<A – Steven Rowley>: I think the assumption is they believe that home building is going to recover back to levels that we saw two or three years ago. I’m struggling with those assumptions. I think, it should be some time before we build two million homes in the U.S. again.“...where housing goes, so goes wallboard. If you can forecast housing correctly, you can forecast wallboard consumption.” Current supply west of the Mississippi is 15.5 bsf and demand is 8.7 bsf; east of the Mississippi supply is 21.3 bsf and demand is 9.3 bsf.

Rowley argues that wallboard manufacturers will probably capacity rather than make permanent cuts. The primary reason is that “Tremendous diseconomies are created in continuous process industries like gypsum wallboard, when production lines frequently start and stop during protracted periods of weak demand.”

He also suggests that the capacity cuts will occur on the East Coast. The reasons being that wallboard demand follows housing starts. Overall, the greatest shortfall in projected housing start recovery is on the east coast.

“rocking along a very low bottom” - Notes from the Q3 CC....

EXP is “Rocking along the bottom of this recession”. At least it is not losing money as it waits out the cycle. And it has meaningful cashflow.

However, there is no reason for near term optimism. Importantly capacity utilization is low in both the wallboard and cement industries. The slack in capacity utilization will need to be absorbed before significant increases in profit margin are to be seen. This could take years....

Fortunately, costs have been low by recent historical standards. Costs, however, are destined to go up. The most immediate increase will be seen in paper, which is used in backing for wallboard.

The CC quotes relevant to the imminent paper cost increase include the following: .... Now there are a few headwinds, paper prices are going up, we try to inventory ahead so the cost of OCC doesn’t impact us as severely in the front end, but OCC is going up significantly right now. And we know that’s something that we will realize a couple of months down the road....

....OCC (i.e. old corrugated container paper) prices, well for the first year went up about $30. They’re anticipated to go up another $20 next month and $10 the following month. That’s the general lay of the land for OCC. As I mentioned before, we try to build inventory ahead of that which helps somewhat. We do have the ability to pass some of those costs through, both to our gypsum company as well as – we implemented a $40 price increase in the containerboard marketplace and we’re sticking to it.....

<Q – Glenn Wortman>: Okay. And then just secondly on the paperboard margins, where do you see that trending over the next couple quarters?
<A – Steven Rowley>: We see those to be – even though the paper costs are going up, we see and in fact we’ve been able to go out and find some good gypsum demand, it’s obviously down. We have found some other markets to play in that have pretty decent margins. So we really see that being pretty flat going forward even with OCC going up as we’re able to sell into markets other than the gypsum linerboard market.

EXP’s Oct 22 CC highlights....

Eagle remains profitable at a time when its main competitor, USG, is bleeding cash profusely. The main difference is that EXP has been successful at offsetting wallboard volume and price declines by cost-cutting at the operational level and reduced financing costs. USG has been striving to reduce operational costs, but its financing costs are largely outside its control.

EXP’s wallboard profits were favorably impacted by lower energy, freight and recycled paper (old corrugated container) costs. EXP has 65% of its natural gas requirements hedged at about $4.75 for the current quarter and about 20% hedged at $4.85 for the remainder of the year. This is in marked contrast to USG which has natural gas currently hedged at $9.20 for 85% of its current needs falling to 23% of its needs in January. At the end of August, spot gas prices were about $2.85 a decatherm. Now, two months later, spot prices are about $5.16.

EXP’s cement profits were favorably impacted by reduced outside maintenance spending, use of less expensive fuels, and reduced reliance upon high-priced purchased product.

EXP believes that the decline in single-family construction appears to have leveled off, but the continued decline in non-residential construction has continued to put downward pressure on wallboard demand. Cement demand is expected to increase next year once the impact from stimulus-related infrastructure projects start in earnest. Margins, however, are expected to remain tight due to the aggressive bidding necessary to obtain stimulus fund related contracts.

Mustache Pozzolan Quarry ....

One of the exchanges in the question and answer session of the 2010 Q2 EXP CC of Oct 22 was: <Q – Andrew Fineman>: Okay. I came in a couple of minutes late, but can you update us on your permitting for your permitting for pozzolan mine and can you say at all what that might contribute to your earnings next year?

<A – Craig Kesler>: We continue to – we have applied for our permits and we’ve received our air permit. And we have applied, this is on some BLM property for a permit to mine from the BLM. And believe that that is somewhere within the next six months that, when we went through the application we didn’t find anything unexpected and think it should just be a routine manner to get that permitted. And this is a big opportunity for Eagle to supply a pozzolanic fly ash type material for both Northern Nevada and Northern California is something that is a replacement material. That say is not a product of any type of combustion, so it is a very green product and should have very good margins for Eagle Materials.I presume that the pozzolan mine in question is that located on 25 acres of Bureau of Land Management property near Fernley Nevada (i.e. near EXP’s Nevada Cement operation). The proposed open surface mining area abuts a section of the Fernley city Master Plan zoned high density residential (currently undeveloped). This has raised concerns about dust produced during transport of the shale and impacts upon local traffic patterns.

The Fernley city council approved a 25 yr permit allowing EXP operation of this mine on March 25, 2009 (see: http://www.aggregateresearch.com/article.aspx?ID=15883 ). The new pozzolan mine would provide a source of silica additive for limestone to be obtained from the Churchill and Relief Canyon qarries once the Fernley quarry is depleted. It would reduce the costs required for importation of fly ash and could be sold as a cement additive in and of itself. During the debate related to this action, Nevada Cement President Joe Sells stated that Nevada Cement’s current source of limestone, which is located in the Fernley hills, will run out in 7-10 years.

Sells emphasized that "This is not a pozzolan, it's a shale", presumably to mitigate fears about silicosis caused by pozzolan dust. Per http://en.wikipedia.org/wiki/Pozzolan , A pozzolan is a material which, when combined with calcium hydroxide, exhibits cementitious properties.... At the basis of the Pozzolanic reaction stands a simple acid-base reaction between calcium hydroxide, also known as Portlandite, or (Ca(OH)2), and silicic acid (H4SiO4, or Si(OH)4). ... The product of general formula (CaH2SiO4 • 2 H2O ) formed is a calcium silicate hydrate, also abbreviated as CSH in cement chemist notation. =========
Additional Sources:

http://pozzolanmine.weebly.com/

http://fernleynews.ning.com/group/fernleymine

http://m.rgj.com/news.jsp?key=181429

EXP has filled the CFO position....

The SEC Form 8-K filed by EXP on August 20, 2009 reported that D. Craig Kesler was named CFO. I hope that Craig holds this position longer than Mark Dendle who was CFO for only 1 yr.

I must rely upon the Executive Committee’s judgement in this choice; however, in my opinion, Craig does not have much experience coming into such an important management position. He is 33 yrs old. During the past 3 yrs he has been EXP’s VP for Investor Relations and Corporate Development. Prior to joining EXP he served as public accountant with Arthur Andersen and Ernst & Young for 6 yrs.

I had expected Bill Devlin to be CFO should the Executive Committee choose an in-house candidate. This expectation was based upon Bill’s signing the recent Q10, a signature that normally would be that of the company’s CFO (see #msg-39897220).

Personally, I prefer in-house promotions for high level appointments such as this; I am content with Craig’s choice. In my experience, external candidates are usually over-rated; the external candidate either has a rather long learning curve before becoming effective or is very disruptive as he/she forces his/her culture upon the system.

I note that the PR associated with Craig’s appointment reiterated EXP’s commitment towards extending its low cost producer position. This leads me to believe that compensation costs were a factor in Craig’s promotion (an external candidate of merit would likely have required a larger compensation package). Indeed, the compensation package offered to Craig is less than that offered to Mark Dendle one year ago.

Craig Kesler starts with an annual base salary of $250,000 and a 15% incentive bonus. He received 10,000 restricted EXP shares effective Aug 21, 2009, with the restrictions lapsing ratably over 5 years.

Mark Dendle started with a base salary of $400,000 and also was to participate in the company’s incentive bonus plan. He received 15,000 restricted EXP shares which were to lapse ratably over 7 yrs. In addition, he received 100,000 stock option shares with an option term of 6 years.

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Aug 25 2009 8-K Announcing Kesler’s appointment as CFO: http://www.sec.gov/Archives/edgar/data/918646/000119312509180737/d8k.htm

Aug 24, 2009 PR issued regarding CFO appointment: http://ir.eaglematerials.com/ReleaseDetail.cfm?ReleaseID=404589

July 24 2009 Q-10 where Mr. Devlin exercised CFO signature functions http://www.sec.gov/Archives/edgar/data/918646/000119312509155019/d10q.htm

Jun 5, 2008 8-K describing Mark Dendle’s compensation package: http://www.sec.gov/Archives/edgar/data/918646/000095013408010818/d57385e8vk.htm

2010 Q1 EXP CC ...

1: Regarding CFO vacancy: One of the most remarkable features of the recent EXP conference call was the total absence of any reference to the company’s lack of a CFO. ... Two months ago (in June), Mark Dendle resigned from his position as EXP CFO to become CFO at ECOM Trading. He had served EXP for less than a year when he made this decision to leave. (ECOM Trading is a privately held company in the International Trade and Development Industry located in Dallas.)

Based on the signature sheets of the 2010 Q1 Q-10, current CFO responsibilities at EXP have been assumed by William R Devlin who is described as Vice President and Controller (principal accounting officer). Bill Devlin has been Vice President and Controller at EXP since 2005. He was Director of Internal Audit from 9/04 to 9/05. Prior to that he was Senior Manager of PricewaterhouseCoopers LLP (7/99-8/04).

2. The major theme of the CC: EXP is maintaining profitability through strict cost control. Costs that are falling industry wide (i.e. natural gas, transportation, etc) are translated into reduced selling prices by all concerned and do not contribute substantial profits to the bottom line.

One cost reduction strategy that gives EXP an advantage over its competition is that EXP has been using its positive net cash provided by operating activities (about $20M/quarter) to reduce debt (and the associated interest expense). Whereas its major competitor, USG, has needed to sharply increase its debt, notably through issuance of a $400M 10% convertible note in Nov 2008.

EXP’s current long-term debt is $325M with interest rates ranging from 5.25-6.48%. Net interest expense in Q1 2009 was $5.6M which includes interest to the IRS (see #msg-26577461). This compares to a net interest expense in Q1 2008 of $8.0M, which was before the repurchase of $100M private placement debt in Feb 2009.

3. Miscellaneous points raised in the EXP CC ...

a. With respect to wallboard pricing, the critical sentiment expressed by Steven Rowley was “We are very keen on keeping our customers competitive in the marketplace. So our pricing is really associated with how do we partner with our customers, so that they remain competitive with gypsum wallboard stock on the job side.” I interpret this as an effort to differentiate EXP from the cold-hearted competition. USG for example, had the following exchange in its July 22 2009 CC Q&A, <Q – Ivy Zelman>: ... What we hear in the marketplace is that L&W is definitely under-bidding relative to others, especially on new jobs -- commercial jobs, with respect to trying to realize price appreciation where L&W is coming in 20, 25% below what the current pricing is. We’re hearing a lot of negative feedback in the market. And distributors that clearly see you as a price leader and you’re not supporting your own price increases. There seems to be a lot of backlash that it may even cost you some customers as a result. So from a strategic standpoint, volumes are improving at L&W as a result of that. And please correct me if that’s not the case because we certainly hear it in many markets beyond just one or two. So I’d like to understand how you mitigate the loss of potential customers that are frustrated or definitely have seen it as a negative for the company’s strategy?

<A – William Foote>: Well Ivy, first, we don’t comment on pricing. So that’s as you know in previous calls. But let me make a couple comments. L&W is a profit center and the key with L&W is returning to profitability and we balance our customers that are non-L&W customers with L&W. We’ve been doing it for 37 years. They are – we’ve taken out over 60 locations now. We will turn that side of the business around.

And I can’t comment on the pricing activities that you are hearing. But I will say that the number one priority for L&W short of safety is to be profitable.... b. Demand in all cement markets is continuing to weaken. The weakest is California and Nevada. There is not a lot of desperation type pricing in the cement marketplace, but bid work is extremely competitive with the prices for bid work being much lower than the average in the marketplace. Historically, EXP did not participate heavily in bid work. However, EXP is now actively pursuing bid work, particularly in the Illinois market.

c. Natural gas prices will continue to come down a little bit over the next quarter or so as some of the gas hedges are worked off. Paper prices will continue to rise a bit as will freight costs. So margins are likely to remain the same. Currently, EXP has about 30% of its gas needs hedged at slightly under $5.50 for the rest of the fiscal year.

d. EXP’s current overall customer mix: 20% residential construction, approx 17% commercial construction, 48% public infrastructure, approximately 15% repair and remodelling.

=========
Sources:

Mark V. Dendle as Chief Financial Officer at ECOM Trading: http://www.linkedin-ech3.com/in/mdendle

SEC filing for Dendle resignation: http://www.sec.gov/Archives/edgar/data/918646/000119312509107374/d8k.htm

SEC filing for USG convertible: http://www.sec.gov/Archives/edgar/data/757011/000095013708014115/c47965e8vk.htm

EXP’s current debt and net interest expenses: http://www.sec.gov/Archives/edgar/data/918646/000119312509155019/d10q.htm

Shelf Registration and Anti-takeover Provisions ...

On May 11 2009, EXP made a shelf registration that could be used to trigger massive dilution of the stock and turn this conservatively run company into a financial basketcase... The CFO also quit (or was asked to leave) with what appears to be a one month notice... These are disquieting events.

I don’t have any idea as to why the CFO left, but I believe the shelf registration is designed to prevent Ash Grove or some other entity from acquiring the company and causing a “change in control”.

Ash Grove showed an interest in EXP on Aug 19, 2008 when it filed a SEC Form SC 13D stating that it had acquired 5.05% of EXP stock at an average price of about $24.5 (#msg-33841335). On 10/16/08, EXP submitted a 8K stating that Ash Grove had made a filing under the Hart-Scott-Rodino Antitrust Improvements Act indicating that it intended to purchase another 1% of EXP stock.

My guess is that EXP does not welcome Ash Grove’s interest. Soon after Ash Grove filed its 13D, EXP’s Board of Directors established a policy whereby items to be placed before the shareholders via normal channels at the annual meeting must be submitted 100 days in advance. This is clearly designed to prevent a surprise hostile takeover.

EXP’s anti-takeover arsenal is substantial. It has been detailed best in the 2003-12-01 Definitive Proxy Statement SEC DEF14A that was submitted when EXP was spun off from Centex. The anti-takeover provisions available to EXP include:

Governance and By-law Restrictions

Special Meeting Restrictions (updated Nov 18, 2008): Proposals for stockholder action, such as a proposed amendment to the bylaws or a proposal for the removal of directors for cause, can, if the board of directors desires, be delayed until the next annual meeting of the stockholders. The board of directors can still call a special meeting of the stockholders when issues arise that require a stockholder meeting.

Supermajority Voting Restrictions. Two thirds of the outstanding shares of EXP’s common stock is required to alter, amend, rescind or repeal the bylaws or to adopt or modify the provisions of the certificate of incorporation. The provisions in the certificate of incorporation affected include: 1) limits to the voting rights of beneficial owners of 15% or more of the outstanding shares, b) staggard terms of board members, 3) limits to the ability of stockholders to call special meetings, etc.

Tenure and Selection of the Board. EXP’s current BoD, if it so elects, can increase the number of members of the Board to 15 Directors and fill the resulting vacancies with its own designees. A three year staggard classification of Director appointments limits the ability of majority stockholders or persons holding proxies to vote a majority of shares to change control of the Board of Directors in fewer than two annual stockholder meetings.

Stockholder’s Rights Plan (Amended and restated: 2006-04-11 8-A12B/A)

The board of directors has the authority to authorize the issuance of preferred stock in one or more series and to fix the rights (including the voting rights, if any), preferences, privileges and restrictions granted to or imposed upon any series, without any further vote or action by the stockholders. The effect of the exercise of the rights would be to dilute the ownership position of a person who has acquired 15% or more of the common stock by allowing the stockholders (other than the acquiring stockholder) to buy capital stock at a lower price.

Pre-authorized Capital Increase

The Board of Directors can create and issue a series of preferred stock with such designations, powers, preferences and rights which have the effect of discriminating against an existing or prospective holder of our common stock, thus making it more difficult for, or discouraging any attempt by, a potential acquiror to obtain control of EXP by means of a merger, tender offer, proxy contest or otherwise in a transaction not approved by the Board of Directors.

Change of Control Provisions.

The stock compensation plans contain provisions to the effect that, if there occurs a change of control of EXP, all options granted pursuant to such plans will vest and become exercisable and all restrictions will lapse on shares of restricted stock granted under such plans.

Delaware Anti-Takeover Statutes (EXP is incorporated in Delaware).

Under the business combination statute of the Delaware General Corporation Law, a corporation is generally restricted from engaging in a business combination with an interested stockholder for a three-year period following the time the stockholder became an interested stockholder.

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http://www.sec.gov/Archives/edgar/data/918646/000119312509106356/ds3asr.htm (Form S-3ASR, filed 5/11/09, the new shelf registration)

http://www.sec.gov/Archives/edgar/data/918646/000110465908053858/a08-21957_1sc13d.htm (Schedule 13D filed by Ash Groove on 8/19/08)

http://www.sec.gov/Archives/edgar/data/918646/000119312508211700/d8k.htm (Form 8K filed 10/16/08 whereby EXP describes Ash Grove’s intentions to buy more stock)

http://www.sec.gov/Archives/edgar/data/918646/000119312508242277/d8k.htm (Form 8K filed 11/18/08 whereby EXP amended requirements for advance notification of meeting agenda)

http://www.sec.gov/Archives/edgar/data/918646/000119312509107374/d8k.htm (Form 8k filed 5/8/09 announcing the CFO’s sudden departure)

http://www.sec.gov/Archives/edgar/data/918646/000095013403015926/d08664ddef14a.htm (DEF 14A filed 12/1/03 describing anti-takeover provisions)

April 2009 USG & EXP CC Note’s Relevant to wallboard prospects ...

Steven Rowley’s (EXP CEO) expectations regarding the timing of a recovery in the Wallboard Industry: “I believe this recovery will be a fairly slow recovery. So it’s not going to spring back by the end of this year. Maybe next year it will be a little better year as far as residential construction. In the following year, hopefully we’ll be back to more normal levels of residential construction. And when we hit that level, we need to have about 90% capacity utilization, to have very good pricing power in the wallboard industry. So that’s the level that we need to achieve a couple of years out.”

“Currently, the decline for wallboard sales opportunities is moderating. However, we have not yet seen the bottom, because we have not yet fully realized the impact of this year’s reduction in residential starts. Generally, there is about a three to four month lag before wallboard is consumed. This, combined with the continued waning in commercial construction and repair and remodel demand, has wallboard demand reducing.” .... USG notes that the repair and renovation market has been the fastest growing segment and is larger than new residential construction.

William Foote’s (USG CEO) expectation’s regarding residential demand five to ten years from now is based upon the projections of the Joint Center for Housing Studies at Harvard. He notes that the Harvard group projects a demographic housing need on the order of 1.5M /yr. New housing starts are now in the 0.5M/yr range, compared to a peak annualized level in excess of 2M/yr a few years ago. More precisely, the statement by the Harvard group is ( http://www.jchs.harvard.edu/ ):

“Looking ahead, household growth should return to the path set by the changing age composition of the population, the strength of ongoing immigration, and social trends such as divorce and remarriage rates that influence the size of households. Indeed, if immigration remains near its current pace of 1.2 million per year, the combination of several years of high immigration, high divorce and low remarriage rates, and the aging of the echo boomers should push household growth to average more than 1.4 million per year in 2010–2020 (Table W-11). Even if immigration were to drop by about 30 percent, household growth should still exceed its 1995–2000 average annual level (Figure 12).” (The 1995-2000 average was 1.15 million/yr).
For the past quarter, EXP was getting about $109 to $110/msf of wallboard; about $6 better than the previous quarter. For USG, it was $121.42/msf, about $2.5 better quarter-to-quarter. Note that Temple-Inland’s prices were down about $3.... Steven Rowley attributes EXP’s relative gain as due to decreased freight cost. EXP’s plants are generally a little more remote to the market than the competition. Lower freight cost really helps the American Gypsum. In particular, “The gross price was up about $3 on average. The freight costs were down about $3 and manufacturing costs were down about $4. So that’s a 10, so that’s somewhere in there you kind of hit near that $9 number.” (i.e. EXP’s operating margin is up about $9 quarter-to-quarter).

The price of gas currently is about $3.60/decatherm (see http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp for updates). It’s below the cost of production. A dollar per decatherm is worth about $2.25 per MSF cost at USG.

EXP at the Feb 20 Longbow Conference

The tone of Steven Rowley’s presentation was definitely negative, but there were some positive statements.

On the positive side:

1. EXP is probably the only profitable wallboard company in the industry today.

2. The industry as a whole has kept production in line with demand. The cement industry began to react to the current downturn a year ago by reducing imports and operating at reduced capacity utilization. Recently there have been announcements of plant closures throughout the US. Additionally, construction on new capacity has been slowed down or postponed.

3. There are some small parts of the cement economy that will be positively stimulated by the new stimulus package. .... Wind farms require from 350 to 500 cubic yards of concrete to erect each windmill.

4. The wallboard price increases that were implemented in the summer and early fall have returned Eagle’s wallboard operations back to profitability. Wallboard production costs will go down about 5% in 2009 (from $90 to $85/msf).

5. It seems reasonable to expect that housing starts will start to moderately increase in the near future because of a lack of appropriate choices demanded by the buyer. So while the housing market will remain very difficult the new housing market will slowly start to improve.

6. Republic paperboard’s ability to competitively produce and market other grades of liner board when gypsum facing paper demand is down has been very effective at keeping Eagle’s production costs down and its profits up.

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On the negative side:

1. The current downturn in the US cement demand is far worse than envisioned just six months ago. Cement consumption was down approximately 15% in 2008 and forecasts are for cement demand to decline at least another 15% in 2009.

2. The cost of foreign cement will likely decline approximately 25% in the near term. The influence of foreign cement prices is most acutely felt in locations with deep ocean ports. But, it cascades throughout the industry.This will constrain pricing power.

3. For the past couple of years imports of foreign cement imports had continued to recede in favor of supplementing regional supply demand imbalances with US manufactured cement from neighboring markets. However, as US cement demand continues to drop there is little or no supply adjustment left from the reduction of imports. Some cement kilns in Canada and Mexico were built to supply the US market... they will continue to compete with US kilns even as demand slackens. Further reduction in demand will be painfully taken out of the US manufacturing capacity.

4. Public construction accounts for roughly half of the total US cement consumption. State budget conditions play an important role in the outlook for public construction primarily because the access to federal money is subject to each state’s financial ability to match these funds. With rising unemployment, declining retail sales, and reduced property tax revenues, the outlook for state budgets is not good.

5. The negative trend in the Architectural Billings Index, ABI, paints a very negative picture. Particularly, because of the lengthy lag when the index reflects a positive change in direction to actual construction being put in place. Nonresidential construction activity is closely tied to general economic conditions, therefore when the economy recedes commercial investment typically declines. This coupled with the current high cost of capital and tightening in commercial lending standards suggests that nonresidential construction will decline rapidly. Not only is there a reduction in the backlog of projects, many projects already under construction are being downsized.

6. Although housing affordability has improved significantly, its positive impact is being nullified by increasing unemployment, credit markets unwillingness to lend, and by an unexpectedly large drop in household formation. The currently really scary piece with respect to the housing and mortgage industry is the steep upward velocity of unemployment.

7. The 2009 estimate of 20 BSF wallboard consumption assumes stronger demand from new residence construction in the second half of the year.

8. Market conditions in Eagle’s Austin Texas market have started to deteriorate as the current credit crisis is impacting what was until recently a vibrant Texas economy.

9. Wallboard will be difficult for 2-3 years. Capacity that has come off line can be easily restarted. Pricing power won’t come back until 85% capacity is reached (it is now about 50%). Plant shut downs don’t lead to market exit. As freight costs comes down there will be further shut downs, but it will be supplemented by freight from other plants of the same company and not benefit Eagle.

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Other comments of general interest.

1. Burning tires reduces cement production capacity, but is lower cost.

2. Handymax is an older ship generally used for cement transport from Southeast Asia to the US because it is the lowest cost freight.

EXP’s current financial position...

EXP has a relatively strong financial position that has come about as a result of a dramatic reduction in capital expenditures. A major factor has been a slow down in the planned $200M Nevada Cement Plant modernization; the slowdown was initiated in the Spring of 2008. Expected capital expenditures for fiscal 2009 will be approximately $15-20M, compared to expenditures of $96.8M and $126.9M in FY2008 and FY2007, respectively.

Instead of capital improvements, EXP is positioning itself to paydown debt by converting Senior Notes to Bank Credit Facility obligations.
On February 5, 2009, we accepted for repurchase $93.0 million in aggregate principal amount of our Series 2007A Senior Notes for $88.3 million, plus accrued interest of $2.0 million, and $7.0 million in aggregate principal amount of our Series 2005A Senor Notes for $6.7 million, plus accrued interest of $0.1 million. The purchase of the Senior Notes was funded through borrowings under our Bank Credit Facility.
Before the restructuring its debt profolio, EXP had $400M in Senior Notes at a weighted annual interest rate of 5.87%. Now the $300M in Senior Notes has a weighted annual interest rate of 5.74%. The $95M credit facility has a variable interest rate of LIBOR + upto 150 basis points, where the current 6 month LIBOR is about 1.7%. Thus, I calculate that the annual interest expense from this debt is reduced from about $23.5M to $20.3M, a saving of about $0.8M/quarter.

In the Feb 5 CC, Mark Dendle, the CFO, explained the rationale for this restructuring in the following way:
In addition to lower cost borrowings, the purchase of the senior notes modestly reduces our outstanding debt and improves our financial flexibility, with a combination of fixed-term debt, variable revolving debt and cash, while at the same time maintaining a large amount of readily available liquidity.... (and Rowley in the Q&A)... [we] wanted to have the flexibility to not have a gross debt covenant but more of a net debt covenant. So switching over to having a piece of the term debt, a piece of variable revolving debt, as well as cash on the balance sheet, it allows [us] to handle any situation that may potentially come your way.

Retiring debt is a reversal of the general theme of increasing leverage that was extant just two years ago. In Q2 2008 EXP had issued $200M of the Senior debt to pay down the borrowings from the bank credit facility that had been used to buy back stock and maintain capital spending for a planned $200M modernization of the Nevada Cement plant. During the six month period ending the first week in October, 2007, EXP had purchased about 4M shares at about $38/share (about $150M total). At the time this was a good price which I, for one, thought was a good use of borrowed funds.

EXP is in compliance with all financial ratios and covenants at December 31, 2008. It has a cash balance of $47.8M and $126.2M of working capital. The net debt to capital ratio improved from 48% in the September quarter to 45% in the December quarter. EXP’s had operating earnings of $29.4M in the quarter ending December 31 and $87.6M for the past nine months. In the Feb 6 10-Q, EXP describes its financial condition in the following terms:
Based on our financial condition and results of operations as of and for the three and nine month periods ended December 31, 2008, along with the projected net earnings for the remainder of fiscal 2009, we believe that our internally generated cash flow, coupled with funds available under various credit facilities, will enable us to provide adequately for our current operations, declared dividends and capital expenditures through the end of fiscal 2009.... The Company does not have any off balance sheet debt except for operating leases. The Company does not have any transactions, arrangements or relationships with “special purpose” entities. Also, the Company has no outstanding debt guarantees.

USG Q4 2008 CC Comments Relevant to EXP...

In its Jan 28 2008 conference call USG addressed four issues that are relevant to EXP’s wallboard franchise:

1. Demand

Industry wallboard shipments were down 17% for the last calendar quarter of 2008. In addition to the weakness in housing starts, repair and remodeling utilization was down about 9% and commercial demand was down in the mid teen percentages.

In 2009, industry-wide wallboard demand is projected to be about 20.5 BSF assuming 650,000 housing starts and current remodeling/replacement and commercial utilization rates. Housing starts lead wallboard utilization by about 3.5 months. For every 100,000 housing starts there is about 0.8 BSF of wallboard demand. However, the demand is regional, being far different in the Southeast than it is in the far West.

2. Price

In these market conditions price is a more important financial lever to the wallboard business than volume. USG’s wallboard price was approximately $119/MSF in the fourth quarter up from $114.40 in the previous quarter.

3. Costs

Raw materials, inflation, and other cost pressures started to mitigate in the past quarter.

4. Industry Capacity

Industry-wide wallboard capacity utilization was probably running around 50-53% in 2008. Going into 2009, about 8 BSF net will likely have been closed down to yield a total capacity of 35 BSF. USG closed approximately 1.75 BSF in 2008 by shuttering the Boston and Fort Dodge plants and closing lines at Baltimore, Jacksonville, Stony Point, and Plaster City. Other wallboard producers took out approximately 3 BSF of capacity in 2008. Closure of an additional BSF has been announced for 2009. <note: these numbers do not add up, but that is what USG said>

TXI Q2 2009 CC (1/9/09) Notes:

Summary:

Cement prices are stable or slightly increasing. The 20% drop in volumes has been offset by decreased production and imports. The import reduction has occurred eventhough shipping costs are markedly lower. Probably because the international producers are also domestic producers and don’t see a profit in undercutting their own market. Current capacity in the Texas market is about 13 million tons and expected demand for next year is 13 to 14 million tons (down from 17 million tons last year).

Selected Quotes:

“Cement prices in Texas continued to be stable with realized prices up 3% in the November quarter compared to a year ago, and up 1% compared to the recent August quarter.”

“Given the uncertain conditions, the announced cement price increase effective January 1 in California will likely not be successful. But we do expect pricing to be relatively stable in the near term.”

“...total cement shipments declined by 18%. And within that, shipments in our Texas markets of 778,000 tons were down 19% compared to last year’s quarter. And this percentage decline is consistent with the decline in the overall market.... Shipments in California declined 14% to 305,000 tons.”

“Cement prices in Texas increased 3% compared to a year ago and about 1% compared to the August quarter and again those were increases. California cement prices were 14% lower than in last year’s quarter and 5% lower than for the August quarter from last summer.”

“<A – Kenneth Allen>: Well, the shipping costs Derrick have gone down rather substantially over the last quarter, and yet there has not been imports that have come in to displace domestic production. And I believe the reasons for that is what we have articulated for a number of years now that the importers are international cement suppliers and not likely to want to import product into the United States and dump on their domestic production because it’s extremely difficult to cost-justify bringing in lower imports and then having to absorb that with the lost production in sales from your domestic operations.”

“<A – Mel Brekhus>: The trends we’ve seen are the ones that Ken mentioned, where we’ve seen the 20% decline in Texas. And if we were looking forward under this scenario, we believe that that sort of a trend was likely to continue based upon what we’ve seen and what the Portland Cement Association is projecting. So whereas demand may have been 17 million tons last year, it’s going to be more likely in the 13 to 14 million tons this year in Texas.
<Q – Kathryn Thompson>: Okay. And could you remind me what capacity is in Texas right now?
<A – Mel Brekhus>: About 12 million.
<A – Kenneth Allen>: 13.
<A – Mel Brekhus>: I’m sorry, 13 because of the Cemex expansion. If it’s running”

“<A – Mel Brekhus>: .... Unlike California, I think that that we’re going to see some price increases in the Texas region. I don’t know when that will occur. But the trend and the traction is in place to get some of that. I think that what is likely to happen is that historically, January price increases have been deferred until the spring. And it’s too early to tell, but I think that we’ll see that that happen and I don’t know what part of that $15 we’re likely to get. But I think we’re going to get some of it.”

“<Q>: Okay, thanks. And then what’s going on with the imports at the Houston terminal? Can you
talk about – is there inventory there or imports still coming in, have they stopped coming in and
what’s the situation now?
<A – Mel Brekhus>: Yes. There are some imports that are coming in. They are limited at this time. I hesitate to tell you what we’re about to tell you, but here is what I think is happening, Liz. I think that Cemex is no longer importing anything because that’s the G2 I got back from our sales department that Argos is bringing in a modest amount and that Houston Cement which is the escrow...
<Q>: Put the escrow of Eagle, right?
<A – Mel Brekhus>: Yes. And as for Texas Lehigh, escrow and Alamo are bringing in modest amounts because that’s also what we’re hearing from our sales department.
<A – Kenneth Allen>: But imports are down dramatically year-over-year, dramatically in Houston.”

Ash Grove relationship to EXP...

1) On Aug 19, 2008 Ash Grove (ASHG.PK) purshased approximately 5% of EXP stock for about $24/share (i.e. 2.2M shares for $53.5M). When describing the purpose of the transaction in the SEC Form SC 13D describing this acquisition they stated:

“Depending upon overall market conditions, other investment opportunities available to Ash Grove, and the availability of Common Stock at prices that would make the purchase of additional Common Stock desirable, Ash Grove may endeavor to increase its position in Eagle through, among other things, the purchase of Common Stock or options on such Common Stock on the open market, in private transactions, through a tender offer or otherwise, on such terms and at such times as Ash Grove may deem advisable. Subject to a number of factors, Ash Grove may also decide in the future to propose one or more representatives for election to the board of directors of Eagle or to propose other matters for consideration and approval by Eagle’s stockholders or board of directors. Such other matters may include transactions involving a sale of assets of Eagle or a merger involving Eagle in which Ash Grove or an affiliate may be a participant and which may involve a change in control of Eagle.”

2) On Oct 16,2008 EXP filed SEC Form 8-K alerting investors to ASHG’s intention to purchase an additional $10M or more of EXP stock.

3) On Nov 11, 2008 EXP filed SEC Form 8-K revising its bylaws to restrict ad hoc issues at share holder meetings.

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In my opinion, the above three events foreshadow future alignments between EXP and ASHG including possible joint ventures or asset exchange. Consequently, I have summarized some attributes of ASHG.

ASHG is a private cement company controlled by the Sunderland family operating from Overland Park Kansas.

I calculate that ASHG has a current market value of about $400M; about half that of EXP. The 97K ASHG shares owned by Royce & Assoc represents about 5% of those outstanding ( http://finance.yahoo.com/q/mh?s=ASHG.PK ) and the current ASHG share price is about $200/share,

ASHG has 11 cement plants producing about 8.2M tons/yr, whereas, EXP has 4 plants producing about 2.7M tons/yr. Consequently, ASHG’s cement operation is about 3X’s that of EXP and its annual operating earnings should be in excess of $250M/yr since EXP’s operating earnings from cement are about $100M/yr.

ASHG probably spends about $150M/yr for internal capital projects. This expectation is based upon the anticipated CapEx table presented in their 2006 annual report. The values have been adjusted down to reflect ASHG’s cancellation of their planned construction of a $250M cement plant on the Paiute Indian reservation in Moapa Valley (see: http://cementamericas.com/mag/cement_ash_grove_cancels/ ).

The geographical distribution of ASHG plants complement those of EXP:



===========
For more information see:

2006 ASHG Annual Report to Employees: http://www.ashgrove.com/pdf/annualreport.pdf

2007 ASHG Annual Report to Employees: http://www.ashgrove.com/pdf/2007%20-%20EmployeeReport.pdf (found under: http://www.ashgrove.com/careers_gettoknow.asp )

2008-08-19: EXP SC 13D describing ASHG initial purchase of EXP stock:
http://www.sec.gov/Archives/edgar/data/918646/000110465908053858/a08-21957_1sc13d.htm

2008-11-24: EXP 8-K: Amendments to Articles of Incorporation or Bylaws: http://www.sec.gov/Archives/edgar/data/918646/000119312508242277/d8k.htm

2008-10-16: EXP 8-K: Notification of ASHG’s intent to increase its EXP share number: http://www.sec.gov/Archives/edgar/data/918646/000119312508211700/d8k.htm

EXP Debt ...

One question that faces investors these days is: Will EXP remain in compliance with the terms of its lending agreements?

EXP’s covenants require that Debt to EBITDA be less than 3.5 and that there is a 2.5x interest coverage. Total debt is currently $400M; interest expenses are running at about $32M/yr. EBITA was $43M in the last quarter (Q2 2009) and the debt to EBITDA ratio is currently about 2.7 where EBITDA is summed over the most recent four quarters (i.e. $400M/($49M+$26M+$32M+$43M)). Interest coverage is 4.7x (assuming that the covenant refers to coverage with EBITA).

To make a quick calculation of EBITA one can use the “Earnings Before Income Taxes” reported in the quarterly consolidated earnings statements and add back $8M in interest and $13M in depreciation and amortization, these last two values being relatively constant quarter to quarter. Note that there would need to be a sustained drop of about 50% in earnings before the covenants would be challenged. I believe that a drop in cement income of upwards to 20% is possible (albeit not likely), but that the other divisions have already hit bottom. Thus, I’m not worried about a “covenant compliance” issue for EXP.

EXP has a $350M Bank Credit Facility effective until June 2011. Currently this credit facility is not being used. The credit facility might obviate the need for equity financing should EXP become non-compliant with respect to its senior notes. I cannot be sure since I do not know details concerning the covenants attached to the credit facility.

In the Oct 27 conference call, EXP repeatedly emphasized that it is “putting flexibility on the balance sheet” by minimizing capital investments and maximizing the cash balance (currently $17M). When questioned about the sustainability of the dividend, management reiterated that the Board re-evaluates the dividend policy every quarter. However, my sense from the comments was that the dividend is not in jeopardy, just yet.

-------
Details of EXP’s debts as derived from SEC filings are:

A $350M Bank Credit Facility is effective until June 2011. Outstanding principal amounts on the Bank Credit Facility bear interest at a variable rate equal to LIBOR plus an agreed margin (ranging from 55 to 150 basis points), which is to be established quarterly based upon the Company’s ratio of consolidated EBITDA, (defined as earnings before interest, taxes, depreciation and amortization) to its consolidated gross indebtedness. The Bank Credit Facility has a $25 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. Under the Bank Credit Facility, EXP is required to adhere to certain financial and other covenants, including covenants relating to the Company’s interest coverage ratio and consolidated funded indebtedness ratio.

$400M of outstanding Senior Notes were sold in a private placement transactions. They mature at various times between Nov 2012 and Oct 2019. Interest rates range between 5.25% and 6.48%. The Note Purchase Agreements contain customary restrictive covenants, including covenants that place limits on the ability to encumber assets, to incur additional debt, to sell assets, or to merge or consolidate with third parties, as well as certain cross covenants with the Bank Credit Facility. 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 those agreements. This may allow the lenders under those agreements to declare all amounts outstanding thereunder to be immediately due and payable, terminate any commitments to extend further credit and pursue other remedies available to them under the applicable agreements.

EXP is permitted, at its option and without penalty, to prepay from time to time at least 10% of the original aggregate principal amount of the Senior Notes at 100% of the principal amount to be prepaid, together with interest accrued on such amount to be prepaid to the date of payment, plus a Make-Whole Amount. The Make-Whole Amount is computed by discounting the remaining scheduled payments of interest and principal of the Senior Notes being prepaid at a discount rate equal to the sum of 50 basis points and the yield to maturity of U.S. treasury securities having a maturity equal to the remaining average life of the Senior Notes being prepaid.

None of the Company’s debt is rated by the rating agencies.

In the past, EXP has utilized derivative instruments, including interest rate swaps, in conjunction with an overall strategy to manage the debt outstanding that is subject to changes in interest rates. However, there were no derivative financial instruments in place during the three month period ended June 30, 2008.

The covenants do not dictate dividend constraints.

From the 2008-07-22 Q1 2009 CC:

<Q – Mike Betts>: Okay. And my third and final question was, just in terms of covenants, in terms of debt, are there any covenants that you’ve got that are sort of either net debt to EBITDA or interest cover? I mean, could you just remind us what those covenants are, if there are any?
<A – Steven Rowley>: Sure. We do have some covenants, and the net debt to EBITDA is 3.5 times, and the interest coverage ratio is 2.5 times.

TXI Q1 2009 CC – Comments relevant to EXP...

Note: EXP has cement plants in LaSalle Il, Laramie Wy, Fernley Nv, and joint venture with Texas Lehigh in Buda Tx... TXI has cement plants in TX with a small presence in California.

1. Currently, cement consumption in Texas significantly exceeds cement production.

Based on Texas excise tax receipts, cement consumption for 2008 will be 4-5% greater than that reported in 2007. Currently, Texas is consuming about 17.5M tons of cement/yr. It can produce about 12M tons/yr currently and 14.5M tons/yr soon. About 3.5-4M tons is shipped into Texas from Oklahoma, Arkansas, and Florida. Foreign imports have greatly diminished.

Texas 2008 cement prices increased an average of about 1% over a year ago. There was a $4/ton increase in April and a $5/ton increase in July. It is expected that the Oct 1 price increase of $10/ton will hold in South-Central Texas. An effort to add energy surcharges did not hold.

2. Construction activity in California continues to decline with the demand less than capacity.

The expectation is that if demand drops, capacity will be reduced rather than prices cut. That is because excess cement production does not create demand and market share can not be efficiently increased by cutting prices. Cement imports into California have stopped. California Portland has a cement plant in Colton that uses older technology to produce 800-900K tons/yr. Other than that there are no high costs plants in California that might close. However, it is difficult to run precalcinar plants at less than 90% capacity.

There has been a decline in realized cement prices in CA. Prices declined by an average of 8% in CA. Fifty percent of the decline was due to increased shipping costs.

Recently, the CA state budget passed and there has been an increase in bid lettings for public works. But it will take a bit of time before the money is actually spent.

3. Aggregate pricing has continued to show an upward trend.

4. Energy costs for cement, particularly electricity, were 35-40% higher than in 2007.

As natural gas prices have declined from the recent peak in the summer, electricity costs have declined as well. For TXI, a $1/Mcf increase in natural gas results in a $1.20/ton cement cost increase in CA and a $1.50/ton cement increase in TX.

About 20% of the cost per ton for cement is due to the cost of coal.

5. Some of the International cement producers that cover the entire country have announced a general price increase for Jan 1, 2009.

-----------------

The TXI Webcast can be found at http://investorrelations.txi.com/events.cfm

EXP Q1 2009 –disappointing...

One disappointment was the shortfall in Illinois Cement revenues. I have been expecting FY2009 cement operating earnings to come to about $110-120M (FY2008 cement operating earnings were $107M). With an 18% decline in cement operating earnings in Q1 2009 (i.e. from $27.6M to $22.6M), this expectation will be hard to meet. Some of the current shortfall was due to delays in Illinois State expenditures for capital improvements. Reductions in state spending could persist throughout FY2009 due to decreases in tax income resulting from decreased real estate valuations and gasoline sales. State budgetary issues are a problem in Northern California as well.

A second disappointment was that there was no mention of a share buy back at what I consider cyclically low prices. As of the end of FY2008, EXP had Board authorization to buy back an additional 717,300 shares. I can understand the need for preserving capital during these difficult times. But, delays in startup of the Nevada Cement modernization has reduced FY2009 Capex expenditures by about $50M (sufficient to purchase about two million shares at today’s prices).

It seems that the major driver of stock prices in recent days has been the anticipated cost of energy as gaged by oil and natural gas futures. When the price of oil drops, EXP’s share price increases and viz versa. EXP’s fortunes are indeed tied to energy. Increases in energy, transportation, and raw material costs during the past year have added about $20/MMSF of wallboard. Cement is also energy intensive.

I was glad to hear that EXP plans to maximize profits, not market share in the Wallboard segment. Steve Rowley implied that they would pull back from the low margin wallboard markets during the remainder of FY2009. I’m assuming that these low margin markets are those associated with high transportation costs.

Wallboard: Low to mid 60s capacity utilization, $92.42/MSF... that combination caused a dramatic reduction in EXP's operating cash flow as reported in today's Q4 2008 conference call. I don’t expect that this scenario will change much during the next quarter. Anyway, I plan to keep my position in EXP, and might add to it if the price drops another 20% (i.e below $30/share). But, I cannot in good conscience encourage anyone else to make an investment until the bottom of the housing market has passed.

EXP’s average net sales price for gypsum wallboard of $92.42/MSF in Q4 2008 was 35% less than the $142.39/MSF for the same quarter last year (per 8-K filed 5/6/2008). ..David Sachs of Trident Capital (I think) guessed that the average industry cost for wallboard is in the $110-120 range during the question and answer session.

One of the things that I like about EXP is that it is a low cost producer. It is remarkable that they are making money in this dismal market, largely from the cement side of the business (i.e. $0.07/share in this past quarter vs. $0.76/share in the same quarter last year). Even EXP’s Wallboard division is breaking even at today’s prices. ...And, EXP continues to actively lower its break-even point. During the last quarter they finished construction of the Georgetown Wallboard plant which will reduce their average wallboard costs. They reconfigured their Illinois Cement facility to process lower cost petroleum coal in the calciner. These changes should lead to increased profitability even on a modest uptick in the construction and housing markets.

EXP has paused its aggressive share buyback program to conserve cash for additional capital investments (primarily to enhance their Nevada and Mountain Cement facilities). In the first three quarters of FY2008, they had purchased 4.8M shares (10% of outstanding); no substantial repurchasing was done in the 4th quarter. EXP has board authorization to purchase an additional 0.7M shares should the cash flow become more certain. They expect FY2009 Capex to be about $115M, primarily for the Nevada plant with an 18-24 month build out. The Mountain Cement Capex will probably startup in FY2010. FY2008 Capex was $96.9M and FY2007 Capex was $152.1. So, the anticipated Capex expenses are nothing out of the ordinary.

EXP’s BB&T presentation on March 19, 2008...

There was nothing new of significance in the presentation per se, but the question and answer session yielded the following insights:

The synthetic gypsum at the Georgetown plant costs about $4-5/ton. This is comparable to the cost at a gypsum mine site. When the gypsum needs to be shipped from a mine (or a synthetic source), final costs can be as much as $25/ton. One ton of gypsum yields about 1 MSF of wallboard.

Wallboard pricing has stabilized. Currently planned cost increases might cover inflation, but little else. A major inflationary pressure for the wallboard industry has been fuel costs for transportation. In particular diesel has increased 50% since the beginning of the year. Note that the wallboard industry picks up transportation costs, whereas, in the cement industry, the customer generally provides freight.

Wallboard demand was 30.2 BSF in 2007 (down 16.5% from the 2005 peak). Wallboard prices fell $82 per msf or 45% from July 2006 peak to Decemnber 2007. The 2008 annual year-over-year decline will be greater than 10%.

One cannot expect that the closing of high-cost wallboard plants will lead to an increased market share for EXP. The industry’s actions during this cycle appear to be in line with those during previous cyclical troughs. In particular, wallboard companies first reduce shifts at high cost plants, then reduce production lines. As long as there is cash flow, they tend to continue operations until output can be replaced at an equivalent or lower cost through shipment from another one of the company’s plants.

Cement demand is strong in Texas and will continue being so. Demand in the mountain states is good, due largely to infrastructure activity. There is some softness in the midwest and far west due to both adverse weather and delays in state allocation of infrastructure funds..

To access the conference go to:

http://www.bbt.com/bbt/business/products/cmindustryconferences/manufacturingconference/default.html

Rail Link to Northern California Aggregate Quarry

At yesterday’s Longbow Research Conference, Steve Rowley gave an update on the rail link to the Northern California aggregate quarry. In particular, he stated that the real estate needed to link the rail to the deposit has been obtained and that he thinks that 2-3 years is a reasonable time frame to get all of the entitlements in place.

As Background,

The northern California aggregates deposit, located in the Yuba Goldfields, is one of the largest aggregates deposits in the state of California. The deposit is situated approximately 40 miles north of Sacramento and currently services its local market by truck. Once the deposit has been connected by rail, the production should increase form the current 3.0 - 3.5M tons/yr to about 10M tons/yr. The rail linkage will substantially reduce transportation costs. For example, Martin Marietta claimed in another presentation at yesterday’s Longbow Conference that trucking of aggregates cost $0.15-0.30/ton-mile, whereas rail cost $0.06-0.11/ton-mile. In answering a question by David Sacks (Hawkeye Capital) in the July 31, 2007 EXP earnings call, Steve Rowley said that he thought the rail project would probably cost $75-100 million by the time everything is done.

I think that it will take about 10 years of rail operation to return the $75-100M investment. This is based upon my estimate that the rail link will increase revenue from the California quarry from about $20M/yr to $60M/yr and operating earnings from about $4M to $12M/yr. This estimate is based upon 2005-2007 numbers wherein aggregates accounted for about 4% of total net revenues (which were $600M-900M/yr). Operating earnings for Concrete and Aggregates was about $8-16M/yr where aggregates accounted for a little more than half of the total (I’m estimating $6M/yr for aggregates). Sand and gravel from the California quarry represented about 3/4ths of the total aggregate production (the remainder was limestone from the Austin TX quarry). Hence, my estimate of about $4M/yr current operating earnings from the California quarry. I often make mistakes in this type of calculation, so one would be advised to check the math. However, the numbers make sense when compared to a calculation based upon the $6.88 net sales price and %5.56 unit cost for aggregates reported in the 2007 10-K (filed 5/29/07) resulting in a $1.32 margin multiplied by 3M tons of production at the California quarry.

EXP has been working towards establishing this rail link for a long time. The first public mention of this intention that I know of is in the 2005 Annual Report. Albeit, there was reference to the effort in an answer to a question by John Lynch (Lynch Research) in the April 28 2004 Earnings Call. John had asked about the relationship of an Air Force base to the quarry operation.

IRS Dispute...

The IRS has completed examination of EXP’s tax returns for fiscal years 2001, 2002, and 2003. It is challenging the depreciation deductions EXP claimed with respect to acquisition of Republic in November 2000. These deductions have been substantial; for the three years under question they amounted to $44M. If the IRS challenge is sustained, EXP will be required to pay $27.6M in back taxes plus $5.7M penalties and interest. Moreover, the $37M in deductions claimed on the federal returns after 2003 are in jeopardy. The IRS is currently examining tax returns for fiscal years 2004, 2005, and 2006.

The deductions on state tax forms have been about 20% of those claimed on the federal form putting an additional $7.5M at risk.

In other words, this dispute could cost EXP close to $2/share. The actual effect on the stock price, however, may not be noticeable. It will be deemed a one time event and EXP has sufficient cash flow to absorb the shock of an adverse ruling.

EXP believes that they have a substantial basis supporting their original depreciation deduction. On December 7, 2007, EXP filed an administrative appeal of the proposed adjustments. In the event that the appeal is denied, EXP intends to resort to the courts for a final determination. These legal maneuvers might take some time to resolve themselves. In the interim, EXP paid the IRS $45.8M in Q3 2007 to minimize additional interest and penalty charges that would accrue in the event that the IRS’s claims are upheld. This tax payment represented about 40% of the 50% reduction in net cash provided by operating activities during the nine months ending on December 31, 2007.

Related to this tax dispute, EXP recorded an increase in liability for unrecognized tax benefits on its books; $27.6 million of the unrecognized tax benefit as an increase in federal income taxes payable and $53.1 million as an increase in long-term deferred taxes. This was balanced by an increase of $80.7 million to other assets relating to unrecognized tax benefits. Upon resolution, any tax ultimately not recognized will be reclassified to goodwill. Additionally, EXP reduced the April 1, 2007 retained earnings balance by $34.6 million, which represents potential interest and penalties related to unrecognized tax benefits. During the three and nine month periods ended December 31, 2007 EXP accrued an additional $1.6 million and $5.4 million, respectively, of interest on the unrecognized tax benefit. They classify interest expense related to unrecognized tax benefits as a component of interest expense, while penalties related to unrecognized tax benefits are classified as a component of income tax expense.

Background:

Centex Construction Products, the predecessor of EXP, paid $392M to purchase assets from Republic Group Incorporated on November 10, 2000. The assets acquired were: a 1.1 billion square foot gypsum wallboard plant located in Duke, Oklahoma; a short line railroad and railcars linking the Duke plant to adjacent railroads; a 220,000 ton-per-year lightweight paper mill in Lawton, Oklahoma; a 50,000 ton-per-year Commerce City (Denver, Colorado) paper mill; and three recycled paper fiber collection sites.

On January 30, 2004 Centex divested EXP to its stockholders on a tax-free basis.

The first SEC filling reporting an IRS audit of the 2001-2003 tax returns was the 10-Q filed February 6, 2007 (EXP’s Q3 2007). In May 2007, the IRS informally indicated that it intended to impose statutory civil penalties. On June 26, 2007, the IRS issued a Notice of Proposed Adjustment incorporating the Company’s comments and included a separate Notice of Proposed Adjustment for statutory civil penalties. The 10-Q filled February 5, 2008 reported that the IRS has completed examination of the 2001, 2002, and 2003 returns and was starting to examine the 2004, 2005, and 2006 returns.

Community Contribution to Georgetown Wallboard Plant

Part of the low cost structure of EXP’s American Gypsum wallboard plant near Georgetown SC results from a substantial community contribution. This contribution has been detailed in the local newspapers. In particular,

1) In an editorial entitled “Wallboard Economics: Modest public investment in Georgetown gypsum plant will net a nice return” on Aug 14, 2006, the Sun News of Myrtle Beach SC described the community’s contribution in the following terms:

“Some readers may misunderstand the public side of economic development -- government assistance to businesses that promise to create jobs. To many, this looks like corporate welfare. But there's a fine line between unwise government giveaways and measured public assistance that reaps big returns. In the case of the American Gypsum Wallboard plant under construction in Georgetown County, state and local government have stayed on the "good" side of that line. Santee Cooper helped lure the $125 million factory, now under construction, to the grounds of its Winyah generating station by making the requisite land available at low cost. The county offered limited tax incentives. And just last week, the Horry-Georgetown Technical College area commission voted to seek state help in building a 7,500-square-foot wallboard training building on the college's Georgetown campus. College leaders will seek a $500,000 grant from the S.C. Department of Commerce to pay for the building, in which the 100 lucky folks who get American Gypsum jobs will eventually be trained.

Why go to all that public expense for 100 jobs? For openers, those jobs will pay an average of $50,000 apiece. The payroll money that eventually circulates through the local economy will trigger further economic activity, increasing the wealth of a lot of folks not directly associated with the wallboard business. Moreover, county economic development officials expect the plant to trigger the creation of 200 additional jobs to supply the plant with needed materials and meet its service needs. Some of those jobs likely won't pay as well as jobs at the plant, but the folks who land them will be darned glad to have them.

Would American Gypsum have located the plant in Georgetown County if state and local government had offered it no inducements? Likely not. The plant needs to be close to a coal-fired electricity-generating station, as the primary raw material for wallboard is derived from the residue collected in smokestack scrubbers. But there are lots of other coal-fired plants around the Southeast, and the governments in those locations would offer inducements to attract so many good jobs. The wallboard factory has the potential to accelerate Georgetown County's economic revival and elevate many families into the middle class. The public investment necessary to leverage these gains was well spent.”

2) In an article published in the Sun News on Nov 25, 2006, Aliana Ramos provided the following additional detail (H. Neyle Wilson is president of Horry-Georgetown Technical College):

“....The new Center for Accelerated Technology will be about 7,500 square feet to house a multipurpose facility, including labs, offices and classrooms, Wilson said. The college should get word in December if it has received a $500,000 grant from the S.C. Department of Commerce to help build the site. Horry-Georgetown Technical College has allocated another $50,000 and the Center for Accelerated Technology Training will give about $150,000 to pay for classroom instructors and materials, Wilson said. In the future the multipurpose lab will be used to start a construction trade program that would include classes, such as roofing and electrical wiring, not currently offered at the college, Wilson said.”

The $500,000 grant from the SC Dept of Commerce was reported to be secured in an Aug 13, 2007 article by Jessica Foster in the Sun News.

Southwestern Showcase Investor Conference Presentation...

Art Zunker (CFO) made a presentation to the Southwestern Showcase Investor Conference in Dallas TX on Nov 14, 2007 (see Eagle website for webcast and slides). I have summarized some of my notes here.

Some insight concerning EXP’s investment philosophy was provided in this presentation. For example, it was stated that “[we will] acquire what we know and understand”. In particular, EXP believes in stock buybacks. They have purchased approx 8% of their stock during the Sept 2007 quarter and 25% since the Jan 2004 spin-off from Centex. Approx 1.5 Million shares remain under the current repurchase authorization. A second summary statement was that “their philosphy is minimal forward integration so as not to compete with their customers.” They plan to continue to acquire raw material resources such as gypsum and limestone. And, a major use of their internally generated capital will be to fund large expansion projects.

They have one major expansion project in wallboard capacity (Georgetown SC) and three modernizations of their cement facilities in the works. These are detailed in the presentation. Upon completion of these projects, costs of sales per unit is expected to decline 5% for wallboard, 25% for cement, 5% for paper, and 10% for aggregates. Operating earnings are expected to almost double with the actual increase being between $100M and $170M/yr dependent upon the phase of the cyclical business environment.

I had not realized the importance of the Republic paperboard division’s contribution to cost containment in wallboard production before this presentation. Republic produces gypsum paperboard that is 15% lighter than the industry average. It was noted that USG is modernizing its paper supply by converting its Ostego MI mill to gypsum liner and National plans to modernize its Anniston AL mill.

Wallboard demand is currently 32 BSF/yr with capacity of 38 BSF. Capacity will increase to 43 BSF in the next two years if there are no additional plant closures. Most of this increased capacity will be low cost production in the Southeastern region of the US, where the new Georgetown facility will be located. In particular, there are four capacity expansions in the works in the southeastern US (Eagle-Georgetown (0.75 BSF), Koch-Savannah (0.6 BSF), Natl-Charlotte (1.0 BSF), and USG-Norfolk (0.5 BSF). There are no expansions in the EXP’s core Southwestern region. The concentration of capacity expansion in the Southeastern region reflects the expectation that 25% of the new residential construction in the US will be in the Southeast over the next 25 years; i.e. 14M of the 59M new homes required to accommodate US population growth to 376 million will be in the SE. For comparison, approx 125M homes exist today and approx 15% of these existing homes are expected to be torn down and rebuilt during the next decade.

Wallboard Operating Margins....

In the Conference Call of Feb 1, 2007, Paul Newton, a private investor, asked Steven Rowley to identify the most important dynamic that sets EXP apart from the competition.

Mr. Rowley’s response was: “Being a low cost producer allows us to have margins throughout all of the cycle and then when the cycle gets difficult it really allows us to separate ourselves and have a lot of staying power with our production capacity.”

As stated in Form 10-Q filed 2/7/07...

Wallboard production costs for the 9 months ending Dec 31, 2006 was $85.20/MSF (the average net sales price for wallboard was $168.03 and the operating margin was $82.93)

During the same period of 2005 the wallboard production cost was $82.62/MSF.

Transportation and energy costs represent significant portions of the variable costs of the wallboard segment.

Notes from EXP’s Q3 2007 CC

Currently, wallboard prices are trending down; albeit not as fast as in previous down cycles when the rate of decline was about twice what it is now. There are about half as many competitors in the market now, and a slowdown in production by all producers is forced because warehouse capacity quickly fills by unsold inventory (i.e. inventory capacity is inelastic). The wallboard pricing downtrend has continued into January at about the same rate.

In 2007 Q3 Eagle averaged $160/MSF of wallboard ($154/MSF in December). This compares to $176 per MSF in 2007 Q2 ($171/MSF in September).

Operating earnings from wallboard was $41.6M in Q3 compared to $58.8M in Q2.

EXP believes that the outlook for early 2007 residential construction looks to remain near current levels based on building permits, which are typically a better proxy at this time a year for near term trends, because of inconsistent winter weather. Once housing rebounds the wallboard supply-demand balance should soon follow. This could happen in 2007 or 2008.

About 20% of the wallboard manufacturing cost is due to energy. Natural gas prices have been dropping with the result that wallboard costs have fallen in the past quarter. EXP has hedged about 20% of their natural gas for this calendar year at about $7.50/MCF. <Note that natural gas prices had reached a peak of about $12/MCF in the autumn of 2005, but during 2006 have been averaging in the $7/MCF range. see: http://tonto.eia.doe.gov/dnav/ng/hist/n3035us3m.htm >.

I am focusing upon EXP’s wallboard business because I think that volatility in EXP’s share price will be dictated by up and down surprises in wallboard revenues. Wallboard generates about 50% of EXP's total revenue. The cement and aggregates business appears to be well defined (and doing very well).

EXP’s Q3 Conference Call is on Thursday February 1, 2007 at 1000h Eastern Daylight time.

The Q3 conference call will reveal if there is continued strength in EXP’s wallboard revenues in face of the current slowdown in housing construction.

Wallboard accounted for 54% of EXP revenues in Q2. Last quarter Eagle’s year over year wallboard revenues increased 18%. These results were despite an 8% decline in wallboard sales volumes.

Based upon the Q2 presentation, I anticipate a decline in average wallboard pricing from $171/MSF in the second quarter to the mid $160/MSF range in the third quarter. This would still be above the $144/MSF average of the third quarter last year.

The key metrics from last quarter are shown in the following three slides obtained from EXP’s website (i.e. Webcasts & Presentations, Archive, Q2 Earnings Release, printable slides).

I am starting this iHub message board because I own shares in the company and I want to attract posters who will help me

1. understand the basis for price movements
2. broaden my perspective on management and director performance metrics
3. understand what future actions the company might or should take
4. obtain breaking news that might affect the company and/or the stock price

I expect that by writing posts of my own I will profit from the opportunity to

1. organize my thoughts
2. ask questions that others might answer
3. archive information for easy reference using iHub’s search tool

These are selfish rather than altruistic reasons for starting a message board. But, others might share these objectives and choose to participate. If so, this will be a worthwhile joint collaboration.