EAGLE MATERIALS INC

Item 1. Legal Proceedings

In February 2023, the EPA published a final rule disapproving the State Implementation Plans (SIPs) for 21 states, which addressed each state’s obligations under the 2015 ozone NAAQS to eliminate significant contributions to nonattainment, or interference with maintenance, in downwind states (interstate transport requirements). States subject to a SIP Disapproval under this final action relevant to our cement operations include Illinois, Kentucky, Missouri, Nevada, Ohio, Oklahoma, and Texas.

In March 2023, the EPA finalized a Federal Implementation Plan (FIP), also known as the “Good Neighbor Plan,” which addresses interstate transport obligations for the 21 states with disapproved SIPs, as well as two additional states that had not submitted any revisions for their SIPs. The FIP went into effect on August 4, 2023, and requires kilns used in cement and cement product manufacturing in 20 states, including Illinois, Kentucky, Missouri, Nevada, Ohio, Oklahoma and Texas, to comply with nitrogen oxide (NOx) emissions limitations during the ozone season (May 1 to September 30) beginning in 2026. The FIP has not been implemented in 12 of the states with disapproved SIPs due to legal challenges. In January 2024, the EPA proposed to extend the FIP to five additional states.

Our cement plants located in Nevada, Oklahoma, and Texas are most directly affected by EPA’s SIP Disapprovals and Good Neighbor Plan. Multiple parties have filed lawsuits challenging the EPA’s SIP Disapprovals for 12 states—including Nevada, Oklahoma, and Texas. Legal challenges to EPA’s SIP Disapprovals for Nevada, Oklahoma, and Texas are all ongoing, and have resulted in stays for each of these disapprovals and prevented implementation of the Good Neighbor Plan in these states. In each of these actions, the petitioners have challenged the failure on the part of the EPA to appropriately defer to the applicable state’s analysis and determinations regarding interstate transport obligations. Multiple parties have also filed lawsuits challenging EPA’s Good Neighbor Plan, resulting in a stay order by the Supreme Court preventing enforcement nationwide, pending resolution of these challenges.

An adverse outcome in these actions resulting in implementation of the Good Neighbor Plan could require us to incur significant capital expenditures related to the installation of additional controls and additional operating costs at the affected facilities or, if the installation of controls proves impracticable, to modify or curtail our operations at such facilities, which could have a material adverse effect on their profitability. Challenges to both the SIP Disapprovals and the Good Neighbor Plan are ongoing in multiple courts, and no court has issued a final ruling on the validity of the disapprovals or the FIP.

At this time, we are unable to predict the likely outcome of the multiple legal challenges to both the state disapprovals and the Good Neighbor Plan. Nevertheless, on July 12, 2024, we entered into a settlement agreement with the EPA related to our cement operations in Nevada, which agreement provides (i) for the potential installation of additional emissions controls referred to as “low NOx burners” and (ii) if the controls are installed, that we perform a test-and-set process to determine an appropriate NOx emission limit by February 1, 2027. Assuming such emission limit is finalized and approved by EPA, our Nevada cement operations would no longer be subject to the emissions limit in the Good Neighbor Plan. We estimate the cost of installing the low NOx burners to be approximately $2.5 million.

In addition to the legal matters described in Part 1, Item 3 "Legal Proceedings" of our Form 10-K for the fiscal year ended March 31, 2024, from time to time, we have been and may in the future become involved in litigation or other legal proceedings in the ordinary course of our business activities or in connection with transactions or activities undertaken by us, including claims related to worker safety, worker health, environmental matters, commercial contracts, land use rights, taxes, and permits. While the outcome of these proceedings cannot be predicted with certainty, in the opinion of management (based on currently available facts), we do not believe that the ultimate outcome of any currently pending legal proceeding will have a material effect on our consolidated financial condition, results of operations, or liquidity.

For additional information regarding claims and other contingent liabilities to which we may be subject, see Footnote (P) in the Unaudited Consolidated Financial Statements.