UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X][ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------------
For the quarterly period ended SEPTEMBER 30, 2002MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission file number is 000-4197
UNITED STATES LIME & MINERALS, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-0789226
------------------------------- ------------------------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13800 MONTFORT DRIVE, SUITE 330, DALLAS, TX 75240
- -------------------------------------------- ------------------------------------------------
(Address of principal executive offices) (Zip Code)
(972) 991-8400
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- -------- ----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of NovemberMay 5, 2002,2003, 5,799,845
shares of common stock, $0.10 par value, were outstanding.
PART 1.I. FINANCIAL INFORMATION
ITEM:ITEM 1: FINANCIAL STATEMENTS
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
SEPTEMBER 30, 2002MARCH 31, DECEMBER 31,
2001
----------------- ----------------2003 2002
------------ ------------
ASSETS
ASSETS
Current Assets:
Cash and cash equivalents $ 539 $ 606$587 226
Trade receivables, net 6,932 5,6996,814 5,202
Inventories 4,039 5,0574,718 4,782
Prepaid expenses and other current assets 186 796
----------------- ----------------291 262
------------ ------------
Total current assets 11,696 12,15812,410 10,472
Property, plant and equipment, at cost: 113,535 115,949115,699 114,062
Less accumulated depreciation (42,220) (42,636)
----------------- ----------------(45,072) (43,656)
------------ ------------
Property, plant and equipment, net 71,315 73,31370,627 70,406
Deferred tax assets, net 2,454 2,4532,359 2,359
Other assets, net 1,344 1,485
----------------- ----------------1,240 1,282
------------ ------------
Total assets $ 86,809 $ 89,409
================= ================$86,636 84,519
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of debt $ 5,558 $ 5,658$6,734 4,533
Accounts payable 2,189 2,5433,366 2,472
Accrued expenses 1,654 1,400
----------------- ----------------1,235 953
------------ ------------
Total current liabilities 9,401 9,60111,335 7,958
Debt, excluding current installments 38,333 40,83336,667 37,500
Other liabilities 376 468
----------------- ----------------745 755
------------ ------------
Total liabilities 48,110 50,90248,747 46,213
Stockholders' Equity:
Common stock 580 580
Additional paid-in capital 10,392 10,392
Accumulated other comprehensive loss (254) (254)
Retained earnings 27,727 27,535
----------------- ----------------27,171 27,588
------------ ------------
Total stockholders' equity 38,699 38,507
----------------- ----------------37,889 38,306
------------ ------------
Total liabilities and stockholders' equity $ 86,809 $ 89,409
================= ================$86,636 84,519
============ ============
See accompanying notes to condensed consolidated financial statements.
Page 2 of 1613
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
(Unaudited)
THREE MONTHSQUARTERS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,MARCH 31,
--------------------------------------------------------
2003 2002
2001 2002 2001
AS RESTATED AS RESTATED
--------------------- -------------------- -------------------- ---------------------------------------------- --------------------------
REVENUES $ 10,4969,556 100.0% $ 10,975 100.0% $ 30,434 100.0% $ 30,4788,977 100.0%
Cost of revenues:
Labor and other operating expenses 6,186 58.9% 6,060 55.2% 18,255 60.0% 18,116 59.4%6,300 65.9% 5,602 62.4%
Depreciation, depletion
and amortization 1,571 15.0% 1,603 14.6% 4,622 15.2% 4,301 14.1%
--------------------- -------------------- -------------------- --------------------
7,757 73.9% 7,663 69.8% 22,877 75.2% 22,417 73.5%
--------------------- -------------------- -------------------- --------------------1,507 15.8% 1,538 17.1%
---------- ---------- ---------- ----------
7,807 81.7% 7,140 79.5%
---------- ---------- ---------- ----------
GROSS PROFIT 2,739 26.1% 3,312 30.2% 7,557 24.8% 8,061 26.4%1,749 18.3% 1,837 20.5%
Selling, general and
administrative expenses 983 9.4% 939 8.6% 2,956 9.7% 2,909 9.5%
--------------------- -------------------- -------------------- --------------------1,059 11.1% 958 10.7%
---------- ---------- ---------- ----------
OPERATING PROFIT 1,756 16.7% 2,373 21.6% 4,601 15.1% 5,152 16.9%
--------------------- -------------------- -------------------- --------------------690 7.2% 879 9.8%
---------- ---------- ---------- ----------
Other expenses:expenses (income):
Interest expense 1,072 10.2% 1,1631,021 10.7% 1,114 12.4%
Other expense (income), net (12) (0.1)% 378 4.2%
---------- ---------- ---------- ----------
1,009 10.6% 3,287 10.8% 2,734 9.0%
Other, net (2) (0.0)% 171 1.6% 571 1.9% 737 2.4%
--------------------- -------------------- -------------------- --------------------
1,070 10.2% 1,334 12.2% 3,858 12.7% 3,471 11.4%
--------------------- -------------------- -------------------- --------------------
INCOME1,492 16.6%
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES 686 6.5% 1,039 9.5% 743 2.4% 1,681 5.5%
--------------------- -------------------- -------------------- --------------------(319) (3.3)% (613) (6.8)%
---------- ---------- ---------- ----------
Income tax expense 101 1.0% 267 2.4% 112 0.4% 460 1.5%
--------------------- -------------------- -------------------- --------------------benefit (48) (0.5)% (142) (1.6)%
---------- ---------- ---------- ----------
NET INCOMELOSS $ 585 5.6% $ 772 7.0% $ 631 2.1% $ 1,221 4.0%
===================== ==================== ==================== ====================
INCOME(271) (2.8)% (471) (5.2)%
========== ========== ========== ==========
LOSS PER SHARE OF COMMON STOCK:STOCK
Basic $ 0.10 $ 0.13 $ 0.11 $ 0.22(0.05) (0.08)
Diluted $ 0.10 $ 0.13 $ 0.11 $ 0.22(0.05) (0.08)
See accompanying notes to condensed consolidated financial statements.
Page 3 of 1613
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
NINE MONTHSQUARTERS ENDED SEPTEMBER 30,MARCH 31,
----------------------------
2003 2002
2001
AS RESTATED
----------------- --------------------------- ------------
OPERATING ACTIVITIES:
Net incomeloss $ 631 $ 1,221(271) (471)
Adjustments to reconcile net incomeloss to net cash provided by
(used in) operating activities:operations:
Depreciation, depletion and amortization 4,828 4,4821,569 1,595
Amortization of financing costs 172 17262 57
Loss on sale of property, plantassets 6 5
Changes in operating assets and equipment 5 9
Net (increase) decrease in:liabilities:
Trade receivables, (1,233) (2,756)net (1,611) (799)
Inventories 1,018 (631)64 249
Prepaid expenses 610 19and other current assets (29) 571
Other assets, (32) 194net (20) 2
Accounts payable and accrued expenses (101) (4,579)1,176 (1,022)
Other liabilities (92) (14)
----------------- ---------------(10) (31)
------------ ------------
Total adjustments 1,207 626
------------ ------------
Net cash provided by (used in) operating activitiesoperations $ 5,808 $ (1,883)936 156
INVESTING ACTIVITIES:
Purchase of property, plant and equipment $ (2,913) $ (3,120)$(1,798) (1,477)
Proceeds from sale of property, plant and equipment 77 279
----------------- ----------------- 6
------------ ------------
Net cash used in investing activities $ (2,836) $ (2,841)$(1,798) (1,471)
FINANCING ACTIVITIES:
Payment of common stock dividends $ (439) $ (435)(145) (148)
Proceeds from borrowings 2,201 1,750 3,325
Repayment of debt (4,350) (12,325)
Proceeds from rights offering, net -- 9,551
----------------- ---------------(833) (833)
------------ ------------
Net cash provided by (used in) financing activities $ (3,039) $ 116
----------------- ---------------1,223 769
------------ ------------
Net decreaseincrease (decrease) in cash and cash equivalents (67) (4,608)361 (546)
Cash and cash equivalents at beginning of period 226 606
5,072
----------------- --------------------------- ------------
Cash and cash equivalents at end of period $ 539 $ 464
================= ===============587 60
============ ============
Supplemental cash flow information:
Interest paid $ 3,115 $ 3,439959 1,057
Income taxes paid, net $ 443 $ 291-- 376
See accompanying notes to condensed consolidated financial statements.
Page 4 of 1613
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Presentation. The condensed consolidated financial statements included
herein have been prepared by the Company without independent audit. In the
opinion of the Company's management, all adjustments of a normal and
recurring nature necessary to present fairly the financial position,
results of operations and cash flows for the periods presented have been
made. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the period ended December 31,
2001.2002. The results of operations for the three-month and nine-month periodsperiod ended September 30, 2002March 31,
2003 are not necessarily indicative of operating results for the full year.
Stock-based Compensation. The Company accounts for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Stock-based compensation expense associated with option grants
was not recognized in the net loss for the three month periods ended March
31, 2003 and 2002, as all options granted have had exercise prices equal to
the market value of the underlying common stock on the dates of grant. The
following table illustrates the effect on net loss and loss per common
share if the Company had applied the fair-value-based recognition
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee
compensation:
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
2003 2002
------------ ------------
Net loss as reported $ (271) (471)
Stock-based employee compensation expense
determined under fair-value-based method
for all awards, net of related tax effects (3) (18)
------------ ------------
Pro forma net loss $ (274) (489)
============ ============
Basic and diluted loss per common share,
as reported $ (0.05) (0.08)
Pro forma basic and diluted loss per
common share $ (0.05) (0.08)
Page 5 of 13
2. Embezzlement Matter and Restatements and Reclassification of Previously
Reported Amounts
On January 31, 2002, the Company announced that it had discovered that
an employee who had recently left the Company may have improperly diverted
Company funds without authorization. Trading in the Company's common stock
on the Nasdaq National Market(R) ("Nasdaq") was halted, and the Audit
Committee of the Company's Board of Directors retained outside counsel to
conduct a special investigation into the matter. The Audit Committee also
retained an independent accounting firm to review the Company's internal
controls and to make recommendations for improvement andthat the Company has
implemented the recommended improvements.implemented. The Company also contacted the Securities and Exchange
Commission (the "SEC"), as well as criminal authorities, and is cooperatingcooperated
with the SEC, Nasdaq, and criminal authorities with respect to their
investigations into this matter.
The Company's former Vice President - Finance, Controller, Treasurer,
and Secretary, Larry Ohms (the "Former VP Finance"), over a period of four
years beginning in 1998, embezzled approximately $2,179,000 from the
Company. The Former VP Finance voluntarily resigned from the Company on
January 22, 2002, approximately one week before the Company discovered the
defalcations. The Company has since filed suit against the Former VP
Finance. The Former VP Finance has stated that no one else at the Company
was involved in perpetrating the embezzlements. From the results of the
special investigation and Mr. Ohms' testimony, the Company believes this
statement to be accurate. In 2002, Mr. Ohms pleaded guilty to one count of
wire fraud and one count of making a false statement to the SEC, and on
March 24, 2003 he was sentenced to a term in federal prison and ordered to
pay $2,179,000 in restitution to the Company.
On March 14, 2002, the Company received $500,000 in insurance proceeds
from the Company's insurance policies covering employee theft. The $500,000
had beenwas recorded on the Consolidated Balance Sheet at December 31, 2001 in
prepaid expenses and other assets, and recognized in the Consolidated
Statement of Operations in other income in the fourth quarter 2001. In
addition, the Company has retained counsel for assistance in its efforts to
recover the embezzled funds from the Former VP Finance, and to pursue
possible civil actions on behalf of the Company Page 5 of 16
against third parties. The
Former VP Finance has claimed not to have any funds. During the first nine months 2002, no additionalAny recoveries were realized. Any future recoveries will beare
being recognized in the quarters in which the recoveries are realized. Therealized, and
the costs of the Company's special investigation, the Company's cooperation
with the SEC, Nasdaq, and criminal authorities in their investigations and
the Company's ongoing recovery efforts will be recognizedare being expensed as incurred.
During the first nine months 2002,quarter 2003, the Company recorded $546,000recoveries of $81,000
($0.090.01 per share), net of income tax benefits ($642,000100,000 gross) for suchand
embezzlement-related costs.
Of the total amount embezzled, $126,000 was embezzled during 1998,
$282,000 was embezzled during 1999, $791,000 was embezzled during 2000, and
$980,000 was embezzled during 2001. The Former VP Finance used a varietycosts of methods to hide the embezzlements. Funds embezzled during 1998 were
improperly expensed to selling, general and administrative expenses. Funds
embezzled during 1999 were improperly expensed to labor and other operating
expenses. Of the $791,000 that was embezzled in 2000, $328,000 was
improperly expensed to labor and other operating expenses, and $463,000 was
improperly recorded as prepaid financing costs within other assets, net.
Funds embezzled during 2001 totaling $980,000 were also improperly recorded
as prepaid financing costs in other assets, net. As a result of the
fraudulent entries in other assets, net during 2000$69,000 ($463,000) and 2001
($980,000), the Company improperly recognized excess amortization of its
prepaid financing costs, as a component of interest expense, of $19,000 for
the year ended December 31, 2000 and $166,000 for the nine months ended
September 30, 2001.
As a result of the embezzlements, the Company has reclassified to other
expenses $126,000 in 1998, and $282,000 in 1999, removing those amounts
from selling, general and administrative expenses, and labor and other
operating expenses, respectively. The embezzlements had a material effect
on the Company's financial statements for fiscal year 2000 and the first
three quarters 2001. Therefore, the Company has restated its financial
statements for 2000 and the first three quarters 2001. As a result of the
correction for the overstated prepaid financing costs for 2000 and the
first three quarters 2001, and the reclassification of excess interest
expense to other expenses, the Company's restatements reflected an
additional loss of $344,000 ($0.090.01 per share), net of income tax
benefits ($444,00081,000 gross) in 2000, and a reduction in net income, compared to embezzlement-related costs of
$525,000$290,000 ($0.100.05 per share), net of income tax benefits ($647,000376,000 gross) forin
the nine months
ended September 30, 2001.
The Company's Consolidated Statement of Operations for first nine
months 2001 has been restated to eliminate excess amortization of prepaid
financing costs, as a component of interest expense, of $166,000, and to
recognize in other expenses $813,000 of embezzlement expense. The Company's
restatement resulted in an additional loss of $525,000 ($0.10 per share)
net of income tax benefits ($647,000 gross) for the nine months ended
September 30, 2001.quarter 2002.
3. Inventories
Inventories consisted of the following at:
(In thousands of dollars)
SEPTEMBER 30,
MARCH 31, DECEMBER 31,
2003 2002
2001
---------------------- ---------------------
------------ ------------
Lime and limestone inventories:
Raw materials $ 1,4131,749 $ 1,9831,704
Finished goods 593 927
--------------------- ---------------------
2,006 2,910
Service parts 2,033 2,147
--------------------- ---------------------892 942
------------ ------------
2,641 2,646
Parts inventories 2,077 2,136
------------ ------------
Total inventories $ 4,0394,718 $ 5,057
===================== =====================4,782
============ ============
Page 6 of 1613
4. Banking Facilities and Other Debt
On April 22, 1999, the Company entered into a new credit agreement with a
consortium of commercial banks for a $50,000,000 Senior Secured Term Loan
(the "Loan"). The Loan is repayable over a period of approximately 8eight
years, maturing on March 30, 2007, and requires monthly principal payments
of $278,000, which began April 30, 2000, with a final principal payment of
$26,944,000 on March 30, 2007, which equates to a 15-year amortization. The
Company paid a fee equivalent to 2.50% of the Loan value to the placement
agent.
The interest rate on the first $30,000,000 of the Loan is 8.875%. The
subsequent installments bear interest from the date they were funded at
3.52% above the secondary market yield of the United States Treasury
obligation maturing May 15, 2005. The blended rate for the additional
$20,000,000 is 9.84%.
The Loan is secured by a first lien on substantially all of the
Company's assets, with the exception of accounts receivable and inventories
which have been used to secure the Company's $5,000,000 revolving credit facility. The Loan
agreement contains covenants that restrict the incurrence of debt,
guaranties and liens, and places certain restrictions on the payment of
dividends and the sale of significant assets. The Company is also required
to meet minimum debt service coverage ratios on an on-going basis and
maintain a minimum level of tangible net worth.
AsOn January 31, 2003, the maturity of April 26, 2001, the Company renewed its revolving credit
facility, extending it through May 31, 2002 and increasing the maximum
borrowing amount from $4,000,000 to $5,000,000. TheCompany's $5,000,000 revolving
credit facility bearswas extended to July 31, 2003. From January 1, 2003 through
March 2, 2003, the revolving credit facility bore interest at LIBOR plus a
margin of 1.40%, which rate will
increase to a maximum of LIBOR plus 3.55%, in accordance with a defined rate spread based
upon the Company's then-current ratio of total funded debt to earnings
before interest, taxes, depreciation and amortization (EBITDA).
On December 31, 2001,March 3, 2003, the Company amended theentered into a Loan and Security
Agreement with another bank for a new $5,000,000 revolving credit facility
to extendreplace the maturity date to July 31, 2002, and to allowprior facility. In addition, the Company obtained a new
$2,000,000 equipment line of credit (available for a contractual
overadvance abovefinancing or leasing
large mobile equipment used in its operations) from the borrowing base limitation as previously stated in the
facility in an amount not to exceed $750,000 that expired on July 31, 2002.same bank. The $5,000,000 revolving credit facility was further amended on May 31,
2002 to extend the maturity date to January 31, 2003. The Company has
requested an additional extension of the $5,000,000 revolving credit
facility. As of October 31, 2002, the Company's outstanding balance was
$1,825,000, and the average interest rate for the first nine months 2002
was 4.19%. Thenew
revolving credit facility is secured by the Company's accounts receivable
and inventory.
On December 27, 2000,inventories, provides for an interest rate of LIBOR plus 2.75%, and
matures on March 1, 2004. As of April 30, 2003, the Company's outstanding
balance on the revolving credit facility was $3,401,000. The average
interest rate for the revolving credit facilities in the first quarter 2003
was 3.79%. As of April 30, 2003, the Company obtained a $5,000,000 bridge loanhad entered into approximately
$500,000 of leases for mobile equipment under normal commercial terms from Inberdon Enterprise, Ltd. ("Inberdon"),
evidenced by a subordinated promissory note. Inberdon owned approximately
51% of the outstanding common stock of the Company at the time. The bridge
loan was unsecured, bore interest at 9.75%, and had to be repaid by March
27, 2001. The bridge loan was repaid with a portion of the proceeds of the
Company's rights offering that closed on February 8, 2001. See Note 5.
Page 7 of 16
new $2,000,000 equipment
line.
A summary of outstanding debt at the dates indicated is as follows:
(In thousands of dollars)
SEPTEMBER 30,MARCH 31, DECEMBER 31,
2003 2002
2001
------------- ------------------------- ------------
Term loan $ 41,666 $ 44,16640,000 40,833
Revolving credit facility 2,225 2,325
------------- -------------3,401 1,200
------------ ------------
Subtotal 43,891 46,49143,401 42,033
Less current installments 5,558 5,658
------------- -------------6,734 4,533
------------ ------------
Debt, excluding current
installments $ 38,333 $ 40,833
============= =============36,667 37,500
============ ============
The carrying amountPage 7 of the Company's long-term debt approximates its fair
value.
5. Rights Offering
On December 26, 2000, the Company initiated a rights offering for
$10,000,000. The rights offering allowed each shareholder to receive 0.4566
non-transferable subscription rights for each share of the Company's common
stock owned on December 26, 2000. The purchase price for the subscription
was $5.50 per share, and the rights offering expired on February 5, 2001.
As a result of the rights offering, the Company received $10,000,000
($9,551,000 net of offering costs) and issued an additional 1,818,181
shares effective February 8, 2001. In the rights offering, the Company
honored the over subscription requests of its shareholders in full. The
Company's majority shareholder, Inberdon, subscribed for its full pro-rata
amount, and in addition purchased 461,005 shares not purchased by other
shareholders in the rights offering. Immediately following the rights
offering, Inberdon owned approximately 59% of the Company's common stock.
6. Employee Retirement Plan
The Company has a noncontributory defined benefit pension plan (the
"Corson Plan") that covered substantially all union employees previously
employed by its wholly-owned subsidiary, Corson Lime Corporation. In June
1997, the Company sold substantially all of the assets of Corson Lime
Company and all benefit accruals under the plan ceased as of July 31, 1997.
During 1997 and 1998, the Company made contributions to the Corson Plan
that were intended to fully fund all of the benefits earned by the
participants. The Company has made no contributions to the Corson Plan
since 1998. The significant declines in the financial markets have
unfavorably impacted plan asset values. Assuming the stock market does not
significantly improve during the last quarter of this year, and
historically low interest rates continue (a key factor when estimating plan
liabilities), the Company is likely to record a significant non-cash charge
to equity in the fourth quarter 2002. This charge would not impact reported
earnings for 2002 and will reverse in future periods if either interest
rates increase or market performance and returns on plan assets improve.
Page 8 of 1613
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5,808,000 for the nine
months ended September 30, 2002, compared to net cash used in operating
activities of $1,883,000 for the nine months ended September 30, 2001. The
$7,691,000 improvement in the first nine months 2002 was primarily the result of
changes in working capital. The most significant changes in working capital
resulted from $4,479,000 less cash being required to pay for accounts payable
and accrued expenses in the first nine months 2002, compared to the same period
in 2001. The 2001 decrease in accounts payable and accrued expenses primarily
reflected payments for costs incurred related to the Phase I of the
modernization and expansion project at the Arkansas facility that was completed
in the second quarter 2001. In addition, the Company reduced its inventories by
$1,018,000 in the first nine months 2002, compared to a $631,000 increase in the
comparable 2001 period, and accounts receivable increased $1,233,000 during the
first nine months 2002, compared to a $2,756,000 increase in the comparable 2001
period. The $610,000 decrease in prepaid expenses in the first nine months 2002
is primarily due to the $500,000 in insurance proceeds received in March 2002.
The Company invested $2,913,000 in capital expenditures in the first nine
months 2002, compared to $3,120,000 in the same period last year after final
resolution with a contractor. In the first nine months 2001, capital
expenditures of approximately $722,000 were related to Phase I of the
modernization and expansion project at the Arkansas facility.
Net cash used in financing activities was $3,039,000 in the first nine
months 2002, primarily from $4,350,000 repayment of debt and $439,000 payment of
cash dividends, partially offset by $1,750,000 of draws on the Company's
revolving credit facility. Financing activities provided $116,000 net cash in
the first nine months 2001, as explained below.
During the fourth quarter 2000, the Company required additional capital
because the costs to complete both Phase I of the Arkansas modernization and
expansion project and the new pulverized limestone production line at Texas were
significantly higher than originally anticipated and because the Company's cash
flow and operating profits were lower than expected. To meet its short-term
liquidity demands, the Company determined to make a pro-rata rights offering to
its existing shareholders to raise $10,000,000 in additional equity capital.
On December 27, 2000, the Company obtained a $5,000,000 bridge loan
("Bridge Loan") under normal commercial terms from Inberdon Enterprise, Ltd.
("Inberdon"), its majority shareholder. Inberdon owned approximately 51% of the
outstanding common stock of the Company at the time the Bridge Loan was made.
The Bridge Loan was unsecured, carried interest at 9.75%, and matured on March
27, 2001.
The Company commenced the rights offering on December 26, 2000, and it
closed on February 8, 2001. In the rights offering, the Company raised an
additional $10,000,000 ($9,551,000 net of offering costs) in equity capital and
issued 1,818,181 shares of common stock at the subscription price of $5.50 per
share. The Company was able to honor in full all over-subscription requests from
its shareholders. The Company's majority shareholder, Inberdon, subscribed for
its full pro rata amount and also purchased, at the $5.50 per share subscription
price, 461,005 additional shares not purchased by other shareholders in the
rights offering, for a total investment of approximately $7,630,000. Immediately
Page 9 of 16
following the rights offering, Inberdon owned approximately 59% of the Company's
outstanding common stock.
The proceeds of the rights offering were used to repay the $5,000,000
Bridge Loan from Inberdon, to repay the Company's then-outstanding $4,000,000
revolving credit facility, and for working capital. Accordingly, the Company has
fully utilized the proceeds of the rights offering. As a result of repaying the
revolving credit facility, however, the Company continued to have access to the
funds available under the facility.
On December 31, 2001, the Company amended the revolving credit facility to
extend the maturity date to July 31, 2002, and to allow for a contractual
overadvance above the borrowing base limitation as previously stated in the
facility in an amount not to exceed $750,000 that expired on July 31, 2002. The
$5,000,000 revolving credit facility was further amended on May 31, 2002 to
extend the maturity date to January 31, 2003. The Company has requested an
additional extension of the $5,000,000 revolving credit facility. As of October
31, 2002, the Company's outstanding balance on the revolving credit facility was
$1,825,000. The Company believes that funds generated from operations and
available under the revolving credit facility, assuming it is extended, will be
sufficient to meet the Company's liquidity and capital needs through such
period.
The Arkansas modernization and expansion project is expected to be
completed in two phases. Phase I involved the redevelopment of the quarry plant,
rebuilding of the railroad to standard gauge, the purchase of a facility to
establish an out-of-state terminal in Shreveport, Louisiana, the installation of
a rotary kiln with preheater, and increased product storage and loading
capacity. The kiln in Phase I produced its first lime on October 22, 2000, which
is of excellent quality and has been well received by customers. Phase I of the
modernization and expansion project for the Arkansas plant required additional
work in order to be fully operational and efficient. The Company completed this
work in the second quarter 2001.
After final resolution of all outstanding matters with a contractor, the
total cost of Phase I was approximately $33,000,000. The $33,000,000 included
$1,800,000 of costs associated with the pre-building of certain facilities for
Phase II of the Arkansas project and the purchase of, but not all of the
improvements to, the out-of-state terminal in Shreveport, Louisiana.
Phase II of the Arkansas project will further expand the plant capacity
through the installation of a second kiln with additional storage capacity, and
includes the completion of the out-of-state terminal in Shreveport, Louisiana
for distribution of the Company's products.
The estimated additional capital costs to complete Phase II is
approximately $16,000,000. The Company plans to proceed with Phase II at the
optimum time based on its future operating results, market demand and ability to
secure competitive construction bids and financing.
The Company is not contractually committed to any planned capital
expenditures until actual orders are placed for equipment. As of September 30,
2002, the Company had no material open orders.
As of October 31, 2002, the Company had $43,214,000 in total debt
outstanding.
RESULTS OF OPERATIONS
Revenues decreased to $10,496,000 in the third quarter 2002 from
$10,975,000 in the third quarter 2001, a decrease of $479,000, or 4.4%. This
primarily resulted from a 4.9% decrease in sales volume, partially offset by a
0.5% increase in average prices. Revenues were $30,434,000 in the first nine
Page 10 of 16
months 2002, basically unchanged compared to $30,478,000 for the first nine
months 2001 as a 0.8% decrease in sales volume was partially offset by a 0.7%
increase in average prices. The market for the Company's products continues to
be very competitive. There was also a reduction in the amount of Texas highway
construction work let in the first nine months of the year, as compared to the
first nine months of last year. During the last couple of months, the letting of
contracts for highway construction work has increased and the Company believes
this should have a favorable impact on revenues when the work takes place.
The Company's gross profit was $2,739,000 for the third quarter 2002,
compared to $3,312,000 for the third quarter 2001, a 17.3% decrease. Gross
profit margin as a percentage of revenues for the third quarter 2002 decreased
to 26.1% from 30.2% in third quarter 2001. Gross profit and gross profit margins
declined in the quarter primarily due to reduced lime production during July at
the Company's Texas plant caused by various operational problems. This reduced
production resulted in the depletion of finished goods inventories and increased
costs through the purchase of lime from alternative sources to fulfill some of
the Company's sales commitments.
The Company's gross profit was $7,557,000 for the first nine months 2002,
compared to $8,061,000 for the first nine months 2001, a decrease of $504,000,
or 6.3%. Gross profit margin as a percentage of revenues for the first nine
months 2002 was 24.8% compared to 26.4% in first nine months 2001. The decrease
in gross profit and gross profit margin during the first nine months 2002 is
primarily due to a $321,000 increase in depreciation expense and reduced
production at the Texas plant in the second quarter and the first month of the
third quarter due to operational problems, partially offset by increased
production and sales at the Arkansas plant. The increase in depreciation
resulted from the completion of the Company's Arkansas Phase I modernization and
expansion project in the second quarter 2001.
Selling, general and administrative expenses ("SG&A") increased by $44,000
or 4.7%, to $983,000 in the third quarter 2002, as compared to $939,000 in the
third quarter 2001, and increased by $47,000 or 1.6%, to $2,956,000 in the first
nine months 2002, as compared to $2,909,000 in the first nine months 2001. As a
percentage of sales, SG&A was 9.4% in the third quarter 2002, as compared to
8.6% in the comparable 2001 period, and 9.7% for the 2002 nine-month period, as
compared to 9.5% in the first nine months 2001.
Interest expense in the second quarter 2002 was $1,072,000. This compares
to $1,163,000, net for the third quarter 2001. Interest expense in the first
nine months 2002 was $3,287,000. This compares to $2,734,000, net for the
comparable 2001 period, after $845,000 had been capitalized as part of the
Arkansas Phase I project costs during the first nine months 2001.
Other, net was $2,000 income in the third quarter 2002, as compared to the
restated $171,000 expense in the third quarter 2001. Other, net in the 2002
quarter consisted of interest and other income partially offset by $19,800 of
embezzlement-related costs. In the third quarter 2001 as restated, $193,000 of
embezzlement expense was the primary other expense, partially offset by interest
income. Other, net decreased by $166,000 to $571,000 in the first nine months
2002, as compared to the restated $737,000 in the first nine months 2001. Other,
net in the first nine months 2002 consisted of $642,000 of embezzlement-related
costs, partially offset by interest and other income. In the first nine months
2001 as restated, $813,000 of embezzlement expense was the primary other
expense, partially offset by interest income. (See Note 2 to Condensed
Consolidated Financial Statements.)
The Company reported net income of $585,000 ($0.10 per share) during the
third quarter 2002, compared to a restated net income of $772,000 ($0.13 per
share) during the third quarter 2001. The
11 of 16
Company reported a net income of $631,000 ($0.11 per share) during the fist nine
months 2002, compared to a restated net income of $1,221,000 ($0.22 per share)
during the first nine months 2001.
EBITDA (earnings before interest, taxes, depreciation and
amortization) was $3,386,000 for the third quarter 2002, a decrease of 12.3%
from the restated third quarter 2001 EBITDA of $3,859,000. This $473,000
decrease was primarily due to the operational problems at the Company's Texas
plant in July. EBITDA was $8,819,000 for the first nine months 2002, a decrease
of 0.9% from the restated first nine months 2001 EBITDA of $8,897,000. This
$78,000 decrease was primarily due to reduced production at the Company's Texas
plant, partially offset by increased production at the Company's Arkansas plant.
FORWARD-LOOKING STATEMENTS. Any statements contained in this Quarterly Report that are not
statements of historical fact are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements in
this Report, including without limitation statements relating to the Company's
plans, strategies, objectives, expectations, intentions, and adequacy of
resources, are identified by such words as "will," "could," "should," "believe,"
"expect," "intend," "plan," "schedule," "estimate," "anticipate," and "project."
The Company undertakes no obligation to publicly update or revise any
forward-looking statements. Investors are cautionedThe Company cautions that forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from expectations, including without limitation the following: (i)
the Company's plans, strategies, objectives, expectations, and intentions are
subject to change at any time atin the discretion
of the Company;Company's discretion; (ii) the Company's
plans and results of operations will be affected by the Company'sits ability to manage its
growth and modernization; (iii) the Company's ability to meet short-term and
(iii)long-term liquidity demands; (iv) inclement weather conditions; (v) increased
fuel costs; (vi) unanticipated delays or additional cost overruns in completing
current or planned construction projects; (vii) reduced demand for the Company's
products; and (viii) other risks and uncertainties including without limitation those risks
and uncertaintiesset forth below or indicated
from time to time in the Company's filings with the Securities and Exchange
Commission, including the Company's Form 10-K for the fiscal year ended December
31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $936,000 for the three months ended
March 31, 2003, compared to $156,000 for the three months ended March 31, 2002.
The $780,000 improvement was the result of a $200,000 smaller loss in the first
quarter 2003 compared to the prior year and changes in working capital.
The Company invested $1,798,000 in capital expenditures in the first three
months 2003, compared to $1,477,000 in the same period last year. The increase
in capital expenditures was primarily due to the erection of a 5,000-ton
pulverized limestone storage facility at the Company's Texas operations, which
will enhance customer service. The Company expects to complete the new storage
facility in the second quarter.
Net cash provided by financing activities was $1,223,000 in the first three
months 2003, primarily from $2,201,000 of draws on the Company's revolving
credit facility, partially offset by $833,000 repayment of debt and $145,000
payment of cash dividends. Financing activities provided $769,000 net cash in
the first three months 2002, primarily from $1,750,000 of draws on the Company's
revolving credit facility, partially offset by $833,000 repayment of debt and
$148,000 payment of cash dividends.
On March 3, 2003, the Company entered into a Loan and Security Agreement
with another bank for a new $5,000,000 revolving credit facility to replace the
prior facility. In addition, the Company obtained a new $2,000,000 equipment
line of credit (available for financing or leasing large mobile equipment used
in its operations) from the same bank. The new revolving credit facility is
secured by the Company's accounts receivable and inventories, provides for an
interest rate of LIBOR plus 2.75%,
Page 8 of 13
and matures on March 1, 2004. As of April 30, 2003, the Company's outstanding
balance on the revolving credit facility was $3,401,000. The average interest
rate for the revolving credit facilities in the first quarter 2003 was 3.79%. As
of April 30, 2003, the Company had entered into approximately $500,000 of leases
for mobile equipment under the new $2,000,000 equipment line. The Company
believes that funds generated from operations and amounts still available under
the revolving credit facility will be sufficient to meet the Company's liquidity
and ongoing capital needs for the year.
The Arkansas modernization and expansion project commenced with ground
breaking in November 1999 and is expected to be completed in two phases. Phase I
involved the redevelopment of the quarry plant, rebuilding of the railroad to
standard gauge, the purchase of a facility to establish an out-of-state terminal
in Shreveport, Louisiana, the installation of a rotary kiln with preheater, and
increased product storage and loading capacity. The kiln in Phase I produced its
first lime in the fourth quarter 2000, which continues to be of excellent
quality and well received by customers. The Company completed Phase I in the
second quarter 2001.
The total cost of Phase I was approximately $33,000,000. The $33,000,000
includes $1,800,000 of costs associated with the pre-building of certain
facilities for Phase II of the Arkansas project and the purchase of, but not all
of the improvements to, the out-of-state terminal in Shreveport, Louisiana.
Phase II of the Arkansas project will further expand the plant's capacity
through the installation of a second kiln with additional storage capacity, and
includes the completion of the out-of-state terminal in Shreveport, Louisiana
for distribution of the Company's products. The estimated additional cost to
complete Phase II is approximately $16,000,000. The Company plans to proceed
with Phase II at the optimum time based on its future operating results, market
demand, financing and the ability to secure competitive construction bids. As
part of the financing of Phase II, the Company may decide to incur additional
debt or issue additional equity securities or both. Recently, the Company has
engaged an investment banking firm to advise it on possible financing
alternatives.
The Company is not contractually committed to any planned capital
expenditures until actual orders are placed for equipment. As of March 31, 2003,
the Company was contractually obligated for approximately $200,000 to complete
the pulverized limestone storage facility at the Company's Texas plant.
As of April 30, 2003, the Company had $43,124,000 in total debt
outstanding.
RESULTS OF OPERATIONS
Revenues increased to $9,556,000 in the first quarter 2003 from $8,977,000
in the first quarter 2002, an increase of $579,000, or 6.4%. This primarily
resulted from a 4.9% increase in product sales and revenues from natural gas
surcharges discussed below.
The Company's gross profit was $1,749,000 for the first quarter 2003, compared
to $1,837,000 for the first quarter 2002, a 4.8% decrease. Gross profit margin
as a percentage of revenues for the first quarter 2003 decreased to 18.3% from
20.5% in first quarter 2002. Gross profit and gross profit margins declined in
the 2003 quarter primarily due to increased natural gas costs. Also, a winter
ice storm in Texas caused the loss of approximately two days of sales and a
natural gas curtailment to the Company's Texas plant that resulted in reduced
production levels. The total negative price variance for natural gas was
approximately $400,000 compared to the first quarter last year. In early March,
the Company implemented natural gas surcharges on pulverized limestone products
that offset approximately $150,000 of the increased natural gas costs incurred
during the quarter.
Page 9 of 13
Although natural gas prices have declined from their highs during the
quarter, they continue to exceed 2002 price levels. Due to lower domestic
inventories of natural gas, the Company expects prices to remain higher than in
the previous year. Therefore, the Company intends to continue the natural gas
surcharges on pulverized limestone products in a continued effort to offset most
of the increased costs. Production of pulverized limestone products accounted
for approximately 85% of the Company's natural gas usage during the first
quarter 2003.
Selling, general and administrative expenses ("SG&A") increased by
$101,000, or 10.6%, to $1,059,000 in the first quarter 2003, as compared to
$958,000 in the first quarter 2002. The increase was primarily attributable to
increases in legal and audit fees, insurance costs, salaries and employee
benefits. As a percentage of sales, SG&A was 11.1% in the first quarter 2003, as
compared to 10.7% in the comparable 2002 period.
Interest expense in the first quarter 2003 was $1,021,000, compared to
$1,114,000, net for the first quarter 2002, primarily resulting from the
$3,333,000 repayment on the Loan over the last 12 months.
Other, net was $12,000 income in the first quarter 2003, as compared to
$378,000 expense in the first quarter 2002. Other, net in the 2003 quarter
consisted of interest, other income and $100,000 of embezzlement-related
recoveries, partially offset by $81,000 of embezzlement-related costs. In the
first quarter 2002, $376,000 of embezzlement-related costs was the primary other
expense.
The Company reported a net loss of $271,000 ($0.05 per share) during the
first quarter 2003, compared to a net loss of $471,000 ($0.08 per share) during
the first quarter 2002.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
ITEM 4: CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures was performed under the supervision and with the participation of
the Company's management, including the Chief Executive Officer ("CEO") and the
Chief Financial Officer ("CFO"). Based on that evaluation, the CEO and CFO
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the most recent evaluation of internal controls.
Page 1210 of 1613
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
11 Statement re computation of per share earnings
99(a) Section 906 Certification by the Chief Executive Officer
99(b) Section 906 Certification by the Chief Financial Officer
b. Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES LIME & MINERALS, INC.
November 6, 2002May 8, 2003 By: /s/ Timothy W. Byrne
--------------------------------------------------------------------------------------
Timothy W. Byrne
President and Chief Executive Officer
(Principal Executive Officer)
November 6, 2002May 8, 2003 By: /s/ M. Michael Owens
--------------------------------------------------------------------------------------
M. Michael Owens
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
I, Timothy W. Byrne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United States Lime &
Minerals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of Page 13 of 16
operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
Page 11 of 13
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 6, 2002May 8, 2003 /s/ Timothy W. Byrne
--------------------------------------------------------------------
Timothy W. Byrne
Chief Executive Officer
I, M. Michael Owens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United States Lime &
Minerals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of Page 14 of 16
the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
Page 12 of 13
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 6, 2002May 8, 2003 /s/ M. Michael Owens
-------------------------------------------------------------------
M. Michael Owens
Chief Financial Officer
Page 1513 of 1613
UNITED STATES LIME & MINERALS, INC.
Quarterly Report on Form 10-Q
Quarter Ended
September 30, 2002March 31, 2003
Index to Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------
11 Statement re: computation of per share earnings
99(a) Section 906 Certification by the Chief Executive Officer
99(b) Section 906 Certification by the Chief Financial Officer
Page 16 of 16