UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2003MARCH 31, 2004
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]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]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 October 31, 2003,
5,799,845May 10, 2004, 5,826,696
shares of common stock, $0.10 par value, were outstanding.
Page 1 of 14
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
SEPTEMBER 30,MARCH 31, DECEMBER 31,
2004 2003
2002
---------------------- ------------
ASSETS
Current Assets:assets:
Cash and cash equivalents $ 11,361 2262,259 6,375
Trade receivables, net 7,968 5,2028,121 6,959
Inventories 4,383 4,7824,719 4,609
Prepaid expenses and other current assets 608 262447 721
--------- ----------------
Total current assets 24,320 10,47215,546 18,664
Property, plant and equipment, at cost: 118,503 114,062cost 131,613 126,638
Less accumulated depreciation (47,826) (43,656)(50,918) (49,371)
--------- ----------------
Property, plant and equipment, net 70,677 70,40680,695 77,267
Deferred tax assets, net 2,101 2,3591,683 1,899
Other assets, net 2,038 1,2821,605 1,670
--------- ----------------
Total assets $ 99,136 84,51999,529 99,500
========= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:liabilities:
Current installments of debt $ 3,333 4,5333,333
Accounts payable 2,838 2,472payable-trade 3,535 3,369
Accrued expenses 1,858 9532,065 2,053
--------- ----------------
Total current liabilities 8,029 7,9588,933 8,755
Debt, excluding current installments 49,000 37,50047,068 47,886
Other liabilities 908 755711 899
--------- ----------------
Total liabilities 57,937 46,21356,712 57,540
Stockholders' Equity:equity:
Common stock 580 580582 582
Additional paid-in capital 10,392 10,39210,484 10,458
Accumulated other comprehensive loss (254) (254)(237) (237)
Retained earnings 30,481 27,58831,988 31,157
--------- ----------------
Total stockholders' equity 41,199 38,30642,817 41,960
--------- ----------------
Total liabilities and stockholders' equity $ 99,136 84,51999,529 99,500
========= ================
See accompanying notes to condensed consolidated financial statements.
Page 2 of 1413
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
(Unaudited)
THREE MONTHSQUARTER ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ---------------- ----------------- ------------------MARCH 31,
------------------------------------------------------------
2004 2003
2002 2003 2002
----------------- ---------------- ----------------- ------------------------------------------------------------------------------
REVENUES $ 12,84912,075 100.0% $ 10,496 100.0% $ 33,934 100.0% $ 30,4349,556 100.0%
Cost of revenues:
Labor and other operating expenses 6,935 54.0% 6,186 58.9% 19,766 58.2% 18,255 60.0%7,042 58.3% 6,300 65.9%
Depreciation, depletion
and amortization 1,527 11.9% 1,571 15.0% 4,573 13.5% 4,622 15.2%
----------------- ---------------- ----------------- ------------------
8,462 65.9% 7,757 73.9% 24,3391,618 13.4% 1,507 15.8%
-------- ----- -------- -----
8,660 71.7% 22,877 75.2%
----------------- ---------------- ----------------- ------------------7,807 81.7%
-------- ----- -------- -----
GROSS PROFIT 4,387 34.1% 2,739 26.1% 9,5953,415 28.3% 7,557 24.8%1,749 18.3%
Selling, general and
administrative expenses 1,188 9.2% 983 9.3% 3,235 9.6% 2,956 9.7%
----------------- ---------------- ----------------- ------------------9.8% 1,059 11.1%
-------- ----- -------- -----
OPERATING PROFIT 3,199 24.9% 1,756 16.8% 6,360 18.7% 4,601 15.1%
----------------- ---------------- ----------------- ------------------2,227 18.4% 690 7.2%
-------- ----- -------- -----
Other expenses (income):
Interest expense 1,256 9.8% 1,072 10.2% 3,315 9.8% 3,287 10.8%1,207 10.0% 1,021 10.7%
Other expense (income), net 3 0.0% (2) (0.0)(18) (0.1)% (708) (2.1)(12) (0.1)%
571 1.9%
----------------- ---------------- ----------------- ------------------
1,259-------- ----- -------- -----
1,189 9.8% 1,070 10.2% 2,607 7.7% 3,858 12.7%
----------------- ---------------- ----------------- ------------------1,009 10.6%
-------- ----- -------- -----
INCOME (LOSS) BEFORE INCOME TAXES 1,940 15.1% 686 6.6% 3,753 11.0% 743 2.4%
----------------- ---------------- ----------------- ------------------1,038 8.6% (319) (3.3)%
-------- ----- -------- -----
Income tax expense 298 2.3% 101 1.0% 570 1.6% 112 0.3%
----------------- ---------------- ----------------- ------------------(benefit), net 208 1.7% (48) (0.5)%
-------- ----- -------- -----
NET INCOME (LOSS) $ 1,642 12.8%830 6.9% $ 585 5.6% $ 3,183 9.4% $ 631 2.1%
================= ================ ================= ==================(271) (2.8)%
======== ===== ======== =====
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Basic $ 0.280.14 $ 0.10 $ 0.55 $ 0.11(0.05)
Diluted $ 0.280.14 $ 0.10 $ 0.55 $ 0.11(0.05)
See accompanying notes to condensed consolidated financial statements.
Page 3 of 1413
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
SEPTEMBER 30,
---------------------MARCH 31,
--------------------------
2004 2003
2002
----------------- ------
OPERATING ACTIVITIES:
Net income (loss) $ 3,183 631830 (271)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation, depletion and amortization 4,756 4,8281,696 1,569
Amortization of financing costs 236 17296 62
Amortization of debt discount 15 --
Accretion of repurchase liability - warrants 31 --
Deferred income taxes 258217 --
Loss on saledisposal of assets 40 56
Changes in operating assets and liabilities:
Trade receivables net (2,766) (1,233)(1,162) (1,611)
Inventories 399 1,018(110) 64
Prepaid expenses and other current assets (346) 610273 (29)
Other assets net (416) (32) (20)
Accounts payable and accrued expenses 1,271 (101)1,457 1,176
Other liabilities 153 (92)
--------(218) (10)
--------- ------
Total adjustments 3,585 5,177
--------2,303 1,207
--------- ------
Net cash provided by operations $ 6,768 5,8083,133 936
INVESTING ACTIVITIES:
Purchase of property, plant and equipment $ (5,074) (2,913)
Proceeds from sale of property, plant and equipment 6 77
--------(6,443) (1,798)
--------- ------
Net cash used in investing activities $ (5,068) (2,836)(6,443) (1,798)
FINANCING ACTIVITIES:
Payment of common stock dividends $ (290) (439)-- (145)
Proceeds from borrowings, net 15,626 1,750-- 2,201
Repayment of debt (5,901) (4,350)
--------(833) (833)
Proceeds from exercise of stock options 27 --
--------- ------
Net cash (used in) provided (used) by financing activities $ 9,435 (3,039)
--------(806) 1,223
--------- ------
Net (decrease) increase in cash and cash equivalents 11,135 (67)(4,116) 361
Cash and cash equivalents at beginning of period 6,375 226
606
----------------- ------
Cash and cash equivalents at end of period $ 11,361 539
========2,259 587
========= ======
Supplemental cash flow information:
Interest paid $ 3,138 3,1151,110 959
Income taxes paid, net $ 76 44350 --
See accompanying notes to condensed consolidated financial statements.
Page 4 of 1413
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,
2002.2003. The results of operations for the three-month and nine-month periodsperiod ended September 30, 2003March 31,
2004 are not necessarily indicative of operating results for the full year.
Stock-basedStock-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 income for the nine-month periodsquarters ended September 30,March 31, 2004
and 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 income and income 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:compensation (in thousands, except per share amounts):
FOR THE THREE MONTHS
ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------MARCH 31,
----------------------
2004 2003
2002 2003 2002
-------- -------- -------- --------------- -------
Net income (loss) as reported $ 1,642 585 3,179 631830 $ (271)
------- -------
Stock-based employee compensation expense
determined under fair-value-based method
for all awards, net of related tax effects (9) -- (25) (33) -------- --- ----- ---(3)
------- -------
Pro forma net income $ 1,633 585 3,154 598
======== === ===== ===797 $ (274)
======= =======
Basic and diluted income (loss) per common share,$ 0.14 $ (0.05)
Share, as reported $ 0.28 0.10 0.55 0.11
Pro forma basic and diluted income (loss) per
common share $ 0.28 0.10 0.54 0.100.14 $ (0.05)
Page 5 of 1413
2. Embezzlement-Related CostsIncome (Loss) Per Share of Common Stock
The following table sets forth the computation of basic and Recoveries
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'sdiluted
income (loss) per common stock
on the Nasdaq National Market(R) ("Nasdaq") was halted, and the Audit
Committeeshare:
QUARTER ENDED MARCH 31,
2004 2003
---------- ----------
Numerator:
Net income (loss) for basic income (loss)
per common share $ 830 (271)
Warrant interest adjustment 30 --
---------- ----------
Net income (loss) for diluted income (loss) per
common share $ 860 (271)
========== ==========
Denominator:
Denominator for basic income (loss) per
common share - weighted-average shares 5,818,479 5,799,845
---------- ----------
Effect of dilutive securities:
Warrants 88,475 --
Employee stock options 72,572 --
---------- ----------
Denominator for diluted income (loss per common
share - adjusted weighted-average shares and
assumed exercises 5,979,526 5,799,845
========== ==========
Basic and diluted income (loss) per
common share $ 0.14 (0.05)
========== ==========
3. Inventories
Inventories consisted 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 that the Company has
implemented. The Company also contacted the Securities and Exchange
Commission (the "SEC"), as well as criminal authorities, and cooperated
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 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
was 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 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 against third parties. The
Company filed suit against the Former VP Finance and has obtained a
judgment against him, including compensatory and punitive damages. The
Former VP Finance has claimed not to have any funds.
Recoveries are being recognized in the quarters in which the recoveries
are realized, 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 are being
expensed as incurred. During the first nine months 2003, the Company
recorded recoveries of $783,000 ($0.14 per share), net of income taxes
($921,000 gross), and embezzlement-related costs of $172,000 ($0.03 per
share), net of income tax benefits ($202,000 gross), compared to
embezzlement-related costs of $546,000 ($0.09 per share), net of income tax
benefits ($642,000 gross), in the first nine months 2002.
Page 6 of 14
3. Inventoriesfollowing at:
(In thousands)
Inventories consisted of the following at:
(In thousands of dollars) SEPTEMBER 30,MARCH 31, DECEMBER 31,
2004 2003
2002
------ ---------------- -----------
Lime and limestone inventories:
Raw materials $1,631 $1,704$ 1,722 $ 1,616
Finished goods 518 942
------ ------
2,149 2,646866 769
---------- ----------
2,588 2,385
Parts inventories 2,234 2,136
------ ------2,131 2,224
---------- ----------
Total inventories $4,383 $4,782
====== ======$ 4,719 $ 4,609
========== ==========
4. Banking Facilities and Other Debt
On April 22, 1999, the Company entered into a 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 eight
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.
Page 6 of 13
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 secure the Company's $5,000,000$6,000,000 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 ongoing basis and
maintain a minimum level of tangible net worth.
On January 31, 2003, the maturity of the Company's $5,000,000 revolving
credit facility was 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% to 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 March 3, 2003, the Company entered into a Loan and Security
Agreement with another bank for a $5,000,000 revolving credit facility to
replace thea 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%, and
maturesoriginally matured on March 1, 2004. On December 29, 2003, the Loan and
Security Agreement was amended to increase the revolving credit facility to
$6,000,000 and extend the maturity to April 1, 2005. As of September 30, 2003,March 31, 2004,
the Company had no outstanding balance on the revolving credit facility. The outstanding
balanceAs
of the revolving credit facility was repaid in full on August 5,
2003 with proceeds from the private placement discussed below, and the Loan
and Security Agreement was amended to allow the revolving credit facility
to be increased to $6,000,000 at the Company's option. The average interest
rate for the revolving credit facilities for the outstanding balances in
2003 was 4.04%. As
Page 7 of 14
of OctoberMarch 31, 2003,2004, the Company had entered into approximately $1,100,000 of
operating leases for mobile equipment under the $2,000,000 equipment line.
In April 2003, the Company engaged Frost Securities, Inc. ("Frost") to
advise it on possible financing alternatives for the Phase II expansion of
the Company's Arkansas facilities. Frost contacted potential sources of
financing and obtained several term sheet proposals for a subordinated debt
placement from outside investors. In conjunction with the review of the
proposals and further negotiations, Frost and the Company renewed
discussions with the Company's two largest shareholders and a third party
to determine whether they would be interested in the investment on terms
more favorable to the Company than those currentlythen available from other
potential outside investors.
On August 5, 2003, the Company sold $14,000,000 of unsecured
Subordinated Notessubordinated notes (the "Sub Notes") in a private placement under Section
4(2) of the Securities Act of 1933 to three accredited investors, one of
which is an affiliate of Inberdon Enterprises Ltd., the Company's majority
shareholder ("Inberdon"), and another of which is an affiliate of Robert S.
Beall, who owns approximately 11% of the Company's outstanding shares. The
Company believes that the terms of the private placement are more favorable
to the Company than the proposals previously received. Frost provided an
opinion to the Company's Board of Directors that, from a financial point of
view, the private placement was fair to the unaffiliated holders of the
Company's common stock in relation to other potential subordinated debt
transactions currentlythen available to the Company. The Company paid Frost an
aggregate of $381,000 for its advice, placement services and opinion.
The net proceeds of approximately $13,425,000$13,450,000 from the private
placement will behave primarily been used to fund the Phase II expansion of the
Company's Arkansas facilities. Terms of the Sub Notes include: a maturity
date of August 5, 2008, subject to acceleration upon a change in control;
no mandatory principal payments prior to maturity; an interest rate of 14%
(12% paid in cash and 2% paid in cash or in kind at the Company's option);
and, except as discussed below, no optional prepayment prior to August 5,
2005 and a 4% prepayment penalty if repaid before maturity. The terms of
the Sub Notes are identical to one another, except that the Sub Note for
the affiliate of Inberdon Enterprises Ltd. does not prohibit prepayment prior to August 5,
2005 and does not require a prepayment penalty if repaid before maturity,
resulting in a weighted average prepayment penalty of
Page 7 of 13
approximately 2.4% if the Sub Notes are repaid before maturity. The Sub
Notes include covenants similar to the covenants for the Loan.
The private placement also included six-year detachable warrants,
providing the Sub Note investors the right to purchase an aggregate of
162,000 shares of the Company's common stock, at 110% of the average
closing price of one share of common stock for the trailing 30 trading days
prior to closing, or $3.84. The fair value of the warrants was recorded as
a reduction of the carrying value of the Sub Notes and is being accreted
over the term of the Sub Notes, resulting in an effective annual interest
rate of 14.44%. After August 5, 2008, or upon an earlier change in control,
the investors may require the Company to repurchase any or all shares
acquired through exercise of the warrants (the "Warrant Shares"). The
repurchase price for each Warrant Share will equal the average closing
price of one share of the Company's common stock for the 30 trading days
preceding the date the Warrant Shares are put back to the Company. Changes
in the repurchase price for each Warrant Share are accreted or decreted
over the five yearfive-year period from the date of issuance to August 5, 2008. The
investors are also entitled to certain registration rights for the resale
of their Warrant Shares.
As a result of certain negotiations with the Company's existing bank lenders,
the Loan and the revolving credit facility were amended to approve the
terms of the Sub Notes. As part of these amendments, the Company is
prohibited from paying any dividends in cash through June 30, 2005 without
the prior written consent of the bank lenders.
Page 8 of 14
A summary of outstanding debt at the dates indicated is as follows:
(In thousands of dollars)thousands)
SEPTEMBER 30,MARCH 31, DECEMBER 31,
2004 2003
2002
------- --------------- ------------
Term loan $38,333 40,833$36,667 37,500
Sub Notes 14,000 --13,734 13,719
Revolving credit facility -- 1,200--
------- -------------
Subtotal 52,333 42,03350,401 51,219
Less current installments 3,333 4,5333,333
------- -------------
Debt, excluding current
installments $49,000 37,500$47,068 47,886
======= =============
The Company made a $3,000,000 principal prepayment on the Sub
Notes on May 7, 2004. Pursuant to the terms of the Sub Notes, a $30,000
prepayment penalty was also paid on $1,500,000 of the principal prepayment.
Page 8 of 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS. Any statements contained in this 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. The 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 in the Company's discretion; (ii) the Company's
plans and results of operations will be affected by its ability to manage its
growth and modernization;growth; (iii) the Company's ability to meet short-term and long-term liquidity
demands;demands, including servicing the Company's debt; (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 set 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, 2002.2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $6,768,000$3,133,000 for the nine monthsquarter ended
September 30, 2003,March 31, 2004, compared to $5,808,000$936,000 for the nine monthsquarter ended September
30, 2002.March 31, 2003. The
$960,000$2,197,000 increase primarily resulted from the $2,552,000 increase in$830,000 of net income in the 20032004
period compared to a loss of $271,000 in the same period in 2002, partially offset
byfirst quarter 2003, the effect of
noncash charges to income and other changes in working capital.
The most significant working capital change was a
$2,766,000 increase in trade receivables, net in the first nine months 2003,
compared to a $1,233,000 increase in the comparable 2002 period due to increased
sales.
The Company invested $5,074,000$6,443,000 in capital expenditures in the first
nine
months 2003, $2,064,000quarter 2004, $4,698,000 of which related to the Phase II expansion of the
Company's Arkansas facilities, compared to $2,913,000$1,798,000 of capital expenditures in
the same period last year.
Net cash providedused by financing activities was $9,435,000$806,000 in the first nine
monthsquarter
2004, including $833,000 for repayment of debt. Financing activities provided
$1,223,000 net cash in the first quarter 2003, primarily from net proceeds of approximately $13,425,000 from the
private placement discussed below and $2,201,000 of
draws on the Company's revolving credit facility, partially offset by $3,401,000
Page 9 of 14
repayment in full of the revolving credit facility, $2,500,000$833,000
repayment of debt and $290,000$145,000 payment of cash dividends. Financing activities used $3,039,000 net
cash in the first nine months 2002, primarily for $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.
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 thea 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%, and maturesoriginally matured on
March 1, 2004. On December 29, 2003, the Loan and Security Agreement was amended
to increase the revolving credit facility to $6,000,000 and extend the maturity
to April 1, 2005. As of September
30, 2003,March 31, 2004, the Company had no outstanding balance
on the revolving credit facility. The outstanding balance of the revolving credit facility was repaid in
full on August 5, 2003 with proceeds from the private placement discussed below,
and the Loan and Security Agreement was amended to allow the revolving credit
facility to be increased to $6,000,000 at the Company's option. The average
interest rate for the revolving credit facilities for the outstanding balances
in 2003 was 4.04%. As of OctoberMarch 31, 2003,2004, the Company had entered
into approximately $1,100,000 of operating leases for mobile equipment under the
new
$2,000,000 equipment line. The Company believes that funds generated from
operations, amounts available under the revolving credit facility and funds from
the private placement will be sufficient to meet the Company's liquidity and
ongoing capital needs for the year and to complete the Arkansas Phase II
expansion project.
In April 2003, the Company engaged Frost Securities, Inc. ("Frost") to
advise it on possible financing alternatives for the Phase II expansion of the
Company's Arkansas facilities. Frost contacted potential sources of financing
and obtained several term sheet proposals for a subordinated debt
Page 9 of 13
placement from outside investors. In conjunction with the review of the
proposals and further negotiations, Frost and the Company renewed discussions
with the Company's two largest shareholders and a third party to determine
whether they would be interested in the investment on terms more favorable to
the Company than those currentlythen available from other potential outside investors. The Company paid
Frost an aggregate of $381,000 for its advice, placement services and opinion.
On August 5, 2003, the Company sold $14,000,000 of unsecured
Subordinated
Notessubordinated notes (the "Sub Notes") in a private placement under Section 4(2)
of the Securities Act of 1933 to three accredited investors, one of which is an
affiliate of Inberdon Enterprises Ltd., the Company's majority shareholder
("Inberdon"), and another of which is an affiliate of Robert S. Beall, who owns
approximately 11% of the Company's outstanding shares. The Company believes that
the terms of the private placement are more favorable to the Company than the
proposals previously received. Frost provided an opinion to the Company's Board
of Directors that, from a financial point of view, the private placement was
fair to the unaffiliated holders of the Company's common stock in relation to
other potential subordinated debt transactions currentlythen available to the Company.
The Company paid Frost an aggregate of $381,000 for its advice, placement
services and opinion.
The net proceeds of approximately $13,425,000$13,450,000 from the private
placement will behave primarily been used to fund the Phase II expansion of the
Company's Arkansas facilities. Terms of the Sub Notes include: a maturity date
of August 5, 2008, subject to acceleration upon a change in control; no
mandatory principal payments prior to maturity; an interest rate of 14% (12%
paid in cash and 2% paid in cash or in kind at the Company's option); and,
except as discussed below, no optional prepayment prior to August 5, 2005 and a
4% prepayment penalty if repaid before maturity. The terms of the Sub Notes are
identical to one another, except that the Sub Note for the affiliate of Inberdon
Enterprises
Ltd. does not prohibit prepayment prior to August 5, 2005 and does not require a
prepayment penalty if repaid before maturity, resulting in a weighted average
prepayment penalty of approximately 2.4% if the Sub
Page 10 of 14
Notes are repaid before
maturity. The Sub Notes include covenants similar to the covenants for the Loan.
The private placement also included six-year detachable warrants,
providing the Sub Note investors the right to purchase an aggregate of 162,000
shares of the Company's common stock, at 110% of the average closing price of
one share of common stock for the trailing 30 trading days prior to closing, or
$3.84. The fair value of the warrants was recorded as a reduction of the
carrying value of the Sub Notes and is being accreted over the term of the Sub
Notes, resulting in an effective annual interest rate of 14.44%. After August 5,
2008, or upon an earlier change in control, the investors may require the
Company to repurchase any or all shares acquired through exercise of the
warrants (the "Warrant Shares"). The repurchase price for each Warrant Share
will equal the average closing price of one share of the Company's common stock
for the 30 trading days preceding the date the Warrant Shares are put back to
the Company. Changes in the repurchase price for each Warrant Share are accreted
or decreted over the five yearfive-year period from the date of issuance to August 5,
2008. The investors are also entitled to certain registration rights for the
resale of their Warrant Shares.
As a result of certain negotiations with the Company's existing bank
lenders, the Loan and the revolving credit facility were amended to approve the
terms of the Sub Notes. As part of these amendments, the Company is prohibited
from paying any dividends in cash through June 30, 2005 without the prior
written consent of the bank lenders.
The Arkansas modernization and expansion project began in the fourth
quarter 1999 and was scheduledexpected 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. The CompanyWe completed Phase I in the
second quarter 2001.
The total cost of Phase I of the Arkansas project was approximately
$33,000,000. The $33,000,000 includesincluded approximately $1,800,000 of costs
associated with the pre-building of certain
Page 10 of 13
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.
The Phase II expansion has doubled the Arkansas plant's quicklime
production capacity through the installation of a second preheater rotary kiln
and additional storage capacity substantially identical to the kiln system built
in Phase I. Construction of the second kiln system commenced in the third
quarter 2003 and was timely completed with lime production from the new kiln
beginning in late February 2004. The plans for Phase II also include the
rehabilitation of the distribution terminal in Shreveport, Louisiana, currently
expected to be completed in 2004. The estimated additionaltotal cost to complete Phase II
is approximately $16,000,000.$16,000,000, of which approximately $13,200,000 has been spent
through March 31, 2004. The Company is financing the completion of the Phase II
expansion principally through cash flows from operations.
In March 2004, the net proceeds of the August 5, 2003 private placement.
The Phase II expansion will double the Arkansas plant's quicklime
production capacity through the installation ofCompany incorporated a second kiln system
substantially identicalnew Texas subsidiary, U. S.
Lime - Houston ("Houston"), to the kiln system builtconduct lime slurry operations in Phase I. The plans for Phase
II currently include the completion of the out-of-state terminalHouston, Texas.
Houston had minimal activity in Shreveport,
Louisiana for distribution of the Company's products. Construction of the second
kiln system commenced in the third quarter 2003 and is currently expected to be
completed in the first halfMarch 2004.
The Company is not contractually committed to any planned capital
expenditures until actual orders are placed for equipment. As of September 30,
2003,March 31, 2004,
the Company had no material open orders of approximately $9,500,000 relatedorders.
The Company made a $3,000,000 principal prepayment on the Sub Notes on
May 7, 2004. Pursuant to the Phase II expansion.terms of the Sub Notes, a $30,000 prepayment
penalty was also paid on $1,500,000 of the principal prepayment. As of September 30, 2003,the date
of this report, the Company had $52,333,000has $47,128,000 in total debt outstanding.
RESULTS OF OPERATIONS
Revenues increased to $12,849,000$12,075,000 in the thirdfirst quarter 20032004 from
$10,496,000$9,556,000 in the thirdfirst quarter 2002,2003, an increase of $2,353,000,$2,519,000, or 22.4%. In
the first nine months 2003, revenues increased $3,500,000 to $33,934,000 from
$30,434,000 in the first nine months 2002, an increase of 11.5%26.4%. The
increasesincrease in revenues for the thirdfirst quarter and first nine months2004 compared to the 2003 quarter was
primarily resulted
fromdue to increased lime and pulverized limestone ("PLS") sales resulting from lime production from the
new kiln at the Company's Arkansas plant which came on line in late February.
Due in part to temporary lime shortages, principally in the states east of the
Arkansas plant, the Company has sold most of the increased lime production at
Arkansas during the quarter. These shortages were primarily due to increased
consumption of lime for steel-related uses, closing of three lime plants in the
Midwest and production difficulties at some competitors' plants. In addition,
production at Texas during the first quarter 2003 was adversely affected by a
winter ice storm and Colorado plants.a natural gas curtailment.
The Company's gross profit was $4,387,000$3,415,000 for the thirdfirst quarter 2004,
compared to $1,749,000 for the first quarter 2003, compared to $2,739,000 for the second quarter 2002, a 60.2%95.3% increase. Gross
profit margin as a percentage of revenues and gross profit increased in the 20032004
quarter compared to the 20022003 quarter. These increases are primarily
Page 11 of 14
due to the resolution of the operational problems at the Company's Texas plant
that occurred during the third quarter 2002 which resulted in reduced lime
production in the 2002 quarter and increased PLS sales volume during the third
quarter 2003.
For the first nine months 2003, the Company's gross profit was $9,595,000,
compared to $7,557,000 for the comparable 2002 period, a 27.0% increase. Gross
profit margin as a percentage of revenues and gross profit increased in the
first nine months 2003 compared to the same period last year,were primarily due to the
resolution of the operational problems at the Company's Texas plant that
occurred during the second and third quarter 2002 and the increase in PLSincreased lime sales volume. These improvements were partially offset in 2003 by increased natural
gas costs and a winter ice storm in Texas that 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 during the first quarter 2003. The
total negative price variance for natural gas in the first nine months 2003 was
approximately $800,000 compared to the first nine months 2002, partially offset
by natural gas surcharges on PLS products implemented by the Company in early
March 2003. Since that time, the surcharges have offset most of the increased
natural gas costs.
Although natural gasvolume, with prices have declined from their highs during the
first quarter 2003, they continue to exceed 2002 price levels. The Company
expects natural gas prices to remain higher than in the previous year.
Therefore, the Company intends to continue the natural gas surcharges on PLS
products in a continued effort to offset most of the increased costs.remaining firm.
Selling, general and administrative expenses ("SG&A") increased by
$205,000,$129,000, or 20.9%12.2%, to $1,188,000 in the thirdfirst quarter 2004, compared to
$1,059,000 in the first quarter 2003, compared to
$983,000 in the third quarter 2002.principally as a result of increased
employee wages and benefits, insurance costs and an increase on allowance for
bad debts. As a percentage of sales, SG&A declined to 9.2%9.8% in the thirdfirst quarter
20032004 from 9.4%11.1% in the comparable 20022003 quarter. SG&A
increased by $279,000, or 9.4%, to $3,235,000 in the first nine months 2003, as
compared to $2,956,000 in the comparable 2002 period. As a percentage of sales,
SG&A declined to 9.5% in the first nine months 2003 from 9.7% in 2002. The
increases for the third quarter and first nine months 2003 were primarily
attributable to increases in insurance costs, salaries and employee benefits.
Interest expense in the third quarter 2003 increased $184,000, or 17.2%,
to $1,256,000, compared to $1,072,000 in the third quarter 2002.
Interest expense in the first nine months 2003quarter 2004 increased $28,000,$186,000, or
0.9%18.2%, to $3,315,000,$1,207,000, compared to $3,287,000$1,021,000 in the first nine months 2002.quarter 2003. The
increase in interest expense in 2003the 2004 quarter primarily resulted from the
private placement of the Sub Notes, partially offset by $3,333,000 in repayments
on the Loan over the last 12 months. Approximately $59,000$303,000 of interest was
capitalized in the thirdfirst quarter 20032004 as part of the Arkansas Phase II expansion
project.
Page 11 of 13
Other, net was $3,000 expense in the third quarter 2003, compared to $2,000
income in the third quarter 2002. Other, net was $708,000$18,000 income in the first nine months 2003, asquarter 2004, compared to
$571,000 expense$12,000 income in the comparable 2002 period.
Other, net infirst quarter 2003. During the nine monthfirst quarter 2003, period consisted of interest, other income and
$921,000 ofthe
Company recorded embezzlement-related recoveries partially offset by $202,000 of embezzlement-related costs. In the first nine months 2002, $642,000$81,000, net of income tax
benefits ($100,000 gross), and embezzlement-related costs was the primary other expense, partially offset by
interest and other income.of $69,000, net of
income tax benefits ($81,000 gross).
The Company's net income increased $1,057,000 to $1,642,000was $830,000 ($0.280.14 per basic and diluted
share) during the thirdfirst quarter 2003,2004, compared to a net incomeloss of $585,000$271,000 ($0.100.05
per basic and diluted share) during the thirdfirst quarter 2002.
For the first nine months 2003, the Company reported net income of
$3,183,000 ($0.55 per share), an increase of $2,552,000 compared to net income
of $631,000 ($0.11 per share) during the comparable 2002 period.
Page 12 of 14
2003.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
ITEM 4: CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated the
effectiveness the Company's disclosure controls and procedures as of the end of
the period covered by this report. Based on that evaluation, the CEO and CFO
concluded that the Company's disclosure controls and procedures as of the end of
the period covered by this report were effective.
No change in the Company's internal control over financial reporting
occurred during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
The information required by this Item is set forth in Part I, Item 2:
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the caption "Liquidity and Capital Resources," and is hereby
incorporated by reference in response to this Item.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a.(a) Exhibits:
31.1 Section 302Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive
Officer.
31.2 Section 302Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial
Officer.
32.1 Section 9061350 Certification by the Chief Executive Officer.
32.2 Section 9061350 Certification by the Chief Financial Officer.
b.(b) Reports on Form 8-K: None
Page 1312 of 1413
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 3, 2003May 11, 2004 By: /s/ Timothy W. Byrne
-----------------------------------------------------------------------------
Timothy W. Byrne
President and Chief Executive Officer
(PrincipalPrincipal Executive Officer)
November 3, 2003May 11, 2004 By: /s/ M. Michael Owens
-----------------------------------------------------------------------------
M. Michael Owens
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 1413 of 1413
UNITED STATES LIME & MINERALS, INC.
Quarterly Report on Form 10-Q
Quarter Ended
September 30, 2003March 31, 2004
Index to Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------
31.1 Section 302Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive
Officer.
31.2 Section 302Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial
Officer.
32.1 Section 9061350 Certification by the Chief Executive Officer.
32.2 Section 9061350 Certification by the Chief Financial Officer.