e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2007
OR
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o |
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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 0-4197
UNITED STATES LIME & MINERALS, INC.
(Exact name of registrant as specified in its charter)
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TEXAS
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75-0789226 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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5429 LBJ Freeway, Suite 230, Dallas, TX
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75240 |
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(Address of principal executive offices)
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(Zip Code) |
(972) 991-8400
(Registrants 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: As of May 8, 2007, 6,268,883 shares of common stock, $0.10 par value,
were outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
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March 31, 2007 |
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December 31, 2006 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
284 |
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$ |
285 |
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Trade receivables, net |
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16,096 |
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13,002 |
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Inventories |
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8,723 |
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8,576 |
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Prepaid expenses and other assets |
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802 |
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913 |
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Total current assets |
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25,905 |
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22,776 |
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Property, plant and equipment, at cost: |
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205,191 |
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199,861 |
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Less accumulated depreciation |
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(72,659 |
) |
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(69,967 |
) |
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Property, plant and equipment, net |
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132,532 |
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129,894 |
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Other assets, net |
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1,257 |
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1,498 |
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Total assets |
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$ |
159,694 |
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$ |
154,168 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Current installments of debt |
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$ |
5,000 |
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$ |
5,000 |
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Accounts payable |
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7,814 |
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10,279 |
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Accrued expenses |
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2,866 |
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3,460 |
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Total current liabilities |
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15,680 |
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18,739 |
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Debt, excluding current installments |
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66,123 |
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59,641 |
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Other liabilities |
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3,374 |
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3,295 |
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Total liabilities |
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85,177 |
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81,675 |
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Stockholders equity: |
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Common stock |
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623 |
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621 |
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Additional paid-in capital |
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13,658 |
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13,510 |
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Accumulated other comprehensive income |
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42 |
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227 |
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Retained earnings |
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60,194 |
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58,135 |
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Total stockholders equity |
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74,517 |
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72,493 |
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Total liabilities and stockholders equity |
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$ |
159,694 |
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$ |
154,168 |
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See accompanying notes to condensed consolidated financial statements.
Page 2 of 15
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share amounts)
(Unaudited)
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QUARTER ENDED |
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March 31, |
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2007 |
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2006 |
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Revenues |
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Lime and limestone operations |
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$ |
27,607 |
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93.8 |
% |
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$ |
27,719 |
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98.0 |
% |
Natural gas interests |
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1,833 |
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6.2 |
% |
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578 |
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2.0 |
% |
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29,440 |
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100.0 |
% |
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28,297 |
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100.0 |
% |
Cost of revenues: |
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Labor and other operating
expenses |
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20,962 |
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71.2 |
% |
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19,620 |
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69.3 |
% |
Depreciation, depletion
and amortization |
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2,856 |
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9.7 |
% |
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2,281 |
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8.1 |
% |
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23,818 |
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80.9 |
% |
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21,901 |
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77.4 |
% |
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Gross profit |
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5,622 |
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19.1 |
% |
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6,396 |
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22.6 |
% |
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Selling, general and
administrative expenses |
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1,763 |
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6.0 |
% |
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1,704 |
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6.0 |
% |
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Operating profit |
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3,859 |
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13.1 |
% |
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4,692 |
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16.6 |
% |
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Other expense (income): |
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Interest expense |
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1,032 |
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3.5 |
% |
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836 |
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2.9 |
% |
Other, net |
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(38 |
) |
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(0.1 |
)% |
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24 |
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0.1 |
% |
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994 |
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3.4 |
% |
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860 |
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3.0 |
% |
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Income before income taxes and
cumulative effect of change in
accounting principle |
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2,865 |
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9.7 |
% |
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3,832 |
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13.6 |
% |
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Income tax expense |
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806 |
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2.7 |
% |
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985 |
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3.5 |
% |
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Net income before cumulative
effect of change in accounting
principle |
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2,059 |
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7.0 |
% |
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2,847 |
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10.1 |
% |
Cumulative effect of change in accounting
principle, net of $190 income tax benefit |
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% |
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(550 |
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(2.0 |
)% |
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Net income |
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$ |
2,059 |
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7.0 |
% |
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$ |
2,297 |
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8.1 |
% |
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Income per share of common stock: |
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Basic before cumulative effect of
change in accounting principle |
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$ |
0.33 |
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$ |
0.47 |
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Cumulative effect of change in
accounting principle |
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(0.09 |
) |
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$ |
0.33 |
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$ |
0.38 |
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Diluted before cumulative effect of
change in accounting principle |
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$ |
0.33 |
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$ |
0.46 |
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Cumulative effect of change in
accounting principle |
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(0.09 |
) |
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$ |
0.33 |
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$ |
0.37 |
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See accompanying notes to condensed consolidated financial statements.
Page 3 of 15
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
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QUARTER ENDED |
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MARCH 31, |
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2007 |
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2006 |
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Operating Activities: |
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Net income |
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$ |
2,059 |
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$ |
2,297 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation, depletion and amortization |
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2,930 |
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|
2,317 |
|
Cumulative effect of change in accounting principle |
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|
740 |
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Amortization of financing costs |
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6 |
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|
6 |
|
Deferred income taxes |
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|
310 |
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|
189 |
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Loss on disposition of assets |
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26 |
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44 |
|
Stock-based compensation |
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|
106 |
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45 |
|
Changes in operating assets and liabilities: |
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Trade receivables |
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(3,094 |
) |
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(3,598 |
) |
Inventories |
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(147 |
) |
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|
860 |
|
Prepaid expenses and other assets |
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111 |
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|
209 |
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Other assets |
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34 |
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19 |
|
Accounts payable and accrued expenses |
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|
(412 |
) |
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|
1,920 |
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Other liabilities |
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(234 |
) |
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(8 |
) |
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Net cash provided by operating activities |
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$ |
1,695 |
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$ |
5,040 |
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Investing Activities: |
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Purchase of property, plant and equipment |
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$ |
(8,249 |
) |
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$ |
(6,872 |
) |
Acquisition of business |
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(212 |
) |
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Net cash used in investing activities |
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$ |
(8,249 |
) |
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$ |
(7,084 |
) |
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Financing Activities: |
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Proceeds from revolving credit facility, net |
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$ |
7,732 |
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$ |
1,765 |
|
Repayment of term loans |
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(1,250 |
) |
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(833 |
) |
Proceeds from exercise of stock options and warrants |
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43 |
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|
525 |
|
Tax benefit related to exercise of stock options |
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28 |
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Net cash provided by financing activities |
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$ |
6,553 |
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$ |
1,457 |
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Net decrease in cash and cash equivalents |
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(1 |
) |
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(587 |
) |
Cash and cash equivalents at beginning of period |
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|
285 |
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|
1,312 |
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Cash and cash equivalents at end of period |
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$ |
284 |
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$ |
725 |
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|
See accompanying notes to condensed consolidated financial statements.
Page 4 of 15
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by the
Company without independent audit. In the opinion of the Companys 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
accounting principles generally accepted in the United States of America have been condensed or
omitted. These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the period ended December 31, 2006. The results of operations for the three-month period
ended March 31, 2007 are not necessarily indicative of operating results for the full year.
2. Organization
The Company is headquartered in Dallas, Texas, and operates through two business segments.
Through its lime and limestone operations, the Company is a manufacturer of lime and limestone
products, supplying primarily the construction, steel, municipal sanitation and water treatment,
paper, chemical, roof shingle, agriculture and glass industries. The Company operates lime and
limestone plants and distribution facilities in Arkansas, Colorado, Louisiana, Oklahoma and Texas
through its wholly owned subsidiaries, Arkansas Lime Company, Colorado Lime Company, Texas Lime
Company, U.S. Lime Company, U.S. Lime Company Shreveport, U.S. Lime Company St. Clair and U.S.
Lime Company Transportation.
In addition, through its wholly owned subsidiary, U.S. Lime Company O & G, LLC (U.S. Lime O
& G), the Company has a 20% royalty interest and a 20% working interest, resulting in a 36%
interest in revenues, with respect to oil and gas rights on the Companys approximately 3,800 acres
of land located in Johnson County, Texas, in the Barnett Shale Formation. Through U.S. Lime O & G,
the Company also has a drillsite and production facility lease agreement and subsurface easement
(the Drillsite Agreement) relating to approximately 538 acres of land contiguous to the Companys
Johnson County, Texas property. Pursuant to the Drillsite Agreement, the Company received a 3%
royalty interest and a 12.5% working interest in any wells drilled from two pad sites located on
the Companys property.
3. Accounting Policies
Revenue Recognition. The Company recognizes revenue for its Lime and Limestone Operations
in accordance with the terms of its purchase orders, contracts or purchase agreements, which are
upon shipment, and when payment is considered probable. The Companys returns and
allowances are minimal. Revenues include external freight billed to customers with related costs
in cost of revenues. External freight included in first quarter 2007 and 2006 revenues was $5.8
million and $6.3 million, respectively, which approximates the amount of external freight included
in cost of revenues. Sales taxes billed to customers are not included in revenues. For its
Natural Gas Interests, the Company recognizes revenue in the month of production.
Successful-Efforts Method Used for Natural Gas Interests. The Company uses the
successful-efforts method to account for oil and gas exploration and development expenditures.
Under this method, drilling and completion costs for successful exploratory wells and all
development well costs are capitalized and depleted using the units-of-production method. Costs to
drill exploratory wells that do not find proved reserves are expensed.
Page 5 of 15
Stripping Costs in the Mining Industry. The Emerging Issues Task Force (EITF) reached a
consensus that stripping costs incurred after a mine begins production are costs of production and
therefore should be accounted for as a component of inventory costs (EITF Issue No. 04-6). The
Company previously capitalized certain stripping costs as deferred stripping costs, attributed them
to the reserves that had been exposed, and amortized them into cost of revenues using the
units-of-production method. As of December 31, 2005, the Company had $740 thousand of capitalized
deferred stripping costs. The EITF stated the new required accounting for stripping costs would be
effective for years beginning after December 15, 2005. As a result of adopting this accounting
change, the Company wrote off $740 thousand of capitalized deferred stripping costs in the first
quarter 2006, net of a $190 thousand income tax benefit, resulting in the $550 thousand cumulative
effect of change in accounting principle reflected on the Condensed Consolidated Statements of
Operations.
FIN 48 Disclosures. On January 1, 2007, the Company adopted Financial Accounting
Standards Board (FASB) FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes:
an interpretation of FASB Statement No. 109 (FIN 48), which clarifies SFAS No. 109, Accounting
for Income Taxes. FIN 48 applies to all tax positions for which the statute of limitations
remains open, and provides that only tax positions that meet the more-likely-than-not recognition
threshold are recognized. The adoption of FIN 48 had no effect on the Companys financial
statements.
The Company classifies interest and penalties related to income taxes as income tax expense. No
such interest and penalties were accrued as of the date of adoption, and none was accrued at March
31, 2007. The Company also does not have any unrecognized tax benefits as of the date of adoption.
The Companys tax years 2003 and later remain subject to examination by major tax jurisdictions.
New Accounting Pronouncements. In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157 creates a single definition of fair value, along with a
conceptual framework to measure fair value. SFAS 157 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. SFAS 157 will require the Company to apply valuation
techniques that (1) place greater reliance on observable inputs and less reliance on unobservable
inputs and (2) are consistent with the market approach, the income approach, and/or the cost
approach. SFAS 157 will also require the Company to include enhanced disclosures of fair value
measurements in its financial statements.
SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15,
2007, and for interim periods that fall within those fiscal years. The Company is evaluating the
impact SFAS 157 will have on its financial statements, but does not anticipate being required to
recognize any new instruments at fair value.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities including an amendment of FASB Statement No. 115 (SFAS 159), which
allows measurement at fair value of eligible financial assets and liabilities that are not
otherwise measured at fair value. If the fair value option for an eligible item is elected,
unrealized gains and losses for that item shall be reported in current earnings at each subsequent
reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to
draw comparisons between the different measurement attributes the Company elects for similar types
of assets and liabilities.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is
permitted. The Company is currently assessing the impact of SFAS 159 on its financial statements.
4. Business Segments
The Company has identified two business segments based on the distinctness of their
activities: lime and limestone operations and natural gas interests. All operations are in the
United States. In evaluating the operating results of the Companys segments, management primarily
reviews
Page 6 of 15
revenues and gross profit. The Company does not allocate interest or public company costs to its
business segments.
The following table sets forth operating results and certain other financial data
for the Companys two business segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Revenues |
|
|
|
|
|
|
|
|
Lime and limestone operations |
|
$ |
27,607 |
|
|
$ |
27,719 |
|
Natural gas interests |
|
|
1,833 |
|
|
|
578 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
29,440 |
|
|
$ |
28,297 |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
|
|
|
|
|
|
Lime and limestone operations |
|
$ |
2,694 |
|
|
$ |
2,273 |
|
Natural gas interests |
|
|
162 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Total depreciation, depletion and amortization |
|
$ |
2,856 |
|
|
$ |
2,281 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
Lime and limestone operations |
|
$ |
4,268 |
|
|
$ |
5,892 |
|
Natural gas interests |
|
|
1,354 |
|
|
|
504 |
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
5,622 |
|
|
$ |
6,396 |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
Lime and limestone operations |
|
$ |
7,251 |
|
|
$ |
6,219 |
|
Natural gas interests |
|
|
998 |
|
|
|
865 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
8,249 |
|
|
$ |
7,084 |
|
|
|
|
|
|
|
|
5. Income Per Share of Common Stock
The following table sets forth the computation of basic and diluted income per common share
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
Income before cumulative effect of change in
accounting principle |
|
$ |
2,059 |
|
|
$ |
2,847 |
|
Cumulative effect of change in accounting principle,
net of $190 income tax benefit |
|
|
|
|
|
|
(550 |
) |
|
|
|
|
|
|
|
Income for basic and diluted income per
common share |
|
$ |
2,059 |
|
|
$ |
2,297 |
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted-average shares for basic income per share |
|
|
6,222 |
|
|
|
6,087 |
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
55 |
|
Employee and director stock options (1) |
|
|
81 |
|
|
|
113 |
|
|
|
|
|
|
|
|
Adjusted weighted average shares and assumed
exercises for diluted income per share |
|
|
6,303 |
|
|
|
6,255 |
|
|
|
|
|
|
|
|
Income per share of common stock: |
|
|
|
|
|
|
|
|
Basic before cumulative effect of change in
accounting principle |
|
$ |
0.33 |
|
|
$ |
0.47 |
|
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
(0.09 |
) |
|
|
|
|
|
|
|
|
|
$ |
0.33 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
Diluted before cumulative effect of change in
accounting principle |
|
$ |
0.33 |
|
|
$ |
0.46 |
|
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
(0.09 |
) |
|
|
|
|
|
|
|
|
|
$ |
0.33 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Options to acquire 8,000 shares were excluded from the calculation of effect
of dilutive securities for the quarter ended March 31, 2007 because they were antidilutive. |
Page 7 of 15
6. Accumulated Other Comprehensive Income
The following table presents the components of comprehensive income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
2,059 |
|
|
$ |
2,297 |
|
Change in fair value of interest rate hedge |
|
|
(185 |
) |
|
|
1,141 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
1,874 |
|
|
$ |
3,438 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive income consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Mark-to-market for interest rate hedge |
|
$ |
394 |
|
|
$ |
579 |
|
Minimum pension liability adjustment, net of tax benefit |
|
|
(352 |
) |
|
|
(352 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
42 |
|
|
$ |
227 |
|
|
|
|
|
|
|
|
7. Inventories
Inventories are valued principally at the lower of cost, determined using
the average cost method,
or market. Costs for finished goods include materials, labor, and production
overhead. Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Lime and limestone inventories: |
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
3,296 |
|
|
$ |
3,183 |
|
Finished goods |
|
|
1,279 |
|
|
|
1,410 |
|
|
|
|
|
|
|
|
|
|
|
4,575 |
|
|
|
4,593 |
|
Service parts inventories |
|
|
4,148 |
|
|
|
3,983 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
8,723 |
|
|
$ |
8,576 |
|
|
|
|
|
|
|
|
8. Banking Facilities and Other Debt
The Companys credit agreement includes a ten-year $40 million term loan (the Term Loan), a
ten-year $20 million multiple draw term loan (the Draw Term Loan) and a five-year $30 million
revolving credit facility (the Revolving Facility) (collectively, the Credit Facilities). The
Company had $252 thousand worth of letters of credit issued and $15.7 million outstanding on the
Revolving Facility at March 31, 2007.
The Term Loan requires quarterly principal payments of $833 thousand, which began on March 31,
2006, equating to a 12-year amortization, with a final principal payment of $7.5 million due on
December 31, 2015. The Draw Term Loan requires quarterly principal payments of $417 thousand,
which began on March 31, 2007, with a final principal payment of $5.4 million due on December 31,
2015. Prior to the Amendment (defined below), the maturity date for the Revolving Facility was
October 20, 2010. The maturity of the Term Loan, the Draw Term Loan and the Revolving Facility can
be accelerated if any event of default, as defined under the Credit Facilities, occurs.
Page 8 of 15
As of March 31, 2007, the Company entered into a third amendment of its credit agreement (the
Amendment), primarily to reduce the interest rate margin under the Credit Facilities and to
extend the maturity date of the Revolving Facility. The Credit Facilities now bear interest, at
the Companys option, at either LIBOR plus a margin of 1.125% (previously 1.25%) to 2.125%
(previously 2.50%), or the Lenders Prime Rate plus a margin of minus 0.625% (previously minus
0.50%) to plus 0.375% (previously plus 0.50%). The margins are determined quarterly in accordance
with a pricing grid based upon the ratio of the Companys total funded senior indebtedness to
earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) for the 12
months ended on the last day of the most recent calendar quarter. The pricing grid was also
revised in the Companys favor by the Amendment. As of April 2, 2007, the LIBOR margin was reduced
to 1.375% (previously 1.75%), and the Lenders Prime Rate margin was reduced to minus 0.375%
(previously 0.0%). The Amendment also extended the maturity date of the Revolving Facility to
April 2, 2012.
The Company has a hedge that fixes LIBOR at 4.695% on the Term Loan for the period December
30, 2005 through its maturity date, resulting in an interest rate of 6.07% based on the current
LIBOR margin of 1.375%. Effective December 30, 2005, the Company also entered into a hedge that
fixes LIBOR at 4.875% on the $15 million balance then outstanding on the Draw Term Loan through its
maturity date, resulting in an interest rate of 6.25% based on the current LIBOR margin of 1.375%.
Effective June 30, 2006, the Company entered into a third hedge that fixes LIBOR at 5.50% on the
remaining $5 million of the Draw Term Loan through its maturity date, resulting in an interest rate
of 6.875% based on the current LIBOR margin of 1.375%. The Company designated all of the
hedges as cash flow hedges, and as such, changes in their fair market value will be included in
other comprehensive income (loss). The Company will be exposed to credit losses in the event of
non-performance by the counterparty of the hedges.
Certain warrants, which were issued in 2003 as part of a private placement of subordinated
notes, were exercised in the first quarter 2006, resulting in the Companys receiving $488 thousand
and issuing 127,286 shares of common stock. There are no warrants outstanding.
A summary of outstanding debt at the dates indicated is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Term Loan |
|
$ |
35,834 |
|
|
$ |
36,667 |
|
Draw Term Loan |
|
|
19,584 |
|
|
|
20,000 |
|
Revolving Facility |
|
|
15,705 |
|
|
|
7,974 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
71,123 |
|
|
|
64,641 |
|
Less current installments |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
Debt, excluding current installments |
|
$ |
66,123 |
|
|
$ |
59,641 |
|
|
|
|
|
|
|
|
9. Income Taxes
The Company has estimated that its effective income tax rate for 2007 will be approximately
28.0%. As in prior periods, the primary reason for the effective rate being below the federal
statutory rate is due to statutory depletion, which is allowed for income tax purposes and is a
permanent difference between net income for financial reporting purposes and taxable income.
Page 9 of 15
ITEM 2: MANAGEMENTS 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 Companys 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 Companys plans, strategies, objectives, expectations, and intentions are subject to change at
any time in the Companys discretion; (ii) the Companys plans and results of operations will be
affected by its ability to manage its growth; (iii) the Companys ability to meet short-term and
long-term liquidity demands, including servicing the Companys debt; (iv) inclement weather
conditions; (v) increased fuel, electricity and transportation costs; (vi) unanticipated delays or
cost overruns in completing construction projects; (vii) the Companys ability to successfully
integrate acquired operations; (viii) reduced demand for the Companys lime and limestone products,
including the additional lime production from the Companys third kiln in Arkansas; (ix) the
uncertainties of development, recovery and prices with respect ot the Companys natural gas
interests; and (x) other risks and uncertainties set forth in this Report or indicated from time to
time in the Companys filings with the Securities and Exchange Commission, including the Companys
Form 10-K for the fiscal year ended December 31, 2006.
Overview
The Company has two business segments: Lime and Limestone Operations and Natural Gas
Interests.
Through its Lime and Limestone Operations, the Company is a manufacturer of lime and limestone
products supplying primarily the construction, steel, municipal sanitation and water treatment,
paper chemical, roof shingle, agriculture and glass industries. The Company operates lime and
limestone plants and distribution facilities in Arkansas, Colorado, Louisiana, Oklahoma and Texas
through its wholly owned subsidiaries, Arkansas Lime Company, Colorado Lime Company, Texas Lime
Company, U.S. Lime Company, U.S. Lime Company Shreveport, U.S. Lime Company St. Clair and U.S.
Lime Company Transportation. The Lime and Limestone Operations represent the Companys principal
business.
The Natural Gas Interests consist of royalty and working interests under a lease agreement and
a drillsite agreement, with two separate operators, related to the Companys Johnson County, Texas
property, located in the Barnett Shale Formation, on which Texas Lime Company conducts its lime and
limestone operations. The Company reported its first revenues and gross profit for natural gas
production from its Natural Gas Interests in the first quarter 2006.
During the first quarter 2007, there was decreased demand for pulverized limestone (PLS),
compared to the first quarter 2006, from the Companys roof shingle customers, which has continued
into the second quarter 2007. The decrease in revenues from PLS sales was partially offset by
average price increases for the Companys lime and limestone products of approximately 4.7% and
increased lime slurry sales. Energy costs have continued to increase, with prices for coal and
coke delivered to the Companys plants increasing significantly in the first quarter 2007, compared
to the comparable 2006 quarter. The start-up of the third kiln project, including the completion
of the stone handling and lime loadout systems, at the Companys Arkansas facilities was more
challenging than the second kiln
project, which was completed in 2004. The stone handling and lime loadout systems were completed
Page 10 of 15
in the first quarter 2007 and the kiln has performed better in the second quarter 2007. The
Company expects to see improvements in its Lime and Limestone Operations in the second quarter
2007.
Revenues and gross profit from the Companys Natural Gas Interests increased significantly in
the first quarter 2007, as the number of producing wells increased to nine in the first quarter
2007, from three in the first quarter 2006. In April 2007, three new wells began production,
including the first two wells under the Companys drillsite agreement.
Liquidity and Capital Resources
Net cash provided by operating activities was $1.7 million in the first quarter 2007, compared
to $5.0 million in the comparable 2006 quarter, a decrease of $3.3 million, or 66.4%. Net cash
provided by operating activities is composed of net income, depreciation, depletion and
amortization (DD&A), other non-cash items included in net income and changes in working capital.
In the 2007 quarter, cash provided by operating activities was principally composed of $2.1 million
net income and $2.9 million DD&A, compared to $2.3 million net income and $2.3 million DD&A in the
first quarter 2006. The decrease in net cash provided by operating activities in the 2007 quarter
compared to the 2006 quarter was primarily the result of cash usage of $3.7 million in changes in
working capital items in the 2007 quarter, compared to $142 thousand cash provided by such changes
in the 2006 quarter. The largest change in working capital items in the 2007 quarter was a $3.1
million net increase in trade receivables that primarily resulted from a $2.7 million increase in
revenues in the first quarter 2007 compared to the fourth quarter 2006. The most significant
changes in working capital items during the 2006 quarter were a $3.6 million net increase in trade
receivables and a $1.9 million net increase in accounts payable and accrued expenses.
The Company invested $8.2 million in capital expenditures in the first quarter 2007, compared
to $7.1 million in the same period last year. Included in the capital expenditures during the
first quarters 2007 and 2006 were approximately $4.1 million and $3.9 million, respectively, for
the third kiln project at Arkansas, and $1.0 million and $865 thousand, respectively, for drilling
and completion costs for the Companys working interest in natural gas wells.
Net cash provided by financing activities was $6.6 million in the 2007 quarter, including
proceeds of $7.7 million from the Companys revolving credit facility, partially offset by $1.3
million for repayment of term loan debt. Net cash provided by financing activities was $1.5
million in the 2006 quarter, including proceeds of $1.8 million from the Companys revolving credit
facility and $525 thousand from the exercise of stock options and warrants, partially offset by
$833 thousand for repayment of term loan debt.
The Companys credit agreement includes a ten-year $40 million term loan (the Term Loan), a
ten-year $20 million multiple draw term loan (the Draw Term Loan) and a five-year $30 million
revolving credit facility (the Revolving Facility) (collectively, the Credit Facilities). The
Company had $252 thousand worth of letters of credit issued and $15.7 million outstanding on the
Revolving Facility at March 31, 2007.
The Term Loan requires quarterly principal payments of $833 thousand, which began on March 31,
2006, equating to a 12-year amortization, with a final principal payment of $7.5 million due on
December 31, 2015. The Draw Term Loan requires quarterly principal payments of $417 thousand,
which began on March 31, 2007, with a final principal payment of $5.4 million due on December 31,
2015. Prior to the Amendment (defined below), the maturity date for the Revolving Facility was
October 20, 2010. The maturity of the Term Loan, the Draw Term Loan and the Revolving Facility can
be accelerated if any event of default, as defined under the Credit Facilities, occurs.
As of March 31, 2007, the Company entered into a third amendment of its credit agreement (the
Amendment), primarily to reduce the interest rate margin under the Credit Facilities and to
extend the maturity date of the Revolving Facility. The Credit Facilities now bear interest, at
the
Page 11 of 15
Companys option, at either LIBOR plus a margin of 1.125% (previously 1.25%) to 2.125%
(previously 2.50%), or the Lenders Prime Rate plus a margin of minus 0.625% (previously minus
0.50%) to plus 0.375% (previously plus 0.50%). The margins are determined quarterly in accordance
with a pricing grid based upon the ratio of the Companys total funded senior indebtedness to
earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) for the 12
months ended on the last day of the most recent calendar quarter. The pricing grid was also
revised in the Companys favor by the Amendment. As of April 2, 2007, the LIBOR margin was reduced
to 1.375% (previously 1.75%), and the Lenders Prime Rate margin was reduced to minus 0.375%
(previously 0.0%). The Amendment also extended the maturity date of the Revolving Facility to
April 2, 2012.
The Company has a hedge that fixes LIBOR at 4.695% on the Term Loan for the period December
30, 2005 through its maturity date, resulting in an interest rate of 6.07% based on the current
LIBOR margin of 1.375%. Effective December 30, 2005, the Company also entered into a hedge that
fixes LIBOR at 4.875% on the $15 million balance then outstanding on the Draw Term Loan through its
maturity date, resulting in an interest rate of 6.25% based on the current LIBOR margin of 1.375%.
Effective June 30, 2006, the Company entered into a third hedge that fixes LIBOR at 5.50% on the
remaining $5 million of the Draw Term Loan through its maturity date, resulting in an interest rate
of 6.875% based on the current LIBOR margin of 1.375%. The Company designated all of the
hedges as cash flow hedges, and as such, changes in their fair market value will be included in
other comprehensive income (loss). The Company will be exposed to credit losses in the event of
non-performance by the counterparty of the hedges.
Certain warrants, which were issued in 2003 as part of a private placement of subordinated
notes, were exercised in the first quarter 2006, resulting in the Companys receiving $488 thousand
and issuing 127,286 shares of common stock. There are no warrants outstanding.
The Company is not contractually committed to any planned capital expenditures for its Lime
and Limestone Operations until actual orders are placed for equipment. Under the Companys oil and
gas lease agreement, and pursuant to the Companys subsequent elections to participate as a 20%
working interest owner, unless, within five days after receiving an AFE (authorization for
expenditures) for a proposed well, the Company provides notice otherwise, the Company is deemed to
have elected to participate as a 20% working interest owner. As a 20% working interest owner, the
Company is responsible for 20% of the costs to drill and complete the well. Pursuant to the
drillsite agreement, the Company, as a 12.5% working interest owner, is responsible for 12.5% of
the costs to drill and complete each well. As of March 31, 2007, the Company had no material open
orders or commitments that are not included in current liabilities on the March 31, 2007 Condensed
Consolidated Balance Sheet.
As of March 31, 2007, the Company had $71.1 million in total debt outstanding.
Results of Operations
Revenues increased to $29.4 million in the first quarter 2007 from $28.3 million in the first
quarter 2006, an increase of $1.1 million, or 4.0%. Revenues from the Companys Lime and Limestone
Operations decreased $112 thousand, or 0.4%, to $27.6 million compared to the Companys record
first quarter 2006 level, while revenues from its Natural Gas Interests increased $1.3 million, or
217.1%, to $1.8 million. The decrease in Lime and Limestone Operations revenues primarily resulted
from lower PLS sales due to the reduced demand for roof shingles, partially offset by average price
increases of approximately 4.7% for the Companys products in the 2007 quarter compared to the
2006 quarter and increased lime slurry sales.
Production volumes for the Companys Natural Gas Interests for the 2007 quarter totaled
approximately 226 thousand MCF from nine wells, sold at an average price of approximately $8.13 per
MCF, compared to approximately 72 thousand MCF from three wells, sold at an average price of
Page 12 of 15
$8.03,
in the comparable 2006 quarter. Nine wells were producing during the first quarter 2007, compared
to three in the first quarter 2006.
The Companys gross profit for the 2007 quarter was $5.6 million, compared to $6.4 million for
the comparable 2006 quarter, a decrease of $774 thousand, or 12.1%. Included in gross profit for
the 2007 quarter is $4.3 million from the Companys Lime and Limestone Operations, compared to $5.9
million in the 2006 quarter, and $1.35 million from the Companys Natural Gas Interests compared to
$504 thousand in the 2006 quarter. The decrease in gross profit from Lime and Limestone Operations
was primarily due to the reduced PLS sales, increased energy costs, start-up difficulties with the
new third kiln project in Arkansas and additional DD&A, primarily for the third kiln project.
Selling, general and administrative expenses (SG&A) increased $59 thousand, or 3.5%, to $1.8
million in the first quarter 2007, compared to $1.7 million in the first quarter 2006. As a
percentage of revenues, SG&A was 6.0% in both quarters.
Interest expense in the first quarter 2007 increased $196 thousand, or 23.4%, to $1.0 million,
compared to $836 thousand in the first quarter 2006. The increase in interest expense in the 2007
quarter primarily resulted from an increase in outstanding debt in the first quarter 2007 compared
to the comparable 2006 quarter. Also, approximately $149 thousand and $62 thousand of interest was
capitalized in the first quarter 2007 and 2006, respectively, as part of the construction of the
third kiln project.
Income tax expense decreased to $806 thousand in the first quarter 2007 from $985 thousand in
the first quarter 2006, a decrease of $179 thousand, or 18.2%. The primary reason for the decrease
in income taxes was the $966 thousand, or 25.2%, decrease to $2.9 million in income before income
taxes and cumulative effect of change in accounting principle, compared to $3.8 million in the
first quarter 2006, partially offset by an increase in the Companys average effective income tax
rate.
As a result of the required adoption of an accounting change for deferred stripping as
discussed in Note 3 of Notes to Condensed Consolidated Financial Statements, the Company wrote off
$740 thousand of capitalized deferred stripping costs in the first quarter 2006, net of $190
thousand income tax benefit, resulting in the $550 thousand cumulative effect of change in
accounting principle, reflected on the Condensed Consolidated Statements of Operations for the 2006
period.
The Companys net income was $2.1 million ($0.33 per share diluted) during the first quarter
2007, compared to net income of $2.3 million ($0.37 per share diluted) during the first quarter
2006, a decrease of $238 thousand, or 10.4%.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk
The Company is exposed to changes in interest rates, primarily as a result of floating
interest rates on the Revolving Facility. At March 31, 2007, the Company had $71.1 million of
indebtedness outstanding under floating rate debt. The Company has entered into interest rate swap
agreements to swap floating rates for fixed LIBOR rates at 4.695%, plus the applicable margin,
through maturity on the Term Loan balance of $35.8 million, and 4.875%, plus the applicable margin,
on $14.7 million of the Draw Term Loan balance and 5.50%, plus the applicable margin, on the
remaining $4.9 million of the Draw Term Loan balance, leaving the $15.7 million Revolving Facility
balance subject to interest
rate risk at March 31, 2007. Assuming no additional borrowings or repayments on the Revolving
Facility, a 100 basis point increase in interest rates would result in an increase in interest
expense and a decrease in income before taxes of approximately $157 thousand per year. This amount
has been estimated by calculating the impact of such hypothetical interest rate increase on the
Companys non-hedged, floating rate debt of $15.7 million outstanding under the Revolving Facility
at March 31, 2007 and assuming it remains outstanding over the next 12 months. Additional
borrowings under the
Page 13 of 15
Revolving Facility would increase this estimate. (See Note 8 of Notes to
Condensed Consolidated Financial Statements.)
ITEM 4: CONTROLS AND PROCEDURES
The Companys management, with the participation of the Companys Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), evaluated the effectiveness the Companys 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 Companys disclosure controls and procedures as of
the end of the period covered by this report were effective.
No change in the Companys internal control over financial reporting occurred during the
Companys most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. |
|
|
|
32.1
|
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Section 1350 Certification by the Chief Executive Officer. |
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32.2
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Section 1350 Certification by the Chief Financial Officer. |
Page 14 of 15
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.
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UNITED STATES LIME & MINERALS, INC.
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May 9, 2007 |
By: |
/s/ Timothy W. Byrne
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Timothy W. Byrne |
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President and Chief Executive Officer
(Principal Executive Officer) |
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May 9, 2007 |
By: |
/s/ M. Michael Owens
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M. Michael Owens |
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Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
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Page 15 of 15
UNITED STATES LIME & MINERALS, INC.
Quarterly Report on Form 10-Q
Quarter Ended
March 31, 2007
Index to Exhibits
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EXHIBIT |
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NUMBER |
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DESCRIPTION |
31.1
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Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. |
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31.2
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Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. |
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32.1
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Section 1350 Certification by the Chief Executive Officer. |
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32.2
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Section 1350 Certification by the Chief Financial Officer. |