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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission file number is 000-4197
UNITED STATES LIME & MINERALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-0789226
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13800 MONTFORT DRIVE, SUITE 330, DALLAS, TX 75240
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(972) 991-8400
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of October 31, 2003,
5,799,845 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)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 11,361 226
Trade receivables, net 7,968 5,202
Inventories 4,383 4,782
Prepaid expenses and other current assets 608 262
--------- ---------
Total current assets 24,320 10,472
Property, plant and equipment, at cost: 118,503 114,062
Less accumulated depreciation (47,826) (43,656)
--------- ---------
Property, plant and equipment, net 70,677 70,406
Deferred tax assets, net 2,101 2,359
Other assets, net 2,038 1,282
--------- ---------
Total assets $ 99,136 84,519
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of debt $ 3,333 4,533
Accounts payable 2,838 2,472
Accrued expenses 1,858 953
--------- ---------
Total current liabilities 8,029 7,958
Debt, excluding current installments 49,000 37,500
Other liabilities 908 755
--------- ---------
Total liabilities 57,937 46,213
Stockholders' Equity:
Common stock 580 580
Additional paid-in capital 10,392 10,392
Accumulated other comprehensive loss (254) (254)
Retained earnings 30,481 27,588
--------- ---------
Total stockholders' equity 41,199 38,306
--------- ---------
Total liabilities and stockholders' equity $ 99,136 84,519
========= =========
</Table>
See accompanying notes to condensed consolidated financial statements.
Page 2 of 14
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ---------------- ----------------- ------------------
2003 2002 2003 2002
----------------- ---------------- ----------------- ------------------
REVENUES $ 12,849 100.0% $ 10,496 100.0% $ 33,934 100.0% $ 30,434 100.0%
Cost of revenues:
Labor and other operating expenses 6,935 54.0% 6,186 58.9% 19,766 58.2% 18,255 60.0%
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% 24,339 71.7% 22,877 75.2%
----------------- ---------------- ----------------- ------------------
GROSS PROFIT 4,387 34.1% 2,739 26.1% 9,595 28.3% 7,557 24.8%
Selling, general and
administrative expenses 1,188 9.2% 983 9.3% 3,235 9.6% 2,956 9.7%
----------------- ---------------- ----------------- ------------------
OPERATING PROFIT 3,199 24.9% 1,756 16.8% 6,360 18.7% 4,601 15.1%
----------------- ---------------- ----------------- ------------------
Other expenses (income):
Interest expense 1,256 9.8% 1,072 10.2% 3,315 9.8% 3,287 10.8%
Other expense (income), net 3 0.0% (2) (0.0)% (708) (2.1)% 571 1.9%
----------------- ---------------- ----------------- ------------------
1,259 9.8% 1,070 10.2% 2,607 7.7% 3,858 12.7%
----------------- ---------------- ----------------- ------------------
INCOME BEFORE INCOME TAXES 1,940 15.1% 686 6.6% 3,753 11.0% 743 2.4%
----------------- ---------------- ----------------- ------------------
Income tax expense 298 2.3% 101 1.0% 570 1.6% 112 0.3%
----------------- ---------------- ----------------- ------------------
NET INCOME $ 1,642 12.8% $ 585 5.6% $ 3,183 9.4% $ 631 2.1%
================= ================ ================= ==================
INCOME PER SHARE OF COMMON STOCK:
Basic $ 0.28 $ 0.10 $ 0.55 $ 0.11
Diluted $ 0.28 $ 0.10 $ 0.55 $ 0.11
</Table>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
<Table>
<Caption>
SEPTEMBER 30,
---------------------
2003 2002
-------- ------
OPERATING ACTIVITIES:
Net income $ 3,183 631
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation, depletion and amortization 4,756 4,828
Amortization of financing costs 236 172
Deferred taxes 258 --
Loss on sale of assets 40 5
Changes in operating assets and liabilities:
Trade receivables, net (2,766) (1,233)
Inventories 399 1,018
Prepaid expenses and other current assets (346) 610
Other assets, net (416) (32)
Accounts payable and accrued expenses 1,271 (101)
Other liabilities 153 (92)
-------- ------
Total adjustments 3,585 5,177
-------- ------
Net cash provided by operations $ 6,768 5,808
INVESTING ACTIVITIES:
Purchase of property, plant and equipment $ (5,074) (2,913)
Proceeds from sale of property, plant and equipment 6 77
-------- ------
Net cash used in investing activities $ (5,068) (2,836)
FINANCING ACTIVITIES:
Payment of common stock dividends $ (290) (439)
Proceeds from borrowings, net 15,626 1,750
Repayment of debt (5,901) (4,350)
-------- ------
Net cash provided (used) by financing activities $ 9,435 (3,039)
-------- ------
Net increase in cash and cash equivalents 11,135 (67)
Cash and cash equivalents at beginning of period 226 606
-------- ------
Cash and cash equivalents at end of period $ 11,361 539
======== ======
Supplemental cash flow information:
Interest paid $ 3,138 3,115
Income taxes paid, net $ 76 443
</Table>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14
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. The results of operations for the three-month and nine-month periods
ended September 30, 2003 are not necessarily indicative of operating
results for the full year.
Stock-based Compensation. The Company accounts for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Stock-based compensation expense associated with option grants
was not recognized in the net income for the nine-month periods ended
September 30, 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:
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net income as reported $ 1,642 585 3,179 631
Stock-based employee compensation expense
determined under fair-value-based method
for all awards, net of related tax effects (9) -- (25) (33)
-------- --- ----- ---
Pro forma net income $ 1,633 585 3,154 598
======== === ===== ===
Basic and diluted income per common share,
as reported $ 0.28 0.10 0.55 0.11
Pro forma basic and diluted income per
common share $ 0.28 0.10 0.54 0.10
</Table>
Page 5 of 14
2. Embezzlement-Related Costs 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's common stock
on the Nasdaq National Market(R) ("Nasdaq") was halted, and the Audit
Committee of the Company's Board of Directors retained outside counsel to
conduct a special investigation into the matter. The Audit Committee also
retained an independent accounting firm to review the Company's internal
controls and to make recommendations for improvement 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. Inventories
<Table>
<Caption>
Inventories consisted of the following at:
(In thousands of dollars) SEPTEMBER 30, DECEMBER 31,
2003 2002
------ ------
Lime and limestone inventories:
Raw materials $1,631 $1,704
Finished goods 518 942
------ ------
2,149 2,646
Parts inventories 2,234 2,136
------ ------
Total inventories $4,383 $4,782
====== ======
</Table>
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.
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 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 the prior facility. In addition, the Company obtained a new
$2,000,000 equipment line of credit (available for financing or leasing
large mobile equipment used in its operations) from the same bank. The new
revolving credit facility is secured by the Company's accounts receivable
and inventories, provides for an interest rate of LIBOR plus 2.75%, and
matures on March 1, 2004. As of September 30, 2003, 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
Page 7 of 14
of October 31, 2003, 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 currently available from other
potential outside investors.
On August 5, 2003, the Company sold $14,000,000 of unsecured
Subordinated 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, 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
currently 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 from the private
placement will be 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 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. 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 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)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2003 2002
------- ------
Term loan $38,333 40,833
Sub Notes 14,000 --
Revolving credit facility -- 1,200
------- ------
Subtotal 52,333 42,033
Less current installments 3,333 4,533
------- ------
Debt, excluding current
installments $49,000 37,500
======= ======
</Table>
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; (iii) the Company's ability to meet short-term and
long-term liquidity demands; (iv) inclement weather conditions; (v) increased
fuel costs; (vi) unanticipated delays or additional cost overruns in completing
current or planned construction projects; (vii) reduced demand for the Company's
products; and (viii) other risks and uncertainties 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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $6,768,000 for the nine months ended
September 30, 2003, compared to $5,808,000 for the nine months ended September
30, 2002. The $960,000 increase resulted from the $2,552,000 increase in net
income in the 2003 period compared to the same period in 2002, partially offset
by 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 in capital expenditures in the first nine
months 2003, $2,064,000 of which related to the Phase II expansion of the
Company's Arkansas facilities, compared to $2,913,000 in the same period last
year.
Net cash provided by financing activities was $9,435,000 in the first nine
months 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 repayment of debt
and $290,000 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 the
prior facility. In addition, the Company obtained a new $2,000,000 equipment
line of credit (available for financing or leasing large mobile equipment used
in its operations) from the same bank. The new revolving credit facility is
secured by the Company's accounts receivable and inventories, provides for an
interest rate of LIBOR plus 2.75%, and matures on March 1, 2004. As of September
30, 2003, 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 October 31, 2003, 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 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
currently 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
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, 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 currently available to the Company.
The net proceeds of approximately $13,425,000 from the private placement
will be 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. 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 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 scheduled 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 Company completed Phase I in the
second quarter 2001.
The total cost of Phase I was approximately $33,000,000. The $33,000,000
includes approximately $1,800,000 of costs associated with the pre-building of
certain facilities for Phase II of the Arkansas project and the purchase of, but
not all of the improvements to, the out-of-state terminal in Shreveport,
Louisiana. The estimated additional cost to complete Phase II is approximately
$16,000,000. The Company is financing the completion of the Phase II expansion
principally through 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 of a second kiln system
substantially identical to the kiln system built in Phase I. The plans for Phase
II currently include the completion of the out-of-state terminal 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 half 2004.
The Company is not contractually committed to any planned capital
expenditures until actual orders are placed for equipment. As of September 30,
2003, the Company had open orders of approximately $9,500,000 related to the
Phase II expansion.
As of September 30, 2003, the Company had $52,333,000 in total debt
outstanding.
RESULTS OF OPERATIONS
Revenues increased to $12,849,000 in the third quarter 2003 from
$10,496,000 in the third quarter 2002, an increase of $2,353,000, 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%. The increases
in revenues for the third quarter and first nine months 2003 primarily resulted
from increased lime and pulverized limestone ("PLS") sales at the Company's
Texas and Colorado plants.
The Company's gross profit was $4,387,000 for the third quarter 2003,
compared to $2,739,000 for the second quarter 2002, a 60.2% increase. Gross
profit margin as a percentage of revenues and gross profit increased in the 2003
quarter compared to the 2002 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, 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 PLS 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 gas 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.
Selling, general and administrative expenses ("SG&A") increased by
$205,000, or 20.9%, to $1,188,000 in the third quarter 2003, compared to
$983,000 in the third quarter 2002. As a percentage of sales, SG&A declined to
9.2% in the third quarter 2003 from 9.4% in the comparable 2002 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 2003 increased $28,000, or 0.9%, to $3,315,000,
compared to $3,287,000 in the first nine months 2002. The increase in interest
expense in 2003 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 of interest was capitalized in the third quarter
2003 as part of the Arkansas Phase II expansion project.
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 income in the first
nine months 2003, as compared to $571,000 expense in the comparable 2002 period.
Other, net in the nine month 2003 period consisted of interest, other income and
$921,000 of embezzlement-related recoveries, partially offset by $202,000 of
embezzlement-related costs. In the first nine months 2002, $642,000 of
embezzlement-related costs was the primary other expense, partially offset by
interest and other income.
The Company's net income increased $1,057,000 to $1,642,000 ($0.28 per
share) during the third quarter 2003, compared to net income of $585,000 ($0.10
per share) during the third 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
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. Exhibits:
31.1 Section 302 Certification by the Chief Executive Officer.
31.2 Section 302 Certification by the Chief Financial Officer.
32.1 Section 906 Certification by the Chief Executive Officer.
32.2 Section 906 Certification by the Chief Financial Officer.
b. Reports on Form 8-K: None
Page 13 of 14
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, 2003 By: /s/ Timothy W. Byrne
--------------------------------
Timothy W. Byrne
President and Chief Executive
Officer
(Principal Executive Officer)
November 3, 2003 By: /s/ M. Michael Owens
--------------------------------
M. Michael Owens
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
Page 14 of 14
UNITED STATES LIME & MINERALS, INC.
Quarterly Report on Form 10-Q
Quarter Ended
September 30, 2003
Index to Exhibits
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Section 302 Certification by the Chief Executive Officer.
31.2 Section 302 Certification by the Chief Financial Officer.
32.1 Section 906 Certification by the Chief Executive Officer.
32.2 Section 906 Certification by the Chief Financial Officer.
</Table>