-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DpH+6M3L8I1DNOsdWpF5gLzDzpAEheT50wQMPS0FqXWJ0IO8WcWvUIue13W+8yk2 rg9cxFOIS46MELqS6FdhjQ== 0000950134-03-014452.txt : 20031105 0000950134-03-014452.hdr.sgml : 20031105 20031105150823 ACCESSION NUMBER: 0000950134-03-014452 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES LIME & MINERALS INC CENTRAL INDEX KEY: 0000082020 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 750789226 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04197 FILM NUMBER: 03979279 BUSINESS ADDRESS: STREET 1: 13800 MONTFORT DR STREET 2: SUITE 330 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9729918400 MAIL ADDRESS: STREET 1: 13800 MONTDORT DR STREET 2: SUITE 330 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SCOTTISH HERITABLE INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: RANGAIRE CORP DATE OF NAME CHANGE: 19900405 FORMER COMPANY: FORMER CONFORMED NAME: ROBERTS MANUFACTURING CO INC DATE OF NAME CHANGE: 19690311 10-Q 1 d10201e10vq.txt FORM 10-Q 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)
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 ========= =========
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)
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
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)
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
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:
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
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
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 ====== ======
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)
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 ======= ======
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
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.
EX-31.1 3 d10201exv31w1.txt SECTION 302 CERTIFICATION BY THE CEO EXHIBIT 31.1 SECTION 302 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER I, Timothy W. Byrne, certify that: 1. I have reviewed this quarterly report on Form 10-Q of United States Lime & Minerals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 3, 2003 /s/ Timothy W. Byrne -------------------------------- Timothy W. Byrne President and Chief Executive Officer EX-31.2 4 d10201exv31w2.txt SECTION 302 CERTIFICATION BY THE CFO EXHIBIT 31.2 SECTION 302 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER I, M. Michael Owens, certify that: 1. I have reviewed this quarterly report on Form 10-Q of United States Lime & Minerals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 3, 2003 /s/ M. Michael Owens ---------------------------------- M. Michael Owens Vice President and Chief Financial Officer EX-32.1 5 d10201exv32w1.txt SECTION 906 CERTIFICATION BY THE CEO EXHIBIT 32.1 SECTION 906 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER I, Timothy W. Byrne, Chief Executive Officer of United States Lime & Minerals, Inc. (the "Company"), hereby certify that, to my knowledge: (1) The Company's periodic report on Form 10-Q for the quarterly period ended September 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 3, 2003 /s/ Timothy W. Byrne ----------------------------------- Timothy W. Byrne President and Chief Executive Officer EX-32.2 6 d10201exv32w2.txt SECTION 906 CERTIFICATION BY THE CFO EXHIBIT 32.2 SECTION 906 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER I, M. Michael Owens, Chief Financial Officer of United States Lime & Minerals, Inc. (the "Company"), hereby certify that to my knowledge: (1) The Company's periodic report on Form 10-Q for the quarterly period ended September 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 3, 2003 /s/ M. Michael Owens ----------------------------------- M. Michael Owens Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----