Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

(1) Summary of Significant Accounting Policies

(a)

Organization

• United States Lime & Minerals, Inc. (the "Company") is a manufacturer of lime and limestone products, supplying primarily the construction, steel, municipal sanitation and water treatment, oil and gas services, aluminum, paper, glass, roof shingle and agriculture industries and utilities and other industries requiring scrubbing of emissions for environmental purposes. The Company is headquartered in Dallas, Texas and 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, the Company, through its wholly owned subsidiary, U.S. Lime Company—O & G, LLC, has royalty and non-operating working interests in natural gas wells located in Johnson County, Texas, in the Barnett Shale Formation.

(b)

Principles of Consolidation

• The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated.

(c)

Use of Estimates

• The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("US GAAP") requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and judgments.

(d)

Statements of Cash Flows

• For purposes of reporting cash flows, the Company considers all certificates of deposit and highly-liquid debt instruments, such as U.S. Treasury bills and notes, with maturities, at the time of purchase, of three months or less to be cash equivalents. Cash equivalents are carried at cost plus accrued interest, which approximates fair market value. Supplemental cash flow information is presented below:

	Year Ended December 31,
	2011		2010		2009
Cash paid during the year for:
Interest	$	2,395	$	2,681	$	2,843
Income taxes	$	4,529	$	3,956	$	2,743

(e)

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. Revenues include external freight billed to customers with related costs in cost of revenues. The Company's returns and allowances are minimal. External freight billed to customers included in revenues was $26,470, $25,756 and $23,991 for 2011, 2010 and 2009, respectively, which approximates the amount of external freight billed to customers 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 and delivery.

(f)

Fair Values of Financial Instruments

• Fair value is defined 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." The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values, in determining the fair value of its financial assets and liabilities. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. There were no changes in the methods and assumptions used in measuring fair value during the period.

  The carrying values of cash and cash equivalents, trade receivables, other current assets, accounts payable and accrued expenses approximate fair value due to the short maturity of these instruments. See Note 3 for debt fair values, which also approximate carrying values. The Company's interest rate hedges are carried at fair value at December 31, 2011 and 2010. See Notes 1(p) and 3. Financial liabilities measured at fair value on a recurring basis are summarized below:

							Fair Value Measurements as of December 31,
							Significant Other Observable Inputs (Level 2)
													Valuation Technique
	2011			2010			2011			2010
Interest rate swap liabilities	$	(3,486	)	$	(3,732	)	$	(3,486	)	$	(3,732	)	Cash flows approach

(g)

Concentration of Credit Risk and Trade Receivables

• Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents, trade receivables and derivative financial instruments. The Company places its cash and cash equivalents with high credit quality financial institutions and its derivative financial instruments with financial institutions and other firms that management believes have high credit ratings. The Company's cash and cash equivalents at commercial banking institutions normally exceed federally insured limits. For a discussion of the credit risks associated with the Company's derivative financial instruments, see Note 3.
  

  The majority of the Company's trade receivables are unsecured. Payment terms for all trade receivables are based on the underlying purchase orders, contracts or purchase agreements. Credit losses relating to trade receivables consistently have been within management expectations and historical trends. Uncollected trade receivables are charged-off when identified by management to be unrecoverable. Trade receivables are presented net of the related allowance for doubtful accounts, which totaled $429 and $360 at December 31, 2011 and 2010, respectively. Additions and write-offs to the Company's allowance for doubtful accounts during the years ended December 31 are as follows:

	2011			2010
Beginning balance	$	360		$	350
Additions		91			139
Write-offs		(22	)		(129	)
Ending balance	$	429		$	360

(h)

Inventories

• Inventories are valued principally at the lower of cost, determined using the average cost method, or market. Costs for raw materials and finished goods include materials, labor and production overhead. A summary of inventories is as follows:

	December 31,
	2011		2010
Lime and limestone inventories:
Raw materials	$	3,540	$	3,669
Finished goods		2,107		2,087
	$	5,647	$	5,756
Service parts inventories		5,117		4,844
	$	10,764	$	10,600

(i)

Property, Plant and Equipment

• For major constructed assets, the capitalized cost includes the price paid by the Company for labor and materials plus interest and internal and external project management costs that are directly related to the constructed assets. Machinery and equipment at December 31, 2011 and 2010 included $1,560 and $978, respectively, of construction in progress for various capital projects. No interest costs were capitalized for the years ended December 31, 2011 and 2010. Depreciation of property, plant and equipment is being provided for by the straight-line method over estimated useful lives as follows:

Buildings and building improvements	3 - 20 years
Machinery and equipment	3 - 20 years
Furniture and fixtures	3 - 10 years
Automotive equipment	3 - 8 years

• Maintenance and repairs are charged to expense as incurred; renewals and betterments are capitalized. When units of property are retired or otherwise disposed of, their cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to income.
  

  The Company reviews its long-lived assets for impairment and, when events or circumstances indicate the carrying amount of an asset may not be recoverable, the Company determines if impairment of value exists. If the estimated undiscounted future net cash flows are less than the carrying amount of the asset, an impairment exists, and an impairment loss must be calculated and recorded. If an impairment exists, the impairment loss is calculated based on the excess of the carrying amount of the asset over the asset's fair value. Any impairment loss is treated as a permanent reduction in the carrying value of the asset. Through December 31, 2011, no events or circumstances arose that would require the Company to record a provision for impairment of its long-lived assets.

(j)

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.

(k)

Asset Retirement Obligations

• The Company recognizes legal obligations for reclamation and remediation associated with the retirement of long-lived assets at their fair value at the time the obligations are incurred ("AROs"). Over time, the liability for AROs is recorded at its present value each period through accretion expense, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company either settles the AROs for the recorded amount or recognizes a gain or loss. As of December 31, 2011 and 2010, the Company's AROs included in other liabilities and accrued expenses were $1,540 and $1,308, respectively. Only $258 of assets associated with the Company's AROs are not fully depreciated as of December 31, 2011. During 2011 and 2010, the Company spent $124 and $36 and recognized accretion expense of $55 and $52, respectively, on its AROs.
  

  The AROs were estimated based on studies and the Company's process knowledge and estimates, and are discounted using an appropriate interest rate. The AROs are adjusted when further information warrants an adjustment. The Company estimates annual expenditures of approximately $50 to $150 each in years 2012 through 2016 relating to its AROs.

(l)

Other Assets

• Other assets consist of the following:

	December 31,
	2011		2010
Intangible assets	$	7	$	30
Deferred financing costs		181		226
Other		114		118
	$	302	$	374

• Deferred financing costs are expensed over the life of the related debt.
  

  Intangible assets are amortized over their expected useful lives. Amortization expense for these assets totaled $22, $128 and $209 for the years ended December 31, 2011, 2010 and 2009, respectively. Accumulated amortization at December 31, 2011 and 2010 that was netted against the intangible assets was $939 and $917, respectively. The Company estimates annual amortization expense for intangibles of approximately $7 in 2012.

(m)

Environmental Expenditures

• Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded at their present value when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals will coincide with completion of a feasibility study or the Company's commitment to a formal plan of action.
  

  The Company incurred capital expenditures related to environmental matters of approximately $407 in 2011, $787 in 2010 and $480 in 2009.

(n)

Income Per Share of Common Stock

• The following table sets forth the computation of basic and diluted income per common share:

	Year Ended December 31,
	2011		2010		2009
Net income for basic and diluted income per common share	$	22,186	$	18,040	$	13,670
Weighted-average shares for basic income per common share		6,343,992		6,400,958		6,378,457
Effect of dilutive securities:
Employee and director stock options(1)		18,449		16,859		19,286
Adjusted weighted-average shares and assumed exercises for diluted income per common share		6,362,441		6,417,817		6,397,743
Basic net income per common share	$	3.50	$	2.82	$	2.14
Diluted net income per common share	$	3.49	$	2.81	$	2.14

(1)

Excludes 7,500, 9,500 and 9,500 stock options in 2011, 2010 and 2009, respectively, as antidilutive because the exercise price exceeded the average per share market price for the periods presented.

(o)

Stock-Based Compensation

• The Company expenses all stock-based payments to employees and directors, including grants of stock options and restricted stock, in the Company's Consolidated Statements of Income based on their fair values. Compensation cost is recognized ratably over the vesting period.

(p)

Derivative Instruments and Hedging Activities

• Every derivative instrument (including certain derivative instruments embedded in other contracts) is recorded on the balance sheet as either an asset or liability measured at its fair value. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met. The Company estimates fair value utilizing the cash flows valuation technique. The fair values of derivative contracts that expire in less than one year are recognized as current assets or liabilities. Those that expire in more than one year are recognized as long-term assets or liabilities. Derivative financial instruments that are not accounted for as hedges are adjusted to fair value through earnings. If the derivative is designated as a cash flow hedge, changes in fair value are recognized in comprehensive income (loss) until the hedged item is recognized in earnings. See Notes 1(f), 3 and 4.

(q)

Income Taxes

• The Company utilizes the asset and liability approach in its reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax related interest and penalties are included in income tax expense.
  

  The Company also assesses individual tax positions to determine if they meet the criteria for some or all of the benefits of that position to be recognized in the Company's financial statements. The Company only recognizes tax positions that meet the more-likely-than-not recognition threshold.

(r)

Comprehensive Income (Loss)

• Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as mark to market gains or losses of interest rate hedges, are reported as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income (loss). See Notes 1(p), 3, 4 and 6.