UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
UNITED STATES LIME & MINERALS, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: As of July 28, 2021,
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(Unaudited)
June 30, | December 31, |
| |||||
| 2021 |
| 2020 |
| |||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | | $ | | |||
Trade receivables, net |
| |
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Inventories, net |
| |
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Prepaid expenses and other current assets |
| |
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Total current assets |
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Property, plant and equipment |
| |
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Less accumulated depreciation and depletion |
| ( |
| ( | |||
Property, plant and equipment, net |
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Operating lease right-of-use assets | | | |||||
Other assets, net |
| |
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Total assets | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities | |||||||
Accounts payable | $ | | $ | | |||
Current portion of operating lease liabilities | | | |||||
Accrued expenses |
| |
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Total current liabilities |
| |
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Deferred tax liabilities, net |
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Operating lease liabilities, excluding current portion | | | |||||
Other liabilities |
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Total liabilities |
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Stockholders’ equity | |||||||
Common stock |
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Additional paid-in capital |
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Accumulated other comprehensive income |
| — |
| — | |||
Retained earnings |
| |
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Less treasury stock, at cost |
| ( |
| ( | |||
Total stockholders’ equity |
| |
| | |||
Total liabilities and stockholders’ equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
2
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 |
| |||||||||||||||||
Revenues | $ | |
| % | $ | |
| % | $ | |
| % | $ | |
| % | ||||||
Cost of revenues | ||||||||||||||||||||||
Labor and other operating expenses |
| | % | | | % | | | % | | | % | ||||||||||
Depreciation, depletion and amortization |
| | % |
| | | % |
| | | % |
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| | % |
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| | | % | ||||||||
Gross profit |
| | % |
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| | | % |
| | | % | |||||||
Selling, general and administrative expenses |
| | % |
| | | % |
| | | % |
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Operating profit |
| | % |
| | | % |
| | | % |
| | | % | |||||||
Other expense (income) | ||||||||||||||||||||||
Interest expense |
| | | % |
| | | % |
| | | % |
| | | % | ||||||
Interest and other income, net |
| ( | ( | % |
| ( | ( | % |
| ( | ( | % |
| ( | ( | % | ||||||
| ( | ( | % |
| ( | ( | % |
| ( | ( | % |
| ( | ( | % | |||||||
Income before income tax expense |
| | | % |
| | | % |
| | | % |
| | | % | ||||||
Income tax expense |
| | | % |
| | | % |
| | | % |
| | | % | ||||||
Net income | $ | | | % | $ | | | % | $ | | | % | $ | | | % | ||||||
Net income per share of common stock | ||||||||||||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||||||||||||
Diluted | $ | | $ | | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||
Net income |
| $ | |
| $ | |
| $ | |
| $ | |
|
Other comprehensive income | |||||||||||||
Mark to market of foreign exchange hedges, net of tax expense of $ | | | | | |||||||||
Total other comprehensive income |
| |
| |
| |
| | |||||
Comprehensive income | $ | | $ | | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
4
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands)
(Unaudited)
Accumulated |
| ||||||||||||||||||||
| Common Stock | Additional | Other |
| |||||||||||||||||
| Shares |
|
| Paid-In |
| Comprehensive |
| Retained |
| Treasury |
|
| |||||||||
Outstanding | Amount | Capital | Income | Earnings | Stock | Total |
| ||||||||||||||
Balances at December 31, 2020 |
| | $ | | $ | | $ | — | $ | | $ | ( | $ | | |||||||
Stock options exercised |
| |
| — |
| — |
| — |
| — |
| — |
| — | |||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| — |
| | |||||||
Treasury shares purchased |
| ( |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Cash dividends paid | — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Net income |
| — | — | — | — | | — | | |||||||||||||
Comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||||
Balances at March 31, 2021 |
| | $ | | $ | | $ | — | $ | | $ | ( | $ | | |||||||
Stock options exercised |
| |
| — |
| |
| — |
| — |
| — |
| | |||||||
Stock-based compensation |
| |
| — |
| |
| — |
| — |
| — |
| | |||||||
Treasury shares purchased |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |||||||
Cash dividends paid |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Net income |
| — | — | — | — | | — | | |||||||||||||
Comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||||
Balances at June 30, 2021 |
| | $ | | $ | | $ | — | $ | | $ | ( | $ | |
Accumulated |
| ||||||||||||||||||||
Common Stock | Additional | Other |
| ||||||||||||||||||
| Shares |
|
| Paid-In |
| Comprehensive |
| Retained |
| Treasury |
|
| |||||||||
Outstanding | Amount | Capital | (Loss) Income | Earnings | Stock | Total |
| ||||||||||||||
Balances at December 31, 2019 |
| | $ | | $ | | $ | ( | $ | | $ | ( | $ | | |||||||
Stock options exercised |
| |
| — |
| |
| — |
| — |
| — |
| | |||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| — |
| | |||||||
Treasury shares purchased |
| ( |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Cash dividends paid | — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Net income |
| — | — | — | — | | — | | |||||||||||||
Mark to market of foreign exchange hedges, net of $ |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | |||||||
Comprehensive (loss) income |
| — |
| — |
| — |
| ( |
| |
| — |
| | |||||||
Balances at March 31, 2020 |
| | $ | | $ | | $ | ( | $ | | $ | ( | $ | | |||||||
Stock-based compensation |
| |
| — |
| |
| — |
| — |
| — |
| | |||||||
Treasury shares purchased |
| ( |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Cash dividends paid |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Net income |
| — | — | — | — | | — | | |||||||||||||
Mark to market of foreign exchange hedges, net of $ |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||||
Comprehensive income |
| — |
| — |
| — |
| |
| |
| — |
| | |||||||
Balances at June 30, 2020 |
| | $ | | $ | | $ | — | $ | | $ | ( | $ | |
See accompanying notes to condensed consolidated financial statements.
5
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Six Months Ended June 30, | |||||||
2021 | 2020 | ||||||
OPERATING ACTIVITIES: |
|
|
| ||||
Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation, depletion and amortization |
| |
| | |||
Amortization of deferred financing costs |
| |
| | |||
Deferred income taxes |
| |
| | |||
(Gain) loss on disposition of property, plant and equipment |
| ( |
| | |||
Stock-based compensation |
| |
| | |||
Changes in operating assets and liabilities: | |||||||
Trade receivables, net |
| ( |
| | |||
Inventories, net |
| |
| ( | |||
Prepaid expenses and other current assets |
| |
| | |||
Other assets |
| ( |
| | |||
Accounts payable and accrued expenses |
| ( |
| | |||
Other liabilities |
| |
| | |||
Net cash provided by operating activities |
| |
| | |||
INVESTING ACTIVITIES: | |||||||
Purchase of property, plant and equipment |
| ( |
| ( | |||
Proceeds from sale of property, plant and equipment |
| |
| | |||
Net cash used in investing activities |
| ( |
| ( | |||
FINANCING ACTIVITIES: | |||||||
Cash dividends paid | ( | ( | |||||
Proceeds from exercise of stock options |
| |
| | |||
Purchase of treasury shares |
| ( |
| ( | |||
Net cash used in financing activities |
| ( |
| ( | |||
Net increase in cash and cash equivalents |
| |
| | |||
Cash and cash equivalents at beginning of period |
| |
| | |||
Cash and cash equivalents at end of period | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
6
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by United States Lime & Minerals, Inc. (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, comprehensive income and cash flows for the periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2020. The results of operations for the three- and six-month periods ended June 30, 2021 are not necessarily indicative of operating results for the full year.
On July 1, 2020, the Company acquired
2. Organization
The Company is a manufacturer of lime and limestone products, supplying primarily the construction (including highway, road and building contractors), industrial (including paper and glass manufacturers), metals (including steel producers), environmental (including municipal sanitation and water treatment facilities and flue gas treatment processes), roof shingle manufacturers, agriculture (including poultry and cattle feed producers), and oil and gas services industries. The Company is headquartered in Dallas, Texas and operates lime and limestone plants and distribution facilities in Arkansas, Colorado, Louisiana, Missouri, 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, ART Quarry TRS LLC (DBA Carthage Crushed Limestone) 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-operated working interests in natural gas wells located in Johnson County, Texas, in the Barnett Shale Formation.
3. Accounting Policies
Revenue Recognition. The Company recognizes revenue for its lime and limestone operations when (i) a contract with the customer exists and the performance obligations are identified; (ii) the price has been established; and (iii) the performance obligations have been satisfied, which is generally upon shipment. The Company’s returns and allowances are minimal. Revenues include external freight billed to customers with related costs accounted for as fulfillment costs and included in cost of revenues. External freight billed to customers included in 2021 and 2020 revenues was $
The Company operates its lime and limestone operations within a single geographic region and derives all revenues from that segment from the sale of lime and limestone products. See Note 4 to the condensed consolidated financial statements for disaggregation of revenues by segment, which the Company believes best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
7
Accounts Receivable. 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. The Company estimates credit losses relating to trade receivables based on an assessment of the current and forecasted probability of collection, historical trends, economic conditions and other significant events that may impact the collectability of accounts receivables. Due to the relatively homogenous nature of its trade receivables, the Company does not believe there is any meaningful asset-specific differences within its accounts receivable portfolio that would require the portfolio to be grouped below the consolidated level for review of credit losses. Credit losses relating to trade receivables have generally been within management expectations and historical trends. Uncollected trade receivables are charged-off when identified by management to be unrecoverable. The Company maintains an allowance for credit losses to reflect currently expected estimated losses resulting from the failure of customers to make required payments. See Note 7 to the condensed consolidated financial statements.
Leases. The Company determines if an arrangement is a lease at inception. When recording operating leases, the Company records a lease liability based on the net present value of the lease payments over the lease term, using the interest rate implicit in the lease, if known, or an incremental rate on a collateralized basis over a similar term and amount to the lease, and a corresponding right-of-use asset. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liabilities and operating lease liabilities, excluding current portion, on the condensed consolidated balance sheets. Lease expense is recognized over the lease term on a straight-line basis. Lease terms include options to extend the lease when it is reasonably certain the Company will exercise the option. For leases with a term of twelve months or less, the Company does not record a right-of-use asset and a lease liability and records lease expense on a straight-line basis. See Note 10 to the condensed consolidated financial statements.
4. Business Segment
The Company has identified
8
The following table sets forth operating results and certain other financial data for the Company’s lime and limestone operations segment and other (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
Revenues | 2021 | 2020 | 2021 | 2020 | ||||||||
Lime and limestone operations | $ | | $ | $ | | $ | ||||||
Other |
| |
|
| |
| ||||||
Total revenues | $ | | $ | | $ | | $ | | ||||
Depreciation, depletion and amortization | ||||||||||||
Lime and limestone operations | $ | | $ | | $ | | $ | | ||||
Other |
| |
| |
| |
| | ||||
Total depreciation, depletion and amortization | $ | | $ | | $ | | $ | | ||||
Gross profit (loss) | ||||||||||||
Lime and limestone operations | $ | | $ | $ | | $ | | |||||
Other |
| |
| ( |
| |
| ( | ||||
Total gross profit | $ | | $ | | $ | | $ | | ||||
Operating profit (loss) | ||||||||||||
Lime and limestone operations | $ | | $ | | $ | | $ | | ||||
Other | |
| ( |
| |
| ( | |||||
Total operating profit | $ | | $ | | $ | | $ | | ||||
Identifiable assets, at period end | ||||||||||||
Lime and limestone operations | $ | | $ | $ | | $ | | |||||
Other |
| |
| | | |||||||
Total identifiable assets | $ | | $ | | $ | | $ | | ||||
Capital expenditures | ||||||||||||
Lime and limestone operations | $ | | $ | $ | | $ | | |||||
Other |
| — |
| — |
| — |
| — | ||||
Total capital expenditures | $ | | $ | | $ | | $ | | ||||
9
5. Income Per Share of Common Stock
On April 30, 2021, the shareholders approved an increase in the Company’s number of authorized shares of common stock from
The following table sets forth the computation of basic and diluted income per common share (in thousands, except per share amounts):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||
Net income for basic and diluted income per common share | $ | | $ | | $ | | $ | | |||||
Weighted-average shares for basic income per common share |
| |
| |
| |
| | |||||
Effect of dilutive securities: | |||||||||||||
Employee and director stock options(1) |
| |
| |
| |
| | |||||
Adjusted weighted-average shares and assumed exercises for diluted income per common share |
| |
| |
| |
| | |||||
Basic net income per common share | $ | | $ | | $ | | $ | | |||||
Diluted net income per common share | $ | | $ | | $ | | $ | |
(1) | Excludes |
6. Accumulated Other Comprehensive Income
The following table presents the components of comprehensive income (in thousands):
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||
Net income | $ | | $ | | $ | | $ | | |||||
Mark to market of foreign exchange hedges | — | | — | | |||||||||
Deferred income tax expense |
| — |
| ( |
| — |
| — | |||||
Comprehensive income | $ | | $ | | $ | | $ | |
In May 2018, to hedge against potential losses due to changes in the Euro to U.S. Dollar exchange rates, the Company entered into foreign exchange hedges with a counterparty to the foreign exchange hedges to fix the exchange rates. The last of the foreign exchange hedges expired in April 2020. The foreign exchange hedges were effective as defined under applicable accounting rules. Therefore, changes in the fair value of the foreign exchange hedges were reflected in comprehensive income.
10
7. Trade Receivables, Net
Additions, adjustments, and write-offs to the Company’s allowance for credit losses for the six months ended June 30, 2021 and 2020 were as follows (in thousands):
June 30, | ||||||
2021 | 2020 | |||||
Beginning balance | $ | | $ | | ||
Additions | | |||||
Adjustments for expected credit loss factors | ( | — | ||||
Write-offs | — | — | ||||
Ending balance | $ | | $ | |
8. Inventories, Net
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. Inventories, net consisted of the following (in thousands):
June 30, | December 31, | ||||||
2021 | 2020 |
| |||||
Lime and limestone inventories: |
|
|
|
| |||
Raw materials | $ | | $ | | |||
Finished goods |
| |
| | |||
| | ||||||
Service parts inventories |
| |
| | |||
$ | | $ | |
9. Banking Facilities and Debt
The Company’s credit agreement with Wells Fargo Bank, N.A. (the “Lender”), as amended as of May 2, 2019 and November 21, 2019, provides for a $
Interest rates on the Revolving Facility are, at the Company’s option, LIBOR (or a replacement rate as determined by the Lender and the Company) plus a margin of
The Company may pay dividends so long as it remains in compliance with the provisions of the Company’s credit agreement, and it may purchase, redeem or otherwise acquire shares of its common stock so long as its pro forma Cash Flow Leverage Ratio is less than
11
As of June 30, 2021, the Company had
10. Leases
The Company has operating leases for the use of equipment, corporate office space, and some of its terminal and distribution facilities. The leases have remaining lease terms of 1 to
The components of lease costs for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
Classification | 2021 | 2020 | 2021 | 2020 | |||||||||||
Operating lease costs(1) | Cost of revenues | $ | $ | $ | | $ | | ||||||||
Operating lease costs(1) | Selling, general and administrative expenses |
| |
| | ||||||||||
Rental revenues | Interest and other income, net | ( | ( |
| ( |
| ( | ||||||||
Net operating lease costs | $ | | $ | | $ | | $ | |
(1) | Includes the costs of leases with a term of |
As of June 30, 2021, future minimum payments under operating leases that were either non-cancelable or subject to significant penalty upon cancellation, including future minimum payments under renewal options that the Company is reasonably certain to exercise, were as follows (in thousands):
2021 (excluding the six months ended June 30, 2021) | $ | | ||
2022 | | |||
2023 | | |||
2024 | | |||
2025 | | |||
Thereafter | | |||
Total future minimum lease payments | | |||
Less imputed interest | ( | |||
Present value of lease liabilities | $ | |
Supplemental cash flow information pertaining to the Company’s leasing activity for the six months ended June 30, 2021 and 2020 is as follows (in thousands):
Six Months Ended June 30, | ||||||
2021 | 2020 | |||||
Cash payments for operating lease liabilities | $ | | $ | | ||
Right-of-use assets obtained in exchange for operating lease obligations | $ | | $ | |
12
11. Income Taxes
The Company has estimated that its effective income tax rate for 2021 will be
12. Dividends
On June 11, 2021, the Company paid $
13. Subsequent Event
On
13
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. Any statements contained in this Report that are not statements of historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this Report, including without limitation statements relating to the Company’s plans, strategies, objectives, expectations, intentions, and adequacy of resources, are identified by such words as “will,” “could,” “should,” “would,” “believe,” “possible,” “potential,” “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 at the Company’s discretion; (ii) the Company’s plans and results of operations will be affected by its ability to maintain and increase its revenues and manage its growth; (iii) the Company’s ability to meet short-term and long-term liquidity demands, including meeting the Company’s operating and capital needs, including possible acquisitions and paying dividends, and conditions in the credit and equity markets, including the ability of the Company’s customers to meet their obligations; (iv) interruptions to operations and increased expenses at the Company’s facilities resulting from changes in mining methods or conditions, variability of chemical or physical properties of the Company’s limestone and its impact on process equipment and product quality, inclement weather conditions, natural disasters, accidents, IT systems failures or disruptions, including due to cyber-security incidents or ransomware attacks, utility disruptions, supply chain disruptions, labor shortages, or regulatory requirements; (v) volatile coal, petroleum coke, diesel, natural gas, electricity, transportation and freight costs and the consistent availability of trucks, truck drivers and rail cars to deliver the Company’s products to its customers and solid fuels to its plants on a timely basis at competitive prices; (vi) unanticipated delays or cost overruns in completing modernization and expansion and development projects; (vii) the Company’s ability to expand its lime and limestone operations through projects and acquisitions of businesses with related or similar operations, including the Carthage acquisition, and the Company’s ability to obtain any required financing for such projects and acquisitions, to integrate the projects and acquisitions into the Company’s overall operations, and to sell any resulting increased production at acceptable prices; (viii) inadequate demand and/or prices for the Company’s lime and limestone products due to increased competition from competitors, increasing competition for certain customer accounts, conditions in the U.S. economy, recessionary pressures in, and the impact of government policies on, particular industries, including oil and gas services, utility plants, steel, construction, and industrial, effects of governmental fiscal and budgetary constraints, including the level of highway construction and infrastructure funding, changes to tax law, legislative impasses, extended governmental shutdowns, trade wars, tariffs, economic and regulatory uncertainties under state governments and the United States Administration and Congress, Federal Reserve responses to inflationary concerns, and inability to continue to maintain or increase prices for the Company’s products, including passing through the increased costs of transportation, supplies, and services; (ix) ongoing and possible new regulations, investigations, enforcement actions and costs, legal expenses, penalties, fines, assessments, litigation, judgments and settlements, taxes and disruptions and limitations of operations, including those related to climate change, health and safety, human capital, diversity, and other environmental, social, governance, and sustainability considerations, and those that could impact the Company’s ability to continue or renew its operating permits or successfully secure new permits in connection with its modernization and expansion and development projects; (x) estimates of reserves and remaining lives of reserves; (xi) the ongoing impact of the novel coronavirus (“COVID-19”) pandemic and current or future variants of the COVID-19 virus and governmental responses thereto, including decreased demand, lower prices, tightened labor and other markets, and increased costs, and the risk of non-compliance with health and safety protocols, social distancing and mask guidelines, and vaccination recommendations, on the Company’s financial condition, results of operations, cash flows, and competitive position; (xii) the impact of social or political unrest; (xiii) risks relating to mine safety and reclamation and remediation; and (xiv) other risks and uncertainties set forth in this Report or indicated from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
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Overview.
We have identified one reportable business segment based on the distinctness of our activities and products: lime and limestone operations. All of our operations are in the United States. Operating profit from our lime and limestone operations includes all of our selling, general and administrative costs. We do not allocate interest expense and interest and other income (expense), net to our lime and limestone operations.
Through our lime and limestone operations, we are a manufacturer of lime and limestone products, supplying primarily the construction (including highway, road and building contractors), industrial (including paper and glass manufacturers), metals (including steel producers), environmental (including municipal sanitation and water treatment facilities and flue gas treatment processes), roof shingle manufacturers, agriculture (including poultry and cattle feed producers), and oil and gas services industries. We are headquartered in Dallas, Texas and operate lime and limestone plants and distribution facilities in Arkansas, Colorado, Louisiana, Missouri, Oklahoma and Texas through our 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, ART Quarry TRS LLC (DBA Carthage Crushed Limestone) and U.S. Lime Company – Transportation. The lime and limestone operations represent our principal business.
On July 1, 2020, we acquired Carthage Crushed Limestone (“Carthage”), a limestone mining and production company located in Carthage, Missouri, for $8.4 million cash. Carthage provides aggregate and pulverized limestone products that are used primarily in the agriculture, roofing, construction, and industrial industries. Carthage contributed $2.5 million and $4.7 to our revenues for the three- and six-month periods ended June 30, 2021, respectively.
In addition to our lime and limestone operations, we hold natural gas interests through our wholly owned subsidiary, U.S. Lime Company – O & G, LLC. The revenues, gross profit and operating profit from our natural gas interests are included in Other for our reportable segment disclosures. Assets related to our natural gas interests, unallocated corporate assets, and cash items are included in Other identified assets.
Our lime and limestone revenues increased 30.5% and 19.2% in the second quarter and first six months 2021, respectively, compared to the second quarter and first six months 2020. In the second quarter 2020, the COVID-19 pandemic and related governmental restrictions on business activities resulted in a general economic slowdown, which disproportionately impacted certain industries that purchase our products, including oil and gas services, environmental, and steel. In addition to the limestone sales by Carthage to agriculture, roofing and construction customers, noted above, the increases in our lime and limestone revenues in the second quarter and first six months 2021 resulted primarily from increased sales to our construction, steel, roofing and environmental customers. In the second quarter 2021, we also saw demand from our oil and gas services customers increase compared to the second quarter 2020. Revenues in in the second quarter and first six months 2021 were also favorably impacted by increases in the average selling prices of 2.2% and 1.8%, respectively, for our lime and limestone products.
Our lime and limestone gross profit increased 58.8% and 38.7% in the second quarter and first six months 2021, respectively, compared to the second quarter and first six months 2020. The increases in gross profit in the 2021 periods, compared to the comparable 2020 periods, resulted primarily from the increased revenues discussed above and increased operating efficiencies.
Federal, state, and local governmental restrictions in response to the COVID-19 pandemic have generally been lifted or curtailed in recent months, which has continued to reduce the impact of the pandemic on general business activities in the markets for our lime and limestone products. In the locations where we operate, normal business activities have largely resumed. With the resumption of normal business activities, we are experiencing lower availability of labor and certain supplies and services and rising costs. Additionally, new variants of COVID-19 and the possibility of new wide-spread or localized outbreaks of the virus could have a material adverse effect on our financial condition, results of operations, cash flows and competitive position.
Looking ahead, we anticipate continued challenges in the availability and costs of labor and supplies and services for a period of time, while the broader economy adjusts to its reopened status, and we will continue to monitor the evolving COVID-19 situation and adjust our operations accordingly.
At our 2021 Annual Meeting of Shareholders, our shareholders approved an increase in the number of our authorized shares of common stock from 15,000,000 to 30,000,000. Possible uses of the additional authorized shares
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include, without limitation, future stock splits, stock dividends, rights offerings, acquiring other companies, businesses or products in exchange for shares, attracting and retaining employees by the issuance of additional shares under our Amended and Restated 2001 Long-Term Incentive Plan and any future equity compensation plans, issuance of securities convertible into shares, and other transactions and corporate purposes which our Board of Directors deems to be in the best interests of us and our shareholders.
Liquidity and Capital Resources.
Net cash provided by operating activities was $27.4 million in the first six months 2021, compared to $27.1 million in the first six months 2020, an increase of $0.2 million, or 0.9%. Our net cash provided by operating activities is composed of net income, depreciation, depletion and amortization (“DD&A”), deferred income taxes, stock-based compensation, other non-cash items included in net income and changes in working capital. In the first six months 2021, net cash provided by operating activities was principally composed of $18.1 million net income, $10.6 million DD&A, $1.8 million deferred income taxes, $1.1 million stock-based compensation, and a $4.1 million decrease from changes in operating assets and liabilities. Changes in operating assets and liabilities in the first six months 2021 included an increase of $4.5 million in trade receivables, net, due primarily from increased sales in the second quarter 2021 compared to the fourth quarter 2020, a decrease of $0.6 million in inventories, and a decrease of $0.6 million in accounts payable and accrued expenses. In the first six months 2020, net cash provided by operating activities was principally composed of $11.6 million net income, $9.5 million DD&A, $2.5 million deferred income taxes, $0.8 million stock-based compensation, and a $2.5 million increase from changes in operating assets and liabilities. Changes in operating assets and liabilities in the first six months 2020 included a decrease of $1.8 million in trade receivables, net, due primarily from reduced revenues and favorable timing of collections in the second quarter, an increase of $1.0 million in inventories, and an increase of $0.8 million in accounts payable and accrued expenses, primarily from deferral of the payment of certain payroll taxes provided for under the CARES Act in the second quarter.
We had $17.8 million in capital expenditures in the first six months 2021, compared to $10.6 million in the first six months 2020. Capital expenditures in the first six months 2021 included $7.0 million of investment to develop our Love Hollow Quarry and improve the transportation infrastructure between the Love Hollow Quarry and our Arkansas Lime production facilities. Net cash used in financing activities was $1.8 million in the first six months 2021, compared to $2.0 million in the first six months 2020, consisting primarily of cash dividends paid in each period.
Cash and cash equivalents increased $7.8 million to $91.3 million at June 30, 2021, from $83.6 million at December 31, 2020.
We are not committed to any planned capital expenditures until actual orders are placed for equipment. As of June 30, 2021, we did not have any material commitments for open purchase orders.
Our credit agreement with Wells Fargo Bank, N.A. (the “Lender”), as amended as of May 2, 2019 and November 21, 2019, provides for a $75 million revolving credit facility (the “Revolving Facility”) and an incremental four-year accordion feature to borrow up to an additional $50 million on the same terms, subject to approval by the Lender or another lender selected by us. The credit agreement also provides for a $10 million letter of credit sublimit under the Revolving Facility. The Revolving Facility and any incremental loans mature on May 2, 2024.
Interest rates on the Revolving Facility are, at our option, LIBOR (or a replacement rate as determined by the Lender and the Company) plus a margin of 1.000% to 2.000%, or the Lender’s Prime Rate plus a margin of 0.000% to 1.000%; and a commitment fee range of 0.200% to 0.350% on the undrawn portion of the Revolving Facility. The Revolving Facility interest rate margins and commitment fee are determined quarterly in accordance with a pricing grid based upon our Cash Flow Leverage Ratio, defined as the ratio of our total funded senior indebtedness to earnings before interest, taxes, depreciation, depletion, amortization and stock-based compensation expense (“EBITDA”) for the 12 months ended on the last day of the most recent calendar quarter, plus pro forma EBITDA from any businesses acquired during the period. Pursuant to a security agreement, dated August 25, 2004, the Revolving Facility is secured by our existing and hereafter acquired tangible assets, intangible assets and real property. The maturity of the Revolving Facility and any incremental loans can be accelerated if any event of default, as defined under the credit agreement, occurs. Our maximum Cash Flow Leverage Ratio is 3.50 to 1.
We may pay dividends so long as we remain in compliance with the provisions of our credit agreement, and we may purchase, redeem or otherwise acquire shares of our common stock so long as our pro forma Cash Flow Leverage
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Ratio is less than 3.00 to 1.00 and no default or event of default exists or would exist after giving effect to such stock repurchase.
At June 30, 2021, we had no debt outstanding and no draws on the Revolving Facility other than $0.4 million of letters of credit which count as draws against the available commitment under the Revolving Facility. We believe that, absent a significant acquisition, cash on hand and cash flows from operations will be sufficient to meet our operating needs, ongoing capital needs, including current and possible future modernization, expansion, and development projects, and liquidity needs and allow us to pay regular quarterly cash dividends for the near future.
Results of Operations.
Revenues in the second quarter 2021 were $49.2 million, compared to $37.5 million in the second quarter 2020, an increase of $11.6 million, or 30.9%. For the first six months 2021, revenues were $90.8 million, compared to $76.0 million in the first six months 2020, an increase of $14.8 million, or 19.5%. Revenues from our lime and limestone operations in the second quarter 2021 increased $11.4 million, or 30.5%, to $48.7 million from $37.4 million in the second quarter 2020. For the first six months 2021, revenues from our lime and limestone operations increased $14.5 million, or 19.2%, to $90.1 million, compared to $75.6 million in the first six months 2020. The increases in lime and limestone revenues in the second quarter and first six months 2021 were primarily due to increases in sales volumes of 28.3% and 17.4%, respectively, compared to the comparable 2020 periods, principally due to increased demand from our construction, steel, roofing and environmental customers. In the second quarter 2021, we also saw demand from our oil and gas services customers increase compared to the second quarter 2020. Revenues also included $0.4 million and $0.7 million from our natural gas interests in the second quarter and first six months 2021, respectively, compared to $0.2 million and $0.4 million in the comparable 2020 periods, respectively.
Gross profit was $16.8 million and $28.6 million in the second quarter and first six months 2021, respectively, compared to $10.4 million and $20.2 million in the comparable 2020 periods, increases of $6.4 million and $8.4 million, or 62.2% and 41.3%, respectively. Gross profit from our lime and limestone operations in the second quarter and first six months 2021 was $16.7 million and $28.5 million, respectively, compared to $10.5 million and $20.5 million in the comparable 2020 periods, increases of $6.2 million, or 58.8%, and $8.0 million, or 38.7%, respectively. The increases in gross profit in the 2021 periods, compared to the comparable 2020 periods, resulted primarily from the increased revenues discussed above and increased operating efficiencies. Gross profit also included $113 thousand and $94 thousand from our natural gas interests in the second quarter and first six months 2021, respectively, compared to losses of $150 thousand and $312 thousand in the second quarter and first six months 2020, respectively.
Selling, general and administrative (“SG&A”) expenses were $3.0 million in the second quarter 2021, compared to $2.9 million in the second quarter 2020, an increase of $0.1 million, or 2.6%. SG&A expenses were $6.0 million in the first six months 2021, compared to $6.1 million in the first six months 2020, a decrease of $0.1 million, or 1.2%. Increased personnel expenses, including stock-based compensation, during the 2021 periods were offset by the higher legal expenses in the 2020 periods related to the acquisition of Carthage.
Interest expense was $62 thousand in each of the second quarters 2021 and 2020, and $124 thousand in each of the first six months 2021 and 2020. We had no outstanding debt during any of the periods. Interest and other income, net was $0.1 million in each of the second quarter and first six months 2021, compared to $0.1 million and $0.4 million, respectively, in the comparable 2020 periods.
Income tax expense was $2.8 million and $4.5 million in the second quarter and first six months 2021, respectively, compared to $1.4 million and $2.7 million, respectively, in the comparable 2020 periods. Our effective income tax rate was reduced from the federal rate primarily due to statutory depletion, which is allowed for income tax purposes and is a permanent difference between net income for financial reporting purposes and taxable income.
Our net income was $11.1 million ($1.96 per share diluted) in the second quarter 2021, compared to net income of $6.1 million ($1.08 per share diluted) in the second quarter 2020, an increase of $5.0 million, or 81.8%. Net income in the first six months 2021 was $18.1 million ($3.20 per share diluted), an increase of $6.5 million, or 55.6%, compared to net income of $11.6 million ($2.07 per share diluted) in the first six months 2020.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk.
We could be exposed to changes in interest rates, primarily as a result of floating interest rates on the Revolving Facility. There was no outstanding balance on the Revolving Facility subject to interest rate risk at June 30, 2021. Any future borrowings under the Revolving Facility would be subject to interest rate risk. See Note 9 of Notes to Condensed Consolidated Financial Statements.
ITEM 4: CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered by this Report were effective.
No change in our internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Our Amended and Restated 2001 Long-Term Incentive Plan allows employees and directors to pay the exercise price for stock options and the tax withholding liability upon the lapse of restrictions on restricted stock by payment in cash and/or delivery of shares of common stock. There were no repurchases in the second quarter 2021 pursuant to these provisions or otherwise.
ITEM 4: MINE SAFETY DISCLOSURES
Under Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K, each operator of a coal or other mine is required to include disclosures regarding certain mine safety results in its periodic reports filed with the SEC. The operation of our quarries, underground mine and plants is subject to regulation by the federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977. The required information regarding certain mining safety and health matters, broken down by mining complex, for the quarter ended June 30, 2021 is presented in Exhibit 95.1 to this Report.
We believe we are responsible to employees to provide a safe and healthy workplace environment. We seek to accomplish this by: training employees in safe work practices; openly communicating with employees; following safety standards and establishing and improving safe work practices; involving employees in safety processes; and recording, reporting and investigating accidents, incidents and losses to avoid reoccurrence.
Following passage of the Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the enforcement of mining safety and health standards on all aspects of mining operations. There has also been an increase in the dollar penalties assessed for citations and orders issued in recent years.
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ITEM 6: EXHIBITS
The Exhibit Index set forth below is incorporated by reference in response to this Item.
EXHIBIT INDEX
EXHIBIT | ||
NUMBER |
| DESCRIPTION |
3.1 | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. | |
32.1 | ||
32.2 | ||
95.1 | ||
101 | Interactive Data Files (formatted as Inline XBRL). | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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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. | ||
July 30, 2021 | By: | /s/ Timothy W. Byrne |
Timothy W. Byrne | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
July 30, 2021 | By: | /s/ Michael L. Wiedemer |
Michael L. Wiedemer | ||
Vice President and Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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