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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 26, 2022,
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, | ||||||
| 2022 |
| 2021 |
| |||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | | $ | | |||
Trade receivables, net |
| |
| | |||
Inventories, net |
| |
| | |||
Prepaid expenses and other current assets |
| |
| | |||
Total current assets |
| |
| | |||
Property, plant and equipment |
| |
| | |||
Less accumulated depreciation and depletion |
| ( |
| ( | |||
Property, plant and equipment, net |
| |
| | |||
Operating lease right-of-use assets | | | |||||
Other assets, net |
| |
| | |||
Total assets | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities | |||||||
Accounts payable | $ | | $ | | |||
Current portion of operating lease liabilities | | | |||||
Accrued expenses |
| |
| | |||
Total current liabilities |
| |
| | |||
Deferred tax liabilities, net |
| |
| | |||
Operating lease liabilities, excluding current portion | | | |||||
Other liabilities |
| |
| | |||
Total liabilities |
| |
| | |||
Stockholders’ equity | |||||||
Common stock |
| |
| | |||
Additional paid-in capital |
| |
| | |||
Retained earnings |
| |
| | |||
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, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 |
| |||||||||||||||||
Revenues | $ | |
| % | $ | |
| % | $ | |
| % | $ | |
| % | ||||||
Cost of revenues | ||||||||||||||||||||||
Labor and other operating expenses |
| | % | | | % | | | % | | | % | ||||||||||
Depreciation, depletion and amortization |
| | % |
| | | % |
| | | % |
| | | % | |||||||
| | % |
| | | % |
| | | % |
| | | % | ||||||||
Gross profit |
| | % |
| | | % |
| | | % |
| | | % | |||||||
Selling, general and administrative expenses |
| | % |
| | | % |
| | | % |
| | | % | |||||||
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 STOCKHOLDERS’ EQUITY
(dollars in thousands)
(Unaudited)
| ||||||||||||||||||
| Common Stock | Additional |
| |||||||||||||||
| Shares |
|
| Paid-In |
| Retained |
| Treasury |
|
| ||||||||
Outstanding | Amount | Capital | Earnings | Stock | Total |
| ||||||||||||
Balances at December 31, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Stock-based compensation |
| |
| — |
| |
| — |
| — |
| | ||||||
Treasury shares purchased |
| ( |
| — |
| — |
| — |
| ( |
| ( | ||||||
Cash dividends paid | — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Net income |
| — | — | — | | — | | |||||||||||
Balances at March 31, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Stock options exercised |
| |
| — |
| |
| — |
| — |
| | ||||||
Stock-based compensation |
| |
| — |
| |
| — |
| — |
| | ||||||
Treasury shares purchased |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Cash dividends paid |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Net income |
| — | — | — | | — | | |||||||||||
Balances at June 30, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
| ||||||||||||||||||
Common Stock | Additional |
| ||||||||||||||||
| Shares |
|
| Paid-In |
| Retained |
| Treasury |
|
| ||||||||
Outstanding | Amount | Capital | Earnings | Stock | Total |
| ||||||||||||
Balances at December 31, 2020 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Stock options exercised |
| |
| — |
| — |
| — |
| — |
| — | ||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| | ||||||
Treasury shares purchased |
| ( |
| — |
| — |
| — |
| ( |
| ( | ||||||
Cash dividends paid | — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Net income |
| — | — | — | | — | | |||||||||||
Balances at March 31, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Stock options exercised |
| |
| — |
| |
| — |
| — |
| | ||||||
Stock-based compensation |
| |
| — |
| |
| — |
| — |
| | ||||||
Treasury shares purchased |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Cash dividends paid |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Net income |
| — | — | — | | — | | |||||||||||
Balances at June 30, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
See accompanying notes to condensed consolidated financial statements.
4
UNITED STATES LIME MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2022 | 2021 |
| ||||||
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 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 |
| ( |
| ( | ||||
Acquisition of a business, net of cash acquired | ( | — | ||||||
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.
5
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, 2021. The results of operations for the three- and six-month periods ended June 30, 2022 are not necessarily indicative of operating results for the full year.
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, ART Quarry TRS LLC (DBA Carthage Crushed Limestone), Colorado Lime Company, Mill Creek Dolomite, LLC (“Mill Creek”), 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-operated working interests in natural gas wells located in Johnson County, Texas, in the Barnett Shale Formation.
On February 9, 2022, the Company acquired
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 2022 and 2021 revenues was $
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
6
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.
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 8 to the condensed consolidated financial statements.
4. Reportable Segment
The Company has identified
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):
7
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
Revenues | 2022 | 2021 | 2022 | 2021 | |||||||||
Lime and limestone operations | $ | | $ | $ | | $ | | ||||||
Other |
| |
|
| |
| | ||||||
Total revenues | $ | | $ | | $ | | $ | | |||||
Depreciation, depletion and amortization | |||||||||||||
Lime and limestone operations | $ | | $ | | $ | | $ | | |||||
Other |
| |
| |
| |
| | |||||
Total depreciation, depletion and amortization | $ | | $ | | $ | | $ | | |||||
Gross profit | |||||||||||||
Lime and limestone operations | $ | | $ | $ | | $ | | ||||||
Other |
| |
| |
| |
| | |||||
Total gross profit | $ | | $ | | $ | | $ | | |||||
Operating profit | |||||||||||||
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 | $ | | $ | | $ | | $ | | |||||
5. Income and Dividends Per Share of Common Stock
At June 30, 2022, the Company had
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, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
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 |
8
The Company paid $
6. Inventories, Net
Inventories are valued principally at the lower of cost, determined using the average cost method, or net realizable value. 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, | ||||||
2022 | 2021 |
| |||||
Lime and limestone inventories: |
|
|
|
| |||
Raw materials | $ | | $ | | |||
Finished goods |
| |
| | |||
| | ||||||
Service parts inventories |
| |
| | |||
$ | | $ | | ||||
7. 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
As of June 30, 2022, the Company had
8. 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
9
The components of lease costs for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
Classification | 2022 | 2021 | 2022 | 2021 | |||||||||||
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, 2022, 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):
2022 (excluding the six months ended June 30, 2022) | $ | | ||
2023 | | |||
2024 | | |||
2025 | | |||
2026 | | |||
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, 2022 and 2021 is as follows (in thousands):
Six Months Ended June 30, | ||||||
2022 | 2021 | |||||
Cash payments for operating lease liabilities | $ | | $ | | ||
Right-of-use assets obtained in exchange for operating lease obligations | $ | | $ | | ||
9. Income Taxes
The Company has estimated that its effective income tax rate for 2022 will be
10. Dividends
On June 17, 2022, the Company paid $
10
11. Subsequent Event
On
11
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, including more severe and frequent weather events resulting from climate change, natural disasters, accidents, IT systems failures or disruptions, including due to cyber-security incidents or ransomware attacks, utility disruptions, supply chain delays and disruptions, labor shortages and disruptions, or regulatory requirements; (v) volatile coal, petroleum coke, diesel, natural gas, electricity, and transportation 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 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 laws, legislative impasses, extended governmental shutdowns, trade wars, tariffs, international incidents, including the Russian invasion of Ukraine, sanctions, economic and regulatory uncertainties under state governments and the United States Administration and Congress, inflation, Federal Reserve responses to inflationary concerns, including increased interest rates, and inability to continue to maintain or increase prices for the Company’s products, including passing through the increased costs of energy, transportation, labor, and supplies; (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 mandates, 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, 2021 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
12
Overview.
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, ART Quarry TRS LLC (DBA Carthage Crushed Limestone), Colorado Lime Company, Mill Creek Dolomite, LLC (“Mill Creek”), Texas Lime Company, U.S. Lime Company, U.S. Lime Company – Shreveport, U.S. Lime Company – St. Clair, and U.S. Lime Company – Transportation.
We have identified one reportable segment based on the distinctness of our activities and products: lime and limestone operations. All operations are within a single geographic region in the United States.
In addition to our lime and limestone operations, we hold natural gas interests through our wholly owned subsidiary, U.S. Lime Company – OG, 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. We do not believe that our natural gas interests are material to the current or prior periods.
On February 9, 2022, we acquired 100% of the equity interest of Mill Creek, a dolomite mining and production company located in Mill Creek, Oklahoma, for $5.6 million cash. Upon acquisition, Mill Creek’s assets and liabilities were recorded at fair value, with $5.4 million of the purchase price allocated to property, plant, and equipment. Mill Creek contributed $1.1 million and $1.9 million to our revenues for the three- and six-months ended June 30, 2022, respectively. We believe that this acquisition will complement our existing geographic footprint.
Our revenues increased 23.0% and 22.6% in the second quarter and first six months 2022, respectively, compared to the second quarter and first six months 2021. The increases in our revenues in the second quarter and first six months 2022 resulted primarily from 18.0% and 18.5% increases in sales volumes of our lime and limestone products, respectively, principally due to increased demand from our construction and industrial customers. Additionally, lime and limestone revenues for the six months 2022 benefited from increased sales to our oil and gas services customers. Revenues in in the second quarter and first six months 2022 were also favorably impacted by increases in the average selling prices for our lime and limestone products of 4.3% and 3.5%, respectively.
Our gross profit decreased 1.9% in the second quarter 2022 and increased 8.2% in the first six months 2022, compared to the second quarter and first six months 2021. The decrease in gross profit in the second quarter 2022, compared to the second quarter 2021, resulted primarily from increased lime and limestone production costs, principally from higher energy, transportation, labor, and supplies costs, partially offset by the increased revenues discussed above. The increase in gross profit in the first six months 2022, compared to the first six months 2021, resulted primarily from the increased revenues discussed above, partially offset by increased production costs.
We continue to be challenged by a persistent overall inflationary environment that is disproportionately impacting our lime and limestone production costs. We are also adjusting and acclimating to longer lead times as supply chain delays have settled into a new normal.
While we were able to increase our lime and limestone product prices in the first six months 2022, our price increases were not nearly enough to offset the increasing cost pressures that we have been experiencing. In an effort to maintain or improve our margins, we have been working with our valued customers to pass along additional price increases during the second half of the year. If our increased production costs, particularly costs associated with energy and transportation, continue at their current rate, or accelerate, it could adversely affect our profitability going forward.
Liquidity and Capital Resources.
Net cash provided by operating activities was $22.4 million in the first six months 2022, compared to $27.4 million in the first six months 2021, a decrease of $5.0 million, or 18.3%. Our net cash provided by operating activities is composed of net income, depreciation, depletion and amortization (“DDA”), deferred income taxes, stock-based compensation, other non-cash items included in net income and changes in working capital. In the first six months 2022,
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net cash provided by operating activities was principally composed of $18.9 million net income, $10.8 million DDA, $1.2 million deferred income taxes, $1.3 million stock-based compensation, and a $9.8 million decrease from changes in operating assets and liabilities. Changes in operating assets and liabilities in the first six months 2022 included an increase of $10.0 million in trade receivables, net, due primarily to increased sales in the second quarter 2022 compared to the fourth quarter 2021, an increase of $1.4 million in inventories, a $0.4 million increase in accounts payable and accrued expenses, and a decrease of $1.0 million in prepaid expenses and other current assets. In the first six months 2021, net cash provided by operating activities was principally composed of $18.1 million net income, $10.6 million DDA, $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.
We had $17.1 million in capital expenditures in the first six months 2022, including $5.6 million for the acquisition of Mill Creek, compared to $17.8 million in the first six months 2021. In the first six months 2022, we experienced increased costs associated with our normal recurring capital and re-equipping projects at our plants and other facilities, as part of the current overall inflationary environment. We expect that the increase in these capital costs will result in increased DDA expense in future periods. Net cash used in financing activities was $2.2 million in the first six months 2022, compared to $1.8 million in the first six months 2021, consisting primarily of cash dividends paid in each period.
Cash and cash equivalents increased $3.2 million to $108.6 million at June 30, 2022 from $105.4 million at December 31, 2021.
We are not committed to any planned capital expenditures until actual orders are placed for equipment. As of June 30, 2022, 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 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, 2022, we had no debt outstanding and no draws on the Revolving Facility other than $0.3 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.
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Results of Operations.
Revenues in the second quarter 2022 were $60.5 million, compared to $49.2 million in the second quarter 2021, an increase of $11.3 million, or 23.0%. For the first six months 2022, revenues were $111.4 million, compared to $90.8 million in the first six months 2021, an increase of $20.6 million, or 22.6%. Revenues from our lime and limestone operations were $59.6 million in the second quarter 2022, compared to $48.7 million in the second quarter 2021, an increase of $10.9 million, or 22.3%. For the first six months 2022, lime and limestone revenues were $109.9 million, compared to $90.1 milling in the first six months 2021, an increase of $19.8 million, or 22.0%. The increases in lime and limestone revenues in the second quarter and first six months 2022 were primarily due to increases in sales volumes of our lime and limestone products, compared to the first quarter 2021, principally due to increased demand from our construction and industrial customers. Additionally, lime and limestone revenues in the first six months 2022 benefitted from increased sales to our oil and gas services customers. Revenues in in the second quarter and first six months 2022 were also favorably impacted by increases in the average selling prices for our lime and limestone products of 4.3% and 3.5%, respectively.
Gross profit was $16.5 million in the second quarter 2022, compared to $16.8 million in the second quarter 2021, a decrease of $0.3 million, or 1.9%. Gross profit from our lime and limestone operations in the second quarter 2022 was $16.0 million, compared to $16.7 million in the second quarter 2021, a decrease of $0.7 million, or 4.2%. The decrease in lime and limestone gross profit in the second quarter 2022, compared to the second quarter 2021, resulted primarily from increased production costs, principally from higher energy, transportation, labor, and supplies costs, partially offset by the increased revenues discussed above.
Gross profit was $30.9 million in the first six months 2022, compared to $28.6 million in the first six months 2021, an increase of $2.3 million, or 8.2%. Gross profit from our lime and limestone operations in the first six months 2022 was $30.2 million, compared to $28.5 million in the first six months 2021, an increase of $1.7 million or 5.8%. The increase in gross profit in the first six months 2022, compared to the first six months 2021, resulted primarily from the increased revenues discussed above, partially offset by increased production costs.
Selling, general and administrative (“SGA”) expenses were $3.8 million in the second quarter 2022, compared to $3.0 million in the second quarter 2021, an increase of $0.9 million, or 30.1%. SGA expenses were $7.5 million in the first six months 2022, compared to $6.0 million in the first six months 2021, an increase of $1.5 million, or 24.2%. The increases in SGA expenses in the 2022 periods were primarily due to increased personnel expense and changes in estimates of expected credit losses.
Interest expense was $63 thousand and $126 thousand in the second quarter and first six months 2022, respectively, compared to $62 thousand and $124 thousand in the comparable 2021 periods. We had no outstanding debt during any of the periods. Interest and other income, net was $177 thousand and $237 thousand in the second quarter and first six months 2022, respectively, compared to $91 thousand and $125 thousand in the comparable 2021 periods.
Income tax expense was $2.5 million and $4.7 million in the second quarter and first six months 2022, respectively, compared to $2.8 million and $4.5 million in the comparable 2021 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 $10.2 million ($1.80 per share diluted) in the second period 2022, compared to net income of $11.1 million ($1.96 per share diluted) in the second period 2021, a decrease of $0.9 million, or 7.7%. For the first six months 2022, our net income was $18.9 million ($3.33 per share diluted), compared to $18.1 million ($3.20 per share diluted) in the first six months 2021, an increase of $0.8 million, or 4.3%.
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, 2022. Any
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future borrowings under the Revolving Facility would be subject to interest rate risk. See Note 7 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 2022 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, 2022 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 |
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 28, 2022 | By: | /s/ Timothy W. Byrne |
Timothy W. Byrne | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
July 28, 2022 | By: | /s/ Michael L. Wiedemer |
Michael L. Wiedemer | ||
Vice President and Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
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