UNITED STATES LIME & MINERALS INC - Quarter Report: 2000 June (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

For the quarterly period ended June 30, 2000

OR

For the transition period from ........ to ........

Commission file number is 000-4197

UNITED STATES LIME & MINERALS, INC.
(Exact name of registrant as specified in its charter)

(972) 991-8400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X    No      

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 7, 2000, 3,981,664 shares of common stock, $0.10 par value, were outstanding.

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UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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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 the Company without independent audit. In the opinion of the Company’s management, all adjustments of a normal and recurring nature necessary to present fairly the financial position, results of operations and cash flows for the periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the period ended December 31, 1999. The results of operations for the three-month and six-month periods ended June 30, 2000 are not necessarily indicative of operating results for the full year.

2. Inventories

Inventories consisted of the following at:

3. Long-Term Debt

On April 22, 1999, the Company entered into a new credit agreement with a consortium of commercial banks for a $50,000,000 Senior Secured Term Loan (the “Loan”). The Loan is repayable over a period of approximately 8 years, maturing on March 30, 2007, and requires monthly principal payments of $277,777.78 beginning April 30, 2000, with a final principal payment of $26,944,444.26 on March 30, 2007, which equates to a 15-year amortization.

The Company agreed to pay a fee equivalent to 2-1/2% of the Loan value to the placement agent. The fee due on the first $30,000,000 advanced was paid on closing, and the fee due on the remaining $20,000,000 was paid in September 1999 when the first installment of this portion was funded.

Upon execution of the Loan agreement, the first $30,000,000 was advanced, of which approximately $20,000,000 was used to retire all existing bank loans, with the balance to be used primarily for the modernization and expansion of the Arkansas operations. Under the terms of the Loan agreement, the remaining $20,000,000 of the Loan facility was drawn down in four equal quarterly installments beginning June 30, 1999, and ending March 30, 2000, and will be used

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exclusively for the Arkansas project. Commencement of the draw down of the quarterly installments was conditional upon the Company receiving an operating air permit for the first phase of the Arkansas project by December 31, 1999. In September 1999, the Company received an operating air permit for the first phase of the modernization and expansion of its Arkansas plant, and immediately placed construction orders. As a consequence of receiving this permit, during September the Company drew down a further $10,000,000, making a total of $40,000,000 advanced under the terms of the Loan. The final two installments of $5,000,000 each were drawn down on December 30, 1999 and March 30, 2000.

As of April 22, 1999, the Company also entered into a second amendment of its amended and restated loan and security agreement with the lead bank that provided for a $4,000,000 revolving credit facility. This agreement contained essentially the same terms as the previous agreement and had a maturity date of April 21, 2000. The Company has renewed this agreement, which now expires May 31, 2001.

The Loan is secured by a first lien on substantially all of the Company’s assets, with the exception of accounts receivable and inventories that have been used to secure the amended $4,000,000 revolving credit facility. The interest rate on the first $30,000,000 of the Loan is 8.75%. In addition to the fixed interest rate, there is a servicing fee of 0.125% of the outstanding principal balance due to the administrative agent. Subsequent installments bear a fixed rate of interest at the date they were funded at 3.52% above the secondary market yield of the United States Treasury obligation maturing May 15, 2005. On September 24, 1999, the Company drew down $5,000,000, bearing an interest rate of 9.54%. On September 30, 1999, the Company drew down a further $5,000,000, bearing an interest rate of 9.35%. On December 30, 1999, the Company drew down another $5,000,000, bearing an interest rate of 9.94%. On March 30, 2000, the Company drew down the final $5,000,000, bearing an interest rate of 10.02%. The revolving credit facility bears interest at LIBOR plus 1.40%, which rate will increase in accordance with a defined rate spread based upon the Company’s then-current ratio of total funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA).

The Loan agreement contains covenants that restrict the incurrence of debt, guaranties and liens, and places certain restrictions on the payment of dividends and the sale of significant assets. The Company is also required to meet minimum debt service coverage ratios on an on-going basis and maintain a minimum level of tangible net worth.

A summary of outstanding debt at the dates indicated is as follows:

The carrying amount of the Company’s long-term debt approximates its fair value.

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Liquidity and Capital Resources

Net cash provided by operating activities was $2,225,000 for the six months ended June 30, 2000, as compared to $381,000 used in operating activities for the six months ended June 30, 1999. The main reason for the increase in cash provided by operating activities was the smaller decrease of accounts payable due in 2000, as well as the reduction of inventories, mainly finished goods inventory, in 2000.

The Company invested $14,112,000 in capital expenditures in the first six months of 2000, compared to $3,320,000 in the same period last year. Expenditures of $10,683,000 related to the Arkansas modernization and expansion project. During June 2000, the Company received the required state permit for the planned second production line for pulverized limestone at the Texas plant and commenced construction. Commissioning is anticipated in the third quarter.

As currently planned, the Arkansas modernization and expansion project will be completed in two phases: Phase I will cover the redevelopment of the quarry plant, rebuilding of the railroad, establishment of an out-of-state terminal, and installation of a rotary kiln with a preheater, along with increased product storage and loading capacity. Construction is well underway, and the Company anticipates producing lime from the new plant during the third quarter of 2000.

Phase II of the Arkansas project would further expand the plant capacity through the installation of a second rotary kiln with additional lime storage capacity. During the second quarter 2000, the Company received the operating air permit for the Phase II rotary kiln and commenced the bidding process for construction.

The Arkansas improvements should allow the Company to better serve its customers by improving both quality and service while increasing the production capacity of quicklime and hydrated lime. With the improvements, the Company expects to be in a better position to compete for customers who currently cannot use the Company’s lime in their processes due to insufficient production capacity at the plant or quality constraints. The Phase I rotary kiln will have lower operating costs and a greater capacity than the six shaft kilns currently in use. In addition to increasing capacity, this kiln will also be able to consistently produce high-quality lime for use by certain manufacturing customers who currently do not buy lime from the Arkansas facility. The storage, screening, and load-out facilities will also substantially reduce the amount of time required for the loading of bulk quicklime trucks and railcars. The planned modernization and expansion project will increase both production and shipping capacity, will lower operating costs, and will allow for a more efficient utilization of the work force.

Phase I estimated capital expenditures for the Arkansas project have increased from earlier estimates to $28,700,000, principally due to an increased scope of work, the benefit of which will be to reduce future operating costs. In addition, the Phase I total contains approximately $1,000,000 of costs incurred for certain facilities being pre-built for Phase II of the project, as it was cost-effective to construct them concurrently. Phase II is currently estimated to cost approximately $11,800,000, based on initial contractor bids. The Company intends to finance the Arkansas project through a combination of internally generated funds, additional bank borrowings, and/or other sources of capital. There can be no assurance that sufficient funds will be available to the Company to complete Phase II of the Arkansas project as currently contemplated.

The Company is not contractually committed to any planned capital expenditures until actual orders are placed for equipment. As of June 30, 2000, the Company had approximately $10,000,000 of

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liability for open equipment and construction orders. All future billings related to the Arkansas modernization and expansion project will be recorded as work is performed and billed to the Company.

As of June 30, 2000, the Company had $49,166,000 in total debt outstanding.

Results of Operations

Revenues were $8,450,000 in the second quarter of 2000, an increase of $837,000, or 11.0%, from the revenues of $7,613,000 in the second quarter of 1999. This resulted from a 6.9% increase in sales volume and a 4.1% increase in prices. Demand and pricing remain strong in both the Arkansas and Texas markets. Revenues for the six months ended June 30, 2000 were $16,136,000, an increase of $1,592,000, or 10.9%, from the $14,544,000 reported for the six months ended June 30, 1999. The increase resulted from a 6.8% increase in volume and a 4.1% increase in prices.

The Company’s gross profit was $1,669,000 for the second quarter of 2000, compared to $2,032,000 for the second quarter of 1999, a 17.9% decrease. Gross profit margin as a percentage of revenues for the second quarter of 2000 decreased to 19.8%, from 26.7% in 1999. In the second quarter, gross profit and gross profit margins were impacted by the continuing high level of fuel costs and the flooding at our Texas facility, previously reported on June 16, 2000. The floods caused a significant loss of production, the depletion of finished goods inventories, and increased costs through purchasing lime from alternate sources to fulfill commitments. However, the Company has retained its customer base and expects to rebuild the normal level of finished goods inventories before the fiscal year end. Gross profit decreased to $3,638,000 for the first six months of 2000, from $3,909,000 for the first six months of 1999, a 6.9% decrease. Gross profit margin for the six months ended June 30, 2000 decreased to 22.5%, from 26.9% in 1999.

Selling, general and administrative expenses (“SG&A”) decreased by $34,000, or 3.8%, to $853,000 in the second quarter of 2000, as compared to $887,000 in the second quarter of 1999. SG&A as a percentage of sales decreased to 10.1%, from 11.7% a year earlier. SG&A increased slightly by $3,000 to $1,808,000 in the first six months of 2000, as compared to $1,805,000 in the first six months of 1999, and as a percentage of sales decreased to 11.2% from 12.4%.

Interest expense in the second quarter of 2000 was $917,000, as compared to $691,000 in 1999. Interest expense for the first six months of 2000 was $1,821,000, as compared to $1,034,000 in 1999. The 2000 increase was attributable to a higher debt balance. Additional incurred interest costs of approximately $306,000 and $506,000 were capitalized in the second quarter and first six months, respectively, of 2000 as part of the Arkansas modernization and expansion project.

Other income increased by $189,000 to $310,000 in the second quarter of 2000, as compared to $121,000 in the second quarter of 1999, and by $418,000 to $550,000 in the first six months of 2000, as compared to $132,000 in the same period of 1999. The increases were attributable to interest income received on funds held in escrow to finance the redevelopment of the Company’s Arkansas operations.

The Company reported net income of $157,000 ($0.04 per share) during the second quarter of 2000, compared to net income of $444,000 ($0.11 per share) during the second quarter of 1999, a decrease of 64.6%. For the first six months of 2000, the Company reported net income of $419,000 ($0.11 per share), compared to net income of $902,000 ($0.23 per share) in the first six months of 1999, a decrease of 53.5%.

EBITDA (earnings before interest, taxes, depreciation and amortization) was $2,333,000 for the second quarter of 2000, a reduction of 4.0% from the second quarter 1999 of $2,430,000. For the six months

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ended June 30, 2000, EBITDA was $4,812,000, an increase of 6.6% from the $4,513,000 generated in the same period of 1999.

Forward-Looking Statements. Any statements contained in this Quarterly Report that are not statements of historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this Report, including without limitation, statements relating to the Company’s plans, strategies, objectives, expectations, intentions, and adequacy of resources, are identified by such words as “will,” “could,” “should,” “believe,” “expect,” “intend,” “plan,” “schedule,” “estimate,” and “project.” The Company undertakes no obligation to publicly update or revise any forward-looking statements. Investors are cautioned 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 discretion of the Company; (ii) the Company’s plans and results of operations will be affected by the Company’s ability to manage its growth and modernization; and (iii) other risks and uncertainties, including without limitation, those risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission, including the Company’s Form 10-K for the fiscal year ended December 31, 1999.

Not applicable.

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The Annual Meeting of Shareholders was held on April 28, 2000 in Dallas, Texas. The table below shows the proposal submitted to shareholders in the Company’s Proxy Statement, dated March 24, 2000, and the results of the shareholders vote:

Election of Directors

There were no broker non-votes.

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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.

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Index to Exhibits