UNITED STATES LIME & MINERALS, INC. 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
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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, 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
OVERVIEW.
General.
We have identified one reportable business segment based on the distinctness of
our activities and products: Lime and Limestone Operations. All operations are
in
Our Lime and Limestone Operations represent our principal business. Our Other
revenues are from natural gas interests, consisting of royalty and non-operated
working interests under an oil and gas lease and a drillsite agreement with two
separate operators related to our
On
In the fourth quarters 2020 and 2019, we recognized impairment charges of
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drilled wells, which has impaired the recoverability of the assets as they
approach the end of their useful lives. The carrying values of the long-lived
assets related to our natural gas interests were
Revenues increased 1.5% in 2020 compared to 2019. Revenues from our Lime and
Limestone Operations increased 1.7% in 2020, compared to 2019, primarily due to
the addition of limestone sales by
Gross profit increased 14.2% in 2020 compared to 2019. Gross profit from our
Lime and Limestone Operations in 2020 increased 14.1%, compared to 2019,
primarily due to increases in the average selling prices for our lime and
limestone products, lower fuel costs, and increased operating efficiencies
associated, in part, with our new, fuel-efficient kiln at our
Interest expense remained flat at
Net income increased
On
Absent a significant acquisition opportunity arising during 2021, we anticipate funding our operating and capital needs and our quarterly cash dividend from our cash balances on hand and cash flows from operations.
Lime and Limestone Operations.
In our Lime and Limestone Operations, we produce and sell PLS, aggregate, quicklime, hydrated lime and lime slurry. The principal factors affecting our success are the level of demand and prices for our products and whether we are able to maintain sufficient production levels and product quality while controlling costs.
Inclement weather conditions, such as winter ice and snow storms, cold weather, hurricanes, tornadoes and excessive rainfalls generally reduce the demand for lime and limestone products supplied to construction-related customers that account for a significant amount of our revenues. Inclement weather also interferes with our open-pit mining operations and can disrupt our plant production. In addition to weather, various maintenance, environmental, accident and other operational and construction issues can also disrupt our operations and increase our operating expenses.
Demand for our products in our market areas is also affected by general economic conditions, the pace of construction, the demand for steel, the level of oil and gas drilling in our markets, the level of governmental and private funding for highway construction and infrastructure and utility plant usage of coal for power generation. Demand for our lime and limestone products from our construction customers increased in 2020. However, demand for our lime and limestone products from our oil and gas services, environmental and steel customers decreased. Oil prices declined sharply in 2020 compared to 2019, which resulted in a curtailment of drilling activities during 2020 and lower demand from our oil and gas services customers.
The emergence of COVID-19 in
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weeks of
In 2014 and 2015,
Our modernization and expansion and development projects in
For our plants to operate at peak efficiency, we must meet operational
challenges that arise from time to time, including bringing new facilities
on-line and refurbishing and/or improving acquired facilities, including the
facilities acquired as a result of the
Our primary variable cost is energy. Prices for coal, petroleum coke, diesel,
natural gas, electricity, transportation and freight are volatile. In addition,
our freight costs, including diesel prices, to deliver our products can be high
relative to the value of our products. We have been able to mitigate to some
degree the adverse impact of volatile energy costs by varying the mixes of fuel
used in our kilns, and by passing on some of any increase in costs to our
customers, where possible, through higher prices and/or surcharges on certain
products. In addition, as noted above, we put a more fuel-efficient kiln in
service at
We have financed our modernization and expansion and development projects and acquisitions through a combination of debt financing, which has now been repaid, and cash flows from operations. We must generate sufficient cash flows to cover ongoing capital requirements, including current and possible future modernization and expansion and development projects and acquisitions, or borrow sufficient funds to finance any shortfall in our liquidity needs.
For us to maintain or increase our profitability in our Lime and Limestone Operations in the face of reduced demand from some of our customers, competitive pressures and increased costs, we must maintain or increase our customer base, improve our revenues and control our operational and selling, general and administrative expenses. To maintain or improve our gross profit margins, we are focusing on maintaining, and increasing where possible, our lime and limestone prices to offset our increased costs, which is a challenging task with increased competition from other lime and limestone producers. In addition, we will continue to explore ways to increase the operating efficiency of our plants and other facilities and expand our production capacity through acquisitions as conditions warrant or opportunities arise.
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We continue to believe the enhanced efficiency and production capacity resulting
from our modernization and expansion and development projects in
Other.
Revenues in 2020 included
CRITICAL ACCOUNTING POLICIES.
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in
Critical accounting policies are defined as those that are reflective of significant management judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. We believe the following critical accounting policies require the most significant management estimates and judgments used in the preparation of our consolidated financial statements.
Revenue recognition. We recognize revenue for our 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. Revenues
include external freight billed to customers with related costs accounted for as
fulfillment costs and included in cost of revenues. Our returns and allowances
are minimal. External freight billed to customers included in revenues was
We operate our Lime and Limestone Operations within a single geographic region and derive all revenues from that segment from the sale of lime and limestone products. See Note 11 for disaggregation of revenues by the Lime and Limestone Operations segment and Other, which we believe best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors.
Accounts receivable. The majority of our trade accounts receivable are unsecured. Payment terms for all trade receivables are based on the underlying purchase orders, contracts, or purchase agreements. We estimate 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
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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. A considerable amount of judgment is required in assessing the ultimate realization of these receivables and determining our allowance for doubtful accounts.
Property, plant and equipment. For major constructed assets, we include the costs for labor and materials plus interest and internal and external project management costs that are directly related to the constructed assets in the capitalized cost. Depreciation of property, plant and equipment is being provided for by the straight-line method over estimated useful lives.
We expense all exploration costs as incurred as well as costs incurred at an operating quarry or mine, other than capital expenditures and inventory. Costs to acquire mineral reserves or mineral interests are capitalized upon acquisition. Development costs incurred to develop new mineral reserves, to expand the capacity of a quarry or mine, or to develop quarry or mine areas substantially in advance of current production are capitalized once proven and probable reserves exist and can be economically produced. For each quarry or mine, capitalized costs to acquire and develop mineral reserves are depleted using the units-of-production method based on the proven and probable reserves for such quarry or mine.
We review long-lived assets for impairment and, when events or circumstances
indicate the carrying amount of an asset may not be recoverable, we determine if
impairment of value exists. If the estimated undiscounted future net cash flows
are less than the carrying amount of the asset, an impairment exists, and an
impairment loss must be calculated and recorded. If an impairment exists, the
impairment loss is calculated based on the excess of the carrying amount of the
asset over the asset's fair value. Any impairment loss is treated as a permanent
reduction in the carrying value of the asset. During 2020 and 2019, we
recognized impairment charges of
Environmental costs and liabilities. We record environmental accruals, including accrued reclamation costs, in other liabilities, based on studies and estimates, when it is probable we have incurred a reasonably estimable cost or liability. The accruals are adjusted when further information warrants an adjustment. Environmental expenditures that extend the life, increase the capacity or improve the safety or efficiency of Company-owned assets or are incurred to mitigate or prevent future possible environmental issues are capitalized. Other environmental costs are expensed when incurred.
Contingencies. We are party to proceedings, lawsuits and claims arising in the normal course of business relating to regulatory, labor, product and other matters. We are required to estimate the likelihood of any adverse judgments or outcomes with respect to these matters, as well as potential ranges of possible losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter, including coverage under our insurance policies. This determination may change in the future because of new information or developments.
Income taxes. We utilize the asset and liability approach in reporting our income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. We establish valuation allowances when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax related interest and penalties are included in income tax expense. We also assess individual tax positions to determine if they meet the criteria for some or all of the benefits of that position to be recognized in our financial statements and only recognize tax positions that meet the more-likely-than-not recognition threshold.
Stock-based compensation. We expense all stock-based payments to employees and directors, including grants of stock options and restricted stock, in our Consolidated Statements of Income based on their fair values. Compensation cost is recognized ratably over the vesting period for all stock-based awards.
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RESULTS OF OPERATIONS.
The following table sets forth certain financial information expressed as a percentage of revenues for the periods indicated:
Year Ended December 31,
2020 2019 2018
Lime and limestone revenues 99.4 % 99.2 % 98.3 %
Other revenues 0.6 0.8 1.7
Total revenues 100.0 100.0 100.0
Cost of revenues
Labor and other operating expenses (58.3) (62.6) (66.9)
Depreciation, depletion and amortization (12.1) (11.0) (12.0) Gross profit
29.6 26.4 21.1
Selling, general and administrative expenses (7.6) (7.3) (7.3) Impairment of long lived assets
(0.9) (0.6) -
Operating profit 21.1 18.5 13.8
Other (expense) income:
Interest expense (0.2) (0.1) (0.2)
Interest and other income, net 0.3 1.2 1.3
Income tax expense (3.6) (3.1) (1.3)
Net income 17.6 % 16.5 % 13.6 %
2020 vs. 2019
Revenues for 2020 increased to
Our gross profit increased to
Selling, general and administrative expenses ("SG&A") increased to
In the fourth quarters 2020 and 2019, we recognized an impairment charge of
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assets as they approach the end of their useful lives. The carrying values of
the long-lived assets of the Company's natural gas interests were
Interest expense was
Interest and other income, net was
Income tax expense was
Net income increased to
2019 vs. 2018
Revenues for 2019 increased to
Our gross profit increased to
SG&A increased to
In the fourth quarter 2019, we recognized an impairment charge of
Interest expense was
Interest and other income, net was
Income tax expense was
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Net income increased to
FINANCIAL CONDITION.
Capital Requirements. We require capital primarily for normal recurring capital
and re-equipping projects, modernization and expansion and development projects
and acquisitions. Our capital needs are expected to be met principally from cash
on hand, cash flows from operations and our
We expect to spend approximately
Liquidity and Capital Resources. Net cash provided by operating activities was
Net cash used in investing activities was
Net cash used in financing activities primarily consisted of
Our cash and cash equivalents at
Banking Facilities and Debt. Our credit agreement with
Interest rates on the Revolving Facility are, at our option, LIBOR 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
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the Company's 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
We may pay dividends so long as we remain in compliance with the provisions of our credit agreement, and 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.
We had no debt outstanding as of
Common Stock Buybacks. We spent
Contractual Obligations. The following table sets forth our contractual
obligations as of
Payments Due by Period
More Than
Contractual Obligations Total 1 Year 2 - 3 Years 4 - 5 Years 5 Years
Debt $ - - - - -
Operating leases(1) $ 2,291 1,130 897 210 54
Limestone mineral leases $ 1,809 88 176 175 1,370
Purchase obligations(2)(3) $ 9,155 7,112 1,532 511 -
Other liabilities $ 1,482 120 248 245 869
Total $ 14,737 8,450 2,853 1,141 2,293
Represents operating leases for railcars, corporate office space and some (1) equipment that are either non-cancelable or subject to significant penalty
upon cancellation.
(2) Of these obligations,
December 31, 2020 . Purchase obligations includes enforceable agreements to purchase goods or
services that specify all significant terms, including fixed or minimum (3) quantities to be purchased, generally pertaining to fuel contracts,
fixed-price provisions, and the approximate timing of the transaction, and
are either non-cancelable or subject to significant penalty upon
cancellation.
Absent a significant acquisition, we believe that cash on hand and cash flows from operations will be sufficient to meet our operating needs, ongoing capital needs, including our current and possible future modernization and expansion and development projects, and liquidity needs and allow us to pay our regular cash dividends for the near future.
Off-Balance Sheet Arrangements. We do not utilize off-balance sheet financing
arrangements; however, we lease railcars, corporate office space and some
equipment used in our operations under operating lease agreements that are
either non-cancelable or subject to significant penalty upon cancellation, and
have various limestone mineral leases. As of
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