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| USLM > SEC Filings for USLM > Form 10-Q on 29-Apr-2009 | All Recent SEC Filings |
29-Apr-2009
Quarterly Report
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," "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 manage its growth; (iii) the Company's ability to meet short-term
and long-term liquidity demands, including servicing the Company's debt,
conditions in the credit markets, volatility in the equity markets, and changes
in interest rates on the Company's debt, including the ability of the
counterparty to the Company's interest rate hedges to meet its obligations;
(iv) inclement weather conditions; (v) increased fuel, electricity,
transportation and freight costs; (vi) unanticipated delays, difficulties in
financing, or cost overruns in completing construction projects; (vii) the
Company's ability to expand its Lime and Limestone Operations through
acquisitions, including obtaining financing for such acquisitions, and to
successfully integrate acquired operations; (viii) inadequate demand and/or
prices for the Company's lime and limestone products due to the state of the
U.S. economy, recessionary pressures in particular industries, including
construction and steel, and inability to continue to increase prices for the
Company's products; (ix) the uncertainties of development, production and prices
with respect to the Company's Natural Gas Interests, including reduced drilling
activities pursuant to the Company's Lease Agreement and Drillsite Agreement,
inability to explore for new reserves and declines in production rates;
(x) on-going and possible new environmental and other regulatory costs, taxes
and limitations on operations, including those related to climate change; and
(xi) other risks and uncertainties set forth in this Report or indicated from
time to time in the Company's filings with the SEC, including the Company's Form
10-K for the fiscal year ended December 31, 2008.
Overview.
The Company has two business segments: Lime and Limestone Operations and Natural
Gas Interests.
Through its Lime and Limestone Operations, the Company is a manufacturer of lime
and limestone products, supplying primarily the construction, steel, municipal
sanitation and water treatment, paper, glass, roof shingle and agriculture
industries. The Company operates lime and limestone plants and distribution
facilities in Arkansas, Colorado, Louisiana, Oklahoma and Texas through its
wholly owned subsidiaries, Arkansas Lime Company, Colorado Lime Company, Texas
Lime Company, U.S. Lime Company, U.S. Lime Company - Shreveport, U.S. Lime
Company - St. Clair, and U.S. Lime Company - Transportation. The Lime and
Limestone Operations represent the Company's principal business.
The Company's Natural Gas Interests are held through its wholly owned
subsidiary, U.S. Lime Company - O & G, LLC, and consist of royalty and working
interests under a lease agreement and a drillsite agreement, with two separate
operators, related to the Company's Johnson County, Texas property, located in
the Barnett Shale Formation, on which Texas Lime Company conducts its lime and
limestone operations. The Company reported its first revenues and gross profit
for natural gas production from its Natural Gas Interests in the first quarter
2006.
During the first quarter 2009, sales volumes of the Company's lime products
decreased as compared to the previous year quarter due to significantly reduced
demand for the Company's lime products, principally from its construction, steel
and other industrial customers due to the weakened economy. The reduction in
revenues from reduced sales volumes was partially offset by average product
price increases of 9.0%. Due to the weakened economy, the Company initiated
steps to reduce its operating expenses in the fourth quarter 2008. The benefits
of these reductions, along with the increase in average prices, are evidenced by
improved gross profit and gross profit margin as a percentage of revenues from
the Company's lime and limestone operations in the first quarter 2009 as
compared to last year's quarter. While the Company's costs for solid fuels
remain high, management continues to seek to mitigate these costs by varying the
mixes of fuel used in the kilns as well as idling several kilns that are not
needed to meet current levels of demand. The unprecedented slowdown in the U.S.
economy continues to present challenges for the Company's Lime and Limestone
Operations in 2009, but management is continuing to focus on increasing prices
and controlling costs. Although the Company does not expect any increase in the
short term, it believes that demand for our lime and limestone products used in
highway construction and steel and other industrial production should increase
in the future spurred by the government's stimulus package, the increasing
reliance on toll roads and, hopefully, improved economic conditions.
Revenues and gross profit from the Company's Natural Gas Interests decreased
significantly in the first quarter 2009, principally due to the drastic decline
in natural gas prices. The number of producing wells was 30 in the first quarter
2009 compared to 22 wells in the first quarter 2008. In March 2009, the Company
was notified that five of its wells under the lease agreement, which were
completed in the second half 2008, had been unitized as the operator determined
that these wells included production from oil and gas interests that were
partially owned by others. The unitization reduced the Company's revenue
interest in the five wells to 30% from 36%. The Company cannot predict the
number of additional wells that ultimately will be drilled, if any, or their
results. Based on discussions with the operators, no new wells are currently
planned to be drilled during 2009.
Liquidity and Capital Resources.
Net cash provided by operating activities was $6.2 million in the first quarter
2009, compared to $3.2 million in the comparable 2008 period, an increase of
$3.0 million, or 94.6%. Net cash provided by operating activities is composed of
net income, depreciation, depletion and amortization ("DD&A"), deferred income
taxes and other non-cash items included in net income, and changes in working
capital. In the 2009 quarter, cash provided by operating activities was
principally composed of net income of $2.7 million and DD&A of $3.5 million,
compared to $2.8 million of net income and $3.3 million of DD&A in the first
quarter 2008. The most significant changes in working capital in the 2009
quarter were a net decrease in trade receivables of $1.5 million and net
decrease in accounts payable and accrued expenses of $2.2 million. The most
significant changes in working capital in the 2008 quarter were a $1.4 million
net increase in trade receivables and net decrease in accounts payable and
accrued expenses of $1.6 million. The net decrease in trade receivables
primarily resulted from a decrease in natural gas revenues in the first quarter
2009 compared to the fourth quarter 2008, and the net increase in 2008 was due
to an increase in revenues in the first quarter 2008 compared to the fourth
quarter 2007. The decrease in accounts payable and accrued expenses for both
years primarily relates to the payment of property taxes and other yearend
accruals in the first quarter of the following year and, for the 2009 quarter,
greater December 2008 solid fuel deliveries compared to March 2009 deliveries.
The Company had $1.7 million in capital expenditures in the first quarter 2009,
compared to $2.7 million in the same period last year. Included in capital
expenditures was approximately $694 and $380 thousand for the quarry project at
Arkansas during the first quarter 2009 and 2008, respectively, and $138 thousand
and $200 thousand for the first quarter 2009 and 2008, respectively, for
drilling and completion costs for the Company's working interests in natural gas
wells.
Net cash used in financing activities was $3.0 million in the 2009 quarter,
including $1.7 million repayment of the Company's revolving credit facility and
$1.3 million repayment of term loan debt. Net cash used in financing activities
was $684 thousand in the 2008 quarter, including $1.3 million for repayment of
term loan debt, partially offset by net proceeds of $524 thousand from the
Company's revolving credit facility.
The Company's credit agreement includes a ten-year $40 million term loan (the
"Term Loan"), a ten-year $20 million multiple draw term loan (the "Draw Term
Loan") and a $30 million revolving credit facility (the "Revolving Facility")
(collectively, the "Credit Facilities"). At March 31, 2009, the Company had $322
thousand worth of letters of credit issued, which count as draws under the
Revolving Facility.
The Term Loan requires quarterly principal payments of $833 thousand, which
began on March 31, 2006, equating to a 12-year amortization, with a final
principal payment of $7.5 million due on December 31, 2015. The Draw Term Loan
requires quarterly principal payments of $417 thousand, based on a 12-year
amortization, which began on March 31, 2007, with a final principal payment on
December 31, 2015 equal to any remaining principal then outstanding. The
Revolving Facility is scheduled to mature on April 2, 2012. The maturity of the
Term Loan, the Draw Term Loan and the Revolving Facility can be accelerated if
any event of default, as defined under the Credit Facilities, occurs.
The Credit Facilities bear interest, at the Company's option, at either LIBOR
plus a margin of 1.125% to 2.125%, or the Lender's Prime Rate plus a margin of
minus 0.625% to plus 0.375%. The margins are determined quarterly in accordance
with a pricing grid based upon the ratio of the Company's total funded senior
indebtedness to earnings before interest, taxes, depreciation, depletion and
amortization ("EBITDA") for the 12 months ended on the last day of the most
recent calendar quarter (the "Cash Flow Leverage Ratio"). Since July 30, 2008,
based on the Company's quarterly Cash Flow Leverage Ratios, the LIBOR margin and
the Lender's Prime Rate margin have been, and continue to be, plus 1.125% and
minus 0.625%, respectively.
The Company has a hedge that fixes LIBOR at 4.695% on the outstanding balance of
the Term Loan for the period December 30, 2005 through its maturity date,
resulting in an interest rate of 5.82% based on the current LIBOR margin of
1.125%. Effective December 30, 2005, the Company also entered into a hedge that
fixes LIBOR at 4.875% on 75% of the outstanding balance on the Draw Term Loan
through its maturity date, resulting in an interest rate of 6.00% based on the
current LIBOR margin of 1.125%. Effective June 30, 2006, the Company entered
into a third hedge that fixes LIBOR at 5.50% on the remaining 25% of the
outstanding balance of the Draw Term Loan through its maturity date, resulting
in an interest rate of 6.625% based on the current LIBOR margin of 1.125%. The
hedges have been effective. The Company will be exposed to credit losses in the
event of non-performance by the counterparty, Wells Fargo Bank, N.A., to the
hedges. Due to interest rate declines, the Company marked its interest rate
hedges to market at March 31, 2009 and December 31, 2008, resulting in a
liability of $4.9 million and $5.4 million, respectively, that are included in
accrued expenses and other liabilities on the Company's balance sheets.
The Company is not contractually committed to any planned capital expenditures
for its Lime and Limestone Operations until actual orders are placed for
equipment. Under the Company's oil and gas lease agreement, and pursuant to the
Company's subsequent elections to participate as a 20% working interest owner,
unless, within five days after receiving an AFE (authorization for expenditures)
for a proposed well, the Company provides notice otherwise, the Company is
deemed to have elected to participate as a 20% working interest owner. As a 20%
working interest owner, the Company is responsible for 20% of the costs to drill
and complete the well. Pursuant to the drillsite agreement, the Company, as a
12.5% working interest owner, is responsible for 12.5% of the costs to drill and
complete each well. As of March 31, 2009, the Company had no material open
orders or commitments that are not included in current liabilities on the
March 31, 2009 Condensed Consolidated Balance Sheet.
As of March 31, 2009, the Company had $48.4 million in total debt outstanding.
Results of Operations.
Revenues in the first quarter 2009 decreased to $28.3 million from $33.2 million
in the prior year comparable quarter, a decrease of $4.9 million, or 14.8%.
Revenues from the Company's Lime and Limestone operations in the first quarter
2009 decreased $4.1 million, or 13.3%, to $26.5 million from $30.6 million in
the comparable 2008 quarter, while revenues from the Company's Natural Gas
Interests decreased $854 thousand, or 32.2%, to $1.8 million from $2.7 million
in the comparable 2008 quarter. The decrease in lime and limestone revenues in
the first quarter 2009 as compared to last year's comparable quarter primarily
resulted from significantly decreased sales volumes of the Company's lime
products due to reduced demand, principally from its construction, steel and
other industrial customers due to the weakened economy, partially offset by
average price increases of approximately 9.0%.
The Company's gross profit for the first quarter 2009 was $6.2 million, compared
to $6.8 million for the comparable 2008 quarter, a decrease of $538 thousand, or
8.0%. Included in gross profit for the 2009 quarter is $5.2 million from the
Company's lime and limestone operations, compared to $4.6 million in the 2008
quarter, an increase of $579 thousand, or 12.6%. The increase in gross profit
and gross profit margin from Lime and Limestone Operations was primarily due to
a reduction in contract stripping costs at the Arkansas quarry and reductions in
maintenance and personnel costs, as well as the 9.0% increase in average product
prices.
Gross profit for the first quarter 2009 also included $1.1 million from the
Company's natural gas interests, compared to $2.2 million in the 2008 quarter, a
decrease of $1.1 million, or 51.4%. Production volumes for the Company's natural
gas interests for the first quarter 2009 totaled 364 thousand MCF, sold at an
average price of $5.71 per MCF, from 30 wells. Production volumes in the
comparable prior year quarter were 262 thousand MCF, sold at an average price of
$10.15, from 22 wells. The unitization of five natural gas wells, which lowered
the Company's revenue interest to 30% from 36%, resulted in a retroactive net
adjustment of approximately $300 thousand that reduced gross profit for the
first quarter 2009.
Selling, general and administrative expenses ("SG&A") were $1.9 million for the
first quarters 2009 and 2008. As a percentage of revenues, SG&A increased to
6.8% in the 2009 quarter, compared to 5.8% in the first quarter 2008
Interest expense in the first quarter 2009 decreased to $750 thousand from $979
thousand in the first quarter 2008, a decrease of $229 thousand, or 23.4%,
primarily due to decreased average outstanding debt, including $2.9 million of
repayments in the first quarter 2009.
Income tax expense decreased to $821 thousand in the first quarter 2009 from
$1.1 million in the first quarter 2008, a decrease of $246 thousand, or 23.1%.
The decrease in income taxes in the 2009 period compared to the comparable 2008
period was due to a decrease in the Company's effective tax rate and the
decrease in income before income taxes. The primary reason that the Company's
effective tax rate is below the federal statutory rate is 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.
The Company's net income was $2.7 million ($0.43 per share diluted) during the
first quarter 2009, compared to net income of $2.8 million ($0.45 per share
diluted) during the first quarter 2008, a decrease of $107 thousand, or 3.8%.
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