United States Lime & Minerals, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. The condensed consolidated financial statements are unaudited and prepared under U.S. GAAP. The company operates two segments: Lime and Limestone Operations, its principal business, and Natural Gas Interests in the Barnett Shale formation.
Key Financial Metrics
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $35.2 million | $36.5 million | $66.8 million | $72.5 million |
| Gross profit | $9.0 million | $8.4 million | $15.3 million | $17.6 million |
| Gross margin | 25.5% | 22.9% | 22.8% | 24.2% |
| Operating profit | $6.7 million | $6.0 million | $10.8 million | $13.0 million |
| Net income | $4.6 million | $4.1 million | $7.4 million | $8.7 million |
| Diluted EPS | $0.83 | $0.73 | $1.33 | $1.48 |
| Operating cash flow | Not separately provided | Not separately provided | $12.5 million | $15.9 million |
- Segment revenue: Lime and Limestone revenue was $33.7 million in the second quarter and $63.8 million for the six months. Natural Gas revenue was $1.5 million and $2.9 million, respectively.
- Cash and liquidity: Cash increased to $36.9 million at June 30, 2013 from $29.8 million at December 31, 2012. The company reported $25.4 million of total debt, no revolver borrowings, and $637 thousand of outstanding letters of credit.
- Capital expenditures: $4.0 million for the first six months, compared with $4.8 million in the prior-year period.
- Balance sheet: Total assets were $181.9 million and stockholders’ equity was $128.4 million at June 30, 2013.
- Debt: Debt consisted of $15.8 million under the Term Loan and $9.6 million under the Draw Term Loan. Quarterly principal payments are required, with substantial final payments due December 31, 2015.
- Interest-rate hedges: The company had $2.0 million of interest-rate hedge liabilities at June 30, 2013 and paid $586 thousand in hedge settlements during the first six months.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue decreased 3.6%, while first-half revenue decreased 8.0%.
- Second-quarter net income increased 13.9%, primarily reflecting lower operating costs and reduced contractor stripping costs. First-half net income decreased 15.0% because of lower revenue and gross profit.
- Second-quarter gross profit increased 7.3% and gross margin improved to 25.5% from 22.9%. The improvement primarily reflected outside contractor stripping costs of $450 thousand versus $1.4 million in the prior-year quarter.
- First-half gross profit declined 13.1%, and gross margin fell to 22.8% from 24.2%.
- Lime and Limestone sales volumes declined approximately 2.1% in the second quarter and 6.8% in the first half. Average product prices increased approximately 1.9% and 1.1%, respectively.
- Natural Gas revenue declined 15.9% in the second quarter and 25.0% in the first half. Production volumes fell approximately 20.8% and 20.9%, respectively, due to normal well declines.
- Operating cash flow declined 21.2% to $12.5 million in the first half, principally reflecting lower net income and a $3.2 million increase in trade receivables.
- Financing cash usage fell sharply to $1.5 million from $43.2 million, as the prior-year period included $40.8 million of treasury-share repurchases.
Guidance, Outlook, Risks and Unusual Items
- Management expects construction and environmental demand to increase moderately in the third quarter compared with the prior year. Steel and oil-and-gas-services demand is expected to be flat year over year.
- No new natural gas wells were drilled in the first six months, and none were currently being drilled. The number of producing wells remained 39.
- Management expects cash on hand, operating cash flow and availability under the revolving facility to fund operating requirements, capital needs and debt service for the next 12 months.
- The company was not contractually committed to planned Lime and Limestone capital expenditures until equipment orders are placed and reported no material unrecorded open orders or commitments at June 30, 2013.
- Key risks include lower demand or pricing in construction, steel and oil-and-gas markets; fuel, electricity, transportation and freight costs; weather, mining, operational, IT and regulatory disruptions; project delays or cost overruns; permitting, mine-safety and environmental compliance; natural gas production declines, pricing and drilling uncertainty; debt service and interest-rate exposure; and counterparty performance under interest-rate hedges.
- The estimated 2013 effective income tax rate was approximately 25.7%, with statutory depletion cited as the primary reason it is below the federal statutory rate.
- The company stated that its disclosure controls and procedures were effective as of June 30, 2013, with no material change in internal control over financial reporting during the quarter.
Investor Verification Checklist
- Verify whether the expected third-quarter improvement in construction and environmental demand occurred and whether steel and oil-and-gas demand remained flat.
- Monitor Lime and Limestone sales volumes, realized pricing, stripping costs and gross margins, particularly after the favorable second-quarter cost comparison.
- Assess natural gas well production declines, commodity prices, liquids pricing and any new drilling activity.
- Review debt maturities, required principal payments, hedge settlement costs, hedge liabilities and the December 2015 final payments.
- Track receivables and operating cash flow conversion, given the significant first-half increase in trade receivables.
- Review Exhibit 95.1 and subsequent filings for mine-safety citations, penalties, regulatory actions and permit-related developments.