UNITED STATES LIME & MINERALS, INC.
2016
Annual Report and Form 10-K
COMPANY PROFILE
United States Lime & Minerals, Inc., headquartered in Dallas, Texas, conducts its business through two
segments, Lime and Limestone Operations and Natural Gas Interests. The Lime and Limestone Operations
manufacture lime and limestone products, supplying primarily the construction (including highway, road and
building contractors), environmental (including municipal sanitation and water treatment facilities and flue gas
treatment processes), industrial (including paper and glass manufacturers), metals (including steel producers), roof
shingle, oil and gas services and agriculture (including poultry and cattle feed producers) industries. The Lime and
Limestone Operations primarily serve markets in the Central United States. The Natural Gas Interests consist of
royalty and non-operating working interests in natural gas wells located on the Company’s Johnson County, Texas
property, in the Barnett Shale Formation.
United States Lime & Minerals, Inc.’s common stock is listed on the Nasdaq Global Market® under the symbol
USLM.
SELECTED FINANCIAL DATA
(dollars in thousands, except per share amounts)
2016
2015
2014
Year Ended December 31,
2011
2012
2013
2010
2009
2008
2007
$ 137,190
2,092
$ 139,282
128,390
2,447
130,837
144,567
5,274
149,841
128,003
5,762
133,765
131,404
7,121
138,525
129,704
12,878
142,582
125,169
7,425
132,594
110,406
6,925
117,331
126,165
16,191
142,356
116,569
8,667
125,236
$ 33,032
60
$ 33,092
$ 23,480
$
246
$ 17,754
28,400
314
28,714
19,086
1,036
12,886
33,958
2,833
36,791
27,322
1,529
19,367
27,913
2,887
30,800
21,651
1,852
14,800
29,499
3,939
33,438
24,245
2,163
16,423
32,142
9,207
41,349
32,503
2,495
22,186
31,209
4,832
36,041
27,665
2,715
18,640
24,343
4,410
28,753
20,955
2,886
13,670
18,178
13,105
31,283
23,317
3,486
14,433
19,952
6,064
26,016
18,372
4,287
10,446
5,571,973 5,604,228 5,589,246 5,571,279 5,715,761 6,362,441 6,417,817 6,397,743 6,362,945 6,332,702
3.19
0.50
2.30
0.50
3.47
0.50
2.66
-
2.87
-
3.49
-
2.81
-
2.14
-
2.27
-
1.65
-
$ 95,928
$ 210,159
$
-
$ 179,639
83,219
196,499
-
166,627
66,797
199,986
16,667
154,691
64,496
187,526
21,667
136,805
46,619
174,246
26,667
120,355
65,435
203,073
32,917
143,013
46,176
188,498
36,666
128,294
24,610
172,070
41,666
109,981
12,738
166,129
51,354
94,447
8,866
158,227
59,037
81,705
Operations data:
Lime and limestone
revenues
Natural gas revenues
Total revenues
Lime and limestone
gross profit
Natural gas gross profit
Total gross profit
Operating profit
Interest expense
Net income
Weighted-average shares
(diluted) outstanding
Diluted net income per
share
$
Cash dividends per share $
Balance sheet data:
Working capital (1)
Total assets
Total debt
Stockholders’ equity
Stockholders’ equity per
outstanding common
share
$
32.23
29.72
27.65
24.54
21.44
22.94
20.01
17.20
14.87
12.94
(1) Current assets minus current liabilities.
2017 ANNUAL MEETING OF SHAREHOLDERS
The 2017 Annual Meeting of Shareholders will be held at the Wyndham Dallas Suites Park Central, 7800 Alpha
Road, Dallas, Texas, 75240, on Thursday, April 27, 2017, commencing at 10:00 a.m. local time.
All shareholders are urged to attend. A formal Notice of the Annual Meeting, Proxy Statement, and Proxy Card
accompany this Annual Report and Form 10-K.
TO OUR SHAREHOLDERS:
Overall, 2016 was a productive year for our Company, as our revenues increased by 6.5% compared to
2015 and our gross profit was 15.2% higher. Due to our continued strong cash flows, our cash balances
increased to $74.7 million at December 31, 2016 from $59.9 million at December 31, 2015, enabling us to
extend our share repurchase program for an additional 12 months and increase our regular quarterly cash
dividend to $0.135 (13.5 cents) from $0.125 (12.5 cents) per share beginning in the first quarter 2017. For the
second year in a row, we closed out 2016 with no debt on our balance sheet.
We were also pleased to begin construction of a new, more fuel-efficient kiln and related plant
improvements to replace a non-preheater kiln at our St. Clair plant during the fourth quarter 2016. With our
strong cash flows and balance sheet, absent a significant acquisition opportunity arising during 2017 we
anticipate funding our operating and capital requirements, including development projects such as the new kiln
project, our increased quarterly cash dividend and the remainder of our share repurchase program from our cash
on hand and cash flows from operations.
Our net income in 2016 increased $4.9 million, or 37.8%, compared to 2015, and diluted net income per
share increased $0.89, or 38.7%, to $3.19 from $2.30 in 2015. Revenues from our Lime and Limestone
Operations also increased $8.8 million, or 6.9%, in 2016 compared to 2015 due to increased sales volumes,
partially offset by a slight decrease in prices for our lime and limestone products in 2016, compared to 2015.
Demand for our lime and limestone products increased during the year, principally from our construction,
industrial and environmental customers, partially offset by reduced demand from our oil and gas services
customers. Gross profit from our Lime and Limestone Operations increased $4.6 million, or 16.3%, primarily
due to increased revenues during the year.
Production volumes from our Natural Gas Interests decreased to 0.6 BCF in 2016 from 0.7 BCF in 2015,
due to normal declines in production from existing wells. Our average price per MCF in 2016 decreased $0.06
to $3.35 compared to $3.41 for 2015. Gross profit from our Natural Gas Interests decreased $0.3 million, or
80.9%, in 2016 resulting principally from decreased volumes and an increase in the rate of our non-cash
depletion expense.
In order to maintain or increase profitability in our Lime and Limestone Operations in these times of
economic and regulatory uncertainty, we must improve our revenues and control our operational and selling,
general and administrative expenses. To maintain or improve our gross profit margins, we are also 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, such as the new
kiln project at St. Clair, and expand our production capacity through acquisitions as conditions warrant or
opportunities arise.
We are grateful for the continued support of our dedicated employees and our loyal customers and
shareholders and remain committed to growing our Company and improving our performance. We believe that
we are well positioned, both operationally and financially for the future.
Timothy W. Byrne
President and CEO
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:95)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
(cid:134)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-4197
United States Lime & Minerals, Inc.
(Exact name of Registrant as specified in its charter)
Texas
(State or other jurisdiction of
incorporation or organization)
5429 LBJ Freeway, Suite 230, Dallas, Texas
(Address of principal executive offices)
75-0789226
(I.R.S. Employer
Identification Number)
75240
(Zip code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Registrant’s telephone number, including area code: (972) 991-8400
Title of Each Class
Common Stock, $0.10 par value
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No (cid:95)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes (cid:134)
No (cid:95)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
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 (cid:95) No (cid:134)
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). Yes (cid:95) No (cid:134)
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment of this Form 10-K. (cid:95)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large Accelerated Filer (cid:134)
Accelerated Filer (cid:95)
Non-accelerated Filer (cid:134)
(Do not check if a
smaller reporting company)
Smaller Reporting Company (cid:134)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:95)
The aggregate market value of Common Stock held by non-affiliates computed as of the last business day of the Registrant’s quarter ended
June 30, 2016: $117,751,709.
Number of shares of Common Stock outstanding as of March 2, 2017: 5,576,539.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant’s definitive Proxy Statement to be filed for its 2016 Annual Meeting of
Shareholders. Part IV incorporates certain exhibits by reference from the Registrant’s previous filings.
Page
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TABLE OF CONTENTS
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
PROPERTIES
LEGAL PROCEEDINGS
Part I
Part II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
SELECTED FINANCIAL DATA
RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
Part III
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
ii
ITEM 1. BUSINESS.
General.
PART I
United States Lime & Minerals, Inc. (the “Company,” the “Registrant,” “We” or “Our”), which was
incorporated in 1950, conducts its business through two segments, Lime and Limestone Operations and Natural Gas
Interests.
The Company’s principal corporate office is located at 5429 LBJ Freeway, Suite 230, Dallas, Texas 75240. The
Company’s telephone number is (972) 991-8400, and its internet address is www.uslm.com. The Company’s annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as well as the Company’s definitive proxy statement filed pursuant to Section 14(a) of the Exchange Act, are
available free of charge on the Company’s website as soon as reasonably practicable after the Company electronically
files such material with, or furnishes it to, the Securities and Exchange Commission (the “SEC”).
Lime and Limestone Operations.
Business and Products. The Company, through its Lime and Limestone Operations, is a manufacturer of lime
and limestone products, supplying primarily the construction (including highway, road and building contractors),
environmental (including municipal sanitation and water treatment facilities and flue gas treatment processes), industrial
(including paper and glass manufacturers), metals (including steel producers), roof shingle, oil and gas services and
agriculture (including poultry and cattle feed producers) industries. The Company is headquartered in Dallas, Texas and
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 Company extracts high-quality limestone from its open-pit quarries and an underground mine and then
processes it for sale as pulverized limestone, quicklime, hydrated lime and lime slurry. Pulverized limestone (also
referred to as ground calcium carbonate) (“PLS”) is produced by applying heat to dry the limestone, which is then
ground to granular and finer sizes. Quicklime (calcium oxide) is produced by heating limestone to very high
temperatures in kilns in a process called calcination. Hydrated lime (calcium hydroxide) is produced by reacting
quicklime with water in a controlled process. Lime slurry (milk of lime) is a suspended solution of calcium hydroxide
produced by mixing quicklime with water in a lime slaker.
PLS is used in the production of construction materials such as roof shingles and asphalt paving, as an additive
to agriculture feeds, in the production of glass, as a soil enhancement, in flue gas treatment for utilities and other
industries requiring scrubbing of emissions for environmental purposes and for mine safety dust in coal mining
operations. Quicklime is used primarily in metal processing, in flue gas treatment, in soil stabilization for highway, road
and building construction, as well as for oilfield roads and drill sites, in the manufacturing of paper products and in
municipal sanitation and water treatment facilities. Hydrated lime is used primarily in municipal sanitation and water
treatment facilities, in soil stabilization for highway, road and building construction, in flue gas treatment, in asphalt as
an anti-stripping agent, as a conditioning agent for oil and gas drilling mud, in the production of chemicals and in the
production of construction materials such as stucco, plaster and mortar. Lime slurry is used primarily in soil stabilization
for highway, road and building construction.
Product Sales. In 2016, the Company sold almost all of its lime and limestone products in the states of
Arkansas, Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, New Mexico,
Oklahoma, Tennessee, and Texas. Sales were made primarily by the Company’s nine sales employees who call on
current and potential customers and solicit orders, which are generally made on a purchase-order basis. The Company
also receives orders in response to bids that it prepares and submits to current and potential customers.
1
Principal customers for the Company’s lime and limestone products are construction customers (including
highway, road and building contractors), environmental customers (including municipal sanitation and water treatment
facilities and flue gas treatment processes), industrial customers (including paper manufacturers and glass
manufacturers), metals producers (including steel producers), roof shingle manufacturers, oil and gas services
companies, and poultry and cattle feed producers. During 2016, the strongest demand for the Company’s lime and
limestone products was from construction customers, environmental customers, industrial customers, metals producers,
roof shingle manufacturers and oil and gas services companies.
Approximately 700 customers accounted for the Company’s sales of lime and limestone products during 2016.
No single customer accounted for more than 10% of such sales. The Company is generally not subject to significant
customer demand and credit risks as its customers are considerably diversified as to geographic location and industry
concentration. However, given the nature of the lime and limestone industry, the Company’s profits are very sensitive to
changes in sales volume and prices.
Lime and limestone products are transported by truck and rail to customers generally within a radius of 400
miles of each of the Company’s plants. All of the Company’s 2016 sales were made within the United States.
Order Backlog. The Company does not believe that backlog information accurately reflects anticipated annual
revenues or profitability from year to year.
Seasonality. The Company’s sales have typically reflected seasonal trends, with the largest percentage of total
annual shipments and revenues normally being realized in the second and third quarters. Lower seasonal demand
normally results in reduced shipments and revenues in the first and fourth quarters. Inclement weather conditions
generally have a negative impact on the demand for lime and limestone products supplied to construction-related
customers, as well as on the Company’s open-pit quarrying operations.
Limestone Reserves. The Company’s limestone reserves contain at least 96% calcium carbonate (CaCO3). The
Company has two subsidiaries that extract limestone from open-pit quarries: Texas Lime Company (“Texas Lime”),
which is located near Cleburne, Texas, and Arkansas Lime Company (“Arkansas Lime”), which is located near
Batesville, Arkansas. U.S. Lime Company—St. Clair (“St. Clair”) extracts limestone from an underground mine located
near Marble City, Oklahoma. Colorado Lime Company (“Colorado Lime”) owns property containing limestone deposits
at Monarch Pass, located 15 miles west of Salida, Colorado. Existing crushed stone stockpiles on the property are being
used to provide feedstock to the Company’s plants in Salida and Delta, Colorado. Access to all properties is provided by
paved roads and, in the case of Arkansas Lime and St. Clair, also by rail.
Texas Lime operates a quarry, located on approximately 3,450 acres of land that contains known high-quality
limestone reserves in a bed averaging 28 feet in thickness, with an overburden that ranges from 0 to 50 feet. Texas Lime
also has mineral interests in approximately 330 acres of land adjacent to the northwest boundary of its property. The
Texas Lime reserves, as of December 31, 2016, were approximately 33 million tons of proven recoverable reserves plus
approximately 53 million tons of probable recoverable reserves. Assuming the current level of production and recovery
rate is maintained, the Company estimates that these reserves are sufficient to sustain operations for more than 70 years.
Arkansas Lime operates two quarries and has hydrated lime and limestone production facilities on a second site
linked to the quarries by its own standard-gauge railroad. The quarries cover approximately 1,050 acres of land located
in Independence County, Arkansas containing a known deposit of high-quality limestone reserves (the “Batesville
Quarry”). The average thickness of the high-quality limestone bed is approximately 60 feet, with an average overburden
thickness of approximately 30 feet. The reserves for the Batesville Quarry, as of December 31, 2016, were
approximately 13 million tons of proven recoverable reserves. In 2005, the Company acquired approximately 2,500 acres
of land in nearby Izard County, Arkansas (the “North Quarry”). The high-quality reserves on these 2,500 acres, as of
December 31, 2016, were approximately 76 million tons of probable recoverable reserves. The Company continues to
assess the costs required to improve the transportation infrastructure between the North Quarry and Arkansas Lime’s
production facilities and other development costs to prepare the North Quarry for mining. Assuming the current level of
production and recovery rate is maintained, the Company estimates that its total reserves in Arkansas are sufficient to
sustain operations for more than 60 years.
2
St. Clair operates an underground mine located on approximately 700 acres it owns or leases containing
high-quality limestone reserves. The reserves, as of December 31, 2016, were approximately 12 million tons of probable
recoverable reserves on the 700 acres. Assuming the current level of production and recovery rate is maintained, the
Company estimates that the probable recoverable reserves are sufficient to sustain operations for more than 20 years. In
addition, St. Clair also has the right to mine the high-quality limestone contained in approximately 1,500 adjacent acres
pursuant to long-term mineral leases. The Company has not conducted a drilling program to identify and categorize
reserves on the 1,500 leased acres.
During 2016, the Company produced approximately 3 million tons of limestone from its quarries and mine.
Colorado Lime acquired the Monarch Pass Quarry in November 1995 and has not carried out any mining on the
property. A review of the potential limestone resources has been completed by independent geologists; however, the
Company has not initiated a drilling program. Consequently, it is not possible to identify and categorize reserves. The
Monarch Pass Quarry, which had been operated for many years until the early 1990s, contains a mixture of limestone
types, including high-quality calcium limestone and dolomite. Assuming the current level of production is maintained,
the Company estimates that the remaining crushed stone stockpiles on the property are sufficient to supply its plants in
Salida and Delta, Colorado for approximately 15 years.
Quarrying and Mining. The Company extracts limestone by the open-pit method at its Texas and Arkansas
quarries. The Monarch Pass Quarry is also an open-pit quarry, but is not being mined at this time. The open-pit method
consists of removing any overburden comprising soil and other substances, including inferior limestone, and then
extracting the exposed high-quality limestone. The Company removes such overburden by utilizing both its own
employees and equipment and those of outside contractors. Open-pit mining is generally less expensive than
underground mining. The principal disadvantage of the open-pit method is that operations are subject to inclement
weather and overburden removal. The limestone is extracted by drilling and blasting, utilizing standard mining
equipment. At its St. Clair underground mine, the Company mines limestone using room and pillar mining. The
Company has no knowledge of any recent changes in the physical quarrying or mining conditions on any of its properties
that have materially affected its quarrying or mining operations, and no such changes are anticipated.
Plants and Facilities. After extraction, limestone is crushed and screened and, in the case of PLS, ground and
dried, or, in the case of quicklime, processed in kilns. Quicklime may then be further processed in hydrators and slakers
to produce hydrated lime and lime slurry. The Company processes and distributes lime and/or limestone products at five
plants, four lime slurry facilities and two terminal facilities. All of its plants and facilities are accessible by paved roads,
and, in the case of the Arkansas Lime and St. Clair plants and the terminal facilities, also by rail.
The Texas Lime plant has an annual capacity of approximately 470 thousand tons of quicklime from two
preheater rotary kilns. The plant also has PLS equipment, which, depending on the product mix, has the capacity to
produce approximately 800 thousand tons of PLS annually.
The Arkansas plant is situated at the Batesville Quarry. Utilizing three preheater rotary kilns, this plant has an
annual capacity of approximately 630 thousand tons of quicklime. Arkansas Lime’s PLS and hydrating facilities are
situated on a tract of 290 acres located approximately two miles from the Quarry, to which it is connected by a
Company-owned, standard-gauge railroad. The PLS equipment, depending on the product mix, has the capacity to
produce approximately 300 thousand tons of PLS annually.
The St. Clair plant has an annual capacity of approximately 180 thousand tons of quicklime from two rotary
kilns, one of which is not a preheater kiln. The plant also has PLS equipment, which has the capacity to produce
approximately 150 thousand tons of PLS annually. In the fourth quarter 2013, the Company received the necessary air
permit from the Oklahoma Department of Environmental Quality to replace the non-preheater kiln with the construction
of a new, more fuel-efficient vertical kiln. After completing its assessments of the project, the Company has decided to
construct the new kiln and related plant improvements at an estimated cost of approximately $50 million. In October
2016, the Company entered into commitments for construction of the new kiln and related plant improvements totaling
approximately $10 million and made an initial payment of approximately $2.0 million on the largest commitment in the
fourth quarter 2016. Additionally, the Company began construction to upgrade its crushing system in anticipation of the
3
new kiln and spent approximately $0.7 million on this upgrade in the fourth quarter 2016. The Company expects that the
new kiln project should be completed within two years.
The Company also maintains lime hydrating and bagging equipment at the Texas, Arkansas and St. Clair plants.
Storage facilities for lime and limestone products at each plant consist primarily of cylindrical tanks, which are
considered by the Company to be adequate to protect its lime and limestone products and to provide an available supply
for customers’ needs at the expected volumes of shipments. Equipment is maintained at each plant to load trucks and, at
the Arkansas Lime and St. Clair plants, to load railroad cars.
Colorado Lime operates a limestone grinding and bagging facility with an annual capacity of approximately
125 thousand tons, located on approximately three and one-half acres of land in Delta, Colorado, and a limestone drying,
grinding and bagging facility, with an annual capacity of approximately 40 thousand tons, located on eight acres of land
in Salida, Colorado. The Salida property is leased from the Union Pacific Railroad for a five-year term ending June 2019.
During 2016, the Company’s utilization rate was approximately 62% of its aggregate approximate annual
production capacity for the plants in its Lime and Limestone Operations.
U.S. Lime Company (“US Lime”) uses quicklime to produce lime slurry and has three facilities, including a
new distribution terminal, which is connected to a railroad, established in 2015 southwest of Houston, Texas, to serve the
Greater Houston area construction market and three facilities to serve the Dallas-Ft. Worth Metroplex. The Company
established U.S. Lime Company—Transportation (“Transportation”) primarily to deliver the Company’s products to its
customers and facilities in the Dallas-Ft. Worth Metroplex. In December 2014, US Lime acquired the land and buildings,
and Transportation acquired the trucks, trailers and other equipment, owned by a Houston, Texas trucking company
operation that had exclusively delivered the Company’s products to its customers and slurry facilities. The land
purchased included the site leased for US Lime’s Houston slurry facility. Transportation utilizes the acquired assets to
deliver its products to the Company’s customers and facilities and does not haul for third parties.
U.S. Lime Company—Shreveport operates a distribution terminal in Shreveport, Louisiana, which is connected
to a railroad, to provide lime storage, hydrating, slurrying and distribution capacity to service markets in Louisiana and
East Texas.
The Company believes that its plants and facilities are adequately maintained and insured.
Employees. At December 31, 2016, the Company employed 321 persons and is a party to two collective
bargaining agreements. The collective bargaining agreement for the Texas facilities expires November 2017. The
collective bargaining agreement for the Arkansas facilities was scheduled to expire January 2017, but neither the
Company nor the Union provided timely notice to reopen the agreement. Thus, the Arkansas agreement remains in
effect through January 2018. The Company and the Union have, however, agreed to a letter of understanding that makes
certain changes to the Arkansas agreement, which changes were approved by the members of the Union on March 1,
2017. In addition, on February 17, 2017, a group of Union employees at the Arkansas facilities filed a petition with the
National Labor Relations Board to decertify the Union. The Company is not certain as to the outcome of this
decertification request. Overall, the Company believes that its employee relations are good.
Competition. The lime industry is highly regionalized and competitive, with price, quality, ability to meet
customer demands and specifications, proximity to customers, personal relationships and timeliness of deliveries being
the prime competitive factors. The Company’s competitors are predominantly private companies.
The lime industry is characterized by high barriers to entry, including: the scarcity of high-quality limestone
deposits on which the required zoning and permitting for extraction can be obtained; the need for lime plants and
facilities to be located close to markets, paved roads and railroad networks to enable cost-effective production and
distribution; clean air and anti-pollution regulations, including those related to greenhouse gas emissions, which make it
more difficult to obtain permitting for new sources of emissions, such as lime kilns; and the high capital cost of the
plants and facilities. These considerations reinforce the premium value of operations having permitted, long-term,
high-quality limestone reserves and good locations and transportation relative to markets.
4
Lime producers tend to be concentrated on known high-quality limestone formations where competition takes
place principally on a regional basis. The industry as a whole has expanded its customer base, and while the steel
industry and environmental-related users, including utility plants, are the largest market sectors, it also counts chemical
users and other industrial users, including paper manufacturers and highway, road and building contractors, among its
major customers.
However, in recent years, the lime industry has experienced reduced demand from certain industries, including
the steel industry and oil and gas services. In addition, utility plants are, in some instances, choosing to use more natural
gas and renewable sources for power generation instead of coal, which reduces their demand for lime and limestone for
flue gas treatment processes. These reductions in demand have resulted in increased competitive pressures, including
pricing competition, in the industry.
Consolidation in the lime industry has left the three largest companies accounting for more than two-thirds of
North American production capacity. In addition to the consolidations, and often in conjunction with them, many lime
producers have undergone modernization and expansion and development projects to upgrade their processing
equipment in an effort to improve operating efficiency. The Company’s Texas and Arkansas modernization and
expansion projects, its acquisitions of the St. Clair operations in Oklahoma, along with the recently begun construction
of a new more fuel-efficient vertical kiln at this facility, and its lime slurry operations in Texas should allow the
Company to continue to remain competitive, protect its markets and position itself for the future. In addition, the
Company will continue to evaluate internal and external opportunities for expansion, growth and increased profitability,
as conditions warrant or opportunities arise. The Company may have to revise its strategy or otherwise find ways to
enhance the value of the Company, including entering into strategic partnerships, mergers or other transactions.
Impact of Environmental Laws. The Company owns or controls large areas of land, upon which it operates
limestone quarries, an underground mine, lime plants and other facilities with inherent environmental responsibilities and
environmental compliance costs and liabilities, including capital, maintenance and operating costs with respect to
pollution control equipment, the cost of ongoing monitoring programs, the cost of reclamation and remediation efforts
and other similar environmental costs and liabilities.
The Company’s operations are subject to various federal, state, and local laws and regulations relating to the
environment, health and safety, and other regulatory matters, including the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and
Liability Act (“Environmental Laws”). These Environmental Laws grant the United States Environmental Protection
Agency (the “EPA”) and state governmental agencies the authority to promulgate and enforce regulations that could
result in substantial expenditures on pollution control, waste management, permitting and compliance activities. The
failure to comply with Environmental Laws may result in administrative and civil penalties, injunctive relief, and
criminal prosecution. The Company has not been named as a potentially responsible party in any federal superfund
cleanup site or state-led cleanup site.
The rate of change of Environmental Laws continues to be rapid, and compliance can require significant
expenditures. For example, federal legislation required the Company’s plants with operating kilns to apply for Title V
operating permits that have significant ongoing compliance monitoring costs. In addition to the Title V permits, other
environmental operating permits are required for the Company’s operations, and such permits are subject to modification
during the permit renewal process, and to revocation. Raw materials and fuels used to manufacture lime products
contain chemicals and compounds, such as trace metals, that may be classified as hazardous substances. In October
2015, the EPA issued a final rule lowering the National Ambient Air Quality Standards (“NAAQS”) for ground-level
ozone from 75 parts per billion to 70 parts per billion. The final rule requires states to revise their State Implementation
Plans (“SIP”) to achieve the new standard. The United States Court of Appeals for the D.C. Circuit is expected to hear
oral argument on a judicial challenge to the final rule in 2017. At this point, it is unclear what specific SIP revisions will
be proposed. It is possible, however, that the EPA could adopt new SIP revisions that would result in increased
compliance costs and liabilities and make permitting of major modifications more difficult. In 2010, the EPA adopted
new NAAQS for sulfur dioxide and nitrogen dioxide. If the Company makes major modifications of any of its lime
plants, the New Source Review (discussed below) permitting process may entail modeling and, potentially, installation
of additional emission controls to demonstrate compliance with those new NAAQS.
5
As of January 1, 2010, the EPA required large emitters of greenhouse gases, including the Company’s plants, to
collect and report greenhouse gas emissions data. The EPA indicated it will use the data collected through the
greenhouse gas reporting rules to decide whether to promulgate future greenhouse gas emission limits or possible taxes.
On May 13, 2010, the EPA issued a final rule “tailoring” its New Source Review permitting and Federal Operating
Permit programs to apply to facilities with certain thresholds of greenhouse gas emissions. This “Tailoring Rule” was
challenged in court, and on June 23, 2014, the United States Supreme Court struck down the Tailoring Rule in Utility Air
Regulatory Group v. Environmental Protection Agency. In its decision, the Court held that the EPA may not impose
permitting requirements on facilities based solely on their emissions of greenhouse gasses. But, the Court also held that
the EPA may regulate greenhouse gas emissions if a facility is otherwise subject to permitting based on the emissions of
conventional, non-greenhouse gas pollutants. Thus, any new facilities or major modifications to existing facilities that
exceed the federal New Source Review emission thresholds for conventional pollutants may be required to use “best
available control technology” and energy efficiency measures to minimize greenhouse gas emissions. On December 19,
2014, the EPA issued guidance stating that the agency would exercise its enforcement discretion to not pursue
enforcement of the terms and conditions of the portion of the permitting regulations struck down by the Supreme Court
in Utility Air Regulatory Group.
Although the timing and impact of climate change legislation and of regulations limiting greenhouse gas
emissions are uncertain, the consequences of such legislation and regulation are potentially significant for the Company
because the production of CO2 is inherent in the manufacture of lime through the calcination of limestone and
combustion of fossil fuels. Future rulemaking following the Utility Air Regulatory Group decision could affect New
Source Review permitting and, thereby, increase the time and costs of plant upgrades and expansions. The passage of
climate change legislation, and other regulatory initiatives by the Congress, the states or the EPA that restrict or tax
emissions of greenhouse gases, could also adversely affect the Company. There is no assurance that changes in the law
or regulations will not be adopted, such as the imposition of a carbon tax, a cap-and-trade program requiring the
Company to purchase carbon credits, or other measures that would require reductions in emissions or changes to raw
materials, fuel use or production rates that could have a material adverse effect on the Company’s financial condition,
results of operations, cash flows and competitive position.
In the courts, several cases have been filed and decisions issued that may increase the risk of claims being filed by
third parties against companies for their greenhouse gas emissions. Such cases may seek to challenge air permits, to force
reductions in greenhouse gas emissions or to recover damages for alleged climate change impacts to the environment, people
and property.
The lime industry is currently undergoing a revision to an EPA rulemaking process pursuant to a federal regulation
that regulates air emissions by establishing national standards that meet the maximum achievable control technology
(“MACT”) available within the industry. Also known as the “Lime MACT,” this rule is the second revision to the initial Lime
MACT promulgated on January 5, 2004. It is expected that the rulemaking process may take 2-4 years before any new EPA
standards would take effect. Changes in the Lime MACT could have a material adverse effect on the Company’s financial
condition, results of operations, cash flows and competitive position.
In addition to the foregoing, there is currently a substantial amount of regulatory uncertainty with respect to various
proposals by the new Administration and Congress to reduce regulation in certain respects or as to certain industries that may
impact the Company’s operations. Although it appears that at least some of these proposals could have a positive impact on the
Company’s operations, it is currently not possible to know with certainty that they will be adapted or that the overall results
will be positive.
The Company incurred capital expenditures related to environmental matters of approximately $0.5 million,
$0.5 million and $1.0 million in 2016, 2015 and 2014, respectively. The Company’s recurring costs associated with
managing environmental permitting and waste recycling and disposal (e.g., used oil and lubricants) and maintaining
pollution control equipment amounted to approximately $0.9 million, $1.0 million and $0.9 million in 2016, 2015 and
2014, respectively.
The Company recognizes legal reclamation and remediation obligations associated with the retirement of
long-lived assets at their fair value at the time the obligations are incurred (“Asset Retirement Obligations” or “AROs”).
Over time, the liability for AROs is recorded at its present value each period through accretion expense, and the
capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, the Company either
6
settles the ARO for its recorded amount or recognizes a gain or loss. AROs are estimated based on studies and the
Company’s process knowledge and estimates, and are discounted using an appropriate interest rate. The AROs are
adjusted when further information warrants an adjustment. The Company believes its accrual of $1.8 million for AROs
at December 31, 2016 is reasonable.
Map of United States Lime & Minerals, Inc. Operations/Interests.
Natural Gas Interests.
Interests. The Company, through its wholly owned subsidiary, U.S. Lime Company—O & G, LLC (“U.S.
Lime O & G”), has royalty interests ranging from 15.4% to 20% and a 20% non-operating working interest with respect
to oil and gas rights on the Company’s approximately 3,800 acres of land located in Johnson County, Texas, in the
Barnett Shale Formation. These interests are derived from the Company’s May 2004 oil and gas lease agreement (the
“O & G Lease”) with EOG Resources, Inc. (“EOG”) with respect to oil and gas rights on its Texas Lime property that
7
will continue on currently producing wells so long as EOG, or its successors or assigns, is producing natural gas from
such wells as set forth in the O & G Lease.
During the fourth quarter 2005, drilling of the first natural gas well under the O & G Lease was completed, and
natural gas production began in February 2006. A total of 34 wells have been drilled under the O & G Lease, but one of
the wells ceased production in 2011 and has been plugged and abandoned. The Company’s overall average revenue
interest is 34.7% in the 33 wells currently producing under the O & G Lease.
In November 2006, through U.S. Lime O & G, the Company entered into a drillsite and production facility lease
agreement and subsurface easement (the “Drillsite Agreement”) with XTO Energy Inc. (“XTO”), which has an oil and
gas lease covering approximately 538 acres of land contiguous to the Company’s Johnson County, Texas property.
Pursuant to the Drillsite Agreement, the Company receives a 3% royalty interest and a 12.5% non-operating working
interest, resulting in a 12.4% revenue interest, in the six XTO wells drilled from a padsite located on the Company’s
property.
U.S. Lime O & G has no direct employees and is not the operator of any wells drilled on the properties subject
to either the O & G Lease or the Drillsite Agreement (the “O & G Properties”). The only decision that the Company has
the right to make is whether to participate as a non-operating working interest owner and pay its proportionate share of
the costs of drilling, completing, working over and operating a well.
No wells have been completed on the O & G Properties since 2011. Given current market prices for natural gas
and natural gas liquids, there are no present plans to drill additional wells on the O & G Properties.
Regulation. Many aspects of the production, pricing and marketing of natural gas are regulated by federal and
state agencies. Legislation and rulemaking affecting the natural gas industry are under constant review for amendment or
expansion, which in the past has increased the regulatory burden on affected members of the industry. With the new
Administration and Congress, there currently is even greater regulatory uncertainty than usual, including with respect to
the regulation of hydraulic fracturing.
Oil and gas development and production operations are subject to various types of regulation at the federal, state
and local levels that may impact the Company’s royalty and non-operating working interests. Such regulation includes:
•
•
•
•
•
requiring permits for the drilling of wells;
numerous federal and state safety requirements;
environmental requirements;
property taxes and severance taxes; and
specific state and federal income tax provisions.
The TCEQ has adopted regulations limiting air emissions from oil and natural gas production in the Barnett
Shale, where the O & G Properties are located. The EPA has adopted greenhouse gas monitoring and reporting
regulations applicable to the petroleum and natural gas industry that require persons that hold state drilling permits that
will result in annual greenhouse gas emissions of 25,000 metric tons or more to report annually those emissions from
certain sources. The EPA has indicated that it will use data collected through the reporting rules to decide whether to
promulgate future greenhouse gas emission limits. Future changes to greenhouse gas regulations could affect the relative
competitiveness of, and therefore the demand for, natural gas and other fossil fuels.
Hydraulic fracturing is a technique used to produce oil and natural gas from shale, including the Barnett Shale
Formation. The drilling on the Company’s O & G Properties has involved hydraulic fracturing. On April 18, 2012, the
EPA issued new final regulations under the New Source Performance Standards and National Emission Standards for
Hazardous Air Pollutants. Since January 2015, these regulations have required owners and operators of newly
hydraulically fractured wells to use so-called “green completion” technology to reduce methane and volatile organic
compound emissions during completion activities. On May 12 2016, the EPA issued a final rule establishing standards
8
for the reduction of methane, volatile organic compounds, and other emissions from new and existing sources in the oil
and gas sector. These and other similar regulations could increase the costs of oil and gas exploration and production
activities.
Hydraulic fracturing has historically been regulated by state oil and natural gas commissions. However, the
EPA has asserted federal regulatory authority over certain hydraulic fracturing activities involving diesel under the Safe
Drinking Water Act (“SDWA”). In February 2014, the EPA issued permitting guidance for oil and gas hydraulic
fracturing activities using diesel fuels, which included a broad definition of diesel covering a variety of oils that are not
diesel but that have similar carbon-chain molecules. In June 2016, the EPA issued a final rule establishing a zero
discharge limitation for the discharge of wastewater from hydraulic fracturing to publicly owned treatment works. In
addition, certain other governmental reviews have been conducted or are underway that focus on environmental aspects
of hydraulic fracturing practices, including a four-year study by the EPA that concluded in 2016. Other agencies,
including the Department of Energy, the Council on Environmental Quality, the Energy Information Administration, and
the Department of the Interior, have also conducted hydraulic fracturing studies. These completed and ongoing reviews,
depending on their scope and results, could spur initiatives to further regulate hydraulic fracturing under the SDWA or
other regulatory programs.
Additionally, the Congress, the EPA and various states have proposed or adopted legislation or regulations
regulating or requiring disclosure regarding hydraulic fracturing in connection with drilling operations. For example,
pursuant to legislation adopted by the State of Texas in June 2011, the Texas Railroad Commission enacted a rule in
December 2011 requiring disclosure of certain information regarding additives, chemical ingredients, concentrations and
water volumes used in hydraulic fracturing. New laws or regulations affecting hydraulic fracturing could adversely
affect the cost of drilling and production from the O & G Properties.
Customers and Pricing. The pricing of natural gas sales is primarily determined by supply and demand in the
marketplace and can fluctuate considerably. As the Company is not the operator of the wells drilled on the O & G
Properties, it has limited access to timely information, involvement and operational control over the volumes of natural
gas produced and sold and the terms and conditions, including price, on which such volumes are marketed and sold, all
of which is controlled by the operators. Although the Company has the right to take its portion of natural gas production
in kind, it currently has elected to have its natural gas production marketed by the operators.
The prices that the Company receives for its natural gas production is also affected by the amount of natural gas
liquids included in the natural gas and the prices for those liquids. There has been a general decline in prices for natural
gas and natural gas liquids in recent years due principally to increased supply.
Drilling Activity. No new wells have been completed since 2011, and there are no present plans to drill
additional wells, on the O & G Properties. The Company cannot predict the number of additional wells that ultimately
will be drilled, if any, or their results.
Production Activity. The number of gross and net producing wells and production activity for the years ended
December 31, 2016, 2015 and 2014 are as follows:
Producing wells(1)
O & G Lease
Drillsite Agreement
Total
Natural gas production volume (BCF)
Average sales price per MCF(3)
Total cost of revenues per MCF(4)
2016
2015
2014
Gross
Net(2)
Gross
Net(2)
Gross
Net(2)
33
6
39
0.6
3.35
3.25
$
$
6.6
0.8
7.4
33
6
39
0.7
$ 3.41
$ 2.97
6.6
0.8
7.4
33
6
39
0.8
$ 6.28
$ 2.91
6.6
0.8
7.4
(1) Although a total of 34 wells have been drilled under the O & G Lease, one well ceased production in 2011 and has
been plugged and abandoned.
9
(2) The number of net wells is required to be calculated based on the Company’s non-operating working interests
percentages multiplied by the number of gross wells and does not consider the Company’s royalty interests
percentages in each well.
(3) Average sales price per MCF includes sales prices of natural gas liquids contained in the natural gas.
(4) Includes taxes other than income taxes.
Delivery Commitments. There are no delivery commitments for the Company’s natural gas production to
which U.S. Lime O & G is a party.
Internal Controls Over Reserves Estimates. The Company’s policies regarding internal controls over the
recording of reserve estimates require reserves to be in compliance with the SEC definitions and guidance and prepared
in accordance with generally accepted petroleum engineering principles. In each of the years 2016, 2015 and 2014, the
Company retained DeGolyer and MacNaughton, independent third-party petroleum engineers, to perform appraisals of
100% of its proved reserves in compliance with these standards.
Reserves. The following table reflects the proved developed, proved undeveloped and total proved reserves (all
of which are located in Johnson County, Texas), future estimated net revenues and standardized measure at
December 31, 2016, 2015 and 2014. The reserves and future estimated net revenues are based on the reports prepared by
DeGolyer and MacNaughton. Proved developed reserves included 39 producing wells at each of December 31, 2016,
2015 and 2014, respectively. The Company’s proved reserves have not been filed with, or included in, any reports to any
federal agency, other than those filed with the SEC.
Developed Undeveloped Total
Developed Undeveloped Total
Developed Undeveloped Total
2016(2)
2015(2)
2014(2)
3.9
—
3.9
5.3
—
5.3
6.7
—
6.7
0.5
—
0.5
0.7
—
0.7
1.0
—
1.0
$ 9,506 $
— $ 9,506 $ 13,897 $
— $ 13,897 $ 36,831 $
— $ 36,831
Proved natural gas
reserves (BCF)
Proved natural gas
liquids and
condensate reserves
(MMBBLS)
Future estimated net
revenues
(in thousands)
Standardized measure(1)
(in thousands)
$ 4,197 $
— $ 4,197 $
5,286 $
— $ 5,286 $ 13,288 $
— $ 13,288
(1) This present value data should not be construed as representative of fair market value, since such data is based upon
projected cash flows, which do not provide for escalation or reduction of natural gas or natural gas liquids prices or
for escalation or reduction of expenses and capital costs.
(2) The reserve estimates as of December 31, 2016, 2015 and 2014 utilized 12-month average pricing, as required by
accounting principles generally accepted in the United States of America, of $2.65, $2.80 and $4.61 per MCF of
natural gas and $16.61, $14.92 and $30.20 per BBL of natural gas liquids, respectively.
Undeveloped Acreage. Since the Company is not the operator, it has limited information regarding
undeveloped acreage and does not know how many acres the operators classify as undeveloped acreage, if any, or the
number of wells that ultimately will be drilled on the O & G Properties.
Glossary of Certain Oil and Gas Terms. The definitions set forth below shall apply to the indicated terms as
used in this Report. All volumes of natural gas referred to herein are stated at the legal pressure base of the state or area
where the reserves exist and at 60 degrees Fahrenheit and in most instances are rounded to the nearest major multiple.
“BBL” means a standard barrel containing 42 United States gallons.
“BCF” means one billion cubic feet under prescribed conditions of pressure and temperature and represents a
basic unit for measuring the production of natural gas.
10
“Depletion” means (i) the volume of hydrocarbons extracted from a formation over a given period of time,
(ii) the rate of hydrocarbon extraction over a given period of time expressed as a percentage of the reserves existing at
the beginning of such period, or (iii) the amount of cost basis at the beginning of a period attributable to the volume of
hydrocarbons extracted during such period.
“Formation” means a distinct geologic interval, sometimes referred to as the strata, which has characteristics
(such as permeability, porosity and hydrocarbon saturations) that distinguish it from surrounding intervals.
“Future estimated net revenues” means the result of applying current prices of oil and natural gas to future
estimated production from oil and natural gas proved reserves, reduced by future estimated expenditures, based on
current costs to be incurred, in developing and producing the proved reserves, excluding overhead.
“MCF” means one thousand cubic feet under prescribed conditions of pressure and temperature and represents a
basic unit for measuring the production of natural gas.
“MMBBLS” means one million BBLS.
“Operator” means the individual or company responsible for the exploration, development and production of an
oil or natural gas well or lease.
“Proved oil and gas reserves” are those quantities of oil and natural gas, which, by analysis of geoscience and
engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward,
from known reservoirs, and under existing economic conditions, operating methods, and government regulations, prior
to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably
certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract
the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project
within a reasonable time.
(i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by
fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable
certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis
of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known
hydrocarbons as seen in a well penetration unless geoscience, engineering, or performance data and reliable
technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil elevation and the potential
exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of
the reservoir only if geoscience, engineering, or performance data and reliable technology establish the
higher contact with reasonable certainty.
(iv) Reserves that can be produced economically through application of improved recovery techniques
(including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful
testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir
as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other
evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which
the project or program was based; and (B) The project has been approved for development by all necessary
parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is
to be determined. The price shall be the average price during the 12-month period prior to the ending date
of the period covered by the report, determined as an unweighted arithmetic average of the
first-day-of-the-month price for each month within such period, unless prices are defined by contractual
arrangements, excluding escalations based upon future conditions.
11
“Royalty” means an interest in an oil and gas lease that gives the owner of the interest the right to receive a
portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage.
“Severance tax” means an amount of tax, surcharge or levy recovered by governmental agencies from the gross
proceeds of oil and natural gas sales. Severance tax may be determined as a percentage of proceeds or as a specific
amount per volumetric unit of sales. Severance tax is usually withheld from the gross proceeds of oil and natural gas
sales by the first purchaser (e.g., pipeline or refinery) of production.
“Standardized measure of discounted future net cash flows” (also referred to as “standardized measure”) means
the value of future estimated net revenues, calculated in accordance with SEC guidelines, to be generated from the
production of proved reserves net of estimated production and future development costs, using prices and costs at the
date of estimation, without future escalation, and estimated income taxes, and without giving effect to non-property
related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization,
and discounted using an annual discount rate of 10%.
“Undeveloped acreage” means acreage on which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved
reserves.
“Working interest” means a real property interest entitling the owner to receive a specified percentage of the
proceeds of the sale of oil and natural gas production or a percentage of the production, but requires the owner of the
working interest to bear the cost to explore for, develop and produce such oil and natural gas.
ITEM 1A. RISK FACTORS.
General.
Both of our business segments are affected by general economic and regulatory conditions in the U.S. and
specific economic and regulatory conditions in particular industries.
General economic conditions in the United States in recent years have reduced demand for our lime and
limestone products. Specifically, demand from our oil and gas services, steel and utility customers has decreased in
recent years. The decreases in oil and natural gas prices have resulted in a substantial decline in drilling activity, which
has reduced demand from our oil and gas services customers for our lime products. Our steel customers have reduced
their purchase volumes due to the ongoing difficult economic conditions in that industry, including a reduced demand for
drill pipe and casing from the oil and gas industry. The overall reduction in demand for lime and limestone products has
also resulted in increased competitive pressures, including pricing pressures, from other lime producers.
Reduced prices for natural gas and natural gas liquids have also resulted in drastically reduced revenues from
our Natural Gas Interests. However, we have benefited from lower energy costs in our Lime and Limestone Operations
segment.
We are also in a period of regulatory uncertainty. While various proposals by the new Administration and
Congress to reduce regulations in certain respects or as to certain industries, to increase infrastructure spending, to permit
increased oil and gas drilling, to increase the use of coal, to stimulate steel and other manufacturing, to protect U.S.
markets, and to pursue corporate tax reforms may increase U.S. economic activity and the demand for our lime and
limestone products, there can be no assurance that such results will be achieved or that they will benefit us or our
customers. In addition, depending on the outcome and effects of such proposals, a variety of factors, including
uncertainty with respect to governmental budgetary constraints, possible trade wars and increased inflationary pressures,
could have a material adverse effect on our financial condition, results of operations, cash flows and competitive position
that, on balance, may offset some or all of the benefits to us and our customers from the otherwise favorable regulatory
changes.
12
For us to maintain or increase our profitability, we must maintain or increase our revenues and improve cash
flows, manage our capital expenditures and control our operational and selling, general and administrative expenses. If
we are unable to maintain our revenues and control our costs in these uncertain economic and regulatory times, our
financial condition, results of operations, cash flows and competitive position could be materially adversely affected.
We may be adversely affected by any disruption in, or failure of, our information technology systems,
including due to cybersecurity risks and incidents.
We rely upon the capacity, reliability and security of our information technology (“IT”) systems for our
manufacturing, financial and administrative functions. We also face the challenge of supporting our IT systems and
implementing upgrades when necessary.
Our IT systems security measures are focused on the prevention, detection and remediation of damage from
computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions. However, our IT
systems may remain vulnerable to damage despite our implementation of security measures that we feel protect our IT
systems. Any failure, accident or security breach involving our IT systems could result in disruption to our operations. A
material breach in the security of our IT systems could negatively impact our manufacturing operations or financial and
administrative functions, or result in the compromise of personal information of our employees, customers or suppliers.
To the extent any such failure, accident or security breach results in disruption to our operations or loss or disclosure of,
or damage to, our data or confidential information, our reputation, business, results of operations and financial condition
could be materially adversely affected.
Lime and Limestone Operations.
In the normal course of our Lime and Limestone Operations, we face various business and financial risks
that could have a material adverse effect on our financial position, results of operations, cash flows and competitive
position. Not all risks are foreseeable or within our ability to control.
These risks arise from various factors, including, but not limited to, fluctuating demand and prices for our lime
and limestone products, including as a result of downturns in the economy and in the construction, industrial, steel and
oil and gas services industries, and reduced demand from coal-fired utility plants, increased competitive pressures from
other lime producers, changes in legislation and regulations, including Environmental Laws, health and safety
regulations and requirements to renew or obtain operating permits, our ability to produce and store quantities of lime and
limestone products sufficient in amount and quality to meet customer demands and specifications, the success of our
modernization, expansion and development strategies, including our ability to sell our increased lime capacity at
acceptable prices, our ability to execute our strategies and complete projects on time and within budget, our ability to
integrate, refurbish and/or improve acquired facilities, our access to capital, volatile costs, especially fuel, electricity,
transportation and freight costs, inclement weather and the effects of seasonal trends.
We receive most of our coal and petroleum coke by rail, so the availability of sufficient solid fuels to run our
plants could be diminished significantly in the event of major rail disruptions. Domestic coal and petroleum coke may
also be exported, which can increase competition and prices for the domestic supply. In addition, our freight costs to
deliver our lime and limestone products are high relative to the value of our products, and although our freight costs
declined slightly during 2015, they have mostly increased in recent years. Our costs for delivery of solid fuels, as well as
our products, also increase as demand for rail and trucking by other industries increases, and recent Department of
Transportation rules reduce the availability of rail cars and trucks to deliver solid fuels to our plants and deliver our
products to our customers. If we are unable to continue to pass along our variable coal, petroleum coke, diesel, natural
gas, electricity, transportation and freight costs to our customers through higher prices or surcharges, our financial
condition, results of operations, cash flows and competitive position could be materially adversely affected.
13
We quote on a delivered price basis to certain customers, which requires us to estimate future delivery costs.
Our actual delivery costs may exceed these estimates, which would reduce our profitability.
Delivery costs are impacted by the price of diesel. When diesel prices increase, we incur additional fuel
surcharges from freight companies that cannot be passed on to our customers that have been quoted a delivered price.
Material increases in the price of diesel could have a material adverse effect on the Company’s profitability.
Governmental fiscal and budgetary constraints and legislative impasses have in the past, and may in the
future, adversely impact our financial condition and results of operations in various ways.
Governmental fiscal and budgetary constraints and legislative impasses may adversely impact our financial
condition and results of operations in various ways, including possibly reduced funding for transportation programs by
federal, state and local governmental agencies, which could reduce demand for our lime and limestone products from our
construction customers.
Our mining and other operations are subject to operating risks that are beyond our control, which could
result in materially increased operating expenses and decreased production and shipment levels that could materially
adversely affect our Lime and Limestone Operations and their profitability.
We mine limestone in open pit and underground mining operations and process and distribute that limestone
through our plants and other facilities. Certain factors beyond our control could disrupt our operations, adversely affect
production and shipments and increase our operating costs, all of which could have a material adverse effect on our
results of operations. These include geological formation problems that may cause poor mining conditions, variability of
chemical or physical properties of our limestone, an accident or other major incident at a site that may cause all or part of
our operations to cease for some period of time and increase our expenses, mining, processing and plant equipment
failures and unexpected maintenance problems that may cause disruptions and added expenses, strikes, job actions or
other work stoppages that may disrupt our operations or those of our suppliers, contractors or customers and increase our
expenses, and adverse weather conditions and natural disasters, such as heavy rains, flooding, ice storms, freezing
weather, drought and other natural events, that may affect operations, transportation or customers.
If any of these conditions or events occurs, our operations may be disrupted, we could experience a delay or halt
of production or shipments, our operating costs could increase significantly and we could be exposed to fines, penalties,
assessments and other liabilities. If our insurance coverage is limited or excludes a given condition or event, we may not
be able to recover in full the losses that may incur as a result of such conditions or events, some of which may be
substantial.
We incur environmental compliance costs and liabilities, including capital, maintenance and operating costs,
with respect to pollution control equipment, the cost of ongoing monitoring programs, the cost of reclamation and
remediation efforts and other similar costs and liabilities relating to our compliance with Environmental Laws. Even
with the current period of regulatory uncertainty that could result in deregulation in certain areas, we expect these
costs and liabilities to continue or increase, including possible new costs, taxes and limitations on operations such as
those related to possible climate change initiatives, including regulation of greenhouse gas emissions. Similar
environmental costs and liabilities may also be faced by our customers.
The rate of change of Environmental Laws has been rapid over the last decade, and we may face possible new
uncertainties, costs and liabilities, taxes and limitations on operations, including those related to climate change
initiatives. Even with the current period of regulatory uncertainty that could result in deregulation in certain areas, we
expect our expenditure requirements for future environmental compliance, including complying with the new nitrogen
dioxide, sulfur dioxide and particulate matter emission limitations under the NAAQS and regulation of greenhouse gas
emissions, to continue or increase. Discovery of currently unknown conditions and unforeseen costs and liabilities could
require additional expenditures.
The regulation of greenhouse gas emissions remains an issue for the Company and some of its customers. There
is no assurance that changes in the law or regulations will not be adopted, such as the imposition of a carbon tax, a cap-
and-trade program requiring companies to purchase carbon credits, or other measures that would require reductions in
14
emissions or changes to raw materials, fuel use or production rates, that could have a material adverse effect on the
Company’s financial condition, results of operations, cash flows and competitive position. More stringent regulation of
greenhouse gas emissions could also adversely affect the competitiveness of some of the Company’s customers,
including coal-fired power plants, and indirectly the demand for our lime and limestone products. For example, our
utility customers may switch from coal to natural gas or renewable sources for power generation for environmental
regulatory as well as cost reasons, thus reducing demand for our lime and limestone products for flue gas treatment
processes.
We intend to comply with all Environmental Laws and believe our accrual for environmental costs and
liabilities at December 31, 2016 is reasonable. Because many of the requirements are subjective and therefore not
quantifiable or presently determinable, or may be affected by additional legislation and rulemaking, including those
related to climate change and greenhouse gas emissions, there is no assurance or certainty that we will be able to
continue or renew our operating permits, or to successfully secure new permits in connection with our modernization and
expansion and development projects, and it is not possible to accurately predict the aggregate future costs and liabilities
relating to environmental compliance and their effect on our financial condition, results of operations, cash flows and
competitive position.
To maintain our competitive position, we may need to continue to increase the efficiency of our operations
and expand production capacity, obtain financing for any such projects and acquisitions at reasonable interest rates
and acceptable terms and sell any resulting increased production at acceptable prices.
We have currently undertaken our new kiln project at St. Clair. We may in the future undertake additional
modernization, expansion and development projects and acquisitions. Such projects and acquisitions may require that we
incur additional debt, which may not be available to us at all or at reasonable interest rates or on acceptable terms. Given
current and projected demand for lime and limestone products, we cannot guarantee that any such project or acquisition
would be successful, that we would be able to sell any resulting increased production at acceptable prices or that any
such sales would be profitable.
Although prices for our lime and limestone products have been relatively firm in recent years, pricing
competition has increased in recent years. We are unable to predict future demand and prices, given the current economic
and regulatory uncertainties in the U.S. and in particular industries, and cannot provide any assurance that current levels
of demand and prices will continue or that any future increases in demand or prices can be maintained.
The lime industry is highly regionalized and competitive.
Our competitors are predominately large private companies. The primary competitive factors in the lime
industry are price, quality, ability to meet customer demands and specifications, proximity to customers, personal
relationships and timeliness of deliveries, with varying emphasis on these factors depending upon the specific product
application. To the extent that one or more of our competitors becomes more successful with respect to any key
competitive factor, our financial condition, results of operations, cash flows and competitive position could be materially
adversely affected.
15
Natural Gas Interests.
Our natural gas reserves are depleting assets, and we have no ability to explore for new reserves, nor at
current market prices are there any present plans to drill additional wells on the O&G Properties.
Revenues from our Natural Gas Interests depend in large part on the quantity of natural gas and natural gas
liquids produced from the O & G Properties. Our 39 producing wells will naturally experience declines in production
rates due to depletion of their natural gas reserves, and the operators may determine to temporarily shut in or to plug and
abandon a producing well if they believe that it is no longer economical to continue production from the well. We have
no ability to explore for new reserves, and at current market prices for natural gas and natural gas liquids, there are no
present plans to drill additional wells on the O & G Properties, thus limiting our Natural Gas Interests revenues to
production from our existing wells.
Historically, the markets for natural gas and natural gas liquids have been volatile and may continue to be
volatile in the future.
Various factors that are beyond our control will affect the demand for, and prices of, natural gas and natural gas
liquids. The natural gas industry is cyclical in nature and tends to reflect general economic and gas supply and demand
conditions. Recent technological advances, such as hydraulic fracturing, have enabled the industry to access additional
reserves and have greatly increased the current supply of natural gas and natural gas liquids in the United States and
elsewhere, resulting in lower natural gas and natural gas liquids prices. Lower natural gas and natural gas liquids prices
may reduce the amount of natural gas and natural gas liquids that is economical for our operators to produce on the O &
G Properties, or cause them to shut in wells for extended periods of time or to plug and abandon wells. Reduced prices
and production could further reduce our revenues and cash flows from our Natural Gas Interests, while at the same time
also increasing the rate at which we record non-cash depletion expense on our wells, and thus could have an adverse
effect on our gross profit from our Natural Gas Interests.
We do not control production operations on the O & G Properties, which could impact our Natural Gas
Interests.
As the owner of royalty and non-operating working interests, our ability to influence production from the O &
G Properties is severely limited. All decisions related to production on the O & G Properties will be made by the
operators and may be influenced by factors beyond our control, including but not limited to natural gas and natural gas
liquids prices, pipeline capacities, interest rates, budgetary considerations and general industry and economic conditions.
The occurrence of an operational risk or uncertainty that materially impacts the operations of the operators of
the O & G Properties could have an adverse effect on the amount we receive in connection with our interests in
production from the O & G Properties, which could have an adverse effect on our gross profit from our Natural Gas
Interests.
Our natural gas gross profit is affected by production and other costs, some of which are outside of our
control, and possible unitizations.
The Natural Gas Interests gross profit that comes from our non-operating working interests, and to a lesser
extent our royalty interests, is directly affected by increases in production and other costs, including depletion expense,
as well as unitizations of existing wells. Some of these costs are outside our control, including production costs, costs of
regulatory compliance and severance and other similar taxes. Other expenditures are dictated by business necessity, such
as working over existing wells to increase recovery rates.
Governmental policies, laws and regulations could have an adverse impact on the O & G Properties and our
natural gas business.
The O & G Properties and our natural gas business are subject to federal, state and local laws and regulations
relating to the oil and natural gas industry, as well as regulations relating to health and safety matters. Even with the
current period of regulatory uncertainty that could result in some deregulation of the oil and natural gas industry, these
laws and regulations can still have a significant impact on the costs and amount of our production.
16
Environmental costs and liabilities and changing environmental regulation associated with the O & G
Properties could adversely affect our gross profit from our Natural Gas Interests.
As with other companies engaged in the ownership and production of natural gas, we expect to have some risk
of exposure to environmental costs and liabilities. The costs and liabilities associated with environmental compliance or
remediation could reduce the gross profits we would receive from our Natural Gas Interests. Although there may be
some deregulation of the oil and natural gas industry in this current period of regulatory uncertainty, the O & G
Properties continue to be subject to extensive federal, state and local regulatory requirements relating to environmental
affairs, health and safety and waste management.
Any increased regulation of natural gas production could increase our production costs on the O & G Properties
and adversely affect our gross profit from our Natural Gas Interests. Third parties could also pursue legal actions to
enforce compliance or assert claims for damages. Further, under certain environmental laws and regulations, the
operators and owners of the underlying properties could also be subject to joint and several, strict liability for the
removal or remediation of released materials or property contamination from drilling, including hydraulic fracturing, or
waste disposal, regardless of whether the operators or owners were responsible for the release or contamination or if the
operations were in compliance with all applicable laws. Future Environmental Law developments, such as stricter laws,
regulations or enforcement policies, including climate change legislation mandating reductions in greenhouse gas
emissions, could significantly increase the costs of production from the O & G Properties and adversely affect our gross
profit from our Natural Gas Interests.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Reference is made to Item 1 of this Report for a description of the properties of the Company, and such
description is hereby incorporated by reference in answer to this Item 2. As disclosed in Note 3 of Notes to Consolidated
Financial Statements, the Company’s plants and facilities and reserves are subject to encumbrances to secure the
Company’s loans.
ITEM 3. LEGAL PROCEEDINGS.
Information regarding legal proceedings is set forth in Note 9 of Notes to Consolidated Financial Statements
and is hereby incorporated by reference in answer to this Item 3.
ITEM 4. MINE SAFETY DISCLOSURES.
Under Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of
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 the Company’s 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 year ended December 31, 2016 is presented in Exhibit 95.1 to this Report.
The Company believes it is responsible to employees to provide a safe and healthy workplace environment. The
Company seeks 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.
17
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company’s common stock is listed on the Nasdaq Global Market® under the symbol “USLM.” As of
March 2, 2017, the Company had approximately 350 shareholders of record.
As of March 2, 2017, the Company had 500,000 shares of $5.00 par value preferred stock authorized; however,
none has been issued.
The low and high sales prices for the Company’s common stock for the periods indicated were:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
High
2015
High
Low
Low
$ 49.77 $ 60.01 $ 62.12 $ 73.83
$ 50.90 $ 58.99 $ 58.12 $ 68.71
$ 58.61 $ 66.00 $ 45.65 $ 58.70
$ 65.00 $ 77.50 $ 46.40 $ 55.64
The Company declared and paid a cash dividend of $0.125 (12.5 cents) per share of common stock in each of
the 2016 and 2015 quarters. On January 30, 2017, the Company declared a quarterly cash dividend of $0.135 (13.5
cents) per share of common stock payable on March 17, 2017 to shareholders of record at the close of business on
February 24, 2017.
PERFORMANCE GRAPH
The graph below compares the cumulative 5 year total shareholders’ return on the Company’s common stock
with the cumulative total return on the NASDAQ Composite Index and a peer group index consisting of Eagle
Materials, Inc., Monarch Cement Co., U.S. Concrete, Inc. and Martin Marietta Materials, Inc. The graph assumes that the
value of the investment in the Company’s common stock and each index was $100 on December 31, 2011, and that all
dividends have been reinvested.
18
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among U.S. Lime & Minerals, Inc., the NASDAQ Composite Index,
and a Peer Group
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/11
12/12
12/13
12/14
12/15
12/16
U.S. Lime & Minerals, Inc.
NASDAQ Composite
Peer Group
U.S. LIME & MINERALS, INC.
NASDAQ COMPOSITE INDEX
PEER GROUP
2012
2013
78.39 101.76 122.20
2011
100
92.99 129.26
100 116.41 165.47 188.69 200.32 216.54
100 153.74 184.57 196.71 220.97 356.51
2015
2014
2016
ISSUER PURCHASES OF EQUITY SECURITIES
In December 2015, the Company commenced a publicly announced share repurchase program to repurchase up
to $10,000,000 of its common stock. In November 2016, the Company announced a 12-month extension of the
19
repurchase program to repurchase up to the $7,151,226 of its common stock remaining under the program. No
additional shares have been repurchased to date.
The following table sets forth, for the periods indicated, the Company’s share repurchase activity in the fourth
quarter 2016 under this program:
Period
October 1 – 31, 2016
November 1 – 30, 2016
December 1 – 31, 2016
Total
Total Number of Average Price
Shares Purchased Paid Per Share
—
—
—
—
—
—
—
—
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
Maximum
Remaining
Amount Available
Under the Program
7,151,226
7,151,226
7,151,226
7,151,226
— $
— $
— $
— $
In addition, the Company’s Amended and Restated 2001 Long-Term Incentive Plan allows employees and
directors to pay the exercise price upon the exercise of 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 the Company’s common stock to the
Company. Pursuant to these provisions, the Company repurchased 435 shares at a price of $75.75 per share, the fair
market value of one share on the date they were tendered to the Company, in the fourth quarter 2016 for payment of tax
withholding liability upon the lapse of restrictions on restricted stock.
ITEM 6. SELECTED FINANCIAL DATA.
Operating results
Lime and limestone revenues
Natural gas revenues
Total revenues
Gross profit
Operating profit
Income before income taxes
Net income
Net income per share of common stock:
Basic
Diluted
Total assets
Current installments of debt
Debt, excluding current installments
Stockholders’ equity per outstanding common share
Employees
2016
Years Ended December 31,
2014
(dollars in thousands, except per share amounts)
2013
2015
2012
5,274
2,447
2,092
$ 137,190 128,390 144,567 128,003 131,404
7,121
$ 139,282 130,837 149,841 133,765 138,525
33,438
$ 33,092
24,245
$ 23,480
22,101
$ 23,618
16,423
$ 17,754
30,800
21,651
19,833
14,800
36,791
27,322
25,922
19,367
28,714
19,086
17,481
12,886
5,762
$
$
3.19
3.19
2.30
2.30
3.47
3.47
2.66
2.66
2.88
2.87
2016
As of December 31,
2014
2015
2013
2012
$ 210,159 196,499 199,986 187,526 174,246
5,000
$
21,667
$
21.44
$
294
5,000
16,667
24.54
297
16,667
—
27.65
313
—
—
32.23
321
—
—
29.72
323
ITEM 7. 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
20
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 for the
modernization and expansion and development project at St. Clair and possible acquisitions, repurchasing the
Company’s common stock and paying dividends, 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, natural
disasters, accidents, IT systems failures or disruptions, including due to cybersecurity incidents, or regulatory
requirements; (v) volatile coal, petroleum coke, diesel, natural gas, electricity, transportation and freight costs and the
consistent availability of trucks and rail cars to deliver the Company’s products to its customers and solid fuels to its
plants on a timely basis; (vi) unanticipated delays or cost overruns in completing modernization and expansion and
development projects, including the Company’s St. Clair kiln project that is estimated to cost approximately $50 million
over the next two years; (vii) the Company’s ability to expand its Lime and Limestone Operations through projects and
acquisitions of businesses with related or similar operations, including obtaining financing for such projects and
acquisitions, 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 conditions in the U.S. economy, recessionary pressures in
particular industries, including construction, steel, industrial and oil and gas services, reduced demand from utility plants,
increased competition from competitors, effects of governmental fiscal and budgetary constraints, including the level of
highway construction funding, and legislative impasses and economic and regulatory uncertainties under the new
Administration and Congress, and inability to continue to maintain or increase prices for the Company’s products;
(ix) uncertainties of prices and regulations with respect to the Company’s Natural Gas Interests, including the absence of
drilling activities on the Company’s O & G Properties, inability to explore for new reserves, unitization of existing wells,
declines in production rates and plugging and abandoning of existing wells; (x) 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 and health and
safety 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; 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 Quarterly Reports on Form 10-Q.
OVERVIEW.
General.
We have identified two business segments based on the distinctness of their activities and products: Lime and
Limestone Operations and Natural Gas Interests. All operations are in the United States. In evaluating the operating
results of our segments, management primarily reviews revenues and gross profit. We do not allocate corporate overhead
or interest costs to our business segments.
Our Lime and Limestone Operations represent our principal business. Our Natural Gas Interests consist of
royalty and non-operating working interests under the O & G Lease and the Drillsite Agreement with two separate
operators related to our Johnson County, Texas property, located in the Barnett Shale Formation, on which Texas Lime
conducts its lime and limestone operations. Our principal management decisions related to our Natural Gas Interests
involve whether to participate as a non-operating working interest owner by contributing our proportional costs for
drilling proposed wells or workovers of existing wells under the O & G Lease and the Drillsite Agreement. While we
intend to continue to participate in future natural gas wells drilled and workovers of existing wells on our O & G
Properties, if any, we are not in the business of drilling for or producing natural gas, and have no personnel expert in that
field.
21
Revenues from our Lime and Limestone Operations increased 6.9% in 2016 compared to 2015, primarily due to
increased sales volumes of our lime and limestone products in 2016, which accounted for a revenue increase of
approximately 7.1% for 2016 compared to 2015. The 2016 increase in sales volumes resulted from increased demand,
principally from our construction, environmental and roof shingle customers, partially offset by reduced demand from
our oil and gas services customers. Some of the increase in construction demand for 2016 resulted from lower
construction demand in the first half 2015 due to adverse weather conditions. The increase in sales volumes in 2016 was
partially offset by a decrease in average product prices for our lime and limestone products of approximately 0.2% in
2016 compared to 2015 that was primarily due to decreases in natural gas and natural gas liquids prices which began in
the fourth quarter 2015 and continued into the first half 2016.
Revenues from our Natural Gas Interests decreased 14.5% in 2016 compared to 2015 due to a decrease in
production volumes of approximately 12.9%, resulting from the normal declines in production rates on the Company’s
existing natural gas wells, as well as decreased average prices for natural gas and natural gas liquids of approximately
1.6%.
Gross profit increased 15.2% in 2016 compared to 2015. Gross profit from our Lime and Limestone Operations
in 2016 increased 16.3% compared to 2015, primarily due to the increased revenues discussed above. Gross profit from
our Natural Gas Interests decreased 80.9% in 2016 compared to 2015, primarily due to the decreased revenues discussed
above and an increase in the rate of non-cash depletion expense in 2016 compared to 2015.
Interest expense decreased $0.8 million, or 76.3%, in 2016 compared to 2015, primarily as a result of our
repayment of the $15.4 million then-outstanding balance of our term loans in the second quarter 2015. In connection
with such repayment, we repurchased our interest rate hedges associated with the term loans.
During the second quarter 2015, we also terminated the Corson Pension Plan (the “Corson Plan”), which
required a cash payment of $0.2 million and resulted in a second quarter expense of $0.9 million ($0.6 million, net of tax
benefit), included in other (income) expense, net for 2015 that was previously included in accumulated other
comprehensive loss. As a result of the termination of the Corson Plan, the Company will not have to make any future
contributions to the Plan.
Net income increased $4.9 million, or 37.8%, in 2016 compared to 2015. Cash flows from operations during
2016 enabled us to make $17.7 million of capital investments, pay $2.8 million in dividends, and increase our cash
balances to $74.7 million at December 31, 2016, compared to $59.9 million at December 31, 2015. We had no debt
outstanding at December 31, 2016.
In December 2015, we commenced a publicly announced share repurchase program to repurchase up to $10
million of our common stock. Pursuant to that program, we repurchased 3,086 shares in December 2015 at a weighted-
average price of $54.79 per share. In 2016, we repurchased 50,068 shares at a weighted-average price of $53.52 per
share. In November 2016, we announced a 12-month extension of the repurchase program to repurchase up to
approximately $7.2 million of our common stock remaining under the program. No additional shares have been
repurchased to date.
On January 30, 2017, we announced that our Board of Directors had declared an increased regular quarterly
cash dividend of $0.135 (13.5 cents). This represents a quarterly dividend increase of $0.01 (1.0 cent) per share
compared to our prior quarterly dividend rate of $0.125 (12.5 cents).
Absent a significant acquisition opportunity arising during 2017, we anticipate funding our operating and
capital needs, including modernization and expansion and development projects, including our new kiln project at St.
Clair, our increased cash dividend and the remainder of our share repurchase program from our cash on hand and cash
flows from operations.
Lime and Limestone Operations.
In our Lime and Limestone Operations, we produce and sell PLS, 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.
22
Inclement weather conditions, such as the winter ice and snow storms, cold weather and excessive rainfalls that
we experienced in the first half 2015, 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 utility plant usage of coal for power generation. Demand for our lime and
limestone products from the construction, environmental and roof shingle industry increased in 2016. However, demand
for our lime and limestone products from our oil and gas services customers declined during 2016. The decrease in oil
and gas drilling activities in 2016, as a result of declining oil and natural gas prices, reduced demand from our oil and gas
services customers. At the same time, we continued to benefit from lower oil and gas prices in our Lime and Limestone
Operations through lower transportation, freight and fuel costs during 2016.
On December 4, 2015, the President signed into law the Fixing America’s Surface Transportation Act (the
“FAST Act”), the first multi-year transportation authorization enacted in over ten years. The FAST Act authorizes $305
billion over fiscal years 2016 through 2020 that provides long-term funding certainty for surface transportation projects.
Its enactment should allow states and local governments to move forward with critical transportation projects, like new
highways, with confidence that the Highway Trust Fund will meet its obligations through 2020. Also, in Texas, recently
approved constitutional amendments authorized a portion of oil and gas tax revenues to be deposited into the State
Highway Fund and certain other sales and use tax revenues to be dedicated to the State Highway Fund. With these
funding improvements, along with potential additional infrastructure spending proposed by the new Administration, we
expect to see continued increases in demand from our construction customers.
Our modernization and expansion and development projects in Texas and Arkansas, including the construction
of a third kiln in Arkansas (completed in December 2006), our acquisitions of U. S. Lime Company—St. Clair and our
Texas slurry operations, the December 2014 acquisition of the assets of a trucking company operation in Houston, Texas
and the establishment of a new distribution terminal facility southwest of Houston, Texas, have positioned us to meet the
demand for high-quality lime and limestone products in our markets. Our modernization and expansion and development
projects have also equipped us with up-to-date, fuel-efficient plant facilities, which has resulted in lower production costs
and greater operating efficiencies, thus enhancing our competitive position. All of our kilns are fuel-efficient preheater
kilns, except for one kiln at St. Clair, which will be replaced with a new, more fuel-efficient vertical kiln that should be
completed within two years.
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, such as St. Clair, which
we acquired with the intention of modernizing and expanding, subject to permitting, technical feasibility, economics and
market demand, as well as operating existing facilities efficiently. We also incur ongoing costs for maintenance and to
remain in compliance with rapidly changing Environmental Laws and health and safety and other regulations.
Our primary variable cost is energy. Although we have recently seen reductions in our energy costs, prices for
coal, petroleum coke, diesel, natural gas, electricity, transportation and freight are volatile and have generally increased
over the past several years. In addition, our freight costs, including diesel prices, to deliver our products can be high
relative to the value of our products and have generally increased in the past several years, although diesel prices have
decreased recently as oil prices have decreased. 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 are also proceeding with the construction of a new, more fuel-efficient vertical kiln at St. Clair, which should help us
manage our energy costs at that plant. Finally, we have not engaged in any significant hedging activity in an effort to
control our energy costs, but may do so in the future.
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
23
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 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.
We continue to believe the enhanced efficiency and production capacity resulting from our modernization and
expansion and development projects at Texas and Arkansas, our new kiln project at St. Clair, our acquisitions and the
operational strategies we have implemented have allowed us to increase our efficiency, grow production capacity,
improve product quality, better serve existing customers, attract new customers and control costs. To date, however,
demand and prices for our lime and limestone products have not been sufficient to fully utilize our additional production
capacity. In addition, there can be no assurance that our efficiency and production will not be adversely affected by
weather, maintenance, environmental, accident and other operational and construction issues; that we can successfully
invest in improvements to our existing facilities; that our results will not be adversely affected by increases in fuel,
natural gas, electricity, transportation and freight costs or new environmental, health and safety or other regulatory
requirements; or, that with increasing competition with other lime and limestone producers, our revenues, gross profit,
net income and cash flows can be maintained or improved.
Natural Gas Interests.
In 2004, we entered into the O & G Lease with EOG with respect to oil and gas rights on our Cleburne, Texas
property, located in the Barnett Shale Formation. Pursuant to the O & G Lease, we have royalty interests ranging from
15.4% to 20% in oil and gas produced from any successful wells drilled on the leased property and an option to
participate in any well drilled on the leased property as a 20% non-operating working interest owner. Our overall average
revenue interest is 34.7% in the 33 wells drilled under the O & G Lease that are currently producing.
In November 2006, we also entered into a Drillsite Agreement with XTO that has an oil and gas lease covering
approximately 538 acres of land contiguous to our Johnson County, Texas property. Pursuant to this Agreement, we
have a 3% royalty interest and an optional 12.5% non-operating working interest, resulting in a 12.4% interest in
revenues in the six XTO wells drilled and producing from a padsite located on our property.
No new wells have been completed since 2011, and there are no present plans to drill additional wells on the
O&G Properties. We cannot predict the number of additional wells that ultimately will be drilled on the O & G
Properties, if any, or their results.
The pricing of natural gas sales is primarily determined by supply and demand in the marketplace and can
fluctuate considerably. The prices that the Company receives for its natural gas production is also affected by the amount
of natural gas liquids included in the natural gas, and the prices for those liquids is also subject to supply and demand
factors. Prices of both natural gas and natural gas liquids have declined drastically in recent years, principally due to
increased supply. In addition, if estimates of our proved oil and gas reserves decline due to further declines in prices for
natural gas and natural gas liquids or other reasons, the rate at which we record non-cash depletion expense would
continue to increase.
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 the
United States of America (“US GAAP”). The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of
24
contingent assets and liabilities, at the date of our financial statements. Actual results may differ from these estimates and
judgments under different assumptions or conditions and historical trends.
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 in accordance with the
terms of our purchase orders, contracts or purchase agreements, which are generally upon shipment, and when payment
is considered probable. Revenues include external freight billed to customers with related costs in cost of revenues. Our
returns and allowances are minimal. External freight billed to customers included in revenues was $26.6 million, $23.2
million and $27.1 million for 2016, 2015 and 2014, respectively, which approximates the amount of external freight
billed to customers included in cost of revenues. Sales taxes billed to customers are not included in revenues. For our
Natural Gas Interests, we recognize revenue in the month of production and delivery.
Accounts receivable. We estimate the collectability of our trade receivables. A considerable amount of
judgment is required in assessing the ultimate realization of these receivables and determining our allowance for doubtful
accounts. Uncollected trade receivables are charged-off when identified by management to be unrecoverable. The
majority of our trade receivables are unsecured. Payment terms for our trade receivables are based on underlying
purchase orders, contracts or purchase agreements. Credit losses relating to these receivables have generally been within
management expectations and historical trends.
Successful-efforts method for Natural Gas Interests. We use the successful-efforts method to account for
development expenditures related to our Natural Gas Interests. Under this method, drilling and completion costs of
development wells are capitalized and depleted using the units-of-production method. Costs to drill exploratory wells, if
any, that do not find proved reserves are expensed.
Reserve estimates. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of
geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given
date forward, from known reservoirs, and under existing economic conditions, operating methods, and government
regulations, prior to the time at which contracts providing the right to operate expire, unless evidence indicates that
renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.
The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain it will
commence the project within a reasonable time.
The volumes of our reserves are estimates that, by their nature, are subject to revision. The estimates are made
using geological and reservoir data, as well as production performance data. These estimates will be reviewed annually
and revised, either upward or downward, as warranted by additional performance data. If the estimates of proved
reserves were to decline, the rate at which we record depletion expense would increase.
Environmental costs and liabilities. We record environmental accruals 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.
25
Derivatives. Prior to repurchasing our interest rate hedges, we recorded their fair value on our Consolidated
Balance Sheets and included any changes in fair value in comprehensive income. We determined fair value utilizing the
cash flows valuation technique.
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.
RESULTS OF OPERATIONS.
The following table sets forth certain financial information expressed as a percentage of revenues for the
periods indicated:
Lime and Limestone Operations
Natural Gas Interests
Total 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
Other income (expense), net
Income tax expense
Net income
Year Ended December 31,
2016
98.5 %
1.5
100.0 %
2015
98.1 %
1.9
100.0 %
2014
96.5 %
3.5
100.0 %
(64.8)
(11.4)
23.8
(6.9)
16.9
(66.0)
(12.1)
21.9
(7.4)
14.5
(65.6)
(9.8)
24.6
(6.4)
18.2
(0.2)
0.2
(4.2)
12.7 %
(0.8)
(0.4)
(3.5)
9.8 %
(1.0)
0.1
(4.4)
12.9 %
2016 vs. 2015
Revenues for 2016 increased to $139.3 million from $130.8 million in 2015, an increase of $8.4 million, or
6.5%. Revenues from our Lime and Limestone Operations in 2016 increased $8.8 million, or 6.9%, to $137.2 million
from $128.4 million in 2015. The increase in revenues from our Lime and Limestone Operations was primarily due to
increased sales volumes of our lime and limestone products, principally to our construction, industrial and environmental
customers, partially offset by decreased sales volumes to our oil and gas services customers. In addition, we realized a
slight decrease in prices for our lime and limestone products in 2016, compared to 2015.
Revenues from our Natural Gas Interests for 2016 decreased $0.4 million, or 14.5%, to $2.1 million from
$2.4 million in the prior year. The decrease in revenues from our Natural Gas Interests resulted from the normal declines
in production rates on existing wells and lower prices.
Our gross profit increased to $33.1 million for 2016 from $28.7 million for 2015, an increase of $4.4 million, or
15.2%. Gross profit from our Lime and Limestone Operations for 2016 was $33.0 million, compared to $28.4 million in
2015, an increase of $4.6 million, or 16.3%. The increase in gross profit in 2016 compared to 2015 resulted primarily
from the increased revenues discussed above.
Gross profit for 2016 also included $0.1 million from our Natural Gas Interests, compared to $0.3 million in
2015, a decrease of $0.3 million or 80.9%. Production volumes for 2016 from our Natural Gas Interests totaled 0.6 BCF,
sold at an average price per MCF of $3.35, compared to 2015 when 0.7 BCF was produced and sold at an average price
of $3.41 per MCF.
26
Selling general and administrative expenses (“SG&A”) was $9.6 million in each of 2016 and 2015. As a
percentage of revenues, SG&A decreased to 6.9% in 2016 from 7.4% in 2015 due to the increase in revenues in 2016.
Interest expense in 2016 decreased to $0.2 million from $1.0 million in 2015, a decrease of $0.8 million, or
76.3%. Interest expense in 2015 included $0.2 million paid in quarterly settlement payments pursuant to our interest rate
hedges and $0.5 million payment to repurchase our interest hedges in the second quarter 2015. The decrease in interest
expense in 2016 resulted from the repayment of our debt in the second quarter 2015.
Other (income) expense, net was income of $0.4 million in 2016, compared to an expense of $0.6 million in
2015. The net change of $1.0 million income primarily resulted from the $0.9 million expense in 2015 for the
termination of the Corson Plan discussed above.
Income tax expense increased to $5.9 million in 2016 from $4.6 million in 2015, an increase of $1.3 million, or
27.6%. The increase in income tax expense in 2016 compared to 2015 was primarily due to the increase in our income
before taxes. Our effective income tax rate for 2016 decreased to 24.8% compared to our 2015 rate of 26.2%, primarily
due to an increase in state income taxes, net of federal income tax benefits, in 2015 as a result of the full realization of
the Company’s net operating loss carryforwards in one state.
Net income increased to $17.8 million ($3.19 per share diluted) in 2016, compared to $12.9 million ($2.30 per
share diluted) in 2015, an increase of $4.9 million, or 37.8%.
2015 vs. 2014
Revenues for 2015 decreased to $130.8 million from $149.8 million in 2014, a decrease of $19.0 million, or
12.7%. Revenues from our Lime and Limestone Operations for 2015 decreased $16.2 million, or 11.2%, to
$128.4 million from $144.6 million in 2014. The decrease in revenues from our Lime and Limestone Operations was
primarily due to decreased sales volumes of our lime and limestone products, principally to our oil and gas services, steel
and industrial customers, partially offset by increased sales volumes to our construction customers and a slight increase
in prices realized for our lime and limestone products in 2015, compared to 2014.
Revenues from our Natural Gas Interests for 2015 decreased $2.8 million, or 53.6%, to $2.4 million from
$5.3 million in 2014. The decrease in revenues from our Natural Gas Interests resulted from lower prices and the normal
declines in production rates on existing wells.
Gross profit decreased to $28.7 million for 2015 from $36.8 million for 2014, a decrease of $8.1 million, or
22.0%. Gross profit from our Lime and Limestone Operations for 2015 was $28.4 million, compared to $34.0 million in
2014, a decrease of $5.6 million, or 16.4%. The decrease in gross profit from our Lime and Limestone Operations in
2015 compared to 2014 resulted primarily from the decreased revenues discussed above, partially offset by lower energy
and discretionary outside contractor stripping costs in 2015.
Gross profit for 2015 also included $0.3 million from our Natural Gas Interests, compared to $2.8 million in
2014, a decrease of $2.5 million, or 88.9%. The decrease in gross profit from our Natural Gas Interests resulted primarily
from the decreased revenue discussed above. Production volumes for 2015 from our Natural Gas Interests totaled 0.7
BCF, sold at an average price per MCF of $3.41, compared to 2014 when 0.8 BCF was produced and sold at an average
price of $6.28 per MCF.
SG&A increased to $9.6 million for 2015 from $9.5 million in 2014, an increase of $0.2 million, or 1.7%. The
increase in SG&A was primarily due to an increase of $0.1 million in non-cash stock-based compensation costs, which
was primarily due to increases in the price per share of the Company’s common stock on grant dates in 2014 and the first
half 2015, compared to the prices per share on previous grant dates. As a percentage of revenues, SG&A increased to
7.4% in 2015 from 6.4% in 2014, primarily due to the decrease in revenues for 2015.
Interest expense for 2015 decreased to $1.0 million from $1.5 million in 2014, a decrease of $0.5 million, or
32.2%. Interest expense in 2015 included $0.2 million paid in quarterly settlement payments pursuant to our interest rate
hedges, compared to $0.9 million paid in 2014. Interest expense for 2015 also included $0.5 million payment to
repurchase our interest rate hedges in the second quarter 2015 in conjunction with the repayment of the then-outstanding
balance on our term loans. The decrease in interest expense in 2015 primarily resulted from the repayment of our debt.
27
Other (income) expense, net was an expense of $0.6 million in 2015, compared to income of $0.1 million in
2014. The net change of $0.8 million expense primarily resulted from the $0.9 million expense in 2015 for the
termination of the Corson Plan discussed above, compared to an expense of $0.1 million for the Corson Plan in 2014.
Income tax expense decreased to $4.6 million for 2015 from $6.6 million in 2014, a decrease of $2.0 million, or
29.9%. The decrease in income tax expense in 2015 compared to 2014 was primarily due to the decrease in our income
before taxes. Our effective income tax rate for 2015 increased to 26.2%, compared to our 2014 rate of 25.3%, primarily
due to an increase in state income taxes, net of federal income tax benefits, in 2015 as a result of the full realization of
the Company’s net operating loss carryforwards in one state.
Net income decreased by $6.5 million, or 33.5%, to $12.9 million ($2.30 per share diluted), compared to net
income of $19.4 million ($3.47 per share diluted) in 2014.
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 $75 million revolving credit facility.
We expect to spend approximately $12.0 million per year over the next several years in our Lime and
Limestone Operations for normal recurring capital and re-equipping projects at our plants and facilities to maintain or
improve efficiency, ensure compliance with Environmental Laws, meet customer needs and reduce costs. As of
December 31, 2016, we had approximately $10.5 million, including approximately $8.6 million for the St. Clair kiln
project, in open orders or contractual commitments for our Lime and Limestone Operations and none for our Natural Gas
Interests.
Liquidity and Capital Resources. Net cash provided by operations was $37.8 million in 2016, compared to
$32.5 million in 2015, an increase of $5.4 million, or 16.5%. Our net cash provided by operating activities is composed
of net income, depreciation, depletion and amortization (“DD&A”), other non-cash items included in net income and
changes in working capital. In 2016, net cash provided by operating activities was principally composed of $17.8 million
net income, $16.1 million DD&A, $1.0 million stock-based compensation and $1.6 million increase from changes in
operating assets and liabilities. The increase in net cash provided by operations in 2016 compared to 2015 was primarily
due to the $4.9 million increase in net income in 2016, compared to 2015, and a $2.3 million decrease in inventories
compared to a $1.3 million increase in 2015. These changes were partially offset by a $0.9 million increase in trade
receivables in 2016, compared to a $1.6 million decrease in 2015. The increase in trade receivables, net in 2016 resulted
from the $2.9 million increase in revenues in the fourth quarter 2016 compared to the fourth quarter 2015, while the
decrease in trade receivables, net in 2015 resulted from the $4.1 million decrease in revenues in the fourth quarter 2015
compared to the fourth quarter 2014.
Net cash used in investing activities was $17.5 million for 2016 compared to $11.1 million in 2015, primarily
for normal recurring capital and re-equipping projects at our plants and facilities, other than approximately $2.8 million
paid in 2016 on the St. Clair kiln project, approximately $2.7 million for two significant projects at our Texas facility to
overhaul the primary crushing system and upgrade the burner management system on one of our kilns, and
approximately $1.0 million to take advantage of cost-effective opportunities to replace certain mobile equipment at our
Arkansas facility. Net cash used in financing activities primarily consisted of $16.7 million to repay term loans in 2015,
$2.8 million for dividend payments in each of 2016 and 2015 and $2.9 and $0.4 million to repurchase shares of our
common stock in 2016 and 2015, respectively. Such share repurchases included $2.7 and $0.2 million in 2016 and 2015,
respectively, for repurchases pursuant to the Company’s December 2015 publicly announced $10 million share
repurchase program, which was extended for 12 months in November 2016, leaving up to approximately $7.2 million for
such repurchases in 2017.
Our cash and cash equivalents at December 31, 2016 increased to $74.7 million from $59.9 million at
December 31, 2015.
Banking Facilities and Other Debt. On May 7, 2015, we amended our credit agreement with Wells Fargo
Bank, N.A. (the “Lender”) to, among other things, provide for a $75 million revolving credit facility (the “New
28
Revolving Facility”) and reduced interest rate margins and commitment fees (the “Amendment”). The Amendment also
provides for 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 terms of the Amendment provide for a final
maturity of the New Revolving Facility and any incremental loan on May 7, 2020; interest rates, at our option, of LIBOR
plus a margin of 1.000% (previously 1.750%) to 2.000% (previously 2.750%), or the Lender’s Prime Rate plus a margin
of 0.000% to plus 1.000%; and a commitment fee range of 0.200% (previously 0.250%) to 0.350% (previously 0.400%)
on the undrawn portion of the New Revolving Facility. The New Revolving Facility interest rate margins and
commitment fee are determined quarterly in accordance with a pricing grid based upon the Company’s Cash Flow
Leverage Ratio, defined as the ratio of 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 August 25, 2004, the New Revolving Facility is secured by the Company’s
existing and hereafter acquired tangible assets, intangible assets and real property. The maturity of the New 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 (previously 3.25 to 1). As of October 27, 2016, we
amended our credit agreement to increase the letter of credit sublimit under the New Revolving Facility from $5 million
to $10 million.
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.
Prior to the Amendment, our credit agreement included 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”). The Term Loan required quarterly principal payments of
$0.8 million, with a final principal payment of $7.5 million due on December 31, 2015. The Draw Term Loan required
quarterly principal payments of $0.4 million, with a final principal payment of $5.4 million due on December 31, 2015.
The Revolving Facility was scheduled to mature on June 1, 2015. The maturity of the Term Loan, the Draw Term Loan
and the Revolving Facility could have been accelerated if any event of default, as defined under the Credit Facilities,
occurs.
We had interest rate hedges, with the Lender as the counterparty to the hedges that fixed LIBOR through
maturity at 4.695%, 4.875% and 5.500% on the outstanding balance of the Term Loan, 75% of the outstanding balance
of the Draw Term Loan and 25% of the outstanding balance of the Draw Term Loan, respectively. Based on our LIBOR
margin of 1.750% prior to the Amendment, our interest rates had been: 6.445% on the outstanding balance of the Term
Loan; 6.625% on 75% of the outstanding balance of the Draw Term Loan; and 7.250% on 25% of the outstanding
balance of the Draw Term Loan.
The hedges had been effective as defined under applicable accounting rules. Therefore, changes in fair value of
the interest rate hedges were reflected in comprehensive income. We would have been exposed to credit losses in the
event of non-performance by the counterparty to the hedges. We paid $0.2 and $0.9 million in aggregate quarterly
settlement payments pursuant to the hedges in 2015 and 2014, respectively. These payments were included in interest
expense in our Consolidated Statements of Income.
On May 7, 2015, we paid off the $15.4 million balance then outstanding on the Term Loan and Draw Term
Loan, as well as paid $0.5 million to repurchase the related hedges, from cash on hand. The cost to repurchase the
hedges was included in interest expense.
We had $6.4 million of letters of credit issued under the New Revolving Facility as of December 31, 2016,
including approximately $5.8 million related to the St. Clair kiln project, but no cash draws. Our letters of credit count as
draws against the available commitment under the New Revolving Facility.
Capital Expenditures. We have made a substantial amount of capital investments over the past several years
to modernize our plants and facilities and expand our lime and limestone operations, and to fund the drilling and
completion of 40 natural gas wells.
29
Capital expenditure activities totaled $17.7 and $11.5 million, in 2016 and 2015, respectively. Capital
expenditures in 2016 included approximately $2.8 million for the St. Clair kiln project, approximately $2.7 million for
two significant projects at our Texas facility and approximately $1.0 million to take advantage of cost-effective
opportunities to replace certain mobile equipment at our Arkansas facility.
Common Stock Buybacks. We spent $2.9, $0.4 and $0.3 million in 2016, 2015 and 2014, respectively, to
repurchase treasury shares. Included in the 2016 and 2015 expenditures are $2.7 and $0.2 million, respectively, spent as
part of our publicly announced share repurchase program commenced in December 2015 to repurchase up to $10 million
of our common stock, which has been extended for an additional 12 months.
Contractual Obligations. The following table sets forth our contractual obligations as of December 31, 2016
(in thousands):
Payments Due by Period
Contractual Obligations
Debt
Operating leases(1)
Limestone mineral leases
Purchase obligations(2)
Other liabilities
Total
More Than
5 Years
Total
1 Year
—
$
—
1,659
$ 5,008
82
$ 1,770
9,096
$ 9,960
$ 1,838
324
$ 18,576 11,161
2 - 3 Years 4 - 5 Years
—
1,202
165
—
245
1,612
—
2,147
165
864
268
3,444
—
—
1,358
—
1,001
2,359
(1) Represents operating leases for railcars, corporate office space and some equipment that are either non-cancelable or
subject to significant penalty upon cancellation.
(2) Of these obligations, $1,093 were recorded on the Consolidated Balance Sheet at December 31, 2016.
As of December 31, 2016, we had $6.4 million of letters of credit outstanding, including approximately $5.8
million related to the St. Clair kiln project, and no other draws on our New Revolving Facility. 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 modernization and expansion and development projects, and liquidity needs and allow us to
continue to repurchase up to approximately $7.2 million of our common stock under our recently extended share
repurchase program as well as pay our increased 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 December 31, 2016, the total future lease payments under our various operating and mineral leases totaled
$5.0 million and $1.8 million, respectively, and are due in payments as summarized in the table above.
ITEM 7A. 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 New
Revolving Facility. There was no outstanding balance on the New Revolving Facility subject to interest rate risk at
December 31, 2016. Any future borrowings under the New Revolving Facility would be subject to interest rate risk. See
Note 3 of Notes to Consolidated Financial Statements.
FOREIGN EXCHANGE RISK.
We could be exposed to changes in the Euro to U.S. Dollar exchange rate for our approximately 5.5 million
Euros obligation related to a contract for the St. Clair kiln project. We entered into foreign exchange hedges to fix our
U.S. Dollar liability at approximately $6.3 million. See Note 9 of Notes to Consolidated Financial Statements.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements.
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
32
34
35
36
37
38
39
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
United States Lime & Minerals, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of United States Lime & Minerals, Inc. and
Subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of United States Lime & Minerals, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated March 3, 2017 expressed an unqualified opinion thereon.
/s/ GRANT THORNTON LLP
Dallas, Texas
March 3, 2017
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
United States Lime & Minerals, Inc. and Subsidiaries
We have audited the internal control over financial reporting of United States Lime & Minerals, Inc. and
Subsidiaries (the “Company”) as of December 31, 2016, based on criteria established in the 2013 Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on criteria established in the 2013 Internal Control—Integrated Framework
issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2016,
and our report dated March 3, 2017 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Dallas, Texas
March 3, 2017
33
United States Lime & Minerals, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
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
Mineral reserves and land
Proved natural gas properties, successful-efforts method
Buildings and building and leasehold improvements
Machinery and equipment
Furniture and fixtures
Automotive equipment
Property, plant and equipment
Less accumulated depreciation and depletion
Property, plant and equipment, net
Other assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued expenses
Total current liabilities
Debt
Deferred tax liabilities, net
Other liabilities
Total liabilities
Stockholders’ equity
Preferred stock, $5.00 par value; authorized 500,000 shares; none issued or
outstanding
Common stock, $0.10 par value; authorized 15,000,000 shares; 6,563,440 and
6,541,049 shares issued at December 31, 2016 and 2015, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury stock, at cost 989,300 and 935,368 shares at December 31, 2016 and
2015, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2016
December 31,
2015
$
74,712 $
16,781
12,433
1,110
105,036
59,926
15,889
14,728
1,418
91,961
$
$
23,687
18,412
5,611
232,912
961
4,011
285,594
(180,613)
104,981
142
210,159 $
20,196
18,398
5,523
222,812
961
3,796
271,686
(167,308)
104,378
160
196,499
5,587 $
3,521
9,108
—
19,832
1,580
30,520
6,022
2,720
8,742
—
19,184
1,946
29,872
—
—
657
22,831
(223)
209,770
655
21,642
—
194,798
(53,396)
179,639
210,159 $
(50,468)
166,627
196,499
$
The accompanying notes are an integral part of these consolidated financial statements.
34
United States Lime & Minerals, Inc.
Consolidated Statements of Income
(dollars in thousands, except per share amounts)
Revenues
Lime and limestone operations
Natural gas interests
Cost of revenues
Labor and other operating expenses
Lime and limestone operations
Natural gas interests
Depreciation, depletion and amortization
Gross profit
Selling, general and administrative expenses, including depreciation and
amortization expense of $210, $249 and $197 in 2016, 2015 and 2014,
respectively
Operating profit
Other expense (income)
Interest expense
Other (income) expense, net
Income before income taxes
Income tax expense
Net income
Net income per share of common stock
Basic
Diluted
Cash dividends per share of common stock
Years Ended December 31,
2015
2014
2016
$
137,190 $
2,092
139,282
128,390 $
2,447
130,837
144,567
5,274
149,841
89,095
1,164
15,931
106,190
33,092
85,080
1,259
15,784
102,123
28,714
96,798
1,546
14,706
113,050
36,791
9,612
23,480
9,628
19,086
246
(384)
(138)
23,618
5,864
17,754 $
1,036
569
1,605
17,481
4,595
12,886 $
9,469
27,322
1,529
(129)
1,400
25,922
6,555
19,367
3.19 $
3.19 $
0.50 $
2.30 $
2.30 $
0.50 $
3.47
3.47
0.50
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
35
United States Lime & Minerals, Inc.
Consolidated Statements of Comprehensive Income
(dollars in thousands)
Net income
Other comprehensive (loss) income
Years Ended December 31,
2015
12,886 $
2016
17,754 $
2014
19,367
$
Mark to market on foreign exchange hedges, net of tax benefit of $129
for 2016
Mark to market of interest rate hedges, net of tax expense of $241 and
$317 for 2015 and 2014, respectively
Minimum pension liability adjustments, net of tax expense (benefit) of
$344 and $(46) for 2015 and 2014, respectively
Total other comprehensive (loss) income
Comprehensive income
(223)
—
—
422
—
555
—
(223)
17,531 $
602
1,024
13,910 $
(81)
474
19,841
$
The accompanying notes are an integral part of these consolidated financial statements.
36
United States Lime & Minerals, Inc.
Consolidated Statements of Stockholders’ Equity
(dollars in thousands)
Balances at December 31, 2013
Stock options exercised
Stock-based compensation
Treasury shares purchased
Cash dividends paid
Net income
Minimum pension liability adjustment, net of $46
tax benefit
Mark to market of interest rate hedges, net of
$317 tax expense
Comprehensive income
Balances at December 31, 2014
Stock options exercised
Stock-based compensation
Treasury shares purchased
Cash dividends paid
Net income
Minimum pension liability adjustment, net of
$344 tax expense
Mark to market of interest rate hedges, net of
$241 tax expense
Comprehensive income
Balances at December 31, 2015
Stock options exercised
Stock-based compensation
Treasury shares purchased
Cash dividends paid
Net income
Mark to market of foreign exchange hedges, net
of $129 tax benefit
Comprehensive (loss) income
Balances at December 31, 2016
Common Stock
Shares
Accumulated
Additional
Other
Paid-In Comprehensive Retained Treasury
Outstanding Amount Capital
5,575,132
9,117
15,268
(4,198)
—
—
650
—
2
—
—
—
19,319
(1)
1,100
—
—
—
(Loss) Income
(1,498)
—
—
—
—
—
Earnings
168,133
—
—
—
(2,790)
19,367
Stock
(49,799)
—
—
(266)
—
—
Total
136,805
(1)
1,102
(266)
(2,790)
19,367
—
—
—
(81)
—
—
(81)
—
—
5,595,319
1,000
16,261
(6,899)
—
—
—
—
652
—
3
—
—
—
—
—
20,418
28
1,196
—
—
—
555
474
(1,024)
—
—
—
—
—
—
19,367
184,710
—
—
—
(2,798)
12,886
—
—
(50,065)
—
—
(403)
—
—
555
19,841
154,691
28
1,199
(403)
(2,798)
12,886
—
—
—
602
—
—
602
—
—
5,605,681
5,683
16,708
(53,932)
—
—
—
—
655
1
1
—
—
—
—
—
21,642
154
1,035
—
—
—
—
—
5,574,140 $
—
—
657 $
—
—
22,831 $
422
1,024
—
—
—
—
—
—
—
12,886
194,798
—
—
—
(2,782)
17,754
—
—
(50,468)
—
—
(2,928)
—
—
422
13,910
166,627
155
1,036
(2,928)
(2,782)
17,754
(223)
(223)
(223)
17,531
(223) $ 209,770 $ (53,396) $ 179,639
—
17,754
—
—
The accompanying notes are an integral part of these consolidated financial statements.
37
United States Lime & Minerals, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
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
Loss 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 assets of a business
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
FINANCING ACTIVITIES:
Repayments of term loans
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
Years Ended December 31,
2015
2014
2016
$
17,754 $
12,886 $
19,367
16,141
14
648
622
1,036
(892)
2,295
308
4
532
(615)
37,847
16,033
29
(227)
39
1,199
0
1,555
(1,292)
698
(47)
198
1,423
32,494
(17,664)
(50)
208
(17,506)
(11,459)
(50)
449
(11,060)
—
(2,782)
155
(2,928)
(5,555)
14,786
59,926
74,712 $
(16,667)
(2,798)
28
(403)
(19,840)
1,594
58,332
59,926 $
$
14,903
34
1,059
78
1,102
(3,347)
252
(882)
16
(952)
344
31,974
(11,672)
(3,705)
316
(15,061)
(5,000)
(2,790)
—
(266)
(8,056)
8,857
49,475
58,332
The accompanying notes are an integral part of these consolidated financial statements.
38
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
(1) Summary of Significant Accounting Policies
(a) Organization
United States Lime & Minerals, Inc. (the “Company”) is a manufacturer of lime and limestone products,
supplying primarily the construction (including highway, road and building contractors), environmental
(including municipal sanitation and water treatment facilities and flue gas treatment processes), industrial
(including paper and glass manufacturers), metals (including steel producers), roof shingle, oil and gas services
and agriculture (including poultry and cattle feed producers) industries. The Company is headquartered in
Dallas, Texas and 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. In addition, the Company, through its wholly
owned subsidiary, U.S. Lime Company – O & G, LLC, has royalty and non-operating working interests in
natural gas wells located in Johnson County, Texas, in the Barnett Shale Formation.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All
intercompany balances and transactions have been eliminated.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America (“US GAAP”) requires management to make estimates and judgments that affect the
amounts reported in the financial statements and accompanying notes. Actual results could differ from those
estimates and judgments.
(d) Statements of Cash Flows
For purposes of reporting cash flows, the Company considers all certificates of deposit and highly-liquid debt
instruments, such as U.S. Treasury bills and notes, with maturities, at the time of purchase, of three months or
less to be cash equivalents. Cash equivalents are carried at cost plus accrued interest, which approximates fair
market value. Supplemental cash flow information is presented below:
Years Ended December 31,
2015
2014
2016
Cash paid during the year for:
Interest
Income taxes
(e) Revenue Recognition
113 $
948 $ 1,495
$
$ 4,908 $ 4,152 $ 5,870
The Company recognizes revenue for its lime and limestone operations in accordance with the terms of its
purchase orders, contracts or purchase agreements, which are generally upon shipment, and when payment is
considered probable. Revenues include external freight billed to customers with related costs in cost of
revenues. The Company’s returns and allowances are minimal. External freight billed to customers included in
revenues was $26,568, $23,219 and $27,055 for 2016, 2015 and 2014, respectively, which approximates the
amount of external freight billed to customers included in cost of revenues. Sales taxes billed to customers are
39
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
not included in revenues. For its natural gas interests, the Company recognizes revenue in the month of
production and delivery.
(f) Fair Values of Financial Instruments
Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.” The Company uses a three-tier fair
value hierarchy, which classifies the inputs used in measuring fair values, in determining the fair value of its
financial assets and liabilities. These tiers include: Level 1, defined as observable inputs such as quoted prices
for identical instruments in active markets; Level 2, defined as observable inputs other than Level 1 prices such
as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions. Specific inputs that had been used to value the Company’s
interest rate swap liabilities included quoted three-month LIBOR rates for the remaining life of the interest rate
swaps. Specific inputs used to value the Company’s foreign exchange hedges were Euro to U.S. Dollar
exchange rates for the expected future payment dates for the Company’s commitments denominated in Euros.
There were no changes in the methods and assumptions used in measuring fair value during the period.
The carrying values of cash and cash equivalents, trade receivables, other current assets, accounts payable and
accrued expenses approximate fair value due to the short maturity of these instruments. The Company’s foreign
exchange hedges are carried at fair value at December 31, 2016. See Notes 1(p), 3, 4 and 9. Financial liabilities
measured at fair value on a recurring basis are summarized below:
Fair Value Measurements as of December 31,
Significant Other
Observable Inputs
(Level 2)
December 31, December 31, December 31, December 31,
2016
2015
2016
2015
Valuation Technique
Foreign
exchange
hedges
$
(352) $
— $
(352) $
— Cash flows approach
(g) Concentration of Credit Risk and Trade Receivables
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally
of cash and cash equivalents, trade receivables and derivative financial instruments. The Company places its
cash and cash equivalents with high credit quality financial institutions and its derivative financial instruments
with financial institutions and other firms that management believes have high credit ratings. The Company’s
cash and cash equivalents at commercial banking institutions normally exceed federally insured limits. For a
discussion of the credit risks associated with the Company’s derivative financial instruments, see Notes 3 and 9.
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. 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. Trade receivables are
presented net of the related allowance for doubtful accounts, which totaled $334 and $400 at December 31,
40
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
2016 and 2015, respectively. Additions and write-offs to the Company’s allowance for doubtful accounts during
the years ended December 31 are as follows:
Beginning balance
Additions
Write-offs
Ending balance
(h) Inventories, Net
2016
2015
$
$
400 $
293
(359)
334 $
350
63
(13)
400
Inventories are valued principally at the lower of cost, determined using the average cost method, or market.
Costs for raw materials and finished goods include materials, labor and production overhead. A summary of
inventories is as follows:
Lime and limestone inventories:
Raw materials
Finished goods
Service parts inventories
(i) Property, Plant and Equipment
December 31, December 31,
2016
2015
$
$
$
4,811 $
2,070
6,881 $
5,552
12,433 $
6,627
2,049
8,676
6,052
14,728
For major constructed assets, the capitalized cost includes the price paid by the Company for labor and
materials plus interest and internal and external project management costs that are directly related to the
constructed assets. Machinery and equipment at December 31, 2016 and 2015 included $4,284 and $4,113,
respectively, of construction in progress for various capital projects. No interest costs were capitalized for the
years ended December 31, 2016 and 2015. Depreciation of property, plant and equipment is being provided for
by the straight-line method over estimated useful lives as follows:
Buildings and building and leasehold improvements
Machinery and equipment
Furniture and fixtures
Automotive equipment
3 - 20 years
2 - 20 years
3 - 10 years
3 - 10 years
Maintenance and repairs are charged to expense as incurred; renewals and betterments are capitalized. When
units of property are retired or otherwise disposed of, their cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is credited or charged to income.
The Company expenses 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.
41
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
The Company reviews its long-lived assets for impairment and, when events or circumstances indicate the
carrying amount of an asset may not be recoverable, the Company determines 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. Through December 31, 2016, no
events or circumstances arose that would require the Company to record a provision for impairment of its
long-lived assets.
(j) Successful-Efforts Method Used for Natural Gas Interests
The Company uses the successful-efforts method to account for oil and gas exploration and development
expenditures. Under this method, drilling, completion and workover costs for successful exploratory wells and
all development well costs are capitalized and depleted using the units-of-production method. Costs to drill
exploratory wells that do not find proved reserves are expensed.
(k) Asset Retirement Obligations
The Company recognizes legal obligations for reclamation and remediation associated with the retirement of
long-lived assets at their fair value at the time the obligations are incurred (“AROs”). Over time, the liability for
AROs is recorded at its present value each period through accretion expense, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the liability, the Company either settles
the AROs for the recorded amount or recognizes a gain or loss. As of December 31, 2016 and 2015, the
Company’s AROs included in other liabilities and accrued expenses were $1,838 and $2,058, respectively. As
of December 31, 2016, $968 of assets associated with the Company’s AROs were not fully depreciated. During
2016 and 2015, the Company spent $311 and $140, respectively, on its AROs, and recognized accretion
expense of $70, $60 and $57 in 2016, 2015 and 2014, respectively, on its AROs.
The AROs were estimated based on studies and the Company’s process knowledge and estimates, and are
discounted using a credit adjusted risk-free interest rate. The AROs are adjusted when further information
warrants an adjustment. The Company estimates annual expenditures of approximately $100 to $200 each in
years 2017 through 2021 relating to its AROs.
(l) Other Assets
Other assets consist of the following:
Deferred financing costs
Other
(m) Environmental Expenditures
December 31,
2016
2015
$
$
49 $
93
142 $
63
97
160
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities are recorded at their present value when
environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated.
42
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
Generally, the timing of these accruals will coincide with completion of a feasibility study or the Company’s
commitment to a formal plan of action.
The Company incurred capital expenditures related to environmental matters of approximately $477 in 2016,
$455 in 2015 and $1,038 in 2014.
(n) Income Per Share of Common Stock
The following table sets forth the computation of basic and diluted income per common share:
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
Years Ended December 31,
2015
2014
2016
$
17,754 $
12,886 $
19,367
5,567,902
5,598,805
5,578,784
4,071
5,423
10,459
5,571,973
5,604,228
$
$
3.19 $
3.19 $
5,589,243
3.47
3.47
2.30 $
2.30 $
(1) Excludes 22,425, 24,225 and 7,500 stock options in 2016, 2015 and 2014, respectively, as antidilutive
because the exercise price exceeded the average per share market price for the periods presented.
(o) Stock-Based Compensation
The Company expenses all stock-based payments to employees and directors, including grants of stock options
and restricted stock, in the Company’s Consolidated Statements of Income based on their fair values.
Compensation cost is recognized on a straight-line basis over the vesting period.
(p) Derivative Instruments and Hedging Activities
Every derivative instrument (including certain derivative instruments embedded in other contracts) is recorded
on the Company’s Consolidated Balance Sheets as either an asset or liability measured at its fair value. Changes
in the derivative’s fair value are recognized currently in earnings unless specific hedge accounting criteria are
met. If the derivative is designated as a cash flow hedge, changes in fair value are recognized in comprehensive
income or loss until the hedged item is recognized in earnings. The Company estimated fair value utilizing the
cash flows valuation technique. The fair values of derivative contracts that expire in less than one year are
recognized as current assets or liabilities. Those that expire in more than one year are recognized as long-term
assets or liabilities. See Notes 1(f), 3, 4 and 9.
(q) Income Taxes
The Company utilizes the asset and liability approach in its reporting for 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. Valuation allowances
43
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
are established 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.
The Company also assesses individual tax positions to determine if they meet the criteria for some or all of the
benefits of that position to be recognized in the Company’s financial statements. The Company only recognizes
tax positions that meet the more-likely-than-not recognition threshold.
(r) Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net
income. Certain changes in assets and liabilities, such as mark-to-market gains or losses of interest rate and
foreign exchange hedges and minimum pension liability adjustments, are reported as a separate component of
the stockholders’ equity section of the balance sheet. Such items, along with net income, are components of
comprehensive income. See Notes 1(p), 3, 4 and 6.
(2) New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update
No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” which stipulates that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core
principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the
performance obligations in the contract(s); (3) determine the transaction price; (4) allocate the transaction price to the
performance obligations in the contract(s); and (5) recognize revenue when (or as) the entity satisfies a performance
obligation. The new guidance will be effective for the Company beginning January 1, 2018, with early adoption
permitted for annual periods beginning after December 15, 2016. Almost all of the Company’s purchase orders,
contracts or purchase agreements do not contain performance obligations other than delivery of the agreed upon product,
which is primarily FOB shipping point. Thus, the Company generally recognizes revenue upon shipment of the product.
While the Company is still in the process of completing an analysis of all of its revenue generating activities and the
contracts which might impact its revenue generating activities in light of the new standard, the Company does not
believe that any of its revenue streams will be materially affected by the adoption of ASU 2014-09, and therefore it does
not expect its Consolidated Statements of Operations will be materially affected. The Company plans to adopt ASU
2014-09 using the modified retrospective approach and recognize a cumulative effect of the change, if any, to opening
retained earnings in the year of adoption.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), “Disclosure of
Uncertainties About an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to
perform interim and annual assessments of an entity’s ability to continue as a going concern for a period of one year after
the date the financial statements are issued and provides guidance on determining when and how to disclose going
concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial
doubt about an entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for the
Company beginning January 1, 2017, with early adoption permitted. The Company applied this guidance in 2016 and the
effect of adopting this standard was not significant to the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), “Leases,”
which requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in
duration and classified as operating leases under previous guidance. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018 and interim periods within those periods, with early adoption permitted. ASU 2016-02 must be
adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the
44
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
earliest comparative period presented. As of December 31, 2016 and 2015, the Company’s undiscounted minimum
contractual commitments under long-term leases, which were not recorded on the Company’s Consolidated Balance
Sheets, were $6,778 and $6,771, respectively, which is an estimate of the effect on total assets and total liabilities that the
new accounting standard would have on those dates. The Company is currently evaluating the effect that this standard
will have on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (“ASU 2016-09”),
“Compensation–Stock Compensation,” which requires that excess tax benefits (which represent the excess of actual tax
benefits received at the date of vesting or settlement over the vesting period or upon issuance of share-based payments)
and tax deficiencies (which represents the amount by which actual tax benefits received at the date of vesting or
settlement is lower than the benefits recognized over the vesting period or upon issuance of share-based payments) be
recorded in the income statement as a reduction or increase of income taxes when an award vests. It also requires excess
tax benefits to be classified as an operating activity in the statement of cash flows rather than a financing activity. In
addition, it simplifies other aspects of share-based payment transactions, including classification of awards that permit
repurchase to satisfy statutory tax withholding requirements and classification of tax payments on behalf of employees
on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim
periods within those periods, with early adoption permitted. The Company will adopt this guidance in the first quarter
2017. Application of ASU 2016-09 may create volatility in the Company’s effective tax rate and diluted earnings per
share due to the tax effects being recorded to the Company’s Consolidated Statements of Income. The volatility in future
periods will depend primarily on the Company’s stock price at the vesting dates and the number of awards that vest each
period. As permitted by the guidance, the Company will elect to recognize forfeitures as they occur, rather than
estimating forfeitures as previously required. The Company does not believe that adoption of ASU 2016-09 will have a
material effect on the Company’s Consolidated Financial Statements.
(3) Banking Facilities and Debt
On May 7, 2015, the Company amended its credit agreement with Wells Fargo Bank, N.A. (the “Lender”) to,
among other things, provide for a $75,000 revolving credit facility (the “New Revolving Facility”) and reduced interest
rate margins and commitment fees (the “Amendment”). The Amendment also provides for an incremental four-year
accordion feature to borrow up to an additional $50,000 on the same terms, subject to approval by the Lender or another
lender selected by the Company. The terms of the Amendment provide for a final maturity of the New Revolving
Facility and any incremental loan on May 7, 2020; interest rates, at the Company’s option, of LIBOR plus a margin of
1.000% (previously 1.750%) to 2.000% (previously 2.750%), or the Lender’s Prime Rate plus a margin of 0.000% to
plus 1.000%; and a commitment fee range of 0.200% (previously 0.250%) to 0.350% (previously 0.400%) on the
undrawn portion of the New Revolving Facility. The New Revolving Facility interest rate margins and commitment fee
are determined quarterly in accordance with a pricing grid based upon the Company’s Cash Flow Leverage Ratio,
defined as the ratio of 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 August 25, 2004, the New Revolving Facility is secured by the Company’s existing and
hereafter acquired tangible assets, intangible assets and real property. The maturity of the New Revolving Facility and
any incremental loans can be accelerated if any event of default, as defined under the credit agreement, occurs. The
Company’s maximum Cash Flow Leverage Ratio is 3.50 to 1 (previously 3.25 to 1). As of October 27, 2016, the
Company amended its credit agreement to increase the letter of credit sublimit under the New Revolving Facility from
$5,000 to $10,000.
The Company may pay dividends so long as it remains in compliance with the provisions of the Company’s
credit agreement, and may purchase, redeem or otherwise acquire shares of its common stock so long as its pro forma
45
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
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.
Prior to the Amendment, the Company’s credit agreement included a ten-year $40,000 term loan (the “Term
Loan”), a ten-year $20,000 multiple draw term loan (the “Draw Term Loan”) and a $30,000 revolving credit facility (the
“Revolving Facility”) (collectively, the “Credit Facilities”). The Term Loan required quarterly principal payments of
$833, with a final principal payment of $7,500 due on December 31, 2015. The Draw Term Loan required quarterly
principal payments of $417, with a final principal payment of $5,400 due on December 31, 2015. The Revolving Facility
was scheduled to mature on June 1, 2015. The maturity of the Term Loan, the Draw Term Loan and the Revolving
Facility could have been accelerated if any event of default, as defined under the Credit Facilities, occurs.
The Company had interest rate hedges, with the Lender as the counterparty to the hedges that fixed LIBOR
through maturity at 4.695%, 4.875% and 5.500% on the outstanding balance of the Term Loan, 75% of the outstanding
balance of the Draw Term Loan and 25% of the outstanding balance of the Draw Term Loan, respectively. Based on the
current LIBOR margin of 1.750% prior to the Amendment, the Company’s interest rates had been: 6.445% on the
outstanding balance of the Term Loan; 6.625% on 75% of the outstanding balance of the Draw Term Loan; and 7.250%
on 25% of the outstanding balance of the Draw Term Loan.
The hedges had been effective as defined under applicable accounting rules. Therefore, changes in fair value of
the interest rate hedges were reflected in comprehensive income. The Company would have been exposed to credit losses
in the event of non-performance by the counterparty to the hedges. The Company paid $191 and $920 in aggregate
quarterly settlement payments pursuant to the hedges in 2015 and 2014, respectively. These payments were included in
interest expense in the Company’s Consolidated Statements of Income.
On May 7, 2015, the Company paid off the $15,400 balance then outstanding on the Term Loan and Draw Term
Loan, as well as paid $500 to repurchase the related hedges, from cash on hand. The cost to repurchase the hedges was
included in interest expense. The Company had no debt outstanding at December 31, 2016 or 2015. The Company had
$6,381 of letters of credit issued at December 31, 2016, which count as draws against the available commitment under
the New Revolving Facility.
(4) Comprehensive Income
The components of comprehensive income for the years ended December 31 are as follows:
2016
2015
2014
Net income
Minimum pension liability adjustments
Mark to market of foreign exchange hedges
Reclassification to interest expense
Mark to market of interest rate hedges
Deferred income tax benefit (expense)
Comprehensive income
$ 17,754 $ 12,886 $ 19,367
(127)
946
—
(352)
—
—
129
921
(49)
(271)
$ 17,531 $ 13,910 $ 19,841
678
(15)
(585)
Amounts reclassified to interest expense were for payments made by the Company pursuant to the Company’s
interest rate hedges.
46
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
(5) Income Taxes
Income tax expense for the years ended December 31 is as follows:
Current income tax expense
Deferred income tax expense (benefit)
Income tax expense
2016
2015
2014
$ 5,087 $ 4,822 $ 5,282
777
(227)
1,273
$ 5,864 $ 4,595 $ 6,555
A reconciliation of income taxes computed at the federal statutory rate to income tax expense for the years
ended December 31 is as follows:
Income taxes computed at the federal
statutory rate
(Reduction) increase in taxes resulting from:
Statutory depletion in excess of cost
depletion
Manufacturing deduction
State income taxes, net of federal income
tax benefit
Other
Income tax expense
2016
Percent of
Pretax
2015
Percent of
Pretax
2014
Percent of
Pretax
Amount Income Amount Income Amount Income
$ 8,266
35.0 % $ 6,118
35.0 % $ 9,073
35.0 %
(1,854)
(666)
(7.9)
(2.8)
(1,708)
(548)
(9.8)
(3.1)
(2,139)
(574)
(8.2)
(2.2)
202
(84)
$ 5,864
309
0.9
424
(0.4)
24.8 % $ 4,595
104
1.8
91
2.4
26.3 % $ 6,555
0.4
0.3
25.3 %
Generally, US GAAP requires deferred tax assets to be reduced by a valuation allowance if, based on the weight
of available evidence, it is “more likely than not” that some portion or all of the deferred tax assets will not be realized.
US GAAP requires an assessment of all available evidence, both positive and negative, to determine the amount of any
required valuation allowance.
47
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
Components of the Company’s deferred tax liabilities and assets are as follows:
Deferred tax liabilities
Lime and limestone property, plant and equipment
Natural gas interests drilling costs and equipment
Deferred tax assets
Alternative minimum tax credit carry forwards
Fair value liability of foreign exchange hedges
Other
Deferred tax liabilities, net
December 31, December 31,
2016
2015
$
17,907 $
2,811
20,718
18,833
3,101
21,934
296
129
461
886
19,832 $
2,259
—
491
2,750
19,184
$
Current income taxes are classified on the Company’s Consolidated Balance Sheets as follows:
Prepaid expenses and other current assets
$
75 $
286
The Company had no federal net operating loss carry forwards at December 31, 2016. Deferred tax assets are
considered fully recognizable because of the Company’s recent income history and expectations of income in the future.
The Company’s federal income tax returns for the year ended December 31, 2013 and subsequent years remain subject
to examination. The Company’s income tax returns in certain state income tax jurisdictions remain subject to
examination for various periods for the year ended December 31, 2013 and subsequent years. The Company treats
interest and penalties on income tax liabilities as income tax expense.
(6) Employee Retirement Plans
During the second quarter 2015, after receipt of a favorable determination letter from the Internal Revenue
Service, the Company terminated a noncontributory defined benefit plan that, prior to the termination, covered
substantially all of the union employees previously employed by its wholly owned subsidiary, Corson Lime Company
(the “Plan”). In 1997, the Company sold substantially all of the assets of Corson Lime Company, and all benefits for
participants in the Plan were frozen. During 1997 and 1998, the Company made contributions to the Plan that were
intended to fully fund the benefits earned by the participants. The Company recorded comprehensive income of $602,
net of $344 tax expense, and comprehensive loss of $81, net of $46 tax benefit, for the years ended December 31, 2015
and 2014, respectively. The Company made contributions of $233 and $0 to the Plan in 2015 and 2014, respectively. As
a result of the termination, the Company will not be required to make any further contributions to the Plan.
The following table sets forth the Pre-Settlement, Settlement and Post-Settlement funded status of the Plan as of
June 30, 2015 (the termination date):
June 30, 2015
Pre-Settlement Settlement Post-Settlement
—
$
—
—
2,039 $ (2,039) $
2,039
(2,039)
— $ — $
$
Projected benefit obligation
Fair value of plan assets
Underfunded status
48
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
The following table provides the components of the Plan net periodic benefit cost:
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Net periodic benefit cost
Settlement charge
Total net periodic benefit cost
Years Ended December 31,
2015
2014
2016
— $
—
—
— $
— $
44 $
(18)
65
91 $
814
905 $
87
(38)
65
114
—
114
$
$
$
The Company has a contributory retirement (401(k)) savings plans for non-union employees and for union
employees of Arkansas Lime Company and Texas Lime Company. Company contributions to these plans were $185,
$174 and $184 in 2016, 2015 and 2014, respectively.
(7) Stock-Based Compensation
The Company has implemented the Amended and Restated 2001 Long-Term Incentive Plan (the “2001 Plan”).
The 2001 Plan provides for stock options, restricted stock and dollar-denominated cash awards, including
performance-based awards. In addition to stock options, restricted stock and cash awards, the 2001 Plan provides for the
grant of stock appreciation rights, deferred stock and other stock-based awards to directors, officers, employees and
consultants.
The number of shares of common stock that may be subject to outstanding awards granted under the 2001 Plan
(determined immediately after the grant of any award) may not exceed 741,413 from the inception of the 2001 Plan. In
addition, no individual may receive awards in any one calendar year of more than 100,000 shares of common stock.
Stock options granted under the 2001 Plan expire ten years from the date of grant and generally become exercisable, or
vest, immediately. Restricted stock generally vests over periods of one-half to three years. Upon the exercise of stock
options, the Company issues common stock from its non-issued authorized or treasury shares that have been reserved for
issuance pursuant to the 2001 Plan. At December 31, 2016, the number of shares of common stock remaining available
for future grants of stock options, restricted stock or other forms of stock-based compensation under the 2001 Plan was
100,199.
The Company recorded $1,036, $1,199 and $1,102 for stock-based compensation expense related to stock
options and shares of restricted stock for 2016, 2015 and 2014, respectively. The amounts included in cost of revenues
were $148, $154 and $185 and in selling, general and administrative expense were $888, $1,045 and $917, for 2016,
2015 and 2014, respectively.
49
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
A summary of the Company’s stock option and restricted stock activity and related information for the year
ended December 31, 2016 and certain other information for the years ended December 31, 2016, 2015 and 2014 are as
follows:
Weighted-
Average
Exercise
Aggregate
Intrinsic
Price
Value
Stock
Options
Weighted-
Average
Restricted Grant-Date
Fair Value
Stock
Outstanding (stock options); non-vested (restricted stock) at
December 31, 2015
Granted
Exercised (stock options); vested (restricted stock)
Forfeited
56,600 $
9,900
(7,000)
—
53.03 $
70.37
32.28
—
Outstanding (stock options); non-vested (restricted stock) at
357
—
17,411 $
16,813
150 (16,422)
(105)
—
57.75
68.12
55.28
65.42
December 31, 2016
Exercisable at December 31, 2016
59,500 $
59,500 $
58.36 $
58.36 $
1,035
1,035
17,697 $
n/a
64.01
n/a
2016
2015
2014
Weighted-average fair value of stock options granted
during the year
$ 13.12 $ 10.79 $ 14.62
Weighted-average remaining contractual life for stock
options in years
Total fair value of stock options vested during the year
Total intrinsic value of stock options exercised during the
year
Total fair value of restricted stock vested during the year
6.78
130 $
6.32
107 $
6.46
145
150 $
30 $
907 $ 1,099 $
657
955
$
$
$
There were no non-vested stock options at December 31, 2016, and the weighted-average remaining contractual
life of the outstanding and exercisable stock options at such date was 6.78 years. The total compensation cost not yet
recognized for restricted stock at December 31, 2016 was $1,056, which will be recognized over the weighted average of
1.08 years.
The fair value for the stock options was estimated at the date of grant using a lattice-based option valuation
model, with the following weighted-average assumptions for the 2016, 2015 and 2014 grants: risk-free interest rates of
0.92% to 1.49% (weighted average 1.37%) in 2016, 0.98% to 1.28% (weighted average 1.05%) in 2015 and 0.89% to
1.17% (weighted average 1.10%) in 2014; a dividend yield of 0.67% to 1.00% (weighted average 0.74%) in 2016 and
0.80% to 0.91% (weighted average 0.83%) in 2015 and 0.70% to 0.90% (weighted average of 0.75%) in 2014; and a
volatility factor of .264 to .275 (weighted average .266) in 2016, .272 to .284 (weighted average .275) in 2015 and .294
to .316 (weighted average .299) in 2014, based on the monthly per-share closing prices for three years preceding the date
of issuance. In addition, the fair value of these options was estimated based on an expected life of three years. The fair
value of restricted stock is based on the closing per-share price of the Company’s common stock on the date of grant.
(8) Share Repurchases
In December 2015, the Company commenced a publicly announced share repurchase program to repurchase up
to $10,000 of its common stock. During December 2015, the Company repurchased 3,086 shares at a weighted-average
price of $54.79 per share. Pursuant to the share repurchase program, in 2016 the Company repurchased 50,068 shares at
a weighted-average price of $53.52 per share.
50
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
In addition, during 2016, pursuant to provisions in the 2001 Plan that allows employees and directors to pay the
tax withholding liability upon the lapse of restrictions on restricted stock in either cash and/or delivery of shares of the
Company’s common stock, the Company repurchased 3,864 shares at a weighted-average price of $64.26 per share.
(9) Commitments and Contingencies
The Company leases some of the equipment used in its operations under operating leases. Generally, the leases
are for periods varying from one to five years and are renewable at the option of the Company. The Company also has a
lease for corporate office space. Total lease and rent expense was $2,659, $2,307 and $2,227 for 2016, 2015 and 2014,
respectively. As of December 31, 2016, future minimum payments under operating leases that were either
non-cancelable or subject to significant penalty upon cancellation were $1,659 for 2017, $1,129 for 2018, $1,018 for
2019, $704 for 2020, $498 for 2021 and $0 thereafter.
The Company is party to lawsuits and claims arising in the normal course of business, none of which, in the
opinion of management, is expected to have a material adverse effect on the Company’s financial condition, results of
operations, cash flows or competitive position.
The Company is not contractually committed to any planned capital expenditures until actual orders are placed
for equipment or services. At December 31, 2016, the Company had approximately $8,639 for open equipment and
construction contracts and orders related to the new kiln project at its St. Clair facilities. One of the contracts for this
project requires future payments totaling 5,538 Euros. In November 2016, to hedge against potential losses due to
changes in the Euro to U.S. Dollar exchange rates, the Company entered into foreign exchange (“FX”) hedges with
Wells Fargo Bank, N.A. as the counterparty to the hedges to fix the exchange rate for the 5,538 Euros. The hedges have
been effective as defined under applicable accounting rules. Therefore, changes in fair value of the FX hedges are
reflected in comprehensive income. The Company will be exposed to credit losses in the event of non-performance by
the counterparty to the hedges. Due to the strengthening of the U.S. Dollar, compared to the Euro, the fair value of the
FX hedges resulted in a liability of $352 in 2016, which is included in accrued expenses ($309) and other liabilities
($43).
(10) Business Segments
The Company has identified two business segments based on the distinctness of their activities and products:
lime and limestone operations and natural gas interests. All operations are in the United States. In evaluating the
operating results of the Company’s segments, management primarily reviews revenues and gross profit. The Company
does not allocate corporate overhead or interest costs to its business segments.
51
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
Operating results and certain other financial data for the years ended December 31, 2016, 2015 and 2014 for the
Company’s two business segments are as follows:
Revenues
Lime and limestone operations
Natural gas interests
Total revenues
Depreciation, depletion and amortization
Lime and limestone operations
Natural gas interests
Total depreciation, depletion and amortization
Gross profit
Lime and limestone operations
Natural gas interests
Total gross profit
Identifiable assets, at year end
Lime and limestone operations
Natural gas interests
Unallocated corporate assets and cash items
Total identifiable assets
Capital expenditures
Lime and limestone operations
Natural gas interests
Total capital expenditures
2016
2015
$ 137,190 $ 128,390 $ 144,567
5,274
$ 139,282 $ 130,837 $ 149,841
2,092
2,447
2014
$ 15,063 $ 14,910 $ 13,811
895
$ 15,931 $ 15,784 $ 14,706
868
874
$ 33,032 $ 28,400 $ 33,958
2,833
$ 33,092 $ 28,714 $ 36,791
314
60
7,768
$ 126,015 $ 125,703 $ 128,961
9,762
61,263
$ 210,159 $ 196,499 $ 199,986
8,540
76,376 62,256
$ 17,649 $ 11,444 $ 15,352
25
$ 17,664 $ 11,459 $ 15,377
15
15
(11) Acquisition
In December 2014, the Company acquired the assets of a trucking company operation in Houston, Texas for a cash
purchase price of $3,800, including $1,700 for land and buildings and $2,100 for trucks, trailers and other equipment.
Acquisition-related costs of approximately $31 were expensed in 2014. Prior to the purchase, the Company utilized the
trucking company exclusively to deliver the Company’s products to its customers and slurry facilities, and the land purchased
included the site leased for the slurry facility.
(12) Supplementary Financial Information for Oil and Gas Producing Activities (Unaudited)
Results of Operations from Oil and Gas Producing Activities
The Company’s natural gas interests consist of royalty and non-operating working interests in wells drilled on
the Company’s approximately 3,800 acres of land located in Johnson County, Texas in the Barnett Shale Formation. The
Company also has royalty and non-operating working interests in wells drilled from drillsites on the Company’s property
under a lease covering approximately 538 acres of land contiguous to the Company’s Johnson County, Texas property.
52
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
The following sets forth certain information with respect to the Company’s results of operations and costs incurred for its
natural gas interests for the years ended December 31, 2016, 2015 and 2014:
2016
2015
2014
Results of Operations
Revenues
Production and operating costs
Depreciation and depletion
Results of operations before income taxes
Income tax (benefit) expense
Results of operations (excluding corporate overhead
$ 2,092 $ 2,447 $ 5,274
1,546
895
2,833
742
1,164
868
60
(93)
1,259
874
314
(19)
and interest costs)
$
153 $
333 $ 2,091
Costs Incurred
Development costs incurred
Exploration costs
Capitalized asset retirement costs
Property acquisition costs
Capitalized Costs
Natural gas properties-proved
Less: accumulated depreciation and depletion
Net capitalized costs for natural gas properties
$
15 $
—
—
—
15 $
—
—
—
25
—
—
—
$ 18,412 $ 18,398 $ 18,384
9,153
10,030
$ 7,512 $ 8,368 $ 9,231
10,900
Unaudited Oil and Natural Gas Reserve and Standardized Measure Information
The independent petroleum engineering firm of DeGolyer and MacNaughton has been retained by the Company
to estimate its proved natural gas reserves as of December 31, 2016. No events have occurred since December 31, 2016
that would have a material effect on the estimated proved reserves.
The following information is presented with regard to the Company’s natural gas reserves, all of which are
proved and located in the United States. These rules require inclusion, as a supplement to the basic financial statements,
of a standardized measure of discounted future net cash flows relating to proved natural gas reserves. The standardized
measure, in management’s opinion, should be examined with caution. The basis for these disclosures is the independent
petroleum engineers’ reserve studies, which contain imprecise estimates of quantities and rates of production of reserves.
Revision of estimates can have a significant impact on the results. Also, development and production improvement costs
in one year may significantly change previous estimates of proved reserves and their valuation. Values of unproved
properties and anticipated future price and cost increases or decreases are not considered. Therefore, the standardized
measure is not necessarily a “best estimate” of the fair value of gas properties or of future net cash flows.
In calculating the future net cash flows for its royalty and non-operating working interests in the table below as
of December 31, 2016, 2015 and 2014, the Company utilized 12-month average prices of $2.65, $2.80 and $4.61 per
MCF of natural gas and $16.61, $14.92 and $30.20 per BBL of natural gas liquids, respectively.
53
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
Unaudited Summary of Changes in Proved Reserves
Natural Gas
Liquids
Natural
Gas (BCF) (MMBBLS)
Proved reserves - beginning of year
Revisions of previous estimates
Extensions and discoveries
Production
Proved reserves - end of year
Proved developed reserves - end of year
2016
2016
5.3
(0.9)
—
(0.5)
3.9
3.9
0.7
(0.1)
—
(0.1)
0.5
0.5
Natural Gas
Natural Gas
Natural Gas Liquids
Natural Gas Liquids
(BCF)
2015
(MMBBLS)
2015
(BCF)
2014
(MMBBLS)
2014
6.7
(0.9)
—
(0.5)
5.3
5.3
1.0
(0.2)
—
(0.1)
0.7
0.7
7.6
(0.3)
—
(0.6)
6.7
6.7
1.1
—
—
(0.1)
1.0
1.0
Unaudited Standardized Measure of Discounted Future Net Cash Flows
Future estimated gross revenues
Future estimated production and development costs
Future estimated net revenues
Future estimated income tax expense
Future estimated net cash flows
10% annual discount for estimated timing of cash flows
Standardized measure of discounted future estimated net
2014
2016
2015
$ 17,908 $ 25,916 $ 60,073
(23,242)
(12,019)
36,831
13,897
(10,105)
(3,642)
26,726
10,255
(13,438)
(4,969)
(8,402)
9,506
(2,458)
7,048
(2,851)
cash flows
$
4,197 $
5,286 $ 13,288
Unaudited Changes in Standardized Measure of Discounted Future Net Cash Flows
2016
2014
2015
$ 5,286 $ 13,288 $ 13,578
2,180
(12,535)
(3,730)
(1,188)
(586)
(2,625)
21
14
90
3,147
1,594
1,570
3,615
141
5,286 $ 13,288
(1,403)
(928)
(1,732)
—
414
571
1,989
$ 4,197 $
Standardized measure - beginning of year
Net change in sales prices and production costs
Sales of natural gas produced, net of production costs
Net change due to changes in quantity estimates
Previously estimated development costs incurred
Net change in income taxes
Accretion of discount
Timing of production of reserves and other
Standardized measure - end of year
54
United States Lime & Minerals, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Years Ended December 31, 2016, 2015 and 2014
(13) Summary of Quarterly Financial Data (unaudited)
Revenues
Lime and limestone operations
Natural gas interests
Gross profit (loss)
Lime and limestone operations
Natural gas interests
Net income
Basic income per common share
Diluted income per common share
Revenues
Lime and limestone operations
Natural gas interests
Gross profit (loss)
Lime and limestone operations
Natural gas interests
Net income
Basic income per common share
Diluted income per common share
March 31, June 30,
2016
September 30, December 31,
$ 33,154 $ 32,376 $
432
504
$ 33,586 $ 32,880 $
38,096 $
554
38,650 $
33,564
602
34,166
$ 7,929 $ 7,245 $
(81)
(4)
$ 7,848 $ 7,241 $
$ 4,066 $ 3,687 $
0.66 $
$
0.66 $
$
0.73 $
0.73 $
10,503 $
66
10,569 $
6,081 $
1.09 $
1.09 $
7,355
79
7,434
3,920
0.70
0.70
March 31, June 30,
2015
September 30, December 31,
$ 29,362 $ 31,779 $
702
671
$ 30,064 $ 32,450 $
36,452 $
577
37,029 $
30,797
497
31,294
$ 5,697 $ 6,809 $
167
204
$ 5,864 $ 7,013 $
$ 2,365 $ 2,559 $
0.46 $
$
0.46 $
$
0.42 $
0.42 $
10,320 $
47
10,367 $
5,676 $
1.01 $
1.01 $
5,575
(105)
5,470
2,286
0.41
0.41
(14) Subsequent Event
On January 30, 2017, the Company declared an increased regular quarterly cash dividend of $0.135
(13.5 cents) per share on the Company’s common stock. This dividend is payable on March 17, 2017 to shareholders of
record at the close of business on February 24, 2017.
55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures. The Company’s management, with the participation of the
Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the
Company’s disclosure controls and procedures as of the end of the period covered by this Report. Based on that
evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures as of the end of the
period covered by this Report were effective.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision
of the Company’s CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company’s financial statements for external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.
As of December 31, 2016, management assessed the effectiveness of the Company’s internal control over
financial reporting based on the criteria for effective internal control over financial reporting established in the 2013
“Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). Based on the assessment, management determined that the Company maintained
effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
Grant Thornton LLP, the Company’s independent registered public accounting firm, has issued an audit report
on the effectiveness of the Company’s internal control over financial reporting, which appears elsewhere in this Report
on Form 10-K.
Changes in internal control over financial reporting. No change in the Company’s internal control over
financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
56
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information appearing under “Election of Directors,” “Nominees for Director,” “Executive Officers Who
Are Not Directors” and “Corporate Governance” in the definitive Proxy Statement for the Company’s 2017 Annual
Meeting of Shareholders (the “2017 Proxy Statement”) is hereby incorporated by reference in answer to this Item 10.
The Company anticipates that it will file the 2017 Proxy Statement with the SEC on or before April 1, 2017.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing under “Executive Compensation” and “Compensation of Directors” in the 2017
Proxy Statement is hereby incorporated by reference in answer to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information appearing under “Voting Securities and Principal Shareholder,” “Shareholdings of Company
Directors and Executive Officers” and “Executive Compensation” in the 2017 Proxy Statement is hereby incorporated by
reference in answer to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information appearing under “Voting Securities and Principal Shareholder” and “Corporate Governance” in
the 2017 Proxy Statement is hereby incorporated by reference in answer to this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information appearing under “Independent Auditors” in the 2017 Proxy Statement is hereby incorporated
by reference in answer to this Item 14.
57
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
1. The following financial statements are included in Item 8:
PART IV
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2016 and 2015;
Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and
2014;
Consolidated Statements of Comprehensive Income for the Years Ended December 31,
2016, 2015 and 2014;
Consolidated Statements of Stockholders’ Equity for the Years Ended December, 31,
2016, 2015 and 2014;
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015
and 2014; and
Notes to Consolidated Financial Statements.
2. All financial statement schedules are omitted because they are not applicable or are immaterial or the
required information is presented in the consolidated financial statements or the related notes.
(b)
The following exhibits are filed with or incorporated by reference into this Report:
3.1 Articles of Amendment to the Articles of Incorporation of Scottish Heritable, Inc. dated as of January 25,
1994 (incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, File Number 000-4197).
3.2 Restated Articles of Incorporation of the Company dated as of May 14, 1990 (incorporated by reference to
Exhibit 3(b) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993,
File Number 000-4197).
3.3 Amended and Restated Bylaws of United States Lime & Minerals, Inc. as of April 26, 2013 (incorporated
by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed May 1, 2013, File
Number 000-4197).
10.1.1 Form of stock option grant agreement under the United States Lime & Minerals, Inc. 2001 Long-Term
Incentive Plan, as Amended and Restated (incorporated by reference to Exhibit 10.2.1 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2006, File Number 000-4197).
10.1.2 Form of restricted stock grant agreement under the United States Lime & Minerals, Inc. 2001 Long-Term
Incentive Plan, as Amended and Restated (incorporated by reference to Exhibit 10.2.2 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2006, File Number 000-4197).
10.1.3 United States Lime & Minerals, Inc. 2001 Long-Term Incentive Plan, as Amended and Restated
(incorporated by reference to Exhibit A to the Company’s definitive Proxy Statement for its Annual
Meeting of Shareholders held on May 1, 2009, File Number 000-4197).
10.1.3 United States Lime & Minerals, Inc. 2001 Long-Term Incentive Plan, as Amended and Restated
(incorporated by reference to Exhibit A to the Company’s definitive Proxy Statement for its Annual
Meeting of Shareholders held on May 2, 2014, File Number 000-4197).
58
10.2.1 Employment Agreement effective as of January 1, 2009 between United States Lime & Minerals, Inc. and
Timothy W. Byrne, including Cash Performance Bonus Award Agreement dated as of January 1, 2009
between United States Lime and Minerals, Inc. and Timothy W. Byrne, set forth as Exhibit A thereto
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
December 19, 2008, File Number 000-4197).
10.2.2 Employment Agreement effective as of January 1, 2015 between United States Lime & Minerals, Inc. and
Timothy W. Byrne, including Cash Performance Bonus Award Agreement dated as of January 1, 2015
between United States Lime and Minerals, Inc. and Timothy W. Byrne, set forth as Exhibit A thereto
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2014, File Number 000-4197).
10.3 Oil and Gas Lease Agreement dated as of May 28, 2004 between Texas Lime Company and EOG
Resources, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004, File Number 000-4197).
10.4 Credit Agreement dated as of August 25, 2004 among United States Lime & Minerals, Inc., each Lender
from time to time a party thereto, and Wells Fargo Bank, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated August 31, 2004, File Number 000-4197).
10.5 Security Agreement dated as of August 25, 2004 among United States Lime & Minerals, Inc., Arkansas
Lime Company, Colorado Lime Company, Texas Lime Company and U. S. Lime Company—Houston, in
favor of Wells Fargo Bank, N. A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K dated August 31, 2004, File Number 000-4197).
10.6 Second Amendment to Credit Agreement dated as of October 19, 2005 among United States Lime &
Minerals, Inc., each Lender from time to time a party thereto, and Wells Fargo Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K dated October 20, 2005, File Number 000-4197).
10.7 Amended and Restated Confirmation dated October 14, 2005 entered into by and between United States
Lime & Minerals, Inc. and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K dated October 20, 2005, File Number 000-4197).
10.8 Third Amendment to Credit Agreement dated as of March 30, 2007 among United States Lime &
Minerals, Inc., each Lender from time to time a party thereto, and Wells Fargo Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated March 30, 2007, File Number 000-4197).
10.9 Fourth Amendment to Credit Agreement dated as of June 1, 2010 among United States Lime &
Minerals, Inc., each Lender from time to time a party thereto, and Wells Fargo Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated June 1, 2010, File Number 000-4197).
10.10 Fifth Amendment to Credit Agreement dated as of May 7, 2015 among United States Lime & Minerals,
Inc., each lender from time to time a party thereto, and Wells Fargo Bank, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2015, File Number 000-4197).
59
10.11 Sixth Amendment to Credit Agreement dated as of October 27, 2016 among United States Lime &
Minerals, Inc., each lender from time to time a party thereto, and Wells Fargo Bank, N.A., as
administrative agent.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Registered Public Accounting Firm.
23.2 Consent of Independent Petroleum Engineers.
31.1 Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer.
32.1 Section 1350 Certification by Chief Executive Officer.
32.2 Section 1350 Certification by Chief Financial Officer.
95.1 Mine Safety Disclosures.
99.1 Report of Independent Petroleum Engineers.
101 Interactive Data Files.
Exhibits 10.1.1 through 10.2.2 are management contracts or compensatory plans or arrangements required to be filed as
exhibits.
ITEM 16. FORM 10-K SUMMARY.
Not Applicable.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 3, 2017
By:
/s/ TIMOTHY W. BYRNE
Timothy W. Byrne,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: March 3, 2017
Date: March 3, 2017
Date: March 3, 2017
Date: March 3, 2017
Date: March 3, 2017
Date: March 3, 2017
/s/ TIMOTHY W. BYRNE
Timothy W. Byrne,
President, Chief Executive Officer, and Director
(Principal Executive Officer)
/s/ M. MICHAEL OWENS
M. Michael Owens,
Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ ANTOINE M. DOUMET
Antoine M. Doumet,
Director and Chairman of the Board
/s/ RICHARD W. CARDIN
Richard W. Cardin,
Director
/s/ BILLY R. HUGHES
Billy R. Hughes,
Director
/s/ EDWARD A. ODISHAW
Edward A. Odishaw,
Director and Vice Chairman of the Board
By:
By:
By:
By:
By:
By:
61
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DIRECTORY
DIRECTORS
Timothy W. Byrne (1)
President and Chief Executive Officer,
United States Lime & Minerals, Inc.
Richard W. Cardin (2,3,4)
Retired Partner,
Arthur Andersen LLP
Antoine M. Doumet (1,3,4)
Chairman,
United States Lime & Minerals, Inc.
Private businessman and investor
Billy R. Hughes (1,2,3)
Retired Senior Vice President –
Development, United States Lime &
Minerals, Inc.
Edward A. Odishaw (1,2,3,4)
Vice Chairman,
United States Lime & Minerals, Inc.
Chairman, Austpro Energy
Corporation
EXECUTIVE OFFICERS
Timothy W. Byrne
President and Chief Executive Officer
M. Michael Owens
Vice President and Chief Financial
Officer, Secretary & Treasurer
Russell W. Riggs
Vice President – Production
David P. Leymeister
Vice President – Sales & Marketing
CORPORATE OFFICE
5429 LBJ Freeway, Suite 230
Dallas, Texas 75240
Tel.: (972) 991-8400
Fax: (972) 385-1340
E-mail: uslime@uslm.com
Website: www.uslm.com
TRANSFER AGENT
AND REGISTRAR
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842
Toll Free: (800) 522-6645
Toll: (312) 360-5383
INDEPENDENT AUDITORS
Grant Thornton LLP
Dallas, Texas
STOCK LISTED
The Nasdaq Global Market®
Symbol: USLM
COUNSEL
Morgan, Lewis & Bockius LLP
Washington, D.C.
(1) Executive Committee
(2) Audit Committee
(3) Nominating and Corporate Governance Committee
(4) Compensation Committee
OPERATING SUBSIDIARIES
Arkansas Lime Company
P.O. Box 2356
Batesville, AR 72503
Tel: (870) 793-2301
Fax: (870) 793-9305
Colorado Lime Company
1468 Hwy. 50
Delta, CO 81416
Tel: (970) 874-8300
Fax: (970) 874-8366
400 E. Railroad Street
Salida, CO 81201
Tel: (719) 539-3525
Fax: (719) 539-7272
Texas Lime Company
P.O. Box 851
Cleburne, TX 76033
Tel: (817) 641-4433
Fax: (817) 556-0905
U.S. Lime Company
5420 Allison Rd.
Houston, TX 77048
Tel: (713) 987-5463
Fax: (713) 987-5465
5429 LBJ Freeway, Suite 230
Dallas, TX 75240
Tel: (972) 991-5690
Fax: (817) 378-9452
U.S. Lime Company – St. Clair
P.O. Box 160
Marble City, OK 74945
Tel: (918) 775-4466
Fax: (918) 775-4467
U.S. Lime Company – Shreveport
P.O. Box 6771
Shreveport, LA 71136
Tel: (318) 865-9655
Fax: (318) 865-9659
U.S. Lime Company – O & G, LLC
5429 LBJ Freeway, Suite 230
Dallas, TX 75240
Tel: (972) 991-8400
Fax: (972) 385-1805
UNITED STATES LIME & MINERALS, INC.
5429 LBJ FREEWAY • SUITE 230 • DALLAS • TEXAS • 75240 • WWW.USLM.COM