##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K
 (Mark One) (X)
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  OR (  )
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 0-4197 United States Lime & Minerals, Inc. 
  Texas
    
    75-0789226(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number)13800 Montfort Drive, Suite 330, Dallas, Texas
    
    75240(Address of principal executive offices)
    
    (Zip code)
 Registrants telephone number, including area code: (972) 991-8400 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Each Class
    
    Name of Each Exchange onWhich Registered
 None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.10 par value Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X)
No (  ) Indicate 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. [  ] Indicate by check mark whether the registrant is an accelerated filer (as
deby Rule 12b-2 of the Act). Yes (  ) No
(X) 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, 2003:
$5,773,268. Number of shares of Common Stock outstanding as of March 26, 2003:
5,822,596.




---



##### Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates information by reference from the Registrants
definitive Proxy Statement to be filed for its 2004 Annual Meeting of
Shareholders. Part IV incorporates certain exhibits by reference from the
Registrants previous filings.  
 TABLE OF CONTENTS PAGEPART
I
    
    
    
    
    1ITEM 1.
    
    BUSINESS
    
    
    1General
    
    
    1Business and Products
    
    
    1Product Sales
    
    
    1Order Backlog
    
    
    1Seasonality
    
    
    2Limestone Reserves
    
    
    2Mining
    
    
    2Plants and Facilities
    
    
    3Employees
    
    
    3Competition
    
    
    3Impact of Environmental Laws and Liabilities
    
    
    4ITEM 2.
    
    PROPERTIES
    
    
    5ITEM 3.
    
    LEGAL PROCEEDING
    
    
    5ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    5PART
II
    
    
    
    
    5ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    5ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    6ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    7FORWARD LOOKING STATEMENTS
    
    
    7OVERVIEW
    
    
    7CRITICAL ACCOUNTING POLICIES AND ESTIMATES
    
    
    8RESULTS OF OPERATIONS
    
    
    9FINANCIAL CONDITION
    
    
    11ADDITIONAL FACTORS
    
    
    14ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    15ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    17ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    18ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    18
 ii




---



##### Table of Contents



PAGEPART
III
    
    
    
    
    18ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
    
    
    18ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    18ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
    
    
    18ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    18ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    18PART
IV
    
    
    
    
    19ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
    
    
    19SIGNATURES
    
    
    
    
    23Amended and Restated Employment Agreement2nd Amendment to Loan and Security AgreementSubsidiaries of the RegistrantConsent of Independent AuditorsRule 13a-14(a)/15d-14(a) Certification by CEORule 13a-14(a)/15d-14(a) Certification by CFOSection 1350 Certification of CEOSection 1350 Certification of CFO
 iii




---



##### Table of Contents



PART I 
 ITEM 1. BUSINESS. 
 General.


The business of United States Lime & Minerals, Inc. (the
Company or the Registrant), which was incorporated in 1950, is the
production and sale of lime and limestone products. The Company extracts
high-quality limestone from its quarries and processes it for sale as
pulverized limestone, quicklime and hydrated lime. These operations were
conducted throughout 2003 by three wholly-owned subsidiaries of the Company:
Arkansas Lime Company, Colorado Lime Company and Texas Lime Company. The Companys principal corporate office is located at 13800 Montfort
Drive, Suite 330, Dallas, Texas 75240. The Companys telephone number is (972)
991-8400, and its internet address is www.uslm.com. The Companys annual
report 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 are available free of charge on
or through 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. 
 Business and Products.

The Company extracts high-quality limestone from
its quarries and then processes it for sale as pulverized limestone, quicklime
and hydrated lime. Pulverized limestone (also referred to as ground calcium
carbonate) is a dried product 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 to produce a
dry, white powder. Pulverized limestone is used primarily in the production of construction
materials such as roofing shingles and asphalt paving, as an additive to
agriculture feeds, as a soil enhancement and for mine safety dust in coal
mining operations. Quicklime is used primarily in the manufacturing of paper
products, in sanitation and water filtering systems, in metal processing and in
soil stabilization for highway and building construction. Hydrated lime is
used primarily in municipal sanitation and water treatment, in soil
stabilization for highway and building construction, in the production of
chemicals and in the production of construction materials such as stucco,
plaster and mortar. 
 Product Sales.

In 2003, the Company sold most of its products in the
states of Arkansas, Colorado, Kansas, Louisiana, Mississippi, New Mexico,
Oklahoma, Tennessee and Texas. Sales are made primarily by the Companys seven
sales employees who call on 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 potential customers. Principal customers for the Companys lime and limestone products are
highway, street and parking lot contractors, chemical producers, paper
manufacturers, roofing shingle manufacturers, steel producers, glass
manufacturers, municipal sanitation and water treatment facilities, poultry and
cattle feed producers, governmental agencies and electrical utility companies. Approximately 650 customers accounted for the Companys sales of lime and
limestone products during 2003. No single customer accounted for more than 10%
of such sales. The Company is generally not subject to significant customer
risks as its customers are considerably diversified as to geographic location
and industrial concentration. However, given the nature of the lime and
limestone industry, the Companys profits are very sensitive to changes in
sales volume. 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 processing
plants. All of the Companys sales are 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. 1




---



##### Table of Contents



Seasonality.

The Companys sales have historically reflected seasonal
trends, with the largest percentage of total annual revenues 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 mining operations. 
 Limestone Reserves.

The Company has two subsidiaries that extract
limestone from open-pit quarries: Texas Lime Company, which is located 14
miles from Cleburne, Texas, and Arkansas Lime Company, which is located near
Batesville, Arkansas. A third subsidiary, Colorado Lime Company, owns
limestone resources at Monarch Pass located 15 miles west of Salida, Colorado.
No mining took place on the Colorado property in 2003. Existing crushed stone
stockpiles on the property were used to provide feedstock to the plant in
Salida. Access to all locations is provided by paved roads. Texas Lime Company operates upon a tract of land containing approximately
470 acres, including the Cleburne Quarry. The Company owns approximately 2,700
acres adjacent to the quarry. Both the quarry and the adjacent land contain
known high-quality limestone reserves in a bed averaging 28 feet in thickness,
with an overburden that ranges from 0 to 50 feet. The Company also has mineral
interests in approximately 560 acres of land adjacent to the northwest boundary
of the Companys property. The calculated reserves, as of December 31, 2003,
were approximately 36,000,000 tons of proven reserves plus approximately
91,000,000 tons of probable reserves. Assuming the current level of production
is maintained, the Company estimates that these reserves are sufficient to
sustain operations for approximately 90 years. Arkansas Lime Company operates the Batesville Quarry and has hydrated lime
and limestone production facilities on a second site linked to the quarry by
its own standard-gauge railroad. The active quarry operations cover
approximately 725 acres of land containing a known deposit of high-quality
limestone. The average thickness of the high-quality limestone deposit is
approximately 70 feet, with an average overburden thickness of 35 feet. The
Company also owns approximately 325 additional acres containing additional
high-quality limestone deposits adjacent to the present quarry but separated
from it by a public highway. The average thickness of this second high-quality
limestone deposit is approximately 55 feet, with an average overburden of 20
feet. The calculated reserves, as of December 31, 2003, were approximately
20,000,000 tons of proven reserves plus an additional 33,500,000 tons of
probable reserves. Assuming the projected levels of production after
completion of the Phase II modernization and expansion, the Company estimates
that reserves are sufficient to sustain operations for approximately 45 years. Colorado Lime Company 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 its closure in the early nineties, contains a
mixture of limestone types, including high-quality calcium limestone and
dolomite. The Company expects to continue to utilize remaining crushed stone
stockpiles on the property to supply its processing plant in nearby Salida. 
 Mining.

The Company extracts limestone by the open-pit method at its
Arkansas and Texas quarries. Monarch Pass 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, trees and other substances, including inferior
limestone, and then extracting the exposed high-quality limestone. 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. The limestone is extracted by drilling and blasting utilizing
standard mining equipment. After extraction, limestone is crushed, screened
and ground in the case of pulverized limestone, or further processed in kilns
and hydrators in the case of quicklime and hydrated lime, before shipment. The
Company has no knowledge of any recent changes in the physical quarrying
conditions on any of its properties which have materially affected its mining
operations, and no such changes are anticipated. 2




---



##### Table of Contents



Plants and Facilities.

The Company produces lime and/or limestone
products at three plants: The Cleburne, Texas plant has an annual capacity of approximately 470,000
tons of quicklime from three rotary kilns. The plant also has pulverized
limestone equipment which has the annual capacity to produce approximately
1,000,000 tons, depending on the product mix. In addition to the Cleburne
plant, the Company owns a dormant plant which is located near Blum, Texas on a
tract of land covering approximately 524 acres. The Blum plant was acquired in
1989, and its kilns have not been operated since that time. The Company has no
plans to operate the kilns at this facility. The Arkansas plant is situated at the Batesville Quarry. The plants
limestone and hydrate facilities are situated on a tract of 290 acres located
approximately two miles from the Batesville Quarry to which it is connected by
a Company-owned standard-gauge railroad. Utilizing two rotary kilns, including
a new kiln completed in the first quarter 2004, this plant has an annual
capacity of approximately 420,000 tons of quicklime. The plant also has two
grinding systems which, depending on the product mix, have the capacity to
produce 400,000 tons of pulverized limestone annually. In 1999, the Company commenced a modernization and expansion of the
Arkansas facility, to be completed in two phases, which was designed to expand
production and improve quality and service, enabling Arkansas Lime Company to
compete for new accounts and for the accounts of former customers lost due to
quality and service issues. Prior to the modernization and expansion, Arkansas
Lime Company had lost various accounts due to poor product quality and service
from the now retired vertical lime kilns which were installed in the 1920s. Phase I, which was completed in the second quarter 2001, involved the
redevelopment of the quarry plant, rebuilding of the railroad to
standard-gauge, purchase of a facility to establish an out-of-state terminal in
Shreveport, Louisiana, installation of a new rotary kiln with preheater and
additional product storage and loading capacity. Completion of Phase I
provided the Company with modern quarry and lime manufacturing facilities. The Phase II expansion includes the installation of a second preheater
rotary kiln and additional storage capacity substantially identical to the kiln
system built in Phase I. Construction of the second kiln system commenced in
the third quarter 2003 and is substantially completed as of the date of this
report. The plans for Phase II also include refurbishing the distribution terminal
in Shreveport, Louisiana, which is connected to a railroad, to provide lime
storage and distribution capacity to service markets in Louisiana and East
Texas. This terminal is currently expected to be refurbished during 2004. The Company maintains lime hydrating equipment and limestone drying and
pulverizing equipment at both the Texas and Arkansas plants. Storage facilities
for lime and pulverized 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 existing volume of shipments. Equipment is maintained
at each plant to load trucks, and at the Arkansas and Blum plants to load
railroad cars. Colorado Lime Company operates a limestone drying, grinding and bagging
facility, with an annual capacity of approximately 50,000 tons, on 8 acres of
land in Salida, Colorado. The property is leased from the Union Pacific
Railroad for a term of 5 years, commencing June 1999, with renewal options for
a further 10 years. This plants facilities also include a small rotary lime
kiln which is permitted for operation but is presently dormant. A mobile stone
crushing and screening plant is also situated at the Monarch Pass Quarry, to
produce agricultural grade limestone, with an annual capacity of up to 40,000
tons. The Company believes that its processing plants are adequately maintained
and insured. Both the Texas and Arkansas plants have recently been modernized
and expanded. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Financial Condition. 
 Employees.


The Company employed, at December 31, 2003, 201 persons, 23 of
whom are engaged in administrative and management activities and seven of whom
are engaged in sales activities. Of the Companys 171 production employees,
115 are covered by two collective bargaining agreements. The agreement for the
Arkansas facility expires in January 2005, and the agreement for the Texas
facility expires in November 2005. 
 Competition.


The lime industry is highly regionalized and competitive,
with quality, price, ability to meet customer demand, 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 permits for extraction can be obtained; the need for lime 3




---



##### Table of Contents



plants to be
located close to markets and railroad networks to enable cost-effective
production and distribution; clean air and anti-pollution legislation which has
made it more difficult to obtain permitting for new sources of emissions, such
as lime kilns; and the high capital cost of the facilities. These
considerations reinforce the premium value of operations having permitted,
long-term, high-quality mineral reserves and good locations relative to
markets. Producers tend to be concentrated on known limestone formations where
competition takes place on a local basis. The industry as a whole has expanded
its customer base and, while the steel industry is still the largest market
sector, it also counts environmental-related users, chemical users and
industrial users, including pulp and paper producers and road builders, among
its major customers. There is a continuing trend of consolidation in the lime and limestone
industry, with the three largest lime companies now accounting for more than
two-thirds of North American lime capacity. In addition to the consolidations,
and often in conjunction with them, many lime producers have undergone
modernization and expansion projects to upgrade their processing equipment in
an effort to improve operating efficiency. The Companys Texas and Arkansas
modernization and expansion projects should allow it to continue to remain
competitive, protect its markets and position itself for the future. In
addition, the Company will continue to evaluate external opportunities for
expansion. However, 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 and Liabilities.

The Company owns or controls
large areas of land upon which it operates limestone quarries and their
associated processing plants with inherent environmental responsibilities and
environmental compliance costs, including capital, maintenance and operating
costs with respect to pollution control facilities, the cost of ongoing
monitoring programs and other similar costs. 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 Clear Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, and the Comprehensive Environmental
Response, Compensation, and Liability Act, as well as the Toxic Substances
Control Act (Environmental Laws). These Environmental Laws grant the United
States Environmental Protection Agency (EPA) and state governmental agencies
the authority to promulgate regulations that could result in substantial
expenditures on pollution control and waste management. The rate of change of
Environmental Laws has been rapid over the last decade, and compliance can
require significant expenditures. For example, federal legislation required
Texas Lime Company and Arkansas Lime Company 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, renewal
and revocation. Also, raw materials and fuels used to manufacture lime and
calcium contain chemicals and compounds, such as trace metals, that may be
classified as hazardous substances.
The EPA implemented the Lime MACT regulations in December 2003 to
control emissions of hazardous air pollutants from lime plants.
Existing plants must determine how the rules apply, then develop and
implement a plan to be in compliance by December 2007. The MACT
regulations will require additional reporting until the plan is
developed and implemented and compliance is demonstrated.
The Department of Energy (DOE) has commitments from
industry to reduce the production of greenhouse gases, such as carbon dioxide.
The production of carbon dioxide is inherent in the manufacture of lime and
other products, such as cement. Although the DOEs current efforts to decrease
greenhouse gas emissions are voluntary, there is no assurance that a change in
the law will not be adopted that would have a material adverse effect on our
financial condition, results of operations, cash flows or competitive position. In part in response to requirements of environmental regulatory agencies,
the Company incurred capital expenditures related to environmental activities
of approximately $400,000 in 2003 and $225,000 in 2002. The Companys
recurring costs associated with managing and disposing of potentially hazardous
substances (such as fuels and lubricants used in operations) and maintaining
pollution control equipment amounted to approximately $400,000 in 2003 and
$350,000 in 2002. The Company has not been named as a potentially responsible
party in any federal superfund cleanup site or state-lead cleanup site. 4




---



##### Table of Contents



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 discussed in Note 3 of Notes to
Consolidated Financial Statements, the Companys plant facilities and mineral
reserves are subject to encumbrances to secure the Companys loans. 
 ITEM 3. LEGAL PROCEEDINGS. Information regarding legal proceedings is set forth in Note 8 of Notes to
Consolidated Financial Statements and is hereby incorporated by reference in
answer to this Item 3. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company did not submit any matters to a vote of security holders
during the fourth quarter 2003. 
 PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Companys common stock is quoted on the Nasdaq National Market®
under the symbol USLM. As of March 26, 2004, the Company had approximately
500 stockholders of record. As of March 26, 2004, the Company had 500,000 shares of $5.00 par value
preferred stock authorized; however, none has been issued. Effective as of August 5, 2003, the Company is prohibited from paying any
dividends in cash through June 30, 2005 without the prior written consent of
the Companys bank lenders. The Company does not intend to request such
consent. The low and high sales prices for the Companys common stock, as well as
dividends declared on the common stock, for the periods indicated were: 2003
    
    2002Market Price
    
    Dividends
    
    Market Price
    
    DividendsLow
    
    High
    
    Declared
    
    Low
    
    High
    
    DeclaredFirst Quarter
    
    $
    2.82
    
    
    $
    4.80
    
    
    $
    0.025
    
    
    $
    4.50
    
    
    $
    5.60
    
    
    $
    0.025Second Quarter
    
    $
    3.00
    
    
    $
    4.00
    
    
    $
    0.025
    
    
    $
    4.20
    
    
    $
    6.00
    
    
    $
    0.025Third Quarter
    
    $
    3.11
    
    
    $
    4.90
    
    
    
    
    
    
    $
    3.49
    
    
    $
    4.74
    
    
    $
    0.025Fourth Quarter
    
    $
    4.26
    
    
    $
    8.70
    
    
    
    
    
    
    $
    3.21
    
    
    $
    4.24
    
    
    $
    0.025
 5




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA. (dollars in thousands, except per share amounts)2003
    
    2002
    
    2001
    
    2000
    
    1999Operating resultsRevenues
    
    $
    45,256
    
    
    
    39,162
    
    
    
    39,753
    
    
    
    32,456
    
    
    
    31,537Gross profit
    
    $
    13,062
    
    
    
    9,508
    
    
    
    10,465
    
    
    
    6,505
    
    
    
    9,097Operating profit
    
    $
    8,574
    
    
    
    5,539
    
    
    
    6,390
    
    
    
    2,569
    
    
    
    5,615Income (loss) before taxes
    
    $
    4,804
    
    
    
    671
    
    
    
    2,189
    
    
    
    (820
    )
    
    
    3,377Net income (loss)
    
    $
    3,860
    
    
    
    636
    
    
    
    1,773
    
    
    
    (635
    )
    
    
    2,533Income (loss) per share of common stock:Basic and diluted income (loss) per common
share
    
    $
    0.67
    
    
    
    0.11
    
    
    
    0.32
    
    
    
    (0.16
    )
    
    
    0.64
 As of December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Total assets
    
    $
    99,500
    
    
    
    84,519
    
    
    
    89,409
    
    
    
    93,614
    
    
    
    77,688Long-term debt,
excluding current installments
    
    $
    47,886
    
    
    
    37,500
    
    
    
    40,833
    
    
    
    44,167
    
    
    
    42,500Stockholders equity per
outstanding common share
    
    $
    7.22
    
    
    
    6.60
    
    
    
    6.64
    
    
    
    6.97
    
    
    
    7.23Cash dividends per common share
    
    $
    0.05
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.10Employees at year end
    
    
    201
    
    
    
    198
    
    
    
    200
    
    
    
    212
    
    
    
    205
 See Managements Discussion and Analysis of Financial Condition and Results of
Operations, and Notes to Consolidated Financial Statements. 6




---



##### Table of Contents



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 managements plans,
strategies, objectives, expectations, intentions and adequacy of resources, are
identified by such words as will, could, should, believe, expect,
intend, plan, schedule, estimate, anticipate and project. We
undertake no obligation to publicly update or revise any forward-looking
statements. We caution that forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from
expectations, including without limitation the following: (i) our plans,
strategies, objectives, expectations and intentions are subject to change at
any time in our discretion; (ii) our plans and the results of our operations
will be affected by our ability to manage our growth; (iii) our ability to meet
short-term and long-term liquidity demands, including servicing our debt; (iv)
inclement weather conditions; (v) increased fuel costs; (vi) unanticipated
delays or additional cost overruns in completing current or planned
construction projects; (vii) reduced demand for our products; and (viii) other
risks and uncertainties set forth below or indicated from time to time in our
filings with the Securities and Exchange Commission. 
 OVERVIEW. We produce and sell pulverized limestone, quicklime and hydrated lime.
The principal factors affecting our success are the level of demand for our
products, and whether we are able to maintain sufficient production levels and
product quality while controlling costs. Inclement weather conditions 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, as in the
case of flooding and winter ice storms in Texas in recent years. Demand for our products in our market areas is also affected by general
economic conditions, the pace of home construction and the demand for steel, as
well as the level of governmental funding for highway construction. In recent
years, the demand and prices for lime and limestone products have been
improving. The Transportation Equity Act for the 21st Century (signed into law in
l998 and originally scheduled to expire in September 2003) has been extended
and continues to provide federal funding for highway construction. New
six-year bills have been proposed by Congress and the Administration that would
increase the funding levels by 17% to 70%. Due to wide bi-partisan support, a
new bill is expected to pass; therefore, we believe there will be a continuing
strong level of demand for lime and limestone products used in highway
construction for the next few years. Our recent modernization and expansion projects in Texas and Arkansas have
positioned us to meet the demand for high-quality lime and limestone products
in our markets, with our lime out-put capacity nearly doubling since 1998.
These projects have also equipped us with up-to-date, fuel-efficient plant
facilities, which should result in lower production costs and greater operating
efficiencies, thus enhancing our competitive position. In order for our plants
to operate at peak efficiency, we must meet operational challenges, such as
those that we confronted at Texas in the middle of 2002, that arise from time
to time, including bringing new facilities on line as well as operating
existing facilities. Our primary variable cost is energy. In recent years, we have faced
increased natural gas cost. We have been able to mitigate to some degree the
adverse impact of those increases by varying the mixes of fuel used in our
kilns, and by passing on some of our increased energy costs to our customers
through surcharges on certain products. We have not, to date, engaged in any
significant hedging activity in an effort to control our energy costs. We
have, however, recently entered into forward purchase contracts for natural gas
for the winter months, in order to provide greater predictability to this
important cost component, and we may do so again in the future. We financed our Texas and Arkansas modernization and expansion projects
through a combination of working capital, a common stock rights offering to our
shareholders and debt financing, including the issuance of
$14,000,000 unsecured subordinate notes in August 2003. Given our increased
level of debt, we must generate 7




---



##### Table of Contents



sufficient cash flow to cover ongoing capital
and debt service needs. All of our long-term debt becomes due in 2007 and
2008, and we will need to refinance our debt prior to maturity. With the second kiln and related storage capacity at Arkansas
substantially completed, and the Shreveport, Louisiana distribution terminal
currently expected to be refurbished during 2004, we will have completed Phase
II of our Arkansas modernization and expansion project. As a result of our
Texas and Arkansas projects, our yearly depreciation, depletion and
amortization expense included in cost of revenues has increased from $2,788,000
in 1998 to $6,103,000 in 2003. In addition, over that period, our interest
expense has increased from $26,000 in 1998 to $4,577,000 in 2003 (excluding
$308,000 of interest capitalized in 2003), as the amount of our borrowings has
increased. In order for us to increase our profitability in the face of these
increased fixed costs, we must grow our revenues and cash flow and continue to
control our operational and selling, general and administrative expenses,
including new corporate governance compliance costs resulting from the Sarbanes
Oxley Act of 2002 and associated regulatory requirements. Our new capacity at
Arkansas affords us the best opportunity to increase sales. We believe that the enhanced production capacity resulting from our
modernization and expansion efforts at the Texas and Arkansas plants and the
operational strategies that we have implemented will allow us to increase
production, improve product quality, better serve existing customers, attract
new customers and control our costs. There can be no assurance, however, that
demand and prices for our lime and limestone products will remain strong, that
we will be successful in selling out our substantial additional new capacity at
Arkansas, that our production will not be adversely affected by weather-related
or other operational problems, that our results will not be adversely affected
by continued increases in energy costs or that we will be able to successfully
refinance our long-term debt at acceptable interest rates before it becomes
due. 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES. 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. 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 contingent
liabilities, at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or conditions. 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 judgments and estimates used in the preparation of its consolidated
financial statements. Long-lived assets.We review long-term assets for impairment in accordance
with the guidelines of Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS 144).
SFAS 144 requires that, when events or circumstances indicate that the carrying
amount of an asset may not be recoverable, we should determine if impairment of
value exists. If the estimated undiscounted future net cash flows are less
than the carrying amount of the asset, an impairment exists and an impairment
loss must be calculated and recorded. If an impairment exists, the impairment
loss is calculated based on the excess of the carrying amount of the asset over
the assets fair value. Any impairment loss is treated as a permanent
reduction in the carrying value of the asset. Deferred tax assets.We record a valuation allowance to reduce deferred
tax assets to the amount that is more likely than not to be realized. We
consider future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance. In the event
that we determine that deferred tax assets would be realizable in the future in
excess of the net recorded amount, an adjustment to deferred tax assets would
increase income in the period such determination was made. Conversely, should
we determine that all or part of the net deferred tax assets would not be
realizable in the future, an adjustment to deferred tax assets would be charged
to income in the period such determination was made. Contingencies.We are party to proceedings, lawsuits and claims arising
in the normal course of business relating to environmental, labor, product and
other matters. We are required to estimate the likelihood of any adverse
judgments or outcomes to these matters as well as potential ranges of probable
losses. A determination of the amount of reserves required, if any, for these
contingencies is made after careful analysis of
each individual issue, including coverage under our insurance policies.
This determination may change in the future because of new developments. 8




---



##### Table of Contents



Pension plan.We have one noncontributory defined benefit pension plan.
All benefits for participants in the plan were frozen as of July 31, 1997. Our costs,
credits and funded status for this plan are developed from actuarial
valuations. Inherent in these valuations are key assumptions, including
discount rates and expected long-term return on plan assets. Future costs,
credits and funded status for this plan may change should conditions warrant
changes in the assumptions. 
 RESULTS OF OPERATIONS. The following table sets forth selected financial information expressed as
a percentage of revenues for the periods indicated: Year Ended December 31,2003
    
    2002
    
    2001Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenuesLabor and other operating expenses
    
    
    (57.7
    )
    
    
    (60.0
    )
    
    
    (58.8
    )Depreciation, depletion and amortization
    
    
    (13.5
    )
    
    
    (15.8
    )
    
    
    (14.9
    )Gross profit
    
    
    28.8
    
    
    
    24.2
    
    
    
    26.3Selling, general and administrative expenses
    
    
    (9.9
    )
    
    
    (10.1
    )
    
    
    (10.2
    )Operating profit
    
    
    18.9
    
    
    
    14.1
    
    
    
    16.1Other income (expenses):Interest expense
    
    
    (10.1
    )
    
    
    (11.0
    )
    
    
    (9.6
    )Other, net
    
    
    1.8
    
    
    
    (1.4
    )
    
    
    (1.0
    )Federal and state income tax expense
    
    
    (2.1
    )
    
    
    (0.1
    )
    
    
    (1.0
    )Net income
    
    
    8.5
    %
    
    
    1.6
    %
    
    
    4.5
    %
 Embezzlements. On January 31, 2002, we announced that we had discovered
that an employee who had recently left the Company may have improperly diverted
Company funds without authorization. Trading in the Companys common stock on
the Nasdaq National Market® (Nasdaq) was halted, and the Audit Committee
of the Companys Board of Directors retained outside counsel to conduct a
special investigation into the matter. The Audit Committee also retained an
independent accounting firm to review our internal controls and to make
recommendations for improvement that we implemented. We also contacted the
Securities and Exchange Commission (the SEC), as well as criminal
authorities, and cooperated with the SEC, Nasdaq and criminal authorities with
respect to their investigations into this matter. The Companys former Vice President  Finance, Controller, Treasurer and
Secretary, Larry Ohms (the Former VP Finance), over a period of four years
beginning in 1998, embezzled approximately $2,179,000 from the Company. The
Former VP Finance voluntarily resigned from the Company on January 22, 2002,
approximately one week before we discovered the defalcations. The Former VP
Finance has stated that no one else at the Company was involved in perpetrating
the embezzlements. From the results of the special investigation and the
Former VP Finances testimony, we believe this statement to be accurate. In
2002, the Former VP Finance pleaded guilty to one count of wire fraud and one
count of making a false statement to the SEC, and on March 24, 2003 was
sentenced to a term in federal prison and ordered to pay $2,179,000 in
restitution to the Company. On March 14, 2002, we received $500,000 in insurance proceeds from our
insurance policies covering employee theft. The $500,000 was recorded on the
Consolidated Balance Sheet at December 31, 2001 in prepaid expenses and other
assets, and recognized in the Consolidated Statement of Operations in other
income in the fourth quarter 2001. In addition, we retained counsel for
assistance in its efforts to recover the embezzled funds from the Former VP
Finance, and to pursue possible civil actions on behalf of the Company against
third parties.
We filed suit against the Former VP Finance and obtained a judgment against
him, including compensatory and punitive damages. The Former VP Finance has
claimed not to have any funds. 9




---



##### Table of Contents



Recoveries were recognized in the quarters in which the recoveries were
realized, and the costs of our special investigation, cooperation with the SEC,
Nasdaq and criminal authorities in their investigations and ongoing recovery
efforts were expensed as incurred. During 2003, we recorded recoveries of
$777,000, net of income taxes ($971,000 gross), and
embezzlement-related costs of $162,000, net of income tax
benefits ($202,000 gross), compared to embezzlement-related costs of $648,000,
net of income tax benefits ($683,000 gross), in 2002. We do
not anticipate any future material embezzlement-related costs or recoveries. 2003 vs. 2002 Revenues increased to $45,256,000 in 2003 from $39,162,000 in 2002, an
increase of $6,094,000, or 15.6%. The increases in revenues for 2003 primarily
resulted from increased lime and pulverized limestone (PLS) sales at the
Texas and Colorado plants. Gross profit was $13,062,000 for 2003, compared to $9,508,000 in 2002, a
37.4% increase. Gross profit margin as a percentage of revenues increased to
28.8% in 2003 compared to 24.2% in 2002. These increases are primarily due to
the resolution of operational problems at the Texas plant that occurred during
the second and third quarter 2002 and the increase in PLS sales volume. These
improvements were partially offset in 2003 by increased natural gas costs and a
winter ice storm in Texas that caused the loss of approximately two days of
sales and a natural gas curtailment to the Texas plant that resulted in reduced
production levels during the first quarter 2003. The total negative price
variance for natural gas in 2003 compared to 2002 was approximately $900,000,
partially offset by natural gas surcharges on PLS products implemented in early
March 2003. Since that time, the surcharges have offset most of the increased
natural gas costs. Although natural gas prices have declined from their highs in the first
quarter 2003, they continued to exceed 2002 price levels during the remainder
of 2003. We expect natural gas prices to continue to exceed 2002 prices.
Therefore, we have recently increased the sales prices on PLS products by
amounts approximating the natural gas surcharges. Selling, general and administrative expenses (SG&A) increased by
$519,000, or 13.1%, to $4,488,000 in 2003, compared to $3,969,000 in 2002. As
a percentage of sales, SG&A declined to 9.9% in 2003 from 10.1% in 2002. The
increase in SG&A for 2003 was primarily attributable to increases in insurance
costs, salaries and employee benefits. Interest expense in 2003 increased $248,000, or 5.7%, to $4,577,000,
compared to $4,329,000 in 2002. The increase in interest expense in 2003
primarily resulted from the private placement of $14,000,000 of unsecured
subordinated notes (the Sub Notes), partially offset by $4,533,000 of net
repayments of other outstanding debt during 2003. Approximately $308,000 of
interest was capitalized in 2003 as part of the Arkansas Phase II expansion
project. Other, net was $807,000 income in 2003, as compared to $539,000 expense in
2002. Other, net in 2003 consisted of interest, other income and $971,000 of
embezzlement-related recoveries, partially offset by $202,000 of
embezzlement-related costs. In 2002, $683,000 of embezzlement-related costs
was the primary other expense, partially offset by interest and other income.
(See Note 2 of Notes to Consolidated Financial Statements.) Net income increased $3,224,000 to $3,860,000 ($0.67 per share) in 2003,
compared to net income of $636,000 ($0.11 per share) for 2002. 2002 vs. 2001 Revenues decreased to $39,162,000 in 2002 from $39,753,000 in 2001, a
decrease of $591,000, or 1.5%. This primarily resulted from a decrease in
sales volume in 2002 compared to 2001. The decrease in revenues primarily
resulted from a reduction in Texas highway construction work in 2002 compared
to 2001 and operational problems at the Texas plant in June, July and August
2002, partially offset by increased lime sales at the Arkansas plant. Gross profit was $9,508,000 for 2002, compared to $10,465,000 in 2001, a
9.1% decrease. Gross profit margin as a percentage of revenues for 2002
decreased to 24.3% from 26.3% in 2001. The decrease in gross profit 10




---



##### Table of Contents



and gross
profit margin during 2002 was primarily due to a $253,000 increase in
depreciation expense and reduced production at the Texas plant in June, July
and August due to operational problems, partially the result of unseasonably
wet weather. These were partially offset by increased production and sales at
the Arkansas plant. The increase in depreciation primarily resulted from a full
years depreciation in 2002 on the Arkansas Phase I modernization and
expansion, compared to eight months of depreciation in 2001 after Phase I was
completed. The reduced production at the Texas plant in 2002 resulted in the
depletion of finished goods inventories and increased costs through the
purchase of lime from alternative sources to fulfill some sales commitments.
Gross profit margin in 2002 was also negatively impacted in the fourth quarter
2002 by increased natural gas prices. SG&A decreased by $106,000, or 2.6%, to $3,969,000 in 2002, as compared to
$4,075,000 in 2001. This decrease primarily resulted from a reduction in bonus
expense during 2002. As a percentage of sales, SG&A was 10.1% in 2002, as
compared to 10.3% in 2001. Interest expense in 2002 was $4,329,000. This compares to $3,821,000, net
for 2001, after $845,000 had been capitalized as part of the Arkansas Phase I
project costs during 2001. Gross interest expense in 2002 decreased $337,000
due to $4,458,000 of net repayments of outstanding debt during 2002 and lower
interest rates on the Companys revolving credit facility. Other expense, net was $539,000 in 2002, as compared to $380,000 expense
in 2001. Other expense, net in 2002 primarily consisted of $683,000 of
embezzlement-related costs, partially offset by interest and other income.
Other expense, net in 2001 primarily consisted of $980,000 of embezzlement
expense, partially offset by $500,000 of insurance proceeds from insurance
policies covering employee theft, interest and other income. (See Note 2 of
Notes to Consolidated Financial Statements.) Net income for 2002 was $636,000 ($0.11 per share), compared to net income
of $1,773,000 ($0.32 per share) in 2001. 
 FINANCIAL CONDITION. Capital Requirements.We require capital primarily for our operating
costs, seasonal working capital needs, normal recurring capital and
re-equipping projects and expansion projects. Our capital needs are met
principally from cash flow from operations, our $6,000,000 revolving credit
facility and our long-term debt. Cash Flows From Operations.Net cash provided by operating activities
was $9,521,000 in 2003, compared to $8,207,000 in 2002. The $1,314,000
improvement in 2003 was primarily the result of the $3,224,000 increase in net
income, partially offset by changes in working capital. The most significant
changes in working capital resulted from a $1,757,000 increase in accounts
receivable in 2003, compared to a $497,000 decrease in 2002. The 2003 increase
in accounts receivable primarily resulted from a $2,594,000 increase in
revenues in the fourth quarter 2003 compared to the comparable 2002 quarter.
The $534,000 cash flow resulting from the decrease in prepaid expenses and
other current assets in 2002 was primarily due to the $500,000 in insurance
proceeds received in March 2002. Accounts payable and accrued expenses
increased $718,000 (excluding approximately $1,300,000 of accounts payable and
accrued expenses at December 31, 2003 for the Arkansas Phase II Expansion
Project) during 2003 primarily due to increased accruals of income taxes and
bonuses. Banking Facilities, Debt and Rights Offering.On April 22, 1999, we
entered into a credit agreement with a consortium of commercial banks for a
$50,000,000 Senior Secured Term Loan (the Loan). The Loan is repayable over
a period of approximately eight years, maturing on March 30, 2007, and requires
monthly principal payments of $278,000 which began April 30, 2000, with a final
principal payment of $26,944,000 on March 30, 2007, which equates to a 15-year
amortization. We paid a fee equivalent to 2.50% of the Loan value to the
placement agent. The interest rate on the first $30,000,000 of the Loan is 8.875%. The
subsequent installments bear interest from the date they were funded at 3.52%
above the secondary market yield of the United States Treasury obligation
maturing May 15, 2005. The blended rate for the additional $20,000,000 is
9.84%. The Loan is secured by a first lien on substantially all of our assets,
with the exception of accounts receivable and inventories which secure the
$6,000,000 revolving credit facility. The Loan agreement contains covenants
that restrict the incurrence of debt, guaranties and liens, and places certain
restrictions on the payment of
dividends and the sale of significant assets. We are required to meet
minimum debt service coverage ratios on an ongoing basis and maintain a minimum
level of tangible net worth. 11




---



##### Table of Contents



On January 31, 2003, the maturity of the $5,000,000 revolving credit
facility that we had at that time was extended to July 31, 2003. From January
1, 2003 through March 2, 2003, that revolving credit facility bore interest at
LIBOR plus a margin of 1.40% to 3.55%, in accordance with a defined rate spread
based upon the then-current ratio of total funded debt to earnings before
interest, taxes, depreciation and amortization (EBITDA). On March 3, 2003, we entered into a Loan and Security Agreement with
another bank for a new $5,000,000 revolving credit facility to replace the
prior facility. In addition, we obtained a new $2,000,000 equipment line of
credit (available for financing or leasing large mobile equipment used in our
operations) from the same bank. The new revolving credit facility is secured
by our accounts receivable and inventories, provides for an interest rate of
LIBOR plus 2.75% and originally matured on March 1, 2004. The outstanding
balance of the revolving credit facility was repaid in full on August 5, 2003
with proceeds from our private placement, discussed below, and the Loan and
Security Agreement was amended to allow the revolving credit facility to be
increased to $6,000,000 at our option. The weighted average interest rate for
our revolving credit facilities for outstanding balances in 2003 was 4.04%. On
December 29, 2003, the Loan and Security Agreement was amended to increase the
revolving credit facility to $6,000,000 and extend the maturity to April 1,
2005. As of December 31, 2003, we had no outstanding balance on the $6,000,000
revolving credit facility. As of December 31, 2003, we had entered into
approximately $1,100,000 of operating leases for mobile equipment under the
$2,000,000 equipment line. In April 2003, we engaged Frost Securities, Inc. (Frost) to advise us on
possible financing alternatives for the Phase II expansion of our Arkansas
facilities. Frost contacted potential sources of financing and obtained
several term sheet proposals for a subordinated debt placement from outside
investors. In conjunction with the review of the proposals and further
negotiations, Frost and management renewed discussions with our two largest
shareholders and a third party to determine whether they would be interested in
the investment on terms more favorable to the Company than those then available
from other potential outside investors. On August 5, 2003, we sold $14,000,000 of Sub Notes in a private placement
under Section 4(2) of the Securities Act of 1933 to three accredited investors,
one of which is an affiliate of Inberdon Enterprises Ltd., our majority
shareholder (Inberdon), and another of which is an affiliate of Robert S.
Beall, who owns approximately 12% of our outstanding shares. We believe that
the terms of the private placement are more favorable to us than the proposals
previously received. Frost provided an opinion to the Companys Board of
Directors that, from a financial point of view, the private placement was fair
to the unaffiliated holders of the Companys common stock in relation to other
potential subordinated debt transactions then available to us. We paid Frost
an aggregate of $381,000 for its advice, placement services and opinion. The net proceeds of approximately $13,450,000 from the private placement
are being used to fund the Phase II expansion of our Arkansas facilities.
Terms of the Sub Notes include: a maturity date of August 5, 2008, subject to
acceleration upon a change in control; no mandatory principal payments prior to
maturity; an interest rate of 14% (12% paid in cash and 2% paid in cash or in
kind at our option); and, except as discussed below, no optional prepayment
prior to August 5, 2005 and a 4% prepayment penalty if repaid before maturity.
The terms of the Sub Notes are identical to one another, except that the Sub
Note for the affiliate of Inberdon does not prohibit prepayment prior to August
5, 2005 and does not require a prepayment penalty if repaid before maturity,
resulting in a weighted average prepayment penalty of approximately 2.4% if the
Sub Notes are repaid before maturity. The Sub Notes include covenants similar
to the covenants for the Loan. The private placement also included six-year detachable warrants,
providing the Sub Note investors the right to purchase an aggregate of 162,000
shares of the Companys common stock, at 110% of the average closing price of
one share of common stock for the trailing 30 trading days prior to closing, or
$3.84. After August 5, 2008, or upon an earlier change in control, the
investors may require the Company to repurchase any or all shares acquired
through exercise of the warrants (the Warrant Shares). The repurchase price
for each Warrant Share will equal the average closing price of one share of the
Companys common stock for the 30 trading days preceding the date the Warrant
Shares are put back to the Company. Changes in the repurchase price for each
Warrant Share are accreted or decreted over the five-year period from the date
of issuance to August 5, 2008. The investors are also entitled to certain
registration rights for the resale of their Warrant Shares. As a result of certain negotiations with our existing bank lenders, the
Loan and the revolving credit facility were amended to approve the terms of the
Sub Notes. As part of these amendments, we are prohibited from paying any
dividends in cash through June 30, 2005 without the prior written consent of
the bank lenders. During the fourth quarter 2000, we required additional capital because the
costs to complete both the Arkansas Phase I project and the new pulverized
limestone production line at Texas were significantly higher than 12




---



##### Table of Contents



originally
anticipated and because our cash flows and operating profits were lower than
expected. To meet our short-term liquidity demands, we determined to make a
pro rata rights offering to our existing shareholders to raise $10,000,000 in
additional equity capital. We also obtained a $5,000,000 bridge loan from
Inberdon. We commenced the rights offering on December 26, 2000, and it closed on
February 8, 2001. In the rights offering, we raised $10,000,000 in additional
equity capital, realizing net proceeds of $9,551,000, and issued 1,818,181
shares of common stock at the subscription price of $5.50 per share. We were
able to honor in full all over-subscription requests from our shareholders.
Our majority shareholder, Inberdon, subscribed for its full pro rata amount and
also purchased, at the $5.50 per share subscription price, 461,005 additional
shares not purchased by other shareholders in the rights offering, for a total
investment of approximately $7,630,000. Immediately following the rights
offering, Inberdon owned approximately 59% of our outstanding common stock.
The net proceeds of the rights offering were used to repay the $5,000,000
bridge loan from Inberdon, to repay the $4,000,000 outstanding under our
revolving credit facility at that time, and for working capital. As of December 31, 2003, we had approximately $51,219,000 in total debt
outstanding and $6,375,000 of cash and cash equivalents. Capital Expenditures.We completed the modernization and expansion
project at our Texas facility at the end of 1998. In addition, during the
fourth quarter 2000, we commissioned a new line for the production of PLS at
Texas and, in 2003, constructed an additional storage facility there. The lack
of reliability of a single PLS production line had been a restraining factor on
sales to several large customers requiring around-the-clock availability.
These investments have allowed us to better serve existing customers and to
pursue new business opportunities, resulting in new PLS customers during 2002
and 2003. The Arkansas modernization and expansion project began in the fourth
quarter 1999 and was expected to be completed in two phases. Phase I involved
the redevelopment of the quarry plant, rebuilding of the railroad to standard
gauge, the purchase of a facility to establish an out-of-state terminal in
Shreveport, Louisiana, the installation of a rotary kiln with preheater and
increased product storage and loading capacity. We completed Phase I in the
second quarter 2001. The total cost of Phase I of the Arkansas project was approximately
$33,000,000. The $33,000,000 included approximately $1,800,000 of costs
associated with the pre-building of certain facilities for Phase II of the
project and the purchase of, but not all of the improvements to, the
out-of-state terminal in Shreveport, Louisiana. The Phase II expansion will double the Arkansas plants quicklime
production capacity through the installation of a second preheater rotary kiln
and additional storage capacity substantially identical to the kiln system
built in Phase I. Construction of the second kiln system commenced in the third
quarter 2003 and is substantially complete as of the date of this report. The
plans for Phase II include the rehabilitation of the distribution terminal in
Shreveport, Louisiana, currently expected to be completed in 2004. The
estimated total cost to complete Phase II is approximately $16,000,000. We are
financing the completion of the Phase II expansion principally through the net
proceeds of the August 5, 2003 private placement discussed above. We invested $12,014,000 in capital expenditures in 2003, compared to
$3,622,000 in 2002. In 2003, approximately $8,500,000 of our capital
expenditures related to the Arkansas Phase II expansion project. We expect to spend approximately $3,000,000 to $4,000,000 per year over
the next several years for normal recurring capital and re-equipping projects
at the plant facilities to maintain or improve efficiency and reduce costs. 13




---



##### Table of Contents



Contractual Obligations.The following table sets forth our contractual
obligations as of December 31, 2003: Payments Due by Period (dollars in thousands)More thanContractual Obligations
    
    Total
    
    1 Year
    
    2-3 Years
    
    4-5 Years
    
    5 YearsLong-Term Debt,
including current
installments
    
    $
    51,500
    
    
    
    3,333
    
    
    
    6,667
    
    
    
    41,500
    
    
    
    Operating Leases
    
    $
    1,381
    
    
    
    357
    
    
    
    713
    
    
    
    267
    
    
    
    44Purchase Obligations(1)
    
    $
    3,800
    
    
    
    3,800
    
    
    
    
    
    
    
    
    
    
    
    Other Liabilities(2) (3)
    
    $
    234
    
    
    
    16
    
    
    
    35
    
    
    
    41
    
    
    
    142Total
    
    $
    56,915
    
    
    
    7,506
    
    
    
    7,415
    
    
    
    41,808
    
    
    
    186
   (1)  Approximate amount of open equipment and construction orders related to
the construction of the second kiln system at our Arkansas facility including
approximately $1,300 recorded on the Consolidated Balance Sheet at December
31, 2003 in current liabilities.(2)  Does not include $337 unfunded projected benefit obligation for a defined
benefit pension plan. Future required contributions, if any, are subject to
actuarial assumptions and future earnings on plan assets. (See Note 6 of
Notes to Consolidated Financial Statements.)(3) Does not include $328 potential liability for the repurchase of certain shares
of our common stock. Future potential liability will vary with the
market price of our common stock. (See Notes 3 and 8 of Notes to Consolidated
Financial Statements.) Liquidity.At March 26, 2004, we had made no draws on our new $6,000,000
revolving credit facility. We believe that cash on hand, funds generated from
operations and amounts available under the revolving credit facility will be
sufficient to meet our operating needs, ongoing capital needs and debt service
for 2004. Additionally, with our anticipated increase in cash flows from operations
following the completion of our Phase II expansion project at Arkansas, and
funds available under our revolving credit facility, we believe that we will
have sufficient capital resources to meet our liquidity needs for the near
future and enable us to refinance our long-term debt prior to maturities in
2007 and 2008. 
 ADDITIONAL FACTORS. Effects of Leverage and Restrictions Imposed by Terms of Our Indebtedness.
Following the closing of our $50,000,000 Loan in 1999 and issuance of the
$14,000,000 in Sub Notes in 2003, we are highly leveraged. As of December 31,
2003, our total consolidated indebtedness and total stockholders equity were
$51,219,000 and $41,960,000, respectively, and total indebtedness represented
55% of total capitalization, compared to 52% as of December 31, 2002. As a result of our total indebtedness, a substantial portion of our cash
flow from operations will be dedicated to the payment of principal and interest
on indebtedness. Our ability to service our debt and to comply with the
financial and restrictive covenants contained in the Loan and Sub Notes is
subject to financial, economic, competitive and other factors. Many of these
factors are beyond our control. In particular, our ability to service the
indebtedness will depend upon our ability to sustain current levels of revenues
and cash flows from operations as a result of the modernization and expansion
of the Texas and Arkansas plants. Short-Term Liquidity Demands.Funds available under our $6,000,000
revolving credit facility and funds generated from operations should allow us
to meet current liquidity demands. However, should our cash flows from
operations deteriorate, we may have to obtain additional financing, and there
is no assurance we will be able to do so at favorable rates, given our current
levels of indebtedness. Due to the seasonal nature of our sales and revenues, we may need to draw
down from our revolving credit facility during the first half 2004 to provide
funds for necessary repayments of principal and interest on our debt,
completion of the Phase II expansion project, winter capital projects, normal
recurring capital and re- 14




---



##### Table of Contents



equipping projects and normal working capital needs. If we draw on the
revolver in the first half 2004, we expect to repay any outstanding balance on
the facility during the second half 2004. Factors that Could Affect Our Success.In the normal course of our
business operations, we face 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 factors including, but not limited to, fluctuating
demand for lime and limestone products, our ability to produce and store
quantities of lime and limestone products sufficient in amount and quality to
meet customer demands, the success of our modernization and expansion
strategies, including our ability to execute the strategies and complete
projects on time and within budget, our access to capital, costs especially
natural gas and other energy prices, inclement weather and the effects of
seasonal trends. Environmental Compliance.We incur environmental compliance costs,
including capital costs, maintenance and operating costs with respect to
pollution control facilities, the cost of ongoing monitoring programs, the cost
of remediation efforts and other similar costs and liabilities relating to our
compliance with Environmental Laws. The rate of change of such laws has been
rapid over the last decade, and compliance can require significant
expenditures. We believe that our expenditure requirements for future
environmental compliance will continue to increase as operational and reporting
standards are increased. Discovery of currently unknown conditions could
require additional expenditures. We intend to comply with all Environmental Laws. Because many of the
requirements are subjective and therefore not quantifiable or presently
determinable, or may be affected by future legislation and rulemaking, it is
not possible to accurately predict the aggregate future costs of compliance and
their effect on our financial condition, results of operations, cash flows or
competitive position. We currently have no material provisions for estimated
costs or other liabilities in connection with expected environmental-related
expenditures. Our Operating Air Permits for Arkansas Phase I and Phase II cover air
emissions generated at the facilities and contain stringent criteria that the
new rotary lime kilns and plant must meet. Until testing has been completed on
the second kiln to demonstrate the ability to comply with the permit
conditions, there can be no assurance that additional capital will not be
required, or operating conditions imposed, in order to achieve compliance. Completion of Phase II of the Arkansas Project. In the third quarter
2003, we commenced construction of the second preheater rotary kiln and
additional storage capacity at Arkansas that is substantially identical to the
kiln system built in Phase I and is the major portion of the Phase II expansion
project at our Arkansas facilities. The second kiln system, which is
substantially completed, will double the Arkansas plants quicklime production
capacity. We also intend to complete the distribution terminal in Shreveport,
Louisiana to provide for an additional outlet for the increased Arkansas
production. To finance the Phase II expansion, we issued $14,000,000 of new Sub
Debt. Notwithstanding current demand for lime and limestone products, we
cannot guarantee that we will be able to sell our increased production at
Arkansas, or that any such sales will be profitable. Competition.The lime industry is highly regionalized and competitive.
Our competitors are predominately private companies. The primary competitive
factors in the lime industry are quality, price, ability to meet customer
demand, 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 or competitive position
could be materially adversely affected. Although demand and prices for lime
and limestone have been improving in recent years, we are unable to predict
future demand and prices, and cannot provide any assurance that current levels
of demand and prices will continue or that any future increases in demand or
price can be sustained. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. COMMODITY PRICE RISK. We are exposed to commodity price risk related to the price volatility of
natural gas utilized at our plants. From time to time, we enter into forward
purchase contracts for the delivery of a portion of our natural gas
requirements. At December 31, 2003, we had committed to purchase 20,000 MMBTU
per month for January, February and March 2004 at an average price of $5.20 per
MMBTU. As of December 31, 2003, the average
market price for deliveries for these months was approximately $6.11. We
recorded a mark-to-market adjustment resulting in a 15




---



##### Table of Contents



$55,000 reduction of labor and other
operating expenses at December 31, 2003. (See Note 1 of Notes to Consolidated
Financial Statements.) INTEREST RATE RISK. Our primary debt obligations are the Loan, the Sub Notes and our revolving
credit facility. Because the Loan and the Sub Notes bear a fixed rate of
interest, changes in interest rates do not subject us to changes in future
interest expense with respect to these borrowings. Borrowings, if any, under
our revolving credit facility, bear interest at a variable rate of LIBOR plus
2.75%. As of March 26, 2004, we have no outstanding borrowings under our
revolving credit facility. (See Note 3 of Notes to Consolidated Financial
Statements.) WARRANT SHARES REPURCHASE OBLIGATION. After August 5, 2008, or upon an earlier change of control, the Sub Note
investors may require the Company to repurchase any or all of the 162,000
shares that may be purchased by exercising the Companys outstanding warrants.
The repurchase price for each share is equal to the average closing price of
one share of the Companys common stock for the 30 trading days preceding the
date the shares are put back to the Company. Based on the $7.355 per share
average closing price for the 30 trading days prior to December 31, 2003, the
fair value of the warrant put liability is estimated to be $569. The December
31, 2003 carrying value for this liability is $328. The difference between the
fair value and the carrying value of the warrant put liability is being
accreted, and changes in the repurchase price for each share are accreted or
decreted, over the five-year period from the date of issuance to August 5,
2008. (See Notes 1 and 3 of Notes to Consolidated Financial Statements. 16




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index to Consolidated Financial Statements. Report of Independent Auditors
    
    
    F-1Consolidated Financial Statements:Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    
    F-2Consolidated Statements of Operations for the Years Ended
December 31, 2003, 2002 and 2001
    
    
    F-3Consolidated Statements of Stockholders Equity for
the Years Ended December 31, 2003, 2002 and 2001
    
    
    F-4Consolidated Statements of Cash Flows for the Years
Ended December 31, 2003, 2002 and 2001
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6
 17




---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders
United States Lime & Minerals, Inc. We have audited the consolidated balance sheets of United States Lime &
Minerals, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended December 31, 2003. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the 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 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 consolidated financial position of United
States Lime & Minerals, Inc. and subsidiaries as of December 31, 2003 and 2002,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States. ERNST & YOUNG LLP Dallas, Texas
February 6, 2004 - F 1 -




---



##### Table of Contents



Consolidated Balance Sheets
(dollars in thousands, except share data) December 31,2003
    
    2002ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,375
    
    
    
    226Trade receivables, net
    
    
    6,959
    
    
    
    5,202Inventories
    
    
    4,609
    
    
    
    4,782Prepaid expenses and other assets
    
    
    721
    
    
    
    262Total current assets
    
    
    18,664
    
    
    
    10,472Property, plant and equipment, at cost:Land
    
    
    3,654
    
    
    
    3,791Building and building improvements
    
    
    1,829
    
    
    
    1,687Machinery and equipment
    
    
    119,700
    
    
    
    107,097Furniture and fixtures
    
    
    971
    
    
    
    1,022Automotive equipment
    
    
    484
    
    
    
    465126,638
    
    
    
    114,062Less accumulated depreciation
    
    
    (49,371
    )
    
    
    (43,656
    )Property, plant and equipment, net
    
    
    77,267
    
    
    
    70,406Deferred tax assets, net
    
    
    1,899
    
    
    
    2,359Other assets, net
    
    
    1,670
    
    
    
    1,282Total assets
    
    $
    99,500
    
    
    
    84,519LIABILITES AND STOCKHOLDERS EQUITYCurrent liabilities:Current installments of debt
    
    $
    3,333
    
    
    
    4,533Accounts payable  trade
    
    
    3,369
    
    
    
    2,472Accrued expenses
    
    
    2,053
    
    
    
    953Total current liabilities
    
    
    8,755
    
    
    
    7,958Debt, excluding current installments
    
    
    47,886
    
    
    
    37,500Other liabilities
    
    
    899
    
    
    
    755Total liabilities
    
    
    57,540
    
    
    
    46,213Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $5.00 par value;
authorized 500,000 shares; none issued
    
    
    
    
    
    
    Common stock, $0.10 par value; authorized
15,000,000 shares; 5,815,596 and
5,799,845 shares issued at December 31,
2003 and 2002, respectively
    
    
    582
    
    
    
    580Additional paid-in capital
    
    
    10,458
    
    
    
    10,392Accumulated other comprehensive loss
    
    
    (237
    )
    
    
    (254
    )Retained earnings
    
    
    31,157
    
    
    
    27,588Total stockholders equity
    
    
    41,960
    
    
    
    38,306Total liabilities and stockholders equity
    
    $
    99,500
    
    
    
    84,519
 See accompanying notes to consolidated financial statements. - F 2 -




---



##### Table of Contents



Consolidated Statements of Operations
(dollars in thousands, except per share amounts) Years Ended December 31,2003
    
    2002
    
    2001Revenues
    
    $
    45,256
    
    
    
    39,162
    
    
    
    39,753Cost of revenues:Labor and other operating expenses
    
    
    26,091
    
    
    
    23,484
    
    
    
    23,371Depreciation, depletion and amortization
    
    
    6,103
    
    
    
    6,170
    
    
    
    5,91732,194
    
    
    
    29,654
    
    
    
    29,288Gross profit
    
    
    13,062
    
    
    
    9,508
    
    
    
    10,465Selling, general and administrative expenses
    
    
    4,488
    
    
    
    3,969
    
    
    
    4,075Operating profit
    
    
    8,574
    
    
    
    5,539
    
    
    
    6,390Other (income) expenses:Interest expense
    
    
    4,577
    
    
    
    4,329
    
    
    
    3,821Other, net
    
    
    (807
    )
    
    
    539
    
    
    
    3803,770
    
    
    
    4,868
    
    
    
    4,201Income before taxes
    
    
    4,804
    
    
    
    671
    
    
    
    2,189Income tax expense, net
    
    
    944
    
    
    
    35
    
    
    
    416Net income
    
    $
    3,860
    
    
    
    636
    
    
    
    1,773Income per share of common stock:Basic and
diluted income per common share
    
    $
    0.67

    
    
    0.11
    
    
    
    0.32
 See accompanying notes to consolidated financial statements. - F 3 -




---



##### Table of Contents



Consolidated Statements of Stockholders Equity
(dollars in thousands) Years Ended December 31, 2003, 2002 and 2001 Common Stock
    
    
    
    
    
    AccumulatedAdditional
    
    OtherShares
    
    
    
    
    
    Paid-In
    
    Comprehensive
    
    Retained
    
    TreasuryOutstanding
    
    Amount
    
    Capital
    
    Income (Loss)
    
    Earnings
    
    Stock
    
    TotalBalances at
December 31, 2000
    
    
    3,981,664
    
    
    $
    529
    
    
    
    14,819
    
    
    
    
    
    
    
    26,341
    
    
    
    (13,927
    )
    
    
    27,762Stock issued pursuant
to rights offering, net
    
    
    1,818,181
    
    
    
    51
    
    
    
    (4,427
    )
    
    
    
    
    
    
    
    
    
    
    13,927
    
    
    
    9,551Common stock
dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (579
    )
    
    
    
    
    
    
    (579
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,773
    
    
    
    
    
    
    
    1,773Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,773Balances at
December 31, 2001
    
    
    5,799,845
    
    
    $
    580
    
    
    
    10,392
    
    
    
    
    
    
    
    27,535
    
    
    
    
    
    
    
    38,507Common stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (583
    )
    
    
    
    
    
    
    (583
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    636
    
    
    
    
    
    
    
    636Minimum pension
liability adjustment,
net of $155 tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (254
    )
    
    
    
    
    
    
    
    
    
    
    (254
    )Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    382Balances at
December 31, 2002
    
    
    5,799,845
    
    
    $
    580
    
    
    
    10,392
    
    
    
    (254
    )
    
    
    27,588
    
    
    
    
    
    
    
    38,306Stock options exercised
    
    
    15,751
    
    
    
    2
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68Common stock
dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (291
    )
    
    
    
    
    
    
    (291
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,860
    
    
    
    
    
    
    
    3,860Minimum pension
liability adjustment,
net of $11 tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,877Balances at
December 31, 2003
    
    
    5,815,596
    
    
    $
    582
    
    
    
    10,458
    
    
    
    (237
    )
    
    
    31,157
    
    
    
    
    
    
    
    41,960
 See accompanying notes to consolidated financial statements - F 4 -




---



##### Table of Contents



Consolidated Statements of Cash Flows
(dollars in thousands) Years Ended December 31,2003
    
    2002
    
    2001OPERATING ACTIVITIES:Net income
    
    $
    3,860
    
    
    
    636
    
    
    
    1,773Adjustments to reconcile net income
to net cash provided by operations:Depreciation, depletion and amortization
    
    
    6,390
    
    
    
    6,427
    
    
    
    6,149Amortization of financing costs
    
    
    317
    
    
    
    230
    
    
    
    191Accretion of debt discount
    
    
    25
    
    
    
    
    
    
    
    Accretion of repurchase liability  warrants
    
    
    22
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    449
    
    
    
    
    
    
    
    Loss on sale of assets
    
    
    48
    
    
    
    30
    
    
    
    9Changes in operating assets and liabilities:Trade receivables
    
    
    (1,757
    )
    
    
    497
    
    
    
    (1,598
    )Inventories
    
    
    173
    
    
    
    275
    
    
    
    (825
    )Prepaid expenses
    
    
    (459
    )
    
    
    534
    
    
    
    (533
    )Other assets
    
    
    (109
    )
    
    
    (31
    )
    
    
    150Accounts payable and accrued expenses
    
    
    718
    
    
    
    (269
    )
    
    
    (5,312
    )Other liabilities
    
    
    (156
    )
    
    
    (122
    )
    
    
    196Total adjustments
    
    
    5,661
    
    
    
    7,571
    
    
    
    (1,573
    )Net cash provided by operations
    
    $
    9,521
    
    
    
    8,207
    
    
    
    200INVESTING ACTIVITIES:Purchase of property, plant and equipment
    
    $
    (12,014
    )
    
    
    (3,622
    )
    
    
    (4,113
    )Proceeds from sale of property, plant and
equipment
    
    
    11
    
    
    
    76
    
    
    
    309Net cash used in investing activities
    
    $
    (12,003
    )
    
    
    (3,546
    )
    
    
    (3,804
    )FINANCING ACTIVITIES:Payment of common stock dividends
    
    $
    (291
    )
    
    
    (583
    )
    
    
    (579
    )Proceeds from borrowings
    
    
    16,201
    
    
    
    1,750
    
    
    
    3,325Financing costs
    
    
    (613
    )
    
    
    
    
    
    
    Repayments of debt
    
    
    (6,734
    )
    
    
    (6,208
    )
    
    
    (13,159
    )Proceeds from exercise of stock options
    
    
    68
    
    
    
    
    
    
    
    Proceeds from issuance of common stock pursuant to
rights offering, net
    
    
    
    
    
    
    
    
    
    
    9,551Net cash provided by (used in) financing activities
    
    $
    8,631
    
    
    
    (5,041
    )
    
    
    (862
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,149
    
    
    
    (380
    )
    
    
    (4,466
    )Cash and cash equivalents at beginning of year
    
    
    226
    
    
    
    606
    
    
    
    5,072Cash and cash equivalents at end of year
    
    $
    6,375
    
    
    
    226
    
    
    
    606
 See accompanying notes to consolidated financial statements. - F 5 -




---



##### Table of Contents



Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts) Years Ended December 31, 2003, 2002 and 2001  (1)
    
    Summary of Significant Accounting Policies  (a)
    
    OrganizationThe Company is a manufacturer of lime and limestone products,
supplying primarily the agriculture, construction, municipal
sanitation and water treatment, paper and steel industries. The
Company is headquartered in Dallas, Texas and operates lime and
limestone plants in Arkansas, Colorado and Texas through its
wholly owned subsidiaries, Arkansas Lime Company, Colorado Lime
Company and Texas Lime Company, respectively.(b)
    
    Principles of ConsolidationThe consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany balances
and transactions have been eliminated.(c)
    
    Use of EstimatesThe preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and judgements 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 FlowsFor 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 original maturities 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: Year Ended December 31,2003
    
    2002
    
    2001Cash paid during the year for:Interest
    
    $
    4,507
    
    
    
    4,099
    
    
    
    4,512Income taxes, net of refunds
    
    $
    218
    
    
    
    83
    
    
    
    296
  (e)
    
    Revenue RecognitionThe Company recognizes revenue in accordance with the terms of its
contracts, which are generally upon shipment.(f)
    
    Fair Values of Financial InstrumentsThe 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 gas futures
contracts are carried at market value. - F 6 -




---



##### Table of Contents



After August 5, 2008, or upon an earlier change of control, the
holders of the Companys subordinated debt may require the Company
to repurchase any or all of the 162,000 shares that may be
purchased by exercising the Companys outstanding warrants. The
repurchase price for each share is equal to the average closing
price of one share of the Companys common stock for the 30
trading days preceding the date the shares are put back to the
Company. Based on the $7.355 per share average closing price for
the 30 trading days prior to December 31, 2003, the fair value of
the warrant put liability is estimated to be $569. The December
31, 2003 carrying value for this liability is $328. The
difference between the fair value and the carrying value of the
warrant put liability is being accreted, and future changes in the
repurchase price for each share are accreted or decreted, over the
five-year period from the date of issuance to August 5, 2008.(g)
    
    Concentration of Credit Risk and Trade ReceivablesFinancial 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. For a
discussion of the credit risks associated with the Companys
derivative financial instruments, see Gas Future Contracts below.The majority of the Companys trade receivables are unsecured.
Payment terms for all trade receivables are contractually based.
Credit losses relating to these receivables consistently have been
within management expectations. Trade receivables are presented
net of the related allowance for doubtful accounts, which totaled
$200 and $125 at December 31, 2003 and 2002, respectively.(h)
    
    InventoriesInventories are valued principally at the lower of cost,
determined using the average cost method, or market. Costs
include materials, labor, and production overhead.A summary of inventories is as follows: December 31,2003
    
    2002Lime and limestone inventories:Raw materials
    
    $
    1,616
    
    
    
    1,704Finished goods
    
    
    769
    
    
    
    9422,385
    
    
    
    2,646Service parts inventories
    
    
    2,224
    
    
    
    2,136$
    4,609
    
    
    
    4,782
  (i)
    
    Property, Plant and EquipmentFor major constructed assets, the capitalized cost includes the
cash price paid by the Company for labor and materials plus
interest and project management costs that are directly related to
the constructed assets. Total interest costs of $308, $0 and $845
were capitalized for the years ended December 31, 2003, 2002 and
2001, respectively. Depreciation of property, plant and equipment
is being provided for by the straight-line and declining-balance
methods over estimated useful lives as follows: Buildings and building improvements
    
    3 - 40 yearsMachinery and equipment
    
    3 - 20 yearsFurniture and fixtures
    
    3 - 10 yearsAutomotive equipment
    
    3 - 8 years
 - F 7 -




---



##### Table of Contents



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.In accordance with the guidelines of Statement of Financial
Accounting Standards No. 143, Accounting for Asset Retirement
Obligations,the Company recognizes legal obligations associated
with the retirement of long-lived assets at their fair value at
the time that the obligations are incurred. Upon initial
recognition of a liability, the cost is capitalized as part of the
related long-lived asset and allocated to expense over the useful
life of the asset.The Company reviews its long-term assets for impairment in
accordance with the guidelines of Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144). SFAS 144 requires
that, when events or circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company should
determine if impairment of value exists. If the estimated
undiscounted future net cash flows are less than the carrying
amount of the asset, an impairment exists and an impairment loss
must be calculated and recorded. If an impairment exists, the
impairment loss is calculated based on the excess of the carrying
amount of the asset over the assets fair value. Any impairment
loss is treated as a permanent reduction in the carrying value of
the asset. Through December 31, 2003, no events or circumstances
have arisen which would require the Company to record a provision
for impairment of its long-lived assets.(j)
    
    Other AssetsOther assets consist of the following: December 31,2003
    
    2002Deferred stripping costs
    
    $
    381
    
    
    
    273Prepaid financing costs
    
    
    1,279
    
    
    
    996Other
    
    
    10
    
    
    
    13$
    1,670
    
    
    
    1,282
  Deferred stripping costs, all of which relate to Arkansas Lime
Company, are amortized using the units-of-production method.
Deferred financing costs are expensed over the life of the debt
using the straight-line method.(k)
    
    Environmental ExpendituresEnvironmental 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 when environmental assessments
and/or remedial efforts are probable, and the costs can be
reasonably estimated. 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.In part in response to requirements of environmental regulatory
agencies, the Company incurred capital expenditures related to
environmental matters of approximately $400 in 2003 and $225 in
2002.(l)
    
    Income (Loss) Per Share of Common StockEffective December 31, 1997, Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128), was
implemented by the Company. SFAS 128 requires the presentation of
basic and diluted income (loss) per common share for all periods
presented. - F 8 -




---



##### Table of Contents



The following table sets forth the computation of basic and diluted income per
common share: Year Ended December 31,2003
    
    2002
    
    2001Numerator:Net income for basic income
per common share
    
    $
    3,860
    
    
    
    636
    
    
    
    1,773Warrant interest adjustment
    
    
    22
    
    
    
    
    
    
    
    Net income for diluted income per
common share
    
    $
    3,882
    
    
    
    636
    
    
    
    1,773Denominator:Denominator for basic income per
common share  weighted-average shares
    
    
    5,801,917
    
    
    
    5,799,845
    
    
    
    5,602,875Effect of dilutive securities:Warrants
    
    
    10,752
    
    
    
    
    
    
    
    Employee stock options
    
    
    12,438
    
    
    
    
    
    
    
    Denominator for diluted income per
common share  adjusted weighted-average shares and assumed exercises
    
    
    5,825,107
    
    
    
    5,799,845
    
    
    
    5,602,875Basic and diluted income per
common share
    
    $
    0.67
    
    
    
    0.11
    
    
    
    0.32
  (m)
    
    Stock OptionsThe Company has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), in accounting for its employee stock options. Under APB 25,
if the exercise price of an employees stock options equals or
exceeds the market price of the underlying stock on the date of
grant, no compensation expense is recognized. The Company adopted
Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123), in 1996. SFAS 123
requires companies that elect to continue applying the provisions
of APB 25 to provide pro forma disclosures for employee stock
compensation awards as if the fair-value-based method defined in
SFAS 123 had been applied. See Note 7.The following table illustrates the effect on net income and
income per share of common stock if the Company had applied the
fair value recognition provisions of SFAS 123 instead of APB 25s
intrinsic value method to account for stock-based employee
compensation: Year Ended December 31,2003
    
    2002
    
    2001Net income as reported
    
    $
    3,860
    
    
    
    636
    
    
    
    1,773Stock-based employee compensations expense,
net of income taxes
    
    
    (61
    )
    
    
    (33
    )
    
    
    (70
    )Pro forma net income
    
    $
    3,799
    
    
    
    603
    
    
    
    1,703Basic and diluted income per common
share, as reported
    
    $
    0.67
    
    
    
    0.11
    
    
    
    0.32Pro forma basic and diluted income per
common share
    
    $
    0.65
    
    
    
    0.10
    
    
    
    0.30
 - F 9 -




---



##### Table of Contents



The fair value for these options was estimated at the date of
grant using the Black-Scholes option valuation model, with the
following weighted average assumptions for the 2003 and 2001
grants: risk-free interest rates of 2.00% in 2003 and 5.34% in
2001; a dividend yield of 0% in 2003 and 2% in 2001; and a
volatility factor of 0.31 in 2003 and 0.33 in 2001. In addition,
the fair value of these options was estimated based on an expected
life of three years.(n)
    
    Gas Future ContractsFrom time to time, the Company has entered into
forward purchase contracts for the delivery of a portion of the
natural gas requirements of its plants. All such contracts are
recorded on the balance sheet at their respective fair values. The
Company is exposed to credit losses in the event of
non-performance by the counterparties of its financial
instruments. Collateral or other security to support financial
instruments subject to credit risk is not required, but management
monitors the credit standing of the counterparties.As of December 31, 2003, the Company had commitments to purchase,
under two forward purchase contracts, a total of 20MMBTU per month
for the months of January, February and March 2004. The delivery
prices in dollars for these volumes averaged $5.20 per MMBTU. The
market prices in dollars for deliveries in these months as of
December 31, 2003 were $6.15 per MMBTU for January deliveries,
$6.19 per MMBTU for February deliveries and $6.00 per MMBTU for
March deliveries. The Company elected not to designate these
instruments as hedges for accounting purposes. Accordingly, the
Company recorded a mark-to-market adjustment, resulting in a $55
reduction of labor and other operating expenses at December 31,
2003, which is included in other current assets on the balance
sheet. The costs of natural gas delivered under these contracts
is included in labor and other operating expenses during the month
of delivery. As of December 31, 2002, the Company had no open
forward purchase contracts.(o)
    
    Comprehensive IncomeThe Company follows Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income (SFAS 130), which
provides standards for reporting and displaying comprehensive
income. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and
other events from non-owner sources. See Note 6.  (2)
    
    Embezzlement Matter On January 31, 2002, the Company announced that it had discovered that an
employee who had recently left the Company may have improperly diverted Company
funds without authorization. Trading in the Companys common stock on the
Nasdaq National Market® (Nasdaq) was halted, and the Audit Committee of
the Companys Board of Directors retained outside counsel to conduct a special
investigation into the matter. The Audit Committee also retained an
independent accounting firm to review the Companys internal controls and to
make recommendations for improvement that the Company has implemented. The
Company also contacted the Securities and Exchange Commission (the SEC), as
well as criminal authorities, and cooperated with the SEC, Nasdaq and criminal
authorities with respect to their investigations into this matter. The Companys former Vice President  Finance, Controller, Treasurer, and
Secretary, Larry Ohms (the Former VP Finance), over a period of four years
beginning in 1998, embezzled approximately $2,179 from the Company. The Former
VP Finance voluntarily resigned from the Company on January 22, 2002,
approximately one week before the Company discovered the defalcations. The
Former VP Finance has stated that no one else at the Company was involved in
perpetrating the embezzlements. From the results of the special investigation
and his testimony, the Company believes this statement to be accurate. In
2002, the Former VP of Finance pleaded guilty to one count of wire fraud and
one count of making a false statement to the SEC, and on March 24, 2003 was
sentenced to a term in federal prison and ordered to pay $2,179 in restitution
to the Company. On March 14, 2002, the Company received $500 in insurance proceeds from
the Companys insurance policies covering employee theft. The $500 was
recorded on the Consolidated Balance Sheet at December 31, - F 10 -




---



##### Table of Contents



2001 in prepaid
expenses and other assets, and recognized in the Consolidated Statement of
Operations in other
income in the fourth quarter 2001. In addition, the Company retained counsel
for assistance in its efforts to recover the embezzled funds from the Former VP
Finance, and to pursue possible civil actions on behalf of the Company against
third parties. The Company filed suit against the Former VP Finance and has
obtained a judgment against him, including compensatory and punitive damages.
The Former VP Finance has claimed not to have any funds. Recoveries were recognized in the quarters in which the recoveries were
realized, and the costs of the Companys special investigation, the Companys
cooperation with the SEC, Nasdaq and criminal authorities in their
investigations and the Companys ongoing recovery efforts were expensed as
incurred. During 2003, the Company recorded recoveries of $777 ($0.13 per
basic and diluted share), net of income taxes ($971 gross), and
embezzlement-related costs of $162 ($0.03 per basic and diluted share), net of
income tax benefits ($202 gross), compared to embezzlement-related costs of
$648 ($0.11 per basic and diluted share), net of income tax benefits ($683
gross), in 2002. The Company does not anticipate any future material
embezzlement-related costs or recoveries.  (3)
    
    Banking Facilities and Other Debt On April 22, 1999, the Company entered into a credit agreement with a
consortium of commercial banks for a $50,000 Senior Secured Term Loan (the
Loan). The Loan is repayable over a period of approximately eight years,
maturing on March 30, 2007, and requires monthly principal payments of $278,
which began April 30, 2000, with a final principal payment of $26,944 on March
30, 2007, which equates to a 15-year amortization. The Company paid a fee
equivalent to 2.50% of the Loan value to the placement agent. The interest rate on the first $30,000 of the Loan is 8.875%. The
subsequent installments bear interest from the date they were funded at 3.52%
above the secondary market yield of the United States Treasury obligation
maturing May 15, 2005. The blended rate for the additional $20,000 is 9.84%. The Loan is secured by a first lien on substantially all of the Companys
assets, with the exception of accounts receivable and inventories which secure
the Companys $6,000 revolving credit facility. The Loan agreement contains
covenants that restrict the incurrence of debt, guaranties and liens, and
places certain restrictions on the payment of dividends and the sale of
significant assets. The Company is also required to meet minimum debt service
coverage ratios on an ongoing basis and maintain a minimum level of tangible
net worth. On January 31, 2003, the maturity of the Companys $5,000 revolving credit
facility that it had at that time was extended to July 31, 2003. From January
1, 2003 through March 2, 2003, that revolving credit facility bore interest at
LIBOR plus a margin of 1.40% to 3.55%, in accordance with a defined rate spread
based upon the Companys then-current ratio of total funded debt to earnings
before interest, taxes, depreciation and amortization (EBITDA). On March 3, 2003, the Company entered into a Loan and Security Agreement
with another bank for a new $5,000 revolving credit facility to replace the
prior facility. In addition, the Company obtained a new $2,000 equipment line
of credit (available for financing or leasing large mobile equipment used in
its operations) from the same bank. The new revolving credit facility is
secured by the Companys accounts receivable and inventories, provides for an
interest rate of LIBOR plus 2.75% and originally matured on March 1, 2004. The
outstanding balance of the revolving credit facility was repaid in full on
August 5, 2003 with proceeds from the private placement discussed below, and
the Loan and Security Agreement was amended to allow the revolving credit
facility to be increased to $6,000 at the Companys option. The weighted
average interest rate for the revolving credit facilities for the outstanding
balances in 2003 was 4.04%. On December 29, 2003, the Loan and Security
Agreement was amended to increase the revolving credit facility to $6,000 and
extend the maturity to April 1, 2005. As of December 31, 2003, the Company had
no outstanding balance on the revolving credit facility. As of December 31,
2003, the Company had entered into approximately $1,100 of operating leases for
mobile equipment under the $2,000 equipment line. In April 2003, the Company engaged Frost Securities, Inc. (Frost) to
advise it on possible financing alternatives for the Phase II expansion of the
Companys Arkansas facilities. Frost contacted potential sources of financing
and obtained several term sheet proposals for a subordinated debt placement
from outside investors. In conjunction with the review of the proposals and
further negotiations, Frost and the Company renewed discussions with the
Companys two largest shareholders and a third party to determine whether they
would be interested in the investment on terms more favorable to the Company
than those then available from other potential outside investors. - F 11 -




---



##### Table of Contents



On August 5, 2003, the Company sold $14,000 of unsecured Subordinated
Notes (the Sub Notes) in a private placement under Section 4(2) of the
Securities Act of 1933 to three accredited investors, one of which is an
affiliate of Inberdon Enterprises Ltd., the Companys majority shareholder
(Inberdon), and another of which is an affiliate of Robert S. Beall, who owns
approximately 12% of the Companys outstanding shares. The Company believes
that the terms of the private placement are more favorable to the Company than
the proposals previously received. Frost provided an opinion to the Companys
Board of Directors that, from a financial point of view, the private placement
was fair to the unaffiliated holders of the Companys common stock in relation
to other potential subordinated debt transactions then available to the
Company. The Company paid Frost an aggregate of $381 for its advice, placement
services and opinion. The net proceeds of approximately $13,450 from the private placement are
being used to fund the Phase II expansion of the Companys Arkansas facilities.
Terms of the Sub Notes include: a maturity date of August 5, 2008, subject to
acceleration upon a change in control; no mandatory principal payments prior to
maturity; an interest rate of 14% (12% paid in cash and 2% paid in cash or in
kind at the Companys option); and, except as discussed below, no optional
prepayment prior to August 5, 2005 and a 4% prepayment penalty if repaid before
maturity. The terms of the Sub Notes are identical to one another, except that
the Sub Note for the affiliate of Inberdon does not prohibit prepayment prior
to August 5, 2005 and does not require a prepayment penalty if repaid before
maturity, resulting in a weighted average prepayment penalty of approximately
2.4% if the Sub Notes are repaid before maturity. The Sub Notes include
covenants similar to the covenants for the Loan. The private placement also included six-year detachable warrants,
providing the Sub Note investors the right to purchase an aggregate of 162,000
shares of the Companys common stock, at 110% of the average closing price of
one share of common stock for the trailing 30 trading days prior to closing, or
$3.84. The fair value of the warrants was recorded as a reduction of the
carrying value of the Sub Notes and is being accreted over the term of the Sub
Notes, resulting in an effective annual interest rate of 14.44%. After August 5,
2008, or upon an earlier change in control, the investors may require the
Company to repurchase any or all shares acquired through exercise of the
warrants (the Warrant Shares). The repurchase price for each Warrant Share
will equal the average closing price of one share of the Companys common stock
for the 30 trading days preceding the date the Warrant Shares are put back to
the Company. Changes in the repurchase price for each Warrant Share are
accreted or decreted over the five-year period from the date of issuance to
August 5, 2008. The investors are also entitled to certain registration rights
for the resale of their Warrant Shares. As a result of certain negotiations with the Companys existing bank
lenders, the Loan and the revolving credit facility were amended to approve the
terms of the Sub Notes. As part of these amendments, the Company is prohibited
from paying any dividends in cash through June 30, 2005 without the prior
written consent of the bank lenders. As of December 31, 2003, the Company had approximately $51,219 in total
debt outstanding. A summary of debt is as follows: December 31,2003
    
    2002Term loan
    
    $
    37,500
    
    
    
    40,833Sub Notes
    
    
    13,719
    
    
    
    Revolving credit facility
    
    
    
    
    
    
    1,200Subtotal
    
    
    51,219
    
    
    
    42,033Less current installments
    
    
    3,333
    
    
    
    4,533Debt, excluding current installments
    
    $
    47,886
    
    
    
    37,500
 Amounts payable on the Companys long-term debt outstanding as of December
31, 2003 to be paid in 2004 and thereafter are: 2004  $3,333; 2005  $3,333;
2006  $3,333; 2007  $27,501; 2008  $13,719.  (4)
    
    Stockholders Equity On December 26, 2000, the Company initiated a rights offering for $10,000.
The rights offering allowed each shareholder to receive 0.4566
non-transferable subscription rights for each share of the Companys common
stock owned on December 26, 2000. The purchase price for the subscription was
$5.50 per share, and the rights offering expired on February 5, 2001. - F 12 -




---



##### Table of Contents



The Company received $10,000 ($9,551 net of offering costs) and issued an
additional 1,818,181 shares of common stock effective February 8, 2001. In the
rights offering, the Company honored the over-subscription requests of its
shareholders in full. The Companys majority shareholder, Inberdon,
subscripted to its full pro-rata amount and, in addition, purchased 461,005
shares not purchased by other shareholders in the rights offering. Immediately
following the rights offering, Inberdon owned approximately 59% of the
Companys common stock. The $237 accumulated other comprehensive loss resulted from an unfunded
projected benefit obligation for a defined benefit pension plan. See Note 6. As detailed in Note 3, the Company has warrants outstanding providing the
Sub Note investors the right to purchase 162,000 shares of the Companys common
stock at $3.84 per share.  (5)
    
    Income Taxes Income tax expense, net for the years ended December 31, 2003, 2002 and
2001, is as follows: 2003
    
    2002
    
    2001Current income tax expense
    
    $
    495
    
    
    
    35
    
    
    
    416Deferred income tax expense
    
    
    449
    
    
    
    
    
    
    
    Income tax expense, net
    
    $
    944
    
    
    
    35
    
    
    
    416
 A reconciliation of income taxes computed at the federal statutory rate to
income tax expense, net for the years ended December 31, 2003, 2002 and 2001,
is as follows: 2003
    
    2002
    
    2001Percent
    
    
    
    
    
    Percent
    
    
    
    
    
    Percentof pretax
    
    
    
    
    
    of pretax
    
    
    
    
    
    of pretaxAmount
    
    income
    
    Amount
    
    income
    
    Amount
    
    incomeIncome taxes computed at
the federal statutory rate
    
    $
    1,634
    
    
    
    34.0
    %
    
    $
    228
    
    
    
    34.0
    %
    
    $
    744
    
    
    
    34.0
    %Increase (reduction) in
taxes resulting from:Statutory depletion in
excess of cost depletion
    
    
    (764
    )
    
    
    (15.9
    )
    
    
    (539
    )
    
    
    (80.4
    )
    
    
    (644
    )
    
    
    (29.4
    )State income taxes, net of
federal income tax benefit
    
    
    73
    
    
    
    1.5
    
    
    
    23
    
    
    
    3.4
    
    
    
    79
    
    
    
    3.6Other
    
    
    1
    
    
    
    
    
    
    
    323
    
    
    
    48.2
    
    
    
    237
    
    
    
    10.8Income tax expense, net
    
    $
    944
    
    
    
    19.6
    %
    
    $
    35
    
    
    
    5.2
    %
    
    $
    416
    
    
    
    19.0
    %
 As reported in the Companys consolidated financial statements and notes
contained in its Form 10-K for the year ended December 31, 1996, the Company
had deferred tax assets which were previously fully reserved by a valuation
allowance in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS 109). The unrecognized deferred tax
assets related primarily to net operating loss carryforwards, general business
credit carryforwards and alternative minimum tax credit carryforwards. Generally, the provisions of SFAS 109 require 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. SFAS 109 requires an assessment of all available
evidence, both positive and negative, to determine the amount of any required
valuation allowance. No benefit was given to the Companys deferred tax assets
at December 31, 1996 due to uncertainties related to their utilization. As a result of the sale of the Corson Lime Company assets in 1997, the
Company reviewed the deferred tax assets and concluded that the uncertainties
as to their realization had been favorably resolved, in that the net operating
loss carryforwards and the general business credit carryforwards were expected
to be fully utilized. The Companys prospects for future taxable income,
enhanced by the sale of the Corson assets, indicated future utilization of the
alternative minimum tax credit carryforwards in the future. The post-Corson
sale assessment as - F 13 -




---



##### Table of Contents



to the ultimate realization of the deferred tax assets
indicated that it was more likely than not that the deferred tax
assets would be realized. As a result, the Company reduced the deferred
tax asset valuation allowance in the second quarter 1997 by $2,300, recording
the deferred tax assets and recognizing that amount in federal and state income
tax expense (benefit), net. At December 31, 2003, the Company had deferred tax liabilities of $1,980,
a valuation allowance of $1,220 and deferred tax assets of $5,099. The
principal temporary difference related to the deferred tax liabilities was
property. The principal temporary difference related to the deferred tax
assets was the alternative minimum tax credit carryforward of $4,202. At December 31, 2002, the Company had deferred tax liabilities of $1,148,
a valuation allowance of $1,270 and deferred tax assets of $4,777. The
principal temporary difference related to the deferred tax liabilities was
property. The principal temporary difference related to the deferred tax
assets was the alternative minimum tax credit carryforward of $3,809. Due to uncertainties about realizing deferred tax assets beyond what has
already been recognized, any increases in the Companys calculated deferred tax
assets are currently being fully reserved in a deferred tax assets valuation
allowance account. The Company will continue to evaluate this reserve.  (6)
    
    Employee Retirement Plans The Company has a noncontributory defined benefit pension plan (the
Corson Plan) that covers substantially all union employees previously
employed by its wholly-owned subsidiary, Corson Lime Company. In June 1997,
the Company sold substantially all of the assets of Corson Lime Company and all
benefits for participants in the plan were frozen as of July 31, 1997. During 1997
and 1998, the Company made contributions to the Corson Plan that were intended
to fully fund the benefits earned by the participants. The Company made no
contributions to the Corson Plan from 1999 through 2002. In recent years,
significant declines in the financial markets have unfavorably impacted plan
asset values resulting in an unfunded projected benefit obligation of $337 and
$409 at December 31, 2003 and 2002, respectively. As a result, the Company
made a $107 contribution to the Corson Plan in 2003 and recorded other
comprehensive income (loss) of $17, net of $11 tax expense, and ($254), net of
$155 tax benefit, for the years ended December 31, 2003 and 2002, respectively. In consultation with investment advisor for the Corson Plan, the
administrative committee, consisting of management employees appointed by the
Companys board of directors, establishes the investment objective for the
plans assets. The investment advisor makes all specific investment decisions.
Historically, Corson Plan assets have been allocated approximately 50% to 70%
to equity securities with a goal of providing long-term growth of at least 9.0%
per year. The Company expects the future long-term rate of return for its
Pension Plan assets to average 9.0% based on an asset allocation policy of 50%
to 70% to common equities with the remainder allocated to fixed income
securities. The Companys long-term rate of return expectations are based on
past performance of equity securities, which have yielded long-term returns in
excess of 10%. The following table sets forth the asset allocation for the Corson Plan at
November 30 (measurement date): 2003
    
    2002Equity securities and funds
    
    
    61.0
    %
    
    
    56.5
    %Institutional bond funds
    
    
    38.7
    
    
    
    41.6Cash and cash equivalents
    
    
    0.3
    
    
    
    1.9100.0
    %
    
    
    100.0
    %
 - F 14 -




---



##### Table of Contents



The following table sets forth the funded status of the Corson Plan
accrued pension benefits at November 30 (measurement date): 2003
    
    2002Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    1,546
    
    
    
    1,461Interest cost
    
    
    111
    
    
    
    112Actuarial loss
    
    
    49
    
    
    
    88Benefits paid
    
    
    (117
    )
    
    
    (115
    )Benefit obligation at end of year
    
    $
    1,589
    
    
    
    1,546Change in plan assets:Fair value of plan assets at beginning
of year
    
    $
    1,137
    
    
    
    1,411Employer contribution
    
    
    107
    
    
    
    Actual gain (loss) on plan assets
    
    
    125
    
    
    
    (159
    )Benefits paid
    
    
    (117
    )
    
    
    (115
    )Fair value of plan assets at end of year
    
    $
    1,252
    
    
    
    1,137Underfunded status
    
    $
    (337
    )
    
    
    (409
    )Accumulated benefit obligation
    
    $
    1,589
    
    
    $
    1,546
 The net liability recognized in the consolidated balance sheets at
December 31 consists of the following: 2003
    
    2002Accrued benefit cost
    
    $
    337
    
    
    
    409
 The weighted average assumptions used in the measurement of the Corson
Plan benefit obligation at December 31 are as follows: 2003
    
    2002Discount rate
    
    
    7.0
    %
    
    
    7.5
    %Expected long-term return on plan assets
    
    
    9.0
    %
    
    
    9.0
    %
 The following table provides the components of the Corson Plan net periodic benefit cost: Year Ended December 31,2003
    
    2002
    
    2001Interest cost
    
    $
    111
    
    
    
    112
    
    
    
    113Expected return on plan assets
    
    
    (96
    )
    
    
    (121
    )
    
    
    (142
    )Amortization of net actuarial loss
    
    
    37
    
    
    
    19
    
    
    
    29Net periodic benefit cost
    
    $
    52
    
    
    
    10
    
    
    
    
 The Company has a contributory retirement (401(k)) savings plan for
nonunion employees. The Company contributions to the plan were $57 during
2003, $57 during 2002 and $59 during 2001. The Company also has contributory
retirement (401(k)) savings plans for union employees of Arkansas Lime Company
and Texas Lime Company. The Company contributions to these plans were
$35 in
2003, $32 in 2002 and $36 in 2001. - F 15 -




---



##### Table of Contents



(7)
    
    Stock Option Plans On April 27, 2001, the Company implemented the 2001 Long-Term Incentive
Plan (the 2001 Plan) that replaced the 1992 Stock Option Plan (the 1992
Plan). In addition to stock options, the 2001 Plan, unlike the 1992 Plan,
provides for the grant of stock appreciation rights, restricted stock, deferred
stock and other stock-based awards to officers and employees. The 2001 Plan
also makes directors and consultants eligible for grants of stock options and
other awards. The 1992 Plan only provided for grants to key employees. As a
result of the adoption of the 2001 Plan, no further grants will be made under
the 1992 Plan, but the terms of the 1992 Plan will continue to govern options
that remain outstanding under the 1992 Plan. 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 475,000. In addition, no individual may receive
awards in any one calendar year relating to more than 100,000 shares of common
stock. The options under both the 2001 Plan and 1992 Plan expire ten years
from the date of grant and generally become exercisable after the expiration of
one year from the grant date. As of December 31, 2003, the number of shares remaining available for
future grant under the 2001 Plan was 310,500. A summary of the Companys stock
option activity and related information for the years ended December 31, 2003,
2002 and 2001 is as follows: 2003
    
    2002
    
    2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseOptions
    
    Price
    
    Options
    
    Price
    
    Options
    
    PriceOutstanding at beginning of year
    
    
    225,000
    
    
    $
    6.55
    
    
    
    253,500
    
    
    $
    6.68
    
    
    
    194,000
    
    
    $
    7.45Granted
    
    
    114,500
    
    
    
    3.65
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    5.15Exercised
    
    
    (20,000
    )
    
    
    4.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    (28,500
    )
    
    
    7.75
    
    
    
    (20,500
    )
    
    
    7.98Outstanding at end of year
    
    
    319,500
    
    
    $
    5.62
    
    
    
    225,000
    
    
    $
    6.55
    
    
    
    253,500
    
    
    $
    6.68Exercisable at end of year
    
    
    213,000
    
    
    $
    6.59
    
    
    
    225,000
    
    
    $
    6.55
    
    
    
    173,500
    
    
    $
    7.39Weighted average fair value of
options granted during the year
    
    
    
    
    
    $
    0.86
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1.15Weighted average remaining
contractual life in years
    
    
    
    
    
    
    6.58
    
    
    
    
    
    
    
    5.03
    
    
    
    
    
    
    
    6.26
 The following table summarizes information about options outstanding at
December 31, 2003: Weighted Average RemainingExercise Price
    
    Contractual Life (Years)
    
    Number of Shares$8.25
    
    
    1.88
    
    
    
    50,000$7.00
    
    
    4.14
    
    
    
    40,000$8.00
    
    
    5.88
    
    
    
    30,000$6.75
    
    
    6.13
    
    
    
    5,000$5.50
    
    
    7.01
    
    
    
    30,000$4.94
    
    
    7.50
    
    
    
    50,000$3.85
    
    
    9.09
    
    
    
    76,500$3.27
    
    
    9.34
    
    
    
    8,000$3.26
    
    
    9.38
    
    
    
    30,000Totals:
    
    
    6.58
    
    
    
    319,500
 - F 16 -




---



##### Table of Contents



(8)
    
    Commitments and Contingencies The Company leases some of the equipment used in its operations.
Generally, the leases are for periods varying from one to five years and are
renewable at the option of the Company. Total rent expense was $561 for 2003,
$435 for 2002, and $403 for 2001. As of December 31, 2003, future minimum
payments under noncancelable operating leases were $357 for 2004, 2005 and
2006, $181 for 2007, $87 for 2008 and $44 for 2009. After August 5, 2008, or upon an earlier change in control, the Sub Note
investors may require the Company to repurchase any or all of the 162,000
shares that may be purchased by exercising the warrants. See Note 3. As of
December 31, 2003, the liability recognized in the consolidated balance sheet
for this potential repurchase was $328. 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
operation, cash flows or competitive position. With respect to the
embezzlements discussed in Note 2, the costs associated with the Companys
special investigation, the Companys cooperation with the SEC, Nasdaq and
criminal authorities in their investigations, and the Companys ongoing
recovery efforts were recognized as other expense, net, as incurred. From time to time, the Company receives claims from federal and state
environmental agencies asserting that the Company is or may be in violation of
environmental laws. In 2002, one of the Companys facilities was issued an
administrative petition alleging violations of certain state environmental laws
and requesting certain actions. Based on its experience and currently available
information, management believes that the resolution of these claims will not
have a material adverse effect on the Companys financial condition, results of
operations or 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, 2003, the Company had approximately $2,500 for open equipment and
construction orders and approximately $1,300 included in accounts payable and
accrued expenses related to the Phase II expansion project in Arkansas.  (9)
    
    Summary of Quarterly Financial Data (unaudited) 2003March 31,
    
    June 30,
    
    September 30,
    
    December 31,Revenues
    
    $
    9,556
    
    
    
    11,529
    
    
    
    12,849
    
    
    
    11,322Gross profit
    
    
    1,749
    
    
    
    3,459
    
    
    
    4,387
    
    
    
    3,467Net income (loss)
    
    $
    (271
    )
    
    
    1,813
    
    
    
    1,642
    
    
    
    676Basic and diluted income (loss)
per common share
    
    $
    (0.05
    )
    
    
    0.31
    
    
    
    0.28
    
    
    
    0.12
 2002March 31,
    
    June 30,
    
    September 30,
    
    December 31,Revenues
    
    $
    8,977
    
    
    
    10,961
    
    
    
    10,496
    
    
    
    8,728Gross profit
    
    
    1,837
    
    
    
    2,981
    
    
    
    2,739
    
    
    
    1,951Net income (loss)
    
    $
    (470
    )
    
    
    516
    
    
    
    585
    
    
    
    5Basic and diluted income (loss)
per common share
    
    $
    (0.08
    )
    
    
    0.09
    
    
    
    0.10
    
    
    
    0.00
 - F 17 -




---



##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. NONE 
 ITEM 9A. 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. 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. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information appearing under Election of Directors, Nominees for
Director, Executive Officers Who Are Not Also Directors, Section 16(a)
Beneficial Ownership Reporting Compliance and Corporate Governance in the
definitive Proxy Statement for the Companys 2004 Annual Meeting of
Shareholders (the 2004 Proxy Statement) is hereby incorporated by reference
in answer to this Item 10. The Company anticipates that it will file the 2004
Proxy Statement with the Securities and Exchange Commission on or before April
9, 2004. 
 ITEM 11. EXECUTIVE COMPENSATION The information appearing under Executive Compensation in the 2004 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
Shareholders, Shareholdings of Company Directors and Executive Officers and
Executive Compensation in the 2004 Proxy Statement is hereby incorporated by
reference in answer to this Item 12. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under Certain Transactions in the 2004 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 2004 Proxy
Statement is hereby incorporated by reference in answer to this Item 14. - 18 -




---



##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)
    
    1.
    
    The following financial statements are included in Item 8:Report of Independent AuditorsConsolidated Financial Statements:Consolidated Balance Sheets as of December, 31, 2003 and
2002;Consolidated Statements of Operations for the Years Ended
December 31, 2003, 2002 and 2001;Consolidated Statements of Stockholders Equity for the
Years Ended December, 31, 2003, 2002 and 2001;Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003, 2002 and 2001; andNotes 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.3.
    
    The following documents 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 0-4197).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
0-4197).3.3
    
    
    Composite Copy of Bylaws of the Company dated
as of December 31, 1991 (incorporated by reference to
Exhibit 3(b) to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, File Number
0-4197).10.1
    
    
    United States Lime & Minerals, Inc. 1992
Stock Option Plan, as Amended and Restated (incorporated by
reference to Exhibit 10(c) to the Companys Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999, File
Number 0-4197).10.2
    
    
    United States Lime & Minerals, Inc. 2001
Long-Term Incentive Plan (incorporated by reference to
Exhibit B to the Companys definitive Proxy Statement for
its Annual Meeting of Shareholders held on April 27, 2001,
File Number 0-4197).10.3
    
    
    Loan and Security Agreement dated December
30, 1997 among United States Lime & Minerals, Inc., Arkansas
Lime Company and Texas Lime Company and CoreStates Bank,
N.A. (incorporated by reference to Exhibit 10(l) to the
Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File Number 0-4197).10.4
    
    
    First Amendment to Amended and Restated Loan
and Security Agreement dated August 31, 1998 among United
States Lime
 - 19 -




---



##### Table of Contents



& Minerals, Inc., Arkansas Lime Company and
Texas Lime Company and First Union National Bank
(incorporated by reference to Exhibit 10(a) to the Companys
Quarterly Report on Form 10-Q for the quarter ended
September, 30, 1998, File Number 0-4197).10.5
    
    
    Employment Agreement dated as of October 11,
1989 between the Company and Billy R. Hughes (incorporated
by reference to Exhibit 10(a) to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999,
File Number 0-4197).10.6
    
    
    Employment Agreement dated as of April 17,
1997 between the Company and Johnney G. Bowers (incorporated
by reference to Exhibit 10(o) to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 1997,
File Number 0-4197).10.7
    
    
    Employment Agreement dated as of December 1,
1998 between the Company and Herbert G.A. Wilson
(incorporated by reference to Exhibit 10(r) to the Companys
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File Number 0-4197).10.8
    
    
    Employment Agreement dated as December 8,
2000 between the Company and Timothy W. Byrne (incorporated
by reference to Exhibit 10(s) to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2000,
File Number 0-4197).10.8.1
    
    
    Amended and Restated Employment Agreement dated as of May
2, 2003 between the Company and Timothy W. Byrne.10.9
    
    
    Credit Agreement dated April 22, 1999 among
United States Lime & Minerals, Inc., Arkansas Lime Company,
Texas Lime Company, the Lenders who are, or may become, a
party to the Agreement, and First Union National Bank
(incorporated by reference to Exhibit 10(a) to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, File Number 0-4197).10.10
    
    
    Second Amendment to Amended and Restated
Loan and Security Agreement dated as of April 22, 1999 among
United States Lime & Minerals, Inc., Arkansas Lime Company,
Texas Lime Company, and First Union National Bank
(incorporated by reference to Exhibit 10(b) to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, File Number 0-4197).10.11
    
    
    Letter Agreement dated as of May 31, 2000
among United States Lime & Minerals, Inc., Arkansas Lime
Company, Texas Lime Company and First Union National Bank
(incorporated by reference to Exhibit 10 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, File Number 0-4197).10.12
    
    
    Third Amendment to Amended and Restated Loan
and Security Agreement dated as of April 26, 2001 among
United States Lime & Minerals, Inc., Arkansas Lime Company,
Texas Lime Company, and First Union National Bank
(incorporated by reference to Exhibit 10 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March
31, 2001, File Number 0-4197).10.13
    
    
    Fourth Amendment to Amended and Restated
Loan and Security Agreement dated as of December 31, 2001
among United States Lime & Minerals, Inc., Arkansas Lime
Company, Texas Lime Company, and First Union National Bank
(incorporated by reference to Exhibit 10(u) to the Companys
Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, File Number 0-4197).10.14
    
    
    First Amendment to Credit Agreement dated as
of December 27, 2000 among United States Lime & Minerals,
Inc., Arkansas Lime Company, Texas Lime Company, the Lenders
who are, or may become, a party to the Agreement, and First
Union National Bank (incorporated by reference to the
Companys Current Report on Form 8-K dated January 18, 2001,
File Number 0-4197).
 - 20 -




---



##### Table of Contents



10.15
    
    
    Subordinated Promissory Note dated as of
December 27, 2000 among United States Lime & Minerals, Inc.,
Texas Lime Company, Arkansas Lime Company, and Inberdon
Enterprises Ltd. (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K dated January
18, 2001, File Number 0-4197).10.16
    
    
    Second Amended and Restated Note dated April
26, 2001 among United States Lime & Minerals, Inc., Arkansas
Lime Company, Texas Lime Company, the Lenders who are, or
may become, a party to the Agreement, and First Union
National Bank (incorporated by reference to Exhibit 10(x) to
the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, File Number 0-4197).10.17
    
    
    Fifth Amendment to Amended and Restated Loan
and Security Agreement dated as of May 31, 2002 among United
States Lime & Minerals, Inc., Arkansas Lime Company, Texas
Lime Company and Wachovia Bank, f/k/a First Union National
Bank (incorporated by reference to Exhibit 10 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002, File Number 0-4197).10.18
    
    
    Sixth Amendment to Amended and Restated Loan
and Security Agreement dated as of January 31, 2003 among
United States Lime & Minerals, Inc., Arkansas Lime Company,
Texas Lime Company and Wachovia Bank. (incorporated by
reference to Exhibit 10(s) to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2002, File
Number 0-4197).10.19
    
    
    Loan and Security Agreement dated March 3,
2003 among United States Lime & Minerals, Inc., Texas Lime
Company, Arkansas Lime Company and National City Bank
(incorporated by reference to Exhibit 10(t) to the Companys
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, File Number 0-4197).10.20
    
    
    Note and Warrant Purchase Agreement dated as
of August 5, 2003 by and among United States Lime &
Minerals, Inc. and Credit Trust S.A.L., ABB Finance Limited
and R.S. Beall Capital Partners, LP (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the quarter ended June 30, 2003, File
Number 0-4197).10.21
    
    
    Form of 14% Subordinated PIK Note due 2008
(incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, File Number 0-4197).10.22
    
    
    Form of Common Stock Purchase Warrant
(incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, File Number 0-4197).10.23
    
    
    Registration Rights Agreement dated as of
August 5, 2003 by and among United States Lime & Minerals,
Inc. and Credit Trust S.A.L., ABB Finance Limited and R.S.
Beall Capital Partners, LP (incorporated by reference to
Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003, File Number 0-4197).10.24
    
    
    Third Amendment to Credit Agreement dated as
of August 5, 2003 among United States Lime & Minerals, Inc.,
Arkansas Lime Company, Texas Lime Company, the Lenders who
are, or may become, a party to the Agreement, and National
City Bank (incorporated by reference to Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003, File Number 0-4197).10.25
    
    
    First Amendment to Loan and Security
Agreement dated August 5, 2003 among United States Lime &
Minerals, Inc., Texas Lime Company, Arkansas Lime Company
and National City Bank (incorporated by reference to Exhibit
10.6 to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, File Number 0-4197).
 - 21 -




---



##### Table of Contents



10.26
    
    
    Second Amendment to Loan and Security
Agreement dated as of December 29, 2003 among United States
Lime & Minerals, Inc., Texas Lime Company, Arkansas Lime
Company and National City Bank.21
    
    
    Subsidiaries of the Company.23
    
    
    Consent of Independent Auditors.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.
   Exhibits 10.1, 10.2, and 10.5 through 10.8.1 are management contracts or
compensatory plans or arrangements required to be filed as exhibits.  (b)    The Company did not file any Current Reports on Form 8-K during the
fourth quarter 2003. - 22 -




---



##### Table of Contents



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 29, 2004
    
    By:
    
    \s\Timothy W. ByrneTimothy W. Byrne, President andChief 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 29, 2004
    
    By:
    
    \s\Timothy W. ByrneTimothy W. Byrne, President,Chief Executive Officer, and Director(Principal Executive Officer)Date: March 29, 2004
    
    By:
    
    \s\M. Michael OwensM. Michael Owens, Vice Presidentand Chief Financial Officer(Principal Financial and Accounting Officer)Date: March 29, 2004
    
    By:
    
    \s\Edward A. OdishawEdward A. Odishaw, Director andChairman of the BoardDate: March 29, 2004
    
    By:
    
    \s\Antoine M. DoumetAntoine M. Doumet, Director andVice Chairman of the BoardDate: March 29, 2004
    
    By:
    
    \s\Wallace G. IrmscherWallace G. Irmscher, DirectorDate: March 29, 2004
    
    By:
    
    \s\Richard W. CardinRichard W. Cardin, Director
 - 23 -




---



##### Table of Contents



EXHIBIT INDEX 10.8.1
    
    Amended and Restated Employment Agreement dated as of May
2, 2003 between the Company and Timothy W. Byrne.10.26
    
    Second Amendment to Loan and Security
Agreement dated as of December 29, 2003 among United States
Lime & Minerals, Inc., Texas Lime Company, Arkansas Lime
Company and National City Bank.21
    
    Subsidiaries of the Company.23
    
    Consent of Independent Auditors.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 the Chief Executive Officer.32.2
    
    Section 1350 Certification by the Chief Financial Officer.
 - 24 -