UNITED STATES LIME & MINERALS INC (Form: 10-Q, Received: 04/30/2020 16:58:53)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ........ to ........

Commission file number is 000-04197

UNITED STATES LIME & MINERALS, INC.

(Exact name of registrant as specified in its charter)


TEXAS		75-0789226
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


5429 LBJ Freeway, Suite 230, Dallas, TX		75240
(Address of principal executive offices)		(Zip Code)

(972) 991-8400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.10 par value	USLM	The Nasdaq Stock Market LLC

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 ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer ☒
Non-accelerated filer	☐	Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: As of April 29, 2020, 5,627,185 shares of common stock, $0.10 par value, were outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

(Unaudited)


	March 31,		December 31,
	2020		2019
ASSETS
Current assets
Cash and cash equivalents	$	58,796	$	54,260
Trade receivables, net		23,148		22,948
Inventories, net		13,534		13,388
Prepaid expenses and other current assets		1,890		2,139
Total current assets		97,368		92,735
Property, plant and equipment		375,363		370,355
Less accumulated depreciation and depletion		(224,074)		(219,668)
Property, plant and equipment, net		151,289		150,687
Operating lease right-of-use assets		2,802		3,192
Other assets, net		408		423
Total assets	$	251,867	$	247,037
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	4,831	$	4,430
Current portion of operating lease liabilities		1,220		1,294
Accrued expenses		2,514		3,735
Total current liabilities		8,565		9,459
Deferred tax liabilities, net		18,198		17,218
Operating lease liabilities, excluding current portion		1,560		1,866
Other liabilities		1,377		1,362
Total liabilities		29,700		29,905
Stockholders’ equity
Common stock		664		663
Additional paid-in capital		27,923		27,464
Accumulated other comprehensive loss		(7)		(1)
Retained earnings		248,211		243,566
Less treasury stock, at cost		(54,624)		(54,560)
Total stockholders’ equity		222,167		217,132
Total liabilities and stockholders’ equity	$	251,867	$	247,037

See accompanying notes to condensed consolidated financial statements.

UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2020				2019
Revenues	$	38,440	100.0	%	$	37,799	100.0	%
Cost of revenues
Labor and other operating expenses		23,962	62.3	%		25,038	66.2	%
Depreciation, depletion and amortization		4,601	12.0	%		4,068	10.7	%
		28,563	74.3	%		29,106	76.9	%
Gross profit		9,877	25.7	%		8,693	23.1	%
Selling, general and administrative expenses		3,219	8.4	%		2,673	7.1	%
Operating profit		6,658	17.3	%		6,020	16.0	%
Other expense (income)
Interest expense		62	0.2	%		62	0.2	%
Interest and other income, net		(247)	(0.7)	%		(492)	(1.3)	%
		(185)	(0.5)	%		(430)	(1.1)	%
Income before income tax expense		6,843	17.8	%		6,450	17.1	%
Income tax expense		1,299	3.4	%		1,322	3.5	%
Net income	$	5,544	14.4	%	$	5,128	13.6	%
Net income per share of common stock
Basic	$	0.99			$	0.91
Diluted	$	0.98			$	0.91

See accompanying notes to condensed consolidated financial statements.

UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

(Unaudited)


	Three Months Ended March 31,
	March 31,
	2020		2019
Net income	$	5,544	$	5,128
Other comprehensive loss
Mark to market of foreign exchange hedges, net of tax benefit of $2 and $6 for the 2020 and 2019 periods, respectively		(6)		(20)
Total other comprehensive loss		(6)		(20)
Comprehensive income	$	5,538	$	5,108

See accompanying notes to condensed consolidated financial statements.

UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

(Unaudited)


						Accumulated
	Common Stock			Additional		Other
	Shares			Paid-In		Comprehensive		Retained		Treasury
	Outstanding	Amount		Capital		(Loss) Income		Earnings		Stock		Total
Balances at December 31, 2019	5,622,826	$	663	$	27,464	$	(1)	$	243,566	$	(54,560)	$	217,132
Stock options exercised	2,000		—		81		—		—		—		81
Stock-based compensation	3,063		1		378		—		—		—		379
Treasury shares purchased	(704)		—		—		—		—		(64)		(64)
Cash dividends paid	—		—		—		—		(899)		—		(899)
Net income	—		—		—		—		5,544		—		5,544
Mark to market of foreign exchange hedges, net of $2 tax benefit	—		—		—		(6)		—		—		(6)
Comprehensive (loss) income	—		—		—		(6)		5,544		—		5,538
Balances at March 31, 2020	5,627,185	$	664	$	27,923	$	(7)	$	248,211	$	(54,624)	$	222,167


						Accumulated
	Common Stock			Additional		Other
	Shares			Paid-In		Comprehensive		Retained		Treasury
	Outstanding	Amount		Capital		(Loss) Income		Earnings		Stock		Total
Balances at December 31, 2018	5,607,401	$	661	$	25,867	$	(13)	$	250,568	$	(54,116)	$	222,967
Stock-based compensation	3,333		—		309		—		—		—		309
Treasury shares purchased	(753)		—		—		—		—		(52)		(52)
Cash dividends paid	—		—		—		—		(757)		—		(757)
Net income	—		—		—		—		5,128		—		5,128
Mark to market of foreign exchange hedges, net of $6 tax benefit	—		—		—		(20)		—		—		(20)
Comprehensive (loss) income	—		—		—		(20)		5,128		—		5,108
Balances at March 31, 2019	5,609,981	$	661	$	26,176	$	(33)	$	254,939	$	(54,168)	$	227,575

See accompanying notes to condensed consolidated financial statements.

UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)


	Three Months Ended March 31,
	2020		2019
OPERATING ACTIVITIES:
Net income	$	5,544	$	5,128
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		4,655		4,121
Amortization of deferred financing costs		2		4
Deferred income taxes		990		1,246
(Gain) loss on disposition of property, plant and equipment		(13)		386
Stock-based compensation		379		309
Changes in operating assets and liabilities:
Trade receivables, net		(200)		(3,108)
Inventories, net		(146)		25
Prepaid expenses and other current assets		249		216
Other assets		14		31
Accounts payable and accrued expenses		21		(899)
Other liabilities		13		15
Net cash provided by operating activities		11,508		7,474
INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(6,106)		(5,684)
Proceeds from sale of property, plant and equipment		16		142
Net cash used in investing activities		(6,090)		(5,542)
FINANCING ACTIVITIES:
Cash dividends paid		(899)		(757)
Proceeds from exercise of stock options		81		—
Purchase of treasury shares		(64)		(52)
Net cash used in financing activities		(882)		(809)
Net increase in cash and cash equivalents		4,536		1,123
Cash and cash equivalents at beginning of period		54,260		67,218
Cash and cash equivalents at end of period	$	58,796	$	68,341

See accompanying notes to condensed consolidated financial statements.

UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by United States Lime & Minerals, Inc. (the “Company”) without independent audit. In the opinion of the Company’s management, all adjustments of a normal and recurring nature necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for the periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2019. The results of operations for the three-month period ended March 31, 2020 are not necessarily indicative of operating results for the full year.

2. Organization

The Company is a manufacturer of lime and limestone products, supplying primarily the construction (including highway, road and building contractors), industrial (including paper and glass manufacturers), environmental (including municipal sanitation and water treatment facilities and flue gas treatment processes), metals (including steel producers), oil and gas services, roof shingle manufacturers and agriculture (including poultry and cattle feed producers) industries. The Company is headquartered in Dallas, Texas and operates lime and limestone plants and distribution facilities in Arkansas, Colorado, Louisiana, Oklahoma and Texas through its wholly owned subsidiaries, Arkansas Lime Company, Colorado Lime Company, Texas Lime Company, U.S. Lime Company, U.S. Lime Company – Shreveport, U.S. Lime Company – St. Clair and U.S. Lime Company – Transportation. In addition, the Company, through its wholly owned subsidiary, U.S. Lime Company – O & G, LLC, has royalty and non-operated working interests in natural gas wells located in Johnson County, Texas, in the Barnett Shale Formation.

During 2019, the Company’s natural gas interests did not reach any of the quantitative thresholds for a reportable segment, and the results from its natural gas interests are not expected to be of significance in future periods. The revenues, gross profit and operating profit of the natural gas interests are included in Other for reportable segment disclosures. Segment disclosures for first three months ended March 31, 2019 have been recast to be consistent with the presentation for the three months ended March 31, 2020.

3. Accounting Policies

Revenue Recognition. The Company recognizes revenue for its lime and limestone operations when (i) a contract with the customer exists and the performance obligations are identified; (ii) the price has been established; and (iii) the performance obligations have been satisfied, which is generally upon shipment. Revenues include external freight billed to customers with related costs accounted for as fulfillment costs and included in cost of revenues. The Company’s returns and allowances are minimal. External freight billed to customers in each of the first quarters 2020 and 2019 included in revenues was $6.9 million, which approximates the amount of external freight included in cost of revenues. Sales taxes billed to customers are not included in revenues. For its natural gas interests, the Company recognizes revenue in the month of production and delivery.

The Company operates its lime and limestone operations within a single geographic region and derives all revenues from that segment from the sale of lime and limestone products. See Note 4 to the condensed consolidated financial statements for disaggregation of revenues by segment, which the Company believes best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Accounts Receivable. On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the incurred impairment methodology in previous GAAP with a methodology that reflects expected credit losses and

requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company applied the amendments of ASU 2016-13 using a modified-retrospective approach, and as a result, amounts recorded prior to January 1, 2020 have not been retrospectively restated. The implementation of ASU 2016-13 did not have a material impact on the Company’s results of operation, financial position, or cash flows.

The majority of the Company’s trade receivables are unsecured. Payment terms for all trade receivables are based on the underlying purchase orders, contracts or purchase agreements. Under the new standard, the Company estimates credit losses relating to trade receivables based on an assessment of the current and forecasted probability of collection, historical trends, economic conditions and other significant events that may impact the collectability of accounts receivables. Due to the relatively homogenous nature of its trade receivables, the Company does not believe there is any meaningful asset-specific differences within its accounts receivable portfolio that would require the portfolio to be grouped below the consolidated level for review of credit losses. Credit losses relating to trade receivables have generally been within management expectations and historical trends. Uncollected trade receivables are charged-off when identified by management to be unrecoverable. The Company maintains an allowance for credit losses to reflect currently expected estimated losses resulting from the failure of customers to make required payments.

Successful-Efforts Method Used for Natural Gas Interests. The Company uses the successful-efforts method to account for oil and gas exploration and development expenditures. Under this method, drilling, completion and workover costs for successful exploratory wells and all development well costs are capitalized and depleted using the units-of-production method. Costs to drill exploratory wells that do not find proved reserves are expensed.

Comprehensive Income. Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as mark-to-market gains or losses on foreign exchange derivative instruments designated as hedges, are reported as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income.

Leases. The Company determines if an arrangement is a lease at inception. When recording operating leases, the Company records a lease liability based on the net present value of the lease payments over the lease term and a corresponding right-of-use asset. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liabilities and operating lease liabilities, excluding current portion, on the balance sheet. Lease expense is recognized over the lease term on a straight-line basis. Lease terms include options to extend the lease when it is reasonably certain the Company will exercise the option. For leases with a term of twelve months or less, the Company does not record a right-of-use asset and a lease liability and records lease expense on a straight-line basis. See Note 10 to the condensed consolidated financial statements.

Fair Values of Financial Instruments. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values, in determining the fair value of its financial assets and liabilities. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Specific inputs used to value the Company’s foreign exchange hedges were Euro to U.S. Dollar exchange rates for the expected future payment dates for the Company’s commitments denominated in Euros. See Note 6 to the condensed consolidated financial statements. There were no changes in the methods and assumptions used in measuring fair value during the period.

The Company’s financial liabilities measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019, respectively, are summarized below (in thousands):


					Significant Other
					Observable Inputs
					(Level 2)
	March 31,		December 31,		March 31,		December 31,
	2020		2019		2020		2019		Valuation Technique
Foreign exchange hedges	$	(9)	$	(1)	$	(9)	$	(1)	Cash flows approach

New Accounting Pronouncements. In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13 (“ASU 2016-13”), “Financial Instruments - Credit Losses (Topic 326).” The new standard was effective for public companies, excluding smaller reporting companies, for reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. The standard replaced the incurred loss impairment methodology under current US GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard required a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company adopted ASU 2016-13 as of January 1, 2020 using a modified retrospective approach. Adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements. See Note 7 to the condensed consolidated financial statements.

4. Business Segment

The Company has identified one reportable segment based on the distinctness of the Company’s activities and products: lime and limestone operations. All operations are in the United States. In evaluating the operating results of the Company, management primarily reviews revenues, gross profit and operating profit from the lime and limestone operations. Operating profit from its lime and limestone operations includes all of the Company’s selling, general and administrative costs. The Company does not allocate interest income and expense and other expense to its lime and limestone operations.

During 2019, the Company’s natural gas interests did not reach any of the quantitative thresholds for a reportable segment, and the Company does not expect the results from its natural gas interests to be of significance in future periods. The revenues, gross profit and operating profit from the Company’s natural gas interests are included in Other for the Company’s reportable segment disclosures. Other identifiable assets include assets related to its natural gas interests, unallocated corporate assets and cash items. Segment disclosures for the three months ended March 31, 2019 have been recast to be consistent with the presentation for the three months ended March 31, 2020.

The following table sets forth operating results and certain other financial data for the Company’s lime and limestone operations segment and other (in thousands):


	Three Months Ended March 31,
Revenues	2020		2019
Lime and limestone operations	$	38,214	$	37,465
Other		226		334
Total revenues	$	38,440	$	37,799
Depreciation, depletion and amortization
Lime and limestone operations	$	4,413	$	3,929
Other		188		139
Total depreciation, depletion and amortization	$	4,601	$	4,068
Gross profit (loss)
Lime and limestone operations	$	10,039	$	8,686
Other		(162)		7
Total gross profit	$	9,877	$	8,693
Operating profit (loss)
Lime and limestone operations	$	6,820	$	6,013
Other		(162)		7

Total operating profit	$	6,658		$	6,020
Identifiable assets, at period end
Lime and limestone operations	$	186,702	$		178,346
Other		65,165			76,723
Total identifiable assets	$	251,867		$	255,069
Capital expenditures
Lime and limestone operations	$	6,106		$	5,684
Other		—			—
Total capital expenditures	$	6,106		$	5,684

5. Income Per Share of Common Stock

The following table sets forth the computation of basic and diluted income per common share (in thousands, except per share amounts):


	Three Months Ended March 31,
	2020		2019
Net income for basic and diluted income per common share	$	5,544	$	5,128
Weighted-average shares for basic income per common share		5,624		5,609
Effect of dilutive securities:
Employee and director stock options(1)		10		6
Adjusted weighted-average shares and assumed exercises for diluted income per common share		5,634		5,615
Basic net income per common share	$	0.99	$	0.91
Diluted net income per common share	$	0.98	$	0.91

⁽¹⁾

Excludes 8 and 27 stock options for the three months ended March 31, 2020 and 2019, respectively, as anti-dilutive because the exercise price exceeded the average per share market price for the period.

6. Accumulated Other Comprehensive Income

The following table presents the components of comprehensive income (in thousands):


	Three Months Ended March 31,
	2020		2019
Net income	$	5,544	$	5,128
Mark to market of foreign exchange hedges		(8)		(26)
Deferred income tax benefit		2		6
Comprehensive income	$	5,538	$	5,108

In May 2018, to hedge against potential losses due to changes in the Euro to U.S. Dollar exchange rates, the Company entered into foreign exchange (“FX”) hedges with Wells Fargo Bank, N.A. (“Wells Fargo”) as the counterparty to the FX hedges to fix the exchange rates for 2.2 million Euros in connection with a contractual obligation related to the purchase and installation of equipment at Arkansas Lime Company, of which FX hedges with respect to 0.3 million Euros remained outstanding at March 31, 2020. The Company will be exposed to credit losses in the event of non-performance by the counterparty to the FX hedges. The FX hedges have been effective as defined under applicable accounting rules. Therefore, changes in the fair value of the FX hedges are reflected in comprehensive income. Due to changes in the U.S. Dollar, compared to the Euro, the fair value of the hedges resulted in net liabilities of $9 and $1 at March 31, 2020 and December 31, 2019, respectively, which is included in accrued expenses.

7. Trade Receivables, Net

Additions and write-offs to the Company’s allowance for credit losses for the three months ended March 31, 2020 and 2019 were as follows (in thousands):


	March 31,
	2020		2019
Beginning balance	$	361	$	430
Additions		39		14
Write-offs		—		—
Ending balance	$	400	$	444

8. Inventories, Net

Inventories are valued principally at the lower of cost, determined using the average cost method, or market. Costs for raw materials and finished goods include materials, labor, and production overhead. Inventories, net consisted of the following (in thousands):


	March 31,		December 31,
	2020		2019
Lime and limestone inventories:
Raw materials	$	4,723	$	4,546
Finished goods		1,706		1,954
		6,429		6,500
Service parts inventories		7,105		6,888
	$	13,534	$	13,388

9. Banking Facilities and Debt

The Company’s credit agreement with Wells Fargo Bank, N.A. (the “Lender”), as amended as of May 2, 2019 and November 21, 2019, provides for a $75 million revolving credit facility (the “Revolving Facility”) and an incremental four-year accordion feature to borrow up to an additional $50 million on the same terms, subject to approval by the Lender or another lender selected by the Company. The credit agreement also provides for a $10 million letter of credit sublimit under the Revolving Facility. The Revolving Facility and any incremental loans mature on May 2, 2024.

Interest rates on the Revolving Facility are, at the Company’s option, LIBOR plus a margin of 1.000% to 2.000%, or the Lender’s Prime Rate plus a margin of 0.000% to 1.000%; and a commitment fee range of 0.200% to 0.350% on the undrawn portion of the Revolving Facility. The Revolving Facility interest rate margins and commitment fee are determined quarterly in accordance with a pricing grid based upon the Company’s Cash Flow Leverage Ratio, defined as the ratio of the Company’s total funded senior indebtedness to earnings before interest, taxes, depreciation, depletion, amortization and stock-based compensation expense (“EBITDA”) for the 12 months ended on the last day of the most recent calendar quarter, plus pro forma EBITDA from any businesses acquired during the period. Pursuant to a security agreement, dated August 25, 2004, the Revolving Facility is secured by the Company’s existing and hereafter acquired tangible assets, intangible assets and real property. The maturity of the Revolving Facility and any incremental loans can be accelerated if any event of default, as defined under the credit agreement, occurs. The Company’s maximum Cash Flow Leverage Ratio is 3.50 to 1.

The Company may pay dividends so long as it remains in compliance with the provisions of the Company’s credit agreement, and it may purchase, redeem or otherwise acquire shares of its common stock so long as its pro forma Cash Flow Leverage Ratio is less than 3.00 to 1.00 and no default or event of default exists or would exist after giving effect to such stock repurchase.

As of March 31, 2020, the Company had no debt outstanding and no draws on the Revolving Facility other than $0.4 million of letters of credit, which count as draws against the available commitment under the Revolving Facility.

10. Leases

The Company has operating leases for the use of equipment, corporate office space, and some of its terminal and distribution facilities. The leases have remaining lease terms of 1 to 7 years, with a weighted-average remaining lease term of 3 years at March 31, 2020. Some operating leases include options to extend the leases for up to 5 years. At January 1, 2019, upon implementation of ASU 2016-02, the liability for the Company’s operating leases was discounted to present value using a weighted-average discount rate of 3.5%. The components of lease costs for the three months ended March 31, 2020 and 2019 were as follows (in thousands):


		Three Months Ended March 31,
	Classification	2020		2019
Operating lease costs (1)	Cost of revenues	$	385	$	486
Operating lease costs (1)	Selling, general and administrative expenses		56		53
Rental revenues	Interest and other income, net		(27)		(12)
Net operating lease costs		$	414	$	527

(1)Includes the costs of leases with a term of 12 months or less.

As of March 31, 2020, future minimum payments under operating leases that were either non-cancelable or subject to significant penalty upon cancellation, including future minimum payments under renewal options that the Company is reasonably certain to exercise, were as follows (in thousands):



2020 (excluding the three months ended March 31, 2020)	$	1,211
2021		879
2022		374
2023		187
2024		174
Thereafter		90
Total future minimum lease payments		2,915
Less imputed interest		(135)
Present value of lease liabilities	$	2,780

Supplemental cash flow information pertaining to the Company’s leasing activity for the three months ended March 31, 2020 and 2019 were as follows (in thousands):


	Three Months Ended March 31,
	2020		2019
Cash payments for operating lease liabilities	$	447	$	375
Right-of-use assets obtained in exchange for operating lease obligations	$	—	$	484

11. Income Taxes

The Company has estimated that its effective income tax rate for 2020 will be 19.0%. The primary reason for the effective income tax rate being below the federal statutory rate is due to statutory depletion, which is allowed for income tax purposes and is a permanent difference between net income for financial reporting purposes and taxable income.

12. Dividends

On March 13, 2020, the Company paid $0.9 million in cash dividends, based on a dividend of $0.16 per share of its common stock, to shareholders of record at the close of business on February 21, 2020.

13. Subsequent Event

On April 29, 2020, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.16 per share on the Company’s common stock. This dividend is payable on June 12, 2020 to shareholders of record at the close of business on May 22, 2020.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements. Any statements contained in this Report that are not statements of historical fact are forward‑looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward‑looking statements in this Report, including without limitation statements relating to the Company’s plans, strategies, objectives, expectations, intentions, and adequacy of resources, are identified by such words as “will,” “could,” “should,” “would,” “believe,” “possible,” “potential,” “expect,” “intend,” “plan,” “schedule,” “estimate,” “anticipate” and “project.” The Company undertakes no obligation to publicly update or revise any forward‑looking statements. The Company cautions that forward‑looking statements involve risks and uncertainties that could cause actual results to differ materially from expectations, including without limitation the following: (i) the Company’s plans, strategies, objectives, expectations, and intentions are subject to change at any time at the Company’s discretion; (ii) the Company’s plans and results of operations will be affected by its ability to maintain and increase its revenues and manage its growth; (iii) the Company’s ability to meet short‑term and long‑term liquidity demands, including meeting the Company’s operating and capital needs, including possible acquisitions and paying dividends, and conditions in the credit and equity markets, including the ability of the Company’s customers to meet their obligations; (iv) interruptions to operations and increased expenses at the Company’s facilities resulting from changes in mining methods or conditions, variability of chemical or physical properties of the Company’s limestone and its impact on process equipment and product quality, inclement weather conditions, natural disasters, accidents, IT systems failures or disruptions, including due to cybersecurity incidents or regulatory requirements; (v) volatile coal, petroleum coke, diesel, natural gas, electricity, transportation and freight costs and the consistent availability of trucks, truck drivers and rail cars to deliver the Company’s products to its customers and solid fuels to its plants on a timely basis at competitive prices; (vi) unanticipated delays or cost overruns in completing modernization and expansion and development projects; (vii) the Company’s ability to expand its lime and limestone operations through projects and acquisitions of businesses with related or similar operations, including obtaining financing for such projects and acquisitions, and to sell any resulting increased production at acceptable prices; (viii) inadequate demand and/or prices for the Company’s lime and limestone products due to increased competition from competitors, increasing competition for certain customer accounts, conditions in the U.S. economy, recessionary pressures in, and the impact of government policies on, particular industries, including construction, steel, industrial and oil and gas services, reduced demand from utility plants, effects of governmental fiscal and budgetary constraints, including the level of highway construction and infrastructure funding, changes to tax law, legislative impasses, extended governmental shutdowns, trade wars, tariffs, economic and regulatory uncertainties under state governments and the United States Administration and Congress, and inability to continue to maintain or increase prices for the Company’s products, including passing through the increased costs of transportation; (ix) ongoing and possible new regulations, investigations, enforcement actions and costs, legal expenses, penalties, fines, assessments, litigation, judgments and settlements, taxes and disruptions and limitations of operations, including those related to climate change and health and safety and those that could impact the Company’s ability to continue or renew its operating permits or successfully secure new permits in connection with its modernization and expansion and development projects; (xi) estimates of reserves and remaining lives of reserves; (xii) the impact of the coronavirus (“COVID-19”) pandemic on the Company’s financial condition, results of operations, cash flows, and competitive position; and (xiii) other risks and uncertainties set forth in this Report or indicated from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Overview.

We have identified one reportable business segment based on the distinctness of our activities and products: lime and limestone operations. All operations are in the United States. Operating profit from our lime and limestone operations includes all of our selling, general and administrative costs. We do not allocate interest expense and interest and other income to our lime and limestone operations.

Through our lime and limestone operations, we are a manufacturer of lime and limestone products, supplying primarily the construction (including highway, road and building contractors), industrial (including paper and glass manufacturers), environmental (including municipal sanitation and water treatment facilities and flue gas treatment processes), metals (including steel producers), oil and gas services, roof shingle manufacturers and agriculture (including poultry and cattle feed producers) industries. We are headquartered in Dallas, Texas and operate lime and limestone

plants and distribution facilities in Arkansas, Colorado, Louisiana, Oklahoma and Texas through our wholly owned subsidiaries, Arkansas Lime Company, Colorado Lime Company, Texas Lime Company, U.S. Lime Company, U.S. Lime Company – Shreveport, U.S. Lime Company – St. Clair and U.S. Lime Company – Transportation. The lime and limestone operations represent our principal business.

In addition to our lime and limestone operations, we hold natural gas interests through our wholly owned subsidiary, U.S. Lime Company – O & G, LLC. In the fourth quarter of 2019, we determined our natural gas interests did not reach any of the quantitative thresholds for a reportable segment. The revenues, gross profit and operating profit from our natural gas interests are included in Other for our reportable segment disclosures. Assets related to our natural gas interests, unallocated corporate assets, and cash items are included in Other identified assets. Segment disclosures for the first quarter 2019 have been recast to be consistent with the first quarter 2020 presentation.

Revenues increased 1.7% in the first quarter 2020, compared to the first quarter 2019. Revenues from lime and limestone operations increased 2.0% in the first quarter 2020, compared to the first quarter 2019. The increase in lime and limestone revenues in the first quarter 2020 resulted primarily from a 4.9% increase in average prices realized for our lime and limestone products, compared to the first quarter 2019, partially offset by decreased sales volume of 2.9%, principally due to reduced demand from our environmental and oil and gas services customers.

Gross profit increased 13.6% in the first quarter 2020, compared to the first quarter 2019. The increased gross profit in the first quarter 2020, compared to the first quarter 2019, resulted primarily from the increased revenues discussed above, lower fuel costs, and increased operating efficiencies associated, in part, with the new kiln at the Company’s St. Clair facility, which began producing commercially saleable quicklime in the second quarter 2019.

We paid an increased regular quarterly cash dividend of $0.16 per share on our common stock in the first quarter 2020. On April 29, 2020, the Board of Directors declared a regular quarterly cash dividend of $0.16 per share on our common stock. This dividend is payable on June 12, 2020 to shareholders of record at the close of business on May 22, 2020.

The emergence of COVID-19 in the United States in the first quarter of 2020 has created significant volatility, uncertainty and economic disruption to the general business environment. Federal, state, and local governmental responses to the COVID-19 pandemic, including restrictions requiring social distancing, and on business activities and movement of people, began to take effect the last two weeks of March 2020 and, therefore, did not have a material impact on our financial condition or results of operations for the first quarter 2020. We expect, however, a slowdown in the national economy beginning in the second quarter, and a possibly greater impact in certain industries, such as oil and gas drilling activities, roofing, and steel, which we expect to result in continued reduction in demand for many of our products. We will consider cost-cutting initiatives and ways to further increase operating efficiencies in an effort to mitigate some of the effects of the expected economic downturn.

As we respond to the unprecedented times brought upon us all by the COVID-19 pandemic, we have not wavered in our commitment to the safety of our employees and the other individuals at our facilities that deliver lime and limestone products to the essential businesses and communities that we serve. In addition to our standard health and safety protocols, we have implemented enhanced protocols at all of our locations, including reduced access to facilities, screening of individuals on all sites, and the enforcement of social distancing and other practices that are consistent with, or exceed, the guidelines of the Center for Disease Control.

We are an essential business and anticipate continuing to deliver lime and limestone products to all of the essential businesses we serve. Our lime and limestone products are used in the purification of drinking water, treatment of wastewater, and scrubbing of air emissions from incinerators, power plants, and industrial plants, as well as in the manufacture of paper and glass products. Our limestone is used in the production of animal feed and is also used in products that have been recognized as part of the Critical Infrastructure Sector, including steel and other metal products, and commercial, residential, and public works construction.

Future events or governmental responses to COVID-19 may impede or prevent our ability to operate at one or more of our manufacturing facilities or limit our ability to transport our products to our customers. For example, our lime and limestone products cannot be produced if all of our employees are required to work from home. Specialized and difficult to replace skill sets are also required in the production of our lime and limestone products. Should one or more of our facilities experience a COVID-19 outbreak requiring quarantining of employees possessing those skill sets,

it would disrupt our ability to produce, sell, and deliver our lime and limestone products and could have a material adverse effect on our financial condition, results of operations, cash flows, and competitive position.

Liquidity and Capital Resources.

Net cash provided by operating activities was $11.4 million in the first quarter 2020, compared to $7.5 million in the first quarter 2019, an increase of $3.9 million, or 52.8%. Our net cash provided by operating activities is composed of net income, depreciation, depletion and amortization (“DD&A”), deferred income taxes, other non‑cash items included in net income and changes in working capital. In the first quarter 2020, net cash provided by operating activities was principally composed of $5.5 million net income, $4.7 million DD&A, $1.0 million deferred income taxes, $0.4 million stock‑based compensation, and a $49 thousand decrease from changes in operating assets and liabilities. Changes in operating assets and liabilities in the first quarter 2020 included an increase of $0.2 million in trade receivables, net, and a decrease of $0.2 million in prepaid expenses and other assets. In the first quarter 2019, net cash provided by operating activities was principally composed of $5.1 million net income, $4.1 million DD&A, $1.2 million deferred income taxes, $0.3 million stock‑based compensation, and a $3.7 million decrease from changes in operating assets and liabilities. Changes in operating assets and liabilities in the first quarter 2019 included an increase of $3.1 million in trade receivables, net, a decrease of $0.2 million in prepaid expenses and other current assets, and a decrease of $0.9 million in accounts payable and accrued expenses.

We had $6.1 million in capital expenditures in the first quarter 2020, compared to $5.7 million in the first quarter 2019. Net cash used in financing activities was $0.9 million in the first quarter 2020, compared to $0.8 million in the first quarter 2019, consisting primarily of cash dividends paid in each period.

Cash and cash equivalents increased $4.5 million to $58.8 million at March 31, 2020, from $54.3 million at December 31, 2019.

Our credit agreement with Wells Fargo Bank, N.A. (the “Lender”), as amended as of May 2, 2019 and November 21, 2019, provides for a $75 million revolving credit facility (the “Revolving Facility”) and an incremental four-year accordion feature to borrow up to an additional $50 million on the same terms, subject to approval by the Lender or another lender selected by us. The credit agreement also provides for a $10 million letter of credit sublimit under the Revolving Facility. The Revolving Facility and any incremental loans mature on May 2, 2024.

Interest rates on the Revolving Facility are, at our option, LIBOR plus a margin of 1.000% to 2.000%, or the Lender’s Prime Rate plus a margin of 0.000% to 1.000%; and a commitment fee range of 0.200% to 0.350% on the undrawn portion of the Revolving Facility. The Revolving Facility interest rate margins and commitment fee are determined quarterly in accordance with a pricing grid based upon our Cash Flow Leverage Ratio, defined as the ratio of our total funded senior indebtedness to earnings before interest, taxes, depreciation, depletion, amortization and stock-based compensation expense (“EBITDA”) for the 12 months ended on the last day of the most recent calendar quarter, plus pro forma EBITDA from any businesses acquired during the period. Pursuant to a security agreement, dated August 25, 2004, the Revolving Facility is secured by our existing and hereafter acquired tangible assets, intangible assets and real property. The maturity of the Revolving Facility and any incremental loans can be accelerated if any event of default, as defined under the credit agreement, occurs. Our maximum Cash Flow Leverage Ratio is 3.50 to 1.

We may pay dividends so long as we remain in compliance with the provisions of our credit agreement, and we may purchase, redeem or otherwise acquire shares of our common stock so long as our pro forma Cash Flow Leverage Ratio is less than 3.00 to 1.00 and no default or event of default exists or would exist after giving effect to such stock repurchase.

We are not committed to any planned capital expenditures until actual orders are placed for equipment. As of March 31, 2020, we did not have any material commitments for open purchase orders.

At March 31, 2020, we had no debt outstanding and no draws on the Revolving Facility other than $0.4 million of letters of credit which count as draws against the available commitment under the Revolving Facility. We believe that, absent a significant acquisition, cash on hand and cash flows from operations will be sufficient to meet our operating needs, ongoing capital needs, including current and possible future modernization, expansion, and development projects, and liquidity needs and allow us to pay regular quarterly cash dividends for the near future. However, an extended period of severe economic disruption caused by the COVID-19 pandemic could negatively impact our cash flows from operations and our liquidity.

Results of Operations.

Revenues in the first quarter 2020 were $38.4 million, compared to $37.8 million in the first quarter 2019, an increase of $0.6 million, or 1.7%. Revenues from our lime and limestone operations in the first quarter 2020 increased $0.7 million, or 2.0%, to $38.2 million from $37.5 million in the first quarter 2019. As discussed above, the increase in revenues from our lime and limestone operations was primarily due to a 4.9% average increase in prices for our lime and lime stone products in the first quarter 2020, compared to the first quarter 2019, partially offset by decreased sales volume of 2.9%, principally due to reduced demand, from our environmental and oil and gas services customers. Revenues also included $0.2 million and $0.3 million in the first quarters 2020 and 2019, respectively, from our natural gas interests.

Gross profit was $9.9 million in the first quarter 2020, compared to $8.7 million in the first quarter 2019, an increase of $1.2 million, or 13.6%. Gross profit from our lime and limestone operations in the first quarter 2020 was $10.0 million, compared to $8.7 million in the first quarter 2019, an increase of $1.4 million, or 15.6%. The increase in gross profit in 2020, compared to 2019, resulted primarily from the increased revenues discussed above, lower fuel costs and increased operating efficiencies associated, in part, with the new kiln at our St. Clair facility, which began producing commercially saleable quicklime in the second quarter 2019. Gross profit also included the impact of a $(162) thousand loss in 2020 and a $7 thousand profit in 2019 from our natural gas interests.

Selling, general and administrative expenses (“SG&A”) were $3.2 million in the first quarter 2020, compared to $2.7 million in the first quarter 2019. As a percentage of revenues, SG&A was 8.4% and 7.1% in the first quarters 2020 and 2019, respectively. The increase in SG&A was primarily due to increased personnel expenses, including stock-based compensation, and legal expenses in the first quarter 2020, compared to the first quarter 2019.

Interest expense was $62 thousand in each of the first quarters 2020 and 2019, as we had no outstanding debt during either period. Interest and other income, net was $0.2 million in the first quarter 2020, compared to $0.5 million in the first quarter 2019, a decrease of $0.2 million or 49.8%. The decrease in interest income was due to lower average balances of cash and cash equivalents and reduced interest rates in the first quarter 2020, compared to the first quarter 2019.

Income tax expense was $1.3 million in each of the first quarters 2020 and 2019. Our effective income tax rate was 19.0% and 20.5% in the first quarters 2020 and 2019, respectively. Our effective income tax rate was reduced from the federal rate primarily due to statutory depletion, which is allowed for income tax purposes and is a permanent difference between net income for financial reporting purposes and taxable income. For the year ended December 31, 2019, our effective income tax rate was 15.7% because of a reduction in the tax rate as a result of research and development tax credits. We do not expect a reduction in our income tax rate due to research and development tax credits in 2020.

Our net income was $5.5 million ($0.98 per share diluted) in the first quarter 2020, compared to net income of $5.1 million ($0.91 per share diluted) in the first quarter 2019, an increase of $0.4 million, or 8.1%.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk.

We could be exposed to changes in interest rates, primarily as a result of floating interest rates on the Revolving Facility. There was no outstanding balance on the Revolving Facility subject to interest rate risk at March 31, 2020. Any future borrowings under the Revolving Facility would be subject to interest rate risk. See Note 9 of Notes to Condensed Consolidated Financial Statements.

Foreign Exchange Risk.

At March 31, 2020, we had contracts related to the purchase and installation of equipment that require future payments totaling 0.3 million Euros. We have entered into foreign exchange hedges fixing our U.S. Dollar liability at $0.4 million. We could be exposed to changes in the Euro to U.S. Dollar exchange rates for obligations not effectively fixed by the hedges. See Note 6 of Notes to Condensed Consolidated Financial Statements.

ITEM 4: CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered by this Report were effective.

No change in our internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A: RISK FACTORS

There have been no material changes, other than as described below, from the risk factors set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Please refer to that section for disclosures regarding what we believe are the more significant risks and uncertainties related to our business.

Our financial condition, results of operations, cash flows, and competitive position could be materially adversely impacted by the COVID-19 pandemic. The extent to which COVID-19, and measures taken in response thereto, could materially adversely affect our financial condition, results of operations, cash flows, and competitive position will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities to contain the business, financial, and economic impact of the pandemic.

While we are continuing to execute our business continuity plans in response to the COVID-19 pandemic, there is the potential for increased disruptions to our business and operations from the pandemic. For example, the continued impact of COVID-19 may limit our ability to produce, sell and deliver products to our customers; cause key management and plant-level employees not to be available to us; result in plant shutdowns due to contagion, in which case we may not be able to shift production to our other plants; cause disruptions to our supply chain as it relates to our suppliers and other vendors, as well as disrupt the supply chains of our customers; impede our ability to maintain and repair our plants and equipment; negatively impact our modernization, expansion, and development plans; as well as adversely impact demand for our lime and limestone products. Although we cannot predict future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities to contain the business, financial, and economic impact of the pandemic, COVID-19 could have a material adverse effect on our financial condition, results of operations, cash flows, and competitive position.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our Amended and Restated 2001 Long-Term Incentive Plan allows employees and directors to pay the exercise price for stock options and the tax withholding liability upon the lapse of restrictions on restricted stock by payment in cash and/or delivery of shares of common stock. In the first quarter 2020, pursuant to these provisions, we repurchased 704 shares at a price of $90.53 per share, the fair market value of one share of our common stock on the date that they were tendered for payment of tax withholding liability upon the lapse of restrictions on restricted stock.

ITEM 4: MINE SAFETY DISCLOSURES

Under Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S‑K, each operator of a coal or other mine is required to include disclosures regarding certain mine safety results in its periodic reports filed with the SEC. The operation of our quarries, underground mine and plants is subject to regulation by the federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977. The required information regarding certain mining safety and health matters, broken down by mining complex, for the quarter ended March 31, 2020 is presented in Exhibit 95.1 to this Report.

We believe we are responsible to employees to provide a safe and healthy workplace environment. We seek to accomplish this by: training employees in safe work practices; openly communicating with employees; following safety standards and establishing and improving safe work practices; involving employees in safety processes; and recording, reporting and investigating accidents, incidents and losses to avoid reoccurrence.

Following passage of the Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the enforcement of mining safety and health standards on all aspects of mining operations. There has also been an increase in the dollar penalties assessed for citations and orders issued in recent years.

ITEM 6: EXHIBITS

The Exhibit Index set forth below is incorporated by reference in response to this Item.

EXHIBIT INDEX


EXHIBIT
NUMBER		DESCRIPTION

10.1		Employment Agreement effective as of January 1, 2020 between United States Lime & Minerals, Inc. and Timothy W. Byrne, including Cash Performance Bonus Award Agreement dated as of January 1, 2020 between United States Lime & Minerals, Inc. and Timothy W. Byrne, set forth as Exhibit A thereto.

31.1		Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.

32.1		Section 1350 Certification by the Chief Executive Officer.

32.2		Section 1350 Certification by the Chief Financial Officer.

95.1		Mine Safety Disclosures.

101		Interactive Data Files.

SIGNATURES

Pursuant to the requirements 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.


April 30, 2020	By:	/s/ Timothy W. Byrne
		Timothy W. Byrne
		President and Chief Executive Officer
		(Principal Executive Officer)


April 30, 2020	By:	/s/ Michael L. Wiedemer
		Michael L. Wiedemer
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT, effective as of the 1st day of January, 2020 (this “Agreement”), by and between UNITED STATES LIME & MINERALS, INC., a Texas corporation (together with its successors and permitted assigns, “Employer”), and TIMOTHY W. BYRNE (“Employee”).

WITNESSETH

WHEREAS, Employee has been employed by Employer pursuant to an employment agreement dated as of January 1, 2015 (the “2015 Agreement”);

WHEREAS, Employer and Employee have agreed to amend and restate the 2015 Agreement as set forth herein, effective as of January 1, 2020, to provide greater certainty to both parties regarding the terms and conditions of Employee’s employment by Employer beyond December 31, 2019; and

WHEREAS, Employer desires to continue to employ Employee, and Employee desires to continue to be so employed, on and after January 1, 2020 on the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, Employer and Employee hereby agree as follows:

1. Employment.

(a) Employer hereby employs Employee to serve, subject to the supervision and control of Employer’s Board of Directors (the “Board”), as Employer’s President and Chief Executive Officer (“CEO”), and to undertake and discharge, in accordance with the terms and conditions of this Agreement, such duties, functions, and responsibilities for Employer and its subsidiaries as are from time to time assigned to Employee by the Board.

(b) Employer hereby agrees to use its best efforts to cause the Board to nominate, and the shareholders of Employer to elect, Employee as a director of Employer (“Director”) at each successive annual meeting of shareholders of Employer for so long as Employee serves as CEO. Employer hereby also agrees to use its best efforts to cause the Board to name Employee to the Executive Committee of the Board for so long as Employee serves as a Director and CEO.

2. Term; Termination of Employment.

(a) Employee’s employment under this Agreement shall commence effective as of January 1, 2020, and shall continue until December 31, 2024, and for successive one-year periods thereafter (the “Employment Term”), unless either Employee or Employer gives at least one (1) year’s prior written notice of intent not to renew the Employment Term, in which event the Employment Term shall terminate on December 31 of the year following the giving of such notice of non-renewal, or Employee’s employment is terminated earlier by Employee or Employer as hereinafter provided. Immediately upon termination of Employee’s employment hereunder for any reason (other than death), Employee hereby agrees to resign as a Director and as a director, officer, employee, and agent of each of Employer’s subsidiaries.

(b) Employee may terminate his employment under this Agreement, at any time, by giving at least three (3) months’ prior written notice of such termination to Employer. In the event that Employee terminates his employment under this Agreement prior to, or later than nine (9) months after, a Change in Control (as defined below), Employee shall be entitled to two (2) months’ additional Base Salary (as defined below) paid in a lump-sum, net of withholding for all applicable taxes and other amounts which may properly be withheld (“Additional Base Salary”); such Additional Base Salary shall, subject to the provisions of Section 4, be paid on the thirtieth (30th) day after the day of such termination. In the event that Employee terminates his employment under this Agreement within nine (9) months after a Change in Control, Employee shall be entitled to a Severance Payment (as defined below) in the amount set forth in paragraph 2(f)(3).

(c) Employer may terminate Employee’s employment under this Agreement, at any time, for any reason or for no reason, immediately by giving written notice to Employee. In the event that Employer terminates Employee’s employment under this Agreement for Cause (as defined below), Employee shall be entitled to no Additional Base Salary or Severance Payment. In the event that Employer terminates Employee’s employment under this Agreement without Cause, Employee shall be entitled to a Severance Payment in the amount and under the circumstances set forth in paragraphs 2(f)(2) and (3). For purposes of this Agreement, “Cause” shall be deemed to exist if (1) Employee commits fraud, theft, larceny, or any other crime (other than minor misdemeanors); (2) Employee fails or refuses to obey lawful instructions of the Board or of any committee thereof or commits any willful misconduct or disloyalty; (3) Employee is guilty of habitual insobriety, habitual inattention to his duties, functions, or responsibilities, or repeated negligence in the performance of his duties, functions, or responsibilities; or (4) Employee otherwise commits a material breach of this Agreement.

(d) Employee’s employment under this Agreement shall terminate automatically upon the death or Disability (as defined below) of Employee or upon the termination of the Employment Term after Employee or Employer has given the written notice of non-renewal provided for in subsection 2(a). For purposes of this subsection 2(d), Employee shall be deemed to be Disabled when he is disabled within the meaning of Employer’s long-term disability policy or program as in effect for executive officers at that time. In the event that Employee’s employment under this Agreement terminates due to death, Disability or, except after a Change in Control as provided in paragraph 2(f)(3), Employee’s non-renewal of the Employment Term pursuant to subsection 2(a), Employee shall be entitled to no additional Base Salary or Severance Payment. In the event that Employee’s employment under this Agreement terminates due to Employer’s non-renewal of the Employment Term pursuant to subsection 2(a), Employee shall be entitled to the Severance Payment provided in paragraph 2(f)(2) or (f)(3), as applicable.

(e) Upon any termination of Employee’s employment under this Agreement, Employee, his personal representatives, or his estate, as the case may be, shall be entitled to receive, in addition to any Additional Base Salary pursuant to subsection 2(b) or Severance Payment pursuant to subsection 2(f), reimbursement of all Employee expenses reimbursable by Employer hereunder, and payment of all Base Salary, Benefits (as defined below), and Bonuses (as defined below) paid or provided to or earned by Employee hereunder, in respect of Employee’s service through the date of such termination.

(f) (1) In the event that Employer terminates Employee’s employment under this Agreement without Cause pursuant to subsection 2(a) or 2(c), or Employee terminates his employment under this Agreement within nine (9) months after a Change in Control pursuant to subsection 2(a) or (b), Employee shall be entitled to receive a severance payment (the “Severance Payment”) in the amount and under the circumstances set forth in this subsection 2(f). In all events, the Severance Payment shall be paid in a lump-sum, net of withholding for all applicable taxes and other amounts which may be properly withheld; shall, subject to the provisions of Section 4, be paid on the thirtieth (30th) day following the day of such termination; shall be calculated based upon Employee’s reported W-2 income for the last full year during which Employee was employed under this Agreement immediately preceding Employee’s termination (“Employee’s W-2 Income”), with no discounting for present value, no tax gross-up, and no effort to pay for or otherwise provide comparable Benefits to Employee; and shall be separate and apart from the payment of any EBITDA Bonus or Discretionary Bonus (as defined below) paid or earned in respect of the last full year during which Employee was employed under this Agreement and from any Bonuses (as defined below) to which Employee may be entitled for the year in which the termination occurs. For purposes of this Agreement, a “Change in Control” shall be deemed to occur if, but only if, (a) Inberdon Enterprises Ltd. (“Inberdon”) and its affiliates and associates, on a collective basis, cease to beneficially own, directly or indirectly, at least forty percent (40%) of the then-outstanding common stock of Employer, or (b) the current shareholders of Inberdon and their affiliates and associates, on a collective basis, cease to beneficially own, directly or indirectly, at least fifty percent (50%) of the then-outstanding common stock of Inberdon.

(2) In the event that Employer terminates Employee’s employment under this Agreement without Cause pursuant to subsection 2(a) or 2(c), such that the Employment Term terminates prior to a Change in Control or after two (2) years after a Change in Control, then Employee shall be entitled to a Severance Payment equal to two (2) times Employee’s W-2 Income.

(3) In the event that Employer terminates Employee’s employment under this Agreement without Cause pursuant to subsection 2(a) or (c), such that the Employment Term terminates within two

(2) years after a Change in Control, or Employee terminates his employment under this Agreement pursuant to subsection 2(a) or (b), such that the Employment Term terminates within nine (9) months after a Change in Control, then Employee shall be entitled to a Severance Payment equal to three (3) times Employee’s W-2 Income.

(4) In the event that a Severance Payment payable to Employee under paragraph 2(f)(2) or (f)(3), considered either alone or in conjunction with any other payments or benefits paid or provided under this Agreement or any other agreement or arrangement between Employee and Employer or its affiliates that are contingent upon a change in ownership or control or in ownership of a substantial portion of assets under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii), but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Severance Payment shall be reduced so that Employee shall receive the largest amount of the Severance Payment that would result in no portion of the Severance Payment being subject to the Excise Tax. In application, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code.

(5) Employee hereby acknowledges and agrees that any Additional Base Salary or Severance Payment paid herein shall be in full and total satisfaction and settlement of any and all claims, suits, demands, judgments, actions, and causes of action, of whatever nature, which at the time of such termination Employee then has or may have against Employer or any affiliate, subsidiary, Director, officer, employee, agent, or shareholder of Employer or of any of its subsidiaries, arising by virtue of any thing whatsoever, including without limitation claims based upon this Agreement (other than any claim to any unpaid Bonuses, expense reimbursements, or other amounts otherwise owed to Employee hereunder), claims based upon other agreements, claims based upon quasi-contract, claims sounding in tort, employment discrimination claims, claims under the Employee Retirement Income Security Act of 1974, and claims under any other federal, state, or local statute, regulation, or common law. Employee and Employer hereby further agree that, except in the case of a termination of Employee’s employment under this Agreement governed by paragraph 2(f)(2) or (f)(3) after a Change in Control, prior to payment by Employer of any Additional Base Salary or Severance Payment (and no later than twenty-eight (28) days following Employee’s termination date), Employee and Employer shall each execute and deliver irrevocable mutual general releases of Employer and all affiliates, subsidiaries, Directors, officers, employees, agents, and shareholders of Employer and all of its subsidiaries, and of Employee and his heirs and personal representatives, releasing Employer, Employee, and such persons from all such claims, in form and content reasonably acceptable to Employer, Employee, and their respective counsel.

3. Compensation.

(a) Each year of Employee’s employment under this Agreement, commencing with 2020 through the final year of the Employment Term, Employer shall pay Employee a salary (the “Base Salary”) at an annual rate of at least U.S. $460,000 per annum. During the first (1st) quarter of each year during Employee’s employment under this Agreement, commencing with 2020 through the final year of the Employment Term, the Compensation Committee of the Board shall review and may, in its discretion, increase the Base Salary, in each case effective retroactive to January 1 of that year. The Base Salary shall be payable on a periodic basis, in arrears, in accordance with Employer’s customary payroll practices for its executives from time to time, net of withholding for all applicable taxes and other amounts which may be properly withheld.

(b) Employee shall, effective as of January 1, 2020, be granted cash performance bonus opportunities pursuant to Employer’s Amended and Restated 2001 Long-Term Incentive Plan (the “Amended and Restated LTIP”), based on the attainment of performance targets related to specified levels of EBITDA (the “EBITDA Bonus”), with respect to each year of Employee’s employment under this Agreement, commencing with 2020 through the final year of the Employment Term. The terms and conditions of the EBITDA Bonuses are set forth in the Cash Performance Bonus Award Agreement attached hereto as Exhibit A (the “EBITDA Bonus Agreement”). Employer hereby represents and warrants that the Compensation Committee of the Board has approved the Cash Performance Bonus Award Agreement, including the terms and conditions of the EBITDA Bonuses set forth therein.

(c) In addition to the EBITDA Bonuses, if any, Employee shall also be paid such additional bonuses, from time to time, as the Compensation Committee of the Board may in its discretion determine (a “Discretionary Bonus”). Discretionary Bonuses, if any, shall be paid in such form as the Compensation Committee of the Board may in its discretion determine, net of withholding for all applicable taxes and other amounts which may be properly withheld.

(d) During the course of his employment under this Agreement, Employee shall be entitled to participate in all employee health insurance, life insurance, sick leave, long-term disability, and other fringe benefit programs of Employer, to the extent and on the same terms and conditions (subject, however, to the terms and conditions of any such programs) as from time to time are afforded other employees serving as executive officers of Employer (the “Benefits”). As a part of the Benefits, Employee shall also be entitled to have Employer pay annual/periodic club membership dues/assessments for a single country club/social club membership in the Dallas, Texas area, during Employee’s employment under this Agreement.

(e) Employee shall also be entitled to at least four (4) weeks’ paid vacation each calendar year, at times to be mutually agreed upon between Employee and the Executive Committee of the Board.

(f) Employer hereby agrees to use its best efforts to cause the Compensation Committee of the Board to grant to Employee, pursuant to the Amended and Restated LTIP, effective on the last business day of each year during Employee’s employment under this Agreement, at least (1) 7,500 stock options, with an exercise price equal to the fair market value of a share of Employer’s common stock on such date, in each year commencing with 2020 through the final year of the Employment Term, and (2) 12,500 shares of restricted stock in each year commencing with 2020 through the final year of the Employment Term. The options granted pursuant to this subsection 3(f) shall all vest ratably in three (3) equal installments over eighteen (18) months following the date of grant. The shares of restricted stock granted pursuant to this subsection 3(f) shall vest one (1) year following the date of grant.

(g) Employer shall reimburse Employee for expenses reasonably paid or incurred by Employee in connection with the performance of his duties, functions, and responsibilities under this Agreement, provided that Employee shall document all such expenses in accordance with Employer’s procedures in effect from time to time. In addition, Employer shall provide to Employee in Texas the use of a late model motor vehicle suitable to Employee’s executive position and shall pay the reasonable costs of maintaining and operating such vehicle pursuant to the customary practices of Employer. Such vehicle shall promptly be returned to Employer, in the same condition as provided to Employee, reasonable wear and tear excepted, upon the termination of Employee’s employment for any reason.

(h) In respect of Employee’s employment under this Agreement and his service as a Director, Employer shall maintain directors’ and officers’ liability insurance having coverage limits at least as high as presently being maintained by Employer if the same shall be reasonably available in the judgment of the Board.

(i) Employee acknowledges and agrees that any and all compensation paid or payable to him under this Agreement shall expressly be subject to any forfeiture, clawback, or similar policy that the Company is required to adopt and enforce, from and after such time, pursuant to applicable law, rules or regulations, or listing standards. In addition, (1) in the event that Employee is terminated for Cause pursuant to subsection 2(c), or violates any of the restrictive covenants set forth in Sections 5 and 6, Employee shall immediately forfeit all unexercised stock options and unvested shares of restricted stock then held by him; and (2) in the event of any subsequent restatement of Employer’s published financial statements, within three (3) years after any Performance Year for which Employee received an EBITDA Bonus, due to any Employer material noncompliance with any financial reporting requirements under the federal securities laws, any excess EBITDA Bonus paid to Employee for such Performance Year shall be recovered by Employer pursuant to the clawback provisions set forth in the EBITDA Bonus Agreement.

(j) Employee agrees at all times during his employment under this Agreement to hold shares of Employer’s common stock equal in market value to at least (2) times his then – current Base Salary. Such share holdings may include unvested shares if restricted stock and any shares held in the name of members of Employee’s immediate family or any trust for any of them. In the event that Employee’s Base Salary increases, or the market value of Employer’s common stock decreases, then Employee must retain sufficient shares of common stock (net of

cashless withholding and shares surrendered upon option exercises) resulting from stock option exercises and vesting of restricted stock until the required market value is restored.

4. Application of Section 409A of the Code.

(a) This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and administered in accordance with Section 409A. For purposes of Section 409A, all payments to be made upon a termination of employment under this Agreement may only be made upon the Employee’s “separation from service” (within the meaning of such term under Section 409A), each payment made under this Agreement shall be treated as a separate payment, and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. In no event shall Employee, directly or indirectly, designate the calendar year of any payment, except as permitted under Section 409A. Notwithstanding the foregoing, in no event shall Employer be obligated to reimburse Employee for any taxes, penalties, interest or other expenses that may be incurred on account of non-compliance with Section 409A.

(b) Notwithstanding anything in this Agreement to the contrary, if, at the time of Employee’s termination of employment under this Agreement, Employer has securities which are publicly traded on an established securities market and Employee is a “specified employee” (as such term is defined in Section 409A), and it is necessary to postpone the commencement of any payments or benefits otherwise payable under this Agreement as a result of such termination of employment to prevent any accelerated or additional tax under Section 409A, then Employer shall postpone the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Employee), until the first payroll date after (but no later than thirty (30) days after) the date that is six (6) months following the day of Employee’s “separation from service.” If Employee dies during the postponement period prior to the payment of any postponed amount, the amounts postponed on account of Section 409A shall be paid to the personal representative of Employee’s estate within sixty (60) days after the day of Employee’s death.

(c) All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A, including, where applicable, the requirement that (1) any reimbursement shall be for expenses incurred during Employee’s lifetime (or during a shorter period of time specified in this Agreement); (2) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (3) the reimbursement of an eligible expense shall be made on or before the last day of the calendar year following the year in which the expense is incurred; and (4) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

5. Confidential Information. Employee hereby agrees that he shall not, during his employment under this Agreement or at any time thereafter, furnish, disclose, or reveal to any third party, firm, or person (except in the course of, and only to the extent required for, the proper performance of his duties, functions, and responsibilities hereunder), nor use or appropriate to his own personal use or benefit or permit any third party, firm, or other person to use or benefit from, any information of any kind or character related in any manner to Employer or its affiliates or subsidiaries, including without limitation information with respect to it or their financial condition, products, businesses, operations, plans, employees, customers, suppliers, vendors, or prospective employees, customers, suppliers, or vendors, whether or not acquired, learned, obtained, or developed by Employee alone or in conjunction with others (“Confidential Information”). Upon the termination of his employment under this Agreement for any reason, Employee shall promptly return to Employer all papers, documents, films, blueprints, drawings, magnetic tapes, diskettes, drives, and other storage media (of any kind) in his possession either containing or reflecting Confidential Information, or otherwise relating to Employer or any of its affiliates or subsidiaries, and shall not retain copies thereof.

6. Covenant Not To Compete; No Raid or Solicitation.

(a) Employee agrees that, without the prior written consent of Employer, he shall not, during his employment under this Agreement, and for one (1) year following Employee’s termination of his employment pursuant to subsection 2(b) other than within nine (9) months after a Change in Control, for six (6) months following the expiration of the Employment Term as a result of Employee’s notice of non-renewal given pursuant to

subsection 2(a), for six (6) months following Employer’s termination of Employee’s employment pursuant to subsection 2(c) for Cause, for three (3) months following Employee’s termination of his employment pursuant to subsection 2(b) within nine (9) months after a Change in Control, and for three (3) months following Employer’s termination of Employee’s employment pursuant to subsection 2(c) without Cause (collectively, the “Noncompetition Period”), engage or participate, directly or indirectly, whether as an owner, partner, limited partner, member, director, officer, employee, agent, consultant, or representative, in any business or other enterprise competing, directly or indirectly, with Employer or any of its affiliates or subsidiaries, whether now existing or hereafter created or acquired (all the foregoing being collectively referred to herein as the “Companies”), within the Noncompetition Areas (as defined below). A business or other enterprise shall be deemed to be “competing” with the Companies if, within any Noncompetition Area, it conducts (1) any line of business which the Companies, or any of them, then conducts or has conducted within such Noncompetition Area at any time within the one (1) year preceding the date of termination of Employee’s employment; and (2) any line of business which the Companies, or any of them, plans, prior to the date of termination of Employee’s employment, to enter within such Noncompetition Area by the end of the one (1) year period following the termination of Employee’s employment. For purposes of this Agreement, the term “Noncompetition Areas” shall mean all of those geographic areas where the Companies, or any of them, is then doing business or competing for business at the date of termination of Employee’s employment for any reason. For purposes of this subsection 6(a), a business enterprise shall be deemed to be conducting “business” within the Noncompetition Areas if it maintains manufacturing, production, mining, quarrying, sales, or distribution facilities within the Noncompetition Areas, or solicits or services customers located within such Noncompetition Areas. Notwithstanding anything to the contrary contained in this subsection 6(a), the described restrictions on Employee’s activities shall not be deemed to include Employee’s direct or indirect beneficial ownership of any equity securities in a publicly traded business or other entity, which securities do not constitute more than two percent (2%) of the relevant class of equity security issued and outstanding or give Employee “control” (as such term is used in the Securities Act of 1933 and the rules and regulations promulgated thereunder) of such entity.

(b) During the Noncompetition Period, Employee shall also not, either alone or with or on behalf of any third party, firm, or other person, solicit, induce, or influence any third party, firm, or other person to: (1) solicit, divert, take away, or induce customers (wherever located) of any of the Companies to avail themselves of the services or products of others which are competitive with those of any of the Companies, or sell or furnish or seek to sell or furnish such services or products to such customers; or (2) solicit, divert, take away, or induce any employee of any of the Companies to leave the employ of the Companies, or hire or employ or seek to hire or employ any person who, at any time within six (6) months preceding such action, was an employee of any of the Companies. For purposes of this subsection 6(b), the term “customers” shall include any and all individuals, business organizations and entities, and governmental agencies, no matter how organized and regardless of whether they are organized for profit or not, with which any of the Companies has or had agreements, contracts, or arrangements, to which any of the Companies has sold any product or provided any service, or with which any of the Companies has conducted business negotiations, in each such case at any time within three (3) years prior to the termination of Employee’s employment under this Agreement.

(c) In the event that any court of competent jurisdiction shall determine that any restriction on Employee contained in this Section 6 is illegal, invalid, or unenforceable by reason of the nature, scope, temporal period, or geographic area of such restriction, or for any other reason, the parties agree that such restriction shall be modified and reformed to the minimum extent necessary so that such restriction, as so modified and reformed, shall be legal, valid, and enforceable in such jurisdiction. In such event, such restriction as so modified and reformed shall continue in effect in such jurisdiction, and such restriction, as existing prior to such modification and reformation, shall continue in full force and effect in all other jurisdictions. It is the intention of the parties that all restrictions on Employee contained herein shall be enforceable for the benefit of Employer to the maximum possible extent.

7. Enforcement.

(a) Employee recognizes and agrees that, in the event of a breach of any of the provisions of Section 5 or 6 by Employee, Employer may suffer irreparable harm and not have an adequate remedy at law. Accordingly, Employee hereby agrees that, in the event of a breach or threatened breach by Employee of any of the provisions contained in such Sections, Employer shall be entitled, in addition to all other remedies which may be available to Employer, to equitable relief, including without limitation enforcement of such provision by temporary restraining order, preliminary and permanent injunction, and decree of specific performance.

(b) Except as set forth in subsection 7(a), any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by binding, non-appealable arbitration in the city in which Employer’s principal executive offices are located in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The parties hereby agree to be bound by the decision of the arbitrator(s).

8. Governing Law. This Agreement and the employment relationship between Employer and Employee hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without regard to the conflicts of law rules thereof, and applicable federal law.

9. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable (and, with respect to provisions contained in Section 6, cannot be modified and reformed pursuant to subsection 6(c) such that such provision is thereafter legal, valid, and enforceable), such provision shall be severed and stricken from this Agreement, and in all other respects this Agreement shall remain in full force and effect.

10. Only Agreement; Amendments. With respect to Employee’s employment by Employer from and after January 1, 2020, this Agreement, including the EBITDA Bonus Agreement, will constitute the only agreement between Employer and Employee concerning the within subject matter, and will then supersede any and all prior oral or written communications between Employer and Employee regarding the within subject matter. No amendment, modification, or supplement to this Agreement shall be effective, unless it is in writing and signed by Employer and Employee.

11. Agreement Binding; Successors and Assigns. This Agreement has been duly authorized on behalf of Employer by the Compensation Committee of the Board and the Board. This Agreement is personal in nature, and no party hereto shall assign or transfer this Agreement or any of its or his respective rights or obligations hereunder without the prior written consent of the other party hereto. This Agreement shall inure to the benefit of and be binding upon Employer and Employee and their respective heirs, successors, and permitted assigns.

12. Notices. Any notice required or permitted to be given hereunder shall be in writing and shall be delivered in person, by certified or registered mail, return receipt requested, or by overnight courier, at the address set forth opposite the intended recipient’s name below. Either party may by notice to the other party hereto change the address of the party to whom notice is to be given. The date of notice shall be the date delivered, if delivered in person, or the date received, if delivered by mail or overnight courier.

13. Waiver. No waiver by any party to this Agreement of any violation, breach, or default shall be effective unless the same shall be in writing and signed. No waiver by any party of any violation, breach, or default shall be construed to constitute a waiver of or consent to the present or future violation, breach, or default of the same or of any other provision hereof.

14. No Reliance; Review by Attorney. Employee hereby acknowledges and represents that he has had full opportunity to review financial statements and other documents relating to Employer and to ask questions of Employer concerning its condition, financial and otherwise, business, and prospects, but has relied solely upon his independent analysis of Employer in deciding to execute this Agreement, having received no representations or warranties from Employer concerning its condition, financial or otherwise, business, or prospects. In addition, Employee acknowledges and represents that he has had full opportunity to review the terms and conditions of this Agreement with an attorney, that he is executing this Agreement with full knowledge of the legal effect thereof after advice of counsel, and that his execution of this Agreement and the performance of his duties, functions, and responsibilities hereunder will not conflict with, violate, breach, or constitute a default under any law, ordinance, or regulation or any agreement, arrangement, or understanding to which he is bound.

IN WITNESS WHEREOF, Employer and Employee have executed this Agreement as of the date first set forth above.

	UNITED STATES LIME & MINERALS, INC.

Employer’s Address:	By:	/s/ Antoine M. Doumet
Chairman		Antoine M. Doumet
Board of Directors		Chairman of the Board of Directors
United States Lime & Minerals, Inc.
5429 LBJ Freeway
Suite 230
Dallas, TX 75240	EMPLOYEE

Employee’s Address:	/s/ Timothy W. Byrne
Timothy W. Byrne	Timothy W. Byrne
c/o United States Lime & Minerals, Inc.
5429 LBJ Freeway
Suite 230
Dallas, TX 75240	Witness:		/s/ Michael L. Wiedemer
			Michael L. Wiedemer

Exhibit A

UNITED STATES LIME & MINERALS, INC.

AMENDED AND RESTATED 2001 LONG-TERM INCENTIVE PLAN

CASH PERFORMANCE BONUS AWARD AGREEMENT

AGREEMENT, effective as of January 1, 2020 (the “Grant Date”), between United States Lime & Minerals, Inc., a Texas corporation (the “Company”), and Timothy W. Byrne (the “Employee”).

WHEREAS, the Compensation Committee of the Board of Directors (the “Committee”) desires to grant successive annual cash performance bonus opportunities (the “Cash Performance Bonus Award”) to the Employee, effective on the Grant Date, under the Company’s Amended and Restated 2001 Long-Term Incentive Plan (the “Amended and Restated LTIP”), in furtherance of the purposes of the Amended and Restated LTIP and in recognition of the Employee’s services as an employee of the Company and/or its subsidiaries; and

WHEREAS, the Company desires to memorialize the grant of the Cash Performance Bonus Award to the Employee and set forth the terms and conditions of such Award, and the Employee desires to memorialize his acceptance of such Award and the terms and conditions thereof, as set forth in this Cash Performance Bonus Award Agreement (this “Agreement”);

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Employee hereby agree as follows:

1. Grant of Cash Performance Bonus Award. The Company hereby confirms the grant of a Cash Performance Bonus Award (an “EBITDA Bonus”) under Section 6(i) of the Amended and Restated LTIP to the Employee, effective on the Grant Date, with respect to the Company’s 2020 fiscal year, and each fiscal year thereafter of the Employee’s employment under that certain Employment Agreement, effective as of January 1, 2020 (the “Employment Agreement”), between the Company and the Employee. Each EBITDA Bonus is intended to be a performance-based Award under Section 7(f) of the Amended and Restated LTIP. The EBITDA Bonus for each year (each a “Performance Year”) shall be calculated and paid as follows:

(a) Full Performance Year EBITDA Targets and Bonus Opportunities. The EBITDA Bonus for each full Performance Year of the Employee’s employment shall be calculated based on the following EBITDA Targets and Bonus Opportunities for such full Performance Year (prorated between breakpoints), determined as of December 31 of the Performance Year:


EBITDA Targets		EBITDA Bonus Opportunities
$38,000,000		$200,000
$41,000,000		$250,000
$44,000,000		$300,000
$47,000,000		$400,000
$50,000,000 and above		$460,000 or, if greater, the Employee’s base salary as of January 1 of the Performance Year

If an EBITDA Target is met for the full Performance Year, the corresponding EBITDA Bonus shall be paid to the Employee on the first to occur of the fifteenth (15th) day after the day on which the Company publicly announces its fiscal year-end results for the Performance Year, or the ninetieth (90th) day after the end of such Performance Year.

(b) EBITDA Bonus in the Event of a Termination of Employment During the Performance Year.

(i) If the Employee’s employment terminates during the Performance Year for any reason after November 14 of the Performance Year, the EBITDA Bonus shall be calculated and paid for the full Performance Year as provided in subsection 1(a).

(ii) If the Employee’s employment terminates between July 1 and November 14 of the Performance Year, other than due to death or Disability (as defined below), a proportional EBITDA Bonus for the Performance Year (a “Proportional EBITDA Bonus”) shall be calculated and paid to the Employee at the same time as the full Performance Year EBITDA Bonus would have been paid under subsection 1(a), but if and only if an EBITDA Target is met for the full Performance Year. The Proportional EBITDA Bonus under this paragraph (ii) shall be calculated as follows:

(A) Determine the EBITDA Target actually met for the full Performance Year and the corresponding EBITDA Bonus Opportunity amount (the “Full-Year Actual Bonus Opportunity”);

(B) Determine the fiscal quarter end closest to the termination date (irrespective of whether, in the case of September 30, such fiscal quarter end is before or after such termination date);

(D) Multiply such percentage times the Full-Year Actual Bonus Opportunity to determine the Proportional EBITDA Bonus.

(iii) If the Employee’s employment terminates between July 1 and November 14 of the Performance Year due to death or Disability, a Proportional EBITDA Bonus shall be calculated and paid to the Employee or his personal representative, without regard to whether an EBITDA Target is met for the full Performance Year, on the later to occur of the fifteenth (15th) day after the day on which the Employee’s employment terminates, or the fifteenth (15th) day after the day on which the Company publicly announces its fiscal quarter-end results for the applicable fiscal quarter. The Proportional EBITDA Bonus under this paragraph (iii) shall be calculated as follows:

(A) Determine the fiscal quarter end closest to the termination date (irrespective of whether, in the case of September 30, such fiscal quarter end is before or after such termination date);

(B) If the closest fiscal quarter end is June 30, take 50%, and if it is September 30, take 75%;

(C) Multiply such percentage times the EBITDA Targets and the corresponding EBITDA Bonus Opportunities for the full Performance Year set forth in subsection 1(a) to determine the Proportional EBITDA Targets and Proportional EBITDA Bonus Opportunities, respectively;

(D) Determine the EBITDA actually achieved for the Performance Year through the applicable fiscal quarter end (the “Actual Proportional EBITDA”); and

(E) Then calculate the Proportional EBITDA Bonus earned with respect to the Actual Proportional EBITDA in the same manner as in the case of a full Performance Year, substituting the Proportional EBITDA Targets and Proportional EBITDA Bonus Opportunities for the full Performance Year EBITDA Targets and full Performance Year EBITDA Bonus Opportunities, respectively.

(iv) If the Employee’s employment terminates for any reason on or before June 30 of the Performance Year, no Proportional EBITDA Bonus shall be paid for such Performance Year.

(v) For purposes of this subsection (b), the Employee shall be deemed to have terminated due to Disability if, at the time of his termination, the Employee is disabled within the meaning of the Employer’s long-term disability policy or program as in effect for executive officers at that time.

(c) Effect of Change in Control Upon EBITDA Bonus. A Change in Control shall have no effect on the calculation or payment of any EBITDA Bonus under subsections (a) and (b)(i) or any Proportional EBITDA Bonus under subsections (b)(ii) and (b)(iii).

(d) Section 409A. This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and administered in accordance with Section 409A. For purposes of Section 409A, all payments to be made upon a termination of employment under this Agreement may only be made upon the Employee’s “separation from service” (within the meaning of such term under Section 409A). Notwithstanding anything in this Agreement to the contrary, if, at the time of the Employee’s termination of employment, the Company has securities which are publicly traded on an established securities market and the Employee is a “specified employee” (as such term is defined in Section 409A of the Code), and it is necessary to postpone the commencement of any payments or benefits otherwise payable under this Agreement as a result of such termination of employment to prevent any accelerated or additional tax under Section 409A, then the Company shall postpone the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Employee), until the first payroll date after (but no later than thirty (30) days after) the date that is six (6) months following the day of the Employee’s “separation from service” (within the meaning of such term under Section 409A). If the Employee dies during the postponement period prior to the payment of any postponed amount, the amounts postponed on account of Section 409A shall be paid to the personal representative of the Employee’s estate within sixty (60) days after the day of the Employee’s death. Notwithstanding the foregoing, in no event shall the Company be obligated to reimburse the Employee for any taxes, penalties, interest or other expenses that may be incurred on account of non-compliance with Section 409A.

2. Clawback of EBITDA Bonus. In the event of any subsequent restatement of the Company’s published financial statements related to a given Performance Year, within three (3) years after the end of such Performance Year, due to the Company’s material noncompliance with any financial reporting requirements under the federal securities laws, then any excess EBITDA Bonus or Proportional EBITDA Bonus paid to the Employee in respect of such Performance Year, net of any income, payroll, or other taxes withheld or paid in respect of such excess amount, shall be recovered by the Company from the Employee if, and to the extent that, such restatement reduces the relevant EBITDA calculation such that the Employee would have only been entitled to a lower or no Bonus amount in respect of such Performance Year. It is expressly understood and agreed by the parties that this provision shall apply regardless of whether the cause or reason for such restatement was due to any fault of the Employee.

3. Incorporation of the Amended and Restated LTIP by Reference. The Cash Performance Bonus Award has been granted to the Employee under the Amended and Restated LTIP, a copy of which has been previously provided to the Employee. All of the terms, conditions, and other provisions of the Amended and Restated LTIP are hereby incorporated by reference into this Agreement. Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the Amended and Restated LTIP. If there is any conflict between the provisions of this Agreement and the provisions of the Amended and Restated LTIP, the provisions of the Amended and Restated LTIP shall govern. The Employee hereby acknowledges such prior receipt of a copy of the Amended and Restated LTIP and agrees to be bound by all of the terms and provisions thereof, all rules and regulations adopted from time to time thereunder, and all decisions and determinations of the Committee made from time to time thereunder.

4. Taxes. Section 8(d) of the Amended and Restated LTIP shall govern withholding and other tax arrangements with respect to the obligation to satisfy the requirements of federal, state, and local tax law to withhold taxes or other amounts with respect to any EBITDA Bonus or Proportional EBITDA Bonus.

5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to principles of conflicts of laws, and applicable federal law.

6. Miscellaneous. This Agreement shall be binding upon the heirs, executors, personal representatives, administrators, and successors of the parties. This Agreement, the Amended and Restated LTIP, and the Employment Agreement constitute the entire agreement between the parties with respect to the Cash Performance Bonus Award, and supersede any prior agreements or documents with respect thereto. This Agreement may only be amended by a writing executed by both parties.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.


EMPLOYEE:	UNITED STATES LIME & MINERALS, INC.


/s/ Timothy W. Byrne	By:	/s/ Antoine M. Doumet
Timothy W. Byrne		Antoine M. Doumet
		Chairman of the Board of Directors
Address:
Timothy W. Byrne
c/o United States Lime & Minerals, Inc.
5429 LBJ Freeway
Suite 230
Dallas, TX 75240

EXHIBIT 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER

I, Timothy W. Byrne, certify that:

1.I have reviewed this quarterly report on Form 10-Q of United States Lime & Minerals, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: April 30, 2020	/s/ Timothy W. Byrne
	Timothy W. Byrne
	President and Chief Executive Officer

EXHIBIT 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION BY THE CHIEF FINANCIAL OFFICER

I, Michael L. Wiedemer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of United States Lime & Minerals, Inc.;

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: April 30, 2020	/s/ Michael L. Wiedemer
	Michael L. Wiedemer
	Vice President and Chief Financial Officer

EXHIBIT 32.1

SECTION 1350 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER

I, Timothy W. Byrne, Chief Executive Officer of United States Lime & Minerals, Inc. (the “Company”), hereby certify that, to my knowledge:

(1)The Company’s periodic report on Form 10-Q for the quarterly period ended March 31, 2020 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: April 30, 2020	/s/ Timothy W. Byrne
	Timothy W. Byrne
	President and Chief Executive Officer

EXHIBIT 32.2

SECTION 1350 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER

I, Michael L. Wiedemer, Chief Financial Officer of United States Lime & Minerals, Inc. (the “Company”), hereby certify that, to my knowledge:

(2)The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: April 30, 2020	/s/ Michael L. Wiedemer
	Michael L. Wiedemer
	Vice President and Chief Financial Officer

EXHIBIT 95.1

MINE SAFETY DISCLOSURES

The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K, which require certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).

The Mine Act has been construed as authorizing MSHA to issue citations and orders pursuant to the legal doctrine of strict liability, or liability without fault. If, in the opinion of an MSHA inspector, a condition that violates the Mine Act or regulations promulgated pursuant to it exists, then a citation or order will be issued regardless of whether the operator had any knowledge of, or fault in, the existence of that condition. Many of the Mine Act standards include one or more subjective elements, so that issuance of a citation or order often depends on the opinions or experience of the MSHA inspector involved and the frequency and severity of citations and orders will vary from inspector to inspector.

Whenever MSHA believes that a violation of the Mine Act, any health or safety standard, or any regulation has occurred, it may issue a citation or order which describes the violation and fixes a time within which the operator must abate the violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order requiring cessation of operations, or removal of miners from the area of the mine, affected by the condition until the hazards are corrected. Whenever MSHA issues a citation or order, it has authority to propose a civil penalty or fine, as a result of the violation, that the operator is ordered to pay.

The table that follows reflects citations, orders, violations and proposed assessments issued to the Company by MSHA during the quarter ended March 31, 2020 and all pending legal actions as of March 31, 2020. Due to timing and other factors, the data may not agree with the mine data retrieval system maintained by MSHA. The proposed assessments for the quarter ended March 31, 2020 were taken from the MSHA system as of April 29, 2020.

Additional information follows about MSHA references used in the table:

Section 104(a) Citations: The total number of citations received from MSHA under section 104(a) of the Mine Act for alleged violations of health or safety standards that could significantly and substantially contribute to a serious injury if left unabated.

Section 104(b) Orders: The total number of orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.

Section 104(d) Citations and Orders: The total number of citations and orders issued by MSHA under section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards.

Section 110(b)(2) Violations: The total number of flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act.

Section 107(a) Orders: The total number of orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an imminent danger existed.

Citations and orders can be contested before the Federal Mine Safety and Health Review Commission (the “Commission”), and as part of that process, are often reduced in severity and amount, and are sometimes dismissed. The Commission is an independent adjudicative agency that provides administrative trial and appellate review of legal disputes arising under the Mine Act. These cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under section 105 of the Mine Act.


			Section
			104(d)			Proposed
	Section	Section	Citations	Section	Section	MSHA		Pending
	104 S & S	104(b)	and	110(b)(2)	107(a)	Assessments(2)		Legal
Mine(1)	Citations	Orders	Orders	Violations	Orders	($ in thousands)	Fatalities	Actions(3)
Texas Lime Company	—	—	—	—	—	0.1	—	—
Arkansas Lime Company
Plant	—	—	—	—	—	—	—	—
Limedale Quarry	—	—	—	—	—	0.2	—	—
Colorado Lime Company
Monarch Quarry	—	—	—	—	—	—	—	—
Delta Plant	—	—	—	—	—	—	—	—
U.S. Lime Company—St. Clair	1	—	—	—	—	1.1	—	—

(1)

The definition of a mine under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting and processing limestone, such as roads, land, structures, facilities, equipment, machines, tools, kilns, and other property. These other items associated with a single mine have been aggregated in the totals for that mine.

(2)

The proposed MSHA assessments issued during the reporting period do not necessarily relate to the citations or orders issued by MSHA during the reporting period or to any pending contests reported above.

(3)

Includes any pending legal actions before the Commission involving such mine as of March 31, 2020. Any pending legal actions were initiated by the Company. The pending legal actions may relate to the citations or orders issued by MSHA during the reporting period or to citations or orders issued in prior periods. Due to timing and other factors, the data may not agree with the mine data retrieval system maintained by MSHA. There were no legal actions resolved or instituted during the reporting period.

Pattern or Potential Pattern of Violations. During the quarter ended March 31, 2020, none of the mines operated by the Company received written notice from MSHA of either (a) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to mine health or safety hazards under section 104(e) of the Mine Act or (b) the potential to have such a pattern.