USLM United States Lime and Minerals Inc

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Registrant’s telephone number, including area code: (972) 991-8400

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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.

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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

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

The aggregate market value of Common Stock held by non-affiliates computed as of the last business day of the Registrant’s quarter ended June 30, 2021: $289,358,791.

Number of shares of Common Stock outstanding as of March 9, 2022: 5,668,165.

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DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the Registrant’s definitive Proxy Statement to be filed for its 2022 Annual Meeting of Shareholders. Part IV incorporates certain exhibits by reference from the Registrant’s previous filings.

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Principal customers for the Company’s lime and limestone products are construction customers (including highway, road and building contractors), industrial customers (including paper manufacturers and glass manufacturers), metals producers (including steel producers), environmental customers (including municipal sanitation and water treatment facilities and flue gas treatment processes), roof shingle manufacturers, poultry and cattle feed producers, and oil and gas services companies.

Approximately 650 customers accounted for the Company’s sales of lime and limestone products during 2021. No single customer accounted for more than 10% of such sales. The Company is generally not subject to significant customer demand and credit risks as its customers are considerably diversified within our geographic region and by industry concentration. However, given the nature of the lime and limestone industry, the Company’s profits are very sensitive to changes in sales volumes, prices, and costs.

Lime and limestone products are transported by truck and rail to customers generally within a radius of 400 miles of each of the Company’s plants. All of the Company’s 2021 sales were made within the United States.

Seasonality. The Company’s sales have typically reflected seasonal trends, with the largest percentage of total annual shipments and revenues normally being realized in the second and third quarters. Lower seasonal demand normally results in reduced shipments and revenues in the first and fourth quarters. Inclement weather conditions generally have a negative impact on the demand for lime and limestone products supplied to construction-related customers, as well as on the Company’s open-pit quarrying operations.

Limestone Mineral Resources and Reserves. The Company’s limestone mineral resources and reserves contain at least 96% calcium carbonate (CaCO₃). The Company has three subsidiaries that extract limestone from open-pit quarries: Texas Lime Company (“Texas Lime”), which is located near Cleburne, Texas; Arkansas Lime Company (“Arkansas Lime”), which is located near Batesville, Arkansas; and Mill Creek Dolomite, LLC (“Mill Creek”), which the Company acquired on February 9, 2022, located near Mill Creek, Oklahoma. U.S. Lime Company—St. Clair (“St. Clair”) extracts limestone from an underground mine located near Marble City, Oklahoma. Carthage Crushed Limestone (“Carthage”) extracts limestone from an underground mine located in Carthage, Missouri. Colorado Lime Company (“Colorado Lime”) owns property containing limestone deposits at Monarch Pass, Colorado. Existing crushed stone stockpiles on the property are being used to provide feedstock to the Company’s plant in Delta, Colorado. Access to all properties is provided by paved roads and, in the case of Arkansas Lime, St. Clair, Carthage, and Mill Creek, also by rail. During each of the years ended December 31, 2021, 2020 and 2019, the Company mined approximately 3 million tons of limestone from its quarries and mines.

The Company engaged SYB Group, LLC (“SYB”) to serve as the Qualified Person (“QP”) to prepare estimates of the limestone mineral resources and reserves, as of December 31, 2021, at all of its properties except for Carthage and Colorado Lime. The QP was not retained to prepare estimates at Carthage and Colorado Lime because the Company has not completed a drilling program sufficient to enable the QP to prepare estimates of the limestone mineral resources and reserves at those properties.

Summaries of the Company’s total limestone mineral resources and reserves for all properties other than Carthage and Colorado Lime as of December 31, 2021 are shown below. The terms “Mineral Resource”, “Measured Resources”, “Indicated Resources”, “Mineral Reserves”, “Proven Reserves” and “Probable Reserves” are defined in accordance with SEC Regulation S-K subpart 229.1300 governing disclosures by registrants engaged in mining operations. Limestone mineral reserves are included in limestone mineral resources, net of any mining loss factors.

¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

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¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

Set forth below is a description of each of the Company’s mining properties. The Company considers the four mining properties associated with Texas Lime, Arkansas Lime (2 properties) and St. Clair to be material for purposes of application of SEC Regulation S-K subpart 229.1300. Included in the description of each of these four material mining properties are disclosures with respect to such property’s limestone mineral resources and reserves. For additional information with respect to these four properties, see the Technical Report Summaries prepared by SYB, as of December 31, 2021, in Exhibits 96.1-96.4 to this Report on Form 10-K.

Texas Lime owns a quarry and has PLS, lime, and hydrated lime production facilities, located on approximately 5,200 acres of land in Johnson County, Texas that contains known high-quality limestone resources in a bed averaging 25 to 35 feet in thickness (the “Texas Lime Quarry”). As of December 31, 2021, Texas Lime had 117 million tons of measured limestone mineral resources, which included 63 million tons of proven reserves plus 48 million tons of probable reserves. Assuming the current level of production and recovery rate is maintained, the Company estimates that these reserves are sufficient to sustain operations for approximately 75 years. The tables below summarize the limestone mineral resources and reserves at the Texas Lime Quarry as of December 31, 2021.

¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

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¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

Arkansas Lime owns a quarry, and has PLS, lime, and hydrated lime production facilities, located on approximately 1,260 acres of land located in Independence County, Arkansas that contains known high-quality limestone resources in a bed averaging 60 feet in thickness (the “Batesville Quarry”). As of December 31, 2021, the Batesville Quarry had 8 million tons of indicated limestone mineral resources and 16 million tons of measured limestone mineral resources, which included 9 million tons of proven reserves and 3 million tons of probable reserves. Based on forecasted production levels and recovery rates, the Company estimates that these reserves are sufficient to sustain operations for approximately 25 years. The tables below summarize the limestone mineral resources and reserves at the Batesville Quarry as of December 31, 2021.

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¹ Price source from from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

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¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

²Mining recovery is listed as open pit/underground recovery

In 2005, the Company acquired an additional quarry associated with Arkansas Lime, located on approximately 2,500 acres of land in Izard County, Arkansas (the “Love Hollow Quarry”). The Company is improving the transportation infrastructure between the Love Hollow Quarry and Arkansas Lime’s production facilities and incurring other development costs to prepare the Love Hollow Quarry for mining, in anticipation of sourcing a portion of the Arkansas Lime plant’s limestone requirements from the Love Hollow Quarry during 2022. As of December 31, 2021, the Love Hollow Quarry had 116 million tons of measured limestone mineral resources, which included 69 million tons of proven reserves and 21 million tons of probable reserves. Based on forecasted production levels and recovery rates, the Company estimates that these reserves are sufficient to sustain operations for approximately 80 years. The tables below summarize the limestone mineral resources and reserves at the Love Hollow Quarry as of December 31, 2021.

¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

² Mining recovery is listed as open pit/underground recovery

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St. Clair operates an underground mine and has PLS, lime, and hydrated lime production facilities located on approximately 1,400 acres that it owns in Sequoyah County, Oklahoma containing high-quality limestone resources and also has long-term mineral leases that provide the right to mine high-quality limestone resources contained in approximately 1,340 adjacent acres (the “St. Clair Mine”). As of December 31, 2021, the St. Clair Mine had 148 million tons of indicated limestone mineral resources and 36 million tons of measured limestone mineral resources, including 23 million tons of proven reserves. Assuming the current level of production and recovery rate is maintained, the Company estimates that these reserves are sufficient to sustain operations for approximately 55 years. The tables below summarize the limestone mineral resources and reserves at the St. Clair Mine as of December 31, 2021.

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¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

¹ Price source from U.S. Geological Survey Mineral Commodity Summaries 2021, based on short tons

Carthage operates an underground mine and has limestone production facilities located on approximately 800 acres that it owns containing high-quality limestone. In addition, Carthage has the right to mine the high-quality limestone contained in approximately 760 adjacent acres pursuant to long-term mineral leases.

Mill Creek, which the Company acquired on February 9, 2022, operates an open pit quarry and production facilities located on approximately 570 acres that it owns where it mines and processes industrial grade crushed dolomite.

Colorado Lime acquired the Monarch Pass Quarry in November 1995 and has not carried out any mining on the property. The Monarch Pass Quarry, which had been operated for many years until the early 1990s, contains a mixture of limestone types, including high-quality calcium limestone and dolomite.

Internal Controls Over Limestone Mineral Resources and Reserves Estimates. Internal control procedures followed by the Company’s Quality Control/Quality Assurance Laboratories (“QC/QA Lab”) and its contract geologists when assessing properties for limestone mineral resources and reserves estimates are clearly defined. Core drilling is conducted under the direct supervision of the geologists, and all core data is logged using a standard protocol. The geologists are responsible for examining the core and compiling an interval list for X-Ray Florescence (“XRF”) analysis. Splits of cores are bagged and labeled with the depth interval to be analyzed, with the remaining split boxed and stored for reference. Bagged intervals are submitted to the Company’s certified QC/QA Lab for XRF analysis, with any samples not destroyed by the testing process retained at the Company’s core storage facility.

When classifying limestone mineral resources and reserves, the Company’s contract geologists apply a fixed cutoff grade and set parameters of geologic confidence to classify the respective resources and reserves. Company management reviews the geologists’ assessments for reasonableness.

Quarrying and Mining. The Company extracts limestone by the open-pit method at its Texas and Batesville Quarries and will do so initially at the Love Hollow Quarry, beginning in 2022. The Monarch Pass Quarry is also an open-pit quarry but is not being mined at this time. The open-pit method consists of removing any overburden comprising soil and other substances, including inferior limestone, and then extracting the exposed high-quality limestone. The Company removes such overburden by utilizing both its own employees and equipment and those of outside contractors. Open-pit mining is generally less expensive than underground mining. The principal disadvantage of the open-pit method is that operations are subject to inclement weather and overburden removal. The limestone is extracted by drilling and blasting, utilizing standard mining equipment. At its St. Clair and Carthage underground mines, the Company mines limestone using room and pillar mining. We have no knowledge of any recent changes in the physical quarrying or mining conditions on any of our properties that have materially affected quarrying or mining operations.

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Plants and Facilities. After extraction, limestone is crushed and screened and, in the case of PLS, ground and dried, or, in the case of quicklime, processed in kilns. Quicklime may then be further processed in hydrators and slakers to produce hydrated lime and lime slurry. The Company processes and distributes lime and/or limestone products at four plants, six lime slurry facilities and three terminal facilities. All of its plants and facilities are accessible by paved roads, and, in the case of the Arkansas Lime, St. Clair and Carthage plants and the terminal facilities, also by rail.

The Texas Lime plant has an annual capacity of approximately 470 thousand tons of quicklime from two preheater rotary kilns. The plant also has PLS equipment, which, depending on the product mix, has the capacity to produce approximately 800 thousand tons of PLS annually.

The Arkansas Lime plant is situated at the Batesville Quarry. Utilizing three preheater rotary kilns, this plant has an annual capacity of approximately 630 thousand tons of quicklime. The Arkansas Lime plant is approximately 21 miles from the Love Hollow Quarry, to which it is connected by railroad. Arkansas Lime’s PLS and hydrating facilities are situated on a tract of 290 acres located approximately two miles from the Batesville Quarry, to which it is connected by a Company-owned railroad. The PLS equipment, depending on the product mix, has the capacity to produce approximately 300 thousand tons of PLS annually.

The St. Clair plant has an annual capacity of approximately 250 thousand tons of quicklime from one vertical kiln and one preheater rotary kiln. The plant also has PLS equipment, which has the capacity to produce approximately 150 thousand tons of PLS annually.

The Carthage plant has facilities located next to the mine that produce both aggregates and PLS. The equipment has the capacity to produce approximately 900 thousand tons annually.

The Mill Creek plant has facilities located next to the mine that produces dolomitic PLS products. The equipment has the capacity to produce approximately 200 thousand tons annually.

The Company also maintains lime hydrating and bagging equipment at the Texas, Arkansas and St. Clair plants. Storage facilities for lime and limestone products at each plant consist primarily of cylindrical tanks, which are considered by the Company to be adequate to protect its lime and limestone products and to provide an available supply for customers’ needs at the expected volumes of shipments. Equipment is maintained at each plant to load trucks and, at the Arkansas Lime, St. Clair, and Mill Creek plants, to load railroad cars.

Colorado Lime operates a limestone grinding and bagging facility with an annual capacity of approximately 125 thousand tons, located on approximately three and one-half acres of land in Delta, Colorado.

During 2021, the Company’s utilization rate was approximately 63% of its aggregate annual production capacity for the plants in its Lime and Limestone Operations.

U.S. Lime Company (“US Lime”) uses quicklime to produce lime slurry and has four Houston area facilities, including two distribution terminals connected to railroads, to serve the Greater Houston area construction market and four facilities to serve the Dallas-Ft. Worth Metroplex. The Company established U.S. Lime Company—Transportation (“Transportation”) to deliver some of the Company’s products to its customers and facilities primarily in the Dallas-Ft. Worth Metroplex.

U.S. Lime Company — Shreveport operates a distribution terminal in Shreveport, Louisiana, which is connected to a railroad, to provide lime storage, hydrating, slurrying and distribution capacity to service markets in Louisiana and East Texas.

The Company believes that its plants and facilities are adequately maintained and insured.

Human Capital Resources. The Company is committed to attracting and retaining the best and brightest talent to meet the current and future needs of its business. Attracting, retaining, motivating, and investing in the development of human capital resources is a critical part of the Company’s commitment to environmental, social, and governance (“ESG”) and sustainability issues.

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At December 31, 2021, the Company employed 308 persons, 109 of whom were represented by unions. The Company is a party to three collective bargaining agreements. The collective bargaining agreement for the Texas facilities expires in November 2023. The collective bargaining agreement for the Arkansas facilities expires in January 2023. The collective bargaining agreement for the Carthage facilities expires in May 2022. Overall, the Company believes that its employee relations are generally good.

Employee Retention and Incentivization. The Company has entered into an employment agreement with Timothy W. Byrne, its President and Chief Executive Officer. Mr. Byrne’s employment agreement became effective as of January 1, 2020 for a five-year term and will continue for successive one-year periods unless the Company or Mr. Byrne gives at least one-year’s prior written notice of intent not to renew. Under the employment agreement, in addition to the possibility of a discretionary cash bonus, Mr. Byrne is entitled each year to an EBITDA cash bonus opportunity under the United States Lime & Minerals, Inc. Amended and Restated 2001 Long-Term Incentive Plan (the “Plan”), and he is also entitled to grants of equity awards under the Plan.

Mr. Byrne’s employment agreement provides that Mr. Byrne is subject to certain forfeiture/clawback and share ownership provisions designed to align Mr. Byrne’s financial interests with those of the Company’s long-term shareholders, and to ensure that he is incentivized not to take actions that may benefit the Company and its shareholders in the short-term at the expense of long-term corporate value creation and sustainability. In particular, in entering into the employment agreement with Mr. Byrne, the Company’s Board of Directors and Compensation Committee were sensitive to how Mr. Byrne’s leadership and actions could further the Company’s various objectives, including human capital resources development and executive succession planning.

With respect to the Company’s broader employee base, certain employees are eligible to receive annual cash bonuses based on discretionary determinations. Except in the case of Mr. Byrne, the Company has not adopted a formal or informal annual bonus arrangement with pre-set performance goals. Rather, the determination to pay a cash bonus, if any, is made in December each year based on the past performance of the individual and the Company or on the attainment of non-quantified performance goals during the year. In either such case, the discretionary bonus may be based on the specific accomplishments of the individual and/or on the overall performance of the Company. The amounts of the discretionary bonuses for 2021 were based on each employee’s individual performance and accomplishments, as well as those of the Company, including productivity, sales, controlling costs, and contributions made to special projects.

In addition to cash bonuses, the Company makes equity awards to certain individuals under the Plan. The Company uses equity awards granted under the Plan as a means to attract, retain, and motivate the Company’s directors, officers, employees, and consultants. The Company views the use of equity awards under the Plan as an important means of aligning the interests of its employees with those of its shareholders.

Employee Health and Safety. The Company believes that it is responsible to its employees to provide a safe and healthy workplace environment. The Company seeks to accomplish this by: training employees in safe work practices; openly communicating with employees; following safety standards and establishing and improving safe work practices; involving employees in safety processes; and recording, reporting and investigating accidents, incidents and losses to avoid reoccurrence. In response to the COVID-19 pandemic, the Company is continuing to focus on the health and safety of its employees and other individuals at its facilities that produce lime and limestone products to the essential businesses and communities that it serves.

Employee Development and Training. The Company encourages and supports the growth and development of its employees. It advances continual learning and career development through ongoing performance and development conversations or evaluations with employees and internally and externally developed training programs. The Company also provides reimbursement for certain educational programs relating to the Company’s business.

Employee Diversity and Inclusion. The Company is committed to fostering a work environment that values and promotes diversity and inclusion. This commitment includes providing equal access to, and participation in, equal employment opportunities, programs, and services, without regard to a person’s gender, nationality, race, and ethnicity. The Company is focused on the development and fair treatment of its employees, including equal employment hiring

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practices and policies, anti-harassment, and anti-retaliation policies. The Company is continuing to invest in and take actions in an effort to create a more diverse and inclusive workforce and workplace environment.

Competition. The lime industry is highly regionalized and competitive, with price, quality, ability to meet customer demands and specifications, proximity to customers, personal relationships and timeliness of deliveries being the prime competitive factors. The Company’s competitors are predominantly private companies.

The lime industry is characterized by high barriers to entry, including: the scarcity of high-quality limestone deposits on which the required zoning and permitting for extraction can be obtained; the need for lime plants and facilities to be located close to markets, paved roads and railroad networks to enable cost-effective production and distribution; clean air and anti-pollution regulations, including those related to greenhouse gas emissions, which make it more difficult to obtain permitting for new sources of emissions, such as lime kilns; and the high capital cost of the plants and facilities. These considerations reinforce the premium value of operations having permitted, long-term, high-quality limestone resources and good locations and transportation relative to markets.

Lime producers tend to be concentrated on known high-quality limestone formations where competition takes place principally on a regional basis. While the steel industry and environmental-related users are the largest market sectors, the lime industry also counts chemical users and other industrial users, including paper manufacturers, oil and gas services and highway, road and building contractors, among its major customers.

In recent years, the lime industry has experienced reduced demand from certain industries as they experience cyclical or secular downturns. For example, demand from the Company’s steel and oil and gas services customers tends to vary with the demand for their products and services, which has continued to be cyclical. In addition, utility plants are continuing to use more natural gas and renewable sources for power generation instead of coal, which reduces their demand for lime and limestone for flue gas treatment processes. These reductions in demand have resulted in increased competitive pressures, including pricing and competition for certain customer accounts, in the industry.

Consolidation in the lime industry has left the three largest companies accounting for more than two-thirds of North American production capacity. In addition to the consolidations, and often in conjunction with them, many lime producers have undergone modernization and expansion and development projects to upgrade their processing equipment in an effort to improve operating efficiency. We believe that our modernization and expansion projects in Texas, Arkansas, and Oklahoma and our recent acquisitions, along with our lime slurry operations in Texas, should allow us to continue to remain competitive, protect our markets and position ourselves for the future. In addition, we will continue to evaluate internal and external opportunities for expansion, growth and increased profitability, as conditions warrant, or opportunities arise. We may have to revise our strategy or otherwise consider ways to enhance the value of the Company, including by entering into strategic partnerships, mergers or other transactions.

Compliance with Government Regulations. The Company is subject to various federal, state, and local laws and regulations that may materially impact the Company’s financial condition, results of operations, cash flows and competitive position. These include laws and regulations relating to the environment, mine permitting and operations, mine safety, and reclamation and remediation.

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Environmental Laws. The Company owns or controls large areas of land on which it operates limestone quarries, two underground mines, lime plants and other facilities with inherent environmental responsibilities, compliance costs and liabilities. These include maintenance and operating costs for pollution control equipment, the cost of ongoing monitoring and reporting programs, the cost of reclamation efforts and other similar environmental costs and liabilities.

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The Company’s operations are subject to various federal, state and local laws and regulations relating to the environment, health and safety and other regulatory matters, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act and analogous state and local laws (“Environmental Laws”). These Environmental Laws grant the United States Environmental Protection Agency (the “EPA”) and state governmental agencies the authority to promulgate and enforce regulations that could result in substantial expenditures on pollution control, waste management, permitting compliance activities, and mining reclamation. Many Environmental Laws also authorize private citizens and interest groups to file

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lawsuits in court to enforce alleged violations. Changes in policy or political leadership may affect how Environmental Laws are interpreted or enforced by the EPA and state governmental agencies. The failure to comply with Environmental Laws may result in administrative and civil penalties, injunctive relief and criminal prosecution. The Company has not been named as a potentially responsible party in any federal superfund cleanup site or state-led cleanup site.

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The rate of change of Environmental Laws continues to be rapid, and compliance can require significant expenditures. For example, the Clean Air Act required the Company’s lime plants to obtain Title V operating permits that have significant ongoing compliance costs. In addition to the Title V permits, other environmental operating permits are required for the Company’s operations, and such permits are subject to modification during the permit renewal process and, in rare instances, could be revoked. Over time, the EPA has increased the stringency of the National Ambient Air Quality Standards (“NAAQS”), which are used to establish air emission permitting limits under the Clean Air Act.

The EPA has lowered ozone standards and reclassified areas where State Implementation Plans (the “SIPs”) exist. In October 2015, the EPA issued a final rule lowering the ground-level ozone NAAQS to 70 parts per billion. In December 2018, the EPA issued a final rule affecting SIP requirements for attainment demonstrations, planning and implementation deadlines for reasonably available control technology, emissions inventories and emissions standards, and the timing of required SIP revisions. State environmental agencies in the states in which we operate are currently in the process of revising their SIPs to comply. For example, the Texas Commission on Environmental Quality adopted a rule package in June 2020 to incorporate the 2015 ozone NAAQS into the emission inventory provisions of the Texas SIP. This and similar rulemakings could increase the cost of future plant modifications or expansions, increase compliance costs and have a material adverse effect on the Company’s financial condition, results of operations, cash flows and competitive position.

EPA regulations require large emitters of greenhouse gases, including the Company’s plants, to collect and report greenhouse gas emissions data. The EPA has previously indicated that it will use the data collected through the greenhouse gas reporting rules to decide whether to promulgate future greenhouse gas emission limits. The EPA and delegated states also regulate greenhouse gas emissions under the New Source Review permitting and Federal Operating Permit programs for facilities that are otherwise subject to permitting based on their emissions of conventional, non-greenhouse gas pollutants. Thus, any new facilities or major modifications to existing facilities that exceed the federal New Source Review emission thresholds for conventional pollutants may be required to use “best available control technology” and energy efficiency measures to minimize greenhouse gas emissions.

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Although the timing and impact of climate change legislation and of regulations limiting greenhouse gas emissions are uncertain, the consequences of such legislation and regulation are potentially significant for the Company because the production of CO₂ is inherent in the manufacture of lime through the calcination of limestone and combustion of fossil fuels. In February 2021, the current Administration rejoined the Paris Agreement. The Agreement commits the United States to reduce greenhouse gas emissions by 26 to 28 percent below 2005 levels by 2025. Future regulation related to the Paris Agreement or other greenhouse gas rulemakings could affect New Source Review permitting or other permitting programs and, thereby, increase the time and costs of plant upgrades and expansions. The passage of climate change legislation, and other regulatory initiatives by the Congress, the states or the EPA that restrict or tax emissions of greenhouse gases, could also adversely affect the Company. There is no assurance that changes in the law or regulations will not be adopted, such as the imposition of greenhouse gas emission limits, a carbon tax, a cap-and-trade program requiring the Company to purchase carbon credits or other measures that would require reductions in emissions or changes to raw materials, fuel use or production rates. Such changes, if adopted, could have a material adverse effect on the Company’s financial condition, results of operations, cash flows and competitive position.

In addition to regulation, several court cases have been filed and decisions issued that may increase the risk of claims being filed by third parties against companies for their greenhouse gas emissions. Such cases may seek to challenge air permits, to force reductions in greenhouse gas emissions or to recover damages for alleged climate change impacts to the environment, people, and property.

In July 2020, the EPA adopted a final revision to a federal regulation that establishes national standards to meet the maximum achievable control technology (“MACT”) within the lime industry.  Also known as the “Lime MACT,”

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this rulemaking is the second revision to the initial Lime MACT promulgated in 2004.  The revision included changes to the startup, shutdown and malfunction provisions contained in the prior Lime MACT rule, but otherwise did not impose more stringent standards.

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In September 2020, a non-governmental organization filed a petition for reconsideration asking the EPA to reconsider the Lime MACT and arguing the EPA’s decision to not set limits for hazardous air pollutants was unlawful. The non-governmental organization also initiated litigation, Sierra Club v. EPA, No. 20-1381 (D.C. Cir. September 22, 2020), before the D.C. Circuit Court of Appeals, challenging the Lime MACT. That case is currently held in abeyance due to the D.C. Circuit Court of Appeals’ holding in a separate litigation, Louisiana Environmental Action Network v. EPA, 955 F.3d 1088 (D.C. Cir. 2020) (“Lean”), which involved a challenge to emissions standards for pulp mill combustion sources. In LEAN, the D.C Circuit Court of Appeals held that the EPA had failed to set necessary limits for hazardous air pollutants for pulp mill combustion sources. Based on the holding of LEAN, the EPA determined that, in finalizing the Lime MACT, it did not set all necessary limits for hazardous air pollutant emissions. In April 2021, the U.S. District Court for the District of Columbia extended the deadline for the EPA to take final action on the Lime MACT to February 23, 2023. This new rulemaking will establish new limits for hazardous air pollution emissions as required by the court. The Company is working with the National Lime Association and the EPA to ensure that the rulemaking is science based, accurate, and attainable.

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It is uncertain what limits the EPA will ultimately impose on the lime industry and what emission controls may be required. It is probable that it will incorporate more stringent standards which could have a material adverse effect on the Company’s financial condition, results of operations, cash flows and competitive position.

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The Company also holds permits for process water and storm water discharges and must comply with the Clean Water Act and analogous state laws and regulations. Any failure to comply with these permits could result in fines or other penalties. Material changes to the terms of these permits or changes to regulations affecting water discharges in the future could also increase compliance costs.

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The manufacturing of lime and hydrated lime requires significant volumes of water. The Company operates multiple groundwater wells to provide water to its plants. Groundwater pumping is subject to increased regulation, and in some areas the Company is required to obtain permits from groundwater conservation districts to pump groundwater. Any failure to comply with these permits could result in fines or other penalties and future changes that restrict the quantities of groundwater that may be pumped may increase compliance costs.

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The Company incurred capital expenditures related to environmental matters of $0.5 million, $0.7 million, and $1.2 million in 2021, 2020, and 2019, respectively. The Company’s recurring costs associated with managing environmental permitting and waste recycling and disposal (e.g., used oil and lubricants) and maintaining pollution control equipment amounted to $0.7 million, $0.5 million and $0.6 million in 2021, 2020 and 2019, respectively.

Mine Safety. The Company’s mining operations are also subject to regulation under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). The Mine Act has been construed as authorizing the Mine Safety and Health Administration (“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.

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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 vacated. 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.

For further information, see Exhibit 95.1 to this Report on Form 10-K.

Reclamation and Remediation. The Company recognizes legal reclamation and remediation obligations associated with the retirement of long-lived assets at their fair value at the time the obligations are incurred (“Asset Retirement Obligations” or “AROs”). Some of the states the Company operates in have reclamation regulations to properly reclaim the surface mines. These regulations require permitting with the respective state to ensure reclamation obligations are met. Over time, the liability for AROs is recorded at its present value each period through accretion expense, and the capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, the Company either settles the ARO for its recorded amount or recognizes a gain or loss. AROs are estimated based on studies and the Company’s process knowledge and estimates and are discounted using an appropriate interest rate. The AROs are adjusted when further information warrants an adjustment. The Company believes its accrual of $1.6 million for AROs at December 31, 2021 is reasonable.

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Map of United States Lime & Minerals, Inc. Lime and Limestone Operations.

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Other.

The Company’s Other operations, consisting of its natural gas interests, are conducted through its wholly owned subsidiary, U.S. Lime Company – O&G, LLC (“U.S. Lime – O&G”) and consist principally of a lease with respect to oil and gas rights on the Cleburne, Texas property, located in the Barnett Shale Formation. Pursuant to the lease, U.S. Lime – O&G has royalty interests ranging from 15.4% to 20% in oil and gas produced from any successful wells drilled on the leased property and an option to participate in any well drilled on the leased property as a 20% non-operated working interest owner. At December 31, 2021, the overall average interest under the oil and gas rights lease was 34.7% on 33 producing wells.

U.S. Lime – O&G has also entered into a drillsite agreement with an operator that has an oil and gas lease covering approximately 538 acres of land contiguous to our Johnson County, Texas property. Pursuant to the drillsite agreement, U.S. Lime – O&G has a 3% royalty interest and a 12.5% non-operated working interest. At December 31, 2021, U.S. Lime – O&G had a combined 12.4% royalty and non-operated working interest on 6 active wells drilled on a padsite located on the Johnson County, Texas property.

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No new wells have been completed since 2011, and there are no plans to drill additional wells under either the oil and gas lease or the drillsite agreement. The carrying values of the long-lived assets related to the Company’s natural gas interests were $1.5 million as of December 31, 2021.

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we are unable to maintain our revenues and control our costs in these uncertain economic and regulatory times, our financial condition, results of operations, cash flows and competitive position could be materially adversely affected.

Our mining and other operations are subject to operating risks that are beyond our control, which could result in materially increased operating expenses and decreased production and shipment levels that could materially adversely affect our Lime and Limestone Operations and their profitability.

We mine limestone in open pit and underground mining operations and process and distribute that limestone through our plants and other facilities. Certain factors beyond our control could disrupt our operations, adversely affect production and shipments and increase our operating costs, all of which could have a material adverse effect on our results of operations. These include geological formation problems that may cause poor mining conditions, variability of chemical or physical properties of our limestone, an accident or other major incident at a site that may cause all or part of our operations to cease for some period of time and increase our expenses, mining, processing and plant equipment failures and unexpected maintenance problems that may cause disruptions and added expenses, strikes, job actions or other work stoppages that may disrupt our operations or those of our suppliers, contractors or customers and increase our expenses, and adverse weather conditions and natural disasters, such as hurricanes, tornadoes, heavy rains, flooding, ice storms, freezing weather, such as the February 2021 winter storms in the southern United States, drought and other natural events, that may affect operations, transportation or customers.

If any of these conditions or events occurs, our operations may be disrupted, we could experience a delay or halt of production or shipments, our operating costs could increase significantly, and we could be exposed to fines, penalties, assessments and other liabilities. If our insurance coverage is limited or excludes a given condition or event, we may not be able to recover in full the losses that we may incur as a result of such conditions or events, some of which may be substantial.

The lime and limestone industry is highly regionalized and competitive.

Our competitors are predominately large private companies. The primary competitive factors in the lime industry are price, quality, ability to meet customer demands and specifications, proximity to customers, personal relationships and timeliness of deliveries, with varying emphasis on these factors depending upon the specific product application. To the extent that one or more of our competitors becomes more successful with respect to any key competitive factor, we may find it difficult to increase or maintain our prices or to retain certain customer accounts, and our financial condition, results of operations, cash flows and competitive position could be materially adversely affected.

Business and Financial Risks

In the normal course of our Lime and Limestone Operations, we face various business and financial risks, including inflationary pressures, that could have a material adverse effect on our financial position, results of operations, cash flows and competitive position. Not all risks are foreseeable or within our ability to control.

These risks arise from various factors, including, but not limited to, fluctuating demand and prices for our lime and limestone products, including as a result of downturns in the economy and in the construction, industrial, steel and oil and gas services industries, and reduced demand from coal-fired utility plants, increased competitive pressures from other lime producers, changes in legislation and regulations, including Environmental Laws, health and safety regulations and requirements to renew or obtain operating permits, our ability to produce and store quantities of lime and limestone products sufficient in amount and quality to meet customer demands and specifications, the success of our modernization, expansion and development and acquisition strategies, the uncertainty of our ability to sell our increased production capacity at acceptable prices, our ability to execute our strategies and complete projects on time and within budget, our ability to integrate, refurbish and/or improve acquired facilities, our access to capital, volatile costs, especially energy costs, inclement weather and the effects of seasonal trends.

We receive most of our coal and petroleum coke by rail, so the availability of sufficient solid fuels to run our plants could be diminished significantly in the event of major rail disruptions. Domestic coal and petroleum coke may also be exported, which can increase competition and prices for the domestic supply. In addition, our freight costs to deliver our lime and limestone products are high relative to the value of our products, and they have generally increased

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in recent years. Our costs for delivery of solid fuels, as well as our products, also increase as demand for rail and trucking by other industries increases, and changes to Department of Transportation rules and regulations can reduce the availability of trucks, truck drivers and rail cars to deliver solid fuels to our plants and deliver our products to our customers. Recent inflationary pressures have increased our energy costs by more than the general inflationary indices, and recent events such as the Russian invasion of Ukraine, and the sanctions and other actions resulting therefrom, could further increase our energy costs. If we are unable to continue to pass along our variable coal, petroleum coke, diesel, natural gas, electricity, transportation, and freight costs to our customers through higher prices or surcharges, our financial condition, results of operations, cash flows and competitive position could be materially adversely affected.

We quote our lime and limestone products on a delivered price basis to certain customers, which requires us to estimate future delivery costs. Our actual delivery costs may exceed these estimates, which would reduce our profitability.

Delivery costs are impacted by the price of diesel. When diesel prices increase, we incur additional fuel surcharges from freight companies that cannot be passed on to our customers that have been quoted a delivered price. Material increases in the price of diesel could have a material adverse effect on the Company’s profitability.

To maintain our competitive position in the lime and limestone industry, we may need to continue to increase the efficiency of our operations and expand production capacity, obtain financing for any such projects and acquisitions at reasonable interest rates and acceptable terms and sell any resulting increased production at acceptable prices.

We have in the past, and may in the future, undertake additional modernization and expansion and development projects and acquisitions. Such projects and acquisitions may require that we incur substantial debt, which may not be available to us at all or at reasonable interest rates or on acceptable terms. Given current and projected demand for lime and limestone products, we cannot guarantee that any such project or acquisition would be successful, that we would be able to sell any resulting increased production at acceptable prices or that any such sales would be profitable.

Although prices for our lime and limestone products have been relatively firm in past years, pricing competition has increased in recent years. We are unable to predict future demand and prices, given the current economic and regulatory uncertainties in the United States economy as a whole and in particular industries, and cannot provide any assurance that current levels of demand and prices will continue or that any future increases in demand or prices can be maintained.

We may be limited in our ability to insure against certain risk of our operations.

Mining limestone and producing lime and limestone products involves risks which could result in damage to our facilities, personal injury, and environmental damage. Although we maintain insurance in an amount that we consider adequate, liabilities might exceed policy limits, in which event we could incur significant costs that could adversely affect our financial position, results of operations, cash flows and competitive position. Additionally, the risks inherent in mining limestone and the production of lime and limestone products may significantly increase the cost of obtaining adequate insurance coverage, or make some coverage unavailable.

We may be adversely affected by any disruption in, or failure of, our information technology systems, including due to cyber-security risks and incidents.

We rely upon the capacity, reliability and security of our information technology (“IT”) systems for our mining, manufacturing, sales, financial and administrative functions. We also face the challenge of supporting our IT systems and implementing upgrades when necessary, including the prompt detection and remediation of any cyber-security breaches.

Our IT systems security measures are focused on the prevention, detection and remediation of damage from computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions. However, our IT systems protection measures may not be successful in preventing unauthorized access, intrusion and damage. Threats to our systems can derive from human error, fraud or malice on the part of employees or third parties, ransomware, or technological failure. Any failure, accident or security breach involving our IT systems could result in disruption to our

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operations. A material breach in the security of our IT systems could negatively impact our mining and manufacturing operations, sales or financial and administrative functions or result in the compromise of personal information of our employees, customers or suppliers. To the extent any such failure, accident or security breach results in disruption to our operations or sales or loss or disclosure of, or damage to, our data or confidential information, our costs could increase, and our reputation, business, results of operations, competitive position, and financial condition could be materially adversely affected. Additionally, should we experience a cyber-security event, we may incur substantial costs, including remediation costs, such as liability for stolen assets or information, repairs of system damage, legal costs and costs associated with regulatory actions.

Governmental, Legal and Regulatory Risks

Our Lime and Limestone Operations are subject to general and industry specific regulations. Changes to the regulatory environment could increase our cost of compliance and adversely impact our financial condition, results of operations, cash flows and competitive position.

We are in a period of regulatory uncertainty, which has been heightened by the 2021 change in the United States federal government Administration and Congress. The Administration and Congress may initiate actions to increase regulation of certain industries, including the lime industry, and may take other steps to restrict oil and gas drilling, reduce the use of coal or regulate domestic manufacturing. There can be no assurance that any of these actions, if adopted, will not increase the costs for our customers or increase the Company’s cost of compliance with Environmental Laws. In addition, a variety of factors, including uncertainty with respect to governmental fiscal and budgetary constraints, including the timing and amount of construction and infrastructure spending, changes to tax laws, legislative impasses, extended government shutdowns, pandemics, trade wars, tariffs, social unrest, international incidents, and increased inflationary pressures and interest rates, could have a material adverse effect on our financial condition, results of operations, cash flows and competitive position.

We incur environmental compliance costs and liabilities in our Lime and Limestone Operations, including capital, maintenance and operating costs, with respect to pollution control equipment, the cost of ongoing monitoring programs, the cost of reclamation and remediation efforts and other similar costs and liabilities relating to our compliance with Environmental Laws. We expect these costs and liabilities to continue or increase, such as possible new costs, taxes and limitations on operations, including regulation of greenhouse gas emissions. Similar environmental costs and liabilities may also be faced by some of our customers.

The rate of change of Environmental Laws has been rapid over the last decade, and we may face possible new uncertainties, costs and liabilities, taxes and limitations on operations, including those related to climate change initiatives. Changes in policy or political leadership may affect how Environmental Laws are interpreted or enforced by the EPA and state governmental agencies. The current Administration has signaled its intent to increase regulation under Environmental Laws and has issued multiple executive orders reversing prior deregulation. We expect our expenditure requirements for future environmental compliance, including complying with nitrogen dioxide, sulfur dioxide, ozone and particulate matter emission limitations under the NAAQS and regulation of greenhouse gas emissions, to continue or increase. Discovery of currently unknown conditions and unforeseen costs and liabilities could require additional expenditures.

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The regulation of greenhouse gas emissions remains an issue for the Company and some of its customers. In February 2021, the current Administration rejoined the Paris Agreement, under which the United States committed to reduce greenhouse gas emissions. There is no assurance that changes in the law or regulations will not be adopted, such as the imposition of a carbon tax, a cap-and-trade program requiring companies to purchase carbon credits, the imposition of greenhouse gas emission limits or other measures that would require reductions in emissions or changes to raw materials, fuel use or production rates. These changes, if adopted, could have a material adverse effect on the Company’s financial condition, results of operations, cash flows and competitive position.

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More stringent regulation of greenhouse gas emissions could also adversely affect the competitiveness of some of the Company’s customers, including coal-fired power plants, and indirectly the demand for our lime and limestone products. For example, our utility customers are continuing to switch from coal to natural gas or renewable sources for power generation for environmental and regulatory as well as cost reasons, thus reducing demand for our lime and

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limestone products for flue gas treatment processes.

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We intend to comply with all Environmental Laws and believe our accrual for environmental costs and liabilities at December 31, 2021 is reasonable. Because many of the requirements are subjective and therefore not quantifiable or presently determinable, or may be affected by additional legislation and rulemaking, including those related to climate change and greenhouse gas emissions, there is no assurance that we will be able to successfully secure new permits in connection with our future modernization and expansion and development projects, and it is not possible to accurately predict the aggregate future costs and liabilities relating to environmental compliance and their effect on our financial condition, results of operations, cash flows and competitive position.

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Our lime and limestone operations are subject to various regulatory risks, including those relating to mine safety, and reclamation and remediation obligations.

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Our mining operations are subject to mine safety regulation under 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. Citations and orders can be contested before the Commission, and as part of that process, are often reduced in severity and amount, and are sometimes vacated.

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We also have legal reclamation and remediation obligations associated with the retirement of AROs. Over time, the liability for AROs is recorded at its present value each period through accretion expense, and the capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, we either settle the ARO for its recorded amount or recognize a gain or loss. We believe our accrual for AROs is reasonable, but there can be no assurance that any amounts accrued will be sufficient to meet our reclamation and remediation obligations at any point in time.

We intend to comply with all mining regulations and all of our reclamation and remediation obligations. If we fail to comply with such regulations and obligations, such noncompliance may adversely impact our financial condition, results of operations, cash flows and competitive position.

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As discussed in Item 1 above, the Company believes it is responsible to employees to provide a safe and healthy workplace environment. The Company seeks to accomplish this by: training employees in safe work practices; openly communicating with employees; following safety standards and establishing and improving safe work practices; involving employees in safety processes; and recording, reporting and investigating accidents, incidents and losses to avoid reoccurrence.

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

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The Company’s Amended and Restated 2001 Long-Term Incentive Plan allows employees and directors to pay the exercise price upon the exercise of stock options and the tax withholding liability upon exercise of stock options or the lapse of restrictions on restricted stock by payment in cash and/or withholding or delivery of shares of the Company’s common stock to the Company. Pursuant to these provisions, the Company repurchased 4,918 shares at a price of $129.02 per share, the fair market value of one share on the date they were tendered to the Company, in the fourth quarter 2021 for payment of tax withholding liability upon the lapse of restrictions on restricted stock.

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ITEM 6. [RESERVED]

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General.

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.

On July 1, 2020, we acquired Carthage, a limestone mining and production company located in Carthage, Missouri, for $8.4 million cash. On February 9, 2022, we acquired Mill Creek, a dolomite mining and production company located in Mill Creek, Oklahoma, for $5.9 million cash, subject to adjustment. We believe that these acquisitions will complement our existing geographic footprint.

Our Other operations relate to our natural gas interests, consisting of royalty and non-operated working interests under an oil and gas lease and a drillsite agreement with two separate operators related to our Johnson County, Texas property, located in the Barnett Shale Formation, on which Texas Lime conducts its lime and limestone operations. In the fourth quarters 2020 and 2019, we recognized impairment charges of $1.6 million ($1.2 million, net of tax) and $0.9 million ($0.7 million, net of tax), respectively, related to our natural gas interests. The carrying values of the long-lived assets related to our natural gas interests were $1.5 million as of December 31, 2021. Based on current production and pricing estimates, we believe that the carrying value of these assets will be recoverable in future periods.  

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Our revenues increased 17.8% in 2021 compared to 2020. Revenues from our Lime and Limestone Operations increased 17.3% in 2021, compared to 2020, primarily due to increased demand from our construction, steel, environmental, industrial, roofing, and agriculture customers. Revenues in 2021 were also favorably impacted by an increase in average selling prices for our lime and limestone products of 0.9%.

Our gross profit increased 24.5% in 2021 compared to 2020. Gross profit from our Lime and Limestone Operations in 2021 increased 22.2%, compared to 2020, primarily due to the increased revenues discussed above and increased operating efficiencies, partially offset by higher energy costs.

Our net income increased $8.8 million, or 31.3%, in 2021, compared to 2020. Net income per fully diluted share increased to $6.54 in 2021, compared to $5.00 in 2020.

Cash flows from operations enabled us to make $29.9 million of capital investments in 2021. It also enabled us to pay $3.6 million in dividends in 2021 and increase our cash balances to $105.4 million as of December 31, 2021, compared to $83.6 million as of December 31, 2020. As of December 31, 2021, we had no debt outstanding.

On January 31, 2022, we announced that our Board of Directors had declared an increased regular quarterly cash dividend of $0.20 per share. The dividend is payable on March 18, 2022 to shareholders of record on February 25, 2022.

Absent a significant acquisition opportunity arising during 2022, we anticipate funding our operating and capital needs, our quarterly cash dividend, and the Mill Creek acquisition from our cash balances on hand and cash flows from operations.

Lime and Limestone Operations.

In our Lime and Limestone Operations, we produce and sell PLS, aggregate, quicklime, hydrated lime and lime slurry. The principal factors affecting our success are the level of demand and prices for our products and whether we are able to maintain sufficient production levels and product quality while controlling costs.

Inclement weather conditions, such as winter ice and snow storms, cold weather, hurricanes, tornadoes and excessive rainfalls generally reduce the demand for lime and limestone products supplied to construction-related customers that account for a significant amount of our revenues. Inclement weather also interferes with our open-pit mining operations and can disrupt our plant production. In addition to weather, various maintenance, environmental, accident and other operational and construction issues can also disrupt our operations and increase our operating expenses.

Demand for our lime and limestone products in our market areas is also affected by general economic conditions, the pace of construction, the demand for steel, the level of oil and gas drilling in our markets, the level of governmental and private funding for highway construction and infrastructure, and utility plant usage of coal for power generation. Demand for our lime and limestone products from our construction, steel, environmental, industrial, roofing, and agriculture customers increased in 2021.

In 2020, the COVID-19 pandemic in the United States and related restrictions on business activities resulted in a general economic slowdown, which disproportionately impacted certain industries that purchase our products. We continue to monitor and assess the impact of the COVID-19 pandemic, including the emergence of new variants of the virus, implementation of new or enhanced pandemic-related restrictions, and the possibility of additional wide-spread or localized outbreaks of infections, any of which could have an adverse effect on our financial condition, results of operations, cash flows and competitive position.

Additionally, we are experiencing rising costs, especially energy and supplies costs, and supply chain delays and disruptions. If these issues persist, they could adversely affect our profitability in 2022. We are increasing the prices of our lime and limestone products in an effort to mitigate the impact of our increasing costs.

In 2014 and 2015, Texas approved two constitutional amendments authorizing a portion of oil and gas tax revenues to be deposited into the State Highway Fund, for certain other sales and use tax revenues to be directed to the State Highway Fund and, beginning in Texas’ fiscal 2020, for certain state motor vehicle sales and rental tax revenues to

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be directed to the State Highway Fund. In its fiscal 2021, Texas transferred approximately $3.8 billion of such tax revenues to the State Highway Fund from these two amendments, with over $18 billion transferred since 2015. In 2021, the United States Congress passed the Infrastructure Investment and Jobs Act, which is estimated to apportion approximately $26.9 billion to Texas for federal-aid highway programs. With these funding sources, we would expect to see strong continued demand from our construction customers, but the timing and amount of any increase in demand is uncertain and subject to weather, political, and other factors.

Our modernization and expansion and development projects and acquisitions in Texas, Arkansas, Oklahoma and Missouri and our Texas slurry operations have positioned us to meet the demand for high-quality lime and limestone products in our markets. Our modernization and expansion and development projects have also equipped us with up-to-date, fuel-efficient plant facilities, which have resulted in lower production costs and greater operating efficiencies, thus enhancing our competitive position. All of our rotary kilns are now fuel-efficient preheater kilns. The addition of the vertical kiln at St. Clair in 2019 further increased the fuel efficiency of our fleet of kilns.

For our plants to operate at peak efficiency, we must meet operational challenges that arise from time to time, including bringing new facilities on-line and refurbishing and/or improving acquired facilities, including the facilities acquired as a result of our recent acquisitions of Carthage and Mill Creek, as well as operating existing facilities efficiently. We also incur ongoing costs for maintenance and to remain in compliance with rapidly changing Environmental Laws and health and safety and other regulations.

Our primary variable cost is energy. Prices for coal, petroleum coke, diesel, natural gas, electricity, transportation and freight are volatile, and our energy costs have increased substantially in recent months. In addition, our freight costs, including diesel prices, to deliver our products can be high relative to the value of our products.

Historically, we have been able to mitigate to some degree the impact of volatile energy costs by varying the mixes of fuel used in our kilns, and by passing on some of any increase in costs to our customers, where possible, through higher prices and/or surcharges on certain products. In addition, as noted above, we put a more fuel-efficient kiln in service at St. Clair, and we continually look for other ways to better manage our energy costs at our plants. Finally, we have not engaged in any significant hedging activity in an effort to control our energy costs but may do so in the future.

We have financed our modernization and expansion and development projects and acquisitions through a combination of debt financing, which has now been repaid, and cash flows from operations. We must generate sufficient cash flows to cover ongoing capital requirements, including current and possible future modernization and expansion and development projects and acquisitions, or borrow sufficient funds to finance any shortfall in our liquidity needs.

For us to maintain or increase our profitability in our Lime and Limestone Operations in the face of reduced demand from some of our customers, competitive pressures and increased costs, we must maintain or increase our customer base, improve our revenues and control our operational and selling, general and administrative expenses. To maintain or improve our gross profit margins, we are focusing on increasing our lime and limestone prices to offset our increased costs, which is a challenging task with increased competition from other lime and limestone producers. In addition, we will continue to explore ways to increase the operating efficiency of our mines, plants, and other facilities and expand our production capacity through acquisitions as conditions warrant or opportunities arise.

We continue to believe the enhanced efficiency and production capacity resulting from our modernization and expansion and development projects in Texas, Arkansas, and Oklahoma, our expanded slurry operations, our acquisitions, including the recent acquisitions of Carthage and Mill Creek, and the operational strategies we have implemented have allowed us to increase our efficiency, grow production capacity, improve product quality, better serve existing customers, attract new customers and control costs. To date, however, demand and prices for our lime and limestone products have not been sufficient to fully utilize our additional production capacity. In addition, there can be no assurance that our efficiency and production will not be adversely affected by weather, maintenance, environmental, accident, cyber-security and other operational and construction issues; that we can successfully invest in improvements to our existing facilities and acquisitions; that our results will not be adversely affected by increases in fuel, natural gas, electricity, transportation and freight costs, taxes or new environmental, health and safety or other regulatory

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requirements; or that, with increasing competition with other lime and limestone producers, our revenues, gross profit, net income and cash flows can be maintained or improved.

Other.

Revenues in 2021 included $1.9 million from our natural gas interests, compared to $1.0 million in 2020. Gross profit (loss) in 2021 included $0.6 million from our natural gas interests, compared to a loss of $(0.4) million in 2020. 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES.

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities, at the date of our financial statements. Actual results may differ from these estimates and judgments under different assumptions or conditions and historical trends.

Critical accounting policies are defined as those that are reflective of significant management judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. We believe the following critical accounting policies require the most significant management estimates and judgments used in the preparation of our consolidated financial statements.

Contingencies. We are party to proceedings, lawsuits and claims arising in the normal course of business relating to regulatory, labor, product and other matters. We are required to estimate the likelihood of any adverse judgments or outcomes with respect to these matters, as well as potential ranges of possible losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter, including coverage under our insurance policies. This determination may change in the future because of new information or developments.

Income taxes. We utilize the asset and liability approach in reporting our income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. We establish valuation allowances when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax related interest and penalties are included in income tax expense. We also assess individual tax positions to determine if they meet the criteria for some or all of the benefits of that position to be recognized in our financial statements and only recognize tax positions that meet the more-likely-than-not recognition threshold.

Environmental costs and liabilities. We record environmental accruals, including accrued reclamation costs, in other liabilities, based on studies and estimates, when it is probable we have incurred a reasonably estimable cost or liability. The accruals are adjusted when further information warrants an adjustment. Environmental expenditures that extend the life, increase the capacity or improve the safety or efficiency of Company-owned assets or are incurred to mitigate or prevent future possible environmental issues are capitalized. Other environmental costs are expensed when incurred.

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Interest and other income, net was $0.4 million in 2021, compared to $0.5 million in 2020.

Income tax expense was $9.5 million in 2021, for an effective rate of 20.4%, compared to $5.8 million in 2020, for an effective rate of 17.2%, an increase of $3.6 million, primarily due to the increase in income before taxes in 2021, compared to 2020. Our effective income tax rates for 2021 and 2020 were reduced from the statutory rate primarily due to statutory depletion in excess of cost depletion.

Net income increased to $37.0 million ($6.54 per share diluted) in 2021, compared to $28.2 million ($5.00 per share diluted) in 2020, an increase of $8.8 million, or 31.3%.

2020 vs. 2019

Our revenues for 2020 increased to $160.7 million from $158.3 million in 2019, an increase of $2.4 million, or 1.5%. Revenues from our Lime and Limestone Operations in 2020 increased $2.7 million, or 1.7%, to $159.7 million from $157.0 million in 2019. The increase in revenues from our Lime and Limestone Operations was primarily due to the addition of limestone sales by Carthage to agriculture and roofing customers and increased sales volumes of our lime and limestone products, principally to our construction customers, offset by decreased sales volumes to our oil and gas services, environmental and steel customers, resulting in an overall decrease in sales volumes of 1.9%. We realized a 3.6% average increase in prices for our lime and limestone products in 2020, compared to 2019. Other revenues included $1.0 million and $1.3 million in 2020 and 2019, respectively, from our natural gas interests.

Our gross profit increased to $47.6 million for 2020 from $41.7 million for 2019, an increase of $5.9 million, or 14.2%. Gross profit from our Lime and Limestone Operations for 2020 was $48.0 million, compared to $42.0 million in 2019, an increase of $5.9 million, or 14.1%. The increase in gross profit in 2020, compared to 2019, resulted primarily from increases in the average selling prices for the Company’s lime and limestone products, lower fuel costs and increased operating efficiencies associated, in part, with the kiln at the Company’s St. Clair facility, which began producing commercially saleable quicklime in the second quarter 2019, partially offset by increased costs incurred in the 2020 periods associated with responding to the COVID-19 pandemic. Gross profit also included the impact of a $(0.4) loss in each of 2020 and 2019 from our natural gas interests.

SG&A increased to $12.2 million for 2020, an increase of $0.7 million, or 5.8%, compared to $11.5 million for 2019. As a percentage of revenues, SG&A was 7.6% for 2020, compared to 7.3% in 2019. The increase in SG&A was primarily due to increased personnel expenses, including stock-based compensation which was principally due to higher prices for the Company’s common stock, and increased legal expenses and COVID-19 pandemic costs in the second quarter 2020.

In the fourth quarters 2020 and 2019, we recognized an impairment charge of $1.6 million ($1.2 million, net of tax) and $0.9 million ($0.7 million, net of tax), respectively. Low prices for natural gas and natural gas liquids had reduced the estimates for future economically feasible production, which impaired the recoverability of the assets as they approached the end of their useful lives.

Interest expense was $0.2 million in each of 2020 and 2019. We had no outstanding debt during either 2020 or 2019.

Interest and other income, net was $0.5 million in 2020, compared to $1.9 million in 2019. The decrease in interest and other income, net in 2020, compared to 2019, was primarily due to decreased interest rates received on cash and cash equivalents balances in 2020.

Income tax expense was $5.8 million in 2020, for an effective rate of 17.2%, compared to $4.8 million in 2019, for an effective rate of 15.7%, an increase of $1.0 million, primarily due to the increase in income before taxes in 2020, compared to 2019. Our effective income tax rates for 2020 and 2019 were reduced from the statutory rate primarily due to statutory depletion in excess of cost depletion. In addition, for 2019, our effective tax rate was reduced as a result of research and development tax credits.

Net income increased to $28.2 million ($5.00 per share diluted) in 2020, compared to $26.1 million ($4.64 per share diluted) in 2019, an increase of $2.2 million, or 8.3%.

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FINANCIAL CONDITION.

Capital Requirements. We require capital primarily for normal recurring capital and re-equipping projects, modernization and expansion and development projects and acquisitions. Our capital needs are expected to be met principally from cash on hand, cash flows from operations and our $75.0 million revolving credit facility.

We expect to spend approximately $14.0 million per year over the next several years in our Lime and Limestone Operations for normal recurring capital and re-equipping projects at our plants and facilities to maintain or improve efficiency, ensure compliance with Environmental Laws, meet customer needs and reduce costs. As of December 31, 2021, we had $2.2 million in open orders for equipment and construction contracts for our Lime and Limestone Operations.

Liquidity and Capital Resources. Net cash provided by operating activities was $55.7 million in 2021, compared to $58.6 million in 2020, a decrease of $2.9 million, or 4.9%. Our net cash provided by operating activities is composed of net income, depreciation, depletion and amortization (“DD&A”), other non-cash items included in net income and changes in working capital. In 2021, net cash provided by operating activities was principally composed of $37.0 million net income, $20.9 million DD&A, $1.5 million increase in deferred income taxes, $2.2 million stock-based compensation, partially offset by a $6.0 million decrease from changes in working capital. In 2021, the changes in working capital were principally composed of a $3.7 million increase in trade receivables, net, primarily as a result of increased sales in the fourth quarter 2021, compared to the fourth quarter 2020, a $1.4 million decrease in accounts payable, accrued expense and other liabilities, and a $1.0 million increase in prepaid expenses and other assets. In 2020,

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net cash provided by operating activities was principally composed of $28.2 million net income, $19.6 million DD&A, $4.3 million increase in deferred income taxes, $1.6 million impairment of long-lived assets, $1.9 million stock-based compensation, and a $2.5 million increase from changes in working capital. In 2020, the changes in working capital were principally composed of a $2.9 million increase in accounts payable, accrued expense and other liabilities, and a $1.1 million decrease in trade receivables, net, partially offset by a $1.4 million increase in inventories.

Net cash used in investing activities was $29.6 million for 2021, compared to $25.2 million for 2020. Net cash used in investing activities for 2021 included $14.0 million for development of the Love Hollow Quarry and its connection to the Batesville plant and $2.3 million for other real property purchases. Net cash used in investing activities in 2020 included $8.4 million for the acquisition of Carthage and $17.1 million for the purchase of property, plant and equipment, including $2.7 million for the Carthage facility and $2.1 million for specialized equipment at the Batesville Quarry. The balance of net cash used in investing activities in 2021 and 2020 was primarily for normal recurring capital and re-equipping projects at our plants and facilities.

Net cash used in financing activities primarily consisted of $3.6 million for dividend payments and $0.7 million to repurchase shares of our common stock in 2021, compared to $3.6 million for dividend payments and $0.6 million to repurchase shares of our common stock in 2020.

Our cash and cash equivalents at December 31, 2021 increased to $105.4 million from $83.6 million at December 31, 2020.

Banking Facilities and Debt. 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 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. 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 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 had no debt outstanding as of December 31, 2021 or 2020. We had $0.3 million of letters of credit issued under the Revolving Facility as of December 31, 2021, which count as draws against the available commitment under the Revolving Facility.

Common Stock Buybacks. We spent $0.7 million, $0.6 million and $0.4 million in 2021, 2020 and 2019, respectively, to repurchase treasury shares tendered for payment of the exercise price for stock options and the tax withholding liability upon the lapse of restrictions on restricted stock.

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Contractual Obligations. The following table sets forth our contractual obligations as of December 31, 2021 (in thousands):

Absent a significant acquisition, we believe that cash on hand and cash flows from operations will be sufficient to meet our operating needs, ongoing capital needs, including our current and possible future modernization and expansion and development projects, and liquidity needs and allow us to pay our regular cash dividends for the near future.

Off-Balance Sheet Arrangements. We do not utilize off-balance sheet financing arrangements.

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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