FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] 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 1-06124
LONE STAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE No. 13-0982660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 First Stamford Place, P. O. Box 120014, Stamford, CT 06912-0014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-969-8600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by check mark whether the registrant has filed all documents
and rights required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
The number of shares outstanding of each of the registrant's classes
of new Common Stock as of November 7, 1994:
Common Stock, par value $1 per share - 11,558,720 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations (Unaudited) -
For the Three and Six Months Ended September 30,
1994, the Three Months Ended March 31, 1994 and
the Three and Nine Months Ended September 30, 1993................3
Consolidated Statements of Retained Earnings
(Unaudited) - For the Three and Six Months Ended
September 30, 1994, the Three Months Ended March
31, 1994 and the Three and Nine Months Ended
September 30, 1993................................................4
Consolidated Balance Sheets - September 30, 1994
(Unaudited), March 31, 1994 and December 31, 1993.................5
Consolidated Statements of Cash Flows (Unaudited) -
For the Six Months Ended September 30, 1994, the
Three Months Ended March 31, 1994 and the Nine
Months Ended September 30, 1993..................................6
Notes to Unaudited Consolidated Financial Statements................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................27
PART II. OTHER INFORMATION.........................................35
SIGNATURES.........................................................36
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands)
Successor Company Predecessor Company
<CAPTION>
For the Three For the Six | For the Three For the Three For the Nine s Ended Months Ended
Months Ended Months Ended | Months Ended Months Ended Months Ended
September 30, September 30,| March 31, September 30, September 30,
1994 1994 | 1994 1993 1993
<S> <C> <C> <C> <C> <C>
Consolidated Income |
Revenues: |
Net sales $95,969 $182,964 | $33,709 $72,778 $175,835
Joint venture income 1,660 2,929 | 381 4,963 17,573
Other income, net 814 1,948 | 2,691 3,033 8,100
98,443 187,841 | 36,781 80,774 201,508
Deductions from revenues: |
Cost of sales 62,430 123,833 | 29,694 57,137 142,465
Selling, general and administrative |
expenses 7,367 15,165 | 9,836 9,960 30,240
Depreciation and |
depletion 5,464 11,443 | 6,688 6,602 19,763
Recovery of litigation |
settlement - - | (6,500) - -
Interest expense |
(contractual interest |
for the 1994 three |
months and 1993 three |
and nine months of |
$7,631, $7,875 and |
$23,630) 2,313 4,532 | 233 450 1,352
77,574 154,973 | 39,951 74,149 193,820
|
Income (loss) before reorganization |
items and |
income taxes 20,869 32,868 | (3,170) 6,625 7,688
Reorganization items: |
Adjustments to fair value - - | (133,917) - -
Loss on sale of assets - - | - 7,554 (37,335)
Other items - - | (13,396) (2,544) (7,741)
- - | (147,313) 5,010 (45,076)
Income (loss) before income |
taxes and cumulative effect |
of change in accounting |
principle effect of change |
in accounting |
principles 20,869 32,868 | (150,483) 11,635 (37,388)
(Provision) credit |
for income taxes (7,428) (11,513) | (155) (155) 7,006
|
Income (loss) before |
cumulative effect of |
change in |
accounting principles and |
extraordinary item 13,441 21,355 | (150,638) 11,480 (30,382)
Cumulative effect of change |
in accounting principles: |
Postretirement benefits |
other than pensions - - | - - (782)
Extraordinary item: gain |
on discharge of |
prepetition liabilities - - | 127,520 - -
|
Income (loss) before |
preferred dividends 13,441 21,355 | (23,118) 11,480 (31,164)
Provision for preferred |
dividends - - | (1,278) (1,278) (3,834)
|
Net income (loss) |
applicable to |
common stock $ 13,441 $ 21,355 |($24,396) $10,202 ($34,998)
|
|
Weighted average |
common shares |
outstanding 12,000 12,000 | n/m (a) 16,644 (a) 16,644 (a)
|
|
Primary income (loss) per common share: |
Income (loss) before cumulative |
effect of change in |
accounting principles $0.99 $1.62 | n/m (a) $0.61 (a) ($2.05) (a)
Cumulative effect of |
change in accounting |
principles - - | n/m (a) - ($0.05) (a)
Extraordinary gain on |
discharge of prepetition |
liabilities - - | n/m (a) - -
Net income (loss) per |
common share $0.99 $1.62 | n/m (a) $0.61 (a) ($2.10) (a)
|
|
Fully diluted income (loss) |
per common share: $0.99 $1.61 | n/m (a) $0.61 (a) ($2.10) (a)
(a) Earnings per share for the three months ended March 31, 1994 are not
meaningful and prior period per share amounts are not comparable to the
Successor Company per share amounts due to reorganization and revaluation
entries and the issuance of 12 million shares of new common stock.
The accompanying Notes to Unaudited Consolidated Financial Statements are
an integral part of the Financial Statements.
</TABLE>
<TABLE>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited)
(In Thousands)
<CAPTION>
Successor Company Predecessor Company
For the Three For the Six | For the Three For the Three For the Nine
Months Ended Months Ended | Months Ended Months Ended Months Ended
September 30, September 30, | March 31, September 30, September 30,
1994 1994 | 1994 1993 1993
<S> <C> <C> <C> <C> <C>
|
Retained earnings, beginning of period $ 7,914 $ - | ($187,896) ($194,500) ($151,856)
|
Net income (loss) 13,441 21,355 | (23,118) 11,480 (31,164)
|
Retained earnings (accumulated deficit) 21,355 21,355 | (211,014) (183,020) (183,020)
|
Elimination of accumulated deficit - - | 211,014 - -
|
Retained earnings, end of period $21,355 $21,355 | $ - ($183,020) ($183,020)
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
</TABLE>
<TABLE>
LONE STAR INDUSTRIES, INC
CONSOLIDATED BALANCE SHEETS
(In Thousnads)
<CAPTION>
Predecessor
Successor Company | Company
|
September 30, March 31, | December 31,
1994 1994 | 1993
(Unaudited) |
<S> <C> <C> <C>
|
Assets: |
Current assets: |
Cash including cash |
equivalents of $42,228, |
$3,498 and $243,220 $44,899 $12,147 | $244,397
Accounts and notes receivable, net 42,612 29,711 | 49,022
Inventories: |
Finished goods 16,454 23,743 | 20,277
Work in process and raw materials 2,811 2,126 | 1,987
Supplies and fuel 18,067 18,925 | 16,162
37,332 44,794 | 38,426
|
Current assets of assets held for sale - - | 20,634
Other current assets 3,799 15,127 | 2,733
Total current assets 128,642 101,779 | 355,212
|
|
Net assets of liquidating |
subsidiary (See Note 5) 83,000 112,000 | -
Assets held for sale - - | 65,663
Notes receivable - 105 | 5,058
Joint ventures 19,179 17,500 | 88,574
|
Property, plant and equipment 321,050 332,263 | 682,830
Less accumulated depreciation |
and depletion 10,887 - | 284,745
310,163 332,263 | 398,085
|
Reorganization value in excess |
of amounts allocable to |
identifiable assets 2,805 14,372 | -
Cost in excess of net assets |
of businesses acquired, net - - | 9,273
Other assets and deferred charges 1,724 1,392 | 3,020
Total assets $ 545,513 $ 579,411 | $ 924,885
|
Liabilities and Shareholders' Equity: |
Current liabilities: |
Accounts payable $ 13,980 $ 15,927 | $ 16,079
Accrued liabilities 51,267 68,718 | 60,353
Other current liabilities 3,712 2,994 | 3,227
Total current liabilities 68,959 87,639 | 79,659
|
Asset proceeds notes of liquidating |
subsidiary (See Note 5) 83,000 112,000 | -
Senior notes payable 78,000 78,000 | -
Production payment 16,966 18,463 | -
Deferred income taxes 5,000 5,000 | 3,356
Postretirement benefits other |
than pensions 125,135 125,260 | 141,950
Pensions 19,008 22,351 | -
Other liabilities 34,510 37,385 | 21,886
|
Liabilities subject to |
Chapter 11 proceedings - - | 627,938
|
Contingencies (See Notes 18 and 19) |
|
Shareholders' Equity: |
Redeemable preferred stock - - | 37,500
Non-redeemable preferred stock (involuntary |
liquidating value, 1993 - $1,102) - - | 248
Common stock 12,000 12,000 | 18,103
Warrants to purchase common stock 15,613 15,613 | -
Additional paid-in capital 65,700 65,700 | 239,870
Retained earnings (deficit) 21,355 - | (187,896)
Cumulative translation adjustment 267 - | -
Pension liability adjustment - - | (21,157)
Treasury stock, at cost - - | (36,572)
Total liabilities and |
shareholders' equity $ 545,513 $ 579,411 |$ 924,885
|
The accompanying Notes to Unaudited Consolidated Financial Statements are
an integral part of the Financial Statements.
</TABLE>
<TABLE>
LONE STAR INDUSTRIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
<CAPTION>
Successor
Company | Predecessor Company
|
For the Six | For the Three For the Nine
Months Ended | Months Ended Months Ended
September 30, | March 31, September 30,
1994 | 1994 1993
<S> <C> <C> <C>
|
|
Cash Flows from Operating Activities: |
|
Income (loss) before cumulative |
effect of change in |
accounting principles and |
extraordinary item $21,355 | ($150,638) ($30,382)
Adjustments to arrive at net |
cash provided (used) |
by operating activities: |
Depreciation and depletion 11,443 | 6,688 19,763
Deferred income taxes 11,504 | 155 1,299
Provision for crosstie |
litigation settlement - | (6,500) -
Loss on sale of joint |
venture interest - | - 24,835
Changes in operating assets |
and liabilities: |
Accounts and notes |
receivable (14,331) | 22,157 (11,850)
Inventories and other |
current assets 6,702 | (17,189) (1,722)
Accounts payable and |
accrued liabilities (66) | (1,808) (2,867)
Unremitted earnings of |
joint ventures (1,679) | 619 (2,084)
Adjustments to fair value - | 133,917 -
Other reorganization items - | 13,396 7,741
Other, net (6,538) | (5,866) 4,368
Net cash provided (used) by |
operating activities |
before reorganization items 28,390 | (5,069) 9,101
|
Operating cash flows from reorganization items:|
Interest received on cash accumulated |
because of Chapter 11 proceedings - | 1,998 3,340
Professional fees and |
administrative expenses (6,476) | (5,849) (7,170)
Professional fees escrow pursuant |
to the reorganization plan - | (12,431) -
Net cash used by reorganization |
items (6,476) | (16,282) (3,830)
Net cash provided (used) by |
operating activities 21,914 | (21,351) 5,271
|
Cash Flows from Investing Activities: |
|
Capital expenditures (10,312) | (6,695) (12,539)
Proceeds from sales of assets 21,861 | - -
Proceeds from sales of assets |
held for sale - | 2,457 7,251
Collection of notes receivable - | 93 885
Advances to equity investees - | - (5,000)
Other, net 289 | (293) (1,950)
Proceeds from sales of assets |
due to Chapter 11 proceedings - | - 71,162
Net cash provided (used) by |
investing activities 11,838 | (4,438) 59,809
|
Cash Flows from Financing Activities: |
|
Cash distribution pursuant |
to the reorganization plan - | (200,451) -
Transfer to liquidating subsidiary - | (5,010) -
Reduction of production payment (1,000) | (1,000) (4,000)
Net cash used by financing |
activities (1,000) | (206,461) (4,000)
|
Net increase (decrease) in |
cash and cash equivalents 32,752 | (232,250) 61,080
|
Cash and cash equivalents, |
beginning of period 12,147 | 244,397 168,605
Cash and cash equivalents, |
end of period $ 44,899 | $ 12,147 $229,685
|
The accompanying Notes to Unaudited Consolidated Financial Statements are
an integral part of the Financial Statements
</TABLE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position of the company as of September 30, 1994, and the
results of operations for the three and six months ended September 30,
1994, the three months ended March 31, 1994 and the three and nine months
ended September 30, 1993 and the cash flows for the six months ended
September 30, 1994, the three months ended March 31, 1994 and the nine
months ended September 30, 1993. As discussed in Notes 2, 3, and 4, the
company emerged from its bankruptcy proceedings on April 14, 1994, with an
effective date for accounting purposes of March 31, 1994. Accordingly, the
March 31, 1994 accompanying consolidated balance sheet represents the
financial position of the reorganized Lone Star as of the effective date.
The financial statements contained herein should be read in conjunction
with the financial statements and related notes in the company's annual
report on Form 10-K for the year ended December 31, 1993, and with the
quarterly reports on Form 10-Q, for the quarters ended March 31, 1994 and
June 30, 1994. The company's operations are seasonal and, consequently,
interim results are not necessarily indicative of the results to be
expected for a full year. In addition, having operated for over three
years in bankruptcy, results of operations prior to emergence from
bankruptcy are not indicative of results of operations outside of
bankruptcy proceedings. Also affecting comparability are differences in
the operating units of the successor company and the predecessor company.
Note 2 - Reorganization
In November 1989, in an effort to improve the company's operating results
and to generate cash to pay maturing debt obligations, the company
implemented a restructuring program involving the sale of certain marginal
operations and facilities. Although progress was made in implementing the
restructuring program, depressed economic conditions and the shortage of
financing available to potential buyers during 1990 impeded the company's
ability to complete the sale of all assets within the time frame and at
the values estimated in 1989. In addition, during the fourth quarter of
1990, the company was unable to secure short-term borrowing arrangements,
at acceptable terms and conditions, following the termination of its
revolving-credit agreement and its agreement with financial institutions
to sell trade receivables in November 1990. Without such financing or
other sources of cash, the company probably would have been in default
under its long-term debt agreements in the first quarter of 1991. The
company decided to seek reorganization under Chapter 11 of Title 11 of the
United States Code ("Chapter 11") to achieve a long-term solution to its
financial, litigation and business problems. On December 10, 1990 (the
"petition date"), Lone Star Industries, Inc. together with certain of its
subsidiaries (including two subsidiaries filing on December 21, 1990)
("filed companies"), filed voluntary petitions for reorganization under
Chapter 11 in the United States Bankruptcy Court for the Southern District
of New York ("Bankruptcy Court"), and operated their respective businesses
as debtors-in-possession until April 14, 1994.
On February 17, 1994, with the approval of all voting classes of creditors
and equity holders, the Bankruptcy Court confirmed the Debtors Modified
Amended Consolidated Plan of Reorganization dated November 4, 1993 (as
further modified on February 17, 1994) (the "plan"). On April 14, 1994,
(the "effective date") the plan became effective, and distributions to
creditors and shareholders commenced (as provided by the plan, a reserve
for approximately $40,000,000, in disputed unresolved claims was
established). The company has continued to resolve disputed claims and the
above reserve has been reduced to $23,200,000 as of October 1994. In
accordance with the plan, certain core cement, ready-mixed concrete and
construction aggregates operations constitute the reorganized Lone Star.
Other non-core assets of the company and their associated liabilities
including the Nazareth, Pennsylvania cement plant, the Santa Cruz,
California cement plant and the company's interests in the RMC LONESTAR,
Hawaiian Cement and Lone Star Falcon joint ventures, certain surplus real
estate and certain litigations have been transferred to Rosebud Holdings,
Inc., a wholly-owned liquidating subsidiary and its subsidiaries
(collectively "Rosebud") for disposition and distribution of the proceeds
of such dispositions, for the benefit of unsecured creditors (See Note 5).
The plan provides for distributions on the effective date to claims which
were allowed at that time, and for the establishment of a reserve for
certain disputed, contingent, and unliquidated claims. On the effective
date, the escrow agent administering the reserve received a distribution
of cash and securities attributable to the reserved claims. As of the
effective date, the total amount of allowed and reserved claims was
$590,944,000, which the company expects to be reduced to approximately
$584,016,000 when all claims are paid. As of October 1994, the company
estimated that when all claims were paid, allowed and reserved secured
claims would approximate $463,000, allowed and reserved priority claims
would approximate $6,012,000, and allowed and reserved convenience claims
(under $5,000) would approximate $2,187,000. The plan provided that these
claimants are to receive full payment in cash. In connection with the
plan, holders of allowed and reserved unsecured claims, which the company
estimates will be $575,744,000 when all claims are paid, were entitled to
receive their pro rata share of (i) $192,188,000 in cash, (ii) $78,000,000
ten year 10% senior unsecured notes of the reorganized company, (the
company's March 31, 1994 balance sheet includes accrued interest of
$1,300,000 for the period from February 1, 1994 through March 31, 1994 per
the terms of the senior unsecured notes indenture), (iii) $138,118,000
secured asset proceeds notes of Rosebud, to be paid out of the proceeds
from the disposition of its assets (See Note 5) and (iv) 85.0% of the
common stock of reorganized Lone Star. The aggregate recovery on unsecured
claims will depend on the ultimate value of the common stock, the senior
unsecured notes, and the secured asset proceeds notes (the value of the
secured asset proceeds notes will reflect the sums realized from the
disposition of assets and litigation recoveries of Rosebud).
Holders of the company's cumulative convertible preferred stock became
entitled to receive a pro rata share of 10.5% of the common stock of
reorganized Lone Star and 1,250,000 warrants to purchase common stock of
the reorganized Lone Star. The holders of common stock of Lone Star became
entitled to receive the balance of reorganized Lone Star's common equity
and 2,753,333 warrants to purchase common stock in the reorganized Lone
Star. The warrants are exercisable through December 31, 2000, and each
warrant provides for the purchase of one share of the common stock of
reorganized Lone Star at a price of $18.75 per share.
In addition, in accordance with the plan, as part of the agreement with
the Pension Benefit Guaranty Corporation ("PBGC") the company granted the
PBGC a mortgage on the Oglesby, Illinois plant, and a security interest in
the company's 25% interest in the Kosmos Cement Company partnership, to
secure certain contingent future pension obligations.
Note 3 - Basis of Presentation
As of the effective date of the plan, the sum of allowed claims plus post-
petition liabilities of the company exceeded the value of its pre-
confirmation assets. In addition, the company experienced a change in
control as pre-reorganization equity holders received less than 50% of the
reorganized Lone Star common stock issued pursuant to the plan. Therefore,
in accordance with AICPA Statement of Position No. 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP
No. 90-7"), the company has adopted "fresh-start" reporting which assumes
that a new reporting entity has been created and requires assets and
liabilities be adjusted to their fair values as of the effective date.
Although the plan became effective on April 14, 1994, for accounting
purposes the effective date of the plan is considered to be March 31,
1994, and accordingly, the company has adopted fresh-start reporting as of
March 31, 1994. Adjustments were recorded as of March 31, 1994 to reflect
the effects of the consummation of the plan and to reflect the
implementation of fresh-start reporting. The reorganization value of the
company was determined using several factors and by reliance on various
valuation methods, including discounted cash flows, price/earnings ratios
and other applicable ratios. Reorganization value generally approximates
fair value of the entity before considering liabilities and approximates
the amount a buyer would pay for the assets of the entity after the
reorganization. Based on information from parties in interest and from
Lone Star's financial advisors, the total reorganization value of the
Company was $579,411,000. The reorganization value was then allocated to
the company's assets and liabilities in conformity with the Accounting
Principles Board Opinion No. 16, "Business Combinations" ("APB No. 16"),
as specified by SOP No. 90-7. Income related to the settlement of
liabilities subject to the company's Chapter 11 proceedings is included in
the accompanying consolidated statement of operations as an extraordinary
gain on discharge of prepetition liabilities. The gains or losses related
to the adjustments of assets and liabilities to fair value are included in
reorganization items in the accompanying consolidated statement of
operations (See Note 10). The reorganization value in excess of amounts
allocable to identifiable assets is the portion of the reorganization
value of the company which was not attributed to specific tangible or
identified intangible assets of the company.
Total equity of reorganized Lone Star under fresh-start reporting at March
31, 1994 was less than total equity included in the plan. This is due to
the different discount rates used to value the company's liability for
postretirement benefits other than pensions, in the plan and under
generally accepted accounting principles.
The company's emergence from its Chapter 11 proceedings resulted in a new
reporting entity with no retained earnings or accumulated deficit as of March
31, 1994. Accordingly, the company's consolidated financial statements for
periods prior to March 31, 1994 are not comparable to consolidated financial
statements presented on or subsequent to March 31, 1994. A black line has
been drawn on the accompanying consolidated financial statements to
distinguish between the pre-reorganization and post-reorganization company.
Note 4 - Pro Forma Information
The following pro forma condensed financial information of the company and
its subsidiaries illustrates the estimated financial effects of the
implementation of the plan (which resulted in the end of the company's 1989
Restructuring Program) and its adoption of fresh-start reporting. Pro forma
statement of operations data for the three months ended March 31, 1994 have
been presented as if the company had emerged from its Chapter 11 bankruptcy
proceedings and adopted fresh-start reporting prior to January 1, 1994. The
pro forma data is unaudited.
Lone Star Industries, Inc.
Pro Forma Statement of Operations (Unaudited)
For the Three Months Ended March 31, 1994
(In millions except per share amounts)
Effect of Plan of
Reorganization
and Fresh Start ProForma
Historical Reporting Results
Revenues:
Net sales.......................... $ 33.7 $ 11.6 $ 45.3
Joint venture income............... 0.4 (0.3) 0.1
Other income....................... 2.7 (1.5) 1.2
36.8 9.8 46.6
Deductions from revenues:
Cost of sales...................... 29.7 17.7 47.4
Recovery of litigation settlement (6.5) 6.5 -
Selling, general and administrative 9.9 (1.6) 8.3
Depreciation and depletion......... 6.7 (0.6) 6.1
Interest expense................... 0.2 2.0 2.2
40.0 24.0 64.0
Loss before reorganization items... (3.2) (14.2) (17.4)
Reorganization items:
Adjustments to fair value.......... (133.9) 133.9 -
Other.............................. (13.4) 13.4 -
Total reorganization items......... (147.3) 147.3 -
Income (loss) before income
taxes and extraordinary item...... (150.5) 133.1 (17.4)
Credit (provision) for income
taxes............................ (0.2) 5.4 5.2
Loss before extraordinary item.... (150.7) 138.5 (12.2)
Extraordinary item: gain on
discharge of prepetition
liabilities...................... 127.5 (127.5) -
Loss before provision for
preferred dividends..............$ (23.2) $ 11.0 $ (12.2)
Weighted average common shares outstanding (in thousands) 12,000
Primary and fully diluted loss per share $ (1.02)
____________________________________________________________________________
The above pro forma condensed financial information includes estimated
adjustments for the following items:
As a result of the implementation of the plan and adoption of fresh-start
reporting the company's 1989 Restructuring Program ended effective as of the
effective date of the plan. Operating results of the cement plants at Pryor,
Oklahoma and Maryneal, Texas, which were formerly included in assets held for
sale are included in the pro forma consolidated operating results for the
three months ended March 31, 1994 (See Note 11).
The operating results of the assets which were transferred to Rosebud for
distribution for the benefit of unsecured creditors, have been eliminated
from the pro forma statement of operations for the three months ended March
31, 1994.
In connection with the adjustment of the March 31, 1994 property, plant and
equipment balances to reflect the estimated values of the assets under fresh-
start reporting, the pro forma consolidated operating results for the three
months ended March 31, 1994 have been adjusted to include the estimated
change in depreciation expense related to the new values.
Interest expense related to long-term debt, including the senior unsecured
notes of the reorganized company has been included in the pro forma statement
of operations for the three months ended March 31, 1994.
The provision for preferred dividends for the three months ended March 31,
1994 has been eliminated from the statement of operations as common and
preferred shareholders' equity of the old company has been eliminated and
replaced with common equity of the reorganized company as of March 31, 1994.
All Chapter 11 reorganization items included in the statement of operations
for the three months ended March 31, 1994 have been eliminated.
The extraordinary gain on discharge of prepetition liabilities has been
eliminated.
The pro forma statement of operations has been adjusted to reflect the
reduction in expenses resulting from settlements, including settlements
reached with the Pension Benefit Guaranty Corporation and retirees in
accordance with the requirements of fresh-start reporting.
Cost of sales has been adjusted to reflect the company's change in its method
of accounting for inventory for interim reporting purposes and the expensing
of $8.4 million of deferred costs in accordance with the adoption of fresh-
start reporting. (See Note 15). In addition, cost of sales has been adjusted
to reflect $1.5 million of costs related to its construction aggregates
barges which were deferred during the first quarter of 1994 and subsequently
written-off in accordance with fresh-start reporting. Similar costs will be
incurred and expensed in future years.
The following pro forma condensed financial information for the nine months
ended September 30, 1994 illustrates the estimated operating results as if
the company had emerged from its Chapter 11 proceedings and adopted fresh-
start reporting prior to January 1, 1994 by combining the pro forma results
for the three months ended March 31, 1994 and the actual results for the six
months ended September 30, 1994. Because of the seasonality of the company's
business, interim results are not necessarily indicative of full year
results.
Lone Star Industries, Inc.
Pro Forma Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 1994
(In millions except per share amounts)
Pro forma Actual Pro forma
Results for Results for Results for
the Three the Six the Nine
Months Ended Months Ended Months Ended
March 31, September 30, September 30,
1994 1994 1994
Revenues:
Net sales......................... $ 45.3 $ 183.0 $ 228.3
Joint venture income.............. 0.1 2.9 3.0
Other income...................... 1.2 1.9 3.1
46.6 187.8 234.4
Deductions from revenues:
Cost of sales..................... 47.4 123.8 171.2
Selling, general and
administrative.................. 8.3 15.2 23.5
Depreciation and depletion........ 6.1 11.4 17.5
Interest expense.................. 2.2 4.5 6.7
64.0 154.9 218.9
Income (loss) before income taxes. $ (17.4) $ 32.9 15.5
Provision for income taxes *...... (4.7)
Net income........................ $ 10.8
Weighted average common shares outstanding (in thousands) 12,000
Primary and fully diluted income per common share $ 0.90
_____________________________________________________________________________
* The provision for income taxes is based on a pro forma tax rate of 30% for
the year which includes the pro forma first quarter loss and the effect of
percentage depletion.
Note 5 - Rosebud Holdings, Inc. Liquidating Subsidiary
As part of the plan, Lone Star transferred on April 14, 1994 certain non-core
assets and their related liabilities to Rosebud Holdings, Inc., a wholly-
owned liquidating subsidiary, and its subsidiaries (collectively "Rosebud").
The assets transferred consisted of the company's interests in the RMC
LONESTAR, LoneStar Falcon and Hawaiian Cement partnerships, cement plants
located in Santa Cruz, California, and Nazareth, Pennsylvania, certain
promissory notes executed by RMC LONESTAR, certain surplus real estate, the
company's interest in any recovery resulting from the litigation against
Northeast Cement Company and its affiliates, Lafarge Corporation, and Lafarge
Canada, Inc., certain other miscellaneous assets including a note receivable
and certain litigation and insurance claims, and a $5,000,000 cash investment
by the company to be used for working capital purposes. The company is under
no obligation to fund additional Rosebud working capital requirements.
It was estimated by the company in connection with the plan that disposition
of the non-core assets would generate, over time, gross proceeds of
approximately $113,000,000 to $170,000,000. Lone Star's investment in
Rosebud is included in Lone Star's September 30, 1994 consolidated balance
sheet at $83,000,000, which is the present value, discounted at 14%, of
estimated net proceeds generated by the sale of assets and cash on hand or to
be generated from operations. The decrease of $29,000,000 from March 31,
1994 is primarily due to asset sales and the subsequent distribution of the
net proceeds to asset proceeds note holders, partially offset by the greater
value of assets reflecting the shorter time period used in determining the
present value. The Rosebud investment amount does not include any amount for
potential recovery from any litigation including the Northeast Cement Company
litigation (See Note 19).
At the effective date of the plan, Rosebud issued secured asset proceeds
notes in the aggregate principal amount of $138,118,000. The asset proceeds
notes bear interest at a rate of 10% per annum payable in cash and/or
additional asset proceeds notes, in semi-annual installments (the July 31,
1994 interest payment was paid in cash). The asset proceeds notes are to be
repaid as Rosebud's assets are disposed of and proceeds, if any, are received
in connection with the litigation transferred to Rosebud. All net cash
proceeds less a $5,000,000 cash reserve plus up to an additional $5,000,000
for estimated Rosebud working capital needs, are to be deposited in a cash
collateral account for distribution to the note holders. The asset proceeds
notes mature on July 31, 1997. These notes are guaranteed, in part, by Lone
Star. In the event that, at the maturity date, the aggregate amounts of all
cash payments of principal and interest on the asset proceeds notes is less
than $88,118,000, the guarantee is payable in either cash, five-year notes or
a combination thereof to cover the shortfall between the actual payments and
$88,118,000 dollar for dollar plus interest provided however that the amount
paid pursuant to the guarantee cannot exceed $28,000,000. The asset proceeds
notes, including accrued interest thereon, are recorded on Lone Star's
September 30, 1994 balance sheet at an amount equal to the estimated value of
the assets to be utilized to liquidate these obligations.
In June 1994, Rosebud sold all of its interest in a cement plant located in
Santa Cruz, California for $33,063,000. The net proceeds from the sale,
after making provisions for an environmental reserve for landfill and other
costs related to the transaction, were used to redeem a portion of the
outstanding asset proceeds notes on a pro rata basis and to pay interest on
the redeemed notes through the date of redemption. $31,719,000 was
transferred to the collateral agent who made payments to note holders on
August 19, 1994. In July 1994, Rosebud made a $5,755,000 cash interest
payment related to the asset proceeds notes.
In May and July 1994, Rosebud sold surplus property in Virginia and
Massachusetts for net cash proceeds of $668,000 which is being retained by
Rosebud for anticipated working capital needs.
In July 1994, Rosebud reached final agreements with substantially all the
insurance carriers involved in litigation related to indemnity, in the
concrete cross tie cases (See Note 19). In the third quarter 1994, Rosebud
received $5,300,000 from the insurance carriers involved in the settlements,
the net cash proceeds of which are being retained for estimated anticipated
working capital needs.
In September 1994, Rosebud reached an agreement, subject to certain
conditions, to sell the Nazareth, Pennsylvania cement plant. The sale, if it
occurs, is expected to be completed by 1994 year end.
In October 1994, Rosebud granted an option to acquire the stock of the
company holding the 50% interest in the RMC LONESTAR partnership to an
affiliate of the joint venture partner. The purchase option is exercisable
through May 1, 1995.
Note 6 - Production Payment
As part of the plan, the company's production payment agreement terms were
revised as of April 14, 1994. In connection therewith, a new note was
issued, with an outstanding principal balance of $20,963,000 as of that date,
and which bears interest at the company's option at a rate of either prime or
LIBOR plus 1.75% through December 31, 1995 and either prime plus .25% or
LIBOR plus 2.5% beginning on January 1, 1996. The principal balance is
payable semi-annually through July 31, 1998 in increasing installments. In
August 1994, the company made a $1,000,000 principal payment.
Note 7 - Revolving Credit Line
Upon emergence from its Chapter 11 proceedings, the company entered into a
three year $35,000,000 revolving credit agreement which is collateralized by
inventory, receivables, collection proceeds and certain intangible assets.
The company's borrowings under this agreement are limited to 55% of eligible
inventory plus 85% of eligible receivables. Advances under the agreement
bear interest, at the company's option, at a rate of either prime plus 1.25%
or LIBOR plus 3%. A fee of .50% per annum is charged on the unused portion
of the credit line. There was no outstanding balance at September 30, 1994.
The company's financing agreements, including the revolving credit agreement,
contain restrictive covenants which, among other things, restrict the payment
of cash dividends.
Note 8 - Senior Unsecured Notes
Upon emergence from its Chapter 11 proceedings, the company issued
$78,000,000 of ten year senior unsecured notes. The notes bear interest at a
rate of 10% per annum, payable semi-annually.
Note 9 - Stock Options
Upon emergence from its Chapter 11 proceedings, the board of directors of the
company adopted the Lone Star Industries, Inc. Management Stock Option Plan
("Management Plan") and the Lone Star Industries, Inc. Directors' Stock
Option Plan ("Directors' Plan"). Both plans were ratified by the company's
shareholders at the 1994 annual meeting. Total options authorized for grant
are 700,000 and 50,000 under the Management and the Directors' Plans,
respectively. In June 1994, options to purchase common stock for 700,000
shares at an exercise price of $15.375 and 6,000 shares at an exercise price
of $15.6875 were granted under the Management and Directors' Plans,
respectively.
Note 10 - Reorganization Items
The effects of transactions occurring as a result of the Chapter 11 filings
have been segregated from ordinary operations in the accompanying
consolidated statements of operations. Such items for the three months ended
March 31, 1994 and the three and nine months ended September 30, 1993 include
the following (in thousands):
For the For the For the
Three Three Nine
Months Months Months
Ended Ended Ended
March 31, September 30, September 30,
1994 1993 1993
Professional fees and administrative
expenses.........................$ (15,431) $ (3,752) $(11,081)
Interest income.................... 2,035 1,208 3,340
(13,396) (2,544) (7,741)
Gain (loss) on sale of assets...... - 7,554 (37,335)
Adjustments to fair value......... (133,917) - -
$(147,313) $ 5,010 $(45,076)
The 1993 year-to-date loss on sale of assets represents the loss on the sale
of the company's interest in a Brazilian joint venture. The 1993 third
quarter gain represents the difference between the initial loss estimated in
the second quarter and the loss actually realized.
Note 11 - Restructuring Program
In November 1989, the Lone Star Board of Directors approved a restructuring
program which included the proposed sale of certain facilities and marginal
businesses, interests in certain joint ventures, an investment in preferred
stock, surplus real estate, and certain other assets. The assets held for
sale, including related current and other assets, were classified as assets
held for sale in the accompanying consolidated December 31, 1993 balance
sheet at their estimated net realizable values. As a result of the
effectiveness of the company's plan, certain assets included in the
restructuring program have been transferred to Rosebud to be sold with the
proceeds to be used to pay off the asset proceeds notes, and other assets are
being retained by the company.
In accordance with the plan, the company has retained the Pryor, Oklahoma and
Maryneal, Texas cement plants. The results from the operations which the
company retained, but which were previously classified as assets held for
sale, consist of net sales of $14,030,000, $16,818,000 and $44,878,000 for
the three months ended March 31, 1994 and the three and nine months ended
September 30, 1993, respectively and pre-tax income of $1,278,000, $2,734,000
and $5,733,000, for the three months ended March 31, 1994 and the three and
nine months ended September 30, 1993, respectively.
Note 12 - Kosmos Cement Company
Summarized financial information of Kosmos Cement Company, a 25% owned
partnership which produces and sells cement in Kentucky and Pennsylvania, for
the three and six months ended September 30, 1994, the three months ended
March 31, 1994 and the three and nine months ended September 30, 1993 is as
follows (in thousands):
For the For the For the For the For the
Three Six Three Three Nine
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September March September September
30, 1994 30, 1994 31, 1994 30, 1993 30, 1993
Net sales............. $ 22,892 $ 42,511 $ 6,825 $ 20,421 $ 46,498
Gross profit.......... $ 5,519 $ 9,475 $ 159 $ 5,666 $ 9,128
Income (loss) before
cumulative effect of
change in accounting
principles.......... $ 5,848 $ 10,132 $ (59) $ 5,689 $ 9,203
Cumulative effect of
change in accounting
principles........... - - - - (3,126)
Net income(loss)...... $ 5,848 $ 10,132 $ (59) $ 5,689 $ 6,077
In the first quarter of 1993, the Kosmos Cement Company partnership adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions". As a result, the company
recognized a charge of $782,000 representing its share of the partnership's
cumulative effect of the change in accounting principles.
Note 13 - Cash and Cash Equivalents
Cash equivalents include the company's marketable securities which are
comprised of short-term, highly liquid investments with original maturities
of three months or less. Interest paid during the six months ended September
30, 1994, the three months ended March 31, 1994, and the nine months ended
September 30, 1993 was $4,397,000, $20,000, and $93,000, respectively. Income
taxes paid during the six months ended September 30, 1994, the three months
ended March 31, 1994 and the nine months ended September 30, 1993 were
$59,000, $756,000, and $980,000, respectively.
Note 14 - Interest
Interest expense of $2,380,000, $4,639,000, $271,000, $488,000, and
$1,489,000 has been accrued for the three and six months ended September 30,
1994, the three months ended March 31, 1994 and the three and nine months
ended September 30, 1993 respectively. Interest capitalized during the three
and six months ended September 30, 1994, the three months ended March 31,
1994 and the three and nine months ended September 30, 1993 was $67,000,
$107,000, $38,000, $36,000, and $136,000, respectively.
While operating under the protection of Chapter 11, the filed companies
stopped accruing interest on all of their unsecured debt as of the petition
date. The amount not accrued for the three months ended March 31, 1994 and
the three and nine months ended September 30, 1993 was $7,398,000, $7,425,000
and $22,278,000, respectively.
Note 15 - Inventories
Effective April 1, 1994, the company adopted, on a prospective basis, a
change in the method of accounting for inventory for interim reporting
purposes. Under the previous method, planned capacity variances were
deferred in periods of low production and absorbed later in the year. Under
the new method, the company values inventory using a weighted average cost.
As a result, during the first quarter, historically a period of low
production, higher per unit production costs will result in an increased
average unit cost of inventory and an increased per unit cost of sales during
the first quarter. Fresh-start adjustments recorded as of March 31, 1994
included the write-off of $8,391,000 of deferred costs related to operations
included in predecessor company results.
Note 16 - Earnings Per Share
Due to the company having outstanding common stock equivalents in excess of
20% of the number of shares of outstanding common stock, primary earnings per
share of the successor company are calculated using the modified treasury
stock method in accordance with Accounting Principles Board Opinion No. 15,
"Earnings per Share", and are based on adjusted weighted average shares
outstanding of 14,309,330 and 14,043,068 and adjusted net income of
$14,184,000 and $22,752,000 for the three and six months ended September 30,
1994, respectively.
Note 17 - Sale of Florida Cement Plant
In June 1994, the company sold its interest in a cement plant located in
Florida for $21,750,000, which approximated book value.
Note 18 - Environmental Matters
The company is subject to federal, state and local laws, regulations and
ordinances pertaining to the quality and the protection of the environment.
Such environmental regulations not only affect the company's operating
facilities but also apply to closed facilities and previously owned and
operated properties.
While it is not possible to assess accurately the expected impact of future
changes in regulations on the company, the capital, operating and other costs
of compliance with applicable environmental requirements (currently in effect
or likely to be in effect in the future) could be substantial.
In order to save on fuel costs, the company is blending and burning hazardous
waste fuels at two of its cement manufacturing plants. This process involves
obtaining permits and complying with applicable state and federal
environmental regulations. While the company believes it is in substantial
compliance with such regulations, changes in them or in their interpretation
by the relevant agencies or courts could limit, effectively prohibit the use
of, or make prohibitive the cost of using, hazardous waste fuels, thus
depriving the company of the economic benefits of its waste fuel program. In
February 1994, the United States Court of Appeals for the District of
Columbia Circuit (i) vacated and remanded a facility-specific standard
promulgated by the U.S. Environmental Protection Agency ("U.S. EPA") for
ascertaining the presence of products of incomplete combustion designed for
wet process cement kilns that burn hazardous waste fuels, ruling that the
standard had been promulgated without sufficient notice, but (ii) upheld
related standards applicable to the industry. In April 1994, the Circuit
Court denied plaintiffs' motion to reconsider its decision and in October
1994, U. S. Supreme Court denied plaintiffs' petition for certiorari. While
the company's Greencastle, Indiana cement plant, which had been complying
with the vacated standard, was able to demonstrate its ability to comply with
a surviving emission standard prior to the issuance of the Circuit Court's
mandate vacating and remanding the facility-specific standard (which mandate
issuance did not occur until after the U. S. Supreme Court's denial of
certiorari), the Greencastle plant is currently only capable of operating at
less than desirable cement production levels or operating conditions.
Accordingly, the Greencastle plant has curtailed its use of hazardous waste
fuels pending capital upgrades to the plant or the promulgation by the U. S.
EPA of a modified or new facility-specific standard. The Circuit Court's
ruling has no impact upon the current use of hazardous waste fuels at the
company's Cape Girardeau, Missouri cement plant.
Since 1991, federal and state environmental agencies have conducted
inspections and instituted inquiries and administrative actions regarding
waste fuel operations at both of the company's waste fuel burning facilities.
In the first half of 1994 the company paid amounts totaling approximately
$402,000 representing negotiated settlements with federal and state
environmental authorities of administrative actions that alleged violations
of regulations pertaining to the handling and burning of hazardous waste
fuels at the Greencastle plant. In March 1994, U.S. EPA, Region 7, instituted
an administrative proceeding regarding waste fuel operations at the company's
Cape Girardeau plant, seeking over $500,000 in civil penalties. The company
has negotiated a settlement with officials of Region 7 which requires the
payment by the company of a civil penalty of approximately $200,000,
approximately $87,000 of which may be offset by two supplemental
environmental projects planned to be undertaken at the Cape Girardeau,
Missouri plant to improve its record keeping and compliance capabilities.
Cement kiln dust, ("CKD") a by-product of cement manufacturing, is currently
exempted from environmental regulation by the Bevill Amendment to the Federal
Resource Conservation and Recovery Act pending the completion of a
Congressionally-mandated study and regulatory determination by U.S. EPA
regarding the need for regulatory controls on the management, handling and
disposal of cement kiln dust. The regulatory determination is scheduled to
be made in January 1995. It is impossible at this time to predict with
accuracy what increased costs (or range of costs), if any, changes in
regulatory control of CKD would impose on the company.
The company and certain of its subsidiaries have been identified as parties
that may be held responsible by various federal, state and local authorities
with respect to contamination at certain sites of former operations or sites
where waste materials from the company or its subsidiaries, such as equipment
containing polychlorinated biphenyls, were deposited, including sites placed
on the National Priority List ("NPL") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"). These
include sites located: in Utah (seven sites, including three NPL sites
discussed below); Illinois (one NPL site); Texas (two sites, including one
NPL site); Missouri (one NPL site); Washington (two NPL sites); Minnesota
(two NPL sites); Colorado (one NPL site); Florida (four sites, including two
related NPL sites and two non-NPL sites described below); California (one
non-NPL site described below); Pennsylvania (one NPL site); and Louisiana
(one NPL site).
Except for the Utah NPL sites described below, all of the NPL sites referred
to above involve numerous potentially responsible parties ("PRP's") and
factual investigation indicates that in each case the company's or
subsidiary's contributions of waste were small in comparison to those of
other PRP's. Except for the Utah sites, no timely proofs of claim were filed
with the Bankruptcy Court by the environmental regulatory agencies with
respect to NPL sites, none of which are currently owned or leased by the
company or its subsidiaries. However, a number of PRP's filed timely proofs
of claim with the Bankruptcy Court with respect to various NPL sites; these
claims have either been (i) allowed in full as de minimis, (ii) resolved
through negotiation and allowed as general unsecured claims, or (iii)
objected to and disallowed in the company's Chapter 11 proceedings.
For the site located in Colorado, the company has availed itself of a
settlement opportunity afforded by U. S. EPA to participate in a de minimis
settlement and resolved its liability for that site for a cost of
approximately $14,000, subject to certain limitations and the potential for a
reopener if the total clean-up ultimately exceeds a certain sum. For another
site, one of those located in Washington (i.e., the Harbor Island site), the
company has recently availed itself of the opportunity to join a settling
group of potentially responsible parties and to resolve its liabilities to
the U. S. EPA for the soil and groundwater operable unit of the Harbor Island
Superfund site as a member of the small participant group. The company
believes that the total cost to it of this limited settlement will be
approximately $250,000, (including the contemplated benefits of a cost-
allocation agreement the company has negotiated with another potentially
responsible party for certain of the site-specific costs for which the
company is also responsible). While the company may be liable for other
operable units associated with this site, the extent of its liability and
validity of any defenses it may have to that future imposition of liability
is not presently ascertainable.
Following are descriptions of proceedings involving certain NPL and non-NPL
sites mentioned above:
In July 1989, the company was advised by U.S. EPA, Region 8 that it was a PRP
under CERCLA with respect to three adjoining sites in Salt Lake City, Utah on
which CKD and small amounts of chrome-containing kiln brick from the
company's Utah cement plant had been deposited. In July 1990, the U.S. EPA
and the Utah Department of Health issued a record of decision selecting a
remedial action calling for removal of the CKD, over a period of time, to a
location to be selected in the Salt Lake City vicinity where an industrial
type landfill would be constructed. The company has reached an agreement
with the U.S. Department of Justice, U.S. EPA, the U.S. Department of the
Interior, the Utah Department of Environmental Quality and Davis County, Utah
regarding a settlement pursuant to which among other things, U.S. EPA will
receive a general unsecured claim in the company's bankruptcy proceedings in
exchange for releases from further liability for investigation and clean-up
costs and natural resource damage claims and protection against third-party
claims for investigation and clean-up costs. The agreement has been executed
by the company and by the respective governmental agencies and is subject to
a CERCLA-mandated public notice and comment period and approval by the
company and the Bankruptcy Court, which is scheduled for December 1994.
In October 1989, the company commenced an action in United States District
Court in Utah seeking contribution from the two principal owners of these
Utah NPL sites, who had also been named PRP's, for their share of
investigative clean-up costs. Following pre-trial litigation, settlement
agreements with the landowners were negotiated and approved by the Bankruptcy
Court, pursuant to which the landowners receive general unsecured claims in
the company's bankruptcy proceedings and all their claims against the company
were dismissed with prejudice, subject to the landowners' reaching
settlements with U.S. EPA, the negotiation of which is continuing.
In a transaction in the early 1970's, the company acquired subsidiaries that
conducted woodtreating or wood-dipping operations at two sites in Florida.
Contamination from chemicals at these non-NPL sites has been the subject of
various proceedings by federal, state or local environmental authorities, as
well as lawsuits involving private parties.
In 1992, pursuant to an Administrative Order on Consent with U.S. EPA, Region
4, entered into prior to the company's Chapter 11 filing, a clean up of
soils and water in excavated areas at the Dania, Florida site was completed
by a subsidiary of the company and approved by U.S. EPA in 1992. The
subsidiary has entered into a stipulation approved by the Bankruptcy Court,
with the State of Florida Department of Environmental Protection ("FDEP")
(which filed a claim in the company's bankruptcy proceedings) committing to
undertake a groundwater monitoring program and, if necessary, groundwater
treatment in settlement of the State's proof of claim it filed in the
bankruptcy proceedings. The subsidiary is currently negotiating a consent
order with FDEP setting forth the monitoring and possible remediation efforts
in detail. This site and the related cleanup obligations have been
transferred to Rosebud pursuant to the plan.
In 1992, pursuant to a stipulation in Florida state court, executed prior to
its Chapter 11 filing, a subsidiary of the company completed the clean-up of
soils under Florida environmental regulations at a site in Dade County,
Florida which it had leased for woodtreating operations in the 1960's and
1970's. In settlement of the proofs of claim filed in the company's
bankruptcy proceedings, the subsidiary has executed a stipulation with state
and county environmental authorities regarding entry into a consent order
whereby the subsidiary has committed to undertake further groundwater
investigation of the site and, if necessary, soil remediation, groundwater
treatment and groundwater monitoring programs all within a specified monetary
cap of $2,000,000.
Prior to its Chapter 11 filing, the subsidiary filed a lawsuit in federal
district court in Florida against other PRP's, including past and present
owners of the site, for cost recovery and contribution under CERCLA. Two of
the PRP's filed counterclaims and proofs of claim in the bankruptcy
proceedings. The subsidiary has entered into a settlement agreement,
approved by the Bankruptcy Court, with the PRP's pursuant to which they will
reimburse the subsidiary for a portion of its clean-up costs and dismiss
their federal and state court and claims filed in the bankruptcy proceedings,
with prejudice and the subsidiary will dismiss its court claims against them
with prejudice, while committing to undertake the further investigation and,
if necessary, remedial work under the Bankruptcy Court stipulation with state
and county environmental authorities described above.
In August 1992, Santa Cruz County, California authorities served the company
with written notice that it had commenced a criminal and civil investigation
of long-term waste disposal practices at a site formerly owned by the company
and now owned by a partnership in which a subsidiary of Rosebud holds a
partnership interest. The investigation and negotiations by the company and
others with interests in the site culminated in the resolution of the matter
by the concurrent filing of a complaint and stipulated final judgment.
Pursuant to the settlement, certain county and state authorities received an
administrative priority claim in the company's bankruptcy proceedings
totaling $150,000 and all claims raised in the complaint were released and
dismissed. Rosebud Holdings, Inc. has also committed to complete and is
presently undertaking the closure of a former waste landfill area on the
investigated site at an anticipated cost of approximately $1,500,000, which
is for the account of the Rosebud subsidiary. The closure work is not
expected to commence until 1995.
The September 30, 1994 accompanying consolidated balance sheet includes
accruals of $7,200,000 which represent the company's current estimate of its
liability related to future remediation costs at such sites. This amount
includes a $1,000,000 liability recorded during the second quarter of 1994 as
part of the sale of the Pennsuco cement plant in Florida to cover any future
liability related to Lone Star per the sale contract.
The company believes that it has adequately provided for costs related to any
ongoing obligations in connection with the company's resolution of
environmental liabilities and other known unresolved environmental matters.
Note 19 - Litigation
Between 1983 and 1989 a Lone Star subsidiary (among those who filed Chapter
11 petitions) manufactured and sold approximately 500,000 concrete railroad
crossties to various railroads. In 1989 and early 1990 purchasers of most of
the crossties sued Lone Star and such subsidiary, alleging that the crossties
were defective because of cracking, and seeking substantial compensatory and
punitive damages. The suits by four purchasers, which sought damages of over
$200,000,000 were consolidated for pre-trial purposes in the U.S. District
Court for the District of Maryland under the Federal Courts Multi-District
Rules. In addition, an administrative proceeding was brought by the Baltimore
Mass Transit Authority ("MTA"), involving crossties sold to the MTA, and an
MTA procurement officer found Lone Star and its subsidiary liable to the MTA
for damages in an amount of approximately $10,000,000.
Lone Star determined that it would be in the best interest of the company to
settle the proceedings brought by the railroads, and in late 1992 Lone Star
entered into separate agreements with each of the four purchasers providing
for the release of their respective claims against the company and its
subsidiaries relating to the crossties, and for the railroads to receive in
the aggregate allowed liquidated unsecured claims in its bankruptcy
proceedings of $57,200,000, for one railroad to receive a cash payment of
$5,000,000 and for the payment of $4,384,000 to another railroad from an
escrow fund established to hold the proceeds from the sale of property by a
Lone Star subsidiary on which that railroad had obtained liens in the
litigation. These agreements have been approved by the Bankruptcy Court, and
the $9,384,000 cash payments have been made. The claims were treated in
accordance with the provisions of the company's plan.
In 1989 Lone Star and its subsidiary filed a plenary action in the Maryland
Federal District Court, and third party complaints in other actions, against
Northeast Cement Co. and its affiliates, Lafarge Corporation and Lafarge
Canada, Inc. ("Lafarge"), alleging breach of warranties in connection with
the purchase from Northeast Cement Co. by Lone Star's subsidiary of the
cement used to manufacture substantially all of the crossties involved in the
above proceedings and claiming a fraudulent sale of defective cement. The
plenary action and the third party complaints sought compensatory damages
growing out of the various crosstie actions, including the foregoing
settlements and defense costs at approximately $15,750,000. The plenary
action brought against the cement supplier was tried before a jury in the
Maryland Federal District Court in late 1992. The jury found that Lone Star
had proven its claims of fraud, breach of certain warranties and negligence,
but Lone Star's recovery was limited to $1,213,000 for direct lost profits
due to limitations on the awarding of damages in the trial judge's
instructions to the jury. Lone Star believed that these instructions were in
error and filed a motion for a new trial on damages based on the judge's
refusal to permit the jury to even consider certain damages. Lafarge also
moved for judgment as a matter of law and for a new trial. Following a
hearing on March 5, 1993 the judge denied these motions. Lone Star
consequently appealed to the Federal Circuit Court of Appeals for the Fourth
Circuit for a new trial on the issue of damages. Lafarge also filed an
appeal. On April 7, 1994 the Fourth Circuit Court of Appeals vacated the
judgment of the District Court and remanded the case for a new trial on all
issues relating to both liability and damages and permitted the company to
amend its complaint to add a claim of violation of a Massachusetts consumer
protection law which allows for attorney fees and doubling and trebling of
damages. A request by Lafarge for a rehearing of that decision by the Fourth
Circuit Court of Appeals en banc was denied. A new trial commenced on
October 24 of this year. The rights to any recovery of damages in this
action have been assigned to Rosebud pursuant to the plan.
The primary insurance carrier insuring the company asserted that Lone Star
has only limited insurance coverage for the various crosstie claims and,
while agreeing that certain defense costs are covered by insurance, did not
agree to Lone Star's position as to the amount of defense costs covered.
Consequently, in 1989 Lone Star began an action in the Superior Court of the
State of Delaware against the insurance companies (both primary and excess
carriers) which insured it during the 1983 to 1989 period, seeking a
declaratory judgment as to their duty under the applicable policies to
indemnify Lone Star for all damages incurred by it in the various crosstie
proceedings which includes the settlements of $66,584,000 and as to the duty
of the primary insurance carrier to pay the costs of defending those
proceedings. The Superior Court made a preliminary ruling that the primary
insurance carrier has a duty to pay certain of the costs of the company's
defense in the crosstie proceedings. With the approval of the Bankruptcy
Court, Lone Star settled its claims against the primary insurance carrier for
defense costs for payments to Lone Star of $14,733,000 in cash; and setoffs
to the carrier's claim in the bankruptcy of approximately $4,778,000.
Lone Star, with the approval of the Bankruptcy Court, settled its indemnity
action against the primary insurance carrier in March 1994 for $6,500,000 as
a set-off to a claim filed in the company's bankruptcy proceedings by that
carrier. The rights to any additional recoveries from insurance carriers
were assigned to Rosebud pursuant to the plan. Rosebud and certain of the
remaining insurance carriers negotiated a settlement of the indemnity action
which provided for payments to Rosebud of $5,300,000. Pre-trial preparation
in the action was stayed by agreement of the parties during these
negotiations. Rosebud is in the process of continuing the indemnity action
against any insurance carriers as to which no settlement has been reached and
will also seek to recover the costs of the Lafarge action.
In addition, a settlement with all parties has been reached in the
consolidated shareholders' class action lawsuits brought against the company
and certain of its past and present officers and directors. The settlement
involves the actions entitled Cohn v. Lone Star Industries, Inc., et al.
filed in November 1989 on behalf of persons who purchased Lone Star common
stock between February 8, 1988 and November 16, 1989 and the action entitled
Garbarino, et ano. v. Stewart, et al. filed in December 1990 on behalf of
persons who purchased Lone Star common stock between November 16, 1989 and
December 9, 1990. The settlements were adopted and approved by an order and
final judgment of a magistrate judge and the order and judgment was in turn
approved and adopted by an order of the U.S. District Court for the District
of Connecticut on January 20, 1994.
The terms of the settlement agreement, which was entered into by Mr. James E.
Stewart, the former Chairman and Chief Executive Officer of Lone Star,
includes the dismissal of the claims against Mr. Stewart and the officers and
directors of Lone Star and the agreement of Lone Star's directors and
officers liability insurers to pay $40,000,000 to establish settlement funds
on behalf of the plaintiff classes. In order to participate in these
settlement funds, eligible plaintiffs were required to submit a proof of
claim by July 29, 1994. Distribution from these settlement funds has not yet
been made. Lone Star was dismissed without prejudice from the Cohn action,
the only action in which it was named as a defendant by the plaintiffs. The
settlement does not constitute an admission by Lone Star, or any of its past
and present officers, directors and employees of any liability or wrongdoing
on their part. In connection with the company's bankruptcy proceedings, in
order to resolve the claims filed by both plaintiff classes without admitting
any liability, a claim in the aggregate of $2,500,000 was allowed to the
plaintiff classes by the company.
The company, along with numerous other parties, has been named a defendant in
a series of toxic tort lawsuits filed in a Texas state court commencing in
March, 1994 in which multiple plaintiffs claim to have suffered injury from
the proximity of deposits of toxic wastes or substances at a site located
near Galveston, Texas. The toxic wastes or substances are alleged to have
been deposited at the site starting in the 1940's. The company has retained
Texas counsel and has filed answers denying the allegations of the various
complaints. The company intends to contest these lawsuits vigorously. The
company's insurance carriers have been notified of the claims but the extent
of the company's insurance coverage, if any, for these lawsuits has not yet
been determined. The company has not recorded any provision related to these
lawsuits.
26
Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On April 14, 1994 the company's plan of reorganization pursuant to Chapter
11 of the United States Bankruptcy Code became effective (See Note 2). Upon
its plan of reorganization becoming effective the company issued new common
stock, warrants to purchase common stock and debt, transferred certain
assets to a liquidating subsidiary and its subsidiaries and for accounting
purposes adopted fresh-start reporting as of March 31, 1994. As a result,
the company's financial statements for the periods ended September 30, 1994
are not comparable to statements for prior periods. Accordingly, the
company has not presented information for the nine months ended September
30, 1994, since such information requires consolidating statements of the
predecessor and successor company. Also affecting comparability are
differences in the operating units of the successor company and the
predecessor company. The successor company's operations include the Pryor,
Oklahoma and Maryneal, Texas cement plants which were previously classified
as assets held for sale and were excluded from the predecessor company's
results. The successor company's operations exclude the Nazareth,
Pennsylvania and Santa Cruz, California cement plants and the Hawaiian
Cement and RMC LONESTAR partnerships. These operations, along with certain
other assets, have been transferred to Rosebud Holdings, Inc., a
liquidating subsidiary and its subsidiaries. The predecessor company's
operations also included a Brazilian joint venture which was sold in
September 1993.
Financial Condition
In accordance with the company's plan of reorganization which became
effective on April 14, 1994, the company disbursed $200.5 million in cash
and prepetition creditors and equity holders became entitled to receive
senior notes in the principal amount of $78.0 million, asset proceed notes
with a face value of $138.1 million and 12 million shares of new common
stock, (of which 85% of the outstanding common stock of the successor
company was distributed to the prepetition creditors).
Holders of preferred stock became entitled to receive their pro rata share
of 10.5% of the new common stock and 1,250,000 warrants to purchase common
stock. The holders of the company's old common stock became entitled to
receive the balance of the new company's common stock and 2,753,333
warrants to purchase common stock. Both preferred stock issues and the old
common stock were canceled upon the effectiveness of the plan.
At the effective date of the plan, Rosebud issued secured asset proceeds
notes in the aggregate principal amount of $138.1 million. The asset
proceeds notes bear interest at a rate of 10% per annum payable in cash
and/or additional asset proceeds notes in semi-annual installments (the
July 31, 1994 interest payment was paid in cash). The asset proceeds notes
are to be repaid as Rosebud's assets are disposed of and proceeds, if any,
are received in connection with the litigation transferred to Rosebud. All
cash proceeds less a $5.0 million cash reserve plus up to an additional
$5.0 million for estimated Rosebud working capital needs, are to be
deposited in a cash collateral account for distribution to the noteholders.
The asset proceeds notes mature on July 31, 1997. These notes are
guaranteed, in part, by Lone Star. In the event that, at the maturity
date, the aggregate amounts of all cash payments of principal and interest
on the asset proceeds notes is less than $88.1 million the company
guarantee is payable in either cash, notes or a combination thereof to
cover the shortfall between the actual payments and $88.1 million dollar
for dollar plus interest provided however that the amount paid pursuant to
the company guarantee cannot exceed $28.0 million. The asset proceeds
notes are recorded on Lone Star's September 30, 1994 balance sheet at an
amount equal to the estimated value of the assets to be utilized to
liquidate these obligations.
In September 1994, Rosebud agreed to sell its cement plant located in
Nazareth, Pennsylvania. Completion of the proposed sale is subject to
normal due diligence and is expected to be completed, if it occurs, prior
to year-end 1994. In October 1994, Rosebud granted an option to acquire the
stock of the company holding the 50% interest in the RMC Lonestar
partnership to an affiliate of the joint venture partner. The purchase
option is exercisable at any time prior to May 1995. In June 1994, Rosebud
sold all of its interest in its Santa Cruz cement plant to the same partner
for $33.1 million. In August 1994, net proceeds of $31.7 million from this
sale were used to redeem a portion of the outstanding asset proceeds note
and in July 1994, Rosebud made a $5.8 million cash payment for interest on
its asset proceeds notes.
In July 1994, Rosebud reached final agreements with substantially all the
insurance carriers involved in litigation related to indemnity, in the
concrete cross tie cases (See Note 19). In the third quarter of 1994,
Rosebud received $5.3 million from the insurance carriers involved in the
settlements, the net cash proceeds of which are being retained for
estimated anticipated working capital needs.
As part of the plan, the company's production payment agreement terms were
revised as of April 14, 1994. In connection therewith, a new note was
issued, with an outstanding principal balance of $21.0 million as of that
date, and which bears interest at the company's option at a rate of either
prime or LIBOR plus 1.75% through December 31, 1995 and either prime plus
.25% or LIBOR plus 2.5% beginning on January 1, 1996. The principal
balance is payable semi-annually through July 31, 1998 in increasing
installments. A principal payment of $1.0 million was made in August 1994.
Upon emergence from its Chapter 11 proceedings, the company entered into a
three year $35.0 million revolving credit agreement which is collateralized
by inventory, receivables, collection proceeds and certain intangible
assets. The company's borrowings under this agreement are limited to 55%
of eligible inventory plus 85% of eligible receivables. Advances under the
agreement bear interest at a rate of either prime plus 1.25% or LIBOR plus
3%. A fee of .50% per annum is charged on the unused portion of the credit
line. Although the company, from time to time, has used the letter of
credit facility pioneered by the credit agreement, it has not drawn any
funds under the credit agreement for working capital purposes. Accordingly
there was no outstanding balance at September 30, 1994.
The company's financing agreements contain restrictive covenants which,
among other things, restrict the payment of cash dividends.
Upon emergence from its Chapter 11 proceedings, the company issued $78.0
million of ten year senior unsecured notes. The notes bear interest at a
rate of 10% per annum.
In accordance with its plan, as part of the agreement with the Pension
Benefit Guaranty Corporation ("PBGC") the company has granted the PBGC a
mortgage on the Oglesby plant, and a security interest in its 25% interest
in the Kosmos Cement Company partnership, to secure its future pension
obligations.
Also upon emergence from Chapter 11 proceedings, the board of directors of
the company adopted the Lone Star Industries, Inc. Management Stock Option
Plan ("Management Plan") and the Lone Star Industries, Inc. Directors'
Stock Option Plan ("Directors' Plan"). Both of the plans were ratified by
the company's shareholders at the 1994 Annual Meeting. Total options
authorized for grant are 700,000 and 50,000 under the Management and the
Directors' Plans, respectively. In June 1994, 700,000 and 6,000 options
were granted under the Management and Directors' Plans, respectively.
In addition, the company adopted fresh-start reporting as of March 31,
1994, including adjustments for bankruptcy related cash transactions
through the effective date to properly reflect the company's
reorganization. Through the adoption of fresh-start reporting, the company
has recorded its assets and liabilities at fair value on March 31, 1994 and
as such, balance sheet comparisons to prior periods are not meaningful. A
black line has been used to separate the December 31, 1993 and the March
31, 1994 balance sheets to emphasize the fact that the March 31, 1994
balance sheet belongs to reorganized Lone Star, a new reporting entity.
The company operated under the protection of the Bankruptcy Court for the
period from December 10, 1990 to April 14, 1994. Pursuant to the
provisions of the U. S. Federal Bankruptcy Code, the companies which filed
Chapter 11 petitions were prohibited from paying claims which arose prior
to the filing date outside of a plan of reorganization or without specific
Bankruptcy Court authorization. In addition, during the period the company
operated under the protection of Chapter 11, it discontinued accruing
interest on unsecured pre-petition debt obligations. Also, the company
received interest income on its cash balances during this period. However,
as a result of its Chapter 11 proceedings, the company incurred substantial
professional fees and administrative expenses which partially offset the
above financial benefits.
Cash flows from operating activities of $21.9 million for the six month
period from April 1 to September 30, 1994 primarily reflects $28.4 million
generated by the cement and ready-mixed concrete operations resulting from
increased average selling prices and shipments partly offset by payments of
professional fees and administrative expenses of $6.5 million related to
the reorganization.
During the six months ending September 30, 1994, the company received $11.8
million from investing activities, primarily representing proceeds from the
sale of the Pennsuco cement plant in Florida, partly offset by capital
expenditures.
Working capital on September 30, 1994 was $59.7 million, compared to $14.1
million at March 31, 1994. Current assets increased $26.9 million
principally due to a higher marketable securities balance, resulting from
the sale of the Pennsuco cement plant in Florida and income generated by
operations, in addition to higher accounts receivable due to seasonal
increases. This increase was partly offset by decreased inventories due to
the higher seasonal sales and lower other current assets primarily
reflecting the payment of professional fees from a current escrow account.
Current liabilities decreased $18.7 million primarily due to the payment of
Chapter 11 professional fees which were held in escrow pending final
approval of the Bankruptcy Court, the payment of other bankruptcy related
costs previously accrued for and decreased accounts payable.
The carrying value on the company's books of net assets of the Rosebud
liquidating subsidiary decreased $29.0 million primarily due to the sale of
the Santa Cruz, California cement plant partly offset by the accretion of
assets reflecting the shorter time period used in determining the present
value. Investments in joint ventures increased $1.7 million due to results
from the Kosmos Cement Company joint venture. Net property, plant and
equipment decreased $22.1 million reflecting the sale of the Pennsuco
cement plant in Florida and depreciation, partly offset by capital
expenditures. The reorganization value in excess of amounts allocable to
identifiable assets has been reduced by the income tax benefits realized
for the six month period from pre-confirmation net operating loss carry
forwards of $11.2 million and amortization of $0.4 million. The liability
for the Rosebud asset proceeds notes decreased $29.0 million due to the
sale of the Santa Cruz cement plant, partly offset by the increase in the
present value of the assets. A disbursement of $1.0 million was made
against the production payment, and the pension liability decreased by $3.3
million, reflecting payments made during the six month period ending
September 30, 1994. Other liabilities decreased $2.9 million primarily due
to the reclassification of certain accruals to current liabilities.
The company is subject to federal, state and local laws, regulations and
ordinances pertaining to the quality and protection of the environment.
Such environmental regulations not only affect the company's operating
facilities but also apply to closed facilities and sold properties. While
it is not possible at this time to assess accurately the expected impact of
future changes in regulations on the company, the capital, operating and
other costs of compliance with applicable environmental requirements
(currently in effect or likely to be in effect in the future) could be
substantial (See Note 18).
Prior to the company's emergence from its Chapter 11 proceedings, its
environmental liabilities had a material effect on the company's financial
condition and operating results. They were a contributing factor in the
company's decision to seek reorganization under the protection of Chapter
11. During the reorganization, most of the company's known environmental
liabilities were resolved, including those liabilities which had a material
effect on the company's financial condition and operating results (See Note
18). The company believes that it has adequately provided for costs
related to any ongoing obligations in connection with the company's
resolution of environmental liabilities and other known unresolved
environmental matters.
In early March 1994, the company, along with other cement companies,
received a civil investigative demand from the Atlanta, Georgia Regional
Office of the U.S. Department of Justice Antitrust Division. The
investigation concerns possible violations of Section 1 of the Sherman
Antitrust Act (price fixing and market allocation) by cement sellers on a
nationwide basis and seeks company records relating to its cement business.
The company has a long-standing policy of complying with the letter and
spirit of the antitrust laws and has fully cooperated with the
investigation. No charges of alleged violation of Section 1 have been
filed against the company.
The series of toxic tort lawsuits recently filed against the company are
not expected to have a material adverse effect on the company's financial
condition (See Note 19).
In 1989 Lone Star and its subsidiary filed a plenary action in the Maryland
Federal District Court, and third party complaints in other actions,
against Northeast Cement Co. and its affiliates, Lafarge Corporation and
Lafarge Canada, Inc., alleging breach of warranties in connection with the
purchase from Northeast Cement Company by Lone Star's subsidiary of the
cement used to manufacture substantially all of the crossties involved in
the railroad crosstie litigation proceedings and claiming a fraudulent sale
of defective cement. On April 7, 1994 the Fourth Circuit Court of Appeals
vacated the judgment of the District Court and remanded the case for a new
trial on all issues relating to both liability and damages (See Note 19).
The rights to any recovery of damages in this action have been assigned to
a subsidiary of Rosebud pursuant to the plan of reorganization. The new
trial in the Maryland Federal District Court commenced in October 1994.
Results of Operations
Net sales for the six months ended September 30, 1994, and for the third
quarter of 1994 were $183.0 million, and $96.0 million respectively. Cement
operations recorded sales of $124.8 million and $63.6 million for the six
and three month periods, respectively, following the company's emergence
from bankruptcy in April, 1994. Cement sales for the six month period from
comparable operations were $16.3 million higher than the prior year period
reflecting a 5% increase in shipments and a 12% increase in average net
realized selling prices. Cement sales for the third quarter of 1994 were
$9.4 million higher reflecting an 8% increase in sales volume and a 12%
increase in average net realized selling price as compared to the
comparable plants for the third quarter of last year. Sales of
construction aggregates were $31.9 million and $17.8 million for the six
month and three month periods ended September 30, 1994, respectively.
Sales of construction aggregates increased $1.9 million and $2.5 million,
respectively, from the prior year six and three month periods primarily due
to increased shipments of 2% and 8%, respectively. Increased shipments of
construction aggregates in the New York metropolitan area were partly
offset by decreased shipments from the company's Canadian operations.
Ready-mixed concrete and other operations recorded sales of $26.3 million
and $14.6 million, respectively, for the six and three month periods ended
September 30, 1994. The increase in ready-mixed concrete sales for the six
month and three month periods was attributable to a 30% and 41% increase in
shipments and 9% and 8% increase in prices as the compared to the prior
year periods, respectively. Shipments of ready-mixed concrete have been
favorable at all locations during both periods, particularly in the
Memphis, Tennessee area where strong demand from increased commercial
building resulted in both higher shipments and favorable prices. Net sales
of cement, construction aggregates, and ready-mixed concrete and other
construction products contributed 68 percent, 18 percent and 14 percent to
total sales for the current six month period, respectively, and 66 percent,
19 percent and 15 percent to total sales for the current three month
period, respectively.
Gross profits from the cement operations were $38.6 million and $22.0
million for the current six and three month periods, respectively,
reflecting favorable pricing and increased shipments of cement. Gross
profits from the construction aggregates operations were $5.4 million and
$3.6 million for the current six and three month periods, respectively.
Gross profits from ready-mixed concrete and other construction products
were $4.6 million and $2.6 million for the six and three month periods
ended September 30, 1994 reflecting the higher shipments during both
periods. Included in the calculation of gross profits are sales less cost
of sales including depreciation related to cost of sales.
Net income for the six and three month periods ended September 30, 1994 of
$21.4 million, or $1.62 per share, and $13.4 million, or $0.99 per share,
respectively, reflects the higher cement and ready-mixed concrete shipments
and selling prices combined with reduced selling general and administrative
expenses reflecting savings achieved during and after the company's
bankruptcy proceedings. The savings in selling, general and administrative
expenses primarily reflect lower other postretirement benefit expense and
lower pension expense due to settlements reached through negotiations with
retirees including the establishment of a Voluntary Employee Beneficiary
Association ("VEBA") for salaried retirees whereby the company will make
quarterly contributions to the trust. The company also reached a
settlement with the PBGC whereby the company contributed additional cash to
the pension plans. Lower insurance expenses also contributed to the
savings in selling, general and administrative expenses reflecting
settlements reached with insurance carriers and the company's joint
ventures and certain former joint ventures which settled certain ultimate
liabilities for periods prior to the petition date. Other savings in
selling, general and administrative expenses reflect lower employee related
expenses primarily achieved by reductions in personnel, prior to June 30,
1994 through attrition, combined with a corporate downsizing on June 30,
1994 which eliminated approximately 35 percent of salaried positions at the
corporate office. Selling, general and administrative expenses for the
1994 six and three month periods include $3.5 million and $1.8 million
respectively, of costs related to other postretirement benefit expenses.
Net income for the six and three months reflects joint venture income of
$2.9 million and $1.7 million, respectively, which represents the company's
share of earnings from Kosmos Cement Company (See Note 12). Joint venture
income for the prior-year period included the company's share of earnings
from the RMC LONESTAR and Hawaiian Cement partnerships which were
transferred to Rosebud and the company's share of earnings from its
interest in a Brazilian joint venture which was sold in September 1993.
The positive net income for the current period was partly offset by higher
interest expense primarily related to the issuance of $78.0 million in
senior notes resulting from implementing the plan.
In October 1994 the company decided to shutdown the remaining Pyrament
cement operations and discontinue selling Pyrament cement. No adverse
impact on operations or on the financial condition of the company is
expected.
The company's operations are seasonal and, consequently the interim results
are not necessarily indicative of the results to be expected for a full
year.
In future years, first quarter results are expected to reflect losses,
(which may be significant) due to the impact of the winter months on
construction activity, particularly at the company's northern operations,
plant production curtailments to perform annual maintenance, and higher
costs associated with the annual maintenance. Historically, for accounting
purposes planned capacity variances during a fiscal year were deferred in
the first quarter and recognized during the last nine months. Deferred
costs in 1994 totaling $8.4 million were written of as part of the
revaluation of assets in accordance with fresh-start reporting. Beginning
in 1995, due to a change in the company's accounting policies, these costs
will be expensed more quickly than in prior years and will primarily impact
first quarter results of the year in which they occur (See Note 15).
29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 19 of Notes to Financial Statements regarding
litigation involving the Company and certain of its
subsidiaries.
See Note 18 of Notes to Financial Statements regarding
environmental proceedings involving the Company and
certain of its subsidiaries.
See also Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial
Condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits
11. Computation of earnings per common share.
(b) Reports on Form 8-K
Reports on Form 8-K were filed during the quarter for
which this Report is filed as follows:
(i) July 1, 1994 - reporting on Item 5 "Other Events".
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Lone Star Industries, Inc. has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
LONE STAR INDUSTRIES, INC.
Date: November 14, 1994 By: JOHN S. JOHNSON
John S. Johnson
Vice President
Date: November 14, 1994 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer and
Controller
<TABLE>
EXHIBIT 11
LONE STAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Earnings Per Common Share (Unaudited)
(In Thousands Except Per Share Amounts)
<CAPTION>
Successor
Company Predecessor Company
For the Three For the Six | For the Three For the Three For the Nine
Months Ended Months Ended | Months Ended Months Ended Months Ended
September 30,September 30, | March 31, September 30, September 30,"
1994 1994 | 1994 1993 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OF COMMON STOCK - PRIMARY |
|
Income(loss) before |
cumulative effect of |
change in accounting |
principles $13,441 $21,355 | $(23,118) $11,480 $(30,382)
Less: Provisions for preferred |
dividends - - | 1,278 1,278 3,834
Income(loss) before cumulative |
effect of change in accounting |
principles 13,441 21,355 | (24,396) 10,202 (34,216)
Cumulative effect of change |
in accounting principles - - | - - (782)
Net interest expense |
reduction (1) 743 1,396 | - - -
Net income(loss) applicable |
to common stock $14,184 $22,751 | $(24,396) $10,202 $(34,998)
|
Weighted average shares |
outstanding during period 12,000 12,000 | n/m 16,644 16,644
Options and warrants in |
excess of 20% limit (1) 2,309 2,043 | - - -
Net weighted average shares |
outstanding during period 14,309 14,043 | n/m (2) 16,644 16,644
Income(loss) per common share: |
Income(loss) before cumulative |
effect of change in accounting |
principles $0.99 $1.62 | n/m $0.61 $(2.05)
Cumulative effect of change |
in accounting principles - - | - - (0.05)
|
Net income(loss) $0.99 $1.62 | n/m (2) $0.61 $(2.10)
|
PER SHARE OF COMMON STOCK ASSUMING FULL DILUTION |
|
Income(loss) before cumulative |
effect of change in accounting |
principles $13,441 $21,355 | $(23,118) $11,480 $(30,382)
Plus: Net interest expense |
reduction (1) 689 1,246 | - - -
Less: Provisions for preferred |
dividends - - | - 1,266 -
Income(loss) before cumulative |
effect of change in accounting |
principles 14,130 22,601 | (23,118) 10,214 (30,382)
Cumulative effect of change in |
accounting principles - - | - - (782)
Net income(loss) $14,130 $22,601 | $(23,118) $10,214 $(31,164)
|
|
Common shares outstanding at |
beginning of period 12,000 12,000 | n/m 16,644 16,644
Conversion of $13.50 preferred |
shares outstanding |
at beginning of period - - | n/m - 955
Conversion of $4.50 preferred shares outstanding |
at beginning of period - - | n/m 44 45
Options and warrants in excess |
of 20% limit (1) 2,309 2,043 | - - -
|
Fully diluted shares outstanding 14,309 14,043 | n/m (2) 16,688 17,644
|
Income(loss) per common share assuming full dilution |
Income(loss) before cumulative |
effect of changes in accounting |
principles $0.99 $1.61 | n/m $0.61 $(1.73)
Cumulative effect of changes in |
accounting principles - - | - - (0.04)
Net income(loss) $0.99 $1.61 | n/m (2) $0.61 $(1.77) (3)
|
(1) Due to the fact that the company's aggregate number of common stock
equivalents is in excess of 20% of its outstanding common stock, primary
and fully diluted earnings per share has been calculated using the
modifid treasury stock method for the three and six months ended
September 30, 1994.
(2) Earnings per share for the three months ended March 31, 1994 are not
meaningful due to reorganization and revaluation entries and the issuance
of 12 million shares of new common stock. Earnings per share amounts for
the Successor Company are not comparable to those of the Predecessor Company.
(3) The computation of fully diluted earnings per share submitted herein for
the nine months ended September 30, 1993, is in accordance with Regulation
S-K Item 601(b)(11) although it is contrary to Paragraph 40 of APB Opinion
No. 15 because it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> APR-1-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,671
<SECURITIES> 42,228
<RECEIVABLES> 51,760
<ALLOWANCES> (9,148)
<INVENTORY> 37,332
<CURRENT-ASSETS> 128,642
<PP&E> 321,050
<DEPRECIATION> (10,887)
<TOTAL-ASSETS> 545,513
<CURRENT-LIABILITIES> 68,959
<BONDS> 0
<COMMON> 12,000
0
0
<OTHER-SE> 102,935
<TOTAL-LIABILITY-AND-EQUITY> 545,513
<SALES> 182,964
<TOTAL-REVENUES> 187,841
<CGS> 123,833
<TOTAL-COSTS> 150,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,532
<INCOME-PRETAX> 32,868
<INCOME-TAX> 11,513
<INCOME-CONTINUING> 21,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,355
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.61
</TABLE>
