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, 1995
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 reports required to be filed by Sections 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 common stock as of November 3, 1995:
Common Stock, par value $1 per share - 12,073,101 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three and Nine Months Ended September 30, 1995
(Unaudited), the Three and Six Months Ended
September 30, 1994 (Unaudited) and the Three
Months Ended March 31, 1994...........................3
Consolidated Statements of Retained Earnings -
For the Three and Nine Months Ended September 30,
1995 (Unaudited), the Three and Six Months Ended
September 30, 1994 (Unaudited) and the Three
Months Ended March 31, 1994...........................4
Consolidated Balance Sheets - September 30, 1995
(Unaudited) and December 31, 1994.....................5
Consolidated Statements of Cash Flows - For the
Nine Months Ended September 30, 1995 (Unaudited),
the Six Months Ended September 30, 1994 (Unaudited)
and the Three Months Ended March 31, 1994.............6
Notes to Unaudited Consolidated Financial Statements.....7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........22
PART II. OTHER INFORMATION.......................................30
SIGNATURES.........................................................31
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
Successor Company
For the For the For the For the |
Three Months Three Months Nine Months Six Months|
Ended Ended Ended Ended |
September September September September |
Consolidated Income 30, 1995 30, 1994 30, 1995 30, 1994 |
(Unaudited) (Unaudited) (Unaudited)(Unaudited)|
Revenues: |
|
Net sales $100,611 $ 95,969 $240,875 $182,964 |
Joint venture income 2,734 1,660 4,958 2,929 |
Other income, net 1,399 814 3,209 1,948 |
104,744 98,443 249,042 187,841 |
|
Deductions from revenues: |
Cost of sales 63,022 62,430 164,805 123,833 |
Selling, general and |
administrative expenses 6,521 7,367 21,774 15,165 |
Depreciation and depletion 6,258 5,464 17,995 11,443 |
Recovery of litigation |
settlement - - - - |
Interest expense (contractual |
interest for the three |
months ended March 31, 1994 |
of $7,631) 2,220 2,313 6,897 4,532 |
78,021 77,574 211,471 154,973 |
Income (loss) before |
reorganization items and |
income taxes 26,723 20,869 37,571 32,868 |
Reorganization items: |
Adjustments to fair value - - - - |
Other items - - - - |
- - - - |
|
Income (loss) before income |
taxes and extraordinary item 26,723 20,869 37,571 32,868 |
Provision for income taxes (8,601) (7,428) (12,398) (11,513)|
|
Income (loss) before |
extraordinary item 18,122 13,441 25,173 21,355 |
Extraordinary item: gain on |
discharge of prepetition |
liabilities - - - - |
|
|
Income (loss) before preferred |
dividends 18,122 13,441 25,173 21,355 |
Provision for preferred |
dividends - - - - |
|
Net income (loss) applicable |
to common stock $ 18,122 $ 13,441 $ 25,173 $ 21,355 |
|
Weighted average common |
shares outstanding 12,068 12,000 12,068 12,000 |
|
|
Primary income (loss) per |
common share: |
Income (loss) before extraordinary |
item $1.30 $0.99 $1.88 $1.62 |
Extraordinary item: gain on |
discharge of prepetition |
liabilities - - - - |
Net income (loss) per common |
share $1.30 $0.99 $1.88 $1.62 |
|
________ ________ ________ |
Fully diluted income (loss) |
per common share $1.30 $0.99 $1.86 $1.61 |
(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. See Note
4 for pro forma information related to the three months ended March 31, 1994
and the nine months ended September 30, 1994.
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
Predecessor Company
For the
Three Months
Ended
March 31,
Consolidated Income 1994
Revenues:
Net sales $ 33,709
Joint venture income 381
Other income, net 2,691
36,781
Deductions from revenues:
Cost of sales 29,694
Selling, general and
administrative expenses 9,836
Depreciation and depletion 6,688
Recovery of litigation
settlement (6,500)
Interest expense (contractual
interest for the three
months ended March 31, 1994
of $7,631) 233
39,951
Income (loss) before
reorganization items and
income taxes (3,170)
Reorganization items:
Adjustments to fair value (133,917)
Other items (13,396)
(147,313)
Income (loss) before income
taxes and extraordinary item (150,483)
Provision for income taxes (155)
Income (loss) before
extraordinary item (150,638)
Extraordinary item: gain on
discharge of prepetition
liabilities 127,520
Income (loss) before preferred
dividends (23,118)
Provision for preferred
dividends (1,278)
Net income (loss) applicable
to common stock ($ 24,396)
Weighted average common
shares outstanding n/m (a)
Primary income (loss) per
common share:
Income (loss) before extraordinary
item n/m (a)
Extraordinary item: gain on
discharge of prepetition
liabilities n/m (a)
Net income (loss) per common
share n/m (a)
_______
Fully diluted income (loss)
per common share n/m (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. See Note
4 for pro forma information related to the three months ended March 31, 1994
and the nine months ended September 30, 1994.
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
Successor Company
For the For the For the For the |
Three Months Three Months Nine Months Six Months|
Ended Ended Ended Ended |
September September September September |
30, 1995 30, 1994 30, 1995 30, 1994 |
(Unaudited) (Unaudited) (Unaudited)(Unaudited)|
|
Retained earnings, beginning |
of period $ 35,780 $ 7,914 $ 29,333 $ - |
|
Net income (loss) 18,122 13,441 25,173 21,355 |
Dividends (603) - (1,207) - |
|
Retained earnings (accumulated |
deficit) 53,299 21,355 53,299 21,355 |
|
Elimination of accumulated |
deficit - - - - |
|
Retained earnings, end of |
period $ 53,299 $ 21,355 $ 53,299 $ 21,355 |
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
Predecessor Company
For the Three
Months Ended
March 31,
1994
Retained earnings, beginning of period ($ 187,896)
Net income (loss) (23,118)
Dividends -
__________
Retained earnings (accumulated deficit) (211,014)
Elimination of accumulated deficit 211,014
__________
Retained earnings, end of period $ -
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
1995 1994
(Unaudited)
Assets:
Current assets:
Cash, including cash equivalents of $42,148,
and $54,782 $ 46,934 $ 55,398
Accounts and notes receivable, net 45,762 32,480
Inventories:
Finished goods 26,060 21,800
Work in process and raw materials 7,669 3,786
Supplies and fuel 20,015 19,943
53,744 45,529
Other current assets 5,991 3,243
Total current assets 152,431 136,650
Joint ventures 21,882 18,174
Property, plant and equipment 352,046 326,545
Less accumulated depreciation and depletion 34,351 16,593
317,695 309,952
Other assets and deferred charges 1,916 1,544
Total assets other than liquidating
subsidiary 493,924 466,320
Assets of liquidating subsidiary (See Note 5) 51,000 87,000
Total assets $544,924 $553,320
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 12,489 $ 14,272
Accrued liabilities 42,909 47,337
Other current liabilities 6,331 3,650
Total current liabilities 61,729 65,259
Senior notes payable 78,000 78,000
Production payment 12,966 16,966
Postretirement benefits other than pensions 130,830 129,634
Pensions 10,685 14,345
Deferred income taxes 6,688 6,688
Other liabilities 34,433 32,965
Contingencies (See Notes 12 and 13) ________ ________
Total liabilities other than liquidating
subsidiary 335,331 343,857
Asset proceeds notes of liquidating subsidiary
(See Note 5) 51,000 87,000
________ ________
Total liabilities 386,331 430,857
Shareholders' Equity:
Common stock 12,073 12,000
Warrants to purchase common stock 15,602 15,613
Additional paid-in capital 77,369 65,700
Retained earnings 53,299 29,333
Treasury stock (84) -
Cumulative translation adjustment 334 (183)
158,593 122,463
Total liabilities and shareholders'
equity $544,924 $553,320
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Predecessor
Successor Company Company
For the For the | For the
Nine Months Six Months |Three Months
Ended Ended | Ended
September 30, September 30,| March 31,
1995 1994 | 1994
(Unaudited) (Unaudited) |
|
Cash Flows from Operating Activities: |
|
Income (loss) before extraordinary |
item $ 25,173 $ 21,355 | ($ 150,638)
Adjustments to arrive at net cash used |
by operating activities: |
Depreciation and depletion 17,996 11,443 | 6,688
Deferred income taxes 12,398 11,504 | 155
Recovery of litigation settlement - - | (6,500)
Changes in operating assets and |
liabilities: |
Accounts and notes receivable (13,484) (14,331) | 22,157
Inventories and other current |
assets (11,165) 6,702 | (17,189)
Accounts payable and other |
accrued liabilities (5,887) (66) | (1,808)
Unremitted earnings of joint |
ventures (3,708) (1,679) | 619
Adjustments to fair value - - | 133,917
Other reorganization items - - | 13,396
Other, net (1,580) (6,538) | (5,866)
Net cash provided (used) by operating |
activities before reorganization |
items 19,743 28,390 | (5,069)
|
Operating cash flows from reorganization |
items: |
Interest received on cash accumulated |
because of Chapter 11 proceedings - - | 1,998
Professional fees and administrative |
expenses - (6,476) | (5,849)
Professional fees escrow pursuant to |
the reorganization plan - - | (12,431)
Net cash used by reorganization items - (6,476) | (16,282)
Net cash provided (used) by operating |
activities 19,743 21,914 | (21,351)
|
Cash Flows from Investing Activities: |
|
Capital expenditures (26,563) (10,312) | (6,695)
Proceeds from sales of assets 1,516 21,861 | 148
Proceeds from sales of assets held for |
sale - - | 2,457
Other, net - 289 | (348)
Net cash (used) provided by investing |
activities (25,047) 11,838 | (4,438)
|
Cash Flows from Financing Activities: |
|
Cash distribution pursuant to the |
reorganization plan - - | (200,451)
Transfer to liquidating subsidiary - - | (5,010)
Proceeds from exercise of options 1,076 - | -
Proceeds from exercise of warrants 55 - | -
Odd lot program purchases and sales (84) - | -
Dividends paid (1,207) - | -
Reduction of production payment (3,000) (1,000) | (1,000)
Net cash used by financing activities (3,160) (1,000) | (206,461)
|
Net increase (decrease) in cash and cash |
equivalents (8,464) 32,752 | (232,250)
|
Cash and cash equivalents, beginning |
of period 55,398 12,147 | 244,397
Cash and cash equivalents, end |
of period $ 46,934 $ 44,899 | $ 12,147
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
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, 1995, and the
results of operations for the three and nine months ended September 30,
1995, the three and six months ended September 30, 1994 and the three
months ended March 31, 1994, and the cash flows for the nine months ended
September 30, 1995, the six months ended September 30, 1994 and the three
months ended March 31, 1994. 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,
operating results for the three months ended March 31, 1994 are those of
the predecessor company.
The year-end consolidated balance sheet was derived from the Company's
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. 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, 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.
Certain previously reported amounts have been reclassified in order to
conform with current year presentation. In accordance with AICPA Statement
of Position No. 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP No. 90-7"), income tax benefits realized
from preconfirmation net operating loss carryforwards were used first to
reduce the reorganization value in excess of amounts allocable to
identifiable assets and are now used to increase additional paid-in capital.
Note 2 - Reorganization
In order to achieve a long-term solution to its financial, litigation and
business problems, on December 10, 1990, Lone Star Industries, Inc.
together with certain of its subsidiaries (including two subsidiaries
filing on December 21, 1990), 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. 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
were 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).
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 SOP No. 90-7, the Company adopted "fresh-start"
reporting which assumes that a new reporting entity was created and
required 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 7).
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 17.5 57.5
Loss before reorganization items..... (3.2) (7.7) (10.9)
Reorganization items:
Adjustments to fair value............ (133.9) 133.9 -
Other................................ (13.4) 13.4 -
Total reorganization items........... (147.3) 147.3 -
Loss before income taxes and
extraordinary item.................. (150.5) 139.6 (10.9)
Credit (provision) for income taxes.. (0.2) 4.0 3.8
Loss before extraordinary item...... (150.7) 143.6 (7.1)
Extraordinary item: gain on discharge
of prepetition liabilities......... 127.5 (127.5) -
Loss before provision for preferred
dividends.......................... $ (23.2) $ 16.1 $ (7.1)
Primary and fully diluted loss
per common share................... $ (0.59)
_____________________________________________________________________________
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. Due to the seasonality of the Company's
operations, interim results are not necessarily indicative of the results to
be expected for a full year.
Lone Star Industries, Inc.
Pro Forma Consolidated Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 1994
(In Millions Except Per Share Amounts)
Actual Pro Forma
Pro Forma Results Results
Results for for the Six for the Nine
the Three Months Ended Months Ended
Months Ended September September
March 31, 1994 30, 1994 30, 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
Recovery of litigation settlement... (6.5) - (6.5)
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
57.5 154.9 212.4
Income (loss) before income taxes... (10.9) 32.9 22.0
Provision for income taxes.......... 3.8 (11.5) (7.7)
Net income.......................... $ (7.1) $ 21.4 $ 14.3
Primary income per common share..... $ (0.59) $ 1.62 $ 1.15
Fully diluted income per common
share............................. $ (0.59) $ 1.61 $ 1.15
Due to the large number of outstanding common stock equivalents, primary and
fully diluted earnings per share are calculated using the modified treasury
stock method, unless the result is anti-dilutive. Earnings per share are
computed independently for each quarter. Therefore, quarterly earnings per
share may not be additive.
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 March 31,
1994. 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.
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.
Cost of sales has been adjusted to reflect the write-up of inventory in
accordance with fresh-start reporting.
In connection with the adjustment of the March 31, 1994 property, plant and
equipment balances to reflect the 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 successor company, has been included in the pro forma statement
of operations.
Due to the elimination of common and preferred shareholders' equity of the
predecessor company, and its replacement with common equity of the successor
company, the provision for preferred dividends has been eliminated from the
pro forma statement of operations.
All Chapter 11 reorganization items included in the statement of operations
for the three months ended March 31, 1994 have been eliminated from the pro
forma statement of operations.
The extraordinary gain on discharge of prepetition liabilities has been
eliminated.
The pro forma statement of operations has been adjusted, in accordance with
the requirements of fresh-start reporting, to reflect the reduction in
expenses resulting from bankruptcy-related settlements, including settlements
reached with the Pension Benefit Guaranty Corporation and retirees.
Cost of sales for the three months ended March 31, 1994 has been adjusted to
reflect the Company's change in its method of accounting for inventory for
interim reporting purposes and the expensing of deferred costs in accordance
with the adoption of fresh-start reporting. In addition, cost of sales has
been adjusted to reflect 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.
Note 5 - Rosebud Holdings, Inc. Liquidating Subsidiary
As part of the plan, on April 14, 1994, the Company transferred certain non-
core assets and their related liabilities, certain other miscellaneous assets
and a $5,000,000 cash investment by the Company to Rosebud for liquidation,
and Rosebud issued an aggregate $138,118,000 initial principal amount of
asset proceeds notes. As of September 30, 1995, most of Rosebud's assets had
been liquidated and its remaining net assets consist of cash (most of which
has been deposited with the trustee of the asset proceeds notes, who made a
$12,000,000 partial principal redemption on October 31, 1995, and will make a
$35,000,000 partial redemption of the notes on December 20, 1995), and
unimproved real estate, net of certain liabilities related to both sold and
existing assets. After the December 20, 1995 redemption, an aggregate
$4,400,000 of outstanding asset proceeds notes will remain. The Company is
under no obligation to fund additional Rosebud working capital requirements.
Rosebud's assets are included in the Company's September 30, 1995
consolidated balance sheet at the estimated net realizable value of
$51,000,000. Generally, net realizable value is the amount which is
reasonably expected to be received upon a sale to a willing buyer, less
costs to sell. Estimated net realizable value is a good faith estimate
determined based on the underlying characteristics of each asset. In
addition, a discount factor of 14%, related to the time value of money and
risk associated with collection, has been applied to these assets to
arrive at their estimated net realizable value.
Net realizable value, determined as described above, may differ from the
eventual realizable value of the asset. In addition, it is difficult to
estimate the time required to complete this process.
The decrease of $36,000,000 from the December 31, 1994 balance of $87,000,000
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 the remaining assets reflecting the shorter time period used in
determining the present value. The decrease was also partly offset by the
inclusion of the funds received as a result of the settlement reached with
the remaining insurance companies related to indemnity in the railroad
crosstie litigation cases, the settlements with two Argentine companies
regarding the litigation related to the 1992 auction sale of the Company's
Argentine subsidiary and a settlement reached in the litigation involving
Northeast Cement Company and its affiliates, Lafarge Corporation and Lafarge
Canada, Inc. The net proceeds resulting from these settlements were
transferred to the collateral agent. Prior to settlement, the recoveries from
the insurance companies, the Argentine companies and Lafarge were not
included in the valuation of the net assets of Rosebud.
The asset proceeds notes are secured by liens and security interests, as the
case may be, on substantially all of the Rosebud assets. The asset proceeds
notes bear interest at a rate of 10% per annum payable in cash and/or
additional asset proceeds notes, payable in semi-annual installments.
The asset proceeds notes are to be repaid as Rosebud's assets are disposed of
and proceeds are received in connection with the litigation transferred to
Rosebud. All net cash proceeds, less a $5,000,000 cash reserve and 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.
The asset proceeds notes, including accrued interest thereon, are recorded on
the accompanying consolidated balance sheets at an amount equal to the
estimated value of the assets to be utilized to liquidate these obligations.
In August 1994, February 1995 and July 1995, Rosebud redeemed a portion of
asset proceeds notes by paying principal and interest on the redeemed notes
in the amount of $31,719,000 and $159,000, $30,000,000 and $183,000, and
$25,000,000 and $1,090,000, respectively. An additional redemption of
principal and accrued interest thereon, of $12,000,000 and $300,000,
respectively, was made on October 31, 1995. The July 1994, January 1995 and
July 1995 interest payments of $5,755,000, $5,320,000 and $2,570,000,
respectively, were made in cash.
These notes were guaranteed, in part, by Lone Star. As a result of interest
and principal payments made by Rosebud, the Company's guarantee, the
guarantee agreement and the related pledge of Rosebud's common stock owned by
the Company were terminated as of July 14, 1995. The remaining face value of
the asset proceeds notes as of September 30, 1995 was $51,399,000. Total
principal and interest payments of $114,096,000 had been made as of October
31, 1995, resulting in a remaining face value of asset proceeds notes at
October 31, 1995 of $39,399,000. Rosebud will make an additional partial
principal redemption of $35,000,000, together with interest on the redeemed
notes, on December 20, 1995.
To the extent that amounts received upon disposition of the Rosebud assets
are not sufficient to pay the principal and interest of the asset proceeds
notes, such notes will not be paid. In addition, the assumption of Lone
Star's liabilities by Rosebud may not be binding upon third parties, and, in
any event, as to any such liabilities arising from actions or circumstances
that existed on or before April 14, 1994 and that result in payments to Lone
Star aggregating in excess of $7,000,000, Rosebud's obligation to indemnify
Lone Star in respect thereof is subordinated to repayment of the asset
proceeds notes. Cash generated by Rosebud, in excess of the face value of
the remaining asset proceeds notes, accrued interest and Rosebud working
capital requirements, if any, will be paid to Lone Star. In connection with
the sale of certain of its assets, Rosebud and its subsidiaries have agreed
to indemnification obligations relating to misrepresentations and unassumed
obligations. While no claims under such indemnities have been received, and
the Company is not aware of any basis for such claims, in a limited number of
cases Lone Star has agreed to fulfill such obligations should they exceed
Rosebud's ability to pay for them.
During 1994, Rosebud sold the Santa Cruz, California cement plant, the
Nazareth, Pennsylvania cement plant, and surplus property in Virginia,
Massachusetts and Louisiana for proceeds of $33,063,000, $22,134,000, and
$695,000, respectively.
In a 1994 settlement of a judgment on the promissory note transferred to
Rosebud, Rosebud received a $300,000 payment, two parcels of property which
had secured the promissory note transferred to Rosebud, and a new two-year
promissory note for $200,000.
During 1994, Rosebud also reached final agreements with substantially all the
insurance carriers involved in litigation, related to indemnity in the
railroad crosstie litigation cases, and received $5,300,000. In April 1995,
a settlement was reached with the remaining insurance companies. A payment
of $4,200,000 was subsequently received and the net proceeds of such payment
were used to redeem asset proceeds notes. In May 1995 agreements in
principle were reached with two Argentine companies to settle the litigation
related to the 1992 auction sale of the Company's Argentine subsidiary.
Payments totaling $2,500,000 were received. In addition, in July 1995, a
settlement was reached in the railroad crosstie litigation against Northeast
Cement Company and its affiliates, which resulted, in August 1995, in a net
payment to Rosebud of $9,402,000.
In January 1995, Rosebud received $9,000,000 as a return of capital from the
Lone Star-Falcon partnership upon completion of the sale of the partnership's
cement terminals in Texas, which funds were transferred to the collateral
agent and were used to redeem a portion of the asset proceeds notes. The
partnership was dissolved effective September 28, 1995.
In January 1995, Rosebud sold surplus property in Florida for $1,500,000.
The net proceeds from this sale, after paying for the costs of the sale and
of environmental cleanup of $642,000, were retained by Rosebud. In March
1995, Rosebud received proceeds of $4,000,000 from the sale of surplus
property in Texas. Net proceeds of $2,161,000 (after payment of expenses and
provision for Rosebud's future working capital needs) were transferred to the
collateral agent in March 1995 to be used for the redemption of asset
proceeds notes.
On May 1, 1995, Rosebud sold the stock of a wholly-owned subsidiary, Lone
Star California, Inc. (which company had been transferred to Rosebud) and the
promissory notes executed by RMC LONESTAR payable to Lone Star California,
Inc. for cash proceeds of $18,826,000. Net proceeds of $17,476,000 were
transferred to the collateral agent to be used for the redemption of asset
proceeds notes.
On June 1, 1995 Rosebud sold surplus property in Florida for $5,000,000. The
net proceeds of the sale of $2,536,000, after providing for possible future
costs of environmental matters and expenses, were retained by Rosebud for
future working capital use.
In January and June 1995, Rosebud sold surplus property in Louisiana,
Maryland and Florida for total proceeds of $954,000. Net proceeds of
$150,000 was transferred to the collateral agent after providing for
Rosebud's future working capital needs.
In September 1995, Rosebud sold its 50% interest in Hawaiian Cement, a
Hawaiian partnership for $31,000,000. Net proceeds of approximately
$29,700,000 were transferred to the collateral agent and will be used for the
December 20, 1995 principal redemption of $35,000,000.
In October 1995, Rosebud sold surplus property in Texas receiving $5,000,000
in net proceeds which will also be used for the December 20, 1995 redemption.
Note 6 - Common Stock
In April 1995, the Company's revolving credit agreement was amended. The
amendment, among other changes, revised the limitation on paying dividends.
On April 18, 1995 and August 14, 1995, the Board of Directors declared $0.05
dividends per common share, which were paid on June 15, 1995 and September
15, 1995 to shareholders of record as of June 1, 1995 and September 1, 1995,
respectively.
On April 18, 1995, the Board of Directors approved a plan to repurchase
common stock from shareholders who own less than 100 shares, and to allow
shareholders to increase their shares owned up to 100 shares. The original
program was extended through July 28, 1995. No brokerage commissions were
incurred by shareholders related to these transactions. As of September 30,
1995, 24,454 shares had been tendered for sale by the shareholders and
shareholders had offered to purchase 20,297 shares, under this program.
The Company's annual meeting of stockholders was held on May 11, 1995, at
which time, among other items, the stockholders voted on and approved, the
amendment of the Company's Restated Certificate of Incorporation to increase
the authorized number of shares of common stock from 25,000,000 to
50,000,000.
Note 7 - 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 statement of operations. Such items for the three months ended
March 31, 1994 include the following (in thousands):
For the Three
Months Ended
March 31,1994
Professional fees and administrative expenses................. $ (15,431)
Interest income............................................... 2,035
(13,396)
Gain (loss) on sale of assets................................. -
Adjustments to fair value..................................... (133,917)
$(147,313)
Note 8 - Supplemental Disclosures of Cash Flow Information
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 nine months ended
September 30, 1995, the six months ended September 30, 1994, and the three
months ended March 31, 1994 was $9,042,000, $4,397,000 and $20,000,
respectively. Income taxes paid during the nine months ended September 30,
1995, the six months ended September 30, 1994, and the three months ended
March 31, 1994 were $114,000, $59,000 and $756,000, respectively.
Note 9 - Interest
Interest expense of $2,317,000, $7,055,000, $2,380,000, $4,639,000 and
$271,000 has been accrued for the three and nine months ended September 30,
1995, the three and six months ended September 30, 1994, and the three months
ended March 31, 1994, respectively. Interest capitalized during the three and
nine months ended September 30, 1995, the three and six months ended
September 30, 1994, and three months ended March 31, 1994 was $97,000,
$158,000, $67,000, $107,000 and $38,000, 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 was
$7,398,000.
Note 10 - 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 and fully
diluted 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". Primary earnings per share for the
three and nine months ended September 30, 1995 and the three and six months
ended September 30, 1994 are calculated based on adjusted weighted average
shares outstanding of 14,295,932, 14,296,526, 14,309,330 and 14,043,068 and
net income of $18,618,000 $26,872,000, $14,184,000 and $22,752,000,
respectively. Fully diluted earnings per share for the three and nine months
ended September 30, 1995 and the three and six months ended September 30,
1994 are calculated based on adjusted weighted average shares outstanding of
14,295,932, 14,296,526, 14,309,330 and 14,043,068 and net income of
$18,586,000, $26,545,000, $14,131,000 and $22,601,000, respectively.
Note 11 - Asset Sales
In February, March and June 1995, the Company sold the assets of its hollow
metal/hardware business in Illinois, a piece of surplus property in
Mississippi, and a cement terminal in Florida for $290,000, $325,000 and
$390,000, respectively. The Company had been leasing the terminal to the
buyer prior to the sale.
On October 3, 1995, the Company sold its aggregate quarry, including working
capital, in Nova Scotia, Canada for $11,000,000 which approximated book
value.
Note 12 - Environmental Matters
The Company is subject to extensive 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 may also apply to past activities and
closed or formerly owned or operated properties or facilities.
Changes to such regulations or the enactment of new regulations in the
future could require the Company to undertake capital improvement projects
or to cease or curtail certain current operations or could otherwise
increase the capital, operating and other costs of compliance with
environmental requirements.
On January 31, 1995, the United States Environmental Protection Agency
("EPA") issued a regulatory determination regarding the need for
regulatory controls on the management, handling and disposal of cement
kiln dust ("CKD"), a by-product of cement manufacturing. Generally, the
regulatory determination provides that the EPA intends to draft and
promulgate regulations imposing controls on the management, handling and
disposal of CKD that will be based largely on selected components of the
existing Resource Conservation and Recovery Act ("RCRA") hazardous waste
regulatory program, tailored to address the specific regulatory concerns
posed by CKD. The EPA regulatory determination further provides that the
CKD regulations it will be promulgating will be designed to be protective
of the environment while at the same time to minimize the burden on the
regulated community. It is not possible to predict at this time what the
EPA's CKD regulations will provide regarding the imposition of regulatory
controls on the management, handling and disposal of CKD, and what, if
any, increased costs (or range of costs) will be incurred by the Company
to comply with the new regulatory requirements. Until the new EPA CKD
regulations are finally promulgated (which may take substantial time), CKD
will remain exempt from regulation as a hazardous waste pursuant to the
Bevill Amendment to RCRA. As an alternative to regulations promulgated by
the EPA, portland cement manufacturing companies, including Lone Star, are
engaged in negotiations with the EPA in an attempt to enter into an
enforceable agreement with the EPA for the management of CKD.
On July 20, 1995, the State of Indiana made a determination that the
Company's CKD was a type I waste and requested a formal permit application
for an on-site landfill for the CKD. The Company understands that similar
notices were sent to all other cement manufacturers in the State of Indiana.
The Company is protesting this determination through legal channels and
received a stay to allow the Company to demonstrate that current management
practices pose no threat to the environment. The Company believes that the
State's determination ultimately will be reversed or the Company will receive
the needed permit or other adequate relief. However, if this does not occur,
like all Indiana cement producers the Company's Greencastle, Indiana plant
could incur substantially increased operating costs.
The Company's cement manufacturing facilities which use hazardous waste
fuels ("HWF") as a cost saving energy source are subject to strict RCRA,
state and local requirements governing hazardous waste treatment, storage
and disposal facilities, including those contained in the federal Boiler
and Industrial Furnace Regulations (the "BIF Rules"). The two cement
manufacturing facilities which burn HWF (Cape Girardeau, Missouri and
Greencastle, Indiana plants) qualified for and operate under interim
status pursuant to RCRA and the BIF Rules. While Lone Star believes that
it is currently in compliance with the extensive and complex technical
requirements of the BIF Rules, there can be no assurances that Lone Star
will be able to maintain compliance with the BIF Rules or that changes to
such rules or their interpretation by the relevant agencies or courts
might not make it more difficult or cost prohibitive to maintain
compliance or continue to burn HWF. As a result of a court decision
vacating a BIF Rules air emission standard, the Company temporarily
substantially curtailed its use of HWF at the Greencastle cement plant,
pending further action. The Company completed compliance testing in
August 1995, has recertified under interim status and has commenced normal
use of HWF.
In addition, the Company is currently engaged in the process of securing
the permit required under RCRA and the BIF Rules for the Cape Girardeau
plant. The Company anticipates that the Greencastle plant will also go
through this permitting process in the near future. These permits are a
requirement to enable the Company to continue the use of HWF at those
facilities. The permitting process is lengthy and complex, involving the
submission of extensive technical data. There can be no assurances that
the Company will be successful in securing a final RCRA permit for either
or both of its HWF facilities, or, if able to secure such permits, that
the permits will contain terms and conditions with which the Company will
be able to comply or which will not require costly upgrades to the
facilities to enable the Company to achieve such compliance.
Lone Star was given official notice by the EPA that it intended to pursue
a civil penalty action for alleged regulatory violations at the Cape
Girardeau facility with respect to the installation of a secondary crusher
and the replacement of screens in 1986 and 1987. The Company has
negotiated a settlement of this matter with the EPA which will involve the
payment of $40,000 to the EPA and the paving of certain roads at the
facility to control fugitive dust at an estimated cost of $150,000.
The Texas Natural Resource Conservation Committee ("TNRCC") has issued a
notice of violations in respect of certain air permitting application
matters at the Company's Maryneal, Texas plant. The TNRCC has also
investigated certain solid and water matters, although no notice of
violations in those areas have been received. The Company has had two
conferences with TNRCC, and believes that it has answered most of the
issues raised by the notice of violations. While the Company believes
that the results of these investigations will not have a material impact
on the operation of the Company's Texas plant, it is not known whether
additional notices of violations will be issued nor whether the TNRCC will
attempt to assess any fines or require capital expenditures or monitoring.
Past operations of the Company or its predecessors have resulted in
releases of hazardous substances at sites currently or formerly owned by
the Company or where waste materials generated by the Company have been
disposed. The Company has been identified as one of the parties that may
be held responsible by federal or state governmental authorities pursuant
to The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA") or similar state laws for the costs of
investigation and remediation of contamination at such sites. Where
appropriate, the Company has availed itself of certain settlement
opportunities to resolve its liabilities for sites where waste materials
generated by the Company or its predecessors were allegedly disposed. In
connection with the reorganization, the Company was able to resolve its
liability for six such sites located in Utah. For the remaining thirteen
sites requiring investigation or remediation pursuant to CERCLA where the
Company has been identified or has received information that it may be
identified as a potentially responsible party, available factual
information indicates that the Company's contributions of waste to the
site, if any, were small, and the Company may have certain defenses
arising out of the reorganization. None of these sites are owned or
leased by the Company or its subsidiaries.
In the early 1970's, the Company acquired subsidiaries that conducted
woodtreating or wood-dipping operations at two sites in Florida.
Contamination from chemicals used in the woodtreating operations at these
sites have been the subject of various proceedings by federal, state and
local environmental entities.
In 1992 EPA approved a clean up of soils and water at the Dania, Florida
site completed by a subsidiary of the Company, pursuant to a
Administrative Order on Consent. The subsidiary has entered into a
Bankruptcy Court approved stipulation with the State of Florida Department
of Environmental Protection ("FDEP") committing to undertake a groundwater
monitoring program and, if necessary, groundwater treatment. The
monitoring program is underway and is expected to be completed by late
1995. The EPA has made a demand on the Company's subsidiary for the
payment of $746,409 for oversight and past response costs relating to the
site. This site was transferred to Rosebud pursuant to the plan and sold
by Rosebud in June 1995. From the proceeds of the sale, $2,000,000 has
been placed in escrow to fund the groundwater monitoring and any required
groundwater remediation.
Pursuant to a Florida state court-ordered stipulation, a subsidiary of the
Company completed the clean-up of soils at the other site, located in Dade
County, Florida in 1993. In connection with the Chapter 11 proceedings,
the subsidiary resolved its liability to state and local governmental
entities by agreeing to undertake further groundwater investigation of the
site and, if necessary, soil remediation, groundwater treatment and ground
water monitoring programs all within a specified monetary limit of
$2,000,000, which has not yet been expended.
At the time of its 1994 sale of its interest in the Santa Cruz cement
plant, Rosebud committed to regulatory authorities to undertake the
closure of a former waste landfill area at the plant site. The closure is
expected to be completed in 1995 at an anticipated cost of approximately
$1,600,000. Postclosure monitoring of the site will be the responsibility
of the plant owner.
The Company believes that it has adequately provided for estimated
remediation and other costs at these and other known sites.
Note 13 - Litigation
In 1989 and 1990 railroads purchasing concrete crossties manufactured by a
Lone Star subsidiary brought actions against Lone Star and its subsidiary
seeking damages based on alleged defects in the crossties. Lone Star
settled these actions in 1992. In 1989 Lone Star and its subsidiary sued
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, claiming a fraudulent sale of defective cement and
seeking compensatory damages growing out of the various crosstie actions.
The Company's interest in this matter was transferred to Rosebud and the
cases were settled on August 31, 1995 by a Lafarge payment to Rosebud and
its attorneys in the amount of $11,200,000 (See Note 5).
An office building in Boston, Massachusetts, constructed using concrete
pilings produced by San-Vel Concrete Corporation, a Lone Star subsidiary,
has been demolished by order of the City of Boston. On August 9, 1995,
the owner of the building notified San-Vel, among others, that the order
was based upon an engineering report alleging the pilings were unreliable
and that the owner intends to hold responsible parties liable. San-Vel
emerged from bankruptcy proceedings under Chapter 11 of the Federal
Bankruptcy Code on April 14, 1994 and has been inactive and without assets
since that date. San-Vel is conducting an investigation into the matter
and believes that it has both insurance coverage and good defenses to any
claim of liability that may be asserted against it for the alleged
unreliability.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of March 31, 1994, in accordance with AICPA Statement of Position
No. 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" the Company adopted fresh-start reporting which
included adjustments for bankruptcy-related cash transactions through
the effective date, which for accounting purposes was March 31, 1994,
to properly reflect the reorganization. As a result of the plan of
reorganization becoming effective, the Company's financial statements
for the nine months ended September 30, 1995 are not comparable to
statements for the same prior-year period. Financial statements for
the three-month period ended September 30, 1995 are comparable to
statements for the same prior-year three-month period (See Note 3).
Financial Condition
In accordance with the plan of reorganization which became effective
on April 14, 1994, the Company issued senior notes in the aggregate
principal amount of $78.0 million, 12 million shares of common stock
and 4 million warrants to purchase common stock. The senior notes bear
interest at a rate of 10% per annum, payable semi-annually, and mature
on July 31, 2003. The warrants are exercisable through December 31,
2000 and each warrant provides for the purchase of one share of common
stock at a price of $18.75 per share. Both preferred stock issues and
the predecessor company's common stock were canceled on the plan
effective date.
In addition, as discussed in Note 5, the asset proceeds notes issued
by Rosebud, the Company's liquidating corporation, bear interest at a
rate of 10% per annum payable in cash and/or in additional asset
proceeds notes in semi-annual installments. The indenture governing
the asset proceeds notes provides that interest and principal on the
asset proceeds notes are to be repaid as the Rosebud assets are
disposed of and proceeds are received in connection with the
litigations transferred to Rosebud. The asset proceeds notes are
secured by liens and security interests, as the case may be, on
substantially all of the Rosebud assets pursuant to a security, pledge
and collateral agency agreement. All net 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 were
guaranteed, in part, by the Company pursuant to the Company guarantee.
If, at the maturity date, the aggregate amount of all cash payments of
principal and interest on the asset proceeds notes was less than $88.1
million, the Company guarantee was payable either in cash, five-year
notes or a combination thereof (at the option of the Company) to cover
the shortfall between the actual payments and $88.1 million, plus
interest; provided, however, that the total amount paid pursuant to
the Company guarantee did not exceed $28.0 million. The Company
guarantee, guarantee agreement, and the related pledge of Rosebud's
common stock owned by the Company was terminated on July 14, 1995 as
the combined partial redemptions of the asset proceeds notes made to
that date exceeded $88.1 million. As of September 30, 1995, total
interest and principal payments of approximately $101.8 million had
been paid on the asset proceeds notes.
The asset proceeds notes, including the interest thereon, are recorded
on the Company's balance sheet at September 30, 1995 at an amount
equal to the estimated value of assets to be utilized to liquidate
these obligations. To the extent that amounts received upon
disposition of the Rosebud assets are not sufficient to pay the
principal and interest of the asset proceeds notes, such notes will
not be paid. The remaining face value of the asset proceeds notes as
of September 30, 1995 was $51.4 million. Other than an initial $5.0
million cash contribution by the Company for working capital purposes,
the Company is not obligated to fund additional Rosebud working
capital requirements. Cash generated by Rosebud, in excess of the
remaining face value of the asset proceeds notes, accrued interest and
Rosebud working capital requirements, if any, will be paid to Lone
Star.
Upon emergence from Chapter 11, 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 agreement was subsequently amended in April 1995. The
amendment reduced the rates of interest under the agreement and
increased the amounts allowed for capital expenditures and certain
other payments. Although the Company from time to time has used the
letter of credit facility provided 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, 1995.
The Company's financing agreements contain restrictive covenants
which, among other things, limit the payment of dividends, and
prohibit or limit the Company's ability to incur additional
indebtedness, repay certain indebtedness prior to its stated maturity,
create liens, apply proceeds from asset sales, engage in mergers and
acquisitions or make certain capital expenditures.
Cash generated by operating activities of $19.7 million for the first
nine months of 1995 primarily reflects income from operating
activities and changes in working capital.
During the first nine months of 1995, the Company used $25.0 million
for investing activities primarily representing capital expenditures.
Net cash outflows from financing activities of $3.2 million reflect
two scheduled payments of $1.5 million each on the production payment,
the payment of cash dividends and the purchase of the company's stock
in accordance with the odd lot purchase plan, partly offset by
proceeds from the exercise of stock options and warrants.
Working capital on September 30, 1995 was $90.7 million, compared to
$71.4 million at December 31, 1994. Current assets increased $15.8
million principally due to higher inventory and accounts receivable
reflecting the seasonal nature of the Company's business, and higher
prepaid expenses, partly offset by a lower marketable securities
balance. Current liabilities decreased $3.5 million primarily due to
lower accounts payable and lower accrued interest, partly offset by
higher income taxes payable and a reclassification of the current
portion payable on the production payment.
Investments in joint ventures increased $3.7 million due to income
from Kosmos Cement Company, less cash dividends paid. Net property,
plant and equipment increased $7.7 million reflecting capital
expenditures partly offset by depreciation. Two disbursements of $1.5
million each were made for the production payment and the current
portion of production payment was increased by $0.5 million in
accordance with the production payment terms. The pension liability
decreased by $3.7 million, primarily reflecting payments made during
the nine-month period ended September 30, 1995 in excess of current
expenses.
The carrying value on the Company's books of net assets of Rosebud and
the related asset proceeds notes decreased $36.0 million primarily due
to a $30.0 million redemption of the outstanding notes in late
February 1995, and a $25.0 million redemption in July 1995 partly
offset by an increase in asset valuation reflecting the shorter time
period used in determining the present value. The decrease was also
partly offset by a $9.4 million net proceeds recovery from the
crosstie litigation involving Northeast Cement Company and its
affiliates, Lafarge Corporation and Lafarge Canada, Inc., and by the
inclusion of litigation settlements totaling $6.7 million reached with
the remaining insurance companies related to indemnity in the crosstie
cases and with two Argentine companies related to the 1992 auction
sale of the Company's Argentine subsidiary. Prior to reaching final
agreements, these recoveries were not included in the valuation of the
net assets of Rosebud. All payments related to the above litigation
settlements have been received.
A partial redemption of $12.0 million was made on the asset proceeds
notes on October 31, 1995. In September 1995, a subsidiary of Rosebud
sold its 50% interest in Hawaiian Cement , a Hawaiian partnership,
receiving proceeds of approximately $31.0 million, of which $29.7
million was transferred to the collateral agent. In addition, $5.0
million of net proceeds from the sale of surplus property in October
1995 was transferred to the collateral agent. Sufficient funds are
held by the collateral agent and an additional partial principal
redemption of $35.0 million will be made on December 20, 1995.
The Company is subject to extensive federal, state and local laws,
regulations and ordinances pertaining to the quality and protection of
the environment and human health and safety. Such environmental
regulations not only affect the Company's operating facilities but
also apply to past activities and closed or formerly owned or operated
facilities or properties. While it is not possible at this time to
assess accurately the expected impact of future changes in existing
regulations or the enactment of new regulations on the Company, the
capital, operating and other costs of compliance with such
environmental requirements could be substantial.
The Company believes that it has adequately provided for costs related
to its ongoing obligations with respect to the known environmental
liabilities resolved in connection with the bankruptcy proceedings and
other known unresolved environmental liabilities. Expenditures for
environmental liabilities during the nine months ended September 30,
1995 did not have a material effect on the financial condition of the
Company.
On January 31, 1995, the United States Environmental Protection
Agency ("EPA") issued a regulatory determination regarding the need
for regulatory controls on the management, handling and disposal of
cement kiln dust ("CKD"), a by-product of cement manufacturing.
Generally, the regulatory determination provides that the EPA
intends to draft and promulgate regulations imposing controls on
the management, handling and disposal of CKD that will be based
largely on selected components of the existing Resource
Conservation and Recovery Act ("RCRA") hazardous waste regulatory
program, tailored to address the specific regulatory concerns posed
by CKD. The EPA regulatory determination further provides that the
CKD regulations it will be promulgating will be designed to be
protective of the environment while at the same time to minimize
the burden on the regulated community. It is not possible to
predict at this time what the EPA's CKD regulations will provide
regarding the imposition of regulatory controls on the management,
handling and disposal of CKD, and what, if any, increased costs (or
range of costs) will be incurred by the Company to comply with the
new regulatory requirements. Until the new EPA CKD regulations are
finally promulgated (which may take substantial time), CKD will
remain exempt from regulation as a hazardous waste pursuant to the
Bevill Amendment to RCRA. As an alternative to regulations
promulgated by the EPA, portland cement manufacturing companies,
including Lone Star, are engaged in negotiations with the EPA in an
attempt to enter into an enforceable agreement with the EPA for the
management of CKD.
On July 20, 1995, the State of Indiana made a determination that the
Company's CKD was a type I waste and requested a formal permit
application for an on-site landfill for the CKD. The Company
understands that similar notices were sent to all other cement
manufacturers in the State of Indiana. The Company is protesting this
determination through legal channels and received a stay to allow the
Company to demonstrate that current management practices pose no
threat to the environment. The Company believes that the State's
determination ultimately will be reversed or the Company will receive
the needed permit or other adequate relief. However, if this does not
occur, like all Indiana cement producers, the Company's Greencastle,
Indiana plant could incur substantially increased operating costs.
In April 1995, the Company's Board of Directors declared a $0.05 per
share dividend paid on June 15, 1995 to shareholders of record as of
June 1, 1995 and announced their intention to continue, so long as
merited, this dividend on a quarterly basis. The dividend represented
the first cash dividend paid since 1989. In August 1995, the Board of
Directors declared a second $0.05 per share dividend paid on September
15, 1995 to shareholders of record as of September 1, 1995.
In April 1995, the Board of Directors approved a plan to repurchase
common stock from shareholders who own less than 100 shares, and to
allow shareholders to increase their shares owned up to 100 shares.
The original program was extended through July 28, 1995. No brokerage
commissions were incurred by shareholders related to these
transactions. As of September 30, 1995, 24,454 shares had been
tendered for sale by the shareholders and shareholders had offered to
purchase 20,297 shares.
The Company's annual meeting of stockholders was held in May 1995, at
which time, among other items, the stockholders voted on and approved,
the amendment of the Company's Restated Certificate of Incorporation
to increase the authorized number of shares of common stock from
25,000,000 to 50,000,000.
Results of Operations
On April 14, 1994 the plan of reorganization became effective. Upon
the plan of reorganization becoming effective, the Company issued new
common stock, warrants, senior notes and asset proceeds notes,
transferred certain assets to Rosebud, a liquidating subsidiary, and
for accounting purposes adopted fresh-start reporting as of March 31,
1994. As a result, the Company's financial statements for the nine-
month period ended September 30, 1995 are not comparable to statements
for the same prior-year nine-month period. 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, were transferred to
Rosebud and either have been sold or are presently being marketed for
sale. Results for the three-month period ended September 30, 1995 are
comparable to the same prior-year period.
To facilitate a meaningful comparison of the Company's operating
performance, as historical nine-month results are non-comparable, the
following discussion and analysis compares the results of the three-
month period ended September 30, 1995 with the comparable three-month
1994 period, and the historical results of the nine-month period ended
September 30, 1995 with the pro forma results for the 1994 period (See
Note 4). The Company believes that this comparison is useful in
understanding its operating performance for the current nine-month
period.
Consolidated net sales of $240.9 million for the first nine months and
$100.6 million for the third quarter of 1995 were $12.6 million and
$4.6 million, respectively, above the comparable prior-year periods.
The increase in net sales reflects the cumulative impact of cement
price increases implemented in April 1995 and during 1994, and higher
shipments of construction aggregates. Cement operations recorded
sales for the first nine months and third quarter of 1995 of $174.4
million and $71.6 million, respectively. Cement sales for the current
nine and three month-periods were $13.2 million and $8.0 million,
respectively, higher than the comparable prior-year periods. Cement
shipments for the first nine months were 5% below the comparable
prior-year period due to unusually wet weather conditions throughout
the midwestern states during the second quarter and extremely hot
temperatures during the third quarter of 1995. The decrease in
shipments was more than offset by a 15% increase in 1995 average
cement net realized selling prices, the result of price increases
which began last year. Cement shipments for the third quarter of 1995
were at the same level as the comparable three month period of 1994
with a 14% increase in average cement net realized selling prices over
the comparable prior-year period.
Sales of construction aggregates for the first nine months and third
quarter of 1995 were $38.8 million and $17.4 million, respectively.
Construction aggregates sales for the current nine-month period were
$4.0 million higher than the comparable prior-year period resulting
from an 8% increase in shipments during the first nine months of 1995.
The increase is primarily attributable to higher shipments from the
Canadian operation resulting from mild winter conditions, and
increased shipments to the Southeastern United States. Sales of
construction aggregates for the three months ended September 30, 1995
were $0.3 million lower than the comparable prior year period due to
decreased shipments to the New York Metropolitan area, the result of
soft market conditions, partly offset by higher average net realized
selling prices.
Ready-mixed concrete and other operations recorded sales of $27.7
million and $11.6 million for the current nine and three-month
periods, which were $4.6 million and $3.0 million respectively, lower
than both comparable prior-year periods. The lower sales reflect
lower shipments, resulting from unfavorable weather conditions
experienced during the second and third quarters of 1995 in the
Midwest, partly offset by an 11% increase in average net realized
selling prices for the first nine months of 1995.
The Company's operations are seasonal and, consequently, the interim
results are not necessarily indicative of the results to be expected
for the full year.
Gross profits from the cement operations were $51.6 million and $25.2
million for the nine and three months ended September 30, 1995 as
compared to a pro forma gross profit of $36.7 million and a gross
profit of $21.9 million, respectively, for the comparable prior-year
periods. These results primarily reflect 15% higher overall average
net realized selling prices in 1995, partly offset by a 5% decrease in
overall cement shipments during the first nine months of 1995, the
result of wet weather conditions and high temperatures in the Midwest
during the last six months of this year. The higher gross profit for
the third quarter is primarily due to higher average net realized
selling prices on approximately the same sales volume.
Gross profits from construction aggregates were $2.7 million and $3.9
million for the nine and three months ended September 30, 1995 as
compared to a pro forma loss at the gross profit level of $0.5 million
and a gross profit of $3.6 million, respectively, for the comparable
prior year periods. The results for both periods primarily reflect
higher shipments from the Nova Scotia, Canada operation and price
increases in the New York Metropolitan area. In addition, lower year-
to-date per unit production costs associated with higher production
volume efficiencies at the West Nyack, New York and Canadian
operations contributed to the improved results for the nine-month
period. The assets of the Nova Scotia quarry were sold in early
October 1995 for net proceeds, including working capital, of about $11
million, which approximated book value. This operation contributed
sales of $8.1 million and $2.9 million, and an operating loss of $0.4
million and an operating profit of $0.5 million respectively, for the
nine and three-month periods ended September 30, 1995.
Gross profits from the ready-mixed concrete and other construction
products of $4.2 million and $2.3 million, respectively, for the nine
and three months ended September 30, 1995 were $0.7 million and $0.4
million, respectively, lower than the comparable prior-year periods
primarily due to lower ready-mixed concrete and concrete block
shipments resulting from unfavorable weather in the Midwest and higher
per unit material, yard and delivery costs, partly offset by higher
average net realized selling prices.
Included in the calculation of gross profit are sales less cost of
sales including depreciation related to cost of sales (which excludes
depreciation related to facilities leased to third parties and
depreciation on office equipment, furniture and fixtures which are not
related to the cost of sales).
Net income of $25.2 million, or $1.88 per share, for the first nine
months of 1995 was $10.9 million, or $0.73 per share favorable to the
pro forma comparable prior-year period. This was due primarily to the
cumulative impact of cement price increases implemented in April 1995
and during 1994, higher shipments of construction aggregates and
improved results from the Kosmos Cement Company joint venture. Also
contributing to the increase in net income were lower selling, general
and administrative expenses primarily resulting from the reductions in
personnel through attrition combined with a corporate downsizing in
late June 1994, and lower costs related to other postretirement
benefits and pensions, in addition to lower legal expenses. The
improvement in net income was partly offset by higher income tax
expense in 1995 on higher pre-tax earnings. The provision for income
taxes for the nine-month period ended September 30, 1995 reflects a
33% effective tax rate as compared to a 35% tax rate used at June 30,
1995. The reduction in the rate is due to a higher estimated
percentage depletion allowance. The lower effective tax rate
increased quarterly earnings per share by $0.05. The first nine
months of 1994 pro forma results include a one time recovery of a
litigation settlement of $6.5 million. This recovery increased the
pro forma after-tax results by $4.2 million, or $0.35 per share.
Net income of $18.1 million, or $1.30 per share, for the third quarter
of 1995 was $4.7 million, or $0.31 per share better than the
comparable prior-year period. The results for the third quarter of
1995 represent a 31% improvement in earnings per share over the
comparable prior-year period. The improvement was primarily due to
the realization of cement price increases, higher shipments of
construction aggregates, lower selling, general and administrative
expenses due to lower costs related to pensions, other postretirement
benefits and group insurance, higher joint venture income, and higher
other income resulting from an insurance settlement related to a prior
year claim. The favorable third quarter 1995 results were partly
offset by higher income taxes. The higher income taxes resulted from
the higher pre-tax earnings, partly offset by a lower effective tax
rate.
28
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Notes 12 and 13 of Notes to Unaudited Financial
Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits
11. Statement Re Computation of Per Share Earnings.
12. Statement Re Computation of Ratio of Earnings to
Fixed Charges.
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
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 8, 1995 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: Novmeber 8, 1995 By: JAMES W. LANGHAM
James W. Langham
Vice President, General
Counsel and Secretary
Exhibit 11
LONE STAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Earnings Per Common Share (Unaudited)
(In Thousands Except Per Share Amounts)
Successor Company
For the For the For the For the |
Three Months Three Months Nine Months Six Months|
Ended Ended Ended Ended |
September September September September |
30, 1995 30, 1994 30, 1995 30, 1994 |
|
PER SHARE OF COMMON STOCK - |
PRIMARY |
|
Income (loss) before |
preferred dividends $ 18,122 $ 13,441 $ 25,173 $ 21,355 |
Provision for preferred |
dividends - - - - |
Net interest expense |
reduction(1) 496 743 1,699 1,396 |
Net income (loss) applicable |
to common stock $ 18,618 $ 14,184 $ 26,872 $ 22,751 |
|
Weighted average shares |
outstanding during period 12,068 12,000 12,068 12,000 |
Options and warrants in |
excess of 20% limit 2,228 2,309 2,228 2,043 |
Weighted average shares |
outstanding during period 14,296 14,309 14,296 14,043 |
|
Net income per common |
share $ 1.30 $ 0.99 $ 1.88 $ 1.62 |
|
|
PER SHARE OF COMMON STOCK |
ASSUMING FULL DILUTION |
|
Income (loss) before preferred |
dividends $ 18,122 $ 13,441 $ 25,173 $ 21,355 |
Plus: Net interest expense |
reduction (1) 465 689 1,373 1,246 |
Net income (loss) $ 18,587 $ 14,130 $ 26,546 $ 22,601 |
|
|
Weighted average shares |
outstanding during period 12,068 12,000 12,068 12,000 |
Options and warrants in |
excess of 20% limit (1) 2,228 2,309 2,228 2,043 |
|
Fully diluted shares |
outstanding 14,296 14,309 14,296 14,043 |
|
Net income per common share |
assuming full dilution $ 1.30 $ 0.99 $ 1.86 $ 1.61 |
Exhibit 11
LONE STAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Earnings Per Common Share (Unaudited)
(In Thousands Except Per Share Amounts)
Predecessor Company
For the
Three Months
Ended
March 31,
1994
PER SHARE OF COMMON STOCK - PRIMARY
Income (loss) before preferred dividends ($23,118)
Provision for preferred dividends 1,278
Net interest expense reduction (1) -
Net income (loss) applicable to
common stock ($24,396)
Weighted average shares outstanding
during period -
Options and warrants in excess of
20% limit -
Weighted average shares outstanding
during period n/m (2)
Net income per common share n/m (2)
PER SHARE OF COMMON STOCK ASSUMING
FULL DILUTION
Income (loss) before preferred
dividends ($23,118)
Plus: Net interest expense
reduction (1) -
Net income (loss) ($23,118)
Weighted average shares outstanding
during period n/m
Options and warrants in excess of
20% limit (1) -
_______
Fully diluted shares outstanding n/m (2)
Net income per common share assuming _______
full dilution n/m (2)
(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
modified treasury stock method for the three and nine months ended
September 30, 1995 and 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.
Exhibit 12
LONE STAR INDUSTRIES, INC.
Statement Re Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in thousands)
Successor Company
For the For the For the For the |
Three Months Three Months Nine Months Six Months|
Ended Ended Ended Ended |
September September September September |
30, 1995 30, 1994 30, 1995 30, 1994 |
(Unaudited) (Unaudited) (Unaudited)(Unaudited)|
Earnings Available: |
|
Income (loss) before |
provision for |
income taxes $ 26,723 $ 20,869 $ 37,571 $ 32,868 |
|
Less: Excess of earnings |
over dividends of |
less than fifty |
percent owned |
companies (1,484) (410) (3,708) (1,679)|
|
Capitalized interest (97) (67) (158) (107)|
25,142 20,392 33,705 31,082 |
|
Fixed Charges: |
|
Interest expense (including |
capitalized interest) |
and amortization of |
debt discount and |
expenses 2,317 2,380 7,055 4,639 |
|
Portion of rent expense |
representative of an |
interest factor 544 544 1,631 1,088 |
|
Total Fixed Charges 2,861 2,924 8,686 5,727 |
________ ________ ________ _______ |
Total Earnings Available $ 28,003 $ 23,316 $ 42,391 $36,809 |
|
|
Ratio of Earnings to Fixed |
Charges 9.79X 7.97X 4.88X 6.43X|
|
|
Earnings deficiency $ 0 $ 0 $ 0 $ 0 |
Exhibit 12
LONE STAR INDUSTRIES, INC.
Statement Re Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in thousands)
Predecessor Company
For the
Three Months
Ended
March 31,
1994
Earnings Available:
Income (loss) before provision
for income taxes ($ 3,170)
Less: Excess of earnings over
dividends of less than fifty
percent owned companies (75)
Capitalized interest (38)
( 3,283)
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt
discount and expenses 271
Portion of rent expense
representative of an
interest factor 600
Total Fixed Charges 871
_______
Total Earnings Available ($ 2,412)
Ratio of Earnings to Fixed Charges n/m
Earnings deficiency ($ 3,283)
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
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0
0
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