TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three and Six Months Ended June 30, 1995
(Unaudited), the Three Months Ended June 30,
1994 (Unaudited) and the Three Months Ended
March 31, 1994........................................3
Consolidated Statements of Retained Earnings -
For the Three and Six Months Ended June 30,
1995 (Unaudited), the Three Months Ended
June 30, 1994 (Unaudited) and the Three
Months Ended March 31, 1994...........................4
Consolidated Balance Sheets - June 30, 1995
(Unaudited) and December 31, 1994.....................5
Consolidated Statements of Cash Flows - For the
Three and Six Months Ended June 30, 1995
(Unaudited), the Three Months Ended June 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...........23
PART II. OTHER INFORMATION.......................................30
SIGNATURES.........................................................32
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
Predecessor
Successor Company Company
For the For the For the | For the
Three Months Three Months Six Months| Three Months
Ended Ended Ended | Ended
June 30, June 30, June 30, | March 31,
Consolidated Income 1995 1994 1995 | 1994
(Unaudited) (Unaudited) (Unaudited)|
Revenues: |
|
Net sales $ 87,553 $ 86,995 $140,264 | $ 33,709
Joint venture income 1,551 1,269 2,224 | 381
Other income, net 643 1,134 1,810 | 2,691
89,747 89,398 144,298 | 36,781
|
Deductions from revenues: |
Cost of sales 55,208 61,403 101,783 | 29,694
Selling, general and |
administrative expenses 7,629 7,798 15,253 | 9,836
Depreciation and depletion 5,907 5,979 11,737 | 6,688
Recovery of litigation |
settlement - - - | (6,500)
Interest expense (contractual |
interest for the three |
months ended March 31, 1994 |
of $7,631) 2,336 2,219 4,677 | 233
71,080 77,399 133,450 | 39,951
Income (loss) before |
reorganization items and |
income taxes 18,667 11,999 10,848 | (3,170)
Reorganization items: |
Adjustments to fair value - - - | (133,917)
Other items - - - | (13,396)
- - - | (147,313)
|
Income (loss) before income |
taxes and extraordinary item 18,667 11,999 10,848 | (150,483)
Provision for income taxes (6,534) (4,085) (3,797)| (155)
|
Income (loss) before |
extraordinary item 12,133 7,914 7,051 | (150,638)
Extraordinary item: gain on |
discharge of prepetition |
liabilities - - - | 127,520
|
|
Income (loss) before preferred |
dividends 12,133 7,914 7,051 | (23,118)
Provisions for preferred |
dividends - - - | (1,278)
|
Net income (loss) applicable |
to common stock $ 12,133 $ 7,914 $ 7,051 | ($ 24,396)
|
Weighted average common |
shares outstanding 12,071 12,000 12,069 | n/m (a)
|
|
Primary income (loss) per |
common share: |
Income (loss) before extraordinary |
item $0.89 $0.62 $0.58 | n/m (a)
Extraordinary item: gain on |
discharge of prepetition |
liabilities - - - | n/m (a)
Net income (loss) per common |
share $0.89 $0.62 $0.58 | n/m (a)
|
________ ________ ________ | _______
Fully diluted income (loss) |
per common share $0.89 $0.62 $0.57 | 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.
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
Successor Company Company
For the For the For the | For the
Three Months Three Months Six Months| Three Months
Ended Ended Ended | Ended
June 30, June 30, June 30 | March 31,
1995 1994 1995 | 1994
(Unaudited) (Unaudited) (Unaudited)|
|
Retained earnings, beginning |
of period $ 24,251 $ - $ 29,333 | ($ 187,896)
|
Net income (loss) 12,133 7,914 7,051 | (23,118)
|
Dividends (604) - (604) | -
|
Retained earnings (accumulated |
deficit) 35,780 7,914 35,780 | (211,014)
|
Elimination of accumulated |
deficit - - - | 211,014
|
Retained earnings, end of |
period $ 35,780 $ 7,914 $ 35,780 | $ -
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)
June 30, December 31,
1995 1994
(Unaudited)
Assets:
Current assets:
Cash, including cash equivalents of $26,624,
and $54,782 $ 29,728 $ 55,398
Accounts and notes receivable, net 40,838 32,480
Inventories:
Finished goods 27,907 21,800
Work in process and raw materials 8,439 3,786
Supplies and fuel 19,228 19,943
55,574 45,529
Other current assets 6,223 3,243
Total current assets 132,363 136,650
Joint ventures 20,398 18,174
Property, plant and equipment 345,103 326,545
Less accumulated depreciation and depletion 28,081 16,593
317,022 309,952
Other assets and deferred charges 1,773 1,544
Total assets other than liquidating
subsidiary 471,556 466,320
Assets of liquidating subsidiary (See Note 5) 67,000 87,000
Total assets $538,556 $553,320
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 11,351 $ 14,272
Accrued liabilities 46,058 47,337
Other current liabilities 5,011 3,650
Total current liabilities 62,420 65,259
Senior notes payable 78,000 78,000
Production payment 14,966 16,966
Postretirement benefits other than pensions 130,404 129,634
Pensions 12,195 14,345
Deferred income taxes 6,689 6,688
Other liabilities 33,785 32,965
Contingencies (Notes 12 and 13) ________ ________
Total liabilities other than liquidating
subsidiary 338,459 343,857
Asset proceeds notes of liquidating subsidiary
(See Note 5) 67,000 87,000
________ ________
Total liabilities 405,459 430,857
Shareholders' Equity:
Common stock 12,071 12,000
Warrants to purchase common stock 15,611 15,613
Additional paid-in capital 69,650 65,700
Retained earnings 35,780 29,333
Cumulative translation adjustment (15) (183)
133,097 122,463
Total liabilities and shareholders'
equity $538,556 $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
Six Months Three Months| Three Months
Ended Ended | Ended
June 30, June 30, | March 31,
1995 1994 | 1994
(Unaudited) (Unaudited)|
|
Cash Flows from Operating Activities: |
|
Income (loss) before extraordinary item $ 7,051 $ 7,914 | ($ 150,638)
Adjustments to arrive at net cash used |
by operating activities: |
Depreciation and depletion 11,737 5,979 | 6,688
Deferred income taxes 3,797 4,085 | 155
Recovery of litigation settlement - - | (6,500)
Changes in operating assets and |
liabilities: |
Accounts and notes receivable (8,495) (14,997)| 22,157
Inventories and other current |
assets (13,228) 3,340 | (17,189)
Accounts payable and |
accrued liabilities (4,007) 2,555 | (1,808)
Unremitted earnings of joint ventures (2,224) (1,269)| 619
Adjustments to fair value - - | 133,917
Other reorganization items - - | 13,396
Other, net (979) (1,610)| (5,866)
Net cash (used) provided by operating |
activities before reorganization items (6,348) 5,997 | (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 - (5,247)| (5,849)
Professional fees escrow pursuant to |
the reorganization plan - - | (12,431)
Net cash used by reorganization items - (5,247)| (16,282)
Net cash (used) provided by operating |
activities (6,348) 750 | (21,351)
|
Cash Flows from Investing Activities: |
|
Capital expenditures (19,655) (5,984)| (6,695)
Proceeds from sales of assets 1,352 21,882 | 148
Proceeds from sales of assets held for |
sale - - | 2,457
Other, net - - | (348)
Net cash (used) provided by investing |
activities (18,303) 15,898 | (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 9 - | -
Dividends paid (604) - | -
Reduction of production payment (1,500) - | (1,000)
Net cash used by financing activities (1,019) - | (206,461)
|
Net increase (decrease) in cash and cash |
equivalents (25,670) 16,648 | (232,250)
|
Cash and cash equivalents, beginning of |
period 55,398 12,147 | 244,397
Cash and cash equivalents, end of period$ 29,728 $ 28,795 | $ 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 June 30, 1995, and the results
of operations for the three and six months ended June 30, 1995, the three
months ended June 30, 1994 and the three months ended March 31, 1994, and
the cash flows for the six months ended June 30, 1995, the three months
ended June 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 Statement of Position No. 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("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 six months
ended June 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 three months
ended June 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 Six Months Ended June 30, 1994
(In Millions Except Per Share Amounts)
Pro Forma Actual Pro Forma
Results for Results for Results
the Three the Three for the Six
Months Ended Months Ended Months Ended
March 31, 1994 June 30, 1994 June 30, 1994
Revenues:
Net sales........................... $ 45.3 $ 87.0 $ 132.3
Joint venture income................ 0.1 1.3 1.4
Other income........................ 1.2 1.1 2.3
46.6 89.4 136.0
Deductions from revenues:
Cost of sales....................... 47.4 61.4 108.8
Recovery of litigation settlement... (6.5) - (6.5)
Selling, general and administrative. 8.3 7.8 16.1
Depreciation and depletion.......... 6.1 6.0 12.1
Interest expense.................... 2.2 2.2 4.4
57.5 77.4 134.9
Income (loss) before income taxes... (10.9) 12.0 1.1
Provision for income taxes.......... 3.8 (4.1) (0.3)
Net income.......................... $ (7.1) $ 7.9 $ 0.8
Primary and fully diluted income per
common share....................... $ (0.59) $ 0.62 $ 0.07
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, the Company transferred on April 14, 1994 certain non-
core assets and their related liabilities to Rosebud. The assets transferred
consisted of the Company's interests in the RMC LONESTAR, Lone Star-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.
Rosebud's assets are included in the Company's June 30, 1995 consolidated
balance sheet at the estimated net realizable value of $67,000,000.
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. Moreover, Rosebud's
ability to sell the assets may be affected by events and results of
operations at the various entities transferred to Rosebud and its ability
to conclude the litigations may be affected by events outside of its
control.
The decrease of $20,000,000 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 settlement reached with the remaining insurance companies
related to indemnity in the railroad crosstie litigation cases and
settlements with two Argentine companies regarding the litigation related to
the 1992 auction sale of the Company's Argentine subsidiary. Prior to
reaching the agreements, the potential recoveries from the insurance
companies and Argentine companies were not included in the valuation of the
net assets of Rosebud. The Rosebud investment amount does not include any
amount for potential recovery from litigation involving Northeast Cement
Company and its affiliates, Lafarge Corporation and Lafarge Canada, Inc.
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 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, if any, 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 and February 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, and $30,000,000 and $183,000,
respectively. An additional redemption of principal and accrued interest
thereon, of $25,000,000 and $1,090,000, respectively, was made on July 7,
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. In the event that, at
the maturity date, the aggregate amount of all cash payments of principal and
interest on the asset proceeds notes was less than $88,118,000, the guarantee
was payable in either cash, five-year notes or a combination thereof, at the
option of Lone Star, 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 could not exceed $28,000,000.
As of July 7, 1995, total principal and interest payments of $99,226,000 had
been made on the asset proceeds notes, terminating the Company's guarantee,
the guarantee agreement and the related pledge of Rosebud's common stock
owned by the Company. The remaining face value of the asset proceeds notes
as of July 7, 1995 was $51,399,000.
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.
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 addition, 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 $1,875,000 had been received through June 30,
1995. Additional payments totaling $625,000 were received in July 1995.
In November 1994, the jury in the retrial of the railroad crosstie litigation
returned a verdict entitling the Company to a recovery from Lafarge on its
claim of breach of express warranty and awarded the Company $8,391,483, which
award could have been subject to adjustment as a result of the application of
prejudgment interest and a statute of limitation claims. In December 1994,
the court entered a partial judgment in favor of the Company in the amount of
$9,308,058, which amount included prejudgment interest but was not reduced by
the statute of limitations claim. A hearing was held on March 3, 1995 to
consider Lone Star's pending claim under a Massachusetts statute governing
unfair trade practices. On April 3, 1995, the pending claim under the
Massachusetts statute governing unfair trade practices was denied; the
judgment in favor of Lone Star of $9,308,058 was upheld; and motions filed by
both sides for a new trial were denied. In May 1995, the Company filed a
notice of appeal of the results of the jury trial and the judgment under the
Massachusetts statute. The Company is currently involved in negotiating a
settlement agreement. In the meantime, the judgment in favor of Lone Star is
accruing post-judgment interest at the rate of 7.2% per annum. The right to
any recovery of damages in this action has been assigned to Rosebud (See Note
13).
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.
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 the 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.
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, the Board of Directors declared a $0.05 dividend per
common share, which was paid on June 15, 1995 to shareholders of record as of
June 1, 1995.
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. No brokerage
commissions will be incurred by shareholders related to these transactions.
As of June 30, 1995, 20,381 shares had been tendered for sale by the
shareholders and shareholders had offered to purchase 15,050 shares, under
this program. The original program was extended through July 28, 1995.
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 three and six months ended
June 30, 1995, the three months ended June 30, 1994, and the three months
ended March 31, 1994 was $413,000, $4,741,000, $57,000 and $20,000,
respectively. Income taxes paid during the three and six months ended June
30, 1995, the three months ended June 30, 1994, and the three months ended
March 31, 1994 were $13,000, $34,000, $57,000 and $756,000, respectively.
Note 9 - Interest
Interest expense of $2,376,000, $4,738,000, $2,259,000 and $271,000 has been
accrued for the three and six months ended June 30, 1995, the three months
ended June 30, 1994, and the three months ended March 31, 1994, respectively.
Interest capitalized during the three and six months ended June 30, 1995, the
three months ended June 30, 1994, and three months ended March 31, 1994 was
$40,000, $61,000, $40,000 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 six months ended June 30, 1995 and the three months ended June 30,
1994 are calculated based on adjusted weighted average shares outstanding of
14,298,174, 14,296,318 and 13,773,883 and net income of $12,691,000
$8,224,000 and $8,585,000, respectively. Fully diluted earnings per share
for the three and six months ended June 30, 1995 and the three months ended
June 30, 1994 are calculated based on adjusted weighted average shares
outstanding of 14,298,174, 14,296,318, and 13,773,883 and net income of
$12,700,000, $8,123,000 and $8,585,000, 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.
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 a similar
notice was or will be sent to all other cement manufacturers in the State of
Indiana. The Company is protesting this determination through legal channels
(including seeking a review of the determination to demonstrate that current
management practices pose no threat to the environment), is seeking a stay of
the permit application requirement as to type I waste, and is simultaneously
proceeding with the preparation of the permit application. 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 for recertification
under interim status which it expects to receive in September 1995, at
which time it will recommence 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 is
negotiating 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.
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. Proceeds of $2,000,000 from the sale have been placed in escrow to
fund the groundwater monitoring and the required groundwater remediation.
Pursuant to a Florida state court-ordered stipulation, a subsidiary of the
Company completed the clean-up of soils at the site 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.
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
$1,500,000. 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.
In a second trial in this case in the Maryland Federal District Court, a
judgment in favor of Lone Star was entered in the amount of $9,308,058
including interest. The Company is currently involved in negotiating a
settlement agreement.
In 1989 Lone Star began an action in the Superior Court of the State of
Delaware against certain insurance companies 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 and as to
the duty of the primary insurance carrier to pay the costs of defending
those proceedings. All of these companies, except three related companies,
settled the claims against them prior to 1995. These three companies
settled by a payment in May, 1995 of $4,200,000 and the action was
dismissed. This payment and certain of the prior settlement payments were
assigned to Rosebud pursuant to the plan of reorganization.
San-Vel Concrete Corporation, a Lone Star subsidiary, has received notice
that an office building in Boston which may have been constructed using
San-Vel concrete pilings has been ordered demolished by 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 are 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.
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 six months ended June 30, 1995 are not comparable to
statements for the same prior-year period. Financial statements for
the three-month period ended June 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 4.0 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. As of June 30,
1995, total interest and principal payments of approximately $73.1
million had been paid on the asset proceeds notes. An additional
$26.1 million was paid on July 7, 1995 which effectively terminated
the Company's guarantee related to the notes.
The asset proceeds notes, including the interest thereon, are recorded
on the Company's balance sheet at June 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 June 30,
1995 was $76.4 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.
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. Advances under the credit agreement now bear interest
at a rate, at the Company's option, of either prime plus 1.0% or LIBOR
plus 2.75%. A fee of 0.5% 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 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 June 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 outflows from operating activities of $6.3 million for the first
six months of 1995 primarily reflects the funding of operating
requirements and changes in working capital.
During the first six months of 1995, the Company used $18.3 million
for investing activities primarily representing capital expenditures.
Net cash outflows from financing activities of $1.0 million reflects a
scheduled $1.5 million payment on the production payment and the
payment of a cash dividend, partly offset by proceeds from the
exercise of stock options.
Working capital on June 30, 1995 was $69.9 million, compared to $71.4
million at December 31, 1994. Current assets decreased $4.3 million
principally due to a lower marketable securities balance. This
decrease was partly offset by higher inventory and accounts receivable
due to the seasonal nature of the Company's business, and higher
prepaid expenses. Current liabilities decreased $2.8 million primarily
due to lower accounts payable.
Investments in joint ventures increased $2.2 million due to results
from Kosmos Cement Company, a partnership in which the Company has a
25% interest. Net property, plant and equipment increased $7.1 million
reflecting capital expenditures partly offset by depreciation. A
disbursement of $1.5 million was 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 $2.2 million, primarily reflecting payments
made during the six-month period ended June 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 $20.0 million primarily due
to a $30.0 million redemption of the outstanding notes in late
February 1995, partly offset by an increase in asset valuation
reflecting the shorter time period used in determining the present
value. In addition, the decrease was also partly offset by the
inclusion of the settlement reached with the remaining insurance
companies related to indemnity in the railroad crosstie litigation
cases and agreements with two Argentine companies to settle the
litigation related to the 1992 auction sale of the Company's Argentine
subsidiary. The settlement with the insurance companies and the
Argentine companies contributed about $4.2 million and $2.5 million of
net proceeds to Rosebud, respectively ($0.6 million of the $2.5
million was received in July 1995). Prior to reaching the agreements
the potential recoveries from the insurance companies and Argentine
companies were not included in the valuation of the net assets of
Rosebud. The Rosebud investment amount does not include any amount
for potential recovery from litigation involving Northeast Cement
Company and its affiliates, Lafarge Corporation and Lafarge Canada,
Inc. The Company is currently involved in negotiating a settlement
agreement. In July 1995, Rosebud made a partial redemption of the
asset proceeds notes in the amount of $25.0 million.
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 six months ended June 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 a similar notice was or will be sent to all other
cement manufacturers in the State of Indiana. The Company is
protesting this determination through legal channels (including
seeking a review of the determination to demonstrate that current
management practices pose no threat to the environment), is seeking a
stay of the permit application requirement as to type I waste, and is
simultaneously proceeding with the preparation of the permit
application. 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 represents
the first cash dividend paid since 1989.
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.
No brokerage commissions will be incurred by shareholders related to
these transactions. As of June 30, 1995, 20,381 shares had been
tendered for sale by the shareholders and shareholders had offered to
purchase 15,050 shares. The original program was extended through
July 28, 1995.
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 six-
month period ended June 30, 1995 are not comparable to statements for
the same prior-year six-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 have been either sold or are presently being marketed for
sale. Results for the three-month period ended June 30, 1995 are
comparable to the same prior-year period.
To facilitate a meaningful comparison of the Company's operating
performance, as historical six-month results are non-comparable, the
following discussion and analysis compares the results of the three-
month period ended June 30, 1995 with the comparable three-month 1994
period, and the historical results of the six-month period ended June
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 period.
Consolidated net sales of $140.3 million for the first six months and
$87.6 million for the second quarter of 1995 were $8.0 million and
$0.6 million, respectively, above the comparable prior-year periods.
The increase in net sales reflects the impact of cement price
increases implemented in April 1995 and during the last six months of
1994, and higher shipments of construction aggregates. Cement
operations recorded sales for the first six months and second quarter
of 1995 of $102.8 million and $61.9 million, respectively. Cement
sales for the current six and three month-periods were $5.2 million
and $0.6 million, respectively, higher than the comparable prior-year
periods. Cement shipments for the first six months and for the second
quarter of 1995 were 7% and 12%, respectively, below the comparable
prior-year periods due to unusually wet weather conditions throughout
the midwestern states. The Company expects that a portion of the
construction projects delayed by the wet weather conditions will be
completed in the last six months of 1995. The decrease in shipments
was more than offset by a 16% increase in 1995 cement average net
realized selling prices, the result of price increases which began
last year.
Sales of construction aggregates for the first six months and second
quarter of 1995 were $21.4 million and $15.7 million, respectively.
Construction aggregate sales for the current six and three-month
periods were $4.4 million and $1.6 million higher than the comparable
prior-year periods resulting from a 19% increase in shipments for the
first six 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.
Ready-mixed concrete and other operations recorded sales of $16.1
million and $10.0 million for the current six and three-month periods,
which was $1.6 million lower than both comparable prior-year periods,
due to lower shipments, the result of wet weather conditions in the
Midwest this year, partly offset by an 11% increase in average net
realized selling prices for the first six 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 $26.3 million and $21.6
million for the six and three months ended June 30, 1995 as compared
to a pro forma gross profit of $14.8 million and a gross profit of
$16.6 million, respectively, for the comparable prior-year periods.
These results primarily reflect a 16% increase in overall average net
realized selling prices in 1995, partly offset by a 7% decrease in
overall cement shipments, the result of wet weather conditions in the
Midwest. Construction aggregates recorded a loss at the gross profit
level of $1.2 million for the first six months of 1995 and a gross
profit of $3.3 million for the current second quarter, as compared to
a pro forma loss at the gross profit level of $4.1 million for the
first six months of 1994 and a profit of $1.7 million for the
comparable second quarter. The gross profit improvement is due to
higher shipments, particularly from the Canadian operation and price
increases in the New York Metropolitan area. Gross profits from the
ready-mixed concrete and other construction products of $1.9 million
and $1.7 million, respectively, for the six and three months ended
June 30, 1995 were $0.2 million and $0.3 million, respectively, lower
than the comparable prior-year periods primarily due to lower
shipments resulting from inclement weather, 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 $7.1 million, or $0.58 per share, for the first six
months of 1995 was $6.3 million, or $0.51 per share favorable to the
pro forma comparable prior-year period. This was due primarily to the
impact of cement price increases implemented in April 1995 and during
the last six months of 1994, higher shipments of construction
aggregates, improved results from the Kosmos Cement Company joint
venture, and lower selling, general and administrative expenses. The
improvement in net income was partly offset by lower rental income and
higher income tax expense in 1995 on higher pre-tax earnings. The
first six 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 $12.1 million, or $0.89 per share, for the second
quarter of 1995 was $4.2 million, or $0.27 per share better than the
comparable prior-year period. The financial results for the second
quarter of 1995 represent a 44% improvement in earnings per share over
the comparable prior-year period. The improvement was primarily due
to the realization of cement price increases implemented over the last
two quarters of 1994 and in April 1995 and higher shipments of
construction aggregates. The favorable second quarter 1995 results
were partly offset by higher income taxes primarily due to higher pre-
tax earnings.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 13 of Notes to Unaudited Financial Statements
regarding litigation involving the Company and certain of
its subsidiaries.
See Note 12 of Notes to Unaudited 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was
held on May 11, 1995.
(b) The names of each director elected at the Annual Meeting
are: James E. Bacon and William M. Troutman. Each was
elected for a three year term. The names of each other
director whose term of office as a director continued
after the Annual Meeting are: Theodore F. Brophy, Arthur
B. Newman, Allen E. Puckett, Robert G. Schwartz, David W.
Wallace and Jack R. Wentworth.
(c) The following were the matters voted upon at the Annual
Meeting and the number of votes cast for, against or
abstentions and broker non-votes, as to each such matter,
including a separate tabulation with respect to each
nominee for office.
1. For the election of the persons named
below as directors of the Company:
James E. Bacon For: 10,435,589
Withheld: 301,380
William M. Troutman For: 10,569,278
Withheld: 167,691
2. Upon the approval of the Amendment to the
Restated Certificate of Incorporation to
Increase the Number of Authorized Common
Shares to 50,000,000:
For: 8,976,689
Against: 1,752,215
Abstain and
Broker Non-Votes: 8,065
3. Upon the approval of an Amendment to the
Employees Stock Purchase Plan:
For: 10,387,475
Against: 288,807
Abstain and
Broker Non-Votes: 60,687
4. Upon the ratification of the appointment
of Coopers & Lybrand L.L.P. as auditors
of the Company for the year ending
December 31, 1995:
For: 10,722,756
Against: 10,717
Abstain and
Broker Non-Votes: 3,499
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits
3.1 Certificate of Amendment of Restated Certificate of
Amendment.
11. Computation of earnings per common share.
12. Statement Re Computation of Ratio of Earnings to
Fixed Charges.
(b) Reports on Form 8-K
No Report on Form 8-K was filed during the quarter for
which this Report is filed.
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: August 11, 1995 By: JOHN S. JOHNSON
John S. Johnson
Vice President, General
Counsel and Secretary
Date: August 11, 1995 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
Lone Star Industries, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of
the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the
Corporation resolutions were duly adopted setting forth a
proposed amendment to Article FOURTH of the Restated Certificate
of Incorporation of the Corporation, declaring said amendment to
be advisable and calling a meeting of the stockholders of the
Corporation for consideration thereof. The resolution setting
forth the proposed amendment is as follows:
RESOLVED that, the Board of Directors declares it advisable and
recommends to the stockholders that at the 1995 Annual Meeting of
Stockholders Article FOURTH of the Restated Certificate of
Incorporation of the Company be amended to be and to read as
follows:
"FOURTH: The corporation shall have authority to issue Fifty
Million (50,000,000) shares of common stock, par value one dollar
($1.00) per share."
SECOND: That thereafter, pursuant to resolutions of its
Board of Directors, an annual meeting of the stockholders of the
Corporation was duly called and held, upon notice in accordance
with Section 222 of the General Corporation Law of the State of
Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the proposed
amendment.
THIRD: That the proposed amendment was duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment of the Restated Certificate of
Incorporation to be signed by John S. Johnson, its Vice
President, General Counsel and Secretary this 11th day of May,
1995.
By: JOHN S. JOHNSON
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)
Predecessor
Successor Company Company
For the For the For the | For the
Three Months Three Months Six Months|Three Months
Ended Ended Ended | Ended
June 30, June 30, June 30, | March 31,
1995 1994 1995 | 1994
|
PER SHARE OF COMMON STOCK - PRIMARY |
|
Income (loss) before preferred |
dividends $ 12,133 $ 7,914 $ 7,051 | ($23,118)
Provisions for preferred |
dividends - - - | 1,278
Net interest expense reduction(1) 558 670 1,172 | -
Net income (loss) applicable to |
common stock $ 12,691 $ 8,584 $ 8,223 | ($24,396)
|
Weighted average shares |
outstanding during period 12,071 12,000 12,069 | -
Options and warrants in excess of |
20% limit 2,227 1,774 2,227 | -
Weighted average shares |
outstanding during period 14,298 13,774 14,296 | n/m (2)
|
Net income per common share $ 0.89 $ 0.62 $ 0.58 | n/m (2)
|
|
PER SHARE OF COMMON STOCK ASSUMING |
FULL DILUTION |
|
Income (loss) before preferred |
dividends $ 12,133 $ 7,914 $ 7,051 | ($23,118)
Plus: Net interest expense |
reduction (1) 537 670 1,072 | -
Net income (loss) $ 12,670 $ 8,584 $ 8,123 | ($23,118)
|
|
Weighted average shares |
outstanding during period 12,071 12,000 12,069 | n/m
Options and warrants in excess |
of 20% limit (1) 2,227 1,774 2,227 | -
|
Fully diluted shares outstanding 14,298 13,774 14,296 | n/m (2)
|
Net income per common share |
assuming full dilution $ 0.89 $ 0.62 $ 0.57 | 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, fully
diluted earnings per share has been calculated using the modified
treasury stock method for the three and six months ended June 30, 1995
and the three months ended June 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)
Predecessor
Successor Company Company
For the For the For the | For the
Three Months Three Months Six Months|Three Months
Ended Ended Ended | Ended
June 30, June 30, June 30, | March 31,
1995 1994 1995 | 1994
(Unaudited) (Unaudited) (Unaudited)|
|
Earnings Available: |
|
Income (loss) before provision |
for income taxes $ 18,667 $ 11,999 $ 10,848 | ($ 3,170)
|
Less: Excess of earnings over |
dividends of less than fifty |
percent owned companies (1,551) (1,269) (2,224)| (75)
|
Capitalized interest (40) (40) (61)| (38)
$ 17,076 $ 10,690 $ 8,563 | $(3,283)
|
Fixed Charges: |
|
Interest expense (including |
capitalized interest) and |
amortization of debt |
discount and expenses $ 2,376 $ 2,259 $ 4,738 | $ 271
|
Portion of rent expense |
representative of an |
interest factor 544 447 1,087 | 600
|
Total Fixed Charges 2,920 2,706 5,825 | 871
________ ________ ________ | _______
Total Earnings Available $ 19,996 $ 13,396 $ 14,388 | ($2,412)
|
|
Ratio of Earnings to Fixed |
Charges 6.85X 4.95X 2.47X| n/m
|
|
Earnings deficiency $ 0 $ 0 $ 0 | ($3,283)
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,104
<SECURITIES> 26,624
<RECEIVABLES> 48,132
<ALLOWANCES> 7,294
<INVENTORY> 55,574
<CURRENT-ASSETS> 132,363
<PP&E> 345,103
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<TOTAL-ASSETS> 538,556
<CURRENT-LIABILITIES> 62,420
<BONDS> 78,000
<COMMON> 12,071
0
0
<OTHER-SE> 121,026
<TOTAL-LIABILITY-AND-EQUITY> 538,556
<SALES> 140,264
<TOTAL-REVENUES> 144,298
<CGS> 101,783
<TOTAL-COSTS> 128,773
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<INTEREST-EXPENSE> 4,677
<INCOME-PRETAX> 10,848
<INCOME-TAX> 3,797
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