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 March 31, 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 May 5, 1995:
Common Stock, par value $1 per share - 12,070,483 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three Months Ended March 31, 1995 (Unaudited)
and the Three Months Ended March 31, 1994.............3
Consolidated Statements of Retained Earnings -
For the Three Months Ended March 31, 1995
(Unaudited) and the Three Months Ended
March 31, 1994........................................4
Consolidated Balance Sheets - March 31, 1995
(Unaudited) and December 31, 1994.....................5
Consolidated Statements of Cash Flows - For the
Three Months Ended March 31, 1995 (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...........20
PART II. OTHER INFORMATION.......................................27
SIGNATURES.........................................................28
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
Successor Predecessor
Company Company
For the Three | For the Three
Months Ended | Months Ended
March 31, 1995 | March 31, 1994
(Unaudited) |
|
Consolidated Income |
Revenues: |
|
Net sales....................................... $ 52,711 | $ 33,709
Joint venture income............................ 673 | 381
Other income, net............................... 1,167 | 2,691
54,551 | 36,781
|
Deductions from revenues: |
Cost of sales................................... 46,575 | 29,694
Selling, general and administrative expenses.... 7,624 | 9,836
Depreciation and depletion...................... 5,830 | 6,688
Recovery of litigation settlement............... - | (6,500)
Interest expense (contractual interest for the |
1994 three months of $7,631).................. 2,341 | 233
62,370 | 39,951
|
Loss before reorganization items and income taxes (7,819)| (3,170)
Reorganization items: |
Adjustments to fair value....................... - | (133,917)
Other items..................................... - | (13,396)
- | (147,313)
|
Loss before income taxes and extraordinary item (7,819)| (150,483)
Credit (provision) for income taxes............. 2,737 | (155)
|
Loss before extraordinary item................... (5,082)| (150,638)
Extraordinary item: gain on discharge of |
prepetition liabilities........................ - | 127,520
|
Loss before preferred dividends.................. (5,082)| (23,118)
Provision for preferred dividends............... - | (1,278)
|
Net loss applicable to common stock.............. $ (5,082)| $(24,396)
|
Weighted average common stock shares outstanding. 12,067 | n/m (a)
|
Primary and fully diluted loss per common share: |
Loss before extraordinary item................... $ (0.42)| n/m (a)
Extraordinary item: gain on discharge of |
prepetition liabilities........................ - | n/m (a)
Net loss per common share........................ $ (0.42)| 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)
Successor Predecessor
Company Company
For the Three | For the Three
Months Ended | Months Ended
March 31, 1995 | March 31, 1994
(Unaudited) |
|
Retained earnings, beginning of period........... $ 29,333 | $ (187,896)
|
Net loss......................................... (5,082)| (23,118)
|
Retained earnings (accumulated deficit).......... 24,251 | (211,014)
|
Elimination of accumulated deficit............... - | 211,014
|
Retained earnings, end of period................. $ 24,251 | $ - _
The accompanying Notes to Unaudited Consolidated Financial Statements are an
intergral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Successor Predecessor
Company Company
March 31, | December 31,
1995 | 1994 _
(Unaudited)|
Assets: |
Current assets: |
Cash, including cash equivalents of $38,640 |
and $54,782.................................. $ 38,793 | $ 55,398
Accounts and notes receivable, net............ 26,892 | 32,480
Inventories: |
Finished goods.............................. 27,182 | 21,800
Work in process and raw materials........... 6,737 | 3,786
Supplies and fuel........................... 19,471 | 19,943
53,390 | 45,529
|
Other current assets.......................... 4,096 | 3,243
Total current assets........................ 123,171 | 136,650
|
Net assets of liquidating subsidiary (See Note 5). 64,000 | 87,000
Joint ventures.................................... 18,847 | 18,174
|
Property, plant and equipment..................... 332,623 | 326,545
Less accumulated depreciation and depletion....... 22,147 | 16,593
310,476 | 309,952
|
Other assets and deferred charges.................. 2,026 | 1,544
Total assets................................. $ 518,520 | $ 553,320
|
|
Liabilities and Shareholders' Equity: |
Current Liabilities: |
Accounts payable............................... $ 12,817 | $ 14,272
Accrued liabilities............................ 45,848 | 47,337
Other current liabilities...................... 4,154 | 3,650
Total current liabilities.................... 62,819 | 65,259
|
Asset proceeds notes of liquidating subsidiary |
(See Note 5)...................................... 64,000 | 87,000
Senior notes payable............................... 78,000 | 78,000
Production payment................................. 14,966 | 16,966
Deferred income taxes.............................. 3,947 | 6,688
Postretirement benefits other than pensions........ 129,392 | 129,634
Pensions........................................... 13,274 | 14,345
Other liabilities.................................. 33,681 | 32,965
|
Contingencies (See Notes 12 and 13) |
400,079 | 430,857
|
Shareholders' Equity: |
Common stock..................................... 12,070 | 12,000
Warrants to purchase common stock................ 15,612 | 15,613
Additional paid-in capital....................... 66,707 | 65,700
Retained earnings................................ 24,251 | 29,333
Cumulative translation adjustment................ (199)| (183)
118,441 | 122,463
Total liabilities and shareholders' equity... $ 518,520 | $ 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)
Successor Predecessor
Company Company
For the Three | For the Three
Months Ended | Months Ended
March 31, 1995 | March 31, 1994
(Unaudited) |
|
Cash Flows from Operating Activities: |
|
Loss before extraordinary item................... $ (5,082)| $ (150,638)
Adjustments to arrive at net cash used by |
operating activities: |
Depreciation and depletion..................... 5,830 | 6,688
Deferred income taxes.......................... (2,742)| 155
Recovery of litigation settlement.............. - | (6,500)
Changes in operating assets and liabilities: |
Accounts and notes receivable................ 5,465 | 22,157
Inventories and other current assets......... (9,231)| (17,189)
Accounts payable and other accrued expenses.. (2,444)| (1,808)
Unremitted earnings of joint ventures.......... (673)| 619
Adjustments to fair value...................... - | 133,917
Other reorganization items..................... - | 13,396
Other, net..................................... (1,313)| (5,866)
Net cash used by operating activities before |
reorganization items............................ (10,190)| (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.. - | (5,849)
Professional fees escrow pursuant to the |
reorganization plan........................... - | (12,431)
Net cash used by reorganization items............ - | (16,282)
|
Net cash used by operating activities............ (10,190)| (21,351)
|
Cash Flows from Investing Activities: |
|
Capital expenditures............................. (6,797)| (6,695)
Proceeds from sales of assets.................... 806 | 148
Proceeds from sales of assets held for sale...... - | 2,457
Other, net....................................... - | (348)
Net cash used by investing activities............ (5,991)| (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 | -
Reduction of production payment.................. (1,500)| (1,000)
Net cash used by financing activities............ (424)| (206,461)
|
Net decrease in cash and cash equivalents........ (16,605)| (232,250)
|
Cash and cash equivalents, beginning of period... 55,398 | 244,397
Cash and cash equivalents, end of period......... $ 38,793 | $ 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 March 31, 1995, and the results
of operations for the three months ended March 31, 1995 and 1994, and the
cash flows for the three months ended March 31, 1995 and 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
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.
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
8).
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 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 for the three months
ended March 31, 1994.
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 reorganized 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.
Lone Star's investment in Rosebud is included in the Company's March 31, 1995
consolidated balance sheet at the estimated net realizable value of
$64,000,000. 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 $23,000,000 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. In addition, the decrease was also partly
offset by the inclusion of a receivable for the settlement agreement reached
with the remaining insurance companies related to indemnity in the railroad
crosstie litigation cases and a receivable reflecting agreements in principle
with two Argentine companies to settle 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 the 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
plus up to an additional $5,000,000 for estimated Rosebud working capital
needs, are to be deposited in a cash collateral account for distribution to
the note holders. The asset proceeds notes mature on July 31, 1997.
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, 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, respectively. An additional redemption of principal and accrued
interest thereon, of $30,000,000 and $183,000, respectively, was made on
February 22, 1995. The July 1994 and the January 1995 interest payments of
$5,755,000 and $5,320,000, respectively, were made in cash.
These notes are 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 is less than $88,118,000, the guarantee
is 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 cannot exceed $28,000,000. If amounts
become due and payable under the Company guarantee, such obligation and the
notes which may be issued thereunder will rank pari passu with the senior
notes. The Company guarantee is secured by a pledge of the Company's right,
title and interest in and to all of the issued and outstanding common stock
of Rosebud. To the extent that amounts received upon disposition of the
Rosebud assets and the Company guarantee are not sufficient to pay the
principal and interest of the asset proceeds notes, such notes will not be
paid. In addition, the assumption by Rosebud of Lone Star's liabilities
which arose from actions or circumstances that existed on or before April 14,
1994, may not be binding on third parties, to the extent that those
liabilities result in payments to Lone Star aggregating in excess of
$7,000,000.
As of March 31, 1995, total principal and interest payments of $73,136,000
had been made on the asset proceeds notes, reducing the maximum amount
payable under the company's guarantee, to $14,982,000 plus interest. The
remaining face value of the asset proceeds notes as of March 31, 1995 was
$76,399,000. In March and May 1995, combined net proceeds from asset sales
of $19,637,000 were transferred to the collateral agent for the partial
redemption of asset proceeds notes. These transfers to the collateral agent
effectively fulfill the Company's remaining obligation related to the
guarantee agreement. The notes will be redeemed in late June or early July
1995 and the principal amount of the notes redeemed will include the net
proceeds from the settlement of the litigation referred to below.
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 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 promissory note.
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 with the net proceeds of such payment
expected to be 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 $2,500,000 are expected to be received soon.
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. 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 net cash
proceeds of $1,354,000, of which $712,000 has been set aside to cover
environmental expenses related to the property sold. In March 1995, Rosebud
received net proceeds of $3,727,000 from the sale of surplus property in
Texas. Net proceeds of $2,161,000 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 Lone Star California, Inc. (which
company was transferred to Rosebud) and the promissory notes executed by RMC
LONESTAR in favor of 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.
Note 6 - Common Stock Dividend
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, payable on June 15, 1995 to shareholders of record as of June
1, 1995.
Note 7 - Common Stock Repurchase
On April 18, 1995, the Board of Directors approved a plan to repurchase
common stock, from shareholders who own less than 100 shares or allow
shareholders to increase their shares owned up to 100 shares. No brokerage
commissions will be incurred by shareholders related to these transactions.
The plan is not yet effective.
Note 8 - 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 9 - 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 months ended March
31, 1995 and 1994 was $4,328,000 and $20,000, respectively. Income taxes
paid during the three months ended March 31, 1995 and 1994 were $21,000 and
$756,000, respectively.
Note 10 - Interest
Interest expense of $2,362,000 and $271,000 has been accrued for the three
months ended March 31, 1995 and 1994, respectively. Interest capitalized
during the three months ended March 31, 1995 and 1994 was $21,000, 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 11 - 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". However, as this method produces
anti-dilutive results, reported primary and fully diluted earnings per share
for the three months ended March 31, 1995 are calculated based on adjusted
weighted average shares outstanding of 12,067,108 and a net loss of
$5,082,000.
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 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.
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 are currently operating
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 Greencastle cement plant
has substantially curtailed its use of hazardous waste fuels pending
capital upgrades to the plant or the promulgation by EPA of a modified or
new standard. Capital upgrades are in progress. The Company expects that
the Greencastle plant will begin limited HWF operations in June 1995 and
will recertify under interim status in August 1995.
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 has been given official notice by the EPA that it intends 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 EPA indicated that a
monetary settlement of approximately $190,000 would be expected but
attempts to resolve the issue without litigation have been so far
unsuccessful.
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 subsidiary is
currently negotiating a consent order with FDEP setting forth the
monitoring and possible remediation efforts in detail. The EPA has made a
demand for the payment for oversight and past response costs relating to
the site in the net amount of $746,409. This site has been transferred to
Rosebud pursuant to the plan and Rosebud has entered into a contract for
its sale, subject to due diligence, in the first half of 1995. Rosebud
plans to fund the clean-up from the proceeds of the sale.
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 of over $200,000,000 based on alleged defects in the
crossties. Lone Star settled these actions in 1992 by entering into
agreements providing for the railroads to receive in the aggregate claims in
its bankruptcy proceedings of $57,200,000; for one railroad to receive a cash
payment of $5,000,000; and for the payment of $4,384,000 to another railroad.
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 suit was tried before a
jury in the Maryland Federal District Court in late 1992. The jury limited
Lone Star's recovery to $1,213,000 for direct loss profits due to limitations
on the awarding of damages in the trial judge's instructions to the jury.
Both sides appealed this verdict and in 1994 the Fourth Circuit Court of
Appeals vacated the judgment of the District Court and remanded the case for
a new trial on all issues relating to both liability and damages and
permitted Lone Star to amend its complaint to add a claim of violation of a
Massachusetts statute governing unfair trade practices.
On November 30, 1994, the jury in the retrial of the case returned a verdict
entitling Lone Star to a recovery from Lafarge only on its claim of breach of
express warranty and the court entered a partial judgment in favor of Lone
Star. Subsequently, the judgment was increased to $9,308,058 to include
interest. A hearing was held on March 3, 1995 to consider Lone Star's
pending claim under the Massachusetts statute governing unfair trade
practices. On April 3, 1995 this claim was subsequently denied by the trial
judge; the judgment in favor of Lone Star was upheld; and motions by both
sides for a new trial were denied. Lone Star has filed a notice of appeal of
the result of the jury trial in Massachusetts and the related judgment. The
judgment in favor of Lone Star is accruing post judgment interest at the rate
of 7.2% per annum. The rights to the recovery of damages in this action have
been assigned to Rosebud pursuant to the plan of reorganization.
In 1989 Lone Star began an action in the Superior Court of the State of
Delaware against the insurance companies which insured it during the 1983 to
1989 period, seeking a declaratory judgment as to their duty under the
applicable policies to indemnify Lone Star for all damages incurred by it in
the various crosstie proceedings 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. A definitive agreement has been reached for a settlement for
$4,200,000 with these three companies. The rights to this settlement and to
certain of the prior settlements were assigned to Rosebud pursuant to the
plan of reorganization.
The Company, along with numerous other parties, has been named a defendant in
a series of toxic tort lawsuits filed in a Texas state court commencing in
March, 1994 in which multiple plaintiffs claim to have suffered injury from
the proximity of deposits of toxic wastes or substances at a site located
near Galveston, Texas. The toxic wastes or substances are alleged to have
been deposited at the site starting in the 1940's. The Company intends to
contest these lawsuits vigorously. Lone Star's insurance carrier has agreed
to provide a defense to these actions subject to reservation of its rights.
The Company has not recorded any provision related to these lawsuits.
Note 14 - Annual Meeting of Stockholders
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, and the reelection to the Board of Directors, of two directors
whose terms were expiring, James E. Bacon and William M. Troutman, with terms
expiring in 1998.
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 Company's
plan of reorganization becoming effective, the Company's financial
statements for the three-month period ended March 31, 1995 are not
comparable to statements for the same prior-year 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, if any, 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 are
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 is less than $88.1
million, the Company guarantee is 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 cannot exceed $28.0 million. If the Company
elects to pay the Company guarantee in five-year notes, such notes
will rank pari passu with the senior notes and will also be secured by
a pledge of the stock of Rosebud owned by the Company.
The asset proceeds notes including the interest thereon are recorded
on the Company's balance sheet at March 31, 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 and the Company guarantee are not sufficient to pay
the principal and interest of the asset proceeds notes, such notes
will not be paid. As of March 31, 1995 the total interest and
principal payments of approximately $73.1 million were paid on the
asset proceeds notes, reducing the maximum amount payable under the
Company guarantee to $15.0 million. In March and May 1995, combined
net proceeds from asset sales of $19.6 million were transferred to the
collateral agent for redemption of asset proceeds notes. These
transfers to the collateral agent effectively fulfill any remaining
obligation related to the guarantee agreement. The remaining face
value of the asset proceeds notes as of March 31, 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.
Following the reorganization, 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 other
certain 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
March 31, 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 $10.2 million for the first
three months of 1995 primarily reflects the funding of operating
requirements.
During the first quarter of 1995, the Company used $6.0 million for
investing activities primarily representing capital expenditures
partly offset by $0.8 million from asset sales.
Net cash outflows from financing activities of $0.4 million reflects a
scheduled $1.5 million payment on the production payment partly offset
by proceeds from the exercise of stock options.
Working capital on March 31, 1995 was $60.4 million, compared to $71.4
million at December 31, 1994. Current assets decreased $13.5 million
principally due to a lower marketable securities balance and lower
accounts receivable due to the seasonal decreases. This decrease was
partly offset by higher inventory also due to the seasonal nature of
the Company's business. Current liabilities decreased $2.4 million
primarily due to lower accounts payable and accrued expenses.
Investments in joint ventures increased $0.7 million due to results
from Kosmos Cement Company, a partnership in which the Company has a
25% interest. Net property, plant and equipment increased $0.5 million
reflecting capital expenditures partly offset by depreciation. A
disbursement of $1.5 million was made for the production payment and
the pension liability decreased by $1.1 million, primarily reflecting
payments made during the three-month period ended March 31, 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 $23.0 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 a receivable for the settlement agreement reached with
the remaining insurance companies related to indemnity in the railroad
crosstie litigation cases and a receivable reflecting agreements in
principle 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 will contribute about $4.2 million and $2.5
million of net proceeds to Rosebud, respectively. 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 the litigation involving Northeast
Cement Company and its affiliates, Lafarge Corporation, and Lafarge
Canada, Inc.
In January 1995, Rosebud received $9.0 million 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, in addition
to other funds on hand generated from asset sales, operations and cash
accumulated for working capital purposes, were also transferred to the
collateral agent to redeem a portion of the asset proceeds notes.
In January 1995, Rosebud sold surplus property in Florida for net cash
proceeds of $1.4 million, of which $0.7 million has been set aside to
cover environmental expenses related to the property sold. In March
1995, Rosebud received net proceeds of $3.7 million from the sale of
surplus property in Texas. Net proceeds of $2.2 million were
transferred to the collateral agent to be used for the redemption of
asset proceeds notes.
In May 1995, an affiliate of Rosebud's partner in the RMC LONESTAR
partnership exercised its option to acquire the stock of the Rosebud
subsidiary which owns the Rosebud 50% interest. Total net proceeds of
$17.5 million were transferred to the collateral agent to be used for
the redemption of asset proceeds notes.
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 three months ended March 31, 1995
did not have a material effect on the financial condition of the
Company (See Note 12).
Cement kiln dust, a by-product of cement manufacturing, is currently
exempted from environmental regulation by the Bevill Amendment to the
Federal Resource Conservation and Recovery Act ("RCRA"). The EPA has
recently completed the Congressionally-mandated study of the potential
hazards posed by cement kiln dust, and on January 31, 1995 issued a
regulatory determination regarding the need for regulatory controls on
the management, handling and disposal of cement kiln dust. Generally
the EPA regulatory determination provided that EPA intends to draft
and promulgate regulations imposing controls on the management,
handling and disposal of cement kiln dust that will be based largely
on selected components of the existing RCRA hazardous waste regulatory
program, tailored to address the specific regulatory concerns posed by
cement kiln dust. The EPA regulatory determination further provided
that the 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 EPA's regulations will provide regarding the imposition
of regulatory controls on the management, handling and disposal of
cement kiln dust, and what, if any, increased costs will be incurred
by the Company to comply with such new regulatory requirements. Until
the new regulations are finally promulgated (which likely will take
substantial time), cement kiln dust will remain exempt from regulation
as a hazardous waste pursuant to the Bevill Amendment (See Note 12).
A series of toxic tort lawsuits filed against numerous parties,
including the Company, currently are not expected to have a material
adverse effect on the Company's financial condition or operating
results (See Note 13).
In April 1995, the Company's Board of Directors declared a $0.05 per
share dividend payable 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 addition the Company's Board of Directors announced that due to the
large number of shareholders who own less than 100 shares as a result
of Lone Star's reorganization in Bankruptcy, the Company will
institute a stock repurchase program for holders of less than 100
shares or allow shareholders to increase their shares owned up to 100
shares. No brokerage commissions will be incurred by shareholders
related to these transactions. The plan is not yet effective.
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 and for accounting purposes
adopted fresh-start reporting as of March 31, 1994. As a result, the
Company's financial statements for the three months ended March 31,
1995 are not comparable to statements for the same prior year 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.
To facilitate a meaningful comparison of the Company's operating
performance, as historical results are non-comparable, the following
discussion and analysis compares the historical results of the three-
month period ended March 31, 1995 with the pro forma results for the
comparable 1994 period (See Note 4). The Company believes that this
comparison is useful in understanding its operating performance for
the current period.
Net Sales
Consolidated net sales for the three months ended March 31, 1995 were
$52.7 million. Cement operations recorded sales of $40.9 million for
the three-month period ended March 31, 1995. Cement sales for the
current three-month period from comparable operations were $4.6
million higher than the prior year comparable period reflecting a 15%
increase in average net realized selling prices due to price increases
implemented during the last three quarters of 1994. Sales volume from
comparable operations approximated that of last year.
Sales of construction aggregates were $5.7 million for the three-month
period ending March 31, 1995. Sales of construction aggregates
increased $2.8 million from the comparable prior year three-month
period primarily due to increased shipments. The increase in
shipments resulted from unusually mild weather in the Northeast in
1995 in contrast to the severe and prolonged winter weather conditions
which existed during 1994.
Ready-mixed concrete and other operations recorded sales of $6.1
million for the three-month period ended March 31, 1995 which
approximated the comparable prior year pro forma results as higher
average selling prices for ready-mixed concrete were offset by lower
shipments.
Gross profits from the cement operations were $4.7 million for the
three months ended March 31, 1995 as compared to a pro forma loss of
$1.7 million for the comparable prior year period primarily reflecting
a 15% increase in overall average net realized selling prices in 1995.
Construction aggregates operations recorded a loss at the gross profit
level of $4.5 million for the first three months of 1995 as compared
to a pro forma loss of $5.8 million for the comparable prior year
period, primarily reflecting increased shipments due to unusually mild
winter conditions in 1995. Gross profits from the ready-mixed
concrete and other construction products of $0.2 million for the first
three months of 1995 were $0.1 million higher than the comparable
prior year period's pro forma results due primarily to higher average
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).
The Company recorded a net loss of $5.1 million or $0.42 loss per
share, for the three-month period ended March 31, 1995. The loss
reflects the seasonal nature of the construction industry and the
expenses incurred at the production facilities for annual winter
maintenance programs. These results represent a 28% improvement over
the comparable prior year period pro forma net loss of $7.1 million,
or $0.59 loss per share, primarily reflecting the impact of cement
price increases during the last three quarters of 1994, the increased
construction aggregates shipments resulting from the mild winter
conditions in the Northeast during 1995, and reduced selling, general
and administrative expenses. The first quarter 1994 pro forma results
include a one-time recovery of a litigation settlement of $6.5
million. This recovery reduced the pro forma after-tax loss by $4.2
million, or $0.35 per share. Net income for the first three months of
1995 reflects joint venture income of $0.7 million, which represents
the Company's share of earnings from Kosmos Cement Company, a
partnership in which the Company has a 25% interest. The reduced
selling, general and administrative expense primarily reflects lower
employee-related expenses achieved by reductions in personnel through
attrition, combined with a corporate downsizing on June 30, 1994 which
eliminated approximately 35% of the salaried positions at the
corporate office.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 13 of Notes to Financial Statements regarding
litigation involving the Company and certain of its
subsidiaries.
See Note 12 of Notes to Financial Statements regarding
environmental proceedings involving the Company and
certain of its subsidiaries.
See also Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial
Condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits
4C(i) First Amendment dated as of March 24, 1995 to
Financing Agreement dated as of April 13, 1994 by
and among Lone Star Industries, Inc., its
subsidiary, New York Trap Rock Corporation, and The
CIT Group/Business Credit, Inc.
11. Computation of earnings per common share.
(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: May 12, 1995 By: JOHN S. JOHNSON
John S. Johnson
Vice President, General
Counsel and Secretary
Date: May 12, 1995 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
INDEX OF EXHIBITS TO QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTERLY PERIOD
ENDING MARCH 31, 1995
OF LONE STAR INDUSTRIES, INC.
Item
No.
1) 4C(i) First Amendment dated as of March 24, 1995 to
Financing Agreement dated as of April 13, 1994 by
and among Lone Star Industries, Inc., its
subsidiary, New York Trap Rock Corporation, and The
CIT Group/Business Credit, Inc.
2) 11. Computation of earnings per common share.
Exhibit 4C(i)
FIRST AMENDMENT
TO
FINANCING AGREEMENT
First Amendment, dated as of March 24, 1995 to the Financing
Agreement, dated as of April 13, 1994 (the "Financing
Agreement"), by and among Lone Star Industries, Inc., a Delaware
corporation ("LSI") and New York Trap Rock Corporation, a
Delaware corporation ("Trap Rock" and together with LSI, each a
"Company" and collectively, the "Companies") and The CIT
Group/Business Credit, Inc. (the "Lender").
The Companies and the Lender desire to (i) increase the
amount of capital expenditures permitted to be made by the
Companies during 1995, (ii) decrease the interest rates to be
charged on Revolving Loans pursuant to the Financing Agreement,
(iii) permit certain additional Restricted Payments (as defined
in the Financing Agreement), and (iv) amend certain other terms
and conditions of the Financing Agreement, in each case on the
terms and conditions hereinafter set forth. Accordingly, the
Companies and the Lender hereby agree as follows:
1. Definitions. All capitalized terms used herein and not
otherwise defined herein are used herein as defined in the
Financing Agreement.
2. New Definitions. The following definitions of the
terms "Carry Over Net Income (Loss)" and "Net Income (Loss)"are
hereby added to Section 1.1 of the Financing Agreement:
"'Carry Over Net Income (Loss)' shall mean for any
fiscal year of LSI commencing after December 31, 1995,
the difference between (i) the aggregate Net Income
(Loss) of LSI and its Consolidated Subsidiaries for the
period commencing with the short fiscal year beginning
on the effective Date and ending December 31, 1994 and
ending at the end of the second immediately preceding
fiscal year and (ii) the amount equal to the product of
(A) 2 and (B) the aggregate amount of Restricted
Payments made pursuant to clause (iii) of Section
7.14(h) of the Financing Agreement.
"'Net Income (Loss)' shall mean, for each fiscal
year of LSI, the net income (or loss) of LSI and its
Consolidated Subsidiaries after income taxes for such
period, but excluding any extraordinary gains and
losses, all computed and consolidated in accordance
with GAAP applied on a basis consistent with the prior
fiscal year."
3. Restricted Payments. Section 7.14(h) of the Financing
Agreement is hereby amended by (i) deleting the word "and" at the
end of subclause (i) thereof and substituting in lieu thereof ","
and (ii) adding the following at the end of subclause (ii) of
Section 7.14(h):
"and (iii) LSI may make additional Restricted Payments
in any fiscal year in an amount not to exceed the
lessor of: (A) 50% of the sum of (x) the Carry Over Net
Income (Loss) and (y) the Net Income of LSI and its
Consolidated Subsidiaries for the immediately preceding
fiscal year of LSI and (B) $10,000,000, provided,
further, that (1) both immediately before and after
giving effect to such Restricted Payment made pursuant
to this clause (iii), no Potential Default or Event of
Default has occurred and is continuing and (2) any
Carry Over Net Income added pursuant to subclause
(A)(x) above shall not exceed $5,000,000 for any fiscal
year."
4. Capital Expenditures. Section 7.15 of the Financing
Agreement is hereby amended by deleting the amount "$33,000,000"
in subclause B of clause (ii) thereof and substituting in lieu
thereof "$50,000,000".
5. Interest Rates. Section 8.1(a) of the Financing
Agreement is hereby amended by (i) deleting the phrase "one and
one quarter percent (1-1/4%) in clause (i) thereof and
substituting in lieu thereof "one percent (1%)" and (ii) deleting
the phrase "three percent (3%)" in clause (ii) thereof and
substituting in lieu thereof "two and three quarters percent (2-
3/4%)".
6. Conditions to Effectiveness. This Amendment shall
become effective only upon satisfaction in full of the following
conditions precedent (the first date upon which all such
conditions have been satisfied being herein called the "Effective
Date"):
(i) The Lender shall have received counterparts of
this Amendment which bear the signatures of Companies.
(ii) All legal matters incident to this Amendment shall
be satisfactory to the Lender and its Counsel.
7. Representations and Warranties. Each of the Companies
represents and warrants to the Lender as follows:
(a) Each Company (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and (ii) has all requisite corporate power, authority
and legal right to execute, deliver and perform this Amendment,
and to perform the Financing Agreement, as amended hereby.
(b) The execution, delivery and performance by the
Companies of this Amendment and the performance by the Companies
of the Financing Agreement as amended hereby (i) have been duly
authorized by all necessary corporate action, (ii) do not and
will not violate or create a default under either Company's
charter or by-laws, any such applicable law or any contractual
restriction binding on or otherwise affecting either Company or
any of such Company's properties, and (iii) except as provided in
the Loan Documents, do not and will not result in or require the
creation of any lien, security interest or other charge or
encumbrance upon or with respect to either Company's property.
(c) No authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority or
other regulatory body is required in connection with the due
execution, delivery and performance by the Companies of the
Financing Agreement as amended hereby.
(d) This Amendment and the Financing Agreement, as
amended hereby, constitute the legal, valid and binding
obligations of the Companies, enforceable against the Companies
in accordance with their terms.
(e) The representations and warranties contained in
Section 6 of the Financing Agreement are correct on and as of the
Effective Date as though made on and as of the Effective Date
(except to the extent such representations and warranties
expressly relate to an earlier date), and no Event of Default or
Potential Default, has occurred and is continuing on and as of
the Effective Date.
8. Continued Effectiveness of Financing Agreement. Each
of the Companies hereby (i) confirms and agrees that each Loan
Document to which it is a party is, and shall continue to be, in
full force and effect and is hereby ratified and confirmed in all
respects except that on and after the Effective Date of this
Amendment all references in any such Loan Document to "the
Financing Agreement", "thereto", "thereof", "thereunder" or words
of like import referring to the Financing Agreement shall mean
the Financing Agreement as amended by this Agreement, and (ii)
confirms and agrees that to the extent that such Loan Document
purports to assign or pledge to the Lender, or to grant to the
Lender a security interest in or lien on, any collateral as
security for the Obligations of the Companies from time to time
existing in respect of the Financing Agreement and the Loan
Documents, such pledge, assignment and/or grant of the security
interest or lien is hereby ratified and confirmed in all
respects.
9. Miscellaneous.
(a) This Amendment may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed to be an original,
but all of which taken together shall constitute one and the same
agreement.
(b) Section and paragraph headings herein are included
for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose.
(c) This Amendment shall be governed by, and construed
in accordance with the laws of the State of New York.
(d) The Companies will pay on demand all fees, costs
and expenses of the Lender in connection with the preparation,
execution and delivery of this Amendment, including, without
limitation, the reasonable fees, disbursements and other charges
of Schulte Roth & Zabel, counsel to the Lender.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto
duly authorized as of the day and year first above written.
COMPANIES
LONE STAR INDUSTRIES, INC.
By: William E. Roberts
Title: VP
NEW YORK TRAP ROCK CORPORATION
By: William E. Roberts
Title: VP
LENDER
THE CIT GROUP/BUSINESS CREDIT, INC.
By: Frank Grimaldi
Title: AVP
EXHIBIT 11
LONE STAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Earnings Per Common Share(Unaudited)
(In Thousands Except Per Share Amounts)
Successor Predecessor
Company Company
For the Three | For the Three
Months Ended | Months Ended
March 31, 1995 | March 31, 1994
|
PER SHARE OF COMMON STOCK - PRIMARY |
|
Loss before preferred dividends.................. $ (5,082) | $ (23,118)
Less: Provisions for preferred dividends........ - | 1,278
Net loss applicable to common stock.............. $ (5,082) | $ (24,396)
|
Weighted average shares outstanding during period 12,067 | n/m(2)
Net loss per common share........................ $ (0.42) | n/m(2)
|
PER SHARE OF COMMON STOCK ASSUMING FULL DILUTION |
|
Loss before preferred dividends.................. $ (5,082) | $ (23,118)
Plus: Net interest expense reduction (1)....... 589 | -
Net loss......................................... $ (4,493) | $ (23,118)
|
Common shares outstanding at beginning of period. 12,000 | n/m
Exercise of options.............................. 70 | -
Conversion of $13.50 preferred shares outstanding |
at beginning of period.......................... - | n/m
Conversion of $4.50 preferred shares outstanding |
at beginning of period.......................... - | n/m
Options and warrants in excess of 20% limit (1).. 2,225 | n/m
|
Fully diluted shares outstanding................. 14,295 | n/m(2)
|
Net loss per common share assuming full |
dilution (3).................................... $ (0.31) | 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 months ended March 31, 1995.
(2) Earning per share for the three months ended March 31, 1994 are not
meaningful due to reorganization and revaluation entries and the
issuance of 12 million shares of new common stock. Earnings per share
amounts for the Successor Company are not comparable to those of the
Predecessor Company.
(3) The computation of fully diluted earnings per share submitted herein is
in accordance with Regulation S-K item 601 (b)(11) although it is
contrary to Paragraph 40 of APB Opinion No. 15 because it produces anti-
dilutive results.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 153
<SECURITIES> 38,640
<RECEIVABLES> 34,241
<ALLOWANCES> 7,349
<INVENTORY> 53,390
<CURRENT-ASSETS> 123,171
<PP&E> 332,623
<DEPRECIATION> 22,147
<TOTAL-ASSETS> 518,520
<CURRENT-LIABILITIES> 62,819
<BONDS> 78,000
<COMMON> 12,070
0
0
<OTHER-SE> 106,371
<TOTAL-LIABILITY-AND-EQUITY> 518,520
<SALES> 52,711
<TOTAL-REVENUES> 54,551
<CGS> 46,575
<TOTAL-COSTS> 60,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,341
<INCOME-PRETAX> (7,819)
<INCOME-TAX> (2,737)
<INCOME-CONTINUING> (5,082)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,082)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
