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 June 30, 1996
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 July 29, 1996:
Common Stock, par value $1 per share - 11,396,467 shares
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, 1996 and 1995
(Unaudited)...........................................3
Consolidated Statements of Retained Earnings -
For the Three and Six Months Ended June 30, 1996 and
1995 (Unaudited)......................................4
Consolidated Balance Sheets - June 30, 1996
(Unaudited) and December 31, 1995.....................5
Consolidated Statements of Cash Flows - For the
Six Months Ended June 30, 1996 and 1995
(Unaudited)...........................................6
Notes to Unaudited Consolidated Financial Statements.....7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........13
PART II. OTHER INFORMATION.......................................18
SIGNATURES.........................................................20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
Consolidated Income 1996 1995 1996 1995
Revenues:
Net sales $102,307 $ 87,553 $155,294 $140,264
Joint venture income 1,947 1,551 2,477 2,224
Other income, net 660 643 2,223 1,810
104,914 89,747 159,994 144,298
Deductions from revenues:
Cost of sales 64,637 55,208 109,578 101,783
Selling, general and
administrative expenses 7,049 7,629 14,260 15,253
Depreciation and depletion 5,790 5,907 11,734 11,737
Interest expense 1,672 2,336 3,546 4,677
79,148 71,080 139,118 133,450
Income before income
taxes 25,766 18,667 20,876 10,848
Provision for income taxes (8,503) (6,534) (6,889) (3,797)
Net income applicable
to common stock $ 17,263 $ 12,133 $ 13,987 $ 7,051
Weighted average common
shares outstanding 11,427 12,071 11,451 12,069
Primary income per common
share $1.26 $0.89 $1.05 $0.58
Fully diluted income
per common share $1.26 $0.89 $1.03 $0.57
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 (Unaudited)
(In Thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Retained earnings, beginning
of period $ 59,465 $ 24,251 $ 63,315 $ 29,333
Net income 17,263 12,133 13,987 7,051
Dividends (571) (604) (1,145) (604)
_________
Retained earnings, end of
period $ 76,157 $ 35,780 $ 76,157 $ 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,
1996 1995
(Unaudited)
Assets:
Current assets:
Cash, including cash equivalents of $32,056
and $47,323 $ 35,171 $ 50,049
Accounts and notes receivable, net 44,511 31,403
Inventories:
Finished goods 29,266 27,392
Work in process and raw materials 9,100 6,812
Supplies and fuel 21,785 21,272
60,151 55,476
Deferred tax asset 10,000 -
Other current assets 4,985 5,289
Total current assets 154,818 142,217
Joint ventures 22,129 21,152
Property, plant and equipment 369,013 349,052
Less accumulated depreciation and depletion 49,074 37,655
319,939 311,397
Deferred tax asset 40,000 -
Other assets and deferred charges 5,477 1,761
Total assets other than liquidating
subsidiary 542,363 476,527
Assets of liquidating subsidiary (See Note 7) - 4,399
Total assets $542,363 $480,926
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 10,823 $ 11,183
Accrued liabilities 47,004 47,320
Other current liabilities 2,218 2,064
Total current liabilities 60,045 60,567
Senior notes payable 78,000 78,000
Postretirement benefits other than pensions 131,686 131,226
Pensions 3,736 6,847
Deferred income taxes 6,689 6,688
Other liabilities 34,242 33,459
Contingencies (Notes 8 and 9) ________ ________
Total liabilities other than liquidating
subsidiary 314,398 316,787
Asset proceeds notes of liquidating subsidiary
(See Note 7) - 4,399
________ ________
Total liabilities 314,398 321,186
Shareholders' Equity:
Common stock 12,084 12,081
Warrants to purchase common stock 15,583 15,597
Additional paid-in capital 139,675 82,709
Retained earnings 76,157 63,315
Treasury stock (15,534) (13,962)
Total shareholders' equity 227,965 159,740
Total liabilities and shareholders'
equity $542,363 $480,926
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 (Unaudited)
(In Thousands)
For the Six Months
Ended June 30,
1996 1995
Cash Flows from Operating Activities:
Net income $ 13,987 $ 7,051
Adjustments to arrive at net cash
provided(used) by operating activities:
Depreciation and depletion 11,734 11,737
Tax benefit realized from utilization
of predecessor company deferred tax
assets 6,889 3,797
Changes in operating assets and
liabilities:
Accounts and notes receivable (13,237) (8,495)
Inventories and other current
assets (3,714) (13,228)
Accounts payable and
accrued liabilities (3,060) (4,007)
Equity income, net of dividends
received (977) (2,224)
Other, net (3,586) (979)
Net cash provided (used) by operating
activities 8,036 (6,348)
Cash Flows from Investing Activities:
Capital expenditures (20,411) (19,655)
Proceeds from sales of assets 66 1,352
Other, net 82 -
Net cash used by investing
activities (20,263) (18,303)
Cash Flows from Financing Activities:
Exercise of warrants 66 9
Purchase of treasury stock (1,572) -
Dividends paid (1,145) (604)
Proceeds from exercise of options - 1,076
Reduction of production payment - (1,500)
Net cash used by financing activities (2,651) (1,019)
Net decrease in cash and cash
equivalents (14,878) (25,670)
Cash and cash equivalents, beginning of
period 50,049 55,398
Cash and cash equivalents, end of period $ 35,171 $ 29,728
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, 1996, and the results
of operations for the three and six months ended June 30, 1996 and 1995,
and the cash flows for the six months ended June 30, 1996 and 1995.
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, 1995. The Company's operations
are seasonal and, consequently, interim results are not indicative of the
results to be expected for a full year.
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 deferred tax assets were
used first to eliminate the reorganization value in excess of amounts
allocable to identifiable assets and then used to increase additional paid-in
capital (See note 6.)
Note 2 - Common Stock
In February and May 1996 the Board of Directors declared $0.05 dividends per
common share, which were paid on March 15, 1996 and June 15, 1996 to
shareholders of record as of March 1, 1996 and June 1, 1996.
As part of its stock repurchase program, in the first six months of 1996 the
Company purchased in open market transactions 52,000 shares of treasury stock
at a total cost of $1,572,000. In July 1996, the Company purchased an
additional 51,400 shares of treasury stock at a cost of $1,589,000.
Note 3 - 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 six months ended June 30,
1996 and 1995 was $3,966,000 and $4,741,000, respectively. Income taxes paid
during the six months ended June 30, 1996 and 1995, were $35,000 and $34,000,
respectively.
Note 4 - Interest
Interest expense of $1,984,000, $3,966,000, $2,376,000 and $4,738,000 has
been accrued for the three and six months ended June 30, 1996 and 1995,
respectively. Interest capitalized during the three and six months ended June
30, 1996 and 1995, was $312,000, $420,000, $40,000 and $61,000, respectively.
Note 5 - 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 Company are calculated using the modified
treasury stock method in accordance with Accounting Principles Board Opinion
No. 15, "Earnings per Share", except when primary and fully diluted earnings
per share are anti-dilutive. Primary earnings per share for the three months
ended June 30, 1996 and 1995 were calculated based on adjusted weighted
average shares outstanding of 13,773,019 and 14,298,174 and net income of
$17,399,000 and $12,691,000, respectively. Primary earnings per share for
the six months ended June 30, 1996 and 1995 were calculated based on adjusted
weighted average shares outstanding of 13,798,153 and 14,296,318 and net
income of $14,511,000 and $8,224,000, respectively.
Note 6 - Deferred Tax Asset
As of December 31, 1995, the Company had various deferred tax assets, net of
deferred tax liabilities, of approximately $98,000,000. These tax assets
were made up primarily of the expected future tax benefit of net operating
loss carryforwards, various credit carryforwards and reserves not yet
deductible for tax purposes. A valuation allowance was provided in full
against these net deferred tax assets upon the Company's emergence from
bankruptcy when fresh-start reporting was adopted.
During the first six months of 1996, $6,889,000 of pre-bankruptcy tax
benefits were utilized allowing for a reduction in the valuation allowance
previously applied against these assets. This reduction has been recorded as
an increase to paid-in capital in accordance with the provisions of AICPA SOP
No. 90-7.
In the second quarter of 1996, the Company further reduced the valuation
allowance related to the remaining net tax assets by $50,000,000. The
reduction reflects the Company's expectation that it is more likely than not
that it will generate at least enough future taxable income to utilize this
amount of net deferred tax assets. The benefit from this reduction is
recorded as an addition to paid-in capital in accordance with SOP 90-7.
Note 7 - Rosebud Holdings, Inc. Liquidating Subsidiary
In connection with its emergence from bankruptcy proceedings on April 14,
1994, the Company transferred certain non-core assets and their related
liabilities, certain other miscellaneous assets and a $5,000,000 cash
investment to a liquidating subsidiary, Rosebud Holdings, Inc. and its
subsidiaries (collectively "Rosebud") for liquidation, and Rosebud issued an
aggregate $138,118,000 initial principal amount of asset proceeds notes. As
of June 30, 1996, most of Rosebud's assets had been liquidated and its
remaining net assets consist of cash and unimproved real estate, net of
certain liabilities related to both sold and existing assets. On June 20,
1996, the asset proceeds notes were paid in full. The Company is under no
obligation to fund additional Rosebud working capital requirements.
Rosebud's assets, which are net of its remaining liabilities, are included in
the Company's June 30, 1996 consolidated balance sheet at zero value. Cash
generated by Rosebud, in excess of its working capital requirements, if any,
will be paid to Lone Star.
The January 1996 interest payment of $220,000 related to the asset proceeds
notes was made in cash. A final principal and interest distribution of
$4,399,000 and $171,000, respectively, was made in June 1996. Total
principal and interest payments of $138,118,000 and $17,129,000,
respectively, had been made as of June 30, 1996.
In January 1996, Rosebud sold surplus property in Washington State for cash
proceeds of $1,358,000. In March 1996, Rosebud sold surplus property in
Virginia for cash proceeds of $200,000. In May 1996, Rosebud sold surplus
property in Texas for cash proceeds of $2,150,000.
Note 8 - Environmental Matters
The Company is subject to extensive, stringent and complex federal, state
and local laws, regulations and ordinances pertaining to the quality and
the protection of the environment and human health and safety, requiring
the Company to devote substantial time and resources in an effort to
maintain continued compliance. Many of the laws and regulations apply to
the Company's former activities, properties and facilities as well as its
current operations. 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 substantially increase the capital, operating and other
costs associated with compliance. Moreover, there can be no assurances
that judicial or administrative proceedings, seeking penalties or
injunctive relief, will not be brought against the Company for alleged
non-compliance with applicable environmental laws and regulations relating
to matters as to which the Company is currently unaware. In addition, if
releases of hazardous substances are discovered to have occurred at
facilities currently or previously owned or operated by the Company, or at
facilities to which the Company has sent waste materials, the Company may
be subject to liability for the investigation and remediation of such
sites.
The federal Water Pollution Control Act, commonly known as the Clean Water
Act, provides a comprehensive federal regulatory scheme governing the
discharge of pollutants to waters of the United States. This regulatory
scheme requires that permits be secured for discharges of wastewater,
including stormwater runoff associated with industrial activity, to waters
of the United States. The Company has secured or has applied for all
required permits in connection with its wastewater and stormwater
discharges.
The Clean Air Act was amended in 1990 to provide for a uniform federal
regulatory scheme governing control of air pollutant emissions and permit
requirements. In addition, certain states in which the Company operates
have enacted laws and regulations governing the emission of air pollutants
and requiring permits for sources of air pollutants. As a result of the
1990 amendments to the Clean Air Act, the Company is required to apply for
federal operating permits for each of its cement manufacturing facilities
at various dates ranging from 1996 through 1999. As part of the
permitting process, the Company may be required to install equipment to
monitor emissions of air pollutants from its facilities. In addition, the
Clean Air Act amendments require the United States Environmental
Protection Agency ("EPA") to develop regulations directed at reducing
emissions of toxic air pollutants from a variety of industrial sources,
including the portland cement manufacturing industry. As part of this
process, the EPA will identify maximum available control technology
("MACT") for the reduction of emissions of air toxins from cement
manufacturing facilities. Following the EPA's promulgations of MACT for
the cement industry, the Company, like others in the industry, may be
required to install additional control technology at its cement
manufacturing facilities and meet more stringent air emissions standards.
On March 20, 1996, the EPA announced proposed separate, more stringent
MACT standards for those cement manufacturing facilities (like Lone Star's
Greencastle and Cape Girardeau plants) that burn hazardous waste fuels
("HWF"). These standards, which are subject to public comment and are not
anticipated by the Company to be in full force and effect prior to late
1997 or early 1998, are extremely lengthy and complex, and depending on
their terms when they become effective, could have the effect of limiting
or eliminating the use of HWF at one or both facilities.
Cement kiln dust ("CKD"), a by-product of cement manufacturing, is
currently exempted from regulation as a hazardous waste pursuant to the
Bevill Amendment to the Resource Conservation and Recovery Act ("RCRA").
However, on January 31, 1995 the EPA issued a regulatory determination
regarding the need for regulatory controls on the management, handling and
disposal of CKD. Generally, the EPA 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 RCRA hazardous waste regulatory
program, tailored to address the specific regulatory concerns posed by
CKD. The EPA regulatory determination further provides that new CKD
regulations will be designed both to be protective of the environment and
to minimize the burden on cement manufacturers. While it is not possible
to predict at this time what, if any, new regulatory controls on the
management, handling and disposal of CKD or what increased costs (or range
of costs), if any, would be incurred by the Company to comply with these
requirements, the EPA has recently announced that the regulations will be
promulgated through a rulemaking scheduled to be completed in mid-1997.
The types of controls being considered by the EPA include fugitive dust
emission controls, restrictions for landfills located in sensitive areas,
groundwater monitoring, standards for liners and caps, metals limits and
corrective action for currently active units.
On July 20, 1995, the State of Indiana made a determination that the CKD
stored at the Company's Greencastle plant is a type I waste and requested
that the Company apply for a formal permit for an on-site landfill for the
CKD. The Company understands that similar notices were sent to other
cement manufacturers in the State of Indiana. The Company is protesting
this determination through legal channels and has received a stay to allow
it to demonstrate that current management practices pose no threat to the
environment. The Company believes that the State's determination
ultimately will be reversed or the Company will receive the needed permit
or other adequate relief, such as an agreed order requiring certain
additional waste management procedures that are less stringent than those
required for type I wastes. If the Company is not successful in this
regard, however, like other Indiana cement producers, the Greencastle
plant could incur substantially increased operating and capital costs.
The Cape Girardeau, Missouri and Greencastle, Indiana plants, which are
the Company's two cement manufacturing facilities using hazardous waste
fuels ("HWF") as a cost saving energy source, are subject to strict
federal, state and local requirements governing hazardous waste treatment,
storage and disposal facilities, including those contained in the Boiler
and Industrial Furnace Regulations promulgated under RCRA (the "BIF
Rules"). These facilities 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, in the past Lone Star has been involved in
certain environmental enforcement proceedings seeking civil penalties and
injunctive relief for past non-compliance, and there can be no assurances
that the Company 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
continue to burn HWF. As a result of a court decision vacating a BIF
Rules air emission standard, the Company temporarily curtailed its use of
HWF at the Greencastle plant. The Company completed compliance testing in
August 1995, has recertified under interim status and has commenced
burning HWF.
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 also will go through this
permitting process in late 1996. These permits are a requirement to
enable Lone Star 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. In addition, if received, the permits could contain
terms and conditions with which the Company cannot comply or could require
the Company to install and operate costly control technology equipment.
The Texas Natural Resource Conservation Committee ("TNRCC") has issued a
notice of violations in respect of certain air permitting application
matters at the Company's Maryneal, Texas plant. The TNRCC has also
investigated certain solid waste and water matters, and has had several
conferences and correspondence with the Company concerning all of these
matters. The TNRCC has advised the Company that it will propose formal
enforcement action in respect of the Company's air permits, which could
include a penalty and injunctive relief, and will require certain
additional safeguards in respect of solid waste disposal. The Company does
not expect that these matters will have a material adverse affect on its
Maryneal, Texas operations.
Past operations of the Company, certain of its subsidiaries, or its
predecessors have resulted in releases of hazardous substances at sites
currently or formerly owned by the Company and certain of its subsidiaries
or where waste materials generated by the Company have been disposed. CKD
and other materials were placed in depleted quarries and other locations
for many years. The Company has been named by the EPA as a potentially
responsible party for the investigation and remediation of several
Superfund sites. Available factual information indicates that the
Company's disposal of waste at these sites (other than sites that are
remediated or as to which the Company has entered into settlement
agreements with the EPA) was small or non-existent, and the Company may
have certain defenses arising out of its reorganization. In certain
instances the Company has availed itself of settlement offers it has found
attractive. The Company recently received a letter from the EPA Region 4
reasserting a claim for approximately $830,000 of oversight costs
associated with the Company's cleanup of the site of a former woodtreating
operation in Dania, Florida. The Company plans to contest this claim. The
Company is also reviewing certain of its inactive properties to determine
if any remedial action may be required at these sites.
Note 9 - Litigation
From time to time the Company is named as a defendant in lawsuits
asserting product liability for which the Company maintains insurance
coverage. In late 1995 an office building in Boston, Massachusetts,
constructed in 1983 using concrete pilings produced by San-Vel Concrete
Corporation ("San- Vel"), an inactive Lone Star subsidiary, was demolished
by order of the City of Boston based upon an engineering report that the
pilings were unreliable. The owner of the demolished building has notified
the Company, among others, that it intends to hold responsible parties
liable. At the request of the City of Boston, San-Vel has provided a list
of the approximate twenty-five other buildings built in that City between
1980 and 1990 using San-Vel pilings. The City has reportedly inspected
these buildings visually, without noting any apparent piling failure,
although engineering studies are being conducted with final results
expected soon. The Company believes that the cement component of the
concrete used to produce the pilings in certain of these buildings,
including the demolished building, was produced by it at one of its former
cement plants. There has been no indication that the cement was
defective. The Company is conducting an investigation into these matters
and believes that it has both insurance coverage and good defenses to any
claim of liability that may be asserted against it relating to the
demolished building.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Company believes that cash and marketable securities on hand of
$35.2 million and funds generated by operations will be adequate to
cover current working capital and capital expenditure needs.
Cash generated by operating activities of $8.0 million for the first
six months of 1996 primarily reflects income from operations and
changes in working capital.
During the first six months of 1996, the Company used $20.3 million
for investing activities primarily representing capital expenditures.
Net cash outflows from financing activities of $2.7 million reflects
the purchase of treasury stock and the payment of cash dividends.
Working capital on June 30, 1996 was $94.8 million, compared to $81.7
million at December 31, 1995. Current assets increased $12.6 million
principally due to the reduction of a valuation allowance resulting in
a $50.0 million deferred tax asset of which $10.0 million is
classified as current. The increase in current assets also reflects
higher accounts receivable and inventories due to the seasonal nature
of the Company's business, partly offset by lower marketable
securities. Current liabilities decreased $0.5 million primarily due
to lower accounts payable and accrued expenses.
Investments in joint ventures increased $1.0 million reflecting $2.5
million equity income from Kosmos Cement Company, partly offset by a
$1.5 million cash dividend. Net property, plant and equipment
increased $8.5 million reflecting capital expenditures partly offset
by depreciation. The pension liability decreased by $3.1 million,
primarily reflecting payments made during the six-month period ended
June 30, 1996 in excess of expenses.
In June 1996, Rosebud Holdings, Inc. declared a principal redemption
of the remaining $4.4 million of assets proceeds notes. With this
payment the asset proceeds notes were paid one year ahead of their
maturity date.
In May 1996, the Company's Board of Directors declared a $0.05 per
share dividend paid on June 15, 1996 to shareholders of record as of
June 1, 1996. This dividend represents the fifth consecutive
quarterly cash dividend paid since the Company resumed dividend
payments in June 1995.
As part of its stock purchase program, during the first six months of
1996 the Company repurchased in open market transactions an additional
52,000 shares of treasury stock at a total cost of approximately $1.6
million.
Upon emergence from bankruptcy, the Company had various deferred tax
assets arising from operating loss carryforwards, various credit
carryforwards and reserves not yet deductible for tax purposes, but
provided a full valuation allowance against these assets. Based on
the current expectation that the Company is more likely than not to
generate enough future taxable income to utilize a portion of these
deferred tax assets, the Company reduced this valuation allowance by
$50.0 million in the second quarter of 1996. The benefit from this
reduction is shown as an addition to paid-in capital in accordance
with the provisions of AICPA Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code".
The Company is subject to extensive, stringent and complex federal,
state and local laws, regulations and ordinances pertaining to the
quality and the protection of the environment and human health and
safety, requiring the Company to devote substantial time and resources
in an effort to maintain continued compliance. Many of the laws and
regulations apply to the Company's former activities, properties and
facilities as well as its current operations. 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
substantially increase the capital, operating and other costs
associated with compliance. Morever, there can be no assurances that
judicial or administrative proceedings, seeking penalties or
injunctive relief, will not be brought against the Company for alleged
non-compliance with applicable environmental laws and regulations
relating to matters as to which the Company is currently unaware. In
addition, if releases of hazardous substances are discovered to have
occurred at facilities currently or previously owned or operated by
the Company, or at facilities to which the Company has sent waste
materials, the Company may be subject to liability for the
investigation and remediation of such sites.
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, 1996
did not have a material effect on the financial condition of the
Company.
Results of Operations
Net Sales
Consolidated net sales of $102.3 million for the second quarter of
1996 and $155.3 million for the first six months were $14.8 million
and $15.0 million, respectively, above the comparable prior-year
periods. The increase in net sales reflects the impact of cement
price increases implemented in April 1996 and during the last six
months of 1995 combined with higher cement shipments. Also
contributing to the favorable sales were higher ready-mixed concrete
average selling prices and shipments partly offset by lower shipments
of construction aggregates.
Cement operations recorded sales for the second quarter and first six
months of 1996 of $75.4 million and $118.4 million, respectively.
Cement sales for the current three and six-month periods were $13.5
million and $15.5 million, respectively, higher than the comparable
prior-year periods. Cement shipments for the second quarter and for
first six months of 1996 were 17% and 9%, respectively, above the
comparable prior-year periods due to strong demand particularly in the
southwestern states. Cement average net realized selling prices for
the three and six-month periods ended June 30, 1996 were 4% and 6%,
respectively, above the comparable prior-year periods.
Sales of construction aggregates for the second quarter and first six
months of 1996 were $13.5 million and $16.6 million, respectively.
Construction aggregates sales for the current three and six-month
periods were $2.0 million and $4.6 million below the comparable prior-
year periods. This decrease is primarily due to the sale of the Nova
Scotia, Canada quarry in the fourth quarter of 1995. New York Trap
Rock recorded an increase in sales of $1.4 million and $0.6 million,
respectively, for the current three and six-month periods primarily
due to higher average selling prices for both periods, and higher
shipments in the second quarter.
Ready-mixed concrete and other operations recorded sales of $13.4
million and $20.3 million for the current three and six-month periods,
which were $3.3 million and $4.1 million, respectively, above the
comparable prior-year periods. The improvement is primarily due to
increased shipments and higher average selling prices at all
locations, with particularly strong demand at the Memphis, Tennessee
operations.
The Company's operations are seasonal and, consequently, the interim
results are not indicative of the results to be expected for the full
year.
Gross profit from the cement operations was $24.8 million and $30.7
million for the three and six months ended June 30, 1996 as compared
to a gross profit of $21.6 million and $26.3 million, respectively,
for the comparable prior-year periods. These results primarily
reflect a 17% increase in shipments with a 4% increase in average net
realized selling prices for the second quarter, and a 9% increase in
overall shipments and a 6% increase in overall average net realized
selling prices for the first six months of 1996.
Construction aggregates recorded gross profit of $4.2 million and $0.1
million for the current three and six-month periods as compared to a
gross profit of $3.3 million for the 1995 second quarter and a loss at
the gross profit level of $0.9 million for the first six months of
1995. This improvement reflects favorable results from New York Trap
Rock operations and the elimination in 1996 of lease costs associated
with the Company's purchase of the fleet of barges used by New York
Trap Rock in late June 1995, partly offset by the effects of the sale
of the Nova Scotia quarry in the fourth quarter of 1995.
Gross profit from the ready-mixed concrete and other construction
products of $3.0 million and $3.4 million, respectively, for the three
and six months ended June 30, 1996 was $1.4 million and $1.8 million,
respectively, higher than the comparable prior-year periods, primarily
due to higher shipments and higher average net realized selling prices
at all locations, with particularly strong results from the Memphis,
Tennessee operations.
Included in the calculation of gross profit are sales less cost of
sales including depreciation related to cost of sales (which excludes
depreciation of office equipment, furniture and fixtures which are not
related to the cost of sales).
Pre-tax income from joint ventures of $1.9 million and $2.5 million,
respectively, for the three and six-month periods of 1996 were $0.4
million and $0.3 million, respectively, higher than the comparable
prior-year periods. This represents the Company's share of earnings
from the Kosmos Cement Company, resulting primarily from higher cement
shipments and higher average net realized selling prices.
Other income of $0.7 million and $2.2 million for the current three
and six-month periods approximated the second quarter 1995 and was
$0.4 million higher than the prior-year six-month period. The 1996
year-to-date increase resulted from the receipt of a sales and use tax
refund, including interest, related to a prior-year.
Selling, general and administrative expenses decreased $0.6 million
and $1.0 million, respectively, for the 1996 three and six-month
periods primarily due to lower pension and other postretirement
benefit expenses and lower corporate headquarters expenses.
Interest expense decreased $0.7 million and $1.1 million for the three
and six-months ended June 30, 1996 from the comparable prior-year
periods. The decrease in primarily attributable to paying the
production payment liability in December 1995.
The income tax expense of $8.5 million and $6.9 million, for the
second quarter and first six months of 1996 increased $2.0 million and
$3.1 million, respectively, from the comparable 1995 periods,
primarily due to higher pre-tax income, partly offset by a lower
effective tax rate for 1996.
Net income of $17.3 million, or $1.26 per share, for the second
quarter of 1996 was $5.1 million, or $0.37 per share better than the
comparable prior-year period. This represents a 42% improvement in
earnings per share over the 1995 second quarter. The improvement was
primarily due to the realization of cement price increases over the
last six months of 1995 and in April 1996, and higher cement
shipments. The second quarter improvement was also due to favorable
results from the ready-mixed concrete operations on higher average
selling prices and increased shipments and improved earnings from
construction aggregates operations and the Kosmos Cement Company joint
venture in addition to lower selling, general and administrative
expenses and decreased interest expense. The favorable second quarter
1996 results were partly offset by higher cost sales associated with
increased shipments and higher income taxes primarily due to higher
pre-tax earnings.
Net income of $14.0 million, or $1.05 per share for the first six
months of 1996 was $6.9 million, or $0.47 per share favorable to the
comparable prior-year period. The increase was due primarily to the
impact of cement price increases in April 1996 and the last six months
of 1995, combined with higher cement shipments. Also contributing to
the increase were favorable results from the ready-mixed concrete
operations attributable to higher average selling prices and higher
shipments. Improved results were also recognized from the
construction aggregates operations, and the Kosmos Cement Company
joint venture in addition to higher other income, decreased selling,
general and administrative expenses and lower interest expense. The
improvement in net income was partly offset by increased cost of sales
associated with increased shipments and higher income tax expense in
1996 on higher pre-tax earnings.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was
held on May 16, 1996.
(b) The names of each director elected at the Annual Meeting
are: Theodore F. Brophy, Robert G. Schwartz and Jack R.
Wentworth. 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: James E.
Bacon, Arthur B. Newman, Allen E. Puckett, William M.
Troutman and David W. Wallace.
(c) The following were the matters voted upon at the Annual
Meeting and the number of votes cost 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:
Theodore F. Brophy For: 10,303,513
Withheld: 269,676
Robert G. Schwartz For: 10,306,707
Withheld: 266,482
Jack R. Wentworth For: 10,264,441
Withheld: 308,748
2. Upon the approval of the Lone Star
Industries, Inc. 1996 Long Term
Incentive Plan:
For: 8,293,793
Against: 1,282,432
Abstain and
Broker Non-Votes: 23,708
3. Upon the approval of the Voluntary
Deferred Compensation Plan for Non-
Employee Directors
For: 9,013,493
Against: 467,079
Abstain and
Broker Non-Votes: 119,361
4. Upon the ratification of the
appointment of Coopers & Lybrand
L.L.P as auditors of the Company
for the year 1996
For: 10,515,090
Against: 6,790
Abstain and
Broker Non-Votes: 51,309
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
11. Statement Re Computation of Per Share Earnings.
12. Statement Re Computation of Ratio of Earnings to
Fixed Charges.
27. Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K, May 14, 1996 - Item 5 - Other Events.
Form 8-K, July 25, 1996 - Item 5 - Other Events.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Lone Star Industries, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
LONE STAR INDUSTRIES, INC.
Date: August 2, 1996 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: August 2, 1996 By: JAMES W. LANGHAM
James W. Langham
Vice President, General
Counsel and Secretary
EXHIBIT 11
LONE STAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Earnings Per Common Share (Unaudited)
(In Thousands Except Per Share Amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
PER SHARE OF COMMON STOCK - PRIMARY
Net income $ 17,263 $ 12,133 $ 13,987 $ 7,051
Net interest expense reduction (1) 136 558 524 1,172
Net income applicable to
common stock $ 17,399 $ 12,691 $ 14,511 $ 8,223
Weighted average shares outstanding
during period 11,427 12,071 11,451 12,069
Options and warrants in excess of
20% limit (1) 2,346 2,227 2,347 2,227
Weighted average shares outstanding
during period 13,773 14,298 13,798 14,296
Net income per common share $ 1.26 $ 0.89 $ 1.05 $ 0.58
PER SHARE OF COMMON STOCK ASSUMING
FULL DILUTION
Net income $ 17,263 $ 12,133 $ 13,987 $ 7,051
Plus: Net interest expense
reduction (1) 135 537 270 1,072
Net income applicable to common
stock $ 17,398 $ 12,670 $ 14,257 $ 8,123
Weighted average shares outstanding
during period 11,427 12,071 11,451 12,069
Options and warrants in excess of
20% limit (1) 2,346 2,227 2,347 2,227
Fully diluted shares outstanding 13,773 14,298 13,798 14,296
Net income per common share assuming
full dilution $ 1.26 $ 0.89 $ 1.03 $ 0.57
(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, 1996 and 1995.
Exhibit 12
LONE STAR INDUSTRIES, INC.
Statement Re Computation of Ratio of Earnings to Fixed Charges (Unaudited)
(Dollar amounts in thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Earnings Available:
Income before provision
for income taxes $ 25,766 $ 18,667 $ 20,876 $10,848
Less: Excess of earnings over
dividends of less than fifty
percent owned companies (1,947) (1,551) ( 977) (2,224)
Capitalized interest (312) (40) (420) (61)
23,507 17,076 19,479 8,563
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt
discount and expenses 1,984 2,376 3,966 4,738
Portion of rent expense
representative of an
interest factor 281 544 543 1,088
Total Fixed Charges 2,265 2,920 4,509 5,826
________ ________ ________ _______
Total Earnings Available $ 25,772 $ 19,996 $ 23,988 $14,389
Ratio of Earnings to Fixed Charges 10,86X 6.85X 5.45X 2.47X
Earnings deficiency $ 0 $ 0 $ 0 $ 0
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,115
<SECURITIES> 32,056
<RECEIVABLES> 50,526
<ALLOWANCES> 6,015
<INVENTORY> 60,151
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<PP&E> 369,013
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0
0
<COMMON> 12,084
<OTHER-SE> 215,881
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<SALES> 155,294
<TOTAL-REVENUES> 159,994
<CGS> 109,578
<TOTAL-COSTS> 135,572
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<INCOME-PRETAX> 20,876
<INCOME-TAX> (6,889)
<INCOME-CONTINUING> 13,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 13,987
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