FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 4, 1996:
Common Stock, par value $1 per share - 10,637,158 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three and Nine Months Ended September 30, 1996 and
1995 (Unaudited)......................................3
Consolidated Statements of Retained Earnings -
For the Three and Nine Months Ended September 30, 1996
and 1995 (Unaudited)..................................4
Consolidated Balance Sheets - September 30, 1996
(Unaudited) and December 31, 1995.....................5
Consolidated Statements of Cash Flows - For the
Nine Months Ended September 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...........14
PART II. OTHER INFORMATION.......................................19
SIGNATURES.........................................................20
2
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 Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Revenues:
Net sales $118,349 $100,611 $273,643 $240,875
Joint venture income 2,967 2,734 5,444 4,958
Other income, net 701 1,399 2,924 3,209
122,017 104,744 282,011 249,042
Deductions from revenues:
Cost of sales 69,388 63,022 178,966 164,805
Selling, general and
administrative expenses 6,606 6,521 20,866 21,774
Depreciation and depletion 6,088 6,258 17,822 17,995
Interest expense 1,664 2,220 5,210 6,897
83,746 78,021 222,864 211,471
Income before income
taxes 38,271 26,723 59,147 37,571
Provision for income taxes (12,925) (8,601) (19,814) (12,398)
Net income applicable
to common stock $ 25,346 $ 18,122 $ 39,333 $ 25,173
Weighted average common
shares outstanding 11,369 12,068 11,424 12,068
Primary income per common
share $1.86 $1.30 $2.91 $1.88
Fully diluted income
per common share $1.86 $1.30 $2.90 $1.86
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 Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Retained earnings, beginning
of period $ 76,157 $ 35,780 $ 63,315 $ 29,333
Net income 25,346 18,122 39,333 25,173
Dividends (568) (603) (1,713) (1,207)
Retained earnings, end of
period $ 100,935 $ 53,299 $ 100,935 $ 53,299
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
LONE STAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
1996 1995
(Unaudited)
Assets:
Current assets:
Cash, including cash equivalents of $54,624
and $47,323 $ 58,308 $ 50,049
Accounts and notes receivable, net 48,191 31,403
Inventories:
Finished goods 21,718 27,392
Work in process and raw materials 7,292 6,812
Supplies and fuel 22,361 21,272
51,371 55,476
Deferred tax asset 10,000 -
Other current assets 4,067 5,289
Total current assets 171,937 142,217
Joint ventures 20,721 21,152
Property, plant and equipment 376,171 349,052
Less accumulated depreciation and depletion 54,984 37,655
321,187 311,397
Deferred tax asset 27,405 -
Other assets and deferred charges 8,256 1,761
Total assets other than liquidating
subsidiary 549,506 476,527
Assets of liquidating subsidiary (See Note 8) - 4,399
Total assets $549,506 $480,926
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 10,815 $ 11,183
Accrued liabilities 40,815 47,320
Other current liabilities 1,970 2,064
Total current liabilities 53,600 60,567
Senior notes payable 78,000 78,000
Postretirement benefits other than pensions 131,212 131,226
Pensions - 6,770
Deferred income taxes 6,688 6,688
Other liabilities 32,383 33,536
Contingencies (Notes 9 and 10)
Total liabilities other than liquidating
subsidiary 301,883 316,787
Asset proceeds notes of liquidating subsidiary
(See Note 8) - 4,399
Total liabilities 301,883 321,186
Shareholders' Equity:
Common stock 12,085 12,081
Warrants to purchase common stock 15,579 15,597
Additional paid-in capital 139,334 82,709
Retained earnings 100,935 63,315
Treasury stock, at cost (20,310) (13,962)
Total shareholders' equity 247,623 159,740
Total liabilities and shareholders'
equity $549,506 $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 Nine Months
Ended September 30,
1996 1995
Cash Flows from Operating Activities:
Net income $ 39,333 $ 25,173
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and depletion 17,822 17,996
Tax benefit realized from utilization
of predecessor company deferred tax
assets 19,814 12,398
Changes in operating assets and
liabilities:
Accounts and notes receivable (16,986) (13,484)
Inventories and other current
assets 5,984 (11,165)
Accounts payable and
accrued liabilities (6,761) (5,887)
Equity income, net of dividends
received 556 (3,708)
Pension funding in excess of expense (13,345) (3,668)
Other, net 169 2,088
Net cash provided by operating
activities 46,586 19,743
Cash Flows from Investing Activities:
Capital expenditures (29,765) (26,563)
Proceeds from sales of assets 81 1,516
Other, net 32 -
Net cash used by investing
activities (29,652) (25,047)
Cash Flows from Financing Activities:
Exercise of warrants 86 55
Purchase of treasury stock (8,191) (84)
Dividends paid (1,713) (1,207)
Proceeds from exercise of options 1,143 1,076
Reduction of production payment - (3,000)
Net cash used by financing activities (8,675) (3,160)
Net increase (decrease) in cash and
cash equivalents 8,259 (8,464)
Cash and cash equivalents, beginning of
period 50,049 55,398
Cash and cash equivalents, end of period $ 58,308 $ 46,934
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position of the Company as of September 30, 1996, and the
results of operations for the three and nine months ended September 30,
1996 and 1995, and the cash flows for the nine months ended September 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, May and August 1996 the Board of Directors declared $0.05
dividends per common share, which were paid on March 15, 1996, June 15, 1996
and September 16, 1996 to shareholders of record as of March 1, 1996, June 1,
1996 and September 1, 1996.
As part of its stock repurchase program, in the first nine months of 1996 the
Company purchased in open market transactions 263,600 shares of treasury
stock at a total cost of $8,175,000. In October 1996, the Company purchased
an additional 8,800 shares of treasury stock in open market transactions at a
cost of $282,000 and 700,000 shares of its common stock in private
transactions for $25,200,000.
In October 1996, the Company's credit agreement was amended to increase the
allowed stock repurchases by an additional $20,000,000.
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 nine months ended
September 30, 1996 and 1995 was $7,899,000 and $9,042,000, respectively.
Income taxes paid during the nine months ended September 30, 1996 and 1995,
were $293,000 and $114,000, respectively.
Note 4 - Interest
Interest expense of $1,982,000, $5,948,000, $2,317,000 and $7,055,000 has
been accrued for the three and nine months ended September 30, 1996 and 1995,
respectively. Interest capitalized during the three and nine months ended
September 30, 1996 and 1995, was $318,000, $738,000, $97,000 and $158,000,
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 September 30, 1996 and 1995 were calculated based on adjusted weighted
average shares outstanding of 13,708,843 and 14,295,932 and net income of
$25,566,000 and $18,618,000, respectively. Primary earnings per share for
the nine months ended September 30, 1996 and 1995 were calculated based on
adjusted weighted average shares outstanding of 13,787,591 and 14,296,526 and
net income of $40,102,000 and $26,872,000, 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.
During the third quarter of 1996, an additional $12,925,000 of pre-bankruptcy
tax benefits were utilized, and were recorded as a reduction of the deferred
tax asset.
Note 7 - Pension Plans
In September 1996, the Company contributed $10,354,000 to its pension plans.
As a result, the Pension Benefit Guaranty Corporation has released its
mortgage on the Company's Oglesby, Illinois cement plant and its security
interest in the Kosmos Cement Company partnership.
Note 8 - 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 September 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 September 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 September 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. In August 1996, Rosebud
sold surplus property in Washington State for cash proceeds of $3,827,000.
Note 9 - 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. 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 are subject to public
comment and are not anticipated by the Company to be effective prior to
early 1998 and, thereafter, will be implemented over a three-year period.
They 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. The Company anticipates that
standards for facilities burning fossil fuels will be initially proposed
in the first quarter of 1997.
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,
and that, thereafter, these rules would be implemented over a four-year
period. 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.
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 1997. 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.
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 has received a letter from EPA Region 4
reasserting a claim for approximately $830,000 of oversight costs and
accrued interest 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 10 - 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 this regard, the Company is one of many defendants,
including several cement manufacturers, named in two products liability
lawsuits in southern Texas that allege that cement is an unreasonably
dangerous product that has injured a large number of plaintiffs. The
Company believes this type of litigation is totally without merit and
plans to contest the lawsuits vigorously. 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 approximately 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 formerly owned cement plants. There has been no indication
that the cement was defective. The Company believes that it has good
defenses to any claim of liability that may be asserted against it
relating to the demolished building. The Company has also been named in a
lawsuit asserting that it has successor liability for certain defunct
subsidiaries which allegedly manufactured faulty prestressed "double
tees," resulting in property damage to a retail store (and consequent loss
of business) in south Florida during Hurricane Andrew in 1992. All of
these matters are being defended by the Company's insurers.
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
$58.3 million and funds generated by operations will be adequate to
cover current working capital and capital expenditure needs.
Cash generated by operating activities of $46.6 million for the first
nine months of 1996 primarily reflects income from operations and
changes in working capital.
During the first nine months of 1996, the Company used $29.7 million
for investing activities primarily representing capital expenditures.
Net cash outflows from financing activities of $8.7 million reflects
the purchase of treasury stock and the payment of cash dividends,
partly offset by proceeds from the exercise of stock options.
Working capital on September 30, 1996 was $118.3 million, compared to
$81.7 million at December 31, 1995. Current assets increased $29.7
million principally due to higher accounts receivable and a higher
marketable securities balance reflecting the seasonal nature of the
Company's business, partly offset by lower inventory and lower prepaid
expenses. Also contributing to the increase in working capital was
the June 1996 reduction of a valuation allowance resulting in a $50.0
million deferred tax asset of which $10.0 million is classified as
current. During the third quarter of 1996 the deferred tax asset
decreased by $12.9 million reflecting the current period utilization.
Current liabilities decreased $7.0 million primarily due to pension
contributions and interest payments made during the nine-month period.
Investments in joint ventures decreased $0.4 million reflecting cash
dividends received of $6.0 million partly offset by equity income from
Kosmos Cement Company. Net property, plant and equipment increased
$9.8 million reflecting capital expenditures partly offset by
depreciation. The non-current pension liability decreased by $6.8
million, primarily reflecting payments made during the nine-month
period ended September 30, 1996 in excess of expenses.
In June 1996, Rosebud Holdings, Inc. declared a principal redemption
of the remaining $4.4 million of asset proceeds notes. With this
payment the asset proceeds notes were paid in full one year ahead of
their maturity date.
In August 1996, the Company's Board of Directors declared a $0.05 per
share dividend paid on September 16, 1996 to shareholders of record as
of September 1, 1996. Previously in 1996, two additional dividends of
$0.05 per share were paid to shareholders.
As part of its stock purchase program, during the first nine months of
1996 the Company repurchased in open market transactions an additional
263,600 shares of treasury stock at a total cost of $8.2 million. In
October 1996 the Company purchased 708,800 shares of its common stock
for $25.5 million.
The Company contributed an additional $10.4 million to the hourly and
salaried pension plans in the third quarter of 1996. The pension
plans are now considered to be fully funded and as a result the
Pension Benefit Guaranty Corporation agreed to release its liens on
the Oglesby, Illinois cement plant and the Company's interest in the
Kosmos Cement Company.
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".
During the third quarter of 1996 the deferred tax asset decreased by
$12.9 million reflecting the current period utilization.
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 nine months ended September 30,
1996 did not have a material effect on the financial condition of the
Company.
Results of Operations
Net Sales
Consolidated net sales of $118.3 million for the third quarter of 1996
and $273.6 million for the first nine months were $17.7 million and
$32.8 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 nine 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 third quarter and first nine
months of 1996 of $87.7 million and $206.1 million, respectively.
Cement sales for the current three and nine-month periods were $16.2
million and $31.7 million, respectively, higher than the comparable
prior-year periods. Cement shipments for the third quarter and for
first nine months of 1996 were 17% and 12%, respectively, above the
comparable prior-year periods due to strong demand for cement, better
weather conditions in the second and third quarters of 1996 compared
to 1995 and higher sales of slag cement. Cement average net realized
selling prices for the three and nine-month periods ended September
30, 1996 were 5% and 6%, respectively, above the comparable prior-year
periods.
Sales of construction aggregates for the third quarter and first nine
months of 1996 were $16.6 million and $33.3 million, respectively.
Construction aggregates sales for the current three and nine-month
periods were $0.7 million and $5.3 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 $2.2 million and $2.9 million,
respectively, for the current three and nine-month periods primarily
due to higher shipments and higher average selling prices.
Ready-mixed concrete and other operations recorded sales of $14.0
million and $34.3 million for the current three and nine-month
periods, which were $2.2 million and $6.3 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 $35.9 million and $66.6
million for the three and nine months ended September 30, 1996 as
compared to a gross profit of $25.2 million and $51.6 million,
respectively, for the comparable prior-year periods. These results
primarily reflect the increases in shipments and the increases in
average net realized selling prices for both periods.
Construction aggregates recorded gross profit of $3.7 million and $3.9
million for the current three and nine-month periods as compared to a
gross profit of $3.8 million for the 1995 third quarter and $3.0
million for the first nine 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 $3.4 million and $6.8 million, respectively, for the three
and nine months ended September 30, 1996 was $1.0 million and $2.8
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.
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 $3.0 million and $5.4 million,
respectively, for the three and nine-month periods of 1996 were $0.2
million and $0.5 million, respectively, higher than the comparable
prior-year periods. This represents the Company's share of earnings
from the Kosmos Cement Company. The increase resulted primarily from
higher average net realized selling prices.
Other income of $0.7 million for the three months ended September 30,
1996 was $0.7 million lower than the comparable prior-year period
primarily due to lower insurance proceeds resulting from prior-year
claims received in the third quarter of 1995. Other income for the
1996 nine-month period was $0.3 million lower than the comparable
prior-year period due to lower rental income, and the insurance
proceeds received in the third quarter of 1995 which did not recur in
1996, partly offset by the receipt in first quarter 1996 of a sales
and use tax refund, including interest, related to a prior-year.
Selling, general and administrative expenses for the 1996 three-month
period approximated those of the prior-year. For the nine months
ended September 30, 1996, selling, general and administrative expenses
decreased $0.9 million primarily due to lower pension and other
postretirement benefit expenses related to retired employees.
Interest expense decreased $0.6 million and $1.7 million for the three
and nine-months ended September 30, 1996 from the comparable prior-
year periods. The decrease reflects the payment of the production
payment liability in December 1995.
The income tax expense of $12.9 million and $19.8 million, for the
third quarter and first nine months of 1996 increased $4.3 million and
$7.4 million, respectively, from the comparable 1995 periods,
reflecting higher pre-tax income and a higher effective tax rate.
Net income of $25.3 million, or $1.86 per share, for the third quarter
of 1996 was $7.2 million, or $0.56 per share better than the
comparable prior-year period. This represents a 43% improvement in
earnings per share over the 1995 third quarter. The improvement was
primarily due to the realization of cement price increases over the
last nine months of 1995 and in April 1996, and higher cement
shipments. The third 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 the
construction aggregates operations, the Kosmos Cement Company joint
venture and decreased interest expense. The favorable third quarter
1996 results were partly offset by higher cost of sales associated
with increased shipments and higher income taxes primarily due to
higher pre-tax earnings.
Net income of $39.3 million, or $2.91 per share for the first nine
months of 1996 was $14.2 million, or $1.03 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 nine
months of 1995, combined with higher cement shipments, the result of
better weather conditions in the second and third quarters of 1996 as
compared to 1995 and higher sales of slag cement. 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, the Kosmos Cement Company joint
venture, 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 primarily reflecting higher pre-
tax earnings.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 10 of Notes to Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
4.3(iv). Fourth Amendment, dated as of October 3, 1996,
to the Financing Agreement, dated as of April 13, 1994
among Lone Star Industries, Inc., its subsidiary New York
Trap Rock Corporation and The CIT Group/Business Credit,
Inc.
11. Statement Re Computation of Per Share Earnings.
12. Statement Re Computation of Ratio of Earnings to
Fixed Charges.
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Lone Star Industries, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
LONE STAR INDUSTRIES, INC.
Date: November 7, 1996 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: November 7, 1996 By: JAMES W. LANGHAM
James W. Langham
Vice President
Exhibit 4.3(iv)
FOURTH AMENDMENT
TO
FINANCING AGREEMENT
Fourth Amendment, dated as of October 3, 1996 to the
Financing Agreement, dated as of April 13, 1994 (as amended, 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 permit certain
additional Restricted Payments (as defined in 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. Investments. Section 7.14(g) of the Financing
Agreement is hereby amended by deleting subclause (xv) thereof
and substituting in lieu thereof:
"(xv) repurchases and/or redemptions by LSI
of its common stock for an aggregate
consideration not exceeding $40,000,000."
3. Restricted Payments. Section 7.14(h) of the
Financing Agreement is hereby amended by deleting subclause (iv)
thereof and substituting in lieu thereof:
"(iv) LSI may repurchase or redeem its
common stock for an aggregate
consideration not exceeding $40,000,000."
4. 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.
5. 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 either Company of this
Amendment and the 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.
6. 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 Amendment, and (ii)
confirms and agrees that to the extent that any 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.
7. Consent. The Lender hereby consents to LSI's
abandonment of the trademark "Pyrament" in all countries except
for Canada, Mexico and the United States.
8. 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, LLP, 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: /s/ William E. Roberts
Title: Vice President
NEW YORK TRAP ROCK CORPORATION
By: /s/ William E. Roberts
Title: Vice President
LENDER
THE CIT GROUP/BUSINESS CREDIT,
INC.
By: /s/ Frank Grimaldi
Title: Vice President
EXHIBIT 11
LONE STAR INDUSTRIES, INC.
Computation of Earnings Per Common Share (Unaudited)
(In Thousands Except Per Share Amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
PER SHARE OF COMMON STOCK - PRIMARY
Net income $ 25,346 $ 18,122 $ 39,333 $25,173
Net interest expense reduction (1) 220 496 769 1,699
Net income applicable to
common stock $ 25,566 $ 18,618 $ 40,102 $26,872
Weighted average shares outstanding
during period 11,369 12,068 11,424 12,068
Options and warrants in excess of
20% limit (1) 2,340 2,228 2,364 2,228
Weighted average shares outstanding
during period 13,709 14,296 13,788 14,296
Net income per common share $ 1.86 $ 1.30 $ 2.91 $ 1.88
PER SHARE OF COMMON STOCK ASSUMING
FULL DILUTION
Net income $ 25,346 $ 18,122 $ 39,333 $25,173
Plus: Net interest expense
reduction (1) 198 465 611 1,373
Net income applicable to common
stock $ 25,544 $ 18,587 $ 39,944 $26,546
Weighted average shares outstanding
during period 11,369 12,068 11,424 12,068
Options and warrants in excess of
20% limit (1) 2,340 2,228 2,364 2,228
Fully diluted shares outstanding 13,709 14,296 13,788 14,296
Net income per common share assuming
full dilution $ 1.86 $ 1.30 $ 2.90 $ 1.86
(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 nine months ended September 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 Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Earnings Available:
Income before provision
for income taxes $ 38,271 $ 26,723 $ 59,147 $37,571
Less: Excess of earnings over
dividends of less than fifty
percent owned companies 0 (1,484) 0 (3,708)
Capitalized interest (318) (97) (738) (158)
37,953 25,142 58,409 33,705
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt
discount and expenses 1,982 2,317 5,948 7,055
Portion of rent expense
representative of an
interest factor 246 544 789 1,631
Total Fixed Charges 2,228 2,861 6,737 8,686
________ ________ ________ _______
Total Earnings Available $ 40,181 $ 28,003 $ 65,146 $42,391
Ratio of Earnings to Fixed Charges 18.03X 9.79X 9.67X 4.88X
Earnings deficiency $ 0 $ 0 $ 0 $ 0
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,684
<SECURITIES> 54,624
<RECEIVABLES> 53,760
<ALLOWANCES> 5,569
<INVENTORY> 51,371
<CURRENT-ASSETS> 171,937
<PP&E> 376,171
<DEPRECIATION> 54,984
<TOTAL-ASSETS> 549,506
<CURRENT-LIABILITIES> 53,600
<BONDS> 78,000
0
0
<COMMON> 12,085
<OTHER-SE> 235,538
<TOTAL-LIABILITY-AND-EQUITY> 549,506
<SALES> 273,643
<TOTAL-REVENUES> 282,011
<CGS> 178,966
<TOTAL-COSTS> 217,654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,210
<INCOME-PRETAX> 59,147
<INCOME-TAX> 19,814
<INCOME-CONTINUING> 39,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,333
<EPS-PRIMARY> 2.91
<EPS-DILUTED> 2.90
</TABLE>
