FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-06124
LONE STAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE No. 13-0982660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 First Stamford Place, P. O. Box 120014, Stamford, CT 06912-0014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-969-8600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
The number of shares outstanding of each of the registrant's classes
of common stock as of May 5, 1997:
Common Stock, par value $1 per share - 10,994,100 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three Months Ended March 31, 1997 and 1996
(Unaudited)...........................................3
Consolidated Statements of Retained Earnings -
For the Three Months Ended March 31, 1997 and
1996 Unaudited)......................................4
Consolidated Balance Sheets - March 31, 1997
(Unaudited) and December 31, 1996....................5
Consolidated Statements of Cash Flows - For the
Three Months Ended March 31, 1997 and 1996
(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........................................................19
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
Ended March 31,
1997 1996
Consolidated Income
Revenues:
Net sales $ 60,836 $ 52,987
Joint venture income 742 530
Other income, net 674 1,563
62,252 55,080
Deductions from revenues:
Cost of sales 46,183 44,941
Selling, general and administrative expenses 7,704 7,211
Depreciation and depletion 6,253 5,944
Interest expense 1,714 1,874
61,854 59,970
Income (loss) before income taxes 398 ( 4,890)
(Provision) credit for income taxes (134) 1,614
Net income (loss) applicable to common stock $ 264 $( 3,276)
Weighted average common shares outstanding 10,853 11,475
Primary and fully diluted income (loss) per common $ 0.02 $( 0.29)
share
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
Ended March 31,
1997 1996
Retained earnings, beginning of period $ 115,228 $ 63,315
Net income(loss) 264 (3,276)
Dividends (547) (574)
Retained earnings, end of period $ 114,945 $ 59,465
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)
March 31, December 31,
1997 1996
(Unaudited)
Assets:
Current assets:
Cash including cash equivalents of $91,934
and $69,768 $ 92,469 $ 71,215
Accounts and notes receivable, net 33,691 33,336
Inventories:
Finished goods 26,552 24,913
Work in process and raw materials 8,901 5,347
Supplies and fuel 22,670 23,609
58,123 53,869
Deferred tax asset 3,611 3,611
Other current assets 3,887 3,183
Total current assets 191,781 165,214
Joint ventures 19,747 19,505
Property, plant and equipment 381,764 383,974
Less accumulated depreciation and depletion 63,588 60,992
318,176 322,982
Deferred tax asset 49,573 47,365
Other assets and deferred charges 7,214 7,085
Total assets $ 586,491 $ 562,151
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts payable $ 13,261 $ 12,562
Accrued liabilities 40,406 44,238
Senior notes payable 50,000 28,000
Other current liabilities 3,415 3,436
Total current liabilities 107,082 88,236
Senior notes payable 50,000 50,000
Postretirement benefits other than pensions 132,059 132,219
Other liabilities 26,643 27,414
Contingencies (See Notes 8 and 9)
Total liabilities 315,784 297,869
Shareholders' Equity:
Common stock 12,088 12,087
Warrants to purchase common stock 15,571 15,574
Additional paid-in capital 161,905 163,664
Retained earnings 114,945 115,228
Treasury stock, at cost (33,802) (42,271)
270,707 264,282
Total liabilities and shareholders' equity $ 586,491 $ 562,151
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 Three Months
Ended March 31,
1997 1996
Cash Flows from Operating Activities:
Net income (loss) $ 264 $ (3,276)
Adjustments to arrive at net cash used by
operating activities:
Depreciation and depletion 6,253 5,944
Deferred income taxes 134 (1,614)
Changes in operating assets and liabilities:
Accounts and notes receivable 1,431 6,160
Inventories and other current assets (7,311) (10,743)
Accounts payable and accrued liabilities (4,305) (598)
Equity income, net of dividends received (242) 970
Pension funding less than(in excess of)
expense 428 (1,556)
Other, net (577) 305
Net cash used by operating activities (3,925) (4,408)
Cash Flows from Investing Activities:
Capital expenditures (10,080) (9,533)
Proceeds from sale of assets 9,448 104
Net cash used by investing activities (632) (9,429)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term senior notes 50,000 -
Redemption of long-term senior notes (28,000) -
Proceeds from exercise of warrants 16 6
Purchase of treasury stock - (979)
Dividends paid (547) (574)
Proceeds from exercise of options 4,342 -
Net cash provided (used) by financing activities 25,811 (1,547)
Net increase (decrease)in cash and cash
equivalents 21,254 (15,384)
Cash and cash equivalents, beginning of period 71,215 50,049
Cash and cash equivalents, end of period $ 92,469 $ 34,665
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position of the Company as of March 31, 1997, and the
results of operations and the cash flows for the three months ended March
31, 1997 and 1996.
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, 1996. The Company's operations
are seasonal and, consequently, interim results are not indicative of the
results to be expected for a full year.
Note 2 - Common Stock
In February 1997, the Board of Directors declared a $0.05 dividend per
common share, which was paid on March 14, 1997 to shareholders of record
as of March 1, 1997. During the first quarter of 1997, 275,000 employee
stock options were exercised for a total of $4,342,000.
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 three
months ended March 31, 1997 and 1996 was $4,271,000 and $3,932,000,
respectively. Income taxes paid during the three months ended March 31,
1997 and 1996, were $23,000 and $229,000, respectively.
Note 4 - Interest
Interest expense of $1,926,000 and $1,982,000 has been accrued for the
three months ended March 31, 1997 and 1996, respectively. Interest
capitalized during the three months ended March 31, 1997 and 1996, was
$212,000 and $108,000, 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 March 31, 1997 and 1996 were calculated based
on adjusted weighted average shares outstanding of 13,093,716 and
11,475,043, and net income of $264,000 and net loss of $3,276,000,
respectively.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No.128, "Earnings Per Share" ("SFAS
No.128"). This statement establishes new standards for computing and
presenting earnings per share ("EPS"). SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods, and earlier application is not permitted.
When adopted, the Company will be required to restate its EPS data for
all prior periods presented. The Company expects the impact of the
adoption of this statement will have no impact on reported EPS for the
first quarter of 1997 or 1996 but will increase previously reported
annual EPS amounts.
Note 6 - Sale of Assets
In March 1997, the Company sold its central Illinois ready-mixed and
other concrete operations, including inventories, for about $10,500,000
which approximated book value. The total proceeds included a note
receivable for $1,650,000.
Note 7 - Senior Notes Payable
In March 1997, the Company redeemed $28,000,000 of its 10% senior notes
and called for the early redemption of the remaining $50,000,000 in the
second quarter of 1997. In March 1997, the Company issued $50,000,000 of
7.31% senior notes due 2007. On April 21, 1997, the remaining
$50,000,000 of the 10% senior notes were redeemed at par plus accrued
interest of $1,125,000.
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. For
instance, 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 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 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 toxics from cement
manufacturing facilities. On April 22, 1997, the EPA announced new
proposed 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 in some respects more, and in
some less, restrictive than the MACT standards proposed in 1996. They
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 third quarter of
1997.
The Resource Conservation and Recovery Act ("RCRA") establishes a
cradle-to-grave regulatory scheme governing the generation, treatment,
storage, handling, transportation and disposal of solid wastes. Solid
wastes which are classified as hazardous wastes pursuant to RCRA, as well
as facilities that treat, store or dispose of such hazardous wastes, are
subject to stringent regulatory requirements. Generally, wastes produced
by the Company's operations are not classified as hazardous wastes and
are subject to less stringent federal and state regulatory requirements.
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 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
precisely what new regulatory controls on the management, handling and
disposal of CKD or what increased costs (or range of costs) would be
incurred by the Company to comply with these requirements, the EPA
announced in 1996 that regulations will be promulgated through a
rulemaking scheduled to be completed in late 1997, and that, thereafter,
these rules would become effective in 1998 and thereafter will be
implemented over a three-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.
In 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
generally 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 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 federal 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.
The federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund"), as well as many comparable state
statutes, creates a joint and several liability scheme for the
investigation and remediation of facilities where releases of hazardous
substances are found to have occurred. Liability may be imposed upon
current owners and operators of the facility, upon owners and operators
of the facility at the time of the release and upon generators and
transporters of hazardous substances released at the facility. While, as
noted above, wastes produced by the Company generally are not classified
as hazardous wastes, many of the raw materials, by-products and wastes
currently and previously produced, used or disposed of by the Company or
its predecessors contain chemical elements or components that have been
designated as hazardous substances or which otherwise may cause
environmental contamination. Hazardous substances are or have been used
or produced by the Company in connection with its cement manufacturing
operations (e.g. grinding compounds, refractory bricks), quarrying
operations (e.g. blasting materials), equipment operation and
maintenance (e.g. lubricants, solvents, grinding aids, cleaning aids,
used oils), and hazardous waste fuel burning operations. Past operations
of the Company 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 Superfund sites (other than
sites that have been 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.
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 is contesting 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 this regard, the Company is one of many defendants,
including several cement manufacturers, named in two product 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. 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. In late 1995, an office building in Boston, Massachusetts,
constructed in 1983 using concrete pilings produced by San-Vel Concrete
Corporation, an inactive Lone Star subsidiary ("San-Vel"), was demolished
by order of the City of Boston based upon an engineering report that the
pilings were unreliable. In March 1997, the owner of the demolished
building brought suit against San-Vel and the Company alleging, among
other things, that San-Vel was negligent in producing, and that it
breached representations relating to, the pilings. 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. Engineering
studies also have reportedly been conducted, and the Company has not
received the results of these studies. 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 plans to contest this lawsuit
vigorously, and believes that it has good defenses to the lawsuit,
however the litigation is at a very preliminary stage, and no assurances
as to its ultimate outcome can be given. 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 $92.5 million and funds generated by operations will be
adequate to cover current working capital and capital expenditure
needs.
In March 1997, the Company sold its two ready-mixed and other
concrete operations in Illinois for about $10.5 million, which
approximated book value.
On March 12, 1997, the Company redeemed $28.0 million of its
$78.0 million 10% senior notes. The notes were paid from cash on
hand. In addition, the Company entered into a long-term private
placement agreement for $50.0 million of 7.31% senior notes due
2007. On April 21, 1997, the Company redeemed the balance of the
10% senior notes at par plus accrued interest of approximately
$1.1 million.
In March 1997, the Company canceled its $35.0 million
revolving credit agreement and is currently in negotiations to
replace the agreement with a new unsecured revolving credit
facility which will allow the Company to borrow funds at lower
interest rates and increase the Company's ability to repurchase
common stock and warrants. The Company expects this line of
credit facility to be in place by the end of the second quarter.
Cash outflows from operating activities of $3.9 million for
the three months ended March 31, 1997 primarily reflect increases
in working capital partly offset by income from operations.
During the three months ended March 31, 1997, the Company
used $0.6 million for investing activities, representing capital
expenditures of $10.1 million offset by $8.9 million of cash
proceeds received for the sale of the Company's two ready-mixed
and other concrete operations in Illinois.
Net cash inflows from financing activities of $25.8 million
for the three months ended March 31, 1997 primarily reflect the
proceeds from the long-term private placement of the 7.31% senior
notes and the exercise of employee stock options, partially offset
by the redemption of $28.0 million of the 10% senior notes in
March 1997.
Working capital on March 31, 1997 was $84.7 million as
compared to $77.0 million on December 31, 1996. Current assets
increased $26.6 million primarily due to higher marketable
securities and inventory balances. Current liabilities increased
$18.8 million primarily due to the reclassification of $50.0
million of 10% senior notes to current liabilities, reflecting the
April 1997 redemption, partially offset by the redemption of the
$28.0 million of the 10% senior notes.
The $2.2 million increase in the Company's deferred tax asset
is primarily due to the tax benefit recognized related to the
exercise of employee stock options. The investment in joint
ventures at March 31, 1997 was consistent with the year-end
balance as cash distributions paid by Kosmos Cement Company
approximated the Company's share of equity earnings. Net property,
plant and equipment decreased $4.8 million reflecting depreciation
and the sale of the Company's two ready-mixed and other concrete
operations in Illinois, partially offset by capital expenditures.
In February 1997, the Company's Board of Directors declared a
$0.05 per share dividend which was paid on March 14, 1997 to
shareholders of record as of March 1, 1997. Total dividends paid
were approximately $0.5 million.
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 (See Note 8).
The Company believes that it has adequately provided for
costs related to its ongoing obligations with respect to known
environmental liabilities. Expenditures for environmental
liabilities during the first three months of 1997 did not have a
material effect on the financial condition or cash flows of the
Company.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this
Form 10-Q contain forward-looking statements within the meaning of
Section 27A of the Securities Exchange Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking
statements are based on current expectations, estimates and
projections concerning the general state of the economy and the
industry and market conditions in certain geographic locations in
which the Company operates. Words such as "expects",
"anticipates", "intends", "plans", "believes", "estimates", and
variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict.
Therefore, actual results and outcomes may differ materially from
what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update
publicly any forward-looking statement as a result of new
information, future events or other factors.
The Company's business is cyclical and seasonal, the effects
of which cannot be accurately predicted. Risks and uncertainties
include changes in general economic conditions (such as changes in
interest rates), changes in economic conditions specific to any
one or more of the Company's markets (such as the strength of
local real estate markets and the availability of public funds for
construction), adverse weather, unexpected operational
difficulties, changes in governmental and public policy including
increased environmental regulation, the outcome of pending and
future litigation, the successful negotiation of labor contracts
and the continued availability of financing in the amounts, at the
times and on the terms required to support the Company's future
business. Other risks and uncertainties could also affect the
outcome of the forward-looking statements.
Results of Operations
Consolidated net sales of $60.8 million during the first
quarter of 1997 were $7.8 million higher than the comparable
prior-year period results. The increase in net sales primarily
reflects cement price increases since April 1996 combined with
higher cement shipments due to favorable weather conditions during
1997. The Company implemented price increases of $1 to $2 per ton
in most markets effective April 1, 1997.
Cement sales of $49.4 million during the first quarter of
1997 were $6.4 million greater than the comparable prior-year
period results, primarily due to an 8% increase in the average net
realized selling prices for the first three months of 1997 over
the comparable period in 1996. In addition, cement shipments for
1997 were 7% above the comparable period in 1996 due to favorable
weather conditions in 1997 versus the harsh conditions in 1996.
Sales of construction aggregates of $5.7 million during
1997 were $2.6 million higher than the comparable prior-year
period results. This is primarily attributable to higher average
net realized selling prices and a substantial increase in overall
construction aggregate shipments reflecting favorable weather
conditions and increased demand in 1997.
Ready-mixed concrete and other operations sales during the
first quarter of 1997 were $5.8 million, $1.2 million below the
comparable prior-year period results, primarily reflecting lower
shipments during the first three months of 1997, partly offset by
higher selling prices. The lower shipments primarily reflect
extremely wet weather during the months of February and March in
the Memphis, Tennessee area. The Company's central Illinois
ready-mixed and other concrete operations were sold in March 1997.
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 $11.0 million in
1997 as compared to gross profit of $5.9 million for the
comparable prior-year period. Gross profit was higher than the
previous year at every plant during the first quarter of 1997
reflecting higher cement selling prices and shipments than in
1996. In addition, lower overall repair and maintenance costs in
1997 contributed to the improvement in gross profit.
Construction aggregates had a loss at the gross profit level
of $2.8 million during the first quarter of 1997 which was $1.3
million better than the comparable prior-year period. The improved
1997 first quarter results primarily reflect higher average
selling prices and shipments.
Gross profit from ready-mixed concrete and other construction
products was $0.3 million for 1997, a $0.1 million decrease from
the comparable prior-year period. These results primarily reflect
a decrease in shipments, partly offset by higher prices.
Included in the calculation of gross profit are sales less
cost of sales including depreciation related to cost of sales
(which excludes depreciation related to office equipment,
furniture and fixtures which are not related to the cost of
sales).
Pre-tax income from joint ventures of $0.7 million during the
first quarter of 1997 reflects the results of the Kosmos Cement
Company, a partnership in which the Company has a 25% interest.
The results for the three months ended March 31, 1997 were $0.2
million higher than the comparable prior-year period reflecting
higher net realized selling prices, higher shipments and lower
production costs.
Other income of $0.7 million during the first quarter of 1997
decreased $0.9 million from the comparable prior-year period.
This decrease is due primarily to state and local tax refunds,
including interest related to prior years, included in other
income in 1996.
Selling, general and administrative expenses of $7.7 million
during the first quarter of 1997 represent an increase of $0.5
million over the comparable prior-year period expense. This
increase primarily reflects higher selling and administrative
expenses related to the Company's cement operations. Selling,
general and administrative expenses for the three months ended
March 31, 1997 include $1.1 million of other postretirement
benefit costs related to the Company's presently retired
employees.
Interest expense of $1.7 million in the first quarter of 1997
represents a decrease of $0.2 million over the comparable prior-
year period expense. Capitalized interest was $0.2 million in the
first quarter of 1997 and $0.1 million in the comparable prior-
year period. The decrease in interest expense is primarily
attributable to higher capitalized interest in 1997 and the early
redemption of the $28.0 million 10% senior notes, offset partly by
interest incurred during March 1997 on the new $50.0 million 7.31%
senior notes.
The income tax expense of $0.1 million during the first
quarter of 1997, an increase of $1.7 million from the comparable
prior-year period expense, primarily reflects pre-tax earnings in
the first quarter of 1997 as compared to a loss in the prior-year
period.
Net income of $0.3 million, or $0.02 per share, during the
first quarter of 1997 was $3.5 million, or $0.31 per share, higher
than the comparable prior-year period results. This improvement is
primarily due to improved results in the cement and construction
aggregate product lines due to favorable weather conditions in
1997 as compared to 1996. Also contributing to the favorable
increase in net income for the first quarter of 1997 over the
prior-year results was lower interest expense, partly offset by
increased selling, general and administrative expenses and
increased income tax expense due to higher pre-tax earnings.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9 of Notes to Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
11. Statement Re Computation of Per Share Earnings.
12. Statement Re Computation of Ratio of Earnings to
Fixed Charges.
27. Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K, March 21, 1997 - 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: May 9, 1997 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: May 9, 1997 By: JAMES W. LANGHAM
James W. Langham
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
Ended March 31,
1997 1996
PER SHARE OF COMMON STOCK - PRIMARY
Net income (loss) $ 264 $ (3,276)
Net interest expense reduction (1) - 315
Net income (loss) applicable to common stock $ 264 $ (2,961)
Weighted average shares outstanding during period 10,853 11,475
Options and warrants (1) 2,241 2,345
Weighted average shares outstanding during period 13,094 13,820
Net income (loss) per common share $ 0.02 $ (0.21)
PER SHARE OF COMMON STOCK ASSUMING FULL DILUTION
Net income (loss) $ 264 $ (3,276)
Plus: Net interest expense reduction (1) - 272
Net income (loss) applicable to common stock $ 264 $ (3,004)
Weighted average shares outstanding during period 10,853 11,475
Options and warrants (1) 2,241 2,345
Fully diluted shares outstanding (2) 13,094 13,820
Net income (loss) per common share assuming
full dilution $ 0.02 $ (0.22)
(1) Due to the fact that the Company's aggregate number of common stock
equivalents is in excess of 20% of its outstanding common stock, primary
and fully diluted earnings per share for the three months ended March
31, 1996 has been calculated using the modified treasury stock method.
Due to the increase in the average market value of the Company's stock,
earnings per share for the three months ended March 31, 1997 have
effectively been calculated using the treasury stock method.
(2) The computation of fully diluted earnings per share submitted herein is
in accordance with Regulation S-K item 601(b)(11) although it is
contrary to Paragraph 40 of APB Opinion No. 15 because it produces anti-
dilutive results for the three months ended March 31, 1996.
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
Ended March 31,
1997 1996
Earnings Available:
Income (loss) before provision
for income taxes $ 398 $ (4,890)
Less: Excess of earnings over
dividends less than fifty
percent owned companies (242) -
Capitalized interest (212) (108)
$ ( 56) $ (4,998)
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses $ 1,926 $ 1,982
Portion of rent expense
representative of an
interest factor 276 282
Total Fixed Charges 2,202 2,264
________ ________
Total Earnings Available $ 2,146 $ (2,734)
Earnings deficiency (for coverage
ratios less than one to one) $ ( 56) $ (4,998)
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<PERIOD-END> MAR-31-1997
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