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, 1998
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 April 28, 1998:
Common Stock, par value $1 per share - 10,713,450 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three Months Ended March 31, 1998 and 1997
(Unaudited)...........................................3
Consolidated Statements of Retained Earnings -
For the Three Months Ended March 31, 1998 and
1997 (Unaudited)......................................4
Consolidated Balance Sheets - March 31, 1998
(Unaudited) and December 31, 1997.....................5
Consolidated Statements of Cash Flows - For the
Three Months Ended March 31, 1998 and 1997
(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.......................................17
SIGNATURES.........................................................18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Amounts)
For the Three Months
Ended March 31,
1998 1997
<S> <C> <C>
Consolidated Income
Revenues:
Net sales $ 57,794 $ 60,836
Joint venture income 823 742
Other income, net 3,769 674
62,386 62,252
Deductions from revenues:
Cost of sales 38,903 46,183
Selling, general and administrative expenses 6,732 7,704
Depreciation and depletion 5,346 6,253
Interest expense 747 1,714
51,728 61,854
Income before income taxes 10,658 398
Provision for income taxes (3,597) (134)
Net income applicable to common stock $ 7,061 $ 264
Weighted average common shares outstanding:
Basic 10,716 10,853
Diluted 13,540 13,094
Earnings per common share:
Basic $ 0.66 $ 0.02
Diluted $ 0.52 $ 0.02
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS(Unaudited)
(In Thousands)
For the Three Months
Ended March 31,
1998 1997
<S> <C> <C>
Retained earnings, beginning of period $ 178,444 $ 115,228
Net income 7,061 264
Dividends (527) (547)
Retained earnings, end of period $ 184,978 $ 114,945
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
<TABLE>
<CAPTION>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash including cash equivalents of $145,163
and $152,775 $ 145,366 $ 154,080
Accounts and notes receivable, net 26,284 28,217
Inventories:
Finished goods 24,920 14,850
Work in process and raw materials 9,610 6,417
Supplies and fuel 21,217 21,836
55,747 43,103
Deferred tax asset 3,825 3,825
Other current assets 3,730 3,751
Total current assets 234,952 232,976
Joint ventures 20,899 20,326
Property, plant and equipment 382,939 368,248
Less accumulated depreciation and depletion 74,151 68,993
308,788 299,255
Deferred tax asset 36,196 37,661
Other assets and deferred charges 10,132 8,759
Total assets $ 610,967 $ 598,977
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts payable $ 21,132 $ 13,400
Accrued liabilities 43,418 46,417
Other current liabilities 4,615 3,565
Total current liabilities 69,165 63,382
Senior notes payable 50,000 50,000
Postretirement benefits other than pensions 123,278 123,728
Other liabilities 28,318 28,233
Contingencies (See Notes 7 and 8)
Total liabilities 270,761 265,343
Shareholders' Equity:
Common stock 12,093 12,092
Warrants to purchase common stock 15,428 15,554
Additional paid-in capital 175,071 174,915
Retained earnings 184,978 178,444
Treasury stock, at cost (47,364) (47,371)
Total shareholders' equity 340,206 333,634
Total liabilities and shareholders' equity $ 610,967 $ 598,977
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of the Financial Statements.
<TABLE>
<CAPTION>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
For the Three Months
Ended March 31,
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 7,061 $ 264
Adjustments to arrive at net cash provided
(used) by operating activities:
Depreciation and depletion 5,346 6,253
Deferred income taxes 1,465 134
Changes in operating assets and liabilities:
Accounts and notes receivable 2,009 1,431
Inventories and other current assets (12,552) (7,311)
Accounts payable and accrued liabilities 5,148 (4,305)
Equity income, net of dividends received (573) (242)
Pension funding (in excess of) less than
expense (330) 428
Gain on sale of a surplus property (1,500) -
Other, net (891) (577)
Net cash provided (used) by operating activities 5,183 (3,925)
Cash Flows from Investing Activities:
Capital expenditures (15,889) (10,080)
Proceeds from sale of assets 2,495 9,448
Net cash used by investing activities (13,394) (632)
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 24 16
Dividends paid (527) (547)
Proceeds from exercise of options - 4,342
Net cash (used) provided by financing activities (503) 25,811
Net (decrease) increase in cash and cash
equivalents (8,714) 21,254
Cash and cash equivalents, beginning of period 154,080 71,215
Cash and cash equivalents, end of period $ 145,366 $ 92,469
</TABLE>
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, which are of a normal
recurring nature, necessary to present fairly the financial position of
the Company as of March 31, 1998, and the results of operations and the
cash flows for the three months ended March 31, 1998 and 1997.
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, 1997. 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 1998, the Board of Directors declared a $0.05 dividend per common
share, which was paid on March 16, 1998 to shareholders of record as of March
1, 1998. In January 1998, pursuant to an order signed by the U.S. Bankruptcy
Court, 14,572 shares of common stock and 31,033 warrants were returned to the
Company. The common stock shares have been recorded as treasury shares and
the returned warrants have been cancelled. There was no effect on total
equity of the Company as a result.
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, 1998 and 1997 was $1,827,000 and $4,271,000, respectively. Income taxes
paid during the three months ended March 31, 1998 and 1997, were $1,078,000
and $23,000, respectively.
Note 4 - Interest
Interest expense of $945,000 and $1,926,000 has been accrued for the three
months ended March 31, 1998 and 1997, respectively. Interest capitalized
during the three months ended March 31, 1998 and 1997, was $198,000 and
$212,000, respectively.
Note 5 - Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"). Previously reported earnings per
share amounts have been restated. Basic earnings per common share for the
three months ended March 31, 1998 and 1997 are calculated by dividing net
income by weighted average common shares outstanding during the period.
Diluted earnings per common share for the three months ended March 31, 1998
and 1997 are calculated by dividing net income by weighted average common
shares outstanding during the period plus dilutive potential common shares
which are determined as follows:
For the Three Months Ended March 31,
1998 1997
Weighted average common shares 10,716,065 10,852,843
Effect of dilutive securities:
Warrants 2,716,508 2,068,502
Options to purchase common stock 107,136 172,371
Adjusted weighted average common shares 13,539,709 13,093,716
Dilutive potential common shares are calculated in accordance with the
treasury stock method which assumes that the proceeds from the exercise of
all warrants and options are used to repurchase common stock at market value.
The number of shares remaining after the proceeds are exhausted represents
the potentially dilutive effect of the securities.
Note 6 - Sale of Assets
In February 1998, the Company recorded a gain of $1,500,000 from the sale of
a piece of surplus real estate in Massachusetts. The gain is included in
other income on the accompanying consolidated statement of operations.
Note 7 - 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. 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. In
addition, 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 operations or could otherwise
substantially increase the capital, operating and other costs associated
with compliance. For example, recent initiatives for limitations on
carbon dioxide emissions as a result of the fear of global warming could
result in statutes or regulations which, if promulgated, could adversely
affect certain aspects of United States manufacturing, including the
cement industry.
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 the 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 has identified maximum available control technology
("MACT") for the reduction of emissions of air toxics from cement
manufacturing facilities. In 1997, the EPA announced proposed MACT
standards for those cement manufacturing facilities (like Lone Star's
Greencastle and Cape Girardeau plants) that burn hazardous waste fuels
("HWF"). The proposed standards are extremely lengthy and complex and
have been commented on by concerned parties. They are anticipated by the
Company to be effective in late 1998 and thereafter will be implemented
over a three-year period for companies that plan to comply. Depending on
their final terms when effective, they could have the effect of limiting
or eliminating the use of HWF at one or both facilities. MACT standards
for facilities burning fossil fuels were proposed in early 1998, and these
standards are currently being studied by the Company. In 1997, the EPA
promulgated under the Clean Air Act new standards for small particulate
matter and ozone emissions, and related testing will be carried out over
the next several years. Depending on the result of this testing,
additional regulatory burdens could be imposed on the cement industry by
states not in compliance with the regulations. Also in 1997, the EPA
proposed new regulations to reduce nitrogen oxide emissions substantially
over the next eight years. This proposal would affect 22 states including
three in which the Company has cement plants: Indiana, Illinois and
Missouri. Depending on state implementation, this emissions reduction
could adversely affect the cement industry in these states.
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, in 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 shortly, and that, thereafter, these rules 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, 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 and will complete a three-year recertification of its
existing interim status in 1998. 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 is also reviewing certain
of its inactive properties to determine if any remedial action may be
required at these sites.
The Company's operations are also subject to federal and state laws and
regulations designed to protect worker health and safety. Worker
protection at the Company's cement manufacturing facilities is governed by
the federal Mine Safety and Health Act ("MSHA") and at other Company
operations is governed by the federal Occupational Safety and Health Act
("OSHA").
Note 8 - 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 is
contesting the lawsuits vigorously. The Company also has 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.
The owner of this 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. Certain
engineering studies also have been conducted, and those limited results
that have been made available to the Company do not indicate any
additional failures. The Company believes that San-Vel used cement
produced by Lone Star at one of its formerly owned cement plants to mix
the concrete from which pilings in certain of these buildings (including
the demolished building) were produced. There has been no indication that
Lone Star's production of this cement was defective. The Company is
contesting this lawsuit vigorously, and believes that it has good defenses
to the lawsuit. The foregoing matters are being defended by the Company's
insurers. No assurances as to their ultimate outcome can be given.
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 $145.4 million and funds generated by operations will be adequate
to cover current working capital and capital expenditure needs.
The Company's financing agreement and the revolving credit
facility contain certain restrictive covenants which, among other
things, could have the effect of limiting the payment of dividends and
the repurchase of common stock and warrants. Approximately $104.7
million is currently available for such payments under the most
restrictive of such covenants.
Cash flows from operating activities of $5.2 million for the
three months ended March 31, 1998 primarily reflect income from
operations and changes in working capital. The utilization of net
operating loss carryforwards and other deferred tax assets during the
first quarter reduced cash taxes otherwise payable by $1.5 million.
During the three months ended March 31, 1998, investing
activities used $13.4 million, primarily representing $15.9 million
for capital expenditures, partly offset by $1.5 million received for
the sale of a parcel of real estate and $1.0 million related to sales
of miscellaneous property, plant and equipment.
Net cash outflows from financing activities of $0.5 million for
the three months ended March 31, 1998 primarily reflect dividends paid
during the first quarter.
Working capital on March 31, 1998 was $165.8 million as compared
to $169.6 million on December 31, 1997. Current assets increased $2.0
million primarily due to higher inventory balances offset by lower
short-term investments and accounts and notes receivable balances.
Current liabilities increased $5.8 million primarily due to an
increase in accounts payable, partly offset by a decrease in accrued
expenses.
The $1.5 million decrease in the Company's long-term deferred
tax asset is due to the utilization of a portion of the tax assets
during the first quarter of 1998. Investments in joint ventures
increased $0.6 million as the Company's share of equity earnings
exceeded cash distributions paid from Kosmos Cement Company. Net
property, plant and equipment increased $9.5 million reflecting
capital expenditures, partly offset by depreciation expense.
In February 1998, the Company's Board of Directors declared a
$0.05 per share dividend which was paid on March 16, 1998 to
shareholders of record as of March 1, 1998.
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. There can be no assurances that judicial or
administrative proceedings, seeking penalties or injuctive 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. In addition,
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 operations or
could otherwise substantially increase the capital, operating and
other costs associated with compliance(See Note 7).
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 quarter of 1998 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 statements 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 $57.8 million during the first quarter
of 1998 were $3.0 million lower than the comparable prior-year
results. The decrease in net sales primarily reflects the sales of
the Company's New York construction aggregates and central Illinois
ready-mixed concrete operations during 1997.
Sales of $57.8 million from the Company's on-going cement and
ready-mixed concrete operations for the three months ended March 31,
1998 were $4.5 million higher than the comparable prior-year period.
Cement sales were higher due to a 4% increase in average net realized
cement selling prices in 1998 combined with a 6% increase in cement
shipments. The increase in shipments is attributable to continued
strong demand for cement in the Company's major markets as well as an
unusually mild winter season.
Gross profit from the Company's on-going cement and ready-mixed
concrete operations of $13.6 million for the first quarter of 1998 was
$2.0 million higher than the comparable 1997 period. The increase in
gross profit reflects higher average net realized cement and ready-mix
selling prices, greater cement production and higher overall shipments
for the quarter.
The construction aggregates and ready-mixed concrete operations
sold in 1997 contributed sales of $7.6 million and a loss at the gross
profit level of $3.1 million to the first quarter 1997 results. As a
result of the losses sustained by these operations during the first
quarter of 1997, the dispositions of the operations had a favorable
impact on the results for the first quarter of 1998 as compared to
last year. The impact for the remainder of the year will not be
favorable as the results from these operations for the second, third
and fourth quarters of 1997 included gross profit of $2.5 million,
$3.7 million and $0.6 million, respectively. For the full year 1997
these operations contributed net sales of $40.3 million and gross
profit of $3.7 million.
The Company's operations are seasonal and, consequently, the
interim results are not indicative of the results to be expected for
the full year.
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 $0.8 million during the
first quarter of 1998 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, 1998 were $0.1 million
higher than the comparable prior-year period reflecting higher net
realized selling prices partly offset by lower shipments.
Other income of $3.8 million during the first quarter of 1998
increased $3.1 million over the comparable 1997 period, primarily
reflecting a gain of $1.5 million on the sale of a surplus parcel of
real estate and higher interest income earned on increased short-term
investment balances.
Selling, general and administrative expenses of $6.7 million
during the first quarter of 1998 was $1.0 million lower than the
comparable period in 1997, reflecting lower expense related to the
Company's New York construction aggregates and central Illinois ready-
mixed concrete operations which were sold in 1997, in addition to
lower pension and other postretirement benefit expenses.
Interest expense of $0.7 million during the first quarter of
1998 represents a decrease of $1.0 million over the comparable prior-
year period expense. Capitalized interest was $0.2 million for the
three months ended March 31, 1998 and 1997. The reduction in interest
expense reflects lower debt and a lower interest rate. The Company
redeemed $78.0 million of its 10% senior notes in March and April 1997
and issued $50.0 million of 7.31% senior notes offered through a
private placement agreement in April 1997.
The income tax expense of $3.6 million during the first quarter
of 1998, an increase of $3.5 million from the prior-year expense,
primarily reflects higher pre-tax earnings in the first quarter of
1998.
Net income of $7.1 million during the first quarter of 1998 was
$6.8 million higher than the prior-year results. On a per share basis,
basic and diluted earnings for the first quarter of 1998 were $0.66
and $0.52, respectively, compared to $0.02 and $0.02, respectively,
for 1997. This improvement is primarily due to the disposition of the
Company's New York construction aggregates and central Illinois ready-
mixed concrete operations and higher results for the cement operations
reflecting higher average selling prices and increased shipments. Also
contributing to the favorable increase in net income for 1998 over the
prior-year results were a gain on the sale of surplus real estate,
higher interest income reflecting higher short-term investment
balances, higher joint venture income and lower interest expense.
These favorable results were partly offset by increased income tax
expense due to higher pre-tax earnings.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
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: May 1, 1998 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: May 1, 1998 By: JAMES W. LANGHAM
James W. Langham
Vice President, General
Counsel and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Comany's
Statement of Operations and Balance Sheet and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 203
<SECURITIES> 145,163
<RECEIVABLES> 30,080
<ALLOWANCES> 3,796
<INVENTORY> 55,747
<CURRENT-ASSETS> 234,952
<PP&E> 382,939
<DEPRECIATION> 74,151
<TOTAL-ASSETS> 610,967
<CURRENT-LIABILITIES> 69,165
<BONDS> 50,000
0
0
<COMMON> 12,093
<OTHER-SE> 328,113
<TOTAL-LIABILITY-AND-EQUITY> 610,967
<SALES> 57,794
<TOTAL-REVENUES> 62,386
<CGS> 38,903
<TOTAL-COSTS> 50,981
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 747
<INCOME-PRETAX> 10,658
<INCOME-TAX> 3,597
<INCOME-CONTINUING> 7,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,061
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.52
</TABLE>
