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, 1999
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
The number of shares outstanding of each of the
registrant's classes of common stock as of October 29,
1999:
Common Stock, par value $.01 per share - 19,428,167
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, 1999 and
1998 (Unaudited)......................................3
Consolidated Statements of Retained Earnings -
For the Three and Nine Months Ended September 30, 1999
and 1998 (Unaudited)..................................4
Consolidated Balance Sheets - September 30, 1999
(Unaudited) and December 31, 1998.....................5
Consolidated Statements of Cash Flows - For the
Nine Months Ended September 30, 1999 and 1998
(Unaudited)...........................................6
Notes to Unaudited Consolidated Financial Statements.....7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........12
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)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Net sales $112,875 $ 104,010 $281,604 $259,506
Joint venture income 2,944 2,889 6,454 5,943
Other income, net 3,025 3,494 6,476 9,199
-------- -------- -------- --------
118,844 110,393 294,534 274,648
-------- -------- -------- --------
Deductions from revenues:
Cost of sales 61,747 55,040 161,909 150,038
Selling, general and
administrative expenses 5,589 5,890 18,720 18,950
Depreciation and depletion 6,193 5,489 18,227 16,046
Interest expense 291 578 1,560 1,730
-------- -------- -------- --------
73,820 66,997 200,416 186,764
-------- -------- -------- --------
Income before income
taxes 45,024 43,396 94,118 87,884
Provision for income taxes (15,196) (14,646) (31,765) (29,661)
-------- -------- -------- --------
Net income applicable
to common stock $ 29,828 $ 28,750 $ 62,353 $ 58,223
======== ======== ======== ========
Weighted average common
shares outstanding:
Basic 19,331 20,748 19,687 21,200
======== ======== ======== ========
Diluted 23,891 26,567 24,210 27,096
======== ======== ======== ========
Earnings per common share:
Basic $ 1.54 $ 1.39 $ 3.17 $ 2.75
======== ======== ======== ========
Diluted $ 1.25 $ 1.08 $ 2.58 $ 2.15
======== ======== ======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Retained earnings, beginning
of period $ 283,200 $ 206,854 $ 252,671 $ 178,444
Net income 29,828 28,750 62,353 58,223
Dividends (964) (507) (2,960) (1,570)
--------- --------- --------- ---------
Retained earnings, end of
period $ 312,064 $ 235,097 $ 312,064 $ 235,097
========= ========= ========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash including cash equivalents of $94,164
and $119,896 $ 97,545 $ 120,161
Accounts and notes receivable, net 45,331 32,164
Inventories:
Finished goods 14,256 15,228
Work in process and raw materials 6,405 6,657
Supplies and fuel 25,088 23,848
-------- --------
45,749 45,733
Deferred tax asset 4,052 4,052
Other current assets 4,667 3,736
-------- --------
Total current assets 197,344 205,846
Joint ventures 28,221 21,517
Property, plant and equipment 467,109 418,484
Less accumulated depreciation and depletion 107,338 89,821
-------- --------
359,771 328,663
Deferred tax asset 8,652 21,593
Other assets and deferred charges 13,479 10,895
-------- --------
Total assets $607,467 $588,514
======== ========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 13,351 $ 16,087
Accrued liabilities 41,565 44,281
Other current liabilities 5,659 2,086
-------- --------
Total current liabilities 60,575 62,454
Senior notes payable 50,000 50,000
Postretirement benefits other than pensions 121,969 123,428
Other liabilities 26,484 28,316
Contingencies (See notes 6 and 7)
-------- --------
Total liabilities 259,028 264,198
-------- --------
Shareholders' Equity:
Common stock 26,155 25,692
Warrants to purchase common stock 10,764 11,792
Additional paid-in capital 174,657 171,276
Retained earnings 312,064 252,671
Treasury stock, at cost (175,201) (137,115)
-------- --------
Total shareholders' equity 348,439 324,316
Total liabilities and shareholders' -------- --------
equity $607,467 $588,514
======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 62,353 $ 58,223
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and depletion 18,227 16,046
Deferred income taxes 12,941 12,084
Changes in operating assets and
liabilities:
Accounts and notes receivable (13,214) (13,332)
Inventories and other current
assets (1,050) (2,556)
Accounts payable and
accrued liabilities (3,899) (3,795)
Equity income, net of dividends
received (1,454) (1,943)
Gain of sale of surplus property - (3,300)
Other, net (4,078) (459)
-------- --------
Net cash provided by operating
activities 69,826 60,968
Cash Flows from Investing Activities:
Capital expenditures (49,305) (39,977)
Proceeds from sales of assets 370 4,445
Advances to equity investees (5,250) -
-------- --------
Net cash used by investing
activities (54,185) (35,532)
Cash Flows from Financing Activities:
Proceeds from exercise of warrants 4,344 4,853
Purchase of warrants (1,486) (2,242)
Purchase of treasury stock (38,178) (67,597)
Dividends paid (2,960) (1,570)
Proceeds from exercise of options 23 147
-------- --------
Net cash used by financing activities (38,257) (66,409)
-------- --------
Net decrease in cash and cash
equivalents (22,616) (40,973)
Cash and cash equivalents, beginning of
period 120,161 154,080
-------- --------
Cash and cash equivalents, end of period $ 97,545 $ 113,107
======== ========
</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 September 30, 1999, and the results of operations for
the three and nine months ended September 30, 1999 and 1998 and the cash
flows for the nine months ended September 30, 1999 and 1998.
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, 1998. 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, May 1999,and August 1999, the Board of Directors declared
$0.05 dividends per common share, which were paid on March 15, 1999, June
15, 1999, and September 15, 1999 to shareholders of record as of March 1,
1999, June 1, 1999, and September 1, 1999. During the nine months ended
September 30, 1999, the Company purchased 1,161,010 shares of its common
stock and 32,007 of its warrants for $39,664,000.
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, 1999 and 1998 was $3,781,000 and $3,734,000, respectively. Income taxes
paid during the nine months ended September 30, 1999 and 1998 were
$15,598,000 and $15,221,000, respectively.
Note 4 - Interest
Interest expense of $945,000, $2,835,000, $945,000, and $12,835,000 has been
accrued for three and nine months ended September 30, 1999 and 1998. Interest
capitalized during the three and nine months ended September 30, 1999 and
1998 was $654,000, $1,275,000, $367,000 and $1,105,000, respectively.
Note 5 - Earnings Per Share
Basic earnings per common share for the three and nine months ended September
30, 1999 and 1998 are calculated by dividing net income by weighted average
common shares outstanding during the period. Diluted earnings per common
share for the three and nine months ended September 30, 1999 and 1998 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:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Weighted average
common shares 19,331,790 20,748,298 19,687,260 21,200,402
Effect of dilutive
securities:
Warrants 4,333,239 5,601,663 4,303,977 5,675,324
Options to purchase
common stock 226,129 216,767 218,990 220,442
Adjusted weighted
average common shares 23,891,158 26,566,728 24,210,227 27,096,168
</TABLE>
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 - Environmental Regulation
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 worldwide initiatives for limitations
on carbon dioxide emissions could result in the promulgation of statutes
or regulations that would adversely affect certain aspects of United
States manufacturing, including the cement industry.
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 provides 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. The Company is required
to apply for federal operating permits for each of its cement
manufacturing facilities. All of these applications have been made. 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 United States Environmental Protection Agency ("EPA") is
required 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 announced maximum available control technology ("MACT") standards for
cement manufacturing facilities (like Lone Star's Greencastle and Cape
Girardeau plants) that burn hazardous waste fuels ("HWF") and other MACT
standards for facilities burning fossil fuels. These MACT standards will
be implemented over a three-year period. The Company currently anticipates
that it will be able to achieve these MACT standards. The EPA has also
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. The EPA has promulgated
(but a court has stayed) new regulations to reduce nitrogen oxide
emissions substantially over the next eight years. These rules, if
implemented, 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.
However, the EPA has recently proposed regulations imposing controls on
the management, handling and disposal of cement kiln dust ("CKD"), a by-
product of cement manufacturing. These rules are currently being reviewed
by the Company and are expected to be implemented over a three-year period
following promulgation. The types of controls 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.
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"). The Company
has secured the permit required under RCRA and the BIF Rules for the Cape
Girardeau plant, and the Greencastle plant also will go through this
permitting process and has completed a three-year recertification of its
existing interim status, which recertification will be required again
after the Company's expansion of the Greencastle plant in the Year 2000.
The Greencastle permit is a requirement to enable Lone Star to continue
the use of HWF at the plant. The permitting process is lengthy and
complex, involving the submission of extensive technical data, and there
can be no assurances that the plant will be successful in securing its
final RCRA permit. In addition, if received, the permit could contain
terms and conditions with which the Company cannot comply or could require
the Company to install and operate costly control technology equipment.
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 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,
although it does not currently contemplate that future costs relating to
such sites will be material.
The Company's operations are 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 7 - Legal Proceedings
From time to time, the Company is named as a defendant in lawsuits
asserting, among other things, products liability. The Company maintains
such liability insurance coverage for its operations as it deems
reasonable. The Company does not expect the effect of such matters to have
a material effect on the financial condition of the Company.
Note 8 - Subsequent Event
On October 6, 1999, Dyckerhoff Aktiengesellschaft, a corporation formed
under the laws of the Federal Republic of Germany ("Parent"), closed its
previously announced tender offer (the "Offer") for (i) all of the issued
and outstanding shares of common stock, par value $1.00 per share (the
"Shares"), of the Company, together with the associated rights to purchase
common stock (the "Rights") issued pursuant to the Rights Agreement, dated
as of November 10, 1994 between the Company and Chemical Bank, as Rights
Agent, for $50.00 per Share in cash, and (ii) all of the outstanding
common stock purchase warrants (the "Warrants"), each representing the
right to purchase two Shares, issued pursuant to the Warrant Agreement,
dated as of April 13, 1994 between the Company and Chemical Bank, as
Warrant Agent (the "Warrant Agreement"), for $81.25 per Warrant in cash.
The Offer was made pursuant to an Agreement and Plan of Merger, dated as
of September 2, 1999, among Parent, Level Acquisition Corp., a Delaware
corporation ("Purchaser") and the Company (the "Merger Agreement").
On October 8, 1999, pursuant to the Merger Agreement, Purchaser merged
with and into the Company with the Company surviving as an indirect wholly
owned subsidiary of Parent (the "Merger"). The approval of the holders of
the Shares was not required to effect the Merger pursuant to the
applicable provisions of the Delaware General Corporation Law. The Shares
issued and outstanding immediately prior to the effective time of the
Merger (other than Shares held in the treasury of the Company or owned by
any of its subsidiaries or owned by Purchaser) were converted, subject to
any appraisal rights, into the right to receive $50.00 per Share in cash,
without interest thereon. According to Purchaser's Schedule 13D filed
October 12, 1999, upon the effective time of the Merger, Parent owned 100%
of the Shares and approximately 98.9% of the Warrants. The Warrants
issued and outstanding immediately prior to the effective time of the
Merger and not tendered pursuant to the Offer will remain outstanding.
In connection with the Offer, Parent and Purchaser borrowed approximately
$1.2 billion pursuant to a term loan facility's credit agreement with
banks, of which pursuant to the merger, $910,000,000 became the obligation
of the Company. A portion of the Company's borrowing has been refinanced
by the Company's issuance of EUR300,000,000 5.875% Bearer Bonds due in
November 2004. In order to avoid the foreign currency risk, the Company
has entered into a cross currency swap fixing the Euro debt in the amount
of $320,550,000, with an average U.S. dollar interest rate of 7.83733% for
5 years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
In September 1999, the Company entered into a merger agreement
with Dyckerhoff AG ("Dyckerhoff"). This agreement provided for the
acquisition of the Company by Dyckerhoff and was completed in
October 1999. Under the agreement, Dyckerhoff completed an all-cash
tender offer for all of the Company's outstanding common stock at a
price of $50 per share and all outstanding warrants at a price of
$81.25 per warrant. The total purchase price will be approximately
$1.2 billion, including debt assumed (See Note 8).
As of September 30, 1999, the Company had cash and marketable
securities on hand of $97.5 million. Due to the acquisition by
Dyckerhoff in October, the Company's $50.0 million of 7.31% senior
notes became due. On November 3, 1999, the Company paid these
senior notes at par plus $1.9 million relating to a prepayment
penalty amount and accrued interest. The Company believes that
funds generated by operations and advances from Dyckerhoff will be
adequate to cover current working capital and capital expenditure
needs.
During 1999, the Company purchased 1,161,000 shares of its
stock and 32,000 warrants at a cost of $39.7 million. The 1999
purchases include 128,600 shares of stock and 4,000 warrants
purchased during the third quarter at a cost of $5.1 million. Since
the inception of its repurchase program in July 1995, the Company
has purchased a total of 7,705,100 shares and 211,400 warrants at a
cost of $200.0 million.
Cash flows from operating activities of $69.8 million for the
nine months ended September 30, 1999 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 nine months reduced cash taxes otherwise payable by $12.9
million.
During the nine months ended September 30, 1999, investing
activities used $54.2 million, primarily representing $49.3 million
for capital expenditures and a $5.3 million advance to Kosmos
Cement Company, a partnership in which the Company owns a 25%
interest.
Net cash outflows from financing activities of $38.3 million
for the nine months ended September 30, 1999 primarily reflect
$39.7 million for the purchase of common stock and warrants and
$3.0 million for dividends. These payments were partially offset by
proceeds of $4.3 million from the exercise of warrants.
Working capital on September 30, 1999 was $137.1 million as
compared to $143.4 million on December 31, 1998. Current assets
decreased $8.5 million primarily due to lower short-term
investments, offset by higher accounts and notes receivable
balances. Current liabilities decreased $2.2 million primarily due
to a decrease in accounts payables and accrued liabilities, offset
by higher income taxes payable.
The $12.9 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 nine months of 1999. Investments in joint
ventures increased $6.7 million primarily due to a $5.3 million
advance to Kosmos Cement Company. Net property, plant and
equipment increased $31.1 million reflecting capital expenditures,
partly offset by depreciation expense.
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 (See Note 6).
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 nine months of 1999 did not have a
material effect on the financial condition or cash flows of the
Company.
Year 2000
The Company has conducted a company-wide assessment of its
computer systems and operations to identify computer hardware,
software and process control systems that are not Year 2000
compliant. The Company believes that all issues that may result
in loss of plant production have been identified and resolved by
the Company. Expenses incurred to date have not been material,
and the Year 2000 issue has had no known effect on the Company to
date. Future costs are not expected to be material. Since 1990,
the Company has been replacing and upgrading its corporate and
plant computer systems, including its maintenance management
system, sales order entry system, treasury system and other
financial programs. The Company has replaced all employee desktop
computer systems within the past several years. Such improvements
have been made in the normal course of business. Vendors have
assured the Company that all of these recently purchased machines
and software programs are Year 2000 compliant.
The Company has been in communication with third parties such
as critical vendors and major service suppliers, communications
providers and banks whose system failures potentially could have a
material impact on the Company. No single customer accounts for
more than 10% of the Company's total sales and the Company has no
material executory contracts to sell cement that extend past
December 31, 1999. Accordingly, the Company is not canvassing its
customers as to their Year 2000 compliance. There can be no
guarantee that customer and vendor systems will be Year 2000
compliant. Moreover, the potential effect of such noncompliance
cannot be quantified because of the impossibility of estimating
the magnitude, duration, or ultimate impact of noncompliance by
others.
If the Company's efforts in respect of Year 2000 problems in
its critical operations ultimately prove unsuccessful, or if it is
affected by the inability of suppliers or customers to continue
operations due to such a problem, the results of operations or
financial condition could be materially impacted. In the event of
the failure to correct all compliance issues related to
manufacturing control systems, the plants have the ability, in
many instances, to continue operations mechanically, rather than
electronically. However, operations at a plant would shut down if
that plant's main control center failed or if power suppliers
failed to deliver electricity due to a Year 2000 problem. Failure
of other major third parties, such as coal and gas suppliers and
railroads, to correct Year 2000 problems could also affect the
Company's business.
The Company has developed a summary contingency plan designed
to mitigate, in part, the impact on its business of certain Year
2000 problems. This plan, however, can not cover all
eventualities, such as a power outage. The Company expects this
plan to be in place by the end of 1999.
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 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,
unforeseen operational difficulties including difficulties relating
to the construction and installation of improvements to property,
plant and equipment, financial losses due to Year 2000 computer
problems, 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 $112.9 million and $281.6 million
during the three and nine months ended September 30, 1999 were $8.9
million and $22.1 million, respectively, higher than the comparable
prior-year results. Portland cement shipments for the current
quarter and nine-month periods were approximately 8% and 7%,
respectively, above the prior-year levels reflecting continued
strong demand in most markets. Average net realized selling
prices for portland cement products for the third quarter of 1999
were consistent with the comparable prior-year period third and
approximately 1% higher for the nine months ended September 30,
1999 as compared to 1998.
Gross profit from the Company's cement and ready-mixed concrete
operations of $45.0 million and $101.7 million for the three and
nine months ended September 30, 1999 were $1.5 million and $8.1
million, respectively, higher than the comparable 1998 periods.
The increase in gross profit reflects higher overall shipments and
greater cement production for the three and nine months ended
September 30, 1999.
Included in the calculation of gross profit are sales less cost
of sales including depreciation related to cost of sales (which
excludes depreciation on office equipment, furniture and fixtures
which are not related to the cost of sales).
The Company's operations are seasonal and, consequently, the
interim results are not indicative of the results to be expected
for the full year.
Pre-tax income from joint ventures of $2.9 million and $6.5
million during the three and nine months ended September 30, 1999
reflects the results of the Kosmos Cement Company, a partnership in
which the Company has a 25% interest. The results for the three
and nine months ended September 30, 1999 were $0.1 million and $0.5
million, respectively, higher than the comparable prior-year
periods. The increase is primarily due to higher shipments for both
1999 periods.
Other income of $3.0 million and $6.5 million during the three
and nine months ended September 30, 1999 decreased $0.5 million and
$2.7 million, respectively, from the comparable 1998 periods. For
both 1999 periods, the decrease is primarily due to less interest
income reflecting lower short-term investment balances. During the
third quarter 1999, the Company received $1.4 million for a bond
assessment rebate on a parcel of real estate. In addition, other
income for the first nine months of 1998 included a gain of $3.3
million, $1.8 million of which was received during the third
quarter, on the sale of surplus parcels of real estate.
Interest expense of $0.3 million and $1.6 million during the
three and nine months ended September 30, 1999 were $0.3 million
and $0.2 million, respectively, lower than the prior-year period
expense. Capitalized interest was $0.7 million and $1.3 million for
the three and nine months ended September 30, 1999 and $0.4 million
and $1.1 million for the comparable prior-year periods.
The income tax expense of $15.2 million and $31.8 million
during the three and nine months ended September 30, 1999
increased $0.6 million and $2.1 million, respectively, over the
prior-year expense due to higher pre-tax earnings in both 1999
periods.
Net income of $29.8 million during the third quarter of 1999
was $1.1 million higher than the prior-year results. On a per share
basis, basic and diluted earnings for the third quarter of 1999
were $1.54 and $1.25, respectively, compared to $1.39 and $1.08,
respectively, for 1998. This improvement is primarily due to
higher results for the cement operations reflecting higher average
selling prices and increased shipments for portland cement products
and lower shares outstanding. These favorable results were partly
offset by higher cost of sales, higher income tax expense due to
higher pre-tax earnings and lower other income.
Net income of $62.4 million during the first nine months of
1999 was $4.1 million higher than the prior-year results. On a per
share basis, basic and diluted earnings for the first nine months
of 1999 were $3.17 and $2.58, respectively, compared to $2.75 and
$2.15, respectively, for 1998. This improvement is primarily due
to higher results for the cement operations reflecting higher
average selling prices and increased shipments for portland cement
products and lower shares outstanding. These favorable results
were partly offset by higher cost of sales, higher income tax
expense due to higher pre-tax earnings and lower other income.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the cash-out merger of the
remaining shares of Common Stock of the Company on October
8, 1999 as a result of the acquisition of the Company by
Dyckerhoff AG as described in the Form 8-K filed by the
Company on October 12, 1999, the Company's By-laws and
Certificate of Incorporation were amended. These documents
are filed herewith as Exhibits 3.1 and 3.2, respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
3.1 Restated Certificate of Incorporation of
Lone Star Industries, Inc.
3.2 Bylaws of Lone Star Industries, Inc.
27. Financial Data Schedule.
(b) Reports on Form 8-K:
Form 8-K, October 12, 1999 - Item 1 - Change in
Control of Registrant
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 12, 1999 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: November 12, 1999 By: JAMES W. LANGHAM
James W. Langham
Vice President, General
Counsel and Secretary
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
LONE STAR INDUSTRIES, INC.
1. Name. The name of the Corporation is Lone Star
Industries, Inc.
2. Registered Office and Agent. The address of the
Corporation's registered office in the State of Delaware is
1209 Orange Street in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
3. Purpose. The purposes for which the Corporation
is formed are to engage in any lawful act or activity for
which corporations may be organized under the General
Corporation Law of Delaware and to possess and exercise all
of the powers and privileges granted by such law and any
other law of Delaware.
4. Authorized Capital. The aggregate number of
shares of stock which the Corporation shall have authority
to issue is 25,000,000 shares, all of which are of one
class and are designated as Common Stock and each of which
has a par value of $.01 per share.
5. Bylaws. The board of directors of the Corporation
is authorized to adopt, amend or repeal the bylaws of the
Corporation, except as otherwise specifically provided
therein.
6. Elections of Directors. Elections of directors
need not be by written ballot unless the bylaws of the
Corporation shall so provide.
7. Right to Amend. The Corporation reserves the
right to amend any provision contained in this Certificate
as the same may from time to time be in effect in the
manner now or hereafter prescribed by law, and all rights
conferred on stockholders or others hereunder are subject
to such reservation.
8. Limitation on Liability. To the fullest extent
that elimination or limitation of the liability of
directors is permitted by law, as the same is now or may
hereafter be in effect, no director of the Corporation
shall be liable to the Corporation or its stockholders for
monetary damages for breach of his or her fiduciary duty as
a director.
9. Miscellaneous. The Corporation elects not to be
governed by Section 203 of the Delaware General Corporation
Law.
10. Indemnification. The Corporation shall, to the
fullest extent permitted by law, as the same is now or may
hereafter be in effect, indemnify each person (including
the heirs, executors, administrators and other personal
representatives of such person) against expenses including
attorneys' fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by such person
in connection with any threatened, pending or completed
suit, action or proceeding (whether civil, criminal,
administrative or investigative in nature or otherwise) in
which such person may be involved by reason of the fact
that he or she is or was a director or officer of the
Corporation or is or was serving any other incorporated or
unincorporated enterprise in such capacity at the request
of the Corporation.
EXHIBIT 3.2
BYLAWS
OF
LONE STAR INDUSTRIES, INC.
ARTICLE I
STOCKHOLDERS
A. Meetings.
1. Place. Meetings of the stockholders shall be held at such
place as may be designated by the board of directors.
2. Annual Meeting. An annual meeting of the stockholders for
the election of directors and for other business shall be held on
such date and at such time as may be fixed by the board of
directors.
3. Special Meetings. Special meetings of the stockholders may
be called at any time by the president, or the board of directors,
or the holders of a majority of the outstanding shares of stock of
the Company entitled to vote at the meeting.
4. Quorum. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of stock of the
Company entitled to vote on a particular matter shall constitute a
quorum for the purpose of considering such matter.
5. Voting Rights. Except as otherwise provided herein, in the
certificate of incorporation or by law, every stockholder shall have
the right at every meeting of stockholders to one vote for every
share standing in the name of such stockholder on the books of the
Company which is entitled to vote at such meeting. Every
stockholder may vote either in person or by proxy.
ARTICLE II
DIRECTORS
A. Number and Term. The board of directors shall have
authority to (i) determine the number of directors to constitute the
board and (ii) fix the terms of office of the directors.
B. Meetings.
1. Place. Meetings of the board of directors shall be held at
such place as may be designated by the board or in the notice of the
meeting.
2. Regular Meetings. Regular meetings of the board of
directors shall be held at such times as the board may designate.
Notice of regular meetings need not be given.
3. Special Meetings. Special Meetings of the board of
directors may be called by direction of the chairman or any two
members of the board of directors on one days notice to each
director, either personally or by mail, telegram or facsimile
transmission.
4. Quorum. A majority of all the directors in office shall
constitute a quorum for the transaction of business at any meeting.
5. Voting. Except as otherwise provided herein, in the
certificate of incorporation or by law, the vote of a majority of
the directors present at any meeting at which a quorum is present
shall constitute the act of the board of directors.
6. Committees. The board of directors may, by resolution
adopted by a majority of the whole board, designate one or more
committees, each committee to consist of one or more directors and
such alternate members (also directors) as may be designated by the
board. Unless otherwise provided herein, in the absence or
disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may
unanimously appoint another director to act at the meeting in the
place of any such absent or disqualified member. Except as
otherwise provided herein, in the certificate of incorporation or by
law, any such committee shall have and may exercise the powers of
the full board of directors to the extent provided in the resolution
of the board directing the committee.
ARTICLE III
OFFICERS
A. Election. At its first meeting after each annual meeting
of the stockholders, the board of directors shall elect a president,
treasurer, secretary and such other officers as it deems advisable.
B. Authority, Duties and Compensation. The officers shall
have such authority, perform such duties and serve for such
compensation as may be determined by resolution of the board of
directors. Except as otherwise provided by board resolution,
(i) the president shall be the chief executive officer of the
Company, shall have general supervision over the business and
operations of the Company, may perform any act and execute any
instrument for the conduct of such business and operations and shall
preside at all meetings of the board and stockholders, (ii) the
other officers shall have the duties customarily related to their
respective offices, and (iii) any vice president, or vice presidents
in the order determined by the board, shall in the absence of the
president have the authority and perform the duties of the
president.
ARTICLE IV
INDEMNIFICATION
4.1 Actions, etc. other than by or in the right of the Company.
The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that he or she, or a
person of whom he or she was or is the legal representative, is or
was a director, officer or member of a management committee of the
Company, or is or was serving at the request of the Company as a
director, officer or member of a management committee of another
corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans. The
indemnification shall be against charges, expenses (including
attorneys' fees), judgments, liabilities, ERISA excise taxes, fines,
penalties and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any
criminal action or proceeding, that he or she had reasonable cause
to believe that his or her conduct was unlawful.
4.2 Actions, etc. by or in the Right of the Company. The Company
shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its
favor by reason of the fact that he or she is or was a director,
officer or member of a management committee of the Company, or is or
was serving at the request of the Company as a director, officer or
member of a management committee of another corporation,
partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the
best interests of the Company. However, no indemnification shall be
made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Company unless
and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
4.3 Determination of Right to Indemnification. Any indemnification
under Section 1 or 2 of this Article (unless ordered by a court)
shall be made by the Company only as authorized in the specific case
upon a determination that indemnification of the director, officer
or member of a management committee is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in Section 1 or 2 of this Article. This determination shall
be made (i) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if
obtainable and a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the
stockholders.
4.4 Right to Indemnification. Notwithstanding the other provisions
of this Article, to the extent that a director, officer or member of
a management committee has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to
in Section 1 or 2 of this Article, or in defense of any claim, issue
or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him
or her in connection therewith.
4.5 Prepaid Expenses. Expenses (including attorneys' fees)
incurred by an officer, director or member of a management committee
in defending a civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Company in advance of
the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer
to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Company as authorized
in this Article.
4.6 Other Rights and Remedies. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other
subsections of this Article shall not be deemed exclusive of any
other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any By-laws,
agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office.
4.7 Continuation of Rights. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article shall,
unless otherwise provided when authorized or ratified, continue as
to a person who has ceased to be a director, officer or member of a
management committee and shall inure to the benefit of the heirs,
executors and administrators of such a person.
4.8 Insurance. Upon resolution passed by the board of directors,
the Company may purchase and maintain insurance on behalf of any
person who is or was a director, officer or member of a management
committee of the Company, or is or was serving at the request of the
Company as a director, officer or member of a management committee
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and
incurred in any such capacity, or arising out of his or her status
as such, whether or not the Company would have the power to
indemnify him or her against the liability under the provisions of
this Article.
4.9 Expenses as a Witness. To the extent any director, officer,
employee or member of a management committee of the Company is by
reason of such position, or a position with another entity at the
request of the Company, a witness in any action, suit or proceeding,
he shall be indemnified against all costs and expenses actually and
reasonably incurred by him or her on his or her behalf in connection
therewith.
4.10 Pre-Merger Indemnification. Notwithstanding the provisions of
Section 4.1 through 4.9 hereof, nothing in this Article IV shall
derogate from the current or former directors', officers',
employees' and agents' of the Company and its subsidiaries right to
indemnification pursuant to the Bylaws as in existence prior to the
effective time of the merger (the "Effective Time") of Level
Acquisition Corp. with and into the Company for acts or omissions
occurring prior to the Effective Time.
ARTICLE V
TRANSFER OF SHARE CERTIFICATES
Transfers of share certificates and the shares represented
thereby shall be made on the books of the Company only by the
registered holder or by duly authorized attorney. Transfers shall
be made only on surrender of the share certificate or certificates.
ARTICLE VI
AMENDMENTS
These bylaws may be amended or repealed at any regular or
special meeting of the board of directors by vote of a majority of
all directors in office or at any annual or special meeting of
stockholders by vote of holders of a majority of the outstanding
stock entitled to vote. Notice of any such annual or special
meeting of stockholders shall set forth the proposed change or a
summary thereof.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Statement of Operations and Balance Sheet and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
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