FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 23, 1999:
Common Stock, par value $1 per share - 19,359,483 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three and Six Months Ended June 30, 1999 and
1998 (Unaudited)......................................3
Consolidated Statements of Retained Earnings -
For the Three and Six Months Ended June 30, 1999
and 1998 (Unaudited)..................................4
Consolidated Balance Sheets - June 30, 1999
(Unaudited) and December 31, 1998.....................5
Consolidated Statements of Cash Flows - For the
Six Months Ended June 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.........................................................21
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 Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Net sales $102,066 $ 97,702 $168,729 $155,496
Joint venture income 2,668 2,231 3,510 3,054
Other income, net 1,196 1,936 3,451 5,705
-------- -------- -------- --------
105,930 101,869 175,690 164,255
-------- -------- -------- --------
Deductions from revenues:
Cost of sales 58,529 56,095 100,162 94,998
Selling, general and
administrative expenses 6,344 6,328 13,131 13,060
Depreciation and depletion 5,981 5,211 12,034 10,557
Interest expense 542 405 1,269 1,152
-------- -------- -------- --------
71,396 68,039 126,596 119,767
-------- -------- -------- --------
Income before income
taxes 34,534 33,830 49,094 44,488
Provision for income taxes (11,655) (11,418) (16,569) (15,015)
-------- -------- -------- --------
Net income applicable
to common stock $ 22,879 $ 22,412 $ 32,525 $ 29,473
======== ======== ======== ========
Weighted average common
shares outstanding:
Basic 19,563 21,421 19,865 21,426
======== ======== ======== ========
Diluted 24,013 27,572 24,353 27,360
======== ======== ======== ========
Earnings per common share:
Basic $ 1.17 $ 1.05 $ 1.64 $ 1.38
======== ======== ======== ========
Diluted $ 0.95 $ 0.81 $ 1.34 $ 1.08
======== ======== ======== ========
</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 Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Retained earnings, beginning
of period $ 261,302 $ 184,978 $ 252,671 $ 178,444
Net income 22,879 22,412 32,525 29,473
Dividends (981) (536) (1,996) (1,063)
--------- --------- --------- ---------
Retained earnings, end of
period $ 283,200 $ 206,854 $ 283,200 $ 206,854
========= ========= ========= =========
</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>
June 30, December 31,
1999 1998
<S> <C> <C>
(Unaudited)
Assets:
Current assets:
Cash including cash equivalents of $78,257
and $119,896 $ 78,407 $ 120,161
Accounts and notes receivable, net 45,489 32,164
Inventories:
Finished goods 18,325 15,228
Work in process and raw materials 5,667 6,657
Supplies and fuel 24,175 23,848
-------- --------
48,167 45,733
Deferred tax asset 4,052 4,052
Other current assets 5,831 3,736
-------- --------
Total current assets 181,946 205,846
Joint ventures 26,777 21,517
Property, plant and equipment 448,299 418,484
Less accumulated depreciation and depletion 101,233 89,821
-------- --------
347,066 328,663
Deferred tax asset 14,843 21,593
Other assets and deferred charges 12,436 10,895
-------- --------
Total assets $583,068 $588,514
======== ========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 13,641 $ 16,087
Accrued liabilities 41,487 44,281
Income taxes payable 4,874 2,086
-------- --------
Total current liabilities 60,002 62,454
Senior notes payable 50,000 50,000
Postretirement benefits other than pensions 122,787 123,428
Other liabilities 26,913 28,316
Contingencies (See notes 6 and 7)
-------- --------
Total liabilities 259,702 264,198
-------- --------
Shareholders' Equity:
Common stock 26,013 25,692
Warrants to purchase common stock 11,057 11,792
Additional paid-in capital 173,402 171,276
Retained earnings 283,200 252,671
Treasury stock, at cost (170,306) (137,115)
-------- --------
Total shareholders' equity 323,366 324,316
Total liabilities and shareholders' -------- --------
equity $583,068 $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 Six Months
Ended June 30,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 32,525 $ 29,473
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and depletion 12,034 10,557
Deferred income taxes 6,750 8,342
Changes in operating assets and
liabilities:
Accounts and notes receivable (13,349) (12,596)
Inventories and other current
assets (4,611) (6,072)
Accounts payable and
accrued liabilities (5,263) (1,765)
Equity income, net of dividends
received (1,260) (2,054)
Gain of sale of surplus property - (1,500)
Other, net (2,442) 522
-------- --------
Net cash provided by operating
activities 24,384 24,907
Cash Flows from Investing Activities:
Capital expenditures (30,379) (31,571)
Proceeds from sales of assets 222 2,539
Advances to equity investees (4,000) -
-------- --------
Net cash used by investing
activities (34,157) (29,032)
Cash Flows from Financing Activities:
Proceeds from exercise of warrants 3,014 70
Purchase of warrants (1,260) -
Purchase of treasury stock (31,762) (2,765)
Dividends paid (1,996) (1,063)
Proceeds from exercise of options 23 134
-------- --------
Net cash used by financing activities (31,981) (3,624)
-------- --------
Net decrease in cash and cash
equivalents (41,754) (7,749)
Cash and cash equivalents, beginning of
period 120,161 154,080
-------- --------
Cash and cash equivalents, end of period $ 78,407 $ 146,331
======== ========
</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 June 30, 1999, and the results of operations for the
three and six months ended June 30, 1999 and 1998 and the cash flows for
the six months ended June 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 and May 1999, the Board of Directors declared $0.05 dividends per
common share, which were paid on March 15, 1999 and June 15, 1999 to
shareholders of record as of March 1, 1999 and June 1, 1999. During the six
months ended June 30, 1999, the Company purchased 1,032,410 shares of its
common stock and 28,007 of its warrants for $34,543,000. Some of these
transactions were settled early in the third quarter and therefore, are not
included in the accompanying statement of cash flows. In addition, in July
1999, the Company purchased 128,600 shares of its stock and 4,000 of its
warrants for $5,121,000.
Note 3 - Supplemental Disclosures of Cash Flow Information
Cash equivalents include the Company's marketable securities which are
comprised of short-term, highly liquid investments with original maturities
of three months or less. Interest paid during the six months ended June 30,
1999 and 1998 was $1,859,000 and $1,838,000, respectively. Income taxes paid
during the six months ended June 30, 1999 and 1998 were $7,057,000 and
$2,345,000, respectively.
Note 4 - Interest
Interest expense of $945,000, $1,890,000, $945,000, and $1,890,000 has been
accrued for three and six months ended June 30, 1999 and 1998. Interest
capitalized during the three and six months ended June 30, 1999 and 1998 was
$403,000, $621,000, $540,000 and $738,000, respectively.
Note 5 - Earnings Per Share
Basic earnings per common share for the three and six months ended June 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 six months ended June 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:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Weighted average
common shares 19,563,056 21,420,780 19,864,995 21,426,454
Effect of dilutive
securities:
Warrants 4,233,532 5,923,629 4,272,535 5,711,085
Options to purchase 216,645 227,759 215,344 222,268
common stock --------- --------- --------- ---------
Adjusted weighted
average common shares 24,013,233 27,572,168 24,352,874 27,359,807
========== ========== ========== ==========
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.
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. 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. These regulations will be promulgated through a
rulemaking scheduled to be completed shortly. These rules will be
implemented over a three-year period following promulgation. 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.
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 the Company 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.
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 $78.4 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
$37.9 million is currently available for such payments under the
most restrictive of such covenants.
During 1999, the Company purchased 1,161,000 shares of its
stock and 32,000 warrants at a cost of $39.7 million. Some of
these transactions were settled early in the third quarter and
therefore, are not included in the statement of cash flows. The
1999 purchases include 128,600 shares of stock and 4,000 warrants
purchased in July 1999 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. The Company is currently authorized to
purchase an additional $10.6 million of common stock and warrants.
Cash flows from operating activities of $24.4 million for the
six months ended June 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 six months reduced cash taxes otherwise payable by $6.8
million.
During the six months ended June 30, 1999, investing
activities used $34.2 million, primarily representing $30.4
million for capital expenditures and a $4.0 million advance to
Kosmos Cement Company, a partnership in which the Company owns a
25% interest.
Net cash outflows from financing activities of $32.0 million
for the six months ended June 30, 1999 primarily reflect $33.0
million for the purchase of common stock and warrants and $2.0
million for dividends. These payments were partially offset by
proceeds of $3.0 million from the exercise of warrants.
Working capital on June 30, 1999 was $121.9 million as
compared to $143.4 million on December 31, 1998. Current assets
decreased $23.9 million primarily due to lower short-term
investments, offset by higher inventory and accounts and notes
receivable balances. Current liabilities decreased $2.5 million
primarily due to a decrease in accounts payables and accrued
liabilities, offset by higher income taxes.
The $6.8 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 six months of 1999. Investments in joint
ventures increased $5.3 million primarily due to a $4.0 million
advance to Kosmos Cement Company. Net property, plant and
equipment increased $18.4 million reflecting capital expenditures,
partly offset by depreciation expense.
In February and May 1999, the Company's Board of Directors
declared $0.05 per share dividends which were paid on March 15,
1999 and June 15, 1999 to shareholders of record as of March 1,
1999 and June 1, 1999. Total dividends paid during the first six
months of 1999 were $2.0 million.
The Company is subject to extensive, stringent and complex
federal, state and local laws, regulations and ordinances
pertaining to the quality and the protection of the environment
and human health and safety, requiring the Company to devote
substantial time and resources in an effort to maintain continued
compliance. Many of the laws and regulations apply to the
Company's former activities, properties and facilities as well as
its current operations. 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 six 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 expects that the identification and
repair of any problems will be successfully completed during
1999. The Company's goal is to have its remediated and replaced
systems operational during the third quarter of 1999 to allow
time for testing and verification. In particular, the Company
has performed tests of its cement plants' operations during their
normal maintenance shutdowns in the first half of 1999. 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 tracking 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 is unsuccessful in identifying or fixing all
Year 2000 problems in its critical operations, 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 is in the process of developing a contingency
plan that would be 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 $102.1 million and $168.7 million
during the three and six months ended June 30, 1999 were $4.4
million and $13.2 million, respectively, higher than the
comparable prior-year results. Cement shipments for the current
quarter and six-month periods were approximately 5% and 9%,
respectively, above the prior-year levels reflecting continued
strong demand in most markets. Average net realized selling
prices for portland cement products were approximately 1% higher
for both periods in 1999 as compared to comparable 1998 periods.
Average net realized selling prices for slag cement products were
2% higher in both 1999 periods as compared to 1998.
Gross profit from the Company's cement and ready-mixed
concrete operations of $37.6 million and $56.7 million for the
three and six months ended June 30, 1999 were $1.2 million and
$6.6 million, respectively, higher than the comparable 1998
periods. The increase in gross profit reflects higher overall
shipments, higher average net realized cement selling prices and
greater cement production for the three and six months ended June
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 $2.7 million and $3.5
million during the three and six months ended June 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 six months ended June 30, 1999 were $0.4 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 $1.2 million and $3.5 million during the
three and six months ended June 30, 1999 decreased $0.7 million
and $2.3 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.
In addition, other income for the first six months of 1998
included a gain of $1.5 million on the sale of a surplus parcel of
real estate.
Interest expense of $0.5 million and $1.3 million during the
three and six months ended June 30, 1999 were comparable with the
prior-year period expense. Capitalized interest was $0.4 million
and $0.6 million for the three and six months ended June 30, 1999
and $0.5 million and $0.7 million for the comparable prior-year
periods.
The income tax expense of $11.7 million and $16.6 million
during the three and six months ended June 30, 1999 increased
$0.2 million and $1.6 million, respectively, over the prior-year
expense, due to higher pre-tax earnings in both 1999 periods.
Net income of $22.9 million during the second quarter of 1999
was $0.5 million higher than the prior-year results. On a per
share basis, basic and diluted earnings for the second quarter of
1999 were $1.17 and $0.95, respectively, compared to $1.05 and
$0.81, respectively, for 1998. This improvement is primarily due
to higher results for the cement operations reflecting higher
average selling prices and increased shipments. These favorable
results were partly offset by higher income tax expense due to
higher pre-tax earnings and by lower interest income.
Net income of $32.5 million during the first six months of
1999 was $3.1 million higher than the prior-year results. On a per
share basis, basic and diluted earnings for the first six months
of 1999 were $1.64 and $1.34, respectively, compared to $1.38 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. These favorable
results were partly offset by higher income tax expense due to
higher pre-tax earnings, lower interest income and a gain on the
sale of a parcel of real estate in 1998.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was
held on May 13, 1999.
(b) The names of each director elected at the Annual Meeting
are: Theodore F. Brophy, Robert G. Schwartz and Jack R.
Wentworth. Each was elected for a three year term. The
names of each other director whose term of office as a
director continued after the Annual Meeting are: James E.
Bacon, Arthur B. Newman, Allen E. Puckett, William M.
Troutman and David W. Wallace.
(c) The following were the matters voted upon at the Annual
Meeting and the number of votes cast for, against or
abstentions and broker non-votes, as to each such matter,
including a separate tabulation with respect to each
nominee for office.
1. For the election of directors of the Company:
Theodore F. Brophy For: 18,246,459
Withheld: 378,858
Robert G. Schwartz For: 18,247,007
Withheld: 378,310
Jack R. Wentworth For: 18,246,625
Withheld: 378,692
2. For the approval of an amendment to theCompany
Certificate of Incorporation increasing authorized Common Stock from
50,000,000 to 75,000,000:
For: 16,653,361
Against: 1,958,331
Abstain and
Broker Non-Votes: 13,625
3. For the ratification of the appointment of
PricewaterhouseCoopers LLP as auditors of the Company for the year
1999:
For: 18,605,955
Against: 5,918
Abstain and
Broker Non-Votes: 13,444
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
27. Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K, May 13, 1999 - Item 5 - Other Events.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Lone Star Industries, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
LONE STAR INDUSTRIES, INC.
Date: July 30, 1999 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: July 30, 1999 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
Company's Statement of Operations and Balance Sheet and is qualified in its
entirety by reference to such finanical statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 150
<SECURITIES> 78,257
<RECEIVABLES> 49,050
<ALLOWANCES> 3,561
<INVENTORY> 48,167
<CURRENT-ASSETS> 181,946
<PP&E> 448,299
<DEPRECIATION> 101,233
<TOTAL-ASSETS> 583,068
<CURRENT-LIABILITIES> 60,002
<BONDS> 50,000
0
0
<COMMON> 26,013
<OTHER-SE> 297,353
<TOTAL-LIABILITY-AND-EQUITY> 583,068
<SALES> 168,729
<TOTAL-REVENUES> 175,690
<CGS> 100,162
<TOTAL-COSTS> 125,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,269
<INCOME-PRETAX> 49,094
<INCOME-TAX> 16,569
<INCOME-CONTINUING> 32,525
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<NET-INCOME> 32,525
<EPS-BASIC> 1.64
<EPS-DILUTED> 1.34
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