FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 April 30, 2000:
Common Stock, par value $.01 per share - 18,342,605 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations - For the
Three Months Ended March 31, 2000 and 1999
(Unaudited)...........................................3
Consolidated Statements of Retained Earnings -
For the Three Months Ended March 31, 2000 and
1999 (Unaudited)......................................4
Consolidated Balance Sheets - March 31, 2000
(Unaudited) and December 31, 1999.....................5
Consolidated Statements of Cash Flows - For the
Three Months Ended March 31, 2000 and 1999
(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>
Successor | Predecessor
Company | Company
|
For the Three | For the Three
Months Ended | Months Ended
March 31, | March 31,
2000 | 1999
______________ | ______________
<S> <C> <C>
|
Revenues: |
Net sales $ 71,635 | $ 66,663
Joint venture income 949 | 842
Other income, net 1,112 | 2,255
-------- | --------
73,696 | 69,760
-------- | --------
|
Deductions from revenues: |
Cost of sales 45,336 | 41,633
Selling, general and |
administrative expenses 6,991 | 6,787
Depreciation and depletion 9,471 | 6,053
Interest expense 15,283 | 727
-------- | --------
77,081 | 55,200
-------- | --------
|
Income (loss) before income |
taxes (3,385) | 14,560
|
Provision (credit) for |
income taxes 1,096 | (4,914)
-------- | --------
|
Net income (loss) applicable |
to common stock $ (2,289) | $ 9,646
========= | ========
Weighted average common shares |
outstanding: |
Basic 18,339 | 20,167
======== | ========
Diluted 18,339 | 24,685
======== | ========
|
Earnings (loss) per common share: |
Basic $ (0.12) | $ 0.48
======== | ========
Diluted $ (0.12) | $ 0.39
======== | ========
</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>
Successor | Predecessor
Company | Company
|
For the Three | For the Three
Months | Months
Ended March 31, | Ended March 31,
2000 | 1999
-------------- | -------------
<S> <C> <C>
Retained earnings, beginning |
of period $ 12,065 | $ 252,671
|
Net income (loss) (2,289) | 9,646
|
Dividends - | (1,015)
---------- | ---------
Retained earnings, end |
of period $ 9,776 | $ 261,302
========== | ==========
</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>
Successor Company
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash including cash
equivalents of $719 and $594 $ 897 $ 787
Accounts and notes receivable, net 34,783 32,866
Inventories:
Finished goods 27,962 17,768
Work in process and
raw materials 13,289 10,021
Supplies and fuel 25,075 26,374
---------- ----------
66,326 54,163
Other current assets 2,910 2,491
---------- ----------
Total current assets 104,916 90,307
Joint ventures 66,565 62,616
Property, plant and equipment 1,790,369 1,761,734
Less accumulated depreciation
and depletion 19,663 10,193
---------- ----------
1,770,706 1,751,541
Receivable from parent company 42,883 59,340
Other assets and deferred charges 48,198 47,264
---------- ----------
Total assets $2,033,268 $2,011,068
========== ==========
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts payable $ 25,680 $ 23,796
Accrued liabilities 63,576 59,693
Short-term bank loans 439,450 419,450
Income taxes payable 941 2,101
---------- ----------
Total current liabilities 529,647 505,040
Long-term debt 490,550 490,550
Postretirement benefits
other than pensions 91,197 90,919
Deferred taxes 542,926 542,926
Payable to affiliated companies 36,431 36,079
Other liabilities 32,741 33,489
Contingencies (See Notes 7 and 8) ---------- ----------
Total liabilities 1,723,492 1,699,003
---------- ---------
Shareholders' Equity:
Common stock 183 183
Additional paid-in capital 299,817 299,817
Retained earnings 9,776 12,065
---------- ----------
Total shareholders' equity 309,776 312,065
---------- ----------
Total liabilities and
shareholders' equity $ 2,033,268 $ 2,011,068
============ ==========
</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>
Successor | Predecessor
Company | Company
|
For the Three | For the Three
Months Ended | Months Ended
March 31, | March 31,
2000 | 1999
------------ | -------------
<S> <C> <C>
|
Cash Flows from Operating Activities: |
|
Net (loss) income $ (2,289) | $ 9,646
Adjustments to arrive at net |
cash (used) provided |
by operating activities: |
Depreciation and depletion 9,471 | 6,053
Deferred income taxes - | 2,002
Changes in operating assets and liabilities: |
Accounts and notes receivable (1,769) | (901)
Inventories and other current |
assets (12,582) | (9,370)
Accounts payable and accrued |
liabilities 8,004 | (5,590)
Equity income, net of dividends |
received (949) | (92)
Other, net (509) | 568
--------- | ----------
Net cash (used) provided by |
operating activities (623) | 2,316
|
Cash Flows from Investing Activities: |
|
Capital expenditures (32,055) | (16,301)
Proceeds from sales of assets 48 | 64
Advances to equity investees (3,000) | (1,800)
--------- | ----------
Net cash used by investing |
activities (35,007) | (18,037)
|
Cash Flows from Financing Activities: |
|
Proceeds from short-term debt 20,000 | -
Net repayment of intercompany |
advances 16,324 | -
Proceeds from exercise of warrants 70 | 1,800
Purchase of warrants (654) | -
Purchase of treasury stock - | (267)
Dividends paid - | (1,015)
Proceeds from exercise of options - | 22
---------- | ---------
Net cash provided by |
financing activities 35,740 | 540
|
Net increase (decrease) in cash |
and cash equivalents 110 | (15,181)
|
Cash and cash equivalents, beginning |
of period 787 | 120,161
---------- | ---------
Cash and cash equivalents, end |
of period $ 897 | $ 104,980
========== | =========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial
Statements are an integral part of the Financial Statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, which are of a normal recurring
nature, necessary to present fairly the financial position of the Company as
of March 31, 2000, and the results of operations and the cash flows for the
three months ended March 31, 2000 and 1999.
In September 1999, the Company entered into a merger agreement with Level
Acquisition Corp., an indirect, wholly-owned subsidiary of 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 the Company's outstanding common stock
at a price of $50 per share and outstanding warrants at a price of $81.25 per
warrant. The total purchase price was approximately $1,200,000,000, including
debt assumed.
The acquisition was accounted for as a purchase transaction in accordance
with Accounting Principles Board Opinion No. 16. Accordingly, the Company's
consolidated financial statements for periods prior to October 1, 1999, are
not comparable to consolidated financial statements presented on or
subsequent to October 1, 1999. A black line has been drawn on the
accompanying consolidated financial statements to distinguish between the
successor and predecessor companies.
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, 1999. 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 - Warrants
During the first quarter of 2000, the Company purchased 8,045 warrants for
$654,000.
Note 3 - Supplemental Disclosures of Cash Flow Information
Cash equivalents include the Company's marketable securities which are
comprised of short-term, highly liquid investments with original maturities
of three months or less. Interest paid during the three months ended March
31, 2000 and 1999 was $10,632,000 and $1,854,000, respectively. Income taxes
paid during the three months ended March 31, 2000 and 1999 were $44,000 and
$848,000, respectively.
Note 4 - Interest
Interest expense of $16,570,000 and $945,000 has been accrued during the
three months ended March 31, 2000 and 1999. Interest capitalized during the
three months ended March 31, 2000 and 1999 was $1,287,000 and $218,000,
respectively.
Note 5 - Earnings Per Share
Basic and diluted earnings per common share for the three months ended March
31, 2000 and basic earnings per common share for the three months ended March
31, 1999 are calculated by dividing net income by weighted average common
shares outstanding during the period. Diluted earnings per common share for
the three months ended March 31, 1999 are calculated by dividing net income
by weighted average common shares outstanding during the period plus dilutive
potential common shares which are determined as follows:
For the Three Months Ended March 31,
2000 1999
-------------- ------------
Weighted average common shares 18,338,531 20,166,935
Effect of dilutive securities:
Warrants 136,874 4,304,227
Options to purchase common stock - 213,795
---------- ----------
Adjusted weighted average common shares 18,475,405 24,684,957
========== ==========
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, although
antidilutive for the current quarter, represents the potentially dilutive
effect of the securities.
Note 6 - Debt
During the first quarter of 2000, the Company borrowed an additional
$20,000,000 under a variable rate term loan credit facility with banks,
resulting in total outstanding debt of $930,000,000. At March 31, 2000,
total debt consists of $609,450,000 under the term loan facility agreement,
of which $439,450,000 is due in August 2000 and $170,000,000 is payable in
installments from 2001 through 2004. In addition, the Company has EUR
300,000,000 5.875% bearer bonds due in November 2004. In order to avoid
foreign currency risk, the Company has entered into cross currency swap
agreements fixing the Euro debt in the amount of $320,550,000, with an
average U.S. dollar interest rate of 7.84% for five years. The Company
intends to refinance the short-term bank loans prior to their due date.
In April 2000, the Company entered into a $30,000,000 unsecured revolving
credit agreement. Advances under this agreement bear interest at a rate
which, at the Company's option, is either fixed at a Eurodollar rate or other
agreed upon rate or a floating prime rate. A fee of 0.125% is charged on the
unused portion of the credit line. The agreement expires in March of 2001.
The Company also entered into a $20,000,000 uncommitted line of credit
facility. Advances under this agreement bear interest at a rate which, at the
Company's option is either fixed at a Eurodollar rate or other agreed upon
rate or a floating prime rate. The Company's existing $100,000,000 unsecured
revolving credit facility was cancelled.
Note 7 - 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 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 later this year. 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 8 - 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
In September 1999, the Company entered into a merger with
Level Acquisition Corp., an indirect, wholly-owned subsidiary of
Dyckerhoff AG ("Dyckerhoff"). This agreement provided for the
acquisition of the Company by Dyckerhoff and was completed in
October 1999.
As of October 1, 1999, in accordance with Accounting
Principles Board opinion No. 16, "Business Combinations", the
Company recorded the acquisition by Dyckerhoff as a purchase and
the Company recorded its assets and liabilities at fair value as
of October 1,1999. Accordingly, the Company's consolidated
financial statements for the periods prior to October 1, 1999, are
not comparable to consolidated financial statements presented on
or subsequent to October 1, 1999. A black line has been drawn on
the accompanying consolidated financial statements to distinguish
between the successor and predecessor companies.
During the first quarter of 2000, the Company borrowed an
additional $20.0 million under a variable rate term loan credit
facility with banks, resulting in total outstanding debt of $930.0
million. At March 31, 2000, total debt consists of $609.5 million
under the term loan facility agreement, of which $439.5 million is
due in August 2000 and $170.0 million is payable in installments
from 2001 through 2004. In addition, the Company has EUR 300.0
million 5.875% bearer bonds due in November 2004. In order to
avoid foreign currency risk, the Company has entered into cross
currency swap agreements fixing the Euro debt in the amount of
$320.6 million, with an average U.S. dollar interest rate of 7.84%
for five years. The Company intends to refinance the short-term
bank loans prior to their due date. The Company believes that
funds generated by operations and repayment of funds advanced by
the Company to Dyckerhoff AG will be adequate to cover current
working capital and capital expenditure needs.
Cash used from operating activities of $0.6 million for the
three months ended March 31, 2000 primarily reflect the net
operating loss, partly offset by changes in working capital.
During the three months ended March 31, 1999, investing
activities used $35.0 million, primarily representing $32.1
million for capital expenditures and a $3.0 million advance to
Kosmos Cement Company, a partnership in which the Company owns a
25% interest.
Net cash inflows from financing activities of $35.7 million
for the three months ended March 31, 2000 primarily reflect
borrowings of short-term debt of $20.0 million, $16.3 million
received from the parent for repayment of advances and $0.1
million proceeds from the exercise of warrants, offset by $0.7
million paid for the purchase of warrants.
At March 31, 2000 current liabilities exceeded current assets
by $424.7 million as compared to $414.7 million on December 31,
1999. Current assets increased $14.6 million primarily due to
higher accounts receivable and inventory balances. Current
liabilities increased $24.6 million due to an increase in short-
term bank loans, accounts payable and accrued expenses.
Investments in joint ventures increased $3.9 million due to a
$3.0 million advance to Kosmos Cement Company and the Company's
share of Kosmos' equity earnings. Net property, plant and
equipment increased $19.2 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 injuctive
relief, will not be brought against the Company for alleged non-
compliance with applicable environmental laws and regulations
relating to matters as to which the Company is currently unaware.
For instance, if releases of hazardous substances are discovered
to have occurred at facilities currently or previously owned or
operated by the Company, or at facilities to which the Company
has sent waste materials, the Company may be subject to liability
for the investigation and remediation of such sites. In addition,
changes to such regulations or the enactment of new regulations
in the future could require the Company to undertake capital
improvement projects or to cease or curtail certain operations or
could otherwise substantially increase the capital, operating and
other costs associated with compliance (See Note 7).
The Company believes that it has adequately provided for
costs related to its ongoing obligations with respect to known
environmental liabilities. Expenditures for environmental
liabilities during the first quarter of 2000 did not have a
material effect on the financial condition or cash flows of the
Company.
Year 2000
In 1999, the Company conducted a company-wide assessment of
its computer systems and operations to identify computer hardware,
software and process control systems that were not year 2000
compliant. Expenses have not been material, and the Year 2000
issue has had no known effect on the Company to date. The Company
will continue to monitor its systems, suppliers and customers for
any unanticipated issues that have not yet manifested. Future
costs are not expected to be material.
Market Risk
The Company is exposed to various market risks, including
foreign currency risk, interest rate risk and credit risk.
Market risk is the potential loss arising from adverse changes in
market rates and prices, such as foreign exchange rates and
interest rates, and changes in economic conditions. In order to
manage and reduce the impact of adverse market changes, the
Company has entered into certain derivative agreements. The
Company does not enter into derivatives or other financial
instruments for trading or speculative purposes. The Company
regularly monitors its foreign currency, credit risk and interest
rate exposures.
Foreign exchange risk
The Company is exposed to foreign exchange rate risk
associated with its outstanding Eurobonds. At March 31, 2000,
the value of the Euro against the U.S. dollar was favorable to
the Company. However, a 10% appreciation or 10% depreciation of
the U.S. dollar against the Euro could represent a material
impact on fair value, earnings or cash flows. In order to
eliminate this foreign exchange risk, the Company entered into
cross currency swap agreements during 1999. At March 31, 2000,
the Company held cross currency swap contracts of EUR 300.0
million effectively fixing the Euro debt in the amount of $320.6
million with an average fixed interest rate of 7.84% for five
years.
Credit risk
The Company attempts to reduce its exposure to credit risk
associated with counter-parties by entering into derivative
contracts with only major financial institutions. At March 31,
2000, the Company had no credit risk related to these contracts
as the value of the dollar against the Euro resulted in a
favorable position. However, the depreciation of the U.S. dollar
against the Euro in the future may have an unfavorable impact on
earnings and cash flows in the event of non-performance by the
counter-party.
Interest rate risk
Interest rate changes would result in gains or losses in the
fair value of debt and other financing instruments held by the
Company. Generally, the fair market value of fixed interest rate
debt will increase as the interest rates fall and decrease as the
interest rates rise. The estimated fair value of the Company's
total Euro debt at March 31, 2000 is the same as its carrying
value due to its recent issue. A one percent increase from
prevailing interest rates at March 31, 2000 would result in a
decrease in fair value by approximately EUR 12.3 million, or
$12.3 million based on quarter-end foreign currency rates. A one
percent decrease would result in an increase in fair value of EUR
13.0 million, or $13.0 million based on currency rates at March
31, 2000. Fair values are based on quoted market prices of
similar issues of publicly traded debt.
The Company is exposed to fluctuations in interest rates on
its long-term variable-rate borrowings. However, during the
first quarter of 2000, the Company has entered into various
interest rate swap and swap option agreements totaling $350.0
million with major financial institutions. The Company expects
that these contracts will minimize the risk due to adverse
changes in interest rates.
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, 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
As of October 1, 1999, the Company was acquired by Dyckerhoff
and the transaction was accounted for as a purchase. Operating
results for the first quarter of 2000 are comparable to the prior-
year period with the exception of certain purchase accounting
adjustments. These purchase accounting adjustments which primarily
relate to depreciation and depletion expense, pension and
postretirement benefits other than pension expense are addressed
in the following discussion.
Consolidated net sales of $71.6 million during the first
quarter of 2000 were $5.0 million higher than the comparable
prior-year results. Cement sales were higher due to a 5% increase
in cement shipments during the first quarter as compared to the
prior year. The increase in shipments is attributable to continued
strong demand for cement in the Company's major markets as well as
mild weather during the quarter.
Gross profit from the Company's cement and ready-mixed
concrete operations of $16.8 million for the first quarter of 2000
was $2.2 million lower than the comparable 1999 period. The
purchase accounting adjustments reduced gross profit by $2.7
million. These adjustments primarily relate to increased
depreciation and depletion expense associated with the write-up of
fixed assets on October 1, 1999. Gross profit was favorably
affected by higher cement shipments, partly offset by higher
repair and maintenance costs due to timing of winter maintenance.
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 $0.9 million during the
first quarter of 2000 reflects the results of the Kosmos Cement
Company, a partnership in which the Company has a 25% interest.
The results for the three months ended March 31, 2000 were $0.1
million higher than the prior-year period.
Other income of $1.1 million during the first quarter of 2000
decreased $1.1 million from the comparable 1999 period. The
decrease is due in part to lower interest income earned on lower
short-term investment balances. In addition, last year's first
quarter results included $0.7 million of income from litigation
settlements.
Selling, general and administrative expenses of $7.0 million
during the first quarter of 2000 was $0.2 million higher than the
comparable period in 1999, reflecting purchase accounting
adjustments related to higher pension and other postretirement
benefit expenses.
Interest expense of $15.3 million during the first quarter of
2000 was $14.6 million higher than the prior-year period expense.
Capitalized interest was $1.3 million and $0.2 million,
respectively, for the three months ended March 31, 2000 and 1999.
The increase in interest expense is due to higher debt levels
during the first quarter of 2000 compared to the first quarter of
1999.
The Company reported an income tax benefit of $1.1 million on
the loss before income taxes during the first quarter of 2000, as
compared to an income tax expense of $4.9 million in 1999.
Net loss of $2.3 million during the first quarter of 2000 was
$11.9 million lower than the prior-year results. This change is
due to higher interest expense reflecting higher debt levels,
purchase accounting adjustments primarily consisting of higher
depreciation and depletion expense, higher repair and maintenance
expenses and lower other income, partly offset by higher cement
sales and favorable income tax benefits.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 14 for disclosures
about market risk.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The following persons have been elected officers of the Company
effective as of the dates stated:
William a. Humenuk Senior Vice President Administration
(effective March 27, 2000) General Counsel and Secretary
John L. Quinlan Senior Vice President Finance and
(effective May 15, 2000) Chief Financial Officer
David Rinas Senior Vice President of Marketing
(effective April 1, 2000)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Lone Star Industries, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
LONE STAR INDUSTRIES, INC.
Date: May 12, 2000 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer,
Controller and Treasurer
Date: May 12, 2000 By: WILLIAM A. HUMENUK
William A. Humenuk
Senior Vice President
Administration, 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 financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 178
<SECURITIES> 719
<RECEIVABLES> 38,183
<ALLOWANCES> 3,400
<INVENTORY> 66,326
<CURRENT-ASSETS> 104,916
<PP&E> 1,790,369
<DEPRECIATION> 19,663
<TOTAL-ASSETS> 2,033,268
<CURRENT-LIABILITIES> 529,647
<BONDS> 490,550
0
0
<COMMON> 183
<OTHER-SE> 309,593
<TOTAL-LIABILITY-AND-EQUITY> 2,033,268
<SALES> 71,635
<TOTAL-REVENUES> 73,696
<CGS> 45,336
<TOTAL-COSTS> 61,798
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,283
<INCOME-PRETAX> (3,385)
<INCOME-TAX> (1,096)
<INCOME-CONTINUING> (2,289)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,289)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
