UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 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
Stamford, CT 06912-0014
(address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (203) 969-8600
Securities registered pursuant to Section 12(B) of the Act: None
Securities registered pursuant to Section 12(G) of the Act:
Common Stock, par value $1.00 per share
Common Stock Purchase Rights
Common Stock Purchase Warrants
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant at March 1, 2000: approximately $489,800.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 1, 2000: Common Stock, par value $.01 per share, --
18,339,061 shares.
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 7
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. . . . . . .. . . . . . . . . . . . . . . . 8
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. . . 16
Item 8. Consolidated Financial Statements and Supplementary Data. . . . 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . 45
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . 45
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . 46
Item 12. Security Ownership of Certain Beneficial Owners and Management. 48
Item 13. Certain Relationships and Related Transactions. . . . . . . . . 48
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. .49
PART I
ITEM 1. BUSINESS.
The Company
Lone Star is a cement and ready-mixed concrete company with operations
in the midwestern and southern United States. Lone Star's cement operations
consist of five portland cement plants in the Midwest and Southwest, a slag
cement grinding facility in New Orleans and a 25% interest in Kosmos Cement
Company, a partnership which owns and operates one portland cement plant in
Kentucky and one in Pennsylvania ("Kosmos"). The Company's five wholly-owned
portland cement plants produced approximately 4.3 million tons of cement
during 1999, which approximates the rated capacity of the plants. In
addition, the Company's New Orleans facility produced 0.4 million tons of
slag cement during 1999. The Company's ready-mixed concrete business owns or
leases and operates several facilities in the Memphis, Tennessee area. In
1999, the Company had net sales of approximately $374.2 million.
Lone Star Industries, Inc. was incorporated in 1919. In early 1994, the
Company emerged from proceedings under Chapter 11 of the United States
Bankruptcy Code. In October 1999, it was acquired through a tender offer and
subsequent cash out merger (the "Acquisition") by a subsidiary of Dyckerhoff
AG, a corporation formed under the laws of the Federal Republic of Germany.
A number of the Company's warrants to purchase Common Stock remained
outstanding after the acquisition, although neither the warrants nor the
Common Stock into which they are exercisable have any trading market, and no
such market is expected to develop.
The Company's executive offices are located at 300 First Stamford Place,
Stamford, Connecticut 06912, and its telephone number is (203) 969-8600.
Unless the context otherwise requires, as used herein "Company" and "Lone
Star" mean Lone Star Industries, Inc. together with its consolidated
subsidiaries.
Cement Operations
Portland cement is the primary binding material used in the production
of concrete. The principal raw materials used in the manufacture of cement
are limestone or other calciferous materials, shale or clay, and sand. These
raw materials are crushed, ground, mixed together and then introduced into a
rotary kiln where they are heated to approximately 2700 degrees Fahrenheit.
The resultant marble-sized intermediate material produced by this process is
known as clinker. Clinker is then cooled, blended with a small amount of
gypsum, and ground in a plant's finish mill to produce cement, a dry powder.
Clinker generally is produced utilizing either of two basic methods, a
"wet" or a "dry" process. In a wet process plant, raw materials are mixed
with water to form a slurry which is fed into the kiln. This process has the
advantage of greater ease in the handling and mixing of the raw materials,
however additional heat, and therefore fuel, is required to evaporate the
moisture before the raw materials can react to form clinker. The dry process,
a newer more fuel efficient technology, excludes the addition of water into
the process. Dry process plants are either pre-heater plants, in which
recycled hot air is used to heat materials before they are fed into the kiln,
or are precalciner plants, which have separate burners to accomplish a
significant portion of the chemical reaction of the raw materials before they
are fed into the kiln. The Company recently announced a planned expansion at
its Greencastle, Indiana plant which will convert to a semi-dry manufacturing
technology. This technology has certain features of both the wet and dry
processes. While having somewhat higher fuel needs than traditional dry
process plants, the capital expenditures required for the expansion will be
lower than those required for a dry process.
Whether a wet, dry or semi-dry method is utilized, the manufacture of
cement is energy intensive. Energy cost, and in particular coal, varies on a
regional basis due in large part to transportation costs. In addition, the
low value-to-weight ratio of cement and its constituent raw materials results
in relatively high transportation costs, creating a largely regional
business. As a result, proximity to sources of fuel and raw materials, as
well as markets, are important aspects in the profitability of a cement
plant. While subject to fluctuation and interruption resulting from adverse
weather and other factors, distribution by water is generally the least
expensive method of transporting cement.
Lone Star's cement operations consist principally of the production of
Type I portland cement at the Company's five owned cement plants and the
distribution of that cement through the Company's 16 owned or leased
distribution terminals. Other products manufactured at certain of these
plants include Type III portland cement, which is a high early strength
cement required in certain applications, and specialty cements, such as
masonry and oil well cement. Slag cement, a by-product of iron blast furnaces
that may be utilized in certain instances in lieu of portland cement, is
ground and distributed from the Company's New Orleans facility. The Company
also purchases cement from both domestic and international sources for
domestic resale. In addition, Lone Star owns a 25% interest in Kosmos, which
owns and operates one cement plant in Kentucky and one in Pennsylvania.
All of Lone Star's five portland cement plants are fully integrated from
limestone mining through cement production, and the Company estimates that it
has limestone reserves sufficient to permit operation of these plants at
current levels of production for periods ranging from 30 to 100 years.
Adequate supplies of other raw materials such as gypsum, shale, clay and sand
are owned, leased or available for purchase by Lone Star. The Company
believes that its plants have adequate sources from which to purchase power
and fuel.
The following table sets forth certain information regarding Lone Star's
portland and slag cement plants and their markets.
Tons Of
Rated
Annual
Cement
Plant Location Capacity Process Fuel Principal Market Area
(In Thousands)
Portland Cement
Cape Girardeau, Missouri. 1,300 Dry/Precalciner Coal- E. Missouri;
Waste- Central
Tires and N.E. Arkansas;
Mississippi; S.
Louisiana; N.
Alabama;
Tennessee;
N.W. Kentucky;
S.W. Illinois
Greencastle, Indiana 750* Wet* Coal- Indianapolis and
Waste other areas of
Indiana; S.E.
Illinois; N.
Central
Kentucky
Pryor, Oklahoma 725 Dry Coal- Arkansas;
Coke- Oklahoma; Dallas,
Natural Texas; Kansas; W.
Gas W. Missouri
Oglesby, Illinois. 600 Dry Coal- Chicago and
Coke- other areas of
Tires Northern and
Central Illinois;
S.Wisconsin
Maryneal, Texas 520 Dry/Preheater Coal- W. Texas;
Coke- Dallas,
Natural Texas;
Gas Eastern New
Mexico
Kosmos Cement Company
Kosmosdale, Kentucky 875** Dry/Preheater Coal- Kentucky;
Oil S. Indiana;
S. Ohio;
W. Virginia
Pittsburgh, Pennsylvania. 400 Wet Coal W. Pennsylvania;
W. Virginia;
E. Ohio
Slag Cement
New Orleans, Louisiana. 600 Grinding Natural S. Alabama;
Facility Gas S.W. Georgia;
Louisiana;
Mississippi;
Dallas and
Houston, Texas;
Florida Panhandle
- -----------------
* Capital projects have been announced to increase the rated production
capacity of this plant by 600,000 short tons to 1.35 million short tons. Upon
completion of this project, the plant will convert to a semi-dry
manufacturing technology.
** Capital projects have been announced to increase the rated production
capacity of this plant by 700,000 short tons to 1.575 million short tons.
Cape Girardeau Complex. Lone Star's Cape Girardeau, Missouri plant is
located on the Mississippi River, and its related terminals are located along
the Mississippi and certain of its tributaries. Approximately 80% of the
plant's cement production is shipped up and down these rivers via 19 owned
barges, enabling the plant to serve a relatively wide market. Trucks and rail
are also available to transport product. The Cape Girardeau plant includes a
modern dry/precalciner kiln and burns hazardous waste fuels. See "Business --
Environmental Regulation". The distribution terminals and warehouse
supporting the Cape Girardeau plant are located in St. Louis, Missouri;
Paducah, Kentucky; and Nashville, Knoxville and Memphis, Tennessee. In
addition to its other customers, this complex supplies cement to Lone Star's
ready-mixed concrete operations in Memphis, Tennessee.
Greencastle Complex. Lone Star's Greencastle plant is located
approximately 40 miles southwest of Indianapolis, Indiana and is the nearest
cement plant to this market, providing a freight cost advantage. Product is
transported by truck to Indianapolis and by truck or rail to other markets. A
portion of the Greencastle plant's production is a high quality Type III
portland cement which commands a premium price relative to Type I portland
cement, the Company's primary product. The Company has announced a planned
600,000 short ton rated annual production capacity increase at this plant
which will convert to a semi-dry manufacturing technology. This project is
expected to come on line in the first half of 2000 and is expected to cost
approximately $75.0 million, $30.4 million of which was spent in 1999. The
Greencastle complex has distribution terminals located in Fort Wayne and
Elkhart, Indiana; and has a warehousing and distribution arrangement in
Itasca, Illinois.
Pryor Complex. The Pryor plant is located approximately 50 miles
northeast of Tulsa, Oklahoma and serves its markets by truck and rail. A
portion of the plant's product is transported by barge. This plant produces
both portland and oil well cement. The complex has distribution terminals
located near Wichita and Kansas City, Kansas; near Oklahoma City, Oklahoma;
and in Dallas, Texas.
Oglesby Complex. The Oglesby plant is located approximately 100 miles
from Chicago and serves that and other northern and central Illinois
construction markets by truck and rail. The complex has a distribution
terminal located in Milwaukee, Wisconsin.
Maryneal Complex. The Maryneal plant produces both portland and oil
well cement and serves the western Texas market by truck and rail. The
complex has a distribution terminal located in Amarillo, Texas and also
shares the use of the Dallas, Texas terminal with the Company's Pryor plant.
Kosmos Cement Company. Lone Star owns a 25% interest in Kosmos, which
owns and operates a cement plant in Kosmosdale, Kentucky and one in
Pittsburgh, Pennsylvania. Southdown, Inc., a publicly-traded cement company,
owns the remaining 75% interest and is responsible for managing day-to-day
operations. All major decisions relating to Kosmos, however, require
unanimous approval of its management committee which includes a Lone Star
representative. Kosmos has announced a planned expansion of its Kentucky
plant, which will add 700,000 short tons of rated production capacity at an
estimated total cost of approximately $93.0 million, financed with capital
contributions from the partners. The expansion is expected to come on line
during the year 2000.
New Orleans Facility. The New Orleans facility, located on a canal off
the Gulf Intercoastal Waterway, consists of a slag cement grinding and
storage facility with 600,000 tons of capacity, a distribution terminal used
for receiving and storing cement from the Company's Cape Girardeau and Pryor
plants as well as from international sources, and a stevedoring operation
which includes a transloading system for moving phosphate materials between
barges and railcars. Cement is sold directly from the facility and through
terminals in Atlanta, Georgia; Pensacola, Florida; Bonner Springs, Kansas;
Brandon and Vicksburg, Mississippi; St. Louis, Missouri; Memphis and
Nashville, Tennessee; and Dallas, Texas.
Ready-Mixed Concrete Operations
Ready-mixed concrete, a versatile building material used in almost all
construction, is produced by mixing stone, sand, water and admixtures with
cement. Lone Star's ready-mix operations are located in Memphis, Tennessee,
and much of the cement used in these operations comes from the Company's Cape
Girardeau, Missouri plant via the Mississippi River.
Construction Industry Conditions
The markets for the Company's products are highly competitive. Portland
cement is largely a commodity product, and due to this lack of product
differentiation, the Company competes with domestic and international sources
of cement largely on the basis of price. Accordingly, cement prices and the
level of the Company's profitability are very sensitive to shifts in supply
and demand in the Company's markets, and the Company's ability to compete
effectively is dependent on its operating costs being at acceptable levels.
To a lesser extent, other competitive factors such as service, delivery time
and proximity to customers affect the Company's performance.
Construction spending and cement consumption historically have
fluctuated widely. Demand for cement is derived primarily from public
(infrastructure) construction, residential construction and
commercial/industrial construction, which are cyclical and, in turn, are
influenced by prevailing economic conditions, including availability of
public funds and interest rate levels. Moreover, due to cement's low value-
to-weight ratio, the industry is largely regional, with sales in a given
market dependent on regional demand which is tied to local economic factors
that may fluctuate more widely than those of the United States as a whole. In
addition, the supply of cement from domestic and foreign sources can vary
from region to region and over time. As a result, even though the Company
sells in more than one area of the country, its operating results are subject
to significant fluctuation. While sales by Lone Star directly to federal,
state and local governmental agencies are not significant, customers of Lone
Star are engaged in a substantial amount of construction in which government
funding is a component.
The supply of cement in many areas is affected by the levels of cement
imports from international sources. Factors that typically affect the level
of these imports include ocean shipping rates, excess foreign capacity and
access by importers to domestic distribution channels. Despite current excess
foreign capacity, the Company believes that import levels, while growing in
recent years, have not had a serious detrimental effect on domestic producers
in large part due to anti-dumping orders that were imposed on cement imported
from Mexico and Japan and a suspension agreement signed by Venezuelan
exporters requiring them not to export to the United States at dumped prices.
The Company believes that U.S. anti-dumping law currently provides effective
remedies against unfairly priced imports, improving the condition of the U.S.
cement industry. The anti-dumping orders and the suspension agreement are
scheduled to remain in effect at least until later this year and may continue
thereafter if petitioners prevail in "sunset reviews" currently in process
before the Commerce Department and the U.S. International Trade Commission.
Due to strong cement demand, as well as existing anti-dumping relief, the
Company and many other cement producers have announced projects that, if
implemented, could increase domestic cement production capacity substantially
over the next several years through modifications to existing facilities and
the construction of new plants. No assurances can be given as to the long-
term effects of either increased domestic production or increased imports
and, due to the regionalized nature of the industry, certain markets could be
affected more than other markets.
The Company has implemented price increases in recent years, and has
announced modest cement price increases effective April 2000; however, these
and future prices will be subject to the market forces described above.
Construction spending and cement consumption are seasonal, particularly
in the Company's northern markets where colder weather affects construction
activity. Other adverse weather conditions such as flooding, which can
interrupt production and transportation of cement, and extreme heat, which
makes pouring concrete difficult, also affect the Company's operations.
Customers and Marketing; Backlog
The Company's customer base primarily consists of ready-mixed concrete
producers, prestressed and other concrete product producers, and highway
construction firms. Taken as a whole, no single customer of the Company
accounted for more than 10% of total sales during 1999. The Company's
marketing effort is handled by local sales forces. Most purchases of the
Company's products are done on a spot basis, and accordingly, order backlogs
are not significant.
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").
Employees
As of December 31, 1999, the Company had approximately 1,100 employees,
of which approximately 700 are hourly paid and located at the Company's
various operations. Except at certain distribution terminals and the New
Orleans facility, all hourly employees are represented by labor unions. For
the past several years, there have been no labor disruptions at any of the
Company's facilities, and the Company believes that its relationship with its
employees generally has been good.
ITEM 2. PROPERTIES.
Lone Star's main operations are conducted at its plants and distribution
terminals described in Item 1 above. Lone Star owns its five portland cement
plants, its slag grinding and storage facility and a majority of the
distribution terminals supporting these plants. With respect to those
distribution terminals not owned, Lone Star holds a land lease for the
underlying real property and owns the facilities located on such property.
There is one additional distribution terminal that is leased to a third
party. The ready-mixed concrete plants are located on owned land or sites
held under leases for varying terms. No difficulty is anticipated in renewing
leases as they expire or finding satisfactory alternative sites. The Company
leases executive offices in Stamford, Connecticut and owns or leases certain
sales and other offices in various locations within its market areas in the
United States.
ITEM 3. 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 effects of such matters to be material to the
financial condition of the Company. For information concerning certain
environmental matters involving the Company, see "Business -- Environmental
Regulation".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Since the Acquisition, the Company's common stock and related purchase
rights and its warrants have not been listed on any exchange and no trading
market exists nor is any such market expected to develop. The Company does
not expect to pay any dividends on its equity securities. All shares of
common stock of record on October 8, 1999 were converted into cash as a
result of the Acquisition, and subsequent to then shares of common stock into
which warrants are exercised shall not be entitled to the proceeds of the
cash-out merger.
As of March 1, 2000, the Company had approximately 14 holders of record
of common stock and 1,543 holders of record of warrants.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from the Consolidated
Financial Statements of the Company. The data should be read in conjunction
with the Consolidated Financial Statements, related Notes and other financial
information included herein:
<TABLE>
<CAPTION>
Successor|
Company | Predecessor Company
For the | For the
Three | Nine
Months | Months
Ended | Ended
December| September For the Years Ended December 31,
31, 1999| 30, 1999 1998 1997 1996 1995
|
(In thousands |
except per share |
amounts) |
(2) |
<S> <C> <C> <C> <C> <C> <C>
Net sales $92,638 | $281,604 $347,065 $357,565 $367,673 $323,008
|
Net income $12,065 | $ 62,353 $ 76,282 $ 65,413 $ 54,160 $ 35,762
|
Earnings Per |
Common Share |
|
Basic $0.66 | $3.17 $3.68 $2.99 $2.40 $1.49
|
Diluted $0.65 | $2.58 $2.88 $2.44 $2.04 $1.40
|
Weighted Average Common |
Shares Outstanding |
|
Basic 18,388 | 19,687 20,745 21,881 22,581 23,981
|
Diluted 18,490 | 24,210 26,516 26,857 26,493 25,483
|
Shares outstanding |
at end of |
period 18,333 | 19,429 20,123 21,452 21,426 22,953
|
Cash dividends |
per common |
share - | $0.15 $0.10 $0.10 $0.10 $0.075
|
Successor |
Company | Predecessor Company
December 31,| December 31,
1999 | 1998 1997 1996 1995
Financial Position |
at End of Period: |
Total assets $2,011,068 | $592,114 $598,977 $562,151 $477,465
Long-term debt: |
Term loan |
borrowings(1) 170,000 | - - - -
Euro bonds(1) $320,550 | - - - -
Senior notes(1 - | $ 50,000 $ 50,000 $ 50,000 $ 78,000
Asset proceeds |
notes - | - - - $ 4,399
Common |
shareholders' |
equity $312,065 | $324,316 $333,634 $264,282 $159,740
</TABLE>
(1) See Notes 11 and 12 of Notes to Financial Statements.
(2) On October 1, 1999, the Company was acquired by an indirect wholly-owned
subsidiary of Dyckerhoff AG. Results of operations since that date reflect
the impact of purchase accounting adjustments to the basis of acquired assets
and liabilities. Consequently, the Company's financial information presented
for periods prior to October 1, 1999 is not comparable to that presented on
or subsequent to October 1, 1999.
ITEM 7 . 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
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 $1.2 billion, including debt assumed (See Note 2).
As of October 1, 1999, in accordance with Accounting Principles Board
opinion No. 16, "Business Combinations", the Company recorded the
acquisition by the 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.
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. In October 1999, Dyckerhoff AG and
Level Acquisition Corp. borrowed approximately $1.2 billion for the
purchase of Lone Star under a term loan facility credit agreement with
banks. Pursuant to the merger, $910.0 million became the obligation of the
Company, of which $170.0 million is payable in installments from 2001
through 2004. On November 8, 1999, the Company refinanced a portion of its
short-term borrowings by its issuance of 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
remaining short-term bank loans prior to their due date. 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 the first nine months of 1999, the Company purchased 1,161,000
shares of its stock and 32,000 warrants at a cost of $39.7 million as part
of its repurchase program. Since the inception of its repurchase program in
July 1995, the Company purchased a total of 7,705,100 shares and 211,400
warrants at a cost of $200.0 million. In addition, during the fourth quarter,
the Company purchased 37,038 warrants at a cost of $3.0 million.
Analysis of Cash Flows and Working Capital
The following analysis discusses the combined activity for the three
months ended December 31, 1999 and the nine months ended September 30, 1999.
Cash flows from operating activities of $102.1 million for the year
ended December 31, 1999 primarily reflect income from operations and changes
in working capital. The utilization in 1999 of net operating loss
carryforwards and other deferred tax assets reduced cash taxes otherwise
payable by $17.8 million. At December 31, 1999, the Company had net
operating loss carryforwards of approximately $71.1 million and alternative
minimum tax credits of $14.2 million, which are expected to reduce future
cash taxes by an additional $39.1 million over time.
During the year ended December 31, 1999, cash outflows from investing
activities were $118.1 million, primarily representing $82.2 million for
capital expenditures, $26.3 million for acquisition related payments and
$10.0 million in advances to Kosmos.
Net cash outflows from financing activities of $103.4 million for year
ended December 31, 1999 primarily reflect the purchase of stock options for
$12.1 million, the purchase of common stock and warrants for $42.7 million
and $3.0 million of dividends paid. In addition, the Company repaid its $50
million of 7.31% senior notes at par plus $1.5 million relating to a
prepayment penalty amount. The Company also advanced $34.0 million to
Dyckerhoff AG. These outflows were offset by net cash advances of $35.5
million received from affiliated companies.
At December 31, 1999, current liabilities exceeded current assets by
$414.7 million as compared to net working capital of $143.4 million at
December 31, 1998. Current assets decreased $115.5 million primarily due to
lower short-term investments balances, offset partially by higher inventory
balances. Current liabilities increased $442.6 million primarily due to
higher short-term debt.
The $21.6 million decrease in the Company's long-term deferred tax asset
is primarily due to the utilization of a portion of the tax assets in 1999
and an $8.7 million reclass to long-term deferred tax liability. Investments
in joint ventures increased $41.1 million primarily to purchase accounting
adjustments of $31.8 million and $10.0 million in advances, partly offset by
dividends received in excess of equity income. Net property, plant and
equipment increased $1,422.9 million primarily due to purchase accounting
adjustments of $1,359.0 million and capital expenditures, partly offset by
depreciation.
Capital Expenditures
In 1999, the Company invested $82.2 million in capital projects and
expects to spend an additional $86.8 million in 2000. Capital expenditures
in 1999 include $30.4 million related to the expansion of the Company's
Greencastle, Indiana cement plant. In addition, as of the end of the year,
the Company accrued $10.0 million for work completed in 1999 but paid for
in 2000. The $75 million plant expansion, which will increase the plant's
production capacity by 600,000 tons to 1,350,000 tons will be completed in
mid-2000. In addition, the Company spent $9.8 million to increase the
storage capacity of the distribution system at the New Orleans facility and
approximately $2.9 million for the construction of a slag cement terminal
in Northern Florida. Approximately $7.8 million was spent on the
relocation of the Oglesby, Illinois quarry. This project, estimated at
$18.0 million will be completed in 2000.
Other projects completed in 1999 include a wheel loader and preheater
duct replacement at the Cape Girardeau, Missouri cement plant, the
construction of a highway access road at the Greencastle, Indiana cement
plant, the installation of a pneumatic unloading system at the New Orleans
facility, and the purchase or refurbishment of equipment such as loaders
and loadout systems, haul trucks and computer equipment.
Other Information
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 28).
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 1999 did not have a
material effect on the financial condition or cash flows of the Company.
During 1999, the collective bargaining agreement covering hourly-paid
employees at the Company's Memphis, Tennessee distribution terminal was
successfully renegotiated for a four-year term. The agreements covering
hourly-paid employees at the Cape Girardeau, Missouri plant and at certain
distribution terminals were scheduled to expire during the second half of
1999, but have been extended, subject to termination with advance notice, by
mutual agreement of the parties while the negotiations continue. The
agreements covering the hourly-paid employees at the Maryneal, Texas cement
plant and the Dallas, Texas distribution terminal are scheduled to terminate
in the first half of 2000. The Company does not anticipate any disruption of
its operations in connection with the renegotiation of these agreements;
however, there can be no assurances in this regard.
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 during
1999. 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.
At December 31, 1999, the Company had total outstanding debt of $910.0
million. The debt includes borrowings of $589.5 million under a variable-
rate term loan facility. In 2000, $419.5 million of the term loan
borrowings become due and the remaining balance is payable in installments
from 2001 through 2004. In addition, the Company issued EUR 300.0 million
5.875% bearer bonds which become due in 2004. These bonds have a carrying
value of $320.6 million at December 31, 1999.
In addition, the Company held other financial instruments including
cash and marketable securities, accounts and notes receivable, accounts and
notes payable and advances to affiliates. Due to the short-term nature of
their maturity, the carrying value of these instruments approximate fair
value.
Foreign exchange risk
The Company is exposed to foreign exchange rate risk associated with
its outstanding Eurobonds. At December 31, 1999, 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 December 31, 1999, 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 December 31, 1999, 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 December 31, 1999
is the same as its carrying value due to its recent issue. A one percent
increase from prevailing interest rates at December 31, 1999 would result
in a decrease in fair value by approximately EUR 12.3 million, or $12.3
million based on year-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 year-end. 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 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 annual report and Form 10-K
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 (See "Business-Construction Industry
Conditions" of Item 1). 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
Comparability of Financial Statements:
As of October 1, 1999, the Company was acquired by Dyckerhoff and the
transaction was accounted for as a purchase. Operating results subsequent to
October 1, 1999 and therefore, the full year 1999, are comparable to the
prior-year period with the exception of certain purchase accounting
adjustments. These fourth quarter purchase accounting adjustments which
relate to depreciation and depletion expense, pension and postretirement
benefits other than pension expense, and cost of sales are addressed in the
following discussion.
1999 Compared to 1998
Net Sales
Consolidated net sales of $374.2 million during 1999 were $27.2 million
higher than the prior-year results. In each of the years 1999 and 1998, the
Company sold the approximate rated capacity of its cement plants.
The increase in net sales is due to an 8% increase in cement shipments
and a 1% increase in net realized portland selling prices during the year.
In 1999, the Company shipped approximately 4.9 million tons of cement. The
increase in shipments is attributable to continued strong demand for cement
in the Company's major markets and mild weather conditions.
Net sales of cement and ready-mixed concrete were 95% and 5%,
respectively, of total net sales in 1999.
Gross Profit
Gross profit from the cement and ready-mixed concrete operations of
$137.0 million for 1999 was $12.1 million higher than 1998. The increase in
gross profit primarily reflects higher cement shipments for the year, partly
offset by purchase accounting adjustments of $2.7 million. These adjustments
primarily relate to increased depletion and depreciation expense associated
with the write up of fixed assets and lower stripping expenses due to the
write- off of all prepaid stripping on October 1, 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).
Joint Ventures
Pre-tax income from joint ventures of $8.6 million during 1999 reflects
the results of the Kosmos Cement Company, a partnership in which the Company
has a 25% interest. The results for 1999 were $0.4 million higher than the
prior year.
Other Income
Other income of $7.7 million in 1999 decreased $2.9 million from 1998,
reflecting lower interest income earned on lower short-term investment
balances, partly offset by the return of a bond assessment related to a
prior- year sale of a parcel of real estate and funds received from a
litigation settlement. In addition, other income for the full year 1998
includes gains totaling $3.3 million on the sale of two parcels of surplus
real estate.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $25.1 million during
1999 was $0.8 million lower than that of the prior-year, reflecting higher
pension income. This was partly offset by purchase accounting adjustments of
$0.7 million related to pension and other postretirement benefit expenses.
Interest Expense
Interest expense of $15.6 million in 1999 represents an increase of
$13.3 million over the prior-year expense. Capitalized interest of $2.1
million in 1999 was $0.7 million higher than the prior-year amount. The
increase in interest expense reflects higher debt levels during the fourth
quarter of 1999.
Income Taxes
The income tax expense of $38.0 million during 1999 was $0.9 million
lower than the prior-year expense due to lower pretax income.
Net Income
Net income of $74.4 million during 1999 was $1.9 million below the
prior-year results. Higher interest expense due to higher debt, higher
depletion and depreciation expense, and lower interest income reflecting
lower short-term investment balances were partly offset by higher gross
profit due to higher average portland selling prices, increased shipments of
cement and lower selling, general and administrative expense.
1998 Compared to 1997
Net Sales
Consolidated net sales of $347.1 million during 1998 were $10.5 million
lower than the prior-year results. The decrease in net sales primarily
reflects the sales of the Company's central Illinois ready-mixed concrete
operations and its New York construction aggregates operations during 1997.
In each of the years 1998 and 1997, the Company sold the approximate rated
capacity of its cement plants.
Cement and ongoing ready-mixed concrete operations reported net sales of
$347.1 million for 1998 which were $29.8 million higher than 1997. This
increase is due to 4% higher average net realized cement selling prices in
1998 combined with a 6% increase in cement shipments during the year. In
1998, the Company shipped approximately 4.5 million tons of cement. The
increase in shipments is attributable to continued strong demand for cement
in the Company's major markets and mild weather conditions.
The 1997 full year results include net sales of $40.3 million from the
construction aggregates and central Illinois ready-mixed concrete operations
which were sold in 1997.
Net sales of cement and ready-mixed concrete and other construction
products were 94% and 6%, respectively, of total net sales in 1998.
Gross Profit
Gross profit from the cement and ongoing ready-mixed concrete operations
of $124.9 million for 1998 was $13.5 million higher than 1997. The increase
in gross profit reflects higher average net realized cement and ready-mix
selling prices and higher overall shipments for the year. These results
exclude gross profit of $3.7 million for 1997 related to the Company's
central Illinois ready-mixed concrete operations and New York construction
aggregates operations, which were sold in 1997.
Joint Ventures
Pre-tax income from joint ventures of $8.2 million during 1998 reflects
the results of the Kosmos Cement Company, a partnership in which the Company
has a 25% interest. The results for 1998 were $0.4 million lower than the
prior year.
Other Income
Other income of $10.6 million in 1998 increased $2.7 million from 1997,
primarily reflecting higher interest income earned on higher short-term
investment balances. Other income for the full year 1998 includes gains
totaling $3.3 million on the sale of two parcels of surplus real estate as
compared with a gain of $3.1 million from the sale of a surplus parcel of
real estate in 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $25.9 million during
1998 was $2.9 million lower than that of the prior-year, reflecting lower
pension expense, and lower expense related to the Company's central Illinois
ready-mixed concrete operations and its New York construction aggregates
operations which were sold in 1997.
Interest Expense
Interest expense of $2.4 million in 1998 represents a decrease of $1.2
million over the prior-year expense. Capitalized interest of $1.4 million in
1998 was consistent with the prior-year amount. The reduction in interest
expense reflects the debt reduction and refinancing accomplished in March and
April of 1997.
Income Taxes
The income tax expense of $38.9 million during 1998, an increase of $5.5
million from the prior-year expense, primarily reflects higher pre-tax
earnings in 1998.
Net Income
Net income of $76.3 million during 1998 was $10.9 million higher than
the prior-year results. On a per share basis, basic and diluted earnings for
1998 were $3.68 and $2.88, respectively, compared to $2.99 and $2.44,
respectively, for 1997. This improvement is primarily due to higher average
selling prices and increased shipments of cement. Also contributing to the
favorable increase in net income for 1998 over the prior-year results were
higher interest income reflecting higher short-term investment balances,
lower selling, general and administrative expense and lower interest expense.
These favorable results were partly offset by increased income tax expense
due to higher pre-tax earnings.
ITEM 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Market Risk" on page 12 for disclosures about
market risk.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
LONE STAR INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
----
Reports of Independent Accountants...................................... 18
Consolidated Financial Statements:
Statements of Operations for the Three Months Ended
December 31, 1999, the Nine Months Ended September 30, 1999,
and the Years Ended December 31, 1998, and 1997............... 20
Balance Sheets - December 31, 1999 and 1998..................... 21
Statements of Changes in Common Shareholders' Equity
for the Three Months Ended December 31, 1999, the Nine
Months Ended September 30, 1999 and the Years Ended
December 31, 1998 and 1997.................................... 22
Statements of Cash Flows for the Three Months Ended
December 31, 1999, the Nine Months Ended September 30, 1999,
and the Years Ended December 31, 1998 and 1997................ 23
Notes to Financial Statements................................... 24
Schedule:
II Valuation and Qualifying Accounts............................ 51
The foregoing supporting schedule should be read in conjunction with the
consolidated financial statements and notes thereto in this 1999 annual report
on Form 10-K.
The presentation of individual condensed financial information of the
Company is omitted because the restricted net assets of the consolidated
subsidiaries do not exceed twenty-five percent of total consolidated net
assets at December 31, 1999 and 1998.
Separate financial statements for the Company's fifty percent or less
owned affiliate are omitted because such subsidiary individually does not
constitute a significant subsidiary at December 31, 1999 and 1998.
Schedules other than those listed above are omitted because the
information required is not applicable or is included in the financial
statements or notes thereto. Columns omitted from schedules filed are omitted
because the information is not applicable.
Report of Independent Accountants
The Board of Directors
Lone Star Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Lone
Star Industries, Inc. and subsidiaries as of December 31, 1999 and the
related consolidated statements of operations, changes in common
shareholders' equity and cash flows for the period from October 1, 1999
to December 31, 1999 (Successor period) and the period from January 1,
1999 to September 30, 1999 (Predecessor period) and the financial
statement schedule for the year ended December 31, 1999 listed in the
accompanying index. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Lone Star
Industries, Inc. and subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for the period from
October 1, 1999 to December 31, 1999 and the period from January 1,
1999 to September 30, 1999 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule for the year ended December 31, 1999, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements,
effective October 1, 1999, the majority of the Company's outstanding
common stock was acquired in a business combination accounted for as a
purchase. As a result of the acquisition, the consolidated financial
information for the periods after the acquisition is presented on a
different cost basis than that for the periods before the acquisition
and, therefore, is not comparable.
KPMG LLP
February 16, 1999
Report of Independent Accountants
To the Board of Directors
Lone Star Industries, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of Lone Star Industries, Inc. and Subsidiaries at
December 31, 1998, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1998
(Predecessor period), in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion,
the financial statement schedule for each of the two years ended
December 31, 1998 listed in the accompanying index presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements and financial
statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of
Lone Star Industries, Inc. and Subsidiaries for any periods subsequent
to December 31, 1998.
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 27, 1999
Lone Star Industries, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Successor |
Company | Predecessor Company
|
For the Three |For the Nine For the For the
Months Ended |Months Ended Year Ended Year Ended
December 31, |September 30,December 31,December 31,
(In thousands except |
per share amounts) 1999 | 1999 1998 1997
<S> <C> <C> <C> <C>
|
Revenues: |
Net sales $ 92,638 | $281,604 $347,065 $357,565
Joint venture income 2,116 | 6,454 8,191 8,571
Other income, net 1,259 | 6,476 10,601 7,923
-------- | -------- -------- --------
96,013 | 294,534 365,857 374,059
-------- | -------- -------- --------
Deductions from revenues: |
Cost of sales 47,101 | 161,909 200,564 219,290
Selling, general and |
administrative expenses 6,373 | 18,720 25,935 28,857
Depreciation and depletion 10,193 | 18,227 21,837 23,591
Interest expense 14,084 | 1,560 2,379 3,585
-------- | -------- -------- --------
77,751 | 200,416 250,715 275,323
-------- | -------- -------- --------
Income before income taxes 18,262 | 94,118 115,142 98,736
Provision for income taxes (6,197)| (31,765) (38,860) (33,323)
|
Net income applicable -------- | -------- -------- --------
to common stock $ 12,065 | $ 62,353 $ 76,282 $ 65,413
======== | ======== ======== ========
|
Weighted average common |
shares outstanding: |
Basic 18,388 | 19,687 20,745 21,881
======= | ======= ======= =======
|
Diluted 18,490 | 24,210 26,516 26,857
======= | ======= ======= =======
|
Earnings per common share: |
Basic $ 0.66 | $ 3.17 $ 3.68 $ 2.99
======= | ======= ======= =======
Diluted $ 0.65 | $ 2.58 $ 2.88 $ 2.44
======= | ======= ======= =======
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
Financial Statements.
Lone Star Industries, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Successor | Predecessor
Company | Company
|
December 31, | December 31,
(Dollars in thousands) 1999 | 1998
<S> <C> <C>
|
Assets |
Current Assets |
Cash, including cash |
equivalents of $594 in |
1999 and $119,896 in 1998 $ 787 | $ 120,161
Accounts and notes |
receivable, net 32,866 | 32,164
Inventories 54,163 | 45,733
Deferred tax asset - | 4,052
Other current assets 2,491 | 3,736
---------- | ---------
Total current assets 90,307 | 205,846
|
Joint ventures 62,616 | 21,517
Property, plant and |
equipment, net 1,751,541 | 328,663
Receivable from parent company 59,340 | -
Deferred tax asset - | 21,593
Other assets and |
deferred charges 47,264 | 14,495
---------- | ---------
Total assets $2,011,068 | $ 592,114
========== | =========
|
Liabilities and Shareholders' Equity |
Current Liabilities |
Accounts payable $ 23,796 | $ 16,087
Accrued liabilities 59,693 | 44,281
Short-term bank loans 419,450 | -
Income taxes payable 2,101 | 2,086
---------- | ---------
Total current liabilities 505,040 | 62,454
|
Long-term debt 490,550 | 50,000
Postretirement benefits |
other than pensions 90,919 | 123,428
Deferred taxes 542,926 | -
Payable to affiliated companies 36,079 | -
Other liabilities 33,489 | 31,916
|
Contingencies (Notes 28 and 29) |
--------- | ---------
Total liabilities 1,699,003 | 267,798
|
Common stock, $0.01 par |
value. Authorized: |
25,000,000 shares |
Shares issued: |
1999 - 18,332,764 183 | -
Common stock, $1.00 par |
value. Shares issued: |
1998 - 25,691,546 - | 25,692
Warrants to purchase common stock - | 11,792
Additional paid-in capital 299,817 | 171,276
Retained earnings 12,065 | 252,671
Treasury stock, at cost - | (137,115)
Total shareholders' equity 312,065 | 324,316
Total liabilities and ---------- | ---------
shareholders' equity $2,011,068 | $ 592,114
========== | =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
Financial Statements.
Lone Star Industries, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Successor |
Company | Predecessor Company
|
For the | For the
Three | Nine For the For the
Months | Months Year Year
Ended | Ended Ended Ended
December |September December December
(In thousands) 31, 1999 | 30, 1999 31, 1998 31,1997
<S> <C> <C> <C> <C>
|
Common Stock, $0.01 par value |
Balance at beginning |
of period $ - | $ - $ - $ -
Purchase accounting |
adjustments 183 | - - -
Balance at end --------- | -------- --------- ---------
of period 183 | - - -
|
Common Stock, $1.00 par value |
Balance at beginning |
of period 26,155 | 25,692 12,092 12,087
Purchase accounting |
adjustments (26,155) | - - -
December 1998 stock split - | - 12,092 -
Exercise of warrants |
to purchase common stock - | 463 1,508 5
Balance at end --------- | -------- --------- ---------
of period - | 26,155 25,692 12,092
|
Warrants To Purchase Common Stock |
Balance at beginning |
of period 10,764 | 11,792 15,554 15,574
Purchase accounting |
adjustments (10,764) | - - -
Exercise of warrants |
to purchase common stock - | (903) (2,941) (20)
Purchase of warrants - | (125) (700) -
Other - | - (121) -
Balance at end --------- | -------- --------- --------
of period - | 10,764 11,792 15,554
|
Additional Paid-In Capital |
Balance at beginning |
of period, as previously |
reported 174,657 | 171,276 174,915 163,664
Purchase accounting |
adjustments 125,160 | - - -
December 1998 stock |
split - | - (12,092) -
Exercise of warrants |
to purchase common stock - | 4,784 15,568 116
Purchase of warrants - | (1,361) (7,884) -
Exercise of stock options, |
net of tax benefit - | (49) (96) (1,771)
Reduction of tax valuation |
allowance - | - - 12,893
Other - | 7 865 13
Balance at end --------- | -------- --------- ---------
of period 299,817 | 174,657 171,276 174,915
|
Retained Earnings |
Balance at beginning |
of period 312,064 | 252,671 178,444 115,228
Purchase accounting |
adjustments (312,064) | - - -
Net income 12,065 | 62,353 76,282 65,413
Dividends - | (2,960) (2,055) (2,197)
Balance at end --------- | -------- --------- ---------
of period 12,065 | 312,064 252,671 178,444
|
Treasury Stock |
Balance at beginning |
of period (175,201) | (137,115) (47,371) (42,271)
Purchase accounting |
adjustments 175,201 | - - -
Repurchase of shares - | (38,177) (90,020) (14,069)
Stock options exercised - | 71 243 8,944
Other - | 20 33 25
Balance at end --------- | --------- --------- --------
of period - | (175,201) (137,115) (47,371)
|
Total common shareholders' --------- | --------- --------- --------
equity, end of period $ 312,065 | $ 348,439 $ 324,316 $ 333,634
========= ========= ========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
Financial Statements.
Lone Star Industries, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Successor|
Company | Predecessor Company
|
For the | For the
Three | Nine For the For the
Months | Months Year Year
Ended | Ended Ended Ended
December| September December December
(In thousands) 31,1999 | 30,1999 31, 1998 31, 1997
|
Cash Flows from Operating |
Activities: |
<S> <C> <C> <C> <C>
|
|
Net income $ 12,065 |$ 62,353 $ 76,282 $ 65,413
Adjustments to arrive at |
net cash provided by |
operating activities: |
Depreciation and depletion 10,193 | 18,227 21,837 23,591
Tax benefit realized |
from utilization of |
deferred tax assets 5,771 | 12,075 15,617 25,147
Changes in operating assets |
and liabilities: |
Accounts and notes |
receivable 12,453 | (13,214) (3,907) (4,649)
Inventories and other |
current assets (7,908)| (1,050) (2,713) (2,370)
Accounts payable and |
accrued expenses 168 | (3,033) (1,219) 4,708
Equity income, (less |
than) in excess of |
dividends received 2,134 | (1,454) (1,191) (821)
Gain on sale of a |
surplus property - | - (3,300) (3,110)
Other, net (2,574)| (4,078) (1,524) (481)
Net cash provided by -------- |-------- -------- --------
operating activities 32,302 | 69,826 99,882 107,428
|
|
Cash Flows from Investing |
Activities: |
|
Capital expenditures (32,922)| (49,305) (52,125) (41,977)
Proceeds from sales |
of assets 5 | 370 4,701 56,998
Advances to equity |
investees (4,750)| (5,250) - -
Payments related to |
acquisition costs (26,262)| - - -
Net cash (used) provided by-------- |-------- -------- --------
investing activities (63,929)| (54,185) (47,424) 15,021
|
Cash Flows from Financing |
Activities: |
|
Proceeds from issuance |
of long-term debt 320,550 | - - -
Repayment of short-term |
bank loans (320,550)| - - -
Proceeds from issuance |
of long-term senior notes - | - - 50,000
Redemption of long-term |
senior notes (51,480)| - - (78,000)
Net proceeds from |
intercompany borrowings 1,470 | - - -
Purchase of stock options (12,112)| - - -
Purchase of treasury stock - | (38,178) (90,020) (14,069)
Proceeds from exercise
of stock options - | 23 147 4,581
Purchase of warrants (3,009)| (1,486) (8,584) -
Proceeds from exercise |
of warrants - | 4,344 14,135 101
Dividends paid - | (2,960) (2,055) (2,197)
Net cash used by financing -------- |-------- -------- --------
activities (65,131)| (38,257) (86,377) (39,584)
|
Net (decrease) increase |
in cash and cash |
equivalents (96,758)| (22,616) (33,919) 82,865
Cash and cash equivalents, |
beginning of period 97,545 | 120,161 154,080 71,215
Cash and cash equivalents, -------- |-------- -------- --------
end of period $ 787 |$ 97,545 $120,161 $154,080
======== |======== ======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Operations and Significant Accounting Policies
Description of Operations - The Company is a cement and ready-mixed concrete
company with operations in the United States (principally in the Midwest and
Southwest). Lone Star's cement operations consist of five cement plants in the
midwestern and southwestern regions of the United States, a slag cement
facility in Louisiana and a 25% interest in Kosmos Cement Company, a
partnership which operates one cement plant in each of Kentucky and
Pennsylvania. The five wholly-owned cement plants produced approximately 4.3
million tons of cement in 1999, which approximates the rated capacity of such
plants. The ready-mixed concrete business operates in the Memphis, Tennessee
area. The Company had approximately $374,242,000 in net sales in 1999, with
cement and ready-mixed concrete operations representing approximately 95%, and
5%, respectively, of such net sales.
Demand for cement is derived primarily from residential construction,
commercial and industrial construction, and public (infrastructure)
construction which are highly cyclical and are influenced by prevailing
economic conditions including interest rates and availability of public funds.
Due to cement's low value-to-weight ratio, the industry is largely regional and
regional demand is tied to local economic factors that may fluctuate more
widely than those of the nation as a whole.
The markets for the Company's products are highly competitive and portland
cement is largely a commodity product. The Company competes with domestic and
international sources largely on the basis of price. To a lesser extent, other
competitive factors such as service, delivery time and proximity to customers
affect the Company's performance.
Basis of Presentation - The consolidated financial statements include the
accounts of Lone Star Industries, Inc. and all subsidiaries. All intercompany
transactions have been eliminated. The Company's joint venture is accounted
for using the equity method. Certain prior-period amounts have been
reclassified to conform with current-period presentation.
In October 1999, the Company was acquired by Level Acquisition Corporation, an
indirect wholly-owned subsidiary of Dyckerhoff AG (See Note 2). The acquisition
was accounted for as a purchase transaction in accordance with APB No.16 (See
Note 25). 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.
Cash and Cash Equivalents - Cash equivalents include short-term, highly liquid
investments with original maturities of three months or less, and are recorded
at cost, which approximates market value.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined principally by the weighted average cost method.
Property, Plant and Equipment - Property, plant and equipment were stated at
fair market value as of October 1, 1999. Additions subsequent to October 1,
1999 are stated at cost. Property, plant and equipment are depreciated over
the estimated useful lives of the assets using the straight-line method.
Useful lives for property, plant and equipment are as follows: buildings - 10
to 40 years; machinery and equipment - 3 to 30 years; automobile and trucks - 3
to 10 years. Significant expenditures which extend the useful lives of
existing assets are capitalized. Maintenance and repair costs are charged to
current earnings. Cost depletion related to limestone reserves is calculated
using the units-of-production method. The cost of assets and related
accumulated depreciation is removed from the accounts when such assets are
disposed of, and any related gains or losses are reflected in current earnings.
Income Taxes - Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. In accordance with SOP No. 90-7, income tax benefits
recognized from preconfirmation net operating loss carryforwards were used
first to reduce reorganization value in excess of amounts allocable to
identifiable assets and then to increase additional paid-in capital (See Note
24).
Pension Plans - The Company and certain of its consolidated subsidiaries have a
number of retirement plans which cover substantially all of its employees.
Defined benefit plans for salaried employees provide benefits based on
employees' years of service and five-year final overall base compensation.
Defined benefit plans for hourly-paid employees, including those covered by
multi-employer pension plans under collective bargaining agreements, generally
provide benefits of stated amounts for specified periods of service. The
Company's policy is to fund, at a minimum, amounts as are necessary on an
actuarial basis to provide assets sufficient to meet the benefits to be paid to
plan members in accordance with the requirements of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Assets of the plans are administered by
an independent trustee and are invested principally in fixed income securities,
equity securities and real estate.
Postretirement Benefits Other Than Pensions - The Company provides retiree life
insurance and health plan coverage to qualifying employees. The Company
accounts for these benefits on an accrual basis, under the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions". These plans are unfunded;
however, the Company makes defined quarterly contributions to the salaried
retirees' Voluntary Employees Beneficiary Association ("VEBA") trust per the
settlement agreement reached in 1994 (See Note 17).
Derivative Financial Instruments - The Company uses interest rate and foreign
currency swap agreements to manage interest rate cost and the risks
associated with changing interest and foreign currency exchange rates. The
counter-party to the swap agreements is a major financial institution.
Credit loss from counter-party non-performance is not anticipated. The
Company does not hold derivative financial instruments for trading purposes.
Deferred Financing Costs - Deferred financing costs are stated at cost and
are included in other assets, and are amortized over the life of the related
debt on a straight-line basis.
Earnings Per Common Share - Basic earnings per common share for the three months
ended December 31, 1999, the nine months ended September 30, 1999, and the
years ended December 31, 1998 and 1997 are calculated by dividing net income by
weighted average common shares outstanding during the period. Diluted earnings
per common share for the three months ended December 31, 1999, the nine months
ended September 30, 1999, and the years ended December 31, 1998 and 1997 are
calculated by dividing net income by weighted average common shares outstanding
during the period plus dilutive potential common shares which are determined as
follows:
For the Three For the Nine
Months Ended Months Ended, For the Years
December 31, September 30, Ended December 31
1999 1999 1998 1997
---------- ---------- ---------- -----------
Weighted average
common shares 18,389,251 19,687,260 20,745,232 21,881,422
Effect of dilutive
securities:
Warrants 101,797 4,303,977 5,550,858 4,734,450
Options to purchase
common stock - 218,990 219,919 241,516
Dilutive potential ---------- ---------- ---------- ----------
common shares 18,491,048 24,210,227 26,516,009 26,857,388
========== ========== ========== ==========
Dilutive potential common shares are calculated in accordance with the treasury
stock method which assumes that proceeds from the exercise of all warrants and
options are used to repurchase common stock at market value. The amount of
shares remaining after the proceeds are exhausted represent the potentially
dilutive effect of the securities.
Options to purchase 12,000 shares of common stock at $38.641 were outstanding
during the second half of 1998, but were not included in the computation of
diluted earnings per share because the options exercise price was greater than
the average market price of the common shares.
Environmental Matters - In accordance with AICPA Statement of Position No. 96-
1, "Environmental Remediation Liabilities", accruals for environmental matters
are recorded when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated, or if an amount is likely
to fall within a range and no amount within that range can be determined to be
the better estimate, the minimum amount of the range is recorded. Accruals for
environmental matters exclude claims for recoveries from insurance carriers and
other third parties until it is probable that such recoveries will be realized.
Recently Issued Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes new accounting and reporting standards for
derivative financial instruments and for hedging activities. The statement is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company does not expect adoption of this statement to have a
material effect the Company's financial statements.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and revenue and expenses during the periods reported. Estimates are used when
accounting for allowance for uncollectable accounts receivable, inventory
obsolescence, depreciation, employee benefit plans, taxes and contingencies,
among others. Actual results could differ from these estimates.
2. Acquisition of Lone Star
On October 6, 1999, Level Acquisition Corporation ("Level"), a Delaware
Corporation and an indirect wholly-owned subsidiary of Dyckerhoff
Aktiengesellschaft ("Dyckerhoff" or "Dyckerhoff AG"), a corporation formed
under the laws of the Federal Republic of Germany, closed its previously
announced tender offer for (1) all of the issued and outstanding shares of
$1.00 par value common stock of the Company, together with the associated
rights to purchase common stock issued pursuant to the Rights Agreement for
$50 per share in cash, and (2) all of the outstanding warrants to purchase
common stock, each of which represented the right to purchase two shares of
common stock, for $81.25 per warrant in cash. On October 8, 1999, pursuant
to an Agreement and Plan of Merger dated September 2, 1999, Level merged
with and into the Company with the Company surviving as an indirect wholly-
owned subsidiary of Dyckerhoff. The common shares issued and outstanding
immediately prior to the effective time of the merger which were not tendered
for purchase were converted, subject to any appraisal rights, into the right
to receive $50 per share in cash, without interest. The warrants issued and
outstanding which were not tendered pursuant to the offer, will remain
outstanding.
The purchase and subsequent merger were accounted for as a purchase
transaction effective as of October 1, 1999, in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations". Accordingly, the
consolidated financial statements for the periods subsequent to October 1,
1999 reflect the purchase price, including transaction costs, allocated to
tangible and intangible assets acquired and liabilities assumed, based on
their estimated fair values as of October 1, 1999. See Notes 25 and 26 for
purchase accounting adjustments, opening balance sheet and pro forma
operating results information.
3. Accounts and Notes Receivable
Receivables consist of the following (in thousands):
December 31, December 31,
1999 1998
Trade accounts and notes
receivable $34,697 $33,458
Other receivables 1,616 2,241
------- -------
36,313 35,699
Less: allowance for
doubtful accounts (3,447) (3,535)
------- -------
$32,866 $32,164
======= =======
Due to the nature of the Company's products, a majority of the Company's
accounts receivable are from businesses in the construction industry. Although
the Company's customer base is geographically diversified, collection of
receivables is partially dependent on the economics of the construction
industry.
4. Inventories
Inventories consist of the following (in thousands):
December 31, December 31,
1999 1998
Finished goods $17,768 $15,228
Work in process and
raw materials 10,021 6,657
Supplies and fuel 26,374 23,848
------- -------
$54,163 $45,733
======= =======
5. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
December 31, December 31,
1999 1998
---------- ----------
Land and mineral reserves $ 1,373,947 $ 29,028
Buildings and equipment 283,746 334,641
Construction in progress 79,577 21,179
Automobiles and trucks 24,464 33,636
----------- ---------
1,761,734 418,484
Less accumulated
depreciation and depletion (10,193) (89,821)
----------- ----------
$ 1,751,541 $ 328,663
=========== ==========
Property, plant and equipment was revalued in accordance with purchase
accounting using the October 1, 1999 fair market value, as appraised, and
accumulated depreciation and depletion balances as of October 1, 1999 were
reduced to zero. Depreciation is determined based on the estimated remaining
useful lives of the assets. Depreciation is determined based on the units-of-
production method.
6. Interest Costs
Interest costs incurred during the three months ended December 31, 1999, the
nine months ended September 30, 1999, and the years ended December 31, 1998 and
1997 were $14,886,000, $2,835,000, $3,780,000 and $5,027,000, respectively.
Interest capitalized during the three months ended December 31, 1999, the nine
months ended September 30, 1999, and the years ended December 31, 1998 and 1997
was $802,000, $1,275,000, $1,401,000 and $1,442,000, respectively. Interest
paid during the three months ended December 31, 1999, the nine months ended
September 30, 1999, and the years ended December 31, 1998 and 1997 was
$8,626,000, $3,781,000, $3,760,000 and $7,292,000, respectively.
7. Kosmos Cement Company
The Company's investment in and advances to joint ventures at December 31, 1999
and 1998 consists of its 25% investment in Kosmos Cement Company ("Kosmos").
Kosmos is a partnership with cement plants in Kosmosdale, Kentucky and
Pittsburgh, Pennsylvania. The Company's investment in Kosmos was revalued using
the October 1, 1999 fair market value, in accordance with APB No.16 (See Note
25).
The amount of cumulative unremitted earnings of joint ventures included in
consolidated retained earnings at December 31, 1999, was $2,741,000. During the
three months ended December 31, 1999, the nine months ended September 30, 1999,
and the years ended December 31, 1998 and 1997, $4,250,000, $5,000,000,
$7,000,000 and $7,750,000, respectively, of distributions were received from
Kosmos.
Summarized financial information of Kosmos as of and for the years ended
December 31, 1999, 1998 and 1997 is as follows (in thousands):
As of and For the Years Ended December 31,
1999 1998 1997
-------- -------- --------
Current assets $ 32,380 $ 31,595 $ 30,341
Property, plant
and equipment, net 100,867 75,902 73,098
Cost in excess of net
assets of businesses
acquired 19,668 20,914 21,765
Other assets 11,121 - -
Current liabilities (12,021) (6,013) (4,581)
Other liabilities - (4,270) (4,091)
--------- -------- --------
Net assets $ 152,015 $118,128 $116,532
--------- -------- --------
Net sales $ 109,889 $100,274 $ 94,653
Gross profit $ 32,094 $ 32,070 $ 33,484
Net income $ 30,887 $ 29,596 $ 31,115
At December 31, 1999, the Company's investment in Kosmos exceeded the Company's
share of the underlying assets of Kosmos Cement Company by $24,612,000. Such
excess is being amortized over the estimated remaining contractual life of the
joint venture. At December 31, 1998 and 1997, the Company's share of the
underlying net assets of Kosmos Cement Company exceeded its investment by
$8,015,000 and $8,807,000, respectively.
In late 1997, the State of Kentucky proposed a deficiency assessment against
Kosmos for severance tax payments related to limestone mined at a Kentucky
quarry. The total assessment is approximately $4,200,000, including penalty
and interest for the period under audit, 1991 through 1996. Kosmos is
contesting the assessment and entered into discussions with the Kentucky
Revenue Cabinet over a year ago. Discussions are ongoing and Kosmos is
unable to evaluate whether an unfavorable outcome is either probable or
remote. A hearing before the Kentucky Board of Tax Appeals is scheduled for
April 2000. In addition to limestone mined for the production of cement,
Kosmos mines limestone specifically for use by a local utility company.
Kosmos believes that, under the terms of a supply agreement, the utility
company is responsible for severance taxes on limestone provided to it,
but the utility company has denied any liability related to the deficiency. A
major portion of the Kentucky severance tax assessment relates to this
specifically mined limestone. For the amounts not paid by the local utility
company, the Company would indirectly bear 25% of any settlement and legal
costs through its ownership interest in Kosmos.
8. Receivable From Parent Company
A receivable from Dyckerhoff AG, the German parent company, was set up as of the
purchase date for Company funds held by Dyckerhoff AG. During the fourth quarter
of 1999, the Company advanced additional funds to Dyckerhoff AG. The Company
recorded $290,000 of interest income on the receivable from Dyckerhoff AG
during the three months ended December 31, 1999. Interest rates earned on
these funds vary and are based on Dyckerhoff's return on investments.
9. Deferred Tax Asset
As of December 31, 1998, the Company had various net deferred tax assets made
up primarily of the expected future tax benefit of net operating loss
carryforwards, various credit carryforwards and reserves not yet deductible
for tax purposes. It was the Company's expectation that it was more likely
than not that it would generate future taxable income to utilize this amount
of net deferred tax assets.
10. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
December 31, December 31,
1999 1998
-------- ---------
Outstanding warrants $ 7,504 $ -
Interest 6,350 1,025
Postretirement benefits
other than pensions 6,225 6,225
Payroll, vacation pay and
other compensation 5,180 6,669
Taxes other than income taxes 3,830 3,348
Insurance 3,577 2,735
Shareholder rights 3,225 -
Other 23,802 24,279
-------- --------
$ 59,693 $ 44,281
======== ========
11. Short-term Bank Loans
In September 1999, Dyckerhoff AG and Level Acquisition Corporation borrowed
approximately $1.2 billion for the purchase of Lone Star under a variable rate
term loan facility credit agreement with banks. Pursuant to the merger
agreement, $910,000,000 became the obligation of the Company, of which
$740,000,000 was due in August 2000 (See Note 25). In November 1999, the
Company repaid $320,550,000 of the short-term portion of the term loan
facility. Short-term bank loans at December 31, 1999 included $419,450,000
of borrowings under the term loan facility. The weighted average interest
rate on these borrowings was 6.18% for the three months ended December 31,
1999.
12. Long-term Debt
Long-term debt at December 31, 1999 and 1998 included the following (in
thousands):
December 31, December 31,
1999 1998
--------- --------
Eurobonds $ 320,550 $ -
Term loan facility 170,000 -
Senior notes payable - 50,000
--------- --------
$ 490,550 $ 50,000
========= ========
In September 1999, Dyckerhoff AG and Level Acquisition Corp. borrowed
approximately $1.2 billion for the purchase of Lone Star under a variable-
rate term loan facility credit agreement with banks. Pursuant to the merger
agreement, $910,000,000 became the obligation of the Company, of which
$170,000,000 is payable in installments from 2001 through 2004. The weighted
average interest for these borrowings was 7.28% for the three months ended
December 31, 1999.
On November 8, 1999, the Company refinanced a portion of its short-term
borrowings by its issuance of 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.
In March 1997, the Company issued $50,000,000 of 7.31% senior notes due in
2007. Due to the purchase of the Company in October 1999, the Company's
senior notes payable were repaid on November 3, 1999 along with accrued
interest of $426,000 and a pre-payment penalty of $1,480,000.
Annual maturities of long-term debt are as follows (in thousands):
2000 $ -
2001 17,000
2002 42,500
2003 51,000
2004 380,050
Thereafter -
---------
$490,550
========
13. Credit Agreement
In March 1997, the Company entered into a $100,000,000 unsecured revolving
credit facility. Advances under this agreement bear interest at a rate,
which is the Company's option, of either prime or LIBOR plus 37.5 to 75
basis points. A fee of 12.5 to 25 basis points is charged on the unused
portion of the credit line. The number of basis points used in both the
LIBOR interest rate and the commitment fee is determined by the Company's
capital structure. The credit agreement expires on April 30, 2002.
Although the Company has used the letter of credit facility provided by the
credit agreement, it has never borrowed under the credit agreement.
The Company is in the process of negotiating agreements for a $30,000,000
committed line of credit a $20,000,000 uncommitted line of credit. Once the
agreements are in place, the Company expects to cancel its $100,000,000
unsecured revolving credit facility.
14. Capital Commitments
At December 31, 1999, the Company had commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $50,154,000.
15. Leases
Net rental expense for the three months ended December 31, 1999, the nine
months ended September 30, 1999 and the years ended December 31, 1998 and
1997 was $937,000, $2,799,000, $3,754,000 and $3,593,000, respectively.
Minimum rental commitments under all non-cancelable leases principally
pertaining to land, buildings and equipment are as follows: 2000-$2,202,000;
2001-$1,939,000 2002-$1,799,000; 2003-$1,364,000; 2004-$1,037,000; after
2005-$1,168,000. Certain leases include options for renewal or purchase of
leased property.
16. Payable to Affiliated Companies
During the fourth quarter of 1999, excess operating funds were advanced to the
Company from Dyckerhoff, Inc., the U.S. parent company, and from Glens Falls
Cement Company, an affiliated company, for consolidated investment management
purposes. The Company recorded $228,000 of interest expense payable to
affiliated companies during the three months ended December 31, 1999.
Interest is calculated at 5% of the average outstanding balance, compounded
monthly.
17. Employee Benefit Plans
The change in benefit obligation and plan assets and reconciliation of funded
status for the Company's pension and other postretirement benefit plans are
as following (in thousands):
Pension Benefits
December 31, October 1, December 31,
1999 1999 1998
--------- -------- --------
Change in benefit obligation
Benefit obligation at
beginning of period $ 149,051 $ 150,028 $ 153,732
Service cost 471 1,412 1,780
Interest cost 2,418 7,255 10,303
Actuarial (gain)/loss (7,404) (1,351) 2,523
Benefits paid (2,744) (8,293) (11,771)
Settlements - - (6,539)
Benefit obligation at --------- ------- -------
end of period 141,792 149,051 150,028
--------- ------- -------
Change in plan assets
Fair value of plan assets
at beginning of period 176,594 189,722 192,954
Actual return on plan assets 8,400 (4,835) 15,078
Benefits paid (2,744) (8,293) (11,771)
Settlements - - (6,539)
Fair value of plan assets ------- --------- --------
at end of period 182,250 176,594 189,722
-------- --------- --------
Funded status 40,458 27,543 39,694
Unrecognized net actuarial gain (12,513) - (40,376)
Unrecognized prior service cost - - 3,817
Settlement gain recognition - - 2,046
--------- --------- --------
Prepaid benefit cost $ 27,945 $ 27,543 $ 5,181
========= ========= ========
Postretirement Benefits
December 31, October 1, December 31,
1999 1999 1998
--------- -------- --------
Change in benefit obligation
Benefit obligation at
beginning of period $ 96,838 $ 97,960 $ 94,308
Service cost 268 855 1,041
Interest cost 1,563 4,516 6,329
Actuarial (gain)loss (4,267) (1,708) 2,454
Benefits paid (1,525) (4,785) (6,172)
Benefit obligation at --------- -------- --------
end of period 92,877 96,838 97,960
--------- -------- --------
Change in plan assets
Fair value of plan assets
at beginning of period - - -
Actual return on plan assets - - -
Employer contribution 1,525 4,785 6,171
Employee contribution 90 68 109
Benefits paid (1,615) (4,853) (6,280)
Settlements - - -
Fair value of plan assets --------- -------- --------
at end of period - - -
--------- -------- --------
Funded status (92,877) (96,838) (97,960)
Unrecognized net actuarial gain (4,267) - (31,693)
--------- -------- --------
Accrued benefit cost $(97,144) $(96,838) $(129,653)
======== ========= ==========
All of the Company's pension plans are overfunded as of December 31, 1999,
October 1, 1999 and December 31, 1998. None of the Company's postretirement
benefit plans are funded.
Pension Benefits
December 31, October 31, December 31,
1999 1999 1998
---- ---- ----
Weighted-average assumptions:
Discount rate 7.25% 6.75% 6.75%
Expected return on plan assets 8.00 8.00 8.00
Rate of compensation increase 4.50 4.50 4.50
Postretirement Benefits
December 31, October 31, December 31
1999 1999 1998
---- ---- -----
Weighted-average assumptions:
Discount rate 7.25% 6.75% 6.75%
Expected return on plan assets 8.00 8.00 8.00
Rate of compensation increase 4.50 4.50 4.50
The components of net periodic benefit costs are as follows (in thousands):
Pension Benefits
For the Three For the Nine For the Year For the Year
Months Ended Months Ended Ended Ended
December 31, September 30, December 31, December 31,
1999 1999 1998 1997
Components of net
periodic benefit cost
Service cost $ 471 $ 1,412 $ 1,780 $ 1,793
Interest cost 2,418 7,255 10,303 10,489
Expected return on
plan assets (3,291) (10,375) (13,442) (11,762)
Amortization of prior
service cost - 283 374 382
Recognized net
actuarial gain - (470) (777) (332)
Net periodic benefit ------- ------- ------- ------
(income) cost $ (402) $(1,895) $(1,762) $ 570
======= ======= ======= ======
Postretirement Benefits
For the Three For the Nine For the Year For the Year
Months Ended Months Ended Ended Ended
December 31, September 30, December 31, December 31,
1999 1999 1998 1997
Components of net
periodic benefit cost
Service cost $ 268 $ 855 $ 1,041 $ 1,264
Interest cost 1,563 4,516 6,329 7,364
Expected return
on plan assets - - - -
Amortization of prior
service cost - - - -
Recognized net
actuarial gain - (2,046) (2,836) (2,575)
------- ------- ------- ------
Net periodic benefit cost $ 1,831 $ 3,325 $ 4,534 $ 6,053
======= ======= ======= ======
In 1997, the Company recorded a $7,905,000 postretirement settlement gain
related to the sale of the Company's New York construction aggregates
operations.
For measurement purposes, a 9.5% annual medical rate of increase is assumed
for 1999 for both pre-medicare and post-medicare claims; the rate is assumed
to decrease 1/2 % each year to 6% per year after 2005. The health care cost
trend rate assumption has a significant effect on the amounts reported for
the health care plans. To illustrate, a one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):
1-Percentage-Point
-------------------
Increase Decrease
-------- ---------
Effect on total of service
and interest cost components $ 562 $ (457)
Effect on postretirement
benefit obligation $ 4,738 $ (3,983)
Certain union employees are covered under union sponsored multi-employer
pension plans pursuant to collective bargaining agreements. Multi-employer
pension expenses and contributions to the plans in the three months ended
December 31, 1999, the nine months ended September 30, 1999, and the years
ended December 31, 1998 and 1997, were approximately $32,000, $101,000,
$130,000 and $140,000 respectively.
As part of its emergence from Chapter 11 proceedings, the Company reached
settlements with the salaried and union retirees with respect to reductions
and modifications of retiree medical and life insurance benefits. As part of
the settlement with salaried retirees, the Company established a Voluntary
Employees Beneficiary Association ("VEBA"), a tax-exempt trust, and agreed to
make defined quarterly contributions to the trust. The Company has the
option to prepay all future quarterly contributions to the VEBA in a single
cash amount equal to 110% of the discounted present value (using an 8.5%
discount factor) of all future quarterly contributions. The Company made
contributions of $1,050,000, $3,179,000, $4,318,000 and $4,425,000 to the
VEBA during the three months ended December 31, 1999, the nine months ended
September 30, 1999, and the years ended December 31, 1998 and 1997,
respectively.
18. Common Stock
The Company had authorized 50,000,000 shares of $1.00 par value common stock as
of September 30, 1999. Transactions in $1.00 par common stock were as follows:
$ 1.00 par common stock Common Treasury
Shares Shares
-------- --------
Balance, December 31, 1996 12,086,510 1,373,509
Exercise of warrants 5,356 -
Exercise of options - (290,500)
Purchase of shares - 283,800
Stock issued under
compensation plans - (800)
---------- ---------
Balance, December 31, 1997 12,091,866 1,366,009
Effect of 2-for-1 stock
split in December 1998 12,091,866 1,366,009
Exercise of warrants 1,507,814 -
Exercise of options - (14,100)
Purchase of shares - 2,823,390
Stock issued under
compensation plans - (1,600)
Return of shares from
Chapter 11 distribution agent - 29,144
---------- ---------
Balance, December 31, 1998 25,691,546 5,568,852
Exercise of warrants 463,354 -
Exercise of options - (2,900)
Purchase of shares - 1,161,010
Stock issued under
compensation plans - (800)
---------- ---------
Balance, September 30, 1999 26,154,900 6,726,162
========== =========
In October 1999, 18,329,265 shares were tendered for sale and were purchased by
Dyckerhoff. All shares of $1.00 par value common stock which were not tendered
were converted into rights to receive $50. Accordingly, funds for the
redemption of these rights were placed in an escrow account, and a
corresponding asset and liability were recorded on the Company's opening
balance sheet. As of December 31, 1999, a remaining liability for
approximately $3,225,000 is included in accrued liabilities on the
accompanying consolidated balance sheet.
Due to the purchase of, and the subsequent merger with and into the Company, by
Level Acquisition Corporation, the Company's $1.00 par common stock was
cancelled as of October 8, 1999. Effective October 8, 1999, the Company has
authorized 25,000,000 shares of $0.01 par value common stock. Transactions
in $0.01 par value common stock are as follows:
$ 0.01 par common stock Common Shares Treasury shares
---------- ---------
Balance, October 1, 1999 18,329,265 -
Exercise of warrants 4,610 -
---------- ---------
Balance , December 31, 1999 18,333,875 -
========== ===========
At December 31, 1999, the Company has reserved 185,110 shares of its
authorized but unissued common stock for possible future issuance in
connection with the exercise of the warrants to purchase common stock.
From the second quarter of 1995 through the third quarter of 1999, the Company
paid a $0.05 per share quarterly cash dividend.
In February 1999, the Company announced a program which provided shareholders
owning fewer than 100 shares of common stock the opportunity to sell all of
their shares to the Company. The purchase price under the program was equal
to the average of the closing market prices of the Company's common stock
for all trading days during the period the program is in effect.
As part of a stock repurchase program, in 1999 the Company purchased 1,161,010
shares of treasury stock in open market transactions for $38,178,000. In 1998,
the Company purchased 1,912,200 shares of treasury stock in open market
transactions for $59,856,000 and purchased 911,190 shares of its common
stock in private transactions for $30,164,000. In 1997 the Company
purchased 283,800 shares of treasury stock in open market transactions for
$14,069,000. In 1996, the Company purchased 272,401 shares of treasury
stock in open market transactions for $8,457,000 and purchased 700,000
shares of its common stock in private transactions for $25,200,000.
An additional 1,916 shares were received, in lieu of cash, by the Company in
connection with the exercise of certain employee stock options.
On November 19, 1998, the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100% stock dividend to shareholders of
record on December 14, 1998, which was distributed on December 28, 1998.
In January 1998, pursuant to an order signed by the U.S. Bankruptcy Court,
29,144 shares of common stock were transferred to the Company as they were
considered undeliverable in the Company's Chapter 11 proceedings. These
shares have been recorded as treasury shares and had no effect on total
equity of the Company as a result.
19. Warrants to Purchase Common Stock
In April 1994, the Company issued 4,003,333 warrants to purchase common stock
at an exercise price of $18.75 per share. The number of shares of common stock
purchasable upon the exercise of each warrant and the exercise price of the
warrant are subject to adjustment if the Company (i) pays a dividend in
shares of common stock, (ii) subdivides its outstanding shares of common
stock, (iii) combines its outstanding shares of common stock into a smaller
number of shares of common stock, or issues by reclassification or
recapitalization of its shares of common stock, other securities of the
Company or (iv) issues certain stock rights convertible into, or
exchangeable for, common stock. An adjustment will not result from the
Company's sale of common stock on the open market or from the declaration of
regular cash dividends. The warrants are non-callable, non-redeemable and
expire on December 31, 2000. As of December 31, 1999, there were
92,358 warrants outstanding. A liability for the cost to purchase outstanding
warrants of approximately $7,504,000 is included in accrued liabilities on the
accompanying consolidated balance sheet.
In October 1999, 2,628,238 warrants were purchased by Dyckerhoff as part of the
acquisition of Lone Star.
During the nine months ended September 30, 1999, the Company purchased 32,000
warrants in open market transactions for $1,486,000. During the fourth
quarter of 1999, the Company purchased 37,038 warrants which had not been
tendered as of the acquisition date, for $3,009,000.
In December 1998, the Company issued a two-for-one stock split effected in the
form of a 100% stock dividend. The stock split increased the number of shares
of common stock a warrant holder is entitled to purchase from one to two at
$9.375 per share. In 1998, the Company purchased 179,405 of its warrants in
private transactions for $8,584,000.
In January 1998, pursuant to an order signed by the U.S. Bankruptcy Court,
31,033 warrants were transferred to the Company as they were considered
undeliverable in the Company's Chapter 11 proceedings. The returned
warrants were cancelled.
20. Stockholder Rights Plan
In 1994, the Board of Directors adopted a Stockholder Rights Plan ("rights
plan") under which stock purchase rights were distributed as a dividend to
holders of common stock payable to the shareholders of record on December 19,
1994, as a means of deterring abusive and coercive takeover tactics not
offering an adequate price to all stockholders.
Due to the purchase of the Company pursuant to a tender offer approved by the
Board of Directors, the shareholder rights plan has effectively been negated.
21. Stock Compensation Plans
As of September 30, 1999, the Company had three stock-based compensation plans,
which are described below. Due to the purchase of the Company, all outstanding
stock options were purchased by the Company and all stock-based compensation
plans were cancelled as of the purchase date.
In 1996, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company
has chosen to continue to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with SFAS No. 123,
the Company's net income for the nine months ended September 30, 1999 and the
years ended December 31, and 1998, and 1997 would have been $62,230,000,
$76,165,000, and $65,347,000, respectively. Pro forma basic and diluted
earnings per share for the nine months ended September 30, 1999 and the years
ended December 31, 1998, and 1997 would have been $3.16, $3.67, and $2.99,
and $2.57, $2.87, and $2.43, respectively. The pro forma effect of stock
option grants on net income for 1999, 1998 and 1997 may not be representative
of the pro forma effect on net income in future years due to the small
number of options granted during 1999, 1998, 1997 and 1996 and the
exclusion of option grants made prior to 1995.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, 1997, 1996, 1995 (Directors Plan)
and 1995 (Management Plan), respectively: dividend yield of 0.53, 0.52, 0.52,
0.58, 0.96 and 0.93 percent; expected volatility of 49, 43, 31, 28, 23 and 27
percent, risk-free interest rates of 6.58, 4.77, 5.44, 6.29, 5.30 and 5.30
percent; and expected lives of 4 years for all grants.
Under the Management Stock Option Plan ("Management Plan"), the Company had
granted options to its employees for 1,400,000 shares of common stock.
Under the Directors Stock Option Plan ("Directors Plan"), the Company was
able to grant options to its Directors for up to 100,000 shares of common
stock. Under the 1996 Long Term Incentive Plan ("Incentive Plan"), the
Company was able to grant up to 3,000,000 stock options and/or stock
appreciation rights to its employees. No options were granted under the
Incentive Plan. Under all plans, the exercise price of each option must be
equal to or greater than the market price of the Company's stock on the date
of grant, and an option's maximum term is ten years. Options granted under
the Management Plan vest over a three-year period and options granted under
the Directors Plan become vested after six months. Options granted under
the Incentive Plan become vested after a minimum of one year from the grant
date.
As of the acquisition date , all outstanding options were purchased for $50 per
option less the respective option exercise price for a total purchase price of
$12,112,000. All stock option plans were subsequently cancelled.
A summary of the status of the Company's Management and Directors Plans as of
and for the years ended December 31, 1999, 1998 and 1997 is presented below:
Weighted-Average
Exercise Options Options
Price Outstanding Exercisable
-------- -------- --------
Balance, December 31, 1996 $16.0650 436,250 323,750
Options granted $38.3750 6,000 -
Options exercised $15.7700 (290,500) (290,500)
Options which became
Exercisable $16.9450 - 112,250
-------- --------
Balance, December 31, 1997 $17.5100 151,750 145,500
Effect of 2-for-1 stock
split in December 1998 151,750 145,500
Options granted $38.6405 12,000 -
Options exercised $10.4025 (14,100) (14,100)
Options which became
Exercisable $24.4107 - 24,500
-------- --------
Balance, December 31, 1998 $ 9.8680 301,400 301,400
Options granted $38.4100 12,000 -
Options exercised $ 7.6875 (2,900) (2,900)
Options which became
Exercisable $38.4100 - 12,000
Options purchased $10.9910 (310,500) (310,500)
-------- --------
Balance, December 31, 1999 - -
======== ========
Options available for future grants under the Directors Plan were 40,000 at
December 31, 1998. Options available for future grants under the Incentive Plan
were 3,000,000 at December 31, 1998.
There were no stock options outstanding at December 31, 1999.
22. Disclosures about Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1999 (in thousands). In
accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments", the fair value of a
financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties.
December 31, 1999
-----------------------------
Carrying Fair
Amount Value
--------- ---------
Financial assets:
Cash and cash equivalents $ 787 $ 787
Financial liabilities:
Short-term bank loans $ 419,450 $ 419,450
Long-term debt $ 490,550 $ 490,550
The carrying amounts shown in the table are included in the accompanying
consolidated balance sheet under the indicated captions.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents - the carrying amount approximates fair value
because of the short maturity of those instruments.
Short-term bank loans - the carrying amount approximates fair value because of
the short-maturity of these instruments.
Long-term debt - the fair value of long-term debt is based on quoted market
prices of similar issues of publicly traded debt. The carrying amount of the
debt approximates fair value due to the recent issue of the debt.
The company does not enter into financial instruments for trading or
speculative purposes. Derivative financial instruments are used to reduce the
impact of changes in foreign currency exchange rate and interest rates. The
credit risk associated with these derivative contracts is generally limited
to the unrealized gain on those contract with a positive fair market value,
should any counter-party fail to perform as contracted. The Company's
financial instrument counter-parties are major financial institutions.
Gains and losses on financial instruments used to hedge the currency
fluctuations on transactions denominated in foreign currencies and the
offsetting losses and gains on hedged transactions are recorded in other
income, net on the accompanying consolidated statements of operations.
At December 31, 1999, the Company held cross currency interest rate swap
agreements with notional values totaling EUR 300,000,000. The agreements
expire on November 8, 2004.
23. Other Income, Net
Other income, net, consists of the following (in thousands):
For the Three For the Nine
Months Ended Months Ended For the Years Ended
December 31, September 30, December 31,
1999 1999 1998 1997
------- ------- ------- --------
Interest income
on investments $ 1,267 $ 3,574 $ 7,674 $ 4,892
Gain on sale of
surplus property - - 3,300 3,110
Other, net (8) 2,902 (373) (79)
------- ------- ------- -------
$ 1,259 $ 6,476 $10,601 $7,923
======= ======= ======= =======
24. Income Taxes
Provision for income taxes consists of the following (in thousands):
For the Three For the Nine
Months Ended Months Ended For the Years Ended
December 31, September 30, December 31,
1999 1999 1998 1997
------- -------- ------- ------
Federal income tax provision:
Current $ 26 $18,190 $21,166 $ 7,301
------- -------- ------- ------
Deferred:
Difference between tax
and book depreciation (933) 1,050 717 1,008
Sale of assets - - 122 (918)
Alternative minimum tax
and other credits (26) 5,059 (5,375) (7,301)
Net operating loss
Carryforward (1,705) 3,158 14,246 22,151
Other reserves 7,839 590 2,883 7,132
Change in valuation
Allowance - - - (9,346)
Other, net (320) (1,739) (1,628) (1,656)
------- -------- ------- ------
Total deferred 4,855 8,118 10,965 11,070
------- -------- ------- ------
Increase in additional
paid-in capital - - - 9,346
------- -------- ------- ------
Total federal income
tax provision 4,881 26,308 32,131 27,717
------- -------- ------- ------
State and local income
tax provision:
Current 400 1,500 2,077 875
Deferred 916 3,957 4,652 4,731
Change in valuation
Allowance - - - (3,547)
Increase in additional
paid-in capital - - - 3,547
------- -------- ------- ------
Total state and local income
tax provision 1,316 5,457 6,729 5,606
------- -------- ------- -------
Provision for income taxes $ 6,197 $31,765 $38,860 $33,323
======= ======= ======= =======
As of December 31, 1999, the Company has regular tax net operating loss
carryforwards of approximately $71,140,000 that expire at various dates through
2014 and an alternative minimum tax credit carryforward of $14,153,000. The
Internal Revenue Code of 1986, as amended (the "Code"), imposes limitations
under certain circumstances on the use of carryforwards upon the occurrence
of an "ownership change" (as defined in Section 382 of the Code). An
"ownership change" resulted from the issuance of equity securities by the
Company as part of its plan of reorganization. Such an "ownership change"
limits the use of a portion of the Company's carryforwards in any one year.
The Company believes it is more likely than not that all of its
carryforwards will be utilized prior to their expiration.
The following is a schedule of consolidated pre-tax income and a reconciliation
of income taxes computed at the U.S. statutory rate to the provision for income
taxes (in thousands):
For the Three For the Nine
Months Ended Months Ended For the Years Ended
December 31, September 30, December 31,
1999 1999 1998 1997
------- -------- ------- ------
Income before
income taxes $ 18,262 $ 94,118 $115,142 $ 98,736
Tax provision computed
at statutory rates 6,392 32,941 40,300 34,558
Differences resulting from:
State tax, net 855 3,546 4,375 3,669
Other, including
percentage depletion (1,050) (4,722) (5,815) (4,904)
-------- -------- ------- --------
Provision for income taxes $ 6,197 $ 31,765 $ 38,860 $ 33,323
======== ======== ======== ========
Components of net deferred tax assets as of December 31, 1999 and 1998 are as
follows (in thousands):
December 31, December 31,
1999 1998
--------- ---------
Current tax assets related to:
Reserves not yet deducted $ 3,582 $ 4,052
--------- ---------
Non-current tax assets related to:
Reserves not yet deducted 5,133 4,773
Reserves for retiree benefits 22,176 42,777
Loss carryforwards 24,899 26,353
Alternative minimum tax
and other credits 14,153 19,660
--------- ---------
66,361 93,563
Non-current tax liabilities related to:
Fixed assets (533,964) (58,239)
Net state (58,878) 774
Domestic joint ventures (14,659) (3,449)
Other (5,368) (11,056)
--------- ---------
(612,869) (71,970)
Total long-term net --------- ---------
deferred tax (liabilities)
/assets (546,508) 21,593
Total net deferred tax ---------- --------
(liabilities)/assets $ (542,926) $25,645
========== =======
Net income taxes paid during the three months ended December 31, 1999, the nine
months ended September 30, 1999, and the years ended December 31, 1998 and 1997,
were $4,065,000, $16,311,000, $25,209,000 and $7,187,000, respectively.
25. Opening Balance Sheet
In accordance with APB No.16, the purchase of Lone Star by Dyckerhoff was
recorded as a purchase, and accordingly, the Company recorded the following
purchase accounting adjustments (in thousands).
Lone Star Industries, Inc.
Consolidated Balance Sheet
(In Thousands)
Purchase
September 30, Accounting October 1,
1999 Adjustments 1999
(Unaudited)
--------- ---------- ---------
Assets:
Cash including cash
equivalents $ 97,545 $ 97,545
Accounts and notes
receivable, net 45,331 45,331
Inventories 45,749 45,749
Deferred tax asset 4,052 (4,052) -
Other current assets 4,667 (1,542) 3,125
--------- ---------- ---------
Total current assets 197,344 (5,594) 191,750
Joint ventures 28,221 31,779 60,000
Property, plant
and equipment 467,109 1,251,704 1,718,813
Less accumulated
depreciation and
depletion 107,338 (107,338) -
--------- ---------- --------
359,771 1,359,042 1,718,813
Receivable from
parent company - 28,974 28,974
Deferred tax asset 8,652 (8,652) -
Other assets and
deferred charges 18,223 68,154 86,377
--------- ---------- --------
Total assets $612,211 $1,473,703 $2,085,914
========= ========== ==========
Liabilities and Shareholders' Equity:
Accounts payable $ 13,351 $13,351
Accrued liabilities 41,565 89,981 131,546
Short-term bank loans - 740,000 740,000
Income taxes payable 5,659 5,659
Total current --------- ---------- --------
liabilities 60,575 829,981 890,556
Long-term debt 50,000 170,000 220,000
Postretirement benefits
other than pensions 121,969 (31,356) 90,613
Deferred taxes 538,019 538,019
Payable to affiliates - 381 381
Other liabilities 31,228 15,117 46,345
--------- ---------- --------
Total liabilities 263,772 1,522,142 1,785,914
Shareholders' Equity:
Common stock 26,155 (25,972) 183
Warrants to purchase
common stock 10,764 (10,764) -
Additional
paid-in capital 174,657 125,160 299,817
Retained earnings 312,064 (312,064) -
Treasury stock, at cost (175,201) 175,201 -
Total shareholders' --------- ---------- --------
equity 348,439 (48,439) 300,000
Total liabilities
and shareholders' --------- ---------- ----------
equity $612,211 $1,473,703 $2,085,914
========= ========== ==========
The above opening balance sheet adjustments include the following items to
properly reflect the fair value of the Company's assets and liabilities as of
October 1, 1999, in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations".
Adjustments to current assets includes the reclassification of current
deferred tax assets to long-term deferred taxes, and the write-off of the
September 30, 1999 prepaid stripping balance.
The Company's investment in joint ventures was written up to its fair market
value as of October 1, 1999.
Property, plant and equipment balances were revalued as of October 1, 1999
and accumulated depletion and depreciation balances were written off.
A receivable was recorded for funds borrowed by the Company and advanced to
Dyckerhoff AG as of October 1, 1999.
The long-term deferred tax asset was reclassified to long-term deferred taxes
as of October 1, 1999.
The adjustment to other assets and deferred charges includes the write-up of
the prepaid pension balance to the pension plan assets in excess of the
projected pension benefit obligation as of October 1, 1999, and the write-off
of long-term prepaid stripping. Also included in other assets and deferred
charges at October 1, 1999 is an escrow account to redeem the rights to
receive $50 per common share not tendered at the acquisition date.
Accrued liabilities at September 30, 1999 were adjusted to record liabilities
as of the purchase date for legal, audit and printing acquisition costs,
various acquisition transaction fees, a prepayment penalty on the Company's
senior notes which became due and payable due to the purchase of the Company,
and other costs to be incurred which are directly related to the acquisition.
A liability for outstanding options and warrants was recorded for the
purchase price of those securities. In addition, a liability was set up for
the common shares which were converted to rights to receive $50 per common
share not tendered at the acquisition date.
Pursuant to the merger agreement, $910,000,000 became the obligation of the
Company, of which $740,000,000 was classified as short-term and $170,000,000
was considered long-term.
The liability for other postretirement employee benefits was adjusted to
record the accumulated postretirement benefit obligation in excess of plan
assets as of October 1, 1999.
The tax effect of the difference between the book and tax basis of the
opening balance sheet adjustments was included in deferred taxes as of
October 1, 1999, in addition to the reclassification of the deferred tax
asset amounts.
A payable to affiliates was recorded for acquisition costs paid for by the
Company's U.S. parent Dyckerhoff, Inc.
Other liabilities were adjusted for certain compensation and other costs
related to the "change of control" of the Company.
Shareholders' equity was adjusted to eliminate historical retained earnings
as of September 30, 1999, to write-off the predecessor company equity
balances and to set up the successor company $0.01 par value common stock and
additional paid-in capital.
26. Pro Forma Information
The following pro forma condensed financial information of the Company and
its subsidiaries illustrates the estimated financial effects of the purchase
of the Company. Pro forma statement of operations data is presented for the
year ended December 31, 1999, as if the transaction had occurred prior to
January 1, 1999. The pro forma data is unaudited.
Lone Star Industries, Inc.
Pro Forma Consolidated Statement of Operations (Unaudited)
For the Year Ended December 31, 1999
(In Thousands Except Per Share Amounts)
Three Nine
Months Months
Ended Ended Twelve
December 31, September 30, Months
1999 1999 Pro Forma Pro Forma
Historical Historical Adjustments Results
-------- -------- ------- --------
Revenues:
Net sales $ 92,638 $281,604 - $374,242
Joint venture income 2,116 6,454 (1,251) 7,319
Other income, net 1,259 6,476 (3,626) 4,109
-------- -------- ------- --------
96,013 294,534 (4,877) 385,670
Deductions from revenues:
Cost of sales 47,101 161,909 697 209,707
Selling, general and
administrative expenses 6,373 18,720 1,845 26,938
Depreciation and depletion 10,193 18,227 11,101 39,521
Interest expense 14,084 1,560 45,264 60,908
-------- -------- ------- --------
77,751 200,416 58,907 337,074
Income before income taxes 18,262 94,118 (63,784) 48,596
Provision for income taxes (6,197) (31,765) 21,527 (16,435)
-------- -------- ------- --------
Net income $12,065 $62,353 ($42,257) $32,161
Weighted average common shares outstanding:
Basic 18,388 19,687 18,333
====== ====== ======
Diluted 18,490 24,210 18,483
====== ====== ======
Earnings per common share:
Basic $0.66 $3.17 $1.75
====== ====== ======
Diluted $0.65 $2.58 $1.74
====== ====== ======
The above pro forma condensed financial information includes the following
estimated adjustments that would have been recorded if the purchase of the
Company had occurred prior to January 1, 1999.
Joint venture income has been adjusted for the change in the amortization of
the difference between the Company's investment in and its share of the
underlying assets of Kosmos Cement Company.
Other income has been reduced by the amount of interest which would not have
been earned if the purchase of the Company had occurred prior to January 1,
1999.
Cost of sales has been adjusted for the change in pension and other
postretirement employee benefit expense.
Selling, general and administrative expenses have been adjusted for the
decrease in pension income and the increase in other postretirement employee
benefit expense.
Depreciation and depletion has been adjusted for the additional depreciation
and depletion on the write-up of fixed assets and mineral reserves.
Interest expense has been adjusted for the additional estimated interest
costs that would have been incurred if the Company had been purchased prior
to January 1, 1999.
The provision for income taxes has been adjusted for the tax effect of the
above estimated adjustments.
27. Asset Dispositions
In February and September 1998, the Company received $1,500,000 and $1,800,000
from the sale of surplus real estate in Massachusetts and Texas, respectively.
The gain on the sales is included in other income on the accompanying
consolidated statement of operations.
In October 1997, the Company sold its New York construction aggregates
operations, including working capital, for $43,186,000, which approximated book
value.
In September 1997, the Company received $3,110,000 from the sale of a parcel of
surplus real estate in Massachusetts. The gain on the sale is included in
other income on the accompanying consolidated statement of operations.
In March 1997, the Company sold its central Illinois ready-mixed and other
concrete operations, including inventories, for proceeds equal to book value
of $10,500,000.
The operations sold in 1997 and 1998 contributed the following results for the
period through their respective dates of disposition (in thousands):
For the Year Ended December 31, 1997
Net sales $40,326
Pre-tax income $ 1,011
28. 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").
The December 31, 1999 consolidated balance sheet includes accruals of
$6,090,000 which represent the Company's current estimate of its liability
related to future remediation costs at sites where known environmental
conditions exist. The Company believes these reserves to be adequate for known
environmental matters.
29. 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.
30. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1999 and 1998 is as follows (in
thousands except per share data):
Predecessor | Successor
Company | Company
Quarter |
1999 First Second Third | Fourth
Net sales $ 66,663 $102,066 $112,875 | $ 92,638
Gross profit $ 19,050 $ 37,626 $ 45,010 | $ 35,358
Net income $ 9,646 $ 22,879 $ 29,828 | $ 12,065
Basic earnings per |
common share $ 0.48 $ 1.17 $ 1.54 | $ 0.66
Diluted earnings per |
common share $ 0.39 $ 0.95 $ 1.25 | $ 0.65
Predecessor Company
Quarter
1998 First Second Third Fourth
Net sales $ 57,794 $ 97,702 $104,010 $ 87,559
Gross profit $ 13,612 $ 36,459 $ 43,543 $ 31,321
Net income $ 7,061 $ 22,412 $ 28,750 $ 18,059
Basic earnings per
common share $ 0.33 $ 1.05 $ 1.39 $ 0.93
Diluted earnings
per common share $ 0.26 $ 0.81 $ 1.08 $ 0.73
(1) Gross profit is net of depreciation and depletion expense relating to
cost of sales of $10,179,000, $18,009,000 and $21,566,000 in the three months
ended December 31, 1999, the nine months ended September 30, 1999 and the
year ended December 31, 1998, respectively.
(2) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share in 1999
and 1998 does not equal the total computed for the year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Board of Directors
Michael B. Clarke, 53, has been a director since the Acquisition. He
was President and Chief Executive Officer of Dyckerhoff, Inc. (Lone Star's
parent after the Acquisition) since 1997; President and Chief Executive
Officer of Glens Falls Cement Company Inc. since 1988 and President of Glens
Falls Lehigh Cement Company since 1999.
Philipp Magel, 62, has been a director since the Acquisition. He has
been a member of the Board of Managing Directors of Dyckerhoff AG since 1992.
Felix Pardo, 62, has been a director since the Acquisition. He has been
Chairman of Dyckerhoff, Inc. since 1998; President and Chief Executive
Officer of Phillip Services, Inc. in 1998; and President and Chief Executive
Officer of Ruhr-American Coal Corp. from 1992 to 1998.
Alexander Roentgen, 41, has been a director since the Acquisition. He
has been a member of the Board of Managing Directors of Dyckerhoff Zement
International GmbH since May 1999. He formerly held several management
positions at Asea Brown Boveri from 1993 to 1999.
Peter Steiner, 40, has been a director since the Acquisition. He has
been a member of the Board of Managing Directors of Dyckerhoff AG since 1998.
He was formerly a member of the Board of Managing Directors of SUBA Bau AG.
William M. Troutman, 59, has been a director since 1992. In connection
with the Acquisition he retired as President and Chief Executive Officer of
the Company where he had been an officer for more than five years.
All of the directors' terms of office continue until the next annual
meeting of the Company's shareholders and until their successors have been
elected and qualified.
Executive Officers
The following table sets forth certain information regarding the executive
officers of the Company.
Name Age Office And Year In Which Individual
First Became An Executive Officer
Felix Pardo 62 Chairman of the Board (1999)
Michael B. Clarke 53 President and Chief Executive Officer (1999)
Roger J. Campbell 62 Executive Vice President - Cement Operations (1986)
William J. Caso 55 Vice President - Taxes and Insurance (1994)
Thomas S. Hoelle 47 Vice President - General Manager, Slag
Operations (1994)
Gerald F. Hyde, Jr. 56 Vice President - Personnel and Labor
Relations (1983)
James W. Langham 40 Vice President, General Counsel and
Secretary (1995)
Harry M. Philip 51 Vice President - Cement Manufacturing (1994)
Michael W. Puckett 54 Vice President - Cement Sales and Concrete
Operations (1985)
William E. Roberts 60 Vice President, Chief Financial Officer,
Controller and Treasurer (1988)
All of the executive officers' terms of office continue until the next
annual meeting of the Company's stockholders and until their successors have
been elected and qualified. All of the executive officers have been employed
by the Company as an officer for more than five years, except for Messrs.
Pardo and Clarke (see information under "Board of Directors") and Mr.
Langham, who for more than five years prior to joining the Company was an
attorney in New York City.
ITEM 11. EXECUTIVE COMPENSATION.
The following table shows, for the three fiscal years ended December 31,
1999, the compensation paid by the Company to its Chief Executive Officer and
four other most highly paid executive officers.
Summary Compensation Table
Annual Compensation (1)
(a) (b) (c) (d) (e) (i)
Other All
Annual Other
Compensation Compensation
Name and Principal Year Salary Bonus (2) (2)
Position
Michael B. Clarke 1999 $ 66,923 $ 75,000 - $ 316
President and Chief
Executive Officer after
Acquisition
William M. Troutman 1999 386,187 433,000 4,191,293 11,998
President and Chief 1998 406,667 400,000 - 19,630
Executive Officer until 1997 382,788 350,000 - 88,134
Acquisition
Roger J. Campbell 1999 200,564 206,000 - 14,263
Executive Vice President- 1998 193,167 190,000 - 13,686
Cement Operations 1997 187,083 185,000 - 13,660
Michael W. Puckett 1999 190,008 195,000 - 14,483
Vice President - Cement 1998 183,000 180,000 - 11,842
Sales and Concrete 1997 177,083 175,000 - 12,231
Operations
William E. Roberts 1999 195,286 200,000 - 12,410
Vice President, Chief 1998 188,083 185,000 - 10,833
Financial Officer, 1997 179,166 175,000 - 10,319
Controller and Treasurer
- ------------
(1) Perquisites and other personal benefits were less than either $50,000 or
10% of the total annual salary and bonus for 1997, 1998 and 1999 for each of
the named executive officers.
(2) Other Annual Compensation in 1999 for Mr. Troutman consisted of the
following amounts required by the "Change in Control" provisions of Mr.
Troutman's employment agreements which were triggered by the Acquisition:
(i) severance pay equal to two and one-half years' salary and medical and
certain other benefits during this severance period and (ii) the price of an
annuity purchased to provide Mr. Troutman with certain annual retirement
benefits and a related tax gross-up. Components of All Other Compensation
include (a) Company contributions under the Savings Plan for Salaried
Employees; (b) Company contributions under the Employee Stock Purchase Plan
(which was terminated as a result of the Acquisition); (c) group term life
insurance premiums; and (d) in 1997, relocation costs reimbursed to Mr.
Troutman.
Employment and Change of Control Agreements
The Company has change of control agreements with Messrs. Campbell,
Puckett and Roberts. Pursuant to these agreements, in the event his
employment is not continued on a substantially equivalent basis for a year
following a change of control, or if for any reason he elects to terminate
his employment during a thirty-day period commencing on the first anniversary
of the change of control, the officer is entitled to severance pay equal to
two and one-half years' base salary and to medical and certain other benefits
including pension accruals for this two and one-half year period. The
Acquisition was a change of control for these purposes. All payments under
the change in control agreements will be "grossed up" to reimburse the
executive for any excise tax imposed by Section 4999 of the Code. Each of
these officers is entitled to lifetime executive retiree life insurance and
medical benefits.
Stock Options
In connection with the Acquisition, the Company repurchased 100,000
stock options from Mr. Troutman for aggregate gross proceeds to Mr. Troutman
of $4,231,250 and 38,500 options from Mr. Roberts for aggregate gross
proceeds of $1,629,031.
Pension Plan
The following table shows the estimated annual benefit payable upon
retirement to persons in specified compensation and years of credited service
classifications under the Lone Star Salaried Employees' Pension Plan and
Supplemental Executive Retirement Plan:
<TABLE>
<CAPTION>
Estimated Annual Pension Benefit Payable at Normal Retirement
Assumed Average Assuming the Following Years of Credited Service
Annual 10 15 20 25 30 35
Compensation
<C> <C> <C> <C> <C> <C> <C>
$ 125,000 $ 17,600 $ 26,400 $ 35,200 $ 44,000 $ 52,800 $ 62,000
150,000 21,600 32,400 43,200 54,000 64,800 76,000
175,000 25,600 38,400 51,200 64,100 76,900 90,100
200,000 29,600 44,500 59,300 74,100 88,900 104,100
250,000 37,700 56,500 75,300 94,200 113,000 132,200
300,000 45,700 68,500 91,400 114,200 137,100 160,300
350,000 60,700 80,600 107,400 134,300 161,200 188,400
400,000 61,800 92,600 123,500 154,400 185,300 216,500
450,000 69,800 104,700 139,600 174,400 209,300 244,600
500,000 77,800 116,700 155,600 194,500 233,400 272,700
</TABLE>
The compensation covered by the qualified plan includes base pay,
subject to ERISA limitations of $228,860 for 1992, $235,840 for 1993, and
$150,000 for 1994 through 1996 and $160,000 for 1997, 1998, 1999 and later
years. The compensation covered by the supplemental executive retirement plan
includes base pay plus bonuses with no limitation.
The years of credited service for Michael B. Clarke, William M.
Troutman, Roger J. Campbell, Michael W. Puckett and William E. Roberts are
26, 17, 14, 30 and 25, respectively.
The qualified plan benefits are payable for the lifetime of the
individuals, while the supplemental benefits are payable as a lump sum. The
benefits shown are payable without reduction at age 62 or later, and are not
subject to any deductions or offsets. However, ERISA currently limits
benefits payable at age 65 to $118,800 for 1994, $120,000 for 1995 and 1996,
$125,000 for 1997, $130,000 for 1998 and 1999.
Directors' Compensation
No director receives fees or compensation for acting as a director
except for Mr. Troutman, who receives $2,000 per meeting he attends.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As a result of the Acquisition, in excess of 99 percent of the equity
ownership of the Company is owned indirectly by Dyckerhoff AG, Biebricher
Strasse, 65203 Wiesbaden, Germany. No directors or executive officers own
any equity securities of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As a result of the Acquisition, the Company has become obligated to
repay approximately $910 million of indebtedness incurred indirectly by
Dyckerhoff AG to purchase the Company. A portion of this debt has been
refinanced by the issuance of Euro debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition". The Company currently owes $36.6 million to Dyckerhoff, Inc.
and Glens Fall Cement Co., Inc., an affiliate. This loan currently bears
interest at 5% percent of the average outstanding balance, compounded
monthly. The Company is currently owed $21.8 million by Dyckerhoff AG, which
loan currently bears interest at a rate of 5.535% per annum.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. Financial Statements and Schedule: See Index to Financial
Statements and Schedule on page 17 of this Report.
2. Exhibits:
3.1 -- Amended and Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q
for the Quarter ended September 30, 1999).
3.2 -- Amended By-Laws (incorporated herein by reference to Exhibit 3.2 of
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
4.3 -- Warrant Agreement, dated April 13, 1994, between Lone Star Industries,
Inc. and Chemical Bank, as Warrant Agent (incorporated herein by reference to
Exhibit 4B of the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
10.1 -- Settlement Agreement, dated as of February 4, 1994, between Lone Star
Industries, Inc., et al. and the Official Committee of Retired Employees of
Lone Star Industries, Inc., et al. (incorporated herein by reference to
Exhibit 10.23 of the Registrant's Registration Statement on Form S-1, File
Number 33-55377).
10.2 -- Agreement, dated as of March 11, 1994, by and between the Debtors and
the Unions (incorporated herein by reference to Exhibit 10.25 of the
Registrant's Registration Statement on Form S-1, File Number 33-55377).
10.3 -- Terms and Conditions of Euro Bonds (filed herewith).
10.4 -- Term Loan Facilities Agreement, dated as of September 1, 1999, by and
among Dyckerhoff AG, the Company, Deutsche Bank AG and Dresdner Bank AG
(incorporated herein by referenced to Exhibit (b)(1) of Schedule 14D-1, dated
September 3, 1999, filed by Level Acquisition Corp. and Dyckerhoff AG).
*10.5 -- Form of Indemnification Agreement entered into between Lone Star
Industries, Inc. and directors and an executive officer (incorporated herein
by reference to Exhibit 10G of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994).
*10.6 -- Form of "Change of Control" agreement for certain executive officers
of Lone Star Industries, Inc. (incorporated herein by reference to Exhibit
10.10 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
21 -- Subsidiaries of the Company (incorporated herein by reference to
Exhibit 21 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
27 -- Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
Form 8-K, October 1, 1999 - Item 7 - Financial Statements, Pro
Forma Financial Information and Exhibits
Form 8-K, November 29, 1999 - Item 4 - Change in Registrant's
Certifying Accountants
- -----------------
* Indicates management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
LONE STAR INDUSTRIES, INC.
By: /s/ James W. Langham
---------------------------------
JAMES W. LANGHAM
Vice President, General
Counsel and Secretary
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Or Capacity Date
---- --------- ---------
/s/ FELIX PARDO Director and Chairman of the Board March 24, 2000
- ----------------
FELIX PARDO
/s/ MICHAEL B. CLARKE Director, President and Chief March 24, 2000
- --------------------- Executive Officer
MICHAEL B. CLARKE
/s/ WILLIAM E. ROBERTS Vice President, Chief Financial March 24, 2000
- ---------------------- Officer, Controller and Treasurer
WILLIAM E. ROBERTS
/s/ PHILIPP MAGEL Director March 24, 2000
- --------------------------
PHILIPP MAGEL
/s/ ALEXANDER ROENTGEN Director March 24, 2000
- -------------------------
ALEXANDER ROENTGEN
/s/ PETER STEINER Director March 24, 2000
- ------------------------
PETER STEINER
/s/ WILLIAM M. TROUTMAN Director March 24, 2000
- - -----------------------
WILLIAM M. TROUTMAN
LONE STAR INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged Balance
at to Charged at
Beginning Costs to End
Of and Other of
Description of Period Expenses Accounts(2) Deductions(1) Period
<S> <C> <C> <S> <C> <C>
For the Year Ended December 31, 1999
Allowance for doubtful
accounts deducted
from notes and
accounts receivable $3,535 12 - 100 $3,447
For the Year Ended December 31, 1998
Allowance for doubtful
accounts deducted
from notes and
accounts receivable $3,838 48 7 358 $3,535
For the Year Ended December 31, 1997
Allowance for doubtful
accounts deducted
from notes and
accounts receivable $5,099 124 364 1,749 $3,838
</TABLE>
(1) Deductions in the years ended December 31, 1999, 1998 and 1997 primarily
represent uncollectible accounts charged off. Deductions in the year ended
December 31, 1997 partly represent the allowance related to the New York
construction aggregates operations which were sold in 1997.
(2) Represents recoveries of accounts previously charged off, and reserves
related to dispositions.
Exhibit 10.3
The German text of the Terms and Conditions of the Bonds is the
exclusively legally binding one. This English translation is for
convenience only.
TERMS AND CONDITIONS OF THE BONDS
Section 1
(Form, Denomination and Further Issues)
1. The issue of Lone Star Industries, Inc., Stamford, Ct, USA
("Issuer") in the aggregate principal amount of Euro 300,000,000
(in words: Euros three hundred million) is divided into 300,000
bearer bonds in the denomination of Euro 1,000 each ("Bonds").
2. The Bonds are represented for the whole life of the Bonds
by a global bearer Bond ("Global Bond") which is deposited with
Deutsche Boerse Clearing Aktiengesellschaft, Frankfurt am Main
("Clearing AG"). The rights to demand payment of interest are
not evidenced by a separate document. The Global Bond bears the
manual or facsimile signatures of two duly authorised officers
of the Issuer as well as the manual signature of an
authentication officer of Dresdner Bank Aktiengesellschaft,
Frankfurt am Main ("Dresdner Bank").
3. No definitive Bonds shall be issued. The right to demand
the printing and delivery of definitive Bonds shall be excluded.
The holders of the Bonds ("Bondholders") are entitled to co-
ownership participations in the Global Bond, which are
transferable in accordance with the rules and regulations of
Clearing AG and, outside the Federal Republic of Germany,
Cedelbank and Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System
("Euroclear").
4. The Issuer reserves the right from time to time without the
consent of the Bondholders to issue additional bonds with
identical terms, so that the same shall be consolidated, form a
single Issue with and increase the aggregate principal amount of
the Bonds. The term "Bonds" shall, in the event of such
increase, also comprise such additionally issued bonds.
Section 2
(Interest)
1. The Bonds shall bear interest from 08 November 1999
(including) ("Issue Date") up to 08 November 2004 (excluding)
("Maturity Date") annually at the rate of 5.875 per cent. Such
interest will be payable in arrears on 08 November of each year
(each an "Interest Payment Date"), commencing on 08 November
2000.
Each period beginning on (and including) the Issue Date and
ending on (but excluding) the first Interest Payment Date, and
each period beginning on (and including) an Interest Payment
Date and ending on (but excluding) the next Interest Payment
Date is herein called an "Interest Period".
2. The Bonds will cease to bear interest at the end of the day
preceding the due date, even if the due date is not a banking
day. Should, however, the Issuer or Dyckerhoff AG, Wiesbaden
("Guarantor") fail to meet its repayment obligation either (i)
when due, or (ii) when the due date is not a banking day in
Frankfurt am Main, on the next succeeding banking day, then the
Bonds will not cease to bear interest at the end of the day
preceding their due date, but only on the day of redemption; at
the latest, however, they will cease to bear interest 14 days
after the day on which, according to Section 13, it is announced
that the necessary funds have been placed at the disposal of the
Paying Agent (Section 4 paragraph 2).
3. For the purposes of these Terms and Conditions of the Bonds
a "Banking Day" means a day, on which banks in Frankfurt am Main
and Clearing AG effect payments.
4. If interest is to be calculated for a period of less than
one year, it shall be calculated on the basis of the actual
number of days elapsed, divided by the number of days (365 or
366) in the relevant interest year.
Section 3
(Maturity)
1. The life of the Bonds shall be 5 years. The Issuer
undertakes to redeem the Bonds at the principal amount on 08
November 2004.
2. The Issuer is entitled to purchase Bonds in the market or
otherwise.
Section 4
(Payments)
1. The Issuer irrevocably undertakes to pay, when due, to the
Paying Agent principal and interest and additional amounts
("Additional Amounts"), if any, to be paid according to Section
5 in Euro. Principal of and interest on the Bonds shall be paid
to the Bondholders with due observance of any tax, foreign
exchange or other laws and regulations of the Federal Republic
of Germany without it being permissible to require the execution
of an affidavit or compliance with any other formality
whatsoever, unless such affidavit or formality is prescribed by
the law of the Federal Republic of Germany. Payments shall be
made through the paying agent by a Euro-cheque or transfer to a
Euro-account with a bank specified by the payee in a city in
which banks have access to the TARGET-System.
2. The "Paying Agent" is Dresdner Bank Aktiengesellschaft,
Juergen-Ponto-Platz 1, 60301 Frankfurt am Main. All payments of
principal and interest and Additional Amounts, if any, will be
passed on by the Paying Agent to Clearing AG for credit to the
accounts of the respective depositary banks of the Bondholders
with the Clearing AG.
3. The Paying Agent, in its capacity as such, is acting
exclusively as agent for the Issuer and does not have any
relationship of agency or trust with the holders of Bonds.
4. No payment will be made in respect of the Bonds upon
presentation, or any other demand for payment, to the Issuer or
its paying agents within the United States, by mail to an
address in the United States of America ("United States") or by
transfer to an account in the United States, except as may be
permitted by United States tax laws and regulations in effect at
the time of such payment without detriment to the Issuer.
SECTION 5
(Taxation and Call Rights for Taxation Reasons or Reporting
Requirements)
1. Principal and interest are to be paid without withholding
at source or deduction at source of any present or future taxes,
fees or duties of whatsoever nature which are imposed by or in
the United States and or from or in the Federal Republic of
Germany, unless it is required by law. Any taxes, fees or duties
levied after the issue of the Bonds from or in the United States
and or from or in the Federal Republic of Germany by means of
withholding at source or deduction at source are to be borne by
the Issuer or the Guarantor as Additional Amounts in such a way
that payment of the principal and interest to the Bondholders
can be made at the full face value. The tax on interest payment
which has been in effect in the Federal Republic of Germany
since 1 January 1993 and the solidarity surcharge imposed
thereon as from 1 January 1995 as well as the EU-wide
standardized withholding tax proposed by the EU Commission
according to a "Council Directive to ensure a minimum of
effective taxation of savings income within the EU" - KOM (1998)
295 endg. - 98/0194 (CNS) from 20 May 1998 do not constitute
such a withholding tax or withholding levy on interest payments
as described above.
2. However, the Issuer or the Guarantor shall not be obliged
to pay any Additional Amounts on account of any such taxes, fees
or duties,
a) which are to be paid on payments of principal or interest
by any other means than withholding at source or deduction at
source, or
b) which the Bondholder is subject to for any reason other
than the mere fact of being a recipient of principal or interest
in respect of the Bonds, in particular if the Bondholder is
subject to such taxes, fees or duties based on a personal
unlimited or limited tax liability, or
c) which the Bondholder would not be subject to, if he had
claimed payments of principal of and interest on the Bonds
within 30 days from the respective due date or from the relevant
date; if the Paying Agent has not received the amounts due on or
before the due date, the relevant date for the beginning of the
30 days' period shall be the date on which it is announced in
accordance with Section 13 that the required amounts have been
received by the Paying Agent; or
d) that would not have been so imposed but for (i) the
existence of any present or former connection between such
holder (or between a fiduciary, settlor or beneficiary of, or a
person holding a power over, such holder, if such holder is an
estate or trust, or a partner, member or shareholder of such
holder, if such holder is a partnership, limited liability
company, corporation or other business entity) and the United
States, including, without limitation, such holder (or such
fiduciary, settlor, beneficiary, person holding a power,
partner, member or shareholder) being or having been a citizen,
resident or treated as a resident thereof or being or having
been engaged in a trade or business or present therein or having
had a permanent establishment therein, or (ii) such holder's
present or former status as a personal holding company,
controlled foreign corporation, foreign personal holding company
or passive foreign investment company with respect to the United
States or as a corporation that accumulates earnings to avoid
United States Federal income tax; or
e) which are any estate, inheritance, gift, sales, transfer,
personal property tax or any similar tax, assessment or other
governmental charge; or
f) imposed on a Bondholder that is a bank within the meaning
of Section 881 (c)(3)(A) of the United States Internal Revenue
Code of 1986, as amended, and any regulations thereunder
("Code"), or imposed on a Bondholder that actually or
constructively owns 10% or more of the total combined voting
power of all classes of stock of the Issuer entitled to vote
within the meaning of Section 871(h)(3) of the Code; or
g) imposed as a result of the failure to comply with
applicable certification, information, documentation or other
reporting requirements concerning the nationality, residence,
identity or connection with the United States of the holder or
beneficial owner of a Bond, if such compliance is required by
statute, or by regulation of the United States, as a
precondition to relief or exemption from such tax, assessment or
other governmental charge; or
h) required to be withheld by any paying agent from any
payment on a Bond if such payment can be made without such
withholding by at least one other paying agent; or
i) any combination of items (a), (b), (c), (d), (e), (f), (g)
and (h);
nor will Additional Amounts be paid with respect to any payment
on a Bond to a holder who is a fiduciary or partnership or other
than the sole beneficial owner of such payment to the extent
such payment would be required by the laws of the United States
(or any political subdivision thereof) to be included in the
income for Federal income tax purposes of a beneficiary or
settlor with respect to such fiduciary or a member of such
partnership or a beneficial owner who would not have been
entitled to payment of the Additional Amounts had such
beneficiary, settlor, member or beneficial owner been the holder
of such Bond.
Whenever in this Bond there is mentioned, in any context, the
payment of the principal of or interest on, or in respect of, a
Bond, such mention shall be deemed to include mention of the
payment of Additional Amounts provided for in this Section 5 to
the extent that, in such context, Additional Amounts are, were
or would be payable in respect thereof pursuant to the
provisions of this Section 5, and express mention of the payment
of Additional Amounts (if applicable) in any provisions hereof
shall not be construed as excluding Additional Amounts in those
provisions hereof where such express mention is not made.
3. If at any time due to a change in tax law after the issue
of the Bonds, the Issuer is or will be required to pay
Additional Amounts under paragraph 1 and paragraph 2, the Issuer
is entitled upon not less than one month's notice to call all
Bonds on each 8th day of any month for early repayment at par.
No such notice shall take effect earlier than on the 8th day of
the month which precedes the month in which payment of
Additional Amounts would first have to be effected or such
taxes, fees or duties would have to be deducted by means of
deduction at source or to be withheld by means of withholding at
source, if the repayment date is not an interest payment date,
interest accrued to the repayment date from the preceding
interest payment date will be paid. A call by the Issuer shall
be effected by announcement in accordance with Section 13.
If the Issuer shall determine that any payment of principal or
interest due in respect of any Bond made outside the United
States by the Issuer or any paying agent would, under any
present or future laws or regulations of the United States, be
subject to any certification, information or other reporting
requirement of any kind, the effect of which requirement is the
disclosure to the Issuer, any paying agent or any governmental
authority of the nationality, residence or identity (as
distinguished from, for example, status as a United States
Alien, as defined below) of a beneficial owner of a Bond who is
a United States Alien (other than such a requirement which (i)
would not be applicable to a payment made by the Issuer or any
paying agent (1) directly to the beneficial owner or (2) to a
custodian, nominee or other agent of the beneficial owner, (ii)
can be satisfied by such custodian, nominee or other agent
certifying to the effect that such beneficial owner is a United
States Alien, provided that in each case referred to in items
(i) (2) or (ii), payment by such custodian, nominee or other
agent to such beneficial owner is not otherwise subject to any
such requirement (other than a requirement which is imposed on a
custodian, nominee, or other agent described in (iv) of this
sentence), (iii) would not be applicable to a payment made by at
least one other paying agent of the Issuer or (iv) is applicable
to a payment to a custodian, nominee, or other agent of the
beneficial owner who is a United States person (as defined
below), a controlled foreign corporation for United States tax
purposes, a foreign person 50% or more of whose gross income for
the 3-year period ending with the close of its taxable year
preceding the year of payment is effectively connected with a
United States trade or business, or is otherwise related to the
United States), the Issuer at its election shall either (x)
redeem the Bonds, as a whole, at a redemption price equal to the
principal amount thereof, together with accrued and unpaid
interest to the date fixed for redemption, or (y) if the
conditions of the next succeeding subparagraph are satisfied,
pay the Additional Amounts specified in such subparagraph. The
Issuer shall make such determination and election as soon as
practicable and give prompt notice thereof ("Determination
Notice") in the manner described in Section 13, stating the
effective date of such certification, information or reporting
requirements, whether the Issuer has elected to redeem the Bonds
or to pay the Additional Amounts specified in the next
succeeding subparagraph, and (if applicable) the last date by
which the redemption of the Bonds must take place, as provided
in the next succeeding sentence. If the Issuer elects to redeem
the Bonds, such redemption shall take place on such date, not
later than one year after the publication of the Determination
Notice, as the Issuer shall elect by notice to the Principal
Paying Agent given not less than 45 nor more than 75 days before
the date fixed for redemption. Notice of such redemption of the
Bonds which shall be irrevocable will be given to the holders of
the Bonds in the manner described in Section 13 below not less
than 30 nor more than 60 days prior to the date fixed for
redemption.
If and so long as the certification, information or other
reporting requirements referred to in the preceding subparagraph
would be fully satisfied by payment of a withholding tax, backup
withholding tax or similar charge, the Issuer may elect to pay
such Additional Amounts as may be necessary so that every net
payment made outside the United States following the effective
date of such requirements by the Issuer or any paying agent of
principal or interest due in respect of any Bond to a holder who
certifies that the beneficial owner is a United States Alien
(but without any requirement that the nationality, residence or
identity of such beneficial owner be disclosed to the Issuer,
any paying agent or any governmental authority), after deduction
or withholding for or on account of such withholding tax, backup
withholding tax or similar charge (other than a withholding tax,
backup withholding tax or similar charge that (i) is the result
of a certification, information or other reporting requirement
described in the second parenthetical clause of the first
sentence of the preceding subparagraph or (ii) is imposed as a
result of presentation of such Bond for payment more than 30
days after the date on which such payment becomes due and
payable or on which payment thereof is duly provided for,
whichever occurs later), will not be less than the amount
provided for in such Bond to be then due and payable. In the
event the Issuer elects to pay such Additional Amounts, the
Issuer will have the right, at its sole option, at any time, to
redeem the Bonds as a whole, but not in part, at a redemption
price equal to the principal amount thereof, together with
accrued and unpaid interest to the date fixed for redemption. If
the Issuer has made the determination described in the preceding
subparagraph with respect to certification, information or other
reporting requirements applicable only to interest and sub-
sequently makes a determination in the manner and of the nature
referred to in such preceding subparagraph with respect to such
requirements applicable to principal, the Issuer will redeem the
Bonds in the manner and on the terms described in the preceding
subparagraph unless the Issuer elects to have the provisions of
this subparagraph apply rather than the provisions of the
immediately preceding subparagraph. If in such circumstances the
Bonds are to be redeemed, the Issuer shall have no obligation to
pay Additional Amounts pursuant to this subparagraph with
respect to principal or interest accrued and unpaid after the
date of the notice of such determination indicating such
redemption, but will be obligated to pay such Additional Amounts
with respect to interest accrued and unpaid to the date of such
determination. If the Issuer elects to pay Additional Amounts
pursuant to this subparagraph and the condition specified in the
first sentence of this subparagraph should no longer be
satisfied, then the Issuer shall promptly redeem such Bonds.
As used in these Terms and Conditions of the Issue, the term
"United States" means the United States of America (including
the States and the District of Columbia), its territories, its
possessions (including the Commonwealth of Puerto Rico) and
other areas subject to its jurisdiction. The term "United States
person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in
or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to
United States Federal income taxation regardless of its source,
or a trust subject to the supervision of a court within the
United States and the control of a United States fiduciary as
described in Section 7701(a)(30) of the Code. The term "United
States Alien" means any corporation, partnership, individual or
fiduciary that is, as to the United States, a foreign
corporation, a non-resident alien individual, a non-resident
fiduciary of a foreign estate or trust, or a foreign partnership
one or more of the members of which is, as to the United States,
a foreign corporation, a non-resident alien individual or a non-
resident fiduciary of a foreign estate or trust.
In the event that the Issuer is required or elects to redeem the
Bonds pursuant to the provisions set forth in subparagraph (4),
(5) or (6) of this Section 5, the Issuer will deliver to the
Principal Paying Agent a certificate, signed by an authorized
officer, stating that the Issuer is entitled to redeem the Bonds
pursuant to their terms along with any written opinion of
independent legal counsel required in connection therewith.
Notice of intention to redeem the Bonds and all other notices in
accordance with the provisions of the preceding subparagraphs of
this Section 5 will be given in accordance with Section 13
below. In the case of a redemption, notice will be given by the
Issuer once not more than 60 nor less than 30 days prior to the
date fixed for redemption and will specify the date fixed for
redemption.
Section 6
(Transfer)
The Issuer and/or the Guarantor undertake to transfer to the
Paying Agent in Euros all sums required for the performance of
the financial obligations arising from these Terms and
Conditions of the Bond. Such transfer to the Paying Agent is to
be made in a timely manner, under any and all circumstances and,
if necessary, irrespective of any present or future payment and
clearing agreements and regardless of the nationality, domicile
or residence of the Bondholder and without any requirement to
execute an affidavit or to comply with any other formality
whatsoever.
Section 7
(Deposit, Period for Presentation and Prescription)
1. The Issuer or the Guarantor may deposit with the lower
court (Amtsgericht) of Frankfurt am Main upon passing of 12
months after the due date principal and interest not claimed by
Bondholders within such 12 months with the waiver of the right
to withdraw such deposit; such deposit will be at the risk and
cost of such Bondholders. Upon such deposit all claims of such
Bondholders against the Issuer or the Guarantor and against
third parties that are liable for its obligations shall cease.
2. The period for presentation of Bonds due, as established in
Section 801 paragraph 1 sentence 1 of the German Civil Code
(Buergerliches Gesetzbuch), is reduced to ten years.
3. The period for prescription for Bonds presented for payment
during the presentation period shall be two years beginning at
the end of the relevant presentation period.
Section 8
(Pari passu, Negative Pledge of the Issuer)
1. The obligations represented by the Bonds rank at least pari
passu with all other unsecured and unsubordinated obligations of
the Issuer arising from borrowed money.
2. The Issuer undertakes vis-a-vis Dresdner Bank, until such
time as principal and interest and Additional Amounts pursuant
to Section 5, if any, have been completely placed at the
disposal the Paying Agent, not to secure or have secured by
mortgage, pledge or any other encumbrance upon its own assets
any present or future Capital Market Indebtedness and any
guarantee or indemnity given in respect thereof, unless this
Issue at the same time shares pari passu and pro rata in such
security.
3. Within the context of these Terms and Conditions of the
Issue "Capital Market Indebtedness" of the Issuer means any
present or future indebtedness of the Issuer, or guarantee or
indemnity of the Issuer for a present or future indebtedness of
any third party or of any third party thereof, in form of bonds,
notes or debentures or securities comparable to bonds, notes or
debentures with an original maturity of more than one year,
which can ordinarily be traded on any stock exchange or other
securities market.
Section 9
(Guarantee, Negative Pledge of the Guarantor)
1. Pursuant to the guarantee agreement dated 4 November 1999
made between the Guarantor and Dresdner Bank (the "Guarantee"),
the Guarantor has assumed the unconditional and irrevocable
Guarantee for the due payment of principal and interest and
Additional Amounts pursuant to Section 5, if any. The Guarantee
constitutes a contract in favour of the respective Bondholders
as third party beneficiaries pursuant to paragraph 328 (1) German Civil
Code giving rise to the right to each of such Bondholders to
require performance of the Guarantee directly from the Guarantor
and to enforce the Guarantee directly against the Guarantor.
Accordingly the Guarantor will make all due payments upon first
demand. Copies of the Guarantee are available at the head office
of Dresdner Bank in Frankfurt am Main.
2. The Guarantor has undertaken in a separate declaration in
favour of the Bondholders dated 4 November 1999 (the
"Declaration of Undertaking"), until such time as principal and
interest and Additional Amounts pursuant to Section 6, if any,
have been completely placed at the disposal of the Paying Agent,
not to secure or have secured by mortgage, pledge or any other
real encumbrance upon its own assets and present or future
Capital Market Indebtedness and any guarantee or indemnity given
in respect thereof, without the Bondholders at the same time
sharing pari passu and pro rata in such security. The
Declaration of Undertaking constitutes a contract in favour of
the respective Bondholders as third party beneficiaries pursuant
to paragraph 328 (1) of the German Civil Code giving rise to the right
of each of such Bondholders to require performance of the
obligations undertaken in the Declaration of Undertaking
directly from the Guarantor and to enforce such obligations
directly against the Guarantor. Copies of the Declaration of
Undertaking are available at the head office of Dresdner Bank in
Frankfurt am Main.
3. Within the context of these Terms and Conditions of the
Bonds "Capital Market Indebtedness" of the Guarantor means any
present or future indebtedness of the Guarantor, or guarantee or
indemnity of the Guarantor for a present or future indebtedness
of any third party or of any third party thereof, in form of
bonds, notes or debentures or securities comparable to bonds,
notes or debentures with an original maturity of more than one
year, which can ordinarily be traded on any stock exchange or
other securities market.
SECTION 10
(Call Right of the Bondholders)
1. The Issuer or the Guarantor is not, except in the events
mentioned in Section 5 entitled to call the Bonds for early
repayment.
2. Each Bondholder is entitled to declare due by notice his
entire claims arising from the Bonds and to demand payment at
par plus accrued interest, if
a) the Issuer or the Guarantor, for any reason whatsoever,
fails to pay within 7 banking days after the relevant due date
principal or interest on this Issue, including Additional
Amounts which may have to be paid according to Section 5, or
b) the Issuer or the Guarantor, for any reason whatsoever,
fails to duly perform any other obligation under these Terms and
Conditions of the Bonds, in particular pursuant to Section 8
paragraph 2 and Section 9 paragraph 2, for any reason
whatsoever, and such failure continues for more than 15 banking
days after receipt of a written notice from the Paying Agent, or
c) the Issuer or the Guarantor, within 30 days after the due
date fails to fulfil an obligation to pay principal or interest
in respect of, or is called upon to repay prematurely due to
default, any other obligations arising from borrowed money
having an initial maturity of more than one year and an
aggregate principal amount of at least Euro 30,000,000 or its
equivalent in other currencies, or if securities granted
therefor are enforced on behalf of or by the creditors entitled
thereto and the failure, default or enforcement is not caused by
the fact that the Issuer or the Guarantor is prevented, directly
or indirectly, by any government or other authority from
fulfilling the relevant obligations, or
d) the Issuer or the Guarantor announce its inability to meet
its financial obligations, or
e) insolvency proceeding is commenced by court against the
Issuer or the Guarantor which shall not have been dismissed or
stayed within 75 days after the commencement thereof, or the
Issuer institutes such a proceeding or suspends payments, or
f) the Issuer or the Guarantor ceases all or substantially all
of its business operations or sells or disposes of its assets or
a substantial part thereof and (i) thus diminishes considerably
the value of its assets and (ii) for this reason it becomes
likely that the Issuer or the Guarantor may not fulfil its
payment obligations against the Bondholders unless the purchaser
of such assets assumes the Issuer's or Guarantor's obligations,
as the case may be, or
g) the Issuer or the Guarantor enter into liquidation, unless
such liquidation is to take place in connection with a merger,
consolidation or any other form of combination with another
company and such company assumes all obligations arising from
these Terms and Conditions of the Bonds, or
h) any governmental order, decree or enactment shall be made
in or by the United States or the Federal Republic of Germany
whereby the Issuer or the Guarantor is prevented from observing
and performing in full its obligations as set forth in these
Terms and Conditions and in the Guarantee, respectively, and
this situation is not cured within 90 days.
3. Such notice for repayment has to be addressed in writing by
the Bondholders to the Paying Agent; such notice will become
effective upon receipt by the Paying Agent. The notice should
contain a proof-of-ownership, e.g. an up-to-date certificate of
deposited securities. Claims fall due 30 days after receipt of
such notice unless, in the case of paragraph 2 b), the
obligation has been fulfilled or, in the case of paragraph 2 c),
the obligation has been fulfilled or the performance thereof has
been waived or postponed prior thereto.
4. A call by Bondholders shall be announced by the Issuer in
accordance with Section 13.
Section 11
(Assignment of the Function as Paying Agent)
1. Should any event occur which in the opinion of Dresdner
Bank would prevent it from acting as Paying Agent Dresdner Bank
will with the consent of the Issuer appoint an appropriate bank
as Paying Agent and such appropriate bank shall assume all the
paying bank's obligations.
2. Should Dresdner Bank be unable to transfer its function as
Paying Agent the Issuer will be obligated to appoint an
appropriate bank or company of international standing or another
bank of international standing as Paying Agent.
3. A transfer of the function as paying agency must be
publicly announced without delay in accordance with Section 13
or, should this prove to be impossible, in some other way by
Dresdner Bank or by the Issuer, as the case may be.
Section 12
(Substitution of the Issuer)
1. The Issuer shall be entitled at any time without the
consent of the Bondholders to substitute for the Issuer either
the Guarantor or any other company of which 100 per cent. of the
shares carrying the right to vote are directly or indirectly
wholly owned by the Guarantor, as issuer ("New Issuer") in
respect of all obligations arising from or in connection with
the Bonds, if
a) the New Issuer assumes all obligations of the Issuer
arising from or in connection with the Bonds,
b) the New Issuer has obtained any necessary authorisation
from the competent authorities to the effect that the New Issuer
may transfer to the Paying Agent, in Euro and without the
withholding at source or deduction at source of any taxes, fees
or duties, all amounts required for the performance of the
payment obligations arising from or in connection with the
Bonds,
c) the Guarantor, except the case where it is the New Issuer,
irrevocably and unconditionally guarantees such obligations of
the New Issuer according to Section 9.
2. In the event of such substitution, any reference in these
Terms and Conditions of the Bonds to the Issuer shall from then
on be deemed to refer to the New Issuer; any reference to the
United States shall from then on be deemed to refer to the
country where the New Issuer is domiciled or, if different, is
treated as resident for tax purposes.
3. Any substitution effected in accordance with paragraph 1
shall be binding on the Bondholders and shall be announced in
accordance with Section 13.
SECTION 13
(Announcements)
All announcements regarding these Bonds shall be published in at
least one national newspaper authorised by the Frankfurt Stock
Exchange where the Bonds are listed for trading with official
quotation.
Section 14
(Applicable Law, Place of Performance and Jurisdiction)
1. The form and content of the Bonds as well as all the rights
and duties arising therefrom shall be governed exclusively by
the law of the Federal Republic of Germany. Place of performance
is Frankfurt am Main.
2. Non-exclusive court of venue for all litigation with the
Issuer arising from legal relations established in these Terms
and Conditions of the Bonds is Frankfurt am Main. For
litigation, if any, between the Bondholders and the Issuer which
are brought before courts in the Federal Republic of Germany,
the Issuer appoints Dyckerhoff AG as agent for service of
process.
3. The Bondholders are also entitled to assert their claims
against the Issuer before courts in the United States. Also in
such cases the laws of the Federal Republic of Germany shall be
applied.
Section 15
(Partial Invalidity)
Should any of the provisions contained in these Terms and
Conditions of the Bonds be or become invalid or unenforceable,
the validity or the enforceability of the remaining provisions
shall not in any way be affected or impaired thereby. In this
case, the invalid provision shall be deemed to be replaced by a
provision which to the extent legally possible provides for an
interpretation in keeping with the meaning and the economic
purposes of these Terms and Conditions of the Bonds at the time
of the issue of the Bonds. Under circumstances in which these
Terms and Conditions of the Bonds prove to be incomplete, a
supplementary interpretation in accordance with the meaning and
the purposes of these Terms and Conditions of the Bonds under
due consideration of the legitimate interests of the parties
involved shall be applied.
<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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 193
<SECURITIES> 594
<RECEIVABLES> 36,313
<ALLOWANCES> 3,447
<INVENTORY> 54,163
<CURRENT-ASSETS> 90,307
<PP&E> 1,761,734
<DEPRECIATION> 10,193
<TOTAL-ASSETS> 2,011,068
<CURRENT-LIABILITIES> 505,040
<BONDS> 490,550
0
0
<COMMON> 183
<OTHER-SE> 311,882
<TOTAL-LIABILITY-AND-EQUITY> 2,011,068
<SALES> 92,638
<TOTAL-REVENUES> 96,013
<CGS> 47,101
<TOTAL-COSTS> 63,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,084
<INCOME-PRETAX> 18,262
<INCOME-TAX> 6,197
<INCOME-CONTINUING> 12,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,065
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.65
</TABLE>
