-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G5kkeciSIjmvkZ+58Yl+8DeqjGaH17DD/lxk0AYpx+dMGVI4FF+exmvvAh503URE d9UIT2WofQTTz0iFqUaI+Q== 0000950123-96-001295.txt : 19960326 0000950123-96-001295.hdr.sgml : 19960326 ACCESSION NUMBER: 0000950123-96-001295 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LONE STAR INDUSTRIES INC CENTRAL INDEX KEY: 0000060195 STANDARD INDUSTRIAL CLASSIFICATION: CEMENT, HYDRAULIC [3241] IRS NUMBER: 130982660 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06124 FILM NUMBER: 96538251 BUSINESS ADDRESS: STREET 1: 300 FIRST STAMFORD PL STREET 2: P O BOX 120014 CITY: STAMFORD STATE: CT ZIP: 06912 BUSINESS PHONE: 2039698600 MAIL ADDRESS: STREET 1: 300 FIRST STAMFORD PLACE STREET 2: P.O. BOX 120014 CITY: STAMFORD STATE: CT ZIP: 06912-0014 FORMER COMPANY: FORMER CONFORMED NAME: LONE STAR CEMENT CORP DATE OF NAME CHANGE: 19720404 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL CEMENT CORP DATE OF NAME CHANGE: 19710901 10-K 1 FORM 10-K ANNUAL REPORT / LONE STAR INDUSTRIES 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-06124 LONE STAR INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE NO. 13-0982660 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 300 FIRST STAMFORD PLACE, P.O. BOX 120014 STAMFORD, CT 06912-0014 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 969-8600 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH EACH CLASS REGISTERED - -------------------------------------------------- -------------------------------------------------- Common Stock, par value $1.00 New York Stock Exchange per share Common Stock Purchase Rights New York Stock Exchange Common Stock Purchase Warrants New York Stock Exchange 10% Senior Notes Due 2003 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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. / / Aggregate market value of the voting stock held by non-affiliates of the registrant at March 15, 1996: approximately $328,642,000. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of Securities under a plan confirmed by a court. Yes /X/ No / / The number of shares outstanding of each of the registrant's classes of common stock as of March 15, 1996: Common Stock, par value $1.00 per share -- 11,477,384 shares. PORTIONS OF THE PROXY STATEMENT OF THE REGISTRANT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 16, 1996 ARE INCORPORATED IN PART III OF THIS REPORT. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS PART I
PAGE ----- Item 1. Business........................................................................... 1 Item 2. Properties......................................................................... 8 Item 3. Legal Proceedings.................................................................. 8 Item 4. Submission of Matters to a Vote of Security Holders................................ 9 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.......... 9 Item 6. Selected Financial Data............................................................ 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 11 Item 8. Consolidated Financial Statements and Supplementary Data........................... 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................................................... 51 PART III Item 10. Directors and Executive Officers of the Registrant................................. 51 Item 11. Executive Compensation............................................................. 51 Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 51 Item 13. Certain Relationships and Related Transactions..................................... 51 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................... 51
i 3 PART I ITEM 1. BUSINESS. THE COMPANY Lone Star is a cement, construction aggregates and ready-mixed concrete company with operations in the midwestern, southwestern and eastern United States. Lone Star's cement operations consist of five plants in the Midwest and Southwest and a 25% interest in Kosmos Cement Company, a partnership which owns and operates one cement plant in Kentucky and one in Pennsylvania ("Kosmos"). The Company's five wholly-owned cement plants produced approximately 3.8 million tons of cement during 1995, which approximates the rated capacity of the plants. Lone Star's construction aggregates operations consist of two quarries in New York State. The Company's ready-mixed concrete business owns or leases and operates several facilities in central Illinois and the Memphis, Tennessee area. The Company had approximately $323.0 million in net sales in 1995, with cement, construction aggregates and ready-mixed concrete operations representing approximately 73%, 15% and 12%, respectively, of such net sales. Lone Star Industries, Inc. was incorporated in Maine in 1919 as International Cement Corporation and, in 1936, changed its name to Lone Star Cement Corporation. In 1969, its state of incorporation was changed to Delaware and in 1971 its name was changed to Lone Star Industries, Inc. On April 14, 1994, the Company emerged from proceedings under Chapter 11 of the United States Bankruptcy Code. The Company's executive offices are located at 300 First Stamford Place, P.O. Box 120014, Stamford, Connecticut 06912-0014 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 subsidiaries, excluding Rosebud Holdings, Inc. and its subsidiaries (collectively, "Rosebud"). Rosebud is a liquidating subsidiary established in the Company's bankruptcy proceedings. 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 to the consistency of face powder to produce cement. Clinker can be produced utilizing either of two basic methods, a "wet" or a "dry" process. In the wet process, the raw materials are mixed with water to form a slurry prior to introduction into the rotary kiln. The dry process excludes the addition of water and dried raw materials are introduced directly into the kiln. The wet 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. In the dry process, which is a newer more fuel efficient technology, hot air from the rotary kiln is recycled to pre-heat the raw materials, or separate burners are added to accomplish a significant portion of the chemical reaction, prior to the introduction of the raw materials into the rotary kiln. Whether a wet or dry method is utilized, the manufacture of cement is energy intensive, and the cost of such energy accounts for approximately one third of a cement plant's total manufacturing costs. 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 14 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, oil well and slag cements. Slag cement is a by-product of iron blast furnaces that may be used as a replacement for portland cement in certain instances. 1 4 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 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 its 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 cement plants and their markets:
PLANT LOCATION PROCESS FUEL PRINCIPAL MARKET AREA - ------------------------------------- TONS OF --------------- ---------------------- ------------------------------- RATED ANNUAL CEMENT CAPACITY --------------- (IN THOUSANDS) Cape Girardeau, Missouri............. 1,200 Dry/Precalciner Coal-Waste-Tires E. Missouri; Central and N.E. Arkansas; Mississippi; S. Louisiana; N. Alabama; Tennessee; N.W. Kentucky; S.W. Illinois Greencastle, Indiana................. 750 Wet Coal-Waste Indianapolis and other areas of Indiana; S.E. Illinois; N. Central Kentucky Pryor, Oklahoma...................... 725 Dry Coal-Coke-Natural Gas Oklahoma; Dallas, Texas; Kansas; W. Missouri Oglesby, Illinois.................... 600 Dry Coal-Coke-Tires Chicago and other areas of Northern and Central Illinois; S. Wisconsin Maryneal, Texas...................... 520 Dry/Preheater Coal-Coke-Natural Gas W. Texas Kosmos Cement Company: Kosmosdale, Kentucky............... 700 Dry/Preheater Coal-Oil Kentucky; S. Indiana; S. Ohio; W. Virginia Pittsburgh, Pennsylvania........... 360 Wet Coal W. Pennsylvania; W. Virginia; E. Ohio
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 16 owned barges, enabling the plant to serve a relatively wide market. Truck or rail are also available to transport product. The Cape Girardeau plant includes a modern dry/precalciner kiln and burns hazardous waste fuels. These fuels at times have provided up to 30% of the annual energy needs of the plant and have reduced production costs. See "Business -- Environmental Regulation". The distribution terminals supporting the Cape Girardeau plant are located in St. Louis, Missouri; Brandon, Mississippi; Paducah, Kentucky; Nashville and Memphis, Tennessee; and New Orleans, Louisiana. 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 Greencastle plant utilizes the wet process of clinker production, however, the relative fuel inefficiency of this process is offset in part by relatively low power and coal costs and relatively high labor productivity at this plant. Although use of waste fuels was minimal in 1994 and 1995, hazardous waste fuels have at times provided up to 40% of the annual energy needs of the plant and commencing in late 1995 the plant has resumed its use of these fuels. See "Business -- Environmental Regulation". The Greencastle complex has distribution terminals located in Fort Wayne and Elkhart, Indiana; and has a warehousing and distribution arrangement in Itasca, Illinois. In addition to its other customers, this plant supplies cement to Lone Star's ready-mixed concrete operations in central Illinois. Pryor Complex. The Pryor plant is located approximately 50 miles northeast of Tulsa, Oklahoma and serves the Kansas; Oklahoma; and Dallas, Texas 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 plant has relatively low power costs due to its proximity to two low cost sources. The complex has distribution terminals located near Wichita and Kansas City, Kansas; and in Oklahoma 2 5 City, Oklahoma; and Dallas, Texas. The Oklahoma distribution terminal's lease is being terminated during 1996, and the Company anticipates opening a new distribution terminal to replace it. Oglesby Complex. The Oglesby plant is located approximately 100 miles from Chicago and serves that and other central and northern Illinois construction markets by truck and rail. The complex has a distribution terminal located in Milwaukee, Wisconsin. In addition to its other customers, this plant supplies cement to Lone Star's ready-mixed concrete operations in central Illinois. 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 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 the day-to-day operations. All major decisions relating to Kosmos, however, require unanimous approval of its management committee which includes a Lone Star representative. New Orleans Facility. The New Orleans facility is the site of a former cement plant that has been converted to a distribution terminal used for receiving and storing cement from the Company's Cape Girardeau and Pryor plants as well as from international sources. This cement is then sold directly from the New Orleans facility or from a terminal in Brandon, Mississippi. The New Orleans facility is located off the Gulf Intercoastal Waterway, and can accommodate oceangoing vessels. In 1995, Lone Star also began producing slag cement and conducting a stevedoring operation at this location. CONSTRUCTION AGGREGATES OPERATIONS Lone Star, through its wholly-owned subsidiary New York Trap Rock Corporation ("New York Trap Rock"), quarries and processes construction aggregates, including manufactured sand, crushed stone and other stone products, at two locations in New York State. In October 1995, another subsidiary of Lone Star sold its assets consisting principally of a quarry and plant in Nova Scotia. After giving effect to that sale, Lone Star's total estimated annual production capacity is approximately 5.6 million tons and total estimated reserves are in excess of 350 million tons. Excluding the Nova Scotia quarry, sales volume in 1995 approximated 4.1 million tons. The following table sets forth certain information regarding Lone Star's construction aggregates operations:
ESTIMATED ESTIMATED ANNUAL MINIMUM PLANT LOCATION PRODUCTION CAPACITY TYPE OF AGGREGATE RESERVES (YEARS) - --------------------------------------------------- ------------------- -------------------- ---------------- (IN THOUSAND TONS) Clinton Point, New York............................ 4,500 Wappingers Dolomite 60 West Nyack, New York............................... 1,100 Diabase Trap Rock 80
Clinton Point Plant. The Clinton Point plant is located on the Hudson River near the City of Poughkeepsie, New York, approximately 65 miles from the New York metropolitan area. The Company transports approximately 80% of this plant's product down the Hudson River via a fleet of 117 owned barges to customers located throughout the New York City metropolitan area. The remaining product is delivered by truck to the local market surrounding the plant. Access to the Hudson River enables the plant to distribute its product to a relatively wide area. A large majority of the plant's product is sold to ready-mixed concrete and asphalt producers, with the remainder sold for roadway projects and specialty use such as rip rap for the construction of jetties. The Wappingers Dolomite produced by this quarry is frequently blended with granite to meet certain pavement skid resistance specifications, and the Company has entered into a contract with its former Nova Scotia quarry to supply this granite until October 1997. West Nyack Plant. The West Nyack quarry is located in Rockland County, northwest of New York City, and ships all of its product by truck, primarily to counties surrounding the quarry location. The West Nyack plant currently is not cost competitive, and the Company is reviewing options regarding this quarry and the rest of New York Trap Rock, including the construction of a modern plant in West Nyack, at an expected capital cost of approximately $25 million, and/or the sale of New York Trap Rock. 3 6 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. The proximity of Lone Star's ready-mixed concrete operations to its Cape Girardeau, Greencastle and Oglesby cement complexes have enabled them to become vertically integrated, purchasing cement from Lone Star plants as well as outside suppliers, and has allowed the Company to become a major supplier of ready-mix and other concrete products in central Illinois and the Memphis, Tennessee area. The Company sold approximately 570,000 cubic yards of ready-mixed concrete to a variety of end users in 1995. The Company's concrete operations include a small sand and gravel plant in central Illinois. 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 Company's profitability are very sensitive to small shifts in the levels of 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 residential construction, commercial and industrial construction and public (infrastructure) construction, which are highly cyclical and, in turn, are influenced by prevailing economic conditions, including interest rates and availability of public funds. 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". 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. According to statistics compiled by the United States Bureau of Mines, the 1980's was a period of relative high cement imports, which the Company attributes in large part to low ocean shipping rates and excess foreign capacity relative to demand, factors that typically affect the level of cement imports. This high level of imports negatively affected the selling price of cement in many regional markets, and published sources indicate that cement prices remained in a narrow range during this period. As a result of anti-dumping petitions filed by a group of domestic cement producers beginning in 1990, anti-dumping orders were imposed on cement imported from Mexico and Japan. The resulting anti-dumping duties are being determined in annual administrative reviews by the United States Department of Commerce. Notwithstanding recent amendments to the anti-dumping provisions enacted as a result of the Uruguay round of world trade negotiations under the General Agreement on Tariffs and Trade ("GATT") and significant lobbying and litigation by Mexican cement producers, which are ongoing, the Company believes that the U.S. anti-dumping law currently provides effective remedies against unfairly priced imports. In particular, the anti-dumping orders against Mexico and Japan are scheduled to remain in effect until January 1, 2000 and may continue thereafter if petitioners prevail in "sunset reviews" before the Commerce Department and the U.S. International Trade Commission. Recent improvement in the performance of the United States economy, coupled with lower imports, has led to a more favorable supply/demand ratio for cement suppliers, which enabled the Company to implement price increases in both 1994 and 1995. The Company has announced cement price increases of $3 to $5 per ton effective April 1996. According to published sources, the United States cement industry is comprised of approximately 50 companies with an annual cement production capacity in the 85 to 87.5 million ton range. The ten largest companies account for approximately 60% of the total productive capacity. While modest increases in the production capacity of the industry have been accomplished through modifications to existing facilities, and competitors of Lone Star's have announced plans to make capital expenditures to expand and modernize certain existing facilities and, in one case, build a new "greenfield" cement plant, the high cost of new plants and the requisite lengthy permitting process are significant barriers to new 4 7 domestic production capacity. Imported cement has traditionally filled the gap during periods where the demand for cement was high relative to domestic productive capacity. 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 can affect concrete pouring, also affect the Company's operations. CUSTOMERS AND MARKETING; BACKLOG The Company's customer base primarily consists of ready-mixed concrete producers, prestressed concrete producers, 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 1995. The marketing effort for the Company's cement, construction aggregates and ready-mixed concrete operations is handled by a local sales force. Most purchases of the Company's products are done on a spot basis, and accordingly, order backlogs are not significant. ENVIRONMENTAL REGULATION The Company, like others in the construction materials and cement manufacturing industry, 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 (including those governing water discharges, air emissions and the handling, use and disposal of hazardous and non-hazardous waste materials) 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. 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 current operations or could otherwise substantially increase the capital, operating and other costs associated with compliance. Moreover, 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. In addition, 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. The federal Water Pollution Control Act, commonly known as the Clean Water Act, provides a comprehensive federal regulatory scheme governing the discharge of pollutants to waters of the United States. This regulatory scheme requires that permits be secured for discharges of wastewater, including stormwater runoff associated with industrial activity, to waters of the United States. The Company has secured or has applied for all required permits in connection with its wastewater and stormwater discharges. The Clean Air Act was amended in 1990 to provide for a uniform federal regulatory scheme governing control of air pollutant emissions and permit requirements. In addition, certain states in which the Company operates have enacted laws and regulations governing the emission of air pollutants and requiring permits for sources of air pollutants. As a result of the 1990 amendments to the Clean Air Act, the Company is required to apply for federal operating permits for each of its cement manufacturing facilities at various dates ranging from 1996 through 1999. As part of the permitting process, the Company may be required to install equipment to monitor emissions of air pollutants from its facilities. In addition, the Clean Air Act amendments require the United States Environmental Protection Agency ("EPA") to develop regulations directed at reducing emissions of toxic air pollutants from a variety of industrial sources, including the portland cement manufacturing industry. As part of this process, the EPA will identify maximum available control technology ("MACT") for the reduction of emissions of air toxins from cement manufacturing facilities. Following the EPA's promulgations of MACT for the cement industry, the Company, like others in the industry, may be required to install additional control technology at its cement manufacturing facilities and meet more stringent air emissions standards. On March 20, 1996, the EPA announced proposed separate, more stringent MACT standards for those cement manufacturing facilities (like Lone Star's Greencastle and Cape Girardeau plants) that burn hazardous waste fuels ("HWF"). These standards, which are subject to public comment and are not anticipated by the Company to be in full force and effect prior to the end of 1996, are extremely lengthy and complex and have not been reviewed by the Company, but depending on their terms could have the effect of limiting or eliminating the use of HWF at one or both facilities. 5 8 The Resource Conservation and Recovery Act ("RCRA") establishes a cradle-to-grave regulatory scheme governing the generation, treatment, storage, handling, transportation and disposal of solid wastes. Solid wastes which are classified as hazardous wastes pursuant to RCRA, as well as facilities that treat, store or dispose of such hazardous wastes, are subject to stringent regulatory requirements. Generally, wastes produced by the Company's operations are not classified as hazardous wastes and are subject to less stringent federal and state regulatory requirements. Cement kiln dust ("CKD"), a by-product of cement manufacturing, is currently exempted from regulation as a hazardous waste pursuant to the Bevill Amendment to RCRA. However, on January 31, 1995 the EPA issued a regulatory determination regarding the need for regulatory controls on the management, handling and disposal of CKD. Generally, the EPA regulatory determination provides that the EPA intends to draft and promulgate regulations imposing controls on the management, handling and disposal of CKD that will be based largely on selected components of the existing RCRA hazardous waste regulatory program, tailored to address the specific regulatory concerns posed by CKD. The EPA regulatory determination further provides that new CKD regulations will be designed both to be protective of the environment and to minimize the burden on cement manufacturers. In early 1996, EPA officials reported that certain other alternatives -- such as oversight of CKD management by state environmental agencies -- also are being explored. It is not possible to predict at this time what, if any, new regulatory controls on the management, handling and disposal of CKD or what increased costs (or range of costs), if any, would be incurred by the Company to comply with these requirements. As an alternative to new EPA regulations or state oversight, portland cement manufacturers, including Lone Star, are engaged in negotiations with the EPA in an attempt to enter into other arrangements relating to the management of CKD. On July 20, 1995, the State of Indiana made a determination that the CKD stored at the Company's Greencastle plant is a type I waste and requested that the Company apply for a formal permit for an on-site landfill for the CKD. The Company understands that similar notices were sent to other cement manufacturers in the State of Indiana. The Company is protesting this determination through legal channels and has received a stay to allow it to demonstrate that current management practices pose no threat to the environment. The Company believes that the State's determination ultimately will be reversed or the Company will receive the needed permit or other adequate relief, such as an agreed order requiring certain additional waste management procedures that are less stringent than those required for type I wastes. If the Company is not successful in this regard, however, like other Indiana cement producers, the Greencastle plant could incur substantially increased operating and capital costs. The Cape Girardeau, Missouri and Greencastle, Indiana plants, which are the Company's two cement manufacturing facilities using HWF as a cost-saving energy source, are subject to strict federal, state and local requirements governing hazardous waste treatment, storage and disposal facilities, including those contained in the federal Boiler and Industrial Furnace Regulations promulgated under RCRA (the "BIF Rules"). These facilities qualified for and operate under interim status pursuant to RCRA and the BIF Rules. While Lone Star believes that it is currently in compliance with the extensive and complex technical requirements of the BIF Rules, in the past Lone Star has been involved in certain environmental enforcement proceedings seeking civil penalties and injunctive relief for past non-compliance, and 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. As a result of a court decision vacating a BIF Rules air emission standard, the Company temporarily curtailed its use of HWF at the Greencastle cement plant. The Company completed compliance testing in August 1995, has recertified under interim status and has recommenced burning HWF. The Company is currently engaged in the process of securing the permit required under RCRA and the BIF Rules for the Cape Girardeau plant. The Company anticipates that the Greencastle plant also will go through this permitting process in late 1996. These permits are a requirement to enable Lone Star to continue the use of HWF at those facilities. The permitting process is lengthy and complex, involving the submission of extensive technical data. There can be no assurances that the Company will be successful in securing a final RCRA permit for either or both of its HWF facilities. In addition, if received, the permits could contain terms and conditions with which the Company cannot comply or could require the Company to install and operate costly control technology equipment. The federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund"), as well as many comparable state statutes, creates a joint and several liability scheme for the investigation and remediation of facilities where releases of hazardous substances are found to have occurred. Liability may be imposed upon current owners and operators of the facility, upon owners and operators of the facility at the time of the release and upon generators and transporters of hazardous substances released at the facility. While, as noted above, wastes produced 6 9 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. 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. In certain circumstances the Company is undertaking investigation and remediation pursuant to state environmental requirements. See Note 27 of Notes to Consolidated Financial Statements. In addition, the Company is reviewing certain of its inactive properties to determine if any remedial action may be required at these sites. There can be no assurances that the Company will not have additional liability as a result of its being named as a potentially responsible party at additional Superfund sites or that additional releases of hazardous substances will not be found to have occurred at facilities presently or formerly owned or operated by the Company. Although the Company may be able to avoid the imposition of such liability for releases or threatened releases of hazardous substances that occurred prior to the commencement of the Company's bankruptcy proceedings in 1990, there can be no assurances in this regard. The Company's operations are also subject to federal and state laws and regulations designed to protect worker health and safety. Worker protection at the Company's cement manufacturing and construction aggregates 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"). For additional information concerning certain environmental matters involving the Company, see Note 27 of Notes to Consolidated Financial Statements. EMPLOYEES As of December 31, 1995, the Company had approximately 1,450 employees. Of these employees, approximately 950, including all hourly employees at all Company operations other than certain cement distribution terminals and the New Orleans slag cement and stevedoring operations, were members of labor unions. During 1995, there were no labor disruptions at any of the Company's facilities. The Company believes that relations with its employees generally have been good. A number of collective bargaining agreements covering Lone Star's hourly employees at its ready-mixed concrete operations were renegotiated in 1995. During 1996, collective bargaining agreements covering substantially all Lone Star's hourly employees at its cement and construction aggregates operations will be renegotiated. The Company does not currently anticipate any unusual circumstances or difficulties in obtaining replacement agreements, however, there can be no assurances in this regard. BANKRUPTCY REORGANIZATION PROCEEDINGS AND LIQUIDATING SUBSIDIARY In December 1990, Lone Star Industries, Inc. and certain of its subsidiaries commenced proceedings under Chapter 11 of the Federal Bankruptcy Code. The Chapter 11 proceedings were precipitated by a variety of factors including generally depressed economic and business conditions, increasingly restricted sources of financing, potential defaults under long-term debt agreements, potential litigation exposure relating to concrete railroad crossties, and uncertainty and potential liabilities with respect to environmental, retiree benefit and pension related obligations. The Chapter 11 proceedings were commenced in order to preserve the Company's assets and enable it to seek a long-term solution to its financial, litigation and business problems. On April 14, 1994, the Company emerged from its Chapter 11 proceedings pursuant to a plan of reorganization. Upon emergence from the Chapter 11 proceedings, the Company was reorganized around its core domestic operations, and Rosebud was formed to own and liquidate remaining non-core assets and operations (the "Rosebud Assets"). Pursuant to its plan of reorganization, Lone Star issued certain equity securities in exchange for pre-petition equity and paid cash and issued debt and equity securities for certain pre-petition debt and other claims. Certain other pre-petition indebtedness was discharged, reinstated or restructured and assumed; certain litigations were settled; and a restructured 7 10 Board of Directors was designated. The plan of reorganization also implemented settlements relating to certain retiree health and life insurance benefits, pension and financing obligations. As part of a pre-petition restructuring which commenced in 1989 and continued through the Chapter 11 proceedings, the Company implemented a comprehensive organizational and financial restructuring through which it closed certain facilities, reduced management, strategically disposed of assets (including substantially all its partnership, joint venture and foreign interests), rejected or modified agreements, and improved operating procedures at its ongoing operations. Certain assets that had been held for sale under the 1989 restructuring program were included as part of the reorganized entity and other such assets were included in the Rosebud Assets. In addition, the Company adopted fresh-start reporting. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 23 of Notes to Consolidated Financial Statements. Rosebud was established for the purpose of liquidating the Rosebud Assets for the benefit of holders of Rosebud's 10% Asset Proceeds Notes due 1997 issued pursuant to the Company's Plan of Reorganization ("Asset Proceeds Notes"). As of February 29, 1996, there remained outstanding an aggregate $4.4 million principal amount of Asset Proceeds Notes, for which Lone Star has no liability. Rosebud Assets remaining at February 29, 1996 consist of certain unimproved property located in Louisiana, Massachusetts, Oregon, Texas and Virginia, net available cash in the amount of approximately $2.4 million, and a secured promissory note in the principal amount of $0.3 million. Liabilities associated with all Rosebud Assets, sold and unsold, were assumed by Rosebud and it has agreed to indemnify Lone Star for these liabilities. However, the assumption of Lone Star's liabilities by Rosebud may not be binding upon third parties, and, in any event, as to any such liabilities arising from actions or circumstances that existed on or before April 14, 1994 and that result in payments to Lone Star aggregating in excess of $7.0 million, Rosebud's obligation to indemnify Lone Star in respect thereof is subordinated to repayment of the Asset Proceeds Notes. Lone Star provides management and various other services to Rosebud pursuant to a Management Services Agreement under which Rosebud pays to Lone Star a quarterly fee of 0.25% of the value of its unsold assets and reimburses Lone Star for any payment Lone Star makes to third parties on behalf of Rosebud, subject to the limitations described above. Rosebud paid Lone Star a fee of $0.6 million for services rendered during 1995. 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 cement plants 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. Lone Star owns its aggregate operations except for a small sand and gravel quarry associated with the Company's concrete operations, which is leased. 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 offices in Indianapolis, Indiana and West Nyack, New York. The Company also owns or leases other offices in the United States. ITEM 3. LEGAL PROCEEDINGS. From time to time the Company is named as a defendant in lawsuits asserting product liability for which the Company maintains insurance coverage. In late 1995, an office building in Boston, Massachusetts, constructed in 1983 using concrete pilings produced by San-Vel Concrete Corporation, an inactive Lone Star subsidiary ("San-Vel"), was demolished by order of the City of Boston based upon an engineering report that the pilings were unreliable. The owner of the building has notified the Company, among others, that it intends to hold responsible parties liable. At the request of the City of Boston, San-Vel has provided a list of the approximate twenty-five other buildings built in that City between 1980 and 1990 using San-Vel pilings. The City has reportedly inspected these buildings visually, without noting any apparent piling failure, although engineering studies are reportedly being conducted with final results expected in mid-1996. The Company believes that the cement component of the concrete used to produce the pilings in certain of these buildings, including the demolished building, was produced by it at one of its former cement plants. There has been no indication that the cement was defective. The Company is conducting an investigation into these matters and believes that it has both insurance coverage and good defenses to any claim of liability that may be asserted against it relating to the demolished building. 8 11 For information concerning certain environmental matters involving the Company, see Note 27 of Notes to Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. EXECUTIVE OFFICERS OF REGISTRANT The following table sets forth certain information regarding the executive officers of the Company.
OFFICE AND YEAR IN WHICH INDIVIDUAL NAME AGE FIRST BECAME AN EXECUTIVE OFFICER - ----------------------------------------------------- --- ---------------------------------------------- David W. Wallace..................................... 72 Chairman of the Board and Chief Executive Officer (1991) William M. Troutman.................................. 55 President and Chief Operating Officer (1986) John J. Martin....................................... 64 Senior Vice President of the Company (1979) and President of Rosebud (1994) Roger J. Campbell.................................... 59 Vice President -- Cement Operations (1986) William J. Caso...................................... 51 Vice President -- Taxes and Insurance (1994) Pasquale P. Diccianni................................ 54 Vice President -- Aggregate Operations (1988) Thomas S. Hoelle..................................... 44 Vice President -- Planning (1994) Gerald F. Hyde, Jr................................... 53 Vice President -- Personnel and Labor Relations (1983) James W. Langham..................................... 36 Vice President, General Counsel and Secretary (1995) Harry M. Philip...................................... 47 Vice President -- Cement Manufacturing (1994) Michael W. Puckett................................... 51 Vice President -- Cement Sales and Concrete Operations (1985) William E. Roberts................................... 56 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 or in an executive capacity for more than five years, except for Mr. Langham, who for more than five years prior to joining the Company was an attorney at the law firm of Proskauer Rose Goetz & Mendelsohn LLP in New York City. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". 9 12 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:
| SUCCESSOR COMPANY | PREDECESSOR COMPANY --------------------------- | ------------------------------------------------- FOR THE YEAR FOR THE NINE | FOR THE FOR THE YEAR ENDED DECEMBER 31, ENDED MONTHS ENDED | THREE MONTHS (IN THOUSANDS EXCEPT PER SHARE DECEMBER 31, DECEMBER 31, | ENDED MARCH 31, ------------------------------- AMOUNTS) 1995 1994 | 1994 1993 1992 1991 - --------------------------------- ------------ ------------ | -------------- -------- --------- -------- | Net sales........................ $323,008 $261,645 | $ 33,709 $240,071 $ 230,098 $238,692 Income (loss) before | reorganization items, income | taxes, and cumulative effect of | changes in accounting | principles and extraordinary | item........................... $ 53,376 $ 45,133 | $ (3,170) $ 6,196 $ (42,429) $ 2,948 Income (loss) before cumulative | effect of changes in accounting | principles and extraordinary | item........................... $ 35,762 $ 29,333 | $ (150,638) $(35,258) $ (45,428) $ (5,547) Net income (loss)................ $ 35,762 $ 29,333 | $ (23,118) $(36,040) $(164,342) $ (5,547) PER COMMON SHARE | Primary: | Income (loss) before cumulative | effect of changes in accounting | principles and extraordinary | item........................... $ 2.66 $ 2.22 | n/m(1) $ (2.42) $ (3.03) $ (0.64) Net income (loss)................ $ 2.66 $ 2.22 | n/m(1) $ (2.47) $ (10.18) $ (0.64) Shares outstanding at December | 31............................. 11,477 12,000 | n/m 16,645 16,644 16,621 Cash dividends per common | share.......................... $ 0.15 -- | -- -- -- --
| PREDECESSOR COMPANY | ------------------------------ SUCCESSOR COMPANY | --------------------------------------- | DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, | ------------------------------ 1995 1994 1994 | 1993 1992 1991 ------------ ------------ --------- | -------- -------- -------- | FINANCIAL POSITION AT END OF PERIOD: | Total assets........................... $480,926 $553,320 $ 579,411 | $924,885 $952,649 $914,437 Long-term debt(2): | Senior notes......................... $ 78,000 $ 78,000 $ 78,000 | -- -- -- Asset proceeds notes................. $ 4,399 $ 87,000 $ 112,000 | -- -- -- Production payment(3).................. -- $ 19,966 $ 20,963 | $ 2,000 $ 4,000 $ 4,000 Liabilities subject to Chapter 11 | proceedings(4)....................... -- -- -- | $627,938 $611,129 $555,331 Redeemable preferred stock............. -- -- -- | $ 37,500 $ 37,500 $ 37,500 Common shareholders' equity............ $159,740 $122,463 $ 93,313 | $ 12,348 $ 59,698 $226,162
- --------------- (1) Earnings per share for the three months ended March 31, 1994 are not meaningful and prior period per share amounts are not comparable to the successor company per share amounts due to reorganization and revaluation entries and the issuance of 12 million shares of new common stock (See Note 23 of Notes to Financial Statements). (2) See Notes 8 and 9 of Notes to Financial Statements. (3) The long-term portion of the production payment is included in Liabilities Subject to Chapter 11 Proceedings at December 31, 1993, 1992 and 1991. (4) See Note 23 of Notes to Financial Statements. 10 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FINANCIAL CONDITION As of March 31, 1994, in accordance with AICPA Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" the Company adopted fresh-start reporting which included adjustments for bankruptcy-related cash transactions through the effective date, which for accounting purposes was March 31, 1994, to properly reflect the reorganization. As a result of the plan of reorganization becoming effective, the Company's financial statements for the year ended December 31, 1995 are not comparable to statements for the prior year. (See Note 24 for 1994 pro forma results.) In accordance with the plan of reorganization which became effective on April 14, 1994, the Company issued senior notes in the aggregate principal amount of $78.0 million, 12 million shares of common stock and 4 million warrants to purchase common stock. The senior notes bear interest at a rate of 10% per annum, payable semi-annually, and mature on July 31, 2003. The warrants are exercisable through December 31, 2000 and each warrant provides for the purchase of one share of common stock at a price of $18.75 per share. Both preferred stock issues and the predecessor company's common stock were canceled on the plan effective date. In addition, as discussed in Note 8, the asset proceeds notes issued by Rosebud Holdings, Inc., the Company's liquidating subsidiary, bear interest at a rate of 10% per annum payable in cash and/or in additional asset proceeds notes in semi-annual installments. The asset proceeds notes mature on July 31, 1997. These notes were guaranteed, in part, by the Company pursuant to the Company guarantee. The Company's guarantee, guarantee agreement, and the related pledge of Rosebud's common stock owned by the Company was terminated on July 14, 1995 as the combined partial redemption of the asset proceeds notes made to that date exceeded $88.1 million. As of December 31, 1995, total interest and principal payments of approximately $150.5 million had been paid on the asset proceeds notes. The remaining face value of the asset proceeds notes as of December 31, 1995 was $4.4 million. Other than an initial $5.0 million cash contribution by the Company for working capital purposes, the Company is not obligated to fund additional Rosebud working capital requirements. Cash generated by Rosebud in excess of the remaining face value of the asset proceeds notes, accrued interest and Rosebud working capital requirements, if any, will be paid to Lone Star. Upon emergence from Chapter 11 the Company entered into a three-year, $35.0 million revolving credit agreement, which is collateralized by inventory, receivables, collection proceeds and certain intangible assets. The agreement was subsequently amended in April, November and December 1995. The amendments reduced the rates of interest under the agreement and increased the amounts allowed for capital expenditures and certain other payments. Although the Company from time to time has used the letter of credit facility provided by the credit agreement, it has not drawn any funds under the credit agreement for working capital purposes. Accordingly, there was no outstanding balance at December 31, 1995. In November 1995, the Board of Directors authorized the expenditure of up to $20.0 million for the repurchase of the Company's common stock. The Company executed a purchase of 600,000 shares through a privately negotiated transaction in mid-November 1995 at a cost of $13.9 million. During 1995, the Company made scheduled payments of $3.0 million and a prepayment of $17.0 million, terminating the production payment liability. The Company's financing agreements contain restrictive covenants which, among other things, limit the payment of dividends, and prohibit or limit the Company's ability to incur additional indebtedness, create liens, engage in mergers and acquisitions or make certain capital expenditures. Analysis of Cash Flows and Working Capital Cash flows from operating activities of $50.3 million for the year ended December 31, 1995, primarily reflect income from operations, changes in working capital and $11.3 million of pension plan contributions. The utilization of net operating loss carryforwards in 1995 will reduce cash taxes otherwise payable by approximately $15.8 million. At 11 14 December 31, 1995 the Company had net operating loss carryforwards of approximately $200.0 million which are expected to reduce future cash taxes by an additional $70.0 million over time. During the year ended December 31, 1995, the Company used $21.2 million for investing activities, primarily representing capital expenditures, partly offset by proceeds of $15.4 million from asset sales, including the Nova Scotia, Canada aggregate operation, and the Denver, Colorado concrete railroad tie plant, which had been leased to a third party. Net cash outflows from financing activities of $34.5 million for the year ended December 31, 1995 primarily reflect payments on the remaining production payment balance of $20.0 million and the repurchase of 600,000 shares of the Company's common stock for $13.9 million. Working capital on December 31, 1995, was $81.7 million as compared to $71.4 million on December 31, 1994. Current assets increased $5.6 million primarily due to higher inventory and prepaid expenses, partly offset by lower marketable securities. Current liabilities decreased $4.7 million primarily due to a $3.0 million reduction on the production payment and lower accounts payable, partly offset by higher state taxes payable. Investments in joint ventures increased $3.0 million due to income from Kosmos Cement Company, less cash dividends paid. Net property, plant and equipment increased $1.4 million reflecting capital expenditures partly offset by depreciation and the sales of the Nova Scotia quarry and the Denver facility. Payments of $17.0 million on the long-term portion of the production payment terminated the liability. The long-term pension liability decreased $7.5 million, primarily reflecting contributions made during 1995 in excess of current expenses. The carrying value on the Company's books of net assets of Rosebud and the related asset proceeds notes decreased $82.6 million primarily due to a $30.0 million redemption of the outstanding notes in late February 1995, a $25.0 million redemption in July 1995, a $12.0 million redemption in October 1995 and a $35.0 million redemption in December 1995 which primarily resulted from asset sales and recoveries. This was partly offset by an increase in asset valuation reflecting the shorter time period used in determining the present value. The decrease was also partly offset by a $9.4 million net proceeds recovery from the crosstie litigation involving Northeast Cement Company and its affiliates, Lafarge Corporation and Lafarge Canada, Inc., and by the inclusion of litigation settlements totaling $6.7 million reached with the remaining insurance companies related to indemnity in the crosstie cases and with two Argentine companies related to the 1992 auction sale of the Company's Argentine subsidiary. Prior to reaching final agreements, these recoveries were not included in the valuation of the net assets of Rosebud. All payments related to the above litigation settlements have been received. Capital Expenditures Capital expenditures of $36.6 million for 1995 were primarily for major repairs, replacements and improvements at existing facilities, including the expansion of the St. Louis, Missouri cement terminal to be completed in 1996. Capital expenditures also included $5.8 million related to the purchase of a fleet of barges used by New York Trap Rock, which had previously been leased. In an effort to increase production, improve operating efficiencies and reduce costs, the Company expects to make capital investments of approximately $50.0 million in 1996. In addition to spending $8.9 million for a modern clinker storage facility at the Cape Girardeau cement plant expected to be completed in early 1997, the Company intends to make various other improvements at its Cape Girardeau complex at an expected cost of approximately $5.7 million. Planned expenditures for 1996 also include improvements to the New Orleans, Louisiana cement terminal and slag grinding facility at a cost of approximately $5.6 million and improvements, including the expansion of two cement terminals and the relocation of another cement terminal, at an expected cost of $7.5 million. The Company expects to fund its 1996 capital expenditures from cash on hand in addition to cash to be generated from operations. 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. 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 current operations or could otherwise substantially increase the capital, 12 15 operating and other costs associated with compliance. Moreover, 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. In addition, 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. 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 1995 did not have a material effect on the financial condition or cash flows of the Company. The December 31, 1995 accompanying consolidated balance sheet includes accruals of $6.9 million which represent the Company's current estimate of its liability related to environmental matters. On January 31, 1995, the United States Environmental Protection Agency ("EPA") issued a regulatory determination regarding the need for regulatory controls on the management, handling and disposal of cement kiln dust ("CKD"), a by-product of cement manufacturing. Generally, the regulatory determination provides that the EPA intends to draft and promulgate regulations imposing controls on the management, handling and disposal of CKD that will be based largely on selected components of the existing Resource Conservation and Recovery Act ("RCRA") hazardous waste regulatory program, tailored to address the specific regulatory concerns posed by CKD. The EPA regulatory determination further provides that new CKD regulations will be designed both to be protective of the environment and to minimize the burden on cement manufacturers. In early 1996, EPA officials reported that certain other alternatives -- such as oversight of CKD management by state officials -- also are being explored. It is not possible to predict at this time what, if any, new regulatory controls on the management, handling and disposal of CKD or what increased costs (or range of costs), if any, would be incurred by the Company to comply with these regulatory requirements. As an alternative to new EPA regulations or state oversight, portland cement manufacturers including Lone Star, are engaged in negotiations with the EPA in an attempt to enter into other arrangements relating to the management of CKD. On July 20, 1995, the State of Indiana made a determination that the Company's CKD was a type I waste and requested that the Company apply for a formal permit for an on-site landfill for the CKD at the Greencastle, Indiana plant. The Company understands that similar notices were sent to all other cement manufacturers in the State of Indiana. The Company is protesting this determination through legal channels and received a stay to allow it to demonstrate that current management practices pose no threat to the environment. The Company believes that the State's determination ultimately will be reversed or the Company will receive the needed permit or other adequate relief such as an agreed order requiring certain additional waste management procedures that are less stringent than those required for type I wastes. If the Company is not successful in this regard, however, like other Indiana cement producers, the Greencastle plant could incur substantially increased operating costs. A number of collective bargaining agreements covering the Company's hourly employees at its ready-mixed concrete operations were renegotiated in 1995. During 1996 collective bargaining agreements covering substantially all of the Company's hourly employees at its cement and construction aggregates operations will be renegotiated. The Company does not currently anticipate any unusual circumstances or difficulties in obtaining replacement agreements. DIVIDENDS AND STOCK MARKET PRICES In April 1995 the Company's Board of Directors declared a $0.05 per share dividend paid on June 15, 1995 to shareholders of record as of June 1, 1995 and announced their intention to continue, so long as merited, this dividend on a quarterly basis. The dividend represented the first cash dividend paid since 1989. The Board of Directors has since declared additional $0.05 per share dividends paid on September 15, 1995 and December 15, 1995. On February 1, 1996 the Board of Directors declared a $0.05 per share dividend payable on March 15, 1996 to stockholders of record as of March 1, 1996. The common stock, warrants and senior notes are listed on the New York Stock Exchange ("NYSE") and began trading May 3, 1994 (Prior to this the old common stock and preferred stock traded on the NYSE). The following table sets forth the high and low sales prices for the common stock and warrants in composite transactions as reported on the NYSE. 13 16
COMMON STOCK WARRANTS ------------- ----------- HIGH LOW HIGH LOW ---- ---- --- --- 1995 First Quarter.................................................. $20 3/4 $17 1/4 $7 1/4 $6 Second Quarter................................................. 21 7/8 19 1/2 8 1/8 6 1/2 Third Quarter.................................................. 24 5/8 21 3/8 9 7/8 7 1/2 Fourth Quarter................................................. 25 1/4 22 1/2 9 5/8 8 1994 Second Quarter (commencing May 3, 1994)........................ 16 14 1/4 7 5/8 6 Third Quarter.................................................. 18 1/8 14 7/8 7 3/4 6 1/8 Fourth Quarter................................................. 19 3/4 15 8 1/4 6 1/8
On March 15, 1996, the reported sale price of the common stock and warrants was $29 1/4 per share and $13 1/4 per warrant, respectively. As of March 15, 1996, the Company had approximately 1,925 holders of record of common stock and 2,874 holders of record of warrants. RESULTS OF OPERATIONS On April 14, 1994 the plan of reorganization became effective. Upon the plan of reorganization becoming effective, the Company issued new common stock, warrants, senior notes and asset proceeds notes, transferred certain assets to Rosebud and for accounting purposes adopted fresh-start reporting as of March 31, 1994. As a result, the Company's financial statements for the year ended December 31, 1995 are not comparable to statements for prior periods. Also affecting comparability are differences in the operating units of the successor company and the predecessor company. The successor company's operations include the Pryor, Oklahoma and Maryneal, Texas cement plants which were previously classified as assets held for sale and were excluded from the predecessor company's results. The successor company's operations exclude the Nazareth, Pennsylvania and Santa Cruz, California cement plants and the Hawaiian Cement and RMC LONESTAR partnerships. These operations, along with certain other assets, were transferred to Rosebud. See Note 1 for a description of operations and basis of presentation. To facilitate a meaningful comparison of the Company's operating performance, as historical annual results for 1995 and 1994 are not comparable, the following discussion and analysis compares the results of the historical year ended December 31, 1995 with the pro forma results for the 1994 period (See Note 24). The Company believes that this comparison is useful in understanding its operating performance for the current year. The Company's operations are seasonal and, consequently, the interim results are not necessarily indicative of the results to be expected for the full year. 1995 COMPARED TO PRO FORMA 1994 Net Sales Consolidated net sales of $323.0 million during 1995 were $16.1 million higher than the prior year pro forma results. The increase in net sales primarily reflects cement price increases implemented in April 1995 and during 1994. Cement price increases of $3 to $5 per ton have been announced effective April 1996. Cement sales of $237.4 million during 1995 were $24.2 million greater than the prior year pro forma results, primarily due to 15% higher average cement net realized selling prices in 1995, the result of price increases which began in 1994. Cement shipments for 1995 were 4% below 1994 levels. Sales of construction aggregates of $48.4 million during 1995 were $1.8 million lower than the 1994 pro forma results. This decrease is primarily attributable to lower shipments, particularly into the New York Metropolitan area, resulting from soft market conditions. The 9% decrease in overall construction aggregates' shipments was partly offset by a 5% increase in average selling prices. Ready-mixed concrete and other operations sales during 1995 were $37.3 million, $6.3 million below the prior year pro forma results. This reflects a 21% decrease in shipments resulting from unfavorable weather conditions experienced 14 17 during the second and third quarters of 1995 in the Midwest, combined with soft market conditions. The decrease in shipments was partly offset by a 12% increase in average net realized selling prices. Net sales of cement, construction aggregates and ready mixed concrete and other products contributed 73%, 15% and 12%, respectively, to total sales for 1995. Gross Profits Gross profits from the cement operations were $72.7 million in 1995 as compared to pro forma gross profits of $52.7 million for 1994. Gross profits at each plant in 1995 were higher than the previous year. These results primarily reflect 15% higher average cement net realized selling prices in 1995. Partly offsetting these favorable results were higher overall per unit costs, reflecting higher costs and production interruptions, particularly at the Maryneal, Texas cement plant. The Cape Girardeau, Missouri and Greencastle cement plants use hazardous waste fuel as cost-saving energy sources. The Company expects to continue to operate its waste fuel program which is subject to stringent regulation pursuant to federal, state and local requirements governing hazardous waste treatment, storage and disposal facilities. There can be no assurance that the Company's hazardous waste fuel operations will be able to maintain compliance with the requirements contained in the federal Boiler and Industrial Furnace Regulations under RCRA ("BIF Rules") and state requirements or that changes to such rules or requirements or their interpretation by the relevant agencies or courts will not make it more difficult or cost prohibitive to maintain regulatory compliance or to continue to burn hazardous waste fuel (See Note 27). Construction aggregates gross profits of $3.5 million during 1995 increased $1.1 million over the prior year pro forma results. These results primarily reflect lower finance costs associated with the purchase of the fleet of barges which had previously been leased, along with a 5% increase in overall average selling prices, partly offset by lower shipments in 1995 in the New York Metropolitan area due to soft market conditions. Shipments from the New York Trap Rock operations were adversely affected by the temporary closure of a customer's asphalt plant (for rebuilding purposes), a sluggish concrete stone market, and the decision not to compete on certain low price jobs. Lower per unit production costs associated with higher production volume efficiencies at the Nova Scotia, Canada operation contributed to the improved results. The assets of the Nova Scotia quarry were sold in October 1995 for net proceeds including working capital of about $11.4 million, which approximated book value. This operation contributed sales of $8.1 million and an operating loss of $0.4 million to the 1995 results. Gross profits from ready-mixed concrete and other construction products were $5.7 million for 1995, a $0.1 million decrease from the 1994 pro forma results, primarily reflecting a 21% decrease in overall ready-mixed concrete shipments, partly offset by a 12% increase in overall average net realized selling prices. Lower ready-mixed concrete and concrete block shipments resulted from unfavorable weather in the Midwest and soft market conditions, particularly in the central Illinois area. Higher per unit costs at all operations adversely affected 1995 gross profits. Included in the calculation of gross profits are sales less cost of sales including depreciation related to cost of sales (which excludes depreciation related to facilities leased to third parties and 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 $6.7 million during 1995 reflects the results of the Kosmos Cement Company, a partnership in which the Company has a 25% interest. The results for 1995 were $2.1 million higher than the prior year reflecting higher net realized selling prices, partly offset by lower shipments. Other Income Other income of $4.0 million in 1995 decreased $1.0 million from 1994, reflecting lower rental income resulting from sales of assets which had been leased to third parties partly offset by proceeds from an insurance settlement relating to a prior year claim. 15 18 Selling, General and Administrative Expenses Selling, general and administrative expenses of $29.7 million during 1995 represent a decrease of $2.4 million over the prior-year pro forma expense. The savings in selling, general and administrative expenses primarily reflect lower corporate headquarters expenses and lower other postretirement benefit expenses in 1995. The savings in corporate headquarters expenses reflect a corporate downsizing which occurred on June 30, 1994, which eliminated approximately 35% of the salaried positions at the corporate office. The lower other postretirement benefits were the result of favorable experience for retiree medical claims. Selling, general and administrative expenses for 1995 include $5.7 million of other postretirement benefit costs related to the Company's presently retired employees. Selling, general and administrative expenses for 1994 included $0.5 million relating to the filing of a registration statement. Interest Expense Interest expense of $9.1 million in 1995 approximated the prior year pro forma total. Capitalized interest was $0.3 million in 1995. Interest expense was comprised primarily of interest accrued on the $78.0 million 10% senior notes and the Company's obligation related to the production payment. Income Taxes The income tax expense of $17.6 million during 1995, an increase of $5.6 million from the prior year pro forma expense, primarily reflects higher taxes resulting from higher pre-tax earnings in 1995. The provision for income taxes for 1995 reflects a 33% effective tax rate as compared to a 35% tax rate for 1994. The reduction in the 1995 rate is due to a higher estimated percentage depletion allowance. Net Income Net income of $35.8 million, or $2.66 per share, during 1995 was $13.6 million, or $0.90 per share higher than the prior-year pro forma results. Excluding the after-tax effect of $4.2 million related to a litigation recovery included in the 1994 pro forma results, net income in 1995 was $17.8 million or $1.19 per share higher than 1994. This improvement is primarily due to higher cement results, reflecting 15% higher average net realized cement selling prices partly offset by lower results from the construction aggregates and ready-mixed concrete operations. Also contributing to the favorable increase in net income for 1995 over the prior-year pro forma results were higher earnings from Kosmos Cement Company, lower overall cost of goods sold (associated with the lower sales volumes in all major product lines) and decreased selling, general and administrative expenses. NINE MONTHS ENDED DECEMBER 31, 1994 Net Sales Consolidated net sales for the nine months ended December 31, 1994 were $261.6 million following the Company's emergence from bankruptcy in April 1994. Cement operations recorded sales of $176.7 million for the nine-month period ended December 31, 1994. Cement sales for the nine-month period from comparable operations were $18.7 million higher than the prior year comparable period reflecting a 13% increase in average net realized selling prices and a 2% increase in cement shipments. The increase in cement shipments, particularly from the Cape Girardeau, Missouri and the Greencastle, Indiana cement plants, and higher average net realized selling prices at all locations, resulted from strong demand in all local markets. Sales of construction aggregates were $47.7 million for the nine-month period ending December 31, 1994. Sales of construction aggregates increased $4.7 million from the comparable prior year nine-month period primarily due to a 7% increase in shipments. Increased shipments of construction aggregates in the New York metropolitan area were partly offset by decreased shipments from the Company's Canadian operations. Ready-mixed concrete and other operations recorded sales of $37.2 million for the nine-month period ended December 31, 1994. The increase in ready-mixed concrete sales of $7.9 million was attributed to a 24% increase in shipments and an 8% increase in prices as compared to the comparable prior-year period. Shipments of ready-mixed concrete were favorable at all locations during this period, particularly in the Memphis, Tennessee area where strong demand from increased commercial building resulted in both higher shipments and favorable prices. 16 19 Net sales of cement, construction aggregates and ready-mixed concrete and other products contributed 68%, 18% and 14%, respectively, to total sales for the 1994 nine-month period. Gross Profits Gross profits from the cement operations were $54.4 million for the nine months ended December 31, 1994, primarily reflecting the 13% increase in overall average net realized selling prices and higher cement shipments. Also contributing to the favorable cement gross profits were favorable per unit production costs at the Cape Girardeau, Missouri cement plant reflecting operating efficiencies due to increased production volumes. The positive results were partly offset by higher production costs at the other locations, particularly the Greencastle, Indiana facility, which was affected by higher coal costs and lower waste fuel revenues due to the decreased use of waste fuels in the production process. In September 1993, the Greencastle plant temporarily suspended the use of hazardous waste fuels pending analysis of the administrative enforcement action commenced by the EPA. The Company resumed burning hazardous waste fuel in 1994, but on a substantially reduced basis throughout the year, resulting in decreased revenues and higher coal costs. Gross profits from the construction aggregates operations were $8.3 million for the 1994 nine-month period reflecting a 7% increase in overall shipments and a 6% increase in overall average net realized selling prices from the comparable prior-year period. Shipments from the New York Trap Rock operation increased 15% over the comparable period. This increase reflects higher shipments in the second quarter of 1994 caused by the prolonged and adverse winter weather conditions experienced during the first quarter in the Northeast, which delayed the opening of customer asphalt and ready-mixed concrete plants until March. In addition, the Company's customers were adversely affected by strikes in the summer of 1993 which did not occur in 1994. Also contributing to the favorable construction aggregates gross profits were favorable per unit production costs from the West Nyack, New York operation due to increased production volumes. The positive results were partly offset by decreased shipments from the Canadian operation, due to the lack of available ships to transport product to its coastal U.S. and Caribbean markets and lower overall customer demand. Gross profits from ready-mixed concrete and other construction products were $5.7 million for the nine-month period ended December 31, 1994 primarily due to the increase in overall shipments and average net realized selling prices, reflecting strong demand in the Memphis, Tennessee and central Illinois areas. Included in the calculation of gross profit are sales less cost of sales including depreciation related to cost of sales (which excludes depreciation related to facilities leased to third parties and 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 $4.4 million for the nine months ended December 31, 1994 reflects the results of the Kosmos Cement Company. Results from Kosmos Cement Company were $1.1 million higher from the comparable prior-year period reflecting increased shipments and higher net realized selling prices. The RMC LONESTAR and Hawaiian Cement joint ventures were transferred to Rosebud in connection with the plan of reorganization. Other Income Other income of $3.8 million for the nine-month period ended December 31, 1994 primarily reflects interest earned on investments, rental income and interest earned on accounts and notes receivable. Selling, General and Administrative Expenses Selling, general and administrative expenses of $23.7 million for the nine months ended December 31, 1994 reflects savings achieved during and after the Company's bankruptcy proceedings. The savings in selling, general and administrative expenses primarily reflect lower other postretirement benefit expense and lower pension expense due to settlements reached through negotiations with retirees including the establishment of a Voluntary Employee Beneficiary Association ("VEBA") for salaried retirees whereby the Company makes quarterly contributions to a trust. The Company also reached a settlement with the PBGC whereby the Company contributed additional cash to its pension plans. Lower insurance expenses also contributed to the savings in selling, general and administrative expenses reflecting settlements reached with insurance carriers and the Company's joint ventures and certain former joint ventures which 17 20 settled certain ultimate liabilities for periods prior to the petition date. Other savings in selling, general and administrative expenses reflect lower employee-related expenses primarily achieved by reductions in personnel, prior to June 30, 1994 through attrition, combined with a corporate downsizing on June 30, 1994 which eliminated approximately 35% of salaried positions at the corporate office. Selling, general and administrative expenses for the nine-month period ended December 31, 1994 include $4.6 million of other postretirement benefit costs related to the Company's presently retired employees. In addition, selling, general and administrative expenses for the nine-month period include $0.5 million relating to the filing of a registration statement. Interest Expense Interest expense of $6.8 million for the nine months ended December 31, 1994 was comprised primarily of interest accrued on the $78.0 million 10% senior notes and the Company's obligation relating to the production payment. Income Taxes The income tax expense of $15.8 million primarily reflects taxes computed at the U.S. statutory rate in addition to net state taxes and foreign subsidiary taxes. Net Income Net income for the nine-month period ended December 31, 1994 of $29.3 million, or $2.22 per share, reflects higher cement and ready-mixed concrete shipments and selling prices combined with reduced selling, general and administrative expenses. Net income for the nine months reflects joint venture income of $4.4 million, which represents the Company's share of earnings from Kosmos Cement Company. The RMC LONESTAR and Hawaiian Cement partnerships were transferred to Rosebud in connection with the Plan of Reorganization. The positive net income for the current period was partly offset by higher interest expense primarily related to the senior notes. For years subsequent to 1994, first quarter results have reflected and are expected to continue to reflect losses (which may be significant), due to the impact of the winter months on construction activity, particularly at the Company's northern operations, production curtailments at plants to perform annual maintenance, and higher costs associated with the annual maintenance. Historically, for accounting purposes planned capacity variances during a fiscal year were deferred in the first quarter and recognized during the last nine months. These deferred costs in 1994 totaling $8.4 million were written off as part of the revaluation of assets in accordance with fresh-start reporting. Beginning in 1995, due to a change in the Company's accounting policies, these costs will be expensed more quickly than in prior years and will primarily impact first quarter results of the year in which they occur. THREE MONTHS ENDED MARCH 31, 1994 Net Sales Consolidated net sales of $33.7 million for the three months ended March 31, 1994 were $1.2 million higher than the comparable prior year period reflecting higher shipments of cement and ready-mixed concrete, partially offset by lower sales of construction aggregates. Cement sales of $24.6 million were $2.4 million greater than the comparable prior-year period reflecting increased domestic cement shipments particularly from the Cape Girardeau, Missouri cement plant due to stronger demand and higher average net realized cement selling prices at all locations. The favorable sales volume was partly offset by lower cement sales from the Nazareth, Pennsylvania cement plant (subsequently transferred to Rosebud) as shipments were adversely affected by severe winter weather conditions in the Northeast. Sales of construction aggregates of $2.8 million for the three months ended March 31, 1994 were $2.2 million below the comparable prior-year period. The reduction in shipments of construction aggregates reflects a slow start in construction activity caused by the prolonged and adverse winter weather conditions experienced in the Northeast in 1994. These adverse conditions extended into March, which delayed the opening of customer asphalt and ready-mix concrete plants. Also contributing to the lower aggregate shipments was the shortage of available commercial freighters to transport construction aggregates from the Company's Canadian operation to the Caribbean market. 18 21 Ready-mixed concrete and concrete products sales were $6.1 million for the three months ended March 31, 1994, which were $1.1 million above the comparable prior-year period reflecting higher shipments of ready-mixed concrete, concrete block, and building materials due to increased business activity and higher average net realized selling prices. Joint Ventures Pre-tax income from joint ventures of $0.4 million for the first quarter of 1994 was $1.2 million below the comparable prior-year period due to the sale of the Company's Brazilian joint venture in September 1993 which contributed pre-tax joint venture earnings of $3.5 million in the first quarter of 1993. Results from the RMC LONESTAR partnership increased $2.7 million from the comparable prior-year period due to higher shipments, the result of increased construction activity, favorable weather conditions, and lower per unit production costs associated with increased production volumes. Results from the Hawaiian Cement partnership decreased $0.4 million from the first quarter of 1993 reflecting lower shipments of cement, construction aggregates, and ready-mixed concrete as a result of a slowdown in the construction industry in Hawaii. The Company's share of pre-tax income from Kosmos Cement Company approximated the comparable prior year period's results. Recovery of Litigation Settlement Included in income in the first quarter of 1994 is an insurance settlement of $6.5 million from the Company's primary carrier regarding indemnification pursuant to the railroad crosstie litigation, the right of recovery to such litigation was subsequently transferred to Rosebud. The settlement was offset against a bankruptcy claim of that carrier. Cost of Sales Cost of sales of $29.7 million for the first quarter of 1994 was $1.2 million higher than the comparable prior-year period primarily due to higher cement and ready-mixed concrete costs reflecting higher shipments. This was partly offset by lower sales of construction aggregates and the delayed startup of production at the domestic construction aggregates plants. Selling, General and Administrative Expenses Selling, general and administrative expenses of $9.8 million for the three months ended March 31, 1994 were $0.4 million lower than the comparable prior year period. Reorganization Items Reorganization items, related to the bankruptcy, of $147.3 million during the first quarter of 1994 were $144.7 million higher than the comparable prior-year period primarily reflecting adjustments to fair value of fixed assets in connection with the adoption of fresh-start reporting, and higher professional fee expenses and higher administrative costs associated with the emergence from bankruptcy pursuant to the plan of reorganization. Income Taxes Income tax expense of $0.2 million for the first quarter of 1994 was $1.7 million lower than the comparable prior-year period reflecting lower foreign taxes due to the sale of the Brazilian operation in September 1993. Extraordinary Gain The results of the first quarter of 1994 include an extraordinary gain of $127.5 million related to the discharge of prepetition liabilities in accordance with the plan of reorganization. Cumulative Effect of Changes in Accounting Principles In the first quarter of 1993, the Company's partner in the Kosmos Cement Company partnership, which owns a 75% interest in the partnership (the Company owns the remaining 25% interest), adopted Statement of Financial Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits Other than Pensions" ("SFAS No. 106"). At the same time Kosmos Cement Company also adopted SFAS No. 106. As a result, the Company recognized a charge of $0.8 19 22 million representing its share of the partnership's cumulative effect of the change in accounting principle. There were no changes in accounting principles during the first quarter of 1994. Net Loss The net loss of $23.1 million for the first quarter of 1994 is $8.9 million greater than the comparable prior-year period. Included in the first quarter 1994 results are reorganization expenses of $147.3 million relating to adjustments of assets and liabilities to their respective fair values, and increased professional fees and administrative costs associated with the Company's reorganization. These reorganization expenses are partly offset by an extraordinary gain of $127.5 million due to the discharge of pre-petition liabilities and a $6.5 million insurance recovery relating to indemnification pursuant to the railroad crosstie litigation. The first quarter of 1993 results reflect pre-tax joint venture income of $3.5 million provided by the Brazilian subsidiary, which was sold in September 1993, and a charge for the cumulative effect of a change in accounting principle of $0.8 million. Excluding the pre-tax earnings from the Brazilian joint venture and the insurance recovery, pre-tax operating results for the first quarter of 1994 were $2.9 million better than the same prior-year period. This increase reflects higher results from the cement and ready-mixed operations and domestic joint ventures on higher shipments due to increased business activity and lower selling, general and administrative expenses. The increase was partly offset by decreased results from construction aggregates primarily reflecting lower shipments as a result of severe winter weather conditions. 20 23 LONE STAR INDUSTRIES, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Report of Independent Accountants............................................................... 22 Consolidated Financial Statements: Statements of Operations for the Year Ended December 31, 1995, the Nine Months Ended December 31, 1994, the Three Months Ended March 31, 1994, and the Year Ended December 31, 1993...... 23 Balance Sheets -- December 31, 1995 and 1994.................................................. 24 Statements of Changes in Common Shareholders' Equity for the Year Ended December 31, 1995, the Nine Months Ended December 31, 1994, the Three Months Ended March 31, 1994 and the Year Ended December 31, 1993.................................................................... 25 Statements of Cash Flows for the Year Ended December 31, 1995, the Nine Months Ended December 31, 1994, the Three Months Ended March 31, 1994 and the Year Ended December 31, 1993....... 26 Notes to Financial Statements................................................................. 27 Schedule: II Valuation and Qualifying Accounts.......................................................... 55 Consent of Independent Accountants.............................................................. 56
The foregoing supporting schedule should be read in conjunction with the consolidated financial statements and notes thereto in the Company's 1995 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, 1995. 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, 1995. 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. 21 24 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Lone Star Industries, Inc. We have audited the consolidated balance sheets of Lone Star Industries, Inc. and Consolidated Subsidiaries (the "Company") as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for the year ended December 31, 1995 and the nine months ended December 31, 1994 (post-confirmation), the three months ended March 31, 1994 and the year ended December 31, 1993 (pre-confirmation). We have also audited the Financial Statement Schedule II included in this annual report on Form 10-K. 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 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lone Star Industries, Inc. and Consolidated Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994 and the year ended December 31, 1993, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Notes 1 and 23, effective April 14, 1994, the Company was reorganized under a plan confirmed by the United States Bankruptcy Court for the Southern District of New York and adopted a new basis of accounting whereby all remaining assets and liabilities were adjusted to their estimated fair values. Accordingly, the consolidated financial statements for periods subsequent to the reorganization are not comparable to the consolidated financial statements presented for prior periods. COOPERS & LYBRAND L.L.P. Stamford, Connecticut January 31, 1996 22 25 LONE STAR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
SUCCESSOR COMPANY | PREDECESSOR COMPANY ----------------------------- | ----------------------------- FOR THE FOR THE NINE | FOR THE THREE FOR THE YEAR ENDED MONTHS ENDED | MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, | MARCH 31, DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1995 1994 | 1994 1993 ------------- ------------- | ------------- ------------- | Revenues: | Net sales.............................................. $ 323,008 $ 261,645 | $ 33,709 $ 240,071 Joint venture income................................... 6,728 4,424 | 381 20,440 Other income, net...................................... 4,040 3,820 | 2,691 11,238 ------------- ------------- | ------------- ------------- 333,776 269,889 | 36,781 271,749 ------------- ------------- | ------------- ------------- Deductions from revenues: | Cost of sales.......................................... 217,942 177,005 | 29,694 193,884 Provision for (recovery of) litigation settlements..... -- -- | (6,500) 2,500 Selling, general and administrative expenses........... 29,734 23,749 | 9,836 41,278 Depreciation and depletion............................. 23,628 17,190 | 6,688 26,254 Interest expense (contractual interest of $7,631 in the | first quarter of 1994 and $31,227 in 1993)........... 9,096 6,812 | 233 1,637 ------------- ------------- | ------------- ------------- 280,400 224,756 | 39,951 265,553 ------------- ------------- | ------------- ------------- Income (loss) before reorganization items and income | taxes.................................................. 53,376 45,133 | (3,170) 6,196 Reorganization items: | Adjustments to fair value.............................. -- -- | (133,917) -- Loss on sale of assets................................. -- -- | -- (37,335) Other.................................................. -- -- | (13,396) (10,470) ------------- ------------- | ------------- ------------- Total reorganization items............................... -- -- | (147,313) (47,805) ------------- ------------- | ------------- ------------- Income (loss) before income taxes, cumulative effect of | changes in accounting principles and extraordinary | item................................................... 53,376 45,133 | (150,483) (41,609) Credit (provision) for income taxes.................... (17,614) (15,800) | (155) 6,351 ------------- ------------- | ------------- ------------- Income (loss) before cumulative effect of changes in | accounting principles and extraordinary item........... 35,762 29,333 | (150,638) (35,258) Cumulative effect of changes in accounting principles: | Postretirement benefits other than pensions............ -- -- | -- (782) Extraordinary item: gain on discharge of prepetition | liabilities............................................ -- -- | 127,520 -- ------------- ------------- | ------------- ------------- Income (loss) before preferred dividends................. 35,762 29,333 | (23,118) (36,040) Provisions for preferred dividends..................... -- -- | (1,278) (5,112) ------------- ------------- | ------------- ------------- Net income (loss) applicable to common stock............. $ 35,762 $ 29,333 | $ (24,396) $ (41,152) ============= ============= | ============== ============= Weighted average common shares outstanding............... 11,990 12,000 | n/m(a) 16,644 ============= ============= | ============== ============= Primary income (loss) per common share: | Income (loss) before cumulative effect of changes in | accounting principles................................ $ 2.66 $ 2.22 | n/m(a) $ (2.42) Cumulative effect of changes in accounting | principles........................................... -- -- | n/m(a) (0.05) ------------- ------------- | ------------- ------------- Net income (loss)...................................... $ 2.66 $ 2.22 | n/m(a) $ (2.47) ============= ============= | ============== ============= Fully diluted income (loss) per common share............. $ 2.62 $ 2.22 | n/m(a) $ (2.47) ============= ============= | ============== =============
- --------------- (a) Earnings per share for the three months ended March 31, 1994 are not meaningful and prior period per share amounts are not comparable to the Successor Company per share amounts due to reorganization and revaluation entries and the issuance of 12 million shares of new common stock. The accompanying Notes to Financial Statements are an integral part of the Financial Statements. 23 26 LONE STAR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, (DOLLARS IN THOUSANDS) 1995 1994 ------------ ------------ ASSETS CURRENT ASSETS Cash, including cash equivalents of $47,323 in 1995 and $54,782 in 1994...... $ 50,049 $ 55,398 Accounts and notes receivable, net........................................... 31,403 32,480 Inventories.................................................................. 55,476 45,529 Other current assets......................................................... 5,289 3,243 -------- -------- TOTAL CURRENT ASSETS............................................... 142,217 136,650 Joint ventures............................................................... 21,152 18,174 Property, plant and equipment, net........................................... 311,397 309,952 Other assets and deferred charges............................................ 1,761 1,544 -------- -------- TOTAL ASSETS OTHER THAN LIQUIDATING SUBSIDIARY..................... 476,527 466,320 Net assets of liquidating susidiary (Note 25)................................ 4,399 87,000 -------- -------- TOTAL ASSETS....................................................... $480,926 $553,320 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable............................................................. $ 11,183 $ 14,272 Accrued liabilities.......................................................... 47,320 47,337 Other current liabilities.................................................... 2,064 3,650 -------- -------- TOTAL CURRENT LIABILITIES.......................................... 60,567 65,259 Senior notes payable......................................................... 78,000 78,000 Production payment........................................................... -- 16,966 Deferred income taxes........................................................ 6,688 6,688 Postretirement benefits other than pensions.................................. 131,226 129,634 Pensions..................................................................... 6,847 14,345 Other liabilities............................................................ 33,459 32,965 Contingencies (Notes 27 and 28) -------- -------- TOTAL LIABILITIES OTHER THAN LIQUIDATING SUBSIDIARY................ 316,787 343,857 -------- -------- Asset proceeds notes of liquidating subsidiary (Notes 8 and 25).............. 4,399 87,000 -------- -------- TOTAL LIABILITIES.................................................. 321,186 430,857 -------- -------- Common stock, $1 par value. Authorized: 50,000,000 shares Shares issued: 1995 -- 12,080,844 1994 -- 12,000,016...................................... 12,081 12,000 Warrants to purchase common stock............................................ 15,597 15,613 Additional paid-in capital................................................... 82,709 65,700 Retained earnings............................................................ 63,315 29,333 Cumulative translation adjustment............................................ -- (183) Treasury stock, at cost...................................................... (13,962) -- -------- -------- 159,740 122,463 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $480,926 $553,320 ======== ========
The accompanying Notes to Financial Statements are an integral part of the Financial Statements. 24 27 LONE STAR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
SUCCESSOR COMPANY | PREDECESSOR COMPANY ----------------------------- | ----------------------------- FOR THE FOR THE NINE | FOR THE THREE FOR THE YEAR ENDED MONTHS ENDED | MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, | MARCH 31, DECEMBER 31, (IN THOUSANDS) 1995 1994 | 1994 1993 ------------- ------------- | ------------- ------------- | COMMON STOCK | Balance at beginning of period.................................... $ 12,000 $ 12,000 | $ 18,103 $ 18,102 Exercise of warrants to purchase common stock................... 4 -- | -- -- Exercise of stock options....................................... 77 -- | -- -- Conversions of $4.50 non-redeemable preferred stock............. -- -- | 1 1 Cancellation of predecessor company stock pursuant to the plan | of reorganization............................................. -- -- | (18,104) -- Issuance of successor company stock pursuant to the plan of | reorganization................................................ -- -- | 12,000 -- -------- -------- | -------- -------- Balance at end of period.......................................... 12,081 12,000 | 12,000 18,103 WARRANTS TO PURCHASE COMMON STOCK | Balance at beginning of period.................................... 15,613 15,613 | -- -- Exercise of warrants to purchase common stock................... (16) -- | -- -- Issuance pursuant to the plan of reorganization................. -- -- | 15,613 -- -------- -------- | -------- -------- Balance at end of period.......................................... 15,597 15,613 | 15,613 -- ADDITIONAL PAID-IN CAPITAL | Balance at beginning of period.................................... 65,700 65,700 | 239,870 239,867 Exercise of warrants to purchase common stock................... 90 -- | -- -- Sales of treasury stock......................................... 3 -- | -- -- Exercise of stock options....................................... 1,100 -- | -- -- Utilization of predecessor company deferred tax assets.......... 15,816 -- | -- -- Conversions of $4.50 non-redeemable preferred stock............. -- -- | 3 3 Elimination of predecessor company additional paid-in-capital | pursuant to the plan of reorganization........................ -- -- | (239,873) -- Additional paid-in-capital of the successor company pursuant to | the plan of reorganization.................................... -- -- | 65,700 -- -------- -------- | -------- -------- Balance at end of period.......................................... 82,709 65,700 | 65,700 239,870 RETAINED EARNINGS (ACCUMULATED DEFICIT) | Balance at beginning of period.................................... 29,333 -- | (187,896) (151,856) Net income (loss)............................................... 35,762 29,333 | (23,118) (36,040) Dividends....................................................... (1,780) -- | -- -- Elimination of accumulated deficit pursuant to the plan of | reorganization................................................ -- -- | 211,014 -- -------- -------- | -------- -------- Balance at end of period.......................................... 63,315 29,333 | -- (187,896) CUMULATIVE TRANSLATION ADJUSTMENT | Balance at beginning of period.................................... (183) -- | -- -- Translation adjustments......................................... 183 (183) | -- -- -------- -------- | -------- -------- Balance at end of period.......................................... -- (183) | -- -- PENSION LIABILITY ADJUSTMENT | Balance at beginning of period.................................... -- -- | (21,157) (9,843) Excess of additional pension liability over unrecognized prior | service cost.................................................. -- -- | -- (11,314) Revaluation in accordance with fresh-start reporting............ -- -- | 21,157 -- -------- -------- | -------- -------- Balance at end of period.......................................... -- -- | -- (21,157) TREASURY STOCK | Balance at beginning of period.................................... -- -- | (36,572) (36,572) Repurchase of shares............................................ (13,875) -- | -- -- Odd lot program net share purchases............................. (87) -- | -- -- Shares issued to employee stock purchase plan................... -- -- | -- -- Cancellation pursuant to the plan of reorganization............. -- -- | 36,572 -- -------- -------- | -------- -------- Balance at end of period.......................................... (13,962) -- | -- (36,572) TOTAL COMMON SHAREHOLDERS' EQUITY, END OF PERIOD.................. $ 159,740 $ 122,463 | $ 93,313 $ 12,348 ======== ======== | ======== ========
The accompanying Notes to Financial Statements are an integral part of the Financial Statements. 25 28 LONE STAR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
SUCCESSOR COMPANY | PREDECESSOR COMPANY ----------------------------- | ----------------------------- FOR THE FOR THE NINE | FOR THE THREE FOR THE YEAR ENDED MONTHS ENDED | MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, | MARCH 31, DECEMBER 31, (IN THOUSANDS) 1995 1994 | 1994 1993 ------------- ------------- | ------------- ------------- | CASH FLOWS FROM OPERATING ACTIVITIES: | Income (loss) before cumulative effect of changes in | accounting principles and extraordinary item........... $35,762 $29,333 | $(150,638) $ (35,258) Adjustments to arrive at net cash provided (used) by | operating activities: | Depreciation and depletion............................. 23,628 17,190 | 6,688 26,254 Provision for (recovery of) litigation settlements..... -- -- | (6,500) 2,500 Tax benefit realized from utilization of predecessor | company deferred tax assets.......................... 15,816 13,646 | -- -- Deferred income taxes.................................. -- 1,688 | 155 (10,546) Changes in operating assets and liabilities: | Accounts and notes receivable........................ (1,012) (5,307) | 22,157 (2,895) Inventories and other current assets................. (14,626) (1,542) | (17,189) 846 Accounts payable and accrued expenses................ (1,724) 2,820 | (1,808) (2,198) Unremitted earnings of joint ventures.................. (2,978) (674) | 619 (951) Loss (gain) on sale of joint venture interests......... -- -- | -- 37,335 Adjustments to fair value.............................. -- -- | 133,917 -- Other reorganization items............................. -- -- | 13,396 10,470 Other, net............................................. (4,595) (11,764) | (5,866) 11,398 --------- -------- | ---------- ---------- Net cash provided (used) by operating activities before | reorganization items................................... 50,271 45,390 | (5,069) 36,955 Operating cash flows from reorganization items: | Interest received on cash accumulated because of | Chapter 11 proceedings............................... -- -- | 1,998 5,102 Professional fees and administrative expenses.......... -- (6,934) | (5,849) (10,459) Professional fees escrow pursuant to the reorganization | plan................................................. -- -- | (12,431) -- --------- -------- | ---------- ---------- Net cash used by reorganization items.................... -- (6,934) | (16,282) (5,357) --------- -------- | ---------- ---------- Net cash provided (used) by operating activities......... 50,271 38,456 | (21,351) 31,598 CASH FLOWS FROM INVESTING ACTIVITIES: | Capital expenditures..................................... (36,576) (16,480) | (6,695) (18,999) Proceeds from sales of assets............................ 15,406 22,275 | -- -- Proceeds from sales of assets held for sale.............. -- -- | 2,457 9,206 Proceeds from sales of assets due to Chapter 11 | proceedings............................................ -- -- | -- 71,162 Sales of property, plant and equipment................... -- -- | -- 888 Collection of notes receivable........................... -- -- | 93 908 Investment and advances to equity investees.............. -- -- | -- (5,000) Other, net............................................... -- -- | (293) (5,971) --------- -------- | ---------- ---------- Net cash provided (used) by investing activities......... (21,170) 5,795 | (4,438) 52,194 CASH FLOWS FROM FINANCING ACTIVITIES: | Proceeds from exercise of stock options.................. 1,177 -- | -- -- Proceeds from exercise of warrants....................... 78 -- | -- -- Odd lot program purchases and sales...................... (84) -- | -- -- Purchase of treasury stock............................... (13,875) -- | -- -- Dividends paid........................................... (1,780) -- | -- -- Cash distribution pursuant to the reorganization plan.... -- -- | (200,451) -- Transfer to liquidating subsidiary....................... -- -- | (5,010) -- Reduction of production payment.......................... (19,966) (1,000) | (1,000) (8,000) --------- -------- | ---------- ---------- Net cash used by financing activities.................... (34,450) (1,000) | (206,461) (8,000) - -----------------------------------------------------------------------------------------|------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (5,349) 43,251 | (232,250) 75,792 Cash and cash equivalents, beginning of period........... 55,398 12,147 | 244,397 168,605 --------- -------- | ---------- ---------- Cash and cash equivalents, end of period................. $50,049 $55,398 | $ 12,147 $ 244,397 ========= ======== | ========== ==========
The accompanying Notes to Financial Statements are an integral part of the Financial Statements. 26 29 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Description of Operations -- The Company is a cement, construction aggregates and ready-mixed concrete company, with operations in the United States (principally in the Midwest and Southwest and on the East Coast) and formerly in Nova Scotia, Canada. Lone Star's cement operations consist of five cement plants in the midwestern and southwestern regions of the United States and a 25% interest in Kosmos Cement Company, a partnership which operates one cement plant in each of Kentucky and Pennsylvania. These five wholly-owned cement plants produced approximately 3.8 million tons of cement in 1995, which approximates the rated capacity of such plants. In 1995 the Company's aggregate operations served the construction markets in the New York Metropolitan area, the East Coast and Gulf Coast of the United States, the Caribbean and the Nova Scotia and Prince Edward Island areas of Canada. The ready-mixed concrete business operates in central Illinois and the Memphis, Tennessee area. The Company had approximately $323,000,000 in net sales in 1995, with cement, construction aggregates and ready-mixed concrete and other construction products operations representing approximately 73%, 15% and 12%, 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 domestic and foreign subsidiaries. All intercompany transactions have been eliminated. Joint ventures are accounted for using the equity method. Certain prior-period amounts have been reclassified to conform with current-period presentation. The Company adopted "fresh-start" reporting in accordance with AICPA Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP No. 90-7"), as of March 31, 1994. The Company's emergence from its Chapter 11 proceedings resulted in a new reporting entity with no retained earnings or accumulated deficit as of March 31, 1994. Accordingly, the Company's consolidated financial statements for periods prior to March 31, 1994 are not comparable to consolidated financial statements presented on or subsequent to March 31, 1994. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization company. In addition, having operated for over three years in bankruptcy, results of operations prior to emergence from bankruptcy are not indicative of results of operations outside of Chapter 11 proceedings. In accordance with the Company's plan of reorganization (See Note 23), certain non-core assets of the Company and their associated liabilities were transferred to Rosebud Holdings, Inc., a wholly-owned liquidating subsidiary and its subsidiaries (collectively "Rosebud"), for disposition and distribution of the proceeds of such dispositions, for the benefit of unsecured creditors (See Note 25). The Company's investment in Rosebud is recorded at the lower of the estimated net realizable value of the assets or face value of the asset proceeds notes (See Note 25). 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 March 31, 1994. Additions subsequent to March 31, 1994 are stated at cost. Property, plant and equipment are depreciated over the estimated useful lives of the assets using the straight-line method. Significant expenditures which extend the useful lives 27 30 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of existing assets are capitalized. Maintenance and repair costs are charged to current earnings. Cost depletion 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 resulting from the realization of preconfirmation deferred tax assets are used first to reduce reorganization value in excess of amounts allocable to identifiable assets and then to increase additional paid-in capital. 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 pay compensation for a specified period of time. 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 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 Employees Retirement Income Security Act of 1974 ("ERISA"). Assets of the plans are administered by an independent trustee and are invested principally in fixed income, 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. Income Per Common Share -- Primary and fully diluted income per common share is based on the weighted average number of shares outstanding in each year and includes warrants to purchase common stock and dilutive stock options as common stock equivalents. Due to the large number of outstanding common stock equivalents, primary and fully diluted earnings per share of the successor company are calculated using the modified treasury stock method. Primary and fully diluted earnings per share for the year ended December 31, 1995 were based on adjusted weighted average shares outstanding of 14,336,774 and adjusted net income of $38,096,000 and $37,610,000, respectively. Primary and fully diluted earnings per share for the nine months ended December 31, 1994 were based on adjusted weighted average shares outstanding of 14,132,145 and adjusted net income of $31,427,000 and $31,341,000, respectively. Environmental Matters -- 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 -- The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and has not yet determined whether it will choose to recognize compensation expense or opt to comply with the disclosure requirements when Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" is adopted in 1996. In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121") was issued, effective January 1, 1996. SFAS No. 121 requires that in the event certain facts and circumstances indicate an asset may be impaired, an evaluation of recoverability must be performed to determine whether or not the carrying amount of the asset is required to be written down. The Company does not expect the adoption of this statement to have a material effect on its financial condition or results of operations. 28 31 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. 2. ACCOUNTS AND NOTES RECEIVABLE Receivables consist of the following (in thousands):
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Trade accounts and notes receivable.................................. $ 35,712 $ 37,914 Other receivables.................................................... 1,627 1,792 ------- ------- 37,339 39,706 Less: Allowance for doubtful accounts................................ 5,936 7,226 ------- ------- $ 31,403 $ 32,480 ======= =======
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. 3. INVENTORIES Inventories consist of the following (in thousands):
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Finished goods....................................................... $ 27,392 $ 21,800 Work in process and raw materials.................................... 6,812 3,786 Supplies and fuel.................................................... 21,272 19,943 ------- ------- $ 55,476 $ 45,529 ======= =======
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands):
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Land................................................................. $ 37,529 $ 39,373 Buildings and equipment.............................................. 275,389 257,659 Construction in progress............................................. 8,779 5,749 Automobiles and trucks............................................... 27,255 23,664 Other................................................................ 100 100 ------- ------- 349,052 326,545 Less accumulated depreciation and depletion.......................... 37,655 16,593 ------- ------- $311,397 $309,952 ======= =======
Property, plant and equipment was revalued in accordance with fresh-start reporting using the March 31, 1994 fair market values, as appraised, and depreciation is determined based on the estimated remaining useful lives of the assets. 29 32 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. INTEREST COSTS Interest costs incurred during the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994, and the year ended December 31, 1993 were $9,358,000, $6,980,000, $271,000, and $1,832,000, respectively. Interest capitalized during the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994, and the year ended December 31, 1993 was $262,000, $168,000, $38,000 and $195,000, respectively. Interest paid during the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994, and the year ended December 31, 1993 was $9,654,000, $4,724,000, $20,000 and $123,000, respectively. The Company stopped accruing interest on its unsecured prepetition debt during the Chapter 11 proceedings. Contractual interest for the three months ended March 31, 1994, and the year ended December 31, 1993 was $7,631,000 and $31,227,000, respectively. 6. KOSMOS CEMENT COMPANY The Company's investment in and advances to joint ventures at December 31, 1995 and 1994 consists of its 25% investment in Kosmos Cement Company ("Kosmos"). Kosmos is a partnership with cement plants in Kosmosdale, Kentucky and Pittsburgh, Pennsylvania. The amount of cumulative unremitted earnings of joint ventures included in consolidated retained earnings at December 31, 1995, was $3,652,000. During the year ended December 31, 1995, the nine months ended December 31, 1994, and the year ended December 31, 1993, $3,750,000, $3,750,000, and $4,250,000, respectively, of distributions were received from Kosmos. Summarized financial information of Kosmos as of and for the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994, and the year ended December 31, 1993 is as follows (in thousands):
AS OF AND FOR THE -------------------------------------------------------------- NINE MONTHS YEAR ENDED THREE MONTHS YEAR ENDED DECEMBER ENDED ENDED DECEMBER 31, 31, MARCH 31, DECEMBER 31, 1995 1994 1994 1993 ------------ ----------- ------------ ------------ Current assets.................................... $ 36,018 $ 26,302 $ 24,064 $ 24,236 Property, plant and equipment, net................ 74,624 74,259 75,065 74,713 Cost in excess of net assets of businesses acquired........................................ 23,205 24,754 25,312 25,497 Current liabilities............................... (4,303) (4,430) (3,375) (3,449) Other liabilities................................. (2,871) (2,955) (3,457) (3,329) -------- -------- -------- -------- Net assets........................................ $126,673 $ 117,930 $117,609 $117,668 -------- -------- -------- -------- Net sales......................................... $ 76,432 $ 65,184 $ 7,892 $ 65,597 Gross profits..................................... $ 23,894 $ 17,306 $ 651 $ 15,027 Income (loss) before cumulative effect of change in accounting principle......................... $ 23,742 $ 15,321 $ (59) $ 12,218 Cumulative effect of change in accounting principle....................................... $ -- $ -- $ -- $ (3,126) Net income (loss)................................. $ 23,742 $ 15,321 $ (59) $ 9,092
At December 31, 1995, December 31, 1994, March 31, 1994, and December 31, 1993, the Company's share of the underlying net assets of Kosmos Cement Company exceeded its investment by $10,516,000, $11,309,000, $11,902,000 and $5,260,000, respectively, and is being amortized over the estimated remaining life of the assets. 30 33 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. ACCRUED LIABILITIES Accrued liabilities consist of the following (in thousands):
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Postretirement benefits other than pensions.......................... $ 7,800 $ 7,686 Pensions............................................................. 5,900 6,200 Insurance............................................................ 4,113 3,578 Payroll and vacation pay............................................. 3,398 3,209 Interest............................................................. 3,270 3,566 Taxes other than income taxes........................................ 2,494 2,504 Other................................................................ 20,345 20,594 ------- ------- $ 47,320 $ 47,337 ======= =======
8. ASSET PROCEEDS NOTES OF LIQUIDATING SUBSIDIARY Upon emergence from the Company's Chapter 11 proceedings, Rosebud issued secured asset proceeds notes in the aggregate principal amount of $138,118,000. The notes bear interest at a rate of 10% per annum payable in cash and/or additional asset proceeds notes, payable semi-annually. The notes are to be repaid as Rosebud's assets are disposed of and proceeds are received in connection with the litigation transferred to Rosebud. The asset proceeds notes mature on July 31, 1997. In July 1994, January 1995 and July 1995, Rosebud made cash interest payments of $5,755,000, $5,320,000 and $2,570,000, respectively. An additional cash interest payment of $209,000 was made in January 1996. Principal payments of $31,878,000, $30,183,000, $26,090,000, $12,300,000 and $36,361,000 including accrued interest thereon, were made in August 1994, February 1995, July 1995, October 1995 and December 1995, respectively. As of December 31, 1995, the total interest and principal payments paid on the assets proceeds notes was $150,457,000. The asset proceeds notes are recorded on the accompanying consolidated balance sheets at their face value at December 31, 1995 and at the estimated net value of the assets at December 31, 1994(See Note 25). 9. SENIOR NOTES PAYABLE Upon emergence from its Chapter 11 proceedings, the Company issued $78,000,000 of ten year senior unsecured notes due July 31, 2003, which bear interest at a rate of 10% per annum. The indenture governing the senior notes and other agreements entered into in connection with the reorganization impose certain operating and financial restrictions on the Company. Such restrictions affect, and in some respects limit or prohibit, among other things, the ability of the Company to incur additional indebtedness, create liens, engage in mergers and acquisitions, purchase the Company's capital stock or pay dividends. Commencing in the year 2000, the Company is required to make three annual payments of $10,000,000 each into a sinking fund account for redemption of the senior notes. The amount of any such required sinking fund account will be reduced, without duplication, by the principal amount of any senior notes that the Company has optionally redeemed or purchased. The Company has the option to redeem the senior notes payable for an amount equal to 100% of the principal amount plus accrued and unpaid interest. Optional redemption of the senior notes is restricted by the Company's credit agreement. 31 34 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 10. CREDIT AGREEMENT Upon emergence from Chapter 11, the Company entered into a three-year $35,000,000 revolving credit agreement which is collateralized by inventory, receivables, collection proceeds and certain intangible assets. The Company's borrowings under this agreement are limited to 55% of eligible inventory plus 85% of eligible receivables. The agreement was subsequently amended in April, November and December 1995. The amendments reduced the rates of interest under the agreement and increased the amounts allowed for capital expenditures and certain other payments. The advances under the agreement bear interest at a rate of either prime plus 0.5% or LIBOR plus 2.25%, at the Company's option. A fee of 0.375% per annum is charged on the unused portion of the line. Although the Company from time to time has used the letter of credit facility provided by the credit agreement, it has not drawn any funds under the credit agreement for working capital purposes. Accordingly, there was no outstanding balance as of December 31, 1995. The credit agreement and other agreements entered into in connection with the reorganization, impose certain operating and financial restrictions on the Company. Such restrictions affect, and in some respects limit or prohibit, among other things, the ability of the Company to incur additional indebtedness, repay certain indebtedness prior to its stated maturity, create liens, engage in mergers and acquisitions, make certain capital expenditures or pay dividends. In addition, pursuant to the credit agreement and other agreements entered into in connection with the reorganization certain of the Company's assets are subject to liens or negative pledges. 11. PRODUCTION PAYMENT The Company entered into a production payment arrangement concerning specific limestone reserves located adjacent to two cement plants, and pursuant to the terms of the document, was obligated to extract and process those reserves into cement for the purchaser free and clear of all expenses. The proceeds were deferred and were reflected in income, together with related costs and expenses, as the limestone was processed into cement and the cement was sold. As part of the plan, the terms of the production payment agreement were revised as of April 14, 1994. Under the revised terms, the Company was required to make payments in advance for minerals used at the two plants subject to the production payment agreement and to take or pay for minerals in amounts sufficient to permit the purchaser to service the note associated with the production payment facility. In connection therewith, a new note was issued, with an outstanding principal balance of $20,963,000 as of that date, and which bore interest, at the Company's option, at a rate of either prime or LIBOR plus 1.75% through December 31, 1995 and either prime plus 0.25% or LIBOR plus 2.5% beginning on January 1, 1996. In January and July 1995, the Company made total scheduled principal payments of $3,000,000 and in December 1995 the Company paid the remaining outstanding production payment balance of $16,966,000. 12. LEASES Net rental expense for the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994, and the year ended December 31, 1993 was $4,908,000, $4,894,000, $755,000 and $5,888,000, respectively. Minimum rental commitments under all non-cancelable leases principally pertaining to land, buildings and equipment are as follows: 1996 -- $1,679,000; 1997 -- $1,455,000; 1998 -- $1,028,000; 1999 -- $968,000, and as of December 31, 1995 there were no commitments subsequent to 1999. Certain leases include options for renewal or purchase of leased property. A subsidiary of the Company was leasing its Florida cement plant with an original term of approximately twenty years at an annual rental of $2,500,000. In June 1994, the Company sold its interest in the cement plant located in Florida, for $21,750,000, which approximated book value. 13. PENSION PLANS The Company sponsors a number of defined benefit retirement plans which cover substantially all employees. Defined benefit plans for salaried employees provide benefits based on employees' years of service and five-year final pay compensation. Defined benefit plans for hourly paid employees generally provide benefits of stated amounts for specified 32 35 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) periods of service. The Company's policy is to fund 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 ERISA. Net periodic pension cost of defined benefit plans included the following components (in thousands):
FOR THE FOR THE YEAR FOR THE NINE THREE MONTHS FOR THE YEAR ENDED MONTHS ENDED ENDED MARCH ENDED DECEMBER 31, DECEMBER 31, 31, DECEMBER 31, 1995 1994 1994 1993 ------------ ------------ ------------ ------------ Interest cost.................................... $ 10,108 $ 7,377 $ 2,477 $ 10,236 Service cost -- benefits accrued during the period......................................... 1,631 1,379 407 1,363 Actual return on plan assets..................... (28,824) (3,938) (2,338) (11,913) Net amortization and deferral.................... 20,538 (2,125) 1,029 3,404 -------- ------- ------- -------- Net pension cost................................. $ 3,453 $ 2,693 $ 1,575 $ 3,090 ======== ======= ======= ========
The following tables present the plans' funded status and amounts recognized in the accompanying consolidated balance sheets at December 31, 1995 and 1994 (in thousands):
DECEMBER 31, 1995 DECEMBER 31, 1994 -------------------- -------------------- OVER- UNDER- OVER- UNDER- FUNDED FUNDED FUNDED FUNDED PLANS PLANS PLANS PLANS ------- -------- ------- -------- Actuarial present value of benefit obligations: Vested benefits.......................................... $51,668 $ 91,185 $79,272 $ 50,856 Non-vested benefits...................................... 1,389 3,364 3,212 997 ------- -------- ------- -------- Accumulated benefit obligation............................. $53,057 $ 94,549 $82,484 $ 51,853 ------- -------- ------- -------- Projected benefit obligation............................... $53,057 $ 99,986 $85,314 $ 51,853 Plan assets at fair value.................................. 59,290 91,658 86,380 36,773 ------- -------- ------- -------- Projected benefit obligation (in excess of) less than plan assets................................................... 6,233 (8,328) 1,066 (15,080) Unrecognized prior service cost............................ 12 4,165 -- -- Unrecognized net gain...................................... (8,013) (6,816) (4,564) (1,975) ------- -------- ------- -------- Pension asset/(liability).................................. $(1,768) $(10,979) $(3,498) $(17,055) ======= ======== ======= ========
The weighted average discount rates of 7.0% and 7.5% for 1995 and 1994, respectively, and the rate of annual increase in future compensation levels of 4.5% for 1995 and 5.5% for 1994, were used in determining the actuarial present values of the projected benefit obligation. The expected long-term rate of return on plan assets was 8.0% for both 1995 and 1994. Upon adoption of fresh-start reporting, pension liabilities were recorded based on the unfunded projected benefit obligation as of March 31, 1994. All outstanding unamortized and unrecognized items as of March 31, 1994 were recognized and recorded on the Company's consolidated balance sheet. Certain union employees are covered under multi-employer defined benefit plans administered under collective bargaining agreements. Multi-employer pension expenses and contributions to the plans in the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994 and the year ended December 31, 1993 were approximately $300,000, $200,000, $50,000 and $300,000, respectively. In accordance with the plan of reorganization, future obligations are secured by the grant to the PBGC of a mortgage on the Oglesby, Illinois cement plant and a security interest in the Kosmos Cement Company partnership. 33 36 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides retiree life insurance and health plan coverage to employees qualifying for early, normal or disability pension benefits under the Company's salaried employees pension plan and certain of the pension plans providing for hourly-compensated employees. Life insurance protection presently provided to retirees under the salaried employees pension plan is one-half their active employment coverage declining to 25% of their active employment coverage at age 70. The coverage provided under hourly plans is fixed, as provided under the terms of the plans. Health care coverage presently is extended to retirees and their qualified dependents during the retirees' lifetime. The coverage provided assumes participation by the retiree in the Medicare program and benefit payments are integrated with Medicare benefit levels. The Company's postretirement benefit plans other than pension plans are not funded. Claims are paid as incurred. Upon adoption of fresh-start reporting, postretirement benefit liabilities were recorded based on the unfunded accumulated postretirement benefit obligation as of March 31, 1994. All outstanding unamortized and unrecognized postretirement benefit items as of March 31, 1994 were recognized and recorded on the Company's consolidated balance sheet. 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 $4,378,000 and $3,705,000 to the VEBA during the year ended December 31, 1995 and the nine months ended December 31, 1994. Net periodic postretirement benefit cost for the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994 and the year ended December 31, 1993 included the following components (in thousands):
FOR THE FOR THE FOR THE FOR THE YEAR NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, 1995 1994 1994 1993 ------------ ------------ ------------ ------------ Service cost -- benefits attributed to service during the period............................................ $ 1,548 $1,536 $ 557 $ 1,912 Interest cost on accumulated postretirement benefit obligation............................................ 8,595 6,786 2,896 12,341 Net amortization and deferral........................... (1,182) -- 22 -- ------- ------ ------ ------- Net periodic postretirement benefit cost................ $ 8,961 $8,322 $3,475 $ 14,253 ======= ====== ====== =======
Benefits paid, including VEBA contributions, were approximately $7,255,000, $6,749,000, $2,195,000 and $9,444,000 for the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994 and the year ended December 31, 1993, respectively. 34 37 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The actuarial and recorded liabilities for these postretirement benefits, none of which have been funded, are as follows at December 31, 1995 and 1994 (in thousands):
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Accumulated postretirement benefit obligation: Retirees........................................................... $ 88,341 $ 89,640 Fully eligible active plan participants............................ 18,652 19,070 Other active plan participants..................................... 15,160 11,861 -------- -------- Accumulated postretirement benefit obligation........................ 122,153 120,571 Unrecognized net gain................................................ 16,873 16,749 -------- -------- Accrued postretirement benefit cost.................................. 139,026 137,320 Less current portion................................................. 7,800 7,686 -------- -------- Long-term accrued post-retirement benefit cost....................... $131,226 $129,634 ======== ========
The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.0% and 7.5% for 1995 and 1994, respectively. Compensation levels are assumed to increase annually at a rate of 4.5% in 1995 and 5.5% in 1994. For measurement purposes, a 12.5% and 10.0% annual medical rate of increase was assumed for 1995 for pre-medicare and post-medicare claims, respectively; the rate was assumed to decrease 1/2% each year to 6.0% per year after 2007 for pre-medicare claims, and decrease 1/2% per year to 6.0% after 2002 for post-medicare claims. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by 1 percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by approximately $8,800,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1995 by approximately $974,000. In the first quarter of 1993, the Kosmos Cement Company partnership, in which the Company owns a 25% interest, adopted SFAS No. 106. As a result, the Company recognized a charge of $782,000 or $0.05 per share representing its share of the partnership's cumulative effect of the change in accounting principle. 15. COMMON STOCK Upon emergence from its Chapter 11 proceedings, the Company authorized 25,000,000 shares of $1.00 par value common stock and issued 12,000,000 shares of that common stock (See Note 23). In 1995, the authorized number of shares of common stock was increased from 25,000,000 to 50,000,000. Transactions in common stock are as follows:
COMMON TREASURY SHARES SHARES ---------- ------- Balance, March 31, 1994................................................. 12,000,000 -- Exercise of warrants.................................................... 16 -- ---------- ------- Balance, December 31, 1994.............................................. 12,000,016 -- Exercise of warrants.................................................... 4,140 -- Exercise of options..................................................... 76,688 -- Odd lot program net share purchases..................................... -- 4,157 Purchase of shares...................................................... -- 600,000 ---------- ------- Balance, December 31, 1995.............................................. 12,080,844 604,157 ========== =======
At December 31, 1995, the Company has reserved 4,672,489 shares of its authorized but unissued common stock for possible future issuance in connection with the exercise of the warrants to purchase common stock (3,999,177 shares), 35 38 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) and the exercise of stock options (673,312 shares). The payment of cash dividends on common stock is restricted under the provisions of the Company's debt agreements (See Notes 9 and 10). As of December 31, 1995, $10,000,000 was available for the payment of dividends under the Company's most restrictive agreement. In April 1995, the Company's revolving credit agreement was amended. The amendment, among other changes, revised the limitation on paying dividends. In April, August and November 1995, the Board of Directors declared $0.05 dividends per common share, which were paid on June 15, 1995, September 15, 1995 and December 15, 1995 to shareholders of record as of June 1, 1995, September 1, 1995 and December 1, 1995, respectively. In addition, on February 1, 1996, the Board of Directors declared a $0.05 dividend per common share, payable on March 15, 1996 to shareholders of record as of March 1, 1996. On April 18, 1995, the Board of Directors approved a plan to repurchase common stock from shareholders who own less than 100 shares, and to allow shareholders to increase their shares owned up to 100 shares. The original program was extended through July 28, 1995. No brokerage commissions were incurred by shareholders related to these transactions. A total of 24,454 shares were tendered for sale by the shareholders and shareholders purchased 20,297 shares, under this program. In November 1995, the Board of Directors authorized the expenditure of up to $20,000,000 for the repurchase of the Company's common stock. In November 1995, the Company repurchased 600,000 shares of its common stock for $13,875,000. 16. WARRANTS TO PURCHASE COMMON STOCK Upon emergence from its Chapter 11 proceedings, the Company issued 4,003,333 warrants to purchase common stock at an exercise price of $18.75 per share. Each warrant entitles the holder thereof to purchase one share of common stock. The warrants are non-callable, non-redeemable and expire on December 31, 2000. As of December 31, 1995, 3,999,177 warrants were outstanding. 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. 17. STOCKHOLDER RIGHTS PLAN In November 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. Management believes that the rights plan represents a means of deterring abusive and coercive takeover tactics not offering an adequate price to all stockholders, and seeks to ensure that stockholders realize the long-term value of their investments. The rights plan provides that if, subject to certain exemptions, any person or group acquires 15% or more of the Company's common stock, each right not owned by a 15% or more stockholder or related parties will entitle its holder to purchase, at the right's then current exercise price, shares of common stock having a value of twice the right's then current exercise price. This right to purchase common stock at a discount will not be triggered by a person's or group's acquisition of 15% or more of the common stock pursuant to a tender or exchange offer which is for all outstanding shares at a price and on terms that the Board of Directors determines (prior to acquisition) to be adequate and in the best interests of the Company and its stockholders. In addition, this right will not be triggered by the stockholdings of certain existing stockholders. 36 39 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Under the rights plan, holders of the rights will initially be entitled to buy one one-tenth of a share of the Company's common stock at an exercise price of $70.00 for each whole share which a holder of rights may purchase. Until a person or group acquires 15% or more of the common stock or commences a tender or exchange offer for 15% or more of the common stock, the rights will attach to and trade with the common stock. The rights will expire in the year 2004. The Company may redeem the rights, at the option of the Board of Directors, at a redemption price of $0.01 per right at any time prior to the acquisition by any person or group of 15% or more of the common stock. In addition, after a person or group has acquired 15% or more of the common stock but before any person or group has acquired 50% or more of the common stock, the Company may exchange shares of common stock for rights. 18. STOCK OPTIONS Upon emergence from its Chapter 11 proceedings, the Board of Directors of the Company adopted the Lone Star Industries, Inc. Management Stock Option Plan ("Management Plan") and the Lone Star Industries, Inc. Directors Stock Option Plan ("Directors' Plan"). All options will expire 10 years from the date of grant.
OPTION EXERCISE OPTIONS OPTIONS PRICE OUTSTANDING EXERCISABLE ----------------- ----------- ----------- Balance, March 31, 1994............................. $ -- -- -- Options granted................................... $15.375-$15.6875 706,000 368,754 ------- ------- Balance, December 31, 1994.......................... 706,000 368,754 Options granted................................... $20.75 -$21.50 31,000 -- Options exercised................................. $15.375 (77,185) (77,185) Options which became exercisable.................. $15.375-$21.50 -- 125,004 Options expired or canceled....................... $15.375 (25,000) (12,500) ------- ------- Balance, December 31, 1995.......................... $15.375-$21.50 634,815 404,073 ======= =======
Options available for future grants under the Directors' Plan were 38,000 and 44,000 at December 31, 1995 and 1994, respectively. Options generally become exercisable over a three-year period. 19. 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, 1995 (in thousands). In accordance with Statement of Financial Accounting Standard 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, 1995 -------------------- CARRYING FAIR AMOUNT VALUE -------- ------- Financial assets: Cash and cash equivalents............................................... $ 50,049 $50,049 Financial liabilities: Asset proceeds notes of liquidating subsidiary.......................... $ 4,399 $ 4,399 Senior notes payable.................................................... $ 78,000 $79,609
The carrying amounts shown in the table are included in the accompanying consolidated balance sheet under the indicated captions. 37 40 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. Asset proceeds notes of liquidating subsidiary -- the fair value of the asset proceeds notes represents the amount expected to be paid by the liquidating subsidiary which is equal to the lesser of the value of the net assets of the liquidating subsidiary to be utilized to liquidate these obligations or the face value of the notes(See Note 25). The face value of the notes at December 31, 1995 is $4,399,000, and the notes are not publicly traded. Senior notes payable -- the fair value of long-term debt is based on quoted market prices. As of December 31, 1995 the senior notes were trading at 102.063% of face value. 20. OTHER INCOME, NET Other income, net, consists of the following (in thousands):
FOR THE FOR THE FOR THE FOR THE YEAR NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, 1995 1994 1994 1993 ------------ ------------ ------------ ------------ Rental income.................................. $ 507 $1,105 $2,184 $ 8,817 Interest income on investments................. 2,783 1,266 179 512 Other interest income.......................... 27 49 160 727 Other, net..................................... 723 1,400 168 1,182 ------ ------ ------ ------- $4,040 $3,820 $2,691 $ 11,238 ====== ====== ====== =======
38 41 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 21. INCOME TAXES (Provision) credit for income taxes consists of the following (in thousands):
FOR THE FOR THE FOR THE FOR THE YEAR NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, 1995 1994 1994 1993 ------------ ------------ ------------ ------------ Federal: Current.............................................. $ (1,098) $ -- $ 635 $ (1,541) -------- -------- -------- -------- Deferred: Difference between tax and book depreciation...... (1,308) 3,548 3,348 (3,320) Sale of assets.................................... (7,868) (9,716) -- -- Investment and other credits...................... 864 (7,790) (851) 635 Net operating loss carryforward................... (1,308) (2,388) 37,526 (6,209) Restructuring and other reserves.................. (10,184) (4,946) 12,578 3,132 Sale of international joint venture............... -- -- -- 26,093 Valuation allowance............................... 18,504 21,295 (53,249) (17,961) Other, net........................................ 1,300 (3) 13 (1,735) -------- -------- -------- -------- Total deferred......................................... -- -- (635) 635 -------- -------- -------- -------- Reduction of reorganization value/Reduction of paid in capital.............................................. (14,196) (13,830) -- -- -------- -------- -------- -------- Total federal.......................................... (15,294) (13,830) -- (906) -------- -------- -------- -------- Foreign: Current.............................................. -- (16) (5) -- Deferred tax on unremitted foreign earnings.......... -- -- -- 12,132 -------- -------- -------- -------- Total foreign.......................................... -- (16) (5) 12,132 -------- -------- -------- -------- State and local: Current.............................................. (700) (750) (150) (621) Deferred............................................. -- (1,204) -- (59) Reduction of reorganization value/Reduction of paid in capital........................................ (1,620) -- -- -- -------- -------- -------- -------- Total state and local.................................. (2,320) (1,954) (150) (680) -------- -------- -------- -------- Joint venture taxes.................................... -- -- -- (4,195) -------- -------- -------- -------- $(17,614) $(15,800) $ (155) $ 6,351 ======== ======== ======== ========
As of December 31, 1995, the Company has investment tax credit carryforwards for federal income tax purposes of $5,940,000 which expire at various dates through 2001. The Company also has regular tax and alternative minimum tax net operating loss carryforwards of approximately $201,000,000 and $56,000,000, respectively, which expire at various dates through 2009 and an alternative minimum tax credit carryforward of $6,575,000. 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 (See Note 23). Such an "ownership change" could limit the use or continued availability of the Company's carryforwards. Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" a portion of these carryforwards has been used for 39 42 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) financial reporting purposes to offset the tax effect of temporary differences between book carrying value and tax basis of certain assets which will reverse during the carryforward period. The following is a schedule of consolidated pre-tax income (loss) and a reconciliation of income taxes computed at the U.S. statutory rate to the (provision) credit for income taxes (in thousands):
FOR THE FOR THE NINE MONTHS FOR THE FOR THE YEAR ENDED THREE MONTHS YEAR ENDED DECEMBER ENDED ENDED DECEMBER 31, 31, MARCH 31, DECEMBER 31, 1995 1994 1994 1993 ------------ ----------- ------------ ------------ Income (loss) before income taxes and cumulative effect of changes in accounting principles...... $ 53,376 $ 45,133 $(22,963) $(41,609) -------- -------- -------- -------- Tax (provision) benefit computed at statutory rates........................................... (18,681) (15,796) 8,037 14,563 Differences resulting from: Foreign subsidiaries, net.................... (140) (175) (294) 397 Corporate joint ventures..................... -- -- -- 9,405 Restructuring................................ -- -- 45,212 -- State tax, net............................... (2,320) (1,954) (150) (680) Other........................................ 3,527 2,125 -- 627 Valuation allowance.......................... -- -- (52,960) (17,961) -------- -------- -------- -------- $(17,614) $ (15,800) $ (155) $ 6,351 ======== ======== ======== ========
Components of net deferred tax assets (liabilities) as of December 31, 1995 and 1994 are as follows (in thousands):
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Current tax assets related to: Reserves........................................................... $ 4,958 $ 3,670 Miscellaneous...................................................... 6,094 8,126 -------- --------- 11,052 11,796 Non-current tax assets related to: Reserves not yet deducted.......................................... 14,633 20,879 Reserve for retiree benefits....................................... 45,817 43,851 Loss carryforwards................................................. 70,334 71,642 Investment credits................................................. 5,940 6,628 Alternative minimum tax credits.................................... 6,575 5,023 Miscellaneous...................................................... 3,331 7,191 -------- --------- 146,630 155,214 Non-current tax liabilities related to: Fixed assets....................................................... (50,317) (33,742) Domestic joint ventures............................................ (8,763) (16,162) -------- --------- (59,080) (49,904) Valuation allowance.................................................. (98,602) (117,106) -------- --------- Net federal tax asset................................................ -- -- State & other........................................................ (6,688) (6,688) -------- --------- Net deferred......................................................... $ (6,688) $ (6,688) ======== =========
40 43 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In accordance with AICPA Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", income tax benefits including those realized from preconfirmation net operating loss carryforwards were used first to reduce the reorganization value in excess of amounts allocable to identifiable assets and then increase to paid-in capital. Net income taxes paid during the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994 and the year ended December 31, 1993 were $395,000, $86,000, $756,000 and $1,038,000, respectively. 22. ASSET DISPOSITIONS In December 1995, the Company sold its concrete railroad cross-tie plant and office building in Denver, Colorado for $2,250,000, which approximated book value. In October 1995, the Company sold the assets of its Nova Scotia, Canada aggregate quarry including working capital for $11,408,000, which approximated book value. In February, March and June 1995, the Company sold the assets of its hollow metal door/hardware business in Illinois, a piece of surplus property in Mississippi and a cement terminal in Florida for $290,000, $325,000 and $390,000, respectively. The Company had been leasing the terminal to the buyer prior to the sale. In June 1994, the Company sold its interest in a cement plant located in Florida for $21,750,000, which approximated book value. The plant had been leased to a third party and was purchased by the lessee. In March 1993, the Company sold substantially all of the equipment and inventory of Southern Aggregates for $721,000. In September 1993, the Company sold its 49.6% interest in Companhia Nacional de Cimento Portland, a Brazilian joint venture, for $69,629,000 in cash. A pre-tax loss of $37,335,000, offset by a tax benefit of $12,500,000, was recognized on the transaction and is included in reorganization items in the accompanying consolidated statement of operations. In September 1993, the Company sold one of its cement terminals which had been leased to a third party, for $812,000. The operations sold in 1995, 1994 and 1993 contributed the following results for the period through their respective dates of disposition (in thousands):
FOR THE FOR THE FOR THE FOR THE YEAR NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, 1995 1994 1994 1993 ------------ ------------ ------------ ------------ Net sales................................ $8,130 $7,789 $997 $ 11,361 Joint venture income..................... $-- $-- -$- $ 9,745 Pre-tax income (loss).................... $ (176) $ (741) $(93) $ 3,851
23. CHAPTER 11 PROCEEDINGS AND THE ADOPTION OF "FRESH-START" REPORTING On February 17, 1994, with the approval of all voting classes of creditors and equity holders, the United States Bankruptcy Court for the Southern District of New York confirmed the Debtors Modified Amended Consolidated Plan of Reorganization dated November 4, 1993 (as further modified on February 17, 1994) (the "plan"). On April 14, 1994, (the "effective date") the plan became effective, and distributions to creditors and shareholders commenced. In accordance with the plan, certain core cement, ready-mixed concrete and construction aggregates operations constitute the reorganized Lone Star. Other non-core assets of the Company and their associated liabilities were transferred to Rosebud Holdings, Inc., a wholly-owned liquidating subsidiary and its subsidiaries (collectively "Rosebud") for disposition and distribution of the proceeds of such dispositions, for the benefit of unsecured creditors (See Note 25). 41 44 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The plan provided for distributions on the effective date to claims which were allowed at that time, and for the establishment of a reserve for certain disputed, contingent and unliquidated claims. On the effective date, the escrow agent administering the reserve received a distribution of cash and securities attributable to the reserved claims. As of the effective date, the total amount of allowed and reserved claims was $590,944,000, which the Company expects to be reduced to approximately $584,016,000 when all claims are paid. In connection with the plan, holders of allowed and reserved secured claims, priority claims and convenience claims were paid $8,262,000 in cash. Holders of allowed and reserved unsecured claims, which the Company estimates will be $575,754,000 when all claims are paid, were entitled to receive their pro rata share of (i) $192,189,000 in cash, (ii) $78,000,000 ten year 10% senior unsecured notes of the reorganized Company, (iii) $138,118,000 secured asset proceeds notes of Rosebud, to be paid out of the proceeds from the disposition of its assets (See Notes 8 and 25) and (iv) 85.0% of the common stock of reorganized Lone Star. Holders of the Company's cumulative convertible preferred stock received a pro rata share of 10.5% of the common stock of reorganized Lone Star and 1,250,000 warrants to purchase common stock of the reorganized Lone Star. The holders of common stock of Lone Star received the balance of reorganized Lone Star's common equity and 2,753,333 warrants to purchase common stock in the reorganized Lone Star. The warrants are exercisable through December 31, 2000, and each warrant provides for the purchase of one share of the common stock of reorganized Lone Star at a price of $18.75 per share. In addition, in accordance with the plan, as part of the agreement with the Pension Benefit Guaranty Corporation ("PBGC") the Company granted the PBGC a mortgage on the Oglesby, Illinois plant, and a security interest in the Company's 25% interest in the Kosmos Cement Company partnership, to secure certain contingent future pension obligations. As of the effective date of the plan, the sum of allowed claims plus post-petition liabilities of the Company exceeded the value of its pre-confirmation assets. In addition, the Company experienced a change in control as pre-reorganization equity holders received less than 50% of the reorganized Lone Star common stock issued pursuant to the plan. Therefore, in accordance with AICPA Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP No. 90-7"), the Company adopted "fresh-start" reporting which assumes that a new reporting entity has been created and requires assets and liabilities be adjusted to their fair values as of the effective date. Although the plan became effective on April 14, 1994, for accounting purposes the effective date of the plan is considered to be March 31, 1994, and accordingly, the Company adopted fresh-start reporting as of March 31, 1994. Adjustments were recorded as of March 31, 1994 to reflect the effects of the consummation of the plan and to reflect the implementation of fresh-start reporting. The reorganization value of the Company was determined using several factors and by reliance on various valuation methods, including discounted cash flows, price/earnings ratios and other applicable ratios. Reorganization value generally approximates fair value of the entity before considering liabilities and approximates the amount a buyer would pay for the assets of the entity after the reorganization. Based on information from parties in interest and from Lone Star's financial advisors, the total reorganization value of the Company was $579,411,000. The reorganization value was then allocated to the Company's assets and liabilities in conformity with the Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB No. 16"), as specified by SOP No. 90-7. Income related to the settlement of liabilities subject to the Company's Chapter 11 proceedings is included in the accompanying consolidated statement of operations as an extraordinary gain on discharge of prepetition liabilities. The gains or losses related to the adjustments of assets and liabilities to fair value are included in reorganization items in the accompanying consolidated statement of operations (See Note 26). The reorganization value in excess of amounts allocable to identifiable assets is the portion of the reorganization value of the Company which was not attributed to specific assets of the Company. 24. PRO FORMA INFORMATION The following pro forma condensed financial information of the Company and its subsidiaries illustrates the estimated financial effects of the implementation of the plan (which resulted in the end of the Company's 1989 restructuring program) and its adoption of fresh-start reporting. Pro forma statement of operations data for the three 42 45 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) months ended March 31, 1994 have been presented as if the Company had emerged from its Chapter 11 bankruptcy proceedings and adopted fresh-start reporting prior to January 1, 1994. The pro forma data is unaudited. LONE STAR INDUSTRIES, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1994 (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
EFFECT OF PLAN OF REORGANIZATION AND FRESH-START PRO FORMA HISTORICAL REPORTING RESULTS ---------- ----------------- --------- Revenues: Net sales.......................................................... $ 33.7 $ 11.6 $ 45.3 Joint venture income............................................... 0.4 (0.3) 0.1 Other income....................................................... 2.7 (1.5) 1.2 ---------- ----------------- --------- 36.8 9.8 46.6 ---------- ----------------- --------- Deductions from revenues: Cost of sales...................................................... 29.7 17.7 47.4 Recovery of litigation settlement.................................. (6.5) -- (6.5) Selling, general and administrative................................ 9.9 (1.6) 8.3 Depreciation and depletion......................................... 6.7 (0.6) 6.1 Interest expense................................................... 0.2 2.0 2.2 ---------- ----------------- --------- 40.0 17.5 57.5 ---------- ----------------- --------- Loss before reorganization items..................................... (3.2) (7.7) (10.9) Reorganization items: Adjustments to fair value.......................................... (133.9) 133.9 -- Other.............................................................. (13.4) 13.4 -- ---------- ----------------- --------- Total reorganization items........................................... (147.3) 147.3 -- ---------- ----------------- --------- Loss before income taxes and extraordinary item...................... (150.5) 139.6 (10.9) Credit (provision) for income taxes.................................. (0.2) 4.0 3.8 ---------- ----------------- --------- Loss before extraordinary item....................................... (150.7) 143.6 (7.1) Extraordinary item: gain on discharge of prepetition liabilities..... 127.5 (127.5) -- ---------- ----------------- --------- Loss before provision for preferred dividends........................ $ (23.2) $ 16.1 $ (7.1) ======= ============ ======== Primary and fully diluted loss per common share...................... $ (0.59) ========
The following pro forma condensed financial information for the year ended December 31, 1994 illustrates the estimated operating results as if the Company had emerged from its Chapter 11 proceedings and adopted fresh-start reporting prior to January 1, 1994 by combining the pro forma results for the three months ended March 31, 1994 and the actual results for the nine months ended December 31, 1994. 43 46 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) LONE STAR INDUSTRIES, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1994 (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
PRO FORMA ACTUAL PRO FORMA RESULTS FOR RESULTS FOR RESULTS THE THREE THE NINE FOR THE MONTHS ENDED MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, 1994 1994 1994 ------------ ------------ ------------ Revenues: Net sales................................................... $ 45.3 $261.6 $306.9 Joint venture income........................................ 0.1 4.5 4.6 Other income................................................ 1.2 3.8 5.0 ----- ----- ----- 46.6 269.9 316.5 ----- ----- ----- Deductions from revenues: Cost of sales............................................... 47.4 177.0 224.4 Recovery of litigation settlement........................... (6.5) -- (6.5) Selling, general and administrative......................... 8.3 23.8 32.1 Depreciation and depletion.................................. 6.1 17.2 23.3 Interest expense............................................ 2.2 6.8 9.0 ----- ----- ----- 57.5 224.8 282.3 ----- ----- ----- Income (loss) before income taxes............................. $(10.9) $ 45.1 34.2 ===== ===== ===== Provision for income taxes.................................... (12.0) ----- Net income.................................................... $ 22.2 ===== Primary income per common share............................... $ 1.76 ===== Fully diluted income per common share......................... $ 1.75 =====
The above pro forma condensed financial information includes estimated adjustments for the following items: As a result of the implementation of the plan of reorganization and adoption of fresh-start reporting, the Company's 1989 Restructuring Program ended effective March 31, 1994. Operating results of the cement plants at Pryor, Oklahoma and Maryneal, Texas, which were formerly included in assets held for sale, are included in the pro forma consolidated operating results for the three months ended March 31, 1994 and the year ended December 31, 1994. The operating results of the assets and liabilities which were transferred to Rosebud for distribution for the benefit of creditors have been eliminated from the pro forma statements of operations. Cost of sales has been adjusted to reflect the write-up of inventory in accordance with fresh-start reporting. In connection with the adjustment of the property, plant and equipment balances to reflect the values of the assets under fresh-start reporting, the pro forma consolidated operating results have been adjusted to include the change in depreciation expense related to the new values. Interest expense related to long-term debt, including the senior notes of the reorganized company, has been included in the pro forma statements of operations. 44 47 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Due to the elimination of common and preferred shareholders' equity of the predecessor company, and its replacement with common equity of the successor company, the provision for preferred dividends has been eliminated from the pro forma statements of operations. Cost of sales for the three months ended March 31, 1994 has been adjusted to reflect the Company's change in its method of accounting for inventory for interim reporting purposes and the expensing of deferred costs in accordance with the adoption of fresh-start reporting. In addition, cost of sales has been adjusted to reflect costs related to its construction aggregates barges which were deferred during the first quarter of 1994 and subsequently written-off in accordance with fresh-start reporting. Similar costs will be incurred and expensed in future years. All Chapter 11 reorganization items included in the historical statements of operations have been eliminated from the pro forma statements of operations. The extraordinary gain on discharge of pre-petition liabilities has been eliminated. The pro forma statements of operations have been adjusted, in accordance with the requirements of fresh-start reporting, to reflect the reduction in expenses resulting from bankruptcy-related settlements, including settlements reached with the PBGC and retirees. 25. ROSEBUD HOLDINGS, INC. LIQUIDATING SUBSIDIARY As part of the plan, the Company transferred on April 14, 1994 certain non-core assets and their related liabilities, certain other miscellaneous assets, and a $5,000,000 cash investment to be used for working capital purposes, to Rosebud. The Company is under no obligation to fund additional Rosebud working capital requirements. Lone Star's investment in Rosebud, which is comprised of real estate and cash, net of associated liabilities, is included in the Company's December 31, 1995 consolidated balance sheet at the face value of the asset proceeds notes of $4,399,000. This reflects the expectation at December 31, 1995 that the net realizable value of the assets will be, at a minimum, enough to liquidate the asset proceeds notes in their entirety. Generally, net realized value is the amount which is reasonably expected to be received upon a sale to a willing buyer, less costs to sell. Net realizable value may differ from the eventual realizable value of the assets. In addition, it is difficult to estimate the time required to complete this process. The asset proceeds notes are recorded on the accompanying consolidated balance sheet at the lesser of the face value of the notes or the estimated value of the assets to be utilized to liquidate these obligations. Prior to December 31, 1995, the Company's investment in Rosebud reflected the estimated net realizable value of the assets, which was less than the face value of the asset proceeds notes. The decrease of $82,601,000 from the December 31, 1994 balance is primarily due to asset sales, certain insurance and other settlements and the subsequent distribution of the net proceeds to asset proceeds note holders. On the effective date of the plan, Rosebud issued secured asset proceeds notes in the aggregate principal amount of $138,118,000. The asset proceeds notes are secured by liens and security interests, as the case may be, on substantially all of the Rosebud assets. The asset proceeds notes bear interest at a rate of 10% per annum payable in cash and/or additional asset proceeds notes, payable in semi-annual installments (the July 31, 1994, January 31, 1995, July 31, 1995 and January 31, 1996 interest payments were paid in cash). The asset proceeds notes are to be repaid as Rosebud's assets are sold. All net cash proceeds less a $5,000,000 cash reserve plus up to an additional $5,000,000 for estimated Rosebud working capital needs, are to be deposited in a cash collateral account for distribution to the note holders. The asset proceeds notes mature on July 31, 1997. These notes were guaranteed, in part, by Lone Star. As a result of the interest and principal payments made by Rosebud, the Company's guarantee, the guarantee agreement and the related pledge of Rosebud's common stock owned by the Company were terminated as of July 14, 1995. Liabilities associated with all Rosebud Assets, sold and unsold, were assumed by Rosebud and it has agreed to indemnify Lone Star for these liabilities. The assumption by Rosebud of Lone Star's liabilities may not be binding upon third parties, and, in any event, as to such liabilities, however, arising from actions or circumstances that existed on or 45 48 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) before April 14, 1994 and that result in payments to Lone Star aggregating in excess of $7,000,000, Rosebud's obligation to indemnify Lone Star in respect thereof is subordinated to repayment of the asset proceeds notes. In January 1995, Rosebud received $9,000,000 as a return of capital from the Lone Star-Falcon partnership upon completion of the sale of the partnership's cement terminals in Texas. In January 1995, Rosebud sold surplus property in Florida for $1,500,000. In March 1995, Rosebud received proceeds of $4,000,000 from the sale of surplus property in Texas. In May 1995, Rosebud sold the stock of a wholly-owned subsidiary, Lone Star California, Inc. and the promissory notes executed by RMC LONESTAR payable to Lone Star California, Inc. for cash proceeds of $18,826,000. In June 1995, Rosebud sold surplus property in Florida for $5,000,000. In January and June 1995, Rosebud sold surplus property in Louisiana, Maryland and Florida for total proceeds of $954,000. In September 1995, Rosebud sold its 50% interest in Hawaiian Cement, a Hawaiian partnership for $31,000,000. In October 1995, Rosebud sold surplus property in Texas receiving $5,000,000 in net proceeds. During 1994, Rosebud had reached final agreements with substantially all the insurance carriers involved in litigation, related to indemnity in the railroad crosstie litigation cases, and received $5,300,000. In April 1995 a settlement was reached with the remaining insurance companies and a payment of $4,200,000 was subsequently received. In May 1995 agreements in principle were reached with two Argentine companies to settle the litigation related to the 1992 auction sale of the Company's Argentine subsidiary. Payments totaling $2,500,000 were received. In addition, in July 1995, a settlement was reached in the railroad crosstie litigation against Northeast Cement Company and its affiliates, which resulted, in August 1995, in a net payment to Rosebud of $9,402,000. In 1995, Rosebud made total principal payments of $102,000,000 and total interest payments of $10,825,000. An additional interest payment of $209,000 was made in January 1996. Total principal and interest payments made through December 31, 1995 were $150,457,000. In January 1996, Rosebud sold surplus property in Washington for cash proceeds of $1,358,000. Cash generated by Rosebud in excess of the remaining face value of the asset proceeds notes, accrued interest and Rosebud working capital requirements, if any, will be paid to Lone Star. 26. REORGANIZATION ITEMS The effects of transactions occurring as a result of the Chapter 11 filings have been segregated from ordinary operations in the accompanying consolidated statements of operations. Such items for the three months ended March 31, 1994, and for the year ended December 31, 1993, include the following (in thousands):
FOR THE FOR THE THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, 1994 1993 -------------- ------------ Professional fees and administrative expenses...................... $ (15,431) $(15,572) Interest income.................................................... 2,035 5,102 --------- -------- (13,396) (10,470) Gain (loss) on sale of assets...................................... -- (37,335) Adjustments to fair value.......................................... (133,917) -- --------- -------- $ (147,313) $(47,805) ========= ========
Professional fees and administrative expenses related to the Chapter 11 proceedings were expensed as incurred. Interest income represents interest earned on cash accumulated as a result of the Chapter 11 proceedings. The loss on the sale of assets in 1993 represents the pre-tax loss on the sale of the Company's 49.6% interest in Companhia Nacional de Cimento Portland. 46 49 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 27. ENVIRONMENTAL MATTERS The Company is subject to extensive, stringent and complex federal, state and local laws, regulations and ordinances pertaining to the quality and the protection of the environment and human health and safety, requiring the Company to devote substantial time and resources in an effort to maintain continued compliance. Many of the laws and regulations apply to the Company's former activities, properties and facilities as well as its current operations. 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 current operations or could otherwise substantially increase the capital, operating and other costs associated with compliance. Moreover, 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. In addition, 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. Cement kiln dust ("CKD"), a by-product of cement manufacturing, is currently exempted from regulation as a hazardous waste pursuant to the Bevill Amendment to the Resource Conservation and Recovery Act ("RCRA"). However, on January 31, 1995 the Environmental Protection Agency ("EPA") issued a regulatory determination regarding the need for regulatory controls on the management, handling and disposal of CKD. Generally, the EPA regulatory determination provides that the EPA intends to draft and promulgate regulations imposing controls on the management, handling and disposal of CKD that will be based largely on selected components of the existing RCRA hazardous waste regulatory program, tailored to address the specific regulatory concerns posed by CKD. The EPA regulatory determination further provides that new CKD regulations will be designed both to be protective of the environment and to minimize the burden on cement manufacturers. In early 1996, EPA officials reported that certain other alternatives -- such as oversight of CKD management by state environmental agencies -- also are being explored. It is not possible to predict at this time what, if any, new regulatory controls on the management, handling and disposal of CKD or what increased costs (or range of costs), if any, would be incurred by the Company to comply with these requirements. As an alternative to new EPA regulations or state oversight, portland cement manufacturers, including Lone Star, are engaged in negotiations with the EPA in an attempt to enter into other arrangements relating to the management of CKD. On July 20, 1995, the State of Indiana made a determination that the CKD stored at the Company's Greencastle plant is a type I waste and requested that the Company apply for a formal permit for an on-site landfill for the CKD. The Company understands that similar notices were sent to other cement manufacturers in the State of Indiana. The Company is protesting this determination through legal channels and has received a stay to allow it to demonstrate that current management practices pose no threat to the environment. The Company believes that the State's determination ultimately will be reversed or the Company will receive the needed permit or other adequate relief, such as an agreed order requiring certain additional waste management procedures that are less stringent than those required for type I wastes. If the Company is not successful in this regard, however, like other Indiana cement producers, the Greencastle plant could incur substantially increased operating and capital costs. The Cape Girardeau, Missouri and Greencastle, Indiana plants, which are the Company's two cement manufacturing facilities using hazardous waste fuels ("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 Boiler and Industrial Furnace Regulations promulgated under RCRA (the "BIF Rules"). These facilities qualified for and operate under interim status pursuant to RCRA and the BIF Rules. While Lone Star believes that it is currently in compliance with the extensive and complex technical requirements of the BIF Rules, in the past Lone Star has been involved in certain environmental enforcement proceedings seeking civil penalties and injunctive relief for past noncompliance, and 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. As a result of a court decision vacating a BIF Rules air emission standard, the 47 50 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Company temporarily curtailed its use of HWF at the Greencastle plant. The Company completed compliance testing in August 1995, has recertified under interim status and has commenced burning HWF. The Company is currently engaged in the process of securing the permit required under RCRA and the BIF Rules for the Cape Girardeau plant. The Company anticipates that the Greencastle plant also will go through this permitting process in late 1996. These permits are a requirement to enable Lone Star to continue the use of HWF at those facilities. The permitting process is lengthy and complex, involving the submission of extensive technical data. There can be no assurances that the Company will be successful in securing a final RCRA permit for either or both of its HWF facilities. In addition, if received, the permits could contain terms and conditions with which the Company cannot comply or could require the Company to install and operate costly control technology equipment. Since 1991, federal and state environmental agencies have conducted inspections and instituted inquiries and administrative actions regarding waste fuel operations at both of the Company's cement manufacturing facilities which burn HWF. In the first half of 1994 the Company paid amounts totaling approximately $402,000 representing negotiated settlements with federal and state environmental entities of administrative actions that alleged violations of regulations pertaining to the handling and burning of HWF at the Greencastle plant. In March 1994, the EPA instituted an administrative proceeding regarding waste fuel operations at the Company's Cape Girardeau plant, seeking over $500,000 in civil penalties. The Company negotiated a settlement with the EPA which requires the payment by the Company of a civil penalty of approximately $200,000, approximately $87,000 of which was offset by two supplemental environmental projects completed in 1995. Lone Star was given official notices by the EPA that it intended to pursue a civil penalty action for alleged regulatory violations at the Cape Girardeau facility with respect to the installation of a secondary crusher and the replacement of screens in 1986 and 1987. The Company has negotiated a settlement of this matter with the EPA which will involve the payment of $40,000 to the EPA and the paving of certain roads at the facility to control fugitive dust at an estimated cost of $150,000. The Texas Natural Resource Conservation Committee ("TNRCC") has issued a notice of violations in respect of certain air permitting application matters at the Company's Maryneal, Texas plant. The TNRCC has also investigated certain solid waste and water matters, and has had two conferences with the Company concerning all of these matters. The TNRCC has advised the Company that it will propose formal enforcement action in respect of the Company's air permits, which could include a penalty and injunctive relief, and will require certain additional safeguards in respect of solid waste disposal. The Company does not expect that these matters will have a material adverse affect on its Maryneal, Texas operations. Past operations of the Company, certain of its subsidiaries, or its predecessors 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. Included are sites located in: Utah (seven sites, including three National Priority List ("NPL") sites which were settled during the bankruptcy proceedings as discussed below); Illinois (one NPL site); Texas (two sites, including one NPL site); Missouri (one NPL site); Washington (one NPL site); Minnesota (two NPL sites); Colorado (one NPL site); Florida (five sites, including two related NPL sites and the two non-NPL sites described below); California (one non-NPL site described below); Pennsylvania (one NPL site); and Louisiana (one NPL site). Except for the matters described below, available factual information indicates that the Company's disposal of waste at these sites was small or non-existent, and the Company may have certain defenses arising out of its reorganization. In certain instances the Company has availed itself of settlement offers it has found attractive. The Company is also reviewing certain of its inactive properties to determine if any remedial action may be required at these sites. In July 1989, the Company was advised by the EPA, that it was a potentially responsible person ("PRP") with respect to three adjoining sites in Salt Lake City, Utah on which CKD and small amounts of chrome-containing kiln brick from the Company's Utah cement plant had been deposited. In July 1990, the EPA and the Utah Department of Health 48 51 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) issued a record of decision selecting a remedial action calling for removal of the CKD, over a period of time, to a location to be selected in the Salt Lake City vicinity where an industrial type landfill would be constructed. The Company settled this matter during its bankruptcy proceedings and has also settled an action brought by the Company in United States District Court in Utah seeking contribution from two other PRP's for their share of investigation and cleanup costs of the sites. The settlement agreement relating to the contribution claims are subject to the other PRP's reaching settlements with the EPA, the negotiation of which is continuing. In the early 1970's, the Company acquired subsidiaries that conducted woodtreating or wood-dipping operations at two sites in Florida. Contamination from chemicals used in the woodtreating operations at these non-NPL sites have been the subject of various proceedings by federal, state and local environmental entities, as well as lawsuits involving private parties. The Company has brought actions against its insurers in respect of defense and cleanup costs at both sites. In 1992, an EPA approved cleanup of soils and water at a site in Dania, Florida previously owned by Lone Star was completed. Lone Star has also agreed with the State of Florida Department of Environmental Protection ("FDEP") to undertake a monitoring program for the presence of pentachlorophenol ("PCP") in the groundwater. The monitoring has shown the groundwater to be free of PCP, and the FDEP has advised the Company that no further remediation or monitoring of PCP will be required. However, traces of other elements have been noted, and monitoring of these elements will continue. This site was transferred to Rosebud in 1994 and sold by Rosebud in 1995. From the proceeds of the sale, $2,000,000 was placed in escrow to assure compliance with the Company's agreement with the FDEP, and Rosebud is currently negotiating to receive the funds remaining in this escrow. The Company completed certain cleanup of soils at a site in Dade County, Florida in 1992 and agreed to undertake further groundwater investigation of the site and, if necessary, soil remediation, groundwater treatment and ground water monitoring programs all within a specified monetary cap of $2,000,000. At the time of the 1994 sale of its interest in the Santa Cruz cement plant, Rosebud committed to regulatory authorities to undertake the closure of a former waste landfill area at the plant site. The closure has been completed, and postclosure monitoring of the site is the responsibility of the plant owner. The Company, along with numerous other parties, has been named a defendant in a series of toxic tort lawsuits filed in a Texas state court commencing in March 1994 in which multiple plaintiffs claim to have suffered injury from the proximity of deposits of toxic wastes or substances at a site located near Galveston, Texas. The toxic wastes or substances are alleged to have been deposited at the site starting in the 1940's. The Company does not believe that it has any responsibility for the site and intends to contest these lawsuits vigorously. The Company's insurance carriers have been notified of the claims but have denied coverage. The December 31, 1995 consolidated balance sheet includes accruals of $6,900,000 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. 28. LITIGATION From time to time the Company is named as a defendant in lawsuits asserting product liability for which the Company maintains insurance coverage. In late 1995 an office building in Boston, Massachusetts, constructed in 1983 using concrete pilings produced by San-Vel Concrete Corporation ("San-Vel"), an inactive Lone Star subsidiary, was demolished by order of the City of Boston based upon an engineering report that the pilings were unreliable. The owner of the demolished building has notified the Company, among others, that it intends to hold responsible parties liable. At the request of the City of Boston, San-Vel has provided a list of the approximate twenty-five other buildings built in that City between 1980 and 1990 using San-Vel pilings. The City has reportedly inspected these buildings visually, without noting any apparent piling failure, although engineering studies are reportedly being conducted with final results expected in mid-1996. The Company believes that the cement component of the concrete used to produce the pilings in certain of these buildings, including the demolished building, was produced by it at one of its former cement plants. There has been no indication that the cement was defective. The Company is conducting an investigation into these matters and believes that 49 52 LONE STAR INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) it has both insurance coverage and good defenses to any claim of liability that may be asserted against it relating to the demolished building. 29. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1995 and 1994 is as follows (in thousands except per share data):
SUCCESSOR COMPANY QUARTER -------------------------------------------- 1995 FIRST SECOND THIRD FOURTH - ------------------------------------------------------------ ------- ------- -------- ------- Net sales................................................... $52,711 $87,553 $100,611 $82,133 Gross profit................................................ $ 427 $26,563 $ 31,478 $23,491 Net income (loss)........................................... $(5,082) $12,133 $ 18,122 $10,589 ------- ------- -------- ------- Primary net income per common share......................... $ (0.42) $ 0.89 $ 1.30 $ 0.79 ------- ------- -------- ------- Fully diluted net income per common share................... $ (0.42) $ 0.89 $ 1.30 $ 0.78 ------- ------- -------- -------
PREDECESSOR SUCCESSOR COMPANY COMPANY QUARTER --------- ------------------------------- 1994 FIRST SECOND THIRD FOURTH - ----------------------------------------------------------- --------- ------- ------- ------- Net sales.................................................. $ 33,709 $86,995 $95,969 $78,681 Gross profit (loss)........................................ $ (443) $20,264 $28,276 $19,783 Net income (loss) before extraordinary item................ $(150,638) $ 7,914 $13,441 $ 7,978 Net income(loss)........................................... $ (23,118) $ 7,914 $13,441 $ 7,978 --------- ------- ------- ------- Primary and fully diluted net income per common share:..... $ n/m $ 0.62 $ 0.99 $ 0.61 --------- ------- ------- -------
- --------------- (1) Gross profit is net of depreciation expense relating to cost of sales of $23,107,000, $16,326,000 and $4,697,000 in the year ended December 31, 1995, the nine months ended December 31, 1994 and the three months ended March 31, 1994, respectively. (2) Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share in 1994 and 1995 does not equal the total computed for the year due primarily to the use of the modified treasury stock method throughout the two years except for the first quarter of 1995 in which the result was anti-dilutive. (3) Earnings per share for the first quarter of 1994 are not meaningful due to reorganization and revaluation entries and the issuance of 12,000,000 shares of new common stock (See Note 23). 50 53 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III The information required by Part III (Items 10-13) is incorporated herein by reference to the captions "Election of Directors," "Executive Compensation" and "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement which pursuant to Regulation 14A will be filed not later than 120 days after the end of the fiscal year covered by this Report. Certain information relating to the Company's executive officers is included in Part I of this Report under the caption "Executive Officers of Registrant." 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 21 of this Report. 2. EXHIBITS: 2.1 -- Voluntary Petition for Relief under Chapter 11 of the United States Bankruptcy Code dated December 10, 1990 (incorporated herein by reference on Exhibit 28A of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 2.2 -- Modified Amended Disclosure Statement Regarding Debtors' Modified Amended Consolidated Plan of Reorganization and exhibits thereto (incorporated herein by reference to the Registrant's Form T-3 filed January 14, 1994). 2.3 -- Modification of Debtor's Plan of Reorganization (incorporated herein by reference to Exhibit 2 of the Registrant's Current Report on Form 8-K dated March 1, 1994). 2.4 -- Order Confirming Debtors' Modified Amended and Consolidated Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated February 17, 1994 (incorporated herein by reference to Exhibit 28E of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993). 3.1 -- Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 3.2 -- Certificate of Amendment of 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 June 30, 1995). 3.3 -- Amended By-Laws (incorporated herein by reference to Exhibit 3(ii) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.1 -- Indenture, dated as of March 29, 1994, between Lone Star Industries, Inc. and Chemical Bank, as Trustee, relating to 10% Senior Notes Due 2003 of Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 4A of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.2 -- 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). 4.3 -- Financing Agreement, dated as of April 13, 1994 (the "Financing Agreement"), among Lone Star Industries, Inc., its subsidiary, New York Trap Rock Corporation, and The CIT Group/Business Credit, Inc. (incorporated herein by reference to Exhibit 4C of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994).
51 54 4.3(i) -- Amendment No. 1, dated as of March 24, 1995, to the Financing Agreement (incorporated herein by reference to Exhibit 4C(i) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995). 4.3(ii) -- Second Amendment, dated as of November 14, 1995, to the Financing Agreement (filed herewith). 4.3(iii) -- Third Amendment, dated as of December 11, 1995, to the Financing Agreement (filed herewith). 4.4 -- Rights Agreement, dated as of November 10, 1994, between Lone Star Industries, Inc. and Chemical Bank (incorporated herein by reference to the Registrant's Form 8-A, dated November 17, 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 -- Settlement Agreement, dated as of April 12, 1994, by and between Pension Benefit Guaranty Corporation and the Lone Star Group (incorporated herein by reference to Exhibit 10.24 of the Registrant's Registration Statement on Form S-1, File Number 33-55377). 10.3 -- 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). 10.4 -- Registration Rights Agreement, dated as of July 18, 1994, among Lone Star Industries, Inc., Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company and TCW Special Credits, as Agent and Nominee (incorporated herein by reference to Exhibit 10.22 of the Registrant's Registration Statement on Form S-1, File Number 33-55377). 10.5 -- Rights Agreement, dated as of November 10, 1994, between Lone Star Industries, Inc. and Chemical Bank (incorporated herein by reference to the Registrant's Form 8-A, dated November 17, 1994). *10.6 -- Amended and Restated Employment Agreement, dated as of February 1, 1996, between David W. Wallace and Lone Star Industries, Inc. (filed herewith). *10.7 -- Stock Option Agreement, dated as of June 8, 1994, between David W. Wallace and Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10D(ii) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.8 -- Amended and Restated Employment Agreement, dated as of February 1, 1996, between William M. Troutman and Lone Star Industries, Inc. (filed herewith). *10.9 -- Amended and Restated Agreement, dated February 1, 1996, between William M. Troutman and Lone Star Industries, Inc. (filed herewith). *10.10 -- Stock Option Agreement, dated as of June 8, 1994, between William M. Troutman and Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10E(iii) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.11 -- Employment Agreement, dated July 1, 1994, between John J. Martin and Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10F(i) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.12 -- Stock Option Agreement, dated as of June 8, 1994, between John J. Martin and Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10F(ii) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.13 -- 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). *10.14 -- Form of "Change of Control" agreement for certain executive officers of Lone Star Industries, Inc. (filed herewith).
52 55 10.15 -- Change of Control agreement, dated July 1, 1994, between the Company and Mr. Pasquale P. Diccianni (filed herewith). *10.16 -- Form of 25,000 shares stock option agreement for executive officers of Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10I of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.17 -- Form of 75,000 shares stock option agreement for executive officers of Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10J of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.18 -- Lone Star Industries, Inc. Rosebud Incentive Plan (incorporated herein by reference to Exhibit 10K of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.19 -- Lone Star Industries, Inc. Management Stock Option Plan (incorporated herein by reference to Appendix A of the Registrant's Definitive Proxy Statement, dated May 11, 1994). *10.20 -- Lone Star Industries, Inc. Employees Stock Purchase Plan (incorporated herein by reference to Appendix B of the Registrant's Definitive Proxy Statement, dated May 11, 1994). *10.21 -- Lone Star Industries, Inc. Employees Stock Purchase Plan (incorporated herein by reference to Appendix C of the Registrant's Definitive Proxy Statement, dated May 11, 1994). 11 -- Statement re computation of per share earnings (filed herewith). 12 -- Statement re computation of per share earnings to fixed charges (filed herewith). 21 -- Subsidiaries of the Company (incorporated herein by reference to Exhibit 21 of the Registrant's Registration Statement on Form S-1, File Number 33-55377). 23 -- Consent of Coopers & Lybrand L.L.P. (filed herewith). 27 -- Financial Data Schedules (filed herewith).
(b) Reports on Form 8-K. During the last quarter of the fiscal year ending December 31, 1995 Registrant filed the following Current Reports on Form 8-K: Form 8-K, November 10, 1995 -- Item 5 -- Other Events. - --------------- * Indicates management contract or compensatory plan or arrangement. 53 56 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 20, 1996 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/ DAVID W. WALLACE Director, Chairman of the Board and Chief March 20, 1996 - ------------------------------------- Executive Officer DAVID W. WALLACE /s/ JAMES E. BACON Director March 20, 1996 - ------------------------------------- JAMES E. BACON /s/ THEODORE F. BROPHY Director March 20, 1996 - ------------------------------------- THEODORE F. BROPHY /s/ ARTHUR B. NEWMAN Director March 13, 1996 - ------------------------------------- ARTHUR B. NEWMAN /s/ ALLEN E. PUCKETT Director March 21, 1996 - ------------------------------------- ALLEN E. PUCKETT /s/ ROBERT G. SCHWARTZ Director March 12, 1996 - ------------------------------------- ROBERT G. SCHWARTZ /s/ WILLIAM M. TROUTMAN Director, President and Chief Operating March 20, 1996 - ------------------------------------- Officer WILLIAM M. TROUTMAN /s/ JACK R. WENTWORTH Director March 20, 1996 - ------------------------------------- JACK R. WENTWORTH /s/ WILLIAM E. ROBERTS Vice President, Chief Financial Officer, March 20, 1996 - ------------------------------------- Controller and Treasurer WILLIAM E. ROBERTS
54 57 LONE STAR INDUSTRIES, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1995, THE NINE MONTHS ENDED DECEMBER 31, 1994, THE THREE MONTHS ENDED MARCH 31, 1994 AND THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS)
ADDITIONS BALANCE -------------------------- AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) PERIOD - ------------------------------------------- --------- ---------- ----------- ------------- ---------- FOR THE YEAR ENDED DECEMBER 31, 1995 Allowance for doubtful accounts deducted from notes and accounts receivable....... $ 7,226 399 509 2,198 $5,936 ====== === === ===== ====== FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 Allowance for doubtful accounts deducted from notes and accounts receivable....... $ 8,843 700 54 2,371 $7,226 ====== === === ===== ====== FOR THE THREE MONTHS ENDED MARCH 31, 1994 Allowance for doubtful accounts deducted from notes and accounts receivable....... $ 8,913 260 15 345 $8,843 ====== === === ===== ====== FOR THE YEAR ENDED DECEMBER 31, 1993 Allowance for doubtful accounts deducted from notes and accounts receivable....... $ 8,033 1,605 63 788 $8,913 ====== === === ===== ======
- --------------- (1) Deductions in the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended December 31, 1993 primarily represent uncollectible accounts charged off. Deductions in the three months ended March 31, 1994 also include certain adjustments related to the Company's emergence from its Chapter 11 proceedings. (2) Represents recoveries of accounts previously charged off, and reserves related to acquisitions and dispositions. 55 58 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Lone Star Industries, Inc. on Form S-3 (File No. 33-55377) and S-8 (File Nos. 33-55277, 33-55261, and 33-55229) of our report, dated January 31, 1996, which includes an explanatory paragraph related to the Company's reorganization effective April 14, 1994, accompanying the consolidated financial statements and financial statement schedule of Lone Star Industries, Inc. and Consolidated Subsidiaries as of December 31, 1995 and 1994, and for the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994, and the year ended December 31, 1993, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Stamford, Connecticut March 20, 1996 (LOGO) Printed on Recycled Paper 56 59 EXHIBIT INDEX -------------
Exhibit No. Description ----------- ----------- 2.1 -- Voluntary Petition for Relief under Chapter 11 of the United States Bankruptcy Code dated December 10, 1990 (incorporated herein by reference on Exhibit 28A of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 2.2 -- Modified Amended Disclosure Statement Regarding Debtors' Modified Amended Consolidated Plan of Reorganization and exhibits thereto (incorporated herein by reference to the Registrant's Form T-3 filed January 14, 1994). 2.3 -- Modification of Debtor's Plan of Reorganization (incorporated herein by reference to Exhibit 2 of the Registrant's Current Report on Form 8-K dated March 1, 1994). 2.4 -- Order Confirming Debtors' Modified Amended and Consolidated Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated February 17, 1994 (incorporated herein by reference to Exhibit 28E of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993). 3.1 -- Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 3.2 -- Certificate of Amendment of 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 June 30, 1995). 3.3 -- Amended By-Laws (incorporated herein by reference to Exhibit 3(ii) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.1 -- Indenture, dated as of March 29, 1994, between Lone Star Industries, Inc. and Chemical Bank, as Trustee, relating to 10% Senior Notes Due 2003 of Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 4A of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.2 -- 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). 4.3 -- Financing Agreement, dated as of April 13, 1994 (the "Financing Agreement"), among Lone Star Industries, Inc., its subsidiary, New York Trap Rock Corporation, and The CIT Group/Business Credit, Inc. (incorporated herein by reference to Exhibit 4C of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994).
60
Exhibit No. Description ----------- ----------- 4.3(i) -- Amendment No. 1, dated as of March 24, 1995, to the Financing Agreement (incorporated herein by reference to Exhibit 4C(i) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995). 4.3(ii) -- Second Amendment, dated as of November 14, 1995, to the Financing Agreement (filed herewith). 4.3(iii) -- Third Amendment, dated as of December 11, 1995, to the Financing Agreement (filed herewith). 4.4 -- Rights Agreement, dated as of November 10, 1994, between Lone Star Industries, Inc. and Chemical Bank (incorporated herein by reference to the Registrant's Form 8-A, dated November 17, 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 -- Settlement Agreement, dated as of April 12, 1994, by and between Pension Benefit Guaranty Corporation and the Lone Star Group (incorporated herein by reference to Exhibit 10.24 of the Registrant's Registration Statement on Form S-1, File Number 33-55377). 10.3 -- 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). 10.4 -- Registration Rights Agreement, dated as of July 18, 1994, among Lone Star Industries, Inc., Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company and TCW Special Credits, as Agent and Nominee (incorporated herein by reference to Exhibit 10.22 of the Registrant's Registration Statement on Form S-1, File Number 33-55377). 10.5 -- Rights Agreement, dated as of November 10, 1994, between Lone Star Industries, Inc. and Chemical Bank (incorporated herein by reference to the Registrant's Form 8-A, dated November 17, 1994). *10.6 -- Amended and Restated Employment Agreement, dated as of February 1, 1996, between David W. Wallace and Lone Star Industries, Inc. (filed herewith). *10.7 -- Stock Option Agreement, dated as of June 8, 1994, between David W. Wallace and Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10D(ii) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.8 -- Amended and Restated Employment Agreement, dated as of February 1, 1996, between William M. Troutman and Lone Star Industries, Inc. (filed herewith). *10.9 -- Amended and Restated Agreement, dated February 1, 1996, between William M. Troutman and Lone Star Industries, Inc. (filed herewith). *10.10 -- Stock Option Agreement, dated as of June 8, 1994, between William M. Troutman and Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10E(iii) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.11 -- Employment Agreement, dated July 1, 1994, between John J. Martin and Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10F(i) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.12 -- Stock Option Agreement, dated as of June 8, 1994, between John J. Martin and Lone Star Industries, Inc. (incorporated herein by reference to Exhibit 10F(ii) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *10.13 -- 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). *10.14 -- Form of "Change of Control" agreement for certain executive officers of Lone Star Industries, Inc. (filed herewith).
EX-4.3(II) 2 SECOND AMENDMENT, DATED NOVEMBER 14, 1995 1 Exhibit 4.3(ii) SECOND AMENDMENT TO FINANCING AGREEMENT Second Amendment, dated as of November 14, 1995 to the Financing Agreement, dated as of April 13, 1994 (as amended, the "Financing Agreement"), by and among Lone Star Industries, Inc., a Delaware corporation ("LSI") and New York Trap Rock Corporation, a Delaware corporation ("Trap Rock" and together with LSI, each a "Company" and collectively, the "Companies") and The CIT Group/Business Credit, Inc. (the "Lender"). The Companies and the Lender desire to (i) increase the amount of capital expenditures permitted to be made by the Companies during 1996, and (ii) permit certain additional Restricted Payments (as defined in the Financing Agreement), in each case on the terms and conditions hereinafter set forth. Accordingly, the Companies and the Lender hereby agree as follows: 1. Definitions. All capitalized terms used herein and not otherwise defined herein are used herein as defined in the Financing Agreement. 2. Investments. Section 7.14(g) of the Financing Agreement is hereby amended by (i) deleting the word "or" at the end of subclause (xiii) thereof and substituting in lieu thereof "," and (ii) adding the following at the end of subclause (xiv) thereof: "and (xv) repurchases and/or redemptions by LSI of its common stock for an aggregate consideration not exceeding $20,000,000." 2 3. Restricted Payments. Section 7.14(h) of the Financing Agreement is hereby amended by (i) deleting the word "and" at the end of subclause (ii) thereof and substituting in lieu thereof "," and (ii) adding the following at the end of subclause (iii) of Section 7.14(h): "and (iv) LSI may repurchase or redeem its common stock for aggregate consideration not exceeding $20,000,000." 4. Capital Expenditures. Section 7.15 of the Financing Agreement is hereby amended by deleting the amount "$25,000,000" in subclause C of clause (ii) thereof and substituting in lieu thereof "$50,000,000." 5. Conditions to Effectiveness. This Amendment shall become effective only upon satisfaction in full of the following conditions precedent (the first date upon which all such conditions have been satisfied being herein called the "Effective Date"): (i) The Lender shall have received counterparts of this Amendment which bear the signatures of Companies. (ii) All legal matters incident to this Amendment shall be satisfactory to the Lender and its counsel. 6. Representations and Warranties. Each of the Companies represents and warrants to the Lender as follows: (a) Each Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and (ii) has all requisite corporate power, authority and legal right to execute, deliver and perform this Amendment, and to perform the Financing Agreement, as amended hereby. 2 3 (b) The execution, delivery and performance by the Companies of this Amendment and the performance by the Companies of the Financing Agreement as amended hereby (i) have been duly authorized by all necessary corporate action, (ii) do not and will not violate or create a default under either Company's charter or by-laws, any such applicable law or any contractual restriction binding on or otherwise affecting either Company or any of such Company's properties, and (iii) except as provided in the Loan Documents, do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to either Company's property. (c) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body is required in connection with the due execution, delivery and performance by either Company of this Amendment and the performance by the Companies of the Financing Agreement as amended hereby. (d) This Amendment and the Financing Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Companies, enforceable against the Companies in accordance with their terms. (e) The representations and warranties contained in Section 6 of the Financing Agreement are correct on and as of the Effective Date as though made on and as of the Effective Date (except to the extent such representations and warranties expressly relate to an earlier date), and no Event of Default or Potential Default, has occurred and is continuing on and as of the Effective Date. 7. Continued Effectiveness of Financing Agreement. Each of the Companies hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all 3 4 respects except that on and after the Effective Date of this Amendment all references in any such Loan Document to "the Financing Agreement", "thereto", thereof", "thereunder" or words of like import referring to the Financing Agreement shall mean the Financing Agreement as amended by this Agreement, and (ii) confirms and agrees that to the extent that any such Loan Document purports to assign or pledge to the Lender, or to grant to the Lender a security interest in or lien on, any collateral as security for the Obligations of the Companies from time to time existing in respect of the Financing Agreement and the Loan Documents, such pledge, assignment and/or grant of the security interest or lien is hereby ratified and confirmed in all respects. 8. Miscellaneous. (a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. (b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. (c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. (d) The Companies will pay on demand all fees, costs and expenses of the Lender in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees, disbursements and other charges of Schulte Roth & Zabel, counsel to the Lender. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. COMPANIES LONE STAR INDUSTRIES, INC. By: /s/ William E. Roberts --------------------------- Title: Vice President NEW YORK TRAP ROCK CORPORATION By: /s/ William E. Roberts --------------------------- Title: Vice President LENDER THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/ Frank A. Grimaldi --------------------------- Title: Vice President 5 EX-4.3(III) 3 THIRD AMENDMENT, DATED NOVEMBER 14, 1995 1 Exhibit 4.3(iii) THIRD AMENDMENT TO FINANCING AGREEMENT Third Amendment, dated as of December 11, 1995 to the Financing Agreement, dated as of April 13, 1994 (as amended, the "Financing Agreement"), by and among Lone Star Industries, Inc., a Delaware corporation ("LSI") and New York Trap Rock Corporation, a Delaware corporation ("Trap Rock" and together with LSI, each a "Company" and collectively, the "Companies") and The CIT Group/Business Credit, Inc. (the "Lender"). The Companies and the Lender desire to (i) decrease the interest rates to be charged on Revolving Loans pursuant to the Financing Agreement, (ii) decrease the Line of Credit Fee (as defined in the Financing Agreement), (iii) decrease the administrative fee charged pursuant to the Financing Agreement, and (iv) permit certain prepayments under the Production Payment Agreements (as defined in the Financing Agreement), in each case on the terms and conditions hereinafter set forth. Accordingly, the Companies and the Lender hereby agree as follows: 1. Definitions. All capitalized terms used herein and not otherwise defined herein are used herein as defined in the Financing Agreement. 2. Existing Definitions. The definition of the term "Line of Credit Fee" in Section 1.1 of the Financing Agreement is hereby amended by deleting the phrase "one-half of one percent (1/2 of 1%)" in clause (ii)(B) thereof and substituting in lieu thereof "three-eighths of one percent (3/8 of 1%)". 2 3. Prepayment. Section 7.14(i) of the Financing Agreement is hereby amended by adding the following to the end of subsection (iii) of the second sentence thereof: "; provided that, notwithstanding anything to the contrary, LSI may prepay any amounts that it is required to pay pursuant to the terms of the Production Payment Agreements" 4. Production Payments. Section 7.25 of the Financing Agreement is hereby amended to read in its entirety as follows: "7.25 Production Payments. Notwithstanding anything to the contrary contained in this Agreement, LSI may prepay any amounts that it is required to pay pursuant to the terms of the Production Payment Agreements." 5. Interest Rates. Section 8.1(a) of the Financing Agreement is hereby amended by (i) deleting the phrase "one percent (1%)" in clause (i) thereof and substituting in lieu thereof "one half percent (1/2%)" and (ii) deleting the phrase "two and three quarters percent (2-3/4%)" in clause (ii) thereof and substituting in lieu thereof "two and one quarter percent (2-1/4%)". 6. Administration Fee. Section 8.8 of the Financing Agreement is hereby amended by deleting the amount "$75,000" and substituting in lieu thereof "$50,000". 7. Conditions to Effectiveness. This Amendment shall become effective only upon satisfaction in full of the following conditions precedent (the first date upon which all such conditions have been satisfied being herein called the "Effective Date"): 2 3 (i) The Lender shall have received counterparts of this Amendment which bear the signatures of Companies. (ii) All legal matters incident to this Amendment shall be satisfactory to the Lender and its counsel. 8. Representations and Warranties. Each of the Companies represents and warrants to the Lender as follows: (a) Each Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and (ii) has all requisite corporate power, authority and legal right to execute, deliver and perform this Amendment, and to perform the Financing Agreement, as amended hereby. (b) The execution, delivery and performance by the Companies of this Amendment and the performance by the Companies of the Financing Agreement as amended hereby (i) have been duly authorized by all necessary corporate action, (ii) do not and will not violate or create a default under either Company's charter or by-laws, any such applicable law or any contractual restriction binding on or otherwise affecting either Company or any of such Company's properties, and (iii) except as provided in the Loan Documents, do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to either Company's property. (c) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body is required in connection with the due execution, delivery and performance by either Company of this Amendment and the performance by the Companies of the Financing Agreement as amended hereby. 3 4 (d) This Amendment and the Financing Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Companies, enforceable against the Companies in accordance with their terms. (e) The representations and warranties contained in Section 6 of the Financing Agreement are correct on and as of the Effective Date as though made on and as of the Effective Date (except to the extent such representations and warranties expressly relate to an earlier date), and no Event of Default or Potential Default, has occurred and is continuing on and as of the Effective Date. 9. Continued Effectiveness of Financing Agreement. Each of the Companies hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Effective Date of this Amendment all references in any such Loan Document to "the Financing Agreement", "thereto", "thereof", "thereunder" or words of like import referring to the Financing Agreement shall mean the Financing Agreement as amended by this Amendment, and (ii) confirms and agrees that to the extent that any such Loan Document purports to assign or pledge to the Lender, or to grant to the Lender a security interest in or lien on, any collateral as security for the Obligations of the Companies from time to time existing in respect of the Financing Agreement and the Loan Documents, such pledge, assignment and/or grant of the security interest or lien is hereby ratified and confirmed in all respects. 10. Miscellaneous. (a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but 4 5 all of which taken together shall constitute one and the same agreement. (b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. (c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. (d) The Companies will pay on demand all fees, costs and expenses of the Lender in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees, disbursements and other charges of Schulte Roth & Zabel, counsel to the Lender. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. COMPANIES LONE STAR INDUSTRIES, INC. By: /s/ William E. Roberts ----------------------------- Title: Vice President NEW YORK TRAP ROCK CORPORATION By: /s/ William E. Roberts ----------------------------- Title: Vice President LENDER THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/ Frank A. Grimaldi ----------------------------- Title: Vice President 5 EX-10.6 4 DAVID W. WALLACE AMENDED AND RESTATED EMPL. AGRMT. 1 EXHIBIT 10.6 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement ("Agreement") made as of the 1st day of February, 1996 between David W. Wallace ("Executive") and Lone Star Industries, Inc., a Delaware corporation, having its principal office at 300 First Stamford Place, Stamford, Connecticut 06912 and its successors and assigns ("Lone Star" or the "Company"). W I T N E S S E T H : WHEREAS, the Company and the Executive are parties to an Employment Agreement dated as of July 1, 1994 (the "Employment Agreement"), and desire to amend and restate the Employment Agreement in its entirety. NOW, THEREFORE, in consideration of the mutual promises, agreements and covenants hereby made, the mutual benefits to be derived from this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend and restate the Employment Agreement as follows: 1. Lone Star hereby employs Executive, and Executive hereby accepts employment by Lone Star, on the terms and conditions set forth in this Agreement for an initial term of twenty-nine (29) consecutive months commencing as of the date hereof and ending on June 30, 1998 (the "Initial Term"), as Chairman and Chief Executive Officer, with such duties as are 2 specified in the By-Laws of Lone Star and such other duties customary to the position as may be assigned to Executive from time to time by the Board of Directors of Lone Star. Unless terminated pursuant to the other terms hereof, this Agreement shall continue in full force and effect after the Initial Term for successive terms of two years (each such term, and the Initial Term, a "Term"). 2. Lone Star shall pay Executive a salary ("Salary") at the rate of $150,000 per annum until the effective date of termination of this Agreement. Salary shall continue to be paid to Executive on the currently established pay periods of Lone Star. The Compensation and Stock Option Committee (or such other Board committee as shall then be responsible for making such decisions or, if none, the full Board of Directors) may in its discretion consider increases in the Executive's Salary from time to time, and upon any such increase "Salary" for purposes hereof shall thereafter mean the Executive's salary as so increased notwithstanding any purported subsequent reduction thereof by any such committee or the Board. In addition, the Compensation and Stock Option Committee (or such other Board committee as shall then be responsible for making such decisions, or if none, the full Board of Directors) may in its discretion consider granting to the Executive from time to time such bonuses, stock options or other incentive compensation as it deems appropriate. 3. (a) (i) Either party, by written notice to the other at least six months prior to the expiration of the then 2 3 current Term, may terminate this Agreement effective at the expiration of such Term. (ii) Lone Star, by written notice which sets forth the effective date of termination (which shall not be earlier than six (6) months after receipt of the written notice), may terminate this Agreement at any time for reasons (including without limitation disability of the Executive) other than Cause (as hereinafter defined). (b) In the event that this Agreement is terminated by the Executive pursuant to Section 4 below or Lone Star terminates this Agreement pursuant to Section 3(a) above, Executive shall be entitled to a severance payment in an amount equal to the Executive's Salary for the period from the effective date of the termination through the date one year (18 months, in the case of a termination pursuant to Section 4) after the effective date of the termination (such period, the "Severance Period"). In addition, the Executive shall continue to receive life insurance and medical insurance under the Company's Executive Medical Plan for Active Employees (as in effect as of the date of this Agreement) provided pursuant to Sections 5 and 6 hereof during the Severance Period (which is in addition to, and not in lieu of, benefit continuation under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA")). In furtherance and not in limitation of the immediately preceding sentence, the Executive shall be deemed to have continued his employment at his Salary during the Severance Period for purposes of vesting, eligibility and benefit accrual under any applicable 3 4 employee pension plan (subject to the requirements of the Internal Revenue Code of 1986, as amended (the "Code")). In the event the Executive cannot receive any such credit under any Company employee pension plan because of limitations under the Code, within ninety days after the expiration of the Severance Period, the Executive shall receive a lump sum payment from the Company equal to the present value of any additional benefits to which the Executive would have been entitled under any Company employee pension plan had the Severance Period counted for purposes of vesting, eligibility and benefit accrual (discounted at 5% per annum). Severance shall be paid in lump sum on the effective date of the termination. Severance pay pursuant to this Section shall be in lieu of severance pay pursuant to any Lone Star policy, except severance in respect of service as a director. (c) Lone Star shall have the right to terminate this Agreement for Cause during the Initial Term and thereafter and (subject to Section 7 below) Executive shall not be entitled to receive severance pay pursuant to this Section or any other policy or agreement of Lone Star except severance in respect of service as a director. Cause shall be construed to mean: (1) The willful and continued failure by the Executive to substantially perform his duties with Lone Star (other than any such failure resulting from his disability due to physical or mental illness) after a written demand for 4 5 performance is delivered which specifically identifies the manner in which he has not substantially performed his duties, or (2) the willful engaging by Executive in gross misconduct materially and demonstrably injurious to the Company, monetarily or otherwise, or (3) conviction of fraud, theft or embezzlement. For purposes of this Section, no act, or failure to act, shall be considered "willful" unless done, or omitted to be done, not in good faith or without reasonable belief that the action or omission was in the best interest of the Company. The written demand in Section (c)(1) shall be delivered to the Executive by the Board of Directors and shall set forth a reasonable period (not shorter than 30 business days) in which Executive is expected to comply with said demand. If Executive does not comply thereafter, Lone Star shall have the right to terminate this Agreement upon seven (7) days' written notice to Executive. 4. (a) Lone Star hereby agrees not to: (i) change the Executive's duties so that a reasonable man would interpret the change to be a demotion; or (ii) direct the Executive to relocate his office to a new location which is either in a State other than Connecticut or more than twenty-five (25) miles from Stamford, Connecticut (excluding any relocation occurring prior 5 6 to a Change in Control, as defined below, of the Executive's office (A) as a result of a relocation of Lone Star's operations presently located in Stamford, Connecticut, and (B) applicable to substantially all officers of Lone Star). In the event Lone Star breaches its obligations in the immediately preceding sentence, Executive, at his option (and without limiting his remedies), can (if such demotion or direction to relocate is not rescinded or corrected by the Company within 30 days after written notice by Executive to the Company, reasonably identifying, in the case of a demotion, the change in duties complained of) declare himself terminated for "Good Reason" by giving written notice to Lone Star, Lone Star shall pay Executive severance pay and benefits as provided in Section 3(b) of this Agreement. In no event shall Executive be required to perform duties or to suffer relocation prohibited by this Section 4. (b) In the event of the Executive's physical or mental incapacity, the Executive may declare himself terminated for "Incapacity" by giving written notice to Lone Star, Lone Star shall pay Executive severance pay and benefits as provided in Section 3(b) of this Agreement. "Physical or mental incapacity" shall mean the inability of Executive by reason of a physical or mental illness to perform his duties hereunder for a period of 90 consecutive days or a total of 120 days in any twelve month period and such incapacity is determined by a physician selected by Executive (or his legal representatives) and reasonably acceptable to the Company to be such as prevents Executive from 6 7 performing adequately his normal duties to the Company. During any period that the Executive is unable to perform his duties by reason of physical or mental incapacity, Executive shall continue to receive his full compensation and benefits hereunder. 5. Executive shall participate in Lone Star's employee benefit programs and plans in the same manner as other executive salaried employees of Lone Star and in accordance with the terms thereof. Benefit programs and plans include, but are not limited to, life insurance, accidental death and dismemberment insurance, hospital, medical, surgical and major medical insurance, dental insurance, short and long-term disability insurance, 401(k) savings plan and pension plan for salaried employees and directors' and officers' liability insurance ("Employee Benefit Plans"). Executive shall also participate in Lone Star's vacation and holiday programs. In addition to and not in limitation of the foregoing, and notwithstanding the Company's policy with respect to other employees, the Company shall, during their lives and whether or not the Executive's employment or this Agreement terminates (for Cause or otherwise), provide the Executive with life and medical insurance and the Executive's spouse with medical insurance at no cost to the Executive or his spouse at least equal to the life and medical insurance provided to senior executive officers of the Company; provided however, the medical benefits provided to the Executive and his spouse shall be at least equal to the medical benefits described in Exhibit A; provided further, the 7 8 annual deductible for medical coverage described in Exhibit A is $750 for each individual. The Executive and his spouse are each entitled to receive monthly reimbursement of Medicare Part B premiums. The Company agrees to use its best efforts to provide the benefits listed on Appendix A to the Executive and his spouse in a manner that will not result in any income inclusion under federal, state or local tax law. To the extent, any such income inclusion results to either the Executive or his spouse, the Executive and his spouse (as the case may be) shall receive an annual payment from the Company to fully pay for the federal, state or local tax on such income inclusion (a "Gross-up Payment") as well as any income inclusion from the Gross-up Payment based on the highest marginal tax rate on the payment, so that neither the Executive nor his spouse have any tax liability as a result of participation in the Executive Medical Plan on Appendix A. For each year, such payment shall be made no later than January 31st of the following year. No later than 120 days after the date hereof, the Company shall purchase an insurance policy covering the Executive Medical Plan to insure non-payment by the Company in accordance with the terms on Exhibit B. This section shall survive any termination of this Agreement. 8 9 6. To the extent Executive voluntarily terminates his employment at the end of any Term, he shall be entitled to participate in Lone Star's employee benefit plans to the full extent that they may be provided to other retirees (and spouses, if applicable) including but not limited to the Pension Plan for Salaried Employees, in the same manner as other salaried retirees of Lone Star and in accordance with the terms thereof. 7. Following a Change in Control, as defined below, the Executive, on thirty days written notice (which notice must be delivered within twelve months after the Company gives the Executive notice of the Change in Control or the Executive has actual knowledge of such Change in Control), may terminate his employment with the Company. Upon any such termination, the Executive shall be entitled to severance pay in an amount equal to thirty months' Salary. In addition, the Executive shall continue to receive life insurance and medical insurance under the Company's Executive Medical Plan for Active Employees (as in effect as of the date of this Agreement) provided pursuant to Sections 5 and 6 hereof during the Severance Period (which is in addition to, and not in lieu of, benefit continuation under COBRA). In furtherance and not in limitation of the immediately preceding sentence, the Executive shall be deemed to have continued his employment at his Salary during the Severance Period for purposes of vesting, eligibility and benefit accrual under any applicable employee pension plan (subject to the requirements of the Code). In the event the Executive cannot 9 10 receive any such credit under any employee pension plan because of limitations under the Internal Revenue Code, within ninety days after the expiration of the Severance Period, the Executive shall receive a lump sum payment from the Company equal to the present value of any additional benefits to which the Executive would have been entitled under any Company employee pension plan had the Severance Period counted for purposes of vesting, eligibility and benefit accrual (discounted at 5% per annum). Severance hereunder shall be paid in lump sum on the effective date of the termination. Severance pay pursuant to this Section shall be in lieu of severance pay pursuant to any Lone Star policy or other agreement (other than severance in respect of service as a director) and all other obligations of the Company for severance pay under this Agreement. For purposes of this Agreement a "Change in Control" shall be deemed to have occurred upon the occurrence of any of the following events: (i) Any acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of shares of common stock of the Company (the "Common Stock") and/or other voting securities of the Company entitled to vote generally in the election of directors ("Outstanding Company Voting Securities") after which acquisition such individual, entity or group is the beneficial owner of twenty percent (20%) or more of either (A) 10 11 (1) the then outstanding shares of Common Stock or (2) the Outstanding Company Voting Securities; excluding, however, the following: (1) any acquisition by the Company, (2) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or (3) any acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar corporate transaction (in each case, a "Corporate Transaction"), if, pursuant to such Corporate Transaction, the conditions described in clauses (1), (2) and (3) of paragraph (iii) of this Section 7 are satisfied; or (B) any transaction in which the Chief Executive Officer and President of the Company (both as of the date of this Agreement and subject to health related availability) (1) retain their current positions with the Company immediately after such transaction and (2) will immediately after such transaction beneficially own an aggregate (for both such executives), directly or indirectly (including, without limitation, ownership by family members or trusts for family members), more than 5% of either the (a) then outstanding shares of common stock of the Company and/or (b) the other voting securities of the Company entitled to vote generally in the election of directors (any transaction under the clause (B) hereinafter referred to as a "Management Event"). (ii) A change in the composition of the Board of Directors of the Company (other than in connection with a Management Event) such that the individuals who, as of the date hereof, comprise a class of directors of the Board (the members 11 12 of each class of directors of the Board as of the date hereof shall be hereinafter referred to as an "Incumbent Class" and the members of all of the Incumbent Classes shall be hereinafter collectively referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the class; provided, however, for purposes of this subsection that any individual who becomes a member of an Incumbent Class subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved in advance or contemporaneously with such election by a vote of at least a majority of those individuals who are members of the Incumbent Board and a majority of those individuals who are members of such Incumbent Class (or deemed to be such pursuant to this proviso), shall be considered as though such individual were a member of the Incumbent Class; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company or actual or threatened tender offer for shares of the Company or similar transaction or other contest for corporate control (other than a tender offer by the Company) shall not be so considered as a member of the Incumbent Class; or 12 13 (iii) The approval by the stockholders of the Company of a Corporate Transaction or, if consummation of such Corporate Transaction is subject, at the time of such approval by stockholders, to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly); excluding, however, a Management Event or a Corporate Transaction pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the outstanding shares of Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than eighty percent (80%) of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction and the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or the corporation resulting from such Corporate Transaction and any Person beneficially owning, immediately prior to such Corporate Transaction, directly or indirectly, twenty percent (20%) or more of the outstanding shares of Common Stock or Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, twenty percent (20%) or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the 13 14 election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of board of directors of the corporation resulting from such Corporate Transaction; or (iv) The approval of the stockholders of the Company of (1) a complete liquidation or dissolution of the Company or (2) the sale or other disposition of all or substantially all of the assets of the Company; excluding, however, such a sale or other disposition to a corporation (A) in connection with a Management Event or (B) with respect to which following such sale or other disposition, (1) more than eighty percent (80%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding shares of Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition, (2) no Person (other than the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the outstanding shares of Common Stock or Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or 14 15 indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of such corporation. In the event of any conflict between this Section 7 and any other Section of this Agreement (other than Section 5), the terms of this Section 7 shall control, so that, without limitation, the Executive shall be entitled to the payment and benefits provided under this Section 7 notwithstanding any purported termination (whether for Cause or otherwise) and regardless of whether such purported termination precedes or follows the giving of a notice of termination by the Executive under this Section 7 by the Company. 8. Immediately upon the occurrence of a Change in Control, the Company shall establish a grantor trust on behalf of the Executive, subject to the claims of the Company's creditors (commonly referred to as a "Rabbi Trust"). The Company shall contribute to the Rabbi Trust an amount sufficient to provide for the severance benefits and payment of all other benefits under this Agreement (except benefits under the Executive Medical Plan for Retired Employees). Any payments made to the Executive under this Agreement shall be made from such Rabbi Trust. The Rabbi Trust shall terminate and any remaining assets shall be returned 15 16 to the Company no sooner than July 1, 2005, unless the Executive has provided written notice of an unsatisfied claim to the trustee of the Rabbi Trust, in which case the Rabbi Trust shall not terminate until such claim is resolved pursuant to paragraph 12. 9. Upon presentation to Lone Star of appropriate documentation, Executive will be entitled to reimbursement within guidelines established by Lone Star for all reasonable and necessary business expenses incurred by him for entertainment, travel and similar items and for costs for operating from the Executive's Greenwich, Connecticut office. However, the Executive shall be personally responsible for rental payments such office as long as he decides, in his discretion, to maintain such office. 10. Executive agrees that during his period of employment by Lone Star and thereafter he shall hold in confidence and not disclose to any unauthorized person any knowledge or information acquired and possessed by him of a confidential nature or any trade secret with respect to the business of Lone Star, and not to disclose, publish or make use of the same without the prior express consent of Lone Star. Executive shall be free to disclose such information, knowledge or trade secret in the ordinary course of his carrying out his duties as an officer of Lone Star, and shall be free to disclose such information, knowledge or trade secret during his period of 16 17 employment by Lone Star and thereafter if such matters become public or if compelled by legal process. 11. Executive agrees that during the term of his employment, he will not without the consent of Lone Star, in any manner, directly or indirectly, own, manage, be employed by, operate, join, control, participate in, be connected with, engage in, or become interested in any business competitive with, the business then carried on by Lone Star in those parts of the world where Lone Star does business. Ownership of publicly traded securities of a business of the same or similar nature to, or competitive with, that carried on by Lone Star, shall not violate this paragraph, provided the Executive does not acquire more than 5% of the voting stock of any such corporation. Notwithstanding any other provision of this Agreement, the Executive shall not be required to use his full time efforts hereunder and may take on outside business commitments provided they do not unreasonably impair his ability or capacity to serve as the Chairman of the Board and CEO of the Company. 12. (a) Any dispute relating to this Agreement arising between the Executive and the Company shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). The arbitration proceedings, including the rendering of an award, shall take place in Stamford, Connecticut (or such other location mutually agreed upon by the Company and the Executive), and shall be administered by the AAA. 17 18 (b) The arbitral tribunal shall be appointed within 30 days of the notice of dispute, and shall consist of three arbitrators, one of which shall be appointed by the Company, one by the Executive, and the third by both the Company and the Executive jointly; provided, however, that, if the Company and the Executive do not select the third arbitrator within such 30-day period, such third arbitrator shall be chosen by the AAA as soon as practicable following notice to the AAA by the parties of their inability to choose such third arbitrator. (c) Decisions of such arbitral tribunal shall be in accordance with the laws of the State of Connecticut (excluding the conflicts of law rules which require the application of any other law). The award of any such arbitral tribunal shall be final (except as otherwise provided by the laws of the State of Connecticut and the Federal laws of the United States, to the extent applicable). Judgement upon such award may be entered by the prevailing party in any state or Federal court sitting in Connecticut or any other court having jurisdiction thereof, or application may be made by such party to any such court for judicial acceptance of such award and an order of enforcement. (d) The Company shall reimburse the Executive for all costs, including reasonable attorneys' fees, in connection with any proceeding (whether or not in arbitration) to obtain or enforce any right or benefit under this Agreement in which the Executive is the prevailing party. 18 19 Any amounts not paid by the Company under this Agreement within five business days after the date they are due shall be paid with interest from their due date at the rate announced from time to time by Citibank, N.A. as its prime or similar rate plus 3%. 13. Nothing is this Agreement shall in any manner affect any benefit to which the Executive is entitled as a result of Executive's position as an outside director of the Company. 14. Notwithstanding anything else herein, to the extent the Executive would be subject to the excise tax under Section 4999 of the Code on the amounts in Section 7 above required to be included in the calculation of parachute payments for purposes of Sections 280G and 4999 of the Code, the amounts provided under this Agreement shall be automatically reduced to an amount one dollar less than that, when combined with such other amounts and benefits required to be so included, would subject the Executive to the excise tax under Section 4999 of the Code. 15. No later than May 1, 1996, the Company shall purchase, on behalf of the Executive, an insurance policy to cover any litigation costs of the Executive (or his spouse) associated with the enforcement of this Agreement against the Company in an amount of $250,000. The Company shall fully reimburse the Executive for the federal, state and local taxes incurred by the Executive in connection with the purchase of such 19 20 policy (the "Reimbursement") and any federal, state or local taxes on the Reimbursement, based on the highest marginal tax rate in effect so that the Executive has no federal, state or local tax liability as a result of this section. 16. This Agreement constitutes the entire agreement between the parties and may not be changed or modified except by an agreement in writing signed by Lone Star and the Executive. This Agreement supersedes the employment agreement between the Executive and Lone Star, dated July 1, 1994. 17. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 18. This Agreement shall be binding upon and inure to the benefit of the Company, including any purchaser of all or substantially all of the assets of the Company and the surviving entity of any merger or consolidation to which the Company is a party and the Executive and his heirs, executors, administrators and legal representatives. 19. The Company agrees that if the Executive's employment with the Company is terminated pursuant to this Agreement during the term of this Agreement, the Executive shall not be required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive or benefit provided to 20 21 the Executive as the result of employment by another employer or otherwise. Except as otherwise provided herein and apart from any disagreement between the Executive and the Company concerning interpretation of this Agreement or any term or provision hereof, the Company's obligations to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive. 20. Except as provided herein, this Agreement cannot be assigned by Lone Star or Executive without prior written consent. 21. All notices, communications, etc., shall be sent to: (a) Corporate Secretary Lone Star Industries, Inc. 300 First Stamford Place Stamford, CT 06912 (b) David W. Wallace Two Greenwich Place, Suite 100 Greenwich, CT 06830 By /s/ David W. Wallace LONE STAR INDUSTRIES, INC. By /s/ William M. Troutman -------------------------------- President By /s/ Jack R. Wentworth -------------------------------- Chairman of the Compensation and Stock Option Committee 21 EX-10.8 5 WILLIAM N. TROUTMAN AMENDED AND REST. EMPL. AGRMT. 1 EXHIBIT 10.8 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement ("Agreement") made as of the 1st day of February, 1996 between William M. Troutman ("Executive") and Lone Star Industries, Inc., a Delaware corporation, having its principal office at 300 First Stamford Place, Stamford, Connecticut and its successors and assigns ("Lone Star" or the "Company"). W I T N E S S E T H: WHEREAS, the Company and the Executive are parties to an Employment Agreement dated as of July 1, 1994 (the "Employment Agreement"), and desire to amend and restate the Employment Agreement in its entirety. NOW, THEREFORE, in consideration of the mutual promises, agreements and covenants hereby made, the mutual benefits to be derived from this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree and understand as follows: 1. Lone Star hereby employs Executive, and Executive hereby accepts employment by Lone Star, on the terms and conditions set forth in this Agreement for an initial term of twenty-nine (29) consecutive months commencing as of the date hereof and ending on June 30, 1998 (the "Initial Term"), as President and Chief Operating Officer, with such duties as are 2 specified in the By-Laws of Lone Star and such other duties customary to the position as may be assigned to Executive from time to time by the Board of Directors of Lone Star or its Chairman and Chief Executive Officer. Unless terminated pursuant to the other terms hereof, this Agreement shall continue in full force and effect after the Initial Term for successive terms of two years (each such term, and the Initial Term, a "Term"). 2. Lone Star shall pay Executive a salary ("Salary") at the rate of $275,000 per annum until the effective date of termination of this Agreement. Salary shall continue to be paid to Executive on the currently established pay periods of Lone Star. The Compensation and Stock Option Committee (or such other Board committee as shall then be responsible for making such decisions or, if none, the full Board of Directors) may in its discretion consider increases in the Executive's Salary from time to time, and upon any such increase "Salary" for purposes hereof shall thereafter mean the Executive's salary as so increased, notwithstanding any purported subsequent reduction thereof by any such committee or the Board. In addition, the Compensation and Stock Option Committee (or such other Board committee as shall then be responsible for making such decisions, or if none, the full Board of Directors) may in its discretion consider granting to the Executive from time to time such bonuses, stock options or other incentive compensation as it deems appropriate. 3. (a) (i) Either party, by written notice to the other at least six months prior to the expiration of the then current Term, may terminate this Agreement effective at the 3 expiration of such Term. (ii) Lone Star, by written notice which sets forth the effective date of termination (which shall not be earlier than six (6) months after receipt of the written notice), may terminate this Agreement at any time for reasons (including without limitation, disability of the Executive) other than Cause (as hereinafter defined). (b) In the event that this Agreement is terminated by the Executive pursuant to Section 4 below or Lone Star terminates this Agreement pursuant to Section 3(a) above, Executive shall be entitled to a severance payment in an amount equal to Executive's Salary for the period from the effective date of the termination through the date one year (18 months, in the case of a termination pursuant to Section 4) after the effective date of the termination (the "Severance Period"); provided, however, the severance payment shall be reduced in the case of the Executive's disability, on a dollar-for-dollar basis, by any disability pay the Executive receives pursuant to the Supplemental Agreement (as described in Section 5) during the Severance Period. Severance shall be paid in lump sum on the effective date of the termination. In addition, the Executive shall continue to receive life insurance and medical insurance under the Company's Executive Medical Plan for Active Employees (as in effect as of the date of this Agreement) provided pursuant to Sections 5 and 6 hereof during the Severance Period (which is in addition to, and not in lieu of, benefit continuation under the Consolidated Omnibus Budget Reconciliation Act of 1985 3 4 ("COBRA")). In furtherance and not in limitation of the immediately preceding sentence, the Executive shall be deemed to have continued his employment at his Salary during the Severance Period for purposes of vesting, eligibility and benefit accrual under any applicable Company employee pension plan (subject to the requirements of the Internal Revenue Code of 1986, as amended (the "Code")). In the event the Executive cannot receive any such credit under any employee pension plan because of limitations under the Code, within ninety days after the expiration of the Severance Period, the Executive shall receive a lump sum payment from the Company equal to the present value of any additional benefits to which the Executive would have been entitled under any Company employee pension plan had the Severance Period counted for purposes of vesting, eligibility and benefit accrual (discounted at 5% per annum). Severance pay pursuant to this Section shall be in lieu of severance pay pursuant to any Lone Star severance policy (except that the supplemental retirement benefit and all other provisions of the Supplemental Agreement shall remain in full force and effect). (c) Lone Star shall have the right to terminate this Agreement for Cause during the Initial Term and thereafter and (subject to Section 6 below) Executive shall not be entitled to receive severance pay pursuant to this Section or any other policy or agreement of Lone Star except the Supplemental Agreement. Cause shall be construed to mean: 4 5 (1) The willful and continued failure by the Executive to substantially perform his duties with Lone Star (other than any such failure resulting from his disability due to physical or mental illness) after a written demand for performance is delivered which specifically identifies the manner in which he has not substantially performed his duties, or (2) the willful engaging by Executive in gross misconduct materially and demonstrably injurious to the Company, monetarily or otherwise, or (3) conviction of fraud, theft or embezzlement. For purposes of this Section, no act, or failure to act, shall be considered "willful" unless done, or omitted to be done, not in good faith or without reasonable belief that the action or omission was in the best interest of the Company. The written demand in Section (c)(1) shall be delivered to the Executive by the Board of Directors or Lone Star's Chairman and Chief Executive Officer and shall set forth a reasonable period (not shorter than 30 business days) in which Executive is expected to comply with said demand. If Executive does not comply thereafter, Lone Star shall have the right to terminate this Agreement upon seven (7) days' written notice to Executive. 5 6 4. (a) Lone Star hereby agrees not to: (i) change the Executive's duties so that a reasonable man would interpret the change to be a demotion; or (ii) direct the Executive to relocate his office to a new location which is either in a State other than Connecticut or more than twenty-five (25) miles from Stamford, Connecticut (excluding any relocation occurring prior to a Change in Control, as defined below, of the Executive's office (A) as a result of a relocation of Lone Star's operations presently located in Stamford, Connecticut and (B) applicable to substantially all officers of Lone Star). In the event Lone Star breaches its obligations in the immediately preceding sentence, Executive, at his option (and without limiting his remedies), can (if such demotion or direction to relocate is not rescinded or corrected by the Company within 30 days after written notice by Executive to the Company, reasonably identifying, in the case of a demotion, the change in duties complained of) declare himself terminated for "Good Reason" by giving written notice to Lone Star, and Lone Star shall pay Executive severance pay and benefits as provided in Section 3(b) of this Agreement. In no event shall Executive be required to perform duties or to suffer relocation prohibited by this Section 4. (b) In the event of the Executive's physical or mental incapacity, the Executive may declare himself terminated for "Incapacity" by giving written notice to Lone Star, Lone Star shall pay Executive severance pay and benefits as provided in Section 3(b) of this Agreement. "Physical or mental incapacity" 6 7 shall mean the inability of Executive by reason of a physical or mental illness to perform his duties hereunder for a period of 90 consecutive days or a total of 120 days in any twelve month period and such incapacity is determined by a physician selected by Executive (or his legal representatives) and reasonably acceptable to the Company to be such as prevents Executive from performing adequately his normal duties to the Company. During any period that the Executive is unable to perform his duties by reason of physical or mental incapacity, Executive shall continue to receive his full compensation and benefits hereunder. 5. Executive shall participate in Lone Star's 401(k) savings plan and vacation and holiday programs and other benefits in the same manner as other executive salaried employees of Lone Star and in accordance with the terms thereof. Notwithstanding the foregoing, nothing contained in this Agreement (including, without limitation, Section 12 below) shall affect the force and effect of the Agreement, dated April 15, 1994, and amended and restated on February 1, 1996 between the Company and the Executive relating to certain supplemental retirement, medical insurance, disability and other benefits and rights, a copy of which is attached hereto as Exhibit A (the "Supplemental Agreement"). 6. Following a Change in Control, as defined below, the Executive, on thirty days written notice (which notice must be delivered within twelve months after the Company gives the Executive notice of the Change in Control or the Executive has 7 8 actual knowledge of such Change in Control), may terminate his employment with the Company. Upon any such termination, the Executive shall be entitled to severance pay in an amount equal to thirty months' Salary. In addition, the Executive shall continue to receive life insurance and medical insurance under the Company's Executive Medical Plan for Active Employees (as in effect as of the date of this Agreement) provided pursuant to Sections 5 and 6 hereof during the Severance Period (which is in addition to, and not in lieu of, benefit continuation under COBRA). In furtherance and not in limitation of the immediately preceding sentence, the Executive shall be deemed to have continued his employment at his Salary during the Severance Period for purposes of vesting, eligibility and benefit accrual under any applicable employee pension plan (subject to the requirements of the Code). In the event the Executive cannot receive any such credit under any employee pension plan because of limitations under the Code, within ninety days after the expiration of the Severance Period, the Executive shall receive a lump sum payment from the Company equal to the present value of any additional benefits to which the Executive would have been entitled under any Company employee pension plan had the Severance Period counted for purposes of vesting, eligibility and benefit accrual (discounted at 5% per annum). Severance pay pursuant to this Section shall be in lieu of severance pay pursuant to any Lone Star policy or other agreement (except that the supplemental retirement benefit and all other provisions of the Supplemental Agreement shall remain in full force and effect) 8 9 and all other obligations of the Company for severance pay under this Agreement. For purposes of this Agreement a "Change in Control" shall be deemed to have occurred upon the occurrence of any of the following events: (i) Any acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of shares of common stock of the Company (the "Common Stock") and/or other voting securities of the Company entitled to vote generally in the election of directors ("Outstanding Company Voting Securities") after which acquisition such individual, entity or group is the beneficial owner of twenty percent (20%) or more of either (A)(1) the then outstanding shares of Common Stock or (2) the Outstanding Company Voting Securities; excluding, however, the following: (1) any acquisition by the Company, (2) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or (3) any acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar corporate transaction (in each case, a "Corporate Transaction"), if, pursuant to such Corporate Transaction, the conditions described in clauses (1), (2) and (3) of paragraph (iii) of this Section 6 are satisfied; or (B) any transaction in which the Chief Executive Officer and President of the Company (both as of the date of this Agreement and subject to 9 10 health related availability) (1) retain their current positions with the Company immediately after such transaction and (2) will immediately after such transaction beneficially own an aggregate (for both such executives), directly or indirectly (including, without limitation, ownership by family members or trusts for family members), more than 5% of either the (a) then outstanding shares of common stock of the Company and/or (b) the other voting securities of the Company entitled to vote generally in the election of directors (any transaction under the clause (B) hereinafter referred to as a "Management Event"). (ii) A change in the composition of the Board of Directors of the Company (other than in connection with a Management Event) such that the individuals who, as of the date hereof, comprise a class of directors of the Board (the members of each class of directors of the Board as of the date hereof shall be hereinafter referred to as an "Incumbent Class" and the members of all of the Incumbent Classes shall be hereinafter collectively referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the class; provided, however, for purposes of this subsection that any individual who becomes a member of an Incumbent Class subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved in advance or contemporaneously with such election by a vote of at least a majority of those individuals who are members of the Incumbent Board and a majority of those individuals who are members of such 10 11 Incumbent Class (or deemed to be such pursuant to this proviso), shall be considered as though such individual were a member of the Incumbent Class; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company or actual or threatened tender offer for shares of the Company or similar transaction or other contest for corporate control (other than a tender offer by the Company) shall not be so considered as a member of the Incumbent Class; or (iii) The approval by the stockholders of the Company of a Corporate Transaction or, if consummation of such Corporate Transaction is subject, at the time of such approval by stockholders, to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly); excluding, however, a Management Event or a Corporate Transaction pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the outstanding shares of Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than eighty percent (80%) of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate 11 12 Transaction and the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or the corporation resulting from such Corporate Transaction and any Person beneficially owning, immediately prior to such Corporate Transaction, directly or indirectly, twenty percent (20%) or more of the outstanding shares of Common Stock or Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, twenty percent (20%) or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of board of directors of the corporation resulting from such Corporate Transaction; or (iv) The approval of the stockholders of the Company of (1) a complete liquidation or dissolution of the Company or (2) the sale or other disposition of all or substantially all of the assets of the Company; excluding, however, such a sale or other disposition to a corporation (A) in connection with a Management Event or (B) with respect to which following such sale or other disposition, (1) more than eighty percent (80%) of, respectively, the then outstanding shares of common stock of such 12 13 corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding shares of Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition, (2) no Person (other than the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the outstanding shares of Common Stock or Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of such corporation. In the event of any conflict between this Section 6 and any other Section of this Agreement (other than Section 5), the terms of this Section 6 shall control so that, without limitation, the Executive shall be entitled to the payment and benefits provided under this Section 6 notwithstanding any 13 14 purported termination (whether for Cause or otherwise) and regardless of whether such purported termination precedes or follows the giving of a notice of termination by the Executive under this Section 6 by the Company. 7. Immediately upon the occurrence of a Change in Control, the Company shall establish a grantor trust on behalf of the Executive, subject to the claims of the Company's creditors (commonly referred to as a "Rabbi Trust"). The Company shall contribute to the Rabbi Trust an amount sufficient to provide for the severance benefits and payment of all other benefits under this Agreement. Any payments made to the Executive under this Agreement shall be made from such Rabbi Trust. The Rabbi Trust shall terminate and any remaining assets shall be returned to the Company no sooner than July 1, 2005, unless the Executive has provided written notice of an unsatisfied claim to the trustee of the Rabbi Trust, in which case the Rabbi Trust shall not terminate until such claim is resolved pursuant to paragraph 12. 8. Upon presentation to Lone Star of appropriate documentation, Executive will be entitled to reimbursement within guidelines established by Lone Star for all reasonable and necessary business expenses incurred by him for entertainment, travel and similar items. 9. Executive agrees that during his period of employment by Lone Star and thereafter he shall hold in confidence and not disclose to any unauthorized person any 14 15 knowledge or information acquired and possessed by him of a confidential nature or any trade secret with respect to the business of Lone Star, and not to disclose, publish or make use of the same without the prior express consent of Lone Star. Executive shall be free to disclose such information, knowledge or trade secret in the ordinary course of his carrying out his duties as an officer of Lone Star, and shall be free to disclose such information, knowledge or trade secret during his period of employment by Lone Star and thereafter if such matters become public or if compelled by legal process. 10. Executive agrees that during the term of his employment, he will not without the consent of Lone Star, in any manner, directly or indirectly, own, manage, be employed by, operate, join, control, participate in, be connected with, engage in, or become interested in any business of the same or similar nature to, or competitive with, that carried on by Lone Star during the Executive's employment by Lone Star, in those parts of the world where Lone Star does business. Ownership of publicly traded securities of a business of the same or similar nature to, or competitive with, that carried on by Lone Star, shall not violate this paragraph, provided the Executive does not acquire more than 5% of the voting stock of any such corporation. 11. The Executive agrees that any copyright or patentable invention that he may conceive, make, invent, suggest or reduce to practice during the period of his employment with Lone Star (whether individually or jointly with any other person 15 16 or persons), relating in any way to the business of Lone Star shall be the sole, exclusive and absolute property of Lone Star. 12. Any dispute hereunder shall be resolved in the same manner as is provided in Section 4.1 of the Supplemental Agreement. Any amounts not paid by the Company hereunder within five business days after the date they are due shall be paid with interest from its due date at the rate announced from time to time by Citibank, N.A. as its prime or similar rate plus 3%. 13. This Agreement constitutes the entire agreement between the parties and may not be changed or modified except by an agreement in writing signed by Lone Star and the Executive. This Agreement supersedes the employment agreements between the Executive and Lone Star, dated, July 1, 1994 except for Section 12 thereof and August 20, 1992, except for Section 10 thereof, which shall continue in effect. 14. Notwithstanding anything else herein, to the extent the Executive would be subject to the excise tax under Section 4999 of the Code on the amounts in Section 6 above required to be included in the calculation of parachute payments for purposes of Sections 280G and 4999 of the Code, the amounts provided under this Agreement shall be automatically reduced to an amount one dollar less than that, when combined with such other amounts and benefits required to be so included, would subject the Executive to the excise tax under Section 4999 of the Code. 16 17 15. No later than May 1, 1996, the Company shall purchase, on behalf of the Executive, an insurance policy to cover any litigation costs of the Executive (or his spouse) associated with the enforcement of this Agreement or the Agreement between the Executive and the Company dated February 1, 1996 against the Company in an amount of $250,000. The Company shall fully reimburse the Executive for the federal, state and local taxes incurred by the Executive in connection with the purchase of such policy (the "Reimbursement") and any federal, state or local taxes on the Reimbursement, based on the highest marginal tax rate in effect so that the Executive has no federal, state or local tax liability as a result of this section. 16. The Company agrees that if the Executive's employment with the Company is terminated pursuant to this Agreement during the term of this Agreement, the Executive shall not be required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive or benefit provided to the Executive as the result of employment by another employer or otherwise. Except as otherwise provided herein and apart from any disagreement between the Executive and the Company concerning interpretation of this Agreement or any term or provision hereof, the Company's obligations to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder 17 18 shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive. 17. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 18. This Agreement shall be binding upon an inure to the benefit of the Company, including any purchaser of all or substantially all of the assets of the Company and the surviving entity of any merger or consolidation to which the Company is a party and the Executive and his heirs, executors, administrators and legal representatives. 19. Except as provided herein, this Agreement cannot be assigned by Lone Star or Executive without prior written consent. 18 19 20. All notices, communications, etc., shall be sent to: (a) Corporate Secretary Lone Star Industries, Inc. 300 First Stamford Place Stamford, CT 06912 (b) William M. Troutman 30 Thorp Drive Weston, CT 06883 By /s/ William M. Troutman ------------------------------- LONE STAR INDUSTRIES, INC. By /s/ David W. Wallace ------------------------------- Chairman of the Board By /s/ Jack R. Wentworth ------------------------------- Chairman of the Compensation and Stock Option Committee 19 EX-10.9 6 WILLIAM M. TROUTMAN AMENDED AND RESTATED AGRMT. 1 EXHIBIT 10.9 This AMENDED AND RESTATED AGREEMENT made this 1st day of February 1996, by and between Lone Star Industries, Inc., a corporation organized under the laws of the State of Delaware with its principal office at 300 First Stamford Place, Stamford, Connecticut 06912 and its successors and assigns (the "Corporation"), and William M. Troutman (the "Executive") residing at 30 Thorp Drive, Weston, Connecticut 06883 (the "Agreement"). W I T N E S S E T H: WHEREAS, the Executive is currently employed as President and Chief Operating Officer at the Corporation; and WHEREAS, the Corporation and the Executive previously entered into an employment agreement, dated August 17, 1987 (the "1987 Agreement") which provided for certain supplemental retirement benefits for the Executive and his spouse; and WHEREAS, the Corporation and the Executive entered into a subsequent employment agreement, dated June 26, 1990 (the "1990 Agreement") which also provided for supplemental retirement benefits for the Executive and his spouse; and WHEREAS, the 1987 Agreement and the 1990 Agreement also provided the Executive, his spouse and eligible dependents with enhanced health and medical coverage; and WHEREAS, on December 10, 1990 the Corporation and certain of its subsidiaries filed in this Court (the "Bankruptcy Court") their respective voluntary petitions for reorganization under Chapter 11 of Title 11 of the United States Code; and WHEREAS, subsequently, on December 21, 1990, Lone Star Building Centers, Inc. and Lone Star Building Centers (Eastern), Inc. filed their respective voluntary petitions under Chapter 11 of the Bankruptcy Code; and WHEREAS, the 1990 Agreement was rejected by the Corporation, with the Executive's consent, by order of the U.S. Bankruptcy Court, dated March 28, 1991; and 2 WHEREAS, on or about June 26, 1991, the Executive filed a proof of claim against the Corporation asserting, among other things, contingent and unliquidated damages resulting from the rejection of the 1990 Agreement; and WHEREAS, on April 14, 1994, the Bankruptcy Court approved a settlement with respect to the Executive's claims relating the supplemental retirement and medical benefits in exchange for the assumption of certain obligations by the Corporation; and WHEREAS, on April 14, 1994, the Corporation and the Executive entered into an Agreement (the "1994 Agreement") to provide certain supplemental and medical benefits; and WHEREAS, the Corporation and the Executive desire to amend and restate the 1994 Agreement; and NOW, THEREFORE, in consideration of the agreements hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 "ANNUITY" shall mean National Home Life Assurance Company Policy Number N101058 (August 7, 1989). 1.2 "BOARD" shall mean the Board of Directors of the Corporation or its duly authorized committee. 1.3 "DISABILITY" shall mean Executive's inability, because of physical or mental incapacity, to perform in a competent manner executive duties of a nature equivalent to the duties the Executive currently performs. 1.4 "DISCONTINUATION DATE" shall mean the date of the later to occur of: (i) the death of the Executive; or (ii) the death of the Spouse. 2 3 1.5 "EMPLOYMENT AGREEMENT" shall mean the employment agreement between the Executive and the Corporation, dated August 20, 1993. 1.6 "PLAN" shall mean the Lone Star Industries, Inc. Salaried Employees Pension Plan. 1.7 "QUALIFIED DEPENDENTS" shall mean the Executive's: (i) spouse, if not divorced or legally separated from the Executive; (ii) children under the age of (A) 19 or (B) 23 if a full-time student, unmarried, and not employed on a regular and full-time basis, and dependent on the Executive for support; provided however, if due proof is received within 31 days of the day the Qualified Dependent has reached his maximum age that he is incapable of self-sustaining employment by reason of mental retardation or physical handicap, the child shall continue to be deemed a dependent after such birthday, for purposes of only accident and health coverage; and (iii) legally adopted children, or children living in a parent-child relationship and primarily dependent on the Executive. 1.8 "SPOUSE" shall mean the Executive's legal spouse on the Termination Date. 1.9 "TERMINATION DATE" shall mean the date of the earlier to occur of the date the Executive: (i) attains age 65; or (ii) ceases full-time employment with the Corporation. ARTICLE II 2.1 AMOUNT OF BENEFITS. (a) Lone Star agrees that Executive's annual retirement benefits at age 65 shall include the sum of: (X) the annual retirement benefits paid to Executive pursuant to the Plan and (Y) the annual payments to which the Executive is entitled under the Annuity, whether or not payable but shall not be less than $225,000. (b) Except as provided below, the benefits shall commence at age 65 and shall continue until the Discontinuation Date. 3 4 2.2 BENEFITS PAYABLE BEFORE AGE 65. Effective upon the Termination Date, the Executive may elect to receive the annual retirement benefits pursuant to Section 2.1 from the Corporation on or after the date the Executive attains the age of 55; provided however, such benefits shall be reduced by 5% for each full year that benefits commence prior to the attainment of age 62 by the Executive. No such reduction in benefits shall occur on or after the date the Executive attains the age of 62. The benefits shall be paid until the Discontinuation Date. 2.3 BENEFITS PAYABLE ON DISABILITY. In the event of Executive's Disability at any age prior to the commencement of retirement benefits pursuant to Sections 2.1 or 2.2, the annual retirement benefits pursuant to Section 2.1 shall commence immediately and shall continue until the Discontinuation Date. There shall be no reduction in benefits for Executive's age at date of Disability. 2.4 BENEFITS PAYABLE UPON DEATH. In the event of Executive's death prior to the Termination Date, the annual retirement benefits called for by Section 2.1 shall be paid to the Spouse until the Discontinuation Date. Benefits paid to the Spouse shall be reduced by 5% for each full year that Executive's age at death is less than age 62. 2.5 PAYMENT OF BENEFITS. There shall be no reduction in benefits payable under this Agreement due to the age of the Spouse. All payments under this Agreement shall be made to the Executive until his death, and then to the Spouse for her life if she survives the Executive. 2.6 PURCHASE OF ANNUITY. The Corporation agrees to purchase within thirty days after the Termination Date, an annuity from a reputable provider of annuities rated at least "AA" by Standard & Poors for the Executive and the Spouse which provides annual retirement benefits to Executive and his Spouse equal to the retirement benefits called for by this Agreement in excess of the benefits provided under the Plan and the Annuity. Within 30 days after the purchase of such annuity, the Corporation shall pay the Executive an amount equal to the federal income taxes which shall be payable by the Executive upon receipt of the annuity, said amount to be grossed up to reflect the additional taxes payable due to the receipt of said payment. The retirement benefits provided by the annuity shall be adjusted for this payment of federal income taxes so that the after tax retirement benefits provided by the annuity are at least equal to the after tax retirement benefits the Executive would have received from Lone Star had Lone Star paid the retirement 4 5 benefits directly rather than provide the retirement benefits through the annuity. ARTICLE III HEALTH AND MEDICAL BENEFITS From the date hereof until the Discontinuation Date, the Corporation agrees to provide the Executive with life insurance and the Executive and Qualified Dependents with medical insurance at no cost to the Executive and Qualified Dependents at least equal to the life and medical insurance provided to senior elected officers of the Corporation; provided however, upon the earlier to occur of the Executive's attainment of age 65 or the Executive's application for a pension benefit under the Plan, the medical benefits provided to the Executive and Qualified Dependents shall be at least equal to the medical benefits described in Appendix A; provided further, the annual deductible for medical coverage described in Exhibit A is $1,000.00 for the Executive and each Qualified Dependent prior to each such individual's attainment of the age of 65 and $750.00 for each individual after such individual's attainment of the age of 65. The Executive and the Spouse are each entitled to receive monthly reimbursement of Medicare Part B premiums until the Discontinuation Date. The Corporation agrees to use its best efforts to provide the benefits listed on Appendix A to the Executive and his spouse in a manner that will not result in any income inclusion under federal, state or local tax law. To the extent, any such income inclusion results to either the Executive or his spouse, the Executive and his spouse (as the case may be) shall receive an annual payment from the Corporation to fully pay for the federal, state or local tax on such income inclusion (a "Gross-up Payment") as well as any income inclusion from the Gross-up Payment based on the highest marginal tax rate on the payment, so that neither the Executive nor his Spouse have any federal, state or local tax liability as a result of participation in the Executive Medical Plan on Exhibit A. For each year, such payment shall be made no later than January 31st of the following year. No later than 120 days after the date hereof, the Corporation shall purchase an insurance policy covering the Executive Medical Plan to insure non-payment by the Corporation in accordance with the terms on Exhibit B. 5 6 This section shall survive any termination of this Agreement. ARTICLE IV 4.1 DISPUTE RESOLUTION. (a) The Executive hereby agrees that any dispute relating to this Agreement arising between the Executive (and/or the Spouse) and the Corporation (or any successor or assign) shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). The arbitration proceeding, including the rendering of an award, shall take place in Stamford, Connecticut, (or such other location mutually agreed upon by the Corporation and the Executive (and/or the Spouse)) and shall be administered by the AAA. (b) The arbitral tribunal shall be appointed within 30 days of the notice of dispute, and shall consist of three arbitrators, one of which shall be appointed by the Company, one by the Executive, and the third by both the Company and the Executive (and/or the Spouse) jointly; provided, however, that, if the Company and the Executive (and/or the Spouse) do not select the third arbitrator within such 30-day period, such third arbitrator shall be chosen by the AAA as soon as practicable following notice to the AAA by the parties of their inability to choose such third arbitrator. (c) Decisions of such arbitral tribunal shall be in accordance with the laws of the State of Connecticut (excluding the conflicts of law rules which require the application of any other law). The award of any such arbitral tribunal shall be final (except as otherwise provided by the laws of the State of Connecticut and the Federal laws of the United States, to the extent applicable). Judgement upon such award may be entered by the prevailing party in any state or Federal court sitting in Connecticut or any other court having jurisdiction thereof, or application may be made by such party to any such court for judicial acceptance of such award and an order of enforcement. (d) The Corporation shall reimburse the Executive and Spouse for all costs, including reasonable attorneys' fees, in connection with any arbitration hereunder in which the Executive (and/or the Spouse) is the prevailing party. 6 7 ARTICLE V MISCELLANEOUS 5.1 UNFUNDED PLAN. This Agreement is unfunded and shall at all times remain unfunded until required pursuant to Section 2.6. The obligations of the Corporation with respect to the benefits payable hereunder shall be paid out of the Corporation's general assets and shall not be secured. At its discretion, the Corporation may establish one or more trusts, with such trustees as the Board may appoint, for the purpose of providing payment of such benefits. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Corporation's creditors. To the extent any benefits provided under the Agreement are actually paid from any such trust, the Corporation shall have no further obligation with regard thereto, but to the extent not so paid, such benefit shall remain the obligation of, and shall be paid by the Corporation. To the extent that any person acquires a right to receive payments from the Corporation under this agreement, such right shall be no greater than the right of any unsecured general creditor of the Corporation. 5.2 NO EFFECT ON EMPLOYMENT. Nothing contained herein shall be construed as adversely affecting, in any manner, the terms and conditions of the Executive's employment including, without limitation, the terms and conditions of the Employment Agreement; provided however, in the event there are any conflicts between this Agreement and the Employment Agreement regarding supplemental retirement benefits and life and medical insurance, the terms of this Agreement shall prevail. 5.3 PAYMENTS NOT COMPENSATION. Any compensation payable under this Agreement shall not be deemed salary or other compensation to the Executive for the purposes of computing benefits to which he may be entitled under any pension plan or other arrangement of the Corporation for the benefit of its employees. 5.4 NO REDUCTION IN PLAN BENEFITS. Nothing in this Agreement shall reduce the benefits to which the Executive and the Spouse are entitled under the Plan. 5.5 INVALIDITY. In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts 7 8 hereof, but this Agreement shall be construed and enforced as if such illegal and invalid provision never existed. 5.6 WITHHOLDING OF TAXES. The Corporation shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it may have to withhold federal, state or local income or other taxes incurred by reason of payments pursuant to this Agreement. 5.7 Binding Affect. This Agreement shall be binding upon and inure to the benefit of the Corporation, including any purchaser of all or substantially all of the assets of the Corporation and the surviving entity of any merger or consolidation to which the Corporation is a party and the Executive and his heirs, executors, administrators and legal representatives. 5.8 NO ASSIGNMENT. Except as provided herein, the benefits payable under this Agreement shall not be subject to alienation, transfer, assignment, garnishment, execution or levy of any kind, and any attempt to cause any benefits to be so subjected shall not be recognized. 5.9 GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the laws of the State of Connecticut. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by its duly authorized officers and the Executive has hereunto set his hand and seal as of the date first above written. By: /s/ William M. Troutman ------------------------------- LONE STAR INDUSTRIES, INC. By: /s/ David W. Wallace ------------------------------- Chairman of the Board By: /s/ Jack R. Wentworth ------------------------------- Chairman of the Compensation and Stock Option Committee 8 EX-10.14 7 FORM OF "CHANGE OF CONTROL" AGREEMENT 1 EXHIBIT 10.14 As of February 1, 1996 [NAME] [ADDRESS] Dear Mr. ________: This letter will evidence the agreement of Lone Star Industries, Inc. and its successors and assigns (the "Company") with you on the terms specified herein. 1. If, after the occurrence of a Change in Control, "Substantially Comparable" employment (as defined below) does not continue to be offered to you by the Company for a period of at least one year following such Change in Control (whether because of a termination of your employment by such Company for any reason, or because of a change in the terms of such employment so that it is no longer Substantially Comparable to your employment by the Company prior to the Change in Control), and as a result your employment is terminated by you or the Company) or if you separate from the Company (or are terminated by the Company) for any reason in the thirty-day period commencing on the first anniversary of the occurrence of a Change in Control, then, you shall be entitled to severance in an amount equal to the greater of (A) thirty months of your base salary as in effect upon your 2 [NAME] As of February 1, 1996 Page 2 separation of employment from the Company or (B) thirty months of your base salary as in effect immediately prior to the Change in Control (the higher of the salary upon your separation or immediately prior to the Change in Control hereinafter referred to as the "Effective Base Salary"). Such severance shall be paid in a lump sum on the effective date of the termination of your employment. In addition, (A) you and your spouse and eligible dependents shall continue to receive health insurance and medical benefits under the Company's Executive Medical Plan (as in effect immediately prior to such Change in Control) during a period of thirty months commencing upon the termination of your employment and (B) you shall receive such life insurance as is in effect immediately prior to such Change in Control during a period of thirty months commencing upon the termination of your employment. In addition, you shall be deemed to have continued your employment at your Effective Base Salary during such thirty-month period for purposes of vesting, eligibility and benefit accrual under any applicable employee pension plan and shall receive, within fifteen days after the commencement of the thirty-month period of benefit continuation, a lump sum payment equal to the present value of any additional benefits to which you would have been entitled under any Company employee pension plan (and, if eligible, the Company's Supplemental Employee Retirement Plan) had the thirty-month period counted for purposes of vesting, 2 3 [NAME] As of February 1, 1996 Page 3 eligibility and benefit accrual (discounted at 5% per annum) as computed by the actuarial firm engaged by the Company immediately prior to the Change in Control. Nothing in this Agreement shall limit your eligibility for or entitlement to any benefits or programs to which you are otherwise entitled, including any severance due under the Company's regular severance policy ("Policy Severance"). However, if you are entitled to severance under this Agreement, you will also be entitled to receive any Policy Severance in a lump sum at date of termination. Any severance received under this Agreement shall be reduced by any Policy Severance actually received by you. Without limiting your right to the life and health insurance coverage set forth above, you shall continue to have the right to apply for and secure your entitlement to any life insurance and health coverage you may become entitled to as a retiree or terminated employee awaiting retirement eligibility (e.g., retiree health and life insurance) or as a terminated employee (e.g., "COBRA" insurance). It is not the intent of this agreement to provide for any duplication of insurance coverage; but any benefit contribution payment made by you in connection with one coverage (e.g., Company provided Executive Medical) shall be an offset against the same type of obligation under a comparable plan in which you may be a participant (e.g., retiree 3 4 [NAME] As of February 1, 1996 Page 4 medical or COBRA medical insurance) for the same period of coverage). 2. For purposes of this Agreement (i) a "Change in Control" shall be deemed to have occurred upon the occurrence of any of the following events: (i) Any acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of shares of common stock of the Company (the "Common Stock") and/or other voting securities of the Company entitled to vote generally in the election of directors ("Outstanding Company Voting Securities") after which acquisition such individual, entity or group is the beneficial owner of twenty percent (20%) or more of either (1) the then outstanding shares of Common Stock or (2) the Outstanding Company Voting Securities; excluding, however, the following: (A)(1) any acquisition by the Company, (2) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or (3) any acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar corporate transaction (in each case, a Corporate Transaction), if, pursuant to such Corporate 4 5 [NAME] As of February 1, 1996 Page 5 Transaction, the conditions described in clauses (1), (2) and (3) of paragraph (iii) of this Section 2 are satisfied; or (B) any transaction in which the Chief Executive Officer and President of the Company (both as of the date of this Agreement and subject to health related availability) (1) retain their current positions with the Company immediately after such transaction and (2) will immediately after such transaction beneficially own an aggregate (for both such executives), directly or indirectly (including, without limitation, ownership by family members, trusts or foundations for or controlled by family members), more than 5% of either the (a) then outstanding shares of common stock of the Company and/or (b) the other voting securities of the Company entitled to vote generally in the election of directors (any transaction under the clause (B) hereinafter referred to as a "Management Event"). (ii) A change in the composition of the Board of Directors of the Company (other than in connection with a Management Event) such that the individuals who, as of the date hereof, comprise a class of directors of the Board (the members of each class of directors of the Board as of the date hereof shall be hereinafter referred to as an "Incumbent Class" and the members of all of the Incumbent Classes shall be hereinafter collectively referred to as the "Incumbent Board") cease for any 5 6 [NAME] As of February 1, 1996 Page 6 reason to constitute at least a majority of the class; provided, however, for purposes of this subsection that any individual who becomes a member of an Incumbent Class subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved in advance or contemporaneously with such election by a vote of at least a majority of those individuals who are members of the Incumbent Board and a majority of those individuals who are members of such Incumbent Class (or deemed to be such pursuant to this proviso), shall be considered as though such individual were a member of the Incumbent Class; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company or actual or threatened tender offer for shares of the Company or similar transaction or other contest for corporate control (other than a tender offer by the Company) shall not be so considered as a member of the Incumbent Class; or (iii) The approval by the stockholders of the Company of a Corporate Transaction or, if consummation of such Corporate 6 7 [NAME] As of February 1, 1996 Page 7 Transaction is subject, at the time of such approval by stockholders, to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly); excluding, however, a Management Event or a Corporate Transaction pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the outstanding shares of Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than eighty percent (80%) of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction and the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or the corporation resulting from such Corporate Transaction and any Person beneficially owning, immediately prior to such Corporate Transaction, directly or indirectly, twenty percent (20%) or more of the outstanding shares of Common Stock or Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, twenty percent (20%) or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding 7 8 [NAME] As of February 1, 1996 Page 8 securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of board of directors of the corporation resulting from such Corporate Transaction; or (iv) The approval of the stockholders of the Company of (1) a complete liquidation or dissolution of the Company or (2) the sale or other disposition of all or substantially all of the assets of the Company; excluding, however, such a sale or other disposition to a corporation (A) in connection with a Management Event or (B) with respect to which following such sale or other disposition, (1) more than eighty percent (80%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding shares of Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition, (2) no Person (other than the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, 8 9 [NAME] As of February 1, 1996 Page 9 immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the outstanding shares of Common Stock or Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of such corporation. 3. For purposes of this Agreement, "Substantially Comparable" employment shall mean employment which (a) has a base salary which is equal to or higher than your Effective Base Salary and a benefits package which, in total, is equivalent or superior to your benefits package in effect prior to the Change in Control; (b) is at the same or a higher Level of Responsibility and Title; and (c) is at a location no more than 25 miles from (and located in the same State as) your then current employment location. "Level of Responsibility and Title" are set forth in Exhibit A hereto. In any dispute under this Agreement concerning "Substantially Comparable" employment, the 9 10 [NAME] As of February 1, 1996 Page 10 burden of proving that your employment was not "Substantially Comparable" shall be with the Company. 4. (i) Immediately upon the occurrence of a Change in Control, the Company shall: (A) establish a grantor trust subject to the claims of the Company's creditors (commonly referred to as a "Rabbi Trust"); and (B) contribute to the Rabbi Trust an amount sufficient to provide for the severance benefits and payment of all other benefits under Section 1 of this Agreement. The amount of payments made to you from the Rabbi Trust shall be determined by the accounting firm engaged by the Company immediately prior to the Change in Control and reviewed by outside legal counsel (which costs shall be borne by the Company). Payments made to you under this Agreement shall be made from such Rabbi Trust unless made directly by the Company; provided however, that in the event the funds contributed in the Rabbi Trust by the Company on your behalf are insufficient to provide for benefits under this Agreement, nothing in this Agreement shall limit the Company's liability to you for payments hereunder. The Rabbi Trust shall terminate and any remaining assets shall be returned to the Company no sooner than July 1, 2005, unless you have provided written notice of an unsatisfied claim to the trustee of the Rabbi Trust, in which case the Rabbi Trust shall not terminate until such claim is resolved pursuant to paragraph 9. 10 11 [NAME] As of February 1, 1996 Page 11 (ii) The Company agrees to use its best efforts to provide the benefits under the Executive Medical Plan to you and your eligible dependents in a manner that will not result in any income inclusion under federal, state or local tax law. To the extent, any such income inclusion results to either you or your eligible dependents, you and your eligible dependents (as the case may be) shall receive an annual payment from the Company to fully pay for the federal, state or local tax on such income inclusion (a "Gross-up Payment") as well as any income inclusion from the Gross-up Payment based on the highest marginal tax rate on the payment, so that neither you nor your eligible dependents have any net tax liability as a result of participation in the Executive Medical Plan. Such payments will be made by the Company within 15 days of final determination by the Internal Revenue Service (I.R.S.), state taxing authorities or Court of Law that taxes are due or, if it is determined in advance of any audit that the payments will be taxable, 30 days after the end of the calendar year such payments are includible in income. 5. This Agreement shall not confer upon you any right to continuance of employment with the Company or with any successor or in any way interfere with the right of the Company or such successor to terminate such employment. 11 12 [NAME] As of February 1, 1996 Page 12 6. This Agreement constitutes the entire agreement between the parties and may not be changed or modified except by an agreement in writing signed by you and the Company. The effectiveness of this Agreement shall commence as of February 1, 1996 and shall terminate on July 1, 1999. 7. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 8. This Agreement shall inure to the benefit of, and be binding upon, any successor in interest or assign of the Company including, without limitation, purchaser of all or substantially all of the assets of the Company and the surviving entity of any merger or consolidation to which the Company is a party. This Agreement cannot be assigned by you without prior written consent of the Company. 9. a. Any dispute relating to this Agreement arising between you and the Company (or any successor or assign) shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). The arbitration proceedings, including the rendering of an award, shall take place in Stamford, Connecticut (or such other location mutually agreed upon by the Company and you), and shall be administered by the AAA. 12 13 [NAME] As of February 1, 1996 Page 13 b. The arbitral tribunal shall be appointed within 30 days of the notice of dispute, and shall consist of three arbitrators, one of which shall be appointed by the Company, one by you, and the third by both you and the Company jointly; provided, however, that, if you and the Company do not select the third arbitrator within such 30-day period, such third arbitrator shall be chosen by the AAA as soon as practicable following notice to the AAA by the parties of their inability to choose such third arbitrator. c. Decisions of such arbitral tribunal shall be in accordance with the laws of the State of Connecticut (excluding the conflicts of law rules which require the application of any other law). The award of any such arbitral tribunal shall be final (except as otherwise provided by the laws of the State of Connecticut and the Federal laws of the United States, to the extent applicable). Judgement upon such award may be entered by the prevailing party in any state or Federal court sitting in Connecticut or any other court having jurisdiction thereof, or application may be made by such prevailing party to any such court for judicial acceptance of such award and an order of enforcement. d. The Company shall reimburse you for all costs, including reasonable attorneys' fees, in connection with 13 14 [NAME] As of February 1, 1996 Page 14 any proceeding (whether or not in arbitration) to obtain or enforce any right or benefit under this Agreement in which you are the prevailing party. e. Without intending to limit the remedies available to you, the Company acknowledges that a breach of any of the covenants contained in this Agreement may result in material irreparable injury to you for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, you shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction requiring the Company to specific performance or such other relief as may be required to specifically enforce any of the provisions of this Agreement. 10. Notwithstanding anything else herein, to the extent you would be subject to the excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") on the amounts in Section 1 above required to be included in the calculation of parachute payments for purposes of Sections 280G and 4999 of the Code, the amounts provided under this Agreement shall be automatically reduced to an amount one dollar less than that, when combined with such other amounts and benefits required 14 15 [NAME] As of February 1, 1996 Page 15 to be so included, would subject you to the excise tax under Section 4999 of the Code. 11. No later than May 1, 1996, the Company shall purchase, on your behalf, an insurance policy to cover any of your litigation costs (or your spouse) associated with the enforcement of this Agreement against the Company (or defense against claims made under this Agreement by the Company) in an amount of $100,000. The Company shall fully reimburse you for the federal, state and local income and employment-related taxes incurred by you in connection with the purchase of such policy (the "Reimbursement") and any federal, state or local taxes on the Reimbursement, based on the highest marginal tax rate in effect, so that you have no federal, state or local tax liability as a result of this Section. 12. All notices, communications, etc., shall be sent to (a) Corporate Secretary Lone Star Industries, Inc. 300 First Stamford Place Stamford, CT 06912 (b) [NAME] [ADDRESS] 15 16 [NAME] As of February 1, 1996 Page 16 13. This Agreement replaces and supersedes the Agreement between the Company and the Executive, dated July 1, 1994. Very truly yours, LONE STAR INDUSTRIES, INC. By_____________________________________ Read and Agreed to: _______________________________ 16 EX-10.15 8 CHANGE OF CONTROL AGREEMENT DATED JULY 1, 1994 1 Exhibit 10.15 Dated as of July 1, 1994 Pasquale P. Diccianni 24 Mohawk Road Ramsey, NJ 07446 Dear Mr. Diccianni: This letter will evidence the agreement of Lone Star Industries, Inc. (the "Company") with you on the terms specified herein. 1. If, at any time prior to or at the consummation (during the effectiveness of this Agreement) of a Sale of Trap Rock, as defined below, you are not, upon your written request given at least 30 days prior to the consummation of the Sale of Trap Rock, addressed to the Company and the company (the "Surviving Entity") which thereafter owns the capital stock or assets of New York Trap Rock Corporation, a Delaware corporation ("Trap Rock"), offered employment in writing by the Surviving Entity which is Substantially Comparable, as defined below, to your employment with the Company prior to such Sale of Trap Rock, or if such Substantially Comparable employment does not continue to be tendered to you by the Surviving Entity thereafter for a period of at least one year following the consummation of such Sale of Trap Rock (whether because of a termination of your employment by the Surviving Entity, for a cause or otherwise, or because of a change in the terms of such employment so that it is no longer Substantially Comparable), then you may by written notice to the 2 Company (and to the Surviving Entity if such notice is given following consummation of the Sale of Trap Rock) terminate your employment with the Company and decline employment (or decline further employment) with the Surviving Company and its affiliates and thereafter you shall be entitled to severance from the Company in an amount equal to your base salary immediately prior to the Sale of Trap Rock, for a period of one year (reduced by any period of your continued employment by the Surviving Entity). Such severance shall be paid in substantially equal installments on the Company's regularly established pay periods during the one year period (or the balance of such one year period following any continued employment by you by the Surviving Entity) following consummation of the Sale of Trap Rock. In addition, you shall continue to receive medical insurance and other benefits from the Company during such period (the "Benefit Period") as you remain unemployed, but in no event shall the Benefit Period be longer than the period ending one year from the date of consummation of the Sale of Trap Rock. Benefits pursuant to the immediately preceding sentence shall be substantially comparable to those you received from the Company prior to the Sale of Trap Rock. In furtherance and not in limitation of the second preceding sentence, you shall be deemed to have continued your employment with the Company at your salary effective prior to the Sale of Trap Rock during the Benefit Period for purposes of vesting, eligibility and benefit accrual under any applicable employee benefit plan. Severance pay pursuant to this Agreement shall be in lieu of severance pay pursuant to any other Lone Star severance policy. 2 3 2. For purposes of this Agreement (i) a "Sale of Trap Rock" shall be deemed to have occurred upon the sale of all or substantially all of the capital stock or assets of Trap Rock (including any sale by way of merger or consolidation), but excluding any sale to or merger or consolidation with a wholly owned subsidiary of the Company; and (ii) "Substantially Comparable" employment shall mean employment which (a) has an annual salary equivalent or superior to your annual salary in effect prior to the Sale of Trap Rock; and (b) is at a location within the same State as your State of employment prior to the Sale of Trap Rock and no more than 25 miles from your then current employment location. 3. This Agreement shall not confer upon you any right to continuance of employment with the Company or Trap Rock, or with any successor thereof (including the Surviving Entity), or in any way interfere with the right of the Company, Trap Rock or such successor to terminate such employment. 4. This Agreement constitutes the entire agreement between the parties and may not be changed or modified except by an agreement in writing signed by you and the Company. The effectiveness of this Agreement shall commence as of July 1, 1994 and shall terminate on July 1, 1996. 5. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 3 4 6. This Agreement shall inure to the benefit of, and be binding upon, any successor in interest or assign of the Company. This Agreement may not be assigned by you without the prior written consent of the Company. 7. a. Any dispute relating to this Agreement arising between you and the Company (or any successor or assign) shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). The arbitration proceedings, including the rendering of an award, shall take place in Stamford, Connecticut (or such other location mutually agreed upon by the Company and you), and shall be administered by the AAA. b. The arbitral tribunal shall be appointed within 30 days of the notice of dispute, and shall consist of three arbitrators, one of which shall be appointed by the Company, one by you, and the third by both you and the Company jointly; provided, however, that, if you and the Company do not select the third arbitrator within such 30-day period, such third arbitrator shall be chosen by the AAA as soon as practicable following notice to the AAA by the parties of their inability to choose such third arbitrator. c. Decisions of such arbitral tribunal shall be in accordance with the laws of the State of Connecticut (excluding the conflicts of law rules which require the application of any other law). The award of any such arbitral tribunal shall be final (except as otherwise provided by the laws of the State of Connecticut and the Federal laws of the United States, to the 4 5 extent applicable). Judgment upon such award may be entered by the prevailing party in any state or Federal court sitting in Connecticut or any other court having jurisdiction thereof, or application may be made by such party to any such court for judicial acceptance of such award and an order of enforcement. d. The company shall reimburse you for all costs, including reasonable attorneys' fees, in connection with any proceeding (whether or not in arbitration) to obtain or enforce any right or benefit under this Agreement in which you are the prevailing party. 8. All notices, communications, etc., shall be sent to: (a) Corporate Secretary Lone Star Industries, Inc. 300 First Stamford Place Stamford, CT 06912 (b) Pasquale P. Diccianni 24 Mohawk Road Ramsey, NJ 07446 Very truly yours, LONE STAR INDUSTRIES, INC. By: /s/ David W. Wallace David W. Wallace Read and Agreed to: /s/ P. P. Diccianni Pasquale P. Diccianni 5 EX-11 9 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 LONE STAR INDUSTRIES, INC. EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE (In Thousands Except Per Share Amounts)
Successor Company For the For the Nine Year Ended Months Ended December 31, 1995 December 31, 1994 ----------------- ----------------- PER SHARE OF COMMON STOCK - PRIMARY Income (loss) before cumulative effect of changes in accounting principles $ 35,762 $ 29,333 Less: Provisions for preferred dividends(4) -- -- --------- --------- Income (loss) before cumulative effect of changes in accounting principles applicable to common stock 35,762 29,333 Cumulative effect of changes in accounting principles, net of taxes (3) -- -- Net interest expense reduction (1) 2,334 2,094 --------- --------- Net income (loss) applicable to common stock $ 38,096 $ 31,427 ========= ========= Weighted average shares outstanding during period(5) 11,990 12,000 Options and warrants in excess of 20% limit (1) 2,347 2,132 --------- --------- Weighted average shares outstanding during period(5) 14,337 14,132 ========= ========= Income (loss) per common share: Income (loss) before cumulative effect of changes in accounting principles $ 2.66 $ 2.22 Cumulative effect of changes in accounting principles -- -- --------- --------- Net income (loss) $ 2.66 $ 2.22 ========= ========= PER SHARE OF COMMON STOCK ASSUMING FULL DILUTION Income (loss) before cumulative effect of changes in accounting principles $ 35,762 $ 29,333 Plus: Net interest expense reduction(1) 1,848 2,008 Less: Provisions for dividends -- -- --------- --------- Income (loss) before cumulative effect of changes in accounting principles applicable to common stock 37,610 31,341 Cumulative effect of changes in accounting principles, net of taxes -- -- --------- --------- Net income (loss) applicable to common stock $ 37,610 $ 31,341 ========= ========= Common shares outstanding at beginning of period Weighted average shares outstanding during period 11,990 12,000 Conversion of $13.50 preferred shares outstanding at beginning of period -- -- Conversion of $4.50 preferred shares outstanding at beginning of period -- -- Stock options and warrants in excess of 20% limit(1) 2,347 2,132 Common shares issued from treasury stock -- -- --------- --------- Fully diluted shares outstanding(6) 14,337 14,132 ========= ========= Income (loss) per common share assuming full dilution: Income (loss) before cumulative effect of changes in accounting principles $ 2.62 $ 2.22 Cumulative effect of changes in accounting principles -- -- --------- --------- Net income (loss) $ 2.62 $ 2.22 ========= =========
Predecessor Company For the Three For the Year Ended December 31, Months Ended ------------------------------------------ March 31, 1994 1993 1992 1991 -------------- ---- ---- ---- PER SHARE OF COMMON STOCK - PRIMARY Income (loss) before cumulative effect of changes in accounting principles ($ 23,118) ($ 35,258) ($ 45,428) ($ 5,547) Less: Provisions for preferred dividends(4) 1,278 5,112 5,113 5,114 --------- --------- --------- --------- Income (loss) before cumulative effect of changes in accounting principles applicable to common stock (24,396) (40,370) (50,541) (10,661) Cumulative effect of changes in accounting principles, net of taxes (3) -- (782) (118,914) -- Net interest expense reduction (1) -- -- -- -- --------- --------- --------- --------- Net income (loss) applicable to common stock ($ 24,396) ($ 41,152) ($169,455) ($ 10,661) ========= ========= ========= ========= Weighted average shares outstanding during period(5) n/m 16,644 16,641 16,582 Options and warrants in excess of 20% limit (1) -- -- -- -- --------- --------- --------- --------- Weighted average shares outstanding during period(5) n/m 16,644 16,641 16,582 ========= ========= ========= ========= Income (loss) per common share: Income (loss) before cumulative effect of changes in accounting principles n/m(2) ($ 2.42) ($ 3.03) ($ 0.64) Cumulative effect of changes in accounting principles -- (0.05) (7.15) -- --------- --------- --------- --------- Net income (loss) n/m(2) ($ 2.47) ($ 10.18) ($ 0.64) ========= ========= ========= ========= PER SHARE OF COMMON STOCK ASSUMING FULL DILUTION Income (loss) before cumulative effect of changes in accounting principles ($ 23,118) ($ 35,258) ($ 45,428) ($ 5,547) Plus: Net interest expense reduction(1) -- -- -- -- Less: Provisions for dividends -- -- -- -- --------- --------- --------- --------- Income (loss) before cumulative effect of changes in accounting principles applicable to common stock (23,118) (35,258) (45,428) (5,547) Cumulative effect of changes in accounting principles, net of taxes -- (782) (118,914) -- --------- --------- --------- --------- Net income (loss) applicable to common stock ($ 23,118) ($ 36,040) ($164,342) ($ 5,547) ========= ========= ========= ========= Common shares outstanding at beginning of period n/m 16,644 16,621 16,560 Weighted average shares outstanding during period Conversion of $13.50 preferred shares outstanding at beginning of period n/m 955 955 955 Conversion of $4.50 preferred shares outstanding at beginning of period n/m 45 46 48 Stock options and warrants in excess of 20% limit(1) n/m -- -- -- Common shares issued from treasury stock n/m -- 22 58 --------- --------- --------- --------- Fully diluted shares outstanding(6) n/m(2) 17,644 17,644 17,621 ========= ========= ========= ========= Income (loss) per common share assuming full dilution: Income (loss) before cumulative effect of changes in accounting principles n/m ($ 2.00) ($ 2.57) ($ 0.31) Cumulative effect of changes in accounting principles -- (0.04) (6.74) -- --------- --------- --------- --------- Net income (loss) n/m(2) ($ 2.04) ($ 9.31) ($ 0.31) ========= ========= ========= =========
(1) Due to the fact that the company's aggregate number of common stock equivalents is in excess of 20% of its outstanding common stock, primary and fully diluted earnings per share have been calculated using the modified treasury stock method for the year ended December 31, 1995 and the nine months ended December 31, 1994. (2) Earnings per share for the three months ended March 31, 1994 are not meaningful due to reorganization and revaluation entries and the issuance of 12 million shares of new common stock. Earnings per share amounts for the successor company are not comparable to those of the predecessor company. (3) In 1992, the company adopted Statements of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", and No. 109, "Accounting for Income Taxes", effective January 1, 1992. In the first quarter of 1993, Kosmos Cement Company, one of the company's joint ventures, adopted SFAS No. 106. (4) Provisions for preferred dividends are computed on an accrual basis and, therefore, may differ from preferred dividends declared. Due to the Chapter 11 proceedings, the company stopped accruing for preferred stock dividends as of September 15, 1990. However, the full year's amount of dividends are included for this calculation. (5) Common stock options are not reflected in primary earnings per share computations for the years ended December 31, 1993, 1992 and 1991 because their effect is not significant. (6) The computation of fully diluted earnings per share submitted herein is in accordance with Regulation S-K item 601 (b) (11) although it is contrary to Paragraph 40 of APB Opinion No. 15 because it produces anti-dilutive results for the three years ended December 31, 1993. EX-12 10 STATEMENT RE COMPUTATION TO FIXED CHARGES 1 EXHIBIT 12 LONE STAR INDUSTRIES, INC. Statement Re Computation of Ratio of Earnings to Fixed Charges (Dollar amounts in thousands)
| Successor Company | Predecessor Company | For the For the Nine | For the Three For the Year Ended December 31, Year Ended Months Ended | Months Ended --------------------------------- December 31, 1995 December 31, 1994 | March 31, 1994 1993 1992 1991 ----------------- ----------------- | -------------- ---- ---- ---- | | Continuing Operations: | | Earnings Available: | | Income (loss) before provision | for income taxes $53,376 $45,133 | ($3,170) $6,196 ($42,429) $2,948 | Less: Excess of earnings over | dividends of less than fifty | percent owned companies (2,978) (674) | (75) 844 (294) (817) | Capitalized interest (262) (168) | (38) (195) (196) (1,310) ------ ------ | ------- ------ ------- ------- 50,136 44,291 | (3,283) 6,845 (42,919) 821 ====== ====== | ======= ====== ======= ======= | | Fixed Charges: | | Interest expense (including | capitalized interest) and | amortization of debt | discount and expenses 9,358 6,980 | 271 1,832 2,406 4,612 | Portion of rent expense | representative of an | interest factor 1,636 1,631 | 252 1,963 2,108 2,218 ------ ------ | ------- ------ ------- ------- | Total Fixed Charges 10,994 8,611 | 523 3,795 4,514 6,830 ------ ------ | ------- ------ ------- ------- | Total Earnings Available $61,130 $52,902 | ($2,760) $10,640 ($38,405) $7,651 ====== ====== | ======= ====== ======= ======= | Ratio of Earnings to Fixed Charges 5.56 6.14 | (5.28) 2.80 (8.51) 1.12 ====== ====== | ======= ====== ======= ======= | Earnings deficiency 0 0 | (3,283) 0 (42,919) 0 ====== ====== | ======= ====== ======= =======
EX-23 11 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Lone Star Industries, Inc. on Form S-3 (File No. 33-55377) and S-8 (File Nos. 33-55277, 33-55261, and 33-55229) of our report, dated January 31, 1996, which includes an explanatory paragraph related to the Company's reorganization effective April 14, 1994, accompanying the consolidated financial statements and financial statement schedule of Lone Star Industries, Inc. and Consolidated Subsidiaries as of December 31, 1995 and 1994, and for the year ended December 31, 1995, the nine months ended December 31, 1994, the three months ended March 31, 1994, and the year ended December 31, 1993, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Stamford, Connecticut March 20, 1996 (LOGO) Printed on Recycled Paper EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 DEC-31-1995 2,726 47,323 37,339 5,936 55,476 142,217 349,052 37,655 480,926 60,567 78,000 0 0 12,081 147,659 480,926 323,008 333,776 217,942 271,304 0 0 9,096 53,376 17,614 35,762 0 0 0 35,762 2.66 2.62
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