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FILE NAME: Lone Star Industries (LS) DATE: 1979 DOC#: LS109 DOCUMENT DESCRIPTION: Lone Star Annual Report \aro f Bold Action and Record Profit [ONESTAR Lone Star Industries, Inc. 1979Annual Report LSI(01 /16/2018)_001443 Lone Star Industries, Inc. 1979 Annual Report Lone Star is America's leading producer of cement, concrete, sand and gravel, and a major producer of crushed stone and precast products. In 1979, we acted boldly to focus our resources and energies on these products, so essential to the nation's $230 billion construction industry and its 10 million employees, and we achieved record profits. Letter to Shareholders 4 "Cement is Turning to Oil" 7 Lone Star At A Glance 10 Review of Operations 12 Financial Review and Statements Industry Segment Data 36 Management's Discussion and Analysis of the Summary of Operations 38 Quarterly Financial Data 44 Financial Ratios and Statistics 45 Statement of Significant Accounting Policies 46 Report of Independent Certified Public Accountants 46 Consolidated Statements of Income and Retained Earnings 47 Consolidated Balance Sheets 48 Consolidated Statements of Changes in Financial Position 49 Notes to Financial Statements 50 Supplemental Information on Effects of Changing Prices 55 Ten-Year Summary of Operations 56 Principal Operations 58 Directors 60 Officers 62 Corporate Data 62 LSI(01/16/2018)_001444 n Highlights Corporate Strategy Redirected...building centers operations were sold, realizing $152 million to accelerate growth in cement, aggregates and related products. Record Earnings Per Share Achieved for the Fourth Consecutive Year... a 48% increase to $5.95 per share. Continuing operations advanced 91% to $5.15 per share. Dividend Rate Raised to $1.65 for 1980...the fifth consecutive year of higher dividends. Return on Equity Posted Strong G ain...advanced to 18.9% from 14.5% in 1978. Portland Cement Company of Utah Acquired...a well-managed company with newly expanded plant in Salt Lake City, serving a growing market. San-Vel Concrete Corporation Acquired...a leading U.S. producer of prestressed products, including concrete railroad crossties. Santa Cruz Expansion Continued...to create a virtually new energy-efficient plant, nearly doubled in size to meet growing demand in northern California. Maryneal Plant Converted from Natural Gas to Coal .. .energy-saving and cost-reduction programs continue at all plants. Miami Plant Capital Improvement Program Launched .. .profit turnaround of 1978 acquisition continues as profits nearly triple. Brazilian Interests Consolidated with Lafarge...joint venture is building new plant at Cantagalo to serve in the State of Rio de Janeiro. Pryor, Oklahoma and Dixon, Illinois Plant Purchase Agreements Signed...to add 1,325,000 tons of coal-fired cement-producing capacity. vj JJ I LSI(01/16/2018)_001445 Financial Highlights (D ollars in th o u san d s except p er sh are am o u n ts) N et sales Incom e from continuing operations Incom e from discontinued operations N et incom e Shareholders' equity C apital expenditures D ividends paid on com m on shares Per common share Incom e from continuing operations: Prim ary Fully diluted N et incom e: Prim ary Fully diluted D ividends Shareholders' equity 1979 $792,508 $ 56,039 $ 8,702 $ 64,741 $356,492 $ 83,778 $ 15,158 $5.15 $4.73 $5.95 $5.45 $1.40 $34.15 1978 $638,276 $ 30,440 $ 14,938 $ 45,378 $330,154 $ 62,336 $ 13,409 Increase (decrease) 24% 84% (42%) 43% 8% 34% 13% $2.69 $2.49 $4.02 $3.68 $1.20 $29.24 91% 90% 48% 48% 17% 17% 88 Discontinued Operations H Continuing Operations 3 LSI(01/16/2018)_001446 To Our Shareholders The year 1979 was one of bold action... a year in which we developed a new strategy for the challenging 1980's, redirecting our energies and resources into cement, aggregates and related products. That strategy, and that challenge, are the principal subjects of this year's Annual Report. It was also an outstanding year for profits. We earned $5.95 per share vs. $4.02 the year before, a rise of 48% and our fourth consecutive year of record performance. The 1979 earnings included 39<t per share from discontinued operations and a 41<t gain on their sale. Profit from continuing operations alone, $5.15 per share, exceeded our total 1978 earnings by 28%. A gain to 18.9% in return on shareholders' equity, over the 14.5% of 1978, was also a significant achievement. The 1980 dividend rate was raised 18% to $ 1.65 per share--the fifth consecutive year of increase. The U.S. cement industry has arrived at a new era of great promise and opportunity--an era of new dynamics: .. .pent-up demand for safer highways, bridges and airport runways, better water and sewage treatment systems, smoother railroad trackbeds and many other needs. ...limitedsupply, caused by a prolonged period of inadequate new investment in the cement industry and aggravated by an increasing number of retirements of old and inefficient plants. ...new capitalformation goals, achievable by those companies that can generate funds internally and find innovative ways to access capital markets. .. .changing distributionpatterns, with rail and barge shipments challenging the high costs of truck hauling ^ and ocean shipping. LSI(01/16/2018)_001447 rames E. Stewart .. .fuel-saving technologies to lower costs dramatically in cement manufacture through preheaters, precalciners, roller mills and other innovations. .. .andperhaps above all, the dynamics o fpublic opinion, rallying against the economic effects of over-regulation and excessive environmentalism. Lone Star moved swiftly and boldly in early 1979 to meet the challenges of these new dynamics by concentrating upon them all of its skills and resources. Through disposition of our building centers operations in the second quarter of the year, we realized $ 152 million, primarily for redeployment into our basic businesses of cement, aggregates and related products. The company's organization was restructured to more effectively carry out this new strategy. Donald M. Halsted, Jr., formerly head of Atlantic Cement Company, joined Lone Star as President and Chief Operating Officer, and Carmine J. Muratore, formerly Senior Vice President in the investment firm of Blyth Eastman Dillon & Co., joined the company as Executive Vice President--Staff. Expansion of production capacity was accelerated. The company completed the acquisition of Portland Cement Company of Utah and San-Vel Concrete Corporation and continued its successful turnaround of the operations acquired in Florida in 1978. Agreements have been reached to acquire additional cement plant operations in Illinois and Oklahoma. Expansion of our Santa Cruz plant in the San Francisco Bay area is well underway to virtually double production and greatly improve operating efficiency, particularly in the use of energy. 5 LSI(01/16/2018)_001448 Our operations in Argentina and Uruguay produced outstanding results during the year. In Brazil, we combined our interests with those of Lafarge of France in a new joint venture, leading to groundbreaking for a 770,000-ton plant to serve Rio de Janeiro and its surrounding markets. Lone Star repurchased 1,250,000 shares of common stock at $25.50 a share...and has arranged for its shares to be traded on the Frankfurt Stock Exchange. We have endeavored to alert the government, our industry and the investment community in the U.S. and abroad to the problems and the promise of the cement industiy today in terms o f limited domestic capacity, increased dependence on foreign imports and rising costs. Our position is presented on the following pages. The outlook for Lone Star in 1980--despite varying forecasts for the U.S. economy--is for another year of growth in sales and earnings and for further progress in responding to the new dynamics of our industiy. The eventful and significant year just concluded was Lone Star's 60th year in business. We are proud of the achievements brought about in the recent succession of record-breaking years--and view them as the foundation for even more exciting growth in the years ahead. I am deeply obligated to all of Lone Star's employees, whose dedication and professionalism have brought about these results. James E. Stewart Chairman and ChiefExecutive Officer March 7,1980 LSI(01/16/2018)_001449 "Cement is Turning to Oil" (Excerptsfro m recent Lone Star presentations to industry and investment groups in the United States and Europe.) Cement is used in more than 90% of all construction in America--a $230 billion industry giving employment to some 10 million people. Cement thus plays a basic role in our lives and economy, but cement supplies have become tight in many areas. It is now an economic certainty that cement will become even more scarce and therefore more valuable in the future. If oil is "black gold," cement is certainly "gray gold." Cement, in a manner of speaking, is turning to oil. In recent years cement was being allocated in tight supply areas--just like oil--on a percentage basis to estab lished customers. New orders often could not be filled, or new customers accepted. Large construction projects had to be postponed or stretched out, affecting jobs and local economies. Such tight supply situations are becoming chronic in many markets, and may well last through most of the 1980's. The cement industry may soon face the same public criticisms being made against the oil companies in the United States. The fact is that the lack of adequate capital formation incentives and excessive government regulations have made it difficult to expand national cement capacity. One effect of the growing pressure on domestic capacity was a 47% increase in the amount of cement that was imported into the United States last year. 7 LSI(01/16/2018)_001450 Meanwhile, the energy supply of the entire world is being questioned and challenged. Events in the Middle East require that every nation's sources and energy uses be rethought. For cement producers outside the U.S., the practice of importing costly oil to make cement for the U.S. market will no longer be viable. Future uses of oil must be channeled into industries that require less energy and contribute more to the growth of local economies. That means that less cement will be available for import, and it means that the U.S. must think in terms of produc ing more cement for its own use. Meanwhile, the pressures that increasing demand will have on a limited cement supply in America will be relentless. In spite of these pressures, some may question whether this is the right time to launch any major expansion program, because of varying economic forecasts of recession. But meeting the nation's need for cement is a long-term program. It takes up to 3 years just to obtain the necessary environ mental permits to build or expand a cement plant. And once the 2 to 3 year construction phase is completed, the plant will operate for at least 25 years. Because the product is so vital to the whole construction industry--being by far the least expensive, most versatile and essential building material--we must look well down the road in planning for its continued availability. LSI(01/16/2018)_001451 We do not have the luxury of waiting for what might be the exact moment in time to get started. The exact moment is now. Furthermore, new plants with new technology will produce more economically--and older plants must eventually fall by the wayside. But this plant replacement process is being impeded by excessive government controls, the burden of bureaucratic paperwork and costly and time-consuming regulatory procedures. W hat is needed at this critical juncture is the understand ing of our government agencies--their cooperation, encouragement and assistance in our efforts to meet the national need and serve the national interest. How do we see the cement industry in the U.S. for the next ten years? First--1980 will be a good year. Second--From 1981 to 1986 every ton of U.S.-produced cement will be utilized in our domestic market. Third--The world-wide squeeze on oil and energy will change world trade patterns, including cement. Fourth--From 1981 to 1989, a great num ber of out dated high-BTU-using cement plants will be shut down. Fifth--After 1990, only new plants, those which have been converted to the new technology, and only a few others, will survive. That's the way we see it--a scenario that will soon change an "unappreciated" industry into one that is fully recognized as vital to the national interest. Something like oil.9 9 LSI(01/16/2018)_001452 Lone Star at a Glance D om estic Operations Northeast Region Location Nazareth, Pa. Cement Plants Annual Rated Capacityti2/3i/79) (In thousand tons) 658 Primary Fuel Coal Process 1 Dry Central Region Greencastle, Ind. 752 Bonner Springs, Kansas 451 Coal Wet Coal Wet Southeast Region Roanoke, Va. 1,200 Coal Dry Southwest Region Pacific Region Houston, Tex. Maryneal, Tex. New Orleans, La. Santa Cruz, Calif. Seattle, Wash. 526 545 414 395/7502 752 Gas Wet Coal Dry Gas Wet G as/C oal2 Dry Coal Wet Florida Miami, Fla. Portland of Utah Salt Lake City, Utah San-Vel Littleton, Mass. Totals 1,200 420 G as/C oal3 Wet Coal Wet 11 cement plants -7,313 Tons International Operations Argentina Uruguay Brazil (Joint V enture) Totals Sierras Bayas Paran 1,100 210 G as/O il Dry Oil Wet Sayago 320 Oil Wet G uaxindiba 490 Oil Wet Arat 484 Oil Wet Belo Horizonte 900 Oil W et/D ry Arcos 140 Oil Wet 7 cement plants--3,644 Tons 1) In the dry process raw materials are fed to the kiln in a dry state whereas in the wet process materials are delivered mixed with water in the form of slurry. 2) Will be expanded to coal fired 750M tons in 1980. 3) Conversion to coal scheduled for late 1980. LS1(01/16/2018)_001453 Jther Operations 3 aggregates plants and quarries 1979 in Brief Sales $50.6 million, up 19%. Cement sales up 29% due to higher shipments and im proved prices. Aggregates sales up 11%. Im pact o f New York harbor strike on aggregates business minimized by record truck shipments during the strike and record barge loadings after. Announced shutdowns of competitive plants should tighten supply. portable ready-mix plant Sales $55.8 million, up 16%. Greencastle still is the most energy-efficient wet process cement plant in the U.S. Rehabilitation program at Bonner Springs added capacity and increased energy efficiency. 12 aggregates plants and quarries, 10 ready-mix plants, 4 concrete block plants, 2 concrete pipe plants, prestressed concrete plant, precast concrete plant Sales $111.5 million, up 13%. Despite a ready-mix truck driver strike, ready-mix concrete sales up 5%. Aggregates sales 14% higher, a new regional record. O ther concrete product sales up 26%. New aggregates capacity at Chester, Virginia will contribute to the Com pany's perform ance in 1980. 12 aggregates plants and quarries, 12 ready-mix plants Sales $155.3 million, up 18%. Cement sales 12% higher on stronger volume and improved prices. Aggregates sales up 35%. Ready-mix concrete sales up 20%. Record cement consumption in Texas. Continues to be one of the strongest growth regions in the country 14 aggregates plants and quarries, 6 ready-mix plants Sales $137.2 million, up 16%. Cem ent production supplem ented by imports of cement and clinker produced a 16% increase in cement sales. Aggregates sales up 15%. Ready-mix concrete sales up 20%. O ther concrete products sales up 16%. Shortage of commercial office space in San Francisco and Seattle will contribute to increased dem and in this region. ggregates quarry, 25 ready-mix plants, 8 concrete block plants, prestressed concrete plant Sales $ 106.8 million, up 55%. Turnaround of this joint venture formed in February 1978 continues. All product lines benefited by strong performance o f Florida's economy in 1979. This efficient, well-managed operation acquired in Septem ber 1979 is strategically located in the fast growing InterM ountain region and will contribute significantly to 1980 performance. aggregates plant, ready-mix plant, prestressed concrete plant, precast concrete plant Company, acquired in June, 1979, manufactures concrete railroad ties in addition to a wide range of prestressed and precast concrete products. 43 aggregates plants and quarries, 55 ready-mix plants, 12 concrete block plants, 2 concrete pipe plants, 3 concrete pre stressed plants, 2 concrete precast plants 2 ready-mix plants 2 ready-mix plants Sales up 48%. Strong local dem and increased cement volum e to new records for both plants. Prices were drastically higher in this highly inflated economy Cem ent is being im ported to meet growing demand. Sales up 26%. Cement sales stronger due to increasing dem and. Restrictions on cement prices removed early in the year. Lone Star and Lafarge combined all Brazilian operations early in 1979. (Lone Star: 48%, Lafarge: 52%). Combined company constructing a 770,000-ton cement plant at Cantagalo to serve the Rio de Janeiro market. Completion expected during 1982. LSI(01/16/2018)_001454 U.S. Cement Consumption and Imports 1975-79 (millions o f tons) 100 90 1975 1976 1977 1978 1979 Source: Portland Cement Association H Imports 12 Review of Operations The widely predicted 1979 recession did not arrive, and the construction market remained strong throughout the year. Shipments by the U.S. portland cement industry were 83.3 million tons, making 1979 the second best year in history. Demand pressures on the industry's cement plant system caused total imports to reach a record level of 9.4 million tons, up from 6.4 million tons imported in 1978. Lone Star's domestic portland cement shipments increased 5.7%, outperforming the industry. The increase came from technological improvements and higher pro duction, with several Lone Star plants again establishing new all-time records, and from expansions, acquisitions and imports. In order to accelerate the company's growth and development in its basic business of cement and related products, the building centers operations--distributors and retailers of building materials--were disposed of during the second quarter of 1979. These dispositions generated a pretax profit to Lone Star of $8.3 million. Total funds of approximately $152 million were realized primarily for reinvestment in the basic business. In June, the San-Vel Concrete Corporation in Littleton, Massachusetts, was purchased for $8.5 million. San-Vel is a leading producer of precast, prestressed concrete prod ucts. The company is presently participating in a $50 mil lion contract to supply concrete railroad crossties to the Amtrak Northeast Corridor Improvement Program. The Portland Cement Company of Utah was acquired in September for $38 million in cash. This company has a long history of excellent management and fine service to Salt Lake City and surrounding markets. An LSI(01/16/2018) Lone Star Cement Shipments 1975-79 1975 = 100 200 180 160 140 120 100 80 60 40 20 0 1975 1976 1977 1978 expansion o f its plant to 420,000 tons was completed during 1979. Lone Star has agreed to acquire the Pryor, Oklahoma cement plant of OKC Corp. and the Dixon, Illinois plant of Medusa Corporation. These facilities would add 1,325,000 tons to Lone Star's rated capacity at a total cost of approximately $94 million. The Pryor acquisition is subject to a number of required approvals. Turnaround of the Lone Star Florida operations, acquired in 1978, has continued and accelerated, with nearly $4 million contributed to net income in 1979. The first phase of a planned modernization and expansion program is now in progress at the cement plant, involv ing the upgrading of certain production operations, increased storage capacity, a new packhouse, and con version of the kiln fuel from natural gas to coal. Following the combination of Lone Star's Brazilian interests with Lafarge early in 1979, a new plant project was launched at Cantagalo, to serve the State of Rio de Janeiro. This 770,000-ton facility is being financed by the joint venture, primarily through a $75 million Eurodollar loan from a syndicate of banks. Excellent results are being achieved by Lone Star's sub sidiaries in Argentina and Uruguay, aided by continuing strong demand. Capital Expenditures at New High Lone Star's capital expenditures increased for the fifth year in a row, reaching a record $84 million. Today, it takes more than $2 million a year, on average, for needed replacements and additions just to maintain an existing cement plant. This excludes any profit improvement mea sures like coal conversion or minor additions to capacity. 13 LSI(01 /16/2018)_001456 Energy Cost Comparison of Coal versus Oil and Natural Gas 1975 = 100 Natural Gas 300 250 200 150 100 Oil (Bunker C) 300 250 200 150 100 Coal (All Bituminous) 300 250 200 150 100 1975 1976 1977 1978 1979 Source: Bureau o f Labor Statistics A major capital allocation was made in 1979 to the Santa Cruz expansion project in California. Productive capacity there is being increased from 395,000 tons per year to a virtually all new 750,000 tons, and through new tech nology with conversion to coal, fuel consumption per ton will be greatly reduced. Energy conservation measures by Lone Star have reduced its BTU consumption per ton of cement pro duced by 11% over the past five years. Capital funds continue to be directed to the conversion of other Lone Star cement plants from oil and natural gas to coal: Maryneal in 1979, and currently the Santa Cruz plant, with Miami to follow. Nearly 90% of Lone Star's productive capacity will be fired by coal, on com pletion of these programs. Lone Star's expansion and improvement programs are being financed both through internally generated funds and through innovative approaches to the capital markets. The company is currently arranging the private place ment o f $41 million o f cumulative preferred stock, and also expects to dedicate a portion of future production of limestone from quarries located adjacent to three of its cement plants for $50 million. The company intends to pursue additional financing during the year, including $38.5 million of borrowings related to the Pryor, Oklahoma plant acquisition. The Importance of Aggregates In addition to being the Number One U.S. producer of cement with 7.3 million tons of rated capacity, Lone Star is also the Number One producer of sand and gravel. Last year the company mined, processed and sold some 38 million tons of aggregrates from 43 major sand and 14 LSI(01/16/2018)_001457 New Construction in Place 1975-79 (in billions) S250 225 200 175 150 125 100 75 50 25 1975 1976 1977 1978 1979 Source: U.S. Department o f Commerce gravel deposits and stone quarries in 8 states. The aggregates business complements the cement business, and Lone Star's leadership position in these products is one of the company's real strengths. Approxi mately 21% of the company's operating profit is now derived from these important, increasingly valuable and profitable materials. As construction demand grows, the availability of good deposits of aggregates in major metropolitan areas has become restricted. As an example, rock for construction purposes is not available within 100 miles of Houston. Construction sand is scarce in New \brk; and in Sacramento, Lone Star has just built a new plant on the last known major deposit of sand and gravel near the city. Lone Star has assured itself of many years of aggregates supply, and is adding to those reserves as favorable opportunities arise. It is very much in the nation's interest for public policy to recognize the importance of such irreplaceable assets, and to protect their use from being foreclosed by envi ronmental regulations or restrictive zoning. The company is also the leader in ready-mixed concrete, currently producing and marketing approximately 4 mil lion cubic yards of ready-mix annually, delivered by our fleet of 750 ready-mix trucks to job sites in 8 states. In addition, Lone Star produces more than 35 million con crete blocks annually. Lone Star Hawaii Inc. had an excellent year, recording $20 million in sales and $6.5 million in operating profit. Major developments there include a light industrial park near Pearl Harbor and developments of townhouses and single-family homes on the windward side of Oahu. 15 LSI(01/16/2018)_001458 Projected Capacity Utilization U.S. Cement Industry 1978-83 (millions o f tons) 100 90 80 70 60 50 40 30 20 10 0 1978 1979 1980 1981 1982 1983 Utilization (%) 91.1 88.6 86.8 88.3 89.8 92.3 Source: Lone Star Estimate |j ] Capacity Production 16 The New Dynamics of Cement Far-reaching changes in the economics of cement pro duction, distribution and use have brought the industry to a new era of challenge and opportunity. As an energy-intensive industry, cement makers must: .. .find and apply new technologies to save energy, .. .resolve distribution problems to save motor fuel, ...accept that imports will dwindle, because no oil-poor nation can afford to buy expensive oil to make inexpensive cement for export, and .. .find ways of meeting pent-up U.S. public demand for clean water, efficient sewage disposal, safer highways and bridges, and all the construction needs and demands of our way of life. The issue, and Lone Star's mission, is to be of significant service to the nation's construction industry by meeting the growing demand for the materials essential to our country's economic growth. Lone Star has the ability to generate adequate capital for the job, it has the human resources for the task in an experienced workforce and sound management organi zation, and it has a basic framework of production and distribution facilities on which to build. We are the com pany that has "put it all together." We are committed to leadership and participation in the industry's dynamic changes in the 1980's--changes which will be beneficial to the nation, to the construction industry, to the company and to its shareholders. The following pages illustrate some of Lone Star's capabilities and achievements in keeping pace with these new dynamics. Inferno-like interior o f a giant rotary kiln where raw materials are calcined at 2700 Fahrenheit. LSI(01/16/2018)_001459 LSI(01/16/2018)_001460 The dynamics o f technology Cement-making is non-stop. Giant silos of raw materials feed rotary kilns--the largest moving machines in any industry--24 hours a day, 7 days a week. The technological challenge is to build and maintain plants that conserve power and fuel, run smoothly, and produce a product of uniform high quality. The pay-off: lower costs, higher margins. P li E X .X Lonestar Fioritici operations near Miami. LSI(01/16/2018)_001461 LSI(01/16/2018)_001462 LSI(01/16/2018)_001463 The dynamics o f aggregates The mining of sand, gravel and stone close to metropolitan areas has diminished these resources and made them increasingly valuable. As the nation's largest producer of construction sand and gravel, and one of the largest suppliers of crushed stone, Lone Star benefits from well-established operations and substantial reserves. Above: Loading barges at Clinton Point, near Poughkeepsie, N. Y. L e ft: Steilacoom sand and gravel deposit, near Tacoma, Wash. 21 LSI(01/16/2018)_001464 The dynamics o fgrowth Additional cement capacity is urgently needed to meet the constantly growing U.S. demand--but at today's cost of $ 150 million or more for a new million-ton plant, few such projects are being announced. Lone Star is broadening its capacity at minimum capital cost and at attractive returns on investment. Left: Expansion at Santa C m :, California Right: Portland Cement Company o f Utah, acquired in 1979 LSI(01/16/2018)_001465 I LSI(01/16/2018)_001466 ___^d5.W J l iS| LSI(01/16/2018)_001467 The dynamics o f energy conservation Conserving oil and gas is not only a national priority, it also reduces costs in the energy intensive cement industry By the end of this year, Lone Star will be 88% on coal, and moving toward 100% as rapidly as possible. Systemwide, Lone Star's energy use per ton has been reduced 11% over the past five years. Preheaters (left) and coal-handlingfacility (above) at Maryneal, Texas 25 LSI(01/16/2018)_001468 The dynamics o f distribution Lone Star's extensive distribution system in cludes the ownership or leasing of railroad hopper cars, barges, tugboats and distribution terminals. In the future, larger plant sizes and the soaring cost of highway transportation can be expected to increase the use of distribution terminals served by energyefficient rail and barge transportation. L e ft: Lone Star ready-mixed concrete truck on a Dallas freeway Right: Marine aggregates operations on the Hudson River. LSI(01/16/2018)_001469 LSI(01/16/2018)_001470 LSI(01/16/2018)_001471 The dynamics o fprecast/prestressed concrete High-speed, efficient railroad systems demand welded railroad tracks and a roadbed system based on concrete railroad crossties, as other nations have proved with their high-speed trains. The construction of urgently needed watersupply and sewage-disposal systems is speeded by use of precast concrete products. The versatility of concrete finds new expression every year, creating new markets. Lone Star is a leader in the tech nology of these new developments and products. Above: Concrete mains precast at Charleston, S. C. Left: A section ofA m trak's Northeast Corridorfeaturing concrete railroad crossties. 29 LSI(01/16/2018)_001472 The dynamics o fpent-up demand Government spending for public works projects has been grossly inadequate, actually declining 15% since 1975 in real terms. Government agencies have identified thousands of unsafe bridges across the nation and hundreds of unsafe dams. Airport runways and municipal sewage systems are overburdened. The pent-up demand for public construction is a powerful force; playing "catch-up" will place enormous stress on construction materials capabilities. Bridges and dams are among the essential public works projects requiring large amounts o fcement and aggregates. LSI(01/16/2018)_001473 LSI(01/16/2018)_001474 The dynamics o f thefuture What is civilization without cement? ...Each generation determines its own needs, sets its own priorities; but civilization and living standards move relentlessly forward. Construction in America, commanding some 10% of the gross national product and indirectly influencing at least another 10%, is currently supported by $230 billion in spending, provides employment for an estimated 10 million people, and is absolutely dependent on the relatively small cement and aggregates industries. Our nation's future will require more and more of these basic products, for which no economic substitutes are even remotely in sight. New York 's Palace Hotel under construction--first use in the city o f new high -strength concrete, made with Lone Star cement and aggregates. LSI(01/16/2018)_001475 LSI(01/16/2018)_001476 LSI(01/16/2018)_001477 Financial Review and Statements Industry Segment D ata 36 M anagem ent's Discussion and Analysis of the Summary of O perations 38 Quarterly Financial D ata 44 Financial Ratios and Statistics 45 Statem ent o f Significant Accounting Policies 46 Report o f Independent Certified Public Accountants 46 Consolidated Statements of Income and Retained Earnings 47 Consolidated Balance Sheets 48 Consolidated Statements of Changes in Financial Position 49 Notes to Financial Statements 50 Supplem ental Inform ation on Effects of Changing Prices 55 Ten-Year Summary of Operations 56 Rotary kiln at Miami plant, newly relined with refractory brick. A total rebricking program would require as many as 150,000 bricks. 35 LSI(01/16/2018)_001478 Industry Segment Data The present operations of the company consist o f the following segments: 1. The cement and related products seg ment includes the production and distri bution of portland, masonry and other types of cement, and the manufacture and distribution of ready-mixed concrete and concrete products. International cement and related products results are derived from South America and repre sent all o f the com pany's operations out side the United States. 2. The construction aggregates segment includes the mining, processing and dis tribution of sand, gravel and crushed stone. This segment sells aggregates to the cement and related products seg ment at list prices. These intersegment sales are not included below and consist of the following (in millions): 1979, $23.9; 1978, $20.4; 1977, $16.7; 1976, $13.7; and 1975, $16.0. 3. The other segments include real estate operations, wholesale lumber opera tions, and the sale o f other construction materials. The com pany's major joint ventures include: Lonestar Florida Pennsuco, Inc., a diversified producer of cement, aggregates and related products; Companhia Nacional de Cimento Portland, S.A., a Brazilian producer o f cement; and Lone Star Minerals, Inc., a producer of roofing granules and abrasives. Corporate and unallocated expenses include corporate administrative expenses, securities income (net of related foreign currency translation losses) and minority interest. During 1979, the company disposed of its Building Centers operations, which had marketed lumber and building materials. Prior years'segment data have been reclassified to reflect the disposition. Identifiable assets are those assets that are used in the company's industry seg ments. Corporate and unallocated assets consist primarily of cash, marketable securities (including foreign), and other assets not specifically identified with a segment. (D o lla rs in m illio n s) N et Sales Cement and related products D o m e stic ................................................................................... In tern atio n al........................................................................... T otal...................................................................... Construction aggregates.................................................................. O ther segm ents................................................................................. Total net sales..................................................... 1979________ 1978 1977 1976 1975 $491.5 $388.6 $270.2 $214.9 $192.0 118.4________ 1J4J_________8 8 J _________ 1 JA ________ 7C9 609.9 502.7 358.9 292.0 268.9 127.21 105.0 75.8 71.0 69.8 55.4_________ 30.6_________20.5_________ 32,4________ 28,6 $792.5 $638.3 $455.2 $395.4 $367.3 N et Income O perating Profits from Continuing Operations Cement and related products Domestic........................................................................... . . . . In tern atio n al........................................................................... T otal.............................................................. . . . . Construction aggregates........................................................... . . . . O ther segm ents.......................................................................... . . . . Total operating profits from continuing operations........................... . . . . $ 53.0 ''' 20.4 73.4 21.8 9.8 105.0 Plus: Joint ventures and unconsolidated subsidiary........... . . . . Less: Interest expense............................................................... . . . . Corporate and unallocated expenses.......................... . . . . Income tax es.................................................................... . . . . Income from continuing operations...................................... . . . . 5.9 (19.2) (15.3) (20.4) 56.0 $ 38.8 11.8 50.6 15.8 3.7 70.1 2.1 (19.8) (14.7) (7.2) 30.5 $ 26.8 10.1 36.9 7.4 4.2 48.5 0.2 (19.3) (10.6) (1.6) 17.2 $ 22.7 14.2 36.9 7.8 3.2 47.9 2.8 (14.2) (11.3) (3.1) 22.1 $ 23.7 12.0 35.7 7.9 (0.3) 43.3 5.3 (15.4) (6.7) (7.6) 18.9 Discontinued operations (net of tax) Earnings from Building Centers operations............. ....... G ain on disposal of Building Centers........................ ....... T otal............................................................. ....... Net income.................................................. ....... 43 4.4 8.7 $ 64.7 36 14.9 - 14.9 $ 45.4 12.5 - 12.5 $ 29.7 5.1 - 5.1 $ 27.2 0.4 -- 0.4 $ 19.3 LSI(01/16/2018)_001479 Net Sales by Business Segment (in millions) Operating Profit by Business Segment (in millions) 1975 1976 1977 1978 1979 Other Construction Aggregates Cement & Related Products/International Cement & Related Products/Domestic 1975 1976 1977 1978 1979 Other Construction Aggregates Cement & Related Products/International Cement & Related Products/Domestic _______________________________________________________________________( D o l l a r s i n m i l l i o n s ) Identifiable A ssets Jement and related products D o m e stic ................................................................................... In tern atio n al........................................................................... T otal...................................................................... Construction aggregates.................................................................. Other segm ents................................................................................. Total identifiable assets..................................... Joint ventures and unconsolidated su bsidiary............................ Corporate and unallocated ite m s.................................................. Discontinued o p eratio n s................................................................ Total a sse ts......................................................... 1979 $416.8 44.7 461.5 129.1 45.6 636.2 69.8 33.3 -- $739.3 Capital Expenditures Cement and related products Domestic.................................................... ............................. International............................................ ............................. Total....................................... ............................. Construction aggregates................................... ............................. O th er.................................................................... ............................. Discontinued o p eratio n s................................. ............................. Total capital expenditures................ ............. $ 52.1 8.2 60.3 18.1 1.1 4.3 $ 83.8 Depreciation and D epletion Cement and related products Domestic.......................................................................... ....... International.................................................................. ....... T otal............................................................. ....... Construction aggregates......................................................... ....... O th er.......................................................................................... ....... Total depreciation and depletion........... ....... $ 13.9 3.7 17.6 8.2 0.8 $ 26.6 1978 $291.9 80.1 372.0 116.8 33.6 522.4 12.0 22.2 181.7 $738.3 $ 26.5 6.8 33.3 16.8 2.5 9.7 $ 62.3 $ 11.6 4.5 16.1 7.7 0.6 $ 24.4 1977 $262.5 70.8 333.3 104.4 32.5 470.2 6.8 30.6 159.9 $667.5 1976 $194.3 64.0 258.3 97.1 36.8 392.2 28.2 29.5 150.4 $600.3 1975 $180.8 58.1 238.9 100.9 47.3 387.1 23.4 21.4 131.1 $563.0 $ 13.5 7.0 20.5 14.7 0.3 6.5 $ 42.0 $ 18.5 8.0 26.5 9.5 0.6 3.2 $ 39.8 $ 13.4 4.0 17.4 11.8 1.3 3.4 $ 33.9 $ 10.7 2.9 13.6 7.2 0.7 $ 21.5 $ 9.1 2.7 11.8 7.3 1.1 $ 20.2 $ 8.9 2.7 11.6 6.8 1.0 $ 19.4 37 LSI(01/16/2018)_001480 Management's Discussion and Analysis of the Summary of Operations Consolidated Results Lone Star's sales from continuing opera tions established a new record o f $792.5 million in 1979, an increase of $ 154.2 million or 24.2% over 1978. A m ajor por tion of the increase was attributable to the domestic cement and related prod ucts operations primarily reflecting the institution of price increases, a continued strong performance by the Florida operations, and the acquisition of the Portland Cement Company of Utah and San-Vel Concrete Corporation. Lone Star experienced an increase in domestic sales and shipm ents throughout its major product lines. Profit Margin (Net Income to Sales) Consolidated net income also achieved a record $64.7 million in 1979, an increase o f $19.3 million or 42.5% above the 1978 record. Net income from continuing operations alone surpassed the total 1978 am ount by over 20%. This increase was broad-based; all of the com pany's domestic and foreign opera tions and major product lines, including real estate operations, contributed increased operating profits over 1978. Portland of Utah contributed almost $3.0 million in operating profit, follow ing its acquisition in September. Consoli dated results were partially offset by higher income taxes. Income from joint ventures more than doubled as Lonestar Florida Pennsuco contributed $3.8 mil lion in profits, almost three times last year's results. Net income from discontinued Build ing Centers operations, disposed of dur ing the second quarter of 1979, was $4.3 million. The after-tax gain on the sale was an additional $4.4 million. N et Sales Reach New High Cement and Related Products Sales of the cement and related products segment increased $ 107.2 million to $609.9 million in 1979,21.3% over 1978. Domestic Cement Sales Domestic cement sales increased $48.5 million or 20.1% as a result of increased shipments and higher prices in all regional markets, along with the inclu sion of $6.5 million in sales from the newly acquired Portland of Utah opera tion. A tight supply situation existed during much of the year with a higher level of imports necessary to meet demand in some coastal markets. Regional price increases, ranging from 10% to 16%, were realized during the year. Shipments, excluding cement used in the com pany's concrete operations, in creased 6.7% over 1978. Lonestar Florida, a wholly-owned subsidiary of the company that began operations in early 1978, had 1979 cement sales and shipments increase 65% and 46%, respectively, over 1978. Lonestar Florida purchases and resells all the production of the Lonestar Florida Pennsuco joint venture. North east Region cement sales increased $5.6 million or 29%, with shipments increas ing 12% in a stronger construction market. Pacific Region cement sales increased $8.8 million over 1978 and used imports to meet rising demand pending completion of the expansion of Lone Star's Santa Cruz, California cement plant. Cement sales also increased in the other domestic regions, primarily due to improved prices. International Cement Sales In Lone Star's international opera tions, cement sales increased $ 1.2 million to $ 109.3 million on increased sales in Argentina and Uruguay, partially offset by the exclusion of sales in Brazil result ing from the contribution of Lone Star's Brazilian operations to a new joint ven ture with Lafarge. Sales increased $25.0 million in Argentina to $77.4 million on increased selling prices and higher volurnes. The growing Argentine economy resulted in an 8% increase in cement consumption in 1979, and tight supply conditions continued. Both of Lone Star's cement plants achieved record production and reached practical capac ity. Prices have kept pace with the high inflation rate while devaluations have lagged well behind, resulting in a favor able translation of sales in local currency to dollars. Sales at Lone Star's Brazilian opera tions, included only up to the April, 1979 formation of the joint venture, were $14.1 million as com pared with $41.7 million for the full year 1978. Sales N et Sales o f Cement and Related Products Segm ent In millions_________________1979_______ 1978_______ 1977_______ 1976_______1975 Cement: Domestic................ $290.0 $241.5 $185.0 $143.4 $121.4 International......... 109.3 108.1_______ 853_______ 743_______ 72.5 399.3 349.6 270.3 217.9 193.9 Concrete and Concrete Products: Domestic................ 201.5 147.1 85.2 71.5 70.; I n t e r n a t i o n a l ......... 9.1 6.0 3.4 2.6 4.4 210.6 153.1 88.6 74.1 75.0 Total... $609.9 $502.7 $358.9 $292.0 $268.9 38 LSI(01/16/2018)_001481 increased $3.7 million to $17.7 million in Uruguay on improved prices. Demand from the country's construction industry ncreased as a result of a higher inflow of argentine capital, with cement being in short supply much of the year. Cement prices were decontrolled early in the year, which allowed the company to keep pace with accelerating inflation. Devalu ations have also lagged in Uruguay, resulting in a favorable translation of sales in local currency to dollars. C oncrete ancl C oncrete Products Sales Domestic sales of ready-mixed con crete increased 26.5% in 1979. Sales were higher in all regions due to improved prices and the acquisition of San-Vel. Lonestar Florida concrete sales advanced 41.6%, primarily due to strong dem and in the commercial and condo minium markets. Sales of concrete increased $3.2 million in international operations on higher volumes and prices in Argentina. Sales of precast and prestressed concrete products increased 72.6% in 1979, primarily due to higher sales by Lonestar Florida and newly acquired San-Vel. Construction Aggregates Sales Sales of construction aggregates increased $22.2 million to $ 127.2 million in 1979, or21.1% above 1978, with all regions showing improvement. South west Region aggregates sales accounted for 34% of the overall increase on improved prices and higher production and shipments, primarily due to a plant expansion in the North Texas market. Lonestar Florida sales increased $3.6 million due to strong demand for aggre gates for highway resurfacing projects. Sales of aggregates in the Pacific Region increased $4.3 million as the modern Sacramento facility, opened in late 1978, contributed a full year's production. Other Segments Sales Net sales from the other business seg ments increased $24.8 million to $55.4 million in 1979 on higher sales of devel oped properties by Lone Star Flawaii and higher wholesale lumber operations sales. Operating Profits Exceed $100 Million Consolidated operating profits from con tinuing operations increased $34.9 mil lion to $105.0 million in 1979, an in crease of 49.8% over 1978. Cement and related products, the com pany's largest segment, provided 69.9% of total operat ing profits from continuing operations. Domestic operating profits from ce ment and related products increased $14.2 million on improved margins. Also contributing to the increase were the operating profits of the newly acquired San-Vel and Portland o f Utah, which provided operating profits o f $1.1 and $3.0 million, respectively, for the periods owned. Operating profits in the interna tional operations increased 12.9% to $20.4 million on strong results in Argen tina. as higher sales volumes and in creased prices more than offset the ef fects of increased operating costs. Operating profits for 1979 from con struction aggregates were $21.8 million, or 38.0% above 1978, on higher volumes and improved margins. Higher volumes were primarily due to the expansion of the com pany's crushed stone operations in North Texas and the contribution of a full year's operations at the Sacramento facility in California. Operating profits from other business segments increased $6.1 million to $9.8 million primarily on increased sales of developed properties by Lone Star Hawaii. Income to Average Invested Capital Joint Ventures Income from joint ventures and uncon solidated subsidiaries increased $3.8 mil lion in 1979 to $5.9 million as a result of greater income from Lonestar Florida Pennsuco and Lone Star Minerals. Lonestar Florida Pennsuco contrib uted $3.8 million to venture income, rep resenting an increase of $2.4 million, due to strong dem and from commercial and condominium markets and highway re surfacing projects. Lone Star holds all of the outstanding common stock in the venture and thus records all venture profit after deducting preferred divi dends. See Note 5 of Notes to Financial Statements on page 50 for summarized comparative financial information and a further discussion of the venture. Lone Star Minerals, Inc., a 50% owned joint venture formed in July, 1978, con tributed $1.5 million to venture income for 1979. The com pany produces and markets specialty aggregates and roofing granules. In April, 1979, Lone Star and Lafarge, the largest cement company in France, combined substantially all of their cement operations in Brazil to form a new joint venture, with Lone Star ob taining a 48% interest. The venture operated at approximately a break-even level during its first eight months of operations. The Brazilian economy has experienced high inflation due to high imported energy costs and low agricul tural output due to adverse weather. As a result, a tight monetary policy has been instituted, which has caused construction cutbacks, ham pering the new venture's operations. The venture currently operates four cement plants and is in the process of building a new 770,000 ton plant in Cantagalo, northeast of Rio de Janeiro. See Note 6 of Notes to Financial Statements on page 51 for a further dis cussion of the venture's formation, in cluding summary financial information. Interest Expense Interest expense declined 3% in 1979 to $ 19.2 million, as a portion of the cash obtained from the sale of Building Centers was used to reduce short-term debt during the year. This reduction was partially offset by higher interest rates on the short-term financing utilized. The daily weighted average interest rate on Lone Star's short-term borrowings in creased from 14.3% to 16.7%, reflecting the general rise in interest rates during the year. During 1979, Lone Star chose not to elect early implementation of Statement of Financial Accounting Standards No. 34 relating to capitalization o f inter est costs. It is estim ated that capitaliza tion of interest in accordance with this statement would have increased re ported primary earnings per share by $0.05 for 1979. 39 LSI(01/16/2018)_001482 Corporate and Unallocated Expenses Corporate and unallocated net expenses include corporate administrative ex penses, securities income (net of related foreign currency translation losses) and minority interest. These expenses showed an increase of $0.6 million in 1979 to $ 15.3 million, primarily reflect ing the effects of inflation on salaries, benefits and other administrative ex penses. partially offset by an increase in income from marketable securities. Income Taxes Federal, foreign and other income taxes increased $13.2 million, almost three times the 1978 level, reflecting the higher pre-tax earnings and a higher effective corporate tax rate. The higher effective tax rate is attributable to increased operating profits, which rose at a greater rate than percentage depletion deduc tions and investment tax credits. Record N et Income Lone Star's income from continuing operations in 1979 was a record $56.0 million, 84.2%, or $25.6 million above the previous record level of $30.4 million established in 1978 and 23.5% above total net income for 1978. The increase ing Centers operations were profitable, the company felt that the increasing cap ital requirements in both the building centers and cement industries made it necessary to choose between them to maintain its growth and leadership. After reviewing the current and pros pective return on investment in both businesses, the company decided the outlook favored cement, aggregates and related products where strong market conditions are seen for some time to come. The sale of Building Centers involved eight separate transactions, yielding an after-tax profit of $4.4 million. Prior to its sale. Building Centers had 1979 after tax income o f $4.3 million. Lone Star's net income in 1979 reached a record $64.7 million, or 42.7% above the previous record set in 1978. Income from continuing operations of $56.0 million exceeded the 1978 record earnings from all operations by $ 10.7 million. The increased earnings are at tributable to higher sales and operating profits of continuing operations seg ments, the earnings and gain on disposal of the Building Centers operations, and increased sales and operating profits in real estate development operations, all offset in part by a higher effective in come tax rate. i Gain on Sale o f Discontinued Operations Discontinued Operations Continuing Operations tures and preferred stock and the exer cise of stock options. The purchase of shares had a total cost of $32.2 million and is reflected as treasury stock on the balance sheet. These transactions had the overall net effect o f increasing earn ings per share for the year by $0.24, or 4% on a primary basis. Return on Average Shareholders' Equity 88 G ain on Sale o f Discontinued Operations SI Discontinued Operations Continuing Operations in earnings is attributable to higher sales and operating profits in essentially all segments o f the com pany's operations. During 1979, Lone Star sold its Build ing Centers operations. These operations included wholesale lumber, distribution facilities, com bination retail/contractor building materials outlets and retail home care centers. Although the Build 40 Earnings per Share In 1979, Lone Star earned $5.95 per share of common stock after deducting dividends on preferred stock, compared with $4.02 per share in 1978, a new high for the fourth consecutive year. Earnings per share from continuing operations achieved a record level of$5.15 in 1979, almost double 1978's $2.69 per share. Earnings per share from discontinued operations were $0.39 in 1979 as com pared to $ 1.33 in 1978, the decrease reflecting the sale of Building Centers during 1979. The gain on this sale contributed $0.41 to 1979 earnings per share. Primary net income per share is based on 10.8 million and 11.2 million weighted average shares outstanding in 1979 and 1978, respectively. The declin ing number of shares outstanding re sulted from the com pany's purchase of 1,250,000 shares in July 1979, partially offset by 413,039 shares issued in con nection with the conversion of deben The purchase of shares alone had the effect of increasing earnings per share for the year by $0.30, or 5.3% on a pri mary basis, and $0.25 or 4.8% on a fully diluted basis. Earnings per share from continuing operations was increased by $0.26, or 5.3% on a prim ary basis, and $0.22, or 4.9% on a fully diluted basis. Other Incom e--N et Other income--net, increased $8.2 mil lion. primarily due to higher joint ven ture income as explained under "Joint Ventures" on page39. higher securities income, and lower foreign exchange losses. Securities income increased $2.5 million primarily due to an increase in LSI(01/16/2018)_001483 short-term investments. Foreign ex change losses decreased $1.3 million, pri marily due to the formation of the Bra zilian joint venture which is accounted for on the equity basis. Costs o f Sales; Selling, General & Administrative Expenses and Depreciation Cost of sales increased 22.1% in 1979 as operating costs reflected the higher power, fuel, labor and m aintenance costs associated with increased production and sales levels. Additional increases in power and fuel were attributable to in creased utility rates and higher fuel prices. Labor costs increased due to wage rate and benefit increases. Repairs and maintenance expenses rose due to exten sive kiln repairs, reflecting continued high production and high prices for re placement parts. Lone Star's domestic cement, aggre gates and related products operations had a 25% cost of sales increase to $504.5 million due to higher sales and operating costs in all regions and Lonestar Florida, and the effect of the acquisition of San-Vel and Portland of Utah. Cost o f sales decreased in Lone Star's international operations by $4.3 million, primarily reflecting the change in ac counting method for the Brazilian opera tion from a consolidated basis to the equity basis upon the combining of in terests with Lafarge. Cost of sales increased in Argentina and Uruguay, primarily due to high inflation. Cost of sales increased in Lone Star's other segments, reflecting increased sales of properties in the com pany's real estate development operations. Selling, general and administrative ex penses declined as a percentage of net sales to 8.8% in 1979 from 9.2% in 1978. These costs increased $11.1 million, or 18.8% in 1979, as a result of increased sales activity in the cement apd related products and construction aggregates operations, as well as selling, general and administrative expenses incurred by San-Vel and Portland of Utah after their acquisition, and the effects o f inflation on wages, benefits and other cost components. Depreciation and depletion expense increased $2.2 million or 8.9% to $26.6 million in 1979, primarily because o f the increase in total depreciable assets aris ing from capital expenditures of $83.8 million and the acquisition of the fixed assets of San-Vel and Portland of Utah. Capital Expenditures Increased Lone Star's capital expenditures were $83.8 million in 1979, representing an increase of 34.5% over 1978. Domestic capital expenditures were $75.6 million, an increase of $20.1 million, while capi tal expenditures in the international operations were $8.2 million. Capital Expenditures ( in millions) $100 ----------------------- Discontinued Operations Other I Construction Aggregates Cement & Related Products The expansion and modernization of the Santa Cruz, California cement plant continued with 1979 expenditures of $23.8 million. This project is designed to increase capacity to 750,000 tons annually and reduce per-ton energy con sumption. The company spent $2.7 mil lion for a new one million ton crushed stone plant near Richmond. Virginia. During the year, Lone Star also spent $15.5 million for major repairs and replacements of mobile equipm ent, $6.7 million for the purchase of quarry land adjacent to the Florida operations. $2.1 million for pollution control devices, and $ 1.5 million for completion of a cost saving coal conversion at the Maryneal, Texas plant. The remaining domestic expenditures were primarily related to major repairs and replacements to upgrade existing facilities. In the com pany's international opera tions $5.7 million was spent in Argentina and a lesser am ount in Uruguay to m ain tain and modernize existing facilities. The funds were provided from the finan cial resources of the subsidiaries located in each country. Further additions were made to gross property, plant, and equipm ent due to the acquisitions of Portland of Utah ($23.4 million) and San-Vel ($15.4 million). Major Acquisitions In June, Lone Star acquired all o f the outstanding stock o f San-Vel Concrete Corporation, a leading Massachusetts manufacturer of precast/prestressed concrete products for $8.5 million in cash and notes. San-Vel's prim ary m ar ket area centers in greater Boston and includes much o f New England. San-Vel. through a joint venture, also has a con tract to provide 1.1 million prestressed concrete railroad crossties for the Amtrak Northeast Corridor Improve ment Program. San-Vel has contributed sales and operating profit of $12.5 mil lion and $1.1 million, respectively, to the consolidated totals. Lone Star acquired all of the out standing stock of the Portland Cement Company of Utah in September for $38.1 million in cash. It serves Salt Lake City and the surrounding market with a newly expanded 420,000-ton capacity cement plant. Portland of Utah contrib uted sales and operating profits o f $6.5 million and $3.0 million, respectively, to the com pany's 1979 consolidated totals. In December, 1979 Lone Star agreed to acquire the Dixon. Illinois cement plant of Medusa Corporation, a subsid iary of Crane Co. Under the terms of the agreement, Lone Star will purchase the plant, terminal facilities and a quarry for $10.0 million and will also purchase the plant's inventories at a price to be deter mined at the time the acquisition is com pleted. The Dixon plant has a rated capacity of approximately 600,000 tons of cement a year. In February, 1980, Lone Star and OKC Corp. reached an agreement for the sale of O K C 's Pryor. Oklahoma cement facility and certain land near Ocala, Florida to Lone Star for $87.3 million. In addition, Lone Star agreed to purchase certain other assets, including inventories, substantially on a cost basis. Lone Star is negotiating with O K C 's lenders to borrow $38.5 million at the time of the closing. The Pryor plant cur rently has a rated capacity of 450.000 tons of cement per year: a nearly com pleted expansion program will increase rated capacity to 725,000 tons. 41 LSI(01/16/2018)_001484 Dividend Increased In 1979, Lone Star raised the dividend on its com m on stock to $ 1.40 per share as the com pany completed its 45th consec utive year of uninterrupted quarterly dividends on common stock. Cash divi dends of $0.35 per share were paid to holders of common stock in each quarter of 1979 and $0.30 per share were paid in each quarter of 1978. The com pany paid cash dividends of $1,125 per share in each quarter of both years on its pre ferred stock. Total cash dividends on common shares were $15.2 million and $13.4 million in 1979 and 1978, respec tively. Dividends paid to preferred share holders were $176,000 in 1979 and $232,000 in 1978. The variations from 1978 reflect the per share increase and the conversion of debentures and pre ferred shares into common shares, par tially offset by the com pany's 1,250,000 common share purchase in July, 1979. In January, 1980, Lone Star's Board of Directors raised the quarterly cash divi dend on common stock to $0.4125 per share, and announced its intention to make payments totalling $ 1.65 per share for the year. Financial Position Highlights During 1979, the proportion of Lone Star's non-current assets to total assets increased as a result of several major transactions during the year. The sale of Building Centers retail/wholesale opera tions with high working capital needs resulted in a large decrease in invento ries and receivables. As detailed earlier, most of the proceeds were used to increase the com pany's fixed investment in its cement, construction aggregates and related products operations through Stock Prices The following table shows the quarterly high and low prices o f Lone Star's com mon stock and preferred stock for 1979 and 1978 as reported in the Wall Street Journal. Lone Star's common shares are listed on the New York, Boston and Pacific Stock Exchanges and are open to trading on the Midwest and Philadel phia Exchanges. Certificates represent ing Lone Star's common shares are traded on the Amsterdam Stock Exchange and arrangements were made during the year for listing on the Frankfurt Stock Exchange, to be effec tive in early 1980. Common Stock_______ Preferred Stock _____________________________________ High_______ Low_______High______Low 1979 Quarters F irst........................................................... $2414 $20% $ 90 $ 87 S e c o n d ..................................................... 25% 21% 100 87 T h ird ......................................................... 26% 23 105 96 Fourth....................................................... 29% 22% 113 96 acquisitions or modernization and reno vation of existing facilities, and a cash contribution o f $14.8 million to the com pany's Brazilian joint venture with Lafarge. In addition, the company pur chased 1,250,000 of its common shares in July for $32.2 million. Because of these events, and in order to finance acqui sitions and meet the needs of the com pany's capital spending program, internally generated funds are being supplemented by entry into the capital markets. Lone Star is currently arrang ing the private placement of $41.0 mil lion o f cumulative preferred stock. The com pany expects to sell a portion of future production for $50 million from a limestone quarry located adjacent to one of its cement plants and from the two limestone quarries involved in the 1976 production payment as described in Note 10 of Notes to Financial Statements on page 52. Lone Star will pursue addi tional financing during the year, includ ing $38.5 million of borrowings related to the Pryor, Oklahoma plant acquisition. Lone Star's current assets decreased $94.5 million to $197.7 million in 1979, primarily due to the sale of Building Centers, which had current assets of $130.5 million at December 31, 1978. This was only partially offset by an increase in current assets resulting from the acquisition of Portland of Utah and San-Vel, by higher receivables balances due to increased sales, and by higher inventory balances due to higher costs. Current liabilities decreased $27.8 mil lion, reflecting the sale of the Building Centers operations, which caused a decrease of $27.7 million, partially offset by the current liabilities acquired with San-Vel and Portland o f Utah. As a result of these events, working capital and the current ratio declined to $95.7 million and 1.9 to 1, respectively, in 1979 from $162.4 million and 2.3 to 1, respec tively, in 1978. 1978 Quarters F irst................ Second ........... T h ird ............... F ourth............. $19% 21% 27% 27 $17% 18 19 18% $ 75 81 105 105 $ 74 81 82% 103 42 LSI(01/16/2018)_001485 Working Capital ( in millions) Net property, plant and equipment increased $ 16.2 million in 1979 as a result of the acquisition of Portland of Utah and San-Vel and capital expendi tures, partially offset by the disposition of the Building Centers operations and the contribution of Lone Star's Brazilian operations to the new joint venture with Lafarge. Lone Star's investment in joint ven tures and unconsolidated subsidiaries increased $57.8 million, primarily as a -esult of the com pany's investment in the *ew Brazilian joint venture, which had a carrying value of $46.9 million at December 31, 1979. Cost in excess of net assets o f busi nesses acquired increased $19.6 million during the year, primarily resulting from the acquisitions of Portland of Utah and San-Vel. Shareholders' equity increased $26.3 million, or 8.0%. primarily due to 1979 net income of $64.7 million. In addition, equity was increased $9.1 million by the conversion of 5Vs% subordinated deben tures, the conversion of preferred stock and the exercise of stock options. Equity was reduced by the purchase of common shares for $32.2 million and dividend payments o f $ 15.3 million. Equity per common share increased 16.8% to $34.15 at the end o f 1979, as compared with $29.24 at the end of 1978. Return on average equity increased significantly, from 14.5% in 1978 to 18.9% in 1979. Comparison o f 1978 and 1977 Results Net sales rose in 1978 to $638.3 million, an increase of $ 183.0 million or 40.2% above 1977. The major portion o f the increase was attributable to the com pany's cement, construction aggregates and related products operations, reflect ing the continued growth of construction activity, particularly in the Pacific and Southwest Regions. The 1978 results also included sales beginning in February 1978 of $69.0 million by Lonestar Florida, Inc. Sales in the cement and related products segment o f $502.7 mil lion accounted for 78.8% of the total and represented an increase of 40.1% over 1977. This gain was primarily attributa ble to higher domestic cement sales vol ume resulting from greater construction activity in the United States, as well as the implementation of necessary price increases. International operations sales increased by $25.4 million or 28.6% reflecting higher cement prices, particu larly in Argentina. Sales o f construction aggregates, led by the Pacific Region, increased 38.5%, reflecting strong con struction activity and improved pricing. Cost o f sales increased 42.4% in 1978 on higher net sales and higher costs along with the inclusion of the opera tions of Lonestar Florida. Inc. The increase in operating costs was primarily a result of higher power, fuel, labor and m aintenance costs associated with increased production, and higher rates. In order to meet the substantial dem and for cement in coastal areas, Lone Star purchased increased quantities of cement and clinker from abroad. Selling, general and administrative expenses declined as a percent of net sales from 10.0% in 1977 to 9.2% in 1978. These costs increased by $13.1 million, or 28.8% in 1978 from 1977, principally reflecting the effects o f increased sales activity. Depreciation and depletion expense of $24.4 million in 1978 increased $2.9 million, or 13.3% from 1977. This increase resulted primarily from the increase in total depreciable assets for continuing operations from $522.8 mil lion in 1977 to $559.4 million in 1978. Consolidated operating profits from continuing operations were $70.1 mil lion. an increase of $21.6 million or 44.5% from 1977, as sales increased at a greater rate than production costs. Operating profits for cement and related products increased $ 13.7 million and construction aggregates profits increased $8.4 million, as increased sales volumes and favorable unit prices more than off set higher costs for fuel, power, labor and maintenance. Income taxes for continuing opera tions increased in 1978 to $7.2 million from $1.6 million in 1977 as a result of higher pre-tax earnings in 1978 and a higher effective tax rate. The higher effective tax rate is attributable to increased operating profits, which rose at a greater rate than percentage depletion and investment tax credits. Income from continuing operations of $30.4 million was 76.7% higher than 1977. The in crease is attributable to increased sales and operating profits, partially offset by higher income taxes. Income from Building Centers opera tions, discontinued in 1979, increased $2.4 million or 19.2% in 1978 to $14.9 million. These results reflected increased sales and operating profits, due pri marily to strong markets in Southern Florida and Minneapolis-St. Paul, par tially offset by higher income taxes. Lone Star's consolidated net income reached a record $45.4 million in 1978. a 52.9% increase over tne previous record set in 1977. This earnings gain was pri marily attributable to greater sales and operating profits in the com pany's cement and related products and con struction aggregates businesses, partially offset by higher income taxes. 43 LSI(01/16/2018)_001486 Quarterly Financial Data (Unaudited) (D o lla rs in m illio n s e x c e p t p e r s h a re a m o u n ts) Lone Star Industries, Inc. and Consolidated Subsidiaries 1979 Net sales........................................................................................ ........... Gross profit( 0 ............................................................................. ........... Gross profit p e rcen tag e........................................................................ Income from continuing operations........................................ ........... Income from discontinued operations: Earnings from Building Centers operations................ ........... G ain on disposal of Building C enters........................... ........... Net income..................................................... ........... Mar. 31(3) $146.6 $ 17.8 12.1% $ (0.7) Three Months Ended June 30 Sept. 30 $195.8 $227.6 $ 40.1 $ 48.0 20.5% 21.1% $ 16.5 $ 23.9 2.7 - $ 2.0 1.6 4.4 $ 22.5 -- $ 23.9 Dec. 31 $222.5 $ 46.7 21.0% $ 16.3 -- $ 16.3 Total $792.5 $152.6 19.3% $ 56.0 4.3 4.4 $ 64.7 Per Common S h are(2) Primary: Continuing o p e ra tio n s.............................................................. ........... Discontinued operations: Earnings from Building Centers operations................ ........... G ain on disposal of Building C enters........................... ........... Net income per common s h a r e .................. ......... $ (0.06) 0.24 - $ 0.18 $ 1.46 0.14 0.39 $ 1.99 $ 2.28 $ 2.28 $ 1.57 -- -- $ 1.57 $ 5.15 0.39 0.41 $ 5.95 Fully diluted: Continuing o p eratio n s.............................................................. ........... Discontinued operations: Earnings from Building Centers operations................ ......... G ain on disposal of Building C enters........................... ......... Net income per common share.................. ......... $ (0.03) 0.21 - $ 0.18 $ 1.33 0.13 0.35 $ 1.81 $ 2.09 $ 2.09 $ 1.46 -- $ 1.46 $ 4.73 0.35 0.37 $ 5.45 1978(3) Net sales........................................................................................ ......... Gross profit (* )............................................................................. ......... Gross profit p e rc e n ta g e ............................................................. ......... Income from continuing o p eratio n s............................. ......... Income from discontinued operations.......................... ......... Net income................................................................ Mar. 31 $ 99.3 $ 12.5 12.6% $ (2.6) 2.9 $ 0.3 Three Months Ended June 30 Sept. 30 $183.8 $180.2 $ 34.0 $ 33.7 18.5% 18.7% $ 11.7 $ 12.7 4.3 3.8 $ 16.0 $ 16.5 Dec. 31 $175.0 $ 31.0 17.7% $ 8.7 3.9 $ 12.6 Total $638.3 $111.2 17.4% $ 30.5 14.9 $ 45.4 Per Common Share (2 ) Primary: C ontinuing o p e ra tio n s.......................................................................... Discontinued o p eratio n s...................................................................... Net income per common share............................. $(0.24) $ 1.04 $ 1.13 $ 0.77 0.26_______ 0.38_______ 0.34_________0.34 $ 0.02 $ 1.42 $ 1.47 $ 1.11 $ 2.69 1.33 $ 4.02 Fully diluted: Continuing o p e ra tio n s.......................................... Discontinued o p e ra tio n s....................................... Net income per common share $(0.22) $ 0.95 $ 1.03 $ 0.71 0.24_______ 034_______ 030_________031 $ 0.02 $ 1.29 $ 1.33 $ 1.02 $ 2.49 1.19 $ 3.68 (1) A fte r d e d u c tin g a n n u a l d e p re c ia tio n e x p e n se re la tin g to co st o f sales o f $2 5 .7 a n d $ 2 3 .9 in 1979 a n d 1978, resp ectiv ely . (2 ) E a rn in g s p e r s h a re is c o m p u te d in d e p e n d e n tly fo r e a c h o f th e q u a rte rs a n d th e y ears p resen ted . T h e re fo re th e su m o f th e q u a rte rly ea rn in g s p e r sh are d o es n o t e q u a l th e to tal fo r th e y ear, b e c a u se o f th e sto ck tra n sa c tio n s w h ich o c c u rre d d u r i n g th e p e r i o d s a s d e s c r i b e d in N o te 13 o f N o te s to F i n a n c i a l S ta t e m e n ts . 44 F u lly d ilu te d e a rn in g s p e r sh a re c o m p u ta tio n s fo r th e first q u a rte r o f 1979 a n d 1978 d o n o t reflect th e a n ti-d ilu tiv e effect o f p re fe rre d sto ck , c o n v e rtib le d e b e n tu re s a n d sto ck o p tio n s. (3) R eclassified to reflect th e d isp o sitio n o f B u ild in g C e n te rs o p e ra tio n s. T h e re sta te m e n t d id n o t ch an g e n et in co m e o r related p e r sh are am o u n ts. LSI(01/16/2018)_001487 Financial Ratios and Statistics m th o u san d s ex cep t p er sh are a m o u n ts) Lone Star Industries, Inc. and Consolidated Subsidiaries Invested capital: Long-term d e b t................................................................................. Minority in te re s t............................................................................. Shareholders' e q u ity ........................................................................ Total invested capital............................................ 1979 $174,143 117 356,492 $530,752 1978 $178,195 9,467 330,154 $517,816 1977 $175,105 9,546 297,205 $481,856 1976 $125,813 9,371 279,892 $415,076 1975 $165,000 7,523 264,282 $436,805 Long-term debt to invested c a p ita l.................................................. Income to average invested capital!*).............................................. Return on shareholders' average e q u ity .......................................... 32.8% 13.8% 18.9% 34.4% 10.4% 14.5% 36.3% 8.1% 10.3% 30.3% 8.3% 10.0% 37.8% 6.1% 7.4% Operating profit as a percentage of average identifiable assets: Cement and related products: D om estic............................................................................................ In tern atio n al.................................................................................... Construction aggregates...................................................................... 15.0% 32.7% 17.7% 14.0% 15.6% 14.3% 11.7% 15.0% 7.3% 12.1% 23.3% 7.9% 13.4% 23.9% 8.1% Net income to net sales 0 ) .................................................................. Pre-tax income to net sales (2)............................................................. Operating profit to net sales (2) ......................................................... 7.1% 9.6% 13.2% 4.8% 5.9% 11.0% 3.8% 4.1% 10.7% 5.6% 6.4% 12.1% 5.1% 7.2% 11.8% Cash dividends paid: Common s h a re s ............................................................................... Preferred s h a re s ............................................................................... $ 15,158 $ 176 $ 13,409 $ 232 $ 12,202 $ 253 $ 11,346 $ 275 $ 10,938 $ 416 Dividends per common share............................................................. $ Percentage of earnings returned to shareholders............................ 1.40 $ 23.7% 1.20 $ 30.1% 1.10 41.9% $ 1.025 $ 42.7% 1.00 58.8% Weighted average shares outstan d in g .............................................. Common shares outstanding at year-end........................................ Net sales per weighted average Common share outstanding (2)..................................................... Capital spending per weighted average Common share outstanding........................................................... 10,849 10,418 $ 73.05 $ 7.72 11,232 11,255 $ 56.83 $ 5.55 11,091 11,096 $ 41.05 $ 3.79 11,068 11,073 $ 35.73 $ 3.60 10,889 11,061 $ 33.70 $ 3.11 Working cap ital.................................................................................... Current assets to current liabilities................................................... Number of employees at year-end (2 ).............................................. $ 95,693 1.9 7,826 $162,366 2.3 8,047 $157,086 2.6 7,756 $134,712 2.3 7,442 $122,758 2.4 7,886 Price ranges of common stock--h ig h ................................................ lo w ................................................ Price/earnings ratio--high (3)............................................................. low (3)............................................................... Equity per common sh a re .................................................................. $293/s $207/s 4.9 3.5 $34.15 $271/8 $17% 6.7 4.3 $29.24 $23 y8 $16% 8.9 6.3 $26.67 $22% $14 9.3 5.7 $25.16 $19`/2 $ 93/s 11.2 5.4 $23.76 (1) In co m e rep resen ts n et in co m e, m in o rity in terest an d in terest ex p en se, n et o f in c o m e taxes. (2) C o n tin u in g o p eratio n s. (3) C o m p u te d u tiliz in g h ig h a n d low sto ck p ric es d iv id e d by n et in c o m e p er co m m o n share. 45 LSI(01/16/2018)_001488 Statement of Significant Accounting Policies Consolidation--The financial statem ents include all sub sidiaries and joint ventures. Joint ventures and a domestic finance subsidiary are included on the equity method. Marketable Securities are stated at the lower of cost or market. Inventories are stated at the lower of cost or market, with cost generally determined for manufacturing inventories on an average basis. The company determined the lower of cost or market for retail merchandise inventories of the discontinued Building Centers operations utilizing the retail method. Other discontinued operations'merchandise inventories, principally lumber, were valued on a first-in, first-out basis. Real Estate Activities--Income from residential sales is recognized when homes are completed, title passes and the purchase price is received. Income from commercial real estate developm ent is recognized when the contract is signed, a substantial down payment is received and other income recognition criteria are satisfied. Costs attendant to land under developm ent are capitalized as part of the project. Property, Plant and Equipment is stated at cost and depre ciated over the estimated useful lives of the assets on the straight-line method. Significant expenditures which extend the useful lives of existing assets are capitalized. Maintenance and repair costs are charged to current earnings. Cost deple tion is calculated on the units o f production method. The cost of assets and the related accumulated depreciation are re moved from the accounts when such assets are disposed of, and any gains or losses are reflected in current earnings. Income Taxes--Deferred federal income taxes are provided for timing differences between financial accounting and tax able income. Provision is m ade for appropriate taxes on the unremitted earnings ofjoint ventures and foreign subsidiaries, which are not considered to be permanently invested or restricted. Investment tax credits are recognized on the "flow through" method. Pension Plans--The com pany and certain of its subsidiaries have various pension plans, the cost of which is computed on the basis of actuarial methods, with costs for service prior to the establishment or amendment of the plans amortized over twenty-five or thirty years. The com pany's policy is to fund pension cost accrued. Income Per Common Share--Primary income per common share is based on the weighted average num ber of shares out standing in each year after providing for preferred dividends. Fully diluted income per common share assumes that pre ferred stock and convertible debentures had been converted and dilutive stock options had been exercised at the beginning of each year. Foreign Exchange--The company translates cash, receivables and liabilities at year-end exchange rates and other accounts at historical rates of exchange. Income and expense items are translated at average rates of exchange prevailing during the year, except that inventories charged to cost o f sales and de preciation and depletion are translated at historical rates of exchange. Capitalized Interest--The company capitalizes interest on in debtedness identifiable with certain capital projects under construction and interest attendant to real estate under devel opment. Such interest is subsequently amortized over the life of the projects when they become operational or is charged to expense when real estate is sold. Cost in Excess of Net Assets of Businesses Acquired--The excess o f the cost of purchased businesses over the fair value of net assets at dates o f acquisition is amortized using the straight line method over periods not to exceed 40 years. Report of Independent Certified Public Accountants To the Board of Directors and Shareholders of Lone Star Industries, Inc.: We have examined the consolidated balance sheets of Lone Star Industries, Inc. and Consolidated Subsidiaries as of December 31, 1979 and 1978, and the related consolidated statements of income and retained earnings and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We did not examine the financial statements of the foreign subsidiaries and joint venture which financial statements reflect total assets of 14% and 12% of the consolidated assets for 1979 and 1978, respectively, and total revenues of 15% and 18% of the consolidated revenues from continuing operations for 1979 and 1978, respectively. These financial statements were examined by other public accountants whose reports thereon have been furnished to us. O ur opinion expressed herein, insofar as it relates to the amounts included for foreign sub sidiaries and joint venture, is based solely upon such reports. In our opinion, based upon our examinations and the reports of other public accountants, the financial statements referred to above present fairly the consolidated financial position o f Lone Star Industries, Inc. and Consolidated Subsidiaries at December 31, 1979 and 1978, and the consolidated results of their operations and changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. COOPERS & LYBRAND Three Landm ark Square, Stamford, Connecticut 06901 February 12,1980, except for Note 21 as to which the date is February 26, 1980. 46 LSI(01/16/2018)_001489 Consolidated Statements of Income and Retained Earnings (D o lla rs in th o u sa n d s e x c e p t p e r s h a re am o u n ts) L one Star Industries, Inc. and C onsolidated Subsidiaries Consolidated Income Revenue: Net s a le s ...................................................................................................................................... Other income, n e t ...................................................................................................................... Deductions from revenue: Cost of sales................................................................................................................................. Selling, general and administrative ex p en se........................................................................ Depreciation and depletion..................................................................................................... Interest ........................................................................................................................................ Income from continuing operations before income ta x e s ........................................................... Provisions for income ta x e s..................................................................................................... Income from continuing operations.................................................................................................. Discontinued operations: Earnings from Building Centers operations (net of applicable income taxes of $4,100 in 1979 and $14,081 in 1978)................................................................................................ G ain on disposal of Building Centers (net of applicable income taxes of $3,900)....... Income from discontinued operations.............................................................................................. Net income.............................................................................................................. For the Years Ended December 31 1979 1978 $792,508 13,652 806,160 614,218 69,774 26,557 19,172 729,721 76,439 20,400 56,039 4,293 4,409 8,702 $ 64,741 $638,276 5,409 643,685 503,165 58,718 24,376 19,767 606,026 37,659 7,219 30,440 14,938 -- 14,938 $ 45,378 Income Per Common Share Primary: Continuing o p eratio n s..................................................................................... ................................... $ 5.15 Discontinued operations: Building Centers o p eratio n s................................................................ ................................... 0.39 G ain on disposal of Building Centers.................................................. ................................... 0.41 Discontinued o p eratio n s................................................................................. ................................... 0.80 Net income........................................................................... ................................... $ 5.95 Fully diluted: Continuing o p eratio n s..................................................................................... ................................... $ 4.73 Discontinued operations: Building Centers o p eratio n s................................................................ ................................... 0.35 G ain on disposal of Building C enters.................................................. ................................... 0.37 Discontinued o p eratio n s................................................................................. ................................... 0.72 Net income........................................................................... ................................... $ 5.45 $ 2.69 1.33 1.33 $ 4.02 $ 2.49 1.19 1.19 $ 3.68 Consolidated Retained Earnings Retained earnings, beginning of y e a r .................................................................... .......................... Net in c o m e .................................................................................................................. .......................... Cash dividends: Common shares (per share: 1979, $1.40; 1978, $1.20)............................. .......................... Preferred shares (per share: $4.50).............................................................. .......................... Retained earnings, end of year................................................................................. .......................... $262,145 64,741 15,158 176 15,334 $311,552 $230,408 45,378 13.409 232 13,641 $262,145 The accompanying Statement of Significant Accounting Policies and Notes to Financial Statements are integral parts of the Financial Statements. 47 LSI(01/16/2018)_001490 Consolidated Balance Sheets (D o lla rs in th o u s a n d s ) L one Star Industries, Inc. and C onsolidated Subsidiaries A ssets Current assets C a s h ............................................................................... M arketable securities.................................................. Notes and accounts receivable................................. Less allowance for doubtful accounts.................... In v en to ries.................................................................. O ther current assets................................................... Total current assets...................... Real estate for development and s a l e .................... Property, plant and e q u ip m e n t............................... Less allowances for depreciation and depletion .. Joint ventures and unconsolidated subsidiary__ Cost in excess of net assets of businesses acquired Other assets and deferred c h a rg e s .......................... Total a sse ts................................... Liabilities and Shareholders' Equity Current liabilities Accounts p ay a b le.......................................... Accrued expenses.......................................... Federal and other income taxes.................... Notes payable to b anks................................. Other current liab ilities............................... Total current liabilities .. Long-term d e b t............................................................................... Deferred income ta x e s .................................................................. Production p a y m e n t...................................................................... Other liabilities............................................................................... Minority interest............................................................................. Total liabilities.................................................. Shareholders' equity Preferred stock (involuntary liquidating value, 1979, $3,247) Common stock................................................................................. Capital s u rp lu s ............................................................................... Retained earnings........................................................................... Less treasury sto ck .......................................................................... Total shareholders' equity............................... Total liabilities and shareholders' eq u ity__ The accompanying Statement of Significant Accounting Policies and Notes to Financial Statements are integral parts of the Financial Statements. 48 As of December 31 1979 1978 $ 3,895 15,409 92,940 6,963 85,977 88,928 3,472 197,681 17,794 686,243 278,275 407,968 69,780 21,697 24,353 $739,273 $ 4,954 18,459 113,019 6,851 106,168 158,607 4,011 292,199 20,515 694,474 302,716 391,758 11,976 2,104 19,706 $738,258 $ 31,481 36,243 14,696 11,071 8,497 101,988 174,143 69,672 33,000 3,861 117 382,781 731 12,161 75,166 311,552 399,610 43,118 356,492 $739,273 $ 61,848 35,392 21,792 1,614 9,187 129,833 178,195 52,384 37,000 1,225 9,467 408,104 1,054 11,765 66,542 262,145 341,506 11,352 330,154 $738,258 LSI(01/16/2018)_001491 Consolidated Statements of Changes in Financial Position jlla rs in th o u sa n d s) L one Star Industries, Inc. and C onsolidated Subsidiaries Funds Provided By Income from continuing operations.................................................................... Items not requiring working capital: Depreciation and depletion........................................................................ Deferred income taxes................................................................................. Equity in joint ventures and unconsolidated su b sid iary ...................... Other, n e t ....................................................................................................... Funds provided by continuing operations......................................................... Funds provided by discontinued Building Centers operations...................... Total funds provided by o p e ra tio n s......................................................... Disposal of Building Centers non-current assets including a gain of $4,409 Contribution of net non-current assets to the Brazilian joint v e n tu re ......... Issuance of common stock for conversion of long-term d e b t ........................ Long-term d e b t....................................................................................................... Other, net.................................................................................................................. Funds Used For Capital expenditures................................................................................. XIet non-current assets acquired with Portland of Utah and San-Vel ivestment in Brazilian joint v e n tu re ................................................... Purchase of common sto c k ...................................................................... Reduction of long-term debt.................................................................... Payment of d iv id en d s............................................................................... Increase (Decrease) in Working C apital................. For the Years Ended December 31 1979 1978 $ 56,039 $ 30,440 26,557 13,508 (5,884) (1,514) 88,706 6,105 94,811 50,377 9,365 8,808 8,311 2,777 174,449 24,376 7,288 (2,084) (315) 59,705 19,253 78.958 -- -- -- 7,044 (1,087) 84,915 83,778 47,076 46,976 32,151 15,807 15,334 241,122 $ (66,673) 62,336 -- -- -- 3,658 13,641 79,635 $ 5,280 Changes in Working Capital Increase (decrease) in current assets: Cash and marketable secu rities................................. Notes and accounts receivable, n e t ........................... I n v e n to r ie s ...................................................................... O ther current a sse ts ..................................................... Decrease (increase) in current liabilities: Accounts payable and accrued expenses.................. Notes payable to b a n k s ................................................ Federal and other income ta x e s ................................. Other current liabilities................................................ Increase (Decrease) in Working Capital $ (4,109) (20,191) (69,679) (539) (94,518) 29,516 (9,457) 7,096 690 27,845 $ (66,673) $ 1,418 25,741 10,552 (654) 37,057 (27,997) 1,875 (3,219) (2,436) (31,777) $ 5,280 The accompanying Statement of Significant Accounting Policies and Notes to Financial Statements are integral parts of the Financial Statements. 49 LSI(01/16/2018)_001492 Notes to Financial Statements 1. Inventories Inventories consist of the following (in thousands): Finished goods....................................... . Work in process and raw m aterials... . Supplies and f u e l ................................. . 1979 $ 36,392 12,785 39,751 $ 88,928 1978 $108,666 11,766 38,175 $158,607 2. Property, Plant and Equipment Property, plant and equipm ent consists of the following (in thousands): L a n d ................................................ ....... Buildings and equipm ent............. ....... Construction in p ro g re ss............. ....... Automobiles and tru ck s............... ....... O ther................................................ ....... 1979 $ 57,484 537,065 42,086 40,107 9,501 $686,243 1978 $ 57,599 554,011 21,992 45,629 15,243 $694,474 3. Foreign Subsidiaries and Joint Venture The financial statem ents include the following with respect to the com pany's foreign operations in Argentina, Brazil and Uruguay (in thousands): ~ ~ 1979 1978 Current assets.......................................... $ 39,512 $ 43,407 Property, plant and equipm ent (n e t).. 18,975 42,079 Investment in joint venture.................. 46,889 -- Other assets.............................................. 267 5,818 Current liab ilities................................... (14,007) (14,923) Long-term debt and other liabilities .. (360) (6,579) Minority interest...................................................... --_____ (9,363) Net assets.................................................. $ 91,276 $ 60,439 Net sales................................................... Pre-tax incom e........................................ Contribution to net incom e.................. $118,404 $ 23,432 $ 13,104 $114,069 $ 12,460 $ 6,276*4 See Note 6 for additional information concerning the form a tion of a joint venture in Brazil in April, 1979. Local laws limit the am ount of accumulated earnings of these operations available for remittance to the company in the form of dividends. At Decem ber 31, 1979, subject to local gov ernment approval, approximately $18,700,000of accumulated earnings was available for distribution to the company. 4. Acquisitions In Septem ber 1979, the company acquired all o f the outstand ing shares of Portland Cement Company of U tah for cash. The acquisition has been accounted for as a purchase and the net assets and results of operations of Portland of Utah since the date of acquisition are included in the consolidated finan cial statements. The total acquisition cost of $38,135,000 exceeded the fair value of net tangible assets acquired by $15,947,000. This excess is being amortized over 40 years. Unaudited pro forma consolidated condensed results of operations for the years ended December 31, 1979 and 1978, as though Portland of U tah had been acquired as of January 1, 1978, are as follows (in thousands, except per share amounts): Net sales.................................................... Income from continuing operations... Net in c o m e ............................................... Per Common Share: Income from continuing operations... Net in c o m e ............................................... 1979 $802,684 58,420 67,122 $5.37 $6.17 1978 $652,170 33,452 48,390 $2.96 $4.29 The above amounts reflect adjustments for amortization of the excess of acquisition cost over the fair value of net tangible assets acquired and depreciation on revalued purchased assets. In June 1979, the company acquired all o f the stock of San-Vel Concrete Corporation, a producer o f precast/prestressed concrete products, for $8,450,000 in cash and notes. The acquisition has been accounted for as a purchase, and net assets and operating results of San-Vel, which are not material to the consolidated financial statements, have been included therein since the date of acquisition. Total acquisition costs exceeded the fair value of net tangible assets acquired by $5,193,000, which is being amortized over 40 years. On December 10, 1979, the company agreed to acquire a cement plant in Dixon, Illinois, from Medusa Corporation, a subsidiary of Crane Co. Under the terms of the agreement, the company will acquire the plant, which has a rated capacity of approximately 600,000 tons of cement a year, terminal facili ties and a quarry for $ 10,000,000. The com pany will also acquire the plant's inventories at a price to be determ ined at the time the acquisition is completed. See Note 21 for information concerning the proposed acqui sition of a cement plant located in Pryor, Oklahoma, from OKC Corp. 5. Joint Ventures and Unconsolidated Subsidiary The com pany's investment in and advances to joint ventures and an unconsolidated domestic finance subsidiary are as follows (in thousands): _ 197<T~ 1978 Brazilian joint v e n tu re .......................... $46,889 $ -- O ther joint ventures............................... 18,362 9,195 Domestic finance subsidiary................ ...........4,529______ 2,781 $69,780 $11,976 50 LSI(01/16/2018)_001493 i 1979, the company and Lafarge formed a joint venture, combining substantially all of their Brazilian operations. See Note 6 for additional inform ation concerning this venture. In 1978, the company and G eneral Electric Credit C orpora tion formed a joint venture. Lonestar Florida Pennsuco. Inc., to purchase the operating assets of Maule Industries Inc., a cement, aggregates and concrete producer in Florida. The company acquired all of the outstanding common stock, and General Electric Credit acquired all of the preferred stock, with each class having equal voting rights. The joint venture is being accounted for on the equity basis. Pennsuco's total indebtedness to General Electric Credit of $42,801,000 as of December 31, 1979, is payable in annual installments through 1988. During the term of this indebted ness, the company may be required to advance to Pennsuco up to $18,000,000, or, if lower, the am ount of the then-out standing indebtedness, for the purpose of maintaining the net worth of Pennsuco at $2,000,000, or to cure any default under the indebtedness. As of December 31. 1979. the company had made advances to Pennsuco o f $ 11,039.000. In 1978. the company also formed a wholly owned subsid iary, Lonestar Florida, Inc., to purchase and resell all the pro duction of the joint venture. Purchases from the joint venture are set by contractual formulas at prices that approxim ate market price discounted for certain o f Lonestar Florida's sellng costs. Lonestar Florida sales of $106,782,000 and j>68.953,000 are included in the com pany's consolidated net sales for the years ended December 31, 1979 and 1978, respec tively. As of December 31, 1979, Lonestar Florida had accounts payable to Pennsuco of $9,195,000 for production purchased. Summarized financial information relating to Pennsuco is as follows (in thousands): Current assets.......................................... Property, plant and equipment (net) .. Other assets.............................................. (Payable to) Receivable front Lone Star ( n e t) ................................... Current liabilities................................... Long-term d e b t....................................... Other liabilities....................................... Net w orth.......................................... Net sales.................................................... Net in c o m e .......................................... Less Preferred d iv id en d ........................ Equity in Pennsuco net incom e........... 1979 $ 15,516 49,246 283 0,844) (12,171) (41,506) (2,411) $ 7,113 $106,776 $ 3,816 (45) $ 3,771 1978 $ 12,109 43.673 734 2,694 (10,120) (44,954) (794) $ 3.342 $ 68.472 $ 1.384 (41) $ 1,343 6. Brazilian Joint Venture in April 1979, the company and Lafarge, combined sub stantially all of their Brazilian operations. In addition, the company contributed to the joint venture $ 14.815,000 in cash and Lafarge contributed $12,480,000 in cash at the time of its formation. The combined entity is being operated under the name of Lone Star's former subsidiary, Com panhia Nacional de Cimento Portland (CNCP), with Lone Star holding a 48% interest and Lafarge a 52% interest. On December 31, 1979, the carrying value of the com pany's investment in CNCP, which is accounted for on the equity basis, was $46,889,000. Lone Star's Brazilian operations included a cement plant in G uaxindiba and a 53% ownership of a cement plant in Aratu. Lafarge's holdings in Brazil included two cement plants near the city of Belo Horizonte. Cimento Maua (Maua), a wholly owned subsidiary of CNCP. has retained a builder to construct a new 770,000 ton cement plant in Cantagalo, northeast of Rio de Janeiro. If the new plant does not meet certain performance criteria according to a specified timetable. Lone Star and Lafarge are severally obligated to reimburse Maua for the project costs. The cost of the new cement plant project, including working capital and interest during construction, is estimated at $ 125,000,000, to be financed by $50,000,000 contributed by CNCP and a $75,000,000 Eurodollar borrowing of Maua. The loan agree ment contains restrictions on CNCP with respect to the m ain tenance of working capital, tangible net worth, issuance of additional debt, and the payment of dividends. Current inter est payments only will be guaranteed, severally, by Lafarge and the company. Summarized financial information, based on financial statements of CNCP as of December 3 1, 1979, and for the eight months then ended, is as follows (in thousands): ___________________________________________________ 1979 Working capital....................................... S 9,942 Property, plant and equipment, n e t ... 86,780 Special funds and other investm ents.. 79,944 Other assets.............................................. 3,713 Long-term d e b t (90,432) . Other liabilities........................................ ............................. (15,420) Net assets................................................. S 74,527 Net sales................................................... $ 51,969 Income before income taxes................ $ 699 Net loss..................................................... $ 14 At December 31. 1979, the excess of the investment by Lone Star over its share of the underlying net tangible assets of CNCP is $ 11.352,000 and is being amortized over 25 years. 51 LSI(01/16/2018)_001494 7. Capitalized Interest Interest capitalized during 1979 and 1978, was $ 1,350,000 and $998,000. respectively. If capitalized interest had been expensed by the com pany as accrued, reported net income would have been reduced by $651,000 in 1979 and $464,000 in 1978. 8. Notes Payable to Banks The company has a Revolving Credit and Term Loan Agree ment with no borrowings outstanding at December 31, 1979 or 1978. The agreem ent permits the company to borrow up to $67,000,000 through June 1, 1980, at a specified bank's prime rate o f interest plus a 14% per annum commitment fee payable on the average daily unused amount. At maturity, the com pany can convert any or all borrowings under this agreement to a term loan, repayable over a four-year period. The company had other domestic short-term borrowings of $ 11,000,000 an d $750,000 outstanding at Decem ber 31,1979 and 1978, respectively, at approximately the prime rate of interest. The company maintains compensating balances, or the equivalent, with various banks at an average of 10% to 20% of credit lines depending upon usage and measured over an extended period of time. The com pany's short-term foreign borrowings were $71,000 and $864,000 at Decem ber 31, 1979 and 1978, respectively. These borrowings were at various terms. The m aximum aggregate notes payable to banks at any m onth-end were $49,800,000 and $46,200,000 during 1979 and 1978, respectively; the average borrowings were $13,500,000 and $18,000,000 during 1979 and 1978, respec tively; and the daily weighted average interest rate on aggre gate borrowings was 16.7% and 14.3% during 1979 and 1978, respectively (16.1% and 11.6%on domestic borrowings). 9. Long-term Debt Long-term debt consists of the following (in thousands): 478% Sinking Fund Debentures, due 1990 .............................................. 514% C onvertible Subordinated Debentures, due 1993........................ 8% Sinking Fund Debentures, due 1997 .............................................. 814% Promissory Notes, due 1981-1984............................................ 1014% Pollution Control and Industrial Development Revenue Bonds, due 1980-1992........................ Various notes, due through 2008......... 1979 $ 23,128 18,444 50,000 20,000 26,308 36,263 $174,143 1978 $ 26,433 28.288 50,000 20.000 28,500 24,974 $178,195 Sinking fund requirem ents to and including 1980 under th 4%% debenture agreem ent have been met by purchases in the open market. As of December 31, 1979, sinking fund require ments under the 514% debenture agreement were satisfied for approxim ately nine years by conversions and purchases in the open market. Sinking fund requirements for the 8% debentures begin in 1983. The indentures relating to the debentures and certain of the notes and related agreements restrict the amount of payment of cash dividends, stock repurchases, and certain other activi ties. The am ount o f retained earnings free o f these restrictions at December 31, 1979, was approximately $65,755,000. As o f December 31, 1979, m aturities of long-term debt were as follows: 1980-$5,950,000; 1981-$9,607,000; 1982$14,064,000: 1983-$ 13,743,000; 1984-$11,368,000; and the balance of $125,361,000 through 2008. 10. Production Payment The proceeds from the sale of a portion of future production from limestone quarries located adjacent to two of the com pany's cement plants have been deferred and are being reflected in income through 1988, together with related costs and expenses, as the minerals are produced and sold. The company expects to remit $2,000,000 of proceeds within one year and, accordingly, this am ount is classified as a current liability. An am ount equivalent to interest is payable by the company primarily at a rate of 10%. 11. Leases Rental expense from continuing operations in 1979 and 1978 was approximately $6,424,000 and $4,889,000 respectively. Minimum rental commitments under all noncancellable leases principally pertaining to land, buildings, and equip ment are as follows: 1980, $3,263,000; 1981, $2,723,000; 1982, $2,399,000; 1983, $1,865,000; 1984, $1,209,000; after 1984, $5,733,000. Certain leases include options for renewal or pur chase of leased property. 12. Stock Options At December 31. 1979, under all stock option plans, options were outstanding to purchase 257,769 shares (138,883 exercis able) o f the com pany's common stock at $ 14.25 to $25.69 per share (market value at dates of grant). During 1979, options for 65,000 shares were granted and options for 41,748 shares expired or were cancelled and options to purchase 16,878 shares were exercised at $14.25 to $24.50 per share. At December 31, 1979, options to purchase 349,884 shares were available for grant: The 514% Convertible Subordinated Debentures are convert ible into common stock o f the company at the rate o f 38.462 shares o f common stock for each $ 1,000 principal am ount of debentures. 52 LSI(01/16/2018)_001495 3. Capital Stock and Capital Surplus A uthorized: 2,000.000 shares Preferred Stock-par value $ 1.00 per share (Stated value $22.50 per share) 20,000,000 shares Common Stock-par value $ 1.00 per share Transactions in capital stock and capital surplus accounts are as follows (dollars in thousands):_______ Preferred Common Balance, Decem ber 31, 1977............................. ......... Conversion of preferred sto ck ............................... Pooling of in te re sts........................................ ......... Exercise of stock o p tio n s........................................ Balance, December 31, 1978............................. ......... Conversion of preferred sto ck ............................... Conversion of 5Va% Convertible Subordinated D ebentures............................. ... Purchase of Shares.......................................... ......... Exercise of stock o p tio n s............................. . . . . Balance, December 31, 1979............................. ......... Shares 55,456 (8,638) -- -- 46,818 (14,347) -- -- -- 32,471 Stated Value $1,248 (194) -- -- 1,054 (323) Shares 11,730,399 34,552 -- -- 11,764,951 57,388 -- 338,773 -- -- -- -- $ 731 12,161,112 Par Value $11,730 35 -- -- 11,765 57 339 -- -- $12,161 Capital Surplus $68,864 159 (2,451) (30) 66,542 266 8,469 __ (111) $75,166 Treasury Common Shares Cost 633,912 $14,107 - - (120,000) (2,670) (3,825) (85) 510,087 11,352 -- -- __ 1,250,000 (16,878) 1,743,209 -- 32,151 (385) $43,118 Each share of $4.50 Cum ulative Preferred Stock is convertible into four shares of common stock. Such stock is redeemable at the option o f the company, or entitled upon in voluntary liquidation, at $ 100 per share or a total o f $3,247,000, w'hich is $2,516,000 in excess of the total stated value. On July 16, 1979, the com pany purchased 1.250,000 shares of its common stock at $25.50 per share. Expenses and fees relating to the tender offer were $276,000 The company has reserved 11,446,930 shares of its author- ized but unissued common stock for possible future issuance in connection with conversions of preferred stock ( 129,884 shares) and debentures (709,393 shares) and the exercise of stock options (607,653 shares). 14. Other Income--Net Other incom e-net. consists of the following (in thousands): ________________________________________1979_______ [978 Securities income (includes foreign) .. $ 7,730 $ 5.191 Foreign exchange losses............................. (3,241) (4,569) Income from joint ventures and unconsolidated su b sid ia ry .................... 5,884 2.084 Gains on sale o f assets................................. 1,346 1,115 O ther.............................................................. 1,933 1,588 _______________________ ~ $13,652 $ 5,409 15. Pension Plans Pension expense connected with the com pany's plans for 1979 and 1978 for continuing operations was approximately $8.100.000 and $6,600.000 respectively. The higher pension expense in 1979 resulted primarily from amendm ents to sev eral of the plans, which increased the level of benefits pro vided. The actuarially computed value of vested benefits for certain plans at 1980 valuation dates exceeded the total of the pension funds and accrued contributions by approximately $24.500.000. 16. Income Taxes Provisions for income taxes for continuing operations consist of the following (in thousands): Federal: C u rre n t................................................ Deferred: Excess of tax over book depreciation.......................... Investment tax cred its.................. Subsidiary separate return net operating loss carryforw ard......... Tax on unremitted foreign e a rn in g s.......................................... O th e r................................................ Total F e d e ra l.......................................... Foreign: C u rre n t................................................ Deferred tax on unremitted foreign earn in g s................................. Total F o reig n .......................................... State and L ocal....................................... 1979 $ (554) 4,378 1,365 2,340 2,029 993 10,551 5,896 2,403 8,299 1,550 $20,400 1978 $(4,711) 5.029 1,008 1,329 (78) 2,577 4.376 -- 4,376 266 $ 7.219 53 LSI(01/16/2018)_001496 In 1979, $3,780,000 was reclassified in the balance sheet from current income taxes payable to deferred income taxes pay able, reflecting the net effect o f prior years' tax filings, the dis position of Building Centers operations, income taxes on unremitted foreign earnings, and taxes not due currently. A subsidiary has net operating loss carryforwards and investment tax credit carryforwards for federal income tax purposes from separate return taxable periods of approxi mately $1,700,000 and $6,200,000, respectively, which expire at various dates from 1980 to 1983 and are available for appli cation against future taxable income of the subsidiary. These carryforwards have been previously recognized for financial statement purposes. The following is a reconciliation of income taxes for contin uing operations computed at the U.S. statutory rate to the pro visions for income taxes (in thousands): Taxes computed at statutory rates on income before income taxes............. Decreases (increases) resulting from: Investment tax c re d its ...................... Percentage depletion.......................... Joint ventures...................................... Other, n e t ............................................ 1979 $35,162 7,500 5,100 2,241 (79) $20,400 1978 $18,076 5,300 4,800 911 (154) $ 7,219 17. Quarterly Financial Data (Unaudited) Summ arized quarterly financial data for 1979 and 1978 appear on page 44 of this report. 18. Industry Segments and Geographic Areas Sales, operating profits, identifiable assets, capital expendi tures, and depreciation and depletion for the com pany's industry segment and geographic areas for the years ended December 31, 1979 and 1978, appear on pages 36- 37 of this report. 19. Litigation Beginning in late 1976, a series o f substantially similar class actions, now pending in the United States District Court for the District of Arizona was brought against the Portland Cement Association and almost all United States cement pro ducers, including the company. Since 1976, additional, sub stantially similar class actions have been filed by a num ber of states and business entities in various Federal District Courts, and all of these have been, or are expected to be, consolidated for pretrial purposes in the Arizona Court. The company and certain of its subsidiaries are defendants in most of these actions. All of the actions allege that a nationwide combina tion and conspiracy existed in violation o f the antitrust laws to fix, m aintain and stabilize cement prices from on or before 1958 to the dates of commencement of the various actions. None of the actions alleges a specific am ount of damages, but they seek, in addition to other relief, money damages equal to treble the damages allegedly sustained by the plaintiffs. The actions have not progressed beyond the preliminary pretrial stage. The Arizona Court has certified the classes sought by plaintiffs to include purchasers of cement and cement contain ing products. Management denies that it has entered into any such alleged combination or conspiracy, believes that the alleged violations are without foundation and intends to vigorously contest all of the actions in which the company is involved. While the outcome of this litigation cannot be pre dicted with certainty, m anagem ent believes it should not have a material adverse effect on the com pany's financial position. 20. Discontinued Operations During 1979, the company disposed of its Building Centers operations. These operations included wholesale lumber dis tribution facilities, combination retail-contractor building materials outlets, and retail home care centers. Effective June 30, 1979, such operations have been reported as discontinued operations. Accordingly, the Consolidated Statement of Income, Consolidated Statement of Changes in Financial Position and the related notes thereto for 1978 have been re classified to present Building Centers as discontinued operations. The net proceeds realized from the sale of the Building Centers operations through eight separate sale transactions to various purchasers were approximately $ 152,000,000. Build ing Centers operations accounted for net sales of $199,356,000 and $453,539,000 for the years ended December 31, 1979 and 1978, respectively. 21. Subsequent Events On February 26, 1980, the company reached an agreement with OKC Corp. for the acquisition o f O K C 's Pryor, Okla homa cement facility and certain land near Ocala, Florida for $87,300,000. Lone Star also is negotiating with OKC's lenders to borrow $38,500,000 at an interest rate of 12%% at the time of the closing. In addition, Lone Star agreed to purchase cer tain other assets including inventories substantially on a cost basis. The Pryor plant currently has a rated capacity of 450,000 tons of cement per year, and a nearly-completed expansion program will increase rated capacity to 725,000 tons. This acquisition, which is subject to certain regulatory and governm ental approvals, is scheduled for the first half of 1980 and will be accounted for as a purchase. In 1980, the company expects to sell a portion of future pro duction for $50,000,000 from a limestone quarry located adjacent to one o f its cement plants and from the two lime stone quarries involved in the 1976 production payment as described in Note 10. 54 LSI(01/16/2018)_001497 Supplemental Information on Effects of Changing Prices (Unaudited) tiring 1979, the Financial Accounting Standards Board issued Statement o f Financial Accounting Standards (SFAS) No. 33, which requires the company to report for the first time the effects o f changing prices on its business. It must be recognized that at present the effects o f inflation and changing prices on a business enterprise cannot be quan tified with accuracy. The methods required by SFAS No. 33 are experimental in nature and will be refined as more experi ence is gained. Statement of Income from Continuing Operations Adjusted for General Inflation Year Ended December 31,1979 In thousands except per share amounts As Reported Net sales and other incom e................. . $806,160 Cost o f s a le s .......................................... . Selling, general and administrative exp en se.............................................. . Depreciation and d ep letion ............... . Interest................................................... . Provision for ta x es............................... . (come from continuing operations.. . 614,218 69,774 26,557 19,172 20,400 750,121 $ 56,039 Income per common share from continuing operations: Primary.............................................. . Fully diluted....................................... . Net assets at year-end.......................... . Net assets per sh a re............................. . Purchasing power gain on net monetary liabilities.......................... $5.15 $4.73 $356,492 $34.15 Adjusted for General Inflation $806,160 626,054 69,774 40,714 19,172 20,400 776,114 $ 30,046 $2.75 $2.57 $565,909 $54.25 $ 34,771 Price Index for All Urban Consumers (CPI-U). Income from continuing operations "Adjusted for General Inflation" was derived by restating cost o f sales and depreciation and deple tion to dollars with purchasing power equivalent to the average purchasing power o f the dollar for the year ended December 31, 1979. All other elements o f revenue and expense were not required to be adjusted as they are consid ered to have been stated in average 1979 dollars in the pri mary financial statements. The historical costs o f property, plant and equipment were restated into average 1979 dollars based on their year of acquisition and appropriate CPI-U. These revised amounts were used to calculate adjusted depreciation and depletion for the year. Depreciation and depletion were calculated using the same estimated useful lives, salvage values, and deprecia tion and depletion methods as used in the primary financial statements. The purchasing power gain on net monetary liabilities results, since during periods o f inflation net monetary liabili ties will be paid off in dollars of diminished purchasing power. Monetary items are either claims to receive sums o f money or obligations to pay sums of money in amounts which are fixed or determinable without reference to future prices of specific goods or services. Current Replacement Cost Information (Unaudited) Estimated current replacement cost information for invento ries and productive capacity as of December 31,1979 and 1978, and the related effects on cost o f sales and depreciation expense for the year are disclosed in the company's annual report on Form 10-K to be filed with the Securities and Exchange Commission. The information provided above presents historical informa tion which has been adjusted for changes in the general pur chasing power o f the dollar as measured by the Consumer Each element presented in the table below is restated in dollars presumed to have the same general purchasing power using the average CPI-U for 1979. For example, assuming that the CPI-U reflects the declining purchasing power o f the dol- lar, the data below indicate that the historically reported 1978 Net Sales and Other Income o f $643,685,000 is equivalent to $716,157,000 o f purchasing power in 1979 dollars, Five-Year Comparison o f Selected Supplementary Financial Data Adjusted for the Effects o f General Inflation Years Ended December 31 In thousands except per share amounts 1979 1978 1977 1976 Net sales and other incom e.................................................. ............... $806,160 $716,157 $549,307 $510,417 Cash dividends per common share..................................... ............... $1.40 $1.34 $1.32 $1.31 darket price per common share at year-end.................... ............... $27.06 $22.63 $22.63 $27.60 Average consumer price index (1967 = 100).................... ............... 217.4 195.4 181.5 170.5 /. H3 i. i n I ,2? C 1975 $511,570 $1.35 $18.30 161.2 55 LSI(01/16/2018)_001498 Ten-Year Summary of Operations" (In th o u sa n d s ex cep t p er sh a re a m o u n ts) For the Years Ended Decem ber 31,_____________________________________________ 1979____________ 1978__________ 1977 Revenue: Net s a le s..................................................................................................... . . . . $ 792,508 $ 638,276 $ 455,245 Other income--net..................................................................................... . . . . 13,652 5,409 3,353 806,160 643,685 458,598 Deductions from revenue: Cost of sales................................................................................................ . . . . 614,218 503,165 353,367 Selling, general and administrative expense....................................... . . . . 69,774 58,718 45,599 Depreciation and depletion.................................................................... . . .. 26,557 24,376 21,510 Interest ....................................................................................................... . . . . 19,172 19,767 19,253 729,721 606,026 439,729 Income from continuing operations before income taxes and extraordinary charge...................................................... . . . . 76,439 37,659 18,869 Provisions for income taxes............................................................................... . . . . 20,400 7,219 1,648 Income from continuing operations............................................................. . . . . 56,039 30,440 17,221 Income from discontinued operations before income taxes!2) ....... . . . . 16,702 29,019 22,441 Provisions for income taxes--discontinued operations (2)................. . . . . 8,000 14,081 9,952 Income from discontinued operations............................................................. . . . . 8,702 14,938 12,489 Income before extraordinary charge............................................................... . . . . 64,741 45,378 29,710 Extraordinary charge, net o f taxes......................................................... __ - - Net Income.................................................................................................... . . . . 64,741 45,378 29,710 Provisions for preferred d ivid en d s....................................................... . . . . 176 232 25. Net income applicable to common stock ....................................................... . . . . S 64,565 $ 45,146 $ 29,457 Per Common Share (3) Continuing operations....................................................................................... . ... Discontinued operations!2) ............................................................................... . . . . Income before extraordinary charge............................................................... . . . . Extraordinary charge............................................................................... . . . . Net income per common share.......................................................................... . . . . $5.15 0.80 5.95 $5.95 $2.69 1.33 4.02 - $4.02 $1.53 1.13 2.66 - $2.66 Per Common Share Assuming Full Dilution!3) Continuing operations....................................................................................... . . . . Discontinued operations!2) ................................................................................ . . . . Income before extraordinary charge............................................................... . . . . Extraordinary charge............................................................................... . . . . Net income per common share.......................................................................... . . . . Weighted average common shares outstanding!4) ....................................... . . . . Dividends per common share............................................................................ . . . . $4.73 0.72 5.45 $5.45 10,849 $1.40 $2.49 1.19 3.68 - $3.68 11,232 $1.20 $1.44 1.01 2.45 - $2.45 11,091 $1.10 N o te s (d o lla rs in th o u s a n d s ex c ep t p e r s h a re a m o u n ts): (1 ) T h e y e a rs p rio r to 1979 h a v e b e e n reclassified to reflect th e d isp o sitio n d u rin g 1979 o f B u ild in g C e n te rs o p eratio n s. T h e reclassificatio n d id n o t ch a n g e n e t in c o m e o r related p e r sh are am o u n ts. (2 ) A m o u n ts fo r 1979 in c lu d e a g a in o f $ 4 ,4 0 9 , n e t o f a p p lic a b le ta x e s o f $ 3 ,9 0 0 , o n th e sa le o f B u ild in g C e n te rs . R e la te d p e r s h a re a m o u n ts w e re $0.41 p rim a ry a n d $ 0 .3 7 fu lly d ilu te d . 56 LSI(01/16/2018)_001499 Lone Star Industries, Inc. and Consolidated Subsidiaries 1976 $ 395,435 4,869 400,304 299,444 41,264 20,171 14,151 375,030 25,274 3,097 22,177 9,354 4,303 5,051 27,228 -- 27,228 275 $ 26,953 1975 $ 367,299 12,025 379,324 278,992 38,961 19,413 15,443 352,809 26,515 7,640 18,875 488 49 439 19,314 -- 19,314 416 $ 18,898 1974 $ 371,878 11,352 383,230 280,650 39,944 18,858 15,770 355,222 28,008 8,825 19,183 9,412 4,275 5,137 24,320 _ 24,320 560 $ 23,760 1973 $ 379,621 2,923 382,544 280,449 43,717 19,499 12,984 356,649 25,895 8,251 17,644 17,465 8,466 8,999 26,643 _ 26,643 586 $ 26,057 1972 $ 324,999 3,669 328,668 239,216 34,412 19,110 10,255 302,993 25,675 7,129 18,546 9,534 4,585 4,949 23,495 _ 23,495 . 636 $ 22,859 1971 $ 296,847 2,854 299,701 211,212 37,259 17,768 7,396 273,635 26,066 6,809 19,257 5,067 2,420 2,647 21,904 2,500 19,404 750 $ 18,654 1970 $ 273,353 1,513 274,866 190,240 38,143 16,634 7,812 252,829 22,037 6,127 15,910 4,002 1,987 2,015 17,925 -- 17,925 909 $ 17,016 $1.98 0.46 2.44 $2.44 $1.70 0.04 1.74 $1.74 $1.73 0.47 2.20 $2.20 $1.58 0.84 2.42 $2.42 $1.65 0.45 2.10 $2.10 $1.74 0.25 1.99 .23 $1.76 $1.45 0.20 1.65 $1.65 $1.84 0.41 2.25 -- $2.25 11,068 $1,025 $1.59 0.03 1.62 -- $1.62 10,889 $1.00 $1.61 0.41 2.02 -- $2.02 10,800 $1.00 $1.48 0.72 2.20 __ $2.20 10,785 $1.00 $1.53 0.39 1.92 -- $1.92 10,875 $1.00 $1.60 0.21 1.81 .20 $1.61 10,599 $1.00 $1.35 0.16 1.51 -- $1.51 10,328 $1.00 (3 ) In c o m e p e r c o m m o n s h a re is b a s e d o n th e w e ig h te d a v e ra g e n u m b e r o f s h a re s o u ts ta n d in g in ea ch y e a r a fte r allo w in g fo r p re fe rre d d iv id e n d s. F u lly d ilu te d in c o m e p e r c o m m o n sh are assu m es th a t p re fe rre d sto ck a n d c o n v e rtib le d e b e n tu re s h ad b e e n co n v e rte d a n d d ilu tiv e sto ck o p tio n s h a d b e e n ex e rc ised at th e b e g in n in g o f ea ch year. (4 ) O n J u ly 16, 1979, th e c o m p a n y p u rc h a s e d 1 ,250,000 s h a re s o f its c o m m o n sto c k a t $ 2 5 .5 0 p e r sh a re . In a d d itio n , 5 7 .0 0 0 sh a re s a n d 3 3 9 .0 0 0 sh a re s o f c o m m o n sto ck w e re issu ed d u rin g 1 9 7 9 i n c o n n e c t i o n w i t h t h e c o n v e r s i o n o f t h e c o m p a n y 's $ 4 . 5 0 C u m u l a t i v e P r e f e r r e d S t o c k a n d 5'/s% C o n v e r t ib le D e b e n t u r e s , r e s p e c tiv e ly . 57 LSI(01/16/2018)_001500 Principal Operations Cement Plants Domestic C alifornia: Santa Cruz Florida: Miami In d ia n a : Greencastle K ansas: Bonner Springs L o uisia na : New Orleans P ennsylvania: Nazareth Texas: Houston Maryneal U tah: Salt Lake City Virginia: Roanoke W ashington: Seattle International A rgentina: Paran (Entre Rios Province) Sierra Bayas (Buenos Aires Province) *B razil: Arat (Salvador, Bahia) G uaxind iba (State of Rio de Janeiro) Belo Horizonte (State of Minas Gerais) Arcos (State of Minas Gerais) U ruguay: Sayago (Montevideo)* *Joint venture with Lafarge Regional Offices Central Region 2511 East 46th Street Indianapolis, Indiana 46205 Northeast Region 162 Old Mill Road West Nyack, New York 10994 Pacific Region 2800 Campus Drive San Mateo, California 94403 Southeast Region 977 Norfolk Square Norfolk, Virginia 23502 Southwest Region 9250 Amberton Parkway Dallas, Texas 75243 Lonestar Florida, Inc. 6451 North Federal Highway Fort Lauderdale, Florida 33308 Lone Star Lafarge, Inc. 18 Kroger Executive Center Norfolk, Virginia 23502 Other Operations Lone Star Hawaii Inc. Pacific Trade Center 190 S. King Street Honolulu, Hawaii 96813 Lone Star Minerals, Inc. 8149-C Kennedy Avenue Highland, Indiana 46322 Lone Star Mining & Exploration Co., Ltd. 2222 South Sheridan Way Building 1, Unit 2 Mississauga, Ontario L5J 2M4 Lone Star Properties, Inc. 8204 Elmbrook Drive Suite 140 Dallas, Texas 75247 LSI(01/16/2018)_001501 + Ready-Mix Operations Precast Concrete Products Aggregates Operations Specialty Aggregates a Distribution Terminals + Real Estate Development LSI(01/16/2018)_001502 Directors James E. Stewart Chairman and ChiefExecutive Officer, Lone Star Industries, Inc. Mr. Stew art b ecam e a D irector and C h air m an o f the Executive C om m ittee o f Lone Star in 1971. E lected C h a irm a n o f the B oard in 1973, h e b e c a m e P resid en t a n d C h ie f E xecutive O fficer in 1978. M r. S te w a r t is V ice C h a ir m a n o f th e B o a rd and C h airm an o f the Executive C om m ittee o f B angor P unta C orporation and a D irector o f P iper A ircraft, a B angor P u n ta subsidiary. Dwayne O. Andreas Chairman o f the Board and Chief Executive, A rcher-Daniels-Midland Company A r c h e r - D a n ie ls - M id la n d is a n a g ric u ltu ra l products processing and m illing com pany t h a t r a n k s w e l l u p i n F o r t u n e m a g a z i n e 's l is t o f the 500 largest industrial corporations. In th e d e c a d e 1965-1975, it ra n k e d N o . 2 in total r e t u r n s to s t o c k h o ld e r s a n d N o . 13 in g r o w th rate. T h ro u g h o u t this period, Mr. A ndreas was a senior executive o f the com pany, b eco m in g C h ie f E xecutive in 1970 and C h a ir m a n o f th e B o a rd in 1972. H e is a D irector o f D a rt Industries, Inc., Los A ngeles, C alifornia and W hite M otor C or p o ra tio n , E a stla k e , O h io . H e is a T ru stee o f the U.S. N aval A c a d e m y F o u n d a tio n a n d a D irector o f the Foreign Policy A ssociation. H e h as b e e n a D irecto r since 1975. Rex D. Cross Chairman o f the Board and Chief Executive Officer o f Pomeroy, Inc. P o m e ro y is a p ro d u c e r o f p refa b ricated building co m p o n en ts an d h ard w are for the construction an d h o m e building industries, head q u artered in Stam ford, Connecticut. Mr. C ross jo in e d P om ero y in 1957 as E xec utive Vice President, b eco m in g President and C h ie f E xecutive Officer in 1960 and C h a ir m a n o f th e B o a rd in 1965. H e is a D i r e c t o r o f A m e s I r o n W o r k s, O s w e g o , N.Y., a n d F itzg ib b o n s B oiler C o. Inc., N ew York, N.Y. H e w a s e d u c a te d a t th e G u l f C o a s t M ili tary A cad e m y an d T ulane University. P o m e r o y 's b u i l d e r s h a r d w a r e g r o u p p r o d ucts are m an u fa c tu re d in the U nited States, C a n ad a, E n g lan d , A ustralia an d Brazil. H e h as b e e n a D ire c to r since 1978. Stephen Galle Executive Vice President o f Bangor Punta Corporation Mr. G alle jo in e d B a n g o r P u n ta in 1961, b e c a m e V ice P resid en t in 1975, S enior Vice P resid en t an d C h ie f F in an cial Officer in 1968 a n d assu m ed his present position early in 1978. E ducated at the P azm any Peter University o f B u d ap est in both law an d public acco u n t ing, he w as associated w ith the chem ical in d u stry o f H u n g ary until he em ig rated to th e U.S. in 1956. H e is a D ir e c to r o f B a n g o r P u n ta a n d Piper A ircraft C orporation and Producers C otton Oil C om pany, both subsidiaries of B angor Punta. He has b een a D irector since 1978. Frank Gard Jam eson Chairman o f the Board o f Glenair Inc. Mr. Jam eson has b een closely associated w ith space program s for the past tw enty years, founding and m anaging a n u m b er of co m p an ies in the fields o f m issile electronics a n d e le c tro n ic e q u ip m e n t. G le n a ir is a W est C oast m anufacturer o f electronic cables and connectors. In recent years, he has served as President o f Teledyne R yan A eronautical C o m pany, Vice P resident o f D ouglas A ircraft a n d S en io r C o rp o ra te Vice P resid en t o f Rockwell International. He holds two Navy D istinguished Public Service A w ards and currently serves as C h airm an o f the B oard of D irectors o f the F reedom s Foundation at Valley Forge. He w as educated at W ebb P re p a ra to ry S chool, the U.S. N aval A cad em y , the C alifornia Institute o f Technology and S tanford University, from w hich he received a B.S. degree. He has b een a D irecto r since 1977. Sheldon Kaplan Partner in the Minneapolis lawfirm of Maslon, Kaplan, Edelman, Borman, Brand & McNulty A n a tiv e o f M in n e a p o lis , M r. K a p la n is a B.A. g rad u ate o f the U niversity o f M in n eso ta (Phi Beta K appa), an d has his LL.B. from C o lu m b ia University Law School, w here he served as editor an d decisions editor o f the C o lu m b ia L aw Review. A d m itte d to the N ew \ b r k b a r in 1940, h e is c u rre n tly a m e m b e r o f the H ennepin C o u n ty and the M innesota State B ar A ssociations. M r. K a p la n se rv ed as a C a p ta in in U.S. A r m y O r d n a n c e d u r in g W o rld W a r II, becom ing C h ief o f the Legal Division, C lev elan d O rd n a n c e District, in 1946, before leaving the service a n d jo in in g his presen t firm. H is o th er B oard m em b ersh ip s currently include the B angor Punta C orporation, B an g o r P u n t a 's P i p e r A i r c r a f t s u b s i d i a r y , N o r t h A m erican Life an d C asualty C o m p a n y and the M innesota V ikings Football Team . He has b e e n a D ire c to r since 1978. Joseph V. M cK ee, Jr. Chairman, National Union Electric Corporation In 1949, Mr. M cK ee jo in e d N ational U nion R a d io C o rp ., w h ich c h a n g e d its n a m e in 1954 to N a tio n a l U n io n E le c tric --th e s a m e y e a r h e b ecam e Vice President, T reasurer and a D irector. H e b ecam e E xecutive Vice Presi d en t in 1966 an d assum ed his present post in S ep tem b er 1977. N ational U nion ranks in F o r t u n e m a g a z i n e 's s e c o n d 5 0 0 i n s a l e s a n d well u p in the first 500 for re tu rn o n eq u ity and grow th in earnings. H e is a g r a d u a te o f P rin c e to n U n iv ersity an d has a law degree fro m C o lu m b ia U niver sity. H e is a D ire c to r o f St. Jo e M in e ra ls C o r poration and A. B. E lectrolux, Stockholm , Sw eden, and a Trustee o f the W oods Hole O ceanographic Institute and T he G reenw ich H o sp ital. He has b e e n a D ire c to r since 1975. Allen E. Puckett Chairman and Chief Executive Officer of Hughes Aircraft Company Dr. P uckett w as previously P resident o f H ughes an d has held a n u m b er o f senior m a n a g e m e n t positions in the W eapons Sys tem s a n d A erospace groups since jo ining the co m p an y in 1949. f A m e m b e r o f t h e N a t i o n a l A c a d e m y o f E ngineering and the N ational A cadem y o f Sciences, h e is th e a u th o r o f n u m e r o u s w o rk s on high-speed aerodynam ics. A graduate o f H arvard U niversity w ith a Ph.D. from the C a lifo rn ia Institute o f T echnology, Dr. P u c k ett has served as C h a irm a n o f the N A SA Research A dvisory C om m ittee on Control, G u id a n c e an d N avigation, as Vice C h a irm an o f the D efense Science B oard, and as Presi dent o f the A m erican Institute o f A eronau tics a n d A stro n au tics. H e w as C h a irm a n o f the B oard o f A erospace Industries A ssocia tion this past year. H e has b e e n a D irecto r since 1976. Willard F. Rockwell, Jr. Chairman o f the Executive Committee of Rockwell International Corporation Mr. Rockw ell, w h o served as C h a irm a n o f the B oard o f Rockwell In ternational from 1967 until 1979, h ad served as P resident an d C h ie f E xecutive Officer o f various predeces sor com panies for m ore than 30 years. A registered professional engineer, he was graduated from Penn State University and served se v en y ears o n its B o a rd o f Trustees. C urrently a Trustee o f the U niversity of 60 LSI(01/16/2018)_001503 S outhern C alifornia and the C arnegie Insti tu te o f P ittsb u rg h , h e is a D ir e c to r o f se v era l large co m panies including El Paso C om pany, M agic C h ef, Inc., P lan n in g R esearch C o r poration. M ellon N ational C orporation and M e llo n B a n k . N .A . H e is th e re c ip ie n t o f m any civic aw ards and h o n o rary degrees a n d is C h a ir m a n o f th e E x e c u tiv e C o m m it tee o f the Tax F o u n d atio n . He has b een a D irector since 1973. John P. Schroeder Retired Vice Chairman, J. P. Morgan & Co., Incorporated, and Morgan Guaranty Trust Co. o f New York A g rad u ate o f Phillips Exeter A cadem y a n d Yale University, Mr. S ch ro ed er jo in e d J. P. M o r g a n & C o . . I n c o r p o r a t e d i n 1945, b e c o m in g Vice P resident in 1953 a n d E xecu tive Vice P re sid en t in ch arg e o f the N ational B anking D ivision in 1971. H e b e c a m e Vice C h a irm an an d a D irector o f both the bank a n d J. P M o r g a n & C o . in 1 9 7 6 . a n d r e t i r e d a t th e e n d o f 1978. M r. S c h r o e d e r is a D ire c to r )f Phelps D o d g e C o rp o ratio n , Johns-M anville C o rp o ra tio n a n d G o u ld . Inc., as well as a m em b er o f the D irectors' A dvisory Council o f J. R M o r g a n a n d M o r g a n G u a r a n t y . He has b e e n a D irecto r since 1973. David W. Wallace Chairman, President and Chief Executive Officer, Bangor Puma Corporation M r. W allace jo in e d B angor P u n ta in 1967 as P resid en t a n d C h ie f O p e ra tin g Officer. He b e g a n his career w ith W h ite & C ase in N ew \ b r k a n d is a m e m b e r o f th e B a r o f N e w York State an d the Bar o f the U nited States S u p re m e C o u rt. In 1954, he jo in e d the A lleghany Corp.. w here he subsequently b ecam e Executive Vice President, a D irector and a m em b er o f the Executive C om m ittee, follow ed by a sim ilar position w ith U nited Brands. He h o ld s a B.S. d e g re e in en g in eerin g from Yale U niversity a n d a D o cto r o f Ju risp ru dence degree from H arvard Law School. M r. W alla c e is a D ire c to r o f B a n g o r P u n ta and Piper A ircraft C orporation and Produc ers C o tto n Oil C o m p an y , both B angor P unta su b sid ia rie s. H e is also V ice P re s id e n t a n d Trustee o f the R obert R. Young C haritable Foundation, a G overnor o f New \b rk H ospi t a l a n d a m e m b e r o f L l o y d 's o f L o n d o n . H e has b een a D irector since 1970. Sitting; Sheldon Kaplan Dwayne O. Andreas James E. Stewart, Chairman Willard F. Rockwell. Jr. Rex D. Cross Standing: John P. Schroeder David W. Wallace A Hen E. Puckett Frank Gard Jameson Stephen Galle Joseph V McKee, Jr. Executive Committee Jam es E. Stew art (C hairm an) Rex D. C ross Sheldon K aplan J o s e p h V. M c K e e , J r. D a v i d W. W a lla c e Audit Com m ittee D a v id W. W alla c e ( C h a ir m a n ) Frank G . Jam eson J o s e p h V. M c K e e , Jr. Compensation and Stock Option Committee J o s e p h V. M c K e e , J r . ( C h a i r m a n ) Sheldon K aplan W i l l a r d F. R o c k w e l l , Jr. D a v i d W. W a lla c e 61 LSI(01/16/2018)_001504 Officers Lone Star Industries, Inc. *James E. Stewart Chairman of the Board and Chief Executive Officer *Donald M. Halsted, Jr. President and C hief Operating Officer Robert W. Hutton Vice Chairm an of the Corporation *Carmine J. Muratore Executive Vice President--Staff One Greenwich Plaza Greenwich, Connecticut 06830 Telephone: (203)661-3100 Annual Meeting The Annual Meeting of Shareholders will be held at 10:00 a.m. on Thursday, May 1, 1980 at the Hotel Utah, Salt Lake City, Utah. *John H. Davies 10-K Report Executive Vice President--Operations A copy of the com pany's annual *Jerome Bennett report on Form 10-K to the Securities Senior Vice President and and Exchange Commission is C hief Financial Officer available without charge upon Herbert B. Greene Senior Vice President and request to the Vice President Administration at the address above. Assistant to the Chairman F. Eugene Purcell Stock Listings Senior Vice P residentPublic Affairs Lone Star common shares are listed on the New York Stock Exchange Alfred M. Sperry (symbol LCE), Boston Stock Senior Vice President Exchange and Pacific Stock Exchange International Operations and are open to trading on the G ordon A. Fox Vice President and Treasurer Midwest and Philadelphia Stock Exchanges. Certificates representing Conrad J. Gordon Vice President and Controller Lone Star shares are traded on the Amsterdam Stock Exchange. James M. Grogan Arrangements were made during the Vice President year for listing on the Frankfurt Stock Exchange, effective in early 1980. Robert F. Kizer Vice President--Domestic Operations Auditors i Joseph S. LaG am bina Vice President--Administration Coopers & Lybrand Price Waterhouse & Co. John J. Martin (for International Division) Vice President, G eneral Counsel and Secretary ' William L. Read Vice P residentConstruction Management James E. Rosecrans Transfer Agent and Registrar for Common and Preferred Stock The Chase M anhattan Bank, N.A. Vice President--Employee Relations B. B. Smith , Jr. Vice President--Marketing and Sales* *M em b er o f the Corporate E xecutive O ffice LSI(01/16/2018)_001505 LONE STAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES ADDITIONAL FINANCIAL DATA ________________ December 3 1 1 9 7 9 a n d 1 9 7 8 _____________________ Additional Subsequent Event ? In a d d i t i o n t o t h e e v e n t s s e t f o r t h in N o t e 21 o f N o t e s t o F i n a n c i a l S t a t e m e n t s a p p e a r i n g o n p a g e 5** o f t h e c o m p a n y ' s 1 9 7 9 A n n u a l R e p o r t i n c o r p o r a t e d h e r e i n b y reference, on March 21, 1980 the company completed the purchase of the Dixon, Illinois cement plant from Medusa Corporation, a subsid i a r y of Crane Co. The terms o f t h e p u r c h a s e a r e d e s c r i b e d in N o t e ** o f N o t e s t o F i n a n c i a l S t a t e m e n t s a p p e a r i n g on page 50 of the company's 1979 Annual Report incorporated herein by reference. Notes and Accounts Receivable R e ceivables consist of the following (in thousands): | Trade Other Inventories 1979 $87,576 5,36** $92,9**0 1978 $107,289 5,730 $113,019 Inventory amounts entering into the determination of cost of sales from continuing o p e r a t i o n s for the respe c t i v e y e a r s are (in thousands): D e c e m b e r 31 I 1977 1978 1979 $31,712 $3^ ,345 $49,177 T h e c o s t o f i n v e n t o r i e s is d e t e r m i n e d u n d e r the f o l l o w i n g m e t h o d s (in t h o u s a n d s ) : Average First-in, Retail Other first-out j.J December 31, 1979 ' 1978. $74,241 12,923 - 1,76** W .92& $ 90,985 40,046 26,551 1,025 $158,607 Jt F-** - 4i LSI(01/16/2018)_001506 Property, Plant and Equipment Because of varying estimated useful lives it is i m p r a c t i c a l to s t a t e t h e i n d i v i d u a l depletion and amortization. However, the fall within the following ranges: at the company's various facilities, rates u s e d in c o m p u t i n g d e p r e c i a t i o n , useful life expectancies generally Years Bu i1dings Machinery and equipment Furniture and fixtures Automobiles and trucks 5 * 50 3 * 27 2 - 15 2-10 Joint Ventures and Unconsolidated Subsidiary The amount of unremitted earnings of joint ventures and an unconsolidated s i d i a r y i n c l u d e d in c o n s o l i d a t e d r e t a i n e d e a r n i n g s at D e c e m b e r 31, 1979, amounted to $7,631,000. sub Accounts Payable A c c o u n t s p a y a b l e c o n s i s t of the f o l l o w i n g (in t ho usa nd s): _ December 31, Trade Other $25,*1** 6,067 W T kfi] $51,271 10,577 $6 1 ,TM Accrued Expenses A c c r u e d e x p e n s e s cons i s t of the f o l l o w i n g (in thousa n d s ) : Accrued Accrued Accrued Accrued Accrued payroll and vacation pay pensions interest taxes other than income taxes expense - other D e c e m b e r 31 1979 1978 $ T 72 68 $ 5 7 3 7 0 **,578 7,515 3,067 3,30** 6,50** 5,378 17,826 12,825 $ 3 6 ,2**3 $ 3 5 , 3 9 2 Long-term Debt Amounts authorized by indentures are $50,000,000, $50,000,000 and tures are held by the issuer. rela t i n g to the 8%, **-7/8%, $30,000,000, respectively. and 5*1/8% debentures None of such deben Capital Stock and Capital Surplus In t h e o p i n i o n o f c o u n s e l , t h e e x i s t e n c e o f i n v o l u n t a r y l i q u i d a t i n g p r e f e r e n c e s o n t h e $*.50 c u m u l a t i v e c o n v e r t i b l e p r e f e r r e d s t o c k in e x c e s s o f its s t a t e d v a l u e did not create any restriction on the payment of dividends from retained earnings. E a c h s h a r e o f t h e $**.50 c u m u l a t i v e p r e f e r r e d s t o c k is e n t i t l e d t o o n e v o t e . F-5 LSI(01/16/2018)_001507 Pension Plans The aggregate unfunded prior service actuarial methods and amortized over at December 31, 1979. cost, 25 or w h i c h is c o m p u t e d o n the b a sis of 30 years, was approximately $60,100,000 Stock Option Plans, Stock Purchase Plan, Performance Award Plan, and Management Incentive Compensation Program In 1 9 7 6 , t h e s h a r e h o l d e r s a p p r o v e d t h e 1 9 7 6 S t o c k O p t i o n a n d P e r f o r m a n c e A w a r d Plan. T h e p l a n is a d m i n i s t e r e d by the C o m p e n s a t i o n a n d S t o c k O p t i o n C o m m i t t e e (the committee) appointed by the Board of Directors from members of the Board who a r e n o t e l i g i b l e t o p a r t i c i p a t e tn t h e p l an. A w a r d s u n d e r t h e p l a n c a n be in t h e form of stock options or cash awards, or both, to key management employees, in cluding officers, as follows: (a) U n d e r t h e p l a n , 5 0 0 , 0 0 0 s h a r e s o f t h e c o m p a n y ' s c o m m o n s t o c k h a v e b e e n reserved for grants of e ither qualified or non-qu a l i f i e d options. All o p t i o n s g r a n t e d a r e at a p r i c e w h i c h is n o t less t h a n the f a i r m a r k e t value of the stock on the date of grant and have maximum terms of five and ten years for qualified and non-qualified options, respectively. The dates at which options become exercisable are determined at the discretion of the committee at the date of grant. Options granted to date have been granted at m a r k e t v a l u e o n d a t e o f g r a n t a n d a r e e x e r c i s a b l e in c u m u l a t i v e i n s t a l l ments to the e x t e n t o f 2 5 % of shares granted in e a c h of the s e c o n d to fifth years. (b) U n d e r t h e p e r f o r m a n c e a w a r d p o r t i o n o f t h e p l a n , c a s h a w a r d s w i l l b e p a i d upon achievement of corporate performance goals as determined by the committee. T h e a w a r d is p a y a b l e at the e n d o f t he a w a r d p e r i o d , w h i c h r a n g e s f r o m two to five years, and shall not exceed an employee's annual base salary at the begin ning of the award period. No performance award grants have been made since 1 9 7 7 and the c o m m i t t e e has indicated its intention to make no p e r f o r m a n c e a w a r d g r a n t s in the future. Under the Management Incentive Compensation Program of the company, key management p e r s o n n e l a r e n a m e d a n n u a l l y f o r p a r t i c i p a t i o n in t h e P r o g r a m . C a s h b o n u s e s m a y be awarded each year based upon the achievement of performance goals established by the committee. Aggregate amounts accrued for continuing operations under the Performance Award Plan and the Management Incentive Compensation Program were $2,301,000 and $2,615,000 for 1979 and 1978, respectively. In 1 9 7 1 , t h e s h a r e h o l d e r s a p p r o v e d t h e 1971 S t o c k O p t i o n I n c e n t i v e P l a n . O p t i o n s g r a n t e d a r e e x e r c i s a b l e in c u m u l a t i v e i n s t a l l m e n t s to the e x t e n t o f 2 5 % o f s h a r e s g r a n t e d in e a c h o f t h e s e c o n d t o f i f t h y e a r s . Q u a l i f i e d o p t i o n s h a v e a t e r m o f five years; non-qualified, ten years. In 1 9 6 9 , t h e s h a r e h o l d e r s a p p r o v e d a S t o c k I n c e n t i v e P r o g r a m u n d e r shares of the company's common stock were reserved for issuance to key employees. The program was terminated on March 25, 1979- which 100,000 officers and At December 31, 1979 and 1978, options to purchase 3^9884 and ^09,776 shares, respectively, w e r e a v a i lable for grant under all plans. F-6 LSI(01/16/2018)_001508 When options are exercised, the difference between the option price and the par value of the stock issued or the average cost of treasury stock reissued is charged or credited to capital surplus; there are no charges to expense In connection with the options. In 1 9 7 2 , the company instituted an Employees Stock Purchase Plan. Under the Plan, eligible employees may contribute up to 6% of their base salary which will be matched to the extent of 2 5 % by company contributions. Effective February, 1 9 8 0 , the company increased its contribution to 5 0 % . The resulting funds are used to purchase shares of common stock of the company on the New York Stock Exchange. A summary of options outstanding at transactions for the two years then cept per share amounts): December e n d e d is 31 1979, under all as follows (dollars plans and option in t h o u s a n d s e x Options outstanding: 1971 Plan (granted Dec. 1971 to May 1976) No. of Shares 110,895 Option Price Per Share Total $14.25 and $24.50 $2,456 Market Value* Per Share Total $14.25 and $24.50 $2,456 1976 Plan (granted Dec. 1976 to Aug. 146,874 1979) $19,125 to $25.6875 $3,230 $19,125 to $25.6875 $3,230 Options 1979 granted: 65,000 $22.0625 to $25.6875 $1,565 $22.0625 to $25.6875 $1 , 5 6 5 1978 60,816 $19,125 $1,163 $19,125 $1,163 Options which exerci sable: 1979 became 38,350 $14.25 to $22,065 $ 708 $21.125 to $26,375 $ 855 1978 23,791 $14.25 and $22,065 $ 431 $19.00 to $21.25 $ 474 Options exercised: 1979 16,878 $14.25 to $24.50 $ 274 $21,375 to $26,875 $ 394 1978 3,825 $14.25 $ 55 $18,125 to $ 81 $25.75 Options expi red: 1979 41 ,748 $14.25 to $24.50 $ 898 1978 9,094 $14.25 and $24.50 $ 191 * On dates o p t i o n s were ** 138,883 exercisable. granted, became exercisable or were exerci sed. F-7 LSI(01/16/2018)_001509 Supplementary Income Statement information S u p p l e m e n t a r y I n c o m e s t a t e m e n t i n f o r m a t i o n is as f o l l o w s (in t h o u s a n d s ) : (Charged to costs and expenses) Y e a r s E n d e d D e c e m b e r 31 , 1979 1978* ~ Maintenance and repairs $53,720 $*>7,788 Social security taxes Sundry sales taxes Various other taxes $12,343 6,019 6,527 $ 9,787 7,210 6,043 Total taxes other than income taxes $24,889 $ 2 3 ,040 * Restated to reflect the disposition during 1979 of Building Centers operations. Current Replacement Cost information (Unaudited) T h e a c c o m p a n y i n g c u r r e n t r e p l a c e m e n t c o s t i n f o r m a t i o n is c o m p u t e d o n a n e s t i m a t e d b a s i s a n d is l i m i t e d to d a t a r e l a t i v e t o i n v e n t o r i e s a n d p r o d u c t i v e c a p a c i t y a n d related cost of sales and depreciation expense. The Securities and Exchange Commission cautions against simplistic use of the data presented and intentionally did not require the disclosure of the effect on net income of calculating cost of sales and depreciation on a current replacement cost basis because there are s ub s t a n t i a l t h e o r e t i c a l p r o b l e m s in d e t e r m i n i n g an i n c o m e e f f e c t a n d b e c a u s e it d i d not believe that users should be encouraged to collect the data into a single revised net income amount. Also, due to the subjective judgments and many different specific factual circumstances involved, the data will not be fully comparable among companies and will be subject to errors of estimation. T h e e s t i m a t e d r e p l a c e m e n t c o s t i n f o r m a t i o n is b a s e d o n t h e h y p o t h e t i c a l a s s u m p t i o n that the c o m p a n y w o u l d replace all of Its Inventories and p r o d u c t i v e c a p a c i t y on December 31, 1979 and 1978, whether or not adequate funding was available. A c c o r d ingly, the information given should hot be interpreted to indicate that the c o m p a n y actually has present plans to replace such assets or that any such replacement w o u l d t a k e p l a c e in t h e m a n n e r a s s u m e d in d e v e l o p i n g t h e s e e s t i m a t e s . T h e i n f o r m a t i o n is b a s e d o n m a n a g e m e n t ' s e s t i m a t e s a n d a s s u m p t i o n s as o f D e c e m b e r 31, 1 9 7 9 a n d 1978, w h i c h m a y d i f f e r s i g n i f i c a n t l y f ro m actual costs if s u c h a s s e t s wer e to be replaced, and does not necessarily represent the current market value of these assets. A m o u n t s s h o w n f or c o s t o f s a l e s a n d d e p r e c i a t i o n e x p e n s e in 197 8 h a v e b e e n r e s t a t e d to exclude amounts related to the discontinued Building Centers operations. Mm However, the estimated replacement cost of inventories, productive capacity and real estate for d e v e l o p m e n t and sale as of D e cember 31, 1978 have not been re stated to exclude such amounts. Estimated replacement cost and historical cost a m o u n t s as o f D e c e m b e r 31, 1979 and 1978 are as follows (in th o u s a n d s ) : F-8 LSI(01/16/2018)_001510 Inventories Property, plant and equipment Less: allowance for depreciation Real e state for development and sale Cost of sales (exclusive of depreciation expense) Depreciation expense 1 9 7 9 _____________________________ 1 9 7 8 R e p l a c e m e n t H i s t o r i c a l R e p l a c e m e n t Hi s t o r i cal Cost Cost Cost Cost $ 100,000 $1 ,57**,000 736,000 $ 88,928 $569,355 260,631 $ 169,000 $1,570,000 786,000 $158,607 $596,766 285,276 $ 838,000 $308,724 $ 784,000 $311,490 $ 18,000 $ 11,725 $ 16,000 $ 13,708 $ 639,000 $ 73,000 $611,798 $ 26,166 $ 514,000 $ 65,000 $498,740 $ 23,909 The following tables reconcile i n f o r m a t i o n is p r o v i d e d to the for December 31, 1979 and 1978 the historical cost amounts r e l a t e d t o t a l s s h o w n in the (in thousands): for which replacement cost consolidated balance sheet Historical amounts for which replacement cost data have been provided Property, Plant and Equipment 1979 1978 $569,355 $596,766 Allowance for Depreciation S Depletion 1979 1978 Real Estate for Development S Sale 1979 1978 $260,631 $285,276 $11,725 $13,708 Amounts for which replacement cost data have not been provided: Assets which will not be replaced at the end of thei r useful 1 ives Land and certain other assets C o n s t r u c t i o n in p r o g r e s s 27,017 20,392 47,785 42,086 55,324 21,992 9,733 7,911 - 9,688 7,752 - 6,069 - - 6,807 - - Total $686,243 $694,474 $278,275 $302,716 $17,794 $20,515 Replacement cost data has not been provided for historical cost of sales and depreciation expense related to assets which will not be replaced at the end of their useful lives. The estimated manner: replacement cost information presented above was determined in t h e following Inventories - The replacement cost of the company's merchandise inventories was estimated by a p p l y i n g an a p p r o p r i a t e w h o l e s a l e price index to historical amounts based on an F-9 LSI(01/16/2018)_001511 estimated turnover rate. Estimates for replacement cost of manufactured inventories were determined by applying an estimated unit cost per ton, updated where necessary f o r y e a r - e n d p r i c e s , to t he n u m b e r o f u n i t s in e n d i n g i n v e n t o r y , a n d by a d j u s t i n g d e p r e c i a t i o n i n c l u d e d in i n v e n t o r y to a r e p l a c e m e n t c o s t basis. T h e r e p l a c e m e n t cost of other inventories, including supplies and fuel, was estimated by applying prevailing year-end prices to materials purchased frequently during the year and an appropriate commodities price index to other items based on an estimated turnover rate. Property, Plant and Equipment - The replacement cost of productive capacity was e s t i mated assuming that present productive capacity would be replaced at December 31, 1979 a nd 1978 at t he lowest a m o u n t that w o u l d h a v e to be paid in the normal c o u r s e of business to obtain a new asset of equivalent operating or productive capability, incorporating the latest available technological advances that the company would find e c o n o m i c a l l y j u s t i f i a b l e . In t h o s e i n s t a n c e s w h e r e t h e e x i s t i n g p l a n t w o u l d be r e placed with a larger, more economical unit, the replacement cost was based upon the cost of the larger unit scaled down to present plant capacity. The estimated replacement cost of the productive capacity of the company's domestic c e m e n t p l a n t s , t w o p l a n t s in A r g e n t i n a a n d a p l a n t in U r u g u a y , w a s d e r i v e d f r o m d a t a compiled by the Portland Cement Association and adapted to each location by engineering e s t i m a t e s . R e p l a c e m e n t cost for t he p r o d u c t i v e c a p a c i t y o f the tw o c e m e n t p l a n t s in Brazil (1978 only) were based on a recent engineering estimate for a new plant currently u n d e r c o n s t r u c t i o n in Brazil. E s t i m a t e d r e p l a c e m e n t c o s t s for o t h e r m a n u f a c t u r i n g assets were obtained primarily by a reengineering of present facilities incorporating latest technology and applying vendor quotations and price lists for 1978 and indexed to 1979 cost levels by applying an industrial commodity price index. For 1978, the replacement cost of the company's merchandising facilities was determined by applying an e s t i m a t e d c o s t p e r s q u a r e f o o t c o n s i d e r i n g g e o g r a p h i c d i f f e r e n c e s in c o n s t r u c t i o n costs to the n u m b e r o f square feet estimated to be required to support the present volume of business. Replacement cost for various other assets was estimated on the basis of current market prices or by applying an appropriate wholesale price index to historical costs based on the year of acquisition. Allowance for Depreciation - The allowance for depreciation related to replacement c o s t of^ e x i s t i n g p r o d u c t i v e c a p a c i t y w a s e s t i m a t e d b y t h e r e l a t i o n s h i p o f e x p i r e d service lives to total service lives of existing facilities applied to the estimated replacement cost of such productive capacity. The asset lives were not adjusted to reflect technological improvements. Real Estate for Development and Sale - The replacement development and sale was based on the estimated market of real estate at the same stage of development. cost of real e s t a t e for prices for equivalent parcels Cost of Sales - Replacement cost of estimated by applying an applicable incurring inventory costs and their during the year. sales (exclusive of depreciation expense) was price index to the average time lags between subsequent conversions into sales revenues F-10 LSI(01/16/2018)_001512 Depreciation Expense - Replacement cost depreciation expense was calculated on the straight-line method using the historical depreciation rates for existing facilities, exclusive of fully depreciated assets, applied to the average estimated replacement cost of productive capacity. The replacement cost of fully depreciated assets still in u s e at D e c e m b e r 31, 1979 a n d 197 8 is a p p r o x i m a t e l y $ 3 3 5 m i l l i o n a n d $331 m i l l i o n , respectively. If these assets w e r e still b e i n g d e p r e c i a t e d , the related re p l a c e m e n t cost depreciation expense would be approximately $22 million higher for both 1979 and 1978 based on the composite depreciation rate for productive capacity, exclusive of fully depreciated assets. The replacement cost for South American inventories and productive capacity was c o m p u t e d in t h e local c u r r e n c y a n d t r a n s l a t e d at y e a r - e n d e x c h a n g e r a t e s e x c e p t f o r p r o d u c t i v e c a p a c i t y o f t h e A r g e n t i n e c e m e n t p l a n t w h i c h w a s c o m p u t e d in dollars using estimates provided by the Portland Cement Association. The re p l a c e m e n t c o s t o f S o u t h A m e r i c a n c o s t s a n d e x p e n s e s w a s c o m p u t e d in t h e local currency and translated at the average exchange rate for the year. T h e g r o s s a n d n e t b o o k v a l u e o f c o s t s c a p i t a l i z e d in t h e a c q u i s i t i o n , e x p l o r a t i o n and development of mineral properties as of December 31, 1979 was $12.8 million and $8.1 million, respectively. The gross and net book value of these costs as o f D e c e m b e r 3 1 , 1 9 7 8 w a s $ 1 1 . 7 mi 11 i on a n d $ 9 . 6 m i l l i o n , r e s p e c t i v e l y . T h e estimated replacement cost of these assets has been excluded from the replacement c o s t d a t a s i n c e s u c h d a t a is not r e q u i r e d by the S e c u r i t i e s an d E x c h a n g e C o m m i s s i o n . Total c o s t s i n c u r r e d in 1979 in the a c q u i s i t i o n , e x p l o r a t i o n an d d e v e l o p m e n t o f mineral properties was approximately $5.0 million of which $1.6 million was expensed currently. The company estimates the future cost to acquire mineral properties will i n c r e a s e at a r a t e s l i g h t l y h i g h e r t h a n i n f l a t i o n in f u t u r e y e a r s . The estimated replacement cost data does not reflect any operating cost savings which may result from the replacement of existing assets with new assets of improved technology. Alt h o u g h these antic i p a t e d cost savings cannot be a c c u r a t e l y quantified, the company estimates that the current level of operating costs, other than depreciation, would be substantially reduced and that the annual operating c o s t s a v i n g s , p r i n c i p a l l y in fuel a n d l abor costs, w o u l d be a p p r o x i m a t e l y $69 million and $73 million at December 31, 1979 and 1978, respectively. The estimated replacement cost information also does not reflect the effect of inflation and other economic factors on other elements of the company's financial statements and does not recognize the customary relationships between cost changes a n d c h a n g e s in s e l l i n g p rices. H o w e v e r , the c o m p a n y p u r s u e s a p o l i c y o f i n c r e a s i n g its s a l e s pri c e s , w h e r e f e a s i b l e , as p r o d u c t i o n c o s t s i n c r e a s e in o r d e r to m a i n t a i n its profit margins. F-11 LSI(01/16/2018)_001513 LONE STAR INDUSTRIES, INC., AND CONSOLIDATED SUBSIDIARIES SCHEDULES III, IV AND X - INVESTMENTS IN, EQUITY IN EARNINGS OF, DIVIDENDS RECEIVED FROM, AND INDEBTEDNESS OF (TO) AFFILIATES _______________ For the Years Ended December 3]> 1979 and 1978_______________ (In Thousands of Dollars) ______ Name of Issuer and Description of Investments (1) 1979 Unconsoli dated Subsidiary Joint Ventures: CNCP Other 1978 Unconsol(dated Subsidiary Joint Ventures Notes: Investments at Beginning of Period $ 4,832 8,381 $ 13,213 $ 4,593 1,028 $ 5,621 Schedule III Add it ions Equity Taken Up In Earnings of Affi1iates and Other Persons(2) 0ther(3) $ 267 (101) 5,374 $ 5,540 - $46,976 724 $47,700 $ 239 1,745 $ 1,984 5,728 $5,728 Deductions - - 585 $ 585 - 120 T 120 Investments at End of Period $ 5,099 46,875 13,894 $S5 Schedule IV and X Indebtedness of (to) Affi1 iates Beginning End of of Period Period(4) $(2,051) - 814 $(1,237) $ (570) 14 4,468 i 3,912 $ 4,832 8,381 $13.213 $(2,276) 3.494 $ 1,218 $(2,051) 814 TT237) (1) There was no change in percentage of ownership of existing joint ventures In 1979 and 1978. (2) Income from joint ventures and an unconsolidated subsidiary as reported in Note 14 of the Notes to Financial Statements: Equity in earnings Amortization of the excess of the company's equity in net assets over cost 1979 $ 5,540 344 1978 $ 1,984 100 Income from joint ventures and unconsolidated subsidiary (3) "Other additions" consist of: Initial Investment in CNCP Additional capital investment in other joint ventures Initial investment in Lonestar Florida Pennsuco Net book value of assets contributed to Lone Star Minerals Amortization of the excess of the company's equity in net assets of joint venture over its cost $ 5,884 1979 $46,976 380 - - 344 $ 2,084 1978 $ 1,805 1,250 2,573 100 $47,700 $ 5.728 (4) The change from prior year's ending balance represents regular and recurring transactions with affiliates. F-12 LSI(01/16/2018)_001514 LONE STAR IN D U STR IES, IN C. AND CONSOLIDATED S U B S ID IA R IE S SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1979 AND 1978 In Thousands of Dol1ars Classi fi cat ion Balance Beginning of Year Additions at Cost Reti rements 0ther(l) Changes 1979 Land Buildings and equipment Construction In progress Automobiles and trucks Other, principally stripping costs and property rights $ 57,599 554,011 21,992 45,629 15,243 $ 10,023 46,684 19,584 7,238 249 $ 219 7,220 164 1,460 531 $ (9,919) (56,410) 674 (11 ,300) (5.460) $694,474 $ 83,778 $ 9,594 $(82,415) 1978 Land Buildings and equipment Construction in progress Automobiles and trucks Other, principally stripping costs and property rights $ 51,978 517,761 20,540 40,202 16,317 $646,793 $ 7,091 46,637 1,452 5,800 1.356 $ 62,336 $ 1,470 10,387 373 2,430 $14,660 $ - . - - $ - Balance End of Year $ 57,484 537,065 42,086 40,107 9.501 $686,243 $ 57,599 554,011 21,992 45,629 15,243 $694,474 (1) Other changes in 1979 are comprised of the following: Dispositions Building Centers Brazi1 Land Buildings and equipment Construction In progress Automobiles and trucks Other $(15,584) (34,214) (1,331) (11,438) (5,880) W 7) $ (952) (46,507) (4,337) (321) (213) $('52 ,330) Acquisitions San-Vel Portland of Utah $ 5,000 9,753 - 459 " $15,212 $ 2,250 14,558 6,342 - $ 23,150 Reclassifications $ (633) - T 633 Total $ (9,919) (56,410) 674 (11,300) (5,460) $(6?,4i5 ) F-13 LSI(01/16/2018)_001515 LSI(01/16/2018)_001516 LONE STAR IN D U STR IES, IN C . AND CONSOLIDATED S U B S ID IA R IE S SCHEDULE V I - ACCUMULATED D EPR ECIA TIO N , DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For the years ended Deember 31, 1979 and 1978 (In Thousands of Dollars) Balance Beginning of Year Add!tions(l) Charged to Costs and Expenses Retirements 1979 Accumulated for: Depreciation of equipment Depreciation of and trucks buildings and automobiles Depletion of mining properties Amortization of other, principally stripping costs and property rights $264,53^ 25,784 290,318 8,25k 4,144 $ 22,980 4,428 27,408 298 624 $ 6,037 1.271 7,308 - 28 5302,716 $ 28,330 $ 7,336 1978 Accumulated for: Depreciation of and equipment Depreciation of and trucks buildings automobiles $250,044 22,356 272,400 $ 22,813 4,265 27,078 $ 8,323 837 .9,l6o Depletion of mining properties Amortization of other, principally stripping costs and property rights 7,892 5,044 $285,336 366 699 $ 28,143 4 1,599 $10,763 0ther(2) Changes Balance End of Year $(36,085) (6,801) (918) (1,631) $(45,435) $245,392 22,140 267,532 7,634 3,109 $278,275 $ - _ - - $ - $264,534 25,784 290,318 8,254 4,144 $302,716 (1) Includes charges related to discontinued operations of $1 ,773 and $3,767 in 1979 and 11978, respectively. (2) Other changes in 1979 are comprised of the following: Di spositlions Bu ding Centers Brazl 1 Accumulated for: Depreciation of equipment Depreciation of buildings and Automobiles and trucks Depletion of mining properties Amortization of other, principally stripping costs and property rights $(11,849) (6,642) IWTW) (2,239) $(24,272) (159) (24,431) (274) - $(20,730) $(24,705) Reel ass if!cat Ions Total $ 36 - 36 (644) 608 $ - $(36,085) (6,801) 'T527S3S) (918) 0.631) $(45,435) F-14 LONE STAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE XII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES __________F O R T H E Y E A R S E N D E D D E C E M B E R 31 , 1 9 7 9 A N D 1 9 7 8 ___________ (in Thousands of Dollars) Column A Description Column B Balance at Beginning of Year Column C Additions -- H I -------------- --------- Charged to Charged Costs and to Other Expenses(A) Accounts(B) Co1umn D Column E Balance at End of Deductions(C) Year Year ended December 31, 1979: Allowance for doubtful accounts deducted from notes and a c c o u n t s r e c e i v a b l e ............. $ 6,851 $ 2,995 $ 440 $ 3,323 $ 6,963 Year ended December 31, 1978: A1lowance for doubtful accounts deducted from notes and a c c o u n t s r e c e i v a b l e ............. $ 4,428 $ 2,661 $1,419 $ 1,657 $ 6,851 (A) I n c l u d e s c h a r g e s r e l a t e d to d i s c o n t i n u e d o p e r a t i o n s o f $1,9 0 1 a n d $ 9 3 8 in 1 9 7 9 a n d 1978, r e s p e c t i v e l y . (B) R e p r e s e n t s r e s e r v e s a c q u i r e d f r o m P o r t l a n d o f U t a h a n d S a n - V e l o f $ 2 1 5 a n d $ 2 2 5 , r e s p e c t i v e l y , in 1 979 (See Note 4 of the Notes to Financial Statements) and reserves of $1,419 acquired from Lonestar Florida P e n n s u c o , Inc. in 1 9 7 8 ( S e e N o t e 5 o f t h e N o t e s t o F i n a n c i a l S t a t e m e n t s ) . (C) D e d u c t i o n s in 1 9 7 9 a n d 1 9 7 8 a r e c o m p r i s e d o f t h e f o l l o w i n g : Uncollectible accounts charged off R e s e r v e s i n c l u d e d in t h e d i s p o s i t i o n o f B u i l d i n g Centers operations Reserves contributed to the Brazilian joint venture Less: recoveries on accounts previously charged off 1979 $2,789 680 47 (193) 1978 $1,958 - - (301) $3,323 $1,657 F-15 Brazilian Joint Venture Companhia Nacional de Cimento Portland, (CNCP) the Brazilian joint venture with L a f a r g e (see N o t e 6 o f N otes to F i n a n c i a l S t a t e m e n t s a p p e a r i n g on p a g e 51 o f the company's 1979 Annual Report incorporated herein by reference) constitutes a f i f t y p e r c e n t o r l ess o w n e d e n t i t y w h i c h is i n d i v i d u a l l y s i g n i f i c a n t u n d e r the criteria of the Securities and Exchange Commission. Accordingly, the s e p a r a t e c o m p a n y f i n a n c i a l s t a t e m e n t s o f C N C P a r e i n c l u d e d in t h i s F o r m 1 0 - K on p a g e s G - 2 t o G - 15. S i n c e C N C P is a B r a z i l i a n c o m p a n y , t h e p r i m a r y f i n a n c i a l s t a t e m e n t s o f C N C P a re s t a t e d in c r u z e i r o s a n d in a c c o r d a n c e w i t h g e n e r a l l y a c c e p t e d a c c o u n t i n g p r i n c i p l e s in B r a z i l . Note 3 to CNCP's financial statements sets forth the effect of differences b e t w e e n g e n e r a l l y a c c e p t e d a c c o u n t i n g p r i n c i p l e s in B razil a n d in t h e U n i t e d States. When adjusted for these differences, the portion of the results r e p o r t e d in t h e C N C P f i n a n c i a l s t a t e m e n t s w h i c h r e l a t e s t o t h e p e r i o d a f t e r the f o r m a t i o n o f the j o i n t v e n t u r e in A p r i l , 19 7 9 a m o u n t e d to a n e t loss o f $ 1 4 , 0 0 0 w h e n t r a n s l a t e d i n t o U .S. d o l l a r s in a c c o r d a n c e w i t h F i n a n c i a l A c c o u n t i n g S t a n d a r d s B oard (FASB) S t a t e m e n t No. 8. Lone Star's 48 p e r c e n t s ha re of this net loss was a d justed by the amo r t i z a t i o n of the excess o f the investment by Lone Star o v e r its s h a r e of the u n d e r l y i n g net t a n g i b l e assets o f CNCP and several items a g g r e g a t i n g an a m o u n t o f less e r s i g n i f i c a n c e in c o m p u t i n g the a m o u n t o f j o i n t v e n t u r e i n c o m e i n c l u d e d in t h e L o n e S t a r f i n a n c i a l s t a t e m e n t s . CNCP's net assets, after adjustment for the differences between Brazilian and U.S. generally accepted accounting principles and translated into U.S. dollars a c c o r d i n g to F A S B S t a t e m e n t No. 8, a m o u n t e d to $ 7 4 , 5 2 7 , 0 0 0 at D e c e m b e r 31, 1979. The principal reason for the difference between 48 percent of this a m o u n t a n d th e c a r r y i n g v a l u e o f L o n e S t a r ' s i n v e s t m e n t in C N C P is t h e e x c e s s of investment by Lone Sta r o v e r its s hare of the u n d e r l y i n g net t a n g i b l e assets, w h i c h is d e s c r i b e d in N o t e 6 o f N o t e s to F i n a n c i a l S t a t e m e n t s a p p e a r i n g o n p a g e 51 o f t h e c o m p a n y ' s 1 9 7 9 A n n u a l R e p o r t i n c o r p o r a t e d h e r e i n b y r e f e r e n c e . G-1 LSI(01/16/2018)_001518 COMPANHIA NACIONAL DE CIMENTO PORTLAND CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 1979 CONTENTS Opinion of independent accountants Exhbit I - Consolidated balance shee t Exh bit II - C o n s o l i d a t e d s t a t e m e n t o f in c o m e a n d r e s e r v e s a n d r e t a i n e d ea rn ings E x h ibi t III - C o n s o l i d a t e d s t a t e m e n t o f c h a n g e s in f i n a n c i a l p o s i t i o n N o t e s to the c o n s o l i d a t e d f i n a n e iaI s t a t e m e n t s Abbreviations used CR$ - Brazilian cruzeiros US$ - United States dollars CNCP - Companhia Nacional de Cimento Portland COMINCI - Companhia Mineira de Cimento Portland PAINS - C i m e n t o P o r t l a n d P a i n s S. A. ARATU - C i m e n t o A r a t u S. A. MALIA - C i m e n t o M a u a S. A. L 0 U A S U L - C o m p a n h i a L o u a S a n i t a r i a do Sul G-2 LSI(01/16/2018)_001519 rice aterhouse AUDITORES INOEPENDENTES AV. RIO BRANCO,138-1? AND. CAIXA POSTAL, 9 4 9 - Z C 0 0 20000 RIO OE JANEIRO, RJ-BRAStt. TELEFONE (021) 224-6112 TELEX (021) 23283 J a n u a r y 23, I9 8 0 T o t h e B o a r d o f Di r e c t o r s Companhia Nacional de Cimento Portland We have examined the consolidated balance sheet of Companhia Nacional de Cimento Portland as of December 31 1979 and the related consolidated statements of income a n d r e s e r v e s a n d r e t a i n e d e a r n i n g s a n d of c h a n g e s in f i n a n c i a l p o s i t i o n for t h e year then ended. Our e x a m i n a t i o n w a s m a d e in a c c o r d a n c e w i t h g e n e r a l l y a c c e p t e d auditing standards and accordingly included such tests of the accounting records a n d s u c h o t h e r a u d i t i n g p r o c e d u r e s as w e c o n s i d e r e d n e c e s s a r y in t he c i r c u m s t a n c e s . In o u r o p i n i o n , t h e f i n a n c i a l s t a t e m e n t s e x a m i n e d b y u s p r e s e n t f a i r l y th e consolidated financial position of Companhia Nacional de Cimento Portland at D e c e m b e r 31, 1979 a n d the c o n s o l i d a t e d r e s u l t s o f its o p e r a t i o n s a n d o f c h a n g e s in its f i n a n c i a l p o s i t i o n fo r the y e a r t h e n e n d e d in c o n f o r m i t y w i t h a c c o u n t i n g p r i n c i p l e s g e n e r a l l y a c c e p t e d in B r a z i l a p p l i e d o n a b a s i s c o n s i s t e n t w i t h t h a t o f the preceding year. Auditores CRC-RJ-** Independentes Douglas H. Woods Accountant CRC-SP-101.652-S-RJ G-3 LSI(01/16/2018)_001520 EXHIBIT I COMPANHIA NACIONAL DE CIMENTO PORTLAND CONSOLIDATED BALANCE SHEET D E C E M B E R 31, 1979 ASSETS CURRENT ASSETS Cash Short-term investments Notes and accounts receivable, net Inventories Other current assets Total current assets PROPERTY, PLANT AND EQUIPMENT, NET SPECIAL FUNDS AND OTHER INVESTMENTS OTHER ASSETS AND DEFERRED CHARGES ' C r $ (000) 1 5 . 1 0 0 19.578 298.722 hOb.092 il .92i* 839.16 2 . 1 7 0 .72 3 .2 5 ^ - 5 9 3 817-533 7.082.28^ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable banks Current installments of long-term debt Accounts payable Accrued expenses Income tax Total current liabilities LONG TERM DEBT LONG TERM PAYABLES MINORITY INTEREST SHAREHOLDERS' EQUITY Capi t a 1 stock Reserves and retained earnings Total shareholders' equity 3-6if7 176.816 2 2 6 . 459 132.931 235 5 8 0 .138 3.831.019 127.198 12.612 1 .0*19.193 1 . 0 8 2 . 1 2*5 2.131.317 7.082.281 The accompanying notes are an integral part of the financial statements. G-k LSI(01/16/2018)_001521 EXHIBIT II COMPANHIA NACIONAL DE CIMENTO PORTLAND CONSOLIDATED STATEMENT OF INCOME AND RESERVES AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1979 CONSOLIDATED INCOME Net sales Other income, net DEDUCTION FROM REVENUE Cost of sales Selling, general and administrative expenses Depreciation, depletion and amortization In t e r e s t Loss on foreign exchange OTHER INCOME Price-level restatement, net Reversion of provision for income tax A d j u s t m e n t of investments to the e q u i t y method N E T I N C O M E B E F O R E MI N O R I T Y . I N T E R E S T AND INCOME TAXES MINORITY INTEREST INCOME BEFORE INCOME TAXES PROVISION FOR INCOME TAXES NET INCOME CONSOLIDATED RESERVES AND RETAINED EARNINGS At beginning of year Reserves from merger with Cominci-Pains Price-level restatement, net Capitalization of reserves and retained Di vi d e n d s R e d u c t i o n in m i n o r i t y i n t e r e s t s Other group earnings C I-$ ( 0 0 0 ) ! .'(2*1.332 106.156 1.530.538 1.105.565 168.492 127.006 101.776 60.410 1.563.249 29.894 29-977 129.744 189.615 156.904 144.726 88.209 56.517 OO CM 574.454 22.644 619.498 ( 209-790) ( 8.570) 16.408 10.963 1.082.124 The accompanying notes are an integral part of the financial statements. G-5 LSI(01/16/2018)_001522 EXHIBIT I I I COM PANHIA N A CIO N A L DE CIM ENTO PORTLAND CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE YEAR ENDED DECEMBER 31, 1979 Funds provided by Current operations Ne t income Iterns not requiring working capital Depreciation and depletion Amortization of pre-operating expenses Price-level restatements, net Adjustment of the investment to the equity me thod Other Funds provided by operations Sales of property, plant and equipment Reduction in special funds and other investments Increase in long-term payables Increase in minority interest Increase in long-term debt ' Capi ta1 increase Increase in income tax incentives Increase arising on merger Stockholders' equity Long-term debt Investments Funds used for Capital expenditures Div idends Increase in other assets and deferred charges Adjustment - prior year Increase arising on merger Property, plant and equipment Special funds and other investments Other assets and deferred charges Decrease in working capital Changes in working capital Increase (decrease) in current assets Cash Short-term investments Notes and accounts receivable net Investments Other current assets (increase) decrease in Notes payable banks Current installments Accounts payable Accrued expenses income tax current liabilities of long-term debt Decrease in working capital Cr$(000) 56.517 1it. 168 12.358 ( 29.89*0 ( 1 2 9 .71**1) 23.885 5.860 (2.998.369) 127.198 196.390 3.537.093 6 .I5 ** II.I7 2 53.*(83 167.616 753-273 1 .883.765 3**3 -2 31 3.570 623.660 *6.1 **2 727.395 115.661 68.956 1 .93*4.215 ( 50.*(50) **0.081 ( III.0 1 9 ) 153.9)9 237.103 36.297 396.381 ( 2**. 128) ( 163.521) ( 166.735) ( 9*4.269) ( 153) ( 666.831) ( 50.650) The accompanyi ng n o t e s a r e an i n t e g r a l p a r t o f t h e f i n a n c i a l s t a t e m e n t s . G-6 LSI(01/16/2018)_001523 COMPANHIA NACIONAL DE CIMENTO PORTLAND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A T DECEMBER 3), 1979 NOTE 1 - ACQUISITIONS AND MERGERS Effective April 30, 1979 the stockholders of Companha Nacional de Cimento Portland (CNCP) and of Companhia Mineira de Cimento Portland (COMINCl) and Cimento Portland P a i n s S. A. ( P A I N S ) e n t e r e d i n t o a n a g r e e m e n t w h e r e b y as a r e s u l t o f t h e e x c h a n g e o f s h a r e h o l d i n g s all o u t s t a n d i n g s h a r e s in C O M I NC I - P A I N S w e r e t r a n s f e r r e d to C N C P . A s a r e s u l t o f t h e a b o v e t r a n s a c t i o n s e f f e c t i v e o w n e r s h i p o f t he c o m p a n y is n o w , as follows: L a f a r g e S. A. 52 Lone Star Industries Inc. ii8 In S e p t e m b e r 1 9 7 9 C O M I N C l a n d P A I N S w e r e m e r g e d w i t h C N C P ( t h e s u r v i v i n g c o m p a n y ) . The accompanying consolidated statement of income and reserves and retained earnings e x p r e s s e d in c r u z e i r o s i n c l u d e t h e o p e r a t i o n s o f t he C N C P g r o u p f o r t h e y e a r a n d the C O M I N C I - P A I N S g r o u p for the three mon t h s e n d e d D e c e m b e r 31, 1979 (from the date of merger). Although the results of the COMINCI-PAINS group for the first nine months are e f f e c t i v e l y included as the investment was recorded on the equity method up to the date of merger. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) P r i n c i p l e s o f c o n s o l i d a t i o n The consolidated financial statements include the company's subsidiaries, Cimento M a u a S. A. ( w h o l l y o w n e d ) , C i m e n t o A r a t u S. A. ( 5 3 . 1 2 p e r c e n t o w n e d ) , a n d C o m p a n h i a Louga S a n i t a r i a d o Sul (56.6 percent owned). All significant intercompany transactions have been eliminated. G-7 LSI(01/16/2018)_001524 .... / ! I b) S h o r t - t e r m i n v e s t m e n t s Short-term investments are stated at cost plus price-level interest which approximates market value. restatements and accrued c) A l l o w a n c e for dou b f u l a c c o u n t s The a l l o w a n c e for doubtful a c c o u n t s o f the c o m p a n y is b a s e d on 3 p e r c e n t of r e c e i v a b l e s p l u s 5 0 % o f b a n k r u p t c y c l a i m s a n d is the m a x i m u m d e d u c t i o n a l l o w e d for Brazilian income tax purposes. Th e a l l o w a n c e is c o n s i d e r e d a d e q u a t e to c o v e r a n y possible losses. d) I n v e n t o r i e s Inventories are stated at the lower of average cost or market. e) P r o p e r t y , p l a n t a n d e q u i p m e n t Property, plant and equipment are carried at cost plus price-level restatements. D e p r e c i a t i o n is b a s e d on the e s t i m a t e d useful lives o f the a s s e t s o n the s t r a i g h t line method. Significant expenditures which extend the useful lives of existing assets are capitalized. Maintenance and repair costs are expensed as incurred. f) O t h e r a s s e t s a n d d e f e r r e d c h a r g e s Other assets and deferred charges are stated at cost plus price-level restatements where appropriate. E x p e n s e s o f p r e - o p e r a t i n g p r o j e c t s in p r o g r e s s a r e a c c u m u l a t e d until completion. Expenses of completed projects are amortized over ten years on a straight-line basis. g) S p e c i a l f u n d s a n d o t h e r i n v e s t m e n t s Special funds and other investments are shown at cost plus price-level or at historical values as deemed appropriate. restatements G-8 LSI(01/16/2018)_001525 h) S t o c k h o l d e r s ' e q u i t y Stockholders' equity accounts are stated at historical restatements. values plus price-level i) L e g a l r e s e r v e T h e l e g a l r e s e r v e is b a s e d o n 5% o f n e t i n c o m e . j) T a x e s on income Taxes on income are calculated at the standard rate of 35% on the first C r $ 3 0 .000.000 of taxable income and at 40% on the excess. A s u b s i d i a r y in the NE o f B r a z i l h a s t h e r i g h t to a 50% r e d u c t i o n in i nc om e tax. T h e full t h e o r e t i c a l i n c o m e t a x is p r o v i d e d b y a c h a r g e to i n c o m e a n d t h e r e d u c t i o n recorded by a c r e d i t to a capital reserve. k) P r i c e - l e v e l r e s t a t e m e n t o f the financial statements In a c c o r d a n c e w i t h c u r r e n t B r a z i l i a n l e g i s l a t i o n t h e e f f e c t s o f i n f l a t i o n a r e t o some extent recognized through the price-level restatements of fixed assets, investments, deferred charges and stockholders' equity accounts with a corresponding net cha r g e or c r e d i t to income. The official index for 1979 was 47% c o m pared to inter nal i n f l a t i o n o f s o m e 7 8 %. NOTE 3 - DIFFERENCES BETWEEN ACCOUNTING P R I N C I P L E S G E N E R A L L Y A C C E P T E D IN B R A Z I L A N D U. S. A. Significant differences affecting net income and reserves and retained earnings in c l u d e : a) U n d e r a c c o u n t i n g p r i n c i p l e s g e n e r a l l y a c c e p t e d in the U n i t e d S t a t e s o f A m e r i c a COM INCI-PAINS are considered the purchaser and CNCP the acquired company. Therefore, in g i v i n g e f f e c t to the t r a n s l a t i o n p r o c e d u r e s a d o p t e d b y t h e c o m p a n y , a d j u s t m e n t s have been made to eliminate four months of old CNCP group net income ( C r $ 7 9 0 .000) . G-9 LSI(01/16/2018)_001526 b) A s m e n t i o n e d in N o t e 2 k a b o v e , t h e f i n a n c i a l s t a t e m e n t s h a v e b e e n r e s t a t e d t o reflect price-level changes and the following adjustments were made I n c r e a s e in p r o p e r t y , p l a n t a n d e q u i p m e n t and related depreciation - net I n c r e a s e in d e f e r r e d c h a r g e s I n c r e a s e in i n v e s t m e n t s Restatement of shareholders' equity (credit to capi t a 1 reserve) C r $ (000) **70.259 160.989 289-795 (8 ) 1 . 1 * 4 9 ) ( 29.98*4) c) T h e f o l l o w i n g c r e d i t s o r c h a r g e s w o u l d h a v e n o e q u i v a l e n t u n d e r U. S. g e n e r a l l y accepted accounting principles: . a c r e d i t o f C r $ 1 2 9 . 7 *4*4 - 0 0 0 law and the equity method; to reflect investments in a c c o r d a n c e w i t h Brazilian . a similar credit of Cr$29.977-000 to reverse a tax provision made for PAINS prior to ApriI 30, 1979; . the capitalization of Cr$209.790.000 of reserves and retained earnings. N O T E *4 - N O T E S A N D A C C O U N T S R E C E I V A B L E Notes and accounts receivable consist of the following: Notes and accounts receivable Less Di s c o u n t e d Allowance for doubtful accounts C r $ (000) 3 7 6 .OI7 ( 68.050) ( 9.2*15) 298.722 NOTE 5 " INVENTORIES Inventories consist of the following: Finished goods and Raw materials Supplies and fuel work in p r o c e s s C r $ (000) 81.991 53.22*4 268.877 *0*1.092 G-10 LSI(01/16/2018)_001527 NOTE 6 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: Land Buildings and equipment C o n s t r u c t i o n in p r o g r e s s . Automobilies and trucks Other Less - Accumulated depreciation Cost plus p r ic e - 1evel resta tements C r $ (000) 162.7*49 3.552.590 637-757 82.6*40 9. *426 *4.*4 * 4 5 . 1 6 2 2.27*4 .*420 2.170.7*42 B u i l d i n g s a n d e q u i p m e n t in the v a l u e o f C r $ 7 2 9 - 0 5 8 . 0 0 0 a r e s u b j e c t to a c c e l e r a t e d d e p r e c i a t i o n in o r d e r to r e d u c e t h e s e a s s e t s to t h e i r e s t i m a t e d n e t r e a l i z a b l e value by 1935, at which date raw material reserves at the related plant are expected to be exhausted. NOTE 7 " SPECIAL FUNDS AND OTHER INVESTMENTS Special funds and other investments consist of the following: Funds relating to the long-term debt h e l d by the C e n t r a l B a n k - U S $ 7 0 , 9 2 5 , 0 0 0 ( N o t e 10) Compulsory investments, loans and deposits Federal Power Co. I n v e s t m e n t in C i m e n t i n v e s t , an a s s o c i a t e d c o m p a n y Inv e s t m e n t in o t h e r a s s o c i a t e d c o m p a n i e s less p r o v i s i o n o f C r $ ;4.*49*4.000 Reforestation investments Investments, other Other C r $ (000) 3.002.255 1 1A. 8 15 *1 . 8 9 9 13.937 26.A78 33-3*45 21.86*4 3.25*4.593 U n d e r a r e c e n t c h a n g e in B r a z i l i a n l e g i s l a t i o n the p r o c e e d s of f o r e i g n c u r r e n c y loans which have been lodged with the Central Bank may only be drawn down under G-11 LSI(01/16/2018)_001528 c e r t a i n c o n d i t i o n s , o n e o f w h i c h is for i n v e s t m e n t in a g o v e r n m e n t a p p r o v e d project. The company has such a project and expects to draw some US$30,000,000 of the loan during 1980 to meet construction payments. . Compulsory interest and, restatement. investments, loans and deposits - Federal power company bear in t h e c a s e o f l o a n s m a d e s i n c e 1 9 7 7 , a r e s u b j e c t to p r i c e - l e v e l They are repayable at various dates up to 1999. NOTE 8 - OTHER ASSETS AND DEFERRED CHARGES Preoperat ing At beginning of year Add it ions Price-level restatements Amort izat ion At end of year Other- C r $ (000) 8.62** 697.029 117.873 ( 12.858) 810.668 6.685 817-533 NOTE 9 - ACCRUED EXPENSES Accrued expenses consist of the following: Value added tax Exc ise tax Payroll and vacation Social security Interest Mineral tax Other Cr$(000) **1.138 25.058 22.29** 21.897 9.16** 3.81** 9.566 132.931 N O T E 10 - L O N G T E R M D E B T Long term debt consists of the following: U. S . dollar loans Project loan with Citicorp international and Credit Commercial Other Local currency loans Current Long term U S $ (000) C r $ (000) US$(000) Cr$(000) 1 ,963 8 3. **99 83.**99 93.317 176.816 75,000 9,660 3.1 **7.750 **10.8**** 3.558.59** 2 7 2 .**25 3.831.019 G--12 LSI(01/16/2018)_001529 certain conditions, one of which is for investment in a government approved project. The company has such a project and expects to draw some US$30,000,000 of the loan during 198O to meet construction payments. . Compulsory investments, loans and deposits - Federal power company bear inte r e s t and, in the c a s e o f loans m a d e s i n c e 1 9 7 7 , a r e s u b j e c t to p r i c e - l e v e l restatement. They are repayable at various dates up to 1999* NOTE 8 - OTHER ASSETS AND DEFERRED CHARGES P r e o p e r a t in g At beginning of year Addi t ions Price-level restatements Amort izat ion At end of year Other C r $ (000) 8.62** 697.029 117.873 ( 12.858) 810.668 6.685 817.533 NOTE 9 " ACCRUED EXPENSES Accrued expenses consist of the following: Value added tax Exc ise tax Payroll and vacation Social security Interest Mineral tax Other. C r $ (000) **1.138 25.058 22.29** 21.897 9-16** 3.81** 9.566 132.931 N O T E 10 - L O N G T E R M D E B T Long term debt consists of the following: U. S. d o l l a r l o a n s Project loan with Citicorp International and Credit Commercial Other Local currency loans Current U S $ (000) Cr$ (000) Long US$(000) term C r $ (000) 1 ,963 8 3. *99 83.**99 93.317 176.816 75,000 9,660 3. l**7-750 **10.8**** 3.558.59** 2 7 2 .*(25 3.831.019 G-12 LSI(01/16/2018)_001530 T h e p r o j e c t l o a n b e a r s a n n u a l i n t e r e s t o f 1 1/*% o v e r t h e L o n d o n I n t e r b a n k O f f e r e d Rate (LIBOR) during the first two years and 1 3/8% thereafter. Interest is p a y a b l e quarterly. T h e loan is r e p a y a b l e by J u n e 27, 1989 in 12 c o n s e c u t i v e s e m i - a n n u a l installments of increasing amounts from U S $ ^ ,500,000 to US$7,500,000 commencing December 27, 1983 O t h e r U. S. d o l l a r l o a n s b e a r i n t e r e s t o f b e t w e e n a f i x e d 8 . 6 % a n d k% a y e a r a b o v e L I B O R a n d a r e r e p a y a b l e in i n s t a l l m e n t s t h r o u g h 198*. The local currency loans are mainly subject to price-level of up to 8.2%. restatement plus interest N O T E 11 - L O N G T E R M P A Y A B L E S Long term payables consist of the following: Contractual retentions Deferred income taxes on price-level restatements Other C r $ (000) 60.929 6*.869 ___ 1 .*00 127.198 C o n t r a c t u a l r e t e n t i o n s r e l a t i n g t o t h e c o n s t r u c t i o n o f a n e w c e m e n t p l a n t w i 11 b e r e l e a s e d on the s a t i s f a c t o r y start up of the plant in late 1981 or a f t e r this date. The deferred tax on price-level restatements relates to tax on the net credits arising on the price-level restatement of the financial statements. The company has the option to defer the payment of such tax until such time as the assets subject to the price-level re s tatement a r e sold, d e p r e ciated, a m o r t i z e d or o t h e r w i s e di s p o s e d of. N O T E 12 - M I N O R I T Y I N T E R E S T S T h e m i n o r i t y i n t e r e s t s c o m p r i s e i n t e r e s t s in the f o l l o w i n g s u b s i d i a r i e s : G-l 3 LSI(01/16/2018)_001531 C i m e n t o A r a t u S. A. C o m p a n h i a L o u g a S a n i t a r i a d o Sul S. A. Interest % *6.88 *3-* I n t e r e s t in Income Net before assets taxes Cr$(OOP) Cr$(00Q) 378.3**2 3*2 7 0 *12.612 3**.18** (2 2 . 0 0 6 ) 12.178 T h e c a l c u l a t i o n o f the c o m p a n y ' s i n t e r e s t in L o u g a s u l i n c l u d e s its h o l d i n g o f p r e f e r e n c e s h a r e s in v i e w o f a s h a r e h o l d e r s a g r e e m e n t w h i c h p e r m i t s the c o n v e r s i o n of such shares to o r d i n a r y shares at the request o f the company, The company's capital stock was increased during the year from 205,**38,236 to 1,150,723,372 shares of Cr$ 1 par value each by a subscription of capital of Cr$70*,651 .000 and the c a p i t a l i s a t i o n of reserves and retained e a r n i n g s of C r $ 2 0 9 . 790.000 and Cr$30.8**.000. . Dividends paid or credited to non-residents are subject to a w i t h h o l d i n g tax of 25 p e r c e n t p r o v i d e d tha t s u c h d i v i d e n d s (net o f the w i t h h o l d i n g tax) in a t h r e e y e a r p e r i o d do n o t e x c e e d an annual a v e r a g e o f 12 p e r c e n t of the r e g i s t e r e d f o r e i g n c a p i t a l R e m i t t a n c e s in e x c e s s o f the 12 p e r c e n t a v e r a g e a r e s u b j e c t to s u p p l e m e n t a r y w i t h h o l d i n g t a x e s r a n g i n g f r o m *0- 6 0 p e r c e n t . NOTE 13 " I N C O M E T A X E S I n c o m e t a x e x p e n s e is c a l c u l a t e d in a c c o r d a n c e w i t h B r a z i l i a n legal r e q u i r e m e n t s . The c o m p a n y a n d its s u b s i d i a r i e s file s e p a r a t e returns. The company has a tax los s o f Cr$ 1*3.**50.000 w h i c h m a y be c a r r i e d f o r w a r d f o u r y e a r s . The charge to income comprised: Tax on credit arising on the price-level restatement of financial statements A r a t u (Mote 11) Mau a (Note 11) Tax on Aratu net income Tax on Maua financial income C r $ (000) 2 0 .*67 ***. 1 **8 23*316 278 88.209 LSI(01/16/2018)_001532 NOTE 14 - CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS Under the terms of current legislation, tax and labor obligations are subject to review and final assessment during varying prescriptive periods. The company is contingently liable for accounts receivable in the value of Cr$68.050.000 discounted with banks. Management does not expect any significant loss to arise from the above contingencies. A turnkey contract for the construction of a new cement plant in the value of Cr$1.418.000.000 plus contractual price escalations was signed in March 1979. Cr$468.176.000 of this amount was paid during 1979 (net of a 10% retention). NOTE 15 - SUPPLEMENTARY INCOME STATEMENT INFORMATION Maintenance and repairs Rent - leased properties Advertising Cr $ (000) 141.980 3.464 1 .873 G-15 LSI(01/16/2018)_001533 ITEM 14. EXECUTIVE OFFICERS OF THE REGISTRANT The names and ages of the executive officers of Lone Star, the position and offices with the Company held by each and the periods during which each has served as an executive officer are as follows: Name (Age) Office Has Held Executive Office Since James E. Stewart(58) Chairman of the Board and Chief Executive Officer February 22, 1973 Donald M. Halsted,Jr.(53) President and Chief Operating Officer March 15, 1979 Robert W. Hutton(58) Vice Chairman of the Corporation January 1, 1968 Carmine J. Muratore(45) Executive Vice Presi dent - Staff March 15, 1979 John H. Davies(56) Executive Vice Presi dent - Operations May 16, 1974 Jerome Bennett(57) Senior Vice President and Chief Financial Officer January 7, 1980 Herbert B. Greene(45) Senior Vice President and Assistant to the Chairman October 13, 1976 F. Eugene Purcell(48) Senior Vice PresidentPublic Affairs March 1, 1971 Alfred M. Sperry(59) Senior Vice President November 20, 1978 International Operations Gordon A. Fox(54) Vice President and Treasurer January 1, 1969 Conrad J. Gordon(42) Vice President and Controller August 10, 1976 James M. Grogan(57) Vice President October 6, 1976 Robert F. Kizer(45) Vice President-Domes tic Operations July 19, 1979 Joseph S. LaGambina(45) Vice President Administration July 19, 1979 LSI(01/16/2018)_001534 John J. Martin(48) William L. Read(53) James E. Rosecrans(46) B. B. Smith,Jr.(48) Vice President,General August 1, 1979 Counsel and Secretary Vice President-Construction Management October 15, 1979 Vice President-Employee May 20, 1976 Relations Vice President-Market- July 19, 1979 ing and Sales All of the executive officers of Lone Star were elected at the annual meeting of the Board of Directors on May 17, 1979, except Messrs. Bennett, Hutton, Kizer, La Gambina, Martin, Read and Smith. Except for Mr. Hutton, their terms of office continue until the next annual meeting of the Board of Directors and until their successors shall have been elected and qualified. Mr. Hutton is employed as Vice Chairman of the Corporation for the period commencing March 20, 1978 and ending on April 30, 1983. Each of the executive officers has been employed by Lone Star as an officer or in an executive capacity for more than five years, except Messrs. Bennett, Greene, Grogan, Halsted, Kizer, Martin, Muratore and Read. Mr. Jerome Bennett had been since 1979 Vice Chairman of White Motor Corporation, a manufacturer of trucks and farm equip ment, previously serving as its President and Chief Operating Officer since 1976, and prior thereto since 1975 as its Executive Vice President and Chief Financial Officer. Prior thereto since prior to 1975 he had been Vice President and Controller of Xerox Corporation, a manufacturer of xerographic copiers and duplicators. Mr. Herbert B. Greene had been since 1975 Vice President, General Counsel and Secretary of Carey Energy Corporation, a petroleum refining company. Mr. James M. Grogan had been Vice President Operations of the Company's Building Centers Group since October 1975 and prior thereto since prior to 1975 he had been President of International Telephone and Telegraph Corporation's National Temperature Control Centers division, a wholesale distributor of heating, cooling and air conditioning components and parts. Mr. Donald M. Halsted, Jr. had been since prior to 1975 President, Chief Executive Officer and a director of Newmont Mining Corporation's subsidiary Atlantic Cement Company, a producer of port land cement. Prior to joining Lone Star in 1978, Mr. Robert F. Kizer had been since 1977 Executive Vice President of General Portland Inc., a producer of portland cement. Prior thereto since prior to 1975 he had been employed as Vice President, and President of the Cement Division, of Medusa Corporation, a producer of portland cement. 17 LSI(01/16/2018)_001535 John J. Martin, Esq. had been since prior to 1975 Vice President and Secretary of Bangor Punta Corporation, a diversified manufacturing company and operator of a West Coast agribusiness. Mr. Carmine J. Muratore had been since prior to 1975 an officer and senior securities analyst specializing in the construction industry at Blyth Eastman Dillon & Co., a full service investment banking firm. In 1979 Mr. William L. Read retired from active service in the United States Navy with the rank of Vice Admiral. Since 1977 he had been Commander Naval Surface Force, Atlantic Fleet. Prior thereto since prior to 1975 he had been Director, Ships Acquisition Division, Office of the Chief of Naval Operations. PART I I Except for a portion of Item 14 concerning executive officers, Items 13, 14 and 15 have been omitted because since the close of the 1979 fiscal year the Company has filed with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A involving the election of directors. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LONE STAR INDUSTRIES, INC. I Dated: March 31, 1980 * J By /s/ John J. Martin John J. Martin Vice President, General Counsel and Secretary By /s/ Conrad J. Gordon Conrad J . Gordon Vice President and Controller 18 LSI(01/16/2018)_001536 LONE STAR INDUSTRIES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE (In Thousands except Per Share Amounts) Per Share of Common Stock Weighted average shares outstanding during period2 Net income from continuing operations less: Preferred dividends Net income from continuing operations applicable to common stock Net income from discontinued operations3 Net income applicable to common stock Net Income per Common Share Continuing operations Discontinued operations3 Net income per common share . Per Share of Common Stock Assuming Full Dilution Common shares Common shares Conversion of Conversion of Stock options outstanding at beginning of period reacquired during period2 preferred shares outstanding at beginning of period $30 million debentures outstanding at beginn ing of period and awards Fully diluted shares outstanding Net income from continuing operations add: Interest expense and amortization of debt issuance expense of . the $30 million convertible debentures net of tax ieffect Net income from continuing operations applicable to common stock Net income from discontinued operations3 Net income applicable to common stock Net Income per Common Share Continuing operations Discontinued operations Net income per common share Assuming Full Dilution 1979 10,849 $56,039 176 55,863 8,702 $64,565 19781 11,232 $30,440 232 30,208 14,938 $45,146 19771 11,091 $1 7 ,2 2 1 253 16,968 12,489 $29,457 $5.15 0.80 $5.95 $2.69 1.33 $4.02 $1.53 1.13 $2.66 11,255 (573) 187 1,088 60 12,017 $56,039 794 56,833 8,702 $65,535 11,216"* - 222 1,088 22 12,548 $30,440 765 31,205 14,938 $46,143 11,073 242 1,088 15 12,418 $17,221 765 17,986 12,489 $30,475 19761 11,068 $22,177 275 21,902 5,051 $26,953 $1.98 0.46 $2.44 11,061 - 253 1,088 23 12,425 $22,177 765 22,942 5.051 $27,993 19751 10,889 $18,875 416 18,459 439 $18,898 $1.70 0.04 $1-74 10,802 529 1,088 - 12,419 $18,875 765 19,640 439 $20,079 $4.73 0.72 $5.45 $2.49 1.19 $3-68 $1.44 1.01 $2.45 $1.84 0.41 S2.25 $1.59 0.03 $1.62 Exhibit A LSI(01/16/2018)_001537 J The years prior to 1979 have been reclassified to reflect the disposition of Lone Star Building Centers operations. The reclassification did not change net income or related per share amounts. ' 2 On July 16, 1979, the company purchased 1,250,000 shares of Its common stock. a Amounts for 1979 Include a net gain of $4,1(09 on the sale of Building Centers operations. fully diluted. Related per share amounts were $0.41 primary and $0.37 i* _ Includes 120,000'shares issued In a pooling of interests with Mineral Aggregates, Inc., In June 1978. the effect is not significant. Prior'periods have not been restated, s inee r