<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
-------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
Commission file number 0-11936
---------------------------------------------------------
LAFARGE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Company as specified in its charter)
MARYLAND 58-1290226
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11130 SUNRISE VALLEY DRIVE, SUITE 300, RESTON, VA 20191-4393
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
703-264-3600
- --------------------------------------------------------------------------------
(Company's telephone number, including area code)
Indicate by check mark whether the Company (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding as of
Class July 31, 1997
----------------------------------- -----------------
<S> <C>
Common Stock of Lafarge Corporation
($1 par value) 64,623,884
Exchangeable Preference Shares of
Lafarge Canada Inc.
(no par value) 6,748,065
----------
Total Common Equity Interests 71,371,949
==========
</TABLE>
Number of pages contained in this report 17
--
Total sequentially numbered pages 17
--
Exhibit index on page 15
--
1
<PAGE> 2
LAFARGE CORPORATION AND SUBSIDIARIES
FORM 10-Q - FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Statements
of Income - Three-Month, Six-Month
and Twelve-Month Periods Ended
June 30, 1997 and 1996 3
b) Condensed Consolidated Balance Sheets -
June 30, 1997, June 30, 1996, and
and December 31, 1996 4
c) Condensed Consolidated Statements of
Cash Flows - Six-Month and Twelve-Month
Periods Ended June 30, 1997 and 1996 5
d) Condensed Consolidated Geographic Information -
Three-Month, Six-Month and Twelve-Month Periods
Ended June 30, 1997 and 1996 6
e) Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6(a). Exhibits 15
Item 6(b). Reports on Form 8-K 15
SIGNATURE 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAFARGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------------------- --------------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $ 476,911 $ 420,948 $ 720,945 $ 624,660
----------------- ----------------- ----------------- -----------------
COST AND EXPENSES
Cost of goods sold 333,771 307,395 589,094 530,888
Selling and administrative 40,666 38,654 78,122 74,449
Other expense, net 1,111 1,839 5,003 4,696
----------------- ----------------- ----------------- -----------------
Total income from operations 101,363 73,060 48,726 14,627
Interest expense 5,431 6,157 10,990 12,072
Interest income (1,877) (2,602) (4,794) (5,266)
----------------- ----------------- ----------------- -----------------
PRE-TAX INCOME 97,809 69,505 42,530 7,821
Income tax expense (37,945) (26,240) (16,787) (2,751)
----------------- ----------------- ----------------- -----------------
NET INCOME $ 59,864 $ 43,265 $ 25,743 $ 5,070
================= ================= ================= =================
NET INCOME PER COMMON
EQUITY SHARE-PRIMARY $ .84 $ .62 $ .36 $ .07
================= ================= ================= =================
NET INCOME PER COMMON EQUITY
SHARE-ASSUMING FULL DILUTION $ .84 $ .59 $ .36 $ .07
================= ================= ================= =================
DIVIDENDS PER COMMON EQUITY SHARE $ .100 $ .100 $ .200 $ .200
================= ================= ================= =================
Weighted average number of common equity shares
and equivalents outstanding 71,469 70,090 71,240 69,848
================= ================= ================= =================
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
NET SALES $ 1,745,565 $ 1,504,010
----------------- -----------------
COST AND EXPENSES
Cost of goods sold 1,310,092 1,174,021
Selling and administrative 155,115 143,665
Other expense, net 9,881 3,762
----------------- -----------------
Total income from operations 270,477 182,562
Interest expense 23,036 25,417
Interest income (9,596) (11,820)
----------------- -----------------
PRE-TAX INCOME 257,037 168,965
Income tax expense (95,498) (41,947)
----------------- -----------------
NET INCOME $ 161,539 $ 127,018
================= =================
NET INCOME PER COMMON
EQUITY SHARE-PRIMARY $ 2.28 $ 1.83
================= =================
NET INCOME PER COMMON EQUITY
SHARE-ASSUMING FULL DILUTION $ 2.23 $ 1.77
================= =================
DIVIDENDS PER COMMON EQUITY SHARE $ .400 $ .400
================= =================
Weighted average number of common equity shares
and equivalents outstanding 70,849 69,576
================= =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
LAFARGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 JUNE 30 DECEMBER 31
1997 1996 1996
-------------------- -------------------- --------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 112,904 $ 67,501 $ 116,847
Short-term investments 48,006 50,603 92,496
Receivables, net 344,298 321,672 287,692
Inventories 216,643 218,345 205,804
Other current assets 39,459 37,293 29,391
-------------------- -------------------- --------------------
Total current assets 761,310 695,414 732,230
Property, plant and equipment,
(less accumulated depreciation and depletion of
$1,055,985, $1,007,658 and $1,025,533) 886,018 831,197 867,723
Excess of cost over net assets of
businesses acquired, net 29,753 21,911 31,657
Other assets 178,689 170,262 181,369
-------------------- -------------------- --------------------
TOTAL ASSETS $ 1,855,770 $ 1,718,784 $ 1,812,979
==================== ==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 221,251 $ 239,829 $ 214,393
Income taxes payable 17,155 12,101 28,151
Short-term borrowings and current portion
of long-term debt 47,650 20,711 44,821
Short-term borrowings from related party 85,000 - 50,000
-------------------- -------------------- --------------------
Total current liabilities 371,056 272,641 337,365
Long-term debt 149,095 263,282 161,934
Deferred income tax 51,586 45,950 48,709
Other postretirement benefits 126,245 124,724 124,867
Other long-term liabilities 28,354 29,211 29,565
-------------------- -------------------- --------------------
Total liabilities 726,336 735,808 702,440
-------------------- -------------------- --------------------
Common equity interests
Common shares 64,322 61,747 62,590
Exchangeable shares 47,201 55,737 53,817
Additional paid-in-capital 633,993 605,389 615,993
Retained earnings 453,039 319,744 441,481
Foreign currency translation adjustments (69,121) (59,641) (63,342)
-------------------- -------------------- --------------------
Total shareholders' equity 1,129,434 982,976 1,110,539
-------------------- -------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,855,770 $ 1,718,784 $ 1,812,979
==================== ==================== ====================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
LAFARGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------------------------------- -----------------------------------------
1997 1996 1997 1996
------------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income $ 25,743 $ 5,070 $ 161,539 $ 127,018
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation, depletion and amortization 54,409 50,206 104,710 97,643
Provision for doubtful accounts 1,467 944 778 196
(Gain) loss on sale of assets (3,821) 11 (7,917) (4,698)
Other postretirement benefits 1,510 1,229 1,737 1,770
Other non-cash charges and credits, net 5,786 (3,018) 15,683 (26,339)
Changes in working capital (88,165) (91,904) (34,108) (35,734)
------------------ ---------------- ---------------- ------------------
Net cash provided (consumed) by operations (3,071) (37,462) 242,422 159,856
------------------ ---------------- ---------------- ------------------
CASH FLOWS FROM INVESTING
Capital expenditures (72,599) (66,068) (131,321) (126,846)
Acquisitions (4,267) (8,593) (79,158) (14,463)
Short-term investments 44,490 33,913 2,597 (50,603)
Proceeds from property, plant and
equipment dispositions 10,941 13,009 27,058 23,179
Other (1,782) 1,345 (3,330) 7,784
------------------ ---------------- ---------------- ------------------
Net cash used for investing (23,217) (26,394) (184,154) (160,949)
------------------ ---------------- ---------------- ------------------
CASH FLOWS FROM FINANCING
Net increase (decrease) in long-term
borrowings (includes current portion) 24,997 (1,756) (4,418) (19,310)
Issuance of equity securities 7,829 2,689 9,341 4,091
Dividends, net of reinvestments (8,898) (6,122) (14,941) (11,552)
------------------ ---------------- ---------------- ------------------
Net cash provided (consumed) by financing 23,928 (5,189) (10,018) (26,771)
------------------ ---------------- ---------------- ------------------
Effect of exchange rate changes (1,583) 111 (2,847) 921
------------------ ---------------- ---------------- ------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,943) (68,934) 45,403 (26,943)
CASH AND CASH EQUIVALENTS AT
THE BEGINNING OF THE PERIOD 116,847 136,435 67,501 94,444
------------------ ---------------- ---------------- ------------------
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD $ 112,904 $ 67,501 $ 112,904 $ 67,501
================== ================ ================ ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
LAFARGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED GEOGRAPHIC INFORMATION
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------------------ ------------------------------ --------------------------------
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES
Canada $ 186,704 $ 164,924 $ 278,044 $ 244,661 $ 739,815 $ 652,036
United States 290,207 256,024 442,901 379,999 1,005,750 851,974
------------- ------------- ------------- ------------- -------------- --------------
TOTAL NET SALES $ 476,911 $ 420,948 $ 720,945 $ 624,660 1,745,565 $ 1,504,010
============= ============= ============= ============= ============== ==============
INCOME (LOSS) FROM OPERATIONS
(See Note 6)
Canada $ 38,189 $ 24,518 $ 7,930 $ (7,255) $ 119,898 $ 68,791
United States 63,174 48,542 40,796 21,882 150,579 113,771
------------- ------------- ------------- ------------- -------------- --------------
TOTAL INCOME FROM
OPERATIONS 101,363 73,060 48,726 14,627 270,477 182,562
Interest expense, net (3,554) (3,555) (6,196) (6,806) (13,440) (13,597)
------------- ------------- ------------- ------------- -------------- --------------
PRE-TAX INCOME $ 97,809 $ 69,505 $ 42,530 $ 7,821 $ 257,037 $ 168,965
============= ============= ============= ============= ============== ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 7
LAFARGE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. The Company is engaged in the production and sale of cement, ready-mixed
concrete, other concrete products, asphalt, gypsum wallboard and related
products, and aggregates. The Company operates in the U.S. and, through
its major operating subsidiary, Lafarge Canada Inc. ("LCI"), in Canada.
The Company's wholly-owned subsidiary, Systech Environmental Corporation,
supplies cement plants with substitute fuels and raw materials. Lafarge
S.A., a French corporation, and certain of its affiliates own a majority
of the Company's outstanding voting securities.
2. The condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. As a result, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
The Company believes that the disclosures made are adequate to make the
information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's 1996
Annual Report on Form 10-K.
3. Because of seasonal, weather-related conditions in most of the Company's
marketing areas, earnings of any one quarter should not be considered as
indicative of results to be expected for a full fiscal year or any other
interim period.
4. Substantially all U.S. inventories other than maintenance and operating
supplies are costed using the last-in, first-out ("LIFO") method and all
other inventories are valued at average cost. At June 30, 1997 and 1996,
and at December 31, 1996, inventories consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30 June 30 December 31
1997 1996 1996
-------------- ---------------- ---------------
<S> <C> <C> <C>
Finished products $ 103,224 $ 101,980 $ 100,900
Work in process 22,040 27,137 13,711
Raw materials and fuel 47,690 47,891 45,550
Maintenance and operating
supplies 43,689 41,337 45,643
-------------- ---------------- ---------------
Total inventories $ 216,643 $ 218,345 $ 205,804
============== ================= ===============
</TABLE>
7
<PAGE> 8
5. Cash paid during the period for interest and taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended June 30 Ended June 30
-------------------------- -----------------------------
1997 1996 1997 1996
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Interest $ 10,866 $ 12,149 $ 26,360 $ 27,641
Income Taxes (net of refunds) 22,016 26,376 70,043 69,803
</TABLE>
6. During the third quarter of 1996, the Company recorded a U.S. $13.7
million adjustment for the year 1995 based upon a 1995 agreement reached
with Revenue Canada Taxation related to the pricing of certain cement
sales between its operations in Canada and the U.S. The impact of this
agreement was immaterial to consolidated net income. The 1996 amounts
shown as income from operations for Canada and the United States in the
condensed consolidated geographic information exclude this adjustment.
7. As discussed in its 1996 Annual Report on Form 10-K, LCI is a defendant in
lawsuits in Canada arising from claims regarding alleged defective fly ash
and cement. The amount of LCI's liability, if any, is uncertain. LCI has
denied liability and is defending the lawsuits vigorously. LCI believes
that it has substantial insurance coverage that will respond to defense
expenses and liability, if any, in the lawsuits. Also, the Company, among
others, has been named in two lawsuits in Texas alleging exposure to toxic
substances. The amount of liability, if any, to the Company is uncertain.
The Company filed general denials to both suits and is vigorously
defending the lawsuits. Finally, the Company has been notified by the
Environmental Protection Agency that it is one of several potentially
responsible parties for clean-up costs at certain waste disposal sites.
When the Company determines that it is probable that a liability for
environmental matters or other legal actions has been incurred, an
estimate of the required remediation costs is recorded as a liability in
the financial statements.
In addition, the Company is involved in certain other legal actions and
claims. It is the opinion of management that all legal and environmental
matters will be resolved without material effect on the Company's
consolidated financial statements.
8. In the third quarter of 1995, the U.S. tax provision was decreased by
$23.3 million due to the reduction of a valuation allowance on deferred
tax assets which had been recorded in 1992. The reduction resulted from
the favorable long-term outlook of the U.S. cement market, three
consecutive years of taxable income in the U.S. and management's
projections of future taxable income in the U.S.
8
<PAGE> 9
9. On April 29, 1997, the Company signed a letter of intent with Laidlaw Inc.
to acquire its subsidiary, JTM Industries Inc. of Kennesaw, Georgia. On
July 24, 1997, the Company announced that discussions with Laidlaw Inc.
regarding the possible acquisition of JTM Industries Inc. had been
terminated.
10. During the first quarter of 1997, Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128") was issued. This
new standard, which the Company must adopt after December 15, 1997 for the
year ended December 31, 1997, replaces primary EPS with basic EPS and
fully diluted EPS will be called diluted EPS. Computed pursuant to SFAS
No. 128, basic and diluted EPS for the twelve months ended June 30, 1997
would have increased by $.02 and $.01 to $2.30 and $2.24, respectively,
over reported primary and fully diluted EPS for this period. There would
be no changes to the other earnings per share information presented on the
income statement.
11. In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (which included only normal
recurring adjustments except as discussed in Note 8) necessary to present
fairly the Company's financial position as of the applicable dates and the
results of its operations and its cash flows for the interim periods
presented.
9
<PAGE> 10
LAFARGE CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997
The Company's net income of $59.9 million in 1997 compares with $43.3 million
for the same period in 1996. Net income per common equity share was $0.84
compared with $0.62. The increase in earnings was mainly due to strong product
shipments in the Company's cement and construction materials product lines
coupled with price improvements. In addition, benefiting from strong demand
for gypsum wallboard and favorable pricing, the Company's two Gypsum wallboard
plants that were acquired in September 1996 generated an operating profit of
$3.7 million. Canadian net income of $23.5 million was $7.5 million better
than 1996. In the U.S., net income of $36.4 million was $9.1 million better.
The Company's net sales of $476.9 million were 13 percent higher than the
$420.9 million reached in 1996. Both Canadian and U.S. net sales were 13
percent higher. The improvement is due to higher product shipments and higher
cement and ready-mixed concrete prices. In addition, gypsum wallboard
operations added $22.4 million of sales in the U.S. Cement shipments reflect a
3 percent increase. Ready-mixed concrete and aggregate volumes rose 9 percent
and 7 percent, respectively.
Second quarter earnings from the Company's cement operations were $87.1
million, $15.6 million better than last year. The improvement is due to the
increase in shipments and 4 percent higher net reals (delivered price per ton
to customer less freight). Net sales were 7 percent higher reflecting the rise
in shipments and prices. Despite the sales increase, cost of sales per ton
remained at the 1996 level. Earnings from Canadian cement operations were
$29.4 million, $6.4 million better than 1996. Shipments were 7 percent higher
with increases of 25 percent in Ontario and 44 percent in Alberta compensating
for weak market conditions in Quebec and lower shipments in the Canadian
Maritimes due to the completion of the Confederation Bridge project. Net reals
(excluding exchange rate fluctuation) were 4 percent and net sales were 13
percent higher. Clinker capacity utilization at Canadian plants rose to 85
percent in 1997 from 75 percent in 1996 primarily due to higher demand and the
planned extension of kiln shutdowns in 1996 at four plants because of high
inventory levels at December 31, 1995. In the U.S., earnings of $57.7 million
were $9.2 million better than 1996. Higher cement prices (3 percent) and an
increase in shipments (2 percent) drove the improvement. Net sales rose 4
percent. Clinker capacity utilization at U.S. plants was 100 percent in 1997
10
<PAGE> 11
compared to 90 percent in 1996. The improvement is mainly due to higher
production at the Davenport plant (operational problems in 1996) and Whitehall
(higher demand) plant.
Earnings from the Company's construction materials and waste management
operations were $23.5 million, $9.4 million better than 1996. The improvement
was due mainly to higher shipments and ready-mixed concrete prices. Net sales
were 9 percent higher than a year ago. Aggregate cost per tonne decreased from
1996 due to continued cost containment efforts, the sale of non-strategic
assets in mid-1996 in the U.S. and higher shipments. In Canada, earnings were
$12.0 million, $6.5 million better than last year, primarily due to an increase
in ready-mixed concrete and aggregate shipments, and higher ready-mixed
concrete prices in western Canada. Net sales were 12 percent higher.
Ready-mixed concrete and aggregate shipments improved 14 percent and 9 percent
as demand rose sharply in Ontario and the western provinces, more than
offsetting a drop in shipments to the Confederation Bridge project in the
Canadian Maritimes and lower shipments in Quebec. Improvements from higher
volumes and prices were somewhat reduced by higher material and operating costs
in western Canada. In the U.S., earnings were $11.5 million, $2.9 million
better than a year ago mostly due to a 6 percent escalation in ready-mixed
concrete prices. Net sales improved 4 percent. Ready-mixed concrete cost per
cubic meter (M3) declined mainly due to restructuring of operations in St.
Louis in 1996 to strengthen the competitive position in the market and
continued cost containment. Due to adverse weather conditions in some U.S.
markets, ready-mixed concrete and aggregate volumes were a modest 2 percent
higher.
Income tax expense was $37.9 million, $11.7 million greater than 1996. The
increase is primarily due to higher earnings. The Company's effective income
tax rate was 38.8 percent in 1997 and 37.8 percent in 1996.
SIX MONTHS ENDED JUNE 30, 1997
The Company's net income of $25.7 million, or $0.36 per common equity share
compares with net income of $5.1 million, or $0.07 per share for the first six
months of 1996. Historically, the Company's first quarter sales and operating
results are negatively impacted by seasonal weather conditions which reduce
construction activity. In addition, a substantial portion of the year's major
maintenance projects are performed during this period of low plant utilization
with the associated costs being charged to expense as incurred. The earnings
improvement resulted from higher shipments in all main product lines (cement,
ready-mixed concrete and aggregates), and 4 percent increases in cement net
reals and ready-mixed concrete prices. Additionally, gypsum wallboard
operations earned $6.6 million. These improvements were partly offset by
higher cement plant costs and higher material costs in the construction
materials operations. In Canada, net income was $6.2 million, $8.5 million
better than 1996. U.S. net income of $19.5 million was $12.1 million higher.
Net sales were $720.9 million, a 15 percent increase over $624.7 million in
1996. Cement shipments were 4 percent higher. Ready-mixed concrete and
aggregate volumes
11
<PAGE> 12
improved by 10 percent. Canadian net sales of $278.0 million were 14 percent
above 1996. U.S. net sales improved by 17 percent.
Earnings from the Company's cement operations were $63.4 million, $19 million
better than last year due to higher shipments and prices somewhat offset by
higher plant costs. Net sales climbed 8 percent. Earnings from Canadian
operations of $22.4 million were $10.4 million better than 1996. Net reals and
cement shipments were 4 percent and 8 percent higher which boosted net sales by
13 percent. In eastern Canada, higher shipments in Ontario were offset by
declines in Quebec (weak economic conditions) and in the Atlantic due to higher
shipments in 1996 to the Confederation Bridge project. Shipments in the west
were substantially higher in the Prairie provinces due to the improvement in
market conditions. In the U.S., earnings were $41 million, $8.6 million higher
than 1996. The improvement was due to 3 percent increases in shipments and net
reals partly offset by higher plant costs.
The Company's construction materials and waste management operations earned
$2.9 million, $10.1 million better than 1996. Net sales were 9 percent higher.
In Canada, earnings were $5.9 million better. Net sales were 13 percent
greater reflecting a 14 percent increase in both ready-mixed concrete and
aggregate volumes. In eastern Canada, gains in Ontario were partly offset by a
slow Quebec economy and lower shipments in the Canadian Maritimes. Earnings in
the west were up because of higher demand somewhat offset by higher material
costs. Aggregate cost per tonne declined due to continued containment efforts
and higher shipments. The U.S. results were $8.7 million, $4.2 million better
mainly due to a 5 percent escalation in ready-mixed concrete prices and lower
operating costs. Net sales were up 3 percent. Ready-mixed concrete and
aggregate volumes were 2 percent and 3 percent higher. Ready-mixed concrete
operating costs per M3 decreased primarily due to the restructuring of some
operations coupled with higher shipments. Aggregate cost per tonne was lower
mainly due to the sale of non-strategic assets in 1996 and cost containment.
TWELVE MONTHS ENDED JUNE 30, 1997
During the third quarter of 1996, the Company recorded a U.S. $13.7 million
adjustment for the year 1995 based upon a 1995 agreement reached with Revenue
Canada Taxation related to the pricing of certain cement sales between its
operations in Canada and the U.S. The impact of this agreement was immaterial
to consolidated net income. Management's Discussion and Analysis that follows
excludes the impact of this agreement.
The Company's net income of $161.5 million in 1997 was $34.5 million better
than the same period ended June 30, 1996. Net sales improved by 16 percent
primarily due to higher product shipments and greater cement net reals, as well
as earnings from the gypsum wallboard acquisition in the U.S. Canadian net
sales were 13 percent higher while U.S. net sales rose 18 percent. Cement net
reals escalated 4 percent in Canada and 3 percent in the U.S. Cement sales
volumes improved by 11 percent in Canada and 7
12
<PAGE> 13
percent in the U.S. Ready-mixed concrete and aggregate volumes in Canada grew
22 percent and 8 percent, respectively. This growth reflects improved economic
activity, particularly in Ontario, coupled with the impact of acquisitions in
western Canada. In the U.S., ready-mixed concrete and aggregates volumes were
21 percent and 10 percent higher and ready-mixed concrete prices were 3 percent
higher. Selling and administrative expenses were $11.4 million higher mainly
due to acquisitions along with higher legal and other professional fees.
Selling and administrative expenses as a percentage of net sales declined to
9.0 percent in 1997 from 9.6 percent in 1996. Other expense, net was $9.9
million compared with $3.8 million in 1996. The change primarily reflects
lower gains from the sale of non-strategic assets and costs associated with the
redemption of $100 million 7% convertible debentures in December 1996. Income
tax expense increased from $41.9 million in 1996 (which included the reduction
totaling $23.3 million of a valuation allowance in the third quarter of 1995)
to $95.5 million in 1997. Beginning in the second quarter of 1996, earnings in
the U.S. became fully taxable whereas prior earnings included a reduced tax
provision as a result of the utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $3.1 million was consumed by operating activities in the first six
months of 1997 as compared with $37.5 million in 1996 mainly due to higher net
income. In 1997, cash provided by financing activities was $23.9 million
compared to net cash consumed of $5.2 million in 1996. The change was primarily
due to higher borrowings.
Net cash provided by operating activities for the twelve-months ended June 30,
1997 was $82.6 million more than 1996 primarily as a result of higher net
income and non-cash charges. Net cash of $184.2 million was used for investing
activities in 1997 as compared with $160.9 million in 1996. The change from
last year resulted from an increase in acquisitions (the Company's purchase of
two gypsum wallboard plants in September 1996) partially offset by the lack of
increase in short-term investments. For the twelve-month period ended June 30,
1997, net cash consumed by financing activities was $16.8 million lower than
the same period in 1996 due to lower debt reductions.
Capital expenditures (excluding acquisitions) are not expected to exceed $200
million in 1997. At June 30, 1997, the Company had approximately $30 million
of capital commitments related to the modernization of a cement plant.
Committed bank lines of credit totaled $150 million under which no amounts were
outstanding.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Notes to Condensed Consolidated Financial Statements, page 8 for a
discussion of developments in legal and environmental matters. In addition,
the Company is involved in the following other legal actions and claims. It is
the opinion of management that the ultimate resolution of such matters will not
have a material effect on the Company's consolidated financial statements.
With respect to the Company's slag processing plant in Duquesne, Pennsylvania,
the Company has failed to comply with certain portions of a 1980 Consent Order
and Agreement ("COA") with the Pennsylvania Department of Environmental
Resources ("DEP"). This order was entered into by the prior owners of the plant
which the Company acquired in 1989. The cooling or "quenching" of slag on the
site gave rise to large volumes of runoff water which was determined to create
a pollution problem. The 1980 COA required the construction and operation of a
collection and treatment system for all surface water and drainage leaving the
plant site and the submission of a plan and permit applications therefor by
January 1987. However, in 1982, the quenching process was moved to another site
and the water quality at the plant improved significantly. At that time, the
prior owners apparently attempted to have the COA modified in light of the
cessation of quenching at the plant but they were not successful. Recently, the
Company's representatives have been engaged in discussions with DEP about how
to resolve this matter and DEP has agreed that the COA should be modified in
light of changed circumstances; however, it is likely that the Company will
have to pay a fine for violating the COA, which fine could exceed $100,000, and
to submit and accomplish an acceptable corrective action plan to eliminate or
collect and treat discharge at the site.
At the Company's cement plant in Davenport, Iowa, in connection with the
permitting process for burning certain plastic materials in the kiln, plant
personnel discovered that the plant was exceeding its permit limit for
emissions of nitrous oxide gas. The Company reported the issue to the Iowa
Department of Environmental Quality ("IDEQ") and has submitted a proposed
permit revision which is being reviewed by IDEQ. The permit violation may
result in a fine in excess of $100,000.
At the Company's cement plant in Alpena, Michigan, after a recent change in the
mix of raw materials entering the kiln, plant personnel discovered that the
plant was exceeding its permit limit for emissions of hydrogen chloride gas.
The Company reported the issue to the Michigan Department of Environmental
Quality ("MDEQ"). A previous consent order entered into by the Company provided
for a stipulated penalty if the plant violates any of its permits, which
penalty could exceed $300,000. The Company is engaged in discussions with MDEQ
regarding a reduction in such penalty. Also at the Alpena plant, the storm and
surface water runoff has exceeded the plant's water discharge permit with
respect to temperature and suspended particulates. These permit violations may
result in a fine in excess of $100,000.
14
<PAGE> 15
Lafarge Canada Inc. ("LCI") has been charged with violations of the Fisheries
Act as a result of deposits of deliterious substances into the Fraser River.
The incident occurred in March, 1997 during a heavy rainstorm at an LCI
Vancouver, British Columbia ready-mix plant. The extreme rain conditions
overwhelmed the containment and recycling system of the plant creating a flood
situation necessitating an emergency release of the pent up waters into the
yard and ultimately into the river. LCI has been charged with violations of
the Act and is conducting discussions with representatives of the Federal
Department of Fisheries and Oceans. This violation may result in a fine in
excess of $100,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Page
Exhibit 11 - Statement regarding computation of net income
per common equity share. 17
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the three-months ended June 30, 1997.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements 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.
LAFARGE CORPORATION
Date: August 13, 1997 By: /s/ Larry J. Waisanen
-------------------- ------------------------------
LARRY J. WAISANEN
Senior Vice President
and Chief Financial Officer
16
<PAGE> 1
EXHIBIT 11
LAFARGE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON EQUITY SHARE
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY CALCULATION
- -------------------
Net income $ 59,864 $ 43,265 $ 25,743 $ 5,070
========== ========== ========== ==========
Weighted average number of common equity shares outstanding 70,876 69,650 70,697 69,488
Net effect of dilutive stock options based on the treasury stock method 593 440 543 360
---------- ---------- ---------- ----------
Weighted average number of common equity
shares and equivalents outstanding 71,469 70,090 71,240 69,848
========== ========== ========== ==========
Primary net income per common equity share $ .84 $ .62 $ .36 $ .07
========== ========== ========== ==========
FULLY DILUTED CALCULATION
- -------------------------
Net income $ 59,864 $ 43,265 $ 25,743 $ 5,070
Add after tax interest expense applicable to
7% Convertible Subordinated Debentures -0- 1,110 -0- 2,219
---------- ---------- ---------- ----------
Net income assuming full dilution $ 59,864 $ 44,375 $ 25,743 $ 7,289
========== ========== ========== ==========
Weighted average number of common equity shares outstanding 70,876 69,650 70,697 69,488
Add additional shares assuming conversion of 7%
Convertible Subordinated Debentures -0- 4,520 -0- 4,520
Net effect of dilutive stock options based on the treasury stock method 711 440 741 401
---------- ---------- ---------- ----------
Weighted average number of common equity shares assuming
full conversion of all potentially dilutive securities 71,587 74,610 71,438 74,409
========== ========== ========== ==========
Fully diluted net income per common equity share $ .84 $ .59 $ .36 $ .10 (a)
========== ========== ========== ==========
<CAPTION>
TWELVE MONTHS
ENDED JUNE 30
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
PRIMARY CALCULATION
- -------------------
Net income $ 161,539 $ 127,018
========== ==========
Weighted average number of common equity shares outstanding 70,384 69,221
Net effect of dilutive stock options based on the treasury stock method 465 355
---------- ----------
Weighted average number of common equity
shares and equivalents outstanding 70,849 69,576
========== ==========
Primary net income per common equity share $ 2.28 $ 1.83
========== ==========
FULLY DILUTED CALCULATION
- -------------------------
Net income $ 161,539 $ 127,018
Add after tax interest expense applicable to
7% Convertible Subordinated Debentures 1,980 4,439
---------- ----------
Net income assuming full dilution $ 163,519 $ 131,457
========== ==========
Weighted average number of common equity shares outstanding 70,384 69,221
Add additional shares assuming conversion of 7%
Convertible Subordinated Debentures 2,043 4,520
Net effect of dilutive stock options based on the treasury stock method 768 409
---------- ----------
Weighted average number of common equity shares assuming
full conversion of all potentially dilutive securities 73,195 74,150
========== ==========
Fully diluted net income per common equity share $ 2.23 $ 1.77
========== ==========
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-K item
601 (b) (11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 112,904
<SECURITIES> 48,006
<RECEIVABLES> 344,298
<ALLOWANCES> 0
<INVENTORY> 216,243
<CURRENT-ASSETS> 761,310
<PP&E> 1,942,003
<DEPRECIATION> (1,055,985)
<TOTAL-ASSETS> 1,855,770
<CURRENT-LIABILITIES> 371,056
<BONDS> 149,095
0
0
<COMMON> 745,516
<OTHER-SE> 383,918
<TOTAL-LIABILITY-AND-EQUITY> 1,855,770
<SALES> 720,945
<TOTAL-REVENUES> 720,945
<CGS> 589,094
<TOTAL-COSTS> 589,094
<OTHER-EXPENSES> 5,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,196
<INCOME-PRETAX> 42,530
<INCOME-TAX> (16,787)
<INCOME-CONTINUING> 25,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,743
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
