<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 MARCH 31, 1998
--------------------------------------------------
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)
<TABLE>
<S> <C>
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)
</TABLE>
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 April 30, 1998
----------------------------------- --------------
<S> <C>
Common Stock of Lafarge Corporation
($1 par value) 66,698,839
----------
Exchangeable Preference Shares of
Lafarge Canada Inc.
(no par value) 5,303,189
---------
Total Common Equity Interests 72,002,028
==========
</TABLE>
<TABLE>
<S> <C>
Number of pages contained in this report 17
--
Total sequentially numbered pages 17
--
Exhibit index on page 16
--
</TABLE>
1
<PAGE> 2
LAFARGE CORPORATION AND SUBSIDIARIES
--------------------------------------
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
a) Condensed Consolidated Statements
of Income (Loss) - Three-Month and Twelve-Month
Periods Ended March 31, 1998 and 1997 3
b) Condensed Consolidated Balance Sheets -
March 31, 1998, March 31, 1997, and
December 31, 1997 4
c) Condensed Consolidated Statements of
Cash Flows - Three-Month and Twelve-Month
Periods Ended March 31, 1998 and 1997 5
d) Condensed Consolidated Geographic Information -
Three-Month and Twelve-Month Periods
Ended March 31, 1998 and 1997 6
e) Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6(a). Exhibits 16
Item 6(b). Reports on Form 8-K 16
SIGNATURE 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
LAFARGE CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED MARCH 31 ENDED MARCH 31
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 267,292 $ 244,034 $1,829,609 $1,689,602
------------ ------------ ------------ ------------
COST AND EXPENSES
Cost of goods sold 265,196 255,323 1,345,079 1,283,716
Selling and administrative 42,251 37,456 165,758 153,103
Other expense, net 5,455 3,892 10,847 10,609
------------ ------------ ------------ ------------
Total income (loss) from operations (45,610) (52,637) 307,925 242,174
------------ ------------ ------------ ------------
Interest expense 4,042 5,559 18,432 23,762
Interest income (3,831) (2,917) (14,199) (10,321)
------------ ------------ ------------ ------------
PRE-TAX INCOME (LOSS) (45,821) (55,279) 303,692 228,733
Income tax benefit (expense) 17,654 21,158 (115,762) (83,793)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (28,167) $ (34,121) $ 187,930 $ 144,940
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON
EQUITY SHARE-BASIC $ (.39) $ (.48) $ 2.63 $ 2.07
------------ ------------ ------------ ------------
NET INCOME (LOSS) PER COMMON EQUITY
SHARE-DILUTED $ (.39) $ (.48) $ 2.60 $ 2.01
------------ ------------ ------------ ------------
DIVIDENDS PER COMMON EQUITY SHARE $ 0.12 $ 0.10 $ 0.44 $ 0.40
============ ============ ============ ============
Weighted average number of common
equity shares and equivalents
outstanding 71,737 70,517 71,429 70,078
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
LAFARGE CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31 MARCH 31 DECEMBER 31
1998 1997 1997
(UNAUDITED) (UNAUDITED) (AUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 121,001 $ 118,940 $ 163,033
Short-term investments 164,423 84,032 155,368
Receivables, net 194,118 208,108 254,720
Inventories 227,093 218,840 209,220
Other current assets 34,227 29,568 33,627
-------------- -------------- --------------
Total current assets 740,862 659,488 815,968
Property, plant and equipment, (less
accumulated depreciation and
depletion of $1,083,549, $1,037,158
and $1,067,927) 899,249 876,951 876,744
Excess of cost over net assets of
businesses acquired, net 40,284 30,682 27,859
Other assets 190,650 183,213 178,486
-------------- -------------- --------------
TOTAL ASSETS $1,871,045 $1,750,334 $1,899,057
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued
liabilities $ 227,813 $ 195,195 $ 231,528
Income taxes payable 2,295 2,469 34,434
Short-term borrowing and current
portion of long-term debt 71,643 33,079 29,770
Short-term borrowings from related
parties -- 100,000 --
-------------- -------------- --------------
Total current liabilities 301,751 330,743 295,732
Long-term debt 121,327 149,260 132,337
Deferred income tax 59,600 46,424 59,970
Other post-retirement benefits 127,446 125,161 126,475
Other long-term liabilities 32,942 29,450 28,855
-------------- -------------- --------------
Total liabilities 643,066 681,038 643,369
-------------- -------------- --------------
Common equity interests
Common shares 66,276 63,580 65,268
Exchangeable shares 39,494 49,911 45,259
Additional paid-in-capital 656,994 626,218 649,082
Retained earnings 556,629 400,284 593,438
Foreign currency translation
adjustments (91,414) (70,697) (97,359)
-------------- -------------- --------------
Total shareholders' equity 1,227,979 1,069,296 1,255,688
-------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,871,045 $1,750,334 $1,899,057
============== ============== ==============
</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>
THREE MONTHS TWELVE MONTHS
ENDED MARCH 31 ENDED MARCH 31
------------------------ --------------------------
1998 1997 1998 1997
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income (Loss) $(28,167) $(34,121) $187,930 $144,940
Adjustments to reconcile net income
(loss) to net cash provided by
operations:
Depreciation, depletion and
amortization 27,332 27,060 106,576 102,165
Provision for doubtful accounts 622 695 2,292 426
Gain on sale of assets (85) (1,279) (4,844) (4,503)
Other post-retirement benefits 838 470 2,713 1,105
Other non-cash charges and
credits, net 961 (4,107) 15,050 4,217
Changes in working capital (600) 18,831 19,621 (34,097)
---------- ---------- ------------ ------------
Net cash provided by operations 901 7,549 329,338 214,253
---------- ---------- ------------ ------------
CASH FLOWS FROM INVESTING
Capital expenditures (40,291) (40,553) (123,708) (136,221)
Acquisitions (22,061) - (30,878) (75,357)
Short-term investments (9,055) 8,464 (80,391) 13,482
Proceeds from property, plant
and equipment dispositions 7,007 4,147 21,807 30,745
Other (3,304) (1,574) (5,750) (4,222)
---------- ---------- ------------ ------------
Net cash used for investing (67,704) (29,516) (218,920) (171,573)
---------- ---------- ------------ ------------
CASH FLOWS FROM FINANCING
Net increase (decrease) in
long-term borrowings (includes
current portion) 28,096 25,594 (92,106) (4,085)
Issuance of equity securities 2,258 3,103 19,354 7,011
Dividends, net of reinvestments (7,745) (2,870) (27,884) (12,295)
---------- ---------- ------------ ------------
Net cash provided (consumed) by
financing 22,609 25,827 (100,636) (9,369)
---------- ---------- ------------ ------------
Effect of exchange rate changes 2,162 (1,767) (7,721) (3,347)
---------- ---------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (42,032) 2,093 2,061 29,964
CASH AND CASH EQUIVALENTS AT
THE BEGINNING OF THE PERIOD 163,033 116,847 118,940 88,976
---------- ---------- ------------ ------------
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD $121,001 $118,940 $121,001 $118,940
========== ========== ============ ============
</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 TWELVE MONTHS
ENDED MARCH 31 ENDED MARCH 31
------------------------ -----------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
NET SALES
Canada $ 98,638 $ 91,340 $ 776,765 $ 718,035
United States 168,654 152,694 1,052,844 971,567
----------- ----------- ----------- -----------
TOTAL NET SALES $ 267,292 $ 244,034 $1,829,609 $1,689,602
=========== =========== =========== ==========
INCOME (LOSS) FROM OPERATIONS (SEE NOTE 7)
Canada $ (25,833) $ (30,259) $ 134,640 $ 106,227
United States (19,777) (22,378) 173,285 135,947
----------- ----------- ----------- -----------
TOTAL INCOME (LOSS) FROM OPERATIONS (45,610) (52,637) 307,925 242,174
Interest expense, net (4,042) (5,559) (18,432) (23,761)
Interest income 3,831 2,917 14,199 10,320
----------- ----------- ----------- ----------
PRE-TAX INCOME (LOSS) $ (45,821) $ (55,279) $ 303,692 $ 228,733
=========== =========== =========== ===========
</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 1997
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 March 31, 1998 and
1997, and at December 31, 1997, inventories consisted of the following
(in thousands):
<TABLE>
<CAPTION>
March 31 March 31 December 31
1998 1997 1997
-------------- ------------ --------------
<S> <C> <C> <C>
Finished products $ 107,587 $ 102,204 $ 104,508
Work in process 23,746 28,466 7,791
Raw materials and fuel 49,989 44,582 50,547
Maintenance and operating
supplies 45,771 43,588 46,374
-------------- ------------ --------------
Total inventories $ 227,093 $ 218,840 $ 209,220
============== ============ ==============
</TABLE>
7
<PAGE> 8
5. Cash paid during the period for interest and taxes, is as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended March 31 Ended March 31
--------------------- -----------------------
1998 1997 1998 1997
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Interest $ 677 $ 1,476 $ 19,365 $ 25,890
Income Taxes (net of
refunds) 13,954 9,815 99,999 75,776
</TABLE>
6. Earnings per share for the three and twelve months ended March 31, 1998 and
1997 includes the following components (unaudited and in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 March 31
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
BASIC CALCULATION
Net income (loss) $(28,167) $ (34,121) $ 187,930 $ 144,940
========== =========== =========== ==========
Weighted average number of
common equity shares 71,737 70,517 71,429 70,078
========== ========== =========== ==========
Basic net income (loss)
per common equity share $ (.39) $ (.48) $ 2.63 $ 2.07
========== ========== =========== ==========
DILUTED CALCULATION
Net income (loss) $(28,167) $ (34,121) $ 187,930 $ 144,940
Add after tax interest expense
applicable to 7% Convertible
Subordinated Debentures - - - 3,073
---------- ---------- ----------- ----------
Net income (loss) assuming
dilution $(28,167) $ (34,121) $ 187,930 $ 148,013
========== ========== =========== ==========
Weighted average number of common
equity shares outstanding 71,737 70,517 71,429 70,078
Add additional shares assuming
conversion of 7% Convertible
Subordinated Debentures - - - 3,170
Net effect of dilutive stock
options based on the treasury
stock method - - 597 358
---------- ---------- ----------- ----------
Weighted average number of
common equity shares assuming
full conversion of all
potentially dilutive securities 71,737 70,517 72,026 73,606
========== ========== =========== ==========
Diluted net income (loss) per
common equity share $ (.39) $ (.48) $ 2.60 $ 2.01
========== ========== =========== ==========
</TABLE>
8
<PAGE> 9
Basic earnings per common equity share were computed by dividing net income
by the weighted average number of shares of common stock outstanding during
the year. Diluted earnings per common equity share assumed conversion of
stock options, to the extent such conversion is dilutive, and in 1997
assumed conversion of the convertible debentures. The Company's reported
earnings per share for 1997 was restated as a result of adopting SFAS No.
128, "Earnings Per Share."
7. In prior years, an agreement was reached with Revenue Canada Taxation
related to the pricing of certain cement sales between the Company's
operations in Canada and the U.S. This increased 1997 and 1996 Canadian net
sales and pre-tax income by U.S. $6.1 million and $13.7 million,
respectively, with a corresponding decrease for the U.S. The impact of this
agreement was immaterial to consolidated net income. The net sales and
income from operations for Canada and the U.S. presented in the condensed
consolidated geographic information for the twelve months ended March 31,
1998 and 1997 do not reflect this agreement.
8. In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 requires that an enterprise display comprehensive
income which for the Company is the total of net income (loss) and the
current year foreign currency translation adjustment. Comprehensive
income consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 March 31
------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $(28,617) $(34,121) $187,930 $144,940
Foreign currency
translation
adjustments 5,945 (7,355) (20,717) (13,147)
--------- --------- --------- ---------
Comprehensive income
(loss) $(22,672) $(41,476) $167,213 $131,793
========= ========= ========= =========
</TABLE>
9. On March 17, 1998, as indicated in the Company's 1997 Annual Report on
Form 10-K, the Company announced that it will purchase a number of
construction materials businesses in North America from Lafarge S.A., its
majority shareholder. The Company's Board of Directors voted to accept
the recommendation of a committee of independent directors that the
Company acquire the businesses of Denver-based Western Mobile, Inc.;
Redland Genstar Inc. of Towson, Maryland; and Redland Quarries Inc. of
Hamilton, Ontario. Lafarge S.A. took control of these operations late
last year when it acquired the British construction materials firm
Redland PLC. The purchase price to be paid, subject to certain working
capital adjustments, is $690 million. The acquisition is expected to
close before the end of the second quarter. Until fixed rate financing
is put in place, bridge financing will be obtained through a short-term
loan from the seller, Lafarge S.A. On May 6 and May 12, 1998, in order
to reduce the Company's risk of interest rate fluctuations, the Company
entered into several forward treasury lock agreements totaling a notional
$400
9
<PAGE> 10
million. These agreements are designated as hedges and lock the Company into
an effective long-term interest rate of approximately 6.7 percent.
10. In December 1997, the Company announced that it was in discussions with
Holnam, Inc. to acquire its cement plant in Seattle, Washington and related
assets including a limestone quarry in Texada Island, British Columbia and
two cement terminals. In February 1998, the Company and Holnam, Inc. entered
into a letter of intent regarding the foregoing transaction. Closing on the
acquisition is subject to due diligence, regulatory approvals and execution
of a definitive asset purchase agreement.
11. As discussed in its 1997 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. The trial of this
matter commenced in September and is expected to continue through the second
quarter of 1998. 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.
12. In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) 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.
10
<PAGE> 11
LAFARGE CORPORATION AND SUBSIDIARIES
------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Historically, the Company incurs a loss in the first quarter because sales
and operating results are negatively impacted by 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.
THREE MONTHS ENDED MARCH 31, 1998
- ---------------------------------
The seasonal pattern was evident during the three months ended March 31, 1998
when the Company incurred a net loss of $28.2 million, or $0.39 per common
diluted equity share. This compares with a net loss of $34.1 million, or $0.48
per common diluted equity share, for the first quarter of 1997. Operating
results improved in all of the Company's main product lines (cement, ready-mixed
concrete, aggregates and gypsum wallboard) reflecting higher sales volumes and
prices. The Company's Canadian operations reported a net loss of $14.0 million,
$3.3 million better than 1997 whereas the U.S. net loss was $14.2 million, $2.6
million better.
The Company's net sales increased 10 percent to $267.3 million, up from $244.0
million in 1997. Canadian net sales were $98.6 million, up 8 percent, while U.S.
net sales increased 10 percent to $168.7 million. A relatively mild winter
across most of the United States and Canada boosted product shipments in all
principal product categories and prices trended upward in all main product lines
of cement, concrete, aggregate and gypsum wallboard. Cement shipments increased
7 percent while ready-mixed concrete, aggregate, and gypsum wallboard volumes
rose 4 percent, 24 percent, and 5 percent, respectively.
The first quarter loss from the Company's cement and waste management operations
was $18.2 million, $5.6 million better than last year. The improvement is
primarily due to an increase in cement shipments and prices partially offset by
higher plant costs due to the timing of major maintenance projects. Net sales
increased 10 percent reflecting the rise in shipments and prices. The Canadian
loss was $6.4 million, $.5 million better than 1997 due to a 7 percent increase
in cement shipments and a 3 percent escalation in net realization (delivered
price per ton to customers less freight) partially offset by the timing of major
maintenance projects. Net sales in Canada increased 3 percent. In eastern
Canada, despite the historic January ice storm, cement shipments were 15 percent
better than 1997 as lower shipments in the Atlantic provinces were more than
offset by stronger demand in Quebec and Ontario. The U.S. loss was $11.8
million, $5.1 million better than
11
<PAGE> 12
a year ago. Increases in shipments (7 percent) and net realization (3 percent)
were partially offset by the timing of major maintenance spending. Net sales
increased 13 percent reflecting the increase in shipments and prices, and the
acquisition of a U.S. flyash operation in January 1998.
The Company's construction materials operations lost $16.8 million, $3.6 million
better than 1997. Net sales were 5 percent higher reflecting an increase in
ready-mixed concrete and aggregate shipments and prices. In Canada, the loss was
$14.5 million, $3.2 million better than last year. Net sales in Canada were 7
percent higher than 1997. Stronger demand in Ontario, Quebec, and Alberta
resulted in a 13 percent rise in Canadian ready-mixed concrete volumes.
Aggregate volumes were also strong in Canada, increasing by 23 percent. In
eastern Canada, higher volumes from ready-mixed concrete and aggregates coupled
with higher aggregate prices were somewhat offset by lower ready-mixed concrete
prices and higher operating costs. In western Canada, higher prices, in both
ready-mixed concrete and aggregates, along with higher aggregates volumes, were
partially offset by lower ready-mixed concrete volumes and higher material and
operating costs. In the U.S., the loss was $2.3 million, $0.4 million better
than last year. Net sales in the U.S. were 1 percent higher than 1997.
Ready-mixed concrete volumes declined 9 percent due to poor weather in the
Midwest while robust demand in the Ohio and Missouri markets helped drive
aggregate volumes up 26 percent.
Operating profit from the Company's gypsum wallboard operations was $3.3
million, $.4 million better than 1997 due to higher shipments and prices. Mill
net (net selling price to customers less freight) and shipments were 4 and 5
percent higher which boosted net sales by 9 percent.
For the quarters ended March 31, 1998 and 1997 the Company recorded an income
tax benefit as a result of the seasonal loss from its Canadian and U.S.
operations. The Company's effective income tax rate was 38.5 percent in 1998,
consistent with the prior year.
TWELVE MONTHS ENDED MARCH 31, 1998
- ----------------------------------
During the fourth quarter of 1997 and the third quarter of 1996, the Company
recorded adjustments of U.S. $6.1 and $13.7 million adjustment for the years
1996 and 1995, respectively, based upon an agreement with Revenue Canada
Taxation. (see note 7 on page 9). The impact of these adjustments on
consolidated net income was immaterial. Management's Discussion and Analysis
that follows excludes the impact of this agreement.
The Company reported net income of $187.9 million in 1998 compared to $144.9
million for the same period ended March 31, 1997. Operating profits were $361.8
million, a $67.7 million improvement over 1997. Net sales increased 8 percent
primarily due to greater product shipments and improved cement and ready-mixed
concrete selling prices,
12
<PAGE> 13
as well as the effect of the U.S. gypsum wallboard acquisition. Canadian and
U.S. net sales increased 8 percent.
Earnings from the Company's cement and waste management operations were $264.5
million, $36.6 million better than last year. Earnings from U.S. operations of
$163.0 million were $17.6 million better than 1997. In the U.S., cement net
realization and shipments increased 4 percent and 2 percent, respectively.
Earnings from Canadian operations of $101.5 million were $19.0 million better
than 1997. Net realization in Canada increased 2 percent (excluding exchange
rate fluctuation) while sales volumes rose 6 percent.
The Company's construction materials operations earned $83.7 million, $22.8
million better than 1997. In Canada, earnings were $56.3 million, $18.8 million
better than 1997. Ready-mixed concrete and aggregate volumes in Canada increased
10 percent and 14 percent, respectively, reflecting improved economic activity,
particularly in Ontario, coupled with the impact of late 1996 acquisitions in
western Canada. Canadian ready-mixed concrete selling prices were 2 percent
higher while aggregate prices were relatively flat. In the U.S., earnings were
$27.4 million, $4.0 million better than 1997. U.S. ready-mixed concrete volumes
decreased 2 percent while selling prices improved 4 percent. Aggregate volumes
were down 4 percent but selling prices increased 1 percent.
Selling and administrative expenses were $12.7 million higher mainly due to
acquisitions, coupled with higher legal and other professional fees. The
Company's effective income tax rate was 38.1 percent in 1998 and 36.6 percent in
1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash of $0.9 million was provided by operating activities in the first
quarter of 1998 compared to $7.5 million in 1997. Net cash used for investing
activities in 1998 was $38.2 million higher than the same period last year due
to the acquisition of a flyash operation in the U.S. and the purchase of
short-term investments. In 1998, net cash provided by financing activities was
$22.6 million compared to $25.8 million in 1997.
Net cash provided by operating activities for the twelve-month period ended
March 31, 1998 increased over the same period in 1997 primarily due to higher
net income and non-cash charges, and a decrease in working capital. Compared to
1997, net cash used for investing activities in 1998 increased due to the
purchase of short-term investments partially offset by lower capital spending
and acquisitions. Acquisitions in 1998 included the Company's purchase of a U.S.
flyash operation whereas 1997 included the purchase of two gypsum wallboard
plants in September 1996. Net cash consumed by financing activities for the
twelve-month period ended March 31, 1998 was $91.3 million higher than the same
period in 1997 due to higher debt reductions.
Capital expenditures (including acquisitions already completed or in process)
are expected to be approximately $1.07 billion in 1998. The acquisition of a
number of
13
<PAGE> 14
construction materials businesses from Lafarge S.A. at a purchase price of $690
million will be financed with fixed rate debt. Until financing is put in place,
bridge financing will be obtained through a short-term loan from the seller,
Lafarge S.A. On May 6 and May 12, 1998, in order to reduce the Company's risk of
interest rate fluctuations, the Company entered into several forward treasury
lock agreements totaling a notional $400 million. These agreements are
designated as hedges and lock the Company into an effective long-term interest
rate of approximately 6.7%.
The Company also has committed bank lines of credit totaling $150 million under
which no amounts were outstanding.
OTHER FACTORS AFFECTING THE COMPANY - YEAR 2000
- -----------------------------------------------
As discussed in the Company's 1997 Annual Report on Form 10-K, the Company has
business application software programs that were developed over the years and
computer infrastructure including computerized devices that could be affected by
the "Year 2000" issue.
Excluding the acquisition of a number of construction materials businesses from
Lafarge S.A. ("Redland acquisition"), the Company has completed an initial
Compliance Assessment of the potential impact of the Year 2000 on computer
applications, operating software and hardware and has developed an
implementation plan to resolve the issue. The plan includes the replacement of
certain equipment and modification of certain software to recognize the turn of
the century. The plan is currently expected to result in estimated
non-recurring spending over the next two years of approximately $9 million to
$15 million.
The Company is currently completing the process of identifying the systems and
infrastructure within the Redland acquisition that could be affected by the
Year 2000 issue and developing an implementation program to resolve.
The Company believes, with appropriate replacement or modification, it will be
able to operate its time-sensitive business-application software programs and
infrastructure through the turn of the century.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
See Part I: Notes to Condensed Consolidated Financial Statements (page 10) for a
description of certain legal and environmental matters. There are no new matters
to report, and there have been no significant developments in previously
reported matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The annual meeting of shareholders of the Company was held May 5, 1998. A total
of 71,780,028 shares were entitled to be voted. At the meeting, shareholders
elected the 16 nominees for the Board of Directors identified below:
<TABLE>
<CAPTION>
Director Elected Votes For Votes Withheld
- ---------------- --------- --------------
<S> <C> <C>
Thomas A. Buell 55,908,032 186,833
Marshall A. Cohen 55,911,757 183,108
Bertrand P. Collomb 55,911,465 183,400
Philippe Dauman 55,911,757 183,108
Bernard L. Kasriel 55,911,782 183,093
Jacques Lefevre 55,911,732 183,133
Paul W. MacAvoy 55,911,782 183,083
Claudine B. Malone 55,907,930 186,935
Alonzo L. McDonald 55,911,781 183,084
Robert W. Murdoch 55,910,746 184,119
Bertin F. Nadeau 55,909,321 185,544
John M. Piecuch 55,911,582 183,283
John D. Redfern 55,911,047 183,818
Joe M. Rodgers 55,908,046 186,819
Michel Rose 55,911,431 183,434
Ronald Southern 55,907,899 186,966
</TABLE>
The shareholders approved and adopted the 1998 Stock Option Plan, with
voting as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
- --------- ------------- ----------- ----------------
<S> <C> <C> <C>
51,802,124 2,065,185 43,228 2,184,328
</TABLE>
The shareholders approved certain amendments to the Company's Employee Stock
Purchase Plan, with voting as follows:
15
<PAGE> 16
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
- --------- ------------- ----------- ----------------
<S> <C> <C> <C>
53,545,961 315,984 48,392 2,184,528
</TABLE>
The shareholders ratified the appointment of Arthur Andersen LLP as auditors
to audit the financial statements of the Company for the year ending
December 31, 1998, with voting as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
- --------- ------------- ----------- ----------------
<S> <C> <C> <C>
56,060,738 13,062 21,065 -0-
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
See Part I: Notes to Condensed Consolidated Financial
--------------------------------------------------
Statements (page 8) for computation of net income per
----------
common equity share.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during
the three-months ended March 31, 1998.
16
<PAGE> 17
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: May 14, 1998 By:
-------------- ---------------------
LARRY J. WAISANEN
Executive Vice President
and Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 121,001
<SECURITIES> 164,423
<RECEIVABLES> 214,841
<ALLOWANCES> (20,723)
<INVENTORY> 227,093
<CURRENT-ASSETS> 740,862
<PP&E> 1,982,798
<DEPRECIATION> (1,083,549)
<TOTAL-ASSETS> 1,871,045
<CURRENT-LIABILITIES> 301,751
<BONDS> 121,327
0
0
<COMMON> 762,764
<OTHER-SE> 462,215
<TOTAL-LIABILITY-AND-EQUITY> 1,871,045
<SALES> 267,292
<TOTAL-REVENUES> 267,292
<CGS> 265,196
<TOTAL-COSTS> 265,196
<OTHER-EXPENSES> 5,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,042
<INCOME-PRETAX> (45,821)
<INCOME-TAX> 17,654
<INCOME-CONTINUING> (28,167)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,167)
<EPS-PRIMARY> (.39)<F1>
<EPS-DILUTED> (.39)
<FN>
<F1>Note: EPS Primary is EPS Basic
</FN>
</TABLE>
