<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
Commission File Number 0-11936
LAFARGE CORPORATION
Incorporated in Maryland
12950 Worldgate Dr., Suite 500
Herndon, Virginia 20170
(703) 480-3600
I.R.S. Employer Identification No.
58-1290226
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 68,186,802 shares of our Common Stock and 4,519,010 Exchangeable
Preference Shares of our subsidiary, Lafarge Canada Inc., outstanding as of
October 31, 2000, the latest practicable date. The Exchangeable Preference
Shares are exchangeable at any time into our Common Stock on a one-for-one
basis, entitle their holders to dividend and other rights economically
equivalent to those of the Common Stock, and through a voting trust, vote at
meetings of our stockholders.
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LAFARGE CORPORATION
FORM 10-Q FOR THE QUARTER
ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income (unaudited) -
Three-Month and Nine-Month Periods Ended September 30, 2000 and 1999............................................1
Condensed Consolidated Balance Sheets - September 30, 2000 (unaudited),
September 30, 1999 (unaudited) and December 31, 1999............................................................2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Nine-Month Period Ended September 30, 2000 and 1999.............................................................3
Notes to Condensed Consolidated Financial Statements............................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................................14
Item 6. Exhibits and Reports on Form 8-K...............................................................................15
SIGNATURE.....................................................................................................................16
INDEX TO EXHIBITS.............................................................................................................17
</TABLE>
i
<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 NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
---------------------------------- --------------------------------
2000 1999 2000 1999
---------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
NET SALES $892,254 $872,416 $2,074,050 $1,962,411
-------- -------- ---------- ----------
Costs and expenses
Cost of goods sold 619,307 585,434 1,535,712 1,440,661
Selling and administrative 67,575 59,105 197,708 170,213
Amortization of goodwill 4,230 4,388 12,700 13,221
Other income, net (12,918) (6,968) (14,965) (12,175)
-------- -------- ---------- ----------
Earnings from operations 214,060 230,457 342,895 350,491
Interest expense 14,054 14,622 38,232 45,534
Interest income (2,290) (3,012) (9,905) (10,229)
-------- -------- ---------- ----------
Earnings before income taxes 202,296 218,847 314,568 315,186
Income tax expense (75,014) (79,816) (116,116) (116,598)
-------- -------- ---------- ----------
NET INCOME $127,282 $139,031 $ 198,452 $ 198,588
======== ======== ========== ==========
NET INCOME PER SHARE - BASIC $ 1.73 $ 1.91 $ 2.70 $ 2.74
======== ======== ========== ==========
NET INCOME PER SHARE - DILUTED $ .721 $ 1.90 $ 2.69 $ 2.72
======== ======== ========== ==========
DIVIDENDS PER SHARE $ 0.15 $ 0.15 $ 0.45 $ 0.45
======== ======== ========== ==========
</TABLE>
---------------------------
See Notes to Condensed Consolidated Financial Statements.
1
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LAFARGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31
2000 1999 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
----------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 201,865 $ 211,061 $ 237,812
Short-term investments -- 10,812 91,626
Receivables, net 639,141 570,690 421,796
Inventories 313,387 277,182 288,200
Other current assets 94,535 78,571 96,067
---------- ---------- ----------
Total current assets 1,248,928 1,148,316 1,135,501
Property, plant and equipment (less accumulated depreciation
and depletion of $1,372,216, $1,275,783 and $1,312,260) 1,877,984 1,561,997 1,618,319
Excess of cost over net tangible assets businesses acquired, net 365,218 350,403 335,464
Other assets 254,142 209,870 214,962
---------- ---------- ----------
TOTAL ASSETS $3,746,272 $3,270,586 $3,304,246
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 440,555 $ 399,081 $ 411,677
Income taxes payable 83,104 79,759 60,222
Short-term borrowings and current portion of long-term debt 293,611 86,194 38,344
---------- ---------- ----------
Total current liabilities 817,270 565,034 510,243
Long-term debt 695,977 737,286 719,781
Deferred income taxes 128,338 111,716 118,699
Accrued post-retirement benefit cost 170,791 155,046 153,476
Other long-term liabilities 80,681 66,134 79,163
---------- ---------- ----------
Total Liabilities 1,893,057 1,635,216 1,581,362
---------- ---------- ----------
Common Equity
Common Stock ($1.00 par value; authorized 150.0 million
shares; issued 68.9, 68.4 and 68.7 million shares) 68,911 68,442 68,686
Exchangeable Shares (no par or stated value; authorized 24.3
million shares; issued 4.5 million shares) 34,397 32,865 32,957
Additional paid-in-capital 700,633 691,489 697,324
Retained earnings 1,189,113 958,498 1,023,736
Accumulated other comprehensive income (loss) (139,839) (115,924) (99,819)
---------- ---------- ----------
Total Shareholders' Equity 1,853,215 1,635,370 1,722,884
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,746,272 $3,270,586 $3,304,246
========== ========== ==========
</TABLE>
-------------------------------
See Notes to Condensed Consolidated Financial Statements.
2
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LAFARGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
-----------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income $ 198,452 $ 198,588
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation, depletion and amortization 112,768 123,534
Provision for bad debts 1,799 1,497
Gain on sale of assets (10,459) (6,636)
Accrued post-retirement benefit cost 2,249 4,208
Other noncash charges and credits, net (32,544) (9,919)
Net change in operating working capital (235,618) (156,233)
---------- ----------
NET CASH PROVIDED BY OPERATIONS 36,647 155,039
---------- ----------
CASH FLOWS FROM INVESTING
Capital expenditures (326,777) (214,008)
Acquisitions (89,550) (55,554)
Redemptions of short-term investments, net 91,626 6,258
Proceeds from property, plant and equipment
dispositions 18,332 13,176
Other (2,329) 13,179
---------- ----------
NET CASH USED FOR INVESTING (308,698) (236,949)
---------- ----------
CASH FLOWS FROM FINANCING
Net increase in short-term and long-term borrowings
(includes current portion) 272,002 24,516
Issuance of equity securities, net 3,116 3,747
Dividends, net of reinvestments (13,992) (18,838)
Repurchase of common stock (17,225) --
---------- ----------
NET CASH PROVIDED BY FINANCING 243,901 9,425
---------- ----------
Effect of exchange rate changes (7,797) 12,408
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (35,947) (60,077)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 237,812 271,138
---------- ----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 201,865 $ 211,061
========== ==========
</TABLE>
----------------------
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 6
LAFARGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Lafarge Corporation, together with its subsidiaries, is North America's
largest diversified supplier of aggregate, concrete and concrete
products, cement and cementitious materials, gypsum wallboard and other
construction materials used for residential, commercial, institutional
and public works construction. Our business is organized into three
operating segments: Construction Materials, Cement and Gypsum. Each
represents a separately managed strategic business unit with different
capital requirements and marketing strategies. See Note 8 below for
information regarding these segments.
We have approximately 800 operations doing business in most states and
throughout Canada, where we conduct our business through our subsidiary,
Lafarge Canada Inc. Lafarge S.A., a French company, and its affiliates
hold over 50 percent of our common stock.
2. The condensed consolidated financial statements have been prepared,
without audit, 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 accounting principles generally accepted in the United
States have been condensed or omitted. We believe that the disclosures
made are adequate to make the information presented not misleading. In
our opinion, the accompanying condensed consolidated financial statements
reflect all adjustments necessary to present fairly our financial
position as of the applicable dates and the results of our operations and
our cash flows for the interim periods presented. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in our 1999
Annual Report on Form 10-K.
3. Most of our markets are affected by seasonal, weather-related conditions.
Therefore, you should not view our quarterly earnings as indicative of
results to be expected for a full year or any other interim period.
4. We value our inventories at the lower of cost or market. Other than
maintenance and operating supplies, we value the majority of our U.S.
cement inventories using the last-in, first-out method. We value all
other inventories at average cost. At September 30, 2000 and 1999 and at
December 31, 1999, our inventories consisted of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------- DECEMBER 31
2000 1999 1999
-------- -------- --------
<S> <C> <C> <C>
Finished products $159,191 $150,159 $154,567
Work in process 26,502 18,677 16,639
Raw materials and fuel 62,856 53,410 52,650
Maintenance and operating supplies 64,838 54,936 64,344
-------- -------- --------
TOTAL INVENTORIES $313,387 $277,182 $288,200
======== ======== ========
</TABLE>
4
<PAGE> 7
5. Cash paid for interest and income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
----------------------------
2000 1999
-------- ---------
<S> <C> <C>
Interest $ 34,989 $ 33,205
Income taxes (net of refunds) $ 91,561 $ 68,057 (a)
</TABLE>
--------------
(a) Includes a refund of $23.4 million from the Internal Revenue Service.
6. Net income per share for the three and nine months ended September 30,
2000 and 1999 (in thousands, except per share amounts) is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC CALCULATION
Net income $127,282 $139,031 $198,452 $198,588
======== ======== ======== ========
Weighted average number of
shares outstanding 73,657 72,740 73,503 72,519
======== ======== ======== ========
Basic net income per share $ 1.73 $ 1.91 $ 2.70 $ 2.74
======== ======== ======== ========
DILUTED CALCULATION
Net income assuming dilution $127,282 $139,031 $198,452 $198,588
======== ======== ======== ========
Weighted average number of
shares outstanding 73,657 72,740 73,503 72,519
Net effect of dilutive stock options
based on the treasury stock method 154 372 159 414
-------- -------- -------- --------
Weighted average number of shares
outstanding assuming full conversion
of all potentially dilutive securities 73,811 73,112 73,662 72,933
======== ======== ======== ========
Diluted net income per share $ 1.72 $ 1.90 $ 2.69 $ 2.72
======== ======== ======== ========
</TABLE>
Basic net income per common equity share was computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per common equity share
assumed the exercise of stock options, to the extent such conversion is
dilutive, for all periods presented.
7. Comprehensive income consists of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------ -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $127,282 $139,031 $198,452 $198,588
Foreign currency translation
adjustments (15,433) 3,774 (40,020) 36,699
-------- -------- -------- --------
COMPREHENSIVE INCOME $111,849 $142,805 $158,432 $235,287
======== ======== ======== ========
</TABLE>
5
<PAGE> 8
8. The operating segments reported below are those for which separate
financial information is available and for which executive management
regularly evaluates operating income or loss amounts (before other
post-retirement benefit expense for retirees, goodwill amortization
related to the 1998 acquisition of certain Redland PLC businesses in
North America from Lafarge S.A., income taxes, interest and foreign
exchange gains and losses) in deciding how to allocate resources and in
assessing performance. Each of our three reportable operating segments,
Construction Materials, Cement and Gypsum, represents a separately
managed strategic business unit with its own capital requirements and
marketing strategies. The basis of segmentation is consistent with our
year-end consolidated financial statements. We account for intersegment
sales and transfers at market prices. We attribute revenue to geographic
areas based on the location of the assets producing the revenue.
Operating segment information consists of the following (in millions):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------------- ----------------------------
2000 1999 2000 1999
------ ------ -------- --------
<S> <C> <C> <C> <C>
Net sales:
Construction Materials
Revenues from external customers $500.6 $472.8 $1,122.1 $1,044.9
Intersegment revenues .3 0.5 .3 2.5
Cement
Revenues from external customers 359.0 357.2 842.7 804.7
Intersegment revenues 44.8 40.8 105.5 93.5
Gypsum
Revenues from external customers 32.5 42.3 109.2 112.8
Intersegment revenues -- 0.9 -- 0.9
Eliminations (45.1) (42.1) (105.7) (96.9)
------ ------ -------- --------
TOTAL NET SALES $892.3 $872.4 $2,074.1 $1,962.4
====== ====== ======== ========
Earnings from operations:
Construction Materials (a) $ 98.7 $ 95.0 $ 144.3 $ 135.2
Cement (a) 132.8 139.5 242.9 230.5
Gypsum (a) (8.5) 12.1 1.8 32.2
Corporate and other (8.9) (16.2) (46.1) (47.4)
------ ------ -------- --------
Earnings before interest and income
taxes 214.1 230.4 342.9 350.5
Interest expense, net (11.8) (11.6) (28.3) (35.3)
------ ------ -------- --------
EARNINGS BEFORE INCOME TAXES $202.3 $218.8 $ 314.6 $ 315.2
====== ====== ======== ========
</TABLE>
(a) Excludes other post-retirement benefit expense for retirees, goodwill
amortization related to the 1998 acquisition of certain Redland PLC
businesses in North America from Lafarge S.A., income taxes, interest
and foreign exchange gains and losses.
Condensed consolidated geographic information consists of the following
(in millions):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------- ----------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales:
United States $607.1 $612.4 $1,443.2 $1,390.5
Canada 285.2 260.0 630.9 571.9
------ ------ -------- --------
TOTAL NET SALES $892.3 $872.4 $2,074.1 $1,962.4
====== ====== ======== ========
Earnings from operations:
United States $136.0 $149.6 $ 228.7 $ 244.8
Canada 78.1 80.8 114.2 105.7
------ ------ -------- --------
Total earnings from operations 214.1 230.4 342.9 350.5
Interest expense, net (11.8) (11.6) (28.3) (35.3)
------ ------ -------- --------
EARNINGS BEFORE INCOME TAXES $202.3 $218.8 $ 314.6 $ 315.2
====== ====== ======== ========
</TABLE>
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<PAGE> 9
Assets by operating segment consist of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------- DECEMBER 31
2000 1999 1999
-------- -------- -----------
<S> <C> <C> <C>
Construction Materials $1,360.9 $1,315.2 $1,239.1
Cement 1,397.2 1,127.5 1,098.3
Gypsum 248.4 94.1 125.1
Corporate, Redland goodwill and other 739.8 733.8 841.7
-------- -------- --------
TOTAL ASSETS $3,746.3 $3,270.6 $3,304.2
======== ======== ========
</TABLE>
9. In February 2000, we formed a joint venture with Rock-Tenn Company to
produce gypsum paperboard liner. With full-scale production projected to
commence in 2001, the joint venture intends to sell all of its production
to our U.S. drywall plants.
In late March 2000, we entered into an agreement with Ispat Inland Inc.
to manage up to one million tons of blast furnace slag annually. Under
the agreement, we are installing slag-processing equipment, including our
patented technology, at Ispat Inland's East Chicago, Indiana steel plant.
When the facility comes on line as expected in the spring of 2001, we
intend to sell the processed slag into several core market segments.
On June 30, 2000, we completed our acquisition of all the outstanding
stock of Presque Isle Corporation, a Michigan-based company that operates
one of the largest stone quarries in the U.S. The purchase price was
approximately $56 million.
On July 25, 2000, we announced an agreement to merge Kilmer Van Nostrand
Co. Limited's ("KLN") wholly-owned subsidiary, The Warren Paving &
Materials Group Limited ("Warren"), with our Construction Materials
operations in Canada. Warren is Canada's largest privately held supplier
of construction aggregate and a leader of asphalt and paving services,
and has operations in five Canadian provinces. The transaction, in which
a subsidiary of Lafarge Canada Inc. would acquire all of the outstanding
shares of Warren, is valued at approximately Canadian $416 million. The
acquisition would be financed through a combination of assumption of
Warren's debt, cash and preferred shares. At closing, the subsidiary of
Lafarge Canada Inc. would assume the existing debt of Warren and pay cash
for a combined total of approximately Canadian $230 million, issuing
preferred shares to KVN for the balance. Concurrently, KVN would buy a
4.4 million stock purchase warrant of Lafarge Corporation with a 15-year
term and a strike price of $29 per share. The transaction will make us
one of the largest aggregate suppliers in North America, with over 100
million tons of production a year. Closing on the merger is subject to
certain conditions, including Canadian regulatory review.
10. On April 17, 2000, the Ontario (Canada) Court (General Division) ruled
against our subsidiary Lafarge Canada Inc. and other defendants in the
1992 lawsuit arising from claims of building owners, the Ontario New Home
Warranty Program and other plaintiffs regarding allegedly defective
concrete, flyash and cement used in defective footings, foundations and
floors. The portion of the judgment attributed by the Court to Lafarge
Canada Inc., net of insured amounts, represents approximately Canadian
$9.9 million. Lafarge Canada Inc. has appealed this decision. We believe
that our insurance coverage and recorded reserves are adequate to cover
the defense expenses and liabilities arising from the 1992 lawsuit. In
September 2000, a hearing was held before the Court as to whether a class
should be certified in connection with the related 1999 class action,
which previously had been stayed pending a decision in the 1992 lawsuit.
The Court has yet to rule on
7
<PAGE> 10
certification of the class. Although the outcome of any legal proceedings
related to the 1999 class action cannot be predicted with certainty, we
believe that any liability which Lafarge Canada Inc. may incur arising
from the 1999 class action will not have a material adverse effect on our
financial condition.
By order dated January 28, 2000, the Court granted summary judgment in
favor of our directors in the stockholder derivative lawsuit filed
against them on March 18, 1998 in the Circuit Court for Montgomery
County, Maryland. This lawsuit alleged breach of fiduciary duty,
corporate waste and gross negligence in connection with our purchase of
certain North American construction materials assets from Lafarge S.A.,
our majority stockholder. Plaintiffs appealed the decision to the
Maryland Court of Special Appeals. Upon its own motion, the Maryland
Court of Appeals, Maryland's highest court, has selected the appeal for
hearing and decision. The appeal is currently scheduled for hearing in
December of this year.
Currently, we are involved in two remediations under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986,
which together are referred to as Superfund. At one site where we have
been named a potentially responsible party, the remedial activities are
complete, long-term maintenance and monitoring are under way and partial
contribution has been obtained from financially viable parties, including
us. The U.S. Environmental Protection Agency ("EPA") delisted this site
from the National Priority List in 1999. At the other site, which is on
the National Priority List, some of the potentially responsible parties
named by the EPA have initiated a third-party action against 47 other
parties, including us. We also have been named a potentially responsible
party at this site. The suit alleges that in 1969 one of our predecessor
companies sold equipment containing hazardous substances that may now be
present at the site. It appears that the largest disposer of hazardous
substances at this site is the U.S. Department of Defense and numerous
other large disposers of hazardous substances are associated with this
site. We believe that neither matter is material to our financial
condition, results of operations or liquidity.
We are involved in one state site cleanup in the State of Michigan. In
December 1999, we were served with a complaint alleging that some time
between 1952 and 1992 air-scrubber baghouse bags were transported to and
disposed of at the Arthur Fivenson Iron and Metal Company. We are one of
six defendants in the State action to recover response activity costs
which Michigan incurred in responding to releases and threatened releases
of hazardous substances at this site. We intend to vigorously defend this
action and believe that resolution of this matter will not have a
material impact on our financial condition.
When we determine that it is probable that a liability for our
environmental matters or other legal actions has been incurred and the
amount of the loss is reasonably estimable, an estimate of the required
remediation costs is recorded as a liability in the financial statements.
As of September 30, 2000, the liabilities recorded for the environmental
obligations are not material to our financial statements. Although we
believe our environmental accruals are adequate, environmental costs may
be incurred that exceed the amounts provided at September 30, 2000.
However, we have concluded that the possibility of material liability in
excess of the amount reported in the September 30, 2000 Condensed
Consolidated Balance Sheet is remote.
In the ordinary course of business, we are involved in certain legal
actions and claims, including proceedings under laws and regulations
relating to environmental and other matters. Because such matters are
subject to many uncertainties and the outcomes are not predictable with
assurance, the total amount of these legal actions and claims cannot be
determined with certainty. We believe that
8
<PAGE> 11
all legal and environmental matters will be resolved without material
adverse impact to our financial condition, results of operations or
liquidity.
11. On July 25, 2000, we announced a buyback program of our common stock over
the following 18 months. The plan will allow us, at management's
discretion, to buy back our common stock from time to time on the market
or through privately negotiated transactions. At the same time, the Board
of Directors of Lafarge Canada Inc. ("LCI") approved a complementary
share repurchase program in Canada through a normal course issuer bid.
The LCI program, which has been approved by Canadian regulatory
authorities, will permit LCI to repurchase, at market price, over a
one-year period beginning November 1, 2000, up to 365,000 of its
exchangeable preference shares, representing slightly less than 10
percent of LCI's public float. In total, up to $100 million may be spent
for share repurchases under the two programs. As of September 30, 2000,
we have bought back approximately 698 thousand shares of common stock at
an average cost of $24.68 per share.
12. We, and certain of our affiliates, Wachovia Bank, N.A. and certain of its
affiliates, and certain banks entered into a Receivables Purchase
Agreement and a related Receivable Sales Agreement pursuant to which we
agreed to periodically pool and transfer certain of our accounts
receivable to our special purpose subsidiary (the "SPS") which in turn
will sell up to $200 million interests in them to a multi-seller
receivables backed commercial paper conduit (the "Conduit") for which
Wachovia serves as agent. Under the agreements, new receivables will be
added to the pool as collections reduce previously sold receivables, and
we will service, administer and collect the receivables on behalf of the
SPS and the Conduit. On October 13, 2000, we completed the first monthly
sale of receivables under the agreements, receiving $200 million in
proceeds that we used to reduce our external borrowings. We anticipate
that similar monthly sales will occur throughout the duration of the
arrangement.
13. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities". In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," which defers the effective date of our adoption of SFAS No. 133 to
no later than January 1, 2001. Certain provisions of SFAS No. 133 were
subsequently further amended in June 2000 by SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an
amendment of FASB Statement No. 133". SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133 requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement and requires that a company formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. We are reviewing FAS No. 133 and its amendments
and do not currently expect it to materially impact our financial
condition or results of operations.
In September 2000, FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a
replacement of FASB Statement No. 125," which is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. We are currently reviewing the provisions
of SFAS No. 140 and do not expect our adoption to have a significant
affect on our consolidated results of operations or financial position.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Lafarge Corporation, together with its subsidiaries, is North America's largest
diversified supplier of construction materials. Our core businesses are
organized into three operating segments:
Construction Materials - produces and distributes ready-mixed concrete,
construction aggregate, other concrete products and asphalt and
constructs and paves roads.
Cement - produces and distributes portland and specialty cements and
cementitious materials, and processes fuel-quality waste and alternative
raw materials for use in cement kilns.
Gypsum - produces and distributes gypsum drywall and related products.
Our broad range of products is complemented by our geographic diversity. We have
approximately 800 operations doing business in most states and throughout
Canada, where we operate through our major operating subsidiary, Lafarge Canada
Inc.
Due to seasonal, weather-related conditions, earnings of any one quarter should
not be considered indicative of results to be expected for a full year or any
other interim period.
THREE MONTHS ENDED SEPTEMBER 30, 2000
During the three months ended September 30, 2000, we had net income of $127.3
million, or $1.72 per share on a diluted basis. This compares with net income of
$139.0 million, or $1.90 per diluted share, for the third quarter of 1999. Our
U.S. operations reported operating income of $136.0 million, $13.6 million lower
than 1999 mainly due to a reduction in our gypsum division's earnings. Canadian
operations reported operating income of $78.1 million, $2.7 million lower than
1999 largely as a result of increased fuel and energy costs.
Net sales increased 2 percent to $892.3 million, up from $872.4 million in 1999.
Net sales in the U.S. of $607.1 million declined 1 percent while net sales in
Canada of $285.2 million increased 10 percent from last year. Ready-mixed
concrete volumes remained flat while aggregate volumes increased 24 percent.
Cement volumes declined 3 percent and gypsum wallboard volumes declined 1
percent.
CONSTRUCTION MATERIALS
Our construction materials operations earned $98.7 million, a 4 percent
improvement from last year. Net sales of $500.9 million were 6 percent higher
than 1999, reflecting an increase in aggregate shipments of 24 percent and
higher ready-mixed concrete average selling prices of 3 percent. In the U.S.,
operating income of $56.5 million was 5 percent higher than 1999. Net sales
declined 1 percent as a result of reduced ready-mixed concrete volumes and lower
aggregate selling prices. Ready-mixed concrete volumes declined 5 percent mainly
attributed to wet weather conditions and a weaker residential construction
market in Denver and Kansas City. Aggregate volumes increased 30 percent mainly
due to the acquisition of the Presque Isle quarry on Lake Huron that was
acquired at the end of June. The acquisition of the Presque Isle quarry
increased volumes 3.1 million tons or 25 percent. Ready-mixed concrete average
selling prices increased 4 percent from 1999. Excluding the impact from the
Presque
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Isle acquisition, aggregate average selling prices remained flat when compared
to the prior year, as changes in product mix offset implemented price increases.
When including the impact of the lower average prices at the Presque Isle
quarry, aggregate average selling prices declined 9 percent. In Canada, earnings
of $42.2 million were 2 percent higher than 1999. Net sales in Canada were 15
percent higher than 1999 due to higher ready-mixed concrete and aggregate
volumes and average selling prices. Ready-mixed concrete volumes in Canada
increased 5 percent due to increased construction activity in Northern Alberta
and project work in British Columbia partly offset by the lingering effects of
concrete drivers' strike in Toronto this summer. Due to a strong market in
Ontario and project work in Alberta and British Columbia, aggregate volumes in
Canada increased 18 percent. Ready-mixed concrete and aggregate average selling
prices increased 4 percent and 1 percent, respectively.
CEMENT
Our cement operations earned $132.8 million in the third quarter, a decline of
$6.7 million from last year. The decline reflected a general softening of the
U.S. economy as the quarter progressed and poor weather in some markets. Net
sales increased 1 percent, reflecting a rise in net realization (delivered price
per ton to customers less freight) of 2 percent and an increase in volumes of
other cementious materials partly offset by a 3 percent decline in cement
shipments. Our total clinker production volumes increased in most regions, with
an overall increase of 36 thousand tons, or 1 percent. U.S. earnings from
operations totaled $91.0 million, $2.1 million lower than last year. Net sales
increased 1 percent despite the decline in shipments of 4 percent due to an
increase in other cementious material sales and a 1 percent increase in net
realization. Shipments in the U.S. declined 4 percent compared to 1999 due to a
combination of wet weather during July and September and softer market demand in
some areas. The Canadian earnings from operations were $41.8 million, $4.6
million lower than 1999. Net sales in Canada increased 2 percent primarily due
to a 1 percent increase in shipments and a 5 percent escalation in net
realization. Shipments increased due to strong sales in western Canada, which
finished the quarter 8 percent ahead of last year, partly offset by a 4 percent
decline in eastern Canada attributable to poor weather conditions. The benefits
from the increase in net sales were more than offset by higher fuel and energy
costs.
GYPSUM
Operating loss from our gypsum wallboard operations was $8.5 million, compared
to operating profit of $12.1 million in 1999. The $20.6 million difference was
due to several factors, including the steady decline in gypsum drywall prices
from last year's peak levels; higher costs associated with starting up new
drywall manufacturing plant in Silver Grove, Kentucky; costs associated with
restructuring our Newfoundland plant; and higher paper and energy costs. Net
sales decreased by 25 percent mainly due to a 1 percent reduction in sales
volumes and a 33 percent reduction in selling prices net of freight. Not
including drywall imports and shipments from the Kentucky facility, volumes
declined 17 percent.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses increased by $8.5 million from 1999 mainly
due to growth in our business, increased staffing, particularly in the human
resource and strategic development functions, and costs associated with
establishing a shared services center in our construction materials operations.
OTHER INCOME, NET
Other income, net increased by $6.0 million from 1999 due to a gain on sale of
surplus land in Canada and an adjustment of our year-to-date pension
income/expense.
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INCOME TAXES
For the quarters ended September 30, 2000 and 1999, income tax expense was $75.0
million and $79.8 million, respectively, as a result of earnings from U.S. and
Canadian operations. Our effective income tax rate was 37.1 percent in 2000 and
36.5 percent in 1999. In the third quarter of 1999, our effective income tax
rate was impacted by a one-time positive adjustment related to a revision in our
estimated annual effective tax rate.
NINE MONTHS ENDED SEPTEMBER 30, 2000
Net income of $198.5 million, or $2.69 per diluted common equity share, compares
with net income of $198.6 million, or $2.72 per diluted share, for the first
nine months of 1999. Our U.S. operations reported operating income of $228.7
million, $16.1 million lower than 1999. In Canada, operating income was $114.2
million, $8.5 million better than 1999.
Net sales totaled $2.1 billion, a 6 percent increase over 1999 net sales.
Ready-mixed concrete and aggregate volumes increased 4 percent and 14 percent,
respectively. Cement shipments were 2 percent higher than 1999, while gypsum
volumes decreased 2 percent.
CONSTRUCTION MATERIALS
Our construction materials operations earned $144.3 million, $9.1 million better
than 1999. Net sales improved 7 percent. U.S. earnings were $89.9 million, $6.0
million better than 1999. U.S. net sales were up 4 percent. Ready-mixed concrete
volumes increased 4 percent and aggregate volumes increased 17 percent.
Ready-mixed concrete average selling prices increased 4 percent. Although price
increases have been implemented, aggregate average selling prices decreased 4
percent due to changes in product and geographic mix. In Canada, earnings were
$54.4 million, $3.1 million better than 1999. Canadian net sales were 12 percent
greater, reflecting increases in ready-mixed concrete and aggregate volumes of 4
and 11 percent, respectively, and average selling prices of 3 percent and 2
percent, respectively.
CEMENT
Earnings from our cement operations were $242.9 million, $12.4 million better
than last year due to increased shipments and higher net realized prices partly
offset by increased fuel and energy costs. Overall, net sales improved by 6
percent. Clinker production increased 267 thousand tons, or 3 percent. In the
U.S., earnings were $166.2 million, $7.7 million or 5 percent higher than 1999.
U.S. net sales increased 5 percent due to a 1 percent increase in shipments, a 2
percent increase in net realized prices and an increase in other cementious
materials sales. Earnings from Canadian operations of $76.7 million were $4.7
million better than 1999, with increased sales partly offset by higher fuel and
energy costs. Canadian net sales increased by 8 percent, reflecting a 5 percent
increase in shipments and a 3 percent increase in net realization.
GYPSUM
Our gypsum operations earned $1.8 million, $30.4 million lower than 1999 due to
declining drywall prices, rising material costs, costs related to the startup of
the new Silver Grove, Kentucky plant and additional related administrative
costs. Selling prices have decreased 40 percent since December 1999, while
average net selling price to customers for the nine month period was 8 percent
lower. Shipments
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overall declined 2 percent. Shipments excluding our Kentucky facility and
imports were down 8 percent.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses increased by $27.5 million from 1999 mainly
due to growth in our business, costs related to strategic development projects,
increased staffing, particularly in the human resource and strategic development
functions, and costs associated with establishing a shared services center in
our construction materials operations.
INCOME TAXES
Income tax expense was $116.1 million, $0.5 million lower than 1999. Our
effective income tax rate was 36.9 percent in 2000 and 37.0 percent in 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have a syndicated, committed revolving credit facility totaling $300 million
extending through December 8, 2003. At September 30, 2000, no amounts were
outstanding under the facility. We are required to pay annual commitment fees of
0.10 percent of the total amount of the facility. Borrowings made under the
revolving credit facility will bear interest at variable rates based on a bank's
prime lending rate or the applicable federal funds rate and are subject to
certain conditions.
Net cash of $36.6 million was provided by operating activities in the first nine
months of 2000 compared with net cash provided of $155.0 million in the same
period in 1999. The decrease in cash provided by operations was primarily due to
an increase in operating working capital from higher levels of receivables due
to increased sales. Net cash used for investing activities in the nine-month
period of 2000 totaling $308.7 million was $71.7 million more than the same
period last year due to higher capital expenditures primarily attributable to
the construction of the Silver Grove, Kentucky and Palatka, Florida gypsum
drywall plants and the Sugar Creek, Missouri cement plant modernization and
expansion and increased spending on acquisitions, partly offset by redemptions
of short-term investments. In the first nine months of 2000, net cash provided
by financing activities was $243.9 million, compared with $9.4 million in the
same period in 1999. The increase was due to an increase in short-term and
long-term borrowings.
During the first nine months of 2000, the most significant uses of cash were
capital expenditures of $326.8 million, net change in operating working capital
of $235.6 million and acquisitions of $89.6 million. The most significant source
of funds was a net increase in short-term and long-term borrowings of $272.0
million and net redemptions of short-term investments of $91.6 million. This
compares with capital expenditures of $214.0 million, net increase in operating
working capital of $156.2 million, acquisitions of $55.6 million, a net increase
in short-term and long-term borrowings of $24.5 million and net redemptions of
short-term investments of $6.3 million.
Capital expenditures (including acquisitions already completed or in process)
are expected to be approximately $850 million to $900 million in 2000.
We are exposed to foreign currency exchange rate risk inherent in our Canadian
revenues, expenses, assets and liabilities denominated in Canadian dollars, as
well as interest rate risk inherent in our debt. We primarily use fixed-rate
debt instruments to reduce the risk of exposure to changes in interest rates
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and have used forward treasury lock agreements to hedge interest rate change on
anticipated debt issuances. There has been no significant change from year-end.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements made in this Quarterly Report on Form 10-Q that are not historical
facts are forward-looking statements made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 and within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements may be identified by the
context of the statement and generally arise when we are discussing our beliefs,
estimates or expectations. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions ("Factors") which
are difficult to predict. Some of the Factors that could cause actual results to
differ materially from those expressed in the forward-looking statements
include, but are not limited to: the cyclical nature of our business; national
and regional economic conditions in the U.S. and Canada; Canadian currency
fluctuations; the seasonality of our operations; the levels of construction
spending in major markets; supply/demand structure of our industry; competition
from new or existing competitors; unfavorable weather conditions during peak
construction periods; changes in and implementation of environmental and other
governmental regulations; our ability to successfully identify, complete and
efficiently integrate acquisitions; our ability to successfully penetrate new
markets; and other Factors disclosed in our Annual Report on Form 10-K filed
with the Securities and Exchange Commission. In general, we are subject to the
risks and uncertainties of the construction industry and of doing business in
the U.S. and Canada. The forward-looking statements are made as of this date,
and we undertake no obligation to update them, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this Item is contained in "Liquidity and Capital
Resources" in Management's Discussion and Analysis of Financial Condition and
Results of Operations reported in Item 2 of Part I of this Quarterly Report on
Form 10-Q and is incorporated herein by reference.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information presented in Note 10 of the "Notes to Condensed Consolidated
Financial Statements" is incorporated herein by reference, pursuant to Rule
12b-23.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Receivables Purchase Agreement dated as of October 13,
2000 among Sierra Bay Receivables, Inc., as Seller,
Lafarge Corporation, as Initial Servicer, Blue Ridge
Asset Funding Corporation, The Liquidity Banks From
Time To Time Party Hereto and Wachovia Bank, N.A. as
Agent.
10.2 Receivables Sale Agreement dated as of October 13,
2000 among Lafarge Corporation and Certain of Its
Subsidiaries, as Originators, and Sierra Bay
Receivables, Inc., as Buyer.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
We did not file any reports on Form 8-K during the quarterly period
ended September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LAFARGE CORPORATION
Date: November 9, 2000 By: /s/ Larry J. Waisanen
------------------------
Larry J. Waisanen
Executive Vice President
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Receivables Purchase Agreement dated as of October 13,
2000 among Sierra Bay Receivables, Inc., as Seller,
Lafarge Corporation, as Initial Servicer, Blue Ridge
Asset Funding Corporation, The Liquidity Banks From Time
To Time Party Hereto and Wachovia Bank, N.A. as Agent.
10.2 Receivables Sale Agreement dated as of October 13, 2000
among Lafarge Corporation and Certain of Its
Subsidiaries, as Originators, and Sierra Bay Receivables,
Inc., as Buyer.
27 Financial Data Schedule
</TABLE>
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