<PAGE>
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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 quarter ended March 31, 1995
COMMISSION FILE NUMBER: 0-14404
LONE STAR TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
5501 LBJ FREEWAY, SUITE 1200
DALLAS, TEXAS 75240
214/386-3981
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 75-2085454
Indicate by a 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, and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__. No _____.
As of April 17, 1995, the number of shares of Common Stock outstanding at
$1.00 par value was 20,413,570.
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<PAGE>
LONE STAR TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Page
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Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings. . . . . . . . . . . . . . . . . 4
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . 7
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . 7
Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 6. REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . 8
In the opinion of management, the unaudited consolidated financial statements
include all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position as of March 31, 1995 and the
cash flows and the results of operations for the three months ended March 31,
1995 and 1994. Unaudited financial statements are prepared on a basis
substantially consistent with those audited for the year ended December 31,
1994. The results of operations for the interim periods presented may not be
indicative of total results for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations promulgated by the Securities and Exchange
Commission. However, management believes that the disclosures contained herein
are adequate to make the information presented not misleading. The unaudited
financial statements should be read in conjunction with the audited financial
statements and accompanying notes in Lone Star Technologies, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1994.
2
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
1995 1994
-------------------
<S> <C> <C>
Beginning cash and cash equivalents $ 41.8 $140.4
--------------------
Cash flows from operating activities:
Earnings (loss) before income tax 1.5 (2.6)
Minority interest in Steel operations 0.2 (0.6)
Depreciation and amortization 2.8 2.8
Accounts receivable 8.4 (3.8)
Inventories (12.3) 2.1
Accounts payable and accrued liabilities 3.9 (7.3)
Other assets and liabilities (0.2) (0.3)
--------------------
Net cash provided (used) by operating activities 4.3 (9.7)
--------------------
Cash flows from investing activities:
Capital expenditures (3.6) (1.3)
Short-term investments (4.6) 0.0
--------------------
Net cash used by investing activities (8.2) (1.3)
--------------------
Cash flows from financing activities:
Net change in borrowings under revolving
credit agreement 0.2 12.2
Redemption of Series A Preferred stock - (51.7)
Installment note repayment (0.3) (0.3)
Minority interest contribution 0.4 -
Stock issuance - 0.1
--------------------
Net cash provided (used) by financing activities 0.3 (39.7)
--------------------
Net decrease in cash and cash equivalents (3.6) (50.7)
--------------------
Ending cash and cash equivalents $ 38.2 $89.7
--------------------
--------------------
</TABLE>
See accompanying notes. 3
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; in millions, except share data)
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
1995 1994
----------------------
<S> <C> <C>
Net revenues $97.0 $81.1
Cost of goods sold (91.0) (79.5)
----------------------
Gross earnings 6.0 1.6
Selling, general and administrative expenses (3.6) (3.9)
----------------------
Operating earnings (loss) 2.4 (2.3)
Interest income 1.4 1.1
Interest expense (2.1) (2.0)
Minority interest in Steel (0.2) 0.6
----------------------
Earnings (loss) before income tax 1.5 (2.6)
Income tax - -
----------------------
Net earnings (loss) 1.5 (2.6)
----------------------
----------------------
Per common share:
Net earnings (loss) 0.07 (0.13)
Adjustment for redemption of Series A Preferred stock - (0.10)
Net earnings (loss) available to common shareholders $0.07 $(0.23)
----------------------
----------------------
</TABLE>
See accompanying notes. 4
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $38.2 $41.8
Short-term investments 45.6 41.0
Accounts receivable, net 46.5 54.9
Inventories, net 53.7 41.4
Other current assets 2.0 1.7
--------------------
Total current assets 186.0 180.8
Property, plant and equipment, net 131.5 130.7
Other noncurrent assets 34.2 34.2
---------------------
Total assets $351.7 $345.7
-----------------------
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable $37.4 $31.2
Accrued liabilities 18.7 21.0
Current portion of long-term debt 40.5 1.2
---------------------
Total current liabilities 96.6 53.4
Long-term debt 50.0 90.6
Other noncurrent liabilities 93.1 91.8
Minority interest in Steel 14.4 13.8
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Total liabilities 254.1 249.6
----------------------
Total shareholders' equity 97.6 96.1
---------------------
Total liabilities and shareholders' equity $351.7 $345.7
-----------------------
-----------------------
</TABLE>
See accompanying notes. 5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - LONE STAR STEEL ("STEEL") REVOLVING CREDIT AGREEMENT
Steel, a subsidiary of LST, has a revolving credit agreement under which it can
borrow the lesser of $65.0 million or an amount based upon eligible accounts
receivable and inventories which secure the borrowings. At March 31, 1995,
borrowings totaled $39.3 million on an available borrowing base of $61.0
million. The interest rate on borrowings was prime plus 1.75 percent which, at
quarter end, was 10.75 percent. Steel also pays a fee of 0.5 percent on the
unused portion of the credit facility. The three-year agreement, entered into
in March, 1993, contains various restrictive covenants, including requirements
to maintain certain financial ratios. It will expire within twelve months;
therefore, the borrowings are classified as current liabilities and are included
in "current portion of long-term debt." Steel intends to negotiate a new
borrowing facility prior to expiration of the current agreement.
NOTE 2 - EARNINGS PER SHARE
The computation of primary earnings per share is based on the weighted average
number of shares of common stock and common stock equivalents, including
exercisable stock options assumed to be outstanding during the first quarter of
1995 and 1994. The numbers of shares used in the share calculations for the
three months ended March 31, 1995 and 1994, respectively, were 20.5 million and
20.4 million. The effect of potentially dilutive shares on fully diluted
earnings per share was either antidilutive or not significant for both periods.
NOTE 3 - INVENTORIES
At March 31, 1995, inventories totaled $107.1 million before LIFO reserves and
were composed of finished goods, $43.1 million; work in process, $34.2 million;
and, raw materials and supplies, $29.8 million. Net of LIFO reserves of $43.2
million, inventories were $63.9 million, of which $10.2 million (consisting of
supplies and spare parts) were classified as noncurrent assets.
NOTE 4 - MARKETABLE DEBT SECURITIES
Lone Star Technologies, Inc.'s ("LST") cash equivalents include U. S.
Government debt obligations and corporate debt obligations rated A-1/P-1 or
higher with original maturities of less than 90 days. Short-term investments
consist of U.S. Government debt obligations with original maturities of up to
one year. Both are classified as held-to-maturity because LST has the intent
and ability to hold them to maturity. At March 31, 1995, LST's carrying
amounts of cash equivalents and short-term investments approximated market
value. At March 31, 1995, investments in debt securities at amortized cost
consisted of $82.3 million in U. S. Government debt obligations and $1.5
million in corporate debt obligations.
NOTE 5 - REDEMPTION OF PREFERRED STOCK
In February, 1994, LST paid $51.7 million to redeem its Series A preferred stock
which was recorded on the books at $49.6 million, and to extinguish the $18.8
million in related dividend obligations. Earnings per share in the first
quarter of 1994 were adjusted downward by $0.10 to reflect the $2.1 million
difference between the amount paid and the carrying amount of the preferred
stock.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
As a steel facility, Steel's operations are subject to numerous environmental
laws. The three major areas of regulation are air quality, water quality, and
solid and hazardous waste management. The primary governmental oversight
agencies include the Texas Natural Resource Conservation Commission and the
Environmental Protection Agency. Steel has agreements with these agencies to
conduct numerous environmental studies and to develop plans to ensure continuous
compliance with applicable laws and regulations. Steel believes that costs of
maintaining compliance with environmental requirements will fall within
contemplated operating and capital expenditure plans.
NOTE 7 - INCOME TAXES
LST has federal tax net operating loss carryforwards of approximately $271
million; therefore, no provision for tax on current earnings has been
recognized.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Steel, LST's operating subsidiary, serves two business segments: oilfield
products and services, comprised of casing, tubing, and line pipe, are
manufactured and marketed globally to the oil and gas drilling industry; and,
industrial products consist of specialty tubing and flat rolled steel which are
provided to general industrial markets.
RESULTS OF OPERATIONS
First quarter 1995 revenues of $97.0 million increased 19.6 percent from $81.1
million in the 1994 first quarter. Oilfield products revenues of $57.8 million
in the 1995 quarter were up nearly 18 percent compared to the same year-ago
period and industrial products revenues improved more than 22 percent to $32.9
million. Unit volume accounted for three-fourths of the increase, with the
remainder attributable to price.
Gross earnings of $6.0 million in the 1995 first quarter improved from $1.6
million, primarily due to price increases in Steel's finished products which, in
addition to an 8 percent reduction in selling, general, and administrative
expenses, resulted in operating earnings of $2.4 million compared to losses of
$2.3 million in the first quarter of 1994. Interest income and interest expense
were up slightly due to increased rates. Minority interest in Steel reflects
participation of the minority ownership in Steel's results.
Net earnings for the first quarter of 1995 were $1.5 million, or $0.07 per
share, compared to net losses of $2.6 million, or $0.23 per share in the same
1994 quarter. The 1994 loss per share includes a downward adjustment of $0.10
to reflect the amount paid in excess of the carrying value to redeem the
preferred stock. Because LST has net operating loss carryforwards of
approximately $270 million, no provision for tax on current earnings has been
recognized.
FINANCIAL CONDITION
LST has no direct business operations other than Steel or significant sources of
cash other than from temporary investments or the sale of securities. Steel is
restricted from paying dividends under the terms of its revolving credit
agreement; however, LST is reimbursed by Steel for a portion of its operating
costs as provided under the terms of a cost sharing agreement.
In November, 1994, LST and certain minority shareholders of Steel agreed to fund
up to $23 million for a capital expenditure program. The program began in
January, 1995, and is scheduled to be completed in mid-1996. Steel issues 6
percent cumulative convertible preferred stock to its participating shareholders
as funds are advanced to finance the program. LST's participation in the
program amounts to 89.753 percent and, in the first quarter, advances from LST
amounted to $3.1 million.
The Steel preferred stock issued to LST and the other participating shareholders
has a designated value equal to the amount of the funds advanced, pays quarterly
dividends on that value, and requires its mandatory redemption by Steel, unless
earlier redeemed or converted, on January 3, 2002, in cash, at the designated
value plus any unpaid dividends. Prior to redemption of the stock, dividends
may be paid in cash, although currently prohibited by the terms of the revolving
credit agreement, or in additional preferred shares. The stock is convertible
into Steel common stock prior to redemption at the rate of one share of common
stock for each $10,000 of designated value (subject to anti-dilution
provisions).
LST periodically purchases steel slabs which are consigned to Steel to be used
in its production of tubular products. Steel pays LST as the slabs are used or
within ninety days, whichever occurs first. This program's structure is
consistent with those previously established with third parties. In the first
quarter of 1995, LST's slab purchases amounted to approximately $10.3 million.
7
<PAGE>
Intercompany transactions related to advances for the capital expenditure
program and the slab consignment program are eliminated in consolidation.
At March 31, 1995, LST had available cash and short-term investments of $83.8
million. Cash requirements for LST as a holding company include a minimal level
of general and administrative expenses and annual interest payments of $4.0
million on the outstanding $50 million convertible subordinated debentures due
2002.
Steel requires capital primarily to fund general working capital needs and
capital expenditures. Sources of funds include borrowings, cash generated by
operations, and equity financing. In the quarter ended March 31, 1995, capital
expenditures amounted to $3.6 million and depreciation amounted to $2.7 million.
Steel has a revolving credit agreement under which it can borrow the lesser of
$65.0 million or an amount based upon eligible accounts receivable and
inventories which secure the borrowings. At March 31, 1995, borrowings totaled
$39.3 million on an available borrowing base of $61.0 million. The interest
rate on borrowings was prime plus 1.75 percent which, at quarter end, was 10.75
percent. Steel also pays a fee of 0.5 percent on the unused portion of the
credit facility. The three-year agreement, entered into in March, 1993,
contains various restrictive covenants, including requirements to maintain
certain financial ratios. It will expire within twelve months; therefore, the
borrowings are classified as current liabilities and are included in "current
portion of long-term debt." Steel intends to negotiate a new borrowing facility
prior to expiration of the current agreement.
As a steel facility, Steel's operations are subject to numerous environmental
laws. The three major areas of regulation are air quality, water quality, and
solid and hazardous waste management. Steel believes that costs of maintaining
compliance with environmental requirements will fall within contemplated
operating and capital expenditure plans.
Steel believes that funds generated by operations, its borrowing capacity under
the revolving credit agreement, and capital contributions from its shareholders
will provide the liquidity necessary to fund its cash requirements in 1995.
Adequate liquidity in the longer term is dependent on a recovery in the energy
sector and/or Steel's ability to obtain raw materials at lower cost which will
be necessary for Steel to achieve a meaningful improvement in profitability.
PART II. - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: No. 27 Financial Data Schedule
(b) Reports on Form 8-K: none
SIGNATURES
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.
LONE STAR TECHNOLOGIES, INC.
By: /s/ Judith A. Murrell
-------------------------------------
(Judith A. Murrell)
Vice President - Corporate Relations,
Dated: April 21, 1995 Principal Accounting Officer, and Treasurer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 38
<SECURITIES> 46
<RECEIVABLES> 48
<ALLOWANCES> (2)
<INVENTORY> 54
<CURRENT-ASSETS> 186
<PP&E> 285
<DEPRECIATION> (153)
<TOTAL-ASSETS> 352
<CURRENT-LIABILITIES> 97
<BONDS> 50
<COMMON> 20
0
0
<OTHER-SE> 78
<TOTAL-LIABILITY-AND-EQUITY> 352
<SALES> 97
<TOTAL-REVENUES> 97
<CGS> (91)
<TOTAL-COSTS> (91)
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2)
<INCOME-PRETAX> 2
<INCOME-TAX> 0
<INCOME-CONTINUING> 2
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
