<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 June 30, 1998
COMMISSION FILE NUMBER: 1-12881
LONE STAR TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
14681 MIDWAY ROAD, SUITE 200
DALLAS, TEXAS 75244
972/386-3981
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 July 10, 1998, the number of shares of Common Stock outstanding at
$1.00 par value per share was 22,493,748.
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<PAGE>
LONE STAR TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
PAGE
<S> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Earnings. . . . . . . . . . . . . . . 3
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . .5
Notes to Consolidated Financial Statements . . . . . . . . . . . .6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . .7
Results of Operations. . . . . . . . . . . . . . . . . . . . . . .7
Financial Condition and Liquidity. . . . . . . . . . . . . . . . .8
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . .9
Item 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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 June 30, 1998 and the
cash flows and the results of operations for the three months and six months
ended June 30, 1998 and 1997. Unaudited financial statements are prepared on a
basis substantially consistent with those audited for the year ended
December 31, 1997. 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, 1997.
2
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED; IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 129.0 $ 172.3 $ 280.0 $ 331.5
Cost of goods sold (121.3) (156.0) (256.9) (300.9)
--------------------------------------------------
Gross earnings 7.7 16.3 23.1 30.6
Selling, general and (5.1) (4.6) (10.2) (9.6)
administrative expenses --------------------------------------------------
Operating earnings 2.6 11.7 12.9 21.0
Interest income 0.5 0.8 1.0 1.6
Interest expense (1.0) (2.2) (1.7) (4.3)
Other income 0.1 0.3 0.1 0.3
--------------------------------------------------
Earnings before income tax 2.2 10.6 12.3 18.6
Income tax - (0.3) (0.2) (0.5)
--------------------------------------------------
NET EARNINGS $ 2.2 $ 10.3 $ 12.1 $ 18.1
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Per common share - basic:
NET EARNINGS AVAILABLE $ 0.09 $ 0.50 $ 0.53 $ 0.87
TO COMMON SHAREHOLDERS
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Per common share - diluted:
NET EARNINGS AVAILABLE $ 0.09 $ 0.48 $ 0.52 $ 0.85
TO COMMON SHAREHOLDERS
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</TABLE>
See accompanying notes. 3
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15.9 $ 14.2
Short-term investments 5.2 6.3
Accounts receivable, net 73.1 80.1
Current inventories, net 132.9 102.1
Other current assets 5.3 4.5
-----------------------------------
TOTAL CURRENT ASSETS 232.4 207.2
Marketable securities 15.0 19.0
Property, plant and equipment, net 165.1 161.4
Other noncurrent assets 17.5 18.2
-----------------------------------
TOTAL ASSETS $ 430.0 $ 405.8
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 49.7 $ 50.1
Accrued liabilities 22.1 31.2
-----------------------------------
TOTAL CURRENT LIABILITIES 71.8 81.3
Revolving credit facility 64.0 43.0
Postretirement benefit obligations 39.9 37.8
Other noncurrent liabilities 24.7 26.0
-----------------------------------
TOTAL LIABILITIES 200.4 188.1
-----------------------------------
TOTAL SHAREHOLDERS' EQUITY 229.6 217.7
-----------------------------------
TOTAL LIABILITIES AND $ 430.0 $ 405.8
SHAREHOLDERS' EQUITY
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</TABLE>
See accompanying notes. 4
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
-----------------------------------------------
<S> <C> <C> <C> <C>
BEGINNING CASH $ 5.2 $ 2.0 $ 14.2 $ 27.3
AND CASH EQUIVALENTS
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CASH FLOWS FROM
OPERATING ACTIVITIES:
Net earnings 2.2 10.3 12.1 18.1
ADJUSTMENTS TO RECONCILE
NET EARNINGS TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 3.9 3.2 7.7 6.4
Accounts receivable, net 6.2 (6.5) 7.0 (7.6)
Current inventories (17.0) 17.3 (30.8) (8.3)
Accounts payable and
accrued liabilities 10.0 (14.6) (9.5) (4.9)
Other (3.2) (4.4) 0.2 (5.4)
-----------------------------------------------
NET CASH PROVIDED (used) 2.1 5.3 (13.3) (1.7)
BY OPERATING ACTIVITIES
-----------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (5.4) (7.6) (10.8) (10.7)
Marketable securities - 3.0 4.0 3.0
Short-term investments 1.1 9.7 1.1 13.1
-----------------------------------------------
NET CASH PROVIDED (used)
BY INVESTING ACTIVITIES (4.3) 5.1 (5.7) 5.4
-----------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net change in borrowings
under revolving credit
agreement 14.0 (3.7) 21.0 2.6
Issuance of common stock 0.1 0.5 1.2 0.9
Treasury stock purchases (1.2) - (1.5) -
Installment note repayment - - - (0.3)
Acquisition of minority
interest - - - (25.0)
-----------------------------------------------
NET CASH PROVIDED (used)
BY FINANCING ACTIVITIES 12.9 (3.2) 20.7 (21.8)
-----------------------------------------------
Net increase (decrease)
in cash and cash equivalents 10.7 7.2 1.7 (18.1)
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ENDING CASH AND CASH $ 15.9 $ 9.2 $ 15.9 $ 9.2
EQUIVALENTS
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</TABLE>
See accompanying notes. 5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - LONE STAR STEEL ("STEEL") REVOLVING CREDIT AGREEMENT
Steel has a revolving credit agreement under which it can borrow $100 million
reduced by borrowings and outstanding letters of credit. At June 30, 1998,
borrowings totaled $64.0 million with a remaining availability of $35.6 million.
Under the credit arrangement interest is payable under one of two rate options:
at the London Interbank Offered Rate (LIBOR) plus an index which is based on
quarterly debt ratio calculations or the institution's prime lending rate. At
June 30, 1998 the rate was 6.16% and was indexed at 0.50% over LIBOR. Steel
also pays a fee of 0.15% on the unused portion of the credit facility. The term
of the agreement is through October 2002 and it is collateralized by the assets
of Steel excluding real property.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock. The numbers of shares used to compute
basic earnings per share for the three months ended June 30, 1998 and 1997,
respectively, were 22.6 million and 20.7 million, and the six months ended June
30, 1998 and 1997, were 22.6 million and 20.7 million, respectively. Diluted
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock and other dilutive securities. The numbers of
shares used to compute dilutive earnings per share for the three months ended
June 30, 1998 and 1997, respectively, were 22.9 million and 21.4 million, and
the six months ended June 30, 1998 and 1997, were 23.0 million and 21.3 million,
respectively.
NOTE 3 - INVENTORIES
At June 30, 1998, inventories totaled $178.5 million before LIFO reserves and
were composed of finished goods, $57.3 million; work in process, $91.2 million;
and raw materials and supplies, $30.0 million. Net of LIFO reserves of $36.9
million, inventories were $141.6 million, of which $8.7 million (consisting of
supplies and spare parts) were classified as noncurrent assets.
NOTE 4 - CASH, INVESTMENTS, AND MARKETABLE SECURITIES
LST's cash equivalents include U. S. government and related agencies obligations
with original maturities of less than three months. Short-term investments
consist of U. S. government and related agencies obligations with maturities at
purchase greater than three months and up to one year. Marketable securities
consist of U. S. government and related agencies obligations with maturities at
purchase greater than one year and up to two years. LST's total cash
equivalents, short-term investments and marketable securities, the weighted
average maturity of which is less than one year, are classified as
held-to-maturity because LST has the intent and ability to hold them to
maturity.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Steel has various commitments for the purchase of raw materials, supplies,
services, and energy arising in the ordinary course of business. The majority
of these commitments are for a period of less than one year.
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 is engaged in various ongoing
environmental studies, monitoring programs, and capital projects. Steel
believes that its environmental expenditures will continue to fall within its
contemplated operating and capital plans.
NOTE 6 - INCOME TAXES
LST had federal tax net operating loss carryforwards of approximately $223.1
million at December 31, 1997, a portion of which may be related to American
Federal Bank (AFB), a previous subsidiary of LST, and subject to an agreement
with the Federal Deposit Insurance Corporation (FDIC) whereby LST may be
required to pay the FDIC for certain tax benefits. A provision for alternative
minimum tax of $0.2 million has been recognized for the six months ended
June 30, 1998. No other provision for tax has been recognized because LST
anticipates utilizing net operating loss carryforwards in 1998 to offset taxes.
If not utilized, the net operating loss carryforwards will expire between years
2002 and 2010.
6
<PAGE>
NOTE 7 - RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
LST has adopted SFAS No. 130, "Reporting Comprehensive Income", as of January
1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as the total of net
income and all other non-owner changes in equity. LST did not realize any
non-owner changes in equity for the three months and six months ended June
30, 1998. Therefore, total comprehensive income for the quarter ended and six
months ended June 30, 1998 is equal to net income. However, LST has
postretirement benefit obligations including pension liabilities, for which
the company has a minimum pension liability. Adjustments to the minimum
pension liability and any other non-owner changes will be reflected in
comprehensive income and cumulative comprehensive income that will be
reported in a consolidated statement of shareholders' equity in LST's Form
10-K.
LST has adopted SFAS No. 131, "Disclosure about Segments of An Enterprise and
Related Information", as of January 1, 1998. This pronouncement changes the
requirements under which public businesses must report segment information. The
objective of the pronouncement is to provide information about a company's
different types of business activities and different economic environments.
SFAS No. 131 requires companies to select segments based on their internal
reporting system. LST's current segments, as reported herein, are consistent
with the company's internal reporting systems. As required by SFAS No. 131,
compliance with the respective reporting requirements will be reflected in LST's
1998 Form 10-K.
LST has adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," as of January 1, 1998. This pronouncement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans, however, it does
require additional information on changes in the benefit obligations and fair
values of plan assets in order to facilitate financial analysis. LST will
present revised disclosures related to its benefit plans in its Form 10-K for
the year ended December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Lone Star Technologies, Inc. (LST) is a management and holding company whose
principal operating subsidiary, Lone Star Steel Company (Steel), manufactures
and globally markets oilfield products consisting of casing, tubing and line
pipe to the oil and gas drilling industry, specialty tubing products to
automotive, fluid power, and other markets for various mechanical applications,
and flat rolled steel and other tubular products to domestic industrial markets.
RESULTS OF OPERATIONS
Second quarter 1998 revenues totaled $129.0 million, down 25% from the second
quarter of 1997. Revenues comprised $80.1 million from oilfield products, $32.2
million from specialty tubing products, and $16.7 million from flat rolled steel
and other tubular products. Oilfield and flat rolled steel and other tubular
products revenues decreased 34% and 5%, respectively, compared to the same 1997
second quarter, while revenues from specialty tubing products were flat relative
to the second quarter of 1997.
Revenues for the first six months of 1998 of $280.0 million were 16% lower than
the same 1997 period. Oilfield and flat rolled steel and other tubular products
revenues declined 22% and 9%, respectively, while revenues from specialty tubing
products increased 4%.
1998 second quarter shipments decreased 23% from the same period in 1997 to
191,200 tons and consisted of 115,900 tons of oilfield products, 29,300 tons of
specialty tubing products and 46,000 tons of flat rolled steel and other tubular
products. Oilfield, specialty tubing, and flat rolled steel and other tubular
products shipments decreased 32%, 3% and 5%, respectively, from the three months
ended June 30, 1997.
7
<PAGE>
First half 1998 shipments decreased 17% from the first six months of 1997.
Oilfield and flat rolled steel and other tubular products shipments decreased
22% and 10%, respectively, while shipments of specialty tubing products rose 2%.
Consolidated revenues reported in the statements of earnings are as follows:
<TABLE>
<CAPTION>
($ in millions)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1998 % 1997 % 1998 % 1997 %
---- -- ---- -- ---- -- ---- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oilfield products
revenues 80.1 62 122.3 71 178.9 64 229.4 69
Specialty tubing
products revenues 32.2 25 32.4 19 67.6 24 65.2 20
Flat rolled steel and
other tubular revenues 16.7 13 17.6 10 33.5 12 36.9 11
---- -- ---- -- ---- -- ---- --
Consolidated net
revenues 129.0 100 172.3 100 280.0 100 331.5 100
---- -- ---- -- ---- -- ---- --
---- -- ---- -- ---- -- ---- --
Shipments of products by segment are as follows:
(in tons)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1998 % 1997 % 1998 % 1997 %
---- -- ---- -- ---- -- ---- --
Oilfield products 115,900 61 170,800 69 251,400 62 323,100 67
Specialty tubing
products 29,300 15 30,100 12 61,400 15 60,300 12
Flat rolled steel and
other tubular products 46,000 24 48,400 19 90,800 23 100,400 21
------- --- ------- --- ------- --- ------- ---
Total tons shipped 191,200 100 249,300 100 403,600 100 483,800 100
------- --- ------- --- ------- --- ------- ---
------- --- ------- --- ------- --- ------- ---
</TABLE>
Decreased oilfield products revenues resulted from lower shipments and product
prices due to reduced drilling activity attributable to depressed oil prices.
Specialty tubing revenues were flat due to marginally lower volumes coupled with
slightly higher prices. Reduced volumes were attributable to soft demand from
steel service centers and reduced automotive demand. Revenues for flat rolled
steel and other tubular products were down due to decreased shipment volumes.
Gross earnings for the three months ended June 30, 1998 were down 53% to $7.7
million from the same 1997 period. Operating earnings for the second quarter of
1998 decreased 78% to $2.6 million from $11.7 million for the second quarter of
1997. Gross earnings and operating earnings were down due to lower shipment
volumes in LST's three business segments, particularly oilfield products,
combined with reduced prices for oilfield products.
Net earnings for the second quarter of 1998 of $2.2 million, or $.09 per diluted
share, were down from $10.3 million in the same period in 1997. Net earnings
decreased as gross margins contracted from 9.5% to 6% for the 1998 second
quarter. Also, interest expense reduced to $1.0 million from $2.2 million due
to conversion of LST's $50 million convertible subordinated debentures in the
third quarter of 1997 and lower interest rates on Steel's revolving credit
facility.
Net current inventories increased 30% from December 31, 1997 due to reduced
shipments of oilfield products attributable to a decline in exploration and
production programs and excess distributor inventory levels.
FINANCIAL CONDITION AND LIQUIDITY
LST has no direct business operations other than Steel or significant sources of
cash other than from investments or the sale of securities. Steel may pay
dividends to LST provided it meets certain covenants of its revolving credit
facility. LST is reimbursed by Steel for its operating costs as provided by its
cost-sharing agreement with Steel.
8
<PAGE>
At June 30, 1998, LST had available cash and cash equivalents, short-term
investments, and marketable securities of $36.1 million, down from $39.5 million
at December 31, 1997, primarily due to purchases of slabs for use by Steel. LST
has no immediate cash requirements as Steel reimburses LST for those expenses
incurred for Steel's benefit under a cost sharing plan. LST has no debt.
Steel requires capital primarily to fund general working capital needs and
capital expenditures. Principal sources of funds include cash generated by
operations and borrowings.
Steel has a revolving credit agreement under which it can borrow $100 million
reduced by borrowings and outstanding letters of credit. At June 30, 1998,
borrowings totaled $64.0 million with a remaining availability of $35.6 million.
Under the credit arrangement interest is payable under one of two rate options:
at the London Interbank Offered Rate (LIBOR) plus an index which is based on
quarterly debt ratio calculations or the institution's prime lending rate. At
June 30, 1998 the rate was 6.16% and was indexed at 0.50% over LIBOR. Steel
also pays a fee of 0.15% on the unused portion of the credit facility. The term
of the agreement is through October 2002 and it is collateralized by the assets
of Steel excluding real property.
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 its environmental expenditures will
continue to fall within its contemplated operating and capital plans.
Steel believes that funds generated by operations and its borrowing capacity
under the revolving credit agreement will provide the liquidity necessary to
fund its cash requirements for the remainder of 1998.
LST and Steel have completed an assessment of certain year 2000 issues on
various computer related systems and have an implementation plan for corrective
actions. Corrective actions are estimated to cost $1 - $1.5 million in 1998 and
are being funded primarily from ongoing computer systems operating budgets. LST
and Steel are in the process of conducting an additional assessment of certain
year 2000 issues on Steel's manufacturing equipment, time based operating
equipment, and significant suppliers, which will be completed by the end of
1998. At June 30, 1998, LST and Steel are on schedule to complete required
corrective actions by year 2000 on various computer related systems,
manufacturing equipment and time based operating equipment and have begun
discussions with significant suppliers regarding their year 2000 issues.
The matters discussed or incorporated by reference in this report on Form 10-Q
that are forward-looking statements involve risks and uncertainties including,
but not limited to, economic conditions, product demand, the regulatory and
trade environment, and other risks indicated in other filings with the
Securities and Exchange Commission.
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
The 1998 Annual Meeting of Shareholders of the registrant was held on May 14,
1998. At that meeting, three proposals were voted on: the election of four
directors, the adoption of amendments to the 1985 Long-Term Incentive Plan, and
the adoption of an amendment to the Certificate of Incorporation to increase the
authorized Common Stock from 40,000,000 shares to 80,000,000 shares. Rhys J.
Best, Charles L. Blackburn, James E. McCormick and Thomas M. Mercer, Jr. were
elected directors of the registrant and received affirmative votes of
20,089,833; 20,094,903; 20,095,173; and 20,095,285; respectively; and negative
votes of 100,767; 95,697; 95,427; and 95,315; respectively. The amendments to
the Plan were approved by an affirmative vote of 18,824,052, with 1,318,061
shares voted against and 48,487 shares abstaining. The amendment to the
Certificate of Incorporation was approved by an affirmative vote of 18,925,797,
with 1,208,660 shares voted against and 56,142 shares abstaining.
9
<PAGE>
ITEM 5. OTHER INFORMATION
- ---------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits:
No. 3.4 Certificate of Amendment to Certificate of Incorporation dated
May 20, 1998.
No. 10.1(b) Amendments to the 1985 Long-Term Incentive Plan adopted on
May 14, 1998.
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/ Charles J. Keszler
----------------------------
(Charles J. Keszler)
Vice President - Finance
Dated: July 15, 1998
10
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
LONE STAR TECHNOLOGIES, INC.
LONE STAR TECHNOLOGIES, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
The amendment to the Corporation's Certificate of Incorporation set
forth in the following resolution was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware:
RESOLVED, that the first sentence of Article Fourth of the Certificate
of Incorporation, as amended, of Lone Star Technologies, Inc. be amended in
its entirety to read as follows:
The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is 90,000,000, consisting of 80,000,000
shares of common stock, with a par value of $1.00 per share ("Common
Stock"), and 10,000,000 shares of preferred stock, with a par value of
$1.00 per share ("Preferred Stock").
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers, this 20th day of May, 1998.
LONE STAR TECHNOLOGIES, INC.
By: /s/ John P. Harbin
------------------
John P. Harbin,
Chairman of the Board
and Chief Executive Officer
ATTEST:
/s/ Robert F. Spears
--------------------
Robert F. Spears, Secretary
<PAGE>
EXHIBIT 10.1(b)
LONE STAR TECHNOLOGIES, INC.
AMENDMENTS TO THE
1985 LONG-TERM INCENTIVE PLAN (THE "PLAN")
APPROVED BY BOARD OF DIRECTORS ON FEBRUARY 19, 1998
AND SHAREHOLDERS ON MAY 14, 1998
Section 8 of the Plan is amended and restated to read in its entirety as
follows (the new language in the amended and restated Section 8 is in bold
type):
"Non-executive directors shall not be eligible to participate in the Plan
beyond the granting of Options; further, not more than 750,000 shares of Common
Stock may be issued under Options awarded to non-executive directors. Only
shares of Common Stock issued upon exercise of Options which, when granted, were
granted to individuals who were at the time non-executive directors shall be
deemed "issued under Options awarded to non-executive directors". Shares issued
to non-executive directors under Options granted when they were participants
shall not count towards the 750,000 share limitation provided in this Section.
Outstanding Options in effect immediately prior to the Company's annual
shareholders meeting in 1993 to non-executive directors shall remain in effect
according to their terms and as the same may be amended as contemplated under
Section 18 hereof. Beginning with the year 1993, AND CONTINUING WITH THE YEARS
1995 AND 1997, AND ENDING WITH THE YEAR 1997, on the first business day after
the Company's annual shareholders meeting each such year, each non-executive
director in office at such time shall receive automatically, by virtue of this
Plan, the award and grant of an Option for 25,000 shares of Common Stock.
BEGINNING WITH THE YEAR 1998, AND EVERY YEAR THEREAFTER, ON THE FIRST BUSINESS
DAY AFTER THE COMPANY'S ANNUAL SHAREHOLDERS MEETING EACH SUCH YEAR, EACH
NON-EXECUTIVE DIRECTOR IN OFFICE AT SUCH TIME SHALL RECEIVE AUTOMATICALLY, BY
VIRTUE OF THIS PLAN, THE AWARD AND GRANT OF AN OPTION FOR 12,500 SHARES OF
COMMON STOCK. All Options awarded to non-executive directors shall be
non-qualified stock Options, and each such Option granted pursuant to the terms
of the TWO foregoing sentences shall become exercisable for up to 25% of the
total number of shares of Common Stock into which the Option may be exercised on
and after the first anniversary of the date of the award, for up to 25% more
(i.e. in total 50%) of those total shares on and after the second anniversary,
for up to 25% more (i.e. in total 75%) of those total shares on and after the
third anniversary and for up to 100% of those total shares (i.e. all the shares
into which the Option may be exercised) on and after the fourth anniversary of
the date of the Option award (each such Option to the extent exercisable may be
exercised in full or in part at any time for the shares under the Option), at
all times subject
<PAGE>
to the terms of Section 10 regarding the continued right to exercise under
certain circumstances."
Section 15 of the Plan is amended to read in its entirety as follows:
"SECTION 15. CHANGE IN CONTROL.
Notwithstanding any other provision in this Plan:
(a)(i) If a participant's employment by the Company or a subsidiary is
involuntarily terminated without Cause or is voluntarily terminated with
Good Reason within two years after the occurrence of a Change in Control of
the Company, or (ii) if a participant's employer ceases to be a subsidiary
of the Company and that participant does not immediately thereafter become
an employee of the Company or another subsidiary:
(A) each Option (including any stock appreciation rights) held by
that participant shall become fully exercisable for up to 100% of the
unexercised shares under the Option and that participant shall be
entitled within six months (or any later period applicable under
paragraph (c) of Section 10) following the date of the termination of
his employment or the date on which his employer ceases to be a
subsidiary (but not more than ten years from the date the Option was
granted) to exercise the Option to the full extent the Option is
exercisable;
(B) the restrictions applicable to any restricted stock awarded to
that participant shall lapse and such restricted stock shall become
fully vested and transferable to the full extent of the original
grant; and
(C) any performance units awarded to that participant shall be
considered to be earned and payable in full.
(b) If a non-executive director of the Company is removed from the Board
of Directors of the Company without Cause or he ceases to be a director of
the Company as a result of a failure to be reelected or to be nominated for
reelection without Cause, in either event within two years after a Change
in Control of the Company, each Option held by that non-executive director
shall become fully exercisable for up to 100% of the unexercised shares
under the Option and that non-executive director shall be entitled within
six months (or any later period applicable under paragraph (c) of Section
10) following the date of the termination of his directorship (but not more
than ten years from the date the Option was granted) to exercise the Option
to the full extent the Option is exercisable.
2
<PAGE>
(c) (i) On the record date for the determination of shareholders of the
Company to vote on a merger, consolidation, sale of assets or other
transaction in which the Company's shareholders would not receive any
voting common stock of the proposed successor to the Company or (ii) upon
the occurrence of a Change in Control that is the first step in an attempt
to acquire all of the stock or assets of the Company and the contemplated
second step is a transaction described in clause (i):
(A) each outstanding Option shall become fully exercisable for up
to 100% of the unexercised shares under the Option;
(B) the restrictions applicable to each outstanding share of
restricted stock shall lapse and such restricted stock shall become
fully vested and transferable to the full extent of the original
grant; and
(C) each outstanding performance unit shall be considered to be
earned and payable in full.
(d) "Cause" for termination of a participant's employment means his
illegal conduct or gross misconduct that in either case is willful and
results in material damage to his employer's business or reputation or his
willful failure or refusal to perform his duties or obligations to his
employer or to comply in all material respects with the lawful directives
of his employer's Chief Executive Officer or Board of Directors, provided
that the participant has received written notice from his employer stating
the nature of such failure or refusal and has reasonable opportunity to
correct the stated deficiency.
(e) "Cause" for termination of a non-executive director's directorship
means his illegal conduct or gross misconduct that in either case is
willful and results in material damage to the Company's business or
reputation or his willful failure or refusal to perform his duties or
obligations to the Company.
(f) "Change in Control" means with respect to the Company any of the
following:
(i) any event affecting the Company that would be required to be
reported by a reporting company as a change in control pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act");
(ii) any "person" (as that term is used in Section 13(d) of the
Exchange Act) becomes the "beneficial owner" (as defined by Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company
3
<PAGE>
representing more than 50% of either the then outstanding shares of
the Company's Common Stock or the combined voting power of the
Company's then outstanding securities;
(iii) at any time during any twenty-four month period, the
individuals who were serving on the Board of Directors of the Company
at the beginning of that period or who were nominated for election or
were elected to that Board during that period by a vote of at least
two-thirds of such individuals still in office shall cease to
constitute a majority of that Board;
(iv) any merger or consolidation of the Company with any other
corporation or any sale of all or substantially all of the assets of
the Company, other than a merger, consolidation or sale that results
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent more than 50% of the combined voting
power of the voting securities of the Company or the surviving entity
or any parent thereof outstanding immediately thereafter; or
(v) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
(g) "Good Reason" with respect to the voluntary termination of a
participant's employment means the occurrence, after a Change in Control,
of (i) any adverse change in his status, position, authority or
responsibilities, (ii) a reduction in his compensation, or (iii) any
material change in his employment location.
(h) This Section 15, as amended, shall apply to all Options, stock
appreciation rights, restricted stock and performance units awarded on or
after February 19, 1998 and shall also apply to each Option granted prior
to that date if the optionee elects to have this Section 15, as amended,
apply to his Options and gives written notice of that election to the
Secretary of the Company no later than July 31, 1998."
4
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 16
<SECURITIES> 20
<RECEIVABLES> 74
<ALLOWANCES> 1
<INVENTORY> 133
<CURRENT-ASSETS> 232
<PP&E> 353
<DEPRECIATION> 188
<TOTAL-ASSETS> 430
<CURRENT-LIABILITIES> 72
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 208
<TOTAL-LIABILITY-AND-EQUITY> 430
<SALES> 280
<TOTAL-REVENUES> 280
<CGS> 257
<TOTAL-COSTS> 267
<OTHER-EXPENSES> 10
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 12
<INCOME-TAX> 0
<INCOME-CONTINUING> 12
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12
<EPS-PRIMARY> .53
<EPS-DILUTED> .52
</TABLE>
